23 March 2021

McColl's Retail Group plc ("McColl's", the "Company" or "the Group")

FULL YEAR RESULTS FOR 53 WEEK PERIOD ENDED 29 NOVEMBER 2020

Foundations in place for growth

Jonathan Miller, Chief Executive, said:

"Over the last 12 months we have seen strong like-for-like sales growth, driven by the positioning of our stores in key neighbourhood locations and our strong customer offer. Despite the operational challenges of the pandemic, we have made good progress on our customer-focused strategic change programme.

"We recently reached a key strategic milestone, announcing a new supply deal with Morrisons, ensuring the continued supply of supermarket quality food across our entire estate for the next six years, supported by a bank facility extension. I am delighted with the opportunity this brings to convert 300 stores to the successful Morrisons Daily format over the next three years. These stores will be particularly well suited to the changing customer dynamics that are resulting from the pandemic.

"The past year has been exceptionally challenging for so many people, and I am incredibly proud of all our colleagues who have been working extremely hard to keep supplying our neighbourhood communities with the food, goods and services they need.

"Looking ahead to 2021, whilst uncertainties and restrictions remain, there is no doubt that the strategic importance of neighbourhood stores has never been greater, and we are well positioned to deliver for customers and shareholders, as we continue to enhance our convenience offer."

Financial highlights

·     Total FY20 revenue up 3.2% to £1.258bn (FY19: £1.219bn), reflecting strong demand since the onset of the COVID-19 pandemic, partly offset by divestments and store closures as we make good progress with our store optimisation programme

·     Total like-for-like (LFL) sales growth of 12.0% (FY19: 0.0%) driven by strong performance in alcohol, fresh food and tobacco

·      Gross margin of 23.9% (FY19: 25.9%), reflecting:

o Change of product mix as a result of changing shopping behaviours during the pandemic, as customers moved away from impulse purchases to lower margin take home products as well as multi-buys and value items

o  Strategic investment in price in key product areas

·      Gross profit of £300.9m (FY19: £315.7m)

·    Adjusted EBITDA pre IFRS 16 declined to £29.1m (FY19: £32.1m) due to lower gross profit, lower contribution from Services and ongoing net COVID-19 costs

·     Adjusted profit before tax of £1.1m (FY19: £7.4m). Statutory loss before tax of £5.3m (FY19: loss of £98.6m, including a non-cash impairment charge of £98.6m)

·    Basic loss per share of 2.3p (FY19: loss per share of 83.3p); adjusted earnings per share of 0.6p (FY19: 5.6p)

·      Reduction in year-end net debt position (pre IFRS 16) to £89.6m (FY19: £94.1m)

Transformational new Morrisons partnership and new banking deal secured

·     Morrisons wholesale partnership extended for a further three years to 2027. Provides greater range of products enabling a more comprehensive grocery offer

·      Agreement represents a significant milestone in McColl's' strategic goal of becoming a food-led convenience retailer, giving even greater access to Morrisons grocery expertise and brand

·     Acceleration of successful Morrisons Daily format, with 300 store conversions planned over next 3 years. This includes the existing 31 Morrisons Daily stores currently in operation

·      Migration of entire estate to Morrisons supply now complete, helping to simplify operations

·      Bank facility extended to February 2024 with more flexible terms to execute strategy, including additional headroom and a realigned amortisation schedule

Progress against key strategic initiatives

In FY19 we announced that we were embarking on a customer focused strategic change programme, with the aim of putting customers back at the heart of the shopping trip. Despite the operational challenges created by the COVID-19 pandemic, the Group has made good progress against the pillars set out last year:

·      Enhancing our customer offer

o  Adapted operations and extended customer range and offer to meet change in demand as a result of the pandemic

o  Selectively invested in the price of chilled foods, fruit and vegetables, and milk to offer customers better value

o Uber Eats partnership signed after period-end to offer home delivery of everyday convenience goods from over 400 stores

·      Increasing operating efficiency

o  New operations structure created to better align with our strategy, creating a simpler, but more effective organisation for the future

o  Adjusted administrative expenses pre IFRS 16 as a percentage of revenue reduced to 23.2% (FY19: 25.2%)

·      Improving the quality of our estate:

o Accelerated store optimisation plans during H2, with 179 stores closed in FY20, in line with our strategy to increase focus on larger, more profitable, grocery-led stores

o  A total of 21 stores converted to the Morrisons Daily format during the year

o  Targeting optimised estate of 1,150 stores, from 1,265 stores currently

·      Great place to work

o  Empowered front line colleagues during the COVID-19 pandemic to go the extra mile in supporting our local communities

Current trading and outlook

·   Like-for-like sales growth of +8.8% in the 15 weeks to 14 March 2021 despite the ongoing operational challenges of COVID-19

·      Gross margin trends are consistent with those experienced in FY20, reflecting a shift in sales to lower-margin take-home products and multi-packs as a result of the third national lockdown

·   As lockdown restrictions begin to ease, we expect our sales mix to normalise with higher purchases of impulse products and a progressive reversion towards pre-pandemic margins. However, we remain in a highly uncertain environment, with little visibility on macroeconomic and consumer trends for the remainder of 2021

·     We therefore remain cautious on the year ahead, particularly as we start to face tougher like-for-like sales comparatives, and Government support measures roll off as the year progresses. While in the short term the pandemic will impact trading, we will continue to adapt our business to a change in customer demand. Our key strategic priorities will help deliver sustained profitable growth over the coming years.

