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Conviviality cancels dividend after surprise ?30m tax bill prompts second profit warning

Retail group Conviviality is cancelling its dividend after revealing it must pay an unexpected ?30m tax demand by March 29 and issued a second profit warning in less than a week, warning it could struggle to meet its banking covenants.
The Aim-listed company, which owns the Wine Rack and Bargain Booze off-licence chains, said the tax bill "created a short-term funding requirement" on top of a previously announced shortfall in its earnings for the year, which could now be further affected.
To help improve its cash position by ?8.2m, the company is cancelling its interim dividend of 4.5 pence per share, which was due to be paid on March 16.
Conviviality has hired PwC to advise it on discussions with HM Revenue & Customs and its lending banks, credit insurers, suppliers and other creditors. The accountancy firm will also help the company to determine the impact of the funding shortfall on its earnings and compliance with its banking covenants.
The company said: "Whilst there can be no guarantee, the board believes this short term funding requirement will be satisfactorily resolved."
Conviviality cancels dividend after surprise ?30m tax bill prompts second profit warning

The company bought Wine Rack in 2013
The drinks wholesaler had warned last week that it expected its adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) to come in 20pc below market expectations. In a further update yesterday, it said they would fall in a range of ?55.3m and ?56.4m.
Conviviality said this reflected the trading of the company so far this year, an “arithmetic error” in the financial forecasts for the Conviviality Direct wholesale business, as well as “the assumption that the margin weakness seen in January and February continues for the remainder of the current financial year”.
Shares in the company were suspended on the junior market ahead of the announcement on Wednesday.
Following a trading update last week, more than ?300m was wiped off the company’s value. Conviviality said today that its guidance for net debt of about ?150m for the 52-week period ending April 29 remained unchanged.
The company's next covenant tests will be on April 29, and it said based on its previously forecast Ebitda range of ?55.3m and ?56.4m that it would expect to meet them, although those figures do not take into account the impact of the tax bill. 
Conviviality has been transformed over the last three years from an off-licence chain into the UK's biggest alcohol wholesaler following its takeover of wholesaler Matthew Clark and wine specialist Bibendum.
In January, when the company reported a 13pc drop in pre-tax half-year profits to Oct 29, Diana Hunter, chief executive, said that the fall was due to the later-than-expected "phasing" of its cost-cutting efforts following a series of acquisitions.
conviviality share price
The latest profit warning represents a fall from grace for Conviviality, which has been growing aggressively through an acquisition spree since listing on London's Aim market in 2013. Just two months after going public, Conviviality paid ?1.6m for rival off-licence Wine Rack in a move that boosted its presence in the south of the country. 
It then went on to buy 26 shops in Yorkshire and the North East from rival Rhythm & Booze for ?1.7m, followed by the ?6m purchase of Midlands-based off-licence chain GT News.
Its ?200m reverse takeover of the UK’s biggest drinks wholesaler, Matthew Clark, from pub chain Punch Taverns and Australian-owned Accolade Wines, in 2015 propelled the business forward, giving it combined sales of more than ?1bn and marking its entrance into the “on-trade” market.
The following year it made a ?60m move for wine specialist Bibendum and took a stake in Peppermint, which runs the bars at large festivals and outdoor events.
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