Convivality not so convivial any more
A simple spreadsheet data entry error is forcing Conviviality, one of Britain’s most successful alcohol and beverage vendors, into Britain’s bankruptcy court. Since the beginning of March 2018, when the error was discovered and revealed, the value of the company has been in a death spiral, with share prices dropping from approximately £307.50 on March 3 to under £100 on March 14. A failed attempt to raise £125 million from investors gave corporate leadership no option except to seek legal protection behind the bankruptcy curtain.
Spreadsheet error causes corporate demise
Entry of the now-recognized fatal spreadsheet arithmetic error occurred in January 2018, when a Conviviality wholesale division profit forecast erroneously exaggerated projected profits by as much as £5 million per year. The resulting shareholder excitement was dashed just weeks later when the company discovered the mistake and was forced to issue a profit warning, telling its investors at that time that profits would be decidedly less than anticipated. Worse news followed shortly after when Conviviality was also compelled to report that it hadn’t budgeted for a £30 million tax bill, which would mean yet another hit to the profit projection.
Because of the two profit warnings, the share price dropped 60 percent and forced the London Stock Exchange to suspend Conviviality trading opportunities on March 14. Between the loss of share value and the lack of ready cash with which to pay the government, the beverage retailer and wholesaler was forced to close up shop.
Spreadsheet errors are all too common …
According to Dr. Simon Thorne, senior lecturer in the Department of Computing and Information Systems at Cardiff Metropolitan University, spreadsheet errors are “like dominos, … once the initial mistake is made, it’s only a matter of time until other problems come to the surface.” Thorne believes that the Conviviality error is a typical flaw found in millions of spreadsheets every year. He asserts that poor spreadsheet management practices lead people to blindly accept the validity of the foundational work with no additional testing. His colleague at the European Spreadsheet Risks Interest Group, Patrick O’Beirne, agrees, noting that people will accept their spreadsheet calculations if those look like what they expected to see, regardless of their accuracy.
… and make other errors worse
Conviviality might have weathered the storm if it hadn’t already stretched itself, with recent acquisitions failing to maintain an accurate accounting of its activities. In 2015 and 2016, the company purchased drinks wholesaler Matthew Clark, outdoor bar firm Peppermint and Bibendum Wines, taking the value of Conviviality up near the £1 billion mark. By April 2017, profits had more than doubled to £22.5 million, and revenues had topped £1.65 billion, a climb of 85 percent year over year. In 2017 alone, investors netted £20 million in dividends, which was more than double their take-home over 2016. All that activity, coupled with insufficient bookkeeping habits, left the corporate books in a mess, which was a situation ripe for failure. The spreadsheet arithmetic mistake, honestly made but fatal nevertheless, was all it took to trigger the resulting cascade of warnings and failures.
The spreadsheet error was just the stick that broke that camel’s back. Rapid growth by any company can create risk across several corporate sectors such as quality control, financial management and reputational status, according to Stewart Roberts, the executive vice president of fintech firm iZettle. He states that his company’s success comes, in part, from reviewing all activities every three months then automating as much as possible to scale services accurately. Clearly, Conviviality failed to adequately review its strategies, which contributed to its eventual failure.
Both Thorne and O’Beirne still love spreadsheets, however, and assert that it’s not the function that fails most often but the human inputs. They encourage that every firm that uses spreadsheets to follow best spreadsheet practices, build safeguards into the process and do plenty of testing before relying on the accuracy of the data.
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