Mccoll's Regulatory News (MCLS)

McColl's Retail Group plc

Interim results for the

26 week period ended 25 May 2014

22 July 2014 - McColl's Retail Group plc ('McColl's', 'the Group') today announces its unaudited results for the 26 week period ended 25 May 2014. The Group remains on track to achieve full year results in line with expectations.

Financial highlights

· Total sales up 3.6% to £444.2m (2013: £428.6m) and like-for-like sales1 up 2.1%.

· Operating profit before exceptional items increased by 14.6% to £10.0m (2013: £8.8m).

· Adjusted EBITDA increased by 10.9% to £15.9m (2013: £14.3m).

· Statutory loss before tax £4.0m (2013: £2.5m), after deduction of £6.2m exceptional costs largely relating to the IPO.

· Post IPO debt refinancing completed. Net debt reduced by £49.8m from 24 November 2013 to £36.3m at period end.

· Adjusted earnings per share 4p (2013: 3p).

· Basic loss per share 4p (2013: 3p).

· Interim dividend per share 1.7p (2013: nil).

Operational highlights

· Portfolio transformation driving sales and pre exceptional operating profit growth:

o 23 new Premium Convenience stores acquired;

o 20 Newsagents converted to Food & Wine stores;

o 98 Standard Convenience stores converted to Premium Convenience; and

o Store base at period end comprises 747 Convenience stores and 544 Newsagents.

· 750th Convenience store opening announced on 18 June 2014.

· Post Office conversion on track.

James Lancaster, Chairman and Chief Executive Officer, said:

"McColl's has delivered solid progress during the first half of the year, and we remain on track to deliver the expected results for the full year, building on the success of our IPO in February. Our store conversion and expansion strategy continues to progress well, underpinned by our strengthened balance sheet and strong cash flow. With the opening of our 750th store in June, we are on track to achieve our target of 1,000 Convenience stores by the end of 2016.

In addition to our store transformation, we are also focused on expanding our products and services to provide more convenient ways for our customers to shop. We have begun the roll out of Post Office 'locals' across our portfolio. We have also completed our supply chain transformation which is helping to increase basket spend.

Notwithstanding the competitive landscape, I am encouraged by the strong fundamentals of the convenience retail sector and the ability of McColl's to capture growth in this market."

Results presentation

A results presentation will be held for investors and analysts at 9.00am today at the offices of Brunswick, 16 Lincoln's Inn Fields, London, WC2A 3ED. Materials from this presentation will be available online at http://www.mccolls.co.uk/investor/financial-performance from 9.00am. A copy of this announcement will also be available online from 7.00am.

Enquiries

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

McColl's Retail Group plc Media enquiries:

James Lancaster, Chairman and Chief Executive Officer Brunswick

Jonathan Miller, Chief Financial Officer Simon Sporborg, Alison Kay, Cerith Evans

+44 (0)1277 372916 +44 (0)20 7404 5959

Chairman and Chief Executive Officer's review

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 sector, in order to grow profitability. There are a number of key elements to our strategy:

· Transforming our store portfolio to convenience though conversion and acquisition;

· Improving product ranges and widening our service offering;

· Working in partnership with the Post Office to modernise our network; and

· Delivering strong profits and cash generation.

Transforming our store portfolio

The Group has continued its strategy to expand and enhance its Convenience store portfolio through a combination of store conversions and acquisitions.

We have accelerated our acquisition of new Premium Convenience stores, adding 23 stores in the period. Operating in a large and fragmented market we see significant opportunity to acquire further Premium Convenience stores.

We continue to convert a targeted selection of our Newsagents into Food & Wine stores, with the addition of a focused grocery and alcohol range and extended opening hours. We converted a further 20 stores to this format during the first half of 2014.

At the period end we operated 747 Convenience stores and 544 Newsagents. On 18 June we announced the opening of our 750th Convenience store, a significant milestone on our path to achieving 1,000 Convenience stores by the end of 2016.

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 are constantly reviewing our product range and have continued to strengthen our supply chain, expanding, in the process, the number of stores offering our most extensive range of chilled, fresh and ambient grocery. We completed the conversion of a further 98 Standard Convenience stores to Premium in April 2014, and have been delighted with the resultant sales uplift which is approximately 2.4%2 better in converted stores. We have also recently launched our own loyalty card, 'Plus', to reward our many repeat customers, encourage additional visits and respond more intelligently to our customers' shopping habits.

Post Office modernisation

We are delighted to be working with the Post Office to modernise and expand our network, providing customers with a more streamlined service and extended opening hours. Under an agreement signed earlier this year we are actively converting 191 of our existing Post Offices to the new 'local' model, in which Post Office services are now offered at the retail counter. In the first half of 2014 we have completed 40 of these conversions and we are on track to complete the remainder during the current financial year. In addition we have added 17 brand new Post Offices.

