Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a1113075

Fund managers lick wounds after Conviviality collapse

'We are very sorry', say Acorn Income managers, while Marlborough's Siddarth Chand Lall labels investment 'a hard and painful lesson'.

 
Fund managers lick wounds after Conviviality collapse
 

Fund managers hit by the collapse of drinks retailer Conviviality (CVRC) have reported back to investors on the demise of the company and the impact on their funds.

Conviviality, which owned the Bargain Booze and Wine Rack off-licence chains, collapsed into administration earlier this month, warning shareholders should not expect any return from the sale of those businesses to wholesaler Bestway, or the earlier offloading of its drinks distribution arm to Irish cider maker C&C (GCC).

The company had fallen from grace in spectacular fashion, issuing two profit warnings, revealing earnings forecasts had been overstated by £5.2 million and that 'an arithmetic error' meant a £30 million tax bill had not been accounted for, cancelling its dividend and suspending its shares, in the space of little over a week.

Citywire A-rated duo Simon Moon and Fraser Mackersie, managers of the smaller companies portion of the £102 million Acorn Income (AIF ) investment trust, apologised to investors in their latest update.

'We have held Conviviality since its initial public offering in 2013, and we are very sorry to have exposed shareholders to such an experience,' they said.

The duo's stake in the company had accounted for 2.6% of Acorn's smaller companies portfolio at the end of February, and the company's collapse into administration this month accounted for the bulk of the portfolio's 4.1% losses in March.

'It appears that Conviviality's executive management team had misunderstood the full extent of the serious operational and financial issues within the business,' said Moon and Mackersie.

'By the time these problems came into full view, it was too late to save the business.'

Moon and Mackersie said prior profit-taking, together with the dividends they had received over the last five years, meant the trust would record 'a modest overall net profit on the investment'.

'A hard and painful lesson to have learned'

Siddarth Chand Lall (pictured), manager of the £1.5 billion Marlborough Multi Cap Income fund, was the most scathing in his assessment of the company's management.

'It is hard to believe that the management information systems were not good enough for them to know when things had slowed down and that the sales team had so much discretion that they could sell at almost any price,' he said.

'At every stage of questioning it seemed to be someone else's fault.'

Chand Lall admitted he should have acted following the departure of Mark Aylwin, the 'once celebrated hire' brought in to integrate its Matthew Clark and Bibbendum drinks distribution business into the group.

'It was this same division, Conviviality Direct, where the main problems later emerged. His departure was the red flag that we should have acted on.'

Chand Lall said Conviviality's collapse had cost the fund all of the profits made on the investment together with the entire capital cost of around £16.5 million.

'Giving benefit of the doubt to senior management who had delivered before did not pay off at all in this case. It has been a hard and painful lesson to have learned,' he said.

David Crawford, manager of the £285 million City Financial Absolute Equity fund, was hit particularly hard by Conviviality, having bought more of the shares after the first profit warning.

'The shares fell from above 300p to 100p when the company announced a profit warning, but at that stage management stated the balance sheet was sound,' he said.

'Our analysis showed this to be an opportunity, and we increased our holding to 1.4% [of the fund].

Crawford said he was 'obviously very disappointed' by the company's collapse.

'But it is fair to say that it is most unusual for a public company of this size to be unaware of its own financial situation,' he added. 'A post mortem shows complete lack of financial controls within the business.'

First warning the trigger for some

Others had reacted to Conviviality's first profit warning by dumping their stakes. Among them was Andrew Jackson (pictured), manager of the £380 million Miton UK Value Opportunities fund.

'Despite initially taking profits in 2017 on valuation grounds and having sold further shares in January in light of a slightly disappointing update, the fund was nonetheless still invested in the company when it issued its first profit warning,' he said.

'Having assessed the deteriorating financial and trading situation
and harbouring pre-existing doubts about the company, the remaining investment in the company was liquidated.'

Another was Henry Lowson, Citywire AAA-rated manager of the £264 million Royal London UK Smaller Companies fund.

'It became apparent that management did not have full operational oversight of the business,' he said. 'Concern over the balance sheet was also an important trigger for the sale.'

Other managers to have sold all of their positions in Conviviality after the first profit warning were Nick Williamson, manager of the £357 million Old Mutual UK Smaller Companies Focus fund, and James Lynch, who runs the £46 million Downing Monthly Income fund, as previously reported.

Citywire A-rated Alan Custis and Alan Clifford, managers of the £73 million Lazard MultiCap UK Income fund, sold more than half their position in Conviviality after the first warning, with the remaining position caught by the later suspension of the shares.

They blamed 'poor management' for the 'rapid build-up of debt and a liquidity squeeze'.

'These errors fatally impacted what we believed were the company's two fundamentally sound divisions,' they said.

Andrew Moffatt, Nigel Beidas and Matthew Rainbird had previously sold some of their £53 million Marlborough Extra Income fund's stake in Conviviality but still had some exposure when the shares were suspended.

Angela Lascelles said the stock's collapse was responsible for the bulk of the £16 million OLIM UK Equity Income fund's underperformance in March. 

Other fund managers stung by Conviviality include Daniel Hanbury, manager of the £714 million River and Mercantile UK Equity Smaller Companies fund, whose latest factsheet details  the 1.8% hit to the portfolio from the stock's collapse.

George Luckraft, manager of the £296 million AXA Framlington Monthly Income fund, was also an investor.

6 comments so far. Why not have your say?

mc2

Apr 23, 2018 at 18:30

Well some managers did get out - so well done to them... Pathetic of the losing managers to blame lack of finance control by the company... Why did they not get out of it like some others did?... Just admit they were caught with their knickers down.

report this

Douglas Robertson

Apr 23, 2018 at 18:52

Fund managers should learn to take to the hills at the first sign of a company in trouble. It appears to me sometimes they have a closer affinity to the management of companies in trouble than to their clients, that is to say us as investors!

report this

joseph o neill

Apr 24, 2018 at 17:17

Double whammies all round then,if we just point the finger at CVR management incompetence then it might just distract them from our shortcomings,bit like betting on a 3 legged horse.Rule no1 sell on the first profit warning,rule no2 if you forget rule no1 just point the finger !!.

report this

anglo29

Apr 28, 2018 at 09:53

Not just fund managers. Conviviality was a leading "expert" recommendation to "buy" in a major financial magazine just last month (March).

report this

Philip Davies

Apr 28, 2018 at 10:07

The first and best rule of investment is sell on the first profits warning.

Time and time again this is proven.

Management is always over optimistic because it is a failure of their controls

report this

Franco

Apr 28, 2018 at 11:40

What? No Woodford loss this time?

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

  • Marlborough Multi Cap Income A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • City Financial Absolute Equity A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • LF Miton UK Value Opportunities Ret A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Royal London UK Smaller Companies M Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Old Mutual UK Smaller Companies Focus GBP R Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • MI Downing Monthly Income Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lazard MultiCap UK Income Retail Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Marlborough Extra Income
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • SVS Albion OLIM UK Equity Income Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • River and Mercantile UK Equity Smaller Cos A Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • AXA Framlington Monthly Income R Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • Conviviality PLC (CVRC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • C&C Group PLC (GCC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • Acorn Income Fund (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • George Luckraft
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Daniel Hanbury
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Simon Jaffe
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Andrew Impey
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Angela Lascelles
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Matthew Rainbird
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Nigel Beidas
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Andrew Moffat
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Alan Clifford
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Alan Custis
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • James Lynch
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Nick Williamson
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Andrew Jackson
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • David Crawford
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Siddarth Chand Lall
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Fraser Mackersie
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Simon Moon
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet