Mccoll's Regulatory News (MCLS)

McColl's Retail Group plc

Preliminary audited results for the

53 week period ended 30 November 2014

3 March 2015 - McColl's Retail Group plc ('McColl's', 'the group') today announces its preliminary results for the 53 week period ended 30 November 2014.

Financial highlights

· Total revenue up 6.1% to £922.4m (2013: £869.4m), 4.1% after removal of 53rd week.

· Like-for-like sales[1] up 0.7%.

· Operating profit before exceptional items increased by 13.2% to £25.5m (2013: £22.5m). £25.0m pro rata for 52 weeks, an increase of 11.1%.

· Adjusted EBITDA[2] increased by 9.0% to £37.3m (2013: £34.2m).

· Profit before tax of £12.6m (2013: £4.4m).

· Basic earnings per share of 10.2p (2013: 6.9p).

· Pro forma earnings[3] per share of 16.9p.

· Proposed final dividend of 6.8p per share making a total of 8.5p per share for the 9 month period post IPO (2013: nil).

· Net debt reduced to £37.4m (2013: £86.2m).

· Underlying net debt reduced by £60.5m to £25.7m at period end[4].

Operational and strategic highlights

· Strong first period as a plc.

· Continued EBITDA growth in challenging macro environment.

· Expansion strategy on track capturing share in growing convenience market:

o 60 new convenience stores acquired;

o 45 newsagents converted to food & wine format;

o 102 convenience stores converted to premium format; and

o Store base at period end comprises 799 convenience stores and 516 newsagents.

· 800th convenience store opened December 2014.

· Post office conversions completed ahead of plan.

· Post IPO debt refinancing completed, providing funding for capital investment.

James Lancaster, chief executive, said:-

"I'm delighted to announce our first full year set of results since the IPO last February. It has been a year of strong growth despite the wider macroeconomic trends. We upped the tempo of our growth strategy finishing the period with 799 convenience stores, and acquiring our 800th shortly after the period end. Our post office conversions were completed ahead of target and are providing our customers with longer and more convenient times to carry out their post office transactions.

The market continues to be challenging and competitive, but full of opportunities too. We will continue to grow our convenience store business as we head towards achieving our target of 1,000 stores by the end of 2016. At the same time we will continue to look for ways to expand and extend the range of products and services we provide our customers in neighbourhoods up and down the country."

Current trading

Like for like sales were slightly down by -1.2% in the 13 week period ended 1 March 2015 but total revenue continued to grow by 3.8%. The pace of store devopment is typically lower in the first quarter, especially over the Christmas trading period. 6 convenience store acquisitions and 5 food and wine conversions were completed in the period, resulting in a closing store base of 1,317 including 809 convenience stores.

A copy of this announcement and the analyst and investor presentation will be available online from 7.00am at http://www.mccolls.co.uk/investor/financial-performance.

Enquiries

Please visit www.mccolls.co.ukor for further information, please contact:

Chairman's statement

I am delighted in my first preliminary announcement as chairman to report on a successful period, with strong growth, good progress against our strategic objectives and a successful IPO.

Continuing to grow and succeed

Continued growth and strong financial performance were key parts of the story in 2014. So too was our ongoing commitment to extend the range of products and services we offer our customers in order to meet our aim to cater for their everyday needs with a fantastic friendly store on their doorstep.

Listing on the main market

On 28 February 2014 we successfully listed on the London Stock Exchange's main market. We were the first retail float of the year. Executing the full listing so quickly and effectively involved a great deal of intense work particularly from our chief financial officer Jonathan Miller and his team.

The IPO was a key step forward for us as we continue to focus on growing our business of neighbourhood convenience stores across the UK. It enabled us to pay off relatively expensive debt, freeing up funds to fuel and accelerate our continued growth. It also enabled us to raise our profile and build our brand.

Outstanding contributions

As we have grown we have continued to recruit and develop increasing numbers of people, many of them from the local neighbourhoods we serve. We now have over 18,000 colleagues across the group and their tremendous commitment makes all the difference to our success. I'd like to thank all of them for their outstanding contributions.

Dividend

The business continues to generate strong cash returns with which we intend to fund capital investment and dividend payments to shareholders. The board recommends a final dividend of 6.8 pence per share, making a total dividend of 8.5 pence for the 9 month period post IPO.

