TIDMMCLS

RNS Number : 2930V

McColl's Retail Group plc

06 August 2020

6 August 2020

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

INTERIM RESULTS FOR 26 WEEK PERIODED 24 MAY 2020

Standing by our local communities

Jonathan Miller, Chief Executive, said: "I have never been prouder of McColl's and all our colleagues who have been working incredibly hard in such a challenging environment following the COVID-19 outbreak. The business has responded quickly to keep the neighbourhood communities we serve supplied with the food, goods and services they need.

We have seen an extraordinary change since the onset of the crisis. Strong demand, reaching double digit like-for-like sales in recent months, has been accompanied by a significant shift in the pattern of trade. Food grocery and alcohol sales have been particularly strong, in line with our longer-term strategy to grow these categories as part of our total sales mix. Meanwhile, customers have been spending less on impulse and buying more multipack products.

The safety of customers and colleagues remains paramount, and we acted quickly to deploy personal protective equipment (PPE) and the necessary social distancing measures, the costs of which have been partially offset by the business rates saving.

Fundamentally, the pandemic has served to reinforce our conviction in our ongoing strategic change programme to serve our customers with a modern, local convenience offer with better meal solutions, fresh groceries and alcohol. What is clear is that the strategic importance of our neighbourhood stores and convenience retail to local communities has never been greater and, through implementing our strategy and improving our customer proposition, I remain confident in our long-term prospects."

Financial highlights

-- Total revenue down 1.0% to GBP604.8m (2019: GBP611.1m) reflecting store closures during the period and lower services revenue due to the temporary withdrawal of scratch cards, offset by stronger demand since the COVID-19 outbreak in the UK

-- Total like-for-like (LFL) sales(1) growth of 8.3% (2019: up 1.0%), with growth accelerating in the second quarter

   --      Gross margin of 24.9% (2019: 25.4%), primarily impacted by: 

-- Mix impacts as consumers moved away from impulse purchases to lower margin take home products as well as multi-buys and value items

   --      Strategic investment in price in some key product areas 

-- Gross profit fell slightly to GBP150.7m (2019: GBP155.0m) due to lower total revenue and gross margin

-- Adjusted EBITDA of GBP28.0m. On a consistent, pre IFRS 16 basis, Adjusted EBITDA(3) was slightly ahead at GBP13.1m (2019: GBP13.0m) with gross margin dilution and additional COVID-19 related costs broadly offset by underlying cost control and business rates relief in the period

-- Adjusted loss before tax(2) of GBP0.5m (2019: profit of GBP0.5m). Statutory loss before tax GBP1.3m (2019: profit of GBP0.2m)

-- Basic loss per share (0.9)p (2019:earnings 1.2p); adjusted loss per share(2) 0.2p (2019:earnings 0.3p)

-- Net debt closed the period at GBP284.3m. On a pre IFRS 16 basis, net debt(4) reduced to GBP82.0m (2019: GBP89.7m pre IFRS 16)

COVID-19 trading and operations

Our priority has been the health, safety and wellbeing of our colleagues, customers and communities. Since the COVID-19 outbreak we:

   --      Adapted quickly to social distancing requirements and trading conditions 

-- Implemented health and safety measures in line with Government guidance across our store estate

-- With only a few exceptions, kept stores open, supplying essential products and services to our communities

   --      Implemented numerous initiatives to serve our communities, including 

o Supporting NHS Great Ormond Street Hospital by providing their colleagues with free essential food and goods

o Providing free cups of coffee to the emergency services, NHS key workers and delivery drivers to our stores

o The first convenience retailer to support the Free School Meals voucher scheme

o Stocking The Big Issue in-store for the first time in the magazine's history to support its vendors

-- Remained focused on liquidity, supported by prudent stock management and Government support measures

Going forward, it remains difficult to predict the full impact and duration of COVID-19 on sales and costs. Currently, demand remains strong but we expect continued margin pressure and ongoing cost headwinds reflecting the need to keep customers and colleagues safe.

Progress against key strategic initiatives

Despite the operational challenges created by the COVID-19 pandemic, the Group has made progress against its customer-focused strategic change programme, with specific prioritisation of those areas that best serve customers at this time:

   --      A revitalised customer offer: 

o Invested selectively in price on chilled foods, fruit and vegetables and milk to offer customers better value

o New partnership underway with Deliveroo offering home delivery of convenience goods from over 120 McColl's stores

o Extended range and offer into more stores to meet customers' needs

   --      A fundamental reset to the operating model: 

o Completed first phase review of store operating model prior to lockdown ready for store trials when conditions are suitable

   --      Enhancing the quality of our estate: 

o Whilst we continue to plan for previously announced store divestments as we move towards an optimised estate of c.1,100 larger, more convenience-focused stores, divestment activity has been temporarily put on hold where possible to support local communities during the COVID-19 pandemic

   --      Great place to work 

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

o Developed new model to help identity future talent within the business, and support our colleagues in reaching their full potential

o Re-aligning operations structure to our strategy to create a simpler, but more effective organisation structure for the future

Notes:

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

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

2. The Group has defined and outlined the purpose of its alternative performance measures, including its key measures, in the glossary of terms.

   3.   See reconciliation of pre and post IFRS 16 impacts on EBITDA in Note 6 
   4.   See reconciliation of pre and post IFRS 16 impacts on Net Debt in Note 12 

Results presentation

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

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

Enquiries

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

McColl's Retail Group plc

 
 Jonathan Miller, Chief Executive        Media enquiries: 
  Officer                                 Headland 
  Giles David, Chief Financial Officer    Ed Young, Rob Walker, Charlie 
  Tej Randhawa, Investor Relations        Twigg 
  +44 (0)1277 372916                      +44 (0)203 805 4822 
                                          mccolls@headlandconsultancy.com 
 

Notes to editors

McColl's is a leading neighbourhood retailer, with an estate of over 1,400 managed convenience stores and newsagents. We operate McColl's branded convenience stores as well as newsagents branded Martin's across the UK, except in Scotland where we operate under our heritage brand, RS McColl. Our dedicated colleagues serve five million customers every week, and we are the largest operator of Post Offices in the UK.

LEI: 21300R1TLR536P8YJ67

This announcement contains inside information.

Cautionary statements

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

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

STRATEGIC AND OPERATIONAL REVIEW

Our business model positioned us well to support communities across the UK following the lockdown restrictions and we responded rapidly and effectively to the changing environment. We dealt with the increased demand from consumers, deployed the necessary personal protective equipment (PPE) and social distancing measures, working closely with our wholesale partners to keep supply chains open and made further progress towards our strategic goals.

Total revenue was GBP604.8m and LFL sales growth for the period was 8.3%, as we saw a sustained increase in demand in the second quarter. We also experienced a significant shift in the pattern of demand, with customers favouring take home rather than impulse products, and a preference for multi-buys and value packs, resulting in a reduction in the gross margin rate of 50bps. Continued cost discipline and business rates relief offset margin dilution and additional COVID-19-related expenditure in the period leading to a marginal increase in Adjusted EBITDA, while net debt, a key strategic priority, reduced by GBP7.7m to GBP82.0m (pre IFRS 16).

COVID-19 update

During this period of uncertainty, our priority has always been the health, safety and wellbeing of our colleagues and customers, and it's a testament to the commitment and dedication of our people that our stores have remained open and serving the communities during this difficult time.

We moved quickly to put in place a range of policies designed to protect our colleagues and customers, and to keep our stores open and trading safely. We adapted our stores to allow social distancing measures, reduced trading hours to manage deliveries and staff levels, and temporarily removed non-essential items, such as scratch cards, from sale. We rapidly enabled remote working for our Retail Support Centres to support our stores. We also deployed a full range of personal protective equipment (PPE) for our store colleagues and offered colleagues double discounts for an extended period to help to support them during these times.

McColl's is a neighbourhood retailer and we have taken important steps to support the communities in which we operate. To show our support for the NHS and the invaluable service it provides, McColl's provided essential food and goods to colleagues at NHS Great Ormond Street Hospital (GOSH) for free. Throughout the course of the pandemic we supplied store-cupboard and fridge essentials to GOSH colleagues to take home after a day's shift. In stores, we also offered all emergency and NHS workers free coffee, as well as the delivery drivers that kept goods flowing to our stores. We were one of the first Retailers to make the Big Issue magazine available for purchase from our stores until Big Issue vendors are able to return to work. We were also the first convenience retailer to support the Free School Meals voucher scheme.

