TIDMMCLS
RNS Number : 1074T
McColl's Retail Group plc
23 March 2021
23 March 2021
McColl's Retail Group plc ("McColl's", the "Company" or "the
Group")
FULL YEAR RESULTS FOR 53 WEEK PERIODED 29 NOVEMBER 2020
Foundations in place for growth
GBPm FY 2020 FY 2019 Change
Sales 1,258 1,219 +3.2%
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Like-for-like sales
growth(1) +12.0% 0.0% +12 ppts
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Gross Profit 300.9 315.7 -4.7%
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Gross Margin % 23.9% 25.9% -200bps
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Adjusted EBITDA (post 57.9 - -
IFRS 16)(2)
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Adjusted EBITDA (pre
IFRS 16)(2) 29.1 32.1 -9.3%
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Loss after tax (2.7) (95.9) -
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Net Debt (post IFRS (281.8) - -
16)(3)
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Net Debt (pre IFRS 16)(3) (89.6) (94.1) +4.8%
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Jonathan Miller, Chief Executive, said:
"Over the last 12 months we have seen strong like-for-like sales
growth, driven by the positioning of our stores in key
neighbourhood locations and our strong customer offer. Despite the
operational challenges of the pandemic,
we have made good progress on our customer-focused strategic change programme.
"We recently reached a key strategic milestone, announcing a new
supply deal with Morrisons, ensuring the continued supply of
supermarket quality food across our entire estate for the next six
years, supported by a bank facility extension. I am delighted with
the opportunity this brings to convert 300 stores to the successful
Morrisons Daily format over the next three years. These stores will
be particularly well suited to the changing customer dynamics that
are resulting from the pandemic.
"The past year has been exceptionally challenging for so many
people, and I am incredibly proud of all our colleagues who have
been working extremely hard to keep supplying our neighbourhood
communities with the food, goods and services they need.
"Looking ahead to 2021, whilst uncertainties and restrictions
remain, there is no doubt that the strategic importance of
neighbourhood stores has never been greater, and we are well
positioned to deliver for customers and shareholders, as we
continue to enhance our convenience offer."
Financial highlights
-- Total FY20 revenue up 3.2% to GBP1.258bn (FY19: GBP1.219bn),
reflecting strong demand since the onset of the COVID-19 pandemic,
partly offset by divestments and store closures as we make good
progress with our store optimisation programme
-- Total like-for-like (LFL) sales growth of 12.0% (FY19: 0.0%)
driven by strong performance in alcohol, fresh food and tobacco
-- Gross margin of 23.9% (FY19: 25.9%), reflecting:
o Change of product mix as a result of changing shopping
behaviours during the pandemic, as customers moved away from
impulse purchases to lower margin take home products as well as
multi-buys and value items
o Strategic investment in price in key product areas
-- Gross profit of GBP300.9m (FY19: GBP315.7m)
-- Adjusted EBITDA pre IFRS 16 declined to GBP29.1m (FY19:
GBP32.1m) due to lower gross profit, lower contribution from
Services and ongoing net COVID-19 costs
-- Adjusted profit before tax of GBP1.1m (FY19: GBP7.4m).
Statutory loss before tax of GBP5.3m ( FY 19: loss of GBP98.6m,
including a non-cash impairment charge of GBP98.6m)
-- Basic loss per share of 2.3p (FY19: loss per share of 83.3p);
adjusted earnings per share of 0.6p (FY19: 5.6p)
-- Reduction in year-end net debt position (pre IFRS 16) to GBP89.6m (FY19: GBP94.1m)
Transformational new Morrisons partnership and new banking deal
secured
-- Morrisons wholesale partnership extended for a further three
years to 2027. Provides greater range of products enabling a more
comprehensive grocery offer
-- Agreement represents a significant milestone in McColl's'
strategic goal of becoming a food-led convenience retailer, giving
even greater access to Morrisons grocery expertise and brand
-- Acceleration of successful Morrisons Daily format, with 300
store conversions planned over next 3 years. This includes the
existing 31 Morrisons Daily stores currently in operation
-- Migration of entire estate to Morrisons supply now complete, helping to simplify operations
-- Bank facility extended to February 2024 with more flexible
terms to execute strategy, including additional headroom and a
realigned amortisation schedule
Progress against key strategic initiatives
In FY19 we announced that we were embarking on a customer
focused strategic change programme, with the aim of putting
customers back at the heart of the shopping trip. Despite the
operational challenges created by the COVID-19 pandemic, the Group
has made good progress against the pillars set out last year:
-- Enhancing our customer offer
o Adapted operations and extended customer range and offer to
meet change in demand as a result of the pandemic
o Selectively invested in the price of chilled foods, fruit and
vegetables, and milk to offer customers better value
o Uber Eats partnership signed after period-end to offer home
delivery of everyday convenience goods from over 400 stores
-- Increasing operating efficiency
o New operations structure created to better align with our
strategy, creating a simpler, but more effective organisation for
the future
o Adjusted administrative expenses pre IFRS 16 as a percentage
of revenue reduced to 23.2% (FY19: 25.2%)
-- Improving the quality of our estate:
o Accelerated store optimisation plans during H2, with 179
stores closed in FY20, in line with our strategy to increase focus
on larger, more profitable, grocery-led stores
o A total of 21 stores converted to the Morrisons Daily format
during the year
o Targeting optimised estate of 1,150 stores, from 1,265 stores
currently
-- Great place to work
o Empowered front line colleagues during the COVID-19 pandemic
to go the extra mile in supporting our local communities
Current trading and outlook
-- Like-for-like sales growth of +8.8% in the 15 weeks to 14
March 2021 despite the ongoing operational challenges of
COVID-19
-- Gross margin trends are consistent with those experienced in
FY20, reflecting a shift in sales to lower-margin take-home
products and multi-packs as a result of the third national
lockdown
-- As lockdown restrictions begin to ease, we expect our sales
mix to normalise with higher purchases of impulse products and a
progressive reversion towards pre-pandemic margins. However, we
remain in a highly uncertain environment, with little visibility on
macroeconomic and consumer trends for the remainder of 2021
-- We therefore remain cautious on the year ahead, particularly
as we start to face tougher like-for-like sales comparatives, and
Government support measures roll off as the year progresses. While
in the short term the pandemic will impact trading, we will
continue to adapt our business to a change in customer demand. Our
key strategic priorities will help deliver sustained profitable
growth over the coming years.
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. The Group has defined and outlined the purpose
of its alternative performance measures, including its key
measures, in the glossary of terms.
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. See reconciliation of pre and post IFRS 16 impacts on EBITDA in Note 4
3. 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:
Analyst & Investors: Tej Randhawa, McColl's +44 (0)1277 372916
Media: Ed Young, Headland +44 (0)203 805 4822
Rob Walker, Headland mccolls@headlandconsultancy.com
Charlie Twigg, Headland
Notes to editors
McColl's is a leading neighbourhood retailer, with an estate of
over 1,200 managed convenience stores and newsagents. We operate
McColl's and Morrisons Daily 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.
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014
LEI: 213800R1TLR536P8YJ67
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.
CHAIRMAN'S STATEMENT
The last 12 months have of course been dominated by the COVID-19
pandemic, which has engulfed the UK and wider world, and naturally,
our response to the pandemic has been the primary focus for our
Chief Executive, Jonathan Miller, and his management team.
As an essential retailer, and one that provides a crucial
service to local neighbourhoods, not only for food but other
services including Post Office and Collect+, we knew that our
communities would rely heavily on us throughout the crisis. The
fact that we were able to keep our stores open, and continue to do
so, is testament to the dedication and hard work of everyone at
McColl's.
At the start of the pandemic, the management team worked
tirelessly to ensure the safety of colleagues and customers. We
moved quickly to adapt stores for social distancing measures,
temporarily removed non-essential items from sale such as scratch
cards due to potential transmission risks, reduced trading hours to
manage deliveries and staff absence levels, as well as fitting
stores with the necessary protections such as perspex screens at
the till counter.
We also deployed a full range of personal protective equipment
(PPE) for our store colleagues and offered them double discounts
for an extended period to help to support them during these
times.
We rapidly deployed remote working for our Retail Support Centre
colleagues, whilst finalising the sale of our head office - meaning
we have yet to benefit fully from the much better working
environment afforded by our new headquarters.
The resilience shown by all our colleagues under such
challenging circumstances, over months and months, has been
inspiring. We will continue to prioritise their support and
wellbeing, as well as the communities we serve as the nation
navigates its way through the pandemic.
Review of the year
Demand for our local convenience retail offering has never been
higher, highlighted by like-for-like revenue growth of 12.0% during
the year. This growth was primarily driven by the pandemic, with us
welcoming many new customers as a result of the positioning of our
stores in key neighbourhood locations and the breadth and range of
product on offer.
This strong top-line performance did not carry through to
profit, as changing shopping behaviours and product mix led to a
dilution of operating margins, with higher-margin sales of impulse
products, for example, being severely impacted. This was on top of
the ongoing COVID-19 related costs that the business has had to
absorb. Adjusted EBITDA (pre IFRS 16) in the year was GBP29.1m,
lower than the GBP32.2m delivered in the prior year. The business
rates relief and VAT deferral from the Government provided us with
crucial support throughout this period and I must emphasise how
grateful we are, enabling us to continue to support our local
communities that rely on us.
Despite the disruption caused by the pandemic, the business made
good progress on its strategic objectives. We extended our customer
range and selectively invested in essential items to offer better
value for money. A new operations structure was also created to
create a flatter, simpler and more effective organisation for the
future.
Our store optimisation programme was accelerated during the
period, which saw 179 stores close, as we focus our business on
larger, food-led convenience stores. This strategy has been
reinforced during the pandemic, with the strongest revenue
performance being delivered with stores with the highest grocery
mix. It is clear that customers demand a convenience offering with
a broad fresh food range, at competitive prices. This has been
exemplified by the trial of 31 Morrisons Daily stores, which have
performed strongly.
Therefore, I am pleased to report that we have extended our
relationship with Morrisons by a further three years, which will
give us an even wider range of product, as well as benefitting from
a total of 300 Morrisons Daily format store conversions within the
next three years. This is in addition to the fact that Morrisons
has become our sole wholesale supplier, enabling us to simplify our
operations even further.
We will continue to work with Morrisons to optimise the
performance of the remainder of our store estate, continuing to
develop the Safeway product range as part of a broader programme of
range reviews.
To help support our Morrisons plans, we recently engaged with
our banking syndicate, and I am pleased to say that our financing
arrangements have been amended to give us more flexibility to help
execute on our strategy in 2021 and beyond. Further detail is
provided in the financial review.
Board and Executive changes
I'd like to take this opportunity to thank all of our people for
their contributions this year, particularly under such challenging
circumstances. Everyone from the Board, Jonathan and his management
team, to our frontline retail colleagues have gone above and beyond
their duties, adapting to a rapidly changing environment, while
keeping a positive attitude.
Having the right, talented senior leadership in place is
critically important to help navigate our business through a
variety of challenges including the current coronavirus crisis,
coupled with a highly competitive sector and weak consumer
confidence.
There were several changes to the leadership team and Board over
the last year. Robbie Bell stepped down from his position as Chief
Financial Officer to pursue a new opportunity. The Board undertook
a thorough process and welcomed a new Chief Financial Officer,
Giles David, who joined the Group in June 2020. Giles brings 15
years of experience as a Chief Financial Officer across
consumer-facing businesses. I would like to thank Robbie for all he
achieved for our business.
Richard Crampton, Chief Commercial Officer (CCO), was also
appointed to the Board in June 2020. The appointment was
recognition of the significant contribution that Richard has made
since joining McColl's in September 2019. Richard has been
responsible for accelerating the development of the Group's
commercial strategy and further enhancing the customer proposition.
The Board and I welcome Giles and Richard to their new roles and
wish them every success in the future.
We were also delighted to strengthen the Board with two new
Non-Executive Director appointments. Dominic Lavelle joined the
Board in May 2020, succeeding Sharon Brown as Chair of the Audit
& Risk Committee. I thank Sharon for her valuable contribution
during her time at McColl's.
Dominic also sits on the Remuneration Committee and Nomination
Committee. Benedict Smith joined the Board in July 2020, and sits
on the Audit & Risk Committee, Remuneration Committee and
Nomination Committee. Both Dominic and Benedict bring a wealth of
relevant experience that we will benefit from.
I am also pleased that we have strengthened the support centre
team by making critical senior appointments in Technology, Investor
Relations, Property and Operations, and believe we are now much
better equipped for success.
Optimism for the future
I am confident that we will emerge from this crisis as a better
and stronger business, and one that remains focused on delivering
our core strategic objectives. The importance of neighbourhood
stores has never been greater, and we are well positioned to
continue enhancing our convenience offer by further developing our
partnership with Morrisons, and further improving the quality of
our estate and our overall customer experience.
