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McColl's Retail Grp (MCLS)

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Tuesday 23 July, 2019

McColl's Retail Grp

Interim Results

RNS Number : 3383G
McColl's Retail Group plc
23 July 2019
 

 

23 July 2019 - convenience retailer McColl's Retail Group plc ("McColl's" or "the Group") today announces its Interim Results for the 26 week period ended 26 May 2019.

 

REBUILDING OPERATIONAL MOMENTUM

 

Financial highlights:

·      Total revenue up 0.1% to £611.1m (2018: £610.4m1)

·      Like-for-like (LFL) sales2 up 1.0%

·      Adjusted gross margin 25.4% (2018: 26.1%), with year-on-year decline moderating

·      Adjusted administrative expenses as a percentage of revenue reduced to 25.2% (2018: 25.5%)

·      Adjusted EBITDA3 £13.0m (2018: £16.0m)

·      Profit before tax £0.2m (2018: £2.3m)

·      Basic earnings per share 1.2p (2018: 1.3p); Adjusted earnings per share4 0.3p (2018: 2.3p)

·      Net debt reduced to £89.7m (2018: £112.6m), in line with expectations due to disciplined capital management and successful completion of sale and leaseback programme

·      Interim dividend per share of 1.3p (2018: 3.4p)

Operational and strategic highlights:

·      Work to improve gross margin continues following supply chain transition in 2018

·      A focus on operational standards is driving further progress across customer satisfaction ratings

·      Investment in estate continued, with 17 convenience store refreshes completed

·      Opened three new convenience stores and divested 41 underperforming newsagents and smaller convenience stores as we continue to reshape and optimise the estate

·      Trial of 'Morrisons Daily' fascia underway at 10 refresh stores

·      Further strengthened leadership team with the appointment of Richard Crampton to the newly created position of Chief Commercial Officer

 

Jonathan Miller, Chief Executive, said:

"The key priorities that we outlined for this year were to stabilise the business and to refocus on retail execution following a challenging 2018. We have made good progress on both of these fronts whilst also maintaining strong capital discipline, reducing debt whilst sustaining appropriate levels of investment.

"I am encouraged by the performance we have delivered as we regain greater operational stability, but we still have more work to do in the second half of the year. The market remains highly competitive, with challenging trading conditions, given the unseasonable weather and uncertain economic climate.

"Despite this, we expect to be broadly in line with expectations for the full year and we are confident that our strategy, combined with the cash generative and profitable nature of our business, will deliver sustainable returns for shareholders in the long term."

 

The business uses a number of non-statutory measures (for example, LFL, adjusted EBITDA and adjusted EPS) because management believe that these - placed with equal prominence alongside other statutory measures - help to better explain the underlying performance of the business and its key dynamics. These are kept under continuous review and are defined and used consistently, or explained otherwise. Adjusting items are described in note 5.

 

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 2018 half year revenue, gross margin, gross profit and other operating income have been restated.

2 Like-for-like 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 Adjusted EBITDA is defined in note 6.

4 Adjusted earnings per share is defined in note 9.

 

Results presentation

A copy of this announcement is available at http://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

Robbie Bell, Chief Financial Officer

Naomi Kissman, Head of Investor Relations

+44 (0)1277 372916

Headland

Edward Young, Rob Walker, Charlie Twigg

+44 (0)20 3805 4822   

 

                  

Notes to editors

McColl's is a leading neighbourhood retailer, with an estate of c.1,500 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.

 

 

 

 

Strategic and operational review

After a challenging 2018, characterised by supply chain disruption, we set out a number of priorities for the year to rebuild operational momentum and get back on track to deliver our strategic plans.

Our focus on retail execution has included improving availability, implementing full range reviews, developing the Safeway range and continuing to invest in our estate through Project Refresh. Although there is more to do, we are making good progress and delivering against these priorities.

In the first half of the year the business continued to grow and we achieved positive like-for-like sales. This was despite sales falling in May which was a challenging month for the whole sector, as the UK experienced a prolonged period of poor weather compared to the start of last year's long hot summer.

As previously described, we are experiencing some challenges with higher than anticipated cost prices. Some progress has been made, as we've worked with Morrisons on addressing this, which has helped to moderate the decline in gross margin year-on-year, and we expect to see further improvement in the second half of the year as it remains a key area of focus.

Developing a convenience focused estate

We have continued to invest in the estate, completing 17 refreshes in the first half of the year, including 10 stores as part of a trial of the Morrisons Daily fascia. This trial is helping to inform our thinking in terms of range development and is an opportunity to explore the potential for this type of format. The early response from customers has been positive and we will continue to evaluate the trial over the coming months.

We have also opened three new convenience stores, in each case relocating an existing store, and we are building a pipeline of acquisitions for the second half of the year. The financial performance of acquisitions remains strong, particularly those with a larger footprint and greater participation of grocery and alcohol.  We are targeting a slightly higher number of openings in the second half of the year. This, alongside our established closure programme for underperforming stores, will support the development of a convenience focused and more profitable estate.

Enhancing our convenience offer

We have commenced our programme of range reviews to enhance our offer and respond better to customer needs. For example, we completed a full review of our beer and cider range at the end of April, increasing the number of lines and space allocated to growing categories such as craft and world beers. As a result we have seen an encouraging improvement in our performance in this category. This work will continue in the months ahead, with full reviews underway for soft drinks, confectionery, wine and healthy snacks, and by the end of the year we expect to have made improvements to our range across all categories.

We are also working with Morrisons to refine the Safeway range, looking to introduce new products to enhance the offer. As we continue to establish the range we have introduced some long-term multi-buys on key fresh products such as beef burgers and sausages as part of a 'Taste of Summer' campaign.

Focusing on operational standards and on shelf availability

With our supply chain stabilised the operations team have been able to refocus on retail execution and making sure that we deliver excellent customer service.

