Conviviality Retail Plc a wholesale and retail supplier of beers, wines, spirits, tobacco, grocery and confectionery, has given DirectorsTalk its Full Year results for the 52 week period ended 26 April 2015.
Financial highlights
-- Revenue increased 2.4% to GBP364.1 million (2014: GBP355.7 million)
— EBITDA(1) (excluding exceptional items and share based payment charges) increased 3.5% to GBP12.9 million (2014: GBP12.4 million)
— Group profit before tax and exceptional items increased by 4.4% to GBP9.7 million (2014: GBP9.3 million)
-- Like for like sales decreased by 1.7% -- Underlying retail sales(2) per store were up by 0.5% year on year -- Gross profit margin increased to 10.2% (2014: 9.2%) -- Profit after tax (pre exceptional items) increased 8.9% to GBP7.8m (2014: GBP7.2m)
— Diluted earnings per share (pre exceptional items) down 3.4% to 11.2 pence (2014: 11.6 pence)
-- Debt free with net cash balance at period end of GBP1.2 million
— Proposed final dividend up 5% to 6.3p (2014: 6.0p) bringing the total for the year to 8.3p per share (2014: 8.0p)
Operational highlights
-- 21 existing Franchisees opened additional stores, 35 new Franchisees joined the Group -- Store estate increased stores by 29 (4.9%) to 624 -- Franchisees' average profitability increased by 0.8% -- Improved store standards with Gold standard stores up 291% to 305 (2014: 78) -- 441 stores benefited from the new updated Bargain Booze fascia -- 10 Wine Rack stores have been franchised across four franchisees -- Improved our wine capability and credibility with wine participation up 7.0%
— Acquired 31 Rhythm and Booze stores and 37 GT News stores of which 42 subsequently franchised
-- Crewe warehouse transformed and transport function brought in house -- Successful launch of the mobile App generating over 30,000 downloads -- Successful pilot of Click and Collect across 66 stores -- Completed board changes
Diana Hunter, Chief Executive Officer of Conviviality, said:
“This is a strong set of results reflecting the hard work of our employees, franchisees and suppliers. Franchisees will remain at the heart of our business, as we continue to work together to blend the entrepreneurial skill of the Franchisee with the branding, ranging and wholesale expertise of Conviviality. Looking forward we will continue to help more of our Franchisees grow their existing business while also working to attract new Franchisees to the Group. The Board looks to the future with confidence.”
There will be a presentation for analysts at 9.30am today, details of which can be obtained from FTI Consulting.
13 July 2015
(1) EBITDA excluding exceptional items and share based payment charges is calculated as profit before tax of GBP8,986,000 (2014: GBP4,825,000), adding back net interest of GBP52,000 (2014: GBP700,000), depreciation of GBP1,887,000 (2014: GBP1,753,000), amortisation of GBP125,000 (2014: GBP28,000), exceptional items of GBP731,000 (2014: GBP4,481,000) and share based payment charges of GBP1,073,000 (2014: GBP638,000).
(2) The statutory revenue of Conviviality Retail is the aggregate of wholesale sales and sales by corporately owned stores to consumers. Underlying retail sales represent the total sales to consumers by Franchisees and corporately owned stores that traded throughout the period. This is an important indicator of business performance.
CHAIRMAN’S STATEMENT
This has been a year of growth for the Group and the results clearly demonstrate the delivery of our strategy set out in 2013 as we continue to develop the business and drive growth.
Our acquisitions of Rhythm & Booze in May 2014 and GT News in February 2015 have strengthened our position and enabled growth in new areas. Our ambition to increase our presence in Scotland has resulted in a trial with Scotmid to franchise stores.
The significant changes to the Group over the last two years mean that we are now in a position to drive sustainable growth across the business, deliver value to our shareholders and Franchisees and continue to provide an exceptional service and experience for our customers.
