TIDMMCLS

RNS Number : 1074T

McColl's Retail Group plc

23 March 2021

23 March 2021

McColl's Retail Group plc ("McColl's", the "Company" or "the Group")

FULL YEAR RESULTS FOR 53 WEEK PERIODED 29 NOVEMBER 2020

Foundations in place for growth

 
 GBPm                         FY 2020   FY 2019     Change 
 Sales                          1,258     1,219      +3.2% 
                             --------  --------  --------- 
 Like-for-like sales 
  growth(1)                    +12.0%      0.0%   +12 ppts 
                             --------  --------  --------- 
 Gross Profit                   300.9     315.7      -4.7% 
                             --------  --------  --------- 
 Gross Margin %                 23.9%     25.9%    -200bps 
                             --------  --------  --------- 
 Adjusted EBITDA (post           57.9         -          - 
  IFRS 16)(2) 
                             --------  --------  --------- 
 Adjusted EBITDA (pre 
  IFRS 16)(2)                    29.1      32.1      -9.3% 
                             --------  --------  --------- 
 Loss after tax                 (2.7)    (95.9)          - 
                             --------  --------  --------- 
 Net Debt (post IFRS          (281.8)         -          - 
  16)(3) 
                             --------  --------  --------- 
 Net Debt (pre IFRS 16)(3)     (89.6)    (94.1)      +4.8% 
                             --------  --------  --------- 
 

Jonathan Miller, Chief Executive, said:

"Over the last 12 months we have seen strong like-for-like sales growth, driven by the positioning of our stores in key neighbourhood locations and our strong customer offer. Despite the operational challenges of the pandemic,

we have made good progress on our   customer-focused strategic change programme. 

"We recently reached a key strategic milestone, announcing a new supply deal with Morrisons, ensuring the continued supply of supermarket quality food across our entire estate for the next six years, supported by a bank facility extension. I am delighted with the opportunity this brings to convert 300 stores to the successful Morrisons Daily format over the next three years. These stores will be particularly well suited to the changing customer dynamics that are resulting from the pandemic.

"The past year has been exceptionally challenging for so many people, and I am incredibly proud of all our colleagues who have been working extremely hard to keep supplying our neighbourhood communities with the food, goods and services they need.

"Looking ahead to 2021, whilst uncertainties and restrictions remain, there is no doubt that the strategic importance of neighbourhood stores has never been greater, and we are well positioned to deliver for customers and shareholders, as we continue to enhance our convenience offer."

Financial highlights

-- Total FY20 revenue up 3.2% to GBP1.258bn (FY19: GBP1.219bn), reflecting strong demand since the onset of the COVID-19 pandemic, partly offset by divestments and store closures as we make good progress with our store optimisation programme

-- Total like-for-like (LFL) sales growth of 12.0% (FY19: 0.0%) driven by strong performance in alcohol, fresh food and tobacco

   --      Gross margin of 23.9% (FY19: 25.9%), reflecting: 

o Change of product mix as a result of changing shopping behaviours during the pandemic, as customers moved away from impulse purchases to lower margin take home products as well as multi-buys and value items

o Strategic investment in price in key product areas

   --      Gross profit of GBP300.9m (FY19: GBP315.7m) 

-- Adjusted EBITDA pre IFRS 16 declined to GBP29.1m (FY19: GBP32.1m) due to lower gross profit, lower contribution from Services and ongoing net COVID-19 costs

-- Adjusted profit before tax of GBP1.1m (FY19: GBP7.4m). Statutory loss before tax of GBP5.3m ( FY 19: loss of GBP98.6m, including a non-cash impairment charge of GBP98.6m)

-- Basic loss per share of 2.3p (FY19: loss per share of 83.3p); adjusted earnings per share of 0.6p (FY19: 5.6p)

   --      Reduction in year-end net debt position (pre IFRS 16) to GBP89.6m (FY19: GBP94.1m) 

Transformational new Morrisons partnership and new banking deal secured

-- Morrisons wholesale partnership extended for a further three years to 2027. Provides greater range of products enabling a more comprehensive grocery offer

-- Agreement represents a significant milestone in McColl's' strategic goal of becoming a food-led convenience retailer, giving even greater access to Morrisons grocery expertise and brand

-- Acceleration of successful Morrisons Daily format, with 300 store conversions planned over next 3 years. This includes the existing 31 Morrisons Daily stores currently in operation

   --      Migration of entire estate to Morrisons supply now complete, helping to simplify operations 

-- Bank facility extended to February 2024 with more flexible terms to execute strategy, including additional headroom and a realigned amortisation schedule

Progress against key strategic initiatives

In FY19 we announced that we were embarking on a customer focused strategic change programme, with the aim of putting customers back at the heart of the shopping trip. Despite the operational challenges created by the COVID-19 pandemic, the Group has made good progress against the pillars set out last year:

   --      Enhancing our customer offer 

o Adapted operations and extended customer range and offer to meet change in demand as a result of the pandemic

o Selectively invested in the price of chilled foods, fruit and vegetables, and milk to offer customers better value

o Uber Eats partnership signed after period-end to offer home delivery of everyday convenience goods from over 400 stores

   --      Increasing operating efficiency 

o New operations structure created to better align with our strategy, creating a simpler, but more effective organisation for the future

o Adjusted administrative expenses pre IFRS 16 as a percentage of revenue reduced to 23.2% (FY19: 25.2%)

   --      Improving the quality of our estate: 

o Accelerated store optimisation plans during H2, with 179 stores closed in FY20, in line with our strategy to increase focus on larger, more profitable, grocery-led stores

o A total of 21 stores converted to the Morrisons Daily format during the year

o Targeting optimised estate of 1,150 stores, from 1,265 stores currently

   --      Great place to work 

o Empowered front line colleagues during the COVID-19 pandemic to go the extra mile in supporting our local communities

Current trading and outlook

-- Like-for-like sales growth of +8.8% in the 15 weeks to 14 March 2021 despite the ongoing operational challenges of COVID-19

-- Gross margin trends are consistent with those experienced in FY20, reflecting a shift in sales to lower-margin take-home products and multi-packs as a result of the third national lockdown

-- As lockdown restrictions begin to ease, we expect our sales mix to normalise with higher purchases of impulse products and a progressive reversion towards pre-pandemic margins. However, we remain in a highly uncertain environment, with little visibility on macroeconomic and consumer trends for the remainder of 2021

-- We therefore remain cautious on the year ahead, particularly as we start to face tougher like-for-like sales comparatives, and Government support measures roll off as the year progresses. While in the short term the pandemic will impact trading, we will continue to adapt our business to a change in customer demand. Our key strategic priorities will help deliver sustained profitable growth over the coming years.

Notes:

The business uses a number of non-statutory measures (for example, LFL, adjusted EBITDA and adjusted EPS) because management believe that these - placed with equal prominence alongside other statutory measures - help to better explain the underlying performance of the business and its key dynamics. These are kept under continuous review and are defined and used consistently, or explained otherwise. The Group has defined and outlined the purpose of its alternative performance measures, including its key measures, in the glossary of terms.

1. LFL sales reflect sales from stores that have traded throughout the current and prior financial periods, and include VAT but exclude sales of fuel, lottery, mobile phone top up and travel tickets.

   2.   See reconciliation of pre and post IFRS 16 impacts on EBITDA in Note 4 
   3.   See reconciliation of pre and post IFRS 16 impacts on Net Debt in Note 12 

Results presentation

A copy of this announcement is available at www.mccollsplc.co.uk/investor .

A conference call for analysts will be held today at 9.30am. Access will be by invitation only. All presentation materials will be available on our website.

Enquiries

Please visit www.mccollsplc.co.uk or for further information, please contact:

 
 Analyst & Investors:    Tej Randhawa, McColl's      +44 (0)1277 372916 
 Media:                  Ed Young, Headland          +44 (0)203 805 4822 
                          Rob Walker, Headland        mccolls@headlandconsultancy.com 
                          Charlie Twigg, Headland 
 

Notes to editors

McColl's is a leading neighbourhood retailer, with an estate of over 1,200 managed convenience stores and newsagents. We operate McColl's and Morrisons Daily branded convenience stores as well as newsagents branded Martin's across the UK, except in Scotland where we operate under our heritage brand, RS McColl.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014

LEI: 213800R1TLR536P8YJ67

Cautionary statements

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Neither we nor any of our officers, Directors or employees provide any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur and undue reliance should not be placed on these forward-looking statements which only speak as of the date of this announcement. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

No statement in this announcement is intended as a profit forecast or a profit estimate and past performance cannot be relied on as a guide to future performance. This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities.

CHAIRMAN'S STATEMENT

The last 12 months have of course been dominated by the COVID-19 pandemic, which has engulfed the UK and wider world, and naturally, our response to the pandemic has been the primary focus for our Chief Executive, Jonathan Miller, and his management team.

As an essential retailer, and one that provides a crucial service to local neighbourhoods, not only for food but other services including Post Office and Collect+, we knew that our communities would rely heavily on us throughout the crisis. The fact that we were able to keep our stores open, and continue to do so, is testament to the dedication and hard work of everyone at McColl's.

At the start of the pandemic, the management team worked tirelessly to ensure the safety of colleagues and customers. We moved quickly to adapt stores for social distancing measures, temporarily removed non-essential items from sale such as scratch cards due to potential transmission risks, reduced trading hours to manage deliveries and staff absence levels, as well as fitting stores with the necessary protections such as perspex screens at the till counter.

We also deployed a full range of personal protective equipment (PPE) for our store colleagues and offered them double discounts for an extended period to help to support them during these times.

We rapidly deployed remote working for our Retail Support Centre colleagues, whilst finalising the sale of our head office - meaning we have yet to benefit fully from the much better working environment afforded by our new headquarters.

The resilience shown by all our colleagues under such challenging circumstances, over months and months, has been inspiring. We will continue to prioritise their support and wellbeing, as well as the communities we serve as the nation navigates its way through the pandemic.

Review of the year

Demand for our local convenience retail offering has never been higher, highlighted by like-for-like revenue growth of 12.0% during the year. This growth was primarily driven by the pandemic, with us welcoming many new customers as a result of the positioning of our stores in key neighbourhood locations and the breadth and range of product on offer.

This strong top-line performance did not carry through to profit, as changing shopping behaviours and product mix led to a dilution of operating margins, with higher-margin sales of impulse products, for example, being severely impacted. This was on top of the ongoing COVID-19 related costs that the business has had to absorb. Adjusted EBITDA (pre IFRS 16) in the year was GBP29.1m, lower than the GBP32.2m delivered in the prior year. The business rates relief and VAT deferral from the Government provided us with crucial support throughout this period and I must emphasise how grateful we are, enabling us to continue to support our local communities that rely on us.

Despite the disruption caused by the pandemic, the business made good progress on its strategic objectives. We extended our customer range and selectively invested in essential items to offer better value for money. A new operations structure was also created to create a flatter, simpler and more effective organisation for the future.

Our store optimisation programme was accelerated during the period, which saw 179 stores close, as we focus our business on larger, food-led convenience stores. This strategy has been reinforced during the pandemic, with the strongest revenue performance being delivered with stores with the highest grocery mix. It is clear that customers demand a convenience offering with a broad fresh food range, at competitive prices. This has been exemplified by the trial of 31 Morrisons Daily stores, which have performed strongly.

Therefore, I am pleased to report that we have extended our relationship with Morrisons by a further three years, which will give us an even wider range of product, as well as benefitting from a total of 300 Morrisons Daily format store conversions within the next three years. This is in addition to the fact that Morrisons has become our sole wholesale supplier, enabling us to simplify our operations even further.

We will continue to work with Morrisons to optimise the performance of the remainder of our store estate, continuing to develop the Safeway product range as part of a broader programme of range reviews.

To help support our Morrisons plans, we recently engaged with our banking syndicate, and I am pleased to say that our financing arrangements have been amended to give us more flexibility to help execute on our strategy in 2021 and beyond. Further detail is provided in the financial review.

Board and Executive changes

I'd like to take this opportunity to thank all of our people for their contributions this year, particularly under such challenging circumstances. Everyone from the Board, Jonathan and his management team, to our frontline retail colleagues have gone above and beyond their duties, adapting to a rapidly changing environment, while keeping a positive attitude.

Having the right, talented senior leadership in place is critically important to help navigate our business through a variety of challenges including the current coronavirus crisis, coupled with a highly competitive sector and weak consumer confidence.

There were several changes to the leadership team and Board over the last year. Robbie Bell stepped down from his position as Chief Financial Officer to pursue a new opportunity. The Board undertook a thorough process and welcomed a new Chief Financial Officer, Giles David, who joined the Group in June 2020. Giles brings 15 years of experience as a Chief Financial Officer across consumer-facing businesses. I would like to thank Robbie for all he achieved for our business.

Richard Crampton, Chief Commercial Officer (CCO), was also appointed to the Board in June 2020. The appointment was recognition of the significant contribution that Richard has made since joining McColl's in September 2019. Richard has been responsible for accelerating the development of the Group's commercial strategy and further enhancing the customer proposition. The Board and I welcome Giles and Richard to their new roles and wish them every success in the future.

We were also delighted to strengthen the Board with two new Non-Executive Director appointments. Dominic Lavelle joined the Board in May 2020, succeeding Sharon Brown as Chair of the Audit & Risk Committee. I thank Sharon for her valuable contribution during her time at McColl's.

Dominic also sits on the Remuneration Committee and Nomination Committee. Benedict Smith joined the Board in July 2020, and sits on the Audit & Risk Committee, Remuneration Committee and Nomination Committee. Both Dominic and Benedict bring a wealth of relevant experience that we will benefit from.

I am also pleased that we have strengthened the support centre team by making critical senior appointments in Technology, Investor Relations, Property and Operations, and believe we are now much better equipped for success.

Optimism for the future

I am confident that we will emerge from this crisis as a better and stronger business, and one that remains focused on delivering our core strategic objectives. The importance of neighbourhood stores has never been greater, and we are well positioned to continue enhancing our convenience offer by further developing our partnership with Morrisons, and further improving the quality of our estate and our overall customer experience.

Angus Porter

Chairman

CHIEF EXECUTIVE'S REVIEW

Food-led neighbourhood retail

This has been an extraordinary year and one in which the passion, dedication and loyalty of my colleagues throughout the business has been simply incredible. Since the onset of the COVID-19 pandemic, I am proud to see how our colleagues on the frontline have consistently gone above and beyond to support their local communities and keep the business trading.