In addition the company put in place multiple new governance processes, a contingency planning framework and an active communications policy to ensure the effective management of the crisis and business continuity.

In terms of trading, we saw strong and sustained demand in the second quarter, working closely with our wholesale partners to maintain availability and effectively managed working capital to maintain a strong financial position throughout the lockdown.

Emerging trends in community retailing

Lockdown restrictions and limited freedom of movement have currently changed the retail environment and consumer behaviours. Consumers are increasingly opting to shop locally, utilising their neighbourhood retailers for their household needs and we saw reduced visit frequency offset by a strong increase in basket sizes.

While it's unknown how behaviours will change when restrictions are removed, the recent environment presented us with an opportunity to put our best foot forward within the communities in which we operate. Our format, range and differentiated customer service all hold us in good stead to retain the additional customers drawn to our stores during such difficult circumstances, but we also invested selectively in price on chilled foods, fruit and vegetables and milk, as well as maintaining our promotional programme to offer customers great value.

Progress against key strategic initiatives

As we entered 2020 we launched our medium-term strategic change programme, centred on the customer, and recognising the need to segment the estate to better meet the needs of the communities we serve. Our vision is to be your favourite neighbourhood shop and more than ever we are focused on delivering a great customer experience. This strategy is built on four key pillars; strong customer offer, easy to run stores, improving our stores and a great place to work.

Our customer led strategy held us in good stead to respond to the changeable conditions and challenges, continue to serve our customers and emerge from the crisis well positioned for the future. Amidst the lockdown conditions and associated changes to consumer behaviour, we adapted and prioritised the key elements of our strategy to respond to changing needs and best serve our customers.

We launched a new partnership with Deliveroo to make a range of daily essentials available on demand from over 120 McColl's stores. This initiative will be further extended and will continue post lockdown as another service in support of neighbourhood communities all over the country. The partnership allows customers to order a wide range of different convenience products, including groceries, soft drinks, confectionery, snacks, beer, wine, toiletries, and essential household items, all delivered directly to their doorsteps.

Demand has been strongest in our larger turnover, food-based, convenience stores. This includes our Morrisons Daily trial stores, of which a further 20 were opened in February 2020, leading to a total of 30 trial stores now in operation. This trial is helping us with range development whilst exploring the potential to expand the fascia into more stores. We continue to work in partnership with Morrisons to build a plan to supply all of our estate.

We have continued to develop McColl's as a great place to work. The initial phase of our operating model review was completed ahead of COVID-19 but it has not been feasible to implement the identified changes at this time. We have instituted the necessary operational efficiencies to meet the current needs and trading conditions, and will return to implementing the blueprint operating model as soon as practically possible.

Furthermore, at a time when our customers need additional neighbourhood resources and local convenience in their daily lives more than previously, we have paused where possible the store optimisation and closure programme to keep as many of our stores operating and serving the community as possible.

Board and leadership update

To capitalise on the increased momentum in the business, we have made further changes to the McColl's leadership team structure. Giles David joined McColl's and the Board on 1 June, succeeding Robbie Bell as Chief Financial Officer. Giles brings extensive experience in senior finance roles in customer facing businesses across retail, hospitality, property and telecoms . The Board thanks Robbie for his contribution to McColl's and wishes him well for the future.

Having welcomed Richard Crampton last year in the new position of Chief Commercial Officer, Richard was appointed to the Board from 1 June. Richard has made a significant contribution to the business in a short space of time and is a strong addition to the Board as we execute our strategic programme.

In addition, Dominic Lavelle joined the Board as a Non-Executive Director of the Group with effect from 18 May 2020. Dominic succeeded Sharon Brown as Chair of the Audit & Risk Committee with effect from 1 July 2020. We thank Sharon for her contribution during her time on the Board and wish her continued success for the future. Benedict Smith has also joined the Board as a Non-Executive Director with effect from 1 July 2020.

Outlook

Going forward, it remains difficult to predict the full impact and duration of the COVID-19 pandemic on sales and costs. The onset of the pandemic resulted in an acceleration of revenue growth, driven by strong demand for our convenience offering from neighbourhood communities across the country. While we continue to maintain strong like-for-like revenue growth, we expect this level of growth to moderate in the second-half of the year.

In addition, any benefit from business rates relief is expected to be broadly offset by the costs of keeping customers and colleagues safe, and the impact of margin dilution as customers shift towards take home versus impulse spend.

The value and importance of neighbourhood retailing to local communities across the country has been clearly highlighted during the pandemic. As one of the leading convenience retailers in the UK, McColl's continues to serve the well-being of our communities, and to keep a pulse on changing consumer behaviours. We are well positioned to adapt to these changes, as well as leveraging new opportunities such as the demand for local delivery options, to help deliver further profitable growth over the medium term.

FINANCIAL REVIEW

New accounting standards

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

As a result of adopting the new accounting standard for the six months ended 24 May 2020, the Group's Adjusted EBITDA was GBP28.0m and Net Debt was GBP284.3m as at the period end. On a consistent, pre IFRS 16 basis, Adjusted EBITDA(3) for the period was slightly ahead at GBP13.1m (2019: GBP13.0m) and Net Debt(4) reduced to GBP82.0m (2019: GBP89.7m) as at the period end.

See Notes 6 and 12 for a reconciliation of the IFRS 16 adjustments impacting EBITDA and Net Debt.

Overview

We are certainly operating in extraordinary times and COVID-19, and the associated changes in consumer behaviour, have influenced, and will continue to influence, our financial performance and the decisions we take in responding to the changeable conditions. In the period, our LFL sales accelerated from broadly flat before the pandemic to strongly positive through the weeks of lockdown. Consumer preferences switched to lower margin take home and value packs, and we took the strategic decision to selectively invest in price to attract incremental shoppers to the brand. Below margin, incremental COVID-19 related costs were broadly offset by continued cost discipline and business rates relief received in the period, however we expect cost headwinds to continue in the second half.

Solid revenue performance

Half year revenue was down by 1.0% to GBP604.8m (2019: GBP611.1m) as reflection of having fewer stores year on year, mostly offset by increased, COVID-19 related demand late in the period. As part of the store optimisation programme, we closed 65 sites in the period, before pausing the programme as a result of the crisis.

We saw LFL sales growth of 8.3% (2019: 1.0%) in the period, having experienced strong demand as consumers chose to shop locally during lockdown restrictions. We also experienced a change in the way consumers shopped with us, with significant increases in take home, groceries, beers, wines and spirits. The traditional categories of news and tobacco have also shown good growth.

Gross profit margin dilution

Gross margin was down at 24.9% (2019: 25.4%) due to the changing mix of sales during lockdown. In addition, we took the active decision to selectively invest in price to maintain good value to existing customers and build loyalty amongst the incremental shoppers in our stores.

In terms of overall value, gross profit decreased by 2.8% to GBP150.7m (2019: GBP155.0m) reflecting the decline in total sales and dilution from mix.

Rates relief offsets cost pressures and wage inflation

We experienced a number of underlying cost pressures and worked hard to mitigate the National Living Wage inflation of around 5%. Additional COVID-19 related costs, including the personal protective equipment (PPE) necessary to keep our colleagues and customers safe, was broadly offset by business rates relief phased in the period. Going forward we expect to incur continued cost headwinds related to COVID-19 impacts such as additional card charges, PPE , cleaning equipment and employee costs.

On a pre IFRS16 basis, administrative expenses as a percentage of revenue were 24.5% (2019: 25.2%).

Adjusting items

Adjusted operating profit increased to GBP8.4m (2019: GBP4.6m). Statutory operating profit increased to GBP7.5m (2019: GBP4.4m profit).

In total there were GBP0.9m of adjusting items including GBP1.1m within administrative expenses comprising GBP0.5m relating to a Health and Safety Fine and GBP0.6m relating to business reorganisation. Net property-related profits of GBP0.3m (2019: GBP0.7m) included GBP1.7m of costs associated with closures and impairment and GBP2.0m of proceeds from sales of going concerns.

Adjusted loss before tax was GBP(0.5)m (2019: profit of GBP0.5m) and Statutory loss before tax was GBP1.3m (2019: profit of GBP0.2m).