As a Company we are passionate about our business and brand, with our values being driven from the ground up: passion, adaptability, team work, excellence and professionalism. We run recognition schemes throughout the year to celebrate employees who demonstrate these values. We work with a number of charities with a focus on community-based projects as we believe we are an important supplier and employer in the local community. During the year, we supported charities, including Beanstalk, Cheshire & Shropshire Immediate Care and Funky Choir.
We are pleased to announce that the Board is proposing a 5% increase in the final dividend to 6.3 pence per share, making a full year dividend of 8.3 pence per share. (2014: 8.0 pence per share)
During the year we welcomed two new Board members, Andrew Humphreys as Chief Financial Officer in June 2014 and Amanda Jones as Chief Operating Officer in October 2014, completing the recruitment of our Executive team. Post the period end, we appointed Ian Jones as a Non-Executive Director; he brings with him extensive retail and operational experience to complement the Board.
On behalf of the Board, I would like to thank all of our new and existing Franchise partners and our employees for their continued passion and commitment to our Group.
David Adams
Chairman
13 July 2015
CHIEF EXECUTIVE OFFICER’S STATEMENT
Introduction
It has been my privilege to lead this business since February 2013. Our people, our Franchisees and our suppliers have worked together with a common aim and belief that we can make a real difference in our local communities through a relentless focus on meeting our consumer needs while providing a unique customer experience. Our 389 Franchisees are local people, employing local people, and are passionate about their customers and the communities in which they trade. By operating at the heart of their communities they play a key role in re-energising their locality; their stores are exciting and energising places to shop and their employees serve with care, consideration and great responsibility.
Overview
An important aspect of our business model is flexibility, protecting our earnings through periods of significant change in our organisation and a competitive external environment. This year has seen our strategy of revitalising our brands, Bargain Booze, Select Convenience and Wine Rack, alongside infrastructure investment, gaining traction with customers and Franchisees.
Results
We have continued to deliver against our objectives set out at flotation in July 2013 and are pleased to report profits slightly ahead of expectations, during a year where we have delivered significant change across our business. Our EBITDA has remained resilient in spite of the later phasing of our store openings than planned and an earlier Easter. Revenue has improved this year by 2.4% versus a fall of 4.3% in the prior year and gross margin improved to 10.2% (2014: 9.2%). Profit before tax and exceptional items increased 4.4% to GBP9.7m. The Group remains debt free with net cash of GBP1.2m at the year end.
Franchisees
We have been investing in our relationship with the Franchisees and our focus on driving the success of our Franchisees has seen more than 20 existing Franchisees open new stores in the year. The number of stores owned by multiple Franchisees has increased by 22%. It is pleasing that four of our existing Franchisees have added Wine Rack stores to their portfolio. For the last two years we have embarked on a major restructuring of our Franchisee base; this programme has now come to an end, arresting the number of closures, and we are successfully rebuilding the new store pipeline to fuel growth from a stronger base.
Our store numbers have increased to 624 representing a 4.9% increase on the prior year. Our offer to potential new Franchisees is increasingly compelling, enabling them to compete effectively and generate solid profits. Our core model is predicated by Franchisee loyalty and a commitment to upholding the values of our brands. This, combined with the high standards that we set, helps deliver our differentiated “local customer experience”.
We now have some of the highest levels of loyalty in the sector with our franchisees buying 94.3% of all goods sold from Conviviality (2014: 93.3%).
Central to our plans is a motivated and equitably rewarded Franchise base with our Franchisees valuing their involvement in the success of the Group. Importantly not only has Conviviality returned a strong financial performance but so have our Franchisees. This is key to the continuation of our success. All of our Franchisees have seen the potential to improve their profits by over GBP14,000 per year, compared to two years ago, through a consistent improvement in retail margin and the benefits of our award-winning Franchisee share scheme. We actively reward Franchisee loyalty and compliance and the Franchise share scheme enables Franchisees to be awarded up to 3,500 shares per store for achieving annual standards targets. This year 1.4 million nil cost share options have been allocated under the Franchisee Incentive Plan and almost GBP900,000 has been awarded through the overrider scheme to our Franchisees.