Angus Porter
Chairman
CHIEF EXECUTIVE'S REVIEW
Food-led neighbourhood retail
This has been an extraordinary year and one in which the
passion, dedication and loyalty of my colleagues throughout the
business has been simply incredible. Since the onset of the
COVID-19 pandemic, I am proud to see how our colleagues on the
frontline have consistently gone above and beyond to support their
local communities and keep the business trading.
The pandemic has also led to significant changes in food retail,
and accelerated trends that otherwise might have taken years. There
is no doubt that local neighbourhood retailing has come into focus
in 2020, and our food-led stores have outperformed the convenience
market. Lockdown restrictions and the move to home working have
materially affected how our customers shop with us, and validated
the changes we were already making to our offer. Increased demand
for food-led neighbourhood retail is here to stay. For this reason,
I am delighted that we have recently reached agreement with
Morrisons to extend our supply agreement, giving us even greater
access to their food retail expertise, breadth of product offering
and brand. Together with our recently signed bank facility
extension, this is an important milestone as we execute our
strategy to become your favourite neighbourhood shop.
At the height of the pandemic, consumer shopping behaviour in
our stores shifted towards less frequent visits, but with bigger
shopping baskets and more food-based missions. Some categories
benefitted from this change, with fresh food, BWS (beers, wines and
spirits) and tobacco growing quickly, at the expense of other
products such as food-to-go and impulse confectionery, snacks and
soft drinks. As a result of this strong demand, the business was
able to deliver materially higher like-for-like sales, up by 12.0%.
However, a significant shift in the pattern of trade, and
additional costs related to the implementation of COVID-19
protection measures for staff and customers, impacted overall
operating margins.
Whilst we expect some of these trends to normalise when the
pandemic eases, we do not expect them to completely revert,
particularly the growth in take-home food and home delivery.
Ultimately, the trends amplified by the onset of COVID-19 directly
tie into the areas where we are focusing our strategy - towards a
local grocery-led convenience retail offering, now supplemented by
online.
In the short term the pandemic will continue to impact trading,
and we will continue to adapt our business to a change in customer
demand. We recently signed a new agreement with Uber Eats that will
see the service operate across 400 stores by the end of March 2021.
This provides another channel for customers to get their daily
essentials, while also attracting a younger generation of customers
to our brand.
McColl's is well positioned in a market that is forecast to
grow. The importance of neighbourhood stores and convenience retail
to local communities has never been greater. Our key strategic
priorities will help deliver sustained profitable growth over the
coming years.
COVID-19 response
The health, safety and wellbeing of our colleagues and customers
continues to be a priority, as we remain very much amidst the
COVID-19 pandemic. I thank all of our colleagues who continue to
work in an extremely challenging environment.
At the onset of the COVID-19 outbreak we adapted quickly to a
rapidly changing situation, to keep all of our stores trading to
help serve our local communities with essential products and
services. We dealt with the increased demand from consumers,
deployed the necessary personal protective equipment (PPE), adopted
social distancing and health and safety measures in line with
Government guidance and worked closely with our wholesale partners
to keep supply chains open.
As a neighbourhood retailer we implemented numerous initiatives
to help serve our communities. 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. 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 the first convenience retailer
to support the Free School Meals voucher scheme. We also stocked
The Big Issue in-store for the first time in the magazine's history
to support its vendors.
Extension of Morrisons partnership
Our partnership with Morrisons is of key strategic importance,
and I am delighted to have recently announced an extension of our
agreement to January 2027, giving us continuity of supply for the
next six years. Events over the past year have highlighted how
critical it is to have a strong wholesale partner and how important
a credible food offer will be to our future. Our partnership with
Morrisons was a key reason we were able to provide continued
service and extended food ranges against a backdrop of huge
disruption.
The new long-term partnership will provide McColl's with an
important strategic opportunity to convert 300 of our best
convenience stores to the Morrisons Daily format over the next
three years. Sales in our existing stores of this format have
outperformed the rest of the estate during 2020, and the move is in
line with our strategic focus to grow our grocery mix. We will also
have continued access to a supermarket quality fresh food and
grocery offer through the Safeway brand, where further range
extensions are planned.
We have now completed the process of migrating the entire estate
to the Morrisons supply chain, making them our single wholesale
partner, enabling us to simplify our operations, whilst ensuring
the best value and enhanced range for our customers.
Extension of banking facilities
We retain a supportive relationship with our lending banks and
having engaged with our banking syndicate in the latter part of
2020, we were pleased to recently announce that our bank facilities
have been successfully amended with improved headroom against
covenants, and extended with a revised maturity date of February
2024. Alongside the extension of our Morrisons partnership, the
amended facility gives us greater security and flexibility to
execute on our strategic initiatives in 2021, and beyond. Further
details of the new banking arrangements are provided in the
financial review.
Strategic progress
The key focus in 2020 was successfully navigating the challenges
posed by COVID-19, and to ensure that all our stores kept trading.
However, the pandemic has reinforced our conviction that our
strategy of growing fresh food and grocery mix, keeping the
customer at the heart of everything we do, remains the right one,
supplemented by developing an online offering to capitalise on the
market shift we are experiencing.
Our vision remains to be your favourite neighbourhood shop and
more than ever we are focused on delivering a great customer
experience. The new partnerships with Morrisons and Uber Eats will
be critical to deliver this. In addition, the work we are doing on
format and range will ensure we retain the new customers drawn to
our stores because of the pandemic.
Our strategy is based on four key pillars: 1) strong customer
offer, 2) easy to run stores, 3) improving our stores and 4) great
place to work. We have continued to make progress on these
priorities wherever possible, and adapting them to changing
circumstances as required:
1. Strong customer offer
High demand for grocery and BWS categories
Total like-for-like (LFL) sales growth of 12.0% (FY19: 0.0%)
across the Group was driven by a strong performance in the grocery
and BWS (beers, wines, spirits) categories in particular.
This highlighted the changing shape of trade throughout the year
as a result of the pandemic, with strong demand for fresh food, BWS
and multipacks, with a shift away from impulse purchases
(confectionery, soft drinks). 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.
Reviewing space, range and format
Some of our planned range review work had to be delayed in 2020
because of the COVID-19 crisis. Instead, we had to respond with
agility and speed to adapt ranges to the change in consumer
behaviour over the course of the year. This work will now take
place across 2021, where the team is planning to review every
category both in the core McColl's estate, as well as our Morrisons
Daily stores.
The completion of this range review work will deliver a better
range of products to fit with the needs of our customers, combined
with a focus on efficiency to deliver lower costs through reduced
stock keeping units (SKUs) and lower stock turn.
There is also an opportunity to optimise the space within our
retail portfolio by re-setting store formats, fixtures and store
clusters to maximise sales and gross margin. This work includes
segmentation of stores by location, performance, size and
demographics, to strengthen our targeting of products, promotions
and services to local markets and shopping missions.
Customer insight
As well as improving range, we continue to develop our offer
through investment in customer insight to optimise our brand and
value position. A recent 'Word on the Street' customer survey
conducted with 3,500 McColl's customers highlighted that 83% were
'highly satisfied' with their shopping experience overall. The
highest scores on the survey were directed to our colleagues with
most customers citing the friendliness and helpfulness of the store
team, as well as the ease of completing their shopping trip. Our
shoppers have told us that they would like to see a wider range of
fruit and vegetables, and bakery products in our convenience stores
which fits with our strategic focus towards larger food-led
stores.
Uber Eats now across 400 stores
The 'last mile' online delivery opportunity is a hugely
important one for McColl's, offering our customers that extra
element of convenience in having their daily essentials delivered
directly to their doorstep. Building on our long-established home
news delivery service, at the onset of the pandemic we rapidly
rolled out Deliveroo to 135 stores. We have now switched our
partnership to Uber Eats, which means that as of March 2021 we now
offer this service from 400 stores.
Our new partnership allows customers to order an even wider
range of 500 convenience products including groceries, soft drinks,
confectionery, snacks, beer, wine, toiletries, and other essential
household items. Goods can be purchased in line with local store
opening times which means that customers can order goods morning,
day and night via the Uber Eats app for delivery in as little as
under 30 minutes.
The partnership is an incremental revenue opportunity and in
line with our strategy to further strengthen our customer offer by
making it easier than ever for customers to get their daily
essentials, as well as helping to attract the younger generation of
customers.
2. Easy to run stores
Our work around driving efficiencies through the operating model
was paused temporarily in March 2020 as we entered a national
lockdown, but restarted in September 2020. The work to optimise
store processes has more than a dozen work streams to improve
efficiency in the store without impacting service. These
initiatives include simplifying store scheduling, rightsizing the
range and making replenishment easier.
We are also analysing store structures to maximise shopfloor
presence, and work has begun on implementing a labour modelling
system to help us refine the 'right hours in the right place' to
deliver for our customers.
We completed a reorganisation of our field support teams to
align more closely with our strategy and to create a simpler,
flatter structure for the future. This move will enable more
enriching and customer-centric roles. Changes included fully
integrating the Post Office function into our retail business,
reducing the overall number of regions, and moving some of the risk
& compliance function centrally, away from the operations
team.
Some of our plans to introduce new technology in FY20 to serve
customers more efficiently were disrupted by the COVID-19 pandemic,
however it has served to reinforce the importance of a progressive
technology strategy for the business. I am delighted that we have
been able to recruit a new Technology Director in 2021 to support
us through this rapidly changing environment.
3. Improving our stores
Store optimisation programme
We continued our programme of store optimisation during the
year, exiting loss-making stores to focus our estate on larger,
food-led convenience stores. As a result, we closed 179 stores
leaving a total of 1,265 stores at the end of the year. Closures
were temporarily paused in early 2020 due to the COVID-19 pandemic
to keep as many of our stores operating and serving the community
as possible. We will continue to progress the opportunity to
right-size our estate towards the profile of shops that fit our
strategy going forward.
Morrisons Daily rollout to accelerate
Demand has been strongest in our larger turnover, food-led,
convenience stores. This ties in with our strategic focus on the
larger convenience store format, such as Morrisons Daily, to drive
incremental sales in grocery, fresh food and BWS, providing
opportunities for sales mix improvement.
We opened 21 Morrisons Daily trial stores during the year,
leading to a total of 31 now in operation. The trial has been
important to help refine range development, while exploring the
potential to expand the fascia into more stores. Our Morrisons
Daily stores have the highest grocery mix across our estate,
helping to drive the strongest performance across the business. As
part of the Morrisons contract extension, we plan to convert 300
existing stores into Morrisons Daily in the next three years.
4. Great place to work
Listening and responding to the concerns of our colleagues
across the business has been a priority over the last year given
the COVID-19 pandemic. We kept teams connected and colleagues were
offered additional resources and learning opportunities to support
them through the crisis. These included regular podcasts, articles,
videos and webinar sessions, focused around developing resilience
skills, wellbeing and effective time management.
During the period, we launched a colleague engagement plan and
embraced new ways of working. Frontline colleagues were empowered
to go that extra mile in supporting our local communities. It was
heart-warming to read stories of our colleagues making deliveries
to local elderly and vulnerable customers and supporting them in a
variety of ways.
The launch of McColl's Connect, a frontline employee
communications platform, was an important step to connect all
colleagues across the organisation. The platform creates a feedback
loop and has been invaluable in creating a more inclusive culture
at McColl's.
Apprenticeship schemes continued to be offered, despite the
disruption around the pandemic, with a focus on developing retail
management and customer service skills. Apprenticeship schemes
provide an additional way for colleagues to learn and develop, and
support the capability and skills required to deliver the business
strategy.
A new initiative in 2020 was the launch of our first ever
graduate programme, starting with six colleagues. The graduates
joined their respective departments in December 2020 on a two-year
rotation programme focused on understanding the business across a
variety of departments and working towards becoming a senior
manager. Placing graduates can bring a fresh level of enthusiasm
and creativity to the workplace, and we hope our new intake will
make a long-term contribution to the development of the
business.
I am delighted that in our most recent colleague engagement
survey, 87% of respondents rated McColl's as a great place to work.
We will build on these successes with the aim of continuing to
support our colleagues to do a great job and listening and
responding to ensure that we are all engaged in the future success
of this great business.
Looking forward
Looking ahead to 2021, whilst uncertainties and restrictions
remain, the pandemic has reinforced my conviction that we have the
right building blocks in place to benefit from a post COVID-19
world. I do not expect the trends experienced over the last year to
completely revert, with flexible working patterns continuing as a
matter of course going forward, and hence a higher demand for a
strong local convenience offer.
Our strategic focus toward larger grocery-led convenience stores
will accelerate an improved grocery mix and help to increase the
average basket size. We will improve the quality of our estate and
bring a great shopping experience to more customers through our
extended Morrisons partnership. We will continue to refine our
operating model and costs to serve without impacting customer
service. This will be supplemented by maximising the online home
delivery opportunity to drive incremental revenues. All of these
initiatives will help enhance our convenience offer and deliver
sustainable profitable growth for McColl's over the medium
term.
