Crawshaw Group Regulatory News (CRAW)

27 September 2017

Crawshaw Group Plc

DELIVERY AGAINST VALUE-LED STRATEGY DRIVING PROGRESS

Strategic plan strengthened by factory shop rollout and transformational deal with 2Sisters

Crawshaw Group Plc ("Crawshaw", the "Company" or the "Group"), the UK's leading value butcher, announces its results for the 26 weeks ended 30 July 2017.

H1 Financial Highlights:

· Group revenue up 2.3% to £22.1m (2016: £21.6m)

· Gross margin of 42.9% (2016: 45.2%)

· EBITDA1 (£0.2m) (2016: £0.3m)

· Adjusted EBITDA2 £0.0m (2016: £1.1m)

· Underlying Operating Loss3 of £0.8m (2016: loss of £0.4m)

· Loss Before Tax of £1.2m (2016: loss of £0.4m), including (£0.4m) exceptional costs

· Cash of £6.8m at 30 July 2017 (29 January 2017: £2.1m)

H1 Operational Highlights:

Progress made against strategy to position Crawshaws as Britain's leading value butcher, delivering great quality fresh meat at the lowest possible price:

· Strong customer response to improved offer, enhanced value and broader product ranges;

o Group LFL4 sales -4.2% (2016: -4.4%); momentum build in H1 (Q1: -5.1%; Q2 -3.2%)

o Customer numbers -3.5%; momentum build in H1 (Q1: -5.6%; Q2 -1.1%)

o Food to go sales back in growth post H2 FY17 recovery actions

o Fresh meat customer numbers improving with average transaction values lower as customers trade into re-based value

· H1 profitability impacted by sterling weakness and shape of sales recovery;

o Sterling depreciation of 10% caused a 1.5% gross margin impact

o Strategic investment in value reduced margin as expected by 1%

o Customer and sales recovery trajectory robust. Work ongoing to increase fresh meat average transaction values

· Transformative partnership with 2Sisters Food Group progressing (commenced 25 May 2017):

o Core supply routes now well established

o Over 20% of fresh meat product now sourced from 2Sisters and expected to increase

o Framework in place delivering continuous change in our selection of top quality product to our customers at a significant discount

· Fresh meat factory shops are now proven with accelerated growth fully funded:

o Factory shops trading in the period delivered circa 20% of Group sales

o One new factory shop opened in H1 with four more planned by year end

o Customers attracted to new levels of progressive value, with the excellent site economics allowing us to offer best market value

o Cash of £6.8m to facilitate accelerated factory shop roll-out

H2 Current Trading:

The positive customer and sales momentum from Q1 into Q2 has continued post period end into Q3. Customer numbers for the first 6 weeks of H2 have returned to growth, up 5.4% on the prior year, while LFL sales for the same period are now tracking at -1.1%. Having made good progress on recovering customer numbers, our current marketing and promotional plans are targeting improvements in fresh meat average transaction value as we look to trade new and returning customers across the full breadth of our winter/seasonal range.

We are experiencing further margin pressure from the continued weakness in sterling. This has impacted our current margin performance as we consciously chose not to pass on the resulting price increases to protect our recovery momentum. Having re-established a strong and growing customer base, we will now revert as planned to managing price inflation on a 'business as usual' basis with the appropriate pricing and promotional changes being made to balance sales growth and margin.

Strategic Update:

Our strategy of investing in value is working, with our improved retail proposition attracting more customers to Crawshaws.

The Group's immediate focus is to accelerate the rollout of our successful factory shop format. These destination sites are particularly attractive as they allow us to offer even greater value to customers through larger pack sizes and value progression. Factory shops are a simpler model to implement and operate, have lower rents and require significantly lower CAPEX.

Including the three new shops opened in the year, we now have eight standalone factory shop units which are trading above expectation and above our base model. The learnings of our latest openings have allowed us to reduce CAPEX requirements by up to 25% which underpins a circa one-year cash payback on investment. At our target rate of ten new shops per year, we expect our factory shops to account for well over half of Group revenue by the end of FY 2020.

We are confident that our value-led strategy and factory shop rollout, underpinned by our unique supply agreement with 2Sisters, will leave us well placed to achieve a step-change in long term profitability.