EBITDA (adjusted)

Adjusted EBITDA was GBP28.0m (2019: GBP13.0m pre IFRS 16), and was slightly higher than last year on a pre IFRS 16 basis at GBP13.1m due to continued cost discipline and business rates relief offsetting margin dilution and additional COVID-19-related expenditure. Adjusted EBITDA margin of 4.6% (2019: 2.1% pre IFRS 16), has remained broadly flat on a pre IFRS 16 basis.

Interest and tax

Net finance costs before adjusting items increased year-on-year to GBP8.9m (2019: GBP4.1m) reflecting the finance charge under IFRS 16 and slighter higher interest rate, albeit partly offset by lower balances outstanding on the term loan.

The tax credit for the period was GBP0.3m (2019: GBP1.2m credit). The comparable effective tax rate in 2020 excluding the impact of non-deductible adjusting items was 59.6% (2019 21.0%). The difference between this and the current statutory rate of 19.0% in the period is due principally to the unwinding of temporary difference on disposed fixed assets, IFRS 16 transitional adjustment to retained earnings and the change in the tax rate impact on deferred tax.

Earnings per share

Basic loss per share was 0.9 pence (2019: earnings 1.2 pence). Adjusted loss per share was 0.2 pence (2019: earnings 0.3 pence).

Balance sheet and net debt

Total shareholder funds at the end of the period were GBP26.2m (2019: GBP142.9m). The book value of non-current assets increased by GBP75.2m year on year to GBP430.0m (2019: GBP354.8m), reflecting the creation of the Right of Use Asset under IFRS 16 (GBP186.0m), goodwill and store asset impairment in the previous year, completion of our sale and leaseback programme and divestment or closure of underperforming stores.

Current assets at the end of the period increased to GBP194.6m (2019: GBP154.0m) as a result of a net increase in cash and cash equivalents of GBP33.9m as we prudently drew down our maximum facility following the COVID-19 outbreak, which we intend to reduce going forward.

Current liabilities increased to GBP260.5m (2019: GBP232.0m), reflecting higher trade and other payables and borrowings offset by lower provisions. Non-current liabilities increased to GBP337.9m (2019: GBP134.0m) due to the inclusion of lease liabilities following the adoption of IFRS 16.

Net debt (total borrowings less cash and cash equivalents) at the end of the period was GBP284.3m. On a consistent pre IFRS 16 basis, net debt reduced to GBP82.0m (2019: GBP89.7m pre IFRS 16). The business remains focused on working capital and cash management to reduce business leverage.

Pension schemes

We operate two defined benefit pension schemes, the TM Group Pension Scheme and the TM Pension Plan, both of which are closed to future accrual. The combined accounting surplus in the two defined benefit pension schemes operated by the Group decreased to GBP9.1m (2019: GBP12.7m). The last actuarial review of the two schemes in June 2017 concluded that the combined funding deficit was GBP12.6m, and the Group currently contributes approximately GBP2.1m per year, inclusive of fees and levies.

Total assets across both schemes had a value of GBP141.5m at the interim period end date of 24 May 2020. Within one of the pension schemes, a portion of assets totalling GBP7.3m (5% of total pension assets) was based on a valuation statement dated 31 March 2020, rather than the period end date. Given the volatility in financial markets since the start of the COVID-19 pandemic, this valuation has been deemed out of date by the Directors and the Group's external auditor. This has led to a qualified conclusion on the interim results specific to the valuation of the GBP7.3m of pension assets only. The valuation date as at 31 March 2020 appears to coincide with a low point in financial market valuations in recent months.

Cash flow and capital expenditure

Cash generation continues to support our capital investment programme which remains key to the three initiatives of the change programme, including; developing the customer offer, harnessing new technology to improve the operating model and investment in store refreshes.

Net cash provided by operating activities in the period was GBP36.4m (2019: GBP13.4m), supported by strong sales in the final 2 months of the period and an improvement in working capital. The cash position was also benefited by government support measures available to the Group following the onset of the COVID-19 pandemic, including the job retention scheme, a deferral of VAT payments, and the business rates holiday.

Gross capital expenditure was GBP6.3m (2019: GBP7.5m). Net capital expenditure, including property proceeds from the sale of properties, increased to GBP4.1m (2019: GBP0.5m inflow).

Loans interest paid is in line with last year at GBP4.0m (2019: GBP4.0m).

McColl's Retail Group

Responsibility Statement

Statement of Directors' Responsibilities

26 week period ended 24 May 2020

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

Jonathan Miller

Chief Executive

5 August 2020

Giles David

Chief Financial Officer

5 August 2020

McColl's Retail Group

Consolidated Income Statement for the 26 week period ended 24 May 2020

 
                               26 weeks to 24 May 2020 (unaudited)          26 weeks to 26 May 2019 (unaudited)(1) 
                          ---------------------------------------------  --------------------------------------------- 
                                   Before                   Total after                    Adjusting 
                                adjusting  Adjusting items    adjusting  Before adjusting      items       Total after 
                                    items                         items             items              adjusting items 
                                                    Note 5                                    Note 5 
                    Note          GBP 000          GBP 000      GBP 000           GBP 000    GBP 000           GBP 000 
Revenue              4            604,772                -      604,772           611,057          -           611,057 
Cost of sales                   (454,099)                -    (454,099)         (456,021)          -         (456,021) 
                          ---------------  ---------------  -----------  ----------------  ---------  ---------------- 
Gross profit                      150,673                -      150,673           155,036          -           155,036 
Administrative 
 expenses                       (144,321)          (1,108)    (145,429)         (153,837)      (772)         (154,609) 
Other operating 
 income              4              2,121                -        2,121             3,198          -             3,198 
(Losses)/profits 
 arising on 
 property-related 
 items                               (74)              250          176               156        575               731 
                          ---------------  ---------------  -----------  ----------------  ---------  ---------------- 
Operating 
 profit/(loss)       6              8,399            (858)        7,541             4,553      (197)             4,356 
                          ---------------  ---------------  -----------  ----------------  ---------  ---------------- 
Finance income                         42                -           42                 -          -                 - 
Finance costs(2)                  (8,894)                -      (8,894)           (4,063)       (80)           (4,143) 
                          ---------------  ---------------  -----------  ----------------  ---------  ---------------- 
Net finance cost                  (8,852)                -      (8,852)           (4,063)       (80)           (4,143) 
                          ---------------  ---------------  -----------  ----------------  ---------  ---------------- 
(Loss)/profit 
 before tax                         (453)            (858)      (1,311)               490      (277)               213 
Income tax 
 credit/(charge)     7                270               25          295             (103)      1,318             1,215 
                          ---------------  ---------------  -----------  ----------------  ---------  ---------------- 
(Loss)/profit for 
 the period                         (183)            (833)      (1,016)               387      1,041             1,428 
                          ===============  ===============  ===========  ================  =========  ================ 
(Losses)/earnings 
 per share (pence)   9            (0.16)p                       (0.88)p             0.34p                        1.24p 
Diluted 
 (Losses)/earnings 
 per share 
 (pence)             9            (0.16)p                       (0.88)p             0.34p                        1.24p 
 

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

2. Finance costs in the 26 week period ended 24 May 2020 includes GBP4.5m of additional finance charges in relation to the adoption of IFRS 16. See Note 13.

The above results were derived from continuing operations.