Notes:

The business uses a number of non-statutory measures (for example, LFL, adjusted EBITDA and adjusted EPS) because management believe that these - placed with equal prominence alongside other statutory measures - help to better explain the underlying performance of the business and its key dynamics. These are kept under continuous review and are defined and used consistently, or explained otherwise. The Group has defined and outlined the purpose of its alternative performance measures, including its key measures, in the glossary of terms.

1.   LFL sales reflect sales from stores that have traded throughout the current and prior financial periods, and include VAT but exclude sales of fuel, lottery, mobile phone top up and travel tickets.

2.   See reconciliation of pre and post IFRS 16 impacts on EBITDA in Note 4

3.   See reconciliation of pre and post IFRS 16 impacts on Net Debt in Note 12

Results presentation

A copy of this announcement is available at www.mccollsplc.co.uk/investor.

A conference call for analysts will be held today at 9.30am. Access will be by invitation only. All presentation materials will be available on our website.

Enquiries

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

Notes to editors

McColl's is a leading neighbourhood retailer, with an estate of over 1,200 managed convenience stores and newsagents. We operate McColl's and Morrisons Daily branded convenience stores as well as newsagents branded Martin's across the UK, except in Scotland where we operate under our heritage brand, RS McColl.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014

LEI: 213800R1TLR536P8YJ67

Cautionary statements

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Neither we nor any of our officers, Directors or employees provide any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur and undue reliance should not be placed on these forward-looking statements which only speak as of the date of this announcement. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

No statement in this announcement is intended as a profit forecast or a profit estimate and past performance cannot be relied on as a guide to future performance. This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities.

CHAIRMAN'S STATEMENT

The last 12 months have of course been dominated by the COVID-19 pandemic, which has engulfed the UK and wider world, and naturally, our response to the pandemic has been the primary focus for our Chief Executive, Jonathan Miller, and his management team.

As an essential retailer, and one that provides a crucial service to local neighbourhoods, not only for food but other services including Post Office and Collect+, we knew that our communities would rely heavily on us throughout the crisis. The fact that we were able to keep our stores open, and continue to do so, is testament to the dedication and hard work of everyone at McColl's.

At the start of the pandemic, the management team worked tirelessly to ensure the safety of colleagues and customers. We moved quickly to adapt stores for social distancing measures, temporarily removed non-essential items from sale such as scratch cards due to potential transmission risks, reduced trading hours to manage deliveries and staff absence levels, as well as fitting stores with the necessary protections such as perspex screens at the till counter.

We also deployed a full range of personal protective equipment (PPE) for our store colleagues and offered them double discounts for an extended period to help to support them during these times.

We rapidly deployed remote working for our Retail Support Centre colleagues, whilst finalising the sale of our head office - meaning we have yet to benefit fully from the much better working environment afforded by our new headquarters.

The resilience shown by all our colleagues under such challenging circumstances, over months and months, has been inspiring. We will continue to prioritise their support and wellbeing, as well as the communities we serve as the nation navigates its way through the pandemic.

Review of the year

Demand for our local convenience retail offering has never been higher, highlighted by like-for-like revenue growth of 12.0% during the year. This growth was primarily driven by the pandemic, with us welcoming many new customers as a result of the positioning of our stores in key neighbourhood locations and the breadth and range of product on offer.

This strong top-line performance did not carry through to profit, as changing shopping behaviours and product mix led to a dilution of operating margins, with higher-margin sales of impulse products, for example, being severely impacted. This was on top of the ongoing COVID-19 related costs that the business has had to absorb. Adjusted EBITDA (pre IFRS 16) in the year was £29.1m, lower than the £32.2m delivered in the prior year. The business rates relief and VAT deferral from the Government provided us with crucial support throughout this period and I must emphasise how grateful we are, enabling us to continue to support our local communities that rely on us.

Despite the disruption caused by the pandemic, the business made good progress on its strategic objectives. We extended our customer range and selectively invested in essential items to offer better value for money. A new operations structure was also created to create a flatter, simpler and more effective organisation for the future.