Finally, I would like to thank all of my colleagues for the
difference they make to our customers on a daily basis and for
their hard work and dedication, never more evident than during the
current COVID-19 pandemic.
Jonathan Miller
Chief Executive Officer
FINANCIAL REVIEW
The past 12 months has brought about a fundamental change in how
consumers have shopped in our stores as a result of the COVID-19
pandemic. Our stores were a lifeline to local communities during
the national lockdowns, with customers choosing to shop closer to
home. This brought about changes to sales patterns, product mix and
the cost to operate that affected the financial results.
While we expect shopping behaviour to somewhat normalise as the
pandemic subsides, some patterns such as a sustained element of
remote working are likely to continue. This will continue to
influence our financial performance and the decisions we take in
responding to the changeable conditions.
In the period, our like-for-like revenues accelerated from
broadly flat in the first quarter, to a double-digit performance in
the remaining three quarters. For the year as a whole,
like-for-like revenues rose by 12.0%. Consumer preferences switched
to lower margin take home and value packs. Below margin,
incremental COVID-19 related costs were offset by continued cost
discipline and business rates relief received in the period.
Our financial priorities in 2020 included strengthening our
balance sheet, mitigating cost inflation and further optimising our
estate. While there remain a number of challenges, we have
demonstrated our resilience this year with a robust underlying
performance.
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.
IFRS 16 removes the distinction between operating and finance
leases - all leases of more than 12 months are now recognised on a
lessee's balance sheet, except for some limited exceptions. This
leads to an increase in leased assets and financial liabilities on
the balance sheet of the lessee. There is also a corresponding
increase in operating profit and EBITDA because lease expenses are
reclassified as interest and depreciation instead of operating
expenses.
As a result of adopting the new accounting standard for the 12
months ended 29 November 2020, the Group's Adjusted EBITDA was
GBP57.9m and Net Debt was GBP281.8m as at the period end. On a
consistent, pre IFRS 16 basis, Adjusted EBITDA for the period was
GBP29.1m (2019: GBP32.1m) and Net Debt reduced to GBP89.6m (2019:
GBP94.1m) as at the period end.
See notes 4 and 12 for a reconciliation of the IFRS 16
adjustments impacting EBITDA and Net Debt.
GBPm FY 2020 FY 2019 Change
Sales 1,258 1,219 +3.2%
-------- -------- ---------
Like-for-like sales
growth +12.0% 0.0% +12 ppts
-------- -------- ---------
Gross Profit 300.9 315.7 -4.7%
-------- -------- ---------
Gross Margin % 23.9% 25.9% -200bps
-------- -------- ---------
Adjusted EBITDA (post 57.9 - -
IFRS 16)
-------- -------- ---------
Adjusted EBITDA (pre
IFRS 16) 29.1 32.1 -9.3%
-------- -------- ---------
Loss after tax (2.7) (95.9) -
-------- -------- ---------
Net Debt (post IFRS (281.8) - -
16)
-------- -------- ---------
Net Debt (pre IFRS 16) (89.6) (94.1) +4.8%
-------- -------- ---------
Revenue
Revenue for the 53-week period ended 29 November 2020 was
GBP1,258m, compared to GBP1,219m for the 52 week period ended 24
November 2019. On a comparable 52-week basis, revenue grew by 1.4%
to GBP1,236m.
The revenue performance during the year reflects a number of
trends with strong demand since the start of the COVID-19 pandemic,
offset by reduced services revenues and an acceleration in
divestments and store closures made during the year. Overall, we
closed 179 stores in FY20, up from 120 stores in FY19.
On a like-for-like basis (and comparable on a 52-week period),
revenues grew by 12.0% during the period (2019: 0.0%). The growth
was a result of strong demand following the onset of the COVID-19
pandemic, as consumers chose to shop locally during lockdown
restrictions. Strong growth in grocery, BWS (beers, wine, spirits),
tobacco and multipack products, came at the expense of impulse
products (crisps and snacks, soft drinks, confectionery) and
food-to-go.
Gross profit and margin
Gross profit fell to GBP300.9m FY20, compared to 2019
(GBP315.7m). This represented a gross margin of 23.9% (2019:
25.9%), a decline of 200 basis points over the period. The fall in
gross margin reflects the changing mix of sales during lockdown, as
customers moved away from higher-margin impulse purchases to lower
margin take home products as well as multi-buys and value items. In
addition, we took the active decision to selectively invest in
essential food pricing to maintain good value to existing customers
and build loyalty amongst the incremental shoppers in our
stores.
Operating expenses/overheads
Administrative expenses, excluding the impact of adjusted items,
fell by 6.5% to GBP286.8m (2019: GBP306.6m) during the period, due
to stronger cost discipline and the impact of our store
optimisation programme. On a pre IFRS 16 basis, adjusted
administrative expenses as a percentage of revenue were 23.2%
(2019: 25.2%).
We experienced a number of underlying cost pressures and worked
hard to mitigate the impact of National Living Wage inflation.
Additional direct COVID-19 related costs amounted to GBP5.9m, which
included the personal protective equipment (PPE) necessary to keep
our colleagues and customers safe, additional card charges, PPE,
cleaning equipment and colleague costs. This was partially offset
by a number of government support measures in the period amounting
to GBP9.4m in total. These government support measures included
business rates relief and use of the Coronavirus Job Retention
Scheme for furlough of our most vulnerable employees.
Going forward we expect cost headwinds related to COVID-19 to
continue. We will also maintain focus on our store optimisation
programme in order to improve the quality of our estate, focused on
the divestment and closure of under-performing stores. We are
pleased with the implementation of the store optimisation strategy
so far, with 179 stores closed during the period, moving away from
low margin newsagents and targeted towards larger, food-led
convenience stores.
EBITDA and operating profit
Group Adjusted EBITDA was GBP57.9m in the period including the
impact of IFRS 16. On a consistent, pre IFRS 16 basis, Adjusted
EBITDA for the period was GBP29.1m, a fall of 9.3% over the same
period last year (2019: GBP32.1m). The year-on-year decline is due
to lower gross profit, lower contribution from Services and ongoing
net COVID-19 costs.
Depreciation for the year was GBP38.0m (2019: GBP15.8m), which
includes a depreciation on right-of-use assets in relation to IFRS
16 of GBP24.2m (2019: nil). Amortisation for the year was GBP1.0m
(2019: GBP0.8m).
Adjusted operating profit increased to GBP18.7m (2019:
GBP15.4m). Statutory operating profit was GBP12.3m (2019: loss of
GBP90.4m).
Adjusting items
Certain items are identified and separately disclosed as
adjusting items. These adjusting items are excluded from the
Group's adjusted profit measures due to their size and nature in
order to better reflect management's view of the performance of the
Group.
Adjusting items totalled GBP3.4m in FY20 (2019: GBP102.4m).
These costs primarily reflected expenses related to business
restructuring and the store optimisation programme, where the Group
has undertaken a material number of store closures.
Adjusting items in FY19 totalled GBP102.4m, where the majority
of this amount related to a goodwill impairment of GBP98.6m. The
write-down was due to rebasing of financial projections, based on
lower underlying gross margin, National Living Wage and retail cost
inflation pressures.
Net property-related adjusting items in FY20 were GBP2.4m (2019:
GBP6.0m). This included GBP5.5m of costs associated with our store
optimisation programme, and a net gain on disposal of GBP3.4m in
relation to the sale of our head office. Total proceeds were
GBP7.3m, with GBP2.3m received by the year-end, with the remaining
balance expected to be received by end of March 2021.
Interest and tax
Net finance costs in the year were GBP17.6m (2019: GBP8.2m). The
increase over the prior year primarily reflects a GBP9.1m finance
charge under IFRS 16. The tax credit for the year was GBP2.6m
(2019: credit of GBP2.7m). The comparable effective rate of tax in
2020 excluding the impact of non-deductible adjusting items was
36.4% (2019: 12.4%). The difference between the current and
statutory rate of 19.0% in the period is due principally to a prior
year adjustment for losses carried back and adjustments in respect
of prior years.
Earnings per share
Basic loss per share was 2.3 pence (2019: loss of 83.3 pence).
On an adjusted view, basic earnings per share was 0.6 pence (2019:
5.6 pence).
Balance sheet and net debt
Total shareholder funds at the end of the year were GBP19.9m
(2019: GBP38.7m). The book value of non-current assets increased by
GBP170.5m to GBP417.4m (2019: GBP246.9m), where the increase
reflects the introduction of right-of-use assets under IFRS 16 of
GBP173.5m.
The Group recognises right-of-use assets and lease liabilities
for most leases, except for short-term leases and leases of
low-value-assets. Current assets at the end of the period decreased
to GBP144.9m (2019: GBP163.3m), as a result of a decrease in cash
and cash equivalents of GBP13.8m mainly due to repayment of debt as
the term loan continues to be amortised at GBP10m a year and
drawings on the revolving credit facility have reduced by
GBP7m.
Current liabilities increased to GBP248.5m (2019: GBP229.2m),
reflecting an increase in loans and borrowings of GBP21.1m over the
prior year to GBP32.3m (2019: GBP11.2m). Non-current liabilities
increased to GBP293.9m (2019: GBP142.3m) due to increased loans and
borrowings of GBP152.8m over the prior year to GBP272.7m (2019:
GBP119.9m). The increase relates 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 GBP281.8m. On a consistent pre IFRS 16
basis, net debt reduced to GBP89.6m (2019: GBP94.1m pre IFRS 16).
The business remains focused on working capital and cash management
to reduce business leverage. At the end of the year our net debt to
EBITDA ratio was 3.1x on a rolling 12-month basis.
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. Total assets across both schemes had a value of
GBP141.7m at the period end date of 29 November 2020. The combined
accounting surplus in the two defined benefit pension schemes
operated by the Group decreased to GBP3.9m (2019: GBP7.9m). The
last actuarial review of the two schemes in June 2017 concluded
that the combined funding deficit was GBP12.6m, and the Group
currently contributes approximately GBP2.1m per year, inclusive of
fees and levies.
Cash flow and capital expenditure
The Group took, and continues to take, proactive actions to
preserve cash, manage working capital, maximise liquidity, and
phase capital expenditure appropriately, given the uncertainty
relating to the impacts of demand and shopping behaviours from the
COVID-19 pandemic, including increased cash collection from stores
and reacting to changes in demand to manage stock. We have also
prudently modelled a range of future downside scenarios, which we
are confident we have the financial and operational flexibility to
deal with.
Net cash provided by operating activities in the year was
GBP49.0m (2019: GBP20.0m), reflecting the changes due to the
implementation of IFRS 16, while pre IFRS 16 it was GBP18.4m. Cash
outflows related to leases are no longer included within net cash
from operating activities except for short-term and low-value
leases. The cash position was also benefitted by a total amount of
GBP15.2m from government support measures available to the Group
following the onset of the COVID-19 pandemic. These measures
included the job retention scheme, a deferral of VAT payments, and
business rates relief.
Gross capital expenditure was GBP17.3m (2019: GBP14.4m). Net
capital expenditure, including property proceeds from the sale and
leaseback of freehold properties, increased to GBP5.6m (2019:
GBP2.9m).
Cash interest on bank loans and borrowings paid was GBP7.0m
(2019: GBP7.4m), while the bank loans and borrowings interest
expense was broadly in line with last year.
Bank facilities
In March 2021, we announced that our banking arrangements have
been revised in order to give us more certainty and flexibility to
execute our strategy. The amended credit facility agreement
provides improved headroom against covenants, a realigned
amortisation schedule and extends the maturity from May 2022 to
February 2024. The updated facility consists of a GBP100m revolving
credit facility and an amortising GBP67.5m term loan.
The facility has been arranged with our existing syndicate of
six banks, comprising AIB Group (UK), Barclays Bank PLC, HSBC UK
Bank plc, National Westminster Bank plc, Santander UK PLC, and Bank
of Ireland. The continuing support of our banks reflects their
confidence in the prospects of the Group.
See the Directors Report in the Annual Report for a further
explanation of going concern in relation to the facilities
agreement.
Dividends
The Board has not declared a dividend for the period ended 29
November 2020. We recognise that dividend payments are an important
part of the Group's returns to shareholders and will keep the
dividend policy under review with the aim of reinstating the
payment of dividends at an affordable and sustainable level, once
our strategic change programme gathers momentum and the Group
deleverages. Additionally, the Company is restricted from paying a
dividend until certain conditions are satisfied in its banking
facilities, including achieving Group leverage below 1.75x.
Giles David
Chief Financial Officer
directors Responsibility Statement
The responsibility statement has been prepared in connection
with the Company's full Annual Report and Accounts (the "Annual
Report") for the period ended 29 November 2020. Certain parts of
the Annual Report are not included in this announcement, as
described in note 1.
We confirm that to the best of our knowledge:
-- the Group financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted pursuant to Regulation (EC) No. 1606/2002 as it applies
in the European Union and Article 4 of the IAS Regulation and give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Group.