McColl's Retail Group

Consolidated Statement of Comprehensive Income

for the 26 week period ended 24 May 2020

 
                                                           26 weeks 
                                                                 to       26 weeks to 
                                                             24 May            26 May 
                                                               2020              2019 
                                                            GBP 000           GBP 000 
                                                        (unaudited)    (unaudited)(1) 
(Loss)/profit for the period                                (1,016)             1,428 
                                                      -------------  ---------------- 
Items that will not be reclassified subsequently 
 to profit or loss 
Actuarial gain/(loss) on defined benefit 
 pension schemes before tax                                     355              (74) 
Deferred tax effect of items in other comprehensive 
 income                                                       (225)                26 
                                                      -------------  ---------------- 
Other comprehensive gain/(loss) for the 
 period                                                         130              (48) 
                                                      -------------  ---------------- 
Total comprehensive (loss)/income for the 
 period                                                       (886)             1,380 
                                                      =============  ================ 
 

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

McColl's Retail Group

Consolidated Statement of Financial Position

for the 26 week period ended 24 May 2020

 
                                                                  26 May 
                                              24 May                2019     24 November 
                                                2020             GBP 000            2019 
                                             GBP 000            Restated         GBP 000 
                                 Note    (unaudited)    (unaudited)(1,3)    (audited)(1) 
Assets 
Non-current assets 
Property, plant and equipment                 69,715              85,550          77,113 
Intangible assets                            157,955             253,641         156,898 
Right of use assets              13          186,034                   -               - 
Deferred tax assets                            4,604                  97           1,350 
Retirement benefit asset                      11,706              15,490          11,502 
Investments                                        -                  36               - 
                                       -------------  ------------------  -------------- 
Total non-current assets                     430,014             354,814         246,863 
                                       -------------  ------------------  -------------- 
Current assets 
Inventories                                   80,866              80,031          86,434 
Trade and other receivables                   39,205              36,576          39,036 
Income tax asset                                   -                 513             912 
Cash and cash equivalents                     70,793              36,906          36,999 
Assets classified as held 
 for sale                        10            3,781                   -               - 
                                       -------------  ------------------  -------------- 
Total current assets                         194,645             154,026         163,381 
                                       -------------  ------------------  -------------- 
Total assets                                 624,659             508,840         410,244 
                                       =============  ==================  ============== 
Equity and liabilities 
Current liabilities 
Trade and other payables                   (223,626)           (215,301)       (215,534) 
Loans and borrowings(2)          11         (35,826)            (11,246)        (11,231) 
Income tax liability                           (190)                   -               - 
Provisions                                     (842)             (5,433)         (2,528) 
                                       -------------  ------------------  -------------- 
Total current liabilities                  (260,484)           (231,980)       (229,293) 
                                       =============  ==================  ============== 
Net current liabilities                     (65,839)            (77,954)        (65,912) 
                                       =============  ==================  ============== 
Non-current liabilities 
Loans and borrowings(2)          11        (319,232)           (115,356)       (119,887) 
Other payables                               (8,883)             (9,845)        (10,755) 
Provisions                                   (1,560)               (326)         (3,186) 
Deferred tax liabilities                     (5,608)             (5,637)         (4,813) 
Retirement benefit obligations               (2,644)             (2,836)         (3,645) 
                                       -------------  ------------------  -------------- 
Total non-current liabilities              (337,927)           (134,000)       (142,286) 
                                       =============  ==================  ============== 
Total liabilities                          (598,411)           (365,980)       (371,579) 
                                       =============  ==================  ============== 
Net assets                                    26,248             142,860          38,665 
                                       =============  ==================  ============== 
 

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information has not been restated in relation to IFRS 16. See Note 2.

2. Loans and borrowings as at 24 May 2020 include GBP22.2m of additional current lease liabilities and GBP180.0m of additional non-current lease liabilities as a result of adopting IFRS 16. See Note 13.

   3.   Restated for Inventories and Trade and other payables - see Note 15. 

McColl's Retail Group

Consolidated Statement of Financial Position

for the 26 week period ended 24 May 2020

 
                                                                26 May 
                                              24 May              2019     24 November 
                                                2020           GBP 000            2019 
                                             GBP 000          Restated         GBP 000 
                                Note     (unaudited)    (unaudited)(1)    (audited)(1) 
Equity 
Share capital                                  (115)             (115)           (115) 
Share premium                               (12,580)          (12,580)        (12,580) 
Retained earnings                           (13,553)         (130,165)        (25,970) 
                                       -------------  ----------------  -------------- 
Equity attributable to owners 
 of the Company                             (26,248)         (142,860)        (38,665) 
                                       =============  ================  ============== 
 

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

These financial statements of McColl's Retail Group plc registered number 08783477 were approved and authorised for issue by the Board on 5 August 2020 and signed on its behalf by:

.........................................

Giles David

Chief Financial Officer

McColl's Retail Group

Consolidated Statement of Changes in Equity for the 26 week period ended 24 May 2020

 
                                                      Share capital  Share premium  Retained earnings  Total equity(1) 
                                              Note          GBP 000        GBP 000            GBP 000          GBP 000 
At 25 November 2019 (audited)                                   115         12,580             25,970           38,665 
Adoption of IFRS 16                            13                 -              -           (14,006)         (14,006) 
Adoption of IFRS 16 deferred tax                                  -              -              2,381            2,381 
                                                    ---------------  -------------  -----------------  --------------- 
                                                                115         12,580             14,345           27,040 
                                                    ---------------  -------------  -----------------  --------------- 
Loss for the period                                               -              -            (1,016)          (1,016) 
Remeasurement of defined benefit pension 
 scheme                                                           -              -                130              130 
                                                    ---------------  -------------  -----------------  --------------- 
Total comprehensive income                                        -              -              (886)            (886) 
Contributions by and distribution to owners 
Share based payment transactions                                  -              -                 90               90 
Deferred tax                                                      -              -                  4                4 
                                                    ---------------  -------------  -----------------  --------------- 
At 24 May 2020 (unaudited)                                      115         12,580             13,553           26,248 
                                                    ===============  =============  =================  =============== 
 
 
                                                      Share capital  Share premium  Retained earnings  Total equity(1) 
                                                            GBP 000        GBP 000            GBP 000          GBP 000 
At 26 May 2019 (unaudited)                                      115         12,580            130,165          142,860 
                                                    ---------------  -------------  -----------------  --------------- 
Loss for the period                                               -              -           (97,365)         (97,365) 
Remeasurement of defined benefit pension scheme                   -              -            (4,749)          (4,749) 
                                                    ---------------  -------------  -----------------  --------------- 
Total comprehensive income                                        -              -          (102,114)        (102,114) 
Contributions by and distribution to owners 
Dividends                                                         -              -            (2,188)          (2,188) 
Share based payment transactions                                  -              -                121              121 
Deferred tax                                                      -              -               (14)             (14) 
                                                    ---------------  -------------  -----------------  --------------- 
At 24 November 2019 (audited)                                   115         12,580             25,970           38,665 
                                                    ===============  =============  =================  =============== 
 

Note:

The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

McColl's Retail Group

Consolidated Statement of Changes in Equity for the 26 week period ended 24 May 2020

 
 
 
                                                    Share capital  Share premium  Retained earnings  Total equity(1) 
                                                          GBP 000        GBP 000            GBP 000          GBP 000 
At 26 November 2018 (audited)                                 115         12,580            128,785          141,480 
                                                  ---------------  -------------  -----------------  --------------- 
Profit for the period                                           -              -              1,428            1,428 
Remeasurement of defined benefit pension scheme                 -              -               (48)             (48) 
                                                  ---------------  -------------  -----------------  --------------- 
Total comprehensive income                                      -              -              1,380            1,380 
Contributions by and distribution to owners 
Dividends                                                       -              -                  -                - 
Share based payment transactions                                -              -                  -                - 
                                                  ---------------  -------------  -----------------  --------------- 
At 26 May 2019 (unaudited)                                    115         12,580            130,165          142,860 
                                                  ===============  =============  =================  =============== 
 

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

McColl's Retail Group

Consolidated Statement of Cash Flows

for the 26 week period ended 24 May 2020

 
                                             26 weeks to         26 weeks to     52 weeks to 
                                                  24 May              26 May     24 November 
                                                    2020                2019            2019 
                                                 GBP 000             GBP 000         GBP 000 
                                     Note    (unaudited)    (unaudited)(1,3)    (audited)(1) 
Cash flows from operating activities 
(Loss)/profit for the period                     (1,016)               1,428        (95,937) 
Adjustments to cash flows 
 from non-cash items 
Depreciation and amortisation                     19,458               8,630          16,676 
Profit on disposal of property 
 plant and equipment                               (967)             (2,628)         (1,497) 
Profit from disposals of 
 investments                                           -                   -           (132) 
Finance income                                      (42)                   -               - 
Finance costs                                      8,894               4,143           8,203 
Share based payment transactions                      90                   -             121 
Income tax expense                    7            (295)             (1,215)         (2,706) 
Impairment losses                                (1,038)                   -         101,276 
                                           -------------  ------------------  -------------- 
                                                  25,084              10,358          26,004 
Working capital adjustments 
Decrease/(increase) in inventories                 5,568                  58         (6,600) 
Decrease in trade and other 
 receivables                                       1,856               5,408           2,948 
Increase/(decrease) in trade 
 and other payables                                6,329               (395)             609 
Decrease in retirement benefit 
 obligation net of actuarial 
 changes                                           (850)               (782)         (1,804) 
(Decrease)/increase in provisions                (2,702)                  90              45 
                                           -------------  ------------------  -------------- 
Cash generated from operations                    35,285              14,737          21,202 
Income taxes received/(paid)                       1,098             (1,374)         (1,205) 
                                           -------------  ------------------  -------------- 
Net cash flow from operating 
 activities                                       36,383              13,363          19,997 
                                           -------------  ------------------  -------------- 
Cash flows from investing 
 activities 
Interest received                                     42                   -               - 
Acquisitions of property 
 plant and equipment                             (6,303)             (7,515)        (14,427) 
Proceeds from sale of property 
 plant and equipment                               2,160               8,042          11,499 
Acquisition of businesses, 
 net of cash acquired                                  -                   -         (1,188) 
Proceeds from investment 
 disposals                                             -                   -              84 
                                           -------------  ------------------  -------------- 
Net cash flows from investing 
 activities                                      (4,101)                 527         (4,032) 
                                           -------------  ------------------  -------------- 
 