The pandemic has also led to significant changes in food retail, and accelerated trends that otherwise might have taken years. There is no doubt that local neighbourhood retailing has come into focus in 2020, and our food-led stores have outperformed the convenience market. Lockdown restrictions and the move to home working have materially affected how our customers shop with us, and validated the changes we were already making to our offer. Increased demand for food-led neighbourhood retail is here to stay. For this reason, I am delighted that we have recently reached agreement with Morrisons to extend our supply agreement, giving us even greater access to their food retail expertise, breadth of product offering and brand. Together with our recently signed bank facility extension, this is an important milestone as we execute our strategy to become your favourite neighbourhood shop.

At the height of the pandemic, consumer shopping behaviour in our stores shifted towards less frequent visits, but with bigger shopping baskets and more food-based missions. Some categories benefitted from this change, with fresh food, BWS (beers, wines and spirits) and tobacco growing quickly, at the expense of other products such as food-to-go and impulse confectionery, snacks and soft drinks. As a result of this strong demand, the business was able to deliver materially higher like-for-like sales, up by 12.0%. However, a significant shift in the pattern of trade, and additional costs related to the implementation of COVID-19 protection measures for staff and customers, impacted overall operating margins.

Whilst we expect some of these trends to normalise when the pandemic eases, we do not expect them to completely revert, particularly the growth in take-home food and home delivery. Ultimately, the trends amplified by the onset of COVID-19 directly tie into the areas where we are focusing our strategy - towards a local grocery-led convenience retail offering, now supplemented by online.

In the short term the pandemic will continue to impact trading, and we will continue to adapt our business to a change in customer demand. We recently signed a new agreement with Uber Eats that will see the service operate across 400 stores by the end of March 2021. This provides another channel for customers to get their daily essentials, while also attracting a younger generation of customers to our brand.

McColl's is well positioned in a market that is forecast to grow. The importance of neighbourhood stores and convenience retail to local communities has never been greater. Our key strategic priorities will help deliver sustained profitable growth over the coming years.

COVID-19 response

The health, safety and wellbeing of our colleagues and customers continues to be a priority, as we remain very much amidst the COVID-19 pandemic. I thank all of our colleagues who continue to work in an extremely challenging environment.

At the onset of the COVID-19 outbreak we adapted quickly to a rapidly changing situation, to keep all of our stores trading to help serve our local communities with essential products and services. We dealt with the increased demand from consumers, deployed the necessary personal protective equipment (PPE), adopted social distancing and health and safety measures in line with Government guidance and worked closely with our wholesale partners to keep supply chains open.

As a neighbourhood retailer we implemented numerous initiatives to help serve our communities. To show our support for the NHS and the invaluable service it provides, McColl's provided essential food and goods to colleagues at NHS Great Ormond Street Hospital (GOSH) for free. In stores, we also offered all emergency and NHS workers free coffee, as well as the delivery drivers that kept goods flowing to our stores. We were the first convenience retailer to support the Free School Meals voucher scheme. We also stocked The Big Issue in-store for the first time in the magazine's history to support its vendors.

Extension of Morrisons partnership

Our partnership with Morrisons is of key strategic importance, and I am delighted to have recently announced an extension of our agreement to January 2027, giving us continuity of supply for the next six years. Events over the past year have highlighted how critical it is to have a strong wholesale partner and how important a credible food offer will be to our future. Our partnership with Morrisons was a key reason we were able to provide continued service and extended food ranges against a backdrop of huge disruption.

The new long-term partnership will provide McColl's with an important strategic opportunity to convert 300 of our best convenience stores to the Morrisons Daily format over the next three years. Sales in our existing stores of this format have outperformed the rest of the estate during 2020, and the move is in line with our strategic focus to grow our grocery mix. We will also have continued access to a supermarket quality fresh food and grocery offer through the Safeway brand, where further range extensions are planned.

We have now completed the process of migrating the entire estate to the Morrisons supply chain, making them our single wholesale partner, enabling us to simplify our operations, whilst ensuring the best value and enhanced range for our customers.

Extension of banking facilities

We retain a supportive relationship with our lending banks and having engaged with our banking syndicate in the latter part of 2020, we were pleased to recently announce that our bank facilities have been successfully amended with improved headroom against covenants, and extended with a revised maturity date of February 2024. Alongside the extension of our Morrisons partnership, the amended facility gives us greater security and flexibility to execute on our strategic initiatives in 2021, and beyond. Further details of the new banking arrangements are provided in the financial review.

Strategic progress

The key focus in 2020 was successfully navigating the challenges posed by COVID-19, and to ensure that all our stores kept trading. However, the pandemic has reinforced our conviction that our strategy of growing fresh food and grocery mix, keeping the customer at the heart of everything we do, remains the right one, supplemented by developing an online offering to capitalise on the market shift we are experiencing.

Our vision remains to be your favourite neighbourhood shop and more than ever we are focused on delivering a great customer experience. The new partnerships with Morrisons and Uber Eats will be critical to deliver this. In addition, the work we are doing on format and range will ensure we retain the new customers drawn to our stores because of the pandemic.

Our strategy is based on four key pillars: 1) strong customer offer, 2) easy to run stores, 3) improving our stores and 4) great place to work. We have continued to make progress on these priorities wherever possible, and adapting them to changing circumstances as required:

1. Strong customer offer

High demand for grocery and BWS categories

Total like-for-like (LFL) sales growth of 12.0% (FY19: 0.0%) across the Group was driven by a strong performance in the grocery and BWS (beers, wines, spirits) categories in particular.

This highlighted the changing shape of trade throughout the year as a result of the pandemic, with strong demand for fresh food, BWS and multipacks, with a shift away from impulse purchases (confectionery, soft drinks). We also invested selectively in price on chilled foods, fruit and vegetables and milk, as well as maintaining our promotional programme to offer customers great value.

Reviewing space, range and format

Some of our planned range review work had to be delayed in 2020 because of the COVID-19 crisis. Instead, we had to respond with agility and speed to adapt ranges to the change in consumer behaviour over the course of the year. This work will now take place across 2021, where the team is planning to review every category both in the core McColl's estate, as well as our Morrisons Daily stores.

The completion of this range review work will deliver a better range of products to fit with the needs of our customers, combined with a focus on efficiency to deliver lower costs through reduced stock keeping units (SKUs) and lower stock turn.

There is also an opportunity to optimise the space within our retail portfolio by re-setting store formats, fixtures and store clusters to maximise sales and gross margin. This work includes segmentation of stores by location, performance, size and demographics, to strengthen our targeting of products, promotions and services to local markets and shopping missions.

Customer insight

As well as improving range, we continue to develop our offer through investment in customer insight to optimise our brand and value position. A recent 'Word on the Street' customer survey conducted with 3,500 McColl's customers highlighted that 83% were 'highly satisfied' with their shopping experience overall. The highest scores on the survey were directed to our colleagues with most customers citing the friendliness and helpfulness of the store team, as well as the ease of completing their shopping trip. Our shoppers have told us that they would like to see a wider range of fruit and vegetables, and bakery products in our convenience stores which fits with our strategic focus towards larger food-led stores.

Uber Eats now across 400 stores

The 'last mile' online delivery opportunity is a hugely important one for McColl's, offering our customers that extra element of convenience in having their daily essentials delivered directly to their doorstep. Building on our long-established home news delivery service, at the onset of the pandemic we rapidly rolled out Deliveroo to 135 stores. We have now switched our partnership to Uber Eats, which means that as of March 2021 we now offer this service from 400 stores.

Our new partnership allows customers to order an even wider range of 500 convenience products including groceries, soft drinks, confectionery, snacks, beer, wine, toiletries, and other essential household items. Goods can be purchased in line with local store opening times which means that customers can order goods morning, day and night via the Uber Eats app for delivery in as little as under 30 minutes.

The partnership is an incremental revenue opportunity and in line with our strategy to further strengthen our customer offer by making it easier than ever for customers to get their daily essentials, as well as helping to attract the younger generation of customers.

2. Easy to run stores

Our work around driving efficiencies through the operating model was paused temporarily in March 2020 as we entered a national lockdown, but restarted in September 2020. The work to optimise store processes has more than a dozen work streams to improve efficiency in the store without impacting service. These initiatives include simplifying store scheduling, rightsizing the range and making replenishment easier.

We are also analysing store structures to maximise shopfloor presence, and work has begun on implementing a labour modelling system to help us refine the 'right hours in the right place' to deliver for our customers.

We completed a reorganisation of our field support teams to align more closely with our strategy and to create a simpler, flatter structure for the future. This move will enable more enriching and customer-centric roles. Changes included fully integrating the Post Office function into our retail business, reducing the overall number of regions, and moving some of the risk & compliance function centrally, away from the operations team.

Some of our plans to introduce new technology in FY20 to serve customers more efficiently were disrupted by the COVID-19 pandemic, however it has served to reinforce the importance of a progressive technology strategy for the business. I am delighted that we have been able to recruit a new Technology Director in 2021 to support us through this rapidly changing environment.

3. Improving our stores

Store optimisation programme

We continued our programme of store optimisation during the year, exiting loss-making stores to focus our estate on larger, food-led convenience stores. As a result, we closed 179 stores leaving a total of 1,265 stores at the end of the year. Closures were temporarily paused in early 2020 due to the COVID-19 pandemic to keep as many of our stores operating and serving the community as possible. We will continue to progress the opportunity to right-size our estate towards the profile of shops that fit our strategy going forward.

Morrisons Daily rollout to accelerate

Demand has been strongest in our larger turnover, food-led, convenience stores. This ties in with our strategic focus on the larger convenience store format, such as Morrisons Daily, to drive incremental sales in grocery, fresh food and BWS, providing opportunities for sales mix improvement.

We opened 21 Morrisons Daily trial stores during the year, leading to a total of 31 now in operation. The trial has been important to help refine range development, while exploring the potential to expand the fascia into more stores. Our Morrisons Daily stores have the highest grocery mix across our estate, helping to drive the strongest performance across the business. As part of the Morrisons contract extension, we plan to convert 300 existing stores into Morrisons Daily in the next three years.

4. Great place to work

Listening and responding to the concerns of our colleagues across the business has been a priority over the last year given the COVID-19 pandemic. We kept teams connected and colleagues were offered additional resources and learning opportunities to support them through the crisis. These included regular podcasts, articles, videos and webinar sessions, focused around developing resilience skills, wellbeing and effective time management.

During the period, we launched a colleague engagement plan and embraced new ways of working. Frontline colleagues were empowered to go that extra mile in supporting our local communities. It was heart-warming to read stories of our colleagues making deliveries to local elderly and vulnerable customers and supporting them in a variety of ways.

The launch of McColl's Connect, a frontline employee communications platform, was an important step to connect all colleagues across the organisation. The platform creates a feedback loop and has been invaluable in creating a more inclusive culture at McColl's.

Apprenticeship schemes continued to be offered, despite the disruption around the pandemic, with a focus on developing retail management and customer service skills. Apprenticeship schemes provide an additional way for colleagues to learn and develop, and support the capability and skills required to deliver the business strategy.

A new initiative in 2020 was the launch of our first ever graduate programme, starting with six colleagues. The graduates joined their respective departments in December 2020 on a two-year rotation programme focused on understanding the business across a variety of departments and working towards becoming a senior manager. Placing graduates can bring a fresh level of enthusiasm and creativity to the workplace, and we hope our new intake will make a long-term contribution to the development of the business.

I am delighted that in our most recent colleague engagement survey, 87% of respondents rated McColl's as a great place to work. We will build on these successes with the aim of continuing to support our colleagues to do a great job and listening and responding to ensure that we are all engaged in the future success of this great business.

Looking forward

Looking ahead to 2021, whilst uncertainties and restrictions remain, the pandemic has reinforced my conviction that we have the right building blocks in place to benefit from a post COVID-19 world. I do not expect the trends experienced over the last year to completely revert, with flexible working patterns continuing as a matter of course going forward, and hence a higher demand for a strong local convenience offer.

Our strategic focus toward larger grocery-led convenience stores will accelerate an improved grocery mix and help to increase the average basket size. We will improve the quality of our estate and bring a great shopping experience to more customers through our extended Morrisons partnership. We will continue to refine our operating model and costs to serve without impacting customer service. This will be supplemented by maximising the online home delivery opportunity to drive incremental revenues. All of these initiatives will help enhance our convenience offer and deliver sustainable profitable growth for McColl's over the medium term.

Finally, I would like to thank all of my colleagues for the difference they make to our customers on a daily basis and for their hard work and dedication, never more evident than during the current COVID-19 pandemic.

Jonathan Miller

Chief Executive Officer

FINANCIAL REVIEW

The past 12 months has brought about a fundamental change in how consumers have shopped in our stores as a result of the COVID-19 pandemic. Our stores were a lifeline to local communities during the national lockdowns, with customers choosing to shop closer to home. This brought about changes to sales patterns, product mix and the cost to operate that affected the financial results.

While we expect shopping behaviour to somewhat normalise as the pandemic subsides, some patterns such as a sustained element of remote working are likely to continue. This will continue to influence our financial performance and the decisions we take in responding to the changeable conditions.

In the period, our like-for-like revenues accelerated from broadly flat in the first quarter, to a double-digit performance in the remaining three quarters. For the year as a whole, like-for-like revenues rose by 12.0%. Consumer preferences switched to lower margin take home and value packs. Below margin, incremental COVID-19 related costs were offset by continued cost discipline and business rates relief received in the period.

Our financial priorities in 2020 included strengthening our balance sheet, mitigating cost inflation and further optimising our estate. While there remain a number of challenges, we have demonstrated our resilience this year with a robust underlying performance.

New accounting standards

IFRS 16 'Leases' became effective for the Group from 25 November 2019 and replaces the requirements of IAS 17 'Leases'. The Group has adopted IFRS 16 using the modified retrospective approach under which the cumulative effect of adoption is recognised through reserves, with comparatives continuing to be reported under IAS 17.

IFRS 16 removes the distinction between operating and finance leases - all leases of more than 12 months are now recognised on a lessee's balance sheet, except for some limited exceptions. This leads to an increase in leased assets and financial liabilities on the balance sheet of the lessee. There is also a corresponding increase in operating profit and EBITDA because lease expenses are reclassified as interest and depreciation instead of operating expenses.