Living up to our responsibilities

We know that our leading role in the UK's neighbourhoods comes with a great deal of responsibility and we focus on playing our part in ways that generate long-term positive impact. Our responsible approach ranges from recruiting and developing thousands of local people to increasing our energy efficiency, and raising considerable funds for local good causes and charities.

Prospects

Although economic activity across the UK is showing some signs of improvement, we are planning for continued pressure on consumer spending and an increasingly competitive convenience sector. Following the IPO, we have been able to accelerate our strategy. As we continue to grow and consolidate our role as the UK's neighbourhood store, I look forward to more years of great progress.

John Coleman

Chairman and non-executive director

Chief executive's review

For us, 2014 was a year of strong results, accelerated growth and, above all, delivering on our promises as we continue to focus on excelling as the UK's leading neighbourhood retailer.

Executing our strategy

We delivered everything we set out to do in 2014. We continued to grow our network of neighbourhood convenience stores, from 707 to 799 at the period end. We converted a further 45 of our newsagents to food and wine convenience stores. We acquired 60 new stores. We converted a further 102 of our convenience stores to our premium format, offering a broader range of products and services. This brings the total number to 489, well over half of our convenience stores.

Hitting our financial targets

Our results were broadly in line with our targets and expectations, and represented a significant improvement on 2013. We had good growth in sales - total revenue increased by 6.1% and like-for-like sales increased by 0.7%. We increased profits, too. Operating profit before exceptional items increased by 13.2% to £25.5m (2013: £22.5m). Adjusted EBITDA increased to £37.3m (2013: £34.2m). We also controlled our costs - our administrative expenses as a percentage of revenue came down to 24.2% (2013: 24.5%).

Furthermore, we reduced net debt by £48.8m while at the same time increasing net capital expenditure to £19.3m compared to £10.6m in 2013.

Accelerating our growth in convenience post IPO

Our full listing on the London Stock Exchange in February 2014 helped to free us from the constraints of high leverage and focus more resource on accelerating our growth. We can now reinvest more in the business, notably to acquire new convenience stores and convert existing newsagents into convenience stores, increasing revenue and profit and driving shareholder returns. Following our IPO we doubled our level of acquisitions while maintaining the same level of quality. This was a key aspect of our commitment to higher, faster growth.

Giving our customers greater choice

We continue to extend the range of products we offer to our customers. In 2014 for example, we introduced our premium convenience range of products into a further 102 of our convenience stores, enabling us to give customers a wider choice of chilled foods, groceries and fresh fruit and vegetables, as well as a stronger value proposition. Many of the new products are permanently priced and promoted, so our customers know where they stand. Extending the range and adapting it to local neighbourhoods, in turn, helps us drive increased sales. In 2014, our average basket spend increased from £4.73 to £4.97.

Consolidating our leadership in post offices

Our 451 post offices make us the biggest operator across the UK. Through the year we played a key role in the Post Office's modernisation programme. We signed a deal to convert 191 of our smaller post offices to their local format and actually succeeded in converting 192 by the end of the period. We also converted 85 of our larger post offices to their main format, and acquired 26 new local post offices. As a result of this huge programme, many of our customers now have a modernised neighbourhood post office that stays open longer for them - in fact for all of the hours that their local store is open. In some instances this has doubled the post office opening hours. What's more, we are able to reap the benefits of integrating post offices more closely into our stores.

Launching our loyalty scheme

We also successfully launched a dedicated Plus card loyalty scheme for our customers - a great way to thank them for shopping with us and strengthen our bond with them. We are encouraged by the number of customers who have already registered with the scheme and who now regularly use their card in store to access the great offers available to them.

Offering a great range of neighbourhood services

We are committed to offering our customers an ever-greater range of neighbourhood services. We deliver newspapers to around 130,000 homes, for example. We believe no other business makes as many paper deliveries, or creates as many opportunities for young people to earn some well-deserved pocket money. Moreover, with our commitment to offering local people great career opportunities, that first job delivering papers can turn into a part-time or permanent position in-store and onwards and upwards to management.

Alongside paper deliveries, we provide many other neighbourhood services such as lottery tickets, bill payment, cash machines and internet collection and return points - all just a short walk from where our customers live.

Leveraging our strong newsagent base

Our market leading network of Martin's and RS McColl's newsagents continues to perform well. They're not only an established profitable and cash generative part of our business, they also provide an excellent springboard for our growth in neighbourhood convenience through our programme of converting existing newsagents into convenience stores. If you want to create a great neighbourhood convenience store, there are few better starts than already owning a great newsagent.

Maximising the potential of our network of stores

We focus on motivating colleagues and maximising the potential of our fully managed network of stores. One of the ways we do this is through close control and regular communication. A great example is the weekly Dave's Diaries sent by our chief operating officer Dave Thomas to all the store managers, giving updates on progress and targets, highlighting key achievements, name checking outstanding contributors - helping to keep all our managers informed and encouraged. We also enhance control and efficiency through our investment in information technology.

Strong central control is balanced by an equally strong sense of local ownership among our store colleagues. They're committed to their store, to their local customers and to their neighbourhood. It's a commitment that comes from being genuinely focused on neighbourhood convenience and dedicated to giving customers a great friendly service. Moreover, area managers have a say in taking local decisions on price and range, further reinforcing our ability not only to react and adapt quickly to local demand but also to take the lead in local markets.

Making a positive difference to our neighbourhoods

I wanted to highlight in particular the great work across the group that we do for the charity Cardiac Risk in the Young (CRY). This is a cause close to my heart as I lost my 21-year old son Robert to sudden cardiac death in 2007, and I am extremely pleased and proud of the outstanding contributions of our colleagues and customers.

For the second year running, colleagues and customers across the group took part in fundraising events and made in-store donations over Halloween - raising over £170,000 for the TreatCRY initiative this year, and over £340,000 since we launched the campaign in 2013.

Looking ahead[5]

The market continues to be challenging and competitive, but full of opportunities too. We will continue to grow our convenience store business as we head towards achieving our target of 1,000 stores by the end of 2016. At the same time we will continue to look for ways to expand and extend the range of products and services we provide our customers in neighbourhoods up and down the country.

We've come a long way from our newsagent roots. We're a world away from just being the place to go in the neighbourhood for your papers and milk. Increasingly we believe we are becoming the neighbourhood's favourite store for just about every daily essential - from an evening meal to a morning coffee, from picking up your online purchases to posting a letter or paying a bill.

I am extremely proud of the business I have led for over 40 years. We are a strong player in the world of convenience and I am determined to ensure that we continue to fulfil our strategy to grow and our desire to excel at the heart of the UK's neighbourhoods.

James Lancaster

Chief executive

Financial review

We delivered our best ever set of results in 2014. Revenue exceeded £900m for the first time and operating profit before exceptional items increased by 13.2%. We listed on the London Stock Exchange, which enabled us to substantially improve our capital structure.

Profit and loss account

Revenue

I am pleased to report another period of sales growth. Revenue increased to £922.4m (2013: £869.4m), an increase of 4.1% adjusting for the impact of the 53rd week in the current period, and like-for-like sales were ahead 0.7%. Revenues were boosted by the acceleration of our store development activity, with 45 newsagents converted to the food and wine model, and 60 new store acquisitions completed, more than double the 23 acquired last year.

Gross profit

Gross profit margins were close to those achieved last year at 24.2% (2013: 24.3%), with the fall reflecting a slight change in mix. Total gross profit increased to £222.8m (2013: £211.0m), an increase of 3.6% adjusting for the impact of the 53rd week.

Operating profit

Operating profit, before exceptional items, increased by 13.2% to £25.5m (2013: £22.5m), reflecting the increase in revenue and our continued control of costs. Pro rata for 52 weeks £25.0m, an increase of 11.1%. After exceptional items operating profit decreased to £22.0m (2013: £22.5m).

Administrative expenses, before exceptional costs, improved to 24.2% of revenue (2013: 24.5%) as we continued to control store operational costs and leverage our central support structure.

Other operating income before exceptional income increased to £25.7m (2013: £24.5m), reflecting a strong post office performance.

We have adopted the amendments to IAS19 'Employee Benefits' during the period and have restated 2013 figures accordingly, resulting in an additional £0.8m charge for that period.

