Shareholders in Bargain Booze owner Conviviality were left in the dark over a £10 million emergency loan signed off by the group’s management, just months before its collapse.
The company’s boss, Diana Hunter, and chief financial officer, Mark Moran, signed off on the funding in November, but stopped short of disclosing the move as it was deemed too small to warrant a market announcement, a source with knowledge of the matter told the Press Association.
However, within weeks the company was launching a £30 million share sale to help fund its acquisition of 127 sites from collapsed wholesaler Palmer & Harvey.
While Conviviality also tapped banks for a quick £10 million a year earlier during another tough patch, the source said the company should have disclosed November’s emergency funding to shareholders given the acquisition and how tight its finances had become.
The debt was provided by its existing lenders HSBC, Barclays and RBS.
The crux of the problems was said to come from the company being more concerned about earnings and hitting “aggressive” forecasts rather than ensuring there were adequate cash buffers, the source explained.
The company was spending more than was coming in but that spending took place in a way that did not appear on the company’s debt covenants calculation which is available for shareholders to see.
Even back in 2016, it was the takeover of Matthew Clark that “saved Bargain Booze”, which was “cash negative” and would have faced “serious problems” without the acquisition, the source said.
This was exacerbated by “overly generous dividends” and “excessive group and integration costs”.
“Everything in the business had to be fully wrung out and everything- the whole balance sheet – was raided. Everything was pulled out,” the source added.
“As many costs as possible were capitalised in order to try and get there and it was an incredible stretch, so the EBITDA (earnings) didn’t really reflect the actual underlying operating profit of the business.”
“It was extreme in terms of gaining as much EBITDA (earnings) as possible.”
Without that extra cash buffer, a missed £30 million tax bill – revealed to markets in March – put the company under extreme financial strain.
By that time, Conviviality had issued profit warnings, saying that month that it had found a “material error” in the forecasts for its Conviviality Direct business while suffering from softer margins in January and February which were expected to continue for the rest of the year.
The black hole created what the company called a “short-term funding requirement” and its shares were suspended.
Conviviality was then forced to go cap-in-hand to investors to raise £125 million as a result, but was unable to convince them of its long-term future.
Its wholesale arm – which included brands Matthew Clark, Bibendum, Catalyst, Peppermint, Elastic and Walker & Wodehouse – was snapped up by C&C with support from AB InBev for a nominal sum in April.
The retail arm, which included Bargain Booze, Wine Rack, WS Retail and Select Convenience, was bought by food wholesaler Bestway in a £7 million deal.