Mccoll's Regulatory News (MCLS)

McColl's Retail Group plc

Interim results for the

26 week period ended 31 May 2015

Good progress on strategic objectives

28 July 2015 - McColl's Retail Group plc ('McColl's', 'the group') today announces its results for the 26 week period ended 31 May 2015.

Financial highlights

· Total revenue up 3.4% to £459.3m (2014: £444.2m).

· Like-for-like (LFL) sales1 down 1.9% split as below:

o LFL sales in food and wine and premium convenience level with last year.

o LFL sales in newsagents and standard convenience down 4.7%.

· Operating profit before exceptional items £9.6m (2014: £10.0m).

· Adjusted EBITDA2 up by 1.9% to £16.2m (2014: £15.9m).

· Profit before tax £7.6m (2014: loss of £4.0m).

· Adjusted earnings per share3 up 45% to 6.1p (2014: 4.2p).

· Interim dividend per share 3.4p (2014: 1.7p).

· Net debt increased to £47.3m (2014: £36.3m).

· Underlying net debt4 reduced to £35.3m (2014: £36.3m).

Operational highlights

· Solid financial performance with continued EBITDA growth in challenging period for the sector.

· Convenience store expansion strategy on track and continues to capture market share:

o 25 new stores acquired;

o 16 newsagents converted to food & wine format; and

o Store base at period end comprises 837 convenience stores and 496 newsagents.

· Good performance in our 664 food and wine and premium convenience stores with flat LFL sales despite deflationary pressure.

· Good progress on food to go and alcohol into newsagents.

· Restructuring of head office and field support.

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 Adjusted EBITDA is shown in note 5.

3 Adjusted earnings per share is defined in note 11.

4 Underlying net debt is stated after adjusting for the timing of the period end date and is described further in note 10.

James Lancaster, chief executive, said:

"I am pleased to report a solid financial performance in what has been a very challenging period for the sector.

Over the past 12 months we have continued to make good progress on our strategic objectives and focussed on improving our range and offer, increasing our store base and streamlining the business.

Whilst overall like for like sales were down 1.9%, sales have held up in those of our stores that have benefitted from conversion to either premium convenience or food and wine formats. This demonstrates the strength of our business development strategy and we will continue to grow market share in our convenience offering.

We maintained good momentum on store development by adding a further 25 stores in the period and by completing a further 16 food and wine conversions, finishing the period with 837 convenience stores. We are on track to achieve our stated objective of 1000 convenience stores by the end of 2016. We also made good progress on improving products and services, with a number of these initiatives, including food to go, producing encouraging sales results.

During the period, we have also reviewed opportunities to improve efficiency and reduce costs resulting in restructuring some support services within head office and field operations.

We are confident that our specialist position as a leading neighbourhood retailer, supported by our continued investment in convenience conversions and the acquisition of new stores, will allow us to take advantage of the market in which we operate. We remain on track to achieve results in line with expectations for the financial year and are pleased to announce an interim dividend of 3.4p per share."

Results presentation

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.uk or for further information, please contact:

Chief executive's review

Results overview

The group has delivered continued revenue growth of 3.4% to £459.3m (2014: £444.2m) in the 26 weeks to 31 May 2015, with encouraging momentum on store acquisitions and a resilient LFL sales performance in our premium convenience and food and wine stores. We have maintained gross profit margins and productivity despite competitive pressures, contributing to an increase in adjusted EBITDA by 1.9% to £16.2m (2014: £15.9m) and in profit before tax to £7.6m (2014: loss of £4.0m).

Strategic objectives

We have continued to make good progress on our strategic objectives, which are focused on enhancing our offering and capturing growth in the convenience market. There are a number of key elements to our strategy:

· Extending our network of convenience stores;

· Focussing on our customers and brand;

· Improving product ranges and widening our service offering;

· Ensuring operational efficiency; and

· Making the most of being at the heart of the neighbourhood.

Extending our network of convenience stores

We have continued our strategy to expand and enhance our convenience store portfolio through a combination of food and wine conversions and premium convenience store acquisitions.

Our acquisition strategy continued at pace, with 25 stores acquired in the period, of which 1 was in an existing trading location. We have increased our emphasis on acquisitions of small groups and were pleased to acquire 5 individual stores in the Exeter area from the same vendor during the period. We remain on target to acquire 60 new stores this year.

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 16 stores to this format during the first half of 2015. We remain on target to convert 45 food and wine stores this year.

At the period end we operated 837 convenience stores and 496 newsagents.

Focus on our customers and brand

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

The Plus loyalty card that we launched during 2014 had over 390,000 members at the period end and we continue to review the learnings as the scheme develops.

All of our new stores and conversions during the period were completed in our brighter and more modern "look and feel". We have continued to improve this format by developing new window graphics as well as new internal pelmets to carry the look inside the store.

We recently launched a trial premium convenience store format in a greenfield location and, following on from this success, we have recently converted an existing store to this model to expand our learnings.