We have identified a number of exceptional items in the current financial period. These items are explained more fully in note 6 below.

Net finance costs

We were able to substantially reduce our finance costs following the IPO. Net finance costs before exceptional items reduced to £6.2m (2013: £12.5m).

Both the current and the prior period included exceptional restructuring costs associated with refinancing of the group's debt facilities. These items are explained more fully in note 6 below.

Profit before tax

Profit on ordinary activities before taxation increased to £12.6m (2013: £4.4m) reflecting stronger operating profit and a reduction in finance costs.

Taxation

The tax charge for the period increased to £2.7m (2013: tax credit of £0.8m), representing an effective tax rate of 21.6% compared to the statutory rate for the period of 21.7%.

Earnings per share

Basic earnings per share increased to 10.2 pence (2013: 6.9 pence). Adjusted earnings per share, stated before exceptional items, increased to 15.6 pence (2013: 12.6 pence) as described in note 11 below.

Dividends

The board has recommended a final dividend of 6.8 pence per share (2013: nil), which will be paid on 29 May 2015 to shareholders on the register at the close of business on 1 May 2015, subject to approval by shareholders at the annual general meeting. The total dividend for the 9 month period post IPO will therefore be 8.5 pence per share.

Balance sheet

Shareholders' funds at the end of the period were £117.2m (2013: £55.9m), an increase of £61.3m. This is principally due to the restructuring of the balance sheet at IPO, and the profitable growth of the business for the period.

The book value of goodwill and other intangibles, property, plant and equipment increased by £8.3m to £202.2m (2013: £193.9m), following an increase in capital expenditure.

Current assets at the end of the period decreased to £87.3m (2013: £100.5m). This was principally due to a reduction in cash balances. As a result of the more flexible banking facilities introduced at IPO we have been able to optimise the cash position at the period end to minimise drawings under our revolving credit facility.

Our current liabilities decreased to £116.9m (2013: £128.7m), reflecting lower trade and other payables as a result of the impact of the 53rd week and a reduction in short term borrowings following the IPO.

Non current liabilities reduced to £61.9m (2013: £114.4m), principally reflecting a reduction in borrowings post IPO.

Pensions

We operate two defined benefit pension schemes, both of which are closed to future accrual. The combined surplus in the two schemes improved by £1.6m to £1.3m (2013: £0.3m combined deficit).

Following the latest actuarial valuation of the schemes in 2013, agreement was reached during the period with the trustees as to the future contribution level, which was set at £1.5m per annum, increasing annually by inflation.

Cash flow and net debt

We continued to generate strong operational cash flow. Net cash provided by operating activities for the period was £34.6m (2013: £28.4m).

Adjusted EBITDA increased by £3.1m to £37.3m (2013: £34.2m).

Working capital outflow of £2.3m (2013: £2.2m outflow) was impacted by the 53rd week, which meant that the period included additional cash outflows, for example, 13 monthly payroll payments. The combined impact of these effects on working capital was an outflow of £11.7m, and the underlying position was therefore an inflow of £9.4m, reflecting an underlying increase in trade and other payables.

Net capital expenditure increased by £8.7m to £19.3m (2013: £10.6m). This primarily reflected an increase in expenditure on acquisitions and store developments, such as the food and wine conversions.

Finance expense of £4.2m was £6.7m lower than the prior year due to the lower cost capital structure post IPO.

The interim dividend paid in the period was £1.8m.

Net debt at the end of the period improved to £37.4m (2013: £86.2m). Adjusting for the impact of the 53rd week in the current period, underling net debt was £25.7m, representing 0.7 times Adjusted EBITDA.

Initial Public Offering (IPO)

On 28 February 2014 the company's shares opened for trading on the main market of the London Stock Exchange. The company received £49.8m proceeds from the issue of new shares and incurred issue costs of £2.7m. At the same time the group entered into a new £85.0m working capital facility of which £60.9m was initially drawn, incurring refinancing costs of £1.4m. The net proceeds of the share issue and drawings under the new facility were used to repay existing loans of £109.4m. At the end of the current period drawings against the working capital facility had reduced to £46.0m.

This represents a significant improvement in our capital structure and as a result we have been able to successfully accelerate our growth strategy, and are well placed to continue to do so.