Over the last 12 months we have welcomed 35 new Franchisees to the Group who we are working closely with to ensure their success within the Group. We have built a unique diversity of sites satisfying different customer needs and providing a comprehensive offer close to our target customers, underpinned by the flexibility of our portfolio of fascias. This flexibility has made us attractive to larger Franchisees who wish to operate a number of fascias, making it easier for us to acquire and rebrand acquired parcels of diverse stores.
Franchisees joining the Group have been attracted by our unique Franchisee benefits, but importantly they see the value of being part of a collaborative and forward thinking group. Following the acquisition of GT News in February 2015, we were pleased to welcome Jonathan James, the former chairman of the Association of Convenience Stores and a well-respected entrepreneur within the convenience sector, to our Group. Jonathan has entered into a ten year franchise agreement taking control of 36 stores from the acquisition. Jonathan’s key reason for joining us was, and I quote “Conviviality is truly championing local off-licence led convenience on the high street; it’s this unique strategy that makes it stand out from the crowd”.
Expanding our geographical coverage is one of our substantial growth opportunities and this year we have analysed the optimal locations for growth across the UK. Our postcode analysis identified priority areas of the North East, Yorkshire, the South West and Scotland. We expect that a combination of current and new Franchisees, in particular North East Convenience Stores, will address the growth potential in the North East. Our acquisition in May last year of 31 Rhythm & Booze stores enabled growth in Yorkshire and the recent acquisition of 37 GT News stores strengthens this position and builds our presence in the East Midlands. Our ambition to grow in Scotland is being pursued via a trial with Scotmid to franchise stores. This trial is showing positive early signs. The first store opened in Stevenston, followed by Annan in June and further stores will be opened during July.
Our Brands
To support our Franchisees further and to help them to attract and retain more customers we have modernised our brands, becoming more connected with their customers through our use of social media and digital marketing. We have the highest number of active Facebook fans in our sector at 68,000 and we actively use social media to communicate offers and promotions. In April 2015 we piloted our Click and Collect service and rolled this out to our Franchisees, a unique offering for any franchise business. One of the early trial Franchisees said of Click and Collect “the service was really slick to use and a huge leap forward”.
We continue to strengthen our brands, we have updated our image to a modern and fresh design, and an important part of the plan has been the roll out of our new fascia. This programme is nearing completion with 441 stores rebranded showing a 1.3% sales differential pre and post-change. The most important aspect of this programme is that Franchisees and their customers have been pleased with the new design.
To build our digital strategy we launched our “As if it wasn’t cheap enough” app in December 2014; this has already been downloaded over 30,000 times and we have had 50,000 redemptions. These developments are highly innovative in the convenience sector and I am excited about our plans for further progress in the year ahead.
Products
We have strengthened our position as a destination off licence through the excellent collaboration between our buying team and our suppliers. More than 70 new suppliers are working with the Group and over 280 new products have been introduced in the year. We now have an unrivalled range of ales with over 70 premium bottled ales and over 20 craft ales in our range. Our spirits range continues to improve and we are focused on the growing trend for premium and flavoured spirits. Our Master of Wine, Susan Mcraith, alongside our wine buyers has continued to strengthen our wine category with sales increasing 10% year on year. This year we have been recognised for the hard work of our buying team, winning “Drinks Buying Team of the Year” at the Drinks Awards 2015.
Our pricing policy is to be everyday low promotionally priced. On average across our off-licence range we have been consistently 12% cheaper than our competitors in spite of the heavy discounting in the market. Value and consistent pricing are important to our customers and they appreciate the transparency of our pricing strategy, which in turn increases customer loyalty.
Operational efficiencies
We have made significant investments this year to become more efficient and to ensure that we are ready for future growth. We have modernised our warehouse infrastructure, re-racking and re-lamping our entire Crewe warehouse operation, without any disruption to trade, to ensure the flow of the warehouse is as efficient as possible with the ability to flex for growth. We have also undertaken maintenance works and refurbishments to our corporate stores, ensuring they are attractive for transfer to Franchisees. As a result our capital expenditure is above the prior year, driving defined benefits back into our operation.