Improved products and services

Our local neighbourhood stores offer our customers convenient locations close to where they live and our wide range of products and services, including National Lottery, PayPoint and the Post Office, make the group's stores a focal point for local communities. This is particularly important as lifestyle trends support more frequent and local top-up shopping.

We were delighted in May 2015 to be voted the "best convenience retailer for services" as voted for by shoppers at the annual Convenience Tracking Programme Awards.

Following on from the major activity with the Post Office during 2014, we have continued to add new offices and also to selectively convert any remaining under the old format. At the end of the period we operated 483 post offices in our stores, an increase of 30 in the first half. We expect to open our 500th office during the year.

We recently launched a food to go initiative which has resulted in a strong sales performance in the category. We have installed coffee and snacking modules in 100 stores and 19 food to go modules, comprising a chilled, hot food, snacking and coffee solution. We have recently signed an agreement with Subway to trial a franchise within one of our forecourt sites.

We have also added a focussed range of alcohol into 55 of our newsagent stores and aim to complete 100 of these during the financial year. Initial sales uplifts are encouraging.

Operational efficiency

We focus on maximising operational efficiency across our network of directly owned and managed stores.

During the period further enhancements were made to our auto replenishment system allowing us to add and remove store specific products. This is expected to result in improved sales and lower wastage.

Given the challenges in the sector we also undertook a review of head office and field support roles resulting in a restructure of operations and the removal of a number of roles from the business. We continue to review opportunities to improve efficiency and reduce costs.

Heart of the neighbourhood

We play an important role in the neighbourhoods that we serve, and have added new services such as food to go and new products such as grocery and alcohol in many locations during the period.

We recently launched a new "making a difference locally" campaign in our premium convenience stores. This allows an individual store to nominate a local good cause which will then receive a contribution from the sale of selected products.

Our major fundraising event will continue to run at Halloween and this year will support research into cardiac risk in the young through St. George's Hospital, London.

Outlook

The market remains competitive, particularly on price, leading to deflation on certain key categories, and we expect this to remain a challenge for the rest of the financial year. Our strategy remains to focus on growing our convenience store business and strengthening our range of products and services. We are confident that through continued investment across the business as we continue to deliver our targets, we are in a strong position to capitalise on the market in which we operate.

Financial review

The group has delivered a solid financial performance for the 26 week period ended 31 May 2015.

Revenue

Total revenue increased by 3.4% to £459.3m (2014: £444.2m) reflecting the continued development of the convenience store estate.

LFL sales were down 2.5% in the second quarter, giving a total decline of 1.9% for the 26 weeks to 31 May 2015. 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.

LFL sales in our converted stores, comprising premium convenience and food and wine, are flat for the year to date, whereas within newsagent and standard convenience stores LFL sales are down by 4.7%. This illustrates the importance of converting stores to our newer formats and adding to the premium estate through acquisition.

Gross profit

Total gross profit increased by 3.4% to £110.0m (2014: £106.4m). Gross profit margin was held at 24.0%, a good achievement given the competitive environment.

Administrative expenses and other operating income

Administrative expenses before exceptional costs increased by 3.2% to £112.2m (2014: £108.7m). This represents 24.4% of revenue and is in line with prior year.

Other operating income before exceptional items of £11.8m decreased by £0.6m principally due to a small reduction in Post Office income and rental income.

Operating profit

Operating profit increased by £5.1m to £9.0m (2014: £3.9m). Operating profit before exceptional items for the period was £9.6m (2014: £10.0m).

Adjusted EBITDA

Adjusted EBITDA increased by 1.9% to £16.2m (2014: £15.9m), a solid performance in a challenging trading environment.

Exceptional items

Exceptional items in the period were £0.6m comprising employee related costs incurred as a result of a restructuring of head office and field operations.

In 2014, exceptional items of £6.2m included one-off IPO costs of £1.7m, shares allocated to employees at nil consideration of £5.5m and net income from Post Office conversions of £1.0m (net of costs of £0.2m).

Net finance costs

Net finance costs reduced to £1.4m (2014: £7.8m) reflecting the improved capital structure of the business following last year's IPO. The prior period included £3.2m of one off costs, being the write off of unamortised financing costs associated with the group's former debt facilities.

Profit before tax

Profit before tax for the period was £7.6m (2014: loss of £4.0m).

Taxation

The tax charge for the period was £1.7m (2014: £0.3m tax credit), representing a tax charge of 22.8% (2014: 7.9% tax credit). The effective tax rate, after adjusting for exceptional items, is a tax charge of 22.6% (2014: 42.6% tax credit). The difference between the current statutory rate of 20.3% and the effective tax rate of 22.8% in the period is due principally to disallowed expenses.

Earnings per share

Earnings per share on a basic and diluted basis was 5.6p (2014: loss per share 4.1p). On an adjusted basis removing the impact of exceptional items (see note 11), earnings per share on a basic and diluted basis was 6.1p (2014: 4.2p).

