Final Results for the Year Ended 30 April 2017

Released : 17.07.2017

RNS Number : 1820L
Conviviality PLC
17 July 2017
 

17 July 2017

 

 

CONVIVIALITY PLC

 

("Conviviality", the "Company", or the "Group"),

 

FINAL RESULTS FOR THE YEAR ENDED 30 APRIL 2017

 

Conviviality Plc, the UK's leading independent wholesaler and distributor of alcohol and impulse serving consumers through its Franchised retail outlets and through hospitality and food service, announces its final results for the 52 weeks to 30 April 2017 (FY16: 53 weeks to 1 May 2016).

 

Group Financial Highlights

·    Revenue up 85% to £1,560m* (FY16: £841m**)

·    Gross margin up 1.3% points to 13.3% (FY16: 12.0%)

·    Adjusted EBITDA1 up 102% to £60.9m (FY16: £30.2m)

·    Adjusted profit before tax2 up 111% to £45.8m (FY16: £21.7m)

·    Profit before tax up 147% to £22.5m (FY16: £9.1m)

·    Adjusted fully diluted EPS3 up 48% to 21.0p (FY16: 14.2p)

·    Fully diluted EPS up 136% to 10.4p (FY16: 4.4p)

·    Free cash flow4 up 349% to £51.2m (FY16: £11.4m)

·    Net debt of £95.7m (FY16: £86.1m)

·    Full year dividend up 33% to 12.6p (FY16: full year dividend 9.5p)

 

Operational Highlights

·    Acquired Bibendum PLB Group on 20 May 2016 and integrated successfully into our organisation and new operational structure

·    A transformational year with the integration of the recent acquisitions ahead of plan, resulting in a doubling of profit and delivery of £6m of synergies in the financial year

·    5.8% increase in revenue compared to the corresponding prior period5 with all areas of the business performing strongly

·    Significant progress made on the Group's logistics improvement strategy with a reorganisation of our depots including the opening of a new stockless outbase in Dundee, as well as more efficient route planning introduced with positive results to date

·    Continued growth of our digital platform with 4,645 customers now choosing to place orders this way

 

Conviviality Direct Highlights

·    Sales of £1,040m, a 6.4% increase in revenue compared to the corresponding prior period5

·    4.8% increase in revenue per outlet and 235 new customers served during the year

·    Bibendum Wine customers demonstrating greater penetration with customers buying all categories increasing from 5% to 12%

 

Conviviality Retail Highlights

·    Sales of £378m, a 6.1% increase in revenue over the corresponding prior period5

·    0.5% increase in Franchisee like for like retail sales6 in the second half and (1.0)% for the year

·    39 new Franchisees joined the group and 23 Franchisees increased their store portfolios during the year, bringing the total number of Franchisees to 352 and more than 700 retail stores

 

Conviviality Trading

·    Sales of £146m, a 1.0% increase in sales compared to the corresponding prior period5

·    Over 100 festivals and outdoor events delivered during the year with sales up 37% on the prior year

·    Significant product innovation with the successful launch of Whipstitch own label cider and Rolling Calf spiced rum

·    Walker and Wodehouse saw the renewal of the HM The Queen's Royal Warrant

 

Trading for the 9 weeks ended 2 July 2017

The Company and its businesses are trading in line with Board expectations. Conviviality Direct continues to trade strongly with sales 9.0% above last year. It is particularly pleasing to see the continued improvement and confidence of Conviviality Retail with like for like sales +0.5% and Wine Rack up 4.0%.  Conviviality Trading is 7.6% above last year as a result of its customers continuing to recognise the expertise and support of the agency business.  The Events business increased the number of events this year versus last year by 27 % to 140.

Diana Hunter, Chief Executive Officer of Conviviality, said:

I am pleased to report a strong set of results that demonstrate our focus and commitment to serving our customers well, working in partnership with our suppliers and delivering against our strategic plans. The balance we have created across the enlarged Group, and resilience this creates, gives us confidence in the future success of the business. Importantly the culture that we have created at Conviviality, with its entrepreneurial and innovative focus, remains true across the Group and we firmly believe there is exciting potential for significant organic growth for our businesses, with further potential opportunities to build on the current platform.

 

There will be a presentation for analysts at the offices of FTI Consulting (200 Aldersgate, EC1A 4HD) at 9.30am today, 17 July 2017.

 

 

*Current period performance includes revenue and profit after tax from businesses acquired in the current period and the full year impact of businesses acquired in the prior period.

 

**FY16 has been restated to reclassify retrospective discounts given to customers from cost of sales to revenue (£22,056,000), listing fees of £3,443,000 have been reclassified from cost of sales to revenue and franchise fees of £2,024,000 have been reclassified from other operating income to revenue

 

1Adjusted EBITDA is calculated as profit before tax of £22,462,000 (FY16: £9,080,000), adding back net interest of £5,221,000 (FY16: £2,502,000), depreciation of £4,560,000 (FY16: £2,833,000), amortisation of £12,899,000 (FY16: £6,089,000), exceptional items of £10,017,000 (FY16: £9,855,000) and share based payment charges of £2,427,000 (FY16: £1,767,000) and fair value movements on foreign exchange derivatives £3,284,000 (FY16: a deduction of £1,958,000).

 

2Adjusted Profit before Tax is calculated as profit before tax of £22,462,000 (FY16: £9,080,000), adding back amortisation of acquisition intangible assets of £10,028,000 (FY16: £4,754,000), exceptional items of £10,017,000 (FY16: £9,855,000) and fair value movements on foreign exchange derivatives of £3,284,000 (FY16: a deduction of £1,958,000).

 

3Adjusted fully diluted EPS is calculated as Adjusted Profit before Tax of £45,791,000 (FY16: £21,731,000), less tax at the effective rate of £8,586,000 (FY16: £4,781,000) divided by the fully diluted weighted average shares of 176,985,247 (FY16: 119,429,816).

 

4Free cash flow is calculated as Adjusted EBITDA of £60,870,000 (FY16: £30,168,000) plus movement in working capital of £17,340,000 (FY16: less £1,848,000) less capital expenditure of £13,420,000 (FY16: £11,628,000), interest paid of £5,348,000 (FY16: £2,898,000) and tax paid of £8,251,000 (FY16: £2,524,000).

 

5Revenue for the corresponding prior period is calculated as revenue for the 52 week period ended 1 May 2016 plus revenue for businesses acquired in both the current period and the prior period assuming those businesses were part of the Group from the start of the prior period.

 

6Franchisee like for like retail sales are the retail sales made by Franchisee and company owned stores that have traded continuously during FY16 and FY17 under the same ownership.

 

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Enquiries:


Conviviality Plc

Tel: 01270 614 700

Diana Hunter, Chief Executive Officer


Andrew Humphreys, Chief Financial Officer


Investec (Nominated Adviser and Broker)

Tel: 020 7597 5970

Garry Levin / David Flin / Daniel Adams


FTI Consulting

Tel: 020 3727 1000

Jonathan Brill / Georgina Goodhew / Fiona Walker

 

Chairman's Statement

Conviviality is a business whose strength lies in the combined skills and expertise of the enlarged group, "One Conviviality", a business where the whole is greater than the sum of the parts and that has the firm foundations in place from which to grow.

We look back on a year of unprecedented change politically and economically.  Our business has also undergone unprecedented change throughout the past year. Following the acquisition of Matthew Clark on the 7th October 2015, Conviviality acquired Bibendum PLB on 20th May 2016, creating a one stop shop drinks solution for our customers and providing an opportunity to undertake a single integration programme. This integration has resulted in a full restructuring of the business, from a programme to generate significant buying synergies, the development of one Group Wine Buying team, to the development of the Group Logistics function. The acquisition of Bibendum PLB has enhanced the Group with additional wine expertise, access to the premium On Trade, particularly in London, and significant capability in consumer insight across the alcohol sector.

I am proud that, against this backdrop the teams in all of the business units have stayed on track in integrating the business and ensuring that, first and foremost, our customers see the passion for their success and growth regardless of size of business and continue to benefit from the expertise of the combined group. As the UK economic and political environment remains uncertain, we believe that Conviviality has the flexibility to succeed through our unique model spanning both the On and Off Trade.

The Group is now structured into three Business Units: Conviviality Direct (wholesaler & distributor to the On Trade) led by Mark Aylwin; Conviviality Retail (for Off Trade consumer businesses Bargain Booze, Select Convenience and Wine Rack) led by David Robinson; and Conviviality Trading (an innovative and dynamic approach to sourcing, ranging, brand building, merchandising, activation and events) led by James Lousada. Each of the business unit Managing Directors ensures their operation has the best people in the right place to deliver excellent service to customers and drive collaborations and savings across the Group. The Business Units are supported by the expertise of the Group functions of Logistics, Finance, Legal, IT and Human Resources. We believe that the recent acquisitions and new structure have resulted in Conviviality being well positioned in our market with a robust business model that provides a unique positioning with both our suppliers and our customers.

The successful delivery of our strategy will depend on having great talent in the business in every area. We continue to invest significantly in training our colleagues and, in addition, we strengthen from outside of the Group where appropriate. In FY17 David Robinson joined us to head up Conviviality Retail and both David and Mark Aylwin (Managing Director, Conviviality Direct) were invited to join the Plc Board.

On behalf of the Board, I would like to thank everyone working in our business for their passion, commitment and customer focus that has made it possible to deliver our acquisitions to plan while also delivering underlying growth across the business.

David Adams

Chairman

17 July 2017

 

Chief Executive Officer's statement

Overview

When Conviviality floated on AIM in July 2013 the business was an alcohol, impulse and tobacco wholesaler serving the UK's largest Franchise off-licence and convenience brand, Bargain Booze with 616 stores and a turnover of £372m. During the past four years we have systematically pursued the strategy of taking the core competence of the business, the wholesaling of alcohol, and extended Conviviality's reach to more consumers across the UK drinks market whenever and wherever they wish to enjoy our products. Conviviality has fundamentally restructured and reconfigured the Group, building on our unique strength, expertise and reach in the UK drinks market. We now have the infrastructure and capability within the Group to drive further potential in both the On Trade and the Off Trade markets working with our existing suppliers providing customers with more opportunities to drive profitable growth.

