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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 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMMCLS
RNS Number : 2895Q
McColl's Retail Group plc
18 February 2019
Preliminary audited results and trading update
18 February 2019 - 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 25 November 2018, and a trading update for the 11 week period to 10 February 2019.
Financial Summary:
-- Total revenue up 8.1% to GBP1.24bn (2017: GBP1.15bn(1) ) reflecting the annualisation of the 2017 acquisition
-- Total like-for-like (LFL) sales(2) down 1.4%, impacted by supply chain disruption, but showing an improving trend through the year, with Q4 FY18 sales flat and Q1 FY19 up 1.2% to date(3)
-- Continued progress towards our strategic target of increasing grocery and alcohol sales; now representing 34% of total sales (2017: 32%)
-- Adjusted gross margin(4) 26.0% (2017: 26.8%, 2018 gross margin 25.9%), reflecting supply chain challenges and mix effect of strong tobacco sales
-- Net cash from operating activities GBP61.8m (2017: GBP54.2m) -- Adjusted EBITDA excluding property-related items(5) GBP35.0m (2017: GBP44.0m). -- Net debt materially better at GBP98.6m (2017: GBP142.2m) -- Profit before tax GBP7.9m (2017: GBP18.4m) -- Basic earnings per share 5.9p (2017: 12.3p)
-- Proposed final dividend of 0.6p per share, bringing FY18 total to 4.0p per share (2017: 10.3p)
Operational and strategic highlights:
-- Transition to Morrisons supply in 1,300 stores(6) completed in mid-August, three months ahead of original schedule
-- Investment in estate continued with 59 convenience store refreshes completed in the year, delivering sustained average sales uplifts above 5%, and 11 new convenience stores added
-- Ongoing estate optimisation programme advanced with 66 under-performing newsagents and smaller convenience stores divested in the year
-- Banking terms revised, providing additional flexibility -- Appointment of Robbie Bell as Chief Financial Officer; commenced role on 17 January 2019
Jonathan Miller, Chief Executive, said:
"2018 was undoubtedly a challenging year, marked by supply chain disruption following Palmer & Harvey's entry into administration and the accelerated transition to our new supply partner Morrisons.
"Despite this disruption, we continued to make progress against a number of our key strategic plans. We completed the rollout of 1,300 stores to Morrisons supply in less than nine months, which represents a considerable achievement and provides us with a more secure supply chain and a higher quality chilled and fresh offer. We also continued to invest in our estate, with 59 convenience store refreshes completed in the year and 11 new stores acquired.
"We are a profitable and cash generative business, and our priority for the year ahead is to rebuild operational momentum and we remain confident in delivering our strategic plans."
Current trading and outlook:
Early trading in FY19 has seen a sales improvement with total LFL sales for the 11 week period ended 10 February 2019 up 1.2%. Total sales increased 0.4%.
In FY19 we expect to acquire a small number of new convenience stores, and plan to complete 20-30 more convenience store refurbishments as part of our successful store refresh programme. We will continue to grow our convenience offer, increase our neighbourhood presence and give great customer service.
In line with the financial guidance previously disclosed on 3 December 2018, we continue to expect adjusted EBITDA for FY19 to be a modest improvement on FY18.
Notes:
The business uses a number of non-statutory or alternative performance measures (APMs) (for example, LFL, adjusted EBITDA, adjusted EPS and net debt) because management believe that these - placed with equal prominence alongside other statutory measures - help to better explain the underlying performance of the business and its key dynamics. These are kept under continuous review and are defined and used consistently, or explained otherwise. The Group has defined and outlined the purpose of its alternative performance measures, including its key measures, in the glossary of terms. Details of the GBP(2.6)m of gross (pre-tax) adjusting items are set out in note 3 and described in the financial review.
1 To better reflect the core operations of the Group, Post Office revenue, previously included in other operating income, is now recognised in statutory sales. In order to ensure comparability 2017 full year revenue, gross margin, gross profit and other operating income have been restated - see note 2.
2 LFL sales reflect sales from stores that have traded throughout the current and prior financial periods, and sales include VAT but exclude sales of fuel, lottery, mobile phone top up and travel tickets.
3 Q1 LFL sales to date are for the 11 week period ended 10 February 2019.
4 Adjusted gross margin is gross profit before adjusting items divided by revenue - see the glossary of terms.
5 Adjusted EBITDA excluding property-related items shows the Group's Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for both property gains and losses and other adjusting items.
6 McColl's' total store estate is comprised of c.1,550 stores. The c.300 stores McColl's acquired from the Co-op in 2017 are under a separate supply contract with Nisa.
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 Headland Robbie Bell, Chief Financial Lucy Legh, Rob Walker, Charlie Officer Twigg Naomi Kissman, Head of Investor +44 (0)20 3805 4822 Relations +44 (0)1277 372916
Notes to editors
McColl's is a leading neighbourhood retailer, with an estate of c.1,550 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, with c.600 in-store counters/branches.
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. 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.
Chairman's statement
A year of transition
It's been a challenging year as the McColl's team have navigated their way through unprecedented supply chain disruption. Having transitioned 1,300 of our stores to a new wholesale supply partner, the business can now look forward to rebuilding momentum and capitalising on the opportunities that lie ahead.
The business began the 2018 financial year with great confidence, having successfully integrated a major acquisition and signed a new wholesale supply agreement with Morrisons. However, just days into the new year we experienced a significant setback following the sad failure of Palmer & Harvey (P&H). The loss of supply to 700 stores created major disruption and required us to put in place an interim supply solution for nine months, during which we accelerated the transition of 1,300 stores to Morrisons supply.
Moving to a new wholesale supply partner, at a much faster pace than anticipated, created its own challenges and severely disrupted our plans for the launch of Safeway. We are working with our partner Morrisons and remain confident that together we can develop an optimal range and promotional offer for the future.
Strong cash performance and new financing arrangements provide flexibility
Whilst the considerable supply chain disruption we suffered held back like-for-like (LFL) sales and profit, the business continues to generate very strong cash returns. In the year, we have benefited from significant working capital improvements as we've transitioned to our new wholesale supply partner.
We have also realised proceeds from the sale and leaseback of a number of freeholds we acquired as part of our acquisition in 2017. This has allowed us to continue to invest in our strategic initiatives that will drive future growth, such as new store acquisitions and our store refresh programme, as well as pay down debt more quickly than anticipated.
In addition, in the second half of the year we engaged with our banking syndicate, and have amended our financing arrangements to give us more flexibility to execute our business plans.
Dividends
We need to give careful consideration to our cash allocation, striking the right balance between investing in the business, reducing our debt and providing returns to shareholders.
The Board is recommending a final dividend of 0.6 pence per share, making a total dividend for the period of 4.0 pence, as part of our commitment to provide returns to shareholders. This dividend will be paid on 6 June 2019, to shareholders on the register at the close of business on 26 April 2019, subject to approval at the forthcoming Annual General Meeting. Our policy of a 50% payout ratio to profit after tax (before adjusting gains but after adjusting losses) is unchanged.
Strengthening the Executive team
I'm delighted that after a rigorous and extensive search, Robbie Bell has recently joined the business as Chief Financial Officer. Robbie has over 20 years of finance and retail experience, most recently as CEO of Welcome Break, and previously in senior finance roles at Screwfix, Travelodge and Tesco. He is a great addition to the Board and as he settles into his new role I am confident that the business will benefit from his extensive experience and expertise.
We have made a number of additional senior appointments during the year, including Tim Fairs, our first Customer Director, and Greg Goodwin who joined us in the newly created role of Head of Buying. We are committed to bringing in commercially focused talent to support the business in the future.
I'd also like to thank Simon Fuller for the significant contribution he has made during his time as CFO at McColl's.
Looking forward
Jonathan and the team have shown enormous strength, determination and resilience in the face of immense challenges, and after an exceptionally difficult 2018 we begin 2019 with a more secure supply chain.
In the coming year, the business can move forward with a renewed focus on customers and the core elements of convenience retailing, to rebuild confidence and momentum.
Ensuring a strong balance sheet will be imperative and we will maintain good capital discipline, exploring opportunities to take further action to reduce our debt whilst maintaining appropriate levels of investment in the business.
