TIDMMCLS
RNS Number : 1235E
McColl's Retail Group plc
26 February 2020
Preliminary audited results and trading update
Building foundations for success
26 February 2020 - McColl's Retail Group plc, the UK convenience
retailer, ("McColl's" or "the Group") today announces its
preliminary results for the 52 week period ended 24 November 2019
(FY19), and a trading update for the 11 week period to 9 February
2020.
FY19 review:
-- Total revenue down 1.8% to GBP1.22bn (2018: GBP1.24bn),
reflecting store closures and divestments as part of store
optimisation programme
-- Total like-for-like (LFL) sales(1) level at 0.0% (2018: down 1.4%)
-- Adjusted gross margin(2) broadly level at 25.9% (2018:
26.0%), with a stronger year-on-year performance through H2
-- Adjusted EBITDA(3) GBP32.1m (2018: GBP35.0m), reflecting
softer market conditions through the summer, partially offset by
gross margin improvement in H2
-- Adjusted profit before tax(2) GBP7.3m (2018: GBP10.5m)
-- One-off, non-cash goodwill impairment charge of GBP98.6m
together with other adjusting items leading to statutory loss
before tax of GBP98.6m (2018: profit before tax GBP7.9m)
-- Statutory basic loss per share 83.3p (2018: profit per share
6.0p); adjusted basic earnings per share(2) 5.6p (2018: 6.7p)
-- In light of the Group's deleveraging priority, the Board has
reached the decision to suspend the f inal dividend and keep the
policy under review. The Board's priority is to reduce leverage
with a target of 2.0x by the end of 2022
-- Net debt reduced to GBP94.1m (2018: GBP98.6m)
-- Discussions with our lending banks to amend and extend the
existing debt facility are well advanced, with an announcement
expected shortly
Current trading and outlook:
Sales in early FY20 have been encouraging, with the Group
delivering a LFL sales improvement of 0.5% for the 11 week period
ended 9 February 2020. Total sales decreased by 4.2% reflecting the
annualisation of the ongoing store optimisation programme.
2020 will be a transitional year with the implementation of our
strategic change programme, as outlined below, and as a result we
expect adjusted EBITDA for FY20 to be broadly in line with
FY19.
Strategic change programme:
The Group is embarking on a customer-focused, medium-term
strategic change programme addressing the opportunity of segmenting
our store estate to better meet the needs of the communities we
serve on a 'neighbourhood by neighbourhood' basis
The key initiatives of the change programme are:
o A revitalised customer offer , informed by better insight,
addressing store segmentation, range development, space allocation
and value positioning;
o A fundamental reset of the operating model to make stores
easier to operate and easier to shop, harnessing new technology,
and offsetting continued inflationary pressures; and
o Enhancing the quality of our estate through accelerated store
optimisation. Over the medium term, as a result of further
divestments and net of future acquisitions, we anticipate an
optimised estate of around 1,100 larger, more convenience focused
stores.
We will continue to monitor and appropriately balance the
capital requirements of the Group by building capital resilience
and deleveraging the balance sheet through our ongoing cash
management initiatives
Jonathan Miller, Chief Executive, said:
"We have stabilised the business and refocused on retail
execution in 2019, in line with our key priorities for the year.
Against challenging trading conditions we have made good
operational progress, whilst reducing debt and making appropriate
levels of investment.
Looking ahead to FY20, we are embarking on a strategic change
programme, refining our model and better tailoring our offer to the
customers and communities we serve, using the learnings to build
the foundations for future growth.
The fundamentals of the convenience sector remain strong and,
with our improving customer proposition, I am confident in
delivering sustainable returns for shareholders over the long term.
"
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.
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. The Group has defined and outlined the purpose of its
alternative performance measures, including its key measures, in
the glossary of terms.
3. Full details of adjusted EBITDA can be found in note 6 of the
2019 Annual Report and Accounts, and note 4 herein.
Results presentation
A copy of this announcement is available at
www.mccollsplc.co.uk/investor .
A meeting for analysts will be held today at 9.30am at Numis
Securities, London Stock Exchange, 10 Paternoster Square, London
EC4M 7LS. 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:
McColl's Retail Group plc Media enquiries:
Jonathan Miller, Chief Executive Officer Headland
Robbie Bell, Chief Financial Officer Ed Young, Rob Walker, Charlie Twigg
+44 (0)1277 372916 +44 (0)203 805 4822
Notes to editors
McColl's is a leading neighbourhood retailer, with an estate of
over 1,400 managed convenience stores and newsagents. We operate
McColl's 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. Our dedicated colleagues serve five
million customers every week, and we are the largest operator of
Post Offices in the UK.
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
Dear shareholder
Following a challenging year in 2018, we have rebuilt momentum
in 2019 and focused our efforts on preparing the business to
maximise the opportunities ahead.
Focus on customers, people and the fundamentals of retail
Our Chief Executive, Jonathan Miller, and his team were tested
by the issues that affected our supply chain throughout 2018. The
residual effects of the disruption, combined with weak consumer
confidence and political uncertainty, created a challenging trading
environment for McColl's as we entered 2019.
That's why this year has been a year in which our teams have
worked hard to stabilise the business and deliver sound retail
execution. We have renewed our focus on our customers, supported
our people and concentrated hard on the fundamentals of retail,
especially the areas that are most important in the convenience
sector. With our distribution network now in a much better place we
can continue to make progress on enhancing our offer.
The strenuous, and often meticulous, efforts we have made in
2019 are helping us develop an optimal range and promotional
proposition that is beginning to bear fruit. Whilst much hard work
lies ahead, I believe they will also provide a strong platform for
the future growth of McColl's.
Continuing financial discipline
Good capital discipline and maintaining a flexible balance sheet
are the basis on which we build our business, enabling us to
explore opportunities to invest sensibly for growth, while always
looking to take further action to reduce leverage.
Despite difficult conditions, the business achieved level
like-for-like sales, maintained gross margin and generated reduced
net debt. Our proposed test stores with optimised range, display
and pricing and innovative food-to-go and last mile delivery
trials, are a small part of the overall picture today, but have
potential for driving sales growth, as we expand our range of
products and services into new areas.
We continued to realise proceeds both from the disposal of
non-core assets, and from the sale and leaseback of the remaining
freeholds we acquired as part of our acquisition in 2016. This has
helped us to meet our commitment to reducing net debt, while
investing in strategic initiatives to drive future growth. We have
also continued with our store optimisation programme, acquiring a
small number of high-potential convenience stores, while closing or
disposing of smaller or less efficient stores.
All of this has contributed to the strengthening of our base
this year, a crucial factor in our resilience as a business and our
ability to grow sustainably. Having engaged with our banking
syndicate in the latter part of 2019, I am pleased to report that
significant progress has been made regarding the renewal of the
current debt facility, which will give us more certainty and
flexibility to execute our strategic initiatives in 2020, and
beyond.
Dividends
We always consider our cash allocation carefully, balancing the
need to invest in our technology, people and the fabric of our
stores, reduce our debt and provide returns to shareholders.
Deleveraging the balance sheet is one of our key priorities for
2020 so, in combination with a number of cash management
initiatives implemented by the Executive team, the Board has taken
the difficult but prudent decision to suspend the final dividend
for the 2019 financial year. The Board recognises 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.
Organising for the future
I'd like to take this opportunity to thank all of our people for
their contributions this year - from the Board, Jonathan and his
team, through to all our colleagues who either serve customers on
the front line, or make it easier for them to do that every
day.
It's been a great team effort, and I'm also delighted to welcome
two key appointments, who have not only strengthened our executive
team but have been instrumental in invigorating our strategic
drive. Robbie Bell joined the Board as Chief Financial Officer in
January 2019, bringing his extensive experience and expertise in
finance and retail to the business. Joining us in September 2019,
Richard Crampton is our new Chief Commercial Officer. Richard
brings extensive experience in convenience and food retail and is
already heavily engaged in our evolving commercial strategy.
We have recently announced two further changes to the Board.
Sharon Brown, who has been Chair of the Audit Committee for the
last six years, has announced her intention to step down in the
summer, and a search for her replacement is at an advanced
stage.
Dave Thomas, who has provided long and valuable service to
McColl's, most recently as Chief Operating Officer, has also
announced his intention to retire in April. As we move forwards, we
will continue to assess the suitability of the Board structure,
bolstering it with the relevant skill and experience as and when
necessary. I'd like to give my thanks on behalf of the Board to
both Sharon and Dave for the immense contributions they have made
to McColl's, and my own personal thanks for the support they have
given me throughout the recent challenging times for the
business.