Delivering strong profits and cash generation

We have delivered a strong financial performance in the first half of 2014 with sales, operating profit before exceptional items and cash flow from operating activities all improved on the same period last year. The IPO has enabled us to strengthen our balance sheet and increase investment to accelerate growth.

Outlook

The market remains competitive, with increasingly value conscious customers, and we will continue to focus our attention to best serve their needs. Our strategy remains to focus on growing our Convenience store business to further strengthen our position as one of the UK's leading independent neighbourhood retailers. We intend to continue to grow, and to meet the needs of local communities with an ever better range of products and services on their doorstep.

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2 Like-for-like sales in Premium Convenience stores compared to Standard Convenience stores for the 26 week period ended 25 May 2014 

 Chief Financial Officer's review

The Group has delivered a strong financial performance for the 26 week period ended 25 May 2014, underpinned by continuing sales growth and a solid operational performance.

Revenue

Total sales increased by 3.6% to £444.2m (2013: £428.6m). This was the result of strong like-for-like sales growth of 2.1% together with additional revenues from new Convenience store acquisitions.

Gross profit

Total gross profit increased as a result of higher sales by 3.2% to £106.4m (2013: £103.1m). Gross profit margin of 24.0% was close to the 24.1% achieved in the comparative period.

Administrative expenses and other operating income

Administrative expenses of £116.1m included exceptional costs of £7.4m. Before exceptional costs, administrative expenses increased by 2.3%, principally reflecting the increase in Convenience store numbers.

Other operating income of £13.6m included £1.2m of exceptional income associated with the Post Office local conversion contract. Before exceptional income, other operating income increased by 3.5%.

Operating profit

Operating profit before exceptional items for the period increased by 14.6% to £10.0m (2013: £8.8m).

Adjusted EBITDA

Adjusted EBITDA increased by 10.9% to £15.9m (2013: £14.3m) reflecting the improved operating performance. Adjusted EBITDA as a percentage of turnover increased to 3.6% (2013: 3.3%).

Exceptional items

Exceptional items in the period of £6.2m included a charge of £5.5m relating to shares allocated to employees prior to the IPO for nil consideration, IPO costs of £1.7m and net Post Office income of £1.0m (net of costs of £0.2m).

Net finance costs

Net finance costs reduced to £7.8m (2013: £11.2m) reflecting the improved capital structure post IPO.

Loss before tax

Loss before tax for the period was £4.0m (2013: £2.5m). The current year loss is stated after net exceptional costs of £6.2m (2013: nil).

Taxation

The tax credit for the period was £0.3m (2013: £0.5m), representing a tax credit of 8% (2013: 20%). The effective tax rate, after adjusting for exceptional items is a tax charge of 43% (2013: 20% tax credit). The difference between the current statutory rate of 22% and the effective tax rate of 43% in the period is due to taxable income not recognised under IFRS and disallowed expenses.

Loss/earnings per share

The loss per share on a basic and diluted basis was £0.04 (2013: £0.03). On an adjusted basis, earnings per share on a basic and diluted basis were £0.04 (2013: £0.03)

Dividend

The Group's stated dividend policy is to target a payout of approximately 60% of profits before exceptional gains and after tax with the interim and final dividend split approximately 1/3 : 2/3. The Board has declared an interim dividend of 1.7 pence per share (2013: nil). The interim dividend has been adjusted approximately pro-rata for the proportion of the period post IPO. The interim dividend will be paid on 29 August 2014 to those shareholders on the register at the close of business on 1 August 2014.

Capital expenditure and cash flow

Net capital expenditure increased to £7.7m (2013: £3.7m) in the period principally reflecting a higher number of acquisitions and further development of the existing Convenience estate.

Net cash provided by operating activities increased by 59.2% to £19.7m (2013: £12.4m).

Balance sheet and net debt

Shareholders' funds at the end of the period increased to £104.9m compared to £56.1m at 24 November 2013, principally reflecting the equity raised at IPO.

Net debt reduced to £36.3m at the period end compared to £86.1m at 24 November 2013, representing 1.1x 2013 Adjusted EBITDA of £34.2m.

McColl's Retail Group plc

Consolidated income statement

26 week period ended 25 May 2014

Adjusted EBITDA

26 week period ended 25 May 2014

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

McColl's Retail Group plc

Consolidated cash flow statement (continued)

26 weeks ended 25 May 2014

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

Capital expenditure

McColl's Retail Group plc

Notes to the financial statements

26 week period ended 25 May 2014

IPO Group restructuring

As part of the IPO Group restructuring, McColl's Retail Group plc replaced Martin McColl Retail Limited (formerly McColl's Retail Group Limited) as the Group's ultimate parent company by way of a Share exchange agreement. Under IFRS 3 this has been accounted for as a reverse asset acquisition. On 28 February 2014 McColl's Retail Group plc was listed on the London Stock Exchange.

