Mccoll's Regulatory News (MCLS)

27 July 2016 - McColl's Retail Group plc, one of the UK's leading convenience retailers, ("McColl's" or "the Group") today announces its Interim Results for the 26 week period ended 29 May 2016.

SIGNIFICANT STRATEGIC PROGRESS AND ROBUST FINANCIAL PERFORMANCE

Financial highlights:

· Total revenue up 2.2% to £469.2m (2015: £459.3m).

· Like-for-like (LFL) sales1 down 2.2%:

o LFL performance in recently acquired and converted stores2 up 1.0%.

o LFL sales in premium convenience and food and wine stores down 1.5%.

o LFL sales in newsagents and standard convenience stores down 3.7% as a result of continued pressure on traditional categories.

· Operating profit before exceptional items3 of £9.6m (2015: £9.6m).

· Profit before tax up 8.1% to £8.2m (2015: £7.6m).

· Adjusted EBITDA4 marginally down to £16.0m (2015: £16.2m).

· Earnings per share up 8.9% to 6.1p (2015: 5.6p).

· Net debt decreased to £42.3m (2015: £47.3m).

· Interim dividend per share maintained at 3.4p (2015: 3.4p) representing an increased total cash payment over an enlarged share capital.

· On track to achieve results in line with the Board's expectations for the financial year.

Operational and strategic highlights:

Performance highlights tracking against the key elements of our strategy include:

1. Increasing market share

· Convenience store expansion strategy continues to capture market share.

· On target to achieve 1,000 convenience stores by the end of 2016.

· 24 new convenience stores acquired. Store base at period end comprises 933 convenience stores and 433 newsagents - a 30% increase in convenience stores since the IPO in 2014.

· Transformational acquisition of 298 convenience stores from the Co-operative Group announced 13th July 2016, transition likely to commence from January 2017.

2. Growing convenience product range

· A further 19 newsagents converted to food and wine stores.

· Investment in food-to-go offer continues to deliver strong sales with LFL performance ahead by 11.4%.

· Progress on Subway continues with five outlets added within store estate and plans for a further six to be opened by year end.

· Continued range expansion and product development, with a focus on fresh and chilled categories.

3. Great customer service

· Modernisation of Post Offices continuing with 40 completed in the period. 90% of Post Offices now operate under new models with extended opening hours.

· Voted "best convenience retailer for services" at the annual Convenience Tracking Programme Awards.

· Ever increasing Plus loyalty card customer base, with 209,000 active users, provides McColl's with invaluable customer data to improve service.

· Collect+ and Amazon lockers being rolled out across the estate, providing local communities with an increasing range of services.

In addition, we continue to focus on maximising operational efficiency and playing a bigger part in the local neighbourhoods that we serve.

Jonathan Miller, chief executive, said:

"I am pleased to report marked strategic progress and a robust financial performance in what has been another challenging period for the sector. Total sales were ahead by 2.2% and profit before tax was up 8.1% to £8.2m.

We are committed to enhancing our convenience proposition through growing market share, developing our product ranges and delivering great customer service. I am especially pleased that we have been successful in the transformational acquisition of 298 Co-operative stores, announced on 13th July 2016. This is a pivotal moment for the business and allows us to accelerate our growth ambitions and considerably increase our neighbourhood presence.

We are confident that our position as a leading neighbourhood retailer will allow us to deliver sustainable returns for shareholders. The business is well placed to make further progress in the second half and we remain on track to achieve results in line with the Board's expectations for the financial year."

[1] Like-for-like sales reflect sales from stores that have traded throughout the current and prior financial periods, and sales include VAT but exclude sales of fuel, lottery and mobile phone top up.

