"For us investors, there must be valuable lessons to be learnt from this story, of which I have not followed
I am wondering what they are..."
It's already been said that you shouldn't invest in something just to reduce tax, e.g. investing in an AIM stock to avoid inheritance tax. It should look like a good investment even without the tax benefit.
There's a good piece in the latest Investors Chronicle titled "The warning signs that Aim investors can't afford to ignore", by Chris Boxall, a co-founder of Fundamental Asset Management. FAM exited CVR due to some warning signs. I don't want to give all of them away, but two concerned changes of policy. One departure was to grow through aggressive acquisition, following a lack of growth through the retail franchise operation.
Chris doesn't use the term "competitive advantage" (which I commented about earlier), but if the original business had one, it would have grown market share. I mentioned Accrol's lack of competitive advantage in my previous comment. Chris's article mentions that the risk section of Accrol's AIM admission document includes the risk of parent rolls going up in price and affecting the business. If I'd bothered to read the document and seen the risk, it would have confirmed my suspicion that the business lacked a plausible competitive advantage, that would have given it some pricing power. A related point from Chris is that mature safe-looking businesses can be very unsafe. Also see "Private-equity backed listings underperform rest of IPO market" https://www.telegraph.co.uk/business/2018/03/04/private-equity-backed-listings-underperform-rest-ipo-market/
I think if you want safety you should avoid acquisitive companies that pile up debt, though I suppose most won't be as inept as CVR about managing the cash flow. I think avoiding companies with lots of debt can be tricky because ones in safe industries like utilities tend to compensate by piling on debt to juice up returns, while a recruitment company (for example) holding a lot of cash is likely to be doing so because the business is highly cyclical. You want a strong balance sheet relative to the company's risk, and it helps if there are grounds to believe management will keep it that way.
The previous paragraph isn't as relevant if you're investing for growth and accepting risk. Back in US history, Rockefeller took on a lot of debt, but he had a big competitive advantage, using all the fractions of crude oil when small operators extracted gasoline and dumped the rest. The Greek shipping magnate Aristotle Onassis used "other people's money", and said he only put his hand in his pocket to scratch his b***s.
Maybe some investors shouldn't be picking stocks (megaloss made a similar point). I believe there are strategies with a reasonable chance of beating the market. One is to invest in a low-volatility ETF, if you can find a good enough one. Possible problems are, It isn't absolutely certain that low-vol will continue to outperform (in the long run), most of the research on low-vol is US-based, and the choice available in the UK for factor-based ETFs isn't as good.
I don't think you should feel too badly for private investors, meanbugger. Yes I lost 2/3rds of my investment in this and was lucky to sell out before suspension, but we all go into these things with eyes wide open. It was a small percentage of my portfolio and anyone who lost more than that should have been sticking to unit trusts, frankly..
I will be more careful in future to invest only in the businesses I really understand. I am really happy that at least the employees' livelihoods have been safeguarded by this rescue and that a safe set of hands seems to have been found, I'm an enthusiastic consumer of the craft beer products in my local Wine Rack and the kids working there deserve to be treated properly..let's all learn and move on..FSA enquiries won't tell us anything we don't already know, the ex-Board of Conviviality are probably pretty well unemployable now anyway, surely?
As expected Bestway have bought Bargain Booze for an absolute song. They were by far the most suitable purchaser with the management to handle such an extensive operation. From an industry point of view C&C and Bestway are much more responsible homes for £2 billion of turnover than Conviviality's management.
Tiger you say the big investors have taken their eye of the ball big style. I would argue that the big investors - the Schroders and the Blackrocks generally gave this a wide berth. As a consequence the shareholder list was mainly inheritance tax planning portfolios who thought they were being risk averse and probably didn't look too hard under the bonnet.
I feel for the private shareholders who've lost money here. It just shows that having a better quality NOMAD and institutional shareholders (although not the top ones) is no protection from a corporate disaster.
we spent 260m on 4 companies and sold it all for £1.00 plus 100m of debt.
That pays the bank off.
Then we sell the entire retail division for 7.50 m
Remember this company was just a month ago making 55m EBITDA.
Clearly this has been a shocker as no controls were in place. Problems must have been there as nothing unwinds so fast.
The big investors have taken their eye off the ball big style. The BOD Were at best incompetent.
A full enquiry is essential
You can see why the fundraising wasn't backed. They bought the company for £7.5m from administrators! Probably just about enough to pay PWC's fees for an afternoon's work as administrator. Shareholders won't get a penny. What a right royal mess.
This is a prime lesson is how shareholders can get absolutely destroyed, while the directors, advisers and luckily staff get their pockets lined. Luckily I wasn't in this but if i was i would be sicker than after Carillion. At least with that you can tell yourself you should have seen it coming, with this it's happened so fast and it's still not really clear what happened. Went from a decent company, paying dividends to suddenly saying their accounts were not worth the paper they were written on and that they needed bucketloads of cash to stay afloat.
