Christmas Trading update and Half Year results

Conviviality Retail Plc

("Conviviality" or the "Company")

Christmas Trading update and Half Year results

Conviviality Retail Plc (AIM: CVR), the UK's largest franchised off-licence led convenience chain, which listed on AIM on 31 July 2013, is pleased to announce its half year results for the 26 weeks to 27 October 2013 together with its Christmas Trading update. These results represent a period during which Conviviality transitioned from private equity ownership to listing on AIM, with a corresponding change in financial structure.

Christmas trading highlights

· Focus on driving profitable sales over the Christmas trading period

· Strong Christmas trade in the two weeks to 5 January 2014: like for like Franchisee retail sales* up by 2.8%

· Strong Wine Rack performance, like for like retail sales increase of 21.8% (two weeks to 5 January 2014)

· Encouraging Wine Rack web site performance sales up 15.3% on previous year

· Franchisee average margin improvement 0.4ppts

Half Year Highlights

Financial

· Group profit before tax excluding exceptional items increased by 13.6% to £2.2m (H1 2013: £1.9m/FY 2013: £7.1m)

· Gross profit margin increased by 0.3ppts to 7.8% (H1 2013: 7.5%)

· Like for like Franchisee retail sales* up by 1.5%

· Average retail sales per store up 4.9% year on year

· Total wholesale sales* decreased by 5.1% to £183.7m (H1 2013: £193.4m)

· Franchisee average margin improvement 0.3ppts

· Debt free - net cash balance of £11.9m

· Interim dividend declared of 2p per share

Non-Financial

· Store numbers (excl. 22 Wine Rack stores) in line with expectation at 592 (616 FYE 2013) driven by a managed reduction in stores to improve quality of the estate

· Re-positioning of the brand underway: new branding and point of sale introduced

· Improved levels of engagement with Franchisees, employees and suppliers

· Wine Rack acquisition completed with integration progressing in line with expectations

· Wine Rack website refreshed and operational

· Pilot Wine Rack store opened on 7 November

· David Adams confirmed as Chairman from 31 January together with two new non-executive appointments, Martin Newman and Steve Wilson effective 31 January, Kenton Burchell announced as Commercial Director effective 3 March 2014.

*Retail sales represent sales by our Franchisees to the end consumer, do not form part of the statutory revenue of Conviviality Retail plc, but are an important performance indicator for the business. Wholesale sales represent sales by Conviviality to our Franchisees and are reflected in the statutory revenue of Conviviality Retail plc.

Commenting on the results, Diana Hunter, Chief Executive Officer of Conviviality, said:

"We are pleased to announce our first half year results as a listed company in what has been a period of considerable change for the business, highlighted by our AIM listing on 31 July 2013.

Throughout the first half we have implemented our strategy to improve the quality of our store estate and build stronger relationships with our Franchisees and Suppliers. We acquired the Wine Rack business on 30 August, increasing focus on our wine offering and penetrating further into the South of England.

As anticipated store numbers and therefore revenues have reduced in the first half of this financial year, this reduction is in line with our expectations and is consistent with our aim of improving the quality of our store estate. Work is underway to build a strong pipeline of new stores in higher quality locations for both Bargain Booze and Wine Rack and convert this pipeline to drive sales growth in future years.

We are making progress across all elements of our strategy and expect the benefit of these initiatives to start to drive growth from the next financial year 2014/15.

Our focus over this Christmas trading period has been to drive profitable sales for our Franchisees and Conviviality. Performance in the two weeks to 5 January delivered strong like for like retail sales growth of 2.8%. The average sales per store increased year on year by 5.7% an encouraging indicator of the improving quality of the store estate.

Our customers recognise our fascias as the place to shop for an unrivalled choice of great value off-licence.

On behalf of Conviviality and our Franchisees we thank all of our customers for their continued loyalty. The dedication and commitment of our Franchisees and employees and the support of our suppliers is crucial to our success and they have risen admirably to the challenge of Conviviality becoming a listed company. I thank them all for their efforts both pre and post IPO this year."