Whilst Jonathan says more about organisational changes to his
team within his review, I'd like to mention just one of those
changes here. I am delighted that Karen Bird, our Colleague
Director, has accepted a role which gives her additional
responsibility for Operations, and I am confident that she will be
able to draw on her extensive operational experience at Tesco and
elsewhere to ensure we are organised for future success.
Looking forward
We approach 2020 with cautious optimism, confident in the
groundwork we have laid down this year and ongoing reshaping of the
business. The convenience market continues to grow, and we will
compete for a greater share of that market, with the momentum borne
of improved product ranges, new services and innovative store
concepts.
Concerns remain over the impact of Brexit and the uncertainty
for businesses and consumers that may arise during 2020 and beyond.
However, the food and grocery retail sector remains resilient to
economic downturn, while the long-term social and lifestyle trends
we see in the UK continue to support growth in the convenience
channel.
The Board remains committed to our strategy and we will maintain
focus on deleveraging, as we position ourselves for growth in the
coming years. We will continue to improve the business and forge
ever greater links with the communities we serve, as we strive to
fulfil our ambition to become everybody's favourite neighbourhood
shop.
Angus Porter
Chairman
Chief Executive's Review - Building foundations for success
We have stabilised the business and re-focused on retail
execution in 2019. The market remains highly competitive, with
challenging trading conditions, but we have made good progress
while maintaining strong capital discipline, reducing net debt and
making appropriate levels of investment.
Period of stabilisation
The last few years have seen different pressures on our
business, with the acquisition of 298 shops in 2016, their
integration in 2017, and then supply chain disruption in 2018. This
meant that a period of stabilisation was required, and I am
encouraged by the performance we have delivered this year, as we
regain greater operational stability, in what has remained an
uncertain economy.
Total revenue was slightly down primarily due to closures and
store divestments as part of our continuing optimisation programme.
LFL sales were level in 2019, an improvement on the decline seen in
2018, but were held back by the general retail market slowdown over
the summer, as the UK experienced a prolonged period of poor
weather compared to the previous year's long hot summer. We also
arrested the decline in margin, and achieved strong cost control,
broadly offsetting inflationary pressures, including rent, wages
and general inflation.
This steady performance reflects a deliberately calm year for
McColl's. A year in which we have gone back to basics, focused on
good retail execution, and given the business a chance to breathe.
We have taken time to look at our strategy and purpose, to
understand our business better and to improve our thinking around
improving and growing our convenience offer. At the same time, I am
immensely proud that our store colleagues have continued to deliver
first class customer service, improving on almost every metric in
the annual HIM Convenience 2019 Report.
Strengthening our team
To increase momentum in the business, we have made some changes
to the McColl's leadership team structure. We now have a smaller
executive team of four, who focus not just on delivering results
but also on long-term strategic direction, and, in place of the
previous Retail Board, we now have a senior leadership team of 12
people who take more responsibility for running the business and
executing our strategy.
Having brought in Robbie Bell, our highly experienced Chief
Financial Officer, back in January, I was delighted to also welcome
Richard Crampton as our new Chief Commercial Officer in September.
Richard brings extensive experience in convenience and food retail
to our business, and will play a key role in paving the way for our
journey in 2020 and beyond. After 23 years in the business, Dave
Thomas has stood down from his role as COO and I am delighted that
Karen Bird will now take on operational management for stores in
addition to her responsibilities as Colleague Director. Karen has
extensive experience in senior operational roles within the retail
sector and will be an invaluable leader as we navigate difficult
economic conditions whilst seeking to implement operational,
structural and cultural change within our business.
These senior appointments are just a small part of the new
personnel coming into the business - we have also recruited new
people with excellent technical experience to look at our range and
space models and property portfolio. This creates a positive
tension with long-term McColl's people, blending our established
company experience with new ideas and energy.
Strategic review
The new leadership team has taken the opportunity during the
year to fully review our strategy. Our vision to be your favourite
neighbourhood shop remains unchanged, but our mind-set more than
ever needs to be focused on delivering a great customer
experience.
We are therefore embarking on a medium-term strategic change
programme, centred on the customer, and recognising the need to
segment the estate to better meet the needs of the communities we
serve. Our strategy is built on four key pillars; strong customer
offer, easy to run stores, improving our stores and a great place
to work.
Strong customer offer
Informed by better customer insight, we are segmenting our
stores by location, performance, size and demographics, as we
strengthen our targeting of products, promotions and services to
local audiences and shopping missions. To support these changes we
have recently strengthened our space, range and format team.
Our range reviews have already enhanced our product offers and
are helping us respond better to customer needs. The full review of
our beer and cider range by the end of April saw an increase in the
number of lines and space allocated to growing categories such as
craft and world beers, resulting in a significant improvement in
our performance in this category. With full reviews in soft drinks,
confectionery, wine and healthy snacks, and several other
categories completed by the end of the year, I am delighted with
the results and expect to see continued uplifts in 2020 as we
tackle the remaining product categories.
As well as improving range, we will continue to develop our
offer using greater customer insight to optimise our brand and
value position. It's early days, but there are changes ahead on
food-to-go at many stores, with growing opportunities in breakfast,
coffee and hot food, and with the trial of a new format launched in
our new Coventry store. Our recent trial with Uber Eats is another
example of how we are evolving to meet the needs of today's
customers.
Easy to run stores
We made great progress during the year in establishing a more
stable distribution platform and better on-shelf availability. We
intend to continue to refine our operating model to make our stores
easier to run and easier to shop, and have embarked on an
end-to-end review of ways of working across the business but
primarily focused on stores.
Increasingly, technology will be an enabler in improving our
operating model so that we can use the hours we have to serve
customers better. We are investing in a new Electronic Point of
Sale (EPOS) system that will bring many benefits, including making
self-scanning a reality at our stores in the near future. We will
also be launching a new Enterprise Resource Planning (ERP) software
system in 2020 to give us more visibility into performance.
In early 2020, we will be trialling new ideas on price, range,
brand, layout and cost to serve, using a modified operating model
in a small number of stores that we believe will be simpler to
operate. We will be looking for quick wins that we can rollout
immediately, as well as medium-to long-term benefits that can
become part of our new store model. We will adapt our ideas as we
go and use them to drive improvements across the whole estate.
Improving our stores
Building the foundations for long-term success means not only
delivering on our purpose of making life easier for our customers
and colleagues, but also optimising stores by continuing to improve
the quality of our estate. This work will continue into next year,
but we have made good progress and our colleagues have already
delivered against these priorities in 2019.
We opened 10 new convenience stores this year, relocating some
existing stores to better sites, and we will continue to explore
opportunities to add new stores in 2020.
We have also accelerated our store optimisation programme for
underperforming stores as we continue to evolve towards a smaller,
convenience focused and more profitable estate, having closed or
sold 120 stores during the year.
In addition, the trial stores planned in 2020, as well as
testing our future operating model, will also update our thinking
for our future refit programme. We still have 400-500 stores that
require updating, so there remains a positive refurbishment
opportunity ahead.
This year we completed 23 store refreshes in the year, including
ten stores as part of a trial of the Morrisons Daily fascia. This
trial is helping us with range development and is also an
opportunity to explore the potential for this type of format. Sales
are strong, the response from customers has been positive, and we
are expanding into an additional 20 stores to further evaluate.
Great place to work
We fundamentally believe that the route to great customer
service is through our colleagues, ensuring that they enjoy working
with us and are engaged with our plans for the business.
We have made fantastic progress with our plans for colleagues
during the year. We have launched and embedded a new performance
framework, launched our six key leadership skills, developed a
model to identify and develop talent and succession pipelines, as
well as progressing with our listening and responding plans,
connecting with our colleagues through various forums.
I am delighted that in our most recent engagement survey 80% of
respondents rated McColl's as a great place to work.
We will build on the successes of 2019 with a number of new
initiatives planned, with the aim of better supporting 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.
Exciting times ahead
As we came into 2019, we recognised that the business needed to
change - that's why we've strengthened our management structures,
hired people into key roles, focused on our purpose and sharpened
our strategy. With the market as competitive as ever, there will be
challenges ahead, but we are well positioned and confident in our
plans for long-term growth.
The convenience sector remains supportive, with lifestyle
changes underpinning growth forecasts for at least the medium-term.
