Share Name Share Symbol Market Type Share ISIN Share Description
Conviviality LSE:CVR London Ordinary Share GB00BC7H5F74 ORD 0.02P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +8.50p +2.51% 346.50p 345.75p 346.25p 349.75p 333.50p 340.00p 1,776,708 16:29:48
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
General Retailers 1,560.1 22.5 10.8 32.1 598.46

Conviviality PLC Final Results for the Year Ended 30 April 2017

17/07/2017 7:00am

UK Regulatory (RNS & others)


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RNS Number : 1820L

Conviviality PLC

17 July 2017

17 July 2017

CONVIVIALITY PLC

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

FINAL RESULTS FOR THE YEARED 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 GBP1,560m* (FY16: GBP841m**) 
   --    Gross margin up 1.3% points to 13.3% (FY16: 12.0%) 
   --    Adjusted EBITDA(1) up 102% to GBP60.9m (FY16: GBP30.2m) 
   --    Adjusted profit before tax(2) up 111% to GBP45.8m (FY16: GBP21.7m) 
   --    Profit before tax up 147% to GBP22.5m (FY16: GBP9.1m) 
   --    Adjusted fully diluted EPS(3) up 48% to 21.0p (FY16: 14.2p) 
   --    Fully diluted EPS up 136% to 10.4p (FY16: 4.4p) 
   --    Free cash flow(4) up 349% to GBP51.2m (FY16: GBP11.4m) 
   --    Net debt of GBP95.7m (FY16: GBP86.1m) 
   --    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 GBP6m of synergies in the financial year

-- 5.8% increase in revenue compared to the corresponding prior period(5) 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 GBP1,040m, a 6.4% increase in revenue compared to the corresponding prior period(5) 
   --    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 GBP378m, a 6.1% increase in revenue over the corresponding prior period(5) 

-- 0.5% increase in Franchisee like for like retail sales(6) 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 GBP146m, a 1.0% increase in sales compared to the corresponding prior period(5) 

-- 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 (GBP22,056,000), listing fees of GBP3,443,000 have been reclassified from cost of sales to revenue and franchise fees of GBP2,024,000 have been reclassified from other operating income to revenue

(1) Adjusted EBITDA is calculated as profit before tax of GBP22,462,000 (FY16: GBP9,080,000), adding back net interest of GBP5,221,000 (FY16: GBP2,502,000), depreciation of GBP4,560,000 (FY16: GBP2,833,000), amortisation of GBP12,899,000 (FY16: GBP6,089,000), exceptional items of GBP10,017,000 (FY16: GBP9,855,000) and share based payment charges of GBP2,427,000 (FY16: GBP1,767,000) and fair value movements on foreign exchange derivatives GBP3,284,000 (FY16: a deduction of GBP1,958,000).

(2) Adjusted Profit before Tax is calculated as profit before tax of GBP22,462,000 (FY16: GBP9,080,000), adding back amortisation of acquisition intangible assets of GBP10,028,000 (FY16: GBP4,754,000), exceptional items of GBP10,017,000 (FY16: GBP9,855,000) and fair value movements on foreign exchange derivatives of GBP3,284,000 (FY16: a deduction of GBP1,958,000).

(3) Adjusted fully diluted EPS is calculated as Adjusted Profit before Tax of GBP45,791,000 (FY16: GBP21,731,000), less tax at the effective rate of GBP8,586,000 (FY16: GBP4,781,000) divided by the fully diluted weighted average shares of 176,985,247 (FY16: 119,429,816).

(4) Free cash flow is calculated as Adjusted EBITDA of GBP60,870,000 (FY16: GBP30,168,000) plus movement in working capital of GBP17,340,000 (FY16: less GBP1,848,000) less capital expenditure of GBP13,420,000 (FY16: GBP11,628,000), interest paid of GBP5,348,000 (FY16: GBP2,898,000) and tax paid of GBP8,251,000 (FY16: GBP2,524,000).

(5) Revenue 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.

(6) Franchisee 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.

.