Jonathan Miller

Chief financial officer

Responsibility statement

The responsibility statement has been prepared in connection with the company's full annual report for the period ended 30 November 2014. Certain parts of the annual report are not included in this announcement, as described in note 1.

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

· the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

By order of the board

Jonathan Miller

Chief financial officer

Consolidated income statement

53 week period ended 30 November 2014

Consolidated statement of comprehensive income

53 week period ended 30 November 2014

Consolidated balance sheet

30 November 2014

Consolidated statement of changes in equity

53 week period ended 30 November 2014

Consolidated cash flow statement

53 week period ended 30 November 2014

1. Basis of preparation

The financial information comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and the related notes. The financial information set out above does not constitute the company's statutory accounts for the period ended 30 November 2014, but is derived from those accounts. The said 2014 company's statutory accounts are the company's first set of annual accounts and will be delivered to the Registrar of Companies following the company's annual general meeting. The group's former ultimate parent Martin McColl Retail Limited (formerly McColl's Retail Group Limited) has filed its November 2013 statutory accounts with the Registrar of Companies. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The group's accounting period covers the 53 weeks ended 30 November 2014. The comparative period covered the 52 weeks ended 24 November 2013. Acquisitions are accounted for under the acquisition method of accounting.

The announcement has been prepared based on the company's financial statements which are prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union.

The preliminary results have been prepared on the going concern basis.  In making their going concern assessment the directors have considered the group's business activities, its financial position, the market in which it operates and the factors likely to affect its future development. The directors have reviewed the group's forecasts, taking into account a range of sensitivities, and how they impact headroom against its bank facilities, and its ability to meet its capital investment and operational needs. The group has net current liabilities of £29.6m at the period end. The directors have additionally considered this position to determine if it presents any going concern issues. The group is profitable and cash generative and has in place a committed £85.0m working capital facility available to be drawn until 31 August 2018. As at 30 November 2014 £46.0m was drawn against the facility, and therefore there is sufficient headroom to meet the group's debts as they fall due. The directors believe there is reasonable basis on which they can satisfy themselves that the business is a going concern and that it is appropriate for the financial statements to be prepared on a going concern basis.

An explanation of the transition to IFRS is provided in the IPO prospectus, which can be found at http://www.mccolls.co.uk/investor/mccolls-ipo.

The preliminary results are presented in sterling, the group's functional currency, and have been rounded to the nearest thousand (£'000).

The preparation of the preliminary announcement 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 judgment 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. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial information are disclosed in note 3.

Basis of measurement

The consolidated financial information has been prepared on a historical cost basis, except for the following items (refer to individual accounting policies for details):

- Derivative financial instruments - fair value through profit or loss; and

- Net defined benefit pension asset or liability - actuarial basis.

Basis of consolidation

Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities it is classified as a subsidiary. The consolidated financial information presents the results of the company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial information incorporates the results of business combinations using the purchase method. In the group balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the group income statement from the date on which control is obtained. They are deconsolidated from the date on which control ceases. Acquisition costs are expensed as incurred.

Adoption of new and revised standards

In the current financial period, the group has applied for the first time IAS19 'Employee Benefits' (revised). See note 4 below for full details.

New standards in issue but not yet effective

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU).

IFRS9 'Financial Instruments'

IFRS10 'Consolidated Financial Statements'

IFRS11 'Joint Arrangements'

IFRS12 'Disclosure'

IAS27 'Separate Financial Statements'

IAS28 'Investments in Associates and Joint Ventures'

Amendments to IFRS10, IFRS12 and IAS27 'Investment Entities'

Amendments to IAS32 'Offsetting Financial Assets and Financial Liabilities'

Amendments to IAS36 'Recoverable Amount Disclosures for Non-Financial Assets'

Amendments to IAS39 'Novation of Derivatives and Continuation of Hedge Accounting'

IFRIC Interpretation 21 'Levies'

The directors anticipate that the adoption of these standards and interpretations in future periods will have no significant impact on the group's financial statements when the relevant standards come into effect.

In addition to the above new standards or amendments, there are additional new standards and amendments which will not be applicable to the group and as such have not been listed.