Customers will always need top-up shops and food-for-now and later,
while the convenience sector complements online ordering.
We will continue to reshape the business, developing our strong
neighbourhood convenience offer to meet the changing needs of
customers. I am confident that by making life easier for our
customers, colleagues and their communities, and by maintaining the
cash generative and profitable nature of our business, we will
deliver sustainable returns for shareholders over the
long-term.
Finally, I would like to take this opportunity to thank all of
my colleagues at McColl's for their continued hard work and
commitment.
Jonathan Miller
Chief Executive Officer
Financial Review - Building capital resilience
Our financial priorities in 2019 included strengthening our
balance sheet, improving working capital, rebuilding gross margin,
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.
Solid revenue performance
Full year revenue was down by 1.8% to GBP1.22bn (2018:
GBP1.24bn) primarily driven by the closure or divestment of 120
under-performing newsagents and smaller convenience stores as part
of our store optimisation programme.
LFL sales performance was level in the year (2018: -1.4%), with
LFL growth affected in the summer months in particular as the whole
sector suffered from strong year-on-year comparatives coupled with
colder weather this year and lower consumer confidence. This was a
relatively good performance and a recovery from 2018 levels which
were impacted by the collapse of Palmer & Harvey.
Tobacco continues to perform strongly, benefitting from
inflation as a result of manufacturer and duty rises. Other
traditional categories such as news and confectionery, where we
still over-index as a result of our heritage, continue to steadily
decline and impact LFL sales.
LFL sales were supported by good growth in beers, wines and
spirits, where our performance is improving following our range
review in the first half of the year; soft drinks, which have been
helped by some great innovation as well as inflation; and
food-to-go, which remains a small category for McColl's but has
great potential to grow as we continue to extend our offer.
Gross profit margin stabilised
Gross margin before adjusting items(2) was broadly level at
25.9% (2018: 26.0%). Margin improved in the second half, year on
year, as we continue to make progress, both through self-help
initiatives such as improved promotional investment planning, and
by working together with Morrisons. As in previous years, profit
delivery was weighted towards the second half of the year due to
the seasonal sales mix, and further supported by year-on-year
margin improvement.
In terms of overall value, adjusted gross profit fell by 2.1% to
GBP315.7m (2018: GBP322.5m) reflecting the decline in total
sales.
Good cost control mitigates cost pressures and wage
inflation
Although we experienced a number of cost pressures and wage
inflation was a challenge during the year, our administrative
expenses fell year-on-year as a result of good cost control and the
impact of our store optimisation programme. The business was
focused on mitigating the National Living Wage driven inflation of
around 5%, while further head-winds came from the additional rent
as a consequence of our sale and lease back programme (GBP3m in
total). Adjusted administrative expenses as a percentage of revenue
remained broadly flat at 25.2% (2018: 25.1%).
With continuing cost pressures, we will keep our estate under
review to ensure that we maintain a sustainably profitable network
of stores. We are improving the quality of the estate through both
the acquisition of high potential convenience stores and the
planned closure or disposal of under-performing stores. During the
year, we acquired 10 convenience stores and closed or disposed of
120 newsagents and smaller convenience stores.
We are pleased with the implementation of the store optimisation
strategy so far, moving away from low margin newsagents and
focusing on convenience and the more efficient newsagents.
Adjusting items
Adjusted operating profit (see note 5 of the Annual Report for
the definition of adjusting items, or note 3 herein) decreased to
GBP15.3m (2018: GBP18.3m).
After adjusting items, the Company incurred a statutory
operating loss of GBP90.4m (2018: GBP15.9m profit).
In total there were GBP105.8m of adjusting items within the
statutory operating loss for 2019.
The most significant item was a one-off, non-cash goodwill
impairment charge of GBP98.6m. In accordance with IAS 36 we have
performed an annual impairment review of goodwill, and the
write-down was required following a rebasing of financial
projections, based on lower (albeit improving) underlying gross
margin, National Living Wage and retail cost inflation
pressures.
Other small adjusting items within administrative expenses
includes GBP0.2m of professional fees relating to a health and
safety breach, GBP0.4m relating to an old asbestos claim and
GBP0.6m relating to business reorganisation.
Net property-related adjusting items of GBP6.0m included GBP9.2m
of costs associated with closures and impairment and a net gain of
GBP3.3m in property profits from the final tranche of sale and
leaseback transactions arising from the major acquisition in 2017.
As well as releasing immediate value through this programme, the
proceeds have allowed us to continue our capital investment
programme including store refreshes, as well as reduce net
debt.
Finance costs relating to the store closures included within
adjusting items were GBP0.2m.
Before adjusting items, profit before tax was GBP7.3m (2018:
GBP10.5m). After adjusting items, loss before tax was GBP98.6m
(2018: profit of GBP7.9m).
EBITDA (adjusted)
Adjusted EBITDA decreased to GBP32.1m (2018: GBP35.0m),
reflecting the softer market conditions in the second half reducing
revenue for the year, despite the recovering gross margin rate in
H2. The adjusted EBITDA margin of 2.6% (2018: 2.8%) has been
broadly maintained due to the good cost control measures in
place.
Interest and tax
Net finance costs before adjusting items increased slightly
year-on-year to GBP8.0m (2018: GBP7.9m) reflecting slighter higher
interest rate, partly offset by a reduction in the term loan.
The tax credit for the year was GBP2.7m (2018: GBP1.0m charge).
The comparable effective tax rate in 2019 excluding the impact of
non-deductible adjusting items was 12.4% (2018 26.6%). The
difference between this and the current statutory rate of 19.0% in
the period is due principally to goodwill impairment which had
limited tax relief.
Earnings per share
Basic losses per share was 83.3 pence (2018: earnings 5.95
pence). Adjusted basic earnings per share were 5.6 pence (2018: 6.7
pence).
Balance sheet and net debt
Total shareholder funds at the end of the year were GBP38.7m
(2018: GBP141.5m). The book value of non-current assets fell by
GBP112.5m to GBP246.9m (2018: GBP359.3m), reflecting the goodwill
and store asset impairment, completion of our sale and leaseback
programme and divestment or closure of underperforming stores.
Current assets at the end of the period increased to GBP163.4m
(2018: GBP150.3m) as a result of a net increase in stock and trade
receivables, plus an increase in cash and cash equivalents of
GBP8.5m.
As explained in note 14, the management team has undertaken a
review of certain balance sheet classifications. The 2018 balance
sheet has been restated for errors in two areas. Firstly, GBP10m of
the term loan has been disclosed as a current liability in line
with the term loan agreement and repayment schedule. Secondly, a
GBP2.6m accrual previously classified against the carrying value of
inventory has been reclassified as a current liability. Neither
reclassification has any impact on the statement of comprehensive
income or total shareholder funds as reported in the prior
year.
Current liabilities decreased to GBP229.3m (2018: GBP233.4m),
reflecting lower trade and other payables, borrowings, tax and
provisions. Non-current liabilities increased to GBP142.3m (2018:
GBP134.7m) due to increased loans and borrowings, payables and
provisions.
Net debt (total borrowings less cash and cash equivalents) at
the end of the year was GBP94.1m (2018: GBP98.6m). The business
remains focused on working capital and cash management to reduce
business leverage, with a number of initiatives currently underway.
At the end of the year our net debt to EBITDA ratio was 2.9x on a
rolling 12-month basis, with a two-year target to be at or below
2.0x.
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. The combined accounting surplus in the two defined
benefit pension schemes operated by the Group decreased to GBP7.9m
(2018: GBP11.9m). 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
We continue to invest in the business for growth, including our
programme of store acquisitions and refreshes, alongside the
development and extension of our services and food-to-go offer.
Cash generation continues to support this investment, while
continuing to reduce net debt levels.
Net cash provided by operating activities in the year was
GBP20.0m (2018: GBP61.8m), with the prior year seeing a one-off
cash flow benefit from the inception of improved payment terms
immediately following our transition to a new wholesale
supplier.
Gross capital expenditure was GBP14.4m (2018: GBP19.7m). Net
capital expenditure, including property proceeds from the sale and
leaseback of freehold properties, reduced to GBP2.9m (2018: GBP7.7m
inflow).
Interest paid is slightly lower at GBP7.4m, due to a reduction
in the term loan, offset by a slighter higher interest rate on last
year. The interim and final dividends paid in the period totalled
GBP2.2m (2018: GBP11.9m).