Whilst it may take longer than anticipated to deliver the benefits of the Morrisons partnership this will be important to our continued transition to a food-led convenience offer. With the distribution network firmly established we can continue to enhance our offer, through further development of Safeway as we realise further value from the relationship.
Although Brexit and the current political environment continues to create uncertainty for businesses and consumers, food and grocery retail has a history of resilience during economic downturn and long-term social and lifestyle trends support growth in the convenience channel.
The Board remains committed to our strategy and, as we get back on track, we can look forward to a brighter future.
Angus Porter
Chairman
Notes:
(1) Information regarding the Group's assessment of risks related to Brexit can be found in note 1 and the principal risks and uncertainties.
Chief Executive's Review - Getting back on track
In approaching 30 years in the business I have never known a year as challenging as 2018. However, I couldn't be prouder of the McColl's team and how we have all pulled together in the midst of unprecedented supply chain disruption. We move into 2019 with a more stable and secure distribution network, and we remain a profitable, cash generative business. As we work to get back on track there are plenty of opportunities to grow.
We began the new financial year with the business in great shape. We had just surpassed the milestone of GBP1bn of annual revenues, with an improving sales trend and a strengthening product mix and margin. We were also excited to begin working with our new wholesale partner, Morrisons, and were making preparations for the launch of Safeway. However, just 48 hours into the year we received the sad news that P&H, the wholesale supplier to 700 of our convenience stores and newsagents, had entered into administration and deliveries would cease immediately.
In those early weeks, in the build-up to the busy festive period, we experienced significant availability issues as we established an interim supply solution with the help of our existing wholesale supply partner, Nisa, and our new partner, Morrisons. We are extremely grateful to both of them for their support.
Whilst we were able to largely ensure continuity of supply within a number of weeks, the interim solution was complex and more costly. It also diverted management focus from some of our wider strategic initiatives as we prioritised securing the supply chain.
Morrisons enabled us to re-establish tobacco supply within a week and agreed to accelerate the planned transition of 1,300 stores in 2018. This completed in August, three months ahead of schedule.
Setting up a national distribution network from scratch was an enormous undertaking and accelerating this process understandably created some operational issues which have impacted availability. This is improving week by week and we expect these issues to further improve as we move through 2019.
Prioritising the transition has also set back some of our wider plans including range development, and improving some of our cost prices. We are working together to develop an optimal range and promotional programme for our customers.
In the year, these supply chain impacts, in addition to the dilutive effect of a robust performance on tobacco, have weighed down on our gross margin, which has declined by 0.8%.
Increase neighbourhood presence
Following the major acquisition of 298 convenience stores in 2017, we resumed our single store acquisition programme. There is no shortage of opportunities, with around three-quarters of the UK's 46,000 convenience stores remaining independently owned.
However, given the challenges we have faced, we scaled back our programme, acquiring 11 new convenience stores during the year, and we expect to complete a small number in 2019.
Increasing our presence is also about fostering strong links with the communities we serve. Our neighbourhood locations and local colleague base provides us with regular opportunities to connect with customers.
In the last five years we have supported well over 500 local good causes, including scout groups, schools, hospitals and local charities. All of these have been chosen by colleagues and customers in our stores.
In addition, the recent launch of our social media channels (Facebook, Twitter and Instagram) is giving us new ways to engage with customers and get valuable feedback.
Growing convenience offer
We have taken an important step in growing our convenience offer with the launch of Safeway. The range of around 350 fresh, chilled and ambient groceries, and household products is now available in the majority of our stores and over time it will roll out to the entire estate. We are delighted with the quality of the products and customer feedback so far has been excellent.
We have seen good growth in a number of categories following the launch, including fresh meat and fruit and vegetables, but this has been offset to some extent by deflation as we've introduced lower price points on popular lines, such as eggs, microwave rice and soft drinks.
The accelerated transition to Morrisons supply led to a more rapid launch of Safeway than we had originally planned and constrained our ability to fully establish and promote the new range. As a result of this, and some challenges with availability, we have yet to see the meaningful increase in overall store performance that we would ultimately expect.
Despite this we have made progress towards our strategic target for grocery and alcohol to be our biggest sales category. It now represents over a third of our sales, and as we develop the Safeway range over the coming months we expect this to increase further. We are also commencing a full range review process, to respond to customer trends and get the most out of our newly established supply chain.
We have seen good growth in our average basket size which was up by 37p to GBP5.99. This was supported by the EUTPD2 regulations, introduced in May 2017, banning the sale of smaller packs of tobacco, and by growth in top-up shopping as we have grown grocery sales.
Food-to-go remains a small but growing category with lots of potential, as more meals are eaten outside of the home. We've extended our offer during the year and now have approaching 400 stores with a hot food-to-go offer and around 600 with a coffee unit. We now have 23 Subways trading, including the first of the new fresh forward concept.
Our store refresh programme presents a tremendous opportunity to grow our convenience offer and unlock the value inherent in our existing estate. During the year, we completed 59 refreshes, redesigning the store layout to provide more refrigerated space for chilled foods and new food-to-go fixtures. These stores support a broader range of convenience products and we are seeing sustained sales uplifts of over 5%. In 2019, we plan to continue with our refresh programme and expect to complete a further 20-30 stores.
Excellent customer service
Our biggest strength has always been our warm and friendly colleagues and this year has been no different. We continue to score very highly in terms of colleague friendliness and helpfulness, and their dedication and hard work has meant that in a recent survey we have improved on every single customer metric, despite the challenges of the last 12 months.
A great shopping trip at McColl's also involves access to a range of useful neighbourhood services. It is a growing part of our offer and customers are twice as likely to visit our stores for this reason. We now have around 850 internet collection and return points and we've cemented our position as the UK's largest operator of Post Offices. We've opened over 25 in the year and plan to open another 20 in the year ahead.
Following the completion of the transition of 1,300 stores to our new wholesale partner we are now refocusing on the core elements of neighbourhood retailing and prioritising what is most important to our customers. We have launched our Customer Champions - four characters that represent our four priorities - making sure all customers get a warm greeting, that our shelves are well stocked, that we highlight great offers and promotions, and that the shopping trip is quick and easy.
Driving efficiency and maintaining financial flexibility
Like all retail businesses, we have had to manage cost pressures during the year, the increase in the National Living Wage being the most significant. We remain focused on driving in-store efficiency and have made a number of improvements during the year, including the introduction of automated bake plans for hot food-to-go. We are also exploring new technological solutions. For example, we have recently introduced biometric scanners that monitor colleague time and attendance to ensure we can more accurately manage our payroll.
Cost pressures are expected to intensify in 2019, with a further increase in wage rates, energy inflation and an increase in our annual rent following our sale and leaseback activity. In light of this we continue to review our estate, assessing how future cost increases impact profit forecasts. During the year, we have closed or sold a number of underperforming stores and we expect to make further disposals in the year ahead.
We have completed a number of sale and leaseback deals on the freeholds we acquired as part of the major acquisition in 2017. The proceeds from these sales have helped to fund a number of strategic projects, including the store refresh programme and pay down debt to a significantly lower level than anticipated.
Whilst our existing financing is in place until mid-2021, to ensure that we maintain flexibility to execute our strategic plans, last summer we initiated discussions with our banking syndicate and a number of improvements have been made to the terms.
Looking ahead
Over the coming months the grocery sector will remain intensely competitive as we experience ongoing political and economic uncertainty making consumers cautious about spending. We will need to ensure that we manage cost pressures and maintain competitive retail pricing. But as we work through the issues we've experienced in 2018 there are exciting opportunities ahead. We remain confident in our strategy and will continue to enhance our convenience offer, through developing the Safeway range; increase our neighbourhood presence through stronger engagement with our communities; and continue to provide excellent customer service by focusing on the core elements of convenience retailing.
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
Notes:
(2) HIM! Convenience Tracking Programme 2018
Financial Review - A focus on capital discipline
Our financial performance in 2018 was inevitably impacted by the unprecedented disruption the business faced following the failure of a major supplier and the transition to a new wholesale supply partner. I am delighted to have joined the McColl's Board at this crucial time for the business. As we begin to recover from a difficult period we are focused on strong capital discipline and careful cost management to enable the business to rebuild momentum and return to sustainable value creation.