2 LFL sales in stores acquired or converted between 2014-2015 which have traded for over 12 months.

3 Prior year exceptional costs related to one-off redundancy and restructuring costs.

4 Adjusted EBITDA (defined in note 5) is stated before exceptional items and property gains and losses.

Results presentation

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

Enquiries

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

McColl's Retail Group plc Media enquiries:

Jonathan Miller, chief executive Headland

Simon Fuller, chief financial officer Lucy Legh, Simon Burton, Rob Walker

+44 (0)1277 372916 +44 (0)20 3805 4822

Notes to editors

McColl's is a leading neighbourhood retailer in the independent managed sector running 1,366 convenience and newsagent stores. We operate 933 McColl's branded UK convenience stores as well as 433 newsagents branded Martin's, except in Scotland where we operate under our heritage brand, RS McColl. In addition we are also the largest operator of Post Offices in the UK. 

Chief Executive's Review

Results overview

The group has delivered revenue growth of 2.2% to £469.2m (2015: £459.3m) in the 26 weeks to 29 May 2016, with encouraging momentum on store acquisitions and a resilient LFL sales performance in our premium convenience and food and wine stores. We have achieved growth in total revenue on all product categories with the exception of news. We have improved gross profit margins and productivity despite competitive pressures, contributing to a sustained EBITDA of £16.0m (2015: £16.2m) and an 8.1% increase in profit before tax to £8.2m (2015: £7.6m).

Strategic objectives

We have made significant progress with our future growth plans, which are focused on enhancing our offering and capturing growth in the convenience market. There are three key elements to our strategy:

· Increasing market share;

· Growing convenience product range; and

· Great customer service.

Increasing market share

We have continued to expand and enhance our convenience store portfolio through store acquisitions, with 24 convenience stores acquired in the period. We remain on target to acquire 60 new stores this year.

At the period end we operated 933 convenience stores and 433 newsagents, making us the clear number two in the multiple managed convenience segment.

Following the close of the interim period, we have accelerated our ambitious growth plans with the transformational acquisition of 298 quality convenience stores from the Co-operative Group. It is expected that, subject to competition clearance, these stores will be phased into our estate starting in January 2017 and will substantially enhance our convenience offer and our neighbourhood presence. The additional stores will increase the proportion of our convenience store estate to three-quarters and provide a larger, more credible chilled and fresh business. The acquisition also significantly improves our scale and buying power and provides an opportunity to unlock future synergies, whilst substantially increasing the sales and EBITDA of the group. This will be funded by a placing of additional shares and extension to the senior facilities agreement. Further information can be found in the announcement made on 13th July 2016.

Growing convenience product range

We continue to convert a targeted selection of our newsagents to our food and wine format, with the addition of a focussed grocery and alcohol range and extended opening hours. We converted a further 19 stores to this format during the first half of 2016.

Our food-to-go initiative continues to deliver strong sales performance and remains a key focus of our business into the future. LFL sales of food-to-go have increased 11.4% year on year, supported by a dedicated head of the food-to-go business and bespoke training across the store network.

Our progress with Subway continues with five outlets added to the pilot store we opened in October 2015 and the initial performance of these is very encouraging. We have firm plans for a further six to be opened by the end of the year and are reviewing the possibility of opening standalone stores where a local need is identified.

Great customer service

We continue to focus on our customers and strive to meet their everyday needs. We give our customers great friendly service, seeking to build loyalty and the strength of our brands and reputation in the neighbourhoods that we serve.

We were delighted in May 2016 to be voted the "best convenience retailer for services", as voted for by shoppers at the annual Convenience Tracking Programme Awards, for the second year in a row.

We now have 547 Post Offices within our stores, providing more to our customers than just a great local shop. A further 40 existing stores have been modernised within the first half of the year, meaning that over 90% of our post offices now operate under the new models. Supported by our acquisitions programme, we operate extended post office hours in a growing number of stores making services available for our customers at a time that is most convenient for them.

The Plus loyalty card that we launched during 2014 now has an active membership of 209,000 and provides customers excellent benefits, helping them to get things for free, save money every time they shop and access exclusive prizes and competitions. We continue to review the learnings as the scheme develops.

We are extending the range of services that we offer, including Collect+, and we have introduced 91 Amazon lockers in stores with an additional 32 planned before the end of the year (taking the total number of lockers across the estate to 150).