Noel Collett, CEO, commented:

"These results demonstrate progress in ensuring we have high quality products at the lowest possible prices. The improvements to the breadth, depth and price of our ranges are driving the significantly improving trend in customer numbers, which is a key metric of loyalty and success in preparation for the important winter and festive season ahead.

"As part of our focus on achieving unbeatable value, we are prioritising and accelerating the rollout of our proven factory shop format. The economics of these sites are hugely attractive, and they allow us to offer a wider range of fresh meat and associated products at a price not possible in our high street shops.

"We remain excited by our 2Sisters supply agreement and believe this partnership will be transformational for the long-term growth of the Group. Market conditions remain challenging, but we are confident that our focus on value leaves us well placed for the long-term."

Jim McCarthy, Chairman, said:

"Since joining Crawshaws earlier this year, I have been impressed by the progress that Noel and the team are making. The accelerated roll out of the successful factory shop format is strengthening the business's reputation for delivering amazing value, which is underpinned by the transformational supply agreement with 2Sisters. Crawshaws is one of the most exciting businesses in the value sector and the Board is confident that all the work done this year means the business is well set to create value for investors."

1. EBITDA is defined by the Group as profit/loss before tax, exceptional items, depreciation, amortisation, profit/(loss) on disposal of assets, net finance costs and shared based payment charge attributable to the LTIP Growth Share Scheme.

2. Adjusted EBITDA is defined by Group as profit/loss before tax, exceptional items, depreciation, amortisation, profit/(loss) on disposal of assets, net finance costs, share based payment charges attributable to the LTIP Growth Share Scheme and Accelerated Opening Costs. Accelerated opening costs are defined by the Group as the overhead investment in people, processes, systems and new store pre-opening costs i.e. costs directly associated with our accelerated store opening programme. In the period these costs amounted to £0.2m (2016: £0.7m) resulting in an adjusted EBITDA of £0.0m (2016: £1.1m).

3. Underlying Operating Loss is defined by the Group as Operating Profit before exceptional items and share based payment charges attributable to the LTIP Growth Share Scheme.

4. LFL stores are defined as stores which have been trading for 2 full years at the start of the financial year under review

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations.

Enquiries:

Tulchan Communications LLP

Susanna Voyle, Will Smith 0207 353 4200

Crawshaw Group plc

Noel Collett, Alan Richardson 01709 369 600

Peel Hunt LLP

Adrian Trimmings, George Sellar 020 7418 8900

Notes to the condensed consolidated financial statements

1. BASIS OF PREPARATION

Reporting Entity

Crawshaw Group Plc (the "Company") is a company incorporated and domiciled in the UK.

The condensed consolidated interim financial statements of the Company as at and for the 26 weeks ended 30 July 2017 comprise the Company and its subsidiaries (together referred to as the "Group") and equity account the Group's interest in jointly controlled entities.

Basis of Preparation

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the EU and do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 29 January 2017. The annual financial statements of the Group are available upon request from the Company's registered office.

The comparative figures for the financial year ended 29 January 2017 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The condensed consolidated interim financial statements have not been audited but have been reviewed by the Company's auditors.

Significant Accounting Policies

The accounting policies applied are consistent with those of the annual financial statements for the 52 weeks ended 29 January 2017, as described in those annual financial statements, which were prepared in accordance with IFRS as adopted by the EU.

Significant Judgements, Key Assumptions and Estimation Uncertainty

The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable at the time the estimate is made. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the 52 weeks ended 29 January 2017.

Going Concern

The Group meets its day to day working capital requirements through cash on hand and cash generated from operations. Current cash balance is £6.8m with HP commitments of £0.1m. The Group has cancelled its £4m, 5 year Revolving Credit Facility.

The Directors have reviewed the profit and cash forecasts of the Group with appropriate sensitivities around operational performance. The Directors have concluded that the Group will have sufficient cash to meet its obligations and to pursue its existing strategy. Accordingly, the Directors consider that these statements should be prepared on a going concern basis.

Basis of Consolidation

The consolidated financial information includes the financial information of the Company and its subsidiary undertakings made up to 30 July 2017 (together referred to as the 'Group').

2. REVENUE

The Directors have undertaken a review of the Group's continuing operations and their associated business risks. The Directors consider that the continuing operations represent one product offering with similar risks and rewards and should be reported as a single business segment in line with the Group's internal reporting framework. All revenue received during the period was received from customers within the United Kingdom.