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Group and
the Parent Company, together with a description of the principal
risks and uncertainties that they face.
-- the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
By order of the board
Jonathan Miller
Chief Executive
Giles David
Chief Financial Officer
Consolidated Income Statement for the 53 week Period from 25
November 2019 to 29 November 2020
53 weeks to 29 November 52 weeks to 24 November
2020 2019(1)
Adjusting Adjusting
items items
Adjusted Note 3 Total Adjusted Note 3 Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 1,258.1 - 1,258.1 1,218.7 - 1,218.7
Cost of sales (957.2) - (957.2) (903.0) - (903.0)
------------- ---------- ---------- -------- --------- ------------------
Gross profit 300.9 - 300.9 315.7 - 315.7
------------- ---------- ---------- -------- --------- ------------------
Administrative expenses (286.8) (4.0) (290.8) (306.6) (99.8) (406.4)
Other operating income 2 4.6 - 4.6 6.3 - 6.3
Losses arising on
property-related
items - (2.4) (2.4) - (6.0) (6.0)
------------- ---------- ---------- -------- --------- ------------------
Operating profit/(loss) 4 18.7 (6.4) 12.3 15.4 (105.8) (90.4)
------------- ---------- ---------- -------- --------- ------------------
Finance income 0.1 - 0.1 - - -
Finance costs(2) (17.7) - (17.7) (8.0) (0.2) (8.2)
------------- ---------- ---------- -------- --------- ------------------
Profit/(loss) before
tax 1.1 (6.4) (5.3) 7.4 (106.0) (98.6)
Income tax (expense)/receipt 5 (0.4) 3.0 2.6 (0.9) 3.6 2.7
------------- ---------- ---------- -------- --------- ------------------
Profit/(loss) for
the period 0.7 (3.4) (2.7) 6.5 (102.4) (95.9)
============= ========== ========== ======== ========= ==================
Earnings/(losses)
per share (pence) 7 0.6 (2.3) 5.6 (83.3)
Diluted earnings/(losses)
per share (pence) 7 0.6 (2.3) 5.6 (83.3)
------------- --------------------- -------- --------- ------------------
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 1.
2. Finance costs in the 53 weeks period ended 29 November 2020
includes GBP9.1m of additional finance charges in relation to the
adoption of IFRS 16. See note 10.
The above results were derived from continuing operations.
Consolidated Statement of Comprehensive Income for the 53 week
Period from 25 November 2019 to 29 November 2020
2020 2019(1)
Note GBPm GBPm
Loss for the period (2.7) (95.9)
----- -------
Items that will not be reclassified
subsequently to profit or loss
Remeasurement of defined benefit pension
scheme (5.6) (5.8)
Deferred tax on defined benefit pension
scheme 5 0.6 0.7
Corporation tax on defined benefit
pension scheme 5 0.3 0.3
----- -------
(4.7) (4.8)
----- -------
Total comprehensive loss for the period (7.4) (100.7)
----- -------
The loss and total comprehensive loss are attributable to the
owners of the Parent Company.
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 1.
Consolidated Statement of Financial Position for the 53 week
Period from 25 November 2019 to 29 November 2020
2020 2019(1)
Note GBPm GBPm
Assets
Non-current assets
Property, plant and equipment (2) 8 245.3 77.1
Intangible assets 9 159.6 156.9
Deferred tax assets 3.5 1.4
Retirement benefit asset 9.0 11.5
------- -------
Total non-current assets 417.4 246.9
------- -------
Current assets
Inventories 77.8 86.4
Trade and other receivables 41.6 39.0
Income tax asset 2.3 0.9
Cash and cash equivalents 23.2 37.0
------- -------
Total current assets 144.9 163.3
------- -------
Total assets 562.3 410.2
======= =======
Equity and liabilities
Current liabilities
Trade and other payables (215.3) (215.5)
Loans and borrowings(3) 11 (32.3) (11.2)
Provisions (0.9) (2.5)
------- -------
Total current liabilities (248.5) (229.2)
======= =======
Net current liabilities (103.6) (65.9)
======= =======
Non-current liabilities
Loans and borrowings(3) 11 (272.7) (119.9)
Other payables (7.3) (10.8)
Provisions (5.3) (3.2)
Deferred tax liabilities (3.5) (4.8)
Retirement benefit obligations (5.1) (3.6)
------- -------
Total non-current liabilities (293.9) (142.3)
======= =======
Total liabilities (542.4) (371.5)
======= =======
Net assets 19.9 38.7
======= =======
Equity
Share capital 13 (0.1) (0.1)
Share premium 13 (12.6) (12.6)
Retained earnings (7.2) (26.0)
------- -------
Equity attributable to owners of the
company (19.9) (38.7)
======= =======
Consolidated Statement of Financial Position for the 53 week
Period from 25 November 2019 to 29 November 2020
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 1.
2. Property, plant and equipment as at 29 November 2020 include
GBP173.5m of additional right of use assets as a result of adopting
IFRS 16. See note 8.
3. Loans and borrowings as at 29 November 2020 include GBP21.3m
of additional current lease liabilities and GBP170.9m of additional
non-current lease liabilities as a result of adopting IFRS 16. See
note 10.
These financial statements of McColl's Retail Group plc
registered number 08783477 were approved and authorised for issue
by the Board on 22 March 2021 and signed on its behalf by Giles
David.
Consolidated Statement of Changes in Equity for the 53 week
Period from 25 November 2019 to 29 November 2020
Total
Share capital Share premium Retained earnings equity
GBPm GBPm GBPm GBPm
At 25 November 2019-before
adoption of IFRS 16 0.1 12.6 26.0 38.7
Adoption of IFRS 16 - - (14.0) (14.0)
Deferred tax on items
relating to the adoption
of IFRS 16 - - 2.4 2.4
------------- ------------- ----------------- -------
At 25 November 2019-after
adoption of IFRS 16 0.1 12.6 14.4 27.1
------------- ------------- ----------------- -------
Loss for the period - - (2.7) (2.7)
Remeasurement of defined
benefit pension scheme - - (4.7) (4.7)
------------- ------------- ----------------- -------
Total comprehensive income - - (7.4) (7.4)
------------- ------------- ----------------- -------
Contributions by and distributions to owners
Share-based payment transactions - - 0.2 0.2
------------- ------------- ----------------- -------
At 29 November 2020 0.1 12.6 7.2 19.9
============= ============= ================= =======
Share Share Total
capital premium Retained earnings equity
GBPm GBPm GBPm GBPm
At 26 November 2018 0.1 12.6 128.8 141.5
------------- ------------- ----------------- -------
Loss for the period - - (95.9) (95.9)
Remeasurement of defined
benefit pension scheme - - (4.8) (4.8)
------------- ------------- ----------------- -------
Total comprehensive income - - (100.7) (100.7)
------------- ------------- ----------------- -------
Contributions by and distributions to owners
Dividends - - (2.2) (2.2)
Share-based payment transactions - - 0.1 0.1
------------- ------------- ----------------- -------
At 24 November 2019 0.1 12.6 26.0 38.7
============= ============= ================= =======
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 1.
Consolidated Statement of Cash Flows for the 53 week Period from
25 November 2019 to 29 November 2020
2020(2) 2019(1)
Note GBPm GBPm
Cash flows from operating activities
Loss for the period (2.7) (95.9)
Adjustments to cash flows from non-cash
items
Depreciation and amortisation 4 39.0 16.7
Profit on disposal of property plant
and equipment (2.0) (1.5)
Profit from disposals of investments - (0.1)
Finance income (0.1) -
Finance costs 17.7 8.2
Share-based payment transactions 0.2 0.1
Income tax credit 5 (2.6) (2.7)
Impairment losses 0.3 101.3
------- -------
49.8 26.1
------- -------
Decrease/(increase) in inventories 8.6 (6.6)
(Increase)/decrease in trade and other
receivables (1.2) 2.9
(Decrease)/increase in trade and other
payables (4.3) 0.6
Decrease in retirement benefit obligation
net of actuarial changes (1.6) (1.8)
Decrease in provisions (3.4) -
------- -------
Cash generated from operations 47.9 21.2
------- -------
Income taxes received/(paid) 1.1 (1.2)
------- -------
Net cash flow from operating activities 49.0 20.0
------- -------
Cash flows from investing activities
Interest received 0.1 -
Acquisition of property plant and equipment (17.3) (14.4)
Proceeds from sale of property plant
and equipment 11.7 11.5
Acquisition of businesses, net of cash
acquired (0.3) (1.2)
Proceeds from investment disposals - 0.1
------- -------
Net cash flows from investing activities (5.8) (4.0)
------- -------
Cash flows from financing activities
Interest paid (7.0) (7.4)
Drawdown of bank borrowing 12 - 4.0
Repayment of bank borrowing 12 (18.2) -
Repayment of lease liabilities 12 (22.6) (1.7)
Interest payment on lease liabilities (9.2) (0.2)
Dividends paid 6 - (2.2)
------- -------
Net cash flows used in financing activities (57.0) (7.5)
------- -------
Net (decrease)/increase in cash and
cash equivalents (13.8) 8.5
Cash and cash equivalents at beginning
of period 37.0 28.5
------- -------
Cash and cash equivalents at end of
period 23.2 37.0
======= =======
Consolidated Statement of Cash Flows for the 53 week Period from
25 November 2019 to 29 November 2020 continued
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 1.
2. On adopting IFRS 16: Leases, new accounting for right-of-use
assets and lease liabilities led to increases in depreciation and
interest expense. The result of these changes for the 53 week
period ended 29 November 2020, was to increase operating cash
inflows before movements in working capital by GBP30.6m. Interest
paid increased by GBP9.1m and cash outflows in respect of the
capital element of lease rental payments by GBP21.5m for the 53
week period ended 29 November 2020, excluding motor vehicles
GBP0.1m interest and GBP1.1m lease rental payments as motor
vehicles leases were covered by finance leases under IAS 17 and
therefore unaffected by the adoption of IFRS 16. Overall, there was
no change in the net decrease in cash and cash equivalents as a
result of these changes.
Notes to the Financial Information for the 53 week Period from
25 November 2019 to 29 November 2020
1 Accounting policies
Basis of preparation
The Group financial statements for 2020 consolidate the
financial statements of McColl's Retail Group plc (the "Company")
and all its subsidiary undertakings (together, "the Group") drawn
up to 29 November 2020. The Group's accounting period covers the 53
weeks ended 29 November 2020. The prior period was a 52 week period
ended 24 November 2019. Acquisitions are accounted for under the
acquisition method of accounting.
The Group financial statements have been prepared on the going
concern basis and in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and prepared in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 29 November 2020
or 24 November 2019, but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the Registrar of Companies
and those for 2020 will be delivered following the Company's Annual
General Meeting. The auditors have reported on those accounts;
their audit report was unqualified, did not draw attention to any
matters by way of emphasis without qualifying their report and did
not contain statements under s498 (2) or (3) Companies Act
2006.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to
publish full financial statements that comply with IFRSs in April
2021.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future and have accordingly adopted the going concern
basis in preparing the financial statements. The Directors, in
considering going concern have considered a number of factors,
including financial assumptions and estimates, current and prior
performance and macroeconomic factors, including the ongoing
effects of the COVID-19 pandemic and the expected impact this will
have on the Group's cash flows. The Directors also considered the
banking facilities available to the Group.
The consolidated financial information is presented in sterling,
the Group's functional currency. The Group changed the rounding
from thousands to millions to make the financial statements less
encumbered with numbers and therefore easier for the user to
read.
The preparation of financial information in compliance with
adopted IFRS requires the use of certain critical judgements,
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial information and
the reported amounts of revenues and expenses during the reporting
period. It also requires Group management to exercise judgement in
applying the Group's accounting policies.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Going Concern
The Directors have made appropriate enquiries and consider that
the Group has adequate resources to continue in operational
existence for the foreseeable future, which comprises the period of
at least 12 months from the date of approval of the financial
statements. The Directors continue to adopt the going concern basis
in preparing the financial statements.
Base case within the long-term plan and budget
The key assumptions within the budget for the 2021 financial
year produce moderate sales growth and margin improvement from the
change in the supply base which will allow McColl's to supply
improved ranges and make changes in space allocation while taking
advantage of a general market growth trend towards convenience
retailing. The cost base has been modelled assuming limited
increments for inflation. These improvements have been assumed to
continue into the following financial year.
Conditions, circumstances and developments resulting from the
COVID-19 pandemic
As a result of the Covid-19 pandemic, the Group experienced
changes to its activities with changes to the mix of customer
purchases to lower margin products, higher sales growth rates, some
stores experiencing temporary closures, disruption to the supply of
some products and greater staff sickness levels. The overall impact
was to reduce profitability and change the working capital profile
of the business. To offset those impacts, action was taken to
reduce costs, refine the proposition and access some government
reliefs.