Other developments

We are making good progress on a programme of upgrading the lighting in our stores which not only provides a better experience for the customer, but is also contributing to a positive environmental impact through a 5-10% reduction in energy consumption.

As announced in October 2015, we continue to look for operational improvement through the phased sale of circa 100 newsagents. We now have approximately 50 of these stores completed, exchanged or under offer.

Outlook

The recent outcome of the UK referendum on exiting the European Union is a current topic, but for us it is very much business as usual. We have a long-established history of operation within the UK market, including through periods of economic uncertainty.

The market remains competitive, leading to deflation on certain key categories, and we expect this to remain a challenge. Our strategy continues to focus on growing our convenience store business and strengthening our range of products and services which has been significantly enhanced by the transformational acquisition of 298 Co-operative Group stores.

Financial review

The group has delivered a robust financial performance for the 26 week period ended 29 May 2016.

Revenue

Total revenue increased by 2.2% to £469.2m (2015: £459.3m) reflecting the continued development of our convenience store estate.

LFL sales were down 2.6% in the second quarter, giving a total decline of 2.2% for the 26 weeks to 29 May 2016. LFL sales have been impacted by continued pressure on mature categories such as news and tobacco, as well as deflation in certain categories of food and alcohol, in what continues to be a challenging sector. We also experienced the impact of poorer weather, especially in March and April, which particularly suppressed impulse category sales.

LFL sales in our premium convenience and food and wine stores were down by 1.5% for the year to date, whereas within newsagent and standard convenience stores LFL sales were down by 3.7%. This illustrates the importance of converting stores to our newer formats and adding premium convenience stores to the estate through acquisition. In fact, LFL sales in stores acquired or converted between 2014-2015 which have traded for over 12 months were up 1.0%.

Gross profit

Total gross profit increased by 4.6% to £115.0m (2015: £110.0m). Gross profit margin was improved at 24.5%, (2015: 24.0%) a significant achievement given the competitive environment. This reflected enhanced trading terms in addition to the improved mix through acquisition and category rebalancing within our existing estate.

Administrative expenses and other operating income

Administrative expenses before exceptional costs increased by 5.2% to £118.0m (2015: £112.2m). This represents 25.2% of revenue (2014: 24.4%) and reflects inflationary increases, particularly the introduction of the national living wage, alongside the higher cost structure of our growing convenience estate (offset by higher margins).

Other operating income before exceptional items of £12.6m increased by £0.8m, £0.6m of which was due to increased net profit on disposal of fixed assets.

Operating profit

Operating profit increased by £0.6m to £9.6m (2015: £9.0m). Operating profit before exceptional items in the prior year was £9.6m.

Adjusted EBITDA

Adjusted EBITDA decreased slightly by 1.3% to £16.0m (2015: £16.2m), a robust performance in a challenging trading environment.

Net finance costs

Net finance costs were flat at £1.4m (2015: £1.4m) as we continue to benefit from reduced leverage and improved capital structure of the business post the 2014 IPO.

Profit before tax

Profit before tax for the period was £8.2m (2015: £7.6m), an improvement of 8.1%.

Taxation

The tax charge for the period was £1.9m (2015: £1.7m), representing a rate of 22.7% (2015: 22.8%). The comparable effective tax rate in 2015 excluding the impact of exceptional items was 22.6%. The difference between the current statutory rate of 20.0% and the effective tax rate of 22.7% in the period is due principally to depreciation of assets not qualifying for tax relief.

Earnings per share

Earnings per share on a basic and diluted basis was 6.1p (2015: 5.6p). The comparable basis for 2015 removing the impact of exceptional items (see note 12) was 6.1p.

Dividend

The board has declared an interim dividend of 3.4 pence per share (2015: 3.4 pence). The interim dividend will be paid on 9 September 2016 to those shareholders on the register at the close of business on 12 August 2016.