Annual revenue growth supported by 2017 major acquisition
Full year revenue grew to GBP1.24bn (2017: GBP1.15bn() , an increase of 8.1%. This year-on-year growth was driven by the major acquisition we completed in 2017 which has added around 30% to our total sales.
Like-for-like (LFL) sales performance was impacted throughout the year by the supply chain disruption we experienced following the collapse of P&H and continued operational challenges as we established our new partnership with Morrisons. Full year LFL sales were down 1.4%, but improved during the year, with sales in the final quarter being broadly flat.
Across the industry tobacco continues to face long-term structural decline. However, it currently remains our largest category and we saw strong sales growth during the year. It was the most resilient part of our supply chain and sales were supported by significant inflation as a result of manufacturer and duty increases. Sales in our other traditional categories, principally news and confectionery, continue to decline as expected.
We have, however, seen good overall growth in a number of key grocery categories, including fresh food, bringing us closer to our strategic target for grocery and alcohol to be our largest sales category. It now represents 34% of our total sales, an improvement of two percentage points year-on-year, and from 27% before the major acquisition in 2017.
Gross profit margin impacted by supply chain challenges
With the evolution of our sales mix towards higher margin products we would typically expect to see an improvement in gross profit margins. However, adjusted gross margin has declined by 0.8% year-on-year to 26.0% (2017: 26.8%(3) , 2018 unadjusted gross margin 25.9%). This is partly a result of the adoption of temporary supply terms as we implemented an interim distribution solution and a robust performance on tobacco, which is a low margin category.
In addition, as Morrisons establishes its wholesale operation this has initially resulted in higher than anticipated cost prices on certain convenience lines. These are expected to improve during 2019 as we leverage and benefit from our joint buying capabilities and our partnerships with suppliers.
In terms of overall value, total gross profit grew by 4.5% to GBP321.1m (2017: GBP307.4m(3) ), benefiting from the contribution of stores acquired in 2017. Within gross profit, partly offsetting the decline, is supplier income relating to both the wind down of a legacy contract and the transition to our new wholesale partner (recognised over the ongoing life of the contract).
Good cost management in the face of significant headwinds
We continued to face cost pressures during the year, the most significant being wage inflation as a result of further increases in the National Minimum Wage and National Living Wage, which since inception in 2016 have resulted in 4-5% annual inflation in our biggest cost line.
We have kept good control of costs and in aggregate administrative expenses, before adjusting items, as a percentage of revenue, were broadly flat year-on-year at 25.1% (2017: 25.0%).
This has in part been supported by ongoing investment in systems and processes, for example, the introduction of colleague time and attendance technology.
In the face of continued cost pressures it is also essential to keep our estate under review to ensure that we maintain a sustainably profitable network of stores. We continue to enhance the quality of the estate through both the acquisition of high potential convenience stores and the planned closure or disposal of underperforming stores. During the year, we acquired 11 convenience stores and closed or disposed of 66 newsagents and smaller convenience stores.
Operating profit impacted by supply chain disruption and transition to a new supply partner
Other operating income decreased by GBP1.0m to GBP6.8m (2017: GBP7.8m(3) ) reflecting a lower level of ATM cash withdrawals and lower commission rates in line with market trends.
Operating profit before adjusting items (see note 4 for definition), decreased to GBP18.3m (2017: GBP31.4m), impacted by the supply chain disruption and transition.
In total there were GBP(2.6)m of gross (pre-tax) adjusting items. This comprised GBP(14.5)m of costs and GBP11.9m of income. Net adjustments (post-tax) were GBP(0.8)m.
Adjusting items include GBP(1.7)m associated with the failure of P&H and GBP(4.9)m resulting from the set-up of our new partnership with Morrisons, which has now been expensed in 2018 rather than spread over the life of the contract. Included within this GBP(4.9)m cost is store set-up and merchandising, clearance of displaced product lines, new product establishment and other incremental store costs.
We also had adjusting items of GBP(0.6)m relating to pensions following the impact on our schemes of the GMP equalisation judgment made against Lloyds Banking Group and GBP(1.2)m of other adjustments, principally relating to fines for an historic health and safety incident and the cost of an HMRC ruling on minimum wage compliance.
In addition, we had GBP(6.0)m of costs associated with closures and impairment and a net gain of GBP11.9m in property profits following the acceleration of our sale and leaseback activity, which was materially larger in 2018 than had been anticipated. 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 our net debt to a level materially better than expected. We expect the final tranche of sale and leaseback transactions relating to the major acquisition in 2017 to conclude in the first half of 2019.
Finance costs increased to GBP8.0m (2017: GBP6.7m). This reflects the increase in our average debt as we annualised the major acquisition in 2017.
Profit on ordinary activities before taxation decreased to GBP7.9m (2017: GBP18.4m). This was impacted by the GBP2.6m of adjusting items described above, alongside the impact of supply chain disruption on sales and gross margin, partially offset by transitional support. However, included within this profit measure was GBP6.1m of net property profits (being the combination of sale and leaseback gains, impairments and store closures).
Before adjusting items, profit before tax was GBP10.5m (2017: GBP26.3m).
Tax
The tax charge for the period decreased to GBP1.0m (2017: GBP4.2m), representing an effective tax rate of 12.9% (2017: 22.9%). The difference between the current statutory rate of 19.0% and the effective tax rate excluding the impact of non-deductible adjusting items of 26.6% in the period is due to the sale and leaseback and closure cost transactions, all of which are classified as adjusting items.
Earnings per share
Basic earnings per share reduced to 5.9 pence (2017: 12.3 pence). Adjusted earnings per share were 6.7 pence (2017: 18.3 pence).
Dividend per share
The Board has recommended a final dividend of 0.6 pence per share (2017: 6.9 pence). The total dividend for the period of 4.0 pence per share (2017: 10.3 pence), reflects our commitment to provide returns to shareholders. Our policy of a 50% payout ratio to profit after tax (before adjusting gains but after adjusting losses), is unchanged.
Improved payment terms drives an increase in current assets and liabilities
Total shareholder funds at the end of the year reduced by GBP4.4m to GBP141.5m (2017: GBP145.9m). This reflects a reduction in the book value of goodwill and other intangibles, property, plant and equipment by GBP7.4m to GBP345.1m (2017: GBP352.5m) following our store closure and sale and leaseback programmes.
Current assets at the end of the period increased to GBP147.7m (2017: GBP130.6m). This increase of GBP17.1m is a result of an increase in stock of GBP1.2m and trade receivables of GBP2.2m, plus an increase in cash and cash equivalents of GBP14.3.
Our current liabilities increased to GBP220.8m (2017: GBP173.4m), reflecting higher trade and other payables as a result of our improved payment terms.
Non-current liabilities reduced to GBP144.7m (2017: GBP177.6m), reflecting reduced borrowings.
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 (based on corporate bond yields) in the two schemes at the end of the period was GBP11.9m (2017: GBP10.3m), as a result of strong returns on assets.
The last actuarial review of the two schemes in June 2017 concluded that the combined funding deficit of our two pension schemes was GBP12.6m.
The Company currently contributes approximately GBP1.6m per year, inclusive of fees and levies.
Strong cash generation supports deleveraging and investment in strategic initiatives
Cash generation continues to support investment in our strategic plans, whilst reducing debt levels.
Net cash provided by operating activities increased in the year to GBP61.8m (2017: GBP54.2m). This was aided by the transition to our new wholesale supplier with more favourable payment terms, and proceeds from the sale and leaseback programme.
Adjusted EBITDA (see note 4 for definition), one of our key performance indicators, fell by GBP9.0 to GBP35.0m (2017: GBP44.0m), impacted by the supply chain disruption and transition.
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. In the period, alongside our acquisitions, we completed 59 store refreshes and delivered five new Subways in our stores.
After GBP26.3m of proceeds, predominantly from our sale and leaseback programme, net capital expenditure (which excludes the acquisition of stock), was GBP(1.0)m (2017: GBP20.3m).
Net finance expense of GBP8.0m was higher than the prior year, reflecting increased borrowings following the major acquisition that completed in July 2017. The interim and final dividends paid in the period totalled GBP11.9m.
Changes to banking terms provide flexibility
In 2016, we refinanced to support our major acquisition in 2017. This included a GBP100m working capital facility and a GBP100m repayment term loan. Both of these elements run through until July 2021, with the interest rate reducing as the business deleverages.