As a result of adopting the new accounting standard for the 12 months ended 29 November 2020, the Group's Adjusted EBITDA was GBP57.9m and Net Debt was GBP281.8m as at the period end. On a consistent, pre IFRS 16 basis, Adjusted EBITDA for the period was GBP29.1m (2019: GBP32.1m) and Net Debt reduced to GBP89.6m (2019: GBP94.1m) as at the period end.

See notes 4 and 12 for a reconciliation of the IFRS 16 adjustments impacting EBITDA and Net Debt.

 
 GBPm                      FY 2020   FY 2019    Change 
 Sales                      1,258     1,219     +3.2% 
                          --------  --------  --------- 
 Like-for-like sales 
  growth                   +12.0%     0.0%     +12 ppts 
                          --------  --------  --------- 
 Gross Profit               300.9     315.7     -4.7% 
                          --------  --------  --------- 
 Gross Margin %             23.9%     25.9%    -200bps 
                          --------  --------  --------- 
 Adjusted EBITDA (post      57.9        -         - 
  IFRS 16) 
                          --------  --------  --------- 
 Adjusted EBITDA (pre 
  IFRS 16)                  29.1      32.1      -9.3% 
                          --------  --------  --------- 
 Loss after tax             (2.7)    (95.9)       - 
                          --------  --------  --------- 
 Net Debt (post IFRS       (281.8)      -         - 
  16) 
                          --------  --------  --------- 
 Net Debt (pre IFRS 16)    (89.6)    (94.1)     +4.8% 
                          --------  --------  --------- 
 

Revenue

Revenue for the 53-week period ended 29 November 2020 was GBP1,258m, compared to GBP1,219m for the 52 week period ended 24 November 2019. On a comparable 52-week basis, revenue grew by 1.4% to GBP1,236m.

The revenue performance during the year reflects a number of trends with strong demand since the start of the COVID-19 pandemic, offset by reduced services revenues and an acceleration in divestments and store closures made during the year. Overall, we closed 179 stores in FY20, up from 120 stores in FY19.

On a like-for-like basis (and comparable on a 52-week period), revenues grew by 12.0% during the period (2019: 0.0%). The growth was a result of strong demand following the onset of the COVID-19 pandemic, as consumers chose to shop locally during lockdown restrictions. Strong growth in grocery, BWS (beers, wine, spirits), tobacco and multipack products, came at the expense of impulse products (crisps and snacks, soft drinks, confectionery) and food-to-go.

Gross profit and margin

Gross profit fell to GBP300.9m FY20, compared to 2019 (GBP315.7m). This represented a gross margin of 23.9% (2019: 25.9%), a decline of 200 basis points over the period. The fall in gross margin reflects the changing mix of sales during lockdown, as customers moved away from higher-margin impulse purchases to lower margin take home products as well as multi-buys and value items. In addition, we took the active decision to selectively invest in essential food pricing to maintain good value to existing customers and build loyalty amongst the incremental shoppers in our stores.

Operating expenses/overheads

Administrative expenses, excluding the impact of adjusted items, fell by 6.5% to GBP286.8m (2019: GBP306.6m) during the period, due to stronger cost discipline and the impact of our store optimisation programme. On a pre IFRS 16 basis, adjusted administrative expenses as a percentage of revenue were 23.2% (2019: 25.2%).

We experienced a number of underlying cost pressures and worked hard to mitigate the impact of National Living Wage inflation. Additional direct COVID-19 related costs amounted to GBP5.9m, which included the personal protective equipment (PPE) necessary to keep our colleagues and customers safe, additional card charges, PPE, cleaning equipment and colleague costs. This was partially offset by a number of government support measures in the period amounting to GBP9.4m in total. These government support measures included business rates relief and use of the Coronavirus Job Retention Scheme for furlough of our most vulnerable employees.

Going forward we expect cost headwinds related to COVID-19 to continue. We will also maintain focus on our store optimisation programme in order to improve the quality of our estate, focused on the divestment and closure of under-performing stores. We are pleased with the implementation of the store optimisation strategy so far, with 179 stores closed during the period, moving away from low margin newsagents and targeted towards larger, food-led convenience stores.

EBITDA and operating profit

Group Adjusted EBITDA was GBP57.9m in the period including the impact of IFRS 16. On a consistent, pre IFRS 16 basis, Adjusted EBITDA for the period was GBP29.1m, a fall of 9.3% over the same period last year (2019: GBP32.1m). The year-on-year decline is due to lower gross profit, lower contribution from Services and ongoing net COVID-19 costs.

Depreciation for the year was GBP38.0m (2019: GBP15.8m), which includes a depreciation on right-of-use assets in relation to IFRS 16 of GBP24.2m (2019: nil). Amortisation for the year was GBP1.0m (2019: GBP0.8m).

Adjusted operating profit increased to GBP18.7m (2019: GBP15.4m). Statutory operating profit was GBP12.3m (2019: loss of GBP90.4m).

Adjusting items

Certain items are identified and separately disclosed as adjusting items. These adjusting items are excluded from the Group's adjusted profit measures due to their size and nature in order to better reflect management's view of the performance of the Group.

Adjusting items totalled GBP3.4m in FY20 (2019: GBP102.4m). These costs primarily reflected expenses related to business restructuring and the store optimisation programme, where the Group has undertaken a material number of store closures.

Adjusting items in FY19 totalled GBP102.4m, where the majority of this amount related to a goodwill impairment of GBP98.6m. The write-down was due to rebasing of financial projections, based on lower underlying gross margin, National Living Wage and retail cost inflation pressures.

Net property-related adjusting items in FY20 were GBP2.4m (2019: GBP6.0m). This included GBP5.5m of costs associated with our store optimisation programme, and a net gain on disposal of GBP3.4m in relation to the sale of our head office. Total proceeds were GBP7.3m, with GBP2.3m received by the year-end, with the remaining balance expected to be received by end of March 2021.

Interest and tax

Net finance costs in the year were GBP17.6m (2019: GBP8.2m). The increase over the prior year primarily reflects a GBP9.1m finance charge under IFRS 16. The tax credit for the year was GBP2.6m (2019: credit of GBP2.7m). The comparable effective rate of tax in 2020 excluding the impact of non-deductible adjusting items was 36.4% (2019: 12.4%). The difference between the current and statutory rate of 19.0% in the period is due principally to a prior year adjustment for losses carried back and adjustments in respect of prior years.

Earnings per share

Basic loss per share was 2.3 pence (2019: loss of 83.3 pence). On an adjusted view, basic earnings per share was 0.6 pence (2019: 5.6 pence).

Balance sheet and net debt

Total shareholder funds at the end of the year were GBP19.9m (2019: GBP38.7m). The book value of non-current assets increased by GBP170.5m to GBP417.4m (2019: GBP246.9m), where the increase reflects the introduction of right-of-use assets under IFRS 16 of GBP173.5m.

The Group recognises right-of-use assets and lease liabilities for most leases, except for short-term leases and leases of low-value-assets. Current assets at the end of the period decreased to GBP144.9m (2019: GBP163.3m), as a result of a decrease in cash and cash equivalents of GBP13.8m mainly due to repayment of debt as the term loan continues to be amortised at GBP10m a year and drawings on the revolving credit facility have reduced by GBP7m.

Current liabilities increased to GBP248.5m (2019: GBP229.2m), reflecting an increase in loans and borrowings of GBP21.1m over the prior year to GBP32.3m (2019: GBP11.2m). Non-current liabilities increased to GBP293.9m (2019: GBP142.3m) due to increased loans and borrowings of GBP152.8m over the prior year to GBP272.7m (2019: GBP119.9m). The increase relates to the inclusion of lease liabilities following the adoption of IFRS 16.

Net debt (total borrowings less cash and cash equivalents) at the end of the period was GBP281.8m. On a consistent pre IFRS 16 basis, net debt reduced to GBP89.6m (2019: GBP94.1m pre IFRS 16). The business remains focused on working capital and cash management to reduce business leverage. At the end of the year our net debt to EBITDA ratio was 3.1x on a rolling 12-month basis.

Pension schemes

We operate two defined benefit pension schemes, the TM Group Pension Scheme and the TM Pension Plan, both of which are closed to future accrual. Total assets across both schemes had a value of GBP141.7m at the period end date of 29 November 2020. The combined accounting surplus in the two defined benefit pension schemes operated by the Group decreased to GBP3.9m (2019: GBP7.9m). The last actuarial review of the two schemes in June 2017 concluded that the combined funding deficit was GBP12.6m, and the Group currently contributes approximately GBP2.1m per year, inclusive of fees and levies.

Cash flow and capital expenditure

The Group took, and continues to take, proactive actions to preserve cash, manage working capital, maximise liquidity, and phase capital expenditure appropriately, given the uncertainty relating to the impacts of demand and shopping behaviours from the COVID-19 pandemic, including increased cash collection from stores and reacting to changes in demand to manage stock. We have also prudently modelled a range of future downside scenarios, which we are confident we have the financial and operational flexibility to deal with.

Net cash provided by operating activities in the year was GBP49.0m (2019: GBP20.0m), reflecting the changes due to the implementation of IFRS 16, while pre IFRS 16 it was GBP18.4m. Cash outflows related to leases are no longer included within net cash from operating activities except for short-term and low-value leases. The cash position was also benefitted by a total amount of GBP15.2m from government support measures available to the Group following the onset of the COVID-19 pandemic. These measures included the job retention scheme, a deferral of VAT payments, and business rates relief.

Gross capital expenditure was GBP17.3m (2019: GBP14.4m). Net capital expenditure, including property proceeds from the sale and leaseback of freehold properties, increased to GBP5.6m (2019: GBP2.9m).

Cash interest on bank loans and borrowings paid was GBP7.0m (2019: GBP7.4m), while the bank loans and borrowings interest expense was broadly in line with last year.

Bank facilities

In March 2021, we announced that our banking arrangements have been revised in order to give us more certainty and flexibility to execute our strategy. The amended credit facility agreement provides improved headroom against covenants, a realigned amortisation schedule and extends the maturity from May 2022 to February 2024. The updated facility consists of a GBP100m revolving credit facility and an amortising GBP67.5m term loan.

The facility has been arranged with our existing syndicate of six banks, comprising AIB Group (UK), Barclays Bank PLC, HSBC UK Bank plc, National Westminster Bank plc, Santander UK PLC, and Bank of Ireland. The continuing support of our banks reflects their confidence in the prospects of the Group.

See the Directors Report in the Annual Report for a further explanation of going concern in relation to the facilities agreement.

Dividends

The Board has not declared a dividend for the period ended 29 November 2020. We recognise that dividend payments are an important part of the Group's returns to shareholders and will keep the dividend policy under review with the aim of reinstating the payment of dividends at an affordable and sustainable level, once our strategic change programme gathers momentum and the Group deleverages. Additionally, the Company is restricted from paying a dividend until certain conditions are satisfied in its banking facilities, including achieving Group leverage below 1.75x.

Giles David

Chief Financial Officer

directors Responsibility Statement

The responsibility statement has been prepared in connection with the Company's full Annual Report and Accounts (the "Annual Report") for the period ended 29 November 2020. Certain parts of the Annual Report are not included in this announcement, as described in note 1.

We confirm that to the best of our knowledge:

-- the Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group.

-- the Annual Report includes a fair review of the development and performance of the business and the position of the Group and the Parent Company, together with a description of the principal risks and uncertainties that they face.

-- the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

By order of the board

Jonathan Miller

Chief Executive

Giles David

Chief Financial Officer

Consolidated Income Statement for the 53 week Period from 25 November 2019 to 29 November 2020

 
                                            53 weeks to 29 November                 52 weeks to 24 November 
                                                      2020                                  2019(1) 
                                                     Adjusting                        Adjusting 
                                                         items                            items 
                                          Adjusted      Note 3       Total  Adjusted     Note 3               Total 
                               Note           GBPm        GBPm        GBPm      GBPm       GBPm                GBPm 
Revenue                         2          1,258.1           -     1,258.1   1,218.7          -             1,218.7 
Cost of sales                              (957.2)           -     (957.2)   (903.0)          -             (903.0) 
                                     -------------  ----------  ----------  --------  ---------  ------------------ 
Gross profit                                 300.9           -       300.9     315.7          -               315.7 
                                     -------------  ----------  ----------  --------  ---------  ------------------ 
Administrative expenses                    (286.8)       (4.0)     (290.8)   (306.6)     (99.8)             (406.4) 
Other operating income          2              4.6           -         4.6       6.3          -                 6.3 
Losses arising on 
 property-related 
 items                                           -       (2.4)       (2.4)         -      (6.0)               (6.0) 
                                     -------------  ----------  ----------  --------  ---------  ------------------ 
Operating profit/(loss)         4             18.7       (6.4)        12.3      15.4    (105.8)              (90.4) 
                                     -------------  ----------  ----------  --------  ---------  ------------------ 
Finance income                                 0.1           -         0.1         -          -                   - 
Finance costs(2)                            (17.7)           -      (17.7)     (8.0)      (0.2)               (8.2) 
                                     -------------  ----------  ----------  --------  ---------  ------------------ 
Profit/(loss) before 
 tax                                           1.1       (6.4)       (5.3)       7.4    (106.0)              (98.6) 
Income tax (expense)/receipt    5            (0.4)         3.0         2.6     (0.9)        3.6                 2.7 
                                     -------------  ----------  ----------  --------  ---------  ------------------ 
Profit/(loss) for 
 the period                                    0.7       (3.4)       (2.7)       6.5    (102.4)              (95.9) 
                                     =============  ==========  ==========  ========  =========  ================== 
Earnings/(losses) 
 per share (pence)              7              0.6                   (2.3)       5.6                         (83.3) 
Diluted earnings/(losses) 
 per share (pence)              7              0.6                   (2.3)       5.6                         (83.3) 
                                     -------------   ---------------------  --------  ---------  ------------------ 
 
 

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

2. Finance costs in the 53 weeks period ended 29 November 2020 includes GBP9.1m of additional finance charges in relation to the adoption of IFRS 16. See note 10.

The above results were derived from continuing operations.

Consolidated Statement of Comprehensive Income for the 53 week Period from 25 November 2019 to 29 November 2020

 
                                                  2020  2019(1) 
                                           Note   GBPm     GBPm 
Loss for the period                              (2.7)   (95.9) 
                                                 -----  ------- 
Items that will not be reclassified 
 subsequently to profit or loss 
Remeasurement of defined benefit pension 
 scheme                                          (5.6)    (5.8) 
Deferred tax on defined benefit pension 
 scheme                                     5      0.6      0.7 
Corporation tax on defined benefit 
 pension scheme                             5      0.3      0.3 
                                                 -----  ------- 
                                                 (4.7)    (4.8) 
                                                 -----  ------- 
Total comprehensive loss for the period          (7.4)  (100.7) 
                                                 -----  ------- 
 

The loss and total comprehensive loss are attributable to the owners of the Parent Company.