Dividend

The board has declared an interim dividend of 3.4 pence per share (2014: 1.7 pence, adjusted approximately pro rata for the 3 month period post IPO). The interim dividend will be paid on 4 September 2015 to those shareholders on the register at the close of business on 7 August 2015.

Balance sheet and net debt

Shareholders' funds at the end of the period were £117.2m (2014: £104.9m).

The book value of goodwill and other intangibles, property, plant and equipment increased by £9.4m to £206.6m (2014: £197.2m) due to continued investment in the estate.

Net debt at the end of the period was £47.3m (2014: £36.3m). The increase reflects that, due to the timing of the period end date, certain month end creditors have been paid, net of certain debtors received, relative to prior year. Adjusting for these factors, on an underlying basis net debt was £35.3m, representing 0.9 times 2014 Adjusted EBITDA of £37.3m.

The combined surplus on the two defined benefit pension schemes operated by the group was £3.4m (2014: £0.3m deficit).

Cash flow and capital expenditure

Net cash provided by operating activities decreased to £9.8m (2014 £19.7m). The prior year benefitted from large working capital inflows associated with the Post Office conversion contract and improved trade creditors.

Net capital expenditure increased to £10.8m (2014: £7.7m) in the period, reflecting a higher number of acquisitions than prior year. In addition, a higher number of leasehold stores have been acquired, including 5 from the same vendor, which are typically higher cost than freehold acquisitions.

McColl's Retail Group plc

Condensed consolidated income statement

26 week period ended 31 May 2015

Condensed consolidated statement of comprehensive income

26 week period ended 31 May 2015

Condensed consolidated balance sheet

31 May 2015

Condensed consolidated cash flow statement

26 weeks ended 31 May 2015

Condensed consolidated cash flow statement (continued)

26 weeks ended 31 May 2015

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

Notes to the financial statements

26 week period ended 31 May 2015

1. Basis and preparation of accounting policies

The Interim Financial Statements for the 26 week period ended 31 May 2015 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 30 November 2014 as applied in the Company's Annual Report and Accounts 2014 (the "Annual Report 2014").

The accounting policies applied by the group in these consolidated results are the same as those applied by the group in its Annual Report 2014 for the period ending 30 November 2014.

The Annual Report 2014 is available at:-

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

The financial information for the period ended 31 May 2015 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 30 November 2014. 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.

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'

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 £24.3m 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 31 May 2015 £58.5m 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

Exceptional items in the period were £0.6m comprising employee related costs incurred as a result of a restructuring of head office and field operations. The inclusion of these costs are deemed to distort the underlying trading and have therefore been presented as exceptional costs.

In 2014, exceptional items in the period of £6.2m included one-off IPO costs of £1.7m, shares allocated to employees at nil consideration of £5.5m and net income from Post Office conversions of £1.0m (net of costs of £0.2m).

5. Adjusted EBITDA

Negative goodwill arises on certain acquisitions where the fair value of the assets acquired exceeds the cash consideration. 

6. Tax

Tax for the 26 week period ended 31 May 2015 is charged at 22.8% (2014:credited at 7.9%), 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 22.6% (2014: 42.6%).

7. Dividends

The board has declared an interim dividend of 3.4 pence per share (2014: 1.7 pence). The interim dividend will be paid on 4 September 2015 to those shareholders on the register at the close of business on 7 August 2015. The final dividend for 2014, declared and paid, was 6.8 pence per share.

8. Acquisitions

During the period, the group made 25 small acquisitions, none of which was individually considered material to the group. This included 5 individual stores in the Exeter area from the same vendor. The cash consideration for these acquisitions and the assets acquired are summarised as follows:

9. Borrowings

Details of loans and credit facilities are as follows:

On 4 March 2014 the group completed a debt refinancing and entered into a £85.0m working capital facility available until 31 August 2018. £60.9m was initially 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. The current facility drawn as at 31 May 2015 is £58.5m.

10. Net debt

Details of loans and credit facilities are as follows:

Due to the timing of the period end date, certain month end creditors have been paid, net of certain debtors received, as at 31 May 2015 and 30 November 2014, relative to 25 May 2014. The combined impact is to decrease cash by £12.0m at 31 May 2015 and by £11.7m at 30 November 2014. Adjusting for these factors, on an underlying basis net debt is £35.3m at 31 May 2015 and £25.7m at 30 November 2014.

11. Earnings per share

On 4 March 2014 the group completed a debt refinancing which resulted in the write-off of £3.2m of unamortised financing costs.

12. 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.

13. Principal risks and uncertainties

The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the period ended 30 November 2014. A detailed explanation of the risks summarised below, and how the group seeks to mitigate the risks, can be found on pages 22 to 23 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 their 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 customer's income and therefore affect our revenues.

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.

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 employee, 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.

Statement of directors' responsibilities

26 week period ended 31 May 2015

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

James Lancaster

Chief executive

Jonathan Miller

Chief financial officer

Date: 27 July 2015

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 31 May 2015 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 13. 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 31 May 2015 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

27 July 2015