Banking facilities
The current banking facilities mature in July 2021, so I am
pleased to report that supportive discussions with our bank
syndicate to amend and extend certain of the terms therein are well
advanced and we expect to announce shortly. See the Directors
Report in the Annual Report for a further explanation of going
concern in relation to the facilities agreement.
Financial outlook
We will continue to develop our customer proposition to leverage
our brand recognition within the growing convenience sector. This
will be combined with an equal focus on cost mitigation and cash
generation; with the combined strategy to produce a growing
customer proposition with a healthy and robust balance sheet and
debt level.
I am very much looking forward to working with Jonathan and the
team to further our strategic plans in 2020 and beyond.
Robbie Bell
Chief Financial Officer
Responsibility statement
The responsibility statement has been prepared in connection
with the Company's full Annual Report for the period ended 24
November 2019. 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 Financial Statements, prepared in accordance with
International Financial Reporting Standards as adopted by the EU,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- 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
Robbie Bell
25 February 2020
McColl's Retail Group
Consolidated Income Statement for the 52 week Period from 26
November 2018 to 24 November 2019
Adjusting Adjusted Adjusting Total
Adjusted items Total items
2019 2018
2019 Note 3 2019 2018 Note 3 2018
Note GBP 000 GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Revenue 2 1,218,700 - 1,218,700 1,241,539 - 1,241,539
Cost of sales (902,968) (902,968) (919,003) (1,428) (920,431)
----------------- --------- -------------------- --------- --------- ---------
Gross profit/(loss) 315,732 - 315,732 322,536 (1,428) 321,108
Administrative
expenses (306,684) (99,805) (406,489) (311,442) (7,118) (318,560)
Other operating
income 2 6,255 - 6,255 6,811 - 6,811
Profits/(loss)
arising on
property-related
items 39 (5,977) (5,938) 416 6,109 6,525
----------------- --------- -------------------- --------- --------- ---------
Operating profit/(loss) 4 15,342 (105,782) (90,440) 18,321 (2,437) 15,884
----------------- --------- -------------------- --------- --------- ---------
Finance costs (8,043) (160) (8,203) (7,859) (158) (8,017)
----------------- --------- -------------------- --------- --------- ---------
Profit/(loss)
before tax 7,299 (105,942) (98,643) 10,462 (2,595) 7,867
Income tax (charge)/credit 5 (902) 3,608 2,706 (2,778) 1,762 (1,016)
----------------- --------- -------------------- --------- --------- ---------
Profit/(loss)
for the period 6,397 (102,334) (95,937) 7,684 (833) 6,851
================= ========= ==================== ========= ========= =========
Earnings/(losses)
per share (pence) 7 5.55p (83.30)p 6.67p 5.95p
Diluted earnings/
(losses) per
share (pence) 7 5.55p (83.30)p 6.66p 5.94p
The above results were derived from continuing operations.
McColl's Retail Group
Consolidated Statement of Comprehensive Income for the 52 week
Period from 26 November 2018 to 24 November 2019
2019 2018
GBP 000 GBP 000
(Loss)/Profit for the period (95,937) 6,851
Items that will not be reclassified
subsequently to profit or loss
Remeasurement of defined benefit pension
scheme (5,819) 859
Deferred tax on defined benefit pension
scheme 706 (150)
Corporation tax on defined benefit
pension scheme 306 -
--------- --------
Total comprehensive (loss)/income for
the period (100,734) 7,560
========= ========
The profit/(loss) and total comprehensive (loss)/income are
attributable to the owners of the Parent Company
McColl's Retail Group
Consolidated Statement of Financial Position for the 52 week
Period from 26 November 2018 to 24 November 2019
2018
2019 Restated*
Note GBP 000 GBP 000
Assets
Non-current assets
Property, plant and equipment 8 77,113 92,314
Intangible assets 9 156,898 252,747
Deferred tax assets 1,350 97
Retirement benefit asset 11,502 14,122
Investments - 36
--------- ----------
Total non-current assets 246,863 359,316
--------- ----------
Current assets
Inventories 86,434 79,795
Trade and other receivables 39,036 41,984
Income tax asset 912 -
Cash and cash equivalents 36,999 28,547
--------- ----------
Total current assets 163,381 150,326
--------- ----------
Total assets 410,244 509,642
========= ==========
Equity and liabilities
Current liabilities
Trade and other payables (215,534) (215,986)
Loans and borrowings 10 (11,231) (12,148)
Income tax liability - (673)
Provisions (2,528) (4,627)
--------- ----------
Total current liabilities (229,293) (233,434)
========= ==========
Net current liabilities (65,912) (83,108)
========= ==========
Non-current liabilities
Loans and borrowings 10 (119,887) (114,989)
Other payables (10,755) (9,552)
Provisions (3,186) (1,042)
Deferred tax liabilities (4,813) (6,895)
Retirement benefit obligations (3,645) (2,250)
--------- ----------
Total non-current liabilities (142,286) (134,728)
========= ==========
Total liabilities (371,579) (368,162)
========= ==========
Net assets 38,665 141,480
========= ==========
* see note 14
McColl's Retail Group
Consolidated Statement of Financial Position for the 52 week
Period from 26 November 2018 to 24 November 2019
2019 2018
Note GBP 000 GBP 000
Equity
Share capital 12 (115) (115)
Share premium 12 (12,580) (12,580)
Retained earnings (25,970) (128,785)
-------- ---------
Equity attributable to owners of the
Company (38,665) (141,480)
======== =========
McColl's Retail Group
Consolidated Statement of Changes in Equity for the 52 week
Period from 26 November 2018 to 24 November 2019
Share capital Share premium Retained earnings Total equity
GBP 000 GBP 000 GBP 000 GBP 000
As at 26 November 2018 115 12,580 128,785 141,480
------------- ------------- ----------------- ------------
Loss for the period - - (95,937) (95,937)
Remeasurement of defined
benefit pension scheme - - (4,797) (4,797)
------------- ------------- ----------------- ------------
Total comprehensive income - - (100,734) (100,734)
Contributions by and
distributions to owners
Dividends - - (2,188) (2,188)
Deferred tax - - (14) (14)
Share-based transactions - - 121 121
------------- ------------- ----------------- ------------
As at 24 November 2019 115 12,580 25,970 38,665
============= ============= ================= ============
Share capital Share premium Retained earnings Total equity
GBP 000 GBP 000 GBP 000 GBP 000
As at 27 November 2017 115 12,579 133,214 145,908
------------- ------------- ----------------- ------------
Profit for the period - - 6,851 6,851
Remeasurement of defined
benefit pension scheme - - 709 709
------------- ------------- ----------------- ------------
Total comprehensive income - - 7,560 7,560
Contributions by and distributions
to owners
Dividends - - (11,862) (11,862)
New share capital subscribed 1 - 1
Deferred tax - - (127) (127)
------------- ------------- ----------------- ------------
As at 25 November 2018 115 12,580 128,785 141,480
============= ============= ================= ============
McColl's Retail Group
Consolidated Statement of Cash Flows for the 52 week Period from
26 November 2018 to 24 November 2019
2018
2019 Restated*
Note GBP 000 GBP 000
Cash flows from operating activities
(Loss)/Profit for the period (95,937) 6,851
Adjustments to cash flows from non-cash
items
Depreciation and amortisation 4 16,676 17,054
Profit on disposal of property, plant
and equipment (1,497) (14,994)
Profit from disposal of investments (132) -
Finance costs 8,203 8,017
Share-based payment transactions 121 -
Income tax (credit)/charge 5 (2,706) 1,016
Impairment losses 101,276 3,297
-------- ----------
26,004 21,241
Increase in inventories (6,600) (737)
Decrease/(increase) in trade and other
receivables 2,948 (1,593)
Increase in trade and other payables 609 48,082
Decrease in retirement benefit obligation
net of actuarial changes (1,804) (906)
Increase in provisions 45 568
-------- ----------
Cash generated from operations 21,202 66,655
Income taxes paid (1,205) (4,811)
-------- ----------
Net cash flow from operating activities 19,997 61,844
-------- ----------
Cash flows from investing activities
Acquisition of property, plant and
equipment and other intangibles (14,427) (19,672)
Proceeds from sale of property, plant
and equipment 11,499 27,410
Acquisition of businesses, net of cash
acquired (1,188) (4,513)
Proceeds from investment disposals 84 -
-------- ----------
Net cash flows from investing activities (4,032) 3,225
-------- ----------
Cash flows from financing activities
Interest paid (7,412) (7,928)
Proceeds from issue of ordinary shares,
net of issue costs - 1
Draw down/(repayment) of bank borrowing 11 4,000 (29,000)
Payment of finance lease creditors 11 (1,741) (1,858)
Interest payment to finance lease creditor (172) (148)
Dividends paid 6 (2,188) (11,862)
-------- ----------
Net cash flows from financing activities (7,513) (50,795)
-------- ----------
Net increase in cash and cash equivalents 8,452 14,274
Cash and cash equivalents at beginning
of period 28,547 14,273
-------- ----------
Cash and cash equivalents at end of
period 36,999 28,547
======== ==========
* see note 14
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
1 Accounting policies
Basis of preparation
The Group financial statements for 2019 consolidate the
financial statements of McColl's Retail Group plc (the "Company")
and all its subsidiary undertakings (together, "the Group") drawn
up to 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 IFRS and IFRS Interpretations
Committee (IFRIC) interpretations, as adopted by the European Union
and with those parts of the Companies Act 2006 applicable to
companies reported under IFRS.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 24 November 2019
or 25 November 2018, but is derived from those accounts. Statutory
accounts for 2018 have been delivered to the Registrar of Companies
and those for 2019 will be delivered following the Company's Annual
General Meeting. The auditors have reported on those accounts;
their reports were 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 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 March 2020.