2. Significant accounting policies

Revenue

Revenue represents the amounts receivable for goods and services sold through retail outlets in the period which fall within the group's principal activities, stated net of value added tax. Revenue is shown net of returns. Revenue is recognised when the significant risks and rewards of goods and services have been passed to the buyer and can be measured reliably.

Commission from the sale of lottery tickets and electronic phone top-ups is recognised net within turnover, when transactions deriving commissions are completed, as the group acts as an agent.

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

Cost of sales

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

Other operating income

Post office, rental income and ATM commissions are recognised in the consolidated income statement when the services to which they relate are earned.

Goodwill

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

For the purposes of impairment testing, goodwill is allocated to each of the group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units (CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Fixed asset impairments

At each reporting date, the group reviews the carrying amounts of its property, plant and equipment and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset, which is the higher of its fair value less costs to sell and its value in use, is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the CGU to which the asset belongs. For property, plant and equipment and intangible assets excluding goodwill, the CGU is deemed to be each trading store. Any resulting impairment is charged to administrative expenses.

Sale and leaseback

A sale and leaseback transaction is one where a vendor sells an asset and immediately reacquires the use of that asset by entering into a lease with the buyer. The accounting treatment of the sale and leaseback depends upon the substance of the transaction and whether or not the sale was made at the asset's fair value. For sale and operating leasebacks, generally the assets are sold at fair value, and accordingly the profit or loss from the sale is recognised immediately in the income statement.

Inventories

Inventories consist of goods for resale and are stated at the lower of cost and net realisable value. Cost is calculated using a retail method which for each category of stock reduces the net selling price by the attributable average gross margin. Net realisable value is the price at which the stocks can be realised in the normal course of the business net of selling and distribution costs. Provision is made for obsolete, slow-moving or defective items where appropriate.

Share capital

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

Taxation

Current taxation

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

Deferred taxation

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

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

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

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

Provisions

The group recognises provisions for liabilities of uncertain timing or amounts, including those for onerous leases, leasehold dilapidations and legal disputes. Provisions are recognised when there is a present legal or constructive obligation as a result of a past event, for which it is probable that an outflow of economic benefit will be required to settle the obligation, and where the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the best estimate of expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

Onerous contracts/leases

Provisions for onerous leases, measured net of expected sub-let rental income, are recognised when the leased property becomes vacant and is no longer used in the operations of the business.

Dilapidations

Provisions for dilapidations and similar contractual property costs are recognised on a lease-by-lease basis when the need for expenditure has been identified, being the point at which the likely expenditure can be reliably estimated.

Pensions

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

Defined contribution schemes

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

Defined benefit schemes

Defined benefit scheme surpluses and deficits are measured at:

- The fair value of plan assets at the reporting date; less

- Scheme liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus

- Unrecognised past service costs; less

- The effect of minimum funding requirements agreed with scheme trustees.

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

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

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

Past service costs are recognised directly in income unless the changes to the pension scheme are conditional on the employees remaining in service for a specified period of time. In this case, the past service costs are amortised on a straight line basis over the vesting period.

Finance items comprise the interest on scheme liabilities and the expected return on scheme assets.

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the group's accounting policies, which are described in note 2, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the group's accounting policies

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

Supplier income

Supplier income is generated from commercial agreements with suppliers including incentives, rebates and discounts. Agreements are typically for the calendar year so are not concurrent with the financial reporting period. Judgement is required as to the level of income which should be accrued for in relation to achieving pre-set trading targets in the final month of the calendar year. Changes in the judgements used would not have a significant effect on the group statement of comprehensive income.

Operating segment

IFRS8 requires segment information to be presented on the same basis as that used by the board for assessing performance and allocating resources. Management has used its judgement in determining that the group has one single operating segment. This is based on the reports reviewed by the board of directors to make strategic decisions.

Cash-generating units (CGUs)

The group determines CGUs for the purpose of goodwill impairment based on the way it manages the business. Judgement is required to ensure this assessment is appropriate and in line with IAS36. This is expanded upon in more detail below in note 12.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Goodwill impairment

The group is required to test, on an annual basis, whether goodwill has suffered any impairment based on the recoverable amount of its CGUs. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a pre-tax discount rate in order to calculate the present value of the cash flows.

Impairment of tangible and intangible assets excluding goodwill

Financial and non-financial assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their recoverable amount may be less than their carrying value.

