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 is a writer, editor and broadcaster specialising in business.