The Group adopted IFRS 9 and IFRS 15 in the period. Management
assessed the impact of the two new standards and concluded that
they had no material impact to the Group. IFRS 9 has had no
material impact on accounting policies or classification of
financial instruments. IFRS 15 has had no material impact to the
financial statements.
The Group will adopt IFRS 16 effective 25 November 2019 in the
next financial year. IFRS 16 is expected to have a material impact
on the financial statements, and the group will disclose in its
annual accounts for year ended 24 November 2019 the likely
impact.
The consolidated financial information is presented in sterling,
the Group's functional currency, and has been rounded to the
nearest thousand (GBP'000). The prior period was also a 52 week
period.
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.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
1 Accounting policies (continued)
At the end of the period, the Group had drawn down GBP129.5m
(2018: GBP125.5m) of its facilities.
In November 2018, the Company signed 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 GBP77.5m term loan (originally GBP100m
initially being repaid at GBP2.5m per quarter). In addition, there
is a GBP50m unsecured accordion facility available at the Company's
option.
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.
In considering going concern, the Directors have also assessed
the sensitivity of the long-term forecast. These could include a
short-term reduction in sales, pressures on gross margin and a
higher level of cost inflation. The overall going concern scenarios
the Company has modelled include assessing LFL 0.5% lower than
plan, nil year on year gross margin growth (despite anticipated
product mix improvement). Whilst in the short term the covenant
headroom is tighter, having modelled these scenarios and the
mitigating actions, the directors remain confident that the
business is a going concern.
The Directors have made this assessment 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
in September 2014.
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, individually or, if of a similar type in aggregate,
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.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
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:
2019 2018
GBP 000 GBP 000
Revenue
Sale of goods 1,218,700 1,241,539
--------- ---------
Other operating income
Property rental income 3,004 3,249
ATM commission and other income 3,251 3,562
--------- ---------
6,255 6,811
--------- ---------
1,224,955 1,248,350
========= =========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
3 Adjusting items
Due to their significance or one-off nature, certain items have
been classified as adjusting, as follows:
2019 2018
GBP 000 GBP 000
Cost of Sales
Supplier administration (a) - 807
Supply chain transition (b) - 621
-------- --------
Gross Loss - 1,428
-------- --------
Administrative expenses
Fines and compensation (c) 584 1,236
Supplier administration (a) - 935
Supply chain transition (b) - 4,306
Defined benefit pension scheme - past service
cost (d) - 641
Business reorganisation (h) 622 -
Goodwill impairment (i) 98,599 -
-------- --------
99,805 7,118
-------- --------
(Profits)/losses arising on property-related
items
Sale and leaseback (e) (3,257) (11,941)
Store optimisation programme (f) 6,557 2,535
Fixed asset impairment (g) 2,677 3,297
-------- --------
5,977 (6,109)
-------- --------
Finance Costs
Store optimisation programme (f) 160 158
-------- --------
Tax effect on adjusting items (3,608) (1,762)
-------- --------
102,334 833
======== ========
a. Supplier administration
The administration of P&H, our primary supplier to c.700
newsagents and small convenience stores, on 28 November 2017
created stock availability issues in store. To address this stock
availability and to minimise disruption we entered into a
short-term contract with Nisa, a short-term contract with Fresh to
Store, brought forward the commencement of the Morrison's contract,
and introduced a new supply chain solution for tobacco, via Clipper
Logistics. As such, the Group incurred additional one-off costs,
which are not reflective of ongoing costs and therefore management
has classified these as adjusting items. This resulted in a net
cash outflow of GBP1.7m in 2018. There was no impact from this
adjustment in the current year.
b. Supply chain transition
As a result of the integration of a new supply partner,
Morrison's, material one-off costs of transitioning were incurred.
These costs included GBP1.3m of additional payroll cost, GBP1.8m of
marketing, GBP1.5m of store preparation, including costs associated
with stock replacement and GBP0.3m of other costs. In line with the
accounting policy for adjusting items, the additional costs
incurred as a result of the transition are classified as adjusting
items. This resulted in a net cash outflow of GBP4.9m in 2018.
There was no impact from this adjustment in the current year.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
3 Adjusting items (continued)
c. Fines and compensation
On 22 December 2017 the Group was found guilty of a health and
safety breach relating to contractor works at a store and
subsequently a fine of GBP612k was issued to the Group. This was
disclosed as a contingent liability in the Annual Report 2017.
Following the completion of a HMRC National Minimum Wage
investigation the Group was fined GBP227k and paid arrears due to
colleagues of GBP397k. Each of these fines are fully paid.
Management classify these fines as adjusting items due to the
non-recurring nature. A total of GBP1,236k for these fines was
recognised in 2018. In 2019 the Group recognised GBP234k mainly
professional fees related to the health and safety fine as well as
GBP350k for a claim for historical asbestos related illness. The
cash flow impact for the Group in 2019 was GBP234k
d. 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 will need to equalise pension benefits for the
effect of unequal GMP between men and women, which dates back to
1990. The impact of the GMP calculation on our pensions was
prepared following the C2 model. There was no cash impact from this
adjustment. There was no impact from this adjustment in the current
year.
e. Sale and leaseback
During the year the Group undertook 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 ordinary business and
should therefore be treated as adjusting. This resulted in a net
cash inflow of GBP8.6m (2018: 26.7m).
f. Store optimisation programme
Management has undertaken an ongoing review of poor performing
stores and have made the decision to close a material number of
stores which are not economically viable to continue trading or
strategically aligned. The majority of these stores are either near
lease expiry or lease break date. The closure programme consists of
stores which have either closed in 2019 or will close in 2020.
Management has adjusted onerous lease provisions, impairment, and
other costs in relation to the closures. Provisions are discounted
to their present value at the reporting date, giving rise to a
finance cost as the discount is unwound. Any other closures costs
which cannot be reliably estimated at present, may also be
adjusting in 2020. Management has classified these as adjusting due
to the one-off nature of the closure programme. This resulted in a
net cash outflow of GBP580k (2018: GBP861k).
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. Further information can be found in note 8. There was no cash
impact from this adjustment.
h. Business reorganisation
During the period the Group has been reviewing its operations,
and has been focusing on improving productivity and efficiency.
This has in turn led to material costs associated with
restructuring, predominantly the cost of redundancies, resulting in
a net cash outflow in the period of GBP622k.
i. Goodwill impairment
Management has assessed goodwill impairment at the end of the
year according to IAS 36. In assessing impairment management has
used value in use as it was higher than the market value of the
business. The value in use cash flows were lower than the aggregate
of the Group 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
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
4 Operating profit
Arrived at after charging/(crediting)
2018
2019 Restated*
Note GBP 000 GBP 000
Depreciation and amortisation expense 16,676 17,054
Write-down of inventory recognised
as an expense 17,587 16,471
Operating lease expense - property 36,961 35,868
Profit on disposal of property,
plant and equipment (1,497) (14,994)
Impairment 8/9 101,276 3,297
Cost of inventories recognised
as an expense 928,260 951,073
*restated profit on disposal of property, plant and equipment to
be only proceeds less net book value
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 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.