In addition, the Group has sought changes to its core financial
facilities supplied by a syndicate of banks that resulted in the
Group signing, in February 2021, an amended credit facility
agreement, which provides improved headroom against the covenants.
The updated facility consists of a GBP100m Revolving Credit
Facility and an amortising GBP67.5m term loan (originally GBP100m
initially being repaid at GBP2.5m per quarter). At the end of the
period, the Group had drawn down GBP112.5m (2019: GBP129.5m) of its
facilities. The Group also signed an extension of its agreement
with Morrisons broadening and expanding this key supplier
relationship.
Downside scenario
In considering going concern, the Directors' main alternative
scenario has been to apply a sensitivity to the long-term forecast.
This scenario included considering a short-term reduction in sales
and pressures on gross margin. The overall going concern scenario
the Company has modelled included a reversal in sales on a two year
LFL basis after the easing of COVID-19 measures to an increase of
2% and a slow-down of our store closure programme. Under this
scenario, the short-term impact is that the level of headroom under
the Group's financial covenants is tighter than under the main long
term plan assumptions.
Further mitigations are available that have not been modelled
such as accessing further government reliefs, reducing store costs,
further constraining capital and other expenditure, accessing
further sources of finance and seeking an easing of the existing
requirements of the Group's financing arrangements.
Stress-testing
In considering the potential risk to the Group, consideration
has been given to the key factors that could have an impact on the
Group's financial performance and liquidity. The two areas that are
likely to have the largest impact in this regard are sales
performance and margin. Based on our stress-testing, significant
movements in these measures from historic norms would be required
before the Group became unable to pay its liabilities as they fell
due. This is before the mitigations outlined above which could be
used to reduce the impact and provide further liquidity for the
Group.
Assessment of applicability of the going concern assumption
The Directors have made their assessment of the applicability of
the going concern assumption after consideration of various
scenarios covering the sensitivity of assumptions and management
actions to mitigate, and in accordance with the Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting published by the UK Financial Reporting Council ("FRC")
in September 2014. It also takes into account the FRC's June 2020
publication on COVID-19 - Going Concern, Risk and Viability. The
Directors revised the long-term forecasts, given the continued
challenging trading conditions, covering all elements of income,
balance sheet and cash flow, taking a prudent view of like for like
improvement and margin recovery. The Directors, taking into account
these forecasts and the revised facilities available to the Group,
continue to adopt the going concern basis in preparing the
financial statements.
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
period needed 29 November 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.
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 retrospective
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.
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.
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 and 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.
-- Perform an onerous lease assessment under IAS 37 that is
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 the date of initial application.
-- Not recognise contracts as leases when the term ends within
12 months of the date of initial application.
-- Use hindsight where appropriate, such as in the determination of each lease's term.
The impact on the financial statements on the adoption of IFRS
16 is set out below and in note 10.
The impact on the balance sheet on transition
Note GBPm(1)
Net assets at 24 November
2019 38.7
Right of use assets 8 200.5
Lease liabilities 10 (217.1)
Sublease receivables 2.0
Prepayments (1.6)
Accruals 0.2
Provisions (Onerous
leases) 2.0
Deferred tax asset 2.4
Net assets at 25 November
2019 27.1
=========
Note:
1. Motor vehicles right-of-use assets and lease liabilities are
not included in the impact of adoption of IFRS 16: Leases as motor
vehicles were all held under finance leases under IAS 17: Leases
and the adoption of IFRS 16: leases has not had an impact to the
financial statements in relation to these motor vehicles
leases.
The table below shows a reconciliation from the total operating
lease commitment as disclosed at 24 November 2019 to the total
lease liabilities recognised in the accounts immediately after
transition:
2020
GBPm
Operating lease commitment at 24 November 2019 282.9
Discounted using incremental borrowing rate (61.6)
Recognition exemption for leases of low-value assets/leases
with less than 52 weeks before expiry (4.2)
------
Total lease liabilities recognised on 25 November
2019 217.1
======
Alternative Performance Measures
In reporting financial information, the Directors have presented
various Alternative Performance Measures (APMs) of financial
performance, position or cash flows, which are not defined or
specified under the requirements of International Financial
Reporting Standards (IFRS). On the basis that these measures are
not defined by IFRS, they may not be directly comparable with other
companies' APMs, including those in the Group's industry.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional useful information on the performance
of the business. These APMs are consistent with how the business
performance is planned, reported and analysed between reporting
periods within the internal management reporting to the Board. Some
of these measures are also used for the purpose of setting
remuneration targets and covenant calculations.
The key APMs that the Group uses include: adjusted EBITDA,
adjusted profit before tax, like-for-like sales (LFL), net debt and
adjusted earnings per share. Each of the APMs, and others used by
the Group, are set out in the Glossary including explanations of
how they are calculated and how they can be reconciled to a
statutory measure where relevant. These measures have remained
consistent with the prior year.
The Group makes certain adjustments to the statutory profit
measures in order to derive many of these APMs. The Group's policy
is to exclude costs or incomes that derive from events or
transactions that fall within the normal activities of the Group,
but which are excluded from the Group's adjusted profit before tax
measure due to their size and nature in order to better reflect
management's view of the performance of the Group. Treatment as
adjusting items provides stakeholders with additional useful
information to assess the annual trading performance of the
Group.
Adjusting items
Adjusting items relate to costs or incomes that derive from
events or transactions that fall within the normal activities of
the Group, but are excluded from the Group's adjusted profit before
tax measure due to their size and nature in order to better reflect
management's view of the performance of the Group. The adjusted
profit before tax measure (profit before adjusting items) is not a
recognised profit measure under IFRS and may not be directly
comparable with adjusted profit measures used by other companies.
Details of adjusting items are set out in note 3.
2 Revenue and other income
In accordance with IFRS 8 'Operating segments' an operating
segment is defined as a business activity whose operating results
are reviewed by the chief operating decision maker and for which
discrete information is available. The chief operating decision
maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the
Board of Directors. The principal activities of the Group are
currently managed as one segment. Consequently, all activities
relate to this segment, being the operation of convenience and
newsagent stores in the UK.
The analysis of the Group's revenue for the period from
continuing operations is as follows:
2020 2019
GBPm GBPm
Revenue
Sale of goods 1,258.1 1,218.7
-------- -------
Other operating income
Property rental income 1.9 3.0
ATM commission and other income 2.0 3.3
Government grants 0.7 -
-------- -------
4.6 6.3
-------- -------
Finance income 0.1 -
-------- -------
1,262.8 1,225.0
======== =======
3 Adjusting items
Due to their significance or one-off nature, certain items have
been classified as adjusting as follows:
2020 2019
GBPm GBPm
Administrative expenses
Fines(a) 0.5 0.6
Business reorganisation(b) 3.4 0.6
Goodwill impairment(c) - 98.6
Defined benefit pension scheme - past service
cost(h) 0.1 -
----- -----
Administrative expenses - total 4.0 99.8
----- -----
(Profits)/losses arising on property-related items
Sale of head office(d) (3.4) -
Sale and leaseback(e) - (3.3)
Store optimisation programme(f) 5.5 6.6
Fixed asset impairment(g) 0.3 2.7
----- -----
(Profits)/losses arising on property-related
items - total 2.4 6.0
----- -----
Finance costs
Store optimisation programme(f) - 0.2
----- -----
Tax effect on adjusting items (3.0) (3.6)
----- -----
3.4 102.4
===== =====
a. Fines
A provision of GBP0.5m has been included in relation to a
potential health and safety fine and associated legal fees (2019:
GBP0.6m). The net cash outflow for the period was GBP0.4m for a
historical asbestos claim included in last year's provision and
GBPnil for this year's provision (2019: GBP0.2m).
b. Business reorganisation
The Group has been reviewing its organisational structure
leading to additional costs of GBP3.4m (2019: GBP0.6m) associated
with the restructuring, predominantly the cost of redundancies and
executive recruitment fees. This has resulted in a net cash outflow
of GBP3.4m (2019: GBP0.6m).
c. Goodwill impairment
Management have assessed goodwill impairment at the end of the
year according to IAS 36. In assessing impairment management have
used value in use as it was higher than the market value of the
business. In 2019 the value in use cash flows were lower than the
aggregate of the Group's total assets and therefore indicating
impairment which resulted in goodwill being impaired. Further
information can be found in note 9. There was no cash flow impact
in the year from this adjustment.
d. Sale of head office
The Group completed the sale of its Head office in Q4 2020.
Total proceeds from the sale were GBP7.3m (net gain on disposal
GBP3.4m). GBP2.3m had been received by the year-end, with the
remaining balance expected to be received by end of March 2021.
e. Sale and leaseback
Historically, the Group has undertaken 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 the Group's normal
business activities and should therefore be treated as adjusting.
No leaseback transactions were concluded in the current period,
resulting in a net cash flow of GBPnil (2019: GBP8.6m inflow).
f. Store optimisation programme
Management has undertaken a store optimisation program resulting
in a material number of store closures. Costs associated with the
closures have been classified as adjusting due to the one-off
nature of the closure programme. Included in the costs are net book
value write off and other costs in relation to store closure net of
any proceeds received. The net cash outflow was GBP0.4m (2019:
GBP0.6m).
g. Fixed asset impairment
Management has assessed the value in use cash flow of each
branch against the carrying value of its assets, and as a result of
the impairment review an impairment charge was recognised in the
year. The impairment was split between a charge for right-of-use
assets GBP4.6m and a credit of GBP4.3m for owned property, plant
and equipment. There was no cash impact from this adjustment in
this or the preceding year. Further information can be found in
note 8.
h. Defined benefit pension scheme - past service cost
Management has classified the amount for Guaranteed Minimum
Pension (GMP) equalisation as an adjusting item due to its
non-recurring nature. In October 2018, the High Court ruled that
Lloyds Banking Group was required to equalise the pension benefits
for the effect of unequal GMP between men and women, dating back to
1990. A further UK High Court judgement was made on 20 November
2020 relating to the GMPs for historic transfers out of
occupational pension schemes requiring those to be treated in the
same way. The Group has complied with these rulings and they will
be treated for IAS19 purposes as plan amendments that will result
in an increase in the pension liabilities and a corresponding past
service cost in the income statement. There was no cash impact from
this adjustment in the current or preceding year.
4 Operating profit
Arrived at after charging/ (crediting)
2020 2019
Note GBPm GBPm
Depreciation of owned property,
plant and equipment 8 12.5 15.8
Depreciation of right-of-use assets 8 25.5 -
Amortisation of intangible assets 9 1.0 0.8
Write-down of inventory recognised
as an expense 19.2 17.6
Operating lease expense - property 4.8 37.0
Profit on disposal of property,
plant and equipment (2.0) (1.5)
Intangible assets impairment 9 - 98.6
Impairment of property, plant and
equipment 8 0.3 2.7
Cost of inventories recognised
as an expense 950.0 928.3
===== =====
Adjusted EBITDA and operating profit excluding property- related
items
In order to provide shareholders with a measure of the
underlying performance of the business which is more aligned with
the way that management monitor and manage the business, the Group
makes adjustments to profit before tax. Adjusting items relate to
costs or incomes that derive from events or transactions that fall
within the normal activities of the Group, but which are excluded
from the Group's adjusted profit before tax measure due to their
size and nature in order to better reflect management's view of the
performance of the Group. The Group also adjust for share-based
payments as a non cash item. The adjusted profit before tax measure
(profit before adjusting items) is not a recognised profit measure
under IFRS and may not be directly comparable with adjusted profit
measures used by other companies. Details of adjusting items are
set out in note 3.
2020 2019
GBPm GBPm
Adjusted EBITDA excluding property-related
items and share-based payments
Operating profit before adjusting
items 18.7 15.4
Depreciation and amortisation 39.0 16.6
Share-based payments 0.2 0.1
----- -----
Total Adjusted EBITDA 57.9 32.1
----- -----
IFRS 16 Impact (see glossary) 28.8 -
----- -----
Pre IFRS 16 Adjusted EBITDA 29.1 32.1
===== =====
5 Income tax
2020 2019
GBPm GBPm
Income statement
Current tax :
Current tax on profit for the period 0.3 0.5
Adjustments in respect of prior periods (2.5) (0.6)
----- -----
(2.2) (0.1)
===== =====
Deferred tax :
Origination and reversal of temporary differences 0.8 (2.5)
Arising from change in tax rate (0.1) 0.3
Adjustments in respect of prior periods (1.1) (0.4)
----- -----
(0.4) (2.6)
----- -----
Income tax (credit)/charge for the period (2.6) (2.7)
===== =====
Other comprehensive income
Deferred tax in respect of actuarial valuation
of retirement benefits (0.6) (0.7)
Corporation tax in respect of actuarial
valuation of retirement benefits (0.3) (0.3)
----- -----
(0.9) (1.0)
===== =====
The differences are reconciled below:
2020 2019
GBPm GBPm
Loss before tax (5.3) (98.6)
===== ======
Tax on profit calculated at standard rate
for 2020 of 19.00% (2019: 19.00%) (1.0) (18.7)
Fixed Assets (0.6) -
Expenses not deductible 0.3 0.4
Decrease from tax losses for which no deferred
tax asset was recognised 2.2 -
Goodwill impairment - 16.7
Adjustments in respect of prior years (3.6) (1.0)
Arising from change in rate of tax (0.1) 0.3
Exempt amounts 0.2 0.7
Disposal of business combination assets - (1.1)
----- ------
Total tax credit (2.6) (2.7)
===== ======
On 17 March 2020, the UK corporation tax rate prevailing after 1
April 2020 was amended to remain at 19% rather than reducing to
17.0% as previously enacted in the Finance Act 2016.