This work has supported a good year-on-year improvement across key customer satisfaction ratings, including staff friendliness/helpfulness, speed of service, ease of shop, and cleanliness of store1.

Satisfaction with availability has also increased as we have seen inbound stabilise and our team have prioritised on shelf availability. However, there are still opportunities to improve on this, particularly in chilled and fresh availability.

Building a strong team

We have made two key appointments this year, Robbie Bell who joined the business as Chief Financial Officer in January and Richard Crampton who will join us on 30 September in the newly created role of Chief Commercial Officer. We are confident that both hires will significantly enhance the capability of the leadership team.

Outlook

Our priorities for the second half of the year are unchanged as we continue to stabilise the business and focus on good retail execution. We expect the market to remain competitive as all grocery retailers face the challenge of strong year-on-year comparatives following a very hot summer last year. These weaker trading conditions over the summer will continue to form a challenging backdrop, but we expect to be broadly in line with expectations for the full year.

As we move forward we remain committed to our long-term strategy. We will continue to reshape the business, developing a strong neighbourhood convenience offer that meets the changing needs of today's customers.

 

[1] HIM! 2019 Convenience Tracking Survey

 

 

Financial review

At the start of the year we described our financial priorities which included strengthening our balance sheet, improving working capital, rebuilding gross margin, mitigating cost inflation and further optimising our estate. Whilst there remain a number of challenges, we have made good progress in the first half of the year, maintaining sales growth and reducing debt, and the gross margin decline we experienced last year has moderated as we work with Morrisons to improve cost prices.

Revenue growth maintained, with positive LFL

LFL sales were up 0.4% in the second quarter, giving a total LFL increase of 1.0% for the 26 weeks to 26 May 2019. The rate of LFL growth fell significantly in the final month of H1 as the whole sector suffered from strong year-on-year comparatives coupled with colder weather this year.

Tobacco continues to perform strongly, benefitting from inflation as a result of manufacturer and duty rises. Other traditional categories such as news and confectionery, where we still over-index as a result of our heritage, continue to steadily decline and impact LFL sales.

LFL sales were supported by good growth in beers, wines and spirits where our performance is improving following our recent range review, soft drinks, which have been helped by some great innovation as well as inflation, and food-to-go which, whilst still a small category for McColl's, has great potential to grow as we continue to extend our offer and improve our operational delivery.

Total revenue increased by 0.1% to £611.1m (2018: £610.4m), following the impact of the positive LFL performance offset by the closure/sale of 41 underperforming newsagents and smaller convenience stores.

Gross margin decline moderating

In the first half of the year adjusted gross margin decreased to 25.4%, (2018: 26.1%), principally as a result of higher cost prices (as indicated in our 2018 Preliminary Results) following the transition to our new wholesale supply contract. In addition, gross margin has been impacted by the diluting effect of a stronger tobacco mix and softer sales of a number of higher margin impulse lines, driven by the poor weather and strong prior year comparatives in May.

The reduction in gross margin has moderated (following a c.100 basis point decline in the second half of 2018) as we continue to make progress, both through self-help initiatives such as improved promotional investment planning, and by working with our wholesale partner to leverage our combined scale and experience. We expect to see further improvements in gross margin in the second half of the year.

As in previous years, we anticipate that profit delivery will be weighted towards the second half of the year due to the seasonal sales mix, and further supported by year-on-year margin improvement given the prior year shape, as described above.

In terms of overall value, total gross profit before adjusting items fell by 2.8% to £155.0m (2018: £159.5m).

Margin challenges drive lower profits despite good cost control

Operating profit after adjusting items decreased to £4.4m (2018: £6.4m), and operating profit before adjusting items fell by £2.8m to £4.6m, impacted by the decline in our gross margin.

Adjusting items of c.£(0.3)m comprised £(0.5)m restructuring costs relating to a review of retail support and field team structures, £(0.2)m of adjustments relating to fines for an historic health and safety incident, £0.1m of finance costs and £1.9m of other costs associated with our ongoing store closures programme, and £2.5m in property profits following the completion of our sale and leaseback programme.

Adjusted EBITDA decreased to £13.0m (2018: £16.0m).

Although we are experiencing a number of cost pressures and wage inflation continues to be a challenge, administrative expenses fell year-on-year as a result of good cost control and the impact of our closure programme. In particular, the impact of c.5% inflation in the National Living Wage has been substantially mitigated. Adjusted administrative expenses as a percentage of revenue were 25.2% (2018: 25.5%). Net finance costs were broadly flat year-on-year at £4.1m (2018: £4.0m)

Profit before tax for the period was £0.2m (2018: £2.3m), reflecting a lower level of operating profit.

Taxation

The tax credit for the period was £(1.2)m (2018: £0.9m charge) due to a large credit for the release of a deferred tax liability due to our sale and leaseback programme. The comparable effective tax rate in 2019 excluding the impact of non-deductible adjusting items was 21.0% (2018 19.8%). The difference between the current statutory rate of 19.0% and the effective tax rate excluding the impact of non-deductible adjusting items is due principally to the depreciation of assets not qualifying for tax relief.

Adjusted earnings per share

Basic earnings per share were 1.2p (2018: 1.3p). Adjusted earnings per share were 0.3p (2018: 2.3p).

Dividend

The Board has declared an interim dividend of 1.3 pence per share (2018: 3.4 pence). The interim dividend will be paid on 6 September 2019 to those shareholders on the register at the close of business on 9 August 2019.

Balance sheet and net debt          

Shareholders' funds at the end of the period were £142.9m (2018: £147.1m).

The book value of goodwill and other intangibles, property, plant and equipment fell by £11.6m to £339.2m (2018: £350.8m), reflecting the completion of our sale and leaseback programme and closure of underperforming stores.