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

Consolidated Statement of Financial Position for the 53 week Period from 25 November 2019 to 29 November 2020

 
                                                2020  2019(1) 
                                       Note     GBPm     GBPm 
Assets 
Non-current assets 
Property, plant and equipment (2)       8      245.3     77.1 
Intangible assets                       9      159.6    156.9 
Deferred tax assets                              3.5      1.4 
Retirement benefit asset                         9.0     11.5 
                                             -------  ------- 
Total non-current assets                       417.4    246.9 
                                             -------  ------- 
Current assets 
Inventories                                     77.8     86.4 
Trade and other receivables                     41.6     39.0 
Income tax asset                                 2.3      0.9 
Cash and cash equivalents                       23.2     37.0 
                                             -------  ------- 
Total current assets                           144.9    163.3 
                                             -------  ------- 
Total assets                                   562.3    410.2 
                                             =======  ======= 
Equity and liabilities 
Current liabilities 
Trade and other payables                     (215.3)  (215.5) 
Loans and borrowings(3)                 11    (32.3)   (11.2) 
Provisions                                     (0.9)    (2.5) 
                                             -------  ------- 
Total current liabilities                    (248.5)  (229.2) 
                                             =======  ======= 
Net current liabilities                      (103.6)   (65.9) 
                                             =======  ======= 
Non-current liabilities 
Loans and borrowings(3)                 11   (272.7)  (119.9) 
Other payables                                 (7.3)   (10.8) 
Provisions                                     (5.3)    (3.2) 
Deferred tax liabilities                       (3.5)    (4.8) 
Retirement benefit obligations                 (5.1)    (3.6) 
                                             -------  ------- 
Total non-current liabilities                (293.9)  (142.3) 
                                             =======  ======= 
Total liabilities                            (542.4)  (371.5) 
                                             =======  ======= 
Net assets                                      19.9     38.7 
                                             =======  ======= 
Equity 
Share capital                           13     (0.1)    (0.1) 
Share premium                           13    (12.6)   (12.6) 
Retained earnings                              (7.2)   (26.0) 
                                             -------  ------- 
Equity attributable to owners of the 
 company                                      (19.9)   (38.7) 
                                             =======  ======= 
 

Consolidated Statement of Financial Position for the 53 week Period from 25 November 2019 to 29 November 2020

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

2. Property, plant and equipment as at 29 November 2020 include GBP173.5m of additional right of use assets as a result of adopting IFRS 16. See note 8.

3. Loans and borrowings as at 29 November 2020 include GBP21.3m of additional current lease liabilities and GBP170.9m of additional non-current lease liabilities as a result of adopting IFRS 16. See note 10.

These financial statements of McColl's Retail Group plc registered number 08783477 were approved and authorised for issue by the Board on 22 March 2021 and signed on its behalf by Giles David.

Consolidated Statement of Changes in Equity for the 53 week Period from 25 November 2019 to 29 November 2020

 
                                                                                       Total 
                                    Share capital  Share premium  Retained earnings   equity 
                                             GBPm           GBPm               GBPm     GBPm 
At 25 November 2019-before 
 adoption of IFRS 16                          0.1           12.6               26.0     38.7 
Adoption of IFRS 16                             -              -             (14.0)   (14.0) 
Deferred tax on items 
 relating to the adoption 
 of IFRS 16                                     -              -                2.4      2.4 
                                    -------------  -------------  -----------------  ------- 
At 25 November 2019-after 
 adoption of IFRS 16                          0.1           12.6               14.4     27.1 
                                    -------------  -------------  -----------------  ------- 
Loss for the period                             -              -              (2.7)    (2.7) 
Remeasurement of defined 
 benefit pension scheme                         -              -              (4.7)    (4.7) 
                                    -------------  -------------  -----------------  ------- 
Total comprehensive income                      -              -              (7.4)    (7.4) 
                                    -------------  -------------  -----------------  ------- 
Contributions by and distributions to owners 
Share-based payment transactions                -              -                0.2      0.2 
                                    -------------  -------------  -----------------  ------- 
At 29 November 2020                           0.1           12.6                7.2     19.9 
                                    =============  =============  =================  ======= 
 
 
 
 
                                            Share          Share                       Total 
                                          capital        premium  Retained earnings   equity 
                                             GBPm           GBPm               GBPm     GBPm 
At 26 November 2018                           0.1           12.6              128.8    141.5 
                                    -------------  -------------  -----------------  ------- 
Loss for the period                             -              -             (95.9)   (95.9) 
Remeasurement of defined 
 benefit pension scheme                         -              -              (4.8)    (4.8) 
                                    -------------  -------------  -----------------  ------- 
Total comprehensive income                      -              -            (100.7)  (100.7) 
                                    -------------  -------------  -----------------  ------- 
Contributions by and distributions to owners 
Dividends                                       -              -              (2.2)    (2.2) 
Share-based payment transactions                -              -                0.1      0.1 
                                    -------------  -------------  -----------------  ------- 
At 24 November 2019                           0.1           12.6               26.0     38.7 
                                    =============  =============  =================  ======= 
 

The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

Consolidated Statement of Cash Flows for the 53 week Period from 25 November 2019 to 29 November 2020

 
                                                    2020(2)  2019(1) 
                                              Note     GBPm     GBPm 
Cash flows from operating activities 
Loss for the period                                   (2.7)   (95.9) 
Adjustments to cash flows from non-cash 
 items 
Depreciation and amortisation                  4       39.0     16.7 
Profit on disposal of property plant 
 and equipment                                        (2.0)    (1.5) 
Profit from disposals of investments                      -    (0.1) 
Finance income                                        (0.1)        - 
Finance costs                                          17.7      8.2 
Share-based payment transactions                        0.2      0.1 
Income tax credit                              5      (2.6)    (2.7) 
Impairment losses                                       0.3    101.3 
                                                    -------  ------- 
                                                       49.8     26.1 
                                                    -------  ------- 
Decrease/(increase) in inventories                      8.6    (6.6) 
(Increase)/decrease in trade and other 
 receivables                                          (1.2)      2.9 
(Decrease)/increase in trade and other 
 payables                                             (4.3)      0.6 
Decrease in retirement benefit obligation 
 net of actuarial changes                             (1.6)    (1.8) 
Decrease in provisions                                (3.4)        - 
                                                    -------  ------- 
Cash generated from operations                         47.9     21.2 
                                                    -------  ------- 
Income taxes received/(paid)                            1.1    (1.2) 
                                                    -------  ------- 
Net cash flow from operating activities                49.0     20.0 
                                                    -------  ------- 
Cash flows from investing activities 
Interest received                                       0.1        - 
Acquisition of property plant and equipment          (17.3)   (14.4) 
Proceeds from sale of property plant 
 and equipment                                         11.7     11.5 
Acquisition of businesses, net of cash 
 acquired                                             (0.3)    (1.2) 
Proceeds from investment disposals                        -      0.1 
                                                    -------  ------- 
Net cash flows from investing activities              (5.8)    (4.0) 
                                                    -------  ------- 
Cash flows from financing activities 
Interest paid                                         (7.0)    (7.4) 
Drawdown of bank borrowing                     12         -      4.0 
Repayment of bank borrowing                    12    (18.2)        - 
Repayment of lease liabilities                 12    (22.6)    (1.7) 
Interest payment on lease liabilities                 (9.2)    (0.2) 
Dividends paid                                 6          -    (2.2) 
                                                    -------  ------- 
Net cash flows used in financing activities          (57.0)    (7.5) 
                                                    -------  ------- 
Net (decrease)/increase in cash and 
 cash equivalents                                    (13.8)      8.5 
Cash and cash equivalents at beginning 
 of period                                             37.0     28.5 
                                                    -------  ------- 
Cash and cash equivalents at end of 
 period                                                23.2     37.0 
                                                    =======  ======= 
 

Consolidated Statement of Cash Flows for the 53 week Period from 25 November 2019 to 29 November 2020 continued

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

2. On adopting IFRS 16: Leases, new accounting for right-of-use assets and lease liabilities led to increases in depreciation and interest expense. The result of these changes for the 53 week period ended 29 November 2020, was to increase operating cash inflows before movements in working capital by GBP30.6m. Interest paid increased by GBP9.1m and cash outflows in respect of the capital element of lease rental payments by GBP21.5m for the 53 week period ended 29 November 2020, excluding motor vehicles GBP0.1m interest and GBP1.1m lease rental payments as motor vehicles leases were covered by finance leases under IAS 17 and therefore unaffected by the adoption of IFRS 16. Overall, there was no change in the net decrease in cash and cash equivalents as a result of these changes.

Notes to the Financial Information for the 53 week Period from 25 November 2019 to 29 November 2020

   1          Accounting policies 

Basis of preparation

The Group financial statements for 2020 consolidate the financial statements of McColl's Retail Group plc (the "Company") and all its subsidiary undertakings (together, "the Group") drawn up to 29 November 2020. The Group's accounting period covers the 53 weeks ended 29 November 2020. The prior period was a 52 week period ended 24 November 2019. Acquisitions are accounted for under the acquisition method of accounting.

The Group financial statements have been prepared on the going concern basis and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 29 November 2020 or 24 November 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their audit report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in April 2021.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and have accordingly adopted the going concern basis in preparing the financial statements. The Directors, in considering going concern have considered a number of factors, including financial assumptions and estimates, current and prior performance and macroeconomic factors, including the ongoing effects of the COVID-19 pandemic and the expected impact this will have on the Group's cash flows. The Directors also considered the banking facilities available to the Group.

The consolidated financial information is presented in sterling, the Group's functional currency. The Group changed the rounding from thousands to millions to make the financial statements less encumbered with numbers and therefore easier for the user to read.

The preparation of financial information in compliance with adopted IFRS requires the use of certain critical judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. It also requires Group management to exercise judgement in applying the Group's accounting policies.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Going Concern

The Directors have made appropriate enquiries and consider that the Group has adequate resources to continue in operational existence for the foreseeable future, which comprises the period of at least 12 months from the date of approval of the financial statements. The Directors continue to adopt the going concern basis in preparing the financial statements.

Base case within the long-term plan and budget

The key assumptions within the budget for the 2021 financial year produce moderate sales growth and margin improvement from the change in the supply base which will allow McColl's to supply improved ranges and make changes in space allocation while taking advantage of a general market growth trend towards convenience retailing. The cost base has been modelled assuming limited increments for inflation. These improvements have been assumed to continue into the following financial year.

Conditions, circumstances and developments resulting from the COVID-19 pandemic

As a result of the Covid-19 pandemic, the Group experienced changes to its activities with changes to the mix of customer purchases to lower margin products, higher sales growth rates, some stores experiencing temporary closures, disruption to the supply of some products and greater staff sickness levels. The overall impact was to reduce profitability and change the working capital profile of the business. To offset those impacts, action was taken to reduce costs, refine the proposition and access some government reliefs.

In addition, the Group has sought changes to its core financial facilities supplied by a syndicate of banks that resulted in the Group signing, in February 2021, an amended credit facility agreement, which provides improved headroom against the covenants. The updated facility consists of a GBP100m Revolving Credit Facility and an amortising GBP67.5m term loan (originally GBP100m initially being repaid at GBP2.5m per quarter). At the end of the period, the Group had drawn down GBP112.5m (2019: GBP129.5m) of its facilities. The Group also signed an extension of its agreement with Morrisons broadening and expanding this key supplier relationship.

Downside scenario

In considering going concern, the Directors' main alternative scenario has been to apply a sensitivity to the long-term forecast. This scenario included considering a short-term reduction in sales and pressures on gross margin. The overall going concern scenario the Company has modelled included a reversal in sales on a two year LFL basis after the easing of COVID-19 measures to an increase of 2% and a slow-down of our store closure programme. Under this scenario, the short-term impact is that the level of headroom under the Group's financial covenants is tighter than under the main long term plan assumptions.

Further mitigations are available that have not been modelled such as accessing further government reliefs, reducing store costs, further constraining capital and other expenditure, accessing further sources of finance and seeking an easing of the existing requirements of the Group's financing arrangements.

Stress-testing

In considering the potential risk to the Group, consideration has been given to the key factors that could have an impact on the Group's financial performance and liquidity. The two areas that are likely to have the largest impact in this regard are sales performance and margin. Based on our stress-testing, significant movements in these measures from historic norms would be required before the Group became unable to pay its liabilities as they fell due. This is before the mitigations outlined above which could be used to reduce the impact and provide further liquidity for the Group.

Assessment of applicability of the going concern assumption

The Directors have made their assessment of the applicability of the going concern assumption after consideration of various scenarios covering the sensitivity of assumptions and management actions to mitigate, and in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published by the UK Financial Reporting Council ("FRC") in September 2014. It also takes into account the FRC's June 2020 publication on COVID-19 - Going Concern, Risk and Viability. The Directors revised the long-term forecasts, given the continued challenging trading conditions, covering all elements of income, balance sheet and cash flow, taking a prudent view of like for like improvement and margin recovery. The Directors, taking into account these forecasts and the revised facilities available to the Group, continue to adopt the going concern basis in preparing the financial statements.

Changes in accounting policy

Adoption of new IFRSs

The following new standards, interpretations and amendments to standards are mandatory for the Group for the first time for the period needed 29 November 2020:

-- IFRIC 23 'Uncertainty over income tax treatments'

-- IAS 19 'Employee Benefits'

-- IFRS 16 'Leases'

IFRIC 23 'Uncertainty over income tax treatments '

IFRIC 23 'Uncertainty over income tax treatments' was issued in June 2017 and has become effective for the Group for the period beginning 25 November 2019. The interpretation covers how the Group accounts for taxation, where there is some uncertainty over whether treatments in the tax return will be accepted by HM Revenue & Customs. The Group does not have uncertainties in its tax returns and therefore this interpretation has had no impact on the financial statements.

IAS 19 'Employee Benefits'

An amendment to IAS 19 'Employee Benefits' was published in February 2018 and has become effective for the Group for the period beginning 25 November 2019. The amendment applies prospectively in connection with accounting for plan amendments, curtailments and settlements. The amendment requires entities to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement. There has been no change to the retirement plans and therefore this amendment has had no impact on the financial statements.