The tax credit for the 53 week period was GBP2.6m (2019:
GBP2.7m) representing a rate of 49.1% (2019: 2.7%). The comparable
effective rate of tax in 2020 excluding the impact of
non-deductible adjusting items was 36.4% (2019: 12.4%). The
difference between the current and statutory rate of 19.0% in the
period is due principally to prior year adjustment for losses
carried back and adjustments in respect of prior years.
Amounts recognised in other comprehensive income
2020 2019
Before Tax Net Before Tax Net
tax benefit of tax tax benefit of tax
GBPm GBPm GBPm GBPm GBPm GBPm
Remeasurements
of post employment
benefit obligations (5.6) 0.9 (4.7) (5.8) 1.0 (4.8)
====== ======== ======= ====== ======== =======
6 Dividends
2020 2019
GBPm GBPm
Interim 2020 dividend of GBPnil (2019: 1.3p)
per ordinary share - 1.5
Final 2019 dividend of GBPnil (2018: 0.6
p) per ordinary share - 0.7
- 2.2
===== ====
The Directors are not proposing a final 2020 dividend (2019:
nil). The Group is restricted from paying a dividend until certain
conditions are satisfied in its banking facilities, including
achieving a Group leverage below 1.75x EBITDA.
7 Earnings per share
Basic and diluted earnings per share are calculated by dividing
the profit for the period attributable to shareholders by the
weighted average number of shares.
2020 2019
Basic weighted average number of shares 115,213,677 115,177,335
----------- -----------
Diluted weighted average number of shares 115,236,841 115,296,380
----------- -----------
Loss attributable to ordinary shareholders
(GBPm) (2.7) (95.9)
----------- -----------
Basic losses per share (2.3)p (83.3)p
----------- -----------
Anti-diluting losses per share (2.3)p (83.3)p
----------- -----------
Adjusted earnings per share:
2020 2019
Loss attributable to ordinary shareholders
(GBPm) (2.7) (95.9)
Adjusting items (GBPm) (note 3) 6.4 106.0
Tax effect of adjustments (GBPm) (3.0) (3.6)
----- ------
Profit after tax and before adjusting items
(GBPm) 0.7 6.5
----- ------
Basic adjusted earnings per share 0.6p 5.6p
----- ------
Diluted adjusted earnings per share 0.6p 5.6p
----- ------
The difference between the basic and diluted average number of
shares represents the dilutive effect of share options in
existence. As 2020 and 2019 have an overall loss the shares are not
diluting.
The diluted weighted average number of ordinary shares is
calculated using the following:
2020 2019
No. No.
Ordinary shares in issue at the start of
the period 115,193,909 115,173,515
Effects of shares issued during the period 19,768 3,820
----------- -----------
Basic weighted average number of ordinary
shares in issue during the year 115,213,677 115,177,335
Effect of shares to be issued under the
long-term incentive plan (LTIP) 23,164 119,045
----------- -----------
Diluted weighted average number of ordinary
shares at the end of the period 115,236,841 115,296,380
=========== ===========
8 Property, plant and equipment
Right of
Furniture, Right of use assets
Land and fittings use assets Land &
buildings and equipment Motor vehicles buildings Total
GBPm GBPm GBPm GBPm GBPm
Cost or valuation
At 26 November 2018 58.0 126.9 - - 184.9
Additions 3.2 9.4 - - 12.6
Acquired through business
combinations 0.4 0.1 - - 0.5
Disposals (8.4) (4.7) - - (13.1)
Transfers to other intangible
assets (0.3) - - - (0.3)
---------- -------------- --------------- ----------- ------
At 24 November 2019 52.9 131.7 - - 184.6
---------- -------------- --------------- ----------- ------
At 25 November 2019 52.9 131.7 - - 184.6
Right-of-use assets on
transition - (7.1) 7.1 200.5 200.5
Additions 4.6 9.0 0.3 13.1 27.0
Disposals (9.6) (10.7) (2.0) (12.2) (34.5)
---------- -------------- --------------- ----------- ------
At 29 November 2020 47.9 122.9 5.4 201.4 377.6
---------- -------------- --------------- ----------- ------
Depreciation
At 26 November 2018 21.3 71.2 - - 92.5
Charge for period 4.6 11.2 - - 15.8
Eliminated on disposal (0.3) (2.8) - - (3.1)
Impairment 1.8 0.9 - - 2.7
Transfers to other intangible
assets (0.4) - - - (0.4)
---------- -------------- --------------- ----------- ------
At 24 November 2019 27.0 80.5 - - 107.5
---------- -------------- --------------- ----------- ------
At 25 November 2019 27.0 80.5 - - 107.5
Right-of-use assets on
transition - (4.3) 4.3 - -
Charge for the period 3.4 9.1 1.3 24.2 38.0
Eliminated on disposal (4.6) (6.1) (1.9) (0.9) (13.5)
Impairment (0.6) (3.7) - 4.6 0.3
---------- -------------- --------------- ----------- ------
At 29 November 2020 25.2 75.5 3.7 27.9 132.3
---------- -------------- --------------- ----------- ------
Carrying amount
At 29 November 2020 22.7 47.4 1.7 173.5 245.3
========== ============== =============== =========== ======
At 24 November 2019 25.9 51.2 - - 77.1
========== ============== =============== =========== ======
During the year, the Group entered into no sale and leaseback
transactions in relation to property, plant and equipment, (2019:
GBP5.3m net book value of freehold land and buildings
disposed).
For impairment testing the Group classes each branch as a CGU
(cash generating unit). Each CGU was tested for impairment at the
period end date. Management recognise an impairment where the
recoverable amount of the CGU does not exceed its carrying value at
the balance sheet date. Recoverable amounts for CGUs are the higher
of fair value less costs of disposal, and value in use (VIU).
The key assumptions for the value in use calculation include the
discount rate, long-term growth rates and forecast cash flows. The
value in use calculations use forecast cash flows taking into
account actual performance for the year and the Group's cash flow
forecast for a four-year period, which has been approved by the
Directors. Cash flows beyond this period are extrapolated using a
long-term growth rate of 2.0% and discounted with a pre-tax
weighted average cost of capital (WACC) of 11.7% (2019: 11.5%).
The annual impairment testing resulted in an impairment of
GBP0.3m (2019: GBP2.7m) against branch property, plant and
equipment assets (PPE).
Sensitivity analysis
The Group has carried out sensitivity analysis for impairment of
branch PPE on the key assumptions.
Change in discount rate: a 0.5% increase in WACC would increase
impairment by GBP0.3m while a 0.5% reduction in WACC would reduce
impairment by GBP0.2m.
Forecast cash flows: a reduction of cash flows of 3% for all
stores would increase impairment by GBP0.2m.
9 Intangible assets
Other intangible
Goodwill assets Total
GBPm GBPm GBPm
Cost or valuation
At 26 November 2018 253.6 9.4 263.0
Additions 0.7 2.9 3.6
Transfers from property, plant
and equipment - 0.3 0.3
-------- ---------------- -----
At 24 November 2019 254.3 12.6 266.9
-------- ---------------- -----
At 25 November 2019 254.3 12.6 266.9
Additions 0.3 3.4 3.7
-------- ---------------- -----
At 29 November 2020 254.6 16.0 270.6
-------- ---------------- -----
Amortisation
At 26 November 2018 4.2 6.0 10.2
Amortisation charge - 0.8 0.8
Impairment 98.6 - 98.6
Transfers from property, plant
and equipment - 0.4 0.4
-------- ---------------- -----
At 24 November 2019 102.8 7.2 110.0
-------- ---------------- -----
At 25 November 2019 102.8 7.2 110.0
Amortisation charge - 1.0 1.0
-------- ---------------- -----
At 29 November 2020 102.8 8.2 111.0
-------- ---------------- -----
Carrying amount
At 29 November 2020 151.8 7.8 159.6
======== ================ =====
At 24 November 2019 151.5 5.4 156.9
======== ================ =====
Amortisation expenses of GBP1.0m (2018: GBP0.8m) are included in
administrative expenses.
Goodwill acquired in a business combination is not amortised,
but is reviewed for impairment on an annual basis, or more
frequently if there are indications that goodwill may be impaired.
An impairment is recognised where the carrying amount is more than
the recoverable amount of the CGU. The recoverable amount is the
higher of the fair value less costs to sell and the value in use
(VIU) of the CGU. For the purpose of goodwill, in line with the
accounting policy, the business manages and makes decisions based
on one CGU and therefore impairment is assessed on that single
group. Management has used the value in use of the CGU as the
recoverable amount as it was higher than total enterprise value.
The value in use was calculated as a discounted cash flow model and
management has determined the values assigned to each of the key
assumptions.
The key assumptions for the value in use calculation include the
discount rate, long-term growth rates and forecast cash flows. The
value in use calculations use forecast cash flows taking into
account actual performance for the year and the Group's cash flow
forecast for a four year period, which has been approved by the
Directors. Cash flows beyond this period are extrapolated using a
long-term growth rate of 2% and discounted with a pre-tax weighted
average cost of capital (WACC) of 11.7% (2019: 11.5%).
Free cash flows are derived from the long-term plan (LTP) and
any benefit from future new business and the associated expenditure
to acquire the new business is excluded.
The LTP has taken into consideration the future business
environment and the impact of the COVID-19 pandemic. The Group has
experienced high LFL sales growth during the pandemic and decreased
margins which have been reversed over the forecast period as normal
trading conditions are expected by the end of the first year of the
forecast period. The main estimates included in cash flow forecasts
are growth of revenue and increase in costs such as minimum wage
increases. Revenue growth has been assumed at an average of 1.0%
annual growth for the four year period. Wage inflation is assumed
at 3.0% per annum whilst general cost inflation is assumed at an
average annual growth rate of 2.0%.
The recoverable amount per value in use calculations was
GBP355.8m versus the CGU's carrying amount of GBP340.6m creating a
headroom of GBP15.2m, and therefore no impairment has been
recorded.
No goodwill impairment losses were recognised in the year (2019:
GBP98.6m).
Sensitivity analysis
Change in discount rate
The Group has conducted sensitivity analysis on the impairment
testing for goodwill. With reasonable possible changes in key
assumptions including a 50bps change in WACC, which would reduce
the headroom to GBP0.1m.
Forecast cash flows
Management have conducted sensitivity analysis on the CGUs VIU
by reducing the anticipated future cash flows. A reduction in cash
flows of 3% would reduce the headroom to GBP2.0m.
10 Leases
The Group leases many of its store properties and previously
classified them as operating leases. From 25 November 2019, the
Group adopted IFRS 16: Leases and now recognises the majority of
these leases on the balance sheet.
The Group as a lessee
Right of use assets
The Group includes right-of-use assets as part of property,
plant and equipment in the balance sheet. Their carrying value as
at 29 November 2020 was GBP175.2m. See note 8.
Lease liabilities
The Group includes lease liabilities in loans and borrowings in
the balance sheet. The carrying amounts of lease liabilities as at
29 November 2020 are set out below:
2020 2019(1)
Land & Motor
Buildings vehicles Total
GBPm GBPm GBPm GBPm
At 25 November 2019 (217.1) (2.6) (219.7) -
Additions (9.5) (0.3) (9.8) -
Interest (9.1) (0.1) (9.2) -
Payment 30.6 1.2 31.8 -
Disposals 12.9 0.2 13.1
---------- --------- ------- -------
At 29 November 2020 (192.2) (1.6) (193.8) -
---------- --------- ------- -------
Current liabilities (21.3) (1.0) (22.3) (1.2)
Non-current liabilities (170.9) (0.6) (171.5) (1.4)
---------- --------- ------- -------
Total lease liabilities (192.2) (1.6) (193.8) (2.6)
========== ========= ======= =======
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 1.
Maturity analysis - contractual undiscounted
lease payments
2020 2019
GBPm GBPm
Amounts due within one year (29.6) (1.3)
Amounts due within two to five years (94.4) (1.4)
Amounts due within six to ten years (81.5) -
Amounts due after ten years (39.2) -
------- -----
(244.7) (2.7)
======= =====
Amounts recognised in the Group income statement
2020
GBPm
Depreciation charge on right-of-use assets - land
and buildings 24.2
Depreciation charge on right-of-use assets - motor
vehicles 1.3
Interest expense (included in finance cost) 9.2
Expense included in administrative expenses for short-term
leases 4.8
Expense included in administrative expenses for low
value leases -
Amounts recognised in the Group 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.
