Booze giant Conviviality faces a battle for survival after a week of turmoil that saw more than £350m wiped from its value and PwC called in for help.

The Matthew Clark, Bibendum and Bargain Booze owner suspended its shares on AIM on Wednesday (14 March), announcing it had uncovered a surprise £30m tax bill due at the end of March that may prevent it meeting its banking covenants.

It has enlisted PwC to aid discussions with creditors and stakeholders as the deadline for the payment, which is understood to relate to bonded warehouse payments, approaches. It has also cancelled a dividend payment due on Friday, which it said improved its cash position by approximately £8.2m.

Conviviality stressed it was “currently in compliance with its banking covenants” and that following initial conversations with PwC it believed the “short-term funding requirement will be satisfactorily resolved”. However, it admitted there was “no guarantee”.

Conviviality last week announced a “material” error in its financial forecasting meant EBITDA for the current financial year would come in some 20% lower than expected, which sent its shares plummeting by some two-thirds – wiping more than £350m from the company’s value.

As The Grocer went to press, its shares were still suspended at 101p – down from an all-time high of more than 420p in November.

One industry source said the events raised serious concerns over Conviviality’s management. “The shareholders are not happy – it was in a dominant position with a strong business model. The next story is going to be who the new management is and whether they will have to offload parts of the business to get the cash needed to keep going.”

Shore Capital’s Phil Carroll added that were the business to collapse a discounted valuation could entice a “willing suitor”.

Despite the crisis, sales at Conviviality are flying: according to its latest half-year results from January 29, revenues were up 9.2% to £836m compared to £766m the prior year, and the business secured long term contracts with JD Wetherspoon, Stonegate Pubs and Wadworth.

This week’s issues, however, were “about the management of cash,” stressed the source. “You’ve got to have an absolute focus on cash. Customers can switch to products at a lower price to get better value but you can’t switch contracts overnight. It’s just as likely this is overhead costs being higher than expected.”

Finance blog Investor’s Champion suggested the business had “looked questionable since an abrupt change of strategy several years ago” from a “lower risk retail franchising focus” to the purchase of Matthew Clark and Bibendum and its growing focus on the on-trade.

Indeed, there had been “a number of eye-raising things over the last six months” said another insider. “When P&H went belly-up and Conviviality bought its Central Convenience stores, they paid £25m. For a business that’s meant to be generating the amount of profits and EBITDA that they are doing, to have to dip into the trough of shareholders to pay for that was a surprise.”

A number of suppliers have also not been paid. One insider said: “It has been going on for the last two months. Brand owners haven’t been paid for stock and there is major concern within the trade, and some temporary stops on supply.”

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