Our store optimisation programme was accelerated during the period, which saw 179 stores close, as we focus our business on larger, food-led convenience stores. This strategy has been reinforced during the pandemic, with the strongest revenue performance being delivered with stores with the highest grocery mix. It is clear that customers demand a convenience offering with a broad fresh food range, at competitive prices. This has been exemplified by the trial of 31 Morrisons Daily stores, which have performed strongly.

Therefore, I am pleased to report that we have extended our relationship with Morrisons by a further three years, which will give us an even wider range of product, as well as benefitting from a total of 300 Morrisons Daily format store conversions within the next three years. This is in addition to the fact that Morrisons has become our sole wholesale supplier, enabling us to simplify our operations even further.

We will continue to work with Morrisons to optimise the performance of the remainder of our store estate, continuing to develop the Safeway product range as part of a broader programme of range reviews.

To help support our Morrisons plans, we recently engaged with our banking syndicate, and I am pleased to say that our financing arrangements have been amended to give us more flexibility to help execute on our strategy in 2021 and beyond. Further detail is provided in the financial review.

Board and Executive changes

I'd like to take this opportunity to thank all of our people for their contributions this year, particularly under such challenging circumstances. Everyone from the Board, Jonathan and his management team, to our frontline retail colleagues have gone above and beyond their duties, adapting to a rapidly changing environment, while keeping a positive attitude.

Having the right, talented senior leadership in place is critically important to help navigate our business through a variety of challenges including the current coronavirus crisis, coupled with a highly competitive sector and weak consumer confidence.

There were several changes to the leadership team and Board over the last year. Robbie Bell stepped down from his position as Chief Financial Officer to pursue a new opportunity. The Board undertook a thorough process and welcomed a new Chief Financial Officer, Giles David, who joined the Group in June 2020. Giles brings 15 years of experience as a Chief Financial Officer across consumer-facing businesses. I would like to thank Robbie for all he achieved for our business.

Richard Crampton, Chief Commercial Officer (CCO), was also appointed to the Board in June 2020. The appointment was recognition of the significant contribution that Richard has made since joining McColl's in September 2019. Richard has been responsible for accelerating the development of the Group's commercial strategy and further enhancing the customer proposition. The Board and I welcome Giles and Richard to their new roles and wish them every success in the future.

We were also delighted to strengthen the Board with two new Non-Executive Director appointments. Dominic Lavelle joined the Board in May 2020, succeeding Sharon Brown as Chair of the Audit & Risk Committee. I thank Sharon for her valuable contribution during her time at McColl's.

Dominic also sits on the Remuneration Committee and Nomination Committee. Benedict Smith joined the Board in July 2020, and sits on the Audit & Risk Committee, Remuneration Committee and Nomination Committee. Both Dominic and Benedict bring a wealth of relevant experience that we will benefit from.

I am also pleased that we have strengthened the support centre team by making critical senior appointments in Technology, Investor Relations, Property and Operations, and believe we are now much better equipped for success.

Optimism for the future

I am confident that we will emerge from this crisis as a better and stronger business, and one that remains focused on delivering our core strategic objectives. The importance of neighbourhood stores has never been greater, and we are well positioned to continue enhancing our convenience offer by further developing our partnership with Morrisons, and further improving the quality of our estate and our overall customer experience.

Angus Porter

Chairman

CHIEF EXECUTIVE'S REVIEW

Food-led neighbourhood retail

This has been an extraordinary year and one in which the passion, dedication and loyalty of my colleagues throughout the business has been simply incredible. Since the onset of the COVID-19 pandemic, I am proud to see how our colleagues on the frontline have consistently gone above and beyond to support their local communities and keep the business trading.

The pandemic has also led to significant changes in food retail, and accelerated trends that otherwise might have taken years. There is no doubt that local neighbourhood retailing has come into focus in 2020, and our food-led stores have outperformed the convenience market. Lockdown restrictions and the move to home working have materially affected how our customers shop with us, and validated the changes we were already making to our offer. Increased demand for food-led neighbourhood retail is here to stay. For this reason, I am delighted that we have recently reached agreement with Morrisons to extend our supply agreement, giving us even greater access to their food retail expertise, breadth of product offering and brand. Together with our recently signed bank facility extension, this is an important milestone as we execute our strategy to become your favourite neighbourhood shop.

At the height of the pandemic, consumer shopping behaviour in our stores shifted towards less frequent visits, but with bigger shopping baskets and more food-based missions. Some categories benefitted from this change, with fresh food, BWS (beers, wines and spirits) and tobacco growing quickly, at the expense of other products such as food-to-go and impulse confectionery, snacks and soft drinks. As a result of this strong demand, the business was able to deliver materially higher like-for-like sales, up by 12.0%. However, a significant shift in the pattern of trade, and additional costs related to the implementation of COVID-19 protection measures for staff and customers, impacted overall operating margins.