On 29 March 2015 we transferred the full transport operation of 160 drivers and team members from our third party provider CVL under the full control of Conviviality. It is our expectation that we will see positive benefits operationally and in the service levels provided to our Franchisees.
Looking ahead to the new financial year we are helping our Franchisees maximise their sales and margin by ensuring they have the right space and range to meet their target customer needs; this programme of space optimisation is expected to complete by the end of FY 15/16.
People
Developing our management capability and our employer brand has been a key part of our strategy.
In June 2014 we welcomed Andrew Humphreys to our Board as Chief Financial Officer and in October 2014 we completed the Executive team with the appointment of Amanda Jones as Chief Operating Officer. We are continuing to build our marketing function and recently appointed Carol Savage as Chief Customer Officer. Carol’s newly created role is to further build recognition of our brands and develop even closer connections with our customers. Carol has extensive brand and digital experience over a 20 year career working with brands including Exodus and Sara Lee.
Our focus on our people has resulted in much closer engagement levels, regular feedback and involvement in decisions made through weekly communication throughout all levels of our business. We have commissioned annual engagement surveys and listening groups, and our most recent engagement survey had a 95% completion rate for our Head Office employees and 100% for Warehouse employees.
I am also pleased to see that our work to improve inclusion is showing positive progress. 18 months ago our employee base lacked any real diversity with minority race/country of origin at only 2%; this is now at 10% of our workforce.
Our business has a male to female ratio of 59%:41%. This is skewed by our warehouse operations, which, due to the size and weight of products, appeals more to male workers. By removing the warehouse staff the ratio changes to 56% female and 44% male. One of the most successful diversity achievements is within the senior management team, well balanced with 48% women and 52% men. In contrast, two years ago, this was 72% male to 28% female. The balance has changed largely organically reflecting the Executive board structure with more female role models and roles held by women throughout the organisation making a valuable contribution within the leadership structure.
Our Values set the tone for the entire organisation and give us our principles of how we need to work together. I was certain that we didn’t want our values to be manufactured by the senior team in isolation as we wanted them to reflect what our people, throughout the organisation, felt were important to them. This meant valuing our heritage but recognising that the business needed to move forward. Over 350 colleagues inputted to this process to create our company values and behaviours:
Passion: Using our passion and enthusiasm to embrace every challenge that comes our way and having fun whilst we do it.
Adaptable: Being flexible to the needs of the business.
Teamwork: Working as one team to achieve a common goal, supporting our Franchisees and each other.
Excellence: Making a difference by delivering and going the extra mile.
Professional: Acting with honesty and integrity, showing respect for others to build trusting, professional working relationships.
While we continue to drive significant change and raise every bar to uphold our professional standards, we believe our speed and agility are paramount and set us apart in the market.
Outlook
During the year ahead we plan to further leverage our wholesale capability into new markets. As wholesaler to our Franchisees we have built strong relationships with our suppliers and understand the dynamics of this market. We have decided to optimise these core skills to create opportunities in new channels such as corporate accounts. By operating a delivered wholesale model we can serve a diversity of customers and build our wines and spirits volumes further. These higher volumes offer complementary sources of trade which further strengthen our core business.
It is clear that, as we strengthen our brands and professionalise our business model, becoming a Franchisee of Conviviality Retail is an increasingly compelling option, with the ability to generate a good return on investment through our simple to execute formats. We offer a comprehensive franchise solution that is sector leading, providing back office support, POS systems, pricing, promotion packages and marketing together with dedicated teams working with Franchisees ensuring regular contact with all levels of the business. It is our expectation that we will attract an increasing number of potential Franchisees interested in serving their local communities with our differentiated customer experience, benefiting from the good financial returns our model can generate.
The significant change we have driven over the last two years leaves us in a strong position to now drive growth into the business.
Diana Hunter
Chief Executive Officer
