Conviviality Considers Equity Raise To Fund GBP30 Million Tax Bill (ALLISS)

LONDON (Alliance News) - Conviviality PLC said Friday it was considering an equity fundraise to help fund its GBP30 million tax bill overlooked after an "arithmetic error" as it emphasised stakeholders remained supportive of the alcohol retailer and wholesaler.

Conviviality was considering the "possibility of an equity fundraise to effect a recapitalisation of the business" as it deals with the hangover from its announcement of the overlooked GBP30 million bill from HM Revenue & Customs to pay by March 29.

This followed Conviviality cancelling its proposed 4.50 pence interim dividend on Wednesday - keeping GBP8.2 million in cash on its balance sheet - in order to help it resolve its short term funding requirement in relation to the bill. The dividend was due to be paid on Friday.

Earlier on Wednesday, shares in Conviviality were suspended from trading after it considered its funding requirements to pay the bill which could further hit an already revised down full-year profit forecast.

The bill to the HM Revenue & Customs has "created a short-term funding requirement", Conviviality explained on Wednesday. As a result, this may create "operational difficulties" which "may negatively impact" adjusted earnings before interest, taxes, depreciation and amortisation range.

On Tuesday, Conviviality shares fell 12% after it confirmed it expected adjusted Ebitda to be in the range of GBP55.3 million and GBP56.4 million. This is compared to market expectations prior to the news of between GBP69.1 million and GBP70.5 million.

The reduction in Ebitda forecasts was, the company explained on Tuesday, due to a "material" error in the forecasts related to an "arithmetic error" in the forecast compilation.

Early Wednesday, Conviviality said it is in talks with HMRC and other key stakeholders regarding the potential impact of the additional funding requirement on its adjusted Ebitda expectation and compliance with its banking covenants.

The company emphasised it was "currently in compliance" with its banking covenants. However, under its revised Ebitda expectations on Tuesday its covenant test result would be between 2.04 times to 2.00 times adjusted Ebitda.

Its covenant requirements - next to be tested on April 29 - is required to be less than 2.5 times its adjusted Ebitda. It also needs adjusted Ebitda to be at least four times the net financial charge.

On Friday, Conviviality emphasised stakeholders remained supportive of the business during the process. It was having "constructive discussions" with its lenders, HMRC were being "receptive" to Conviviality's needs with regards to the tax bill payment and customers and suppliers "remain supportive" of the firm and are "working closely and constructively" with it.

Conviviality also said the review being undertaken by PricewaterhouseCoopers regarding its future funding requirements was "progressing well."