However, in light of the challenges we faced in the year, during the summer we initiated discussions with our banking syndicate to make a number of changes to the terms of our banking arrangements. These included increasing the covenant headroom and increasing flexibility in the facilities. All of these agreed changes will provide extra flexibility to deliver our convenience strategy.
Net debt at the end of the period was GBP98.6m (2017: GBP142.2m), representing 2.8 times adjusted EBITDA (2017: 3.2 times adjusted EBITDA).
At the end of 2018 the banking covenant on net debt:adjusted EBITDA was 3.0x and this is maintained throughout 2019, other than at the end of the first quarter when it is 3.25x.
At the end of the period, drawings against the total facility were GBP125.5m (2017: GBP154.5m).
Future outlook
In the short term, mitigating cost pressures will continue to be a priority. In addition to a further c.5% increase in the National Living Wage, we will need to manage significant energy cost inflation and additional rental costs following the sale and leaseback programme. To improve efficiency we are continuing to invest in systems and processes; alongside pursuing further estate optimisation. We have already taken some further action in the new financial year, including a head office and overheads efficiency review.
Alongside a strengthened balance sheet, rebuilding gross margin momentum will be our key focus.
I am very much looking forward to working with Jonathan and the team to further our strategic plans in 2019 and beyond.
Robbie Bell
Chief Financial Officer
Notes:
(3) To better reflect the core operations of the Group, Post Office revenue, previously included in other operating income, is now recognised in statutory sales. In order to ensure comparability 2017 full year revenue, gross margin, gross profit and other operating income have been restated. Details of the restatements can be found in note 2.
(4) In December 2017, we received a fine of GBP0.6m relating to a historic health and safety incident following the installation of a ramp at one of our stores by a third party. Alongside the contractor involved, we take responsibility for this regretful incident and have taken a number of actions relating to contractor works, monitoring risk assessment, issue escalation and local training to ensure that the risk of such an event in the future is materially reduced.
(5) The HMRC ruling relates to missed payment in relation to a number of colleagues opening and closing stores outside of scheduled working hours. We have recently introduced biometric scanners in-store that monitor colleague time and attendance to ensure we can accurately manage our payroll.
Responsibility statement
The responsibility statement has been prepared in connection with the Company's full Annual Report for the period ended 25 November 2018. 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
18 February 2019
McColl's Retail Group
Consolidated Income Statement for the 52 week Period from 27 November 2017 to 25 November 2018
Hot Features
Premium
Adjusting Adjusted Adjusting Total
Adjusted items Total restated items restated
2018 2017
2018 Note 3 2018 2017 Note 3 2017
Note GBP 000 GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Revenue 2 1,241,539 1,241,539 1,148,747 - 1,148,747
Cost of sales (919,003) (1,428) (920,431) (841,370) (841,370)
--------- --------- --------- --------- --------- ---------
Gross profit 322,536 (1,428) 321,108 307,377 - 307,377
Administrative
expenses (311,442) (7,118) (318,560) (286,889) (3,730) (290,619)
Other operating
income 2 6,811 - 6,811 7,787 - 7,787
Profits arising
on property-related
items 416 6,109 6,525 3,110 (2,621) 489
--------- --------- --------- --------- --------- ---------
Operating profit 4 18,321 (2,437) 15,884 31,385 (6,351) 25,034
--------- --------- --------- --------- --------- ---------
Finance income 2 - - - 93 - 93
Finance costs (7,859) (158) (8,017) (5,200) (1,521) (6,721)
--------- --------- --------- --------- --------- ---------
Net finance cost (7,859) (158) (8,017) (5,107) (1,521) (6,628)
--------- --------- --------- --------- --------- ---------
Profit before
tax 10,462 (2,595) 7,867 26,278 (7,872) 18,406
Income tax (expense)/receipt 5 (2,778) 1,762 (1,016) (5,228) 1,014 (4,214)
--------- --------- --------- --------- --------- ---------
Profit for the
period 7,684 (833) 6,851 21,050 (6,858) 14,192
========= ========= ========= ========= ========= =========
Earnings per
share (pence) 7 6.67p 5.95p 18.28p 12.32p
Diluted Earnings
per share (pence) 7 6.66p 5.94p 18.19p 12.26p
The above results were derived from continuing operations.
McColl's Retail Group
Consolidated Statement of Comprehensive Income for the 52 week Period from 27 November 2017 to 25 November 2018
2018 2017
GBP 000 GBP 000
Profit for the period 6,851 14,192
Items that will not be reclassified
subsequently to profit or loss
Remeasurement of defined benefit pension
scheme 859 3,039
Tax on defined benefit pension scheme (150) (517)
-------- --------
Total comprehensive income for the
period 7,560 16,714
======== ========
McColl's Retail Group
Consolidated Statement of Financial Position for the 52 week Period from 27 November 2017 to 25 November 2018
2018 2017
Note GBP 000 GBP 000
Assets
Non-current assets
Property, plant and equipment 8 92,314 103,565
Intangible assets 9 252,747 248,899
Deferred tax assets 97 172
Retirement benefit asset 14,122 13,609
Investments 36 36
--------- ---------
Total non-current assets 359,316 366,281
--------- ---------
Current assets
Inventories 77,146 75,965
Trade and other receivables 41,984 39,810
Cash and cash equivalents 28,547 14,273
Assets in disposal groups classified
as held for sale - 581
--------- ---------
Total current assets 147,677 130,629
--------- ---------
Total assets 506,993 496,910
========= =========
Equity and liabilities
Current liabilities
Trade and other payables (213,337) (163,670)
Loans and borrowings 10 (2,148) (1,799)
Income tax liability (673) (2,633)
Provisions (4,627) (4,508)
Liabilities directly associated with
assets classified as held for sale - (830)
--------- ---------
Total current liabilities (220,785) (173,440)
========= =========
Net current liabilities (73,108) (42,811)
========= =========
Non-current liabilities
Loans and borrowings 10 (124,989) (154,722)
Other payables (9,552) (10,367)
Provisions (1,042) (593)
Deferred tax liabilities (6,895) (8,528)
Retirement benefit obligations (2,250) (3,352)
--------- ---------
Total non-current liabilities (144,728) (177,562)
========= =========
Total liabilities (365,513) (351,002)
========= =========
Net assets 141,480 145,908
========= =========
McColl's Retail Group
Consolidated Statement of Financial Position for the 52 week Period from 27 November 2017 to 25 November 2018
2018 2017
Note GBP 000 GBP 000
Equity
Share capital 12 (115) (115)
Share premium 12 (12,580) (12,579)
Retained earnings (128,785) (133,214)
--------- ---------
Total Equity (141,480) (145,908)
========= =========
McColl's Retail Group
Consolidated Statement of Changes in Equity for the 52 week Period from 27 November 2017 to 25 November 2018
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
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
============= ============= ================= ============
Share capital Share premium Retained earnings Total equity
GBP 000 GBP 000 GBP 000 GBP 000
As at 28 November 2016 115 12,579 127,812 140,506
------------- ------------- ----------------- ------------
Profit for the period - - 14,192 14,192
Remeasurement of defined
benefit pension scheme - - 2,522 2,522
------------- ------------- ----------------- ------------
Total comprehensive income - - 16,714 16,714
Dividends - - (11,748) (11,748)
Share-based payment transactions - - 436 436
------------- ------------- ----------------- ------------
As at 26 November 2017 115 12,579 133,214 145,908
============= ============= ================= ============
McColl's Retail Group
Consolidated Statement of Cash Flows for the 52 week Period from 27 November 2017 to 25 November 2018
2018 2017
Note GBP 000 GBP 000
Cash flows from operating activities
Profit for the period 6,851 14,192
Adjustments to cash flows from non-cash
items
Depreciation and amortisation 4 17,054 15,636
Profit on disposal of property plant
and equipment (14,994) (489)
Finance income - (93)
Finance costs 8,017 6,721
Share-based payment transactions - 436
Income tax expense 5 1,016 4,214
Impairment losses 3,297 746
-------- ---------
21,241 41,363
Increase in inventories (737) (20,924)
Increase in trade and other receivables (1,593) (3,969)
Increase in trade and other payables 48,082 40,561
Decrease in retirement benefit obligation
net of actuarial changes (906) (1,633)
Increase in provisions 568 3,089
-------- ---------
Cash generated from operations 66,655 58,487
Income taxes paid (4,811) (4,267)
-------- ---------
Net cash flow from operating activities 61,844 54,220
-------- ---------
Cash flows from investing activities
Interest received - 93
Acquisitions of property, plant and
equipment (21,295) (25,655)
Proceeds from sale of property, plant
and equipment 27,410 7,622
Acquisition of businesses, net of cash
acquired (4,513) (122,409)
-------- ---------
Net cash flows from investing activities 1,602 (140,349)
-------- ---------
Cash flows from financing activities
Interest paid (7,928) (6,327)
Proceeds from issue of ordinary shares,
net of issue costs 1 -
Repayment of bank borrowing 11 (29,000) (37,000)
New bank borrowing 11 - 154,500
Payment of finance lease creditors (235) (2,506)
Interest payment to finance lease creditor (148) (274)
Dividends paid 6 (11,862) (11,748)
-------- ---------
Net cash flows from financing activities (49,172) 96,645
-------- ---------
Net increase in cash and cash equivalents 14,274 10,516
Cash and cash equivalents at beginning
of period 14,273 3,757
-------- ---------
Cash and cash equivalents at end of
period 28,547 14,273
======== =========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
1 Accounting policies
Basis of preparation
The Group financial statements for 2018 consolidate the financial statements of McColl's Retail Group plc (the "Company") and all its subsidiary undertakings (together, "the Group") drawn up to 25 November 2018. 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 25 November 2018 or 26 November 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 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 2019.