Personally I think this company just had a cashflow issue, but because this was at the same time as they admitted their controls were useless, nobody could trust the numbers enough to give them £125m of their cash. So the end result is probably somebody has bought a decent business for next to nothing from shellshocked shareholders.
Tiger, what puzzles me is why the board didn't realise cash was going to be tight and look to raise some extra funds when the share price was buoyant. I know it would have been earnings-dilutive replacing cheap debt with more expensive equity but it's better to be pro-active rather than waiting until it is too late. I can only conclude that the board and finance department were totally clueless and blinded by the strength in the share price and the value of their options.
I think the reason there weren't any profit warnings for shareholders was because the board didn't realise what was happening. I can't see how the FCA can be expected to protect shareholders from management who are asleep on the job or from businesses with vicious swings in their peak cash requirements.
In the past I have made negligible value claims as soon as a company has gone into administration or receivership with no prospect of a return to shareholders and HMRC has accepted the claims. When a company is dissolved then it is a disposal and you cannot make a negligible value claim thereafter. HMRC produces a list of stocks with accepted negligible value status but there is nothing to stop someone claiming for a stock before it appears on this list. I'm not a shareholder in Conviviality however if I was I'd definitely be claiming negligible value as at 5/4/18 for the tax year just finished unless it turns out there is a prospect of some payment to shareholders.
I am not sure you are correct about CGT. Methinks negligible value status is only given by HMRC when a company is struck off the Register, and this only happens when the Administrator has distributed any available funds to the creditors. Even then the Court has to give a tick in the box. All this takes time.
I'm thinking that we might get a statement tomorrow saying that based on the indicative offers for the retail businesses there is no realistic prospect of any return to shareholders. This would allow the shares to be treated as valueless for capital gains tax for the tax year ending tomorrow. It's of no benefit though to those with the shares in a SIPP or an ISA.
Alternatively if they are not in a position to say that tomorrow then there might be an outside chance of a penny or two for shareholders. It's in no-one's interests to allow this to drag on so I'd expect the retail businesses to be sold rather being put into administration.
Sadly not good for shareholders here as sale of trading companies to C&C has gone through & administrators will have been appointed to unlisted holding company .I expect work is going on to salvage the retail business via a buyer.
Yes C&C are the most logical buyer of the Matthew Clark and Bibendum businesses. The deal is conditional on the intermediate holding company Conviviality Brands Ltd being put into administration thus avoiding any inter-company debt problems.
PwC are desperate to avoid the nightmare of putting the operating businesses into administration given the number of customers and suppliers. Hopefully deals can also be done for the retail businesses allowing CVR to be quietly put to sleep.
I'm expecting an update at 7.00 am on Tuesday regarding any success in selling some of the businesses before the appointment of PwC as administrators. I'm not sure much value can be preserved but everything helps. I understand Bestway/Batleys are considered one of the possible buyers of Bargain Booze/Matthew Clark but there has been a fair bit of interest in some of the smaller Conviviality operations.
A sad end and sickening for CVR shareholders. Hopefully lessons will be learned.
Only really of contextual relevance now... there will be no triumphant return from suspension here (there rarely is). Over to the administrators (most likely) to see if they can pull any kind of rabbit out the hat...
The advisers will have questions to answer, and I'd imagine these are already being asked... not least about the 'keystone cops' debacle of the latter staccato series of announcements and revelations. Perhaps the auditors too, though less so... unless big problems with historic accounts are unearthed.
But it is the directors who face the lion's share of scrutiny - and (quite likely) retributive action, one way or another. You can absolve them (I think) of the charge of knowingly trading while insolvent, given the CEO and CFO share purchases following the first warning - the latter being particularly painful, he must be hopping mad - but not that of being nowhere near on top of what the **** was going on inside their business. And while that might be the lesser charge in the eyes of the law, you can rest assured it is not in the eyes of the shareholders...
"Conviviality through its Matthew Clark and Bibbendum subsidiaries is the dominant on-trade supplier to the UK hospitality sector, serving around 23,000 outlets out of a market size of c.45,000. It was thus in the hospitality and drink manufacturers interest that Conviviality secured the necessary funding, both from a supply and competitive pricing perspective. The fact that it has not will have clear short term supply issues for both sectors. Given wider consumer and cost related challenges currently facing the sector and the significance of Easter trading this is clearly a negative of varying degrees for the quoted pubs & restaurant sector. Our understanding is that the majority, if not all, of the pubs and restaurant stocks have exposure to Conviviality in terms of drinks supplies."
"Given the retail and wholesale nature of the Group, the franchise business, Bargain Booze and the major drinks distributor that Matthew Clark is in the UK, there is clearly need for pace so that the business does not simply fall apart through a lack of product on the shelves and in the bar, with all of the consequent personal and corporate damage.