Net debt at the end of the period was £89.7m (2018: £112.6m) (see note 11). This is in line with management expectations and driven by a focus on working capital and successful completion of our sale and leaseback programme. Our net debt to EBITDA ratio is currently 2.8x on a rolling 12-month basis. We expect to reduce net debt further in the second half of the year and we remain on track to deliver net debt to EBITDA of c.2.5x by the end of the year.

Pensions

The combined accounting surplus on the two defined benefit pension schemes operated by the Group increased to £12.7m (2018: £10.5m).

The last actuarial review of the two schemes in June 2017 concluded that the combined funding deficit of our two pension schemes was £12.6m, and the Company currently contributes approximately £1.6m per year, inclusive of fees and levies.

Cash flow and capital expenditure

Net cash provided by operating activities was £13.1m (2018: £37.7m), with the prior year benefitting from improved payment terms following our transition to a new wholesale supplier.

Gross capital expenditure was £8.2m (2018: £10.0m). Net capital expenditure, including property proceeds from the sale and leaseback of freehold properties, reduced to £1.7m (2018: £4.0m).

Financial priorities

For the remainder of the year we will continue to focus on strengthening our balance sheet, improving working capital, rebuilding gross margin, mitigating cost inflation and optimising the estate. This will ensure that the business ends the year in a stronger position from which to build.

 

Cautionary statement

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.

 

McColl's Retail Group plc

Statement of Directors' responsibilities

26 week period ended 26 May 2019

 

Responsibility statement

 

We confirm that to the best of our knowledge:

The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

 

The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months of the year); and

 

The interim management report includes a fair review of the information required by DTR.4.2.8R (disclosure of related parties' transactions and changes therein).

 

By order of the Board,

 

 

 

Chief Executive                                                             

Jonathan Miller     

 

 

 

 

Chief Financial Officer

Robbie Bell

 

Date: 22 July 2019                 

 

 

McColl's Retail Group plc

Consolidated Income Statement

for the 26 week Period ended 26 May 2019

 

 

26 weeks to 26 May 2019

£ 000

(unaudited)

26 weeks to 27 May 2018 restated
£ 000
(unaudited)

 

Note

Before adjusting items

 

 

£ 000

 

Adjusting items


Note 5
£ 000

 

After adjusting items

 

 

£ 000

Before adjusting items


£ 000

Adjusting items


Note 5
£ 000

After adjusting items

 

 

£ 000

Revenue

4

611,057

-

611,057

610,417

-

610,417

Cost of sales

 

(456,021)

-

(456,021)

(450,891)

(694)

(451,585)

Gross profit

 

155,036

-

155,036

159,526

(694)

158,832

Administrative expenses

 

(153,837)

(772)

(154,609)

(155,424)

(1,304)

(156,728)

Other operating income

4

3,198

-

3,198

3,373

-

3,373

Profit / (loss) arising on property-related items

 

156

575

731

(75)

962

887

Operating profit

6

4,553

(197)

4,356

7,400

(1,036)

6,364

Finance income

 

-

-

-

9

-

9

Finance costs

 

(4,063)

(80)

(4,143)

(4,035)

-

(4,035)

Net finance cost

 

(4,063)

(80)

(4,143)

(4,026)

-

(4,026)

Profit before tax

 

490

(277)

213

3,374

(1,036)

2,338

Income tax (expense)/ credit

7

(103)

1,318

1,215

(669)

(181)

(850)

Profit for the period

 

387

1,041

1,428

2,705

(1,217)

1,488

Earnings per share (pence)

9

0.3

 

1.2

2.3

 

1.3

The above results were derived from continuing operations.  

 

McColl's Retail Group plc

Consolidated Statement of Comprehensive Income

for the 26 week Period ended 26 May 2019

 

 

26 weeks to
26 May
2019
£ 000
(unaudited)

26 weeks to
27 May

2018
£ 000
(unaudited)

Profit for the period

1,428

1,488

Items that will not be reclassified subsequently to profit or loss

 

 

Actuarial loss on defined benefit pension schemes before tax

(74)

(406)

Tax effect of items in other comprehensive income

26

83

Total comprehensive income for the period

1,380

1,165

 

McColl's Retail Group plc

Consolidated Statement of Financial Position

as at 26 May 2019

 

 

Note

26 May
2019
£ 000
(unaudited)

As restated

27 May

2018
£ 000
(unaudited)

As restated

25 November
2018
£ 000
(audited)

Assets

Non-current assets

 

 

 

 

Property, plant and equipment

 

85,550

101,122

92,314

Intangible assets

 

253,641

249,699

252,747

Deferred tax assets

 

97

-

97

Retirement benefit asset

 

15,490

13,073

14,122

Investments

 

36

36

36

Total non-current assets

 

354,814

363,930

359,316

Current assets

 

 

 

 

Inventories

 

77,088

75,037

77,146

Trade and other receivables

 

36,576

43,105

41,984

Income tax asset

 

513

-

-

Cash and cash equivalents

 

36,906

39,283

28,547

Assets classified as held for sale

 

-

436

-

Total current assets

 

151,083

157,861

147,677

Total assets

 

505,897

521,791

506,993

Equity and liabilities

Current liabilities

 

 

 

 

Trade and other payables

 

(212,358)

(196,813)

(213,337)

Loans and borrowings

10

(11,246)

(11,672)

(12,148)

Income tax liability

 

-

(653)

(673)

Provisions

 

(5,433)

(5,014)

(4,627)

Liabilities directly associated with assets classified as held for sale

 

-

(471)

-

Total current liabilities

 

(229,037)

(214,623)

(230,785)

Net current liabilities

 

(77,954)

(56,762)

(83,108)

Non-current liabilities

 

 

 

 

Loans and borrowings

10

(115,356)

(140,199)

(114,989)

Other payables

 

(9,845)

(8,198)

(9,552)

Provisions

 

(326)

(692)

(1,042)

Deferred tax liabilities

 

(5,637)