20 January 2014

Chairman's Statement

2013 has been an important year for Conviviality, with the highlight undoubtedly being the Company's successful listing on AIM in July 2013.

The Group now enjoys a robust and straightforward capital structure, with no core debt in the business and the support of a number of long term partners in the form of our institutional shareholders.

During the period since admission to AIM, Julie Wirth has joined the Board as Chief Financial Officer, and we are due to welcome Kenton Burchell to the Board as Commercial Director in March.

David Adams, who is currently a Non-Executive Director of Conviviality, will be appointed as Chairman to replace myself with effect from 31 January 2014. On the same date, two new Non-Executive Directors, Martin Newman and Steve Wilson will join the Board.

These appointments complete the Board structure and provide the Company with a leadership team to deliver the strategy set out at the time of flotation.

I would like to thank all of the team at Conviviality and our Franchisees for all of their commitment and focus as we have delivered these step changes in our business, and I wish David, Diana and the new Board well for the next stage in the exciting development of Conviviality.

We are also pleased to declare our first interim dividend of 2p, which will be paid on 28 February 2014

Roger Pedder

Chairman

17 January 2014

Chief Executive's Statement

I am pleased to report on the Christmas Trading period and the first half year results for the Company since our admission to AIM on 31 July 2013.

Our Strategy

"To be the best value off licence led convenience store in the eyes of our customers, employees and Franchisees"

To achieve this our aim is:

· To fundamentally strengthen the relationship between Franchisor and Franchisee to drive sustainable and profitable growth

· To attract quality new Franchisees to the business and incentivise growth from within

· To strengthen the Bargain Booze brand, driving awareness and broadening its appeal to new shoppers.

· To build greater capability and credibility in wine to attract new customer groups

· To undertake complimentary strategic acquisitions to drive long term value

· To expand into new territories using a mix of fascias and formats

· To be recognised as the Suppliers' strategic partner of choice for the off licence and convenience channel

Christmas Trading

The focus over the Christmas trading period has been to drive profitable sales for both our Franchisees and Conviviality. Our customers recognise our fascias as the place to shop for unrivalled choice and great value off-licence. Our drive to increase brand awareness has resulted in unprecedented levels of social media interaction, with YouTube recognition increasing by circa quarter of a million views.

Performance in the two weeks to 5 January delivered strong like for like retail sales growth of 2.8%. The average sales per store increased year on year by 5.7% an encouraging indicator of the improving quality of the store estate. Wholesale sales performance was broadly consistent with retail sales across the Christmas period.

The aim to improve the product mix across the estate is progressing well with sales of sparkling wine and champagne up 20% in the core estate and seasonal confectionary up 263%, whilst sales of beer packs proved resilient delivering a sales increase of 16%.

Wine Rack performance was strong with like for like retail sales growth of 21.8% (two weeks to 5 January).

The Wine Rack web site performed well, with traffic up 31% on last year and sales up 15.3%. This was an encouraging performance and our first venture into on-line trading for Conviviality.

Half Year Results to 27 October 2013

Financial

Retail sales primarily represent sales by our Franchisees to the end consumer. Retail sales for the 26 weeks to 27 October 2013 were £261.9m (H1 2013: £276.2m), a decline of 5.2%, reflecting the managed reduction in store numbers to improve quality across the retail estate. Underlying like for like retail sales increased by 1.5 % for the half year and average sales per store improved by 4.9% against the previous year indicating an improvement in the quality of the estate.

Wholesale sales primarily represent sales by Conviviality to our Franchisees. Wholesale sales for the 26 weeks to 27 October 2013 were £ 183.7m (H1 2013: £193.4m), a decline of 5.1%.

Gross profit margin strengthened by 0.3ppts to 7.8% (H1 2013: 7.5%) reflecting improvements in mix together with delivering a consistent margin improvement for Franchisees of 0.3ppts in the first half.

