Conviviality's spreadsheet hell sinks the business

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It all started with a spreadsheet error. Conviviality, one of the UK’s largest drinks wholesalers, is heading into administration after an emergency share issue failed to raise the £125m it needed. 

The business has been in a death spiral since the beginning of March, when the retailer said its adjusted EBITDA would be 20% lower than the £70m market expectation. The company later confirmed an expected range of adjusted EBITDA of £55.3m - £56.4m.

£5.2m of that £14m came thanks to “a material error in the financial forecasts”. The error, it later admitted, was “a spreadsheet arithmetic error”. The tumult didn’t end there, though. Days later, Conviviality announced it hadn’t budgeted for a £30m tax bill, due at the end of March.

The two profit shocks prompted a free fall which wiped out 60% of Conviviality’s share value before trading was suspended by AIM on the 14th of March.

The wholesale division of Conviviality is now being bought by C&C, the owners of Magners, in a pre-pack administration.

The sudden decline of Conviviality’s share price. (via the London Stock Exchange)

Diana Hunter, the company’s CEO, fell on her sword. For Mark Moran, the CFO, it’s likely been a tough few weeks. AccountingWEB reached out to Conviviality and Moran, but both declined to comment.

Moran only joined Conviviality in October last year. “These things have their own momentum,” said Chas Howes, former CFO of SuperDry. Howes experienced a difficult 2012 with SuperDry when the fashion retailer had to issue a series of profit warnings after forecast errors.

"You’ve got no time to think it through. You're under immense pressure with only 24 hours to notify the stock exchange and shareholders. The statement that you put out has to be very carefully worded.” The CFO, Howes told AccountingWEB, has no opportunity to present their side of the story.

Spreadsheet errors are a familiar sight for AccountingWEB readers, with Marks & Spencer, the West Coast Main Line rail franchise and support services firm Mouchel all suffering similar tales of woe. These errors are “like dominos”, said Simon Thorne, “once the initial mistake is made, it's only a matter of time until other problems come to the surface.”

Thorne is a senior lecturer in computing and information systems and his PhD thesis focussed on the risks posed by spreadsheets to organisations. He’s also a member of the European Spreadsheet Risks Interest Group’s (EuSpRig) management committee.

“These mistakes are really common and it really comes down to poor management when considering the validity of the basic work. If there had been testing or planning, it's likely that the mistake would have been seen before this point.”

Thorne’s EuSpRig colleague, Patrick O’Beirne agreed. He told AccountingWEB: “It's because people don't actually test their spreadsheets but accept an answer if it looks like what they expect or want.”

EuSpRig aren’t anti-spreadsheet, they’re anti-misusing them. The organisation’s website has an exhaustive list of best practices you can use to improve your spreadsheet use.

Howes also remains a strong advocate for spreadsheets. “It’s a phenomenally strong tool,” he said. “But you have to build safeguards into it. I would always have a separate tab with nothing but checks and balances. Using conditional formatting to flag up errors or where the figures don’t balance. If it wasn’t, I’d spend time figuring it out why and not publishing anything before it was resolved.”

Conviviality’s story is about more than just spreadsheets, though. Under the CEO Diana Hunter’s leadership, the company completed three acquisition in the space of a year, more than doubling sales and profits.

“It’s very hard to integrate everything without things falling through the cracks,” said Howes, a point confirmed by Stewart Roberts, executive vice president of fast-growing fintech firm iZettle, in a 2016 interview with AccountingWEB.

“If not managed correctly rapid growth can lead to financial, quality and reputational risks that may bankrupt the business,” said Roberts.

Conviviality’s growth, it seems, just wasn’t sustainable.

 

*This story has been amended to reflect Conviviality's acquisition by Magners. 

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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04th Apr 2018 12:07

Is this the reason why HMRC would prefer no spreadsheets for MTD?

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to Jennifer Adams
04th Apr 2018 13:04

But that would mean HMRC were farsighted and knew what they were doing. Surely not!