IFRS 16 'Leases'

IFRS 16 'Leases' was published in January 2016 and has become effective for the Group for the period beginning 25 November 2019. The standard replaces IAS 17 and introduced a single, on-balance sheet accounting model for lessees and sets out the principles for the recognition, measurement, presentation and disclosure of leases. As a result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets, and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.

The Group has applied IFRS 16 using the modified retrospective transition approach, the-right-of use assets are measured on a lease-by-lease basis at either the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses) or retrospectively as if IFRS 16 had always applied. Accordingly, the comparative information presented for 2019 has not been restated - i.e. it is presented as previously reported under IAS 17 and related interpretations.

The Group leases many assets including properties, cars and other equipment. As a lessee, the Group previously classified leases as operating leases or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases, except for short-term leases and leases of low-value-assets.

On transition to IFRS 16, the Group has used the following practical expedients permitted by the standard:

-- The Group is not required to re-assess whether existing contracts contain a lease on transition and instead it will apply the IFRS 16 definition of a lease to contracts entered (or changed) on or after the date of initial application (25 November 2019). For all other contracts, the Group will retain the assessment made under IAS 17/IFRIC 4.

   --      Apply a single discount rate to a portfolio of leases with similar characteristics. 

-- Perform an onerous lease assessment under IAS 37 that is recognised immediately before the date of initial application instead of an IAS 36 impairment review.

-- Exclude initial indirect costs from measurement of right-of-use asset at the date of initial application.

-- Not recognise contracts as leases when the term ends within 12 months of the date of initial application.

   --      Use hindsight where appropriate, such as in the determination of each lease's term. 

The impact on the financial statements on the adoption of IFRS 16 is set out below and in note 10.

 
The impact on the balance sheet on transition 
 
                                    Note    GBPm(1) 
Net assets at 24 November 
 2019                                          38.7 
Right of use assets                    8      200.5 
Lease liabilities                     10    (217.1) 
Sublease receivables                            2.0 
Prepayments                                   (1.6) 
Accruals                                        0.2 
Provisions (Onerous 
 leases)                                        2.0 
Deferred tax asset                              2.4 
Net assets at 25 November 
 2019                                          27.1 
                                          ========= 
 

Note:

1. Motor vehicles right-of-use assets and lease liabilities are not included in the impact of adoption of IFRS 16: Leases as motor vehicles were all held under finance leases under IAS 17: Leases and the adoption of IFRS 16: leases has not had an impact to the financial statements in relation to these motor vehicles leases.

The table below shows a reconciliation from the total operating lease commitment as disclosed at 24 November 2019 to the total lease liabilities recognised in the accounts immediately after transition:

 
                                                                2020 
                                                                GBPm 
Operating lease commitment at 24 November 2019                 282.9 
Discounted using incremental borrowing rate                   (61.6) 
Recognition exemption for leases of low-value assets/leases 
 with less than 52 weeks before expiry                         (4.2) 
                                                              ------ 
Total lease liabilities recognised on 25 November 
 2019                                                          217.1 
                                                              ====== 
 

Alternative Performance Measures

In reporting financial information, the Directors have presented various Alternative Performance Measures (APMs) of financial performance, position or cash flows, which are not defined or specified under the requirements of International Financial Reporting Standards (IFRS). On the basis that these measures are not defined by IFRS, they may not be directly comparable with other companies' APMs, including those in the Group's industry.

The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional useful information on the performance of the business. These APMs are consistent with how the business performance is planned, reported and analysed between reporting periods within the internal management reporting to the Board. Some of these measures are also used for the purpose of setting remuneration targets and covenant calculations.

The key APMs that the Group uses include: adjusted EBITDA, adjusted profit before tax, like-for-like sales (LFL), net debt and adjusted earnings per share. Each of the APMs, and others used by the Group, are set out in the Glossary including explanations of how they are calculated and how they can be reconciled to a statutory measure where relevant. These measures have remained consistent with the prior year.

The Group makes certain adjustments to the statutory profit measures in order to derive many of these APMs. The Group's policy is to exclude costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but which are excluded from the Group's adjusted profit before tax measure due to their size and nature in order to better reflect management's view of the performance of the Group. Treatment as adjusting items provides stakeholders with additional useful information to assess the annual trading performance of the Group.

Adjusting items

Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit before tax measure due to their size and nature in order to better reflect management's view of the performance of the Group. The adjusted profit before tax measure (profit before adjusting items) is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Details of adjusting items are set out in note 3.

 
2      Revenue and other income 
 

In accordance with IFRS 8 'Operating segments' an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision maker and for which discrete information is available. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. The principal activities of the Group are currently managed as one segment. Consequently, all activities relate to this segment, being the operation of convenience and newsagent stores in the UK.

The analysis of the Group's revenue for the period from continuing operations is as follows:

 
                                        2020     2019 
                                        GBPm     GBPm 
Revenue 
Sale of goods                        1,258.1  1,218.7 
                                    --------  ------- 
Other operating income 
Property rental income                   1.9      3.0 
ATM commission and other income          2.0      3.3 
Government grants                        0.7        - 
                                    --------  ------- 
                                         4.6      6.3 
                                    --------  ------- 
Finance income                           0.1        - 
                                    --------  ------- 
                                     1,262.8  1,225.0 
                                    ========  ======= 
 3                                Adjusting items 
 
 

Due to their significance or one-off nature, certain items have been classified as adjusting as follows:

 
                                                 2020   2019 
                                                 GBPm   GBPm 
Administrative expenses 
Fines(a)                                          0.5    0.6 
Business reorganisation(b)                        3.4    0.6 
Goodwill impairment(c)                              -   98.6 
Defined benefit pension scheme - past service 
 cost(h)                                          0.1      - 
                                                -----  ----- 
Administrative expenses - total                   4.0   99.8 
                                                -----  ----- 
(Profits)/losses arising on property-related items 
Sale of head office(d)                          (3.4)      - 
Sale and leaseback(e)                               -  (3.3) 
Store optimisation programme(f)                   5.5    6.6 
Fixed asset impairment(g)                         0.3    2.7 
                                                -----  ----- 
(Profits)/losses arising on property-related 
 items - total                                    2.4    6.0 
                                                -----  ----- 
Finance costs 
Store optimisation programme(f)                     -    0.2 
                                                -----  ----- 
Tax effect on adjusting items                   (3.0)  (3.6) 
                                                -----  ----- 
                                                  3.4  102.4 
                                                =====  ===== 
 

a. Fines

A provision of GBP0.5m has been included in relation to a potential health and safety fine and associated legal fees (2019: GBP0.6m). The net cash outflow for the period was GBP0.4m for a historical asbestos claim included in last year's provision and GBPnil for this year's provision (2019: GBP0.2m).

b. Business reorganisation

The Group has been reviewing its organisational structure leading to additional costs of GBP3.4m (2019: GBP0.6m) associated with the restructuring, predominantly the cost of redundancies and executive recruitment fees. This has resulted in a net cash outflow of GBP3.4m (2019: GBP0.6m).

c. Goodwill impairment

Management have assessed goodwill impairment at the end of the year according to IAS 36. In assessing impairment management have used value in use as it was higher than the market value of the business. In 2019 the value in use cash flows were lower than the aggregate of the Group's total assets and therefore indicating impairment which resulted in goodwill being impaired. Further information can be found in note 9. There was no cash flow impact in the year from this adjustment.

d. Sale of head office

The Group completed the sale of its Head office in Q4 2020. Total proceeds from the sale were GBP7.3m (net gain on disposal GBP3.4m). GBP2.3m had been received by the year-end, with the remaining balance expected to be received by end of March 2021.

e. Sale and leaseback

Historically, the Group has undertaken a number of sale and leaseback transactions on its freehold property. In line with the accounting policy for adjusting items, management concluded that the profits relating to the sale and leaseback of property were significant and therefore not in line with the Group's normal business activities and should therefore be treated as adjusting. No leaseback transactions were concluded in the current period, resulting in a net cash flow of GBPnil (2019: GBP8.6m inflow).

f. Store optimisation programme

Management has undertaken a store optimisation program resulting in a material number of store closures. Costs associated with the closures have been classified as adjusting due to the one-off nature of the closure programme. Included in the costs are net book value write off and other costs in relation to store closure net of any proceeds received. The net cash outflow was GBP0.4m (2019: GBP0.6m).

g. Fixed asset impairment

Management has assessed the value in use cash flow of each branch against the carrying value of its assets, and as a result of the impairment review an impairment charge was recognised in the year. The impairment was split between a charge for right-of-use assets GBP4.6m and a credit of GBP4.3m for owned property, plant and equipment. There was no cash impact from this adjustment in this or the preceding year. Further information can be found in note 8.

h. Defined benefit pension scheme - past service cost

Management has classified the amount for Guaranteed Minimum Pension (GMP) equalisation as an adjusting item due to its non-recurring nature. In October 2018, the High Court ruled that Lloyds Banking Group was required to equalise the pension benefits for the effect of unequal GMP between men and women, dating back to 1990. A further UK High Court judgement was made on 20 November 2020 relating to the GMPs for historic transfers out of occupational pension schemes requiring those to be treated in the same way. The Group has complied with these rulings and they will be treated for IAS19 purposes as plan amendments that will result in an increase in the pension liabilities and a corresponding past service cost in the income statement. There was no cash impact from this adjustment in the current or preceding year.

 
4      Operating profit 
 

Arrived at after charging/ (crediting)

 
                                             2020   2019 
                                      Note   GBPm   GBPm 
Depreciation of owned property, 
 plant and equipment                   8     12.5   15.8 
Depreciation of right-of-use assets    8     25.5      - 
Amortisation of intangible assets      9      1.0    0.8 
Write-down of inventory recognised 
 as an expense                               19.2   17.6 
Operating lease expense - property            4.8   37.0 
Profit on disposal of property, 
 plant and equipment                        (2.0)  (1.5) 
Intangible assets impairment           9        -   98.6 
Impairment of property, plant and 
 equipment                             8      0.3    2.7 
Cost of inventories recognised 
 as an expense                              950.0  928.3 
                                            =====  ===== 
 

Adjusted EBITDA and operating profit excluding property- related items

In order to provide shareholders with a measure of the underlying performance of the business which is more aligned with the way that management monitor and manage the business, the Group makes adjustments to profit before tax. Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but which are excluded from the Group's adjusted profit before tax measure due to their size and nature in order to better reflect management's view of the performance of the Group. The Group also adjust for share-based payments as a non cash item. The adjusted profit before tax measure (profit before adjusting items) is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Details of adjusting items are set out in note 3.

 
                                                       2020   2019 
                                                       GBPm   GBPm 
Adjusted EBITDA excluding property-related 
 items and share-based payments 
Operating profit before adjusting 
 items                                                 18.7   15.4 
Depreciation and amortisation                          39.0   16.6 
Share-based payments                                    0.2    0.1 
                                                      -----  ----- 
Total Adjusted EBITDA                                  57.9   32.1 
                                                      -----  ----- 
IFRS 16 Impact (see glossary)                          28.8      - 
                                                      -----  ----- 
Pre IFRS 16 Adjusted EBITDA                            29.1   32.1 
                                                      =====  ===== 
5                                                   Income tax 
                                                       2020   2019 
                                                       GBPm   GBPm 
Income statement 
Current tax : 
Current tax on profit for the period                    0.3    0.5 
Adjustments in respect of prior periods               (2.5)  (0.6) 
                                                      -----  ----- 
                                                      (2.2)  (0.1) 
                                                      =====  ===== 
Deferred tax : 
Origination and reversal of temporary differences       0.8  (2.5) 
Arising from change in tax rate                       (0.1)    0.3 
Adjustments in respect of prior periods               (1.1)  (0.4) 
                                                      -----  ----- 
                                                      (0.4)  (2.6) 
                                                      -----  ----- 
Income tax (credit)/charge for the period             (2.6)  (2.7) 
                                                      =====  ===== 
Other comprehensive income 
Deferred tax in respect of actuarial valuation 
 of retirement benefits                               (0.6)  (0.7) 
Corporation tax in respect of actuarial 
 valuation of retirement benefits                     (0.3)  (0.3) 
                                                      -----  ----- 
                                                      (0.9)  (1.0) 
                                                      =====  ===== 
 
 

The differences are reconciled below:

 
                                                  2020    2019 
                                                  GBPm    GBPm 
Loss before tax                                  (5.3)  (98.6) 
                                                 =====  ====== 
Tax on profit calculated at standard rate 
 for 2020 of 19.00% (2019: 19.00%)               (1.0)  (18.7) 
Fixed Assets                                     (0.6)       - 
Expenses not deductible                            0.3     0.4 
Decrease from tax losses for which no deferred 
 tax asset was recognised                          2.2       - 
Goodwill impairment                                  -    16.7 
Adjustments in respect of prior years            (3.6)   (1.0) 
Arising from change in rate of tax               (0.1)     0.3 
Exempt amounts                                     0.2     0.7 
Disposal of business combination assets              -   (1.1) 
                                                 -----  ------ 
Total tax credit                                 (2.6)   (2.7) 
                                                 =====  ====== 
 

On 17 March 2020, the UK corporation tax rate prevailing after 1 April 2020 was amended to remain at 19% rather than reducing to 17.0% as previously enacted in the Finance Act 2016.

The tax credit for the 53 week period was GBP2.6m (2019: GBP2.7m) representing a rate of 49.1% (2019: 2.7%). The comparable effective rate of tax in 2020 excluding the impact of non-deductible adjusting items was 36.4% (2019: 12.4%). The difference between the current and statutory rate of 19.0% in the period is due principally to prior year adjustment for losses carried back and adjustments in respect of prior years.

Amounts recognised in other comprehensive income

 
                                       2020                       2019 
                       Before       Tax      Net  Before       Tax      Net 
                          tax   benefit   of tax     tax   benefit   of tax 
                         GBPm      GBPm     GBPm    GBPm      GBPm     GBPm 
Remeasurements 
 of post employment 
 benefit obligations    (5.6)       0.9    (4.7)   (5.8)       1.0    (4.8) 
                       ======  ========  =======  ======  ========  ======= 
 
 
6                                              Dividends 
                                                 2020  2019 
                                                 GBPm  GBPm 
Interim 2020 dividend of GBPnil (2019: 1.3p) 
 per ordinary share                                 -   1.5 
Final 2019 dividend of GBPnil (2018: 0.6 
 p) per ordinary share                              -   0.7 
                                                    -   2.2 
                                                =====  ==== 
 
 

The Directors are not proposing a final 2020 dividend (2019: nil). The Group is restricted from paying a dividend until certain conditions are satisfied in its banking facilities, including achieving a Group leverage below 1.75x EBITDA.