 
 
   Enquiries: 
 Conviviality Plc                Tel: 01270 614 
                                  700 
 Diana Hunter, Chief Executive 
  Officer 
 Andrew Humphreys, Chief 
  Financial Officer 
 Investec (Nominated Adviser     Tel: 020 7597 
  and Broker)                     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 GBP372m. 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 GBP1,560m* reflecting the benefit of Bibendum PLB Group acquisition on 20th May 2016, as such, Adjusted EBITDA(1) was up 102% to GBP60.9m and Adjusted Profit before Tax(2) up 111% to GBP45.8m, demonstrating the significant strength of the combined Group. Adjusted fully diluted EPS(3) was up 48% to 21.0 pence. The recent acquisitions resulted in an increase of net debt, however, at year end this was GBP95.7m 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 GBP1,040m (corresponding prior period GBP978m) (5) . To date sales per outlet have increased 4.8% to GBP43,700 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-like(6) . 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 GBP220 per store per week and margin benefit to Franchisees of approximately GBP5,000 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 (GBP8m), Bibendum PLB (GBP4m) and Logistics (between GBP1.0m and GBP1.5m). 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 GBP2 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 GBP1.2m of distribution synergies in FY18, rising to GBP1.5m 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 GBP1.0m 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 GBP1,560m* (FY16 GBP841m**) and adjusted EBITDA(1) increased 102% to GBP60.9m (FY16 GBP30.2m).

Adjusted profit before tax(2) increased by 111% to GBP45.8m (FY16 GBP21.7m) and adjusted fully diluted earnings per share(3) increased 48% to 21.0 pence (FY16 14.2 pence).

Profit before tax increased 147% to GBP22.5m (FY16: GBP9.1m) and fully diluted earnings per share increased 136% to 10.4 pence (FY16: 4.4 pence).

Net debt at 30 April 2017 was GBP95.7m (1 May 2016 GBP86.1m) with leverage falling to 1.6 times adjusted EBITDA(1) (30 April 2016 2.2 times).

Revenue

Revenue increased by 85% to GBP1,560m* (FY16: GBP841m**) 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 GBP1,040m in the 52 weeks ending 30 April 2017. This represents an increase of 6.4% on the corresponding prior period(5) 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 period(5) 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 period(5) 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 EBITDA(1)

Adjusted EBITDA(1) increased 102% to GBP60.9m (FY16: GBP30.2m) as sales growth of 85%* and a 1.3% point improvement in gross margin percentage increased gross profit by 105% to GBP207.1m (FY16: GBP101.2m). 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 GBP146.2m (FY16: GBP71.0m) 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 GBP6.0m (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 GBP13.4m to GBP22.5m (2016: GBP9.1m) primarily due to the GBP30.7m increase in Adjusted EBITDA(1) 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 GBP3.3m.

Net finance costs increased by GBP2.7m 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 GBP3.3m 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 GBP60.0m). 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 GBP10.0m.

Share based charges increased by GBP0.7m 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 GBP10.0m primarily comprises professional fees relating to the acquisition of Bibendum PLB Group of GBP1.6m and costs to integrate and restructure the Group following the acquisitions of Matthew Clark and Bibendum PLB Group of GBP8.7m. 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 GBP6.2m and a liability was established for this amount. Reflecting current market conditions the estimated contingent consideration has decreased by GBP3.4m. This has been recorded as exceptional income.

Adjusted profit before tax(2) increased 111% to GBP45.8m (FY16: GBP21.7m) as Adjusted EBITDA(1) of GBP60.9m was offset by net finance charges of GBP5.2m, depreciation and amortisation (excluding the amortisation of acquisition intangibles) of GBP7.4m and share based charges of GBP2.4m.

Tax

The tax charge of GBP4.0m represents tax on Group profit before tax and exceptional items of GBP6.1m offset by a tax credit tax on exceptional items of GBP2.1m. 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 GBP18.5m* (FY16: GBP5.3m) 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. GBP32.0m 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 GBP37.2m (FY16: GBP17.0m) resulting in adjusted basic EPS increasing 49% to 21.9 pence (FY16: 14.7 pence) and adjusted fully diluted EPS(3) increasing 48% to 21.0 pence (FY16: 14.2 pence).

Cash Flow and Funding

The Group is strongly cash generative with free cash flow(4) increasing by 349% to GBP51.2m (FY16: GBP11.4m) as adjusted EBITDA(1) of GBP60.9m was augmented by a reduction in working capital of GBP17.3m and offset by net capital expenditure of GBP13.4m, interest payments of GBP5.3m and tax payments of GBP8.3m.

Capital expenditure includes a continued investment in stores of GBP6.0m 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 GBP9.8m. This is offset by the proceeds from the sales of assets of GBP6.3m, primarily the sale and lease back of the Shefford depot.

Net debt increased by GBP9.6m as free cash flow(4) of GBP51.2m was offset by a net cash outflow on the acquisition of Bibendum PLB Group of GBP28.6m, the acquisition of KMD Enterprises for cash consideration of GBP4.0m, restructuring and integration costs of GBP8.7m and dividend payments of GBP19.9m.