Costs remain well controlled, with one off items directly relating to the IPO and acquisition of Wine Rack treated as exceptional. The exceptional costs totalling £3.3m include the vesting of share options granted to two executive directors in February of this year, which vested on IPO generating an accounting charge of £1.9m.

EBITDA before exceptional items was £4.2m (H1 2013: £5.1m/FY 2013: £12.5m) resulting in profit before tax excluding exceptional items of £2.2m (H1 2013: £1.9m/FY 2013: £7.1m).

The business now benefits from a debt free financial structure, with positive cash flow, resulting in a net cash balance of £11.9m as at the half year.

The company implemented a new financial structure as part of the IPO resulting in the full settlement of senior debt and all loan notes totalling £36m. These results include interest charges against the previous loan notes of £0.7m between 1 May 2013 and 1 August 2013 which will not repeat in future periods.

An interim dividend of 2p per share is declared today to shareholders on the register on 31 January 2014 and will be paid on 28 February 2014.

The overall phasing of first half profitability is consistent with the company historic profile.

Stores

The total number of stores as at 31 October 2013 was 614, this comprised 592 Bargain Booze stores (all fascias) and 22 Wine Rack stores.

During the period (excluding Wine Rack), there was a net decrease of 71 stores. This is in line with Conviviality's previously announced aim of ensuring a quality store estate, removing underperforming Franchisees and stores from the portfolio. We have had a strong level of interest in opening new stores from both new and existing Franchisees since we listed on AIM, and expect to convert this interest into new, high quality store openings in the year ahead.  

Wine Rack

Since the acquisition of Wine Rack in August 2013, the Board has been focussing on integrating the Wine Rack business into Conviviality. The financial impact of Wine Rack is expected to be minimal in the current financial year as we progress with our integration plans, and we expect that Wine Rack will make its first financial contribution to the Group results during the 2014/2015 financial year.

A pilot Wine Rack store in West Byfleet opened in November 2013. This store incorporated updated branding and point of sale communications, elements of which are being rolled out across the Wine Rack store estate. Early trading results of West Byfleet have been encouraging.

Conviviality's plan remains to create franchise opportunities for the Wine Rack brand, and expressions of interest have been received from a number of existing Franchisees.

Franchisee Engagement

Conviviality is committed to building and maintaining strong relationships with its Franchisees and believes that an incentivised and motivated Franchisee base is crucial to the success of the business. The Franchisee incentive plan described in our AIM admission document dated 18 July 2013 is now fully implemented and operational. In addition, an incentive scheme based on wholesale sales, designed to be self-financing, has been implemented, with a cash discount payable quarterly. In addition Franchisee margin has seen a consistent level of improvement against last year.

The Company has implemented a store standards auditing procedure since its admission to AIM with a significant proportion of the estate targeted to achieve the minimum bronze standard by April 2014. We believe that the Franchisee incentivisation schemes will drive store standards, secure compliance and enable continuous improvement and achievement against the bronze, silver and gold benchmarks moving forward.

Outlook

The Board have taken the decision to consolidate distribution activity into the Crewe warehouse with the closure of the Newcastle under Lyme site scheduled for April 2014. We have established that Crewe has sufficient capability to absorb the Newcastle operation whilst continuing to provide significant capacity to support future business growth, as well as delivering cost savings enabling further investment to drive growth.

Our focus is to continue to deploy our strategy, during the second half we will be progressing the following plans:

· Increased focus on store standards and embedding retail skills

· Continued drive to increase store numbers and deliver profitable growth through geographical expansion

· Continued drive for operational efficiency, completing the transition of the Newcastle under Lyme operation to Crewe

· Targeted recruitment of quality Franchisees

· Development of a further format

· Further development of our on-line capability

Whilst there have been significant changes in the governance, management and the underlying business, our focus has been on improving the performance of our Franchisees and strengthening the core business. The second half will focus on building our future growth pipeline and together with the acquisition of Wine Rack, we would expect to see the benefits of these changes positively impacting the performance of the business from 2014/15 onwards.

Diana Hunter

Chief Executive Officer

17 January 2014

The following notes are an integral part of these condensed interim financial statements.

