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McColl’s Retail Group plc
Annual Report and Accounts 2014
4 At the
heart of your
neighbourhood
We are proud to be
the UK’s leading
neighbourhood retailer,
with a growing network
of 1,315 convenience
stores and newsagents.
We operate 799 McColl’s
convenience stores
and 516 newsagents
branded Martin’s and,
in Scotland, RS McColl.
Contents
Strategic Report
01 Financial and operational
highlights
02 Chairman’s statement
04 Group at a glance
06 Chief executive’s review
10 The year in review
12 Market overview
14 Strategy and business model
16 Key performance indicators
17 Financial review
20 Corporate responsibility
22 Principal risks
Governance
24 Board of directors
26 Directors’ report
30 Corporate governance report
40 Remuneration report
54 Statement of directors’
responsibilities
Financial Statements
56 Independent Auditor’s Report
to the members of McColl’s
Retail Group plc
62 Consolidated income statement
62
Consolidated statement
of comprehensive income
63 Consolidated balance sheet
64 Consolidated statement
of changes in equity
64 Consolidated cash flow
statement
Notes to the financial statements
65
100 Company balance sheet
101 Notes to the company
financial statements
104 Contacts, addresses and
shareholder information
Strategic Report
Financial and operational highlights
Accelerating
our growth
• In 2014, we again delivered a strong financial
performance – increasing sales and profits,
controlling costs and reducing debt.
• Our main market listing on the London Stock
Exchange in February 2014 has provided the
capital resources to accelerate our growth
and success.
• We acquired a further 60 convenience stores
and converted a further 45 of our newsagents
to food and wine stores – bringing the period
end number of convenience stores to 799.
We are the second largest multiple
convenience store business in the UK
and the leading neighbourhood retailer.
• We converted a further 102 convenience
stores to our premium format, offering a
broader range of products. We now have
489 such stores.
• We modernised 277 of the 451 post offices
in our stores, enabling these post offices
to stay open for much longer, mirroring the
hours that our stores are open. This is just one
great example of how we are extending and
improving the way we serve our customers
in local neighbourhoods across the UK.
1. See note 7 on page 75
Revenue
(£million)
2014
2013
2012
922.4
869.4
844.7
£922.4m
+6.1% 2013
Adjusted EBITDA1
(£million)
2014
2013
2012
37.3
34.2
33.3
£37.3m
+9.0% 2013
Operating
profit before
exceptional items
(£million)
2014
2013
2012
25.5
22.5
21.3
£25.5m
+13.2% 2013
Profit before tax after
exceptional items
(£million)
2014
2013
4.4
2012
12.6
13.3
£12.6m
+187.7% 2013
Net debt
(£million)
37.4
2014
2013
2012
£37.4m
-56.6% 2013
86.2
86.2
McColl's Retail Group Annual Report and Accounts 2014 01
Strategic ReportGovernanceFinancial Statements
Proud to
be the UK’s
neighbourhood store
I am delighted in my first annual
statement as chairman to report on a
successful period with strong growth,
good progress against our strategic
objectives and a successful IPO.
Continuing to grow and succeed
Continued growth and strong financial performance
were key parts of the story in 2014. So too was our ongoing
commitment to extend the range of products and services
we offer our customers in order to meet our aim to cater
for their everyday needs with a fantastic friendly store on
their doorstep.
Listing on the main market
On 28 February 2014 we successfully listed on the
London Stock Exchange’s main market. We were the first
retail float of the year. Executing the full listing so quickly
and effectively involved a great deal of intense work,
particularly from our chief financial officer Jonathan Miller
and his team.
The IPO was a key step forward for us as we continue
to focus on growing our business of neighbourhood
convenience stores across the UK. It enabled us to pay
off relatively expensive debt, freeing up funds to fuel and
accelerate our continued growth. It also enabled us to
raise our profile and build our brand.
Making board changes
We made some significant changes to the board in
2014. I was appointed as an independent non-executive
director in February and took on the non-executive
chairmanship in July, enabling James Lancaster to
focus on running the business as chief executive. Having
established and led the business for over 40 years, it was
John Coleman
Chairman and
non-executive director
02 McColl's Retail Group Annual Report and Accounts 2014
Strategic ReportChairman’s statement Our brands
McColl’s Retail Group is the holding company
for a portfolio of convenience store and
newsagent brands.