(8,475)

(6,895)

Retirement benefit obligations

 

(2,836)

(2,531)

(2,250)

Total non-current liabilities

 

(134,000)

(160,095)

(134,728)

Total liabilities

 

(363,037)

(374,718)

(365,513)

Net assets

 

142,860

147,073

141,480

 

McColl's Retail Group plc

Consolidated Statement of Financial Position

as at 26 May 2019 (continued)

 

 

Note

26 May
2019
£ 000
(unaudited)

As restated

27 May

2018
£ 000
(unaudited)

As restated

25 November
2018
£ 000
(audited)

Equity

 

 

 

 

Share capital

 

(115)

(115)

(115)

Share premium

 

(12,580)

(12,579)

(12,580)

Retained earnings

 

(130,165)

(134,379)

(128,785)

Equity attributable to owners of the Company

 

(142,860)

(147,073)

(141,480)

 

 

 

 

 

           

These financial statements of McColl's Retail Group registered number 08783477 were approved and authorised for issue by the Board on 22 July 2019 and signed on its behalf by:

 

 

 

Robbie Bell

Chief Financial Officer

 

McColl's Retail Group plc

Consolidated Statement of Changes in Equity

for the 26 week Period ended 26 May 2019

 

 

Share capital
£ 000

Share premium
£ 000

Retained earnings
£ 000

Total equity
£ 000

At 26 November 2018 (audited)

 

115

12,580

128,785

141,480

Comprehensive income:

 

 

 

 

 

Profit for the period

 

-

-

1,428

1,428

Remeasurement of defined benefit pension scheme

 

-

-

(74)

(74)

Deferred tax

 

 

 

26

26

Total comprehensive income

 

-

-

1,380

1,380

At 26 May 2019 (unaudited)

 

115

12,580

130,165

142,860

 

 

 

 

 

 

 

Share capital
£ 000

Share premium
£ 000

Retained earnings
£ 000

Total equity
£ 000

At 27 May 2018 (unaudited)

115

12,579

134,379

147,073

Comprehensive income:

 

 

 

 

Profit for the period

-

-

5,363

5,363

Remeasurement of defined benefit pension scheme

-

-

1,032

1,032

Deferred tax

-

-

(127)

(127)

Total comprehensive income

-

-

6,268

6,268

Transactions with shareholders:

 

 

 

 

Dividends

-

-

(11,862)

(11,862)

New share capital subscribed

-

1

-

1

Total transactions with shareholders

-

-

(11,862)

(11,861)

At 25 November 2018 (audited)

115

12,580

128,785

141,480

 

McColl's Retail Group plc

Consolidated Statement of Cash Flows

for the 26 week Period ended 26 May 2019

 

 

Note

26 weeks to
26 May
2019
£ 000
(unaudited)

26 weeks to
27 May
2018
£ 000
(unaudited)

52 weeks to
25 November
2018
£ 000
(audited)

Cash flows from operating activities

Profit for the period

 

1,428

1,488

6,851

Depreciation and amortisation

 

8,630

7,842

17,054

Profit on disposal of property, plant, equipment and software

 

(2,628)

(2,409)

(14,994)

Finance income

 

-

(9)

-

Finance costs

 

4,143

4,035

8,017

Income tax (credit) /expense

7

(1,215)

850

1,016

Impairment losses

 

-

247

3,297

 

 

10,358

12,044

21,241

Decrease/(increase) in inventories

 

58

928

(737)

Decrease/(increase) in trade and other receivables

 

5,408

(3,300)

(1,593)

(Decrease)/increase in trade and other payables

 

(650)

30,751

48,082

Decrease in retirement benefit obligation net of actuarial changes

 

(782)

(691)

(906)

Increase in provisions

 

90

605

568

Cash generated from operations

 

14,482

40,337

66,655

Income taxes paid

 

(1,374)

(2,628)

(4,811)

Net cash flow from operating activities

 

13,108

37,709

61,844

Cash flows from investing activities

 

 

 

 

Interest received

 

-

9

-

Acquisition of property, plant,  equipment and software

 

(8,172)

(8,755)

(21,295)

Proceeds from sale of property, plant and equipment

 

8,042

5,953

27,410

Acquisition of businesses, net of cash acquired

 

-

(1,219)

(4,513)

Net cash flows from investing activities

 

(130)

(4,012)

1,602

 

McColl's Retail Group plc

Consolidated Statement of Cash Flows

for the 26 week Period ended 26 May 2019 (continued)

 

 

Note

26 weeks to
26 May
2019
£ 000
(unaudited)

26 weeks to
27 May
2018
£ 000
(unaudited)

52 weeks to
25 November
2018
£ 000
(audited)

Cash flows from financing activities

 

 

 

 

Interest paid

 

(4,012)

(3,935)

(7,928)

Proceeds from issue of ordinary shares, net of issue costs

 

-

-

1

Repayment of bank borrowing

11

(265)

(4,500)

(29,000)

Payment of finance lease creditors

 

(255)

(187)

(235)

Interest payment to finance lease creditor

 

(87)

(65)

(148)

Dividends paid

8

-

-

(11,862)

Net cash flows from financing activities

 

(4,619)

(8,687)

(49,172)

Net increase in cash and cash equivalents

 

8,359

25,010

14,274

Cash and cash equivalents at beginning of period

 

28,547

14,273

14,273

Cash and cash equivalents at end of period

 

36,906

39,283

28,547

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

1

General information

 

The Group is a public company limited by share capital, incorporated in England and Wales and domiciled in the United Kingdom.

McColl's Retail Group plc

McColl's House

Ashwells Road

Brentwood

Essex

CM15 9ST

United Kingdom

Principal activity

The Group engages in one principal area of activity, as an operator of convenience and newsagent stores.