Conviviality is unique in our sector, we provide our customers with access to over 14,000 alcohol SKUs, and 6,400 impulse, food and tobacco SKUs. We serve c. 25,000 outlets in the On Trade, over 700 Franchised Retail stores trading under the retail propositions of Bargain Booze, Select Convenience and Wine Rack, over 400 independent specialists and we are supplier to the larger multiples. A key part of our strategy is to deliver a logistics capability that anticipates the future needs of our customers and creates significant differentiation in the market, thereby adding significant value to the organisation. As the retail environment becomes more complex, we can leverage Conviviality's expertise in the alcohol and impulse markets to provide our valued customers with the solutions they need from distribution, to buying, ranging and merchandising and marketing.

As a result of this scale and reach we have unparalleled market access, insight and capabilities to support our suppliers in the development of their brands and to help our customers differentiate from their competition by tailoring their offering to meet their target consumer needs by location, venue and format. Conviviality is independent of any major drinks brands and therefore is able to supply an unrestricted selection of products and provide expertise in key categories to customers who value breadth of range whilst offering a compelling route to market for suppliers to access both the On Trade and Off Trade retailers.

It is this scale and reach that has created even stronger ties with our supplier partners. Increasingly our suppliers are engaging with the full capability of Conviviality from building their brands with our brand agency Catalyst PLB, accessing consumers with Elastic and Peppermint in events and experiential marketing, to more effective targeting in the On Trade utilising our data and insight, through to Off Trade execution in our Franchise retail business. A recent example was the exclusive On Trade launch of Bud Light for AB InBev across the Conviviality Group.

The successful integration of the three businesses, working as a cohesive unit and the management team's performance continues to deliver consistent results. The new internal structure grouped individual brands and businesses together under three distinct Business Units: Conviviality Direct (wholesaling/distributor to the On Trade) led by Mark Aylwin; Conviviality Retail (for Off Trade consumer businesses Bargain Booze, Select Convenience and Wine Rack) led by David Robinson; and Conviviality Trading (an innovative and dynamic approach to sourcing, ranging, brand building, merchandising, activation and events) led by James Lousada. Each of the business unit Managing Directors ensures their operation has the best people in the right place to deliver excellent service to customers, and drive collaborations and savings across the Group. The business units are supported by the expertise of the Group functions of Logistics, Finance, Legal, IT and Human Resources.

This past year has, therefore, been a transformational year for the service we offer, creating a range of benefits for customers. It is the nature of the On Trade and Off Trade market that our customers are constantly looking for the same thing as their own consumers: great value, new and innovative products, breadth of choice and excellent service. Critically, we continue to strive to ensure that our customers see our people regularly whether they are a one site restauranteur, hotelier or a large national account or a Franchisee, so that our customers may enjoy the relationships and service support they value from us. All of our businesses were initiated and built on personal relationships. These relationships remain at the heart of how we will continue to do business. Bibendum's first ever on trade customer was Michelin-starred Odette's in Primrose Hill and it continues to be a valued customer over 30 years on. Matthew Clark has been a partner to JD Weatherspoon's for over 20 years and a distributor of Martell for 198 years. In our Franchise business we have 133 Franchisees who have worked with the group for over 10 years. Our On Trade, Off Trade and franchised customers still expect - and still get - an outstanding portfolio of products, that they can tailor to their own customers' tastes and needs, as well as the support they value to help them develop their own business moving forward.

For each of them, business and growth opportunities can come from a number of sources. It can be from our expanding catalogue of products or markets; for example Matthew Clark's extended spirits range giving customers access to niche and small parcel spirits, or Bibendum's limited release wine collection offering something rare or interesting from suppliers they already value, and equally Franchisees benefit from new and exclusive launches from the Group as well as access to the extensive range of spirits now available to them. It can also be in how we serve them - and where their own vision sees potential. Our experts within Catalyst PLB help introduce customers to the newest and most exciting products in craft and premium spirits, beers and ciders, almost challenging end consumers to experiment; colleagues at Elastic (who reinvigorate brands) and in our events business, Peppermint, have unparalleled expertise in bringing new and old products to life. We - and our suppliers - have seen excellent sales growth in a range of products that has been supported by our teams and their combined expertise from across Conviviality.

We will continue to grow by keeping our people, our customers, Franchisees, and suppliers at the heart of everything we do. Everyone who works for Conviviality from Glasgow to Southampton, and Bristol to Crewe, from shop to depot to office, knows it is critical that we keep finding new ways to improve our customer service and deliver excellence. As we focus our investment in the services customers value, so we will see our online services grow, in the past year the number of customers using our digital platform has increased by 20% year on year to 4,645, ensuring more accuracy in customer ordering, better ordering history to assist with forecasting and in turn greater efficiency for both our customers and Conviviality. 48% of customers using our digital platform do so daily, indicating increasing engagement with the brand and assortment.

Our commitment to customers can be seen in the accolades they have awarded us. In 2016 Bibendum won the "Compass Supplier Award for Implementation" for the successful execution of a wine culture across the Compass Group and is currently listed as Mitchells & Butlers #1 wine supplier; and in 2017 Matthew Clark was Drinks Supplier of the Year in Restaurant Magazine Reader's Choice Awards for the third year running. More recently Conviviality Retail has been awarded Grocer Gold - Drinks Retailer of the Year for the second consecutive year. Conviviality Trading was recognised by Stonegate for Innovation of the Year with the launch of Gancia Leggero, a skinny Prosecco.

Results

An important aspect of our business model is its flexibility, protecting our earnings through periods of significant change in our organisation and a competitive external environment. We have continued to deliver against our objectives set out at flotation in July 2013 and are pleased to report adjusted profits ahead of expectations, during a year where we have significantly transformed our business. For the 52 weeks to 30 April 2017 revenue was up 85% to £1,560m* reflecting the benefit of Bibendum PLB Group acquisition on 20th May 2016, as such, Adjusted EBITDA1 was up 102% to £60.9m and Adjusted Profit before Tax2 up 111% to £45.8m, demonstrating the significant strength of the combined Group. Adjusted fully diluted EPS3 was up 48% to 21.0 pence. The recent acquisitions resulted in an increase of net debt, however, at year end this was £95.7m which is below consensus expectations. The full year dividend is up 33% to 12.6 pence in line with our progressive dividend policy and reflecting a strong return to our shareholders.

Outlook 

The Company's focus for the near-term is on continuing to deliver against our stated strategy and meet the expectations of our stakeholders, customers, suppliers and our people. The greatest asset from all of our acquisitions has been our people and we continue to work hard to ensure that their skills and talent are utilised to the benefit of our customers and suppliers. Our presence in the market through our different specialist businesses, provides us with unique insight into both our market and consumers from the widest of perspectives. We are already successfully leveraging this insight to ensure that our customers have the right product range and support to help them grow. Furthermore, we are continuing to look at new ways of maintaining our unique position and broadening the ways in which our customers, our supplier partners and the Group can benefit. We are excited by the future potential for growth across the Group as we continue to explore these opportunities.

 

Conviviality Direct

The UK's largest independent wholesaler to the On Trade, serving c. 25,000 outlets from national prestige hotel chains to independent food led pubs and restaurants trading through two businesses, namely Matthew Clark and Bibendum. Since the acquisition, of Bibendum, Conviviality Direct revenues have increased 6.4% to £1,040m (corresponding prior period £978m) 5. To date sales per outlet have increased 4.8% to £43,700 and we welcomed 235 new customers in the year. The number of Bibendum Wine customers buying all categories has increased from 5% to 12%, a strong indication that our customers value the increased choice and service offering of our model.  As an example, during the past year, spirits have grown in the Bibendum regional business by 43.7%, and National business by 21% as customers appreciate the wider choice now on offer through Conviviality Direct.

Conviviality Direct affords a range of over 14,000 alcohol lines to over 11,000 customers, offering a one-stop solution to hotels restaurants bars and venues for their alcohol needs delivering consistent service nationwide next day. Conviviality Direct has a national sales force through the Bibendum and Matthew Clark brands of over 300 employees based across Scotland, England and Wales and London and the South East ensuring excellent service to its Independent Free Trade customers and National Account Customers. The sales team have up to date information on industry sales trends, new product information and pricing and are able to recommend the right mix of products to customers to help them optimise their offer to their consumers. Conviviality's nationwide distribution network of 16 depots means customers benefit from a nationwide next day delivery service and timed delivery slots.

A key part of the Conviviality Direct strategy is to focus on growth in key cities, specifically focused on existing customers identifying with the Bibendum and Matthew Clark propositions and their ability to utilise the brands to meet all of their drinks purchasing needs. The Caring Group of restaurants (the Ivy collection, Le Caprice for example), Prezzo and Searcys have all chosen to work with Conviviality Direct to enable them to access the extensive range, service and solutions the Group offers. At the same time as attracting new customers, our existing customers have continued to value a long standing relationships with us. Stonegate has worked with us for 9 years and we continue to enjoy supporting their business, and JD Wetherspoon have worked with Matthew Clark from having 8 pubs in their portfolio to over 900 pubs to date.

We continue to work closely with our customers to understand their current and future needs ensuring that we are at the fore front of customer service. Furthermore 770 customers have recognised the opportunity to improve order accuracy and efficiency by moving onto our digital platform. 4,645 customers now engage with the digital platform and order value per customer is 13% higher than customers who place orders via the contact centre.

 

Conviviality Retail

The UK's largest franchised off-licence and convenience chain with 352 Franchisees and more than 700 retail stores trading primarily under the fascia of Bargain Booze, Select Convenience and Wine Rack. In line with our programme to focus on underlying quality of retail stores, we continue to see low levels of store closures to 63 in total which include the closure of small CTN stores which no longer serve the Off licence or Convenience proposition. Whilst net store numbers are in line with the prior year the quality of the outlets opening is significantly improved with retail sales per new outlet opening up 29.8% versus last year. Sales of multisite Franchisees outperforming the total estate by 2.1% like-for-like6. We saw 39 Franchisees join the Group, a strong indication of the benefits of our model to independent business people. Our core model is predicated by Franchisee loyalty and commitment to upholding the values of our brands. This combined with the high standards that we set are helping to deliver our differentiated "local customer experience". We have some of the highest levels of loyalty in the sector with the percentage of sales of goods by our Franchisees that are purchased from the Group at 91%. It is also pleasing that Wine Rack continues to perform well and during 2016 we opened one new Wine Rack in Epsom. Like-for-like performance in Wine Rack is 1.4% reflecting the importance of a specialist Wine and Spirits proposition on the high street.