McColl's Retail Group

Consolidated Statement of Cash Flows

for the 26 week period ended 24 May 2020

 
                                         26 weeks to       26 weeks to     52 weeks to 
                                              24 May            26 May     24 November 
                                                2020              2019            2019 
                                             GBP 000           GBP 000         GBP 000 
                                 Note    (unaudited)    (unaudited)(1)    (audited)(1) 
Cash flows from financing 
 activities 
Interest paid                                (3,980)           (4,012)         (7,412) 
Other borrowings                 12            2,545                 -               - 
Drawdown/(repayment) of 
 bank borrowing                  12           19,262             (520)           4,000 
Repayment of lease liabilities   12         (11,713)             (912)         (1,741) 
Interest payments on lease 
 liabilities                                 (4,602)              (87)           (172) 
Dividends paid                   8                 -                 -         (2,188) 
                                       -------------  ----------------  -------------- 
Net cash flows from financing 
 activities                                    1,512           (5,531)         (7,513) 
                                       -------------  ----------------  -------------- 
Net increase in cash and 
 cash equivalents                             33,794             8,359           8,452 
Cash and cash equivalents 
 at beginning of period                       36,999            28,547          28,547 
                                       -------------  ----------------  -------------- 
Cash and cash equivalents 
 at end of period                             70,793            36,906          36,999 
                                       =============  ================  ============== 
 
 

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

2. Operating cash inflows before movements in working capital for the 26 week period ended 24 May 2020 are GBP15.7m higher due to the adoption of IFRS 16. Interest paid for 26 week period ended 24 May 2020 is GBP4.5m higher due to the adoption of IFRS 16. Cash outflows in respect of the capital element of lease rental payments for 26 week period ended 24 May 2020 is GBP11.2m higher due to the adoption of IFRS 16.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
1  General information 
 

The Group is a public company limited by share capital, incorporated in England and Wales and domiciled in 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 condensed interim financial statements for the 26 week period ended 24 May 2020 have been prepared in accordance with the Disclosure Guidance 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 24 November 2019 as applied in the Group's Annual Report and Accounts 2019 (the "Annual Report 2019").

The accounting policies applied by the Group in these consolidated results are the same as those applied by the Group in its Annual Report 2019 for the period ended 24 November 2019 with the exception of the adoption of new IFRSs as referenced in note 2.

The Annual Report 2019 is available at:

https://www.mccollsplc.co.uk/investors/

The financial information for the period ended 24 May 2020 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 24 November 2019. 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.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

Basis of measurement

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

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.

During this period of uncertainty, the business has managed to keep stores open and serving the communities during this difficult time. Management moved quickly to put in place a range of policies designed to protect our colleagues and customers, keep our stores open and trading safely. Short-term spikes in customer demand and the impact on ongoing availability of key products has been managed successfully and we are monitoring the impact on our suppliers, who we are continuing to work closely with. There will remain a level of uncertainty in the short term as we have no experience of a similar crisis or predicting the extent that the effect of COVID-19 will have upon our sales in the forthcoming period. It is not yet clear how widespread the virus will be at any one time, how long the pandemic will last and what the effect of this pandemic will be on our customers. It is also unknown as to whether any legislative changes will occur in this period.

The business has taken advantage of cash benefits available to it, including the job retention scheme and deferral of VAT payments, in addition to the business rates holiday which will continue to benefit cash up to early 2021. However additional costs have also been incurred in ensuring the safe supply of product to customers in store, and the drawdown of additional monies on the revolving credit facility has resulted in net debt being broadly in line with forecast.

In February 2020, the Group renewed its existing borrowing facilities with a GBP75m term loan and GBP100m revolving facility. The Group has net current liabilities of GBP66m at the period end. The Directors have additionally considered this position to determine if it presents any going concern issues. The Group is forecast to be profitable and cash generative and is supported by the revolving credit facility alongside an amortising GBP75m term loan. The current facility drawn as at 24 May 2020 is GBP150m against the combined facility offset by a cash balance of GBP71m, and therefore there is sufficient headroom to meet the Group's debts as they fall due.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

Going concern (continued)

The Directors also reviewed the Group's forecasts to the end of financial year 2024, taking into account a range of sensitivities, which include possible changes and reductions to forecast revenues, margin impacts and changes to the cost base. The Directors have also assessed the existing and offered payment terms with suppliers and considered how each of these may impact headroom against the Group's bank facilities and covenant tests, as well as the ability to meet capital investment and operational needs. The Directors have further stress tested the forecasts to identify the point at which covenants on the lending facilities would be breached. On the basis of this analysis and an assessment of the headroom against the forecast covenant positions, the Directors consider there to be no reasonably possible factors that would create any material uncertainty on the application of the going concern principle.

The Directors believe the Group is in a strong financial position and 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

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

Changes in accounting policy

Adoption of new IFRSs

The following new standards, interpretations and amendments to standards are mandatory for the Group for the first time for the 26 weeks ended 24 May 2020:

IFRIC 23 'Uncertainty over income tax treatments'

IAS 19 'Employee Benefits'

IFRS 16 'Leases'

IFRIC 23 'Uncertainty over income tax treatments'

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

IAS 19 'Employee Benefits'

An amendment to IAS 19 'Employee Benefits' was published in February 2018 and has become effective for the Group for the period beginning 25 November 2019. The amendment applies prospectively in connection with accounting for plan amendments, curtailments and settlements.

The amendment requires entities to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement. There has been no change to the retirement plans and therefore this amendment has had no impact on the financial statements.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

IFRS 16 'Leases'

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

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

Details of the changes in accounting policies arising from the implementation of IFRS 16 are as follows:

Impact of IFRS 16 on accounts

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

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured in accordance with the accounting policy as set out below under leases accounting policy, using the Group's incremental borrowing rates as at 25 November 2019 which ranged from 4.42% to 4.86%. The weighted average rate used at 25 November 2019 was 4.46%.

For any new contracts entered into on or after 25 November 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'.

To apply this definition the Group assesses whether the contract meets two key evaluations which are whether:

-- the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group

-- the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract and the Group has the right to direct the use of the identified asset throughout the period of use.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

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

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

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

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

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

-- No requirement to recognise leases when the term ends within 12 months of the date of initial application.

   --      Use hindsight such as in determination of lease term. 

The impact to financial statements on the adoption of IFRS 16 are set out in note 13.

New standards, interpretations and amendments not yet effective

The following amendments are effective for the Group for the period beginning 30 November 2020

   --      Amendments to References to the Conceptual Framework in IFRS Standards; 
   --      IFRS 3 Business Combinations: amendment to definition of a business; 
   --      IAS 1 and IAS 8: amendment to definition of material; 
   --      IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 

The following amendments are effective for the Group for the period beginning 28 November 2022

   --      IAS 1: amendment to classification of liabilities as Current or Non-current 

On adoption none are expected to have a material impact on the Group's financial statements.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

Alternative Performance Measures

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

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

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

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

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 the significant performance obligations have been completed, control of goods and services have been passed to the buyer and can be measured reliably.

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 supplier rebates receivables.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant 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 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.

Tax

The tax expense for the period comprises of current and deferred tax. Tax is recognised in profit or loss, except that a change 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.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
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.

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.