We note the group continues to trade at present post a number of inbound enquires regarding a sale of all or part of the business. We also point out that customers of the group business can chose to use other suppliers to stock their shelves and suppliers to
Conviviality are likely to have stopped supplying product now for fear to not being paid. All this puts intense pressure on the business hence the need for some sort of resolution sooner rather than later.
Who would be interested in acquiring the group? As to potential suitors for Conviviality, todays announcement confirms there is interest and we believe the interested parties are likely to be from different market segments. The complication for us is likely to be how many would be interested in the group in its current structure to enable a quick sale. Depending on due diligence, we believe private equity could be an acquirer of the entire group assuming it sees Convivialitys issues as operational ones that are fixable and confidence could be rebuilt in its customer and supplier base. The acquisition could be done with a view for follow selective disposals to help fund any such deal in due course."
Nice to know that about AIM index but i wonder if that's due to the recent sell off i have noticed on big falls in indices my AIM ones do not fall as much.
Guess it because they are less liquid .
Whats the compassion over 3,5 and 10 years ?
Lucky I'm not in this one .
I see in news below Alistair Strang "chart guy " wrote on 15 march ( two weeks ago ) " a pick from bargain bin ".
Sorry to see a few of my favorites posting here i hope you did not lose to much .
old punter, it was HM Government that wanted AIM promoted as an IHT shelter, which puts AIM firmly in the widows and orphans category. I find it hard to disagree with your logic on regulation or the lack of it, but this really does mean its not fit for purpose as an investment vehicle for widows and orphans. So why give the tax break in the first place?
Points made by oer posters on heeding profit warnings are well taken..I sold as soon as I could after the first profit warning so at least salvaged something and havent been left with a useless shareholding. I think this is a sound practice to follow, even if the stock comes good later its usually a few years later so your money is SO much better invested elsewhere meanwhile.
The assets of this company meanwhile are going to be available at a rock-bottom price and a few guys will no doubt make loads and loads of dosh out of turning this around. I wonder if someone out there is assembling the dream team as we speak?
old_punter, well done for a gain on Accrol. Your mention of Accrol is my excuse to go on about the company. I had little interest in a tissue converter because I saw little chance of it having a competitive advantage. When the results were good and the stock rose, I wondered what I'd missed, but didn't bother looking into it. Then came bad news, with the higher price of "parent rolls" (if that's the term) featuring. It looked like it was just a commodity business all along, with no serious competitive advantage. Someone else could probably say if they did well for a while because of favorable prices, lucky hedging, 'exaggeration', or whatever.
My first comment about CVR was to ask if the business had any competitive advantage. It got no direct reply, but someone said something about the drinks business being very old, and if there was any great advantage in consolidation, it would probably have been done successfully a long time ago. I couldn't see anything positive CVR were doing apart from consolidating the industry. Sometimes I risk buying stocks where growth is founded on serial acquisition, but (when I'm not being stupid) I need to see some kind of competitive advantage, or a quite low build up of debt with low or no rise in the share count, as evidence that the acquisitions were really building value for shareholders. BTW I often find it hard to judge how long a competitive advantage will last.
I had a narrow escape with CVR. I bought on the strength of the CFO buying £120k's worth. I was lucky to have the weekend to rethink, and sold (and commented that I'd "bottled out"). I can sympathise with CVR shareholders because I have my own failures, though I know my sympathy isn't any use. An old mistake was holding shares in the bankruptcy specialist RSM Tenon when they went bankrupt (at least PwC were fined £5.1m for their audit).
I hope that all PIs that have been stung here have diversified portfolios.
Aside from the lesson that it is not profits that keeps a company solvent, but cash, another lesson is that bad news announcements nearly always come in threes. Admittedly the period covering those three announcements is more usually months, compared with days with CVR. It is nearly always the best investment decision to sell at the time of the first announcement. Take your loss and walk away with something at least. This is something I have learned in several decades of investing.
In the same boat as you on this one, but over the years have made far more than lost on AIM stocks so not unhappy to see it continue as is. Regulation is often counter productive in practice, and an additional cost for the rest of us.
One of the main problems investing in AIM stocks is one is up against insider dealing, which is mostly impossible to control. I think with AIM one has to accept insider trading as a cost, take Accrol as a current example, the price doubles from a low of 7p a few days ago before an RNS today showing a 4.5% stake by a Moroccan company in the same line of business. Threshold was crossed on 22nd but apparently company not informed till today. Price now 17p. However, I made money on this having bought as a punt the week before so do I care?
I hope the Directors, however undeserved, have got watertight legal advice that they are not trading whilst insolvent.
As for potential purchasers of parts of the business, I would have thought they would have preferred to pick the pieces up from the administrator, as less risky when it come to potential liabilities which clearly the current Board have no clue as to what they are.