Conviviality Retail continues to grow a national store estate with a differentiated consumer proposition that responds to consumer needs and market trends. The strategy aims to consolidate Conviviality Retail's position as the UK's leading drinks-led convenience retailer. The business has three fundamental sources of advantage:

Drinks Heritage and Expertise:  Approximately 50% of sales are from beer, wine and spirits categories, producing a category mix that is unique in the sector. Conviviality's unrivalled category expertise in the drinks sector allows Franchisees to benefit from a differentiated proposition and from the footfall and margin benefits of a compelling range and assortment. It is this drinks heritage and expertise that underpins and differentiates our three key retail brands. In particular the business will continue to develop the Select Convenience proposition to ensure that it is at the heart of "local convenience" in the communities it trades. Further development of the Vape proposition is being rolled out across the estate, and is now in 249 stores. Vape products are margin-enhancing and protect against the decline in tobacco sales. We are already seeing average sales of £220 per store per week and margin benefit to Franchisees of approximately £5,000 per store per year.

Sourcing and Distribution Scale:  As part of the Conviviality Group, the business has significantly benefited from its scale advantages in buying and distribution, whilst remaining a largely standalone business operating out of its own offices with a dedicated and experienced management team. Distribution is done in-house by the Conviviality group logistics operation, primarily on dedicated branded vehicles, with stores typically choosing to receive two, or sometimes three, deliveries per week. Service levels are very high compared to our competitors in the sector with over 99% of deliveries received on time and with complete orders. The transformation of the Conviviality logistics network will allow Conviviality Retail to benefit from the Group's scale through lower delivery costs. Conviviality Retail can leverage its scale position to source advantageously and provide consistent value to Franchisees. Offering good value to consumers through reliable low-pricing and compelling promotions is core to the Bargain Booze model.

Locally Embedded Franchise Model:  Conviviality Retail allows independent retailers to deliver superior returns via a simple turn-key solution that leverages strong business fundamentals and a scalable back office: the Franchisee proposition is the core of Conviviality Retail's success. Franchisees access a distinct drinks-led consumer offer supported by dedicated support managers, regular, and deep engagement at senior level and a reward package that is unique in the sector, including accessing the Franchisee Incentive Plan under which shares in Conviviality plc are awarded based on compliance and performance. 285 Franchisees hold options over 3 m shares in Conviviality Plc. The Company's 352 Franchisees are local people, employing local people, and are passionate about their customers and the communities in which they trade. Our Franchisees make a real difference in their local communities through a relentless focus on meeting consumer needs and providing a unique customer experience.

To reinforce the three fundamental sources of advantage, Conviviality Retail has made an investment in upgrading its retail systems. The new core operating system (ERP) will be introduced during the Autumn of 2017 and the rollout of new EPOS to all stores is already in progress. The new solutions will enable business efficiencies, future-proof the Franchisee proposition, and accelerate the strategic direction to invest in a growing mix of multisite Franchisees.

 

Conviviality Trading

A full service drinks brand and wine agency business with national sales and activation capability from traditional On and Off Trade retail, to festivals and events. New products and brands can be developed, both with our partner suppliers, and also directly by our own teams as we see trends and opportunities emerge across the market. Within Conviviality Trading, Catalyst PLB brings together PLB, Instil and Catalyst Brands three specialist brand agency businesses, each with significant expertise in their respective categories. The brand agency business enhances the marketing capability and sales reach of the business and gives partner suppliers and brand owners unparalleled market coverage.

In addition, Conviviality Trading is also responsible for the development and growth of new business areas including Peppermint, a specialist in outdoor events and festivals, and Elastic, a brand activation agency that provides support and insight to many of Conviviality's branded supply base.

Within Catalyst PLB the team represent over 25 brands across drinks categories into the UK drinks market. This area of the business not only represents large suppliers and brands as a drinks agency but is also a consolidator of wine suppliers, managing the supply of wine to the Off Trade including high street retailers, specialists and supermarkets. Conviviality Trading has skills and capabilities in consumer insight, sourcing, ranging and supply that can add significant value to its customers by offering a "one-stop shop" reducing the complexity of the wine category in large multiple national chains.

We have already seen new strategic relationships established. In April 2016 the Catalyst business started working with global spirits business Beam Suntory. The team won the distribution rights for Larios Gin and Sauza Tequila. Larios is the leading gin in Spain and Catalyst were tasked with launching the brand in the UK. In the first year working together the Catalyst team built distribution for Larios in over 1,700 accounts and grew the volume significantly. In January 2017 two of the largest Chilean wine producers transferred their Off Trade business to Conviviality: Santa Rita, with brands including Santa Rita, Vina Carmen and Sur Andino; and Luis Felipe Edwards, a privately owned wine group founded in 1976 by Luis Felipe Edwards Senior, with brands including Luis Felipe Edwards, Dona Bernada, Marea and Cien.

Conviviality also has the ability to develop its own brands opening up opportunities where gaps in the market exist to create and build brands that directly meet our customers' and their consumers' needs. In 2017 we launched two new brands: Rolling Calf spiced rum, capitalising on the trend for dark spirits and cocktails, already distributed to customers in the On Trade and due to launch in the Off Trade during Winter 2017; and Whipstitch cider which has been launched specifically for festival customers and received positive response from customers when trialled at the Isle of Wight Festival in June 2017.

Building our partners' brands across the UK market means accessing the consumer wherever they are buying and consuming products whether that be in pubs, bars and restaurants; in supermarkets; convenience stores; online; and also in the emerging "third space". This includes non-traditional areas like outdoor events, pop ups and festivals. Through Peppermint, a specialist in outdoor events and festivals, we deliver this promise. This year Peppermint will be operating at over 35 events. Sales increased by 46% over the corresponding prior period. For events owners, Peppermint provides a complete service solution including full bar and food service management as well as ATM operation and Click and Collect.

Furthermore, Elastic, our brand activation agency which provides activation and brand building expertise to many of Conviviality's branded supply base, saw sales grow strongly. Elastic has completed work for eight new branded suppliers in addition to the continued strong partnerships with businesses such as ABInBev and Heineken, cementing our positioning as one of the UK's leading experiential drinks agencies.

A Group wide approach to efficiencies

With the greater scale of the Group there is the potential to realise lower costs through buying, distribution and improved organisational efficiency. The Integration plan set out at the acquisition of Matthew Clark and Bibendum PLB is ahead of plan with good progress being demonstrated against the stated synergy benefits in FY18 of Buying (£8m), Bibendum PLB (£4m) and Logistics (between £1.0m and £1.5m). The key benefit areas of the integration are detailed below.

Buying: The Beer, Lager, Spirits and Soft Drinks buying teams across Conviviality Direct and Conviviality Retail work collaboratively to ensure that the opportunities for both the business and the suppliers are maximised. This approach has been key particularly for new product launches such as Bud Light. This approach by the Buying teams has also resulted in the stated buying synergies set out at the acquisition of Matthew Clark being achieved for this financial year, which is a demonstration of the quality of the buying team and the support of the enlarged group by our supply base.

Group Wine Buying: A Group Wine Buying team was established shortly after the purchase of Bibendum PLB. The team is led by Andrew Shaw, Group Wine Buying Director, and is responsible for the selection and purchasing of the full assortment of wines, sparking wines and Champagne. Our Wine buying teams have long standing relationships with our producers and with our customers, giving them the unique ability to marry customers' needs with producers' wines. Across the Group we have 430 suppliers, 310 of which are exclusive to Conviviality. These exclusives cover over 3,000 of the 4,902 SKUs available for our customers. Already we have seen Conviviality Retail Franchisees benefit from the ability to sell over 54,000 bottles of wines that are exclusive to Conviviality. In addition, with the increased scale and buying volumes of the Group there is significant opportunity to address costs within the supply chain to release synergy benefits. As a result we expect to generate additional buying benefits of £2 million during FY19.

Group Logistics: The logistics operation is a key strength and differentiator for Conviviality. Conviviality serves our customers through our network of 11 depots, 5 stockless outbases and 2 depots operated by our logistics partners. During May 2016 we transferred the leadership of these depots from regional management to the Group Logistics function, thereby enabling consistent standards and best practice to be applied across the Group. Since the transition Telematics has been introduced to all vehicles delivering a 3.9% MPG saving and Paragon route planning software is in the process of being rolled out across all depots. There are over 1,000 of our people working in our depots and delivering to our customers, under the leadership of Nigel Basey, Group Logistics Director. We have strengthened the capability of the team through training and development, and delivered changes to support the efficient growth of the Conviviality business.

During the year, we closed both York and Shefford depots and opened new depots in Wetherby and Bedford, providing greater capacity to serve our customers and a better working environment for our people. We took the decision to close the Dundee depot to enable customers to order from the full assortment available at Glasgow delivered to customers via a stockless outbase. During this period, the logistics team supported the service to over 100 festivals and the growth of the Conviviality Direct and Conviviality Retail businesses. Looking ahead, the team are confirming the plans for the Group logistics strategy whereby we continue to focus on delighting customers and growing the business and, in doing so, achieve a greater level of efficiency. Through the continued efficiency actions being undertaken we expect to deliver £1.2m of distribution synergies in FY18, rising to £1.5m in FY19.

IT, Systems and Organisation: During the year we have undertaken a programme to align the ERP systems across the Group. We are implementing the same ERP system as is used in Matthew Clark and applying it to both the Bibendum business and the Conviviality Retail business. Once the systems implementations are complete at the end of Autumn 2017, we will have the opportunity to realise back office synergies, drive further improvements for customers and improve the ways of working across the group. The enlarged group employs 2,640 people across 16 depots and 4 support offices and regional sales teams, as such there is significant talent in the organisation. By bringing the respective teams in the businesses closer together we are seeing clear opportunities to drive greater efficiencies, develop talent across the business and drive operational savings. During 2016 10% of our people took the opportunity to develop their careers further across the group. We expect additional organisational synergy benefits of £1.0m to be realised in FY19.

 

Trading for the 9 weeks ended 2 July

The Company and its businesses are trading in line with expectations. Conviviality Direct continues to trade strongly with sales 9% above last year. It is particularly pleasing to see the continued improvement and confidence of Conviviality Retail with like-for-like sales 0.5% with Wine Rack up 4.0%. Finally Conviviality Trading is 7.6% above last year demonstrating its customers recognising the expertise and support of the agency business, and additionally with the Events business increasing the number of events this year versus last year by 27% to 140.