Convenience
Newsagents
the right time following the successful IPO for James to
make this change and we look forward to his continued
exceptional leadership.
In July, Martyn Aguss resigned as chief operating
officer and was replaced by Dave Thomas, a seamless
promotion from within as Dave stepped up from his role
as operations director. We look forward to Dave
continuing to drive and improve our operations.
We also appointed two new independent non-executive
directors in February, Sharon Brown and Georgina Harvey.
Corporate governance
We are committed to operating to high standards of
corporate governance, as we believe that doing so will
contribute to the delivery of long term shareholder value.
In readiness for listing, we established audit, remuneration
and nomination committees.
Outstanding contributions
As we have grown we have continued to recruit and
develop increasing numbers of people, many of them
from the local neighbourhoods we serve. We now have over
18,000 colleagues across the group and their tremendous
commitment makes all the difference to our success. I’d like
to thank all of them for their outstanding contributions.
Dividend
The business continues to generate strong cash returns with
which we intend to fund capital investment and dividend
payments to shareholders. The board recommends a final
dividend of 6.8 pence per share, making a total dividend
of 8.5 pence for the 9 month period post IPO.
Living up to our responsibilities
We know that our leading role in the UK’s neighbourhoods
comes with a great deal of responsibility and we focus on
playing our part in ways that generate long term positive
impact. As highlighted on pages 20-21 of this report, our
responsible approach ranges from recruiting and
developing thousands of local people to increasing our
energy efficiency, and raising considerable funds for local
good causes and charities.
Prospects
Although economic activity across the UK is showing
some signs of improvement, we are planning for continued
pressure on consumer spending and an increasingly
competitive convenience sector. Following the IPO, we have
been able to accelerate our strategy. As we continue to
grow and consolidate our role as the UK’s neighbourhood
store, I look forward to more years of great progress.
John Coleman
Chairman and non-executive director
McColl's Retail Group Annual Report and Accounts 2014 03
Strategic ReportGovernanceFinancial Statements Strategic Report
Group at a glance
A strong
and growing
business
Through our network of 1,315 neighbourhood stores, our 18,685 dedicated
colleagues serve some 4.75m customers every week. We aim to continue
to strengthen and grow our business by building on the key part our
neighbourhood stores play in many people’s daily lives.
Convenience
Our 799 convenience stores provide a
great range of essential everyday products
and services to local people living in
neighbourhoods across the UK.
From a pint of milk in the morning to an
evening meal, from an open-all-hours
post office to a great selection of fresh
fruit and vegetables and food-to-go, from
the newspapers delivered to your door to
internet collection and returns around
the corner – our convenience stores are
at the heart of the UK’s neighbourhoods.
Newsagents
With 516 newsagents across the country,
we are the UK’s No1 specialist confectioner,
tobacconist and newsagent.
Our newsagents are not only a strong and
established part of the business but also
provide a valuable foundation for our
continued growth in convenience through
our ongoing programme of conversions to
convenience stores.
04 McColl's Retail Group Annual Report and Accounts 2014
Store numbers
(breakdown 2014)
Convenience
799
Newsagents
516
Total
1,315
Convenience stores
Newsagent stores
Growing convenience
store numbers
2014
2013
2012
799
707
655
799
+13.0%
2013 707
Our 800th
convenience
store opened in
December 2014
Shortly after the end of the
2014 financial period we
acquired an independent
convenience store with post
office in Shiney Row, Tyne
and Wear, achieving the
milestone of our 800th
convenience store.
We continue to offer
our customers more
Growing off
licence business
769 of our convenience
stores offer beers, wines and
spirits to complement our
range of meal solutions.
We are always looking
to offer our customers an
ever greater range of the
products they want and
this year was no exception
– we again extended our
range, notably of fruit and
vegetables, sandwiches
and chilled food.
McColl's Retail Group Annual Report and Accounts 2014 05
Strategic ReportGovernanceFinancial Statements Strategic Report
Chief executive’s review
Delivering on
our promises
For us, 2014 was a year of
strong results, accelerated growth
and above all, delivering on our
promises as we continue to focus
on excelling as the UK’s leading
neighbourhood retailer.
Executing our strategy
We delivered everything we set out to do in 2014.