2

Significant accounting policies

Basis of preparation

The interim financial statements for the 26 week period ended 26 May 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. They have been prepared in accordance with the recognition and measurement criteria of IFRS. They do not include all the information required for full annual financial statements to comply with IFRS, and should be read in conjunction with the consolidated financial statements of the Group as at and for the period ended 25 November 2018 as applied in the Group's Annual Report and Accounts 2018 (the "Annual Report 2018").

The accounting policies applied by the Group in these consolidated results are the same as those applied by the Group in its Annual Report 2018 for the period ended 25 November 2018 with the exception of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers'.

The Annual Report 2018 is available at
https://www.mccollsplc.co.uk/investors/.  

The financial information for the period ended 26 May 2019 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The Group has filed statutory accounts for the period ended 25 November 2018. The Auditor has reported on these accounts; their report was unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Basis of measurement

The consolidated financial information has been prepared on a historical cost basis, except for the net defined benefit pension asset or liability, (refer to individual accounting policy for details).

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

2

Significant accounting policies (continued)

 

Business Combinations

On acquisition, the assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition.

 

Any excess of the cost of acquisition over the fair value of the identifiable net assets acquired, including separately identifiable assets, is recognised as goodwill. Any discount on acquisition, i.e. where the cost of acquisition is below the fair values of the identifiable net assets acquired, is credited to the income statement in the period of acquisition.

 

Going concern

 

In making their going concern assessment the Directors have considered the Group's business activities, its financial position, the market in which it operates and the factors likely to affect its future development.

 

The Directors have reviewed the Group's forecasts, taking into account a range of sensitivities, and how they impact headroom against its bank facilities, and its ability to meet its capital investment and operational needs. In July 2016, the Group completed a £100m term loan and an amended £100m revolving credit facility with a £50m accordion. The Group has net current liabilities of £78m at the period end. The Directors have additionally considered this position to determine if it presents any going concern issues. The Group is profitable and cash generative and is supported by the revolving credit facility alongside an amortising £100m term loan. The current facility drawn as at 26 May 2019 is £125m against the combined facility, and therefore there is sufficient headroom to meet the Group's debts as they fall due.

 

The Directors believe the Group has adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

 

 

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

2

Significant accounting policies (continued)

 

Changes in accounting policy

 

Adoption of new IFRSs

 

The Group has adopted IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' effective for the period commencing 26 November 2018.

 

IFRS 9 has been applied using the modified retrospective approach to transition. Any transition differences will be recognised as an adjustment to the opening balance sheet. Management have assessed the impact of changes under the new standard. Given that the Group does not hold significant financial assets and liabilities other than borrowings, payables and receivables, the Group operates under the 'hold to collect' business model, and the Groups trade debtors are very short term and all customers pay in cash or by credit card, the adoption of IFRS 9 has not had a material impact on its accounting policies or classification and measurement of financial instruments.

 

IFRS 15 has been applied using the modified retrospective approach to transition. Any transition differences will be recognised as an adjustment to the opening balance sheet. Due to the straightforward nature of the Group's revenue streams with the recognition of revenue at the point of sale and the absence of significant judgement required in determining the timing of transfer of control, the adoption of IFRS 15 has not had a material impact on the timing or nature of the Group's revenue recognition. The point at which control passes is in line with when risks and rewards are transferred under IAS 18. The Group recognises revenue only when it satisfies a performance obligation by transferring control of a promised good or service to the customer.

 

The Group have not restated any comparative amounts as the impact of IFRS 9 and IFRS 15 is not material.

  

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

2

Significant accounting policies (continued)

 

New standards, interpretations and amendments not yet effective

 

The following newly issued but not yet effective standards, interpretations and amendments, which have not been applied in these interim financial statements, will or may have an effect on the company financial statements in future:

 

IFRS 16 'Leases'

 

IFRS 16 'Leases' replaces IAS 17 'Leases'. The standard was published in January 2016 and is effective for the Group from the period commencing 25 November 2019. The standard represents a significant change in the accounting and reporting of leases for lessees. The standard provides a single lessee accounting model, and as such, requires lessees to recognise a right-of-use asset and lease liabilities for all leases unless the underlying asset has a low value or the lease term is 12 months or less.

 

The Group has a portfolio of over 1,600 property leases and the accounting treatment for each lease will change significantly.

 

The standard offers two different transition methods and both result in significant changes to the income statement, balance sheet and disclosure. Management are assessing the transition methods in conjunction with reviewing our current data and new systems processes.

 

Management continues to assess the impact of IFRS 16 and has therefore not concluded on which transition method to follow as yet. As such it is not practicable to quantify the impact of IFRS 16. From work performed to date, it is expected that implementation of the new standard will have a substantial impact on the income statement, balance sheet and the alternative performance measures used by the Group.

 

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 operating profit, 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 item provides stakeholders with additional useful information to assess the trading performance of the Group.

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

2

Significant accounting policies (continued)

Revenue recognition

Revenue represents the amounts receivable for goods and services sold through retail outlets in the period which fall within the Group's principal activities, stated net of value added tax. Revenue is shown net of returns. Revenue is recognised when performance obligations are satisfied and control has transferred to the customer. For the majority of revenue streams, there is a low level of judgement applied in determining the transaction price or the timing of transfer of control.

Commission from the sale of lottery tickets, travel tickets, electronic phone top-ups and products sold through the Post Office in store is recognised net within turnover, when transactions deriving commissions are completed, as the Group acts as an agent.

In the opinion of the Directors, the Group engages in one principal area of activity, that of operators of convenience and newsagent stores. Turnover is derived entirely from the United Kingdom.

Cost of sales

Cost of sales consists of all direct costs to the point of sale including warehouse and transportation costs. Supplier incentives, rebates and discounts are recognised as a credit to cost of sales in the period in which the stock to which the discounts apply is sold. The accrued value at the reporting date is included in prepayments and accrued income.

Adjusting items

Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, and 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 5.