Whilst we expect some of these trends to normalise when the pandemic eases, we do not expect them to completely revert, particularly the growth in take-home food and home delivery. Ultimately, the trends amplified by the onset of COVID-19 directly tie into the areas where we are focusing our strategy - towards a local grocery-led convenience retail offering, now supplemented by online.

In the short term the pandemic will continue to impact trading, and we will continue to adapt our business to a change in customer demand. We recently signed a new agreement with Uber Eats that will see the service operate across 400 stores by the end of March 2021. This provides another channel for customers to get their daily essentials, while also attracting a younger generation of customers to our brand.

McColl's is well positioned in a market that is forecast to grow. The importance of neighbourhood stores and convenience retail to local communities has never been greater. Our key strategic priorities will help deliver sustained profitable growth over the coming years.

COVID-19 response

The health, safety and wellbeing of our colleagues and customers continues to be a priority, as we remain very much amidst the COVID-19 pandemic. I thank all of our colleagues who continue to work in an extremely challenging environment.

At the onset of the COVID-19 outbreak we adapted quickly to a rapidly changing situation, to keep all of our stores trading to help serve our local communities with essential products and services. We dealt with the increased demand from consumers, deployed the necessary personal protective equipment (PPE), adopted social distancing and health and safety measures in line with Government guidance and worked closely with our wholesale partners to keep supply chains open.

As a neighbourhood retailer we implemented numerous initiatives to help serve our communities. To show our support for the NHS and the invaluable service it provides, McColl's provided essential food and goods to colleagues at NHS Great Ormond Street Hospital (GOSH) for free. In stores, we also offered all emergency and NHS workers free coffee, as well as the delivery drivers that kept goods flowing to our stores. We were the first convenience retailer to support the Free School Meals voucher scheme. We also stocked The Big Issue in-store for the first time in the magazine's history to support its vendors.

Extension of Morrisons partnership

Our partnership with Morrisons is of key strategic importance, and I am delighted to have recently announced an extension of our agreement to January 2027, giving us continuity of supply for the next six years. Events over the past year have highlighted how critical it is to have a strong wholesale partner and how important a credible food offer will be to our future. Our partnership with Morrisons was a key reason we were able to provide continued service and extended food ranges against a backdrop of huge disruption.

The new long-term partnership will provide McColl's with an important strategic opportunity to convert 300 of our best convenience stores to the Morrisons Daily format over the next three years. Sales in our existing stores of this format have outperformed the rest of the estate during 2020, and the move is in line with our strategic focus to grow our grocery mix. We will also have continued access to a supermarket quality fresh food and grocery offer through the Safeway brand, where further range extensions are planned.

We have now completed the process of migrating the entire estate to the Morrisons supply chain, making them our single wholesale partner, enabling us to simplify our operations, whilst ensuring the best value and enhanced range for our customers.

Extension of banking facilities

We retain a supportive relationship with our lending banks and having engaged with our banking syndicate in the latter part of 2020, we were pleased to recently announce that our bank facilities have been successfully amended with improved headroom against covenants, and extended with a revised maturity date of February 2024. Alongside the extension of our Morrisons partnership, the amended facility gives us greater security and flexibility to execute on our strategic initiatives in 2021, and beyond. Further details of the new banking arrangements are provided in the financial review.

Strategic progress

The key focus in 2020 was successfully navigating the challenges posed by COVID-19, and to ensure that all our stores kept trading. However, the pandemic has reinforced our conviction that our strategy of growing fresh food and grocery mix, keeping the customer at the heart of everything we do, remains the right one, supplemented by developing an online offering to capitalise on the market shift we are experiencing.

Our vision remains to be your favourite neighbourhood shop and more than ever we are focused on delivering a great customer experience. The new partnerships with Morrisons and Uber Eats will be critical to deliver this. In addition, the work we are doing on format and range will ensure we retain the new customers drawn to our stores because of the pandemic.

Our strategy is based on four key pillars: 1) strong customer offer, 2) easy to run stores, 3) improving our stores and 4) great place to work. We have continued to make progress on these priorities wherever possible, and adapting them to changing circumstances as required:

1. Strong customer offer

High demand for grocery and BWS categories

Total like-for-like (LFL) sales growth of 12.0% (FY19: 0.0%) across the Group was driven by a strong performance in the grocery and BWS (beers, wines, spirits) categories in particular.

This highlighted the changing shape of trade throughout the year as a result of the pandemic, with strong demand for fresh food, BWS and multipacks, with a shift away from impulse purchases (confectionery, soft drinks). We also invested selectively in price on chilled foods, fruit and vegetables and milk, as well as maintaining our promotional programme to offer customers great value.