Notes to the condensed interim financial statements

1. General information

The principal activity of Conviviality Retail Plc (the "Company") and its subsidiaries (together, the "Group" or "Conviviality Retail") is that of wholesale and retail supply of beers, wines, spirits, tobacco, grocery and confectionery.

The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is: Weston Road, Crewe, Cheshire CW1 6BP. On 10 May 2013 the Company changed its name from Bargain Booze Holdings Limited to Conviviality Retail Limited and on 9 July 2013 re-registered as a public limited company and changed its name to Conviviality Retail Plc.

The registered number of the Company is 5592636.

During the period, the Company acquired the entire issued share capital of L. C. L. Enterprises Limited now trading as Wine Rack Limited ("Wine Rack").

The condensed interim financial statements presented are for the periods ended 27 October 2013, 28 October 2012 and 28 April 2013.

These condensed interim financial statements were approved for issue on 17 January 2014.

These condensed interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 28 April 2013, prepared under UK GAAP, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The condensed interim financial statements have not been audited or reviewed in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

2. Basis of preparation

The consolidated interim financial statements of the Group for the 6 months ended 27 October 2013, which are unaudited, have been prepared in accordance with the accounting policies set out in the AIM admission document dated 18 July 2013 for three years ended 24 April 2011, 29 April 2012 and 28 April 2013.

The consolidated condensed interim financial statements have been prepared on a going concern basis and under the historical cost convention.

The consolidated condensed interim financial statements are presented in sterling and have been rounded to the nearest thousand (£'000).

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates.

The interim statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group's financial statements as at 28 April 2013. There have been no significant changes in any risk management policies since year end however the Company notes the following relevant regulatory updates:

· On 18 July 2013 the Government announced that it will not be taking forward proposals to introduce minimum unit pricing at this time, but it would be legislating to ban sales below the cost of duty plus VAT.

· In relation to the industry wide issues surrounding the price and availability of Glass Packaging Recovery Notes (PRNs) as noted in the Aim admission document, the Company continues to discuss the matter with the Environment Agency and is expecting to receive confirmation of the settlement amount in the near future. The settlement amount is expected to be consistent with the provision recorded.

3. Accounting policies

In preparing these interim financial statements, the significant judgments made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements reported in the AIM admission document for the year ended 28 April 2013.

4. Cash generated from operations

The increase in trade and other payables for the periods ended 28 October 2012 and 28 April 2013 is distorted due to the timing of the duty payment made 29 April 12 of £13.6 million. Thus the periods ended 28 October 12 and 28 April 2013 reflect 5 and 11 monthly payments respectively instead of the expected 6 and 12 monthly payments.

5. Business Combinations

On 30 August 2013 the company entered into an agreement to acquire the entire issued share capital of L. C. L. Enterprises Limited now trading as Wine Rack Limited ("Wine Rack"), for a total consideration of £1.65 million in cash. Wine Rack is a retailer of wine, spirits, tobacco and related products, and operates 22 stores, predominantly in Greater London. This acquisition is consistent with the Group's ongoing strategy of increasing focus on its wine offering as well as penetrating further into the South of England from its heartland in the North West.

The Board is still considering the nature of the acquisition of Wine Rack and its component parts. For the purposes of the interim financial statements, the sales proceeds less net assets acquired have been recognised entirely as goodwill.

The following table summarises the consideration paid for Wine Rack, and the amount of assets acquired and liabilities assumed recognised at the acquisition date.

Acquisition costs of £178,000 have been charged to exceptional items in the consolidated income statement for the period. (Note 6)

6. Exceptional items

The exceptional costs incurred arising from one-off transactional activity, and are analysed below:

The costs associated with the initial public offering (IPO) consist of the fair value of the executive share options vesting on IPO, the fair value of the warrant issued to Zeus as described in the AIM admission document dated 18 July 2013, and costs associated with IPO that were not met by the previous shareholders.

The exceptional costs incurred during to the period ended 28 October 2012 and 28 April 2013 relate to professional and consultancy charges arising from one-off transactional activity.