2019 2018
GBP 000 GBP 000
Adjusted EBITDA excluding property related items and
share-based payments
Operating profit before adjusting
items 15,342 18,321
Depreciation and amortisation 16,676 17,054
Profits arising on property-related
items (39) (416)
Share-based payments 121 -
-------- --------
32,100 34,959
======== ========
Adjusted operating profit excluding property related items
Operating profit before adjusting
items 15,342 18,321
Less: Profits arising on property-related
items (39) (416)
-------- --------
15,303 17,905
======== ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
5 Income tax
2019 2018
GBP 000 GBP 000
Income statement
Current tax:
Current tax on profit for the period 507 2,858
Adjustments in respect of prior periods (570) (7)
-------- --------
(63) 2,851
======== ========
Deferred tax:
Origination and reversal of temporary differences (2,473) (2,123)
Arising from change in tax rate 260 234
Adjustments in respect of prior periods (430) 54
-------- --------
(2,643) (1,835)
======== ========
Income tax (credit)/charge for the period (2,706) 1,016
======== ========
Equity items
Share-based payment 14 92
Fixed assets - 35
-------- --------
14 127
======== ========
Other comprehensive income
Deferred tax in respect of actuarial valuation
of retirement benefits (706) 150
Corporation tax in respect of actuarial
valuation of retirement benefits (316) -
-------- --------
(1,022) 150
======== ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
5 Income tax (continued)
The differences are reconciled below:
2019 2018
GBP 000 GBP 000
(Loss)/profit before tax (98,643) 7,867
======== ========
Tax on profit calculated at standard rate
for 2019 of 19.00% (2018: 19.00%) (18,742) 1,495
Fixed assets (10) -
Expenses not deductible 407 817
Goodwill impairment 16,755 -
Deferred tax on share options 31 55
Adjustments in respect of prior years (1,000) 47
Arising from change in rate of tax 260 234
Exempt amounts 721 605
Disposal of business combination assets (1,128) (2,237)
-------- --------
Total tax (credit)/charge (2,706) 1,016
======== ========
Changes to the UK corporation tax rates were enacted as part of
Finance Bill 2015 on 18 November 2015. These included reductions to
the main rate to reduce the rate to 19% from 1 April 2017 and to
18% from 1 April 2020. A subsequent change to reduce the UK
corporation tax rate to 17% from 1 April 2020 was enacted as part
of Finance Bill 2016 on 6 September 2016.
The tax credit for the 52 week period was GBP2,706,000, (2018:
GBP1,016,000 charge) representing a rate of 2.7% (2018: 12.9%). The
comparable effective rate of tax in 2019 excluding the impact of
non-deductible adjusting items was 12.4% (2018: 26.6%). The
difference between the current and statutory rate of 19.0% in the
period is due principally to goodwill impairment which had limited
tax relief.
Amounts recognised in other comprehensive income:
2019 2018
Before
Before Tax tax
tax benefit Net of tax GBP Tax (expense) Net of tax
GBP 000 GBP 000 GBP 000 000 GBP 000 GBP 000
Remeasurements
of post-employment
benefit obligations (5,819) 1,022 (4,797) 859 (150) 709
======== ======== ============ ====== ============= ============
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
6 Dividends
2019 2018
GBP 000 GBP 000
Interim 2019 dividend of 1.3p (2018: 3.4p)
per ordinary share 1,497 3,916
Final 2018 dividend of 0.6p (2017: 6.9p)
per ordinary share 691 7,946
2,188 11,862
======= =======
The Directors are not proposing a final 2019 dividend (2018: 0.6
pence)
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.
2019 2018
Basic weighted average number of shares 115,177,335 115,173,145
=========== ===========
Diluted weighted average number of shares 115,296,380 115,331,969
=========== ===========
(Loss)/profit attributable to ordinary
shareholders (GBP'000) (95,937) 6,851
=========== ===========
Basic (losses)/earnings per share (83.30)p 5.95p
Anti-diluting (losses)/diluted earnings
per share (83.30)p 5.94p
=========== ===========
Adjusted earnings per share:
(Loss)/profit attributable to ordinary
shareholders (GBP'000) (95,937) 6,851
Adjusting items (note 3) (GBP'000) 105,942 2,595
Tax effect of adjustments (GBP'000) (3,608) (1,762)
Profit after tax and before adjusting items
(GBP'000) 6,397 7,684
=========== ===========
Basic adjusted earnings per share 5.55p 6.67p
=========== ===========
Diluted adjusted earnings per share 5.55p 6.66p
=========== ===========
The difference between the basic and diluted average number of
shares represents the dilutive effect of share options in
existence. As 2019 has an overall loss the shares are not
diluting.
The diluted weighted average number of ordinary shares is
calculated as follows:
2018
2019 As restated*
Ordinary shares in issue at the start of
the period 115,173,515 115,172,774
Effects of shares issued during the period 3,820 371
Weighted average shares in issue during the
year 115,177,335 115,173,145
----------- -------------
Effect of shares to be issued for the long
term incentive plan (LTIP) 119,045 158,824
=========== =============
Weighted average number of ordinary shares
at the end of the period 115,296,380 115,331,969
=========== =============
*Effect of shares issued during the period are now weighted and
the effect of shares to be issued for LTIPs revised.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
8 Property, plant and equipment
Furniture,
fittings and
Land and buildings equipment Total
GBP 000 GBP 000 GBP 000
Cost or valuation
At 27 November 2017 68,003 110,151 178,154
Additions 5,849 13,968 19,817
Acquired through business combinations 726 1,314 2,040
Disposals (15,473) 1,429 (14,044)
Transfers to software (1,133) - (1,133)
------------------ ------------- --------
At 25 November 2018 57,972 126,862 184,834
------------------ ------------- --------
At 26 November 2018 57,972 126,862 184,834
Additions 3,238 9,482 12,720
Acquired through business combinations 430 95 525
Disposals (8,448) (4,689) (13,137)
Transfers to software (290) - (290)
------------------ ------------- --------
At 24 November 2019 52,902 131,750 184,652
------------------ ------------- --------
Depreciation
At 27 November 2017 17,077 57,512 74,589
Charge for period 4,678 11,678 16,356
Eliminated on disposals (349) (1,279) (1,628)
Impairment - 3,297 3,297
Transfers to software (94) - (94)
------------------ ------------- --------
At 25 November 2018 21,312 71,208 92,520
------------------ ------------- --------
At 26 November 2018 21,312 71,208 92,520
Charge for the period 4,590 11,237 15,827
Eliminated on disposals (320) (2,815) (3,135)
Impairment 1,816 861 2,677
Transfers to software (350) - (350)
------------------ ------------- --------
At 24 November 2019 27,048 80,491 107,539
------------------ ------------- --------
Carrying amount
At 24 November 2019 25,854 51,259 77,113
================== ============= ========
At 25 November 2018 36,660 55,654 92,314
================== ============= ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
8 Property, plant and equipment (continued)
During the year the Group disposed of property in sale and
leaseback transactions, the net book value of these properties at
disposal was GBP5,320,000 (2018: GBP13,855,000).
Included within fixtures and fittings is GBP4,196,000 of finance
lease assets (2018: GBP4,655,000).
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.
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 five-year period, which has been approved by
management. Cash flows beyond this period are extrapolated using a
long-term growth rate of nil and discounted with a pre-tax weighted
average cost of capital (WACC) of 11.5% (2018: 11.75%). Management
extrapolated the cash flows to perpetuity with a growth rate of nil
as this was considered to be a prudent basis.
Further detail of our considerations and sensitivities are
included within going concern assessment.