We continued to grow our network of neighbourhood
convenience stores, from 707 to 799 at the period end.
We converted a further 45 of our newsagents to food
and wine convenience stores. We acquired 60 new stores.
We converted a further 102 of our convenience stores to
our premium format, offering a broader range of products
and services. This brings the total number to 489, well over
half of our convenience stores.
Hitting our financial targets
Our results were broadly in line with our targets and
expectations, and represented a significant improvement
on 2013. We had good growth in sales – total revenue
increased by 6.1% and like-for-like sales increased by
0.7%1. We increased profits, too. Operating profit before
exceptional items increased by 13.2% to £25.5m
(2013: £22.5m). Adjusted earnings before interest, tax,
depreciation and amortisation increased to £37.3m
(2013: £34.2m). We also controlled our costs – our
administrative expenses as a percentage of revenue
came down to 24.2% (2013: 24.5%).
Furthermore we reduced net debt by £48.8m while at the
same time increasing net capital expenditure to £19.3m
compared to £10.6m in 2013.
The results are covered in more detail in the financial
review on pages 17 to 19.
Accelerating our growth in convenience post-IPO
Our full listing on the London Stock Exchange in February
2014 helped to free us from the constraints of high
leverage and focus more resource on accelerating our
growth. We can now reinvest more in the business, notably
to acquire new convenience stores and convert existing
newsagents into convenience stores, increasing revenue
and profit and driving shareholder returns. Following our
IPO we doubled our level of acquisitions while maintaining
the same level of quality. This was a key aspect of our
commitment to higher, faster growth.
James Lancaster
Chief executive
1. See definition on page 16
06 McColl's Retail Group Annual Report and Accounts 2014
Total revenue growth
2014
2013
2012
6.1%
2.9%
5.0%
6.1%
2.9% 2013
Number of convenience stores
799
+13.0%
2013 707
Giving our customers greater choice
We continue to extend the range of products we offer
to our customers. In 2014 for example, we introduced
our premium convenience range of products into a
further 102 of our convenience stores, enabling us to
give customers a wider choice of chilled foods, groceries
and fresh fruit and vegetables, as well as a stronger value
proposition. Many of the new products are permanently
priced and promoted, so our customers know where they
stand. Extending the range and adapting it to local
neighbourhoods, in turn, helps us drive increased sales.
In 2014, our average basket spend increased from £4.73
to £4.97.
Consolidating our leadership in post offices
Our 451 post offices make us the biggest operator across
the UK. Through the year we played a key role in the Post
Office’s modernisation programme. We signed a deal to
convert 191 of our smaller post offices to their local format
and actually succeeded in converting 192 by the end of
the period. We also converted 85 of our larger post offices
to their main format, and acquired 26 new local post
offices. As a result of this huge programme, many of our
customers now have a modernised neighbourhood post
office that stays open longer for them – in fact for all of the
hours that their local store is open. In some instances this
has doubled the post office opening hours. What’s more,
we are able to reap the benefits of integrating post offices
more closely into our stores.
Launching our loyalty scheme
We also successfully launched a dedicated Plus card
loyalty scheme for our customers – a great way to thank
them for shopping with us and strengthen our bond with
them. We are encouraged by the number of customers
who have already registered with the scheme and who
now regularly use their card in store to access the great
offers available to them.
McColl's Retail Group Annual Report and Accounts 2014 07
Strategic ReportGovernanceFinancial Statements Strategic Report
Chief executive’s review continued
Offering a great range of neighbourhood services
We are committed to offering our customers an ever-
greater range of neighbourhood services. We deliver
newspapers to around 130,000 homes, for example.
We believe no other business makes as many paper
deliveries, or creates as many opportunities for young
people to earn some well-deserved pocket money.
Moreover, with our commitment to offering local people
great career opportunities, that first job delivering papers
can turn into a part-time or permanent position in store
and onwards and upwards to management.
Alongside paper deliveries, we provide many other
neighbourhood services such as lottery tickets, bill
payment, cash machines and internet collection and
return points – all just a short walk from where our
customers live.
Leveraging our strong newsagent base
Our market leading network of Martin’s and RS McColl’s
newsagents continues to perform well. They’re not only
an established profitable and cash generative part of
our business, they also provide an excellent springboard
for our growth in neighbourhood convenience through
our programme of converting existing newsagents into
convenience stores. If you want to create a great
neighbourhood convenience store, there are few
better starts than already owning a great newsagent.