Recoverable amount is based on the higher of the value in use and fair value less costs to sell. Value in use is calculated from expected future cash flows using suitable discount rates and includes management assumptions and estimates of future performance. Fair values for individual trading stores are based on a multiple of its average weekly sales performance.

Details of the accounting policy on the impairment of tangible and intangible assets, excluding goodwill, are provided above in note 2.

Pensions

The costs, assets and liabilities of the defined benefit pension schemes operated by the group are determined using methods relying on actuarial estimates and assumptions, including rates of increase in pensionable salaries and pensions, expected returns on scheme assets, life expectancies and discount rates. The group takes advice from independent actuaries relating to the appropriateness of the assumptions and the recognition of any surplus. Changes in the assumptions used may have a significant effect on the group statement of comprehensive income and the group balance sheet.

Provisions

Provisions have been made for onerous leases and dilapidations. These provisions are estimates, in particular the assumptions relating to market rents and vacant periods, and the actual costs and timing of future cash flows are dependent on future events. Any difference between expectations and the actual future liability will be accounted for in the period when such determination is made.

4. Changes in accounting policy and prior period restatement

In the current financial period, the group has applied for the first time IAS19 'Employee Benefits' (revised). The most significant change that has impacted the group is that the amendment requires the expected returns on pension plan assets, currently calculated based on management's best estimate of expected returns, to be calculated using the same (high quality bond) discount rate used to measure the defined benefit obligation.

IAS19 (revised) requires retrospective application in line with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'.

The impact on the consolidated income statement is as follows:

The impact on the consolidated statement of comprehensive income is as follows:

Prior period restatement

It has become apparent that in preparing prior period financial statements under IFRS, a temporary difference on which deferred tax should have been recognised was omitted. The noted temporary difference arises in relation to tax deductible goodwill recognised on new store acquisitions accounted for as business combinations where the group entered into sale and leaseback arrangements in relation to acquired freehold property. The financial statements and accompanying notes have been restated to include this deferred tax asset in line with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'.

The restatement reduced goodwill by £832,000 and reduced the deferred tax provision by the same amount.

5. Segmental analysis

In accordance with IFRS8 '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. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, as required by IFRS8. 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.

6. Exceptional items

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

1 Costs associated with IPO

During the 53 weeks ended 30 November 2014 one-off IPO costs of £4,539,000 were incurred of which £1,823,000 was charged to the income statement and £2,716,000 was charged to the share premium account as being directly related to the issue of new shares.

2 Share-based payments

During the 53 weeks ended 30 November 2014 share-based payments totalling £5,532,000 were made by way of an allocation of shares to employees prior to the IPO for nil consideration. The fair value of the shares was calculated by reference to the issue price on admission to the stock market on 28 February 2014. The total number of shares allocated was 2,900,332. This is explained further in the prospectus and was a one-off allocation as part of the IPO.

3 Property related costs

Provision of £2,440,000 has been made for the onerous lease relating to the group's former head office. The provision has been made to recognise an expected shortfall in rental income compared with rent payable and other property related costs. In calculating the provision a discount rate of 10% has been used.

4 Post office income

During the 53 weeks ended 30 November 2014 the group received £6,743,000 income from the Post Office in relation to an agreement to convert 191 of the group's existing post offices to a new local format. The group incurred costs of £392,000 associated with the conversions.

5 Restructuring costs

On 4 March 2014 the group completed an early debt refinancing which resulted in the write-off of £3,166,000 of unamortised financing costs. On 15 March 2013 the group completed an early debt refinancing which resulted in the write-off of £1,188,000 of unamortised financing costs and additional interest of £4,409,000.

6 Tax effect of exceptional items

The tax effect of the exceptional items is a credit of £1,288,000 (2013: credit £1,306,000).

7. Adjusted EBITDA

8. Net finance costs

The bank loans and overdraft interest includes an exceptional amount in 2013. The amortisation of issue costs includes exceptional costs in both 2014 and 2013. See note 6 for further details.

9. Taxation

The tax charge for the period can be reconciled to accounting profit as follows:

Changes in tax rates and factors affecting the future tax charge

The 2013 Finance Act reduced the standard rate of corporation tax from 23% to 21% with effect from 1 April 2014 and from 21% to 20% with effect from 1 April 2015.