 

FINANCIAL REVIEW

 

Overview

Following the acquisitions of Matthew Clark on 7 October 2015 and Bibendum PLB Group on 20 May 2016, sales grew 85% to £1,560m* (FY16 £841m**) and adjusted EBITDA1 increased 102% to £60.9m (FY16 £30.2m).

Adjusted profit before tax2 increased by 111% to £45.8m (FY16 £21.7m) and adjusted fully diluted earnings per share3 increased 48% to 21.0 pence (FY16 14.2 pence).

Profit before tax increased 147% to £22.5m (FY16: £9.1m) and fully diluted earnings per share increased 136% to 10.4 pence (FY16: 4.4 pence).

Net debt at 30 April 2017 was £95.7m (1 May 2016 £86.1m) with leverage falling to 1.6 times adjusted EBITDA1 (30 April 2016 2.2 times).

Revenue

Revenue increased by 85% to £1,560m* (FY16: £841m**) due to the full year impact of acquiring Matthew Clark, the acquisition of Bibendum PLB and organic growth of 5.8% with each business unit growing strongly.

Conviviality Direct generated sales of £1,040m in the 52 weeks ending 30 April 2017.  This represents an increase of 6.4% on the corresponding prior period5 with sales per outlet increasing by 4.8% and the number of outlets served increasing by 1.5%.  The Matthew Clark and the Bibendum Wine sales teams are working well together and customers are recognising the benefits of sourcing from a single supplier that offers great choice, service and value.

Conviviality Retail's sales increased 6.1% over the corresponding prior period5 primarily due to a 10.7% increase in the number of average stores trading during the year (FY17:703; FY16:635) due to a franchisee acquiring a large parcel of stores in the final quarter of FY16. This resulted in lower sales per store in FY17 and, as the franchisee closed or sold a number of the smaller underperforming stores, the number of closures increased to 63 (FY16: 34).  At 30 April 2017 the Group operated 713 stores (1 May 2016: 716) with 43 stores opening and 17 acquisitions in the year. 

Sales improved during the year with like for like sales +0.5% in the second half compared to (1.7)% in the first half.  In the financial year like for like sales were (1.0)%. 

Conviviality Trading sales increased 1.0% over the corresponding prior period5 as strong growth in Events was partly offset by lower sales in the Agency business as the business evolves from high volume lower margin sales to higher margin lower volume sales.

Adjusted EBITDA1

Adjusted EBITDA1 increased 102% to £60.9m (FY16: £30.2m) as sales growth of 85%* and a 1.3% point improvement in gross margin percentage increased gross profit by 105% to £207.1m (FY16: £101.2m).  This was partly offset by an increase in operating costs (excluding exceptional items, depreciation, amortisation, share based payment charges and fair value movements on foreign currency contracts) of 106% to £146.2m (FY16: £71.0m) due to the full year impact of the acquisition of Matthew Clark in October 2015 and the acquisition of Bibendum PLB Group in May 2016.  

Gross margin percentage improved to 13.3% (FY16: 12.0%) primarily due to buying synergies of £6.0m (0.4% point increase) and  the acquisitions of Matthew Clark and Bibendum PLB Group (0.4% point increase).

Profit before Tax

Group profit before tax increased by £13.4m to £22.5m (2016: £9.1m) primarily due to the £30.7m increase in Adjusted EBITDA1 offset by higher finance costs, depreciation and amortisation, (including the amortisation of Matthew Clark and Bibendum PLB acquisition intangibles), an increase in share based charges and an adverse fair value adjustment on foreign exchange contracts of £3.3m

Net finance costs increased by £2.7m primarily due to interest on term loans drawn down to fund the acquisition of Matthew Clark and Bibendum PLB Group, amortisation of banking arrangement fees and increased utilisation of working capital facilities.

Depreciation and amortisation (excluding the amortisation of acquisition intangibles)  increased by £3.3m reflecting a full year charge from the acquisition of Matthew Clark, the acquisition of Bibendum PLB Group and our recent investment in IT systems and stores.

Matthew Clark and Bibendum PLB acquisition intangible assets include the Matthew Clark and Bibendum Wine brands and customer bases (total net book value £60.0m). The brands are being amortised over 10 years and the customer base over their expected life of between 5 and 6.5 years  giving an amortisation charge in the year of £10.0m.

Share based charges increased by £0.7m due to the continued investment in the Franchise Incentive Plan and management share options to ensure both franchisees and management are aligned with the Group's objectives and rewarded based on the performance of the Group.

Exceptional items of £10.0m primarily comprises professional fees relating to the acquisition of Bibendum PLB Group of £1.6m and costs to integrate and restructure the Group following the acquisitions of Matthew Clark and Bibendum PLB Group of £8.7m. The integration of Matthew Clark and Bibendum PLB Group with Conviviality Retail was completed as a single project to make the integration more efficient and reduce costs. A significant amount of work was undertaken in FY17 to create three customer facing business units (Conviviality Direct; Conviviality Retail and Conviviality Trading) plus group support functions (Logistics, Finance, IT, Legal and Human Resources).  The Group is now operating within this structure which facilitates the delivery of buying, logistics and organisational synergies whilst ensuring the Group is well positioned to continue to drive organic sales growth.

Conviviality owns 61% of Peppermint Events and is committed to acquire the remaining 39% in the year ending April 2020 or April 2021 based on EBITDA in the year ending April 2019 or April 2020. The timing of the final earn-out will depend on whether Peppermint Events exceeds an EBITDA target that has been set for the year ending 2019. If the target is not met the earn-out moves to the year ending 2020. The EBITDA targets set at the date of acquisition resulted in a contingent consideration of £6.2m and a liability was established for this amount.  Reflecting current market conditions the estimated contingent consideration has decreased by £3.4m.  This has been recorded as exceptional income.

Adjusted profit before tax2 increased 111% to £45.8m (FY16: £21.7m) as Adjusted EBITDA1 of £60.9m was offset by net finance charges of £5.2m, depreciation and amortisation (excluding the amortisation of acquisition intangibles) of £7.4m and share based charges of £2.4m.

Tax

The tax charge of £4.0m represents tax on Group profit before tax and exceptional items of £6.1m offset by a tax credit tax on exceptional items of £2.1m.  The effective tax rate on Group profit before tax and exceptional items is 18.8% due to movements in deferred tax. The tax credit on exceptional items is 20.9% due to disallowable transaction costs on the acquisition of Bibendum PLB Group.

Earnings per Share

Profit after tax increased 249% to £18.5m* (FY16: £5.3m) and the basic weighted average number of shares increased 48% to 170.1m (FY16: 115.3m) following the placing of 15.6m new shares with institutional investors to raise gross proceeds of c. £32.0m to part fund the acquisition of Bibendum PLB Group. This resulted in basic EPS increasing 135% to 10.8 pence (FY16: 4.6 pence).

Fully diluted weighted average shares increased 48% to 177.0m (FY16: 119.4m) resulting in fully diluted EPS increasing 136% to 10.4 pence (FY16: 4.4 pence).

Adjusted profit after tax increased 119% to £37.2m (FY16: £17.0m) resulting in adjusted basic EPS increasing 49% to 21.9 pence (FY16: 14.7 pence) and adjusted fully diluted EPS3 increasing 48% to 21.0 pence (FY16: 14.2 pence).

Cash Flow and Funding

The Group is strongly cash generative with free cash flow4 increasing by 349% to £51.2m (FY16: £11.4m) as adjusted EBITDA1 of £60.9m was augmented by a reduction in working capital of £17.3m and offset by net capital expenditure of £13.4m, interest payments of £5.3m and tax payments of £8.3m.

Capital expenditure includes a continued investment in stores of £6.0m and the development of IT systems, including a new EPOS till system, the implementation of JD Edwards ERP system into Bibendum Wine and Conviviality Retail and the implementation of warehouse management systems and logistics planning tools, of £9.8m.  This is offset by the proceeds from the sales of assets of £6.3m, primarily the sale and lease back of the Shefford depot.

Net debt increased by £9.6m as free cash flow4 of £51.2m was offset by a net cash outflow on the acquisition of Bibendum PLB Group of £28.6m, the acquisition of KMD Enterprises for cash consideration of £4.0m, restructuring and integration costs of £8.7m and dividend payments of £19.9m.

The consideration for Bibendum PLB Group was £39.7m which, together with £19.1m of debt acquired and acquisition costs of £1.6m, resulted in a total investment of £60.4m.  This investment was funded by proceeds from the issue of new ordinary shares of £31.8m generating a net cash out flow of £28.6m.

At 30 April 2017 the Group's net debt totalled £95.7m (1 May 2016: £86.1m) and comprised £95.8m of term loans and £10.7m drawn down under the Group's working capital facilities, less cash of £10.4m and unamortised banking arrangement fees.  The bank facilities include a leverage and an interest cover covenant.  The leverage covenant requires debt (excluding any amounts drawn down on under the Group's invoice discounting facility) to be less than 2.5 times the last 12 months adjusted EBITDA. The interest cover covenant requires adjusted EBITDA to be at least four times net finance charges.  At the measurement date of 30 April 2017 leverage was 1.6 and interest cover was 11.5.

 

Dividend

Conviviality has a progressive dividend policy and aims to increase dividend cover (based on fully diluted adjusted EPS) to two times by the year ending April 2020.  In line with this policy a final dividend of 8.4 pence per share is proposed. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 5 October 2017 to shareholders on the register on 8 September 2017. This increases the total dividend for the year by 33% to 12.6 pence per share (FY16: 9.5 pence per share) and increases dividend cover to 1.7 times (FY16: 1.5 times).