 
7      Earnings per share 
 

Basic and diluted earnings per share are calculated by dividing the profit for the period attributable to shareholders by the weighted average number of shares.

 
                                                    2020         2019 
Basic weighted average number of shares      115,213,677  115,177,335 
                                             -----------  ----------- 
Diluted weighted average number of shares    115,236,841  115,296,380 
                                             -----------  ----------- 
Loss attributable to ordinary shareholders 
 (GBPm)                                            (2.7)       (95.9) 
                                             -----------  ----------- 
Basic losses per share                            (2.3)p      (83.3)p 
                                             -----------  ----------- 
Anti-diluting losses per share                    (2.3)p      (83.3)p 
                                             -----------  ----------- 
 

Adjusted earnings per share:

 
                                                2020    2019 
 
  Loss attributable to ordinary shareholders 
  (GBPm)                                       (2.7)  (95.9) 
Adjusting items (GBPm) (note 3)                  6.4   106.0 
Tax effect of adjustments (GBPm)               (3.0)   (3.6) 
                                               -----  ------ 
Profit after tax and before adjusting items 
 (GBPm)                                          0.7     6.5 
                                               -----  ------ 
 
Basic adjusted earnings per share               0.6p    5.6p 
                                               -----  ------ 
Diluted adjusted earnings per share             0.6p    5.6p 
                                               -----  ------ 
 

The difference between the basic and diluted average number of shares represents the dilutive effect of share options in existence. As 2020 and 2019 have an overall loss the shares are not diluting.

The diluted weighted average number of ordinary shares is calculated using the following:

 
                                                     2020         2019 
                                                      No.          No. 
Ordinary shares in issue at the start of 
 the period                                   115,193,909  115,173,515 
Effects of shares issued during the period         19,768        3,820 
                                              -----------  ----------- 
Basic weighted average number of ordinary 
 shares in issue during the year              115,213,677  115,177,335 
Effect of shares to be issued under the 
 long-term incentive plan (LTIP)                   23,164      119,045 
                                              -----------  ----------- 
Diluted weighted average number of ordinary 
 shares at the end of the period              115,236,841  115,296,380 
                                              ===========  =========== 
 
 
8                                 Property, plant and equipment 
                                                                                 Right of 
                                                 Furniture,         Right of   use assets 
                                   Land and        fittings       use assets       Land & 
                                  buildings   and equipment   Motor vehicles    buildings   Total 
                                       GBPm            GBPm             GBPm         GBPm    GBPm 
Cost or valuation 
At 26 November 2018                    58.0           126.9                -            -   184.9 
Additions                               3.2             9.4                -            -    12.6 
Acquired through business 
 combinations                           0.4             0.1                -            -     0.5 
Disposals                             (8.4)           (4.7)                -            -  (13.1) 
Transfers to other intangible 
 assets                               (0.3)               -                -            -   (0.3) 
                                 ----------  --------------  ---------------  -----------  ------ 
At 24 November 2019                    52.9           131.7                -            -   184.6 
                                 ----------  --------------  ---------------  -----------  ------ 
At 25 November 2019                    52.9           131.7                -            -   184.6 
Right-of-use assets on 
 transition                               -           (7.1)              7.1        200.5   200.5 
Additions                               4.6             9.0              0.3         13.1    27.0 
Disposals                             (9.6)          (10.7)            (2.0)       (12.2)  (34.5) 
                                 ----------  --------------  ---------------  -----------  ------ 
At 29 November 2020                    47.9           122.9              5.4        201.4   377.6 
                                 ----------  --------------  ---------------  -----------  ------ 
Depreciation 
At 26 November 2018                    21.3            71.2                -            -    92.5 
Charge for period                       4.6            11.2                -            -    15.8 
Eliminated on disposal                (0.3)           (2.8)                -            -   (3.1) 
Impairment                              1.8             0.9                -            -     2.7 
Transfers to other intangible 
 assets                               (0.4)               -                -            -   (0.4) 
                                 ----------  --------------  ---------------  -----------  ------ 
At 24 November 2019                    27.0            80.5                -            -   107.5 
                                 ----------  --------------  ---------------  -----------  ------ 
At 25 November 2019                    27.0            80.5                -            -   107.5 
Right-of-use assets on 
 transition                               -           (4.3)              4.3            -       - 
Charge for the period                   3.4             9.1              1.3         24.2    38.0 
Eliminated on disposal                (4.6)           (6.1)            (1.9)        (0.9)  (13.5) 
Impairment                            (0.6)           (3.7)                -          4.6     0.3 
                                 ----------  --------------  ---------------  -----------  ------ 
At 29 November 2020                    25.2            75.5              3.7         27.9   132.3 
                                 ----------  --------------  ---------------  -----------  ------ 
Carrying amount 
At 29 November 2020                    22.7            47.4              1.7        173.5   245.3 
                                 ==========  ==============  ===============  ===========  ====== 
At 24 November 2019                    25.9            51.2                -            -    77.1 
                                 ==========  ==============  ===============  ===========  ====== 
 
 

During the year, the Group entered into no sale and leaseback transactions in relation to property, plant and equipment, (2019: GBP5.3m net book value of freehold land and buildings disposed).

For impairment testing the Group classes each branch as a CGU (cash generating unit). Each CGU was tested for impairment at the period end date. Management recognise an impairment where the recoverable amount of the CGU does not exceed its carrying value at the balance sheet date. Recoverable amounts for CGUs are the higher of fair value less costs of disposal, and value in use (VIU).

The key assumptions for the value in use calculation include the discount rate, long-term growth rates and forecast cash flows. The value in use calculations use forecast cash flows taking into account actual performance for the year and the Group's cash flow forecast for a four-year period, which has been approved by the Directors. Cash flows beyond this period are extrapolated using a long-term growth rate of 2.0% and discounted with a pre-tax weighted average cost of capital (WACC) of 11.7% (2019: 11.5%).

The annual impairment testing resulted in an impairment of GBP0.3m (2019: GBP2.7m) against branch property, plant and equipment assets (PPE).

Sensitivity analysis

The Group has carried out sensitivity analysis for impairment of branch PPE on the key assumptions.

Change in discount rate: a 0.5% increase in WACC would increase impairment by GBP0.3m while a 0.5% reduction in WACC would reduce impairment by GBP0.2m.

Forecast cash flows: a reduction of cash flows of 3% for all stores would increase impairment by GBP0.2m.

 
9                                  Intangible assets 
                                            Other intangible 
                                  Goodwill            assets  Total 
                                      GBPm              GBPm   GBPm 
Cost or valuation 
At 26 November 2018                  253.6               9.4  263.0 
Additions                              0.7               2.9    3.6 
Transfers from property, plant 
 and equipment                           -               0.3    0.3 
                                  --------  ----------------  ----- 
At 24 November 2019                  254.3              12.6  266.9 
                                  --------  ----------------  ----- 
At 25 November 2019                  254.3              12.6  266.9 
Additions                              0.3               3.4    3.7 
                                  --------  ----------------  ----- 
At 29 November 2020                  254.6              16.0  270.6 
                                  --------  ----------------  ----- 
Amortisation 
At 26 November 2018                    4.2               6.0   10.2 
Amortisation charge                      -               0.8    0.8 
Impairment                            98.6                 -   98.6 
Transfers from property, plant 
 and equipment                           -               0.4    0.4 
                                  --------  ----------------  ----- 
At 24 November 2019                  102.8               7.2  110.0 
                                  --------  ----------------  ----- 
At 25 November 2019                  102.8               7.2  110.0 
Amortisation charge                      -               1.0    1.0 
                                  --------  ----------------  ----- 
At 29 November 2020                  102.8               8.2  111.0 
                                  --------  ----------------  ----- 
Carrying amount 
At 29 November 2020                  151.8               7.8  159.6 
                                  ========  ================  ===== 
At 24 November 2019                  151.5               5.4  156.9 
                                  ========  ================  ===== 
 
 

Amortisation expenses of GBP1.0m (2018: GBP0.8m) are included in administrative expenses.

Goodwill acquired in a business combination is not amortised, but is reviewed for impairment on an annual basis, or more frequently if there are indications that goodwill may be impaired. An impairment is recognised where the carrying amount is more than the recoverable amount of the CGU. The recoverable amount is the higher of the fair value less costs to sell and the value in use (VIU) of the CGU. For the purpose of goodwill, in line with the accounting policy, the business manages and makes decisions based on one CGU and therefore impairment is assessed on that single group. Management has used the value in use of the CGU as the recoverable amount as it was higher than total enterprise value. The value in use was calculated as a discounted cash flow model and management has determined the values assigned to each of the key assumptions.

The key assumptions for the value in use calculation include the discount rate, long-term growth rates and forecast cash flows. The value in use calculations use forecast cash flows taking into account actual performance for the year and the Group's cash flow forecast for a four year period, which has been approved by the Directors. Cash flows beyond this period are extrapolated using a long-term growth rate of 2% and discounted with a pre-tax weighted average cost of capital (WACC) of 11.7% (2019: 11.5%).

Free cash flows are derived from the long-term plan (LTP) and any benefit from future new business and the associated expenditure to acquire the new business is excluded.

The LTP has taken into consideration the future business environment and the impact of the COVID-19 pandemic. The Group has experienced high LFL sales growth during the pandemic and decreased margins which have been reversed over the forecast period as normal trading conditions are expected by the end of the first year of the forecast period. The main estimates included in cash flow forecasts are growth of revenue and increase in costs such as minimum wage increases. Revenue growth has been assumed at an average of 1.0% annual growth for the four year period. Wage inflation is assumed at 3.0% per annum whilst general cost inflation is assumed at an average annual growth rate of 2.0%.

The recoverable amount per value in use calculations was GBP355.8m versus the CGU's carrying amount of GBP340.6m creating a headroom of GBP15.2m, and therefore no impairment has been recorded.

No goodwill impairment losses were recognised in the year (2019: GBP98.6m).

Sensitivity analysis

Change in discount rate

The Group has conducted sensitivity analysis on the impairment testing for goodwill. With reasonable possible changes in key assumptions including a 50bps change in WACC, which would reduce the headroom to GBP0.1m.

Forecast cash flows

Management have conducted sensitivity analysis on the CGUs VIU by reducing the anticipated future cash flows. A reduction in cash flows of 3% would reduce the headroom to GBP2.0m.

 
10      Leases 
 

The Group leases many of its store properties and previously classified them as operating leases. From 25 November 2019, the Group adopted IFRS 16: Leases and now recognises the majority of these leases on the balance sheet.

The Group as a lessee

Right of use assets

The Group includes right-of-use assets as part of property, plant and equipment in the balance sheet. Their carrying value as at 29 November 2020 was GBP175.2m. See note 8.

Lease liabilities

The Group includes lease liabilities in loans and borrowings in the balance sheet. The carrying amounts of lease liabilities as at 29 November 2020 are set out below:

 
                                                    2020  2019(1) 
                              Land &      Motor 
                           Buildings   vehicles    Total 
                                GBPm       GBPm     GBPm     GBPm 
At 25 November 2019          (217.1)      (2.6)  (219.7)        - 
Additions                      (9.5)      (0.3)    (9.8)        - 
Interest                       (9.1)      (0.1)    (9.2)        - 
Payment                         30.6        1.2     31.8        - 
Disposals                       12.9        0.2     13.1 
                          ----------  ---------  -------  ------- 
At 29 November 2020          (192.2)      (1.6)  (193.8)        - 
                          ----------  ---------  -------  ------- 
Current liabilities           (21.3)      (1.0)   (22.3)    (1.2) 
Non-current liabilities      (170.9)      (0.6)  (171.5)    (1.4) 
                          ----------  ---------  -------  ------- 
Total lease liabilities      (192.2)      (1.6)  (193.8)    (2.6) 
                          ==========  =========  =======  ======= 
 

Note:1 The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

 
Maturity analysis - contractual undiscounted 
 lease payments 
                                                  2020   2019 
                                                  GBPm   GBPm 
Amounts due within one year                     (29.6)  (1.3) 
Amounts due within two to five years            (94.4)  (1.4) 
Amounts due within six to ten years             (81.5)      - 
Amounts due after ten years                     (39.2)      - 
                                               -------  ----- 
                                               (244.7)  (2.7) 
                                               =======  ===== 
 

Amounts recognised in the Group income statement

 
                                                              2020 
                                                              GBPm 
Depreciation charge on right-of-use assets - land 
 and buildings                                                24.2 
Depreciation charge on right-of-use assets - motor 
 vehicles                                                      1.3 
Interest expense (included in finance cost)                    9.2 
Expense included in administrative expenses for short-term 
 leases                                                        4.8 
Expense included in administrative expenses for low 
 value leases                                                    - 
 

Amounts recognised in the Group cash flow statement

The implementation of IFRS 16 does not impact cash flows but has impacted the presentation of cash flow statements as re-categorisation between operating and financing activities.

On adopting IFRS 16: Leases, new accounting for right-of-use assets and lease liabilities led to increases in depreciation and interest expense. The result of these changes for the 53 week period ended 29 November 2020, was to increase operating cash inflows before movements in working capital by GBP30.6m. Interest paid increased by GBP9.1m and cash outflows in respect of the capital element of lease rental payments by GBP21.5m for the 53 week period ended 29 November 2020, excluding motor vehicles GBP0.1m interest and GBP1.1m lease rental payments as motor vehicles leases were covered by finance leases under IAS 17 and therefore unaffected by adoption of IFRS 16. Overall, there was no change in the net decrease in cash and cash equivalents as a result of these changes.

The total cash outflow for leases in 2020 was GBP37.0m including short-term leases.

Future possible cash outflows not included in the lease liability

The Group's future rental increases linked to index or rate are not included in lease liabilities until the change is effective. In calculating its lease liability, the Group has assumed that it does not exercise any break clauses present in any store leases. The Group does not have any leases that have been signed but not yet commenced.

The Group as a lessor

The Group sublets leased properties and have classified them as either finance or operating leases.