Accordingly, deferred tax balances have been recognised at 20% for 2013 and 2014 being the rate of corporation tax substantively enacted at each balance sheet date.

10. Dividends

The board has recommended a final dividend of 6.8 pence per share (2013: nil), totalling £7,120,000, subject to shareholder approval at the annual general meeting to be held on 17 April 2015. The final dividend will be paid on 29 May 2015 to those shareholders on the register at the close of business on 1 May 2015. The payment of this dividend will not have any tax consequences for the group. The interim dividend, declared and paid, was 1.7 pence per share (2013: nil), totalling £1,780,000.

11. Earnings per share

12. Intangible assets

The prior period impairment charge was overstated by £631,000 as the net book value of cash-generating units used in the impairment of goodwill IFRS conversion was incorrect.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:-

For the current period, the group has reassessed the way in which it determines CGUs for the purpose of goodwill impairment to align with the management of the business,following the fundamental changes to the group's operations, including the completion of changes to the supply chain initiated in 2013. Previously each store had been classed as a CGU for goodwill impairment testing. On a review of CGUs the group have concluded that three groups of CGUs for the purpose of goodwill impairment is more appropriate.

The three groups are as follows:

CGU1 - Goodwill which arose from a management buy-out in 2005, including all goodwill held at that time;

CGU2 - Goodwill generated on a significant acquisition in 2008;

CGU3 - Goodwill acquired on all other acquisitions after the management buy-out in 2005.

Under the old method, with each store being a CGU, goodwill impairment is £382,000 and this has been included in the current period charge. Under the revised approach, there is no impairment. £382,000 is not considered significant to the business.

The recoverable amounts of all three CGUs are determined from value in use calculations with a discounted cash flow model used to calculate this amount. The key assumptions for the value in use calculation include discount rates, growth rates and time. In addition to the value in use calculation, a fair value is estimated based on a multiple of average weekly sales. The group have used a forward looking cash flow of 25 years and a pre-tax 10% discount rate. Management consider 25 years an appropriate period of time to base the forward looking cash flow as stores are expected to trade for at least this period of time. There has been no growth rate applied on a prudent basis. The fair value estimate uses an established market valuation method which management use when making acquisitions.

The group has conducted sensitivity analysis on the impairment testing for goodwill using both the old and new methods of assessing CGUs. With reasonable possible changes in key assumptions, there is no indication that the carrying amount of goodwill would be significantly reduced. Increasing the forward looking cash flow to perpetuity would reduce the goodwill impairment by £72,000. A 1.0% change in the discount rate would result in either a reduction or increase, depending whether the rate was increased or decreased, of £60,000. Applying a 1.0% growth rate would reduce the impairment charge by £64,000. A 25% reduction in the fair value calculation would increase the impairment charge by £100,000.

13. Business combinations

During the period, the group made 60 acquisitions, none of which was individually considered material to the group. The cash consideration for these acquisitions and the assets acquired are summarised as follows:

14. Borrowings

Details of loans and credit facilities are as follows:

The long term loans are secured by a fixed charge over the group's head office property together with a floating charge over the company's assets.

On 4 March 2014 the group completed a debt refinancing and entered into a new £85,000,000 working capital facility available until 31 August 2018 at an annual interest rate of 2.5% above LIBOR. £60,900,000 was drawn against the group's new working capital facility which, together with the proceeds from the primary fundraising at flotation was utilised to repay the group's existing borrowings. On 30 July 2014 the annual interest rate was reduced to 2.25% above LIBOR. The facility drawn as at 30 November 2014 was £46,000,000.

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

15. Net debt

16. Authorised, issued and fully paid share capital

Reorganisation of ultimate parent company

On 7 February 2014, McColl's Retail Group plc replaced Martin McColl Retail Limited (formerly McColl's Retail Group Limited) as the ultimate parent company and Martin McColl Retail Limited (formerly McColl's Retail Group Limited) became a wholly owned subsidiary of McColl's Retail Group plc, the entity listed on the London Stock Exchange.

Voting rights

Following admission to the London Stock Exchange the ordinary 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.

17. Notes to the cash flow statement

Analysis of net debt