The annual impairment testing resulted in an impairment charge
of GBP2,677,000 (2018: GBP3,297,000) against branch assets.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27
November 2017 to 25 November 2018
9 Intangible assets
Other intangible
Goodwill assets Total
GBP 000 GBP 000 GBP 000
Cost or valuation
At 27 November 2017 251,551 6,801 258,352
Additions 2,029 1,478 3,507
Transfers from PPE - 1,133 1,133
-------- ---------------- --------
At 25 November 2018 253,580 9,412 262,992
-------- ---------------- --------
At 26 November 2018 253,580 9,412 262,992
Additions 745 2,933 3,678
Disposals - (21) (21)
Transfers from PPE - 290 290
-------- ---------------- --------
At 24 November 2019 254,325 12,614 266,939
-------- ---------------- --------
Amortisation
At 27 November 2017 4,234 5,219 9,453
Amortisation charge - 698 698
Transfers from PPE - 94 94
-------- ---------------- --------
At 25 November 2018 4,234 6,011 10,245
-------- ---------------- --------
At 26 November 2018 4,234 6,011 10,245
Amortisation charge - 849 849
Eliminated on disposals - (2) (2)
Impairment 98,599 - 98,599
Transfers from PPE - 350 350
-------- ---------------- --------
At 24 November 2019 102,833 7,208 110,041
-------- ---------------- --------
Carrying amount
At 24 November 2019 151,492 5,406 156,898
======== ================ ========
At 25 November 2018 249,346 3,401 252,747
======== ================ ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
9 Intangible assets (continued)
Amortisation expenses of GBP849,000 (2017: GBP698,000) 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.
Management recognise an impairment 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 of the CGU. For the purposes of goodwill, in line with the
accounting policy, the business manages and makes decisions as one
group of CGUs and therefore impairment is assessed on that single
group. Management has used 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 5-year period, which has been approved by the Board.
Cash flows beyond this period are extrapolated using a long-term
growth rate of nil and discounted with a pre-tax weighted average
cost of capital (WACC) of 11.5% (2018: 11.75%). Management
extrapolated the cash flows to perpetuity with a growth rate of nil
as this was considered to be a prudent basis.
Budget and forecast EBITDA is taken as the starting position for
cash flows and any benefit from future new business and the
associated expenditure to acquire the new business is excluded.
The budget and long term forecasts will have taken into
consideration future business environment and will include
assumptions on growth of revenue and increase in costs such as
minimum wage increases. Revenue growth has been assumed at an
average of 1% annual growth for the five-year period. Wage
inflation is assumed at around 3% per annum whilst general cost
inflation is assumed at an average annual growth rate of 2%. In
comparison to 2018 assumptions a reduction of annual margin
improvement and a downgrade on the outlook for sales growth has
been assumed. It is this lower expectation of sales and margin
improvement which has materially reduced the recoverable
amount.
The recoverable amount per value in use calculations was
GBP228.6m versus the CGUs carrying amount of GBP327.2m resulting in
an impairment charge of GBP98.6m (2018: nil) included in
administrative expenses in the income statement.
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 0.5 percentage point change in WACC, which
would change the impairment by GBP10m.
Budgeted cash flows
Management has conducted sensitivity analysis on the CGUs value
in use by reducing the anticipated future cash flows. A reduction
of 0.5% in LFL sales would increase the impairment by GBP12m.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24November 2019
10 Loans and borrowings
2018
2019 Restated*
GBP 000 GBP 000
Current
Bank borrowings 10,000 10,000
Finance lease liabilities 1,231 2,148
-------- ------------------------
11,231 12,148
======== ========================
Non-current loans and borrowings
Bank borrowings 119,500 115,500
Unamortised issue costs (962) (1,458)
Finance lease liabilities 1,349 947
-------- ------------------------
119,887 114,989
======== ========================
*see note 14
The long term loans are secured by a fixed charge over the
Group's head office property together with a floating charge over
the Group's assets.
The current facility drawn as at 24 November 2019 is
GBP129,500,000 (2018: GBP125,500,000).
In November 2018, the Group amended some of the terms of the
existing facility. The Group has an amortising GBP77,500,000 term
loan and a GBP100,000,000 revolving facility with a GBP50,000,000
accordion.
Details of loans and hire purchase obligations repayable within
two to five years are as follows:
2019 2018 Restated*
GBP 000 GBP 000
Term Loan and revolving credit facility
available until July 2021 119,500 115,500
Finance lease liabilities 1,349 947
--------- --------------
120,849 116,447
========= ==============
*see note 14
11 Net debt
2019 2018
GBP 000 GBP 000
Cash at bank and in hand 36,999 28,547
--------- --------------
36,999 28,547
========= ==============
Term loan and revolving credit facility
available until July 2021 (129,500) (125,500)
Less: unamortised issue costs 962 1,458
--------- --------------
(128,538) (124,042)
========= ==============
Amounts due under finance lease obligations (2,580) (3,095)
Net debt (94,119) (98,590)
========= ==============
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
11 Net debt (continued)
Analysis of net debt
Non cash movement
Amortisation Finance Non-current
of issue lease additions to Current
2018 Cash flow costs GBP 000 movement 2019
GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Bank borrowings
Current (10,000) 10,000 - - (10,000) (10,000)
Non-current (114,042) (14,000) (496) - 10,000 (118,538)
-------------------------- --------- --------- ------------ ---------------- ----------- ---------
Sub total (124,042) (4,000) (496) - - (128,538)
Finance lease liabilities
Current (2,148) 1,741 - (319) (505) (1,231)
Non-Current (947) - - (907) 505 (1,349)
-------------------------- --------- --------- ------------ ---------------- ----------- ---------
Sub total (3,095) 1,741 - (1,226) - (2,580)
Arising from financing
activities (127,137) (2,259) (496) (1,226) - (131,118)
-------------------------- --------- --------- ------------ ---------------- ----------- ---------
Cash at bank and
in hand 28,547 8,452 - - - 36,999
Net Debt (98,590) 6,193 (496) 1,226 - (94,119)
========================== ========= ========= ============ ================ =========== =========
In the period interest was charged as follows current bank
borrowings GBP615k (2018: GBP531k),
non-current bank borrowings GBP5,901k (2018: GBP5,812k), current
finance leases GBP92k (2018: GBP92k) and non-current finance leases
GBP80k (2018: GBP56k).
Non cash movement
Amortisation Finance Non-current
of issue lease additions to Current
2017 Cash flow costs GBP 000 movement 2018
GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Bank borrowings
Current (10,000) 10,000 - - (10,000) (10,000)
Non-current (142,968) 19,000 (74) - 10,000 (114,042)
-------------------------- --------- --------- ------------ ---------------- ----------- ---------
Sub total (152,968) 29,000 (74) - - (124,042)
Finance lease liabilities
Current (1,799) 1,858 - (996) (1,211) (2,148)
Non-Current (1,754) - - (404) 1,211 (947)
-------------------------- --------- --------- ------------ ---------------- ----------- ---------
Sub total (3,553) 1,858 - (1,400) - (3,095)
Arising from financing
activities (156,520) 30,858 (74) (1,401) - (127,137)
-------------------------- --------- --------- ------------ ---------------- ----------- ---------
Cash at bank and
in hand 14,273 14,274 - - - 28,547
Net Debt (142,247) 45,132 (74) (1,401) - (98,590)
========================== ========= ========= ============ ================ =========== =========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 26
November 2018 to 24 November 2019
12 Authorised, issued and fully paid share capital
Number of
ordinary shares
0.1 pence Share capital Share premium
each GBP 000 GBP 000
At 26 November 2018 115,173,515 115 12,580
Shares issued during the period 20,394 - -
At 24 November 2019 115,193,909 115 12,580
=================== =============== ==============
The Group issued 20,394 ordinary shares at 0.1 pence per share
equal to the nominal value of GBP20 as part of exercising LTIP
share options.
The Company has one class of ordinary shares which carry no
right to fixed income. All issued shares are fully paid.
The Group did not acquire any of its own shares for cancellation
in the 52 weeks ending 24 November 2019 or 52 weeks ending 25
November 2018.
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.
13 Related party transactions
Only the Directors are deemed to be key management personnel.
All transactions between Directors and the Group are on an arm's
length basis and no period end balances have arisen as a result of
these transactions.
2019 2018
GBP 000 GBP 000
Salaries and other short term employee
benefits 1,935 1,917
Share-based payments 86 29
-------- --------
2,021 1,946
======== ========
There were no material transactions or balances between the
Group and its key management personnel or members of their close
family.
14 Prior Year Restatements
1. At 25 November 2018 the total value of the term loan was
disclosed as a non-current liability. The element of the term loan
that is due within the next 12 months (GBP10m) is now included
within current liabilities, which is consistent with the payment
schedule within the term loan agreement. Management has corrected
the error within the 2018 statement of financial position by
reclassifying GBP10m as a current liability.
2. Management has reviewed the accounting for the purchase of
inventory across the product portfolio. As at 25 November 2018 an
accrual of GBP2.6m was incorrectly classified against the carrying
value of inventory. Management has corrected the error within the
2018 statement of financial position by reclassifying GBP2.6m as a
current liability within accruals.