The Group includes lease liabilities within Loans & borrowings. See leases policy on how the lease liability is determined and carried.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

Leases

-- Lease liabilities

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term discounted at the rate implicit in the lease, or if that cannot be readily determined, at the Group's incremental borrowing rate at the start of the lease. Lease payments include fixed lease rentals and variable lease payments which are only included if they depend on an index or rate.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding, and are reduced for lease payments made. Lease liability is remeasured, with a corresponding adjustment to the right of use asset, when there is a change in future lease payments resulting from a rent review, change in an index or rate such as inflation, or change in the Group's assessment of lease term.

-- Right of use assets

The Group recognises right of use assets at the commencement date of the lease. Right of use assets are measured at cost, less accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognised, adjusted for any lease payments made at or before the commencement date, less any lease incentives received. Right of use assets are depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis. Right of use assets are subject to, and reviewed regularly for, impairment. Depreciation on right of use assets is included in administrative expenses in the consolidated income statement.

-- Short-term leases and leases of low-value assets

The Group has elected not to recognise right of use assets and lease liabilities for short-term leases of machinery and equipment that have a lease term of less than 12 months and leases of low-value assets. Lease payments relating to short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

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.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
2  Significant accounting policies (continued) 
 

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.

 
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 year 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.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

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

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 five year internal forecasts. The forecasts are extrapolated to perpetuity with nil growth rate.

In the 26 week period ended 24 May 2020, management reviewed impairment and concluded that there were no indicators of impairment. The COVID-19 pandemic has introduced uncertainties in the economy with the short-term period difficult to forecast. However for the Group the overall performance has been ahead of forecast and therefore no indication for impairment. Management will review impairment again at year end.

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. Estimation is limited to purchases for the final month of the year which is done based on run rates of performance through the year. Once purchases are estimated the amount due is based on contractual terms based on the level of purchases.

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.

Accrued income makes up a material part of the supplier rebates receivables at the balance sheet date. Whilst accrued income involves management estimation, actual results are unlikely to be materially different to the carrying amount on the balance sheet.

Pension

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.

Leases

Key judgements regarding incremental borrowing rates in implementing IFRS 16. The incremental borrowing rate is determined based on a series of inputs including: the risk-free rate based on government bond rates; a credit risk adjustment based on the Group's current borrowing margins; and lease specific adjustment based on terms of the lease.

Fines and other claims

Fines and other claims arise in the normal course of business and management judgment is required in assessing the level of potential claim and provision required in the financial statements. Management use historical experience and information provided by experts to calculate the provision.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
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 
                           26 weeks to        to 
                                24 May    26 May 
                                  2020      2019 
                               GBP 000   GBP 000 
Revenue 
Sale of goods                  604,772   611,057 
                           -----------  -------- 
Other operating income 
Property rental income             920     1,570 
Other income                     1,201     1,628 
                           -----------  -------- 
                                 2,121     3,198 
                           -----------  -------- 
Finance income                      42         - 
                           -----------  -------- 
                               606,935   614,255 
                           ===========  ======== 
5                        Adjusting items 
 
 

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

 
                                   26 weeks to  26 weeks to 
                                        24 May       26 May 
                                          2020         2019 
                                       GBP 000      GBP 000 
Administrative expenses 
Fines (a)                                (532)        (233) 
Business reorganisation (b)              (576)        (539) 
                                   -----------  ----------- 
                                       (1,108)        (772) 
                                   ===========  =========== 
Profits/(Losses) arising on property-related items 
Sale and leaseback (c)                       -        2,470 
Store optimisation programme (d)           250      (1,895) 
                                   -----------  ----------- 
                                           250          575 
                                   ===========  =========== 
Finance costs 
Store optimisation programme (d)             -         (80) 
                                   ===========  =========== 
 
  Tax effect on adjusting items             25        1,318 
Adjusting items (loss)/profit            (833)        1,041 
                                   ===========  =========== 
 

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

a. Fines

A provision of GBP500k has been included in relation to a potential health and safety fine and a further GBP32k of legal fees relating to a prior year fine, totalling GBP532k in the current period (2019: 233k). The net cash outflow for the period was GBP32k (2019: GBP233k).

b. Business reorganisation

The Group has been reviewing its organisational structure and made significant changes. This has in turn led to material costs associated with restructuring, predominantly the cost of redundancies resulting in net cash outflow of GBP576k (2019: GBP539k).

c. Sale and leaseback

Over the last few years the Group undertook a number of sale and leaseback transactions on its freehold property. In line with the accounting policy for adjusting items, management concluded that the profits relating to the sale and leaseback of property were significant and therefore not in line with ordinary business and should therefore be treated as adjusting. No sale & leaseback transactions were concluded in the current period resulting in a net cash inflow of nil (2019: GBP6.5m).

d. Store optimisation programme

Management has undertaken a store optimisation program resulting in store closures. Costs associated with the closures have been classified as adjusting due to the one-off nature of the closure programme. In the current period this resulted in a net gain of GBP250k (2019: GBP1,975k costs) made up of proceeds of GBP2,000k, costs of GBP1,820k and a non cash net gain of GBP70k. The net cash outflow is GBP180k (2019: GBP537k).

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
6  Operating profit 
 

Adjusted EBITDA and operating profit excluding property- related items and share based payments

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 weeks to 
                                                    24 May       26 May 
                                                      2020         2019 
                                                   GBP 000   GBP 000(1) 
Adjusted EBITDA excluding property-related items & share based 
 payments 
Operating profit before adjusting items              8,399        4,553 
Depreciation and amortisation(2)                    19,458        8,630 
Losses/(profits) arising on property-related 
 items                                                  74        (156) 
Share based payments                                    90            - 
Total Adjusted EBITDA                               28,021       13,027 
=============================================  ===========  =========== 
 
  IFRS 16 impact (net rent payable)               (14,886)            - 
Pre IFRS 16 Adjusted EBITDA                         13,135       13,027 
---------------------------------------------  -----------  ----------- 
 

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

2. For the 26 week period ended 24 May 2020 depreciation charge is GBP11.5m higher as a result of adopting IFRS 16. See Note 13.

 
7  Income tax 
 

The tax credit for the 26 week period was GBP295,000 (2019: GBP1,215,000) representing a rate of -22.5% (2019: -570.4%). The comparable effective tax rate in 2020 excluding the impact of adjusting items was -59.6% (2019: 21.0%). 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 reversal of temporary differences on disposed fixed assets, IFRS 16 transition adjustment to retained earnings released back and the change in the tax rate impact on deferred tax.

On 17 March 2020 UK corporation tax was substantially enacted to remain at 19% rather than reducing to 17% as previously enacted in the Finance Bill 2016 with the change effective 1 April 2020.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
8  Dividends 
 

The Board is not declaring an interim dividend. There was no final dividend declared for 2019.

 
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.

 
                                                      24 May         26 May 
                                                        2020           2019 
                                                 (unaudited)    (unaudited) 
Basic weighted average number of shares          115,193,909    115,173,145 
                                               =============  ============= 
Diluted weighted average number of shares        115,312,954    115,324,030 
                                               =============  ============= 
(Loss)/profit attributable to ordinary 
 shareholders (GBP 000)                              (1,016)          1,428 
                                               =============  ============= 
Basic (losses)/earnings per share                    (0.88)p          1.24p 
Anti-diluting (losses)/earnings per share            (0.88)p          1.24p 
                                               =============  ============= 
Adjusted earnings per share: 
(Loss)/profit attributable to ordinary 
 shareholders (GBP 000)                              (1,016)          1,428 
Adjusting items (note 5)                                 858            277 
Tax effect of adjustments                               (25)        (1,318) 
(Loss)/profit after tax and before adjusting 
 items                                                 (183)            387 
                                               =============  ============= 
Basic adjusted (losses)/earnings per share           (0.16)p          0.34p 
                                               =============  ============= 
Anti diluting (losses)/earnings per share            (0.16)p          0.34p 
                                               =============  ============= 
 

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

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

 
                                                         24 May         26 May 
                                                           2020           2019 
                                                    (unaudited)    (unaudited) 
Ordinary shares in issue at the start of 
 the period                                         115,193,909    115,173,515 
Effects of shares issued during the period                    -              - 
Total shares in issue at the end of the 
 period                                             115,193,909    115,173,515 
                                                  -------------  ------------- 
Effect of shares to be issued for the Long-term 
 incentive plan (LTIP)                                  119,045        150,515 
                                                  -------------  ------------- 
Weighted average number of ordinary shares 
 at the end of the period                           115,312,954    115,324,030 
                                                  =============  ============= 
 

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
10 Assets classified as held for sale 
 

The Group has decided to sell its head office premises. It has agreed a sales price of GBP7.3m excluding VAT. The current carrying value is GBP3.8m.