Management have assessed the impact of the following newly issued standards. IFRS9 will have no material impact on accounting policies or classification of financial instruments. IFRS15 will have no material impact to the financial statements. IFRS16 is expected to have a material impact on the financial statements, this continues to be assessed and currently it is not practicable to quantify.
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.
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 GBP87.5m 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. At the end of the period, the Group had drawn down GBP125.5m (2017: GBP154.5m) of its facilities.
Following a disruptive year, the Directors reviewed the long-term forecasts covering all elements of income, balance sheet and cash flow. 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.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
1 Accounting policies (continued)
In considering going concern, the Directors have assessed the possible impacts of Brexit on the business and specifically its financial covenants. These potential impacts could include a short-term reduction in sales, due to product shortages, pressures on gross margin and a higher level of cost inflation. The overall going concern scenarios the Company has modelled include assessing a 1% LFL worsening compared to plan, nil year on year gross margin growth despite anticipated product mix improvements and delays to the intended sale & leaseback programme. This review has been completed alongside a general consideration of the potential medium term impacts of an unfavourable Brexit.
As well as this, other scenarios have been modelled to consider potential shorter term effects, including looking at a more material sales reduction of approximately 11% in April and May and then 2% thereafter, as customers migrate to new products and/or supply chains stabilise. In both the short and medium term considerations it is expected that the majority of product cost inflation would be passed on to customers and therefore could be mitigated overall. 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.
In the event of a far more challenging Brexit than the scenarios modelled or the business currently anticipates, there remain a number of further mitigating actions that could be taken, including significantly reducing capex and dividends and, for the most severe outcomes, reviewing our current arrangements with our supportive banking syndicate.
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 items that are considered to be significant in nature and/or quantum. Treatment as an adjusting items provides stakeholders with additional useful information to assess the annual trading performance of the Group.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
1 Accounting policies (continued)
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.
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:
2017
2018 GBP 000
GBP 000 restated
Revenue
Sale of goods 1,241,539 1,148,747
--------- ---------
Other operating income (1)
Property rental income 3,249 3,224
Other income 3,562 4,563
--------- ---------
6,811 7,787
--------- ---------
Finance income
Finance income 93
--------- ---------
1,248,350 1,156,627
========= =========
(1) During the year management performed a review of all revenue streams. As a result of the review all income from Post Office will now be classified as revenue. The reclassification of GBP16.7m from other income to revenue is the net income received as an agent in the transaction with the Post Office. This has increased gross profit by 1% from 25% to 26%. The prior year's revenue has also been restated on the same basis and the value of this restatement is GBP16.9m.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
3 Adjusting items
Due to their significance or one-off nature, certain items have been classified as adjusting, as follows:
2018 2017
GBP 000 GBP 000
Cost of Sales
Supplier administration(a) 807 -
Supply chain transition(b) 621 -
-------- --------
Gross Loss 1,428 -
======== ========
Administrative expenses
-------- --------
Fines & National Minimum Wage(c) 1,236 -
Supplier administration(a) 935 -
Supply chain transition(b) 4,306 -
Defined benefit pension scheme - past
service cost(d) 641 -
Unprofitable store closure programme(f) - 283
Co-op acquisition and integration costs(h) - 3,447
-------- --------
7,118 3,730
======== ========
(Profits)/losses arising on property-related
items
Sale and leaseback(e) (11,941)
Unprofitable store closure programme(f) 2,535 2,621
Impairment(g) 3,297
-------- --------
(6,109) 2,621
======== ========
Finance Costs
Co-op acquisition and integration costs(h) 1,521
Unprofitable store closure programme(f) 158
-------- --------
158 1,521
======== ========
Tax effect on adjusting items (1,762) (1,014)
======== ========
833 6,858
======== ========
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 Morrisons 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 have classified these as adjusting items. This Resulted in a net cash outflow of GBP1.7m
b. Supply chain transition
As a result of the integration of a new supply partner, Morrisons, 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
c. Fines & National Minimum Wage
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. This Resulted in a net cash outflow of GBP612k.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
3 Adjusting items (continued)
d. Past service cost
Management have 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.
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 significantly higher than prior years (2017: GBP3m) and therefore not in line with ordinary business and should therefore be treated as adjusting. This Resulted in a net cash inflow of GBP26.7m.
f. Unprofitable store closure programme
Management have 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. 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 2018 or will close in 2019. Management have 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 2019. Management have classified these as adjusting due to the one-off nature of the closure programme. This Resulted in a net cash outflow of GBP861k.
g. Impairment
Management have assessed the value in use cash flow of each branch against the carrying value of its assets, 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. Co-op acquisition and integration costs
On 13 July 2016 management entered into an agreement to purchase 298 convenience stores from the Co-op, for an aggregate consideration of GBP117m. The acquisition was approved by the Competition and Markets Authority on 20 December 2016. The acquisition was integrated during 2017 by Martin McColl Limited, a wholly-owned subsidiary of the Group. The adjusting costs relate to legal fees, sponsor fees, implementation costs and finance costs. All 298 stores were successfully transitioned by 13 July 2017. There was no cash impact from this adjustment in the current year.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
4 Operating profit
Arrived at after charging/(crediting)
2018 2017
Note GBP 000 GBP 000
Depreciation and amortisation expense 17,054 15,636
Write-down of inventory recognised
as an expense 16,471 13,766
Operating lease expense - property 35,868 33,810
Profit on disposal of property,
plant and equipment (12,150) (489)
Impairment 8 3,297 746
Cost of inventories recognised
as an expense 951,073 876,599
======== ========
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.
2018 2017
GBP 000 GBP 000
Adjusted EBITDA excluding property related items
Operating profit before adjusting
items 18,321 31,385
Depreciation and amortisation 17,054 15,289
Profits arising on property-related
items (416) (3,110)
Share-based payments - 436
-------- --------
34,959 44,000
======== ========
Adjusted operating profit excluding property related items
Operating profit before adjusting
items 18,321 31,385
Less: Profits arising on property-related
items (416) (3,110)
-------- --------
17,905 28,275
======== ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
5 Income tax
2018 2017
GBP 000 GBP 000
Income statement
Current tax :
Current tax on profit for the period 2,858 4,780
Adjustments in respect of prior periods (7) (173)
-------- --------
2,851 4,607
======== ========
Deferred tax :
Origination and reversal of temporary differences (2,123) (81)
Arising from change in tax rate 234 (14)
Adjustments in respect of prior periods 54 (298)
-------- --------
(1,835) (393)
======== ========
Income tax expense for the period 1,016 4,214
======== ========
Equity items
======== ========
Share-based payment 92 -
Fixed assets 35 -
-------- --------
127
======== ========
Other comprehensive income
Deferred tax in respect of actuarial valuation
of retirement benefits 150 517
======== ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 017 to 25 November 2018
5 Income tax (continued)
The differences are reconciled below:
(As restated)
2018 2017
GBP 000 GBP 000
Profit before tax 7,867 18,406
========= =============
Tax on profit calculated at standard rate
for 2018 of 19.00% (2017: 19.33%) 1,495 3,558
Income not taxable - (8)
Expenses not deductible 817 650
Deferred tax on share options 55 (18)
Adjustments in respect of prior years 47 (471)
Arising from change in rate of tax 234 (14)
Exempt amounts(1) 605 517
Disposal of business combination assets (2,237) -
--------- -------------
Total tax charge 1,016 4,214
========= =============
(1) Include finance leases, land and buildings in use and disposal rebates against assets.