Reviewing space, range and format

Some of our planned range review work had to be delayed in 2020 because of the COVID-19 crisis. Instead, we had to respond with agility and speed to adapt ranges to the change in consumer behaviour over the course of the year. This work will now take place across 2021, where the team is planning to review every category both in the core McColl's estate, as well as our Morrisons Daily stores.

The completion of this range review work will deliver a better range of products to fit with the needs of our customers, combined with a focus on efficiency to deliver lower costs through reduced stock keeping units (SKUs) and lower stock turn.

There is also an opportunity to optimise the space within our retail portfolio by re-setting store formats, fixtures and store clusters to maximise sales and gross margin. This work includes segmentation of stores by location, performance, size and demographics, to strengthen our targeting of products, promotions and services to local markets and shopping missions.

Customer insight

As well as improving range, we continue to develop our offer through investment in customer insight to optimise our brand and value position. A recent 'Word on the Street' customer survey conducted with 3,500 McColl's customers highlighted that 83% were 'highly satisfied' with their shopping experience overall. The highest scores on the survey were directed to our colleagues with most customers citing the friendliness and helpfulness of the store team, as well as the ease of completing their shopping trip. Our shoppers have told us that they would like to see a wider range of fruit and vegetables, and bakery products in our convenience stores which fits with our strategic focus towards larger food-led stores.

Uber Eats now across 400 stores

The 'last mile' online delivery opportunity is a hugely important one for McColl's, offering our customers that extra element of convenience in having their daily essentials delivered directly to their doorstep. Building on our long-established home news delivery service, at the onset of the pandemic we rapidly rolled out Deliveroo to 135 stores. We have now switched our partnership to Uber Eats, which means that as of March 2021 we now offer this service from 400 stores.

Our new partnership allows customers to order an even wider range of 500 convenience products including groceries, soft drinks, confectionery, snacks, beer, wine, toiletries, and other essential household items. Goods can be purchased in line with local store opening times which means that customers can order goods morning, day and night via the Uber Eats app for delivery in as little as under 30 minutes.

The partnership is an incremental revenue opportunity and in line with our strategy to further strengthen our customer offer by making it easier than ever for customers to get their daily essentials, as well as helping to attract the younger generation of customers.

2. Easy to run stores

Our work around driving efficiencies through the operating model was paused temporarily in March 2020 as we entered a national lockdown, but restarted in September 2020. The work to optimise store processes has more than a dozen work streams to improve efficiency in the store without impacting service. These initiatives include simplifying store scheduling, rightsizing the range and making replenishment easier.

We are also analysing store structures to maximise shopfloor presence, and work has begun on implementing a labour modelling system to help us refine the 'right hours in the right place' to deliver for our customers.

We completed a reorganisation of our field support teams to align more closely with our strategy and to create a simpler, flatter structure for the future. This move will enable more enriching and customer-centric roles. Changes included fully integrating the Post Office function into our retail business, reducing the overall number of regions, and moving some of the risk & compliance function centrally, away from the operations team.

Some of our plans to introduce new technology in FY20 to serve customers more efficiently were disrupted by the COVID-19 pandemic, however it has served to reinforce the importance of a progressive technology strategy for the business. I am delighted that we have been able to recruit a new Technology Director in 2021 to support us through this rapidly changing environment. 

3. Improving our stores

Store optimisation programme

We continued our programme of store optimisation during the year, exiting loss-making stores to focus our estate on larger, food-led convenience stores. As a result, we closed 179 stores leaving a total of 1,265 stores at the end of the year. Closures were temporarily paused in early 2020 due to the COVID-19 pandemic to keep as many of our stores operating and serving the community as possible. We will continue to progress the opportunity to right-size our estate towards the profile of shops that fit our strategy going forward.

Morrisons Daily rollout to accelerate

Demand has been strongest in our larger turnover, food-led, convenience stores. This ties in with our strategic focus on the larger convenience store format, such as Morrisons Daily, to drive incremental sales in grocery, fresh food and BWS, providing opportunities for sales mix improvement.

We opened 21 Morrisons Daily trial stores during the year, leading to a total of 31 now in operation. The trial has been important to help refine range development, while exploring the potential to expand the fascia into more stores. Our Morrisons Daily stores have the highest grocery mix across our estate, helping to drive the strongest performance across the business. As part of the Morrisons contract extension, we plan to convert 300 existing stores into Morrisons Daily in the next three years.

4. Great place to work

Listening and responding to the concerns of our colleagues across the business has been a priority over the last year given the COVID-19 pandemic. We kept teams connected and colleagues were offered additional resources and learning opportunities to support them through the crisis. These included regular podcasts, articles, videos and webinar sessions, focused around developing resilience skills, wellbeing and effective time management.

During the period, we launched a colleague engagement plan and embraced new ways of working. Frontline colleagues were empowered to go that extra mile in supporting our local communities. It was heart-warming to read stories of our colleagues making deliveries to local elderly and vulnerable customers and supporting them in a variety of ways.