The consideration for Bibendum PLB Group was GBP39.7m which, together with GBP19.1m of debt acquired and acquisition costs of GBP1.6m, resulted in a total investment of GBP60.4m. This investment was funded by proceeds from the issue of new ordinary shares of GBP31.8m generating a net cash out flow of GBP28.6m.

At 30 April 2017 the Group's net debt totalled GBP95.7m (1 May 2016: GBP86.1m) and comprised GBP95.8m of term loans and GBP10.7m drawn down under the Group's working capital facilities, less cash of GBP10.4m 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)

 
                                                                            Before  Exceptional                        Restated 
                                                                       exceptional 
                                                                             items 
                                                                              2017        items                           (note     Exceptional 
                                                                                                                             2)           items 
                                                                           GBP'000        (note        Total             Before           (note       Restated 
                                                                                            4b)                                             4b) 
                                                                                           2017         2017        exceptional            2016          Total 
                                                                                                                          items 
                                                                 Note                   GBP'000      GBP'000               2016         GBP'000           2016 
                                                                                                                        GBP'000                        GBP'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

 
                                                               Restated 
                                                                  (note 
                                                                     2) 
                                     Note                          2016 
                                                    2017        GBP'000 
    Non-current assets                           GBP'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

 
 
                                                                       Share 
                                            Share           Share      based       Other    Retained 
                                          capital         premium    payment    reserves    earnings     Total 
                                  Note                               reserve                            equity 
                                          GBP'000         GBP'000    GBP'000     GBP'000     GBP'000   GBP'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

 
                                                                          Restated 
                                                                             (note 
                                                                                2) 
                                                               2017           2016 
    Cash flows from operating activities        Note        GBP'000        GBP'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 (GBP000).

   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 GBP5,824,000 was identified with a corresponding deferred tax asset of GBP1,779,000. This generated additional goodwill of GBP4,045,000. 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 GBP22,056,000 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 GBP3,443,000 were recognised within cost of sales, management now believe it is more appropriate to recognise these fees within revenue. Franchise fees of GBP2,024,000 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 GBP20,255,000 and to decrease the repayment of borrowings by GBP20,255,000. 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.

 
                                           Restated 
                                           (note 2) 
                                  2017         2016 
  Revenue                      GBP'000      GBP'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        2016 
                                       GBP'000     GBP'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 GBP2,427,000 excludes share-based payment charges classified as exceptional of GBP497,000 (2016: GBPNil) (see note 4).

The net finance costs of GBP5,221,000 above excludes exceptional finance costs of GBP229,000 (2016: GBPNil) (see note 4).

   4.        Operating Profit 

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

 
                                              2017      2016 
                                    Note   GBP'000   GBP'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        2016 
                                               GBP'000     GBP'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                    390           - 
   and equipment 
  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           1,365           - 
   - Elastic Productions Limited 
  Release of contingent consideration          (3,375)           - 
   - Peppermint Events Limited 
  Other non-recurring events 
   and projects                                    568         422 
                                            ----------  ---------- 
                                                 9,788       9,855 
  Within finance costs: 
  Unwind of discount on fair                       229           - 
   value provisions and deferred 
   consideration 
                                            ----------  ---------- 
  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 GBP58,000 additional costs incurred in respect of the purchase of GT News (Holdings) Limited and GBP81,000 relating to the acquisition of Peppermint Events.

Included within Other non-recurring events and project costs of GBP568,000 (2016: GBP422,000) are costs relating to a one-off cash bonus of GBP323,000 paid to Diana Hunter on 13 September 2016 and GBP245,000 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 GBP208,000 and restructuring and reorganisation costs of GBP214,000 following an exercise to create efficiencies and streamline processes.

   5.        Finance Income and Expense 
 
                                        2017       2016 
                                     GBP'000    GBP'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 
 
                                      2017        2016 
                                   GBP'000     GBP'000 
    Current tax: 
  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        2016 
                                          GBP'000     GBP'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 
                                       ----------  ---------- 
 
 
                                            2017        2016 
                                         GBP'000     GBP'000 
    Amounts recognised in equity: 
  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        2016 
                                             GBP'000     GBP'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 (GBP'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          2016 
                                   Number        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          2016 
                                                                      Number        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) 
                                                                     556,697             - 
   *    Effect of shares issued for the Franchise Incentive 
        Plan (FIP) 
 
   *    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 
                                                                  14,794,962             - 
   *    Effect of shares issued for the Bibendum PLB Group 
        acquisition 
 