1. Basis and preparation of accounting policies

The Interim Financial Statements for the 26 week period ended 25 May 2014 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 24 November 2013 as applied in the prospectus.

The accounting policies applied by the Group in these consolidated preliminary results are the same as those applied by the Group in its prospectus for the periods ending 27 November 2011, 25 November 2012 and 24 November 2013 (except for IAS 19 (revised) the effect of which is detailed in note 2). The prospectus sets out the UKGAAP to IFRS reconciliation.

The prospectus is available at http://www.mccolls.co.uk/investor/mccolls-ipo

The financial information for the period ended 25 May 2014 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. Martin McColl Retail Limited (formerly McColl's Retail Group Limited) the previous Group ultimate holding company has filed Statutory accounts for the period ended 24 November 2013. 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's business activities, together with the factors likely to affect its future development, performance and position are set out in the Financial Review. The Financial Review also includes a summary of the Group's financial position and its cash flows.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors have considered the Group forecasts and projections, taking account of reasonably possible changes in trading performance and the current economic uncertainty, and are satisfied that the Group should be able to operate within the level of its current facilities. Accordingly, they have adopted the going concern basis in preparing the financial statements.

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.

2. Changes in accounting policy

In the current financial period, the Group has applied for the first time IAS 19 '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.

IAS 19 (revised) requires retrospective application in line with IAS 8 '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:

3. Principal risks and uncertainties

The Group is influenced by a number of risk factors that could have a material impact on operating performance.

Full disclosure of the Group's risks and uncertainties can be found in the Group's prospectus pages 14 to 23, but the Group consider the following to be its principal risks:

The Group operates in a competitive market and competes with a wide variety of retailers of varying sizes on both local and national levels. Competitive pressures could have a material adverse effect on the Group's business.

The Group is subject to laws and regulations with which it may be found to be non-compliant. Any change to these laws and regulations could have a materially adverse effect on the Group's operations and financial results.

There may be a fall in the demand for tobacco products which are a key driver of footfall to the Group's stores and the sales of which represent a significant proportion of the Group's revenue. This could result in reduced revenue and profits for the Group.

The Group is dependent on reliable and efficient IT systems and processes and a prolonged failure in the Group's IT systems or processes could disrupt the Group's business.

The Group, which has no warehousing and distribution operation of its own, may be adversely affected by changes in supplier dynamics and interruptions in supply.

Increases in the minimum wage, the availability of minimum wage workers and inflation could increase staff and other costs and may impact the profitability of the Group.

A failure to implement the Group's strategy, a significant part of which involves the acquisition of quality Independents and converting existing Newsagents into Convenience stores, may adversely affect business.

The Group is exposed to general UK economic conditions as well as general market trends in the areas in which it operates, both of which are beyond its control.

4. Turnover

Turnover 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 turnover 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 within the United Kingdom.

5. Segmental analysis

The Group has a single operating segment, being the operation of Convenience and Newsagent stores.

6. Exceptional items

One-off IPO costs totalled £4.4m of which £1.7m was charged to the income statement and £2.7m was charged to the share premium account as being directly related to the issue of new shares. Exceptional items also included a charge of £5.5m relating to shares allocated to employees prior to the IPO for nil consideration and net income from the Post Office in relation to the agreement to convert 191 of the Group's existing Post Offices to the new local format of £1.0m (net of associated costs of £0.2m).

7. Tax

Tax for the 26 week period ended 25 May 2014 is credited at 8% (2013: 20%), 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 43% (2013: 20% tax credit).

8. Dividends

The Board has declared an interim dividend of 1.7 pence per share (2013: nil). The interim dividend will be paid on 29 August 2014 to those Shareholders on the register at the close of business on 1 August 2014.

9. Acquisitions

During the period, the Group made 23 small 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:

10. Borrowings

Details of loans and credit facilities are as follows:

10. Borrowings (continued)

On 4 March 2014 the Group completed a debt refinancing and entered into a new £85.0m working capital facility available until 31 August 2018 at an annual interest rate of 2.5% above LIBOR. £60.9m 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. The current facility drawn as at 25 May 2014 is £50.0m.

The current borrowings of £0.3m relate to the current proportion of the unamortised issue costs in relation to the new working capital facility. This is an asset as the issue costs are amortised evenly over the term of the facility, which is of a long term nature.

11. Net debt

Details of loans and credit facilities are as follows:

12. Called up 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.

13. 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. On 15 March 2013 the Group completed an early debt refinancing which resulted in additional interest of £4.4m and the write-off of £1.2m of unamortised financing costs.

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 25 May 2014

Responsibility statement

We confirm that to the best of our knowledge:

(a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(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

Chairman and Chief Executive Officer

Jonathan Miller

Chief Financial Officer

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 25 May 2014 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the 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 25 May 2014 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

22 July 2014