The launch of McColl's Connect, a frontline employee communications platform, was an important step to connect all colleagues across the organisation. The platform creates a feedback loop and has been invaluable in creating a more inclusive culture at McColl's.

Apprenticeship schemes continued to be offered, despite the disruption around the pandemic, with a focus on developing retail management and customer service skills. Apprenticeship schemes provide an additional way for colleagues to learn and develop, and support the capability and skills required to deliver the business strategy.

A new initiative in 2020 was the launch of our first ever graduate programme, starting with six colleagues. The graduates joined their respective departments in December 2020 on a two-year rotation programme focused on understanding the business across a variety of departments and working towards becoming a senior manager. Placing graduates can bring a fresh level of enthusiasm and creativity to the workplace, and we hope our new intake will make a long-term contribution to the development of the business.

I am delighted that in our most recent colleague engagement survey, 87% of respondents rated McColl's as a great place to work. We will build on these successes with the aim of continuing to support our colleagues to do a great job and listening and responding to ensure that we are all engaged in the future success of this great business.

Looking forward

Looking ahead to 2021, whilst uncertainties and restrictions remain, the pandemic has reinforced my conviction that we have the right building blocks in place to benefit from a post COVID-19 world. I do not expect the trends experienced over the last year to completely revert, with flexible working patterns continuing as a matter of course going forward, and hence a higher demand for a strong local convenience offer.

Our strategic focus toward larger grocery-led convenience stores will accelerate an improved grocery mix and help to increase the average basket size. We will improve the quality of our estate and bring a great shopping experience to more customers through our extended Morrisons partnership. We will continue to refine our operating model and costs to serve without impacting customer service. This will be supplemented by maximising the online home delivery opportunity to drive incremental revenues. All of these initiatives will help enhance our convenience offer and deliver sustainable profitable growth for McColl's over the medium term.

Finally, I would like to thank all of my colleagues for the difference they make to our customers on a daily basis and for their hard work and dedication, never more evident than during the current COVID-19 pandemic.

Jonathan Miller

Chief Executive Officer

FINANCIAL REVIEW

The past 12 months has brought about a fundamental change in how consumers have shopped in our stores as a result of the COVID-19 pandemic. Our stores were a lifeline to local communities during the national lockdowns, with customers choosing to shop closer to home. This brought about changes to sales patterns, product mix and the cost to operate that affected the financial results.

While we expect shopping behaviour to somewhat normalise as the pandemic subsides, some patterns such as a sustained element of remote working are likely to continue. This will continue to influence our financial performance and the decisions we take in responding to the changeable conditions.

In the period, our like-for-like revenues accelerated from broadly flat in the first quarter, to a double-digit performance in the remaining three quarters. For the year as a whole, like-for-like revenues rose by 12.0%. Consumer preferences switched to lower margin take home and value packs. Below margin, incremental COVID-19 related costs were offset by continued cost discipline and business rates relief received in the period.

Our financial priorities in 2020 included strengthening our balance sheet, mitigating cost inflation and further optimising our estate. While there remain a number of challenges, we have demonstrated our resilience this year with a robust underlying performance.

New accounting standards

IFRS 16 'Leases' became effective for the Group from 25 November 2019 and replaces the requirements of IAS 17 'Leases'. The Group has adopted IFRS 16 using the modified retrospective approach under which the cumulative effect of adoption is recognised through reserves, with comparatives continuing to be reported under IAS 17.

IFRS 16 removes the distinction between operating and finance leases - all leases of more than 12 months are now recognised on a lessee's balance sheet, except for some limited exceptions. This leads to an increase in leased assets and financial liabilities on the balance sheet of the lessee. There is also a corresponding increase in operating profit and EBITDA because lease expenses are reclassified as interest and depreciation instead of operating expenses.

As a result of adopting the new accounting standard for the 12 months ended 29 November 2020, the Group's Adjusted EBITDA was £57.9m and Net Debt was £281.8m as at the period end. On a consistent, pre IFRS 16 basis, Adjusted EBITDA for the period was £29.1m (2019: £32.1m) and Net Debt reduced to £89.6m (2019: £94.1m) as at the period end.

See notes 4 and 12 for a reconciliation of the IFRS 16 adjustments impacting EBITDA and Net Debt.

Revenue

Revenue for the 53-week period ended 29 November 2020 was £1,258m, compared to £1,219m for the 52 week period ended 24 November 2019. On a comparable 52-week basis, revenue grew by 1.4% to £1,236m.

The revenue performance during the year reflects a number of trends with strong demand since the start of the COVID-19 pandemic, offset by reduced services revenues and an acceleration in divestments and store closures made during the year. Overall, we closed 179 stores in FY20, up from 120 stores in FY19.