   *    Effect of shares issued for the Zeus Capital warrant               -       744,307 
                                                                      37,196             - 
   *    Effect of shares options granted 
 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          2016 
                                                                       Number        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 
                                                                      786,029             - 
   *    Long term incentive plan 
 
   *    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 (GBP'000)                    45,791    21,731 
 Tax at effective tax rate - 18.8% 
  (2016: 22%) (GBP'000)                  (8,586)   (4,781) 
                                        --------  -------- 
 Adjusted profit attributable to 
  ordinary shareholders (GBP'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 GBP45,791,000 (note 3), less tax at the effective rate of 18.8% (GBP8,586,000), 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 
                                                          GBP'000  GBP'000 
 
 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 GBP14,502,000 (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 
                                                   GBP'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 GBP396,000 (2016: GBP796,000) 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 GBP5,824,000 in an acquisition fair value provision in Matthew Clark (Holdings) Limited, offset by a decrease of GBP1,779,000 relating to the deferred tax asset relating to this fair value provision (note 2).

 
                                  2017     2016 
                               GBP'000  GBP'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       Brands     Total 
                                               & customer 
                                     GBP'000         base   GBP'000 
                                                  GBP'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 
 
                                                  2017                   2016 
  Current                                        GBP'000                GBP'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 GBP130m. 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 GBP150,000 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 GBP40m to GBP51m and Term loan B has increased to GBP50m.

The Group has a revolving credit facility (RCF) totalling GBP30,000,000 which was undrawn at 30 April 2017. In addition the Group had an Accordion option of GBP15,000,000 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 GBP1,260,000 was incurred on this agreement. The element relating to the RCF (GBP437,000) is being amortised through prepayments over the life of the agreement. The element relating to the term loans (GBP823,000) is being amortised over the life of the agreement with the balance as at 30 April 2017 of GBP815,000 (2016: GBP730,000) 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         Term Loan 
                                          A GBP60,000,000   B GBP50,000,000 
   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        2016 
                                              GBP'000     GBP'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    Cashflow       Net debt 
                                   as at 1                   as at 30 
                                  May 2016                 April 2017 
                                   GBP'000     GBP'000        GBP'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 GBP39.7 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.

 
                                                      Fair 
                                       Book          value       Fair 
                                      value    adjustments      value 
                                    GBP'000        GBP'000    GBP'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 GBP0.1 million was made to write down assets to their fair value. Within inventories, a fair value adjustment of GBP5.9 million was made which represents the adjustment required to bring inventories to their net realisable value. Within intangible assets the fair value adjustment of GBP1.4m predominately related to impairments of IT systems. Within trade and other receivables a number of fair value adjustments totalling GBP3.7 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 GBP4.6 million.

A deferred tax liability of GBP2.0 million has been recognised on the brand and customer base intangible assets, offset by a deferred tax asset of GBP2.8 million on fair value adjustments.

From the date of acquisition Bibendum PLB Group has contributed revenue of GBP275.0 million and GBP4.3 million to profit before tax to the Group's results. Acquisition costs of GBP1,644,000 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 GBP4.0 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.

 
                                                         Fair 
                                    Book value          value      Fair 
                                                  adjustments     value 
                                       GBP'000        GBP'000   GBP'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 GBP1,950,000 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 GBP396,000 (2016: GBP796,000), 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 GBP199.0 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.

 
                                                      Fair 
                                       Book          value        Fair 
                                      value    adjustments       value 
                                    GBP'000        GBP'000     GBP'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 (GBP10.1 million), additional provisions and accruals to recognise three onerous contacts that were in place at acquisition (GBP11.0 million which has been recalculated this year and uplifted by GBP5.8 million), additional provisions to recognise that renovation works needed to be carried out at specific depots (GBP1 million) and impairments for property plant and equipment that is impaired at the point of acquisition (GBP0.9 million). A deferred tax asset of GBP1.8 million has been recognised in these financial statements relating to the fair value adjustment of onerous contracts. Goodwill has increased by net GBP4.0 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 GBP1.8 million in cash plus contingent consideration of GBP6.2 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 GBP800,000. 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 GBP9,200,000. 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 GBPNil and GBP10,000,000. The Company has included GBP6,159,000 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 GBP2,859,000 as at 30 April 2017, with a subsequent release of contingent consideration of GBP3,375,000 which has been included within exceptional items (note 4) and finance costs of GBP75,000 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.

 
                                                    Fair 
                                     Book          value      Fair 
                                    value    adjustments     value 
                                  GBP'000        GBP'000   GBP'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 GBP81,000 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

END

FR OKADDKBKDBOD

(END) Dow Jones Newswires

July 17, 2017 02:00 ET (06:00 GMT)

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