Changes to the UK corporation tax rates were enacted as part of Finance Bill 2016 on 6 September 2016. This included reductions to the main rate to reduce the rate to 17% from 1 April 2020.
The tax charge for the 52 week period was GBP1,016,000 (2017: GBP4,214,000) representing a rate of 12.9% (2017: 22.9%). The comparable effective rate of tax in 2018 excluding the impact of non-deductible adjusting items was 26.6% (2017: 19.9%). The difference between the current and statutory rate of 19.0% in the period is due principally to the sale and leaseback and closure cost transactions, all of which are classified as adjusting items, see note 3 for further information.
Amounts recognised in other comprehensive income:
2018 2017
Before
Before Tax (expense) tax Tax (expense)
tax /benefit Net of tax GBP /benefit Net of tax
GBP 000 GBP 000 GBP 000 000 GBP 000 GBP 000
Remeasurements
of post employment
benefit obligations 859 (150) 709 3,039 (517) 2,522
======== ============= ============ ====== ============= ============
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
6 Dividends
2018 2017
GBP 000 GBP 000
Interim 2018 dividend of 3.40p (2017: 3.40p)
per ordinary share 3,916 3,916
Final 2017 dividend of 6.90p (2016: 6.80p)
per ordinary share 7,946 7,832
11,862 11,748
======= =======
The Directors are proposing a final 2018 dividend of 0.6 pence (2017: 6.90 pence) per share totalling GBP691,000 (2017: GBP7,946,000).
The proposed final dividend is subject to approval by shareholders passing a written resolution and accordingly has not been included as a liability in these financial statements.
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.
2018 2017
GBP 000 GBP 000
Basic weighted average number of shares 115,173,145 115,172,774
=========== ===========
Diluted weighted average number of shares 115,331,969 115,724,645
=========== ===========
Profit attributable to ordinary shareholders
(GBP'000) 6,851 14,192
=========== ===========
Basic earnings per share 5.95p 12.32p
Diluted earnings per share 5.94p 12.26p
=========== ===========
Adjusted earnings per share:
Profit attributable to ordinary shareholders
(GBP'000) 6,851 14,192
Adjusting items (note 3) 2,595 7,872
Tax effect of adjustments (1,762) (1,014)
Profit after tax and before adjusting items 7,684 21,050
=========== ===========
Basic adjusted earnings per share 6.67p 18.28p
=========== ===========
Diluted adjusted earnings per share 6.66p 18.19p
=========== ===========
The difference between the basic and diluted average number of shares represents the dilutive effect of share options in existence.
The diluted weighted average number of ordinary shares is calculated as follows:
2018 2017
GBP 000 GBP 000
Ordinary shares in issue at the start of
the period 115,172,774 108,505,494
Effect of shares issued for the Co-op acquisition
(full year) - 6,667,280
Effects of shares issued during the period 741 -
Total shares in issue at the end of the year 115,173,515 115,172,774
----------- -----------
Effect of shares to be issued for the long
term incentive plan (LTIP) 158,825 551,871
Weighted average number of ordinary shares
at the end of the period 115,332,340 115,724,645
=========== ===========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
8 Property, plant and equipment
Furniture,
fittings and
Land and buildings equipment Total
GBP 000 GBP 000 GBP 000
Cost or valuation
At 28 November 2016 34,679 90,406 125,085
Additions 8,727 15,981 24,708
Acquired through business combinations 29,839 4,410 34,249
Classified as held for sale - 3,044 3,044
Disposals (5,242) (3,690) (8,932)
------------------ ------------- --------
At 26 November 2017 68,003 110,151 178,154
------------------ ------------- --------
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
------------------ ------------- --------
Depreciation
At 28 November 2016 13,116 45,186 58,302
Charge for period 4,235 10,761 14,996
Disposals (274) (1,525) (1,799)
Impairment - 746 746
Classified as held for sale - 2,344 2,344
------------------ ------------- --------
At 26 November 2017 17,077 57,512 74,589
------------------ ------------- --------
At 27 November 2017 17,077 57,512 74,589
Charge for the period 4,678 11,678 16,356
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
------------------ ------------- --------
Carrying amount
At 25 November 2018 36,660 55,654 92,314
================== ============= ========
At 26 November 2017 50,926 52,639 103,565
================== ============= ========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
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 GBP13,855,000.
Included within fixture and fittings is GBP2,755,000 of finance lease assets.
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 three-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 weighted average cost of capital (WACC) of 11.75% (2017: 8.9%). The change in WACC is driven by a decrease in share price and reduction in borrowings.
The discount rate is based on the Group's weighted average cost of capital, taking into account the cost of capital and borrowings, to which specific market-related premium adjustments are made.
Management extrapolated the cash flows to perpetuity with a growth rate of nil as this was considered to be a prudent basis. In assessing the EBITDA sensitivities, we have also considered the potential downside from Brexit and related mitigation, the impact of which would not affect the carrying values. Further detail of our considerations and sensitivities are included within going concern assessment in our accounting policies.
The annual impairment testing resulted in an impairment charge of 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 28 November 2016 157,292 5,872 163,164
Additions 91,442 929 92,371
Fair value adjustment for goodwill (560) - (560)
Deferred tax on fair value adjustment
of land and buildings 3,377 - 3,377
-------- ---------------- --------
At 26 November 2017 251,551 6,801 258,352
-------- ---------------- --------
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
-------- ---------------- --------
Amortisation
At 28 November 2016 4,234 4,579 8,813
Amortisation charge - 640 640
-------- ---------------- --------
At 26 November 2017 4,234 5,219 9,453
-------- ---------------- --------
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
-------- ---------------- --------
Carrying amount
At 25 November 2018 249,346 3,401 252,747
======== ================ ========
At 26 November 2017 247,317 1,582 248,899
======== ================ ========
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 (continued)
Software includes GBP1,391,000 of internally generated development costs.
Transfers in the year relate to the reallocation of IT development costs, previously classified within tangible assets.
Amortisation expenses of GBP698,000 (2017: GBP640,000) 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 recoverable amount of the CGU does not exceed the carrying value of goodwill. For the purpose 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. The recoverable amount of the CGU is determined from value in use calculations with a discounted cash flow model used to calculate this amount. 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 three-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 weighted average cost of capital (WACC) of 11.75% (2017: 8.9%). The change in WACC is driven by a decrease in share price and reduction in borrowings.
The discount rate is based on the Group's weighted average cost of capital, taking into account the cost of capital and borrowings, to which specific market-related premium adjustments are made.
Management extrapolated the cash flows to perpetuity with a growth rate of nil as this was considered to be a prudent basis. In assessing the EBITDA sensitivities, we have also considered the potential downside from Brexit and related mitigation, the impact of which would not affect the carrying value. Further detail of our considerations and sensitivities are included within going concern assessment in our accounting policies.
Upon review of impairment, management have calculated the recoverable amount and it exceeds the carrying amount and therefore have not included an impairment charge.
Significant estimates
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 2 percentage point change in WACC, management have concluded that the carrying amount of goodwill would be likely to exceed the value in use.
Growth rate
Management have assumed a long term growth rate to perpetuity after three years of nil, which is considered a prudent basis. The growth rate in the next three years is based on managements expectation of sales growth.
Budgeted cash flows
Management have conducted sensitivity analysis on the CGUs VIU by reducing the anticipated future cash flows. A reduction of 2.2% in forecast cash flows would reduce the headroom to nil.