On a like-for-like basis (and comparable on a 52-week period), revenues grew by 12.0% during the period (2019: 0.0%). The growth was a result of strong demand following the onset of the COVID-19 pandemic, as consumers chose to shop locally during lockdown restrictions. Strong growth in grocery, BWS (beers, wine, spirits), tobacco and multipack products, came at the expense of impulse products (crisps and snacks, soft drinks, confectionery) and food-to-go.

Gross profit and margin

Gross profit fell to £300.9m FY20, compared to 2019 (£315.7m). This represented a gross margin of 23.9% (2019: 25.9%), a decline of 200 basis points over the period. The fall in gross margin reflects the changing mix of sales during lockdown, as customers moved away from higher-margin impulse purchases to lower margin take home products as well as multi-buys and value items. In addition, we took the active decision to selectively invest in essential food pricing to maintain good value to existing customers and build loyalty amongst the incremental shoppers in our stores. 

Operating expenses/overheads

Administrative expenses, excluding the impact of adjusted items, fell by 6.5% to £286.8m (2019: £306.6m) during the period, due to stronger cost discipline and the impact of our store optimisation programme. On a pre IFRS 16 basis, adjusted administrative expenses as a percentage of revenue were 23.2% (2019: 25.2%).

We experienced a number of underlying cost pressures and worked hard to mitigate the impact of National Living Wage inflation. Additional direct COVID-19 related costs amounted to £5.9m, which included the personal protective equipment (PPE) necessary to keep our colleagues and customers safe, additional card charges, PPE, cleaning equipment and colleague costs. This was partially offset by a number of government support measures in the period amounting to £9.4m in total. These government support measures included business rates relief and use of the Coronavirus Job Retention Scheme for furlough of our most vulnerable employees.

Going forward we expect cost headwinds related to COVID-19 to continue. We will also maintain focus on our store optimisation programme in order to improve the quality of our estate, focused on the divestment and closure of under-performing stores. We are pleased with the implementation of the store optimisation strategy so far, with 179 stores closed during the period, moving away from low margin newsagents and targeted towards larger, food-led convenience stores.

EBITDA and operating profit

Group Adjusted EBITDA was £57.9m in the period including the impact of IFRS 16. On a consistent, pre IFRS 16 basis, Adjusted EBITDA for the period was £29.1m, a fall of 9.3% over the same period last year (2019: £32.1m). The year-on-year decline is due to lower gross profit, lower contribution from Services and ongoing net COVID-19 costs.

Depreciation for the year was £38.0m (2019: £15.8m), which includes a depreciation on right-of-use assets in relation to IFRS 16 of £24.2m (2019: nil). Amortisation for the year was £1.0m (2019: £0.8m).

Adjusted operating profit increased to £18.7m (2019: £15.4m). Statutory operating profit was £12.3m (2019: loss of £90.4m).

Adjusting items

Certain items are identified and separately disclosed as adjusting items. These adjusting items are excluded from the Group's adjusted profit measures due to their size and nature in order to better reflect management's view of the performance of the Group.

Adjusting items totalled £3.4m in FY20 (2019: £102.4m). These costs primarily reflected expenses related to business restructuring and the store optimisation programme, where the Group has undertaken a material number of store closures.

Adjusting items in FY19 totalled £102.4m, where the majority of this amount related to a goodwill impairment of £98.6m. The write-down was due to rebasing of financial projections, based on lower underlying gross margin, National Living Wage and retail cost inflation pressures.

Net property-related adjusting items in FY20 were £2.4m (2019: £6.0m). This included £5.5m of costs associated with our store optimisation programme, and a net gain on disposal of £3.4m in relation to the sale of our head office. Total proceeds were £7.3m, with £2.3m received by the year-end, with the remaining balance expected to be received by end of March 2021. 

Interest and tax

Net finance costs in the year were £17.6m (2019: £8.2m). The increase over the prior year primarily reflects a £9.1m finance charge under IFRS 16. The tax credit for the year was £2.6m (2019: credit of £2.7m). The comparable effective rate of tax in 2020 excluding the impact of non-deductible adjusting items was 36.4% (2019: 12.4%). The difference between the current and statutory rate of 19.0% in the period is due principally to a prior year adjustment for losses carried back and adjustments in respect of prior years.

Earnings per share

Basic loss per share was 2.3 pence (2019: loss of 83.3 pence). On an adjusted view, basic earnings per share was 0.6 pence (2019: 5.6 pence).

Balance sheet and net debt

Total shareholder funds at the end of the year were £19.9m (2019: £38.7m). The book value of non-current assets increased by £170.5m to £417.4m (2019: £246.9m), where the increase reflects the introduction of right-of-use assets under IFRS 16 of £173.5m.

