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MCLS Mccoll's Retail Group Plc

1.75
0.00 (0.00%)
28 Mar 2024 - Closed
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Share Name Share Symbol Market Type Share ISIN Share Description
Mccoll's Retail Group Plc LSE:MCLS London Ordinary Share GB00BJ3VW957 ORD GBP0.001
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  0.00 0.00% 1.75 0.00 00:00:00
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McColl's Retail Group plc Preliminary Results (1235E)

26/02/2020 7:00am

UK Regulatory


Mccoll's Retail (LSE:MCLS)
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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.

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