Maximising the potential of our network of stores
We focus on motivating colleagues and maximising
the potential of our fully managed network of stores.
One of the ways we do this is through close control and
regular communication. A great example is the weekly
Dave’s Diaries sent by our chief operating officer Dave
Thomas to all the store managers, giving updates on
progress and targets, highlighting key achievements,
name checking outstanding contributors – helping
to keep all our managers informed and encouraged.
We also enhance control and efficiency through our
investment in information technology.
Strong central control is balanced by an equally
strong sense of local ownership among our store
colleagues. They’re committed to their store, to their
local customers and to their neighbourhood. It’s a
commitment that comes from being genuinely focused
on neighbourhood convenience and dedicated to
giving customers a great friendly service. Moreover,
area managers have a say in taking local decisions
on price and range, further reinforcing our ability not
only to react and adapt quickly to local demand but
also to take the lead in local markets.
From evening meals
to morning coffees
We continue to look for
more ways to give our
customers the products
and services they want
from their favourite
neighbourhood store.
One great example is our
ongoing development of
our fresh and food-to-go
offers – from a great
evening meal to pick up on
your way home to a coffee
and croissant to set you up
for the morning.
In the neighbourhood
for over 20 years
We’ve been focusing
on providing the UK’s
neighbourhoods with a
great local store for over
twenty years. In that time,
we have gained a wealth
of experience, growing not
only the number of stores
in our network but also the
range and quality of what
we offer through these
stores. Along the way
we have built up a loyal
customer base and strong
roots in local communities
up and down the country.
08 McColl's Retail Group Annual Report and Accounts 2014
Average basket spend
£4.97
2013 £4.73
Colleague numbers
18,685
2013 18,764
Making a positive difference to our neighbourhoods
I wanted to highlight in particular the great work across
the group that we do for the charity Cardiac Risk in the
Young (CRY). This is a cause close to my heart as I lost my
21-year old son Robert to sudden cardiac death in 2007,
and I am extremely pleased and proud of the outstanding
contributions of our colleagues and customers.
For the second year running, colleagues and customers
across the group took part in fundraising events and
made in-store donations over Halloween – raising over
£170,000 for the TreatCRY initiative this year, and over
£340,000 since we launched the campaign in 2013.
Looking ahead
The market continues to be challenging and competitive,
but full of opportunities too. We will continue to grow
our convenience store business as we head towards
achieving our target of 1,000 stores by the end of 2016.
At the same time we will continue to look for ways to
expand and extend the range of products and services
we provide to our customers in neighbourhoods up and
down the country.
We’ve come a long way from our newsagent roots.
We’re a world away from just being the place to go in
the neighbourhood for your papers and milk. Increasingly
we believe we are becoming the neighbourhood’s
favourite store for just about every daily essential – from an
evening meal to a morning coffee, from picking up your
online purchases to posting a letter or paying a bill.
I am extremely proud of the business I have led for
over 40 years. We are a strong player in the world of
convenience and I am determined to ensure that we
continue to fulfil our strategy to grow and our desire to
excel at the heart of the UK’s neighbourhoods.
James Lancaster
Chief executive
McColl's Retail Group Annual Report and Accounts 2014 09
Our key strengths
• Focus on neighbourhood stores
• Highly experienced
management team
• 18,685 colleagues dedicated
to high levels of friendly
customer service
• National scale and brand
awareness across the UK
• Wide range of products and
services for local customers
• Direct management and
development of fully
managed stores
• Investment in information
systems and ongoing
improvements
We aim to excel
in our world of
neighbourhood
convenience
Strategic ReportGovernanceFinancial Statements Strategic Report
The year in review
A year of
great progress
For us, 2014 was a key year characterised by
major developments such as our IPO and a step
up in growth and performance as we continued
to pursue our ambition to run great local stores at
the heart of the UK’s neighbourhoods.
February
Listing on the
main market
We quickly and successfully executed a full
listing on the London Stock Exchange’s main
market. This enabled us to pay off relatively
expensive debt and free up more capital to
invest in accelerating our growth and success.