Other operating income

Rental income and ATM commissions are recognised in the consolidated income statement when the services to which they relate are earned.

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

2

Significant accounting policies (continued)

Tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a charge attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.

Current tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Current tax is charged or credited to the income statement, except when it relates to items charged to equity or other comprehensive income, in which case the current tax is also dealt with in equity or other comprehensive income respectively.

Deferred tax is accounted for on the basis of temporary differences arising from differences between the tax base and accounting base of assets and liabilities.

Deferred tax is recognised for all temporary differences, except to the extent where a deferred tax liability arises from the initial recognition of goodwill or from the initial recognition of an asset or a liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit. It is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised only to the extent that the Directors consider that, on the basis of all available evidence, it is probable that there will be suitable future taxable profits from which the future reversal of the underlying differences can be deducted.

Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other comprehensive income respectively.

Goodwill

Goodwill represents the excess of the fair value of the consideration of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is recognised as an asset on the Group's balance sheet in the year in which it arises. Goodwill is not amortised but is tested for impairment at least annually and is stated at cost less any provision for impairment. Any impairment is recognised in the income statement and is not reversed in a subsequent period.

Borrowings

All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing.

Interest expense is recognised on the basis of the effective interest method and is included in finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

2

Significant accounting policies (continued)

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Defined contribution pension obligation

Contributions to defined contribution pension schemes are charged to the income statement in the year to which they relate.

Defined benefit pension obligation

The Group operates two defined benefit pension schemes in addition to several defined contribution schemes, which require contributions to be made to separately administered funds.

Defined benefit scheme surpluses and deficits are measured at:
-The fair value of plan assets at the reporting date; less
-Scheme liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; less
-The effect of minimum funding requirements agreed with scheme trustees.

A surplus is recognised where the Group has an unconditional right to the economic benefits in the form of future contribution reductions or refunds.

Any difference between the interest income on scheme assets and that actually achieved on assets, and any changes in the liabilities over the year due to changes in assumptions or experience within the scheme, are recognised in other comprehensive income in the period in which they arise.

Costs are recognised separately as operating and finance costs in the income statement. Operating costs comprise the current service cost, any income or expense on settlements or curtailments and past service costs.

Finance items comprise the interest on the net defined benefit asset or liability.

 

Share based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. Where applicable at the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the income statement.

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

3

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Critical accounting judgements

Critical judgements, apart from those involving estimations, that are applied in the preparation of the consolidated financial statements are discussed below:

Adjusting items

During the period certain items are identified and separately disclosed as adjusting items. Judgement is applied as to whether the item meets the necessary criteria as per the accounting policy disclosure. This assessment covers the nature of the item, cause of occurrence and the scale of impact of that item on reported performance. Note 5 provides information on all of the items disclosed as adjusting in the current period financial statements.

Sources of estimation uncertainty

Estimates and underlying assumptions are reviewed on an ongoing basis. Sources of estimation and uncertainty are discussed below:

Impairment

Where there are indicators of impairment, management performs an impairment test. Recoverable amounts for cash-generating units are the higher of fair value less costs of disposal, and value in use. Value in use is calculated from cash flow projections based on the Group's three year internal forecasts. The forecasts are extrapolated to perpetuity with nil growth rate.

Supplier income

Supplier income is recognised as a credit within cost of sales. For some sources of supplier income, management is required to make estimates in determining the amount and timing of recognition of income. These estimates are based on documented evidence of agreements with suppliers.

 

In determining the amount of volume-related allowances recognised in any period, management estimate whether the Group will meet contractual target volumes, based on historical and forecast performance.

 

For promotional funding relating to investment in the customer offer by a supplier, there is limited estimation required as funding is pre-agreed and collected throughout the year shortly after promotions have ended.

 

Outcomes within the remainder of the financial year that are different from management's assumptions could require an adjustment to the carrying amount of the affected asset.

  

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

3

Critical accounting judgements and key sources of estimation uncertainty (continued)

 

Pensions

The liabilities of the defined benefit pension schemes operated by the Group are determined using methods relying on the actuarial estimates and assumptions, including rates of increase in pensionable salaries and pensions, net defined benefit asset or liability, life expectancies and discount rates. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions and the recognition of any surplus. Changes in the assumptions used may have a significant effect on the Group Statement of Comprehensive Income and the Group Statement of Financial Position.

4

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:

 

 

26 weeks to
26 May
2019
£ 000

As restated

26 weeks to
27 May
2018
£ 000

 

Revenue

 

Sale of goods

 

611,057

610,417

 

Other operating income a

 

Property rental income

 

1,570

1,647

 

Other income

 

1,628

1,726

 

 

 

3,198

3,373

 

Finance income

 

Finance income

 

-

9

 

 

 

614,255

613,799

 

 

a During the prior year management performed a review of all revenue streams. As a result of the review all income from the Post Office is now classified as revenue. This treatment has continued in the current 26 week period.  The comparator has been restated reclassifying, for the first 26 weeks of 2018, £8.7m from other income to revenue, which has increased gross profit margin by 1% from 25.0% to 26.0%.  This has had no impact on reported Group profit.

 

 

 

 

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

5

Adjusting items

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

 

26 weeks to
26 May
2019
£ 000

As restated

26 weeks to
27 May
2018
£ 000


 

Cost of sales

Supplier administration a

-

694

 

 

-

694

 

Administrative expenses

Fines (Health and Safety) b

233

611

 

Restructuring c

539

-

 

Supplier administration a

-

693

 

 

772

1,304

 

(Profits)/losses arising on

property-related items

Sale and leaseback d

(2,470)

(2,484)

 

Unprofitable store closure programme e

1,895

1,522

 

 

(575)

(962)

 

Finance costs

Unprofitable store closure programme e

80

-

 

Total adjusting items before tax effect

277

1,036

 

Tax effect on adjusting items

(1,318)

181

 

 

1,041

1,217

 

 

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. There was no cash impact in this 26 week period.