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04th Apr 2018 16:14

I find it almost laughable that things get to this point before a simple spreadsheet error is discovered. In my time I've taken over from a (much more highly qualified) management accountant, to find she'd been presenting a monthly pack to the board of directors, in which she'd (in error) copied and pasted data in a couple of pages, rather than formulas for some months, without noticing or checking. In the same office, I found another accountant used to type in the figures they wanted when reconciling various accounts. Bonkers.

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04th Apr 2018 17:07

Francois they have been saved I am led to believe.

I think "spreadsheet error" is the new phrase to describe fiddling your accounts to make them look better, ( ie adjusting stock upward or creditors downwards) in the hope that business will pick up before anyone notices.

I suspect the WIP calculations in Carrillions last audit look pretty optimistic now with the benefit of hindsight.

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to Glennzy
05th Apr 2018 10:00

Spot on, Glenn. Amended the piece there now.

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04th Apr 2018 18:23

C&C look likely to buy the wholesale side (Matthew Clark and Bibendum), which is some good news for employees.

Some warning signs were there with the benefit of hindsight. A company that was acquisition hungry but with a board that were reluctant to set up an internal audit function seems risky....

What I'm shocked most at is the unexpected tax bill, which seems to have been a much bigger problem for them then the forecast error.

I'd be really interested to know how this occurred as their is scant detail on this in the press....

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to Neophyte
05th Apr 2018 13:42

Hate this "good news" for direct employees of the firm that's failed but not considering the bad news for the supply chain who foot the bill and could involve other employees who will lose their jobs through no fault of their own.

Pre-pack administrations should be made illegal to ensure ALL creditors are placed at the front of the queue rather than letting the vultures pick off assets at bargain (booze?) prices...

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05th Apr 2018 09:33

I have been using spreadsheets since the early days of Lotus 1-2-3 and have learned to build in cross-checking methods into all my calculations.

And quite frankly, something that is wrong simply looks wrong to experienced accountants.

As a management accountant by background I have always been a cautious forecaster. Understate potential income and anticipate all likely costs and generally speaking you stay out of trouble.

Good method, and rigorous, critical review of your figures before going public keeps you out of bother in most cases. In this case I detect the whiff of accounting sloppiness and complacency.

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05th Apr 2018 13:21

I joined a small manufacturing/assembly business a few months ago. I am still finding errors and unfathomable 'logic' in their management accounts spreadsheets (to say nothing of the countless other spreadsheets - 40,000 at the last count when I searched for .xls files, not kidding!).
To give an idea of the scale of the problems with this one workbook:
• Tabs along the bottom: 37
• Links to external spreadsheets: 18 (around 6 or 7 active)
• Seconds taken to open up spreadsheet: 16 (it’s 4.8MB!)
• Cells in use in spreadsheet: 132,385 (this does NOT include any great listing of stock/debtors/creditors – they are on other spreadsheets).
There was nothing dodgy going on but it would have been easy to have hidden it if there had been. Plenty of immaterial errors from formulae not working etc.
It's literally only in the last couple of weeks I've (largely) made sense of things and created my own workable alternative spreadsheet.
Ultimately professionally written systems need to carry the workload for the type of reporting required. That is what we are working towards. Much fun in the meantime though!

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05th Apr 2018 13:46

I am Charles Wiggin FCA Bsc (Econ). I do a lot of forecasts using spreadsheets and cultivated my own reliable tools over more than 20 years.
In my experience I see finance directors/managers/accountants under immense pressure to produce forecasts without the time available to complete it and produce a reliable answer. I have experienced situations like our colleague "Absolutely" where figures in spreadsheets are overwritten to give the answer that the director(s) wants to support at best a funding shortfall or at worst a targeted dividend. If you don't come in to line they will find someone else who will!

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05th Apr 2018 14:50

As a rather cynical person, why are these errors never in a company's favour? i.e. you never see the headline, "company share price doubles on spread sheet error" or "company share price trebles on massive pension scheme liability over accrual" etc. etc...

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05th Apr 2018 15:29

All my clients are told to beware the implied authority of a spreadsheet.

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06th Apr 2018 14:09

This is crazy... Why is so much responsibility left within the spreadsheet?!

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05th May 2018 05:16

It Is Nice topic

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05th May 2018 05:23

this is really great

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