 

Andrew Humphreys

Chief Financial Officer

17 July 2017

 

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the 52 weeks ended 30 April 2017 (2016: for the 53 weeks ended 1 May 2016)

                                          


 

 

 

 

Note

Before exceptional items

2017

£'000

Exceptional

 items

(note 4b)

2017

£'000

 

 

Total

2017

£'000

Restated

(note 2)

Before
exceptional items

2016

£'000

 

Exceptional items

 (note 4b)

2016

  £'000

 

 

Restated

Total

2016

£'000

Continuing operations








Revenue

3

1,560,081

-

1,560,081

841,021

-

841,021

Cost of sales


(1,353,012)

-

(1,353,012)

(739,831)

-

(739,831)

Gross profit


207,069

-

207,069

101,190

-

101,190

Operating expenses

4

(169,369)

(9,788)

(179,157)

(79,753)

(9,855)

(89,608)

Operating profit

4

37,700

(9,788)

27,912

21,437

(9,855)

11,582

Finance income

5

62

-

62

24

-

24

Finance expense

5

(5,283)

(229)

(5,512)

(2,526)

-

(2,526)

Profit before income tax


32,479

(10,017)

22,462

18,935

(9,855)

9,080

Income tax

6

(6,105)

2,089

(4,016)

(4,159)

349

(3,810)

Profit for the financial period


26,374

(7,928)

18,446

14,776

(9,506)

5,270

Other comprehensive income








Items that may be reclassified subsequently to profit or loss





Cash flow hedges:








-       Effective portion of changes in fair value


(522)

-

(522)

(86)

-

(86)

-       Tax on effective portion of changes in fair value


104

-

104

-

-

-

Other comprehensive income net of tax


(418)

-

(418)

(86)

-

(86)

Total comprehensive income


25,956

(7,928)

18,028

14,690

(9,506)

5,184

















Earnings per ordinary share








- Basic

7



10.8p



4.6p

- Diluted

7



10.4p



4.4p

 

 

The results for the financial period are derived from continuing operations.

 

All of the profit for the financial period and total comprehensive income are attributable to the owners of the parent in both the current year and the prior year.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 April 2017

Non-current assets


Note



2017
 £'000

Restated (note 2)
2016
 £'000

Property, plant and equipment


17,610

15,249

Goodwill

9

210,994

177,491

Intangible assets

10

73,861

66,158

Deferred taxation asset


6,051

3,198

Trade and other receivables


11,579

6,424

Total non-current assets


320,095

268,520

Current assets




Inventories


93,840

61,825

Trade and other receivables


220,699

151,928

Cash and cash equivalents


10,424

9,540

Derivatives


356

1,236

Total current assets


325,319

224,529

Total assets


645,414

493,049

Current liabilities




Trade and other payables


(299,210)

(183,253)

Borrowings

11

(24,651)

(28,137)

Derivatives


(1,915)

-

Current taxation payable


(1,759)

(2,815)

Provisions


(1,015)

(449)

Total current liabilities


(328,550)

(214,654)

Non-current liabilities




Derivatives


(608)

-

Borrowings

11

(81,519)

(67,510)

Deferred tax liability


(10,524)

(11,165)

Trade and other payables


(2,859)

(6,159)

Provisions


(5,517)

(10,736)

Total non-current liabilities


(101,027)

(95,570)

Total liabilities


(429,577)

(310,224)

Net assets


215,837

182,825

Shareholders' equity




Share capital


78

75

Share premium


196,142

164,342

Share based payment and other reserves


5,311

3,847

Retained earnings


14,306

14,561

Total equity


215,837

182,825

 

 

These financial statements were approved and authorised for issue by the Board of Directors on 17 July 2017.

 

 

 

Diana Hunter

Conviviality Plc

Company registration number: 5592636

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 weeks ended 30 April 2017

 


Note

 

 

Share capital

 

 

Share
 premium

 

Share based payment
  reserve

 

 

Other reserves

 

 

Retained
earnings

 

 

 

Total equity



£'000

£'000

£'000

£'000

£'000

£'000

Balance as at 26 April 2015


57

34,020

2,028

(26)

16,611

52,690

Profit for the financial period


-

-

-

-

5,270

5,270

Cash flow hedge reserve for interest rate swap


-

-

-

(86)

-

(86)

Total comprehensive income for the period


-

-

-

(86)

5,270

5,184

Transactions with owners:








Issue of new ordinary shares

 


18

130,322

-

-

-

130,340

Transfer of share-based payment charge


-

-

(94)

-

94

-

Dividends

8

-

-

-

-

(7,414)

(7,414)

Share-based payment charge


-

-

1,661

-

-

1,661

Deferred tax on share-based payment charge


-

-

364

-

-

364

Total transactions with owners


18

130,322

1,931

-

(7,320)

124,951

Balance as at 1 May 2016


75

164,342

3,959

(112)

14,561

182,825

Profit for the financial period


-

-

-

-

18,446

18,446

Cashflow hedge reserve for interest rate swap


-

-

-

(522)

-

(522)

Deferred tax on interest rate swap


-

-

-

104

-

104

Total comprehensive income for the period


-

-

-

(418)

18,446

18,028

Transactions with owners:








Issue of new ordinary shares

 


3

31,800

-

-

-

31,803

Transfer of share-based payment charge


-

-

(1,213)

-

1,213

-

Dividends

8

-

-

-

-

(19,914)

(19,914)

Disposal of shares in Employee Benefit Trust


-

-

-

122

-

122

Share-based payment charge


-

-

2,724

-

-

2,724

Deferred tax on share-based payment charge


-

-

249

-

-

249

Total transactions with owners


3

31,800

1,760

122

(18,701)

14,984

Balance as at 30 April 2017


78

196,142

5,719

(408)

14,306

215,837









 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 52 weeks ended 30 April 2017

 

Cash flows from operating activities

Note


2017
 £'000

Restated (note 2)
2016
 £'000

Cash generated from operations

12

78,276

27,250

Interest paid


(5,348)

(2,898)

Income tax paid


(8,251)

(2,524)

Net cash generated from operating activities


64,677

21,828

Cash flows from investing activities




Purchases of property, plant and equipment


(10,090)

(7,710)

Purchases of intangible assets

10

(9,668)

(4,158)

Proceeds from sale of property, plant and equipment


6,338

240

Interest received


62

13

Purchase of subsidiary undertakings (net of cash acquired)

13

(43,526)

(200,412)

Net debt and debt like items on purchase of subsidiary undertaking

13

(19,147)

(11,085)

Exceptional costs relating to acquisition and integration of subsidiary undertakings


(9,788)

(8,956)

Purchase of other business combinations

 9 & 13

(396)

(796)

Proceeds from sale of other business combinations


-

195

Net cash used in investing activities


(86,215)

(232,669)

Cash flows from financing activities




Dividends paid

8

(19,914)

(7,414)

Repayments of borrowings


(19,589)

16,230

Proceeds from sale of shares


31,803

130,340

Proceeds from sale of shares held by Employee Benefit Trust


122

-

Proceeds from term loans


30,000

80,000

Net cash proceeds from financing activities


22,422

219,156

Net increase in cash and cash equivalents

 


884

8,315

Cash and cash equivalents at the beginning of the period


9,540

1,203

Effect of movements in exchange rates of cash held


-

22

Cash and cash equivalents at the end of the period


10,424

9,540





 

NOTES TO THE FINAL RESULTS

 

1.        General Information

This preliminary financial information does not constitute statutory accounts for the Group for the financial periods ended 30 April 2017 and 1 May 2016, but has been derived from those accounts. Statutory accounts for the financial period ended 30 April 2017 will be delivered following the Company's annual general meeting.  The auditors have reported on those accounts and their reports were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, however, this announcement in itself does not contain sufficient information to comply with IFRS. The accounting policies used in preparation of this announcement are consistent with those in the full financial statements which have yet to be published, and are extracted in note 2 below.

The principal activity of Conviviality Plc (the "Company") and its subsidiaries (together, the "Group" or "Conviviality") is that of wholesale of beers, wines, spirits, tobacco, grocery and confectionery to the UK On-Trade and Off-Trade markets.

The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is: Weston Road, Crewe, Cheshire CW1 6BP. The registered number of the Company is 5592636.

The financial information presented is for the 52 week period ended 30 April 2017 and the 53 week period ended 1 May 2016. The consolidated financial information is presented in sterling, which is also the functional currency of the parent company, and has been rounded to the nearest thousand (£000).

 

2.        Accounting Policies

The principal accounting policies applied in the preparation of the consolidated financial information are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of preparation

The Consolidated Financial Statements for the 52 weeks ended 30 April 2017 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial information has been prepared on a going concern basis and under the historical cost convention.

The Directors have prepared cash flow forecasts for the period until April 2019. Based on these, the Directors confirm that there are sufficient cash reserves and available working capital facilities to fund the business for the period under review, and believe that the Group is well placed to manage its business risk successfully. The Group is forecasted to be cash generative going forward. For this reason they continue to adopt the going concern basis in preparing the financial statements.

 

Restatements

 

On 7 October 2015 the Group acquired the entire issued share capital of Matthew Clark (Holdings) Limited. As of 1 May 2016, management had not finalised the fair value assessment of certain of Matthew Clark's assets and liabilities and as a result the 2016 results reflected the provisional assessment of the fair values as at the acquisition date. During the period ended 30 April 2017, management identified an additional fair value adjustment.  A provision of £5,824,000 was identified with a corresponding deferred tax asset of £1,779,000. This generated additional goodwill of £4,045,000. The balance sheet and applicable notes have been restated to reflect the above changes.  Further details are given in note 13 Business Combinations.

In addition, management have changed the classification of retrospective sales rebates, listing fees and franchise fees in the income statement.  In the prior period retrospective sales rebates of £22,056,000 were treated as a cost of sale, management now believe it is more appropriate to recognise these rebates as a reduction to revenue. In the prior period listing fees of £3,443,000 were recognised within cost of sales, management now believe it is more appropriate to recognise these fees within revenue.  Franchise fees of £2,024,000 were previously recognised as other operating income; these have been reclassified as revenue. The prior year comparative income statement and applicable notes have also been restated to reflect the above changes.

 

The classification of cash and cash equivalents in the cash flow statement has been amended to exclude the receivables financing facility.  The impact of the change is to increase the cash and cash equivalents reported in the prior period by £20,255,000 and to decrease the repayment of borrowings by £20,255,000.  The prior year comparative cash flow statement

Accounting Policies (continued)

 

and applicable notes have been restated to reflect these changes. There is no change in net debt as a result of the restatement.

Basis of consolidation

The financial information comprises a consolidation of the financial information of Conviviality Plc and all its subsidiaries. The financial period ends of all Group entities are coterminous.

Subsidiaries are all entities to which the Group is exposed, or has rights to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated except to the extent they provide evidence of impairment of the asset transferred.

The Group operates an Employee Benefit Trust ('EBT') and a Franchisee Incentive Trust ('FIT') for the purposes of acquiring shares to fund share awards made to employees and Franchisees respectively. The assets and liabilities of these trusts have been included in the consolidated financial information. The cost of purchasing own shares held by the EBT and FIT are accounted for in other reserves.