Unaudited Audited Unaudited

26 Weeks 52 Weeks 26 Weeks

3. EXCEPTIONAL ITEMS 30.7.17 29.1.17 31.07.16

£000 £000 £000

Exceptional costs in the period relate to:

Supply chain partnership and subscription agreement 380 - -

Bank facility arrangement fees and non-utilisation

Charges 8 40 -

Other costs - 23 -

Total exceptional items 388 63 -

5. EARNINGS PER ORDINARY SHARE

Basic earnings per ordinary share is calculated by dividing the earnings attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period of 91,553,412 (31/01/17: 79,140,309) (31/07/16: 79,043,100). There were no dilutive potential ordinary shares. In the period under review the share options were anti-dilutive as the Group reported a loss. There is an outstanding warrant which, if executed, would result in a further 45,436,069 shares being issued (note 6) which would dilute earnings per ordinary share.

In May 2017, Invest Co 1 Limited and a concert party acquired an aggregate of 33,794,490 new shares in the Group for £5.1m. These investments reflect a price per ordinary share of 15.2p being the market price of the Company as the share purchase was being structured. A warrant is in place for a further 45,436,069 shares to be issued to Invest Co 1 Limited, subject to certain conditions being met. Should the conditions be met and the warrant executed, Invest Co 1 Limited and the concert party would hold 50% of the Group's issued share capital.

7. RELATED PARTY TRANSACTIONS

Crawshaw Butchers Limited, a subsidiary of Crawshaw Group Plc, holds a 50% share in a partnership which trades under the name of RGV Refrigeration. The operations of the partnership comprise of the maintenance and repair of refrigeration machinery for a variety of customers.

In May 2017 Crawshaw Group Plc entered into a supply chain partnership with the 2 Sisters Food Group. Crawshaw Group Plc subsequently entered into a subscription agreement with Invest Co 1 in which they acquired 29.72% of the issued share capital of Crawshaw Group Plc. 2 Sisters Food Group and Invest Co 1 are controlled by Ranjit and Baljinder Boparan. 2 Sisters Food Group are therefore considered to be a related party of Crawshaw Group Plc. Since the start of the agreement, the value of purchases from 2 Sister Food Group to 30 July 2017 was £442k and a balance of £233k was owed by Crawshaws Group Plc to 2 Sisters Food Group at the end of the period. There were no sales made by Crawshaw Group Plc to 2 Sisters Food Group from the start of the agreement.

8. SHARE BASED PAYMENTS

Shares were granted under the Crawshaw Group plc Long-Term Incentive Plan on 24th April, 2015. The shares are 'growth shares' in a subsidiary, Crawshaw Butchers Ltd, but have value linked to the market capitalisation of Crawshaw Group plc. Shareholders are entitled to a maximum pool of 10% of the growth in value of the market capitalisation of Crawshaw Group plc over the hurdle rate, where the hurdle rate is set as a premium of 15% to market capitalisation immediately prior to the award of the shares.

Shareholders have the option to "put" their Eligible Put Shares on the occurrence of the following events:

· The First and Second Put Dates: Shareholders can put 1/6th of their Shares from the first anniversary of the date of grant and a further 1/6th of their Shares from the second anniversary of the date of grant.

· The achievement of the Performance Conditions: Shareholders can put 1/3rd of their Shares once the market capitalisation of Crawshaw Butchers has increased by 50% since the date of grant. In addition, shareholders can put a further 1/3rd of their Shares once the market capitalisation of Crawshaw Butchers has increased by 100% since the date of grant.

· On a voluntary winding up or change of control of Crawshaw Group plc.

The fair value of the awards is determined by using the Monte Carlo model and allowance has been made for the following assumptions: Expected exercise date, expected volatility of total shareholder return, expected future dividends and the risk free rate of interest. 100,000 simulations were used in the Monte Carlo model and set out below is a summary of the key data.

The expected Volatility is wholly based on the historic volatility simulated over differing time periods to the date of grant.

The fair value of the liability is re-measured at each balance sheet date to take into account non-market related changes. The total expense for the period between 30 January and 30 July 2017 is £92,000 (31/07/2016: £168,000).