UK wholesaler and distributor of alcoholic beverages Conviviality has released a trading update revising the company’s predictions for its earnings before tax for the 2017-18 financial year. The new estimates are 20% lower than previous predictions, representing a drop in earnings of £5.2m ($7.2m).

This decline in pre-tax earnings is primarily attributed by the company to a ‘material error’ in financial predictions for its Conviviality Direct business, wholesaler to the UK drinks on-trade.

Despite an increase in sales and orders compared to the 2016-17 tax year, Conviviality reported declining margins in January and February, which it expects to continue until the end of the financial year and will also contribute to the predicted 20% decline in pre-tax earnings.

The company has taken corrective actions including ‘a number of enhanced controls and disciplines’ in an attempt to address declining sales and orders.

Conviviality’s announcement of the forecasted decline in predicted pre-tax earnings caused share prices in the company to drop almost 60% to 123p. The cost of shares had further declined to 120.12p at 10:49GMT on 12 March 2018.

In the trading update, Conviviality claimed the previous forecast for net debt of £150m for the 2017-18 financial year would remain unchanged and that there has not been a decline in overall demand for its service.

The trading update follows optimistic half year results released in January 2017.

Highlights from the half year to 29 October 2017 include a 9.2% increase in revenue to £836.3m. Gross margin declined by 0.3% to 12.5%, which was attributed to an increase in sales to large national customers.

Adjusted earnings before tax rose by 1.7% to £23.3m and net debt was 3.7% lower than in October 2016.

Alongside its Conviviality Direct brand, which serves 23,000 drinks on-trade outlets, the company also owns Conviviality Retail, a franchised off-licence and convenience chain consisting of 370 companies with 700 outlets.

Its customers include retailers, hotels, restaurants, pubs, clubs and bars.