 

3.        Segment Information

The Group's activities consist of the wholesale and retail distribution of beers, wines, spirits, tobacco, grocery and confectionery within the United Kingdom to both the On-Trade and Off-Trade market. The Chief Executive Officer is considered to be the chief operating decision maker ("CODM").

 

Each trading division within Conviviality Plc wholesales to businesses that retail alcohol via stores, pubs, bars, restaurants and events. The performance of each division is therefore driven by the UK market for alcohol consumption, which is a single market with a single set of economic characteristics and risks. In addition 90% of the Group's sales are of the same products and the sales process is similar in each division and is serviced by a single supply chain. Consequently, all activities are reported as one segment. To assist with the understanding of performance, however, an analysis of sales is disclosed for each of the business units.

Revenue

 2017
 £'000

Restated

(note 2)

2016
 
£'000




Conviviality Direct

1,040,515

478,218

Conviviality Retail

378,014

359,363

Conviviality Trading

145,982

5,215

Inter-segment revenue

(4,430)

(1,775)

Total revenue

1,560,081

841,021

 

Figures in the column headed 2017 relate to the 52 weeks ended 30 April 2017. Figures in the column headed 2016 relate to the 53 weeks ended 1 May 2016.

 

Note 2 Accounting Policies provides detail on the restatement of prior year revenue.

 

The CODM manages the business using Adjusted EBITDA which is not a statutory profit measure. As required by IFRS 8 Operating Segments, the table below provides a reconciliation from this figure, to the reported profit before tax in the consolidated income statement:

 

 

 

 



2017
 £'000

2016
 £'000





Adjusted EBITDA


60,870

30,168

Depreciation


(4,560)

(2,833)

Amortisation of non-acquisition intangible assets


(2,871)

(1,335)

Share-based payment charge


(2,427)

(1,767)

Net finance expense


(5,221)

(2,502)

Adjusted profit before income tax


45,791

21,731

Exceptional items


(10,017)

(9,855)

Amortisation of acquisition intangible assets


(10,028)

(4,754)

Fair value movement of foreign exchange derivatives


(3,284)

1,958

Profit before income tax


22,462

9,080

 

No individual customer accounted for 10% or more of the Group's revenue in either 2017 or 2016.

 

The share-based payment charge above of £2,427,000 excludes share-based payment charges classified as exceptional of £497,000 (2016: £Nil) (see note 4).

 

The net finance costs of £5,221,000 above excludes exceptional finance costs of £229,000 (2016: £Nil) (see note 4).

 

 

4.        Operating Profit

(a) Operating profit is arrived at after charging / (crediting)


Note

2017    
 £'000    

2016    
 £'000    





Distribution costs


65,861

33,761

Depreciation of property, plant and equipment


4,560

2,833

Amortisation of intangible assets

10

12,899

6,089

Profit on disposal of property, plant and equipment


(621)

(65)

Operating lease payments




- Land and buildings


4,414

4,187

- Plant and machinery


4,571

3,621

Share based payment expense (non-exceptional)


2,427

1,767

Fair value of foreign exchange derivatives


3,284

(1,958)

Exceptional items

4(b)

9,788

9,855

 

(b) Exceptional items

The exceptional items are analysed below:

 



2017
 £'000

2016
 £'000

Within operating costs:




Costs associated with the acquisition of Matthew Clark (Holdings) Limited


-

5,941

Costs associated with the acquisition of Bibendum PLB Group Limited


1,644

31

Impairment of property, plant and equipment


390

-

Business integration and restructuring costs


8,699

3,322

Share-based payment costs


497

-

Costs associated with other business combinations


-

139

Increase in contingent consideration - Elastic Productions Limited


1,365

-

Release of contingent consideration - Peppermint Events Limited


(3,375)

-

Other non-recurring events and projects


568

422



9,788

9,855

Within finance costs:




Unwind of discount on fair value provisions and deferred consideration


229

-

Total exceptional items


10,017

9,855

 

The costs associated with the acquisition of Matthew Clark (Holdings) Limited and Bibendum PLB Group Limited include professional fees incurred during the acquisition.

Business integration and restructuring costs include employee, management and consultancy costs associated with the generation of buying, logistics and organisational synergies.

Share-based payment costs relate to employee share-based benefits awarded to retain specific employees to facilitate the integration of businesses.

Increase in contingent consideration relates to an increase in the deferred consideration payable in relation to the future acquisition of the remaining shares in Elastic Productions Limited.

The release of contingent consideration is due to a reduction in the estimated deferred consideration payable in relation to the future acquisition of the remaining shares in Peppermint Events Limited.

Costs associated with other business combinations in the prior period include £58,000 additional costs incurred in respect of the purchase of GT News (Holdings) Limited and £81,000 relating to the acquisition of Peppermint Events.

Included within Other non-recurring events and project costs of £568,000 (2016: £422,000) are costs relating to a one-off cash bonus of £323,000 paid to Diana Hunter on 13 September 2016 and £245,000 relating to the unwind of a favourable lease creditor in Matthew Clark. The prior year costs relate to professional and consultancy charges arising from one-off transactional activity of £208,000 and restructuring and reorganisation costs of £214,000 following an exercise to create efficiencies and streamline processes.

 

 

5.        Finance Income and Expense



2017    

2016    



£'000    

£'000    

Finance income




Bank interest receivable


2

24

Other interest receivable


60

-

Total finance income


62

24





Finance expense

 




Non-exceptional:




Working capital financing facilities


1,659

376

Term loans


2,759

1,436

Tobacco guarantees


315

229

Amortisation of arrangement fees


416

231

Non-utilisation charges


47

235

Interest on finance leases


18

-

Other bank interest


69

19



5,283

2,526

Exceptional:




Discount unwind on Accolade provision


154

-

Discount unwind on Peppermint contingent consideration


75

-



229

-





Total finance expense


5,512

2,526

6.        Income Tax

 

 

Current tax:




2017
 £'000

2016
 £'000

Current tax on profits for the period



6,323

4,579

Adjustment in respect of prior periods



132

(25)

Total current tax



6,455

4,554

Deferred tax:





Origination and reversal of temporary differences



(2,535)

(884)

Changes in taxation rate



96

140

Total deferred tax



(2,439)

(744)

Income tax expense



4,016

3,810

 

 

 

 




2017
 £'000

2016
 £'000

Tax on profit before exceptional items



6,105

4,159

Tax on exceptional items



(2,089)

(349)

Income tax expense



4,016

3,810

 

 

 

Amounts recognised in equity:

 




2017
 £'000

2016
 £'000

Deferred tax on share-based payment charge



(249)

(364)

Deferred tax on interest rate swap



(104)

-

Total amounts recognised in equity



(353)

(364)

 

The tax charge differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:



2017
 £'000

2016
 £'000

Profit before tax                                                                                        


22,462

9,080

Profit on ordinary activities multiplied by rate of corporation tax in the UK of 19.91% (2016: 20.00%)


4,473

1,816

Tax effects of:




- Expenses not deductible for tax purposes


278

1,764

- Changes in taxation rate


(46)

165

- Share-based payment


(527)

(16)

- Adjustment in respect of prior periods


(193)

132

- Non-qualifying depreciation


262

-

- Movement in deferred tax not provided


(329)

(46)

- Other differences


98

(5)

Tax charge


4,016

3,810

 

Factors that may affect future tax charges

Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and to 17% (effective from 1 April 2020) were substantively enacted on 26 October 2015 and 6 September 2016 respectively.  The reductions in rate will reduce the company's future tax charge accordingly and the relevant deferred tax balances have been re-measured with consideration to the reduction in rate to 17% in accordance with the rates enacted at the balance sheet date.

 

 

7.        Earnings Per Ordinary Share

As at 1 May 2016 155,238,488 ordinary shares were in issue. During the year, an additional 17,404,446 ordinary shares were issued giving 172,642,934 shares in issue as at 30 April 2017.

 



2017

2016

Profit attributable to ordinary shareholders (£'000)

18,446

5,270

Basic earnings per share (pence)


10.8

4.6

Diluted earnings per share (pence)


10.4

4.4

 

 

Basic and diluted earnings per share are calculated by dividing the profit for the period attributable to equity holders by the weighted average number of shares.



2017
Number

 

2016
Number

 

Basic weighted average


170,142,975

115,263,828

Diluted weighted average


176,985,247

119,429,816

 

 

The basic weighted average number of ordinary shares is calculated as follows:



2017
Number

 

2016
Number

 

Ordinary shares in issue at the start of the period


155,238,488

66,940,383

-       Effect of Employee Benefit Trust (EBT) shares held

(897,755)

(954,755)

-       Effect of shares issued for the Franchise Incentive Plan (FIP)

556,697

-

-       Effect of shares issued for the Share Inventive Plan (SIP)

413,387

178,098

-       Effect of shares issued for the Matthew Clark acquisition

-

48,355,795

-       Effect of shares issued for the Bibendum PLB Group acquisition

14,794,962

-

-       Effect of shares issued for the Zeus Capital warrant

-

744,307

-       Effect of shares options granted

37,196

-

Weighted average number of ordinary shares at the end of the period

170,142,975

115,263,828

 

The difference between the basic and diluted average number of shares represents the dilutive effect of share options and warrants in existence. The weighted average number of shares can be reconciled to the weighted average number of shares including dilutive shares as follows:



2017
Number

 

2016
Number

 

Basic weighted average shares


170,142,975

115,263,828

Diluted effect of:




-       Exceptional employee share incentive plans, resulting from IPO

816,914

814,749

-       Long term incentive plan

786,029

-

-       Employee share incentive plans

2,048,579

1,280,019

-       Franchisee share incentive plan

3,190,750

2,071,220

Total dilutive effect of share incentive plans

6,842,272

4,165,988




Diluted weighted average number of shares

176,985,247

119,429,816

 

Adjusted earnings per share

Although not presented on the face of the Income Statement, the adjusted earnings per share is based on adjusted profit before tax with the non-exceptional effective tax rate applied. Adjusted earnings per share is calculated in the table below. A reconciliation of profit before tax to adjusted profit before tax is shown in note 3.