Amounts recognised in the Group income statement

 
                                             2020    2019 
                                            GBP m   GBP m 
Finance lease - sublease interest income      0.1       - 
Operating lease - rental income               1.9     3.0 
                                           ------  ------ 
                                              2.0     3.0 
                                           ======  ====== 
 

Finance lease

 
                                                   2020        2019 
                                                  GBP m       GBP m 
                                              ---------  ---------- 
Finance lease - sublease receivable                 1.6           - 
                                              =========  ========== 
 
  11                                      Loans and borrowings 
 
                                                   2020     2019(1) 
                                     Note          GBPm        GBPm 
Current 
Bank borrowings - margin + Libor% 
 term loan                                         10.0        10.0 
Lease liabilities                      10          22.3         1.2 
                                              ---------  ---------- 
                                                   32.3        11.2 
                                              =========  ========== 
Non-current 
Bank borrowings - margin + Libor% 
 term loan                                         57.5        67.5 
Bank borrowings - margin + Libor% 
 revolving credit facility                         45.0        52.0 
Unamortised issue costs                           (1.3)       (1.0) 
Lease liabilities                      10         171.5         1.4 
                                              ---------  ---------- 
                                                  272.7       119.9 
                                              =========  ========== 
 
 

The long-term bank borrowings are secured on Group assets.

During the year, the margin on the term loan and revolving credit facility ranged between 3.25% and 4.25% in line with the banking facility agreement.

The Group's term loan and the revolving credit facility have attached covenants on leverage which are assessed quarterly and the Group was compliant with all assessments in the year.

The Group renewed its bank facility in February 2021 made up of an amortising term loan of GBP67.5m and a GBP100m revolving facility. The current facility drawn as at 29 November 2020 is GBP112.5m (2019: GBP129.5m). The maximum drawdown in the year was GBP75.0m for the term loan and GBP65.0m for the revolving credit facility.

Details of loans and lease liabilities repayable in the future are as follows:

 
                                           2020  2019(1) 
                                           GBPm     GBPm 
Bank loans 
Term loan and revolving credit facility 
 available until February 2024            102.5    119.5 
Lease Liabilities 
Amounts due within two to five years       70.6      1.4 
Amounts due within six to ten years        67.3        - 
Amounts due after ten years                33.6        - 
                                          -----  ------- 
                                          171.5      1.4 
                                          -----  ------- 
                                          274.0    120.9 
                                          =====  ======= 
 

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 1.

 
12   Net debt 
 
 
                                                  2020  2019(1) 
                                         Note     GBPm     GBPm 
Cash at bank and in hand                          23.2     37.0 
                                               -------  ------- 
                                                  23.2     37.0 
                                               -------  ------- 
Term Loan and revolving facility 
 available until February 2024                 (112.5)  (129.5) 
                                               -------  ------- 
Less: unamortised issue costs                      1.3      1.0 
                                               -------  ------- 
                                               (111.2)  (128.5) 
Lease liabilities                              (193.8)    (2.6) 
                                               -------  ------- 
Net debt                                       (281.8)   (94.1) 
                                               -------  ------- 
Lease liabilities - impact of adoption 
 of IFRS 16                               10     192.2        - 
                                               -------  ------- 
Net debt pre IFRS 16                            (89.6)   (94.1) 
                                               =======  ======= 
 

Analysis of net debt

 
                                                    Amortisation                               Non-current 
                                   IFRS 16    Cash      of issue                        Lease   to current 
                           2019   adoption    flow         costs  Lease additions   disposals    movements     2020 
                           GBPm       GBPm    GBPm          GBPm             GBPm        GBPm         GBPm     GBPm 
Analysis of net debt 
Bank borrowings 
Current                  (10.0)          -    10.0             -                -           -       (10.0)   (10.0) 
Non-current             (118.5)          -     8.2         (0.9)                -           -         10.0  (101.2) 
                        -------  ---------  ------  ------------  ---------------  ----------  -----------  ------- 
                        (128.5)          -    18.2         (0.9)                -           -            -  (111.2) 
                        -------  ---------  ------  ------------  ---------------  ----------  -----------  ------- 
Lease liabilities 
Current                   (1.2)     (22.9)    22.6             -            (0.9)         2.0       (21.9)   (22.3) 
Non-current               (1.4)    (194.2)       -             -            (8.9)        11.1         21.9  (171.5) 
                        -------  ---------  ------  ------------  ---------------  ----------  -----------  ------- 
                          (2.6)    (217.1)    22.6             -            (9.8)        13.1            -  (193.8) 
                        -------  ---------  ------  ------------  ---------------  ----------  -----------  ------- 
Arising from 
 financing activities   (131.1)    (217.1)    40.8         (0.9)            (9.8)        13.1            -  (305.0) 
                        -------  ---------  ------  ------------  ---------------  ----------  -----------  ------- 
Cash and short-term 
 deposits                  37.0          -  (13.8)             -                -           -            -     23.2 
                        -------  ---------  ------  ------------  ---------------  ----------  -----------  ------- 
Net debt                 (94.1)    (217.1)    27.0         (0.9)            (9.8)        13.1            -  (281.8) 
                        =======  =========  ======  ============  ===============  ==========  ===========  ======= 
 
   12        Net debt note (continued) 
 
                                                                    Finance  Non-current 
                                    Cash     Amortisation   lease additions   to current 
                            2018    flow   of issue costs              GBPm     movement     2019 
                            GBPm    GBPm             GBPm                           GBPm     GBPm 
Bank borrowings 
Current                   (10.0)    10.0                -                 -       (10.0)   (10.0) 
Non-current              (114.0)  (14.0)            (0.5)                 -         10.0  (118.5) 
                         -------  ------  ---------------  ----------------  -----------  ------- 
Sub total                (124.0)   (4.0)            (0.5)                 -            -  (128.5) 
                         -------  ------  ---------------  ----------------  -----------  ------- 
 
Finance lease 
 liabilities 
Current                    (2.1)     1.7                -             (0.3)        (0.5)    (1.2) 
Non-Current                (1.0)       -                -             (0.9)          0.5    (1.4) 
                         -------  ------  ---------------  ----------------  -----------  ------- 
Sub total                  (3.1)     1.7                -             (1.2)            -    (2.6) 
                         -------  ------  ---------------  ----------------  -----------  ------- 
 
Arising from financing 
 activities              (127.1)   (2.3)            (0.5)             (1.2)            -  (131.1) 
                         -------  ------  ---------------  ----------------  -----------  ------- 
 
Cash and short-term 
 deposits                   28.5     8.5                -                 -            -     37.0 
 
Net Debt                  (98.6)     6.2            (0.5)             (1.2)            -   (94.1) 
                         =======  ======  ===============  ================  ===========  ======= 
 
 
                                              2020  2019(1) 
  Interest and finance costs in the period    GBPm     GBPm 
Current bank borrowings                        0.9      0.6 
Non-current bank borrowings                    5.7      5.9 
Current leases                                 1.0      0.1 
Non-current leases                             8.2      0.1 
Other finance costs                            1.9      1.5 
                                             -----  ------- 
                                              17.7      8.2 
                                             =====  ======= 
 

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

 
13                           Share capital 
                        Number of 0.1p ordinary  Share capital  Share premium 
                                         shares           GBPm           GBPm 
At 25 November 2019                 115,193,909            0.1           12.6 
Shares issued during 
 the period                             110,491              -              - 
At 29 November 2020                 115,304,400            0.1           12.6 
                        =======================  =============  ============= 
 
 

The Company has one class of ordinary shares which carry no right to fixed income. All issued shares are fully paid. The shares rank equally for voting purposes. On a show of hands each shareholder has one vote and on a poll each shareholder has one vote per ordinary share held. Each ordinary share ranks equally for any dividend declared. Each ordinary share ranks equally for any distributions made on a winding up of the Group. Each ordinary share ranks equally in the right to receive a relative proportion of shares in the event of a capitalisation of reserves.

The Group issued 110,491 ordinary shares at 0.1 pence per share equal to the nominal value of GBP110 in relation to LTIP share options that had been exercised.

The Group did not acquire any of its own shares for cancellation in either the 53 weeks ending 29 November 2020 or 52 weeks ending 24 November 2019.

   14       Subsequent events 

Management has evaluated subsequent events through 22 March 2021, which is the date the consolidated financial statements were available to be issued.

In February 2021, the Group signed an amended credit facility agreement, which provides improved headroom against the covenants and extends the maturity from May 2022 to February 2024. The updated facility consists of a GBP100m Revolving Credit Facility and an amortising GBP67.5m term loan (originally GBP100m initially being repaid at GBP2.5m per quarter).

The facility has been arranged with our existing syndicate of six banks, comprising AIB Group (UK), Barclays Bank PLC, HSBC UK Bank plc, National Westminster Bank plc, Santander UK PLC, and Bank of Ireland.

The Group also announced on 1 March 2021 that terms have been agreed on a new supply arrangement with Morrisons, under which Morrisons will supply the entire McColl's estate for a further three year period to January 2027. In addition, Morrisons will support on the conversion of 300 McColl's convenience stores to the Morrisons Daily fascia and format.

 
 Principal Risks and Uncertainties 
  We are committed to good corporate governance. To this end, 
  we follow a sound risk management process closely aligned to 
  our strategy. 
  At present, the Board, with the assistance of the Audit & Risk 
  Committee, considers the following to be the principal risks 
  facing the Group. 
 Customer proposition (increased) 
 Customer shopping habits are influenced by a wide range of factors 
  and are constantly evolving. COVID-19 restrictions have accelerated 
  some existing trends and introduced some new ones. If we do 
  not respond to their changing needs, with internal processes 
  and resource allocated appropriately to adapt in terms of offer, 
  price, range and availability, they are more likely to shop 
  with a competitor, resulting in falling revenues. 
 
   *    Significant insight and tracking of customer habits, 
        convenience channel trends and utilising supply base 
        to understand trends and innovations. We work with 
        industry experts, third party partners and trading 
        associations to keep up to date on trends. 
 
 
   *    A Format, Space and Range team has been established 
        to review how optimally to align the proposition to 
        the customer journey. 
 
 
   *    Supermarket grade product, accessed through our 
        supply partners are deployed in store to 
        differentiate our offer. 
 
 
   *    We undertake constant review of promotional 
        programmes and pricing to assess effectiveness, 
        convenience sector trends and how best to offer 
        customers good value. 
 
 
   *    Our strong customer service standards, delivered 
        through our store colleagues are reflected in our 
        evolving brand strategy. We look to build on this 
        service ethos as a key strength of the brand. 
 
 
   *    Hygiene standards and customer safety following the 
        COVID-19 restrictions have become a key 
        decision-making factor in where to shop. We have 
        changed process and invested to ensure customers feel 
        safe when they shop with us. 
 
 
   *    We are building our presence in social media combined 
        with local initiatives to better engage with 
        customers. 
 
 
   *    Price index tracking vs competitive set has been 
        established to ensure the offer remains relevant. 
 
 
   *    We follow customer feedback and sales information 
        when establishing our investment strategy. COVID-19 
        trading has changed how customers want to shop. We 
        have commenced investment to deliver more of the 
        products and categories that customers want in their 
        neighbourhood convenience retailer. 
 
 
   *    Online is becoming an increasingly important channel 
        we have responded in partnership with third party 
        delivery apps and are building our own online 
        platform. 
 Reliance on third party supply (decreased) 
 We rely on a small number of key distributors and may be adversely 
  affected by uncompetitive pricing or processes and procedures 
  being unable to support customer innovation, range development 
  or have agility in customer responsiveness. A disruption in 
  supply, however short term, would prevent orderly trading and 
  impact the brand and financial performance. 
 
   *    We establish long-term relationships with trusted 
        suppliers. 
 
 
   *    We extend the relationship to multi-discipline 
        relationships for our most important partner ensuring 
        our operations and financial objectives are aligned. 
 
 
   *    Joint business plans are developed with our key 
        partners where possible building joint investment 
        programmes to deliver a combined buy in to the 
        outcome. 
 
 
   *    We look for opportunities to work closer with our key 
        partners, to unlock areas of business benefit, such 
        as 'implants' within our commercial department to 
        collaboratively develop promotional and range 
        strategies. 
 
 
   *    We monitor the financial stability of key partners. 
        We maintain a network of industry contacts in case of 
        the need to move rapidly. 
 
 
   *    We minimise volume linked contracts with wholesalers 
        to ensure we are not locked in on products that may 
        not be what our customers want. 
 Operating model and cost efficiency challenges (maintained) 
 We have a high operational cost base, consisting primarily 
  of wages (impacted by the National Living Wage), property rental 
  and utility costs. Increases in these costs without a corresponding 
  increase in revenues could adversely impact our profitability. 
  COVID-19 had made the operating environment more challenging 
  and has introduced new investments and processes that need to 
  be absorbed into the cost base . 
 
   *    We continually seek to remove unnecessary complexity 
        from our operational procedures to optimise 
        performance; whilst engaging external review of our 
        operating model to identify opportunities for further 
        efficiency. 
 
 
   *    We review options to deploy technology and operating 
        practices to further simplify and reduce cost from 
        our operating model, such as advances in stocktaking, 
        promotions, pricing and matching colleague attendance 
        to demand. 
 
 
   *    We monitor legislation and developments related to 
        our costs, e.g. National Minimum and Living wage, 
        tribunal results and government policy announcements 
        to allow us to plan and mitigate increases. We engage 
        openly with all governmental agencies. 
 
 
   *    We monitor working patterns of our colleagues to 
        ensure they fully comply with key directives and the 
        contracted and actual hours worked are appropriate. 
        We have invested to ensure our stores are COVID-19 
        safe and compete effectively in ensuing a safe 
        environment for our 
 
 
   *    colleagues and customers. 
 
 
   *    We constantly optimise our estate ensuring that we 
        are running the most profitable portfolio of stores. 
 
 
   *    We target our capital resources at the very best 
        returns in order to deliver the best payback and 
        operational advantage. We tender all significant 
        contracts to ensure we get the best deals. 
 Availability of funding/cash (increased) 
 The main financial risks are the availability of appropriate 
  liquidity and covenant headroom to meet business needs for trading 
  and investment. The shape of trading during COVID-19 has varied 
  greatly in volume and mix reinforcing the need for flexibility 
  and headroom with all funding arrangements. 
 
        *    We produce daily cash forecasts to manage short-term 
             liquidity. We use forward projections of financial 
             performance to evaluate and manage covenant and 
             liquidity headroom over longer periods. 
 