Neither of the above has any impact on the statement of
comprehensive income or total shareholder funds previously
reported. The consolidated statement of cash flows has been
restated to take into account the GBP2.6m reclassification above,
with the appropriate amendment made to the disclosure of 'increase
in inventories' (reduced by GBP2.6m) and 'increase in trade and
other payables' (increased by GBP2.6m) in the statement, both of
which net to a GBPnil impact to previously reported cash generated
from operations. The consolidated statement of cash flows has been
further restated to remove GBP1.4m from cash flows from acquisition
of property, plant and equipment within net cash flows from
investment activities, which was financed by finance leases (with
the corresponding increase of GBP1.4m made to payment of finance
lease creditors, within net cash flows from financing activities).
There has been no change to the total net increase in cash and cash
equivalents previously reported.
15 Subsequent Events
Management has evaluated subsequent events through 25 February
2020, which is the date the consolidated financial statements were
available to be issued.
On 21 February 2020, the Group exchanged contracts for the sale
of the Group's head office building with a completion date of 31
December 2020 or earlier on three weeks' notice from the Group. The
agreed selling price was GBP7.3m.
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.
Principal Risk Risk Mitigation
Customer Proposition Customer shopping
(maintained) habits are influenced * Significant insight and tracking of customer habits,
by a wide range of convenience channel trends and utilising supply base
factors and are constantly to understand trends and innovations
evolving. If we do
not respond to their
changing needs, with * Review of promotional programmes to assess
internal processes effectiveness, convenience sector trends and how best
and resource allocated to offer customers good value
appropriately to adapt
in terms of offer,
price, range and availability * Our strong customer service standards, delivered
- they are more likely through our store colleagues are reflected in our
to shop with a competitor, evolving brand strategy
resulting in falling
revenues.
* We are building our presence in social media to
better engage with customers
* A Format, Space and Range team has been established
to review customer journey segments, and how
optimally to align the proposition
Competitive We rely on a small
Supply Chain number of key distributors * We establish long-term relationships with trusted
Partner and may be adversely suppliers
(increased) affected by uncompetitive
pricing or processes
and procedures being * Joint business plans are developed with our key
unable to support partners
customer innovation,
range development
or have agility in * We look for opportunities to work closer with our key
customer responsiveness. 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
------------------------------- -------------------------------------------------------------
Operating Model We have a high operational
and cost efficiency cost base, consisting * We continually seek to remove unnecessary complexity
Challenges primarily of wages from our operational procedures to optimise
(maintained) (impacted by the National performance; whilst engaging external review of our
Living Wage), property operating model to identify opportunities
rental and energy
costs. Increases in
these costs without * We review options to deploy technology to further
a corresponding increase simplify and reduce cost from our operating model
in revenues could
adversely impact our
profitability. * We monitor legislation and developments related to
our costs, e.g. minimum wage, rents and energy
tariffs, to allow us to plan and mitigate increases
* Property management is a key function with regular
review processes in place, including a full
maintenance strategy review
* We minimise energy costs by combining energy
efficiency initiatives and forward purchasing
* We retender external contracts to ensure they remain
market-competitive
* We have an ongoing programme of estate optimisation
to remove unprofitable and marginal stores
------------------------------- -------------------------------------------------------------
Availability The main financial
of funding/cash risks are the availability * We produce daily cash forecasts covering at least the
(increased) of short- and long-term next three periods
funding to meet business
needs, fluctuations
in interest rates, * We work with our banking syndicate, with regular
movements in energy communication to manage our funding and leverage
prices and other position
post-Brexit impacts.
* The existing bank facilities (due to expire in July
2021) have been subject to early engagement with our
lenders, and discussions are well advanced to amend
and extend
* There is a full working capital initiative in place,
to bolster the cash position, through review of stock
levels and supplier terms
* The programme of estate optimisation targets a level
of proceeds, from the sale of stores to further
improve the cash position
* The freehold Head Office has recently been subject to
an approved application to convert to housing,
resulting in a successful sale to release cash
proceeds; a relocation to a leased Head Office is
scheduled for the summer
------------------------------- -------------------------------------------------------------
Strategic Vision If the Board either
(Maintained) adopts the wrong strategy * Our strategic development is led by an experienced
or does not implement Board, Executive and Senior Leadership Team
its strategy effectively
business performance
and reputation may * An annual strategic review takes place alongside our
suffer. budget-setting process
* The McColl's strategy is widely communicated and
understood across the business
* Business plans are developed, monitored and reviewed
against strategic KPIs with a newly created Programme
Management function to operationalise
* Senior Management are incentivised with
performance-related rewards to deliver our strategic
goals
------------------------------- -------------------------------------------------------------
Macro-Economic All our revenue is
Factors generated in the UK. * We sell food and household essentials which are
(Increased) Any deterioration considered to be less discretionary than other
in the UK economy, competing spend areas
for example as a consequence
of Brexit, could affect
consumer spending * We offer a wide range of services, such as post
and cost of goods, office and 'last mile' internet package
which in turn would collection/delivery which helps sustain footfall
impact our sales and
profitability.
* The majority of stores are local area, community
based, with lower exposure to high street footfall
* Our flexible business model allows us to respond to
changes in customer behaviour, for example, by
adapting our ranges
* We are growing our range of own brand products
through the rollout of Safeway
* We are working with supply partners and manufacturers
to build our Brexit contingency plans
* Our supply chain partner, Morrisons, has undertaken
significant planning pre-Brexit (including becoming
an authorised economic operator)
------------------------------- -------------------------------------------------------------
Customer Trends We operate in a competitive
(Maintained) environment, which * We monitor competitor activity, customer trends and
is continually changing feedback
and has been subject
to ongoing consolidation.
Failure to maintain * Regular meetings are held with key suppliers to
market share could discuss evolving trends and options to optimise our
have an adverse effect offer
on our core business.
* Customer awareness programmes combine both local and
national initiatives, supported by digital marketing
* The format and customer feel for our estate is
developed through defined store trials, encapsulating
latest internal and external thinking on our brand
credentials
* Supermarket grade product, accessed through our
supply partners are deployed in store to
differentiate our offer
* We operate, as part of our ongoing strategic
development a test and learn approach to new customer
initiatives, to assess options for format development
------------------------------- -------------------------------------------------------------
Crime/Colleague We need to provide
Welfare and maintain a safe * We monitor, on a weekly basis key incidents
(Increased) environment for our concerning colleague welfare
colleagues and customers.
Failure to do so restricts
the ability to recruit * Stores are categorised by security and safety risk,
new colleagues and with measures deployed accordingly; ranging from
impacts negatively physical security to internal asset protection
to the willingness devices
of customers to frequent
our stores.
* The internal Risk 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
* Latest technological advancements are considered by
the Group Health, Safety & Compliance Committee to
further enhance safety and security, ranging from
'staff safe' audio connectivity to 'staff cam' visual
recording deterrents
------------------------------- -------------------------------------------------------------
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: 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.
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 YE18 GBP1,242m Like-for-like is a measure
(LFL) Add VAT GBP153m of growth in Group sales
Excl. non store rev. from stores that have
GBP(170)m been open for at least
Excl. acq/closures GBP(62)m a year (but excludes
LFL Sales 2018 GBP1,163m prior year sales of
Revenue 2019 GBP1,219m stores closed during
Add VAT GBP150m the year). It is a widely
Excl. non store rev. used indicator of a
GBP(171)m retailer's current trading
Excl. acq/closures GBP(35)m performance and is important
LFL Sales 2019 GBP1,163m when comparing growth
LFL% 0.0% 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 metric
earnings per share is the impact of the
per share dilutive effect of share
options and warrants
in existence.
----------------- --------------- ---------------------------------- ----------------------------------------
Balance sheet measures
---------------------------------- ---------------------------------- ----------------------------------------
Net debt Borrowings Note 11 Net debt comprises bank
less cash 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
26 November 2018 to 24 February 2019, 'second quarter' refers to
the 13-week period from 25 February 2019 to 26 May 2019, 'third
quarter' refers to the 13-week period from 27 May 2019 to 25 August
2019 and 'fourth quarter' refers to the 13-week period from 26
August to 24 November 2019.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR PPUBGPUPUPWA
(END) Dow Jones Newswires
February 26, 2020 02:00 ET (07:00 GMT)
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