 



2017

2016

Adjusted profit before income tax (£'000)


45,791

21,731

Tax at effective tax rate - 18.8% (2016: 22%) (£'000)

(8,586)

(4,781)

Adjusted profit attributable to ordinary shareholders (£'000)

37,205

16,950

Adjusted Basic earnings per share (pence)

21.9

14.7

Adjusted Diluted earnings per share (pence)

21.0

14.2

 

Adjusted basic and diluted earnings per share are calculated by dividing the adjusted profit before income tax of £45,791,000 (note 3), less tax at the effective rate of 18.8% (£8,586,000), by the weighted average number of shares, which is the same as disclosed in the tables above.

8.        Dividends

 

Amounts recognised as distributions to ordinary shareholders in the period comprise:


2017

2016



  Final dividend for 2016 of 7.4 pence and 2015 of 6.3 pence per ordinary share

12,785

4,235

  Interim dividend for 2017 of 4.2 pence and 2016 of 2.1 pence per ordinary share

7,237

3,260

  Less amounts received by the Employee Benefit Trust

(108)

(81)


19,914

7,414

 

The 2017 final proposed dividend of £14,502,000 (8.4 pence per share) has not been accrued as it had not been approved by the period end. Sufficient reserves are in place to pay the final proposed dividend.

 

 

9.        Goodwill


Restated

Total

£'000

Cost and net book value


As at 26 April 2015

42,870

Acquisitions through business combinations

133,955

Other acquisitions

796

Other disposals

(130)

As at 1 May 2016

177,491

Acquisitions through business combinations (note 13)

33,107

Other acquisitions (note 13)

396

 

Other disposals

-

As at 30 April 2017

210,994

Other acquisitions in the period relate to a number of individual smaller store acquisitions for a total cash consideration of £396,000 (2016: £796,000) all of which has been recognised as goodwill. When purchasing individual stores the Group is purchasing both the trade and assets of the store.

Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination or are established as a result of the business combination. The carrying amount of goodwill has been allocated as follows:

Goodwill as at 1 May 2016 has been restated due to an increase of £5,824,000 in an acquisition fair value provision in Matthew Clark (Holdings) Limited, offset by a decrease of £1,779,000 relating to the deferred tax asset relating to this fair value provision (note 2).


2017

2016


£'000

£'000

Bargain Booze

43,228

42,832

Wine Rack

720

720

Matthew Clark (Holdings)

126,483

126,483

Peppermint Events

7,456

7,456

Bibendum PLB Group

30,488

-

KMD Enterprises

2,619

-


210,994

177,491

Goodwill has an indefinite useful life and is subject to annual impairment testing. The recoverable amounts of the CGUs are determined from value-in-use calculations. The value in use is the present value of the pre-tax cash flow projections. The key assumptions used in determining value in use are growth rates and the discount rate.

For each CGU, cash flow projections are based on the most recent financial budgets approved by management for one year. Subsequent cash flows are extrapolated using an estimated annual growth rate of 2% for a further four years and terminal growth rates of 1% are then applied to perpetuity. The rate used to discount the projected cash flows, being a pre-tax risk-adjusted discount rate, is 7.55% (2016: 7.40%). This has been calculated using the Group's weighted average cost of capital, taking account of market assessment of risks. Risk factors are similar in each of the Group's CGUs. All assumptions apply to all CGU's due to each CGU wholesaling to businesses that retail alcohol via stores, pubs, bars, restaurants and events and the performance of each CGU is therefore driven by the UK market for alcohol consumption which is a single market with a single set of economic characteristics and risks.

 

Management have reviewed the key assumptions in the forecast and have concluded that no impairment is required in respect of the carrying values of the goodwill. A sensitivity analysis on the impairment test of each CGU's carrying value including reducing sales levels, and increasing the discount rate has also been carried out.

 

10.      Intangible Assets


Other

 

£'000

Brands & customer base

£'000

Total

 

£'000

Cost




As at 26 April 2015

806

1,180

1,986

Acquisitions through business combinations

3,313

62,943

66,256

Additions

4,158

-

4,158

As at 1 May 2016

8,277

64,123

72,400

Acquisitions through business combinations (note 13)

100

10,840

10,940

Additions

9,668

-

9,668

Disposals

(11)

-

(11)

As at 30 April 2017

18,034

74,963

92,997





Amortisation




As at 26 April 2015

79

74

153

Charge for the year

1,252

4,837

6,089

As at 1 May 2016

1,331

4,911

6,242

Charge for the year

2,871

10,028

12,899

Disposals

(5)

-

(5)

As at 30 April 2017

4,197

14,939

19,136





Net book value




As at 30 April 2017

13,837

60,024

73,861

As at 1 May 2016

6,946

59,212

66,158

Acquired brands and customer bases are initially recognised at their fair value on acquisition. Acquired brands are amortised over 10 years and customer bases are amortised over their expected life of between 5 and 6.5 years.

Other intangible assets are predominantly software costs which are initially recognised at their cost on acquisition and amortised over 5 years.

 

 

11.      Borrowings

Current

           2017
           £'000

              2016
              £'000

    Term loan A

13,972

8,000

    Arrangement fees on term loans

(193)

(165)

    Receivables financing facility

10,741

20,255

    Obligations under finance leases (due in less than one year)

131

47

   Total Current

24,651

28,137

Non-current



   Term loan A

31,806

28,000

   Term loan B

50,000

40,000

   Arrangement fees on term loans

(622)

(565)

   Obligations under finance leases (due between two and five years)

335

75

   Total  Non-current

81,519

67,510

   Total

106,170

95,647

 

On 16 January 2017 the Group's receivable financing facilities were restructured to reduce costs and increase flexibility. Under the new agreement the Group can sell any debts owed to Matthew Clark Wholesale Limited, Bibendum PLB Group Limited and Bargain Booze Limited by its customers who have purchased goods or services. The maximum facility available is 85% of the allowable trade receivables up to £130m.  The discount margin for the funding of debts is 1.25%.  There is a non-utilisation fee of 0.5% of the available facility payable during the minimum period of the facility being 24 months from the date of the agreement. The agreement terminates in October 2020. An arrangement fee of £150,000 was incurred and is being amortised over 3 years. The Group's existing senior term and revolving facilities agreement have been revised. Term loan A has increased from £40m to £51m and Term loan B has increased to £50m.

 

The Group has a revolving credit facility (RCF) totalling £30,000,000 which was undrawn at 30 April 2017. In addition the Group had an Accordion option of £15,000,000 which is unutilised at 30 April 2017.

The interest margin payable on the two terms loans and the RCF is 2.5% above Libor. A non-utilisation fee of 1.0% is payable on the RCF up to the agreement termination date of 7 September 2020. An arrangement fee of £1,260,000 was incurred on this agreement. The element relating to the RCF (£437,000) is being amortised through prepayments over the life of the agreement. The element relating to the term loans (£823,000) is being amortised over the life of the agreement with the balance as at 30 April 2017 of £815,000 (2016: £730,000) being netted off against the term loans in short term and long term borrowings.

 

The senior term and revolving facilities agreement terminates on 7 September 2020 and the two term loans are repayable as follows:


Term Loan A £60,000,000

Term Loan B £50,000,000

    24 April 2016

4,000

-

    23 October 2016

5,111

-

    30 April 2017

5,111

-

    31 May 2017

1,250

-

    29 October 2017

6,361

-

    29 April 2018

6,361

-

    28 October 2018

6,361

-

    28 April 2019

6,361

-

    27 October 2019

6,361

-

    26 April 2020

6,361

-

    Termination date (7 September 2020)

6,362

50,000

    Total

60,000

50,000

 

The RCF is repayable at the end of each interest period. The interest period can be selected by the Group at the point of drawdown and can be one, three or six months.

 

All amounts outstanding under the facilities are secured by debentures over certain assets of the Group.

 

 

12.      Cash Generated From Operations and Net Debt



2017
 £'000

2016
 £'000

Profit  for the financial period


18,446

5,270

Income tax expense


4,016

3,810

Profit before income tax


22,462

9,080

Adjustments for:




- Depreciation and impairment


4,950

2,833

- Amortisation


12,899

6,089

- Profit on sale of property, plant & equipment


(621)

(65)

- Equity settled share options charge


2,724

1,661

- Change in fair value of foreign exchange derivatives


3,284

(1,958)

- Net finance costs (note 5)


5,450

2,502

- Increase in inventories


(8,557)

(5,358)

- Increase in trade and other receivables


(17,370)

(7,984)

- Increase in trade and other payables


47,920

11,904

- Decrease in provisions


(4,653)

(410)

- Costs associated with acquisition and integration of subsidiaries


9,788

8,956

Cash generated from operations


78,276

27,250

 

 


Net debt as at 1 May 2016 

Cashflow

Net debt as at 30 April 2017


£'000

£'000

£'000

Current borrowings (note 11)

(28,137)

3,486

(24,651)

Non-current borrowings (note 11)

(67,510)

(14,009)

(81,519)

Total debt

(95,647)

(10,523)

(106,170)

Cash at bank and in hand

9,540

884

10,424

Net debt

(86,107)

(9,639)

(95,746)

 

 

 

13.      Business Combinations

 

Current period business combinations

 

Bibendum PLB Group

On 20 May 2016, the Group entered into an agreement to acquire the entire issued share capital of Bibendum PLB Group for a total consideration of £39.7 million in cash. Bibendum PLB Group is a leading independent wholesaler in the drinks industry specialising in wines and spirits.  This acquisition is consistent with the Group's ongoing strategy of expanding the Group's wholesaling expertise and entering new markets and channels. The acquisition, together with the current businesses in the Group, creates a unique offering that addresses both the On-Trade and Off-Trade retailers. Significant synergies across buying, distribution, organisational efficiencies and additional revenue generation are expected to be achieved by bringing the businesses together.

 

The following table summarises the consideration paid for Bibendum PLB Group, and the amount of assets acquired and liabilities assumed recognised at the acquisition date.

 


 

Book value

Fair value adjustments

Fair value


£'000

£'000

£'000

Property, plant and equipment

1,899

(108)

1,791

Intangible assets

1,528

(1,428)

100

Inventories

28,805

(5,935)

22,870

Derivatives

403

-

403

Trade and other receivables

59,924

(3,735)

56,189

Net debt and debt like items

(19,147)

-

(19,147)

Trade and other payables

(59,222)

(4,631)

(63,853)

Corporation tax liability

(683)

-

(683)

Deferred tax (liability)/asset

(169)

834

665

Total identifiable net assets

13,338

(15,003)

(1,665)





Allocation to intangible assets - Brands (note 10)



6,307

Allocation to intangible assets - Customer Base (note 10)



4,533

Goodwill (note 9)



30,488

Total consideration satisfied by cash



39,663





    Cash flow

Cash consideration



39,663

Debt acquired with subsidiary



19,147

Acquisition costs



1,644




60,454

 

The goodwill arising on acquisition represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised on the acquisition of Bibendum PLB Group; these largely relate to synergy and integration benefits. On the acquisition of Bibendum PLB Group, the fair value of assets and liabilities has been assessed and adjustments made as shown in the table above.