On adopting IFRS 16: Leases, new accounting for right-of-use
assets and lease liabilities led to increases in depreciation and
interest expense. The result of these changes for the 53 week
period ended 29 November 2020, was to increase operating cash
inflows before movements in working capital by GBP30.6m. Interest
paid increased by GBP9.1m and cash outflows in respect of the
capital element of lease rental payments by GBP21.5m for the 53
week period ended 29 November 2020, excluding motor vehicles
GBP0.1m interest and GBP1.1m lease rental payments as motor
vehicles leases were covered by finance leases under IAS 17 and
therefore unaffected by adoption of IFRS 16. Overall, there was no
change in the net decrease in cash and cash equivalents as a result
of these changes.
The total cash outflow for leases in 2020 was GBP37.0m including
short-term leases.
Future possible cash outflows not included in the lease
liability
The Group's future rental increases linked to index or rate are
not included in lease liabilities until the change is effective. In
calculating its lease liability, the Group has assumed that it does
not exercise any break clauses present in any store leases. The
Group does not have any leases that have been signed but not yet
commenced.
The Group as a lessor
The Group sublets leased properties and have classified them as
either finance or operating leases.
Amounts recognised in the Group income statement
2020 2019
GBP m GBP m
Finance lease - sublease interest income 0.1 -
Operating lease - rental income 1.9 3.0
------ ------
2.0 3.0
====== ======
Finance lease
2020 2019
GBP m GBP m
--------- ----------
Finance lease - sublease receivable 1.6 -
========= ==========
11 Loans and borrowings
2020 2019(1)
Note GBPm GBPm
Current
Bank borrowings - margin + Libor%
term loan 10.0 10.0
Lease liabilities 10 22.3 1.2
--------- ----------
32.3 11.2
========= ==========
Non-current
Bank borrowings - margin + Libor%
term loan 57.5 67.5
Bank borrowings - margin + Libor%
revolving credit facility 45.0 52.0
Unamortised issue costs (1.3) (1.0)
Lease liabilities 10 171.5 1.4
--------- ----------
272.7 119.9
========= ==========
The long-term bank borrowings are secured on Group assets.
During the year, the margin on the term loan and revolving
credit facility ranged between 3.25% and 4.25% in line with the
banking facility agreement.
The Group's term loan and the revolving credit facility have
attached covenants on leverage which are assessed quarterly and the
Group was compliant with all assessments in the year.
The Group renewed its bank facility in February 2021 made up of
an amortising term loan of GBP67.5m and a GBP100m revolving
facility. The current facility drawn as at 29 November 2020 is
GBP112.5m (2019: GBP129.5m). The maximum drawdown in the year was
GBP75.0m for the term loan and GBP65.0m for the revolving credit
facility.
Details of loans and lease liabilities repayable in the future
are as follows:
2020 2019(1)
GBPm GBPm
Bank loans
Term loan and revolving credit facility
available until February 2024 102.5 119.5
Lease Liabilities
Amounts due within two to five years 70.6 1.4
Amounts due within six to ten years 67.3 -
Amounts due after ten years 33.6 -
----- -------
171.5 1.4
----- -------
274.0 120.9
===== =======
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 1.
12 Net debt
2020 2019(1)
Note GBPm GBPm
Cash at bank and in hand 23.2 37.0
------- -------
23.2 37.0
------- -------
Term Loan and revolving facility
available until February 2024 (112.5) (129.5)
------- -------
Less: unamortised issue costs 1.3 1.0
------- -------
(111.2) (128.5)
Lease liabilities (193.8) (2.6)
------- -------
Net debt (281.8) (94.1)
------- -------
Lease liabilities - impact of adoption
of IFRS 16 10 192.2 -
------- -------
Net debt pre IFRS 16 (89.6) (94.1)
======= =======
Analysis of net debt
Amortisation Non-current
IFRS 16 Cash of issue Lease to current
2019 adoption flow costs Lease additions disposals movements 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Analysis of net debt
Bank borrowings
Current (10.0) - 10.0 - - - (10.0) (10.0)
Non-current (118.5) - 8.2 (0.9) - - 10.0 (101.2)
------- --------- ------ ------------ --------------- ---------- ----------- -------
(128.5) - 18.2 (0.9) - - - (111.2)
------- --------- ------ ------------ --------------- ---------- ----------- -------
Lease liabilities
Current (1.2) (22.9) 22.6 - (0.9) 2.0 (21.9) (22.3)
Non-current (1.4) (194.2) - - (8.9) 11.1 21.9 (171.5)
------- --------- ------ ------------ --------------- ---------- ----------- -------
(2.6) (217.1) 22.6 - (9.8) 13.1 - (193.8)
------- --------- ------ ------------ --------------- ---------- ----------- -------
Arising from
financing activities (131.1) (217.1) 40.8 (0.9) (9.8) 13.1 - (305.0)
------- --------- ------ ------------ --------------- ---------- ----------- -------
Cash and short-term
deposits 37.0 - (13.8) - - - - 23.2
------- --------- ------ ------------ --------------- ---------- ----------- -------
Net debt (94.1) (217.1) 27.0 (0.9) (9.8) 13.1 - (281.8)
======= ========= ====== ============ =============== ========== =========== =======
12 Net debt note (continued)
Finance Non-current
Cash Amortisation lease additions to current
2018 flow of issue costs GBPm movement 2019
GBPm GBPm GBPm GBPm GBPm
Bank borrowings
Current (10.0) 10.0 - - (10.0) (10.0)
Non-current (114.0) (14.0) (0.5) - 10.0 (118.5)
------- ------ --------------- ---------------- ----------- -------
Sub total (124.0) (4.0) (0.5) - - (128.5)
------- ------ --------------- ---------------- ----------- -------
Finance lease
liabilities
Current (2.1) 1.7 - (0.3) (0.5) (1.2)
Non-Current (1.0) - - (0.9) 0.5 (1.4)
------- ------ --------------- ---------------- ----------- -------
Sub total (3.1) 1.7 - (1.2) - (2.6)
------- ------ --------------- ---------------- ----------- -------
Arising from financing
activities (127.1) (2.3) (0.5) (1.2) - (131.1)
------- ------ --------------- ---------------- ----------- -------
Cash and short-term
deposits 28.5 8.5 - - - 37.0
Net Debt (98.6) 6.2 (0.5) (1.2) - (94.1)
======= ====== =============== ================ =========== =======
2020 2019(1)
Interest and finance costs in the period GBPm GBPm
Current bank borrowings 0.9 0.6
Non-current bank borrowings 5.7 5.9
Current leases 1.0 0.1
Non-current leases 8.2 0.1
Other finance costs 1.9 1.5
----- -------
17.7 8.2
===== =======
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 1.
13 Share capital
Number of 0.1p ordinary Share capital Share premium
shares GBPm GBPm
At 25 November 2019 115,193,909 0.1 12.6
Shares issued during
the period 110,491 - -
At 29 November 2020 115,304,400 0.1 12.6
======================= ============= =============
The Company has one class of ordinary shares which carry no
right to fixed income. All issued shares are fully paid. The shares
rank equally for voting purposes. On a show of hands each
shareholder has one vote and on a poll each shareholder has one
vote per ordinary share held. Each ordinary share ranks equally for
any dividend declared. Each ordinary share ranks equally for any
distributions made on a winding up of the Group. Each ordinary
share ranks equally in the right to receive a relative proportion
of shares in the event of a capitalisation of reserves.
The Group issued 110,491 ordinary shares at 0.1 pence per share
equal to the nominal value of GBP110 in relation to LTIP share
options that had been exercised.
The Group did not acquire any of its own shares for cancellation
in either the 53 weeks ending 29 November 2020 or 52 weeks ending
24 November 2019.
14 Subsequent events
Management has evaluated subsequent events through 22 March
2021, which is the date the consolidated financial statements were
available to be issued.
In February 2021, the Group signed an amended credit facility
agreement, which provides improved headroom against the covenants
and extends the maturity from May 2022 to February 2024. The
updated facility consists of a GBP100m Revolving Credit Facility
and an amortising GBP67.5m term loan (originally GBP100m initially
being repaid at GBP2.5m per quarter).
The facility has been arranged with our existing syndicate of
six banks, comprising AIB Group (UK), Barclays Bank PLC, HSBC UK
Bank plc, National Westminster Bank plc, Santander UK PLC, and Bank
of Ireland.
The Group also announced on 1 March 2021 that terms have been
agreed on a new supply arrangement with Morrisons, under which
Morrisons will supply the entire McColl's estate for a further
three year period to January 2027. In addition, Morrisons will
support on the conversion of 300 McColl's convenience stores to the
Morrisons Daily fascia and format.
Principal Risks and Uncertainties
We are committed to good corporate governance. To this end,
we follow a sound risk management process closely aligned to
our strategy.
At present, the Board, with the assistance of the Audit & Risk
Committee, considers the following to be the principal risks
facing the Group.
Customer proposition (increased)
Customer shopping habits are influenced by a wide range of factors
and are constantly evolving. COVID-19 restrictions have accelerated
some existing trends and introduced some new ones. 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.
* Significant insight and tracking of customer habits,
convenience channel trends and utilising supply base
to understand trends and innovations. We work with
industry experts, third party partners and trading
associations to keep up to date on trends.
* A Format, Space and Range team has been established
to review how optimally to align the proposition to
the customer journey.
* Supermarket grade product, accessed through our
supply partners are deployed in store to
differentiate our offer.
* We undertake constant review of promotional
programmes and pricing to assess effectiveness,
convenience sector trends and how best to offer
customers good value.
* Our strong customer service standards, delivered
through our store colleagues are reflected in our
evolving brand strategy. We look to build on this
service ethos as a key strength of the brand.
* Hygiene standards and customer safety following the
COVID-19 restrictions have become a key
decision-making factor in where to shop. We have
changed process and invested to ensure customers feel
safe when they shop with us.
* We are building our presence in social media combined
with local initiatives to better engage with
customers.
* Price index tracking vs competitive set has been
established to ensure the offer remains relevant.
* We follow customer feedback and sales information
when establishing our investment strategy. COVID-19
trading has changed how customers want to shop. We
have commenced investment to deliver more of the
products and categories that customers want in their
neighbourhood convenience retailer.
* Online is becoming an increasingly important channel
we have responded in partnership with third party
delivery apps and are building our own online
platform.
Reliance on third party supply (decreased)
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. A disruption in
supply, however short term, would prevent orderly trading and
impact the brand and financial performance.
* We establish long-term relationships with trusted
suppliers.
* We extend the relationship to multi-discipline
relationships for our most important partner ensuring
our operations and financial objectives are aligned.
* Joint business plans are developed with our key
partners where possible building joint investment
programmes to deliver a combined buy in to the
outcome.
* We look for opportunities to work closer with our key
partners, to unlock areas of business benefit, such
as 'implants' within our commercial department to
collaboratively develop promotional and range
strategies.
* We monitor the financial stability of key partners.
We maintain a network of industry contacts in case of
the need to move rapidly.
* We minimise volume linked contracts with wholesalers
to ensure we are not locked in on products that may
not be what our customers want.
Operating model and cost efficiency challenges (maintained)
We have a high operational cost base, consisting primarily
of wages (impacted by the National Living Wage), property rental
and utility costs. Increases in these costs without a corresponding
increase in revenues could adversely impact our profitability.
COVID-19 had made the operating environment more challenging
and has introduced new investments and processes that need to
be absorbed into the cost base .
* We continually seek to remove unnecessary complexity
from our operational procedures to optimise
performance; whilst engaging external review of our
operating model to identify opportunities for further
efficiency.
* We review options to deploy technology and operating
practices to further simplify and reduce cost from
our operating model, such as advances in stocktaking,
promotions, pricing and matching colleague attendance
to demand.
* We monitor legislation and developments related to
our costs, e.g. National Minimum and Living wage,
tribunal results and government policy announcements
to allow us to plan and mitigate increases. We engage
openly with all governmental agencies.
* We monitor working patterns of our colleagues to
ensure they fully comply with key directives and the
contracted and actual hours worked are appropriate.
We have invested to ensure our stores are COVID-19
safe and compete effectively in ensuing a safe
environment for our
* colleagues and customers.
* We constantly optimise our estate ensuring that we
are running the most profitable portfolio of stores.
* We target our capital resources at the very best
returns in order to deliver the best payback and
operational advantage. We tender all significant
contracts to ensure we get the best deals.
Availability of funding/cash (increased)
The main financial risks are the availability of appropriate
liquidity and covenant headroom to meet business needs for trading
and investment. The shape of trading during COVID-19 has varied
greatly in volume and mix reinforcing the need for flexibility
and headroom with all funding arrangements.