 

b. Fines (Health and Safety)

In this reporting period, the Group was found guilty of a health and safety breach at a store in Harlow, and subsequently a fine and associated costs of £233k were issued to the Group. This liability has now been settled in full. Management classify this fine as an adjusting item due to the exceptional circumstances giving rise to the fine and materiality of costs incurred. This resulted in a net cash outflow of £233k in this 26 week period (2018 comparator £611k: a separate health and safety breach relating to contractor works).

 

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

5

Adjusting items (continued)

 

c. Restructuring costs

During the period the Group has been reviewing its operations, and has been focusing on improving productivity and efficiency. This has in turn led to material costs associated with restructuring, predominantly the cost of redundancies, resulting in a net cash outflow in this 26 week period of £539k.

 

d. Profit from Sale & leaseback of former Co-op stores acquired in 2016

During the period the Group undertook a number of sale and leaseback transactions on its freehold properties. Consistent with year-end 2018 accounts it was concluded that the profits relating to the sale and leaseback of the stores in the former Co-op portfolio were not in line with ordinary business and should therefore be treated as adjusting.  This resulted in a net cash inflow in the reporting period of £6.5m. 

The profit from sale and leaseback for the prior comparative period has been restated and is now within adjusting items to align with the current period's treatment.

e. Unprofitable store closure programme

Management continue to review the store portfolio and made the decision to close 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 costs in the reporting period consist of stores which have closed in 2019 or are expected to be closed in the near future. Management have adjusted for material onerous lease provisions, dilapidations, impairment, and other costs in relation to the closures. These closures are not part of the ordinary store exit process due to the material number of stores included in the enhanced programme. This resulted in a net cash outflow in the reporting period of £537k.

 

 

6

Adjusted EBITDA 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 5.

 

26 weeks to
26 May
2019
£ 000

26 weeks to
27 May
2018
£ 000

 

 

Operating profit before adjusting items

4,553

7,400

 

Depreciation and amortisation

8,630

8,479

 

Profit/(loss) arising on property-related items

(156)

75

 

 

13,027

15,954

 

           

 

 

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

7

Income tax

The tax credit for the 26 week period was £1,215,000 (2018: tax charge of £850,000) representing a rate of -570% (2018: 36.4%). The tax credit relates to the release of deferred tax liabilities due to the sale and leaseback transactions in the period. The comparable effective tax rate in 2019 excluding the impact of adjusting items was 21.0% (2018: 19.8%). The difference between the current statutory rate of 19.0% and the effective tax rate excluding the impact of non-deductible adjusting items is due principally to the depreciation of assets not qualifying for tax relief.

8

Dividends

The Board has declared an interim dividend of 1.3 pence per share (2018: 3.4 pence). The interim dividend will be paid on 6 September 2019 to those shareholders on the register at the close of business on 8 August 2019. The payment of this dividend will not have any tax consequences for the Group. The final dividend for 2018, paid on 6 June 2019 was, 0.6 pence per share (2017: 6.9 pence).

9

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.

 

26 May
2019
(unaudited)

27 May
2018
(unaudited)

 

Basic weighted average number of shares

115,173,145

115,172,774

 

Diluted weighted average number of shares

115,324,030

115,724,645

 

Profit attributable to ordinary shareholders (£000)

1,428

1,488

 

Basic earnings per share

1.24p

1.29p

 

Diluted earnings per share

1.24p

1.29p

 

Adjusted earnings per share:

 

 

 

Profit attributable to ordinary shareholders (£000)

1,428

1,488

 

Adjusting items (note 5)

277

1,036

 

Tax effect of adjustments

(1,318)

181

 

Profit after tax and before adjusting items

387

2,705

 

 

 

 

 

Basic adjusted earnings per share

0.34p

2.35p

 

Diluted adjusted earnings per share

0.34p

2.34p

 

 

 

 

  

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

 

9

Earnings per share

 

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 using the following:

 

26 May
2019
(unaudited)

27 May
2018
(unaudited)

 

Ordinary shares in issue at the start of the period

115,173,515

115,172,774

 

Effects of shares issued during the period

-

-

 

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)

150,515

551,871

 

Weighted average number of ordinary shares at the end of the period

115,324,030

115,724,645

 

 

10 

 Loans and borrowings

 

26 May
2019
£ 000
(unaudited)

As restated

27 May
2018
£ 000
(unaudited)

As restated

25 November
2018
£ 000
(audited)

Current

Finance lease liabilities

1,766

1,672

2,148

Term loan

9,480

10,000

10,000

 

11,246

11,672

12,148

Non-current

Revolving credit facility

43,000

57,500

38,000

Term Loan

72,500

82,500

77,500

Unamortised issue costs

(1,218)

(1,324)

(1,458)

Finance lease liabilities

1,074

1,523

947

 

115,356

140,199

114,989

         

 

The long term loans are secured by a fixed charge over the Group's head office property together with a floating charge over the Group's assets.  The Group has an amortising £81,980,000 term loan and a £100,000,000 revolving facility with a £50,000,000 accordion. The current facility drawn as at 26 May 2019 is £124,980,000 (25 November 2018: £125,500,000).

 

The element of the term loan that is due within the next 12 months is now included in current liabilities.  This change has been restated in all comparative periods.