Within property, plant and equipment a fair value adjustment of £0.1 million was made to write down assets to their fair value. Within inventories, a fair value adjustment of £5.9 million was made which represents the adjustment required to bring inventories to their net realisable value.  Within intangible assets the fair value adjustment of £1.4m predominately related to impairments of IT systems. Within trade and other receivables a number of fair value adjustments totalling £3.7 million relating to recoverability of the debtors were made to write down assets to their fair value. Within trade and other payables a number of additional accruals have been made to reflect fair values totalling £4.6 million.

A deferred tax liability of £2.0 million has been recognised on the brand and customer base intangible assets, offset by a deferred tax asset of £2.8 million on fair value adjustments.

From the date of acquisition Bibendum PLB Group has contributed revenue of £275.0 million and £4.3 million to profit before tax to the Group's results. Acquisition costs of £1,644,000 have been charged to exceptional costs in the consolidated income statement for the period.

 

KMD Enterprises

On 4 December 2016, the Group entered into an agreement to acquire the entire issued share capital of KMD Retail Limited and Xcel Retail Limited for a total consideration of £4.0 million in cash plus normalised working capital on a debt/cash free basis. KMD Enterprises and Xcel Retail is a chain of 15 high quality convenience stores branded as Nisa Local operating at various locations in the UK. This acquisition is consistent with the Group's ongoing strategy of focusing on key regions to improve store density and drive logistics and marketing efficiencies. All of the stores have been rebranded under the Bargain Booze Select Convenience fascia.

 

The table below summarises the consideration paid for KMD Enterprises Limited and Xcel Retail Limited and the amount of assets and liabilities assumed recognised at the acquisition date.

 

 


 

Book value

Fair value adjustments

Fair value


£'000

£'000

£'000

Property, plant and equipment

1,141

-

1,141

Inventories

589

-

589

Receivable due from the seller

1,950

-

1,950

Trade and other receivables

282

-

282

Cash and cash like items

171

-

171

Trade and other payables

(743)

-

(743)

Corporation tax liability

(62)

-

(62)

Deferred tax asset

37

-

37

Total identifiable net assets

3,365

-

3,365





Goodwill (note 9)



2,619

Total consideration



5,984





    Cash flow

Total consideration



5,984

Less payable due to the seller



(1,950)

Cash consideration



4,034

Net cash acquired with subsidiary



(171)

Acquisition costs



(85)




3,778

 

Following the acquisition, a loan of £1,950,000 both due to and from the seller were novated, extinguishing the balances due from both parties.

The Goodwill arising on acquisition represents the premium paid to acquire KMD Enterprises Limited and Xcel Retail Limited in a key region providing significant opportunities for increased wholesale sales and cross-selling and other synergies.  Goodwill has been allocated to the KMD CGU. There are no separately identifiable intangible assets as the Nisa Local brand name was not acquired and the customer base was deemed to have no value.

Management have not yet finalised its assessment of the fair values at the acquisition date.  This is expected to be completed during 2017.

In addition to the acquisitions set out above, the Group has also completed a number of individual smaller store acquisitions for a total cash consideration of £396,000 (2016: £796,000), all of which has been recognised as goodwill. When purchasing individual stores the Group is purchasing both the trade and assets of the store.

 

 

Prior period business combinations

 

Matthew Clark (Holdings) Limited        

On 7 October 2015, the Group entered into an agreement to acquire the entire issued share capital of Matthew Clark (Holdings) Limited for a total consideration of £199.0 million in cash. Matthew Clark (Holdings) Limited is a leading independent wholesaler in the drinks industry.  This acquisition is consistent with the Group's ongoing strategy of expanding the Group's wholesaling expertise and entering new markets and channels. The acquisition, together with the current businesses in the Group, creates a unique offering that addresses both the On-Trade and Off-Trade retailers. Significant synergies across buying, distribution, organisational efficiencies and additional revenue generation are expected to be achieved by bringing the businesses together.

 

The following table summarises the consideration paid for Matthew Clark (Holdings) Limited, and the amount of assets acquired and liabilities assumed recognised at the acquisition date.


 

Book value

Fair value adjustments

Fair value


£'000

£'000

£'000

Property, plant and equipment

4,074

(891)

3,183

Intangible assets

3,624

(311)

3,313

Inventories

44,238

(266)

43,972

Trade and other receivables

116,738

(359)

116,379

Net debt and debt like items

(10,838)

(247)

(11,085)

Trade and other payables

(122,979)

(1,084)

(124,063)

Derivatives

(634)

-

(634)

Deferred tax liability

402

(10,080)

(9,678)

Provisions

(603)

(10,991)

(11,594)

Total identifiable net assets

34,022

(24,229)

9,793





Allocation to intangible assets - Brands (note 10)



23,900

Allocation to intangible assets - Customer Base (note 10)



38,800

Goodwill (note 9)



126,483

Total consideration satisfied by cash



198,976





Cash flow




Cash consideration



198,976

Debt acquired with subsidiary



11,085

Acquisition costs (expensed to exceptional operating costs)


9,263

Acquisition costs (accrued and not yet paid out)


(477)




218,847

 

Adjustments made to the fair value of assets acquired include the recognition of the deferred tax liability relating to the intangible asset (£10.1 million), additional provisions and accruals to recognise three onerous contacts that were in place at acquisition (£11.0 million which has been recalculated this year and uplifted by £5.8 million), additional provisions to recognise that renovation works needed to be carried out at specific depots (£1 million) and impairments for property plant and equipment that is impaired at the point of acquisition (£0.9 million). A deferred tax asset of £1.8 million has been recognised in these financial statements relating to the fair value adjustment of onerous contracts. Goodwill has increased by net £4.0 million as a result of the measurement period adjustments. The comparative balance sheets have been restated to reflect these measurement period adjustments.

 

The Goodwill arising on acquisition represents the premium paid to acquire Matthew Clark (Holdings) Limited and the future economic benefits arising from other assets acquired in the business combination that are not individually identified and separately recognised on the acquisition of Matthew Clark (Holdings) Limited; these largely relate to synergy and integration benefits. Goodwill has been allocated to the Matthew Clark (Holdings) cash-generating unit ('CGU').

 

Peppermint Events Limited

 

On 31 December 2015, the Group entered into an agreement to acquire 61% of issued share capital of Peppermint Events Limited for a total consideration of £1.8 million in cash plus contingent consideration of £6.2 million. This is contingent on meeting EBITDA targets for financial years ended 2017, 2018 and 2019. The transaction is subject to an initial earn-out performance based payment during 2017 and 2018 up to a total of £800,000. There is an earn-out put option in respect of the remaining 39% of the ordinary share capital. The put and call option allows the non-controlling shareholder to require sales of their shares to the Group at an agreed pricing method between 2019 and 2020 based on EBITDA up to a total of £9,200,000. The timing of the final earn-out will depend on whether Peppermint Events exceeds an EBITDA target that has been set for financial year 2019. If the target is not met the earn-out moves to financial year 2020.

 

The company has agreed to pay the vendors additional consideration dependent on the performance of Peppermint Events over the subsequent four financial years. The estimated range of the additional consideration payment is estimated to be between £Nil and £10,000,000.  The Company has included £6,159,000 as contingent consideration related to the additional consideration, which represents the amount determined at the acquisition date based on forecast EBITDA for the next three years discounted to net present value.  However, following the end of the 12 month hindsight period the contingent consideration has been reassessed as £2,859,000 as at 30 April 2017, with a subsequent release of contingent consideration of £3,375,000 which has been included within exceptional items (note 4) and finance costs of £75,000 representing the unwind of the discount on the contingent consideration (note 5). 

 

The valuation model for the contingent consideration considers the present value of the expected payment, discounted using a risk-free rate of 2.7%. The expected payment is determined by considering the possible scenarios of forecast revenue and EBITDA, the amount to be paid under each scenario and the probability of each scenario.

 

The acquisition of Peppermint Events Limited has been accounted for using the anticipated acquisition method as if the put and call option has already been exercised and therefore no non-controlling interest has been recognised.

 

Peppermint Events Limited is an independent events company specialising in bars and events in the outdoor event arena including festivals. This acquisition is consistent with the Group's ongoing strategy of focusing on new markets and channels.

The following table summarises the consideration paid for Peppermint Events Limited, and the amount of assets acquired and liabilities assumed recognised at the acquisition date.


 

Book value

Fair value adjustments

Fair value


£'000

£'000

£'000

Property, plant and equipment

225

(23)

202

Inventories

152

(15)

137

Trade and other receivables

179

(12)

167

Cash and cash equivalents

536

-

536

Trade and other payables

(596)

-

(596)

Borrowings (short term)

(46)

-

(46)

Current tax payable

(6)

-

(6)

Deferred tax liability

(26)

(48)

(74)

Borrowings (long term)

(60)

-

(60)

Total identifiable net assets

358

(98)

260





Allocation to intangible assets - Brands (note 10)



243

Goodwill (note 9)



7,456

Total consideration



7,959





Cash flow




Cash consideration



1,800

Contingent consideration (payable April 2017, April 2018 & April 2019)


6,159

Cash acquired with subsidiary



(536)

Acquisition costs (expensed to exceptional operating costs)



81




7,504

Significant adjustments made to the fair value of assets acquired include the recognition of the deferred tax liability relating to the intangible asset, provision for doubtful debts and obsolete stock and impairments for property, plant and equipment.

The goodwill arising on acquisition represents the premium paid to acquire Peppermint Events Limited in a key channel providing significant opportunities for increased wholesale sales and cross-selling and other synergies. Goodwill has been allocated to the Peppermint Events cash-generating unit ('CGU').

Acquisition costs of £81,000 have been charged to exceptional items in the consolidated income statement for the period (note 4). These represent legal costs incurred during the acquisition.

 

14.      Events Occurring After the Reporting Date

There are no material events after the reporting date.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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