* We produce daily cash forecasts to manage short-term
liquidity. We use forward projections of financial
performance to evaluate and manage covenant and
liquidity headroom over longer periods.
* We have engaged with our banking partners to ensure
that all facets of our facilities are aligned to our
strategic objectives and have sufficient headroom to
weather short-term changes in trading. We provide
financial performance information and forecasts to
our banking group and meet them on a regular basis.
* There is a full working capital programme in place,
to support the cash position through review of stock
levels, ordering processes and supplier terms.
* We engage proactively with strategic suppliers to
retain their trading confidence in the business.
* The programme of estate optimisation targets a level
of proceeds from the sale of stores to further
improve the cash position and improve profitability.
* The team actively monitors utility prices and
interest rates to aid planning and to use appropriate
instruments to lock in favourable prices.
* We engage with credit insurers to support our
suppliers' credit insurance on their exposure to
McColl's.
Strategic vision (increased)
If the Board either pursues an unsuccessful strategy or does
not communicate and implement its strategy effectively, business
performance and reputation may suffer. The Board must fully
take account of environmental, sustainability and social governance
matters, including diversity, when setting the vision for the
business.
* Our strategic development is led by an experienced
Board, Executive and Senior Leadership Team.
* An annual strategic review takes place alongside our
budget setting process to validate the direction set
supported by appropriate external advisers. We
monitor external developments and consumer behaviours
which impact the strategy.
* The McColl's strategy is widely communicated and
understood across the business. Budgets are developed
and signed up to within the strategic framework set
by the Board.
* Business plans are developed, monitored and reviewed
against strategic KPIs with a newly created Programme
Management function and dedicated Transformation
Director to operationalise.
* Senior Management are incentivised with
performance-related rewards to deliver our strategic
goals.
Macroeconomic factors (decreased)
All our revenue is generated in the UK. Any deterioration in
the UK economy and consumer confidence could affect spending
and cost of goods, which in turn would impact our sales and
profitability. COVID-19 represents the most dramatic shift in
the macroeconomic environment in our lifetimes. The business
has needed to operate crisis management process to react to
the short- term challenges but also recognise longer-term trends
from the pandemic that will be with us for years to come.
* We sell food and household essentials which are
considered to be less discretionary than other
competing spend areas. We have refined our
proposition to sell a more sustainable mix of
products in grocery whilst de-emphasising declining
categories such as tobacco.
* We offer a wide range of services, such as Post
Office and 'last mile' internet package
collection/delivery which helps sustain footfall.
* The majority of stores are local and community based,
with higher exposure to regular and repeat footfall.
* Our flexible business model allows us to respond to
changes in customer behaviour, for example, by
adapting our ranges, pricing and promotion on a local
level.
* We are growing our range of own brand products
through the rollout of Safeway and Morrisons.
* We are working with third parties to ensure our
ranging, pricing and promotions are flexible enough
to react to dramatic changes in short-term trading
driven by COVID-19 lockdowns.
* Post the UK exiting from the EU, the business has
continued to work with Morrisons and all its supply
partners to ensure availability is maintained.
Health & Safety, Regulation and Reputation (increased)
The business is required to operate within all laws and regulations.
The Board actively engages to ensure it is fulfilling all of
its responsibilities to its customers, colleagues, the local
communities in which it operates and the broader environment.
Where the business identifies a gap in compliance with any regulation
we put in place recovery programmes to recover the situations
as rapidly as practical. The COVID-19 pandemic has overlaid
new challenges within health and safety further enhancing the
need to ensure a safe operating environment for our colleagues
and customers. The business actively monitors and manages factors
that would impact its reputation and brand.
* We have revised and retendered our maintenance
supplier's infrastructure and reporting capability to
ensure all compliance activities are undertaken and
evidenced.
* We have recently conducted a thorough review of our
structures for all field-based roles and have put in
place a dedicated Risk & Compliance Team.
* We have established a business continuity forum which
meets twice a week to ensure COVID-19 safety measures
are actively adhered to.
* The Committee has the authority to change operating
and ranging practices to take account of colleague
and customer safety.
* Specific risks are targeted and comprehensively
addressed in programmes across the estate.
* The Risk oversight committee has been reinvigorated
with refined tracking of progress to compliance with
all key legislation under the leadership of a
dedicated Head of Risk and direct reporting into the
Board.
* The businesses PR is actively monitored and managed
and external expert suppliers are engaged in ensuring
the Company protects its reputation and supports
appropriate environmental and social policies in
keeping with its values as a community retailer.
* Regulation around products with high fat, sugar and
salt, minimum alcohol pricing, sugar tax and
anti-smoking regulation is constantly being updated.
The business uses its links to lobbying and industry
representation organisations to ensure its voice is
heard with lawmakers.
* We liaise with the appropriate regulator such as
primary trading standards authority and fire
authority to proactively sign off the business stance
on all key issues.
* We actively monitor government and regulatory
announcements on food safety, environment and broader
health and safety to ensure our policies and
procedures are up to date.
Crime & colleague welfare (decreased)
We need to provide and maintain a healthy 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. The COVID-19 pandemic has
introduced a new set of challenges for our colleagues to seek
to ensure customers comply with COVID regulations.
* We monitor, on a weekly basis, key incidents
impacting colleague welfare. We offer comprehensive
training to ensure our colleagues have the tools for
the job.
* Stores are categorised by security and safety risk,
with measures deployed accordingly; ranging from
physical security to internal asset protection
devices.
* The Group's Health, Safety and Compliance Committee
meets regularly, and specifically considers colleague
safety and available options to provide heightened
assurance to colleagues and deter anti-social
behaviour in our stores.
* We provide effective PPE in store and in our support
centre and follow best practice to protect our
colleagues as best we can from COVID-19 infection.
* We provide clear guidelines for colleagues on how to
react to noncompliance to social distancing and make
customers aware of the policies with our shops.
* Latest technological advancements are considered by
the Health, Safety and Compliance Committee to
further enhance safety and security, ranging from
'staff safe' audio connectivity to 'staff cam' visual
recording deterrents.
* We have launched a range of ways for colleagues to
interact and communicate with each other and the
leadership of the business. Colleague feedback and
suggestions are considered and responded to in order
to maintain a positive environment. We actively
monitor the mental health of our colleagues who are
working from home and not able to interact in the
working environment. We endeavour to support our
colleagues through the range of challenges presented
by the restriction of the pandemic.
* We recognise the increasing threat of cyber security
and have an established cyber policy which is
reviewed regularly.
GLOSSARY OF TERMS
Introduction
In the reporting of financial information, the Directors have
adopted various Alternative Performance Measures (APMs) of
financial performance, position or cash flows other than those
defined or specified under International Financial Reporting
Standards (IFRS).
These measures are not defined by IFRS and therefore may not be
directly comparable with other companies' APMs, including those in
the Group's industry.
APMs should be considered in addition to IFRS measures and are
not intended to be a substitute for IFRS measurements.
Purpose
The Directors believe that these APMs provide additional useful
information on the underlying performance and position of
McColl's.
APMs are also used to enhance the comparability of information
between reporting periods by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid the user
in understanding McColl's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive-setting
purposes and have remained consistent with prior year.
The key APMs that the Group has focused on this year are as
follows:
Like-for-like sales (LFL): This is a widely used indicator of a
retailer's current trading performance and is a measure of growth
in sales from stores that have been open for at least a year.
Sales from stores that have traded throughout the whole of the
current and prior periods, and including VAT but excluding sales of
fuel, lottery, mobile top-up, gift cards and travel tickets.
Adjusted EBITDA excluding property-related items 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.
Property gains and losses: Are incomes and costs that arise from
events and transactions in relation to the Group's property and not
from the principal activity of the Group, i.e. that of an operator
of convenience and newsagent stores.
Adjusting items: Relate to costs or incomes that derive from
events or transactions that fall within the normal activities of
the Group but which, individually or, if of a similar type, in
aggregate, are excluded from the Group's adjusted profit measures
due to their size and nature in order to reflect management's view
of the performance of the Group.
Adjusted operating profit: Operating profit before the impact of
adjusting items as explained above.
Adjusted earnings per share: Earnings per share before the
impact of adjusting items.
Adjusted EBITDA pre IFRS 16 : This profit measure is utilised on
the same basis as the adjusted EBITDA excluding property-related
items and share-based payments above. The difference is that rent
expense GBP29.3m has been added back to administrative expenses and
rental income GBP0.5m to other income to reverse the impact of IFRS
16. These adjustments enable a comparable profit measure to the
prior period to be presented, which was prepared utilising IAS
17.
Grocery mix: This measure is the proportion of grocery sales
excluding VAT as a percentage of total revenue. Grocery includes
ambient, fresh, frozen and household groceries, and food-to-go, but
excludes impulse categories (including confectionery, crisps and
snacks, soft drinks and ice cream), general merchandise, news and
magazines, and services.
APM Closest Note reference for reconciliation Definition and purpose
equivalent
IFRS measure
--------------- ----------------------------------
Income statement
Revenue
measures
----------------- --------------- ---------------------------------- ----------------------------------------
Sales mix No direct Not applicable The relative proportion
equivalent or ratio of products
sold compared to the
same period in the
prior year.
----------------- --------------- ---------------------------------- ----------------------------------------
Like-for-like IFRS Revenue Revenue YE19 GBP1,219m Like-for-like is a
(LFL) Add VAT GBP150m measure of growth
Excl. non store rev. GBP(171)m in Group sales from
Excl. acq/closures GBP(117)m stores that have been
LFL Sales 2019 GBP1,081m open for at least
Revenue 2020 GBP1,258m a year (but excludes
Add VAT GBP161m prior year sales of
Excl. non store rev. GBP(129)m stores closed during
Excl. acq/closures GBP(79)m the year). It is a
LFL Sales 2020 GBP1,211m widely used indicator
LFL% 12.0% of a retailer's current
trading performance
and is important when
comparing growth between
retailers that have
different profiles
of expansion, disposals
and closures. It's
reported on an 'including
VAT' basis, which
aligns with the sales
measurement by the
field and stores teams,
whose focus is on
the retail performance.
----------------- --------------- ---------------------------------- ----------------------------------------
Profit measures
----------------- --------------- ---------------------------------- ----------------------------------------
Adjusted Operating Note 4 This profit measure
EBITDA Profit shows the Group's
Earnings Before Interest,
Tax, Depreciation
and Amortisation adjusted
for both property
gains and losses,
share-based payments
and other adjusting
items, in order to
provide shareholders
with a measure of
true underlying performance
of the business.
----------------- --------------- ---------------------------------- ----------------------------------------
Basic adjusted Basic earnings Note 7 This relates to profit
earnings per share after tax before adjusting
per share items divided by the
(EPS) basic weighted average
number of shares,
in order to provide
shareholders with
a measure of true
underlying performance
of the business.
----------------- --------------- ---------------------------------- ----------------------------------------
Diluted Diluted Note 7 The difference between
adjusted earnings basic and diluted
earnings per share metric is the impact
per share of the dilutive effect
of share options and
warrants in existence.
----------------- --------------- ---------------------------------- ----------------------------------------
Balance sheet measures
---------------------------------- ---------------------------------- ----------------------------------------
Net debt Borrowings Note 12 Net debt comprises
less cash bank and other borrowings,
and related finance lease payables,
hedges and net interest receivables/payables,
offset by cash and
cash equivalents and
short-term investments.
It is a useful measure
of the progress in
generating cash and
strengthening of the
Group's balance sheet
position and is a
measure widely used
by credit rating agencies.
----------------- --------------- ---------------------------------- ----------------------------------------
Other
Capital expenditure (Capex): The additions to property, plant
and equipment and intangible assets.
Grocery lines: This includes ambient, fresh, frozen and
household groceries, and food-to-go, but excludes impulse
categories (including confectionery, crisps and snacks, soft drinks
and ice cream), general merchandise, news and magazines, and
services.
Quarter: The 'first quarter' refers to the 13-week period from
25 November 2019 to 23 February 2020, 'second quarter' refers to
the 13-week period from 24 February 2020 to 24 May 2020, 'third
quarter' refers to the 13-week period from 25 May 2020 to 23 August
2020 and 'fourth quarter' refers to the 14-week period from 24
August to 29 November 2020.
Profits/(losses) arising on property-related items: This relates
to the Group's property activities including: gains and losses on
disposal of property assets, sale and lease back of freehold
interests; costs resulting from changes in the Group's store
portfolio, including pre-opening and post-closure costs; and
income/(charges) associated with impairment of non-trading property
and related onerous contracts. These items are disclosed separately
to clearly identify the impact of these items versus the other
operating expenses related to the core retail operations of the
business. They can be one-time in nature and can have a
disproportionate impact on profit between reporting periods.
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END
FR PPUGGWUPGPGP
(END) Dow Jones Newswires
March 23, 2021 03:00 ET (07:00 GMT)
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