The Group recognises right-of-use assets and lease liabilities for most leases, except for short-term leases and leases of low-value-assets. Current assets at the end of the period decreased to £144.9m (2019: £163.3m), as a result of a decrease in cash and cash equivalents of £13.8m mainly due to repayment of debt as the term loan continues to be amortised at £10m a year and drawings on the revolving credit facility have reduced by £7m.

Current liabilities increased to £248.5m (2019: £229.2m), reflecting an increase in loans and borrowings of £21.1m over the prior year to £32.3m (2019: £11.2m). Non-current liabilities increased to £293.9m (2019: £142.3m) due to increased loans and borrowings of £152.8m over the prior year to £272.7m (2019: £119.9m). The increase relates to the inclusion of lease liabilities following the adoption of IFRS 16.

Net debt (total borrowings less cash and cash equivalents) at the end of the period was £281.8m. On a consistent pre IFRS 16 basis, net debt reduced to £89.6m (2019: £94.1m pre IFRS 16). The business remains focused on working capital and cash management to reduce business leverage. At the end of the year our net debt to EBITDA ratio was 3.1x on a rolling 12-month basis.

Pension schemes

We operate two defined benefit pension schemes, the TM Group Pension Scheme and the TM Pension Plan, both of which are closed to future accrual. Total assets across both schemes had a value of £141.7m at the period end date of 29 November 2020. The combined accounting surplus in the two defined benefit pension schemes operated by the Group decreased to £3.9m (2019: £7.9m). The last actuarial review of the two schemes in June 2017 concluded that the combined funding deficit was £12.6m, and the Group currently contributes approximately £2.1m per year, inclusive of fees and levies.

Cash flow and capital expenditure

The Group took, and continues to take, proactive actions to preserve cash, manage working capital, maximise liquidity, and phase capital expenditure appropriately, given the uncertainty relating to the impacts of demand and shopping behaviours from the COVID-19 pandemic, including increased cash collection from stores and reacting to changes in demand to manage stock. We have also prudently modelled a range of future downside scenarios, which we are confident we have the financial and operational flexibility to deal with.

Net cash provided by operating activities in the year was £49.0m (2019: £20.0m), reflecting the changes due to the implementation of IFRS 16, while pre IFRS 16 it was £18.4m. Cash outflows related to leases are no longer included within net cash from operating activities except for short-term and low-value leases. The cash position was also benefitted by a total amount of £15.2m from government support measures available to the Group following the onset of the COVID-19 pandemic. These measures included the job retention scheme, a deferral of VAT payments, and business rates relief.

Gross capital expenditure was £17.3m (2019: £14.4m). Net capital expenditure, including property proceeds from the sale and leaseback of freehold properties, increased to £5.6m (2019: £2.9m).

Cash interest on bank loans and borrowings paid was £7.0m (2019: £7.4m), while the bank loans and borrowings interest expense was broadly in line with last year.

Bank facilities

In March 2021, we announced that our banking arrangements have been revised in order to give us more certainty and flexibility to execute our strategy. The amended credit facility agreement provides improved headroom against covenants, a realigned amortisation schedule and extends the maturity from May 2022 to February 2024. The updated facility consists of a £100m revolving credit facility and an amortising £67.5m term loan.

The facility has been arranged with our existing syndicate of six banks, comprising AIB Group (UK), Barclays Bank PLC, HSBC UK Bank plc, National Westminster Bank plc, Santander UK PLC, and Bank of Ireland. The continuing support of our banks reflects their confidence in the prospects of the Group.

See the Directors Report in the Annual Report for a further explanation of going concern in relation to the facilities agreement.

Dividends

The Board has not declared a dividend for the period ended 29 November 2020. We recognise that dividend payments are an important part of the Group's returns to shareholders and will keep the dividend policy under review with the aim of reinstating the payment of dividends at an affordable and sustainable level, once our strategic change programme gathers momentum and the Group deleverages. Additionally, the Company is restricted from paying a dividend until certain conditions are satisfied in its banking facilities, including achieving Group leverage below 1.75x.

Giles David

Chief Financial Officer

directors Responsibility Statement

The responsibility statement has been prepared in connection with the Company's full Annual Report and Accounts (the "Annual Report") for the period ended 29 November 2020. 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 Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group.

• the Annual Report includes a fair review of the development and performance of the business and the position of the Group and the Parent Company, together with a description of the principal risks and uncertainties that they face.

• 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 Executive

Giles David

Chief Financial Officer

Consolidated Income Statement for the 53 week Period from 25 November 2019 to 29 November 2020

Notes:

1. The Group has adopted IFRS 16 effective 25 November 2019 using the modified retrospective approach option. Under this option the comparative information is not restated. See note 1.

2. Finance costs in the 53 weeks period ended 29 November 2020 includes £9.1m of additional finance charges in relation to the adoption of IFRS 16. See note 10.

The above results were derived from continuing operations.