10 McColl's Retail Group Annual Report and Accounts 2014
June
Continuing to
grow and develop
our network of
convenience
stores
We opened our 750th convenience store
in June and our 800th shortly after the
period end. We also extended ranges into
a further 102 of our largest convenience
stores by April. Through the period, we
more than doubled our rate of acquisitions
while maintaining the same high level
of quality.
October
Raising funds for CRY
at Halloween
Colleagues and customers across the country
raised over £170,000 for the Cardiac Risk in the
Young (CRY) charity.
“TreatCRY was a really exciting venture for us when
we first launched it with McColl’s last year and we
were delighted when the retail group decided to
repeat the campaign for a second year running.
Yet again, thanks to the commitment of their staff,
managers and extremely loyal, local customer base
they were able to generate huge awareness for CRY
in neighbourhoods and high streets across the UK
– as well as a staggering fundraising total,” said CRY
chief executive and founder, Alison Cox MBE.
Total raised so far this year
£170,000
July
Launching our Plus
card loyalty scheme
We launched a dedicated Plus card loyalty
scheme for our customers. It has proved to be
a highly successful way to say thank you to our
customers for shopping with us – offering them a
range of savings, opportunities to win competitions
and to gain various rewards.
Loyalty cardholders
(as of 30 November 2014)
325,000
November
Modernising
our post offices
We completed a major programme to
modernise 277 of the 451 post offices in
our stores. As a result we can provide our
customers with post offices that stay open
as long as our stores do, and reap the
benefits of integrating post offices more
fully into our stores.
McColl's Retail Group Annual Report and Accounts 2014 11
Strategic ReportGovernanceFinancial Statements Strategic Report
Market overview
Capturing
growth in
convenience
We continue to focus on the
UK’s growing convenience
sector while capitalising on
our established position as the
country’s leading newsagent.
The newsagent sector
The newsagent sector is highly fragmented, with a
few large players such as ourselves and many smaller,
independent operators. In 2014, there were 3,104
newsagents in the UK1. We are the largest specialist
confectioner, tobacconist and newsagent, with 516
Martin’s and RS McColl newsagents, a 16.6% market
share. The next biggest player has 105 newsagents.
A valuable foundation
We capitalise on our strength in newsagents to
generate revenue for the group, meet the needs of
neighbourhoods across the UK and provide a great
foundation for our focus on growth in convenience.
Since 2011, we have been converting a number of
our newsagents to food and wine convenience stores,
enabling us to offer a wider range of products and
services to neighbourhoods and, in turn, boost our
revenue and profit. In 2014, we converted a further
45 newsagents in this way, bringing the total number
of conversions to 135. In addition we can also convert
a newsagent to a full convenience store, usually
by acquiring a neighbouring store on the same
shopping parade.
1. Source: IGD grocery retail structure 2014
12 McColl's Retail Group Annual Report and Accounts 2014
With our network of
neighbourhood stores,
we are well placed to
make the most of the
growth opportunities in
UK convenience
The convenience sector
The convenience sector accounts for an increasingly
significant proportion of the UK grocery market, with sales
of £37.4bn in 2014, compared to £29.1bn in 20092. This
represents an annualised growth rate of 5.1%, compared
to a 3.6% increase for the grocery market as a whole. In
2014 the convenience channel was almost 5 times the
size of on-line in the grocery market.
The Institute of Grocery Distribution (IGD) forecasts that
the UK convenience sector will grow at 5.5% per annum
over the next five years, generating sales of £49.0bn and
accounting for 24.1% of the grocery market by 2019.
We believe this ongoing and increasing growth is driven
by a number of factors, including:
• people opting for less frequent big shops
• households as a whole wanting to shop for value and
waste less food
• the increasing number of single households in the UK
• the ageing population
• the growth in the female working population
• increasing working hours resulting in less time to shop
• an improvement in convenience stores in terms of
quality and new products and services
At the same time, the market remains challenging, with
continued pressure on consumers’ disposable income
and price-driven competition.
Focusing on convenience
There are a number of different players in the
convenience sector: multiples (owned and managed
networks of convenience stores such as ours and those
of the supermarket groups), symbols (networks of self-
employed operators that share the same name above
the door, such as Nisa or Spar), independents, forecourts
and co-operatives.
We are the second largest multiple convenience store
operator in the UK, owning and managing a network
of 799 stores.
