Sunday Times caption: Conviviality chief executive Diana Hunter
We clearly need more women in senior position in business. A piece in today’s Sunday Times. Emphases ours:
An email landed in the inbox of some of the City’s top fund managers 10 days ago. The message predicted a glittering future for a business that had transformed itself from a lowly Cheshire off-licence into Britain’s largest purveyor of wines, spirits and beer.
In a 22-page note, Investec analyst Kate Calvert explained why shareholders should load up on Conviviality, the owner of the Bargain Booze and Wine Rack chains. Its “one-stop proposition is resonating with consumers”, she wrote, before predicting that the shares would soar by 55% to 455p apiece.
In a matter of hours, her breezy optimism had been demolished. That afternoon, Conviviality served up a super-strength profit warning that has left the former stock market darling fighting for its life.
Diana Hunter, its hard-driving chief executive, revealed that there had been a “material error” in its financial forecasts, which would reduce its predicted earnings by more than £5m. Profit margins had lost some of their fizz and would also undershoot expectations, added the 50-year-old former Waitrose executive.
The grim update wiped more than £300m — or 60% — off the value of Conviviality. It proved to be a harbinger of more pain to come.
Last Tuesday, Hunter lowered earnings guidance again, and admitted there had been an “arithmetic error” in its forecasts. In other words, someone in its finance department had typed the wrong number into a spreadsheet, or substituted a plus for a minus sign. The following morning, Conviviality made another shocking revelation. It had uncovered an unforeseen £30m tax bill, which had to be paid by the end of the month. It suspended trading in its shares, and, in a desperate attempt to preserve cash, axed its dividend. On Friday, it admitted it was exploring an emergency cash call.
This weekend, Conviviality’s advisers, including bankers at Investec and consultants from PwC, are locked in discussions over a bailout. It is looking to raise more than £100m to shore up its balance sheet. However, with the credibility of its management and board in tatters, shareholders may balk at pouring in more money. Since the float in 2013, investors have backed Hunter with more than £250m. In her hands, Conviviality has been transformed into an acquisition machine. She has swooped on a range of smaller rivals, and swallowed up Matthew Clark, Britain’s biggest independent alcohol wholesaler. But Hunter appears to have lost control of her empire.
Sources said investors were likely to back a new fundraising — but only because the alternative was so unpalatable. If they refuse to commit more money to Conviviality, their shares could become worthless. They are expected to demand a high price for their support.
Hunter is expected to stand down early this week, but may stay on in a consultancy role. Chairman David Adams, a former director of HMV, Jessops and House of Fraser, is expected to survive — for now. In time, he is likely to be forced out, along with other directors and senior management. “No one is safe. A chief executive just has to know when a tax bill of that size comes due. It’s absolutely fundamental,” said one City banker. Hunter and the company declined to comment.
Bargain Booze, the kernel of Conviviality’s empire, traces its roots back to 1980, when a twentysomething entrepreneur, Allan Whittle, opened a store in Sandbach, Cheshire, renting videos and selling beer. His friend Robert Mayor, an accountant, later sold his house and joined the business as a partner.
Over the following two decades, the pair built Bargain Booze into a 165-strong chain of no-frills off-licences, predominantly in northwest England. In 2000, they sold out to BWG, a wholesaler owned by French spirits giant Pernod Ricard. A decade later, Bargain Booze was sold to Electra Partners, which flipped it to rival private equity firm ECI Partners in 2006.
In 2013, ECI hired Hunter as chief executive to prepare the company for a float. She was a star capture, having cut her teeth at Sainsbury’s before running Waitrose’s convenience stores. Former colleagues describe her as “very driven” and “unbelievably confident”. “Diana is relentlessly bullish, she’s always looking at the positive,” said one adviser.
It was this quality that helped her persuade investors to back Conviviality. The company was no easy sell. Off-licences had struggled in the aftermath of the financial crisis — Threshers and Oddbins went bust. Her plan was to take the Bargain Booze model nationwide, hoping to emulate the success of Aldi and Lidl.
In late 2013, Conviviality went public. ECI offloaded all its shares, later boasting it had made a profit equivalent to 4½ times its original investment. Shareholders, including blue-chip fund managers, such as Fidelity and Old Mutual, paid nearly £67m to take control.
Hunter was soon on the acquisitions trail, clinching a deal for Wine Rack within weeks of the float. She followed that up with the takeovers of Rhythm & Booze, a 26-strong off-licence chain in Yorkshire, and the £6m purchase of Midlands-based convenience store chain GT News. “There’s no question that the strategy was the right one. Diana knew where she wanted to go, and wanted to get there quickly,” said a senior City source.
In 2015, Hunter pounced on Matthew Clark, a 200-year-old wholesaler controlled by Punch Taverns. For Hunter, who had been chief executive for little more than two years, it was a high-stakes gamble. Matthew Clark had supplied nearly 20,000 restaurants, pubs and off-licences, but at £200m, the business she was buying dwarfed Conviviality.
However, shareholders liked her ambition, and stumped up £130m, with the company borrowing a further £80m. In May 2016, she launched a £60m raid on another wholesaler, Bibendum. Shareholders contributed £40m to that deal.
Last December, she raised a further £30m from the market to buy a small chain of convenience stores from collapsed distributor Palmer & Harvey.
The rash of dealmaking boosted turnover and profits, and pushed Conviviality’s market value above £500m. However, Hunter’s spree saddled the company with more than £100m of debt, and left it struggling to absorb the disparate business assembled by Hunter, who was paid £966,000 last year. The board conducted a review of the “effectiveness of the group’s system of internal controls” last year, according to its annual report. However, it opted against creating a new “internal audit function” after judging that the safeguards were “appropriate”. That decision may not have been unanimous. Jennifer Laing, 70, a veteran advertising executive, resigned as a non-executive director last April, the final day of the company’s financial year, just 11 months after joining the board. She cited “personal reasons” for her departure, but she has yet to resign from Mr Kipling owner Premier Foods.
Given the fiasco of the past fortnight, the Conviviality board looks destined to be cleared out over time. For now, though, the company must wring more cash out of investors to ease the concerns of its lenders, suppliers and credit insurers. “Conviviality has a viable business model, but it’s caught in a liquidity trap. The internal controls and processes have been found wanting, but it’s fixable,” said Phil Carroll, a retail analyst at Shore Capital. “The question now is whether shareholders would want to back management with another cash injection. “