Balance sheet and net debt

Shareholders' funds at the end of the period were £124.5m (2015: £117.2m).

The book value of goodwill and other intangibles, property, plant and equipment increased by £5.4m to £212.0m (2015: £206.6m) due to continued investment in the estate.

Net debt at the end of the period was £42.3m (2015: £47.3m) (see note 11), representing 1.1 times 2015 Adjusted EBITDA of £37.7m.

The combined accounting surplus on the two defined benefit pension schemes operated by the group was £6.0m (2015: £3.4m surplus).

Cash flow and capital expenditure

Net cash provided by operating activities decreased to £6.7m (2015: £9.8m). This is principally due to the timing of prior period payroll costs and also reflects investment in convenience store inventory, as we evolve our product mix and ranges.

Net capital expenditure decreased to £8.8m (2015: £11.3m) in the period, reflecting new and existing store sale and leaseback proceeds and a reduced average cost of acquisition.

McColl's Retail Group plc

Condensed consolidated income statement

26 week period ended 29 May 2016

McColl's Retail Group plc

Condensed consolidated statement of comprehensive income

26 week period ended 29 May 2016

McColl's Retail Group plc

Condensed consolidated balance sheet

29 May 2016

McColl's Retail Group plc

Condensed consolidated statement of changes in equity

26 week period ended 29 May 2016

McColl's Retail Group plc

Condensed consolidated cash flow statement

26 week period ended 29 May 2016

McColl's Retail Group plc

Condensed consolidated cash flow statement (continued)

26 week period ended 29 May 2016

Adjustment to reconcile net income to net cash provided by operating activities

Principal risks and uncertainties

The directors do not consider the principal risks and uncertainties to have significantly changed since the publication of the annual report for the period ended 29 November 2015, other than highlighting the existence of derivatives within Financial and treasury considerations below and a statement on the impact of the UK referendum result to leave the European Union. A detailed explanation of the risks summarised below, and how the group seeks to mitigate these risks, can be found on pages 30 to 31 of the annual report.

Business strategy

If the board adopts the wrong strategy or fails to communicate or implement its strategies effectively, our aims may not be met and the business may suffer.

Competition

We operate in a competitive market and compete with a wide variety of retailers on a local and national level. Failure to maintain market share could affect our performance and profitability.

Customer proposition

Our customers' shopping habits are influenced by broader economic factors and if we fail to keep our proposition aligned with customer expectations they may choose to shop elsewhere and our revenues could suffer.

Economy

All our revenue is derived from the UK. The continued challenging economic environment could reduce our customers' income and therefore affect our revenues.

The recent outcome of the UK referendum on exiting the European Union is a major topic, but one which management believes will not have a significant adverse effect on our business. We have a long-established and resilient history of operation within the UK market and the grocery sector as a whole has a proven record of withstanding economic downturn. Any resulting impacts, such as further inflationary or deflationary pressures on food and consumable prices, will be felt by the industry as a whole and would not be specific to McColl's.

Financial and treasury

The main financial risks are the availability of short and long-term funding to meet business needs and fluctuations in interest rates.

McColl's manages its exposure to fluctuating energy prices by forward buying its electricity needs to provide certainty to financial performance. While management acknowledges that the forward contracts in place are derivatives, they are treated as a contract that secures a pre-agreed price for electricity requirements to operate the store portfolio.

Information technology

We depend on the reliability and capability of key information systems and technology. A major incident or prolonged performance issues with store or head office systems could adversely affect our business.

Operational cost base

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

Regulation

We operate in an environment governed by strict regulations to ensure the safety and protection of customers, colleagues, shareholders and other stakeholders. These regulations include alcohol licensing, employment, health and safety, data protection and the rules of the Stock Exchange.

Supply chain

We rely on a limited number of suppliers and may be adversely affected by changes in supplier dynamics and interruptions in supply.