 

 

 

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

10 

 Loans and borrowings (continued)

 

Details of loans and hire purchase obligations repayable within two to five years are as follows:

 

 

26 May
2019
£ 000
(unaudited)

27 May
2018
£ 000
(unaudited)

25 November
2018
£ 000
(audited)

Term Loan and revolving credit facility available until July 2021

115,500

140,000

115,500

Finance lease liabilities

1,074

1,523

947

 

116,574

141,523

116,447

 

11

Net debt

 

26 May
2019
£ 000
(unaudited)

27 May
2018
£ 000
(unaudited)

25 November
2018
£ 000
(audited)

Cash at bank and in hand

36,906

39,283

28,547

 

36,906

39,283

28,547

Term Loan and revolving facility available until July 2021

(124,980)

(150,000)

(125,500)

Less: unamortised issue costs

1,218

1,324

1,458

 

(123,762)

(148,676)

(124,042)

Amounts due under finance lease obligations

(2,840)

(3,195)

(3,095)

Net debt

(89,696)

(112,588)

(98,590)

         

 

Analysis of net debt

 

25 November
2018
£ 000
(audited)

Cash flow
£ 000

Other non-cash movements
£ 000

26 May
2019
£ 000
(unaudited)

Analysis of net debt

Cash and short-term deposits

28,547

8,359

-

36,906

Bank borrowings

(124,042)

265

15

(123,762)

Finance lease liabilities

(3,095)

255

-

(2,840)

 

(98,590)

8,879

15

(89,696)

 

There were no other material transactions or balances between the Group and its key management personnel or members of their close family.

 

 

 

 

 

 

McColl's Retail Group plc

Notes to the Interim Financial Statements

for the 26 week Period ended 26 May 2019

12

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.

 

Salaries and other short term employee benefits for the Directors for period ending 26 May 2019 totalled £704,000.

 

 

 

 

McColl's Retail Group plc

Principal risks and uncertainties

 

The Directors do not consider the principal risks and uncertainties to have significantly changed since the publication of the Annual Report for the period ended 25 November 2018. A detailed explanation of the risks summarised below, and how the Group seeks to mitigate these risks, can be found on pages 34 to 38 of the Annual Report and Accounts 2018.

Business strategy

If the Board either adopts the wrong strategy or does not implement it effectively the aims of the business, its performance and reputation may suffer.

Competition

We operate in a highly competitive market, which is continually changing and has been subject to ongoing consolidation. Failure to maintain market share could have an adverse effect on our core business.

Customer offer

Customer shopping habits are influenced by a wide range of factors. If we do not respond to their changing needs they are more likely to shop with a competitor, resulting in falling revenues.

Supply chain

We rely on a small number of key distributors and may be adversely affected by changes in supplier dynamics and interruptions in supply.

Supply chain transition

During 2018, we transitioned the wholesale arrangements for the majority of the estate to a new supplier. The accelerated timeline introduced additional complexity and risk.

Information technology

We depend on the reliability and capability of key information systems and technology. A major failure, a breach, or prolonged performance issues with store or head office systems could have an adverse impact on the business and its reputation.

Financial and treasury

The main financial risks are the availability of short- and long-term funding to meet business needs, fluctuations in interest rates, movements in energy prices and other post-Brexit impacts.

Economy

All our revenue is generated in the UK. Any deterioration in the UK economy, for example as a consequence of Brexit, could affect consumer spending and cost of goods, which in turn would impact our sales and profitability.

Operational cost base

We have a relatively high cost base, consisting primarily of salary, property rental and energy costs. Increases in these costs without a corresponding increase in revenues could adversely impact our profitability.

Regulation

We operate in an environment governed by strict regulations to ensure the safety and protection of customers, colleagues, shareholders and other stakeholders. Regulations include alcohol licensing, employment, health & safety, data protection and the rules of the Stock Exchange. Failure to comply with relevant laws and regulations could result in sanctions and reputational damage.

 

 

 

 

 

McColl's Retail Group plc

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 period.

 

The key APMs that the Group has focused on this period 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. 

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

 

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

 

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

 

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

 

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

 

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

 

APM

Closest equivalent IFRS measure

Reconciliation / note reference for reconciliation

Definition and purpose

Income statement

Revenue measures

 

 

Sales mix

No direct equivalent

Not applicable

The relative proportion or ratio of products sold compared to the same period in the prior year.

Like-for-like (LFL)

IFRS Revenue

Revenue  2019                     611.1m  Add VAT                                   74.8m

Excl. non store revenue             (8.8m)

Excl. petrol & commissions       (78.7m)

Excl. acq/closures                     (7.9m)                 

LFL sales                             590.5m

Revenue 2018                        610.4m                        

Add VAT                                  74.5m

Excl. non store revenue            (8.7m)

Excl.petrol & commissions       (74.9m)

Excl. Acqn/closures                (16.8m)              LFL sales                             584.5m             

LFL%                                         1.0%

Like-for-like is a measure 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.

Profit measures

 

 

 

Adjusted EBITDA

Operating Profit

Note 6

This profit measure shows the Group's Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for both Property profits and losses and other adjusting items, in order to provide shareholders with a measure of true underlying performance of the business.

Basic adjusted Earnings per share (EPS)

Basic earnings per share

Note 9

This relates to profit after tax before adjusting items 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 earnings per share

Diluted earnings per share

Note 9

The difference between basic and diluted metric is the impact of the dilutive effect of share options and warrants in existence.

Balance sheet measures

 

 

Net debt

Borrowings less cash and related hedges

Note 11

Net debt comprises bank and other borrowings, finance lease payables, and net interest receivables/ payables, offset by cash and cash equivalents and short-term investments. It is a useful measure of the progress in generating cash and strengthening of the Group's balance sheet position and is a measure widely used by credit rating agencies.

 

Other

 

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

 

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

 

Quarter: The "first quarter" refers to the thirteen week period from 27 November 2018 to 24 February 2019, and "second quarter" refers to the thirteen week period from 25 February 2019 to 26 May 2019.

 

Profits/(losses) arising on property-related items: This relates to the Group's property activities including; profits 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.

 

INDEPENDENT REVIEW REPORT TO McColl's RETAIL GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the twenty six weeks ended 26 May 2019 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the twenty six weeks ended 26 May 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

 

BDO LLP

Chartered Accountants

Manchester

22 July 2019

 

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).


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