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
10 Loans and borrowings
2018 2017
GBP 000 GBP 000
Current
Finance lease liabilities 2,148 1,799
2,148 1,799
Non-current loans and borrowings
Bank borrowings 125,500 154,500
Unamortised issue costs (1,458) (1,532)
Finance lease liabilities 947 1,754
----------- ----------
124,989 154,722
=========== ==========
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.
In November 2018, the Group amended some of the terms of the existing facility. The Group has an amortising GBP87,500,000 term loan and a GBP100,000,000 revolving facility with a GBP50,000,000 accordion. The current facility drawn as at 25 November 2018 is GBP125,500,000 (2017: GBP154,500,000).
Details of loans and hire purchase obligations repayable within two to five years are as follows:
2018 2017
GBP 000 GBP 000
Term Loan and revolving facility available
until July 2021 125,500 154,500
Finance lease liabilities 947 1,754
--------- ---------
126,447 156,254
========= =========
11 Net debt
2018 2017
GBP 000 GBP 000
Cash at bank and in hand 28,547 14,273
--------- ---------
28,547 14,273
========= =========
Term loan and revolving facility available
until July 2021 (125,500) (154,500)
Less: unamortised issue costs 1,458 1,532
--------- ---------
(124,042) (152,968)
========= =========
Amounts due under finance lease obligations (3,095) (3,552)
Net debt (98,590) (142,247)
========= =========
Analysis of net debt
Other non-cash
2017 Cash flow movements 2018
GBP 000 GBP 000 GBP 000 GBP 000
Cash and short-term
deposits 14,273 14,274 - 28,547
--------- --------- -------------- ---------
14,273 14,274 - 28,547
--------- --------- -------------- ---------
Bank borrowings (152,968) 29,000 (74) (124,042)
Finance lease liabilities (3,552) 457 - (3,095)
--------- --------- -------------- ---------
(156,520) 29,457 (74) (127,137)
--------- --------- -------------- ---------
(142,247) 43,731 (74) (98,590)
========= ========= ============== =========
McColl's Retail Group
Notes to the Financial Statements for the 52 week Period from 27 November 2017 to 25 November 2018
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 28 November 2017 115,172,774 115 12,579
Shares issued during the period 741 - 1
At 25 November 2018 115,173,515 115 12,580
=================== =============== ==============
The Board has authorised the allotment of shares equal to the nominal value of GBP77,000.
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 25 November 2018 or 52 weeks ending 26 November 2017.
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.
2018 2017
GBP 000 GBP 000
Salaries and other short term employee
benefits 1,917 1,793
Share-based payments 29 228
-------- --------
1,946 2,021
======== ========
There were no material transactions or balances between the Group and its key management personnel or members of their close family.
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 Mitigation/Strategic response Current changes
Risk
Strategy If the Board Key strategic
(maintained) either adopts * Our strategic development is led by an experienced challenges
the wrong Board and Senior Management for 2019 include
strategy the continuing
or does not work to deliver
implement * An annual strategic review takes place alongside our the supply
it effectively budget-setting process chain benefits
the aims of the from our
business, its partnership
performance and * The McColl's strategy is widely communicated and with Morrisons
reputation may understood across the business and further
suffer. developing
our convenience
* Business plans are developed, monitored and reviewed offer. Ongoing
against strategic KPIs change and
consolidation
in the sector
* Senior Management are incentivised with may also impact
performance-related rewards to deliver our strategic our business
goals and require
us to adjust
our strategy
accordingly.
Competition We operate in We will work
(increased) a highly * We monitor competitor activity and customer trends through
competitive individual
environment, category reviews
which is to ensure our
continually * Regular meetings are held with key suppliers to offer, range
changing and optimise our offer and price is
has been subject competitive.
to ongoing Our ongoing
consolidation. store refresh
Failure to * We are increasing brand awareness through marketing programme will
maintain enhance our
market share customers'
could have an shopping
adverse effect * Improvement of our estate and stores is ongoing experience.
on our core
business.
* Local refit programmes are undertaken to counter
specific competitive threats
* We have launched the Safeway brand in store to
differentiate our offer
* We have increased our marketing ad campaigns and
seasons events, both in store and through local
advertising
----------------- --------------------------------------------------------------- ------------------
Customer Customer Working with
Offer shopping * Membership of third party organisations (such as the our new supply
(maintained) habits are Association of Convenience Stores) gives us greater partner we
influenced insight into the convenience channel trends and will focus
by a wide range developments on the breadth
of factors. If and depth of
we do not our offer,
respond * Our Customer Director has enhanced the Retail Board's particularly
to their capability to address changing customer needs in key categories
changing such as fresh
needs they are & chilled food.
more likely to * Promotional programmes offer customers great value We will also
shop with a look to broaden
competitor, our seasonal
resulting * Our strong customer service standards are reflected relevance e.g.
in falling in our evolving brand strategy in non-food
revenues. areas
* We complete detailed customer research for key
projects, for example our store refurbishment
programme
* We have launched our presence in social media to
better engage with customers
----------------- --------------------------------------------------------------- ------------------
Supply chain We rely on a The collapse
(increased) small number * We establish long-term relationships with trusted of P&H in
of key suppliers November
distributors 2017 tested
and may be our contingency
adversely * Our distribution partners maintain their own arrangements
affected by contingency planning as do we as did the
changes accelerated
in supplier transition
dynamics * We closely monitor supplier performance including to Morrisons
and service levels and hold regular discussions with them supply in 2018.
interruptions to address any issues (with contractual protections Going forwards
in supply. in place) into 2019 it
is important
to fully
* We monitor the financial stability of key partners stabilise
and then optimise
arrangements,
* We regularly review our supply chain arrangements, including
with full tenders completed in 2013 and 2017 responding
to the outcomes
of Brexit.
* We have a flexible electronic ordering process, with
established links to the key UK wholesalers
* Our supply chain partner, Morrisons, is undertaking
significant pre-Brexit planning (including becoming
an authorised economic operator)
----------------- --------------------------------------------------------------- ------------------
Supply chain During 2018, Issues relating
transition we transitioned * There is close oversight by the Retail Board and to availability,
(increased) the wholesale Senior Management product set
arrangements up and cost
for the majority prices are
of our estate * We undertook a significant amount of planning and being worked
to a new testing work to identify and resolve potential issues through with
supplier. and have instigated close monitoring of performance suppliers and
The accelerated our new wholesale
timeline partner. We
introduced * We have a dedicated and skilled management team with expect to exit
additional extensive experience of managing supply arrangements 2019 with an
complexity improved
and risk. trajectory.
* We have established clear lines of communication and
a joint project management approach with our new
supplier
* The final phase of the transition will, in due course,
incorporate all of the learnings from 2018
* Transitional support has been provided by our new
wholesale partner
----------------- --------------------------------------------------------------- ------------------
Economy All our revenue As the impacts
(maintained) is generated * We sell food and household essentials which are not of Brexit on
in the UK. considered to be highly discretionary the UK economy
Any become clearer
deterioration we will continue
in the UK * We offer a wide range of products at different price to evolve our
economy, points, e.g. value and premium brands strategy to
for example as mitigate any
a consequence impacts. We
of Brexit, could * Our flexible business model allows us to respond to have modelled
affect consumer changes in customer behaviour, for example, by various scenarios
spending and adapting our ranges to ensure we
cost of goods, have sufficient
which in turn mitigation
would impact * We are growing our range of own brand products options.
our sales and through the rollout of Safeway
profitability.
* We are working with supply partners and manufacturers
to build our Brexit contingency plans
----------------- --------------------------------------------------------------- ------------------
Financial The main We will continue
and treasury financial * Committed loan facilities are in place to deliver our to work with
(increased) risks are the strategy, with amendments in the year delivering our banking
availability additional covenant headroom (see notes 10 and 11) syndicate to
of short- and optimally manage
long-term our funding
funding * Funding requirements are managed through regular position and
to meet business forecasting and treasury management further
needs, deleverage.
fluctuations We plan to
in interest * The Board approves budgets and business plans conclude our
rates, 2017 acquisition
movements in sale & leaseback
energy prices * Relationships with lenders are managed through programme in
and other regular meetings H1 2019
post-Brexit
impacts.