McColl's Retail Group plc

Notes to the financial statements

26 week period ended 29 May 2016

1. Basis and preparation of accounting policies

The Interim Financial Statements for the 26 week period ended 29 May 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. They have been prepared in accordance with the recognition and measurement criteria of IFRS. They do not include all the information required for full annual financial statements to comply with IFRS, and should be read in conjunction with the consolidated financial statements of the group as at and for the period ended 29 November 2015 as applied in the Company's Annual Report and Accounts 2015 (the "Annual Report 2015").

The accounting policies applied by the group in these consolidated results are the same as those applied by the group in its Annual Report 2015 for the period ending 29 November 2015.

The Annual Report 2015 is available at:-

http://www.mccolls.co.uk/investor/financial-performance

The financial information for the period ended 29 May 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The company has filed statutory accounts for the period ended 29 November 2015. The auditor has reported on these accounts; their report was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The group has adopted the following standards and interpretations which became mandatory for the first time during the current financial year. The adoption of these standards has had no material impact on the group.

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'

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.

Exceptional items are those items the group considers to be non-recurring or material in nature that should be brought to the reader's attention in understanding the group's financial performance.

The group's business activities, together with the factors likely to affect its future development, performance and position are set out in the chief executive's and the financial reviews. The financial review also includes a summary of the group's financial position and its cash flows.

Going concern

The interim 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 £25.4m 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 2020. As at 29 May 2016 £58.0m 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 a 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.

2. Revenue

Revenue represents the amounts receivable for goods and services sold in the period which fall within the group's principal activities, stated net of value added tax.

Commission from the sale of lottery tickets and electronic phone top-ups is recognised net within revenue 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. Revenue is derived entirely from within the United Kingdom.

3. Segmental analysis

The group has a single operating segment, being the operation of convenience and newsagent stores in the United Kingdom.

4. Exceptional items

In 2016, exceptional items in the period were £nil (2015:£0.6m). Exceptional costs in 2015 related to one-off costs incurred as a result of a restructuring of head office and field operations.

5. Adjusted EBITDA

6. Tax

Tax for the 26 week period ended 29 May 2016 is charged at 22.7% (2015: 22.8%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income for the six month period. The effective tax rate, after adjusting for exceptional items is a tax charge of 22.7% (2015: 22.6%).

7. Dividends

The board has declared an interim dividend of 3.4 pence per share (2015: 3.4 pence). The interim dividend will be paid on 9 September 2016 to those shareholders on the register at the close of business on 12 August 2016. The final dividend for 2015, declared and paid, was 6.8 pence per share.

8. Acquisitions

During the period, the group made 24 individual acquisitions, none of which was considered material to the group. The cash consideration for these acquisitions and the assets acquired are summarised as follows:

9. Assets held for sale

As announced in October 2015, we continue to increase the proportion of convenience stores within our estate through the phased sale of circa 100 newsagents. We now have approximately 50 stores completed, exchanged or under offer.

9. Assets held for sale continued

10. Borrowings

Details of loans and credit facilities are as follows:

11. Net debt

Details of loans and credit facilities are as follows:

12. Earnings per share

13. Share premium transfer to distributable reserves

On 18 May 2016, the group received court approval for the special resolution, proposed and passed at the AGM, to cancel its share premium account of £47,836,000 and transfer this amount to distributable reserves. This was registered at Companies' House on 23 May 2016.

14. Related party transactions

Only the directors and senior managers are deemed to be key management personnel. It is the board which has responsibility for planning, directing and controlling the activities of the group. All transactions are on an arm's length basis and no period end balances have arisen as a result of these transactions.

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

McColl's Retail Group plc

Statement of directors' responsibilities

26 week period ended 29 May 2016

Responsibility statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;

(b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the period); and

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

By order of the board

Jonathan Miller

Chief executive

Simon Fuller

Chief financial officer

Date: 26 July 2016

Independent review report to McColl's Retail Group plc

We have been engaged by the group to review the condensed consolidated set of financial statements in the half-yearly financial report for the 26 week period ended 29 May 2016 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the group in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the group those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the group, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

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

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 week period ended 29 May 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

26 July 2016