Greater competition and consolidation
As the popularity of convenience stores increases so does
the competition. As a result, the market is consolidating,
with the number of symbols, multiples and co-operative
stores increasing by 18% since 2009. In 2014 these groups
accounted for 72% of convenience sector sales.
Multiples account for 19.4% of sector sales. According to
IGD, the number of multiples increased from 2,812 to 3,771
between 2009 and 2014, the largest percentage increase
of all the players over this period.
Well placed to grow further
With our long-held focus on convenience and our
experience in running and developing a strong network
of neighbourhood stores, we are well placed to make
the most of the growth opportunities in UK convenience.
We have a distinctive view of our own particular network
of convenience stores – they’re neighbourhood stores at
the heart of where people live, rather than on the high
streets near where people work or with high passing trade.
Our stores offer local people excellent everyday products
and services at great value provided by friendly staff who
are always happy to help.
Building on this distinctive offer, we aim to continue
increasing our convenience stores from 799 at the
financial year end to 1,000 by the end of 2016 through
acquisitions of new stores, mainly independents and
symbols, and ongoing conversions of our newsagents.
At the same time we will progressively expand the
range and quality of products and services we offer
neighbourhoods across the UK through our network
of stores on their doorstep.
Number of UK convenience stores2
Value of UK convenience
2014
47,294
47,090
2013
£37.4bn
+5.1%
2013 £35.6bn
Independents = 18,630 (39.3%)
Symbols = 17,080 (36.1%)
Forecourts = 5,133 (10.9%)
Multiples = 3,771 (8.0%)
Co-ops = 2,680 (5.7%)
2. Source: IGD convenience retailing 2014
McColl's Retail Group Annual Report and Accounts 2014 13
Strategic ReportGovernanceFinancial Statements Strategic Report
Strategy and business model
Our strategy and
business model
Our strategy is to focus on growing our convenience
store business to strengthen and extend our position
as the UK’s leading neighbourhood retailer.
To implement our strategy we
have a simple business model
that puts the neighbourhood at
the heart of everything we do.
This model guides the way we
grow and succeed:
Focus on
neighbourhoods
Invest in the
business, our
people and the
neighbourhoods
we serve
Understand
customers’
neighbourhood
needs
Build
customer
loyalty
Develop and
directly manage
a network of
stores to meet
those needs
14 McColl's Retail Group Annual Report and Accounts 2014
Our progress
against our strategy
We have five key strategic priorities:
Priority
Description
range of products
and services
customers
and brand
network of
convenience
stores
1 Extend our
2 Focus on our
3 Expand our
4 Ensure
5 Make the most
of being at the
heart of the
neighbourhood
operational
efficiency
We acquire new stores and
convert our newsagents to
convenience stores by adding
a range of groceries and alcohol
and extending opening hours.
We get close to our customers and do
everything we can to understand and
meet their everyday needs. We give
our customers great, friendly service.
We seek to build loyalty and the
strength of our brands and reputation
in the neighbourhoods we serve.
Progress in 2014
• We acquired 60 stores in 2014.
• We converted 45 newsagents
into food and wine stores.
• 6 of the acquisitions were in
existing trading locations enabling
the conversion of a newsagent to
a full convenience store.
• In July we launched a dedicated
Plus card loyalty scheme for
our customers.
• We upgraded 40 convenience
stores to our bright, modern
format as well as applying it to
all acquisitions and food and
wine conversions.
We offer an ever greater range of
products and services to meet the
everyday needs of neighbourhoods
across the UK. Our products and
services range from the morning’s milk
to the evening’s meal, from post office
services to internet collections.
• We converted a further 102
of our convenience stores to
our premium format offering
wider ranges of fresh and
chilled products.
• We completed 192 post
office local conversions and
85 main conversions.
We focus on maximising operational
efficiency across our network of
directly owned and managed stores.
We achieve this in a number of ways,
including highly effective EPoS
systems, close communication
between head office, the stores and
area and regional managers, strong
relationships with suppliers and the
dedication of our outstanding
colleagues across the group.
We seek to play an ever bigger
and more positive role in the
neighbourhoods we serve. From
raising funds to support local good
causes to employing local people
and giving them rewarding career
paths – we make the most of every
opportunity to play a great long term
role in the UK’s neighbourhoods.