* Our risks associated with financial instruments are
disclosed in the annual report
----------------- --------------------------------------------------------------- ------------------
Information We depend on We have a future
Technology the reliability * All business-critical systems are well established IT roadmap
(maintained) and capability and are supported by an appropriate disaster recovery and have plans
of key strategy designed to ensure continuity of the to upgrade
information business our EPOS systems
systems and in the next
technology. 24 months.
A major failure, * Business continuity plans are tested on an annual We will also
a breach, or basis continue to
prolonged evolve our
performance store back
issues with * Regular reviews assess our vulnerability and our office systems
store ability to re-establish operations in the event of a to improve
or head office failure efficiency
systems could and effectiveness
have an adverse
impact on the * Testing is performed to ensure data is controlled and
business and protected
its reputation.
* We are currently investing in a new ERP system
(Oracle Fusion) to improve head office efficiency
* We have processes in place to ensure GDPR compliance
----------------- --------------------------------------------------------------- ------------------
Operational We have a National Living
cost base relatively * We continually seek to remove unnecessary complexity Wage and National
(increased) high cost base, from our operational procedures to optimise Minimum Wage
consisting performance will again
primarily increase above
of salary, the rate of
property * We operate a flexible staffing model aligned to inflation in
rental and revenue levels 2019. We have
energy set up a group
costs. Increases to focus on
in these costs * We monitor legislation and developments related to delivering
without a our costs, e.g. minimum wage, rents and energy efficiencies
corresponding tariffs, to allow us to plan and mitigate increases and process
increase in improvements
revenues in our
could adversely * Property management is a key function with regular operations.
impact our review processes in place
profitability.
* We minimise energy costs by combining energy
efficiency initiatives and forward purchasing
* We regularly retender external contracts to ensure
they remain market-competitive
* We have an ongoing programme of estate optimisation
to remove unprofitable stores
* We manage exposure to fluctuating energy prices by
forward buying electricity. We acknowledge that the
forward contracts in place are derivatives, they are
treated as a pre-agreed price for electricity
----------------- --------------------------------------------------------------- ------------------
Regulation We operate in Regulations
(maintained) an environment * We have clear accountability for compliance with all impacting our
governed laws and regulations business continue
by strict to change but
regulations we have processes
to ensure the * Our policies and procedures are designed to meet all in place to
safety relevant requirements make sure we
and protection take proper
of customers, account
colleagues, * We train colleagues to comply with all relevant of regulatory
shareholders legislation developments
and other in the way
stakeholders. we conduct
Regulations * We have established governance groups, such as our our business.
include Health and Safety Strategy Committee to review and
alcohol manage our compliance
licensing,
employment,
health * Through third party memberships and expert advice, we
and safety, data keep up to date with evolving statute
protection and
the rules of
the Stock
Exchange.
Failure to
comply
with relevant
laws and
regulations
could result
in sanctions
and reputational
damage.
----------------- --------------------------------------------------------------- ------------------
Brexit
We recognise that the UK's planned exit from the European Union (EU) creates some risks and uncertainties. We do not expect it to have a material impact on the business except in the event that the UK leaves the EU with no deal in place and this results in the most severe economic scenario.
Customers
Except in the event of a severe economic shock to the UK economy, we do not expect Brexit to have any significant impact on the behaviour of customers in McColl's. The grocery sector as a whole has a proven record of withstanding economic downturn. In recent periods of economic uncertainty consumers have tended to manage their budgets by shopping little and often, locally. Therefore the convenience sector in particular is largely protected from, and can even benefit from, broader negative economic trends.
Supply chain
It is estimated that around 35% of all the food we eat in the UK is sourced from the EU. Due to the nature of our product mix, we estimate that the proportion of products we source from the EU is considerably lower than average.
The most significant risk to food supplies is in the event of a no-deal Brexit where import delays could mean short shelf life products expire before they can reach their destination. We sell a relatively low proportion of chilled and fresh food with a short shelf life and as such are less exposed to this risk than other grocery retailers.
The majority of our products are sourced via UK wholesale partners. Morrisons is our largest wholesale partner, directly supplying c.1,300 of our stores. As the UKs second largest food manufacturer, they source and manufacture a high proportion of products in the UK. To mitigate the risk of a no-deal Brexit Morrisons have applied for and been granted "approved economic operator status", which means that goods will be fast tracked through customs, hence reducing the risk with their non UK suppliers.
Labour
It is likely that in leaving the European Union there will be a restriction on free movement that could lead to a shortage of low skilled workers. We do not believe this presents a significant risk to the business because we have a low number of transient workers. The majority of our store colleagues work on a part-time basis and live locally to their store. However, we recognise that there is some risk that we could be impacted by the UK experiencing a greater demand for low skilled workers that could create recruitment challenges and lead to wage inflation.
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. It includes 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: This profit measure shows the Group's Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for both property gains and losses 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 stores and newsagents.
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 equivalent Note reference Definition and purpose
IFRS measure for reconciliation
------------------- --------------------
Income statement
Revenue measures
------------------- ------------------- -------------------- ----------------------------------------
Sales growth No direct Not applicable Growth in sales is a ratio
equivalent that measures year-on-year
movement in Group sales
for continuing operations
for 52 weeks. It shows the
annual rate of increase
in the Group's sales and
is considered a good indicator
of how rapidly the Group's
core business is growing.
------------------- ------------------- -------------------- ----------------------------------------
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 No direct Not applicable Like-for-like is a measure
(LFL) equivalent of growth in Group sales
from stores that have been
open for at least a year
(but excludes prior year
sales of stores closed during
the year). It is a widely
used indicator of a retailer's
current trading performance
and is important when comparing
growth between retailers
that have different profiles
of expansion, disposals
and closures. It's reported
on an 'including VAT' basis,
which aligns with the sales
measurement by the field
and stores teams, whose
focus is on the retail performance.
------------------- ------------------- -------------------- ----------------------------------------
Profit measures
------------------- ------------------- -------------------- ----------------------------------------
Adjusted operating Operating Note 4 Operating profit before
profit profit adjusting items is the headline
measure of the Group's performance.
It is based on operating
profit before the impact
of certain costs or incomes
that derive from events
or transactions that fall
within the normal activities
of the Group, but which
are excluded by virtue of
their size and nature in
order to reflect management's
view of the performance
of the Group. This is a
key management incentive
metric.
------------------- ------------------- -------------------- ----------------------------------------
Gross margin No direct Not applicable Gross margin is calculated
equivalent as Gross profit before adjusting
items divided by revenue.
Progression in gross margin
is an important indicator
of the Group's operating
efficiency.
------------------- ------------------- -------------------- ----------------------------------------
Profits/(losses) No direct Not applicable Profits/(losses) arising
arising on equivalent on property-related items
property-related relates to the Group's property
items 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.
------------------- ------------------- -------------------- ----------------------------------------
Adjusted net Finance costs Not applicable Total finance costs before
finance costs adjusting items is the net
finance costs adjusted for
non-recurring one off items
due to their size and nature.
------------------- ------------------- -------------------- ----------------------------------------
Adjusted EBITDA No direct Note 4 This profit measure shows
equivalent the Group's Earnings Before
Interest, Tax, Depreciation
and Amortisation adjusted
for both Property gains
and losses and other adjusting
items, in order to provide
shareholders with a measure
of true underlying performance
of the business.
------------------- ------------------- -------------------- ----------------------------------------
Basic adjusted No direct Note 7 This relates to profit after
earnings per equivalent tax before adjusting items
share (EPS) divided by the basic weighted
average number of shares,
in order to provide shareholders
with a measure of true underlying
performance of the business.
------------------- ------------------- -------------------- ----------------------------------------
Diluted adjusted Diluted earnings Note 7 The difference between basic
earnings per per share and diluted metric is the
share impact of the 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, finance
and related lease payables, and net
hedges 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.
FTE: Full-time equivalents.
RPI: Retail Price Index.
CPI: Consumer Price Index.
LPI: Limited Price Inflation
Total Shareholder Return (TSR): The notional annualised return from a share, measured as the percentage change in the share price, plus the dividends paid with the gross dividends, reinvested in McColl's shares. This is measured over both a one and three year period.
Grocery sales: 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR CKODDBBKBFBD
(END) Dow Jones Newswires
February 18, 2019 02:00 ET (07:00 GMT)
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