The Group has classified head office premises as assets held for sale at its carrying value in accordance with IFRS 5 cost model.

The transaction is expected to be completed by year ended 29 November 2020.

The major classes of assets and liabilities of Head office are as follows:

 
                                       24 May 
                                        2020 
                                         GBP 
                                         000 
Land and buildings                       3,300 
Fixtures and fittings                      481 
                                       ------- 
Total assets classified as held for 
 sale                                    3,781 
                                       ======= 
 
 
 

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
11 Loans and borrowings 
                                 24 May            26 May     24 November 
                                   2020              2019            2019 
                                GBP 000           GBP 000         GBP 000 
                            (unaudited)    (unaudited)(1)    (audited)(1) 
Current 
Other borrowings                  2,545                 -               - 
Lease liabilities                23,281             1,766           1,231 
Bank borrowings                  10,000             9,480          10,000 
                          -------------  ----------------  -------------- 
                                 35,826            11,246          11,231 
                          =============  ================  ============== 
Non-current 
Bank borrowings                 140,000           115,500         119,500 
Unamortised issue costs         (1,809)           (1,218)           (962) 
Lease liabilities               181,041             1,074           1,349 
                          -------------  ----------------  -------------- 
                                319,232           115,356         119,887 
                          =============  ================  ============== 
 
 

The Group renewed its bank facility in February 2020 made up of an amortising term loan of GBP75,000,000 and a GBP100,000,000 revolving facility. The current facility drawn as at 24 May 2020 is GBP150,000,000 (2019: GBP129,500,000).

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
12                            Net debt 
                                           24 May            26 May     24 November 
                                             2020              2019            2019 
                                          GBP 000           GBP 000         GBP 000 
                              Note    (unaudited)    (unaudited)(1)    (audited)(1) 
Cash at bank and in hand                   70,793            36,906          36,999 
                                    -------------  ----------------  -------------- 
                                           70,793            36,906          36,999 
                                    -------------  ----------------  -------------- 
Term Loan and revolving 
 facility available until 
 May 2022                               (150,000)         (124,980)       (129,500) 
Less: unamortised issue 
 costs                                      1,809             1,218             962 
                                    -------------  ----------------  -------------- 
                                        (148,191)         (123,762)       (128,538) 
Other borrowings                          (2,545)                 -               - 
Lease liabilities                       (204,322)           (2,840)         (2,580) 
                                    -------------  ----------------  -------------- 
Net debt                                (284,265)          (89,696)        (94,119) 
                                    =============  ================  ============== 
 
  Lease liabilities - IFRS 
  16 impact                     13        202,221                 -               - 
Net debt pre IFRS 16                     (82,044)          (89,696)        (94,119) 
                                    -------------  ----------------  -------------- 
 
 

Note:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See Note 2.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
12   Net debt (continued) 
 

Analysis of net debt

 
              24 November                                                                                                  24 May 
                     2019                                                                                                    2020 
                                                        Amortisation                                   Non-current 
                                                            of issue                                    to current 
                  GBP 000  IFRS 16 adoption  Cash flow         costs  Lease additions  Lease disposal    movements        GBP 000 
                (audited)           GBP 000    GBP 000       GBP 000          GBP 000         GBP 000      GBP 000    (unaudited) 
 
Bank 
borrowings 
Current          (10,000)                 -      5,000             -                -               -      (5,000)       (10,000) 
Non-current     (118,538)                 -   (24,262)         (391)                -               -        5,000      (138,191) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
                (128,538)                 -   (19,262)         (391)                -               -            -      (148,191) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Other 
Borrowings 
Current                 -                 -    (2,545)             -                -               -            -        (2,545) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
                        -                 -    (2,545)             -                -               -            -        (2,545) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Lease 
liabilities 
Current           (1,231)          (22,793)     11,713             -            (842)             693     (10,821)       (23,281) 
Non-current       (1,349)         (192,723)          -             -          (2,533)           4,743       10,821      (181,041) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
                  (2,580)         (215,516)     11,713             -          (3,375)           5,436            -      (204,322) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Arising from 
 financing 
 activities     (131,118)         (215,516)   (10,094)         (391)          (3,375)           5,436            -      (355,058) 
Cash and 
 short-term 
 deposits          36,999                 -     33,794             -                -               -            -         70,793 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Net debt         (94,119)         (215,516)     23,700         (391)          (3,375)           5,436            -      (284,265) 
              ===========  ================  =========  ============  ===============  ==============  ===========  ============= 
 

In the period interest was charged as follows: current bank borrowings GBP361k (2019: GBP617k), non-current bank borrowings GBP3,133k (2019: GBP2,705k), current leases GBP679k (2019: 27k) and non-current leases GBP3,923k (2019: GBP60k) in addition to other finance costs of GBP798k.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
12   Net debt (continued) 
 

Analysis of net debt - prior year

 
              25 November                                                                                                  26 May 
                     2018                                                                                                    2019 
                                                        Amortisation                                   Non-current 
                                                            of issue                                    to current 
                  GBP 000  IFRS 16 adoption  Cash flow         costs  Lease additions  Lease disposal    movements        GBP 000 
                (audited)           GBP 000    GBP 000       GBP 000          GBP 000         GBP 000      GBP 000    (unaudited) 
 
Bank 
borrowings 
Current          (10,000)                 -      5,520             -                -               -      (5,000)        (9,480) 
Non-current     (114,042)                 -    (5,000)         (240)                -               -        5,000      (114,282) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
                (124,042)                 -        520         (240)                -               -            -      (123,762) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Lease 
liabilities 
Current           (2,148)                 -        912             -            (196)               -        (335)        (1,767) 
Non-current         (947)                 -          -             -            (461)               -          335        (1,073) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
                  (3,095)                 -        912             -            (657)               -            -        (2,840) 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Arising from 
 financing 
 activities     (127,137)                 -      1,432         (240)            (657)               -            -      (126,602) 
Cash and 
 short-term 
 deposits          28,547                 -      8,359             -                -               -            -         36,906 
              -----------  ----------------  ---------  ------------  ---------------  --------------  -----------  ------------- 
Net debt         (98,590)                 -      9,791         (240)            (657)               -            -       (89,696) 
              ===========  ================  =========  ============  ===============  ==============  ===========  ============= 
 

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
13   Adoption of IFRS 16 
 

The Group leases many of its store properties and previously classified them as operating leases. On 25 November the Group adopted IFRS 16 and now recognises most of these as leases on the balance sheet. The policy of recognition and measurement is set out in accounting policies.

The impact of this change is set out below:

a) Balance Sheet

The impact on the balance sheet on transition

 
                                 25 Nov 2019 
                                     GBP 000 
Net assets at 24 November 2019        38,665 
Right of use assets                  198,850 
Lease liabilities                  (215,516) 
Sublease receivables                   2,025 
Prepayments                          (1,588) 
Accruals                                 268 
Provisions                             1,955 
Retained earnings                     14,006 
                                 ----------- 
Net assets at 25 November 2019        38,665 
                                 =========== 
 

The table below shows a reconciliation from the total operating lease commitment as disclosed at 25 November 2019 (restated) to the total lease liabilities recognised in the accounts immediately after transition:

 
                                                                   GBP 000 
Operating lease commitment at 24 November 2019                     279,156 
Discounted using incremental borrowing rates at 25 
 November 2019                                                    (59,471) 
Recognition exemption for leases of low-value assets/short-term 
 leases                                                            (4,169) 
Total lease liabilities recognised on 25 November 
 2019                                                              215,516 
                                                                  ======== 
 

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
13                                                     Adoption of IFRS 16 (continued) 
The Group presents right of use assets separately 
 in the balance sheet. The carrying value as at 24 
 May 2020 is set out below: 
 
 Right of use assets 
                                                                            24 May 2020 
                                                                                GBP 000 
Net carrying value at 25 November 2019                                          198,850 
Additions (including through business combinations)                               3,069 
Disposals (costs)                                                               (4,442) 
Depreciation charge for the period                                             (11,516) 
Disposals (depreciation)                                                             73 
                                                       -------------------------------- 
Net carrying value at 24 May 2020                                               186,034 
                                                       ================================ 
 