Although to be fair to Investec , they need the Directors to keep them in touch with the company's financial situation. Investec have no access to the company's books and can't see the pile of unopened final demands in accounts payable. I know Investec have worked their socks off in the last few weeks trying to bring in new investors. Most existing shareholders only wanted to meet the management team to berate them. IHT relief shareholders were just pig sick with what had happened and had no interest in throwing good money after bad. Despite all this I think they managed to get about half way to the £125 million they needed.
If you think AIM regulation is poor, bear in mind small fully listed companies have no-one keeping an eye on whether or not they comply with the Listing Rules - apart from me if I'm a shareholder and even then I may only find out months later about something they should have announced to the market.
there has to be wrongful trading here, in mitigation I suppose the Board might claim they were too thick to realise it at the time. Disqualification as directors should follow, surely???
A real black mark against the auditors, and Investec the NOMAD, I lost more than a few grand on this, but mea culpa, the rest of my portfilio is well balanced. But I AM spitting blood (previous posters comment) and will avoid AIM in future, at all costs, have serious doubts about this markets regulation...
The question is should the directors have been aware rather earlier that the company was insolvent and unable to pay its debts as they fell due. This is something the eventual administrator/liquidator will look at. PwC probably already have a view having looked closely at the company's accounts. If they should have known the company was insolvent, the directors could possibly be guilty of wrongful trading. The FCA will take an interest too in the timeliness and accuracy of the RNS announcements made by the company. The auditors KPMG will also be in for some questioning over their audit certificate. Quite a few reputations are at risk.
Now the vultures will pick over the carcass and try and grab any good bits before the administrator is appointed. One question is what happens to the franchisees? I guess if someone were to acquire the Bargain Booze franchise operation the franchisees may be unaffected. Bargain Booze could appeal to one of the Asian run cash and carry groups. I think there will be great opportunities for those with the money and the business acumen.
Erk - well looks like I was wrong. Suppliers deserting the ship and sinking the lifeboat fundraiser. Not good. Sorry for anyone invested here. The scale of the raise was the key problem I guess, going from £30m to £125m in the matter of a couple of days!!!
on 14th March. Just two weeks ago. Were their accounts run by humans, or some other form of life? A scandall or what! I presume some people are going to get banged up for this, assuming they have not left the country already.
No, I have never had a position with this Company. If I did hold shares in this Company I would be spitting blood. From paying a dividend to what looks like bust in 2 weeks is frankly beyond unbelievable. No english can describe what happened here.
I feel sorry for those who held.
According to Sky News... hot off the "presses". Full text below.
Meetings with shareholders didn't go well, then.... shocking indeed. Serious questions will be asked of many - directors, advisers, and probably a few others besides...
"More than 2,500 jobs are at risk as the owner of Bargain Booze heads for administration after failing to raise £135m from an emergency cash call.
Sky News has learnt that Conviviality, which stunned investors earlier this month when it revealed a £30m tax bill, is expected to announce later on Wednesday that it has been unable to secure sufficient new funds.
The development is likely to lead to PricewaterhouseCoopers being appointed as administrator on Thursday, according to insiders. It comes just days after Conviviality confirmed the departure of Diana Hunter, its chief executive, and said it would seek to raise £125m from investors through a placing of new shares.
A number of suppliers are understood to have deserted the company, which supplies drinks to thousands of pubs, undermining Investec's efforts to raise the new funding.
Conviviality's shares were suspended after the tax bill was disclosed to the stock market, leaving it with a market value of just £185m.
The company, which also owns the Wine Rack chain and the drinks wholesaler Matthew Clark, is a big player in the UK's beverages industry. It supplies more than 700 off licences and 23,000 pubs and restaurants across the country, and employs more than 2,600 people. The brewing giant AB InBev has urged shareholders to back the fundraising, underlining Conviviality's importance as a distribution channel for its products.
Administration will mean the company becomes the latest retail sector failure following the collapse of Toys R Us UK and Maplin.
Many companies also choose their financial year end to show the balance sheet in the best light. For example French Connection have a January year end so they can have the cash from the January sales. Cash therefore at the balance sheet date is a peak rather than an average. Most of the time the company will be operating with a nil cash balance and keeping a careful eye on it.
Conviviality has a very stretched balance sheet after making acquisitions and it also has large swings in its peak cash requirements. To cope it either needs extensive bank facilities or a cash buffer in the balance sheet. Or it should be part of a group where the seasonal cash demands can be met out of group bank facilities. It has been crippled by massive working capital demands which have been underestimated as they built up the company. It's not been the only wine merchant/ off-licence group to suffer the same problems. This is almost an exact re-rerun of First Quench Retailing (the owner of Threshers and Wine Rack then) which went into administration in 2009.
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