 
        *    We have engaged with our banking partners to ensure 
             that all facets of our facilities are aligned to our 
             strategic objectives and have sufficient headroom to 
             weather short-term changes in trading. We provide 
             financial performance information and forecasts to 
             our banking group and meet them on a regular basis. 
 
 
        *    There is a full working capital programme in place, 
             to support the cash position through review of stock 
             levels, ordering processes and supplier terms. 
 
 
        *    We engage proactively with strategic suppliers to 
             retain their trading confidence in the business. 
 
 
        *    The programme of estate optimisation targets a level 
             of proceeds from the sale of stores to further 
             improve the cash position and improve profitability. 
 
 
        *    The team actively monitors utility prices and 
             interest rates to aid planning and to use appropriate 
             instruments to lock in favourable prices. 
 
 
        *    We engage with credit insurers to support our 
             suppliers' credit insurance on their exposure to 
             McColl's. 
 Strategic vision (increased) 
 If the Board either pursues an unsuccessful strategy or does 
  not communicate and implement its strategy effectively, business 
  performance and reputation may suffer. The Board must fully 
  take account of environmental, sustainability and social governance 
  matters, including diversity, when setting the vision for the 
  business. 
 
   *    Our strategic development is led by an experienced 
        Board, Executive and Senior Leadership Team. 
 
 
   *    An annual strategic review takes place alongside our 
        budget setting process to validate the direction set 
        supported by appropriate external advisers. We 
        monitor external developments and consumer behaviours 
        which impact the strategy. 
 
 
   *    The McColl's strategy is widely communicated and 
        understood across the business. Budgets are developed 
        and signed up to within the strategic framework set 
        by the Board. 
 
 
   *    Business plans are developed, monitored and reviewed 
        against strategic KPIs with a newly created Programme 
        Management function and dedicated Transformation 
        Director to operationalise. 
 
 
   *    Senior Management are incentivised with 
        performance-related rewards to deliver our strategic 
        goals. 
 Macroeconomic factors (decreased) 
 All our revenue is generated in the UK. Any deterioration in 
  the UK economy and consumer confidence could affect spending 
  and cost of goods, which in turn would impact our sales and 
  profitability. COVID-19 represents the most dramatic shift in 
  the macroeconomic environment in our lifetimes. The business 
  has needed to operate crisis management process to react to 
  the short- term challenges but also recognise longer-term trends 
  from the pandemic that will be with us for years to come. 
 
   *    We sell food and household essentials which are 
        considered to be less discretionary than other 
        competing spend areas. We have refined our 
        proposition to sell a more sustainable mix of 
        products in grocery whilst de-emphasising declining 
        categories such as tobacco. 
 
 
   *    We offer a wide range of services, such as Post 
        Office and 'last mile' internet package 
        collection/delivery which helps sustain footfall. 
 
 
   *    The majority of stores are local and community based, 
        with higher exposure to regular and repeat footfall. 
 
 
   *    Our flexible business model allows us to respond to 
        changes in customer behaviour, for example, by 
        adapting our ranges, pricing and promotion on a local 
        level. 
 
 
   *    We are growing our range of own brand products 
        through the rollout of Safeway and Morrisons. 
 
 
   *    We are working with third parties to ensure our 
        ranging, pricing and promotions are flexible enough 
        to react to dramatic changes in short-term trading 
        driven by COVID-19 lockdowns. 
 
 
   *    Post the UK exiting from the EU, the business has 
        continued to work with Morrisons and all its supply 
        partners to ensure availability is maintained. 
 Health & Safety, Regulation and Reputation (increased) 
 The business is required to operate within all laws and regulations. 
  The Board actively engages to ensure it is fulfilling all of 
  its responsibilities to its customers, colleagues, the local 
  communities in which it operates and the broader environment. 
  Where the business identifies a gap in compliance with any regulation 
  we put in place recovery programmes to recover the situations 
  as rapidly as practical. The COVID-19 pandemic has overlaid 
  new challenges within health and safety further enhancing the 
  need to ensure a safe operating environment for our colleagues 
  and customers. The business actively monitors and manages factors 
  that would impact its reputation and brand. 
 
   *    We have revised and retendered our maintenance 
        supplier's infrastructure and reporting capability to 
        ensure all compliance activities are undertaken and 
        evidenced. 
 
 
   *    We have recently conducted a thorough review of our 
        structures for all field-based roles and have put in 
        place a dedicated Risk & Compliance Team. 
 
 
   *    We have established a business continuity forum which 
        meets twice a week to ensure COVID-19 safety measures 
        are actively adhered to. 
 
 
   *    The Committee has the authority to change operating 
        and ranging practices to take account of colleague 
        and customer safety. 
 
 
   *    Specific risks are targeted and comprehensively 
        addressed in programmes across the estate. 
 
 
   *    The Risk oversight committee has been reinvigorated 
        with refined tracking of progress to compliance with 
        all key legislation under the leadership of a 
        dedicated Head of Risk and direct reporting into the 
        Board. 
 
 
   *    The businesses PR is actively monitored and managed 
        and external expert suppliers are engaged in ensuring 
        the Company protects its reputation and supports 
        appropriate environmental and social policies in 
        keeping with its values as a community retailer. 
 
 
   *    Regulation around products with high fat, sugar and 
        salt, minimum alcohol pricing, sugar tax and 
        anti-smoking regulation is constantly being updated. 
        The business uses its links to lobbying and industry 
        representation organisations to ensure its voice is 
        heard with lawmakers. 
 
 
   *    We liaise with the appropriate regulator such as 
        primary trading standards authority and fire 
        authority to proactively sign off the business stance 
        on all key issues. 
 
 
   *    We actively monitor government and regulatory 
        announcements on food safety, environment and broader 
        health and safety to ensure our policies and 
        procedures are up to date. 
 
 Crime & colleague welfare (decreased) 
 We need to provide and maintain a healthy environment for our 
  colleagues and customers. Failure to do so restricts the ability 
  to recruit new colleagues and impacts negatively to the willingness 
  of customers to frequent our stores. The COVID-19 pandemic has 
  introduced a new set of challenges for our colleagues to seek 
  to ensure customers comply with COVID regulations. 
 
   *    We monitor, on a weekly basis, key incidents 
        impacting colleague welfare. We offer comprehensive 
        training to ensure our colleagues have the tools for 
        the job. 
 
 
   *    Stores are categorised by security and safety risk, 
        with measures deployed accordingly; ranging from 
        physical security to internal asset protection 
        devices. 
 
 
   *    The Group's Health, Safety and Compliance Committee 
        meets regularly, and specifically considers colleague 
        safety and available options to provide heightened 
        assurance to colleagues and deter anti-social 
        behaviour in our stores. 
 
 
   *    We provide effective PPE in store and in our support 
        centre and follow best practice to protect our 
        colleagues as best we can from COVID-19 infection. 
 
 
   *    We provide clear guidelines for colleagues on how to 
        react to noncompliance to social distancing and make 
        customers aware of the policies with our shops. 
 
 
   *    Latest technological advancements are considered by 
        the Health, Safety and Compliance Committee to 
        further enhance safety and security, ranging from 
        'staff safe' audio connectivity to 'staff cam' visual 
        recording deterrents. 
 
 
   *    We have launched a range of ways for colleagues to 
        interact and communicate with each other and the 
        leadership of the business. Colleague feedback and 
        suggestions are considered and responded to in order 
        to maintain a positive environment. We actively 
        monitor the mental health of our colleagues who are 
        working from home and not able to interact in the 
        working environment. We endeavour to support our 
        colleagues through the range of challenges presented 
        by the restriction of the pandemic. 
 
 
   *    We recognise the increasing threat of cyber security 
        and have an established cyber policy which is 
        reviewed regularly. 
 

GLOSSARY OF TERMS

Introduction

In the reporting of financial information, the Directors have adopted various Alternative Performance Measures (APMs) of financial performance, position or cash flows other than those defined or specified under International Financial Reporting Standards (IFRS).

These measures are not defined by IFRS and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry.

APMs should be considered in addition to IFRS measures and are not intended to be a substitute for IFRS measurements.

Purpose

The Directors believe that these APMs provide additional useful information on the underlying performance and position of McColl's.

APMs are also used to enhance the comparability of information between reporting periods by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding McColl's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive-setting purposes and have remained consistent with prior year.

The key APMs that the Group has focused on this year are as follows:

Like-for-like sales (LFL): This is a widely used indicator of a retailer's current trading performance and is a measure of growth in sales from stores that have been open for at least a year.

Sales from stores that have traded throughout the whole of the current and prior periods, and including VAT but excluding sales of fuel, lottery, mobile top-up, gift cards and travel tickets.

Adjusted EBITDA excluding property-related items and share based payments: This profit measure shows the Group's Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for both property gains and losses, share-based payments and other adjusting items.

Property gains and losses: Are incomes and costs that arise from events and transactions in relation to the Group's property and not from the principal activity of the Group, i.e. that of an operator of convenience and newsagent stores.

Adjusting items: Relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded from the Group's adjusted profit measures due to their size and nature in order to reflect management's view of the performance of the Group.

Adjusted operating profit: Operating profit before the impact of adjusting items as explained above.

Adjusted earnings per share: Earnings per share before the impact of adjusting items.

Adjusted EBITDA pre IFRS 16 : This profit measure is utilised on the same basis as the adjusted EBITDA excluding property-related items and share-based payments above. The difference is that rent expense GBP29.3m has been added back to administrative expenses and rental income GBP0.5m to other income to reverse the impact of IFRS 16. These adjustments enable a comparable profit measure to the prior period to be presented, which was prepared utilising IAS 17.

Grocery mix: This measure is the proportion of grocery sales excluding VAT as a percentage of total revenue. Grocery includes ambient, fresh, frozen and household groceries, and food-to-go, but excludes impulse categories (including confectionery, crisps and snacks, soft drinks and ice cream), general merchandise, news and magazines, and services.

 
 APM                Closest          Note reference for reconciliation   Definition and purpose 
                     equivalent 
                     IFRS measure 
                   ---------------  ---------------------------------- 
 Income statement 
  Revenue 
  measures 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Sales mix          No direct        Not applicable                      The relative proportion 
                     equivalent                                           or ratio of products 
                                                                          sold compared to the 
                                                                          same period in the 
                                                                          prior year. 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Like-for-like      IFRS Revenue     Revenue YE19 GBP1,219m              Like-for-like is a 
  (LFL)                               Add VAT GBP150m                     measure of growth 
                                      Excl. non store rev. GBP(171)m      in Group sales from 
                                      Excl. acq/closures GBP(117)m        stores that have been 
                                      LFL Sales 2019 GBP1,081m            open for at least 
                                      Revenue 2020 GBP1,258m              a year (but excludes 
                                      Add VAT GBP161m                     prior year sales of 
                                      Excl. non store rev. GBP(129)m      stores closed during 
                                      Excl. acq/closures GBP(79)m         the year). It is a 
                                      LFL Sales 2020 GBP1,211m            widely used indicator 
                                      LFL% 12.0%                          of a retailer's current 
                                                                          trading performance 
                                                                          and is important when 
                                                                          comparing growth between 
                                                                          retailers that have 
                                                                          different profiles 
                                                                          of expansion, disposals 
                                                                          and closures. It's 
                                                                          reported on an 'including 
                                                                          VAT' basis, which 
                                                                          aligns with the sales 
                                                                          measurement by the 
                                                                          field and stores teams, 
                                                                          whose focus is on 
                                                                          the retail performance. 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Profit measures 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Adjusted           Operating        Note 4                              This profit measure 
  EBITDA             Profit                                               shows the Group's 
                                                                          Earnings Before Interest, 
                                                                          Tax, Depreciation 
                                                                          and Amortisation adjusted 
                                                                          for both property 
                                                                          gains and losses, 
                                                                          share-based payments 
                                                                          and other adjusting 
                                                                          items, in order to 
                                                                          provide shareholders 
                                                                          with a measure of 
                                                                          true underlying performance 
                                                                          of the business. 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Basic adjusted     Basic earnings   Note 7                              This relates to profit 
  earnings           per share                                            after tax before adjusting 
  per share                                                               items divided by the 
  (EPS)                                                                   basic weighted average 
                                                                          number of shares, 
                                                                          in order to provide 
                                                                          shareholders with 
                                                                          a measure of true 
                                                                          underlying performance 
                                                                          of the business. 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Diluted            Diluted          Note 7                              The difference between 
  adjusted           earnings                                             basic and diluted 
  earnings           per share                                            metric is the impact 
  per share                                                               of the dilutive effect 
                                                                          of share options and 
                                                                          warrants in existence. 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 Balance sheet measures 
----------------------------------  ----------------------------------  ---------------------------------------- 
 Net debt           Borrowings       Note 12                             Net debt comprises 
                     less cash                                            bank and other borrowings, 
                     and related                                          finance lease payables, 
                     hedges                                               and net interest receivables/payables, 
                                                                          offset by cash and 
                                                                          cash equivalents and 
                                                                          short-term investments. 
                                                                          It is a useful measure 
                                                                          of the progress in 
                                                                          generating cash and 
                                                                          strengthening of the 
                                                                          Group's balance sheet 
                                                                          position and is a 
                                                                          measure widely used 
                                                                          by credit rating agencies. 
-----------------  ---------------  ----------------------------------  ---------------------------------------- 
 

Other

Capital expenditure (Capex): The additions to property, plant and equipment and intangible assets.

Grocery lines: This includes ambient, fresh, frozen and household groceries, and food-to-go, but excludes impulse categories (including confectionery, crisps and snacks, soft drinks and ice cream), general merchandise, news and magazines, and services.

Quarter: The 'first quarter' refers to the 13-week period from 25 November 2019 to 23 February 2020, 'second quarter' refers to the 13-week period from 24 February 2020 to 24 May 2020, 'third quarter' refers to the 13-week period from 25 May 2020 to 23 August 2020 and 'fourth quarter' refers to the 14-week period from 24 August to 29 November 2020.

Profits/(losses) arising on property-related items: This relates to the Group's property activities including: gains and losses on disposal of property assets, sale and lease back of freehold interests; costs resulting from changes in the Group's store portfolio, including pre-opening and post-closure costs; and income/(charges) associated with impairment of non-trading property and related onerous contracts. These items are disclosed separately to clearly identify the impact of these items versus the other operating expenses related to the core retail operations of the business. They can be one-time in nature and can have a disproportionate impact on profit between reporting periods.

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END

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(END) Dow Jones Newswires

March 23, 2021 03:00 ET (07:00 GMT)

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