7. Taxation

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 27 April 2014 adjusted for the reduction in the rate of corporation tax to 21% from 23% and adjusting for the group relief claim made in the year end April 2013 tax returns filled in October 2013. Deferred tax assets relating to share based payments have been calculated to reflect the number of options outstanding and movement in the share price. Deferred tax assets have also been adjusted to reflect the prior year group relief claim. A taxation credit has not been recognised for the exceptional items, as detailed in note 6, as they are not considered deductible for tax purposes.

8. Dividends

An interim dividend of 2p per share was proposed by the board of directors on 17 January 2014. It is payable on 28 February 2014 to shareholders who are on the register at 31 January 2014.This interim dividend, amounting to £1.3m, has not been recognised as a liability in this interim financial information. It will be recognised in shareholders' equity in the year to 27 April 2014.

9. Intangible assets

10. Share capital

Employee share option scheme: During the period to 27 October 2013, share options over 587,000 shares were exercised and sold by Keith Webb, Executive Director, on 31 July 2013 with proceeds, net of costs, of £570,000.

11. Borrowings and loans

12. Earnings per share

On 8 July 2013, each A Ordinary Share and each B Ordinary Share was sub-divided into 36.77614821 Ordinary Shares resulting in a total of 33,536,096 Ordinary Shares.

The earnings per share calculations for period ended 28 October 2012 and year ended 28 April 2013 have been restated to reflect the share restructuring.

Basic and diluted earnings per share are calculated by dividing the (loss) / profit for the period attributable to equity holders by the weighted average number of shares.

The difference between the basic and dilutive average number of shares represents the dilutive effect of share options in existence. These are considered to be anti- dilutive at 27 October 2013 because of the loss in the period and therefore basic and diluted EPS are the same. The weighted average number of shares can be reconciled to the weighted average number of shares including dilutive shares as follows:

Adjusted earnings per share

Although not presented on the face of the Income statement, the adjusted earnings per share (Profit before exceptional items) is calculated below:

Adjusted 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.

The difference between the basic and dilutive average number of shares represents the dilutive effect of the plan. The weighted average number of shares can be reconciled to the weighted average number of shares including dilutive shares as follows:

13. Related-party transactions

No Director has any interest, direct or indirect, in any assets which have been acquired by, disposed of, or leased to, any member of the Group or which are proposed to be acquired by, disposed of, or leased to, any member of the Group.

14. Events occurring after the reporting period

The Company now operates a Share Incentive Plan (SIP), approved by HMRC on 14 October 2013, approved by the Board on 11 October 2013 and commenced 1 November 2013. A summary of the main features is set out in the AIM admission document dated 18 July 2013.

The Company entered into a block listing arrangement with AIM in respect of the notification to AIM of allotments of 15,000 new ordinary shares of £0.0002 each in the capital of the Company to satisfy the requirement to allot matching shares at the time of purchase of partnership shares for the SIP.

The Company issued new 2,030 and 2,199 ordinary shares of 0.02 pence on 27 November 2013 and 30 December 2013 respectively being the Company matched shares in accordance with the SIP.

On 4 November 2013, the Company granted an option over 195,000 Ordinary Shares of 0.02 pence to Julie Wirth, Chief Financial Officer, under the Company's Employee Share Option Plan (approved by HMRC 25 October 2013). The exercise price of the option is 100p per Ordinary Share, and EBITDA linked performance criteria and a three year service condition must be met in order for the option to become exercisable. The option can be exercised (subject to performance conditions being met) for a period of 10 years from 4 November 2013.

On 6th January 2014 the company announced the consolidation of distribution activity into the Crewe site with the closure of the Newcastle under Lyme site scheduled for April 2014.

The Company announced that David Adams will be appointed as Chairman from 31 January 2014 together with two new non-executive appointments Martin Newman and Steve Wilson also effective 31 January 2014.

The Company announced that Mr Kenton Burchell will be appointed as the new Commercial Director and will join the Board on 3 March 2014.