 

The Group includes lease liabilities in loans and borrowings in the balance sheet. The carrying amounts of lease liabilities due to the adoption of IFRS 16 as at 24 May 2020 are set out below:

Lease Liabilities

 
The table below demonstrates the impact of IFRS 16 
 only for leases previously accounted for as operating 
 leases under IAS 17. The leases previously accounted      24 May 
 for as finance leases under IAS 17 were GBP2,101            2020 
 (2019: GBP2,840)                                         GBP 000 
Current                                                    22,218 
Non-current                                               180,003 
Total lease liabilities                                   202,221 
                                                         ======== 
                                                           24 May 
  Maturity analysis -                                        2020 
  contractual undiscounted lease payments                 GBP 000 
Amounts due within one year                                30,688 
Amounts due within one to five years                       98,065 
Amounts due after five years                              128,203 
                                                         -------- 
                                                          256,956 
                                                         ======== 
 

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
13    Adoption of IFRS 16 (continued) 
 

b) Income statement

The Group has charged depreciation for right of use assets and interest costs for the leases that have moved from operating leases as shown below:

 
                                                      24 May 2020 
                                                          GBP 000 
Depreciation charge on right of use assets land and 
 buildings                                                 11,516 
Interest expense (included in finance cost)                 4,530 
                                                      ----------- 
                                                           16,046 
                                                      =========== 
 

c) Cash flow statement

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

 
14    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 ended 24 May 2020 totalled GBP1.3m.

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

 
15    Restatements 
 

Management has reviewed the accounting for the purchase of inventory across the product portfolio. As at 26 May 2019 an accrual of GBP2.9m was incorrectly classified against the carrying value of inventory. Management has corrected the error within the 2019 statement of financial position by reclassifying GBP2.9m as a current liability within accruals.

McColl's Retail Group

Notes to the condensed Financial Statements for the 26 week period ended 24 May 2020

 
16    Subsequent events 
 

Management has evaluated subsequent events through to 5 August 2020, which is the date the consolidated financial statements were available to be issued. COVID-19 continues to impact the wider economy and communities served by McColl's, however the business continues to cope with the pandemic with its stores open and trading well.

There were no subsequent events that required adjustment to or disclosure in the Group financial statements.

McColl's Retail Group

Principal Risks and Uncertainties

The Board's latest risk assessment has considered both the specific consequences of COVID-19 and its effect on the underlying principal risks managed by the business. A detailed assessment of the principal risk issues that face the business can be found on pages 38 and 39 of the Annual Report and Accounts 2019.

The COVID-19 pandemic has increased the potential impact of some of these risks. The longer-term impacts will depend on a range of factors including the duration and scope of the pandemic, the effects of the pandemic on economic activity and the nature and severity of measures adopted by the UK government. Visibility on when the pandemic will end is unclear and hence we are unable to assess with certainty the medium or longer-term impacts.

The Group has implemented extensive measures to ensure the health and safety of its employees, customers and suppliers and to ensure the continuity of the business. These measures include instigating business continuity plans with ongoing monitoring; following government guidance in closing offices and introducing home-working; introducing social distancing and hygiene measures across our retail estate; and implementing COVID-19 tests for frontline employees. The Group will continue to monitor government guidance carefully and where needed adapt its operational protocols and processes to safeguard customers and employees.

Over the longer-term, a deterioration in the financial position of consumers as a result of COVID-19 may impact demand for certain products, and result in a change in mix for the business leading to margin erosion. Disruptions as a result of COVID-19 in supply and distribution arrangements, including those of third parties may also adversely impact operations.

In addition to the above, the Directors consider that the following principal risks and uncertainties will remain relevant for the remaining six months of the 2020 financial year:

Customer Proposition

Customer shopping habits are influenced by a wide range of factors and are constantly evolving. If we do not respond to their changing needs, with internal processes and resource allocated appropriately to adapt in terms of offer, price, range and availability - they are more likely to shop with a competitor, resulting in falling revenues.

Competitive Supply Chain Partner

We rely on a small number of key distributors and may be adversely affected by uncompetitive pricing or processes and procedures being unable to support customer innovation, range development or have agility in customer responsiveness.

Operating Model and Cost Efficiency Challenges

We have a high operational cost base, consisting primarily of wages (impacted by the National Living Wage), property rental and energy costs. Increases in these costs without a corresponding increase in revenues could adversely impact our profitability.

Availability of funding/cash

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.

Strategic Vision

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

Macro-Economic Factors

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.

Customer Trend s

We operate in a competitive environment, 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.

Crime/Colleague Welfare

We need to provide and maintain a safe environment for our colleagues and customers. Failure to do so restricts the ability to recruit new colleagues and impacts negatively to the willingness of customers to frequent our stores.

McColl's Retail Group

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

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           Reconciliation / Note reference            Definition and purpose 
                    equiv.            for reconciliation 
                    IFRS measure 
 Income statement 
  Revenue measures 
                                    -----------------------------------------  ------------------------------- 
 Like-for-like     IFRS Revenue      Revenue 2019                   GBP611.1m   Like-for-like is a measure 
  (LFL)                                                                          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. 
                  ----------------                                             ------------------------------- 
                                     Add VAT                         GBP74.8m 
                  ----------------                                             ------------------------------- 
                                     Excl. non store               GBP(87.4)m 
                                      rev. 
                                     Excl. acquisition/closures    GBP(37.1)m 
                                     LFL Sales 2019                 GBP561.4m 
                                     Revenue 2020                   GBP604.8m 
                                     Add VAT                         GBP76.0m 
                                     Excl. non store               GBP(61.6)m 
                                      rev. 
                                    ----------------------------  ----------- 
                                     Excl. acquisition/closures    GBP(11.0)m 
                                    ----------------------------  ----------- 
                                     LFL Sales 2020                 GBP608.2m 
                                    ----------------------------  ----------- 
   LFL%                                                                  8.3% 
  --------------------------------------------------------------  -----------  ------------------------------- 
 Profit measures 
                                    -----------------------------------------  ------------------------------- 
 Adjusted          Operating         Note 6                                     This profit measure 
  EBITDA            Profit                                                       shows the Group's Earnings 
                                                                                 Before Interest, Tax, 
                                                                                 Depreciation and Amortisation 
                                                                                 adjusted for both property 
                                                                                 gains and losses, share-based 
                                                                                 payments and other adjusting 
                                                                                 items, in order to provide 
                                                                                 shareholders with a 
                                                                                 measure of true underlying 
                                                                                 performance of the business. 
                  ----------------  -----------------------------------------  ------------------------------- 
 Basic adjusted    Basic earnings    Note 9                                     This relates to profit 
  earnings          per share                                                    after tax before adjusting 
  per share                                                                      items divided by the 
  (EPS)                                                                          basic weighted average 
                                                                                 number of shares, in 
                                                                                 order to provide shareholders 
                                                                                 with a measure of true 
                                                                                 underlying performance 
                                                                                 of the business. 
                  ----------------  -----------------------------------------  ------------------------------- 
 Diluted           Diluted           Note 9                                     The difference between 
  adjusted          earnings                                                     basic and diluted metric 
  earnings          per share                                                    is the impact of the 
  per share                                                                      dilutive effect of share 
                                                                                 options and warrants 
                                                                                 in existence. 
                  ----------------  -----------------------------------------  ------------------------------- 
 

INDEPENT 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 26 weeks ended 24 May 2020 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cashflows and the notes to the financial information.

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.

Qualified Conclusion

Based on our review, except for the effects of the matters described in the basis for qualified conclusion section, 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 26 weeks ended 24 May 2020 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.

Basis for qualified conclusion

With respect to the assets held by the Group's defined benefit pension schemes, which should be valued at the period end date, for assets totalling GBP7.3m out of total assets across the schemes of GBP141.5m, the valuation included in the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 24 May 2020 was based on a valuation as at 31 March 2020. Given the global COVID-19 pandemic and the resulting fluctuations and uncertainties in valuations, we are unable to determine whether this is reflective of the asset valuations as at 24 May 2020.

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, UK

5 August 2020

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

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

IR FFFEITAIEIII

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August 06, 2020 02:00 ET (06:00 GMT)

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