• We completed the supply chain
changes initiated in 2013 to
optimise distribution arrangements.
• We introduced a number
of operational efficiencies
through information
technology developments.
• We ran the TreatCRY at Halloween
charity fundraising initiative for a
second successful year.
• We continued to expand the
range of services we offer through
the addition of extra internet
collection points and modernising
our post office network.
McColl's Retail Group Annual Report and Accounts 2014 15
Strategic ReportGovernanceFinancial Statements Strategic Report
Key performance indicators
Our key
performance
indicators
We use six key performance indicators (KPIs) to monitor the
performance of the group. We will keep KPIs under review to ensure
they remain appropriate and are linked to remuneration policy.
We show how we performed against our current KPIs below:
Revenue1
2014
2013
2012
922.4
869.4
844.7
Convenience stores4
2014
2013
2012
799
707
655
Adjusting for the impact of the 53rd week
in 2014, total sales grew by 4.1%, primarily
reflecting additional sales from new stores.
The number of our convenience stores increased
by 92 in 2014 (2013: 52) through a combination
of acquiring new stores, converting newsagents
and closing poor performing stores.
Like-for-like sales2
0.7%
2014
2013
2012
2.2%
2.6%
Earnings per share5
2014
2013
2012
15.6
12.6
9.9
We had strong like-for-like sales of 2.1% in the
first half of 2014. The second half of the year
includes comparisons against a strong summer in
2013 and a slight weakening of trading conditions.
Earnings per share before exceptional items increased
by 3 pence in 2014 reflecting the improvement in
operating profit and the reduction in net finance costs.
Adjusted EBITDA3
Operating profit before exceptional items
2014
2013
2012
37.3
34.2
33.3
2014
2013
2012
25.5
22.5
21.3
Adjusted EBITDA increased by 9.0% in 2014
and 2.7% in 2013. This significant improvement
reflects the growth the group has achieved
in its convenience store estate.
Operating profit for the year increased by 13.2%,
reflecting additional profits from new stores combined
with strong cost controls.
1. Total sales for all stores – see note 2 on page 66 for the definition of revenue.
3. Details of the adjusted EBITDA can be found on page 75.
2. Like-for-like sales from stores that have traded throughout the current and prior periods,
and include VAT but exclude sales of fuel, lottery, mobile phone top-up and gift cards.
4. The number of convenience stores owned at the end of each financial period.
5. Details of the calculation of earnings per share can be found in note 12 on page 78.
16 McColl's Retail Group Annual Report and Accounts 2014
Strategic Report
Financial review
A record
financial
performance
We delivered our best ever set
of results in 2014.
Revenue exceeded £900m for the first time and operating
profit before exceptional items increased by 13.2%. We
listed on the London Stock Exchange, which enabled us
to substantially improve our capital structure.
Revenue
I am pleased to report another period of sales growth.
Revenue increased to £922.4m (2013: £869.4m), an increase
of 4.1% adjusting for the impact of the 53rd week in the
current period, and like-for-like sales were ahead 0.7%.
Total sales were boosted by the acceleration of our store
development activity, with 45 newsagents converted to
the food and wine model, and 60 new store acquisitions
completed, more than double the 23 acquired last year.
Gross profit
Gross profit margins were close to those achieved last
year at 24.2% (2013: 24.3%), with the fall reflecting a slight
change in mix. Total gross profit increased to £222.8m
(2013: £211.0m), an increase of 3.6% adjusting for the
impact of the 53rd week.
Operating profit
Operating profit, before exceptional items, increased
by 13.2% to £25.5m (2013: £22.5m), reflecting the increase
in revenue and our continued control of costs, pro rata for
52 weeks £25.0m, an increase of 11.1%. After exceptional
items, operating profit decreased to £22.0m (2013: £22.5m).
Administrative expenses, before exceptional costs,
improved to 24.2% of revenue (2013: 24.5%) as we
continued to control store operational costs and
leverage our central support structure.
Other operating income before exceptional income,
as shown in note 7 on page 74, increased to £25.7m
(2013: £24.5m), reflecting a strong post office performance.
We have adopted the amendments to IAS19 ‘Employee
Benefits’ during the period and have restated 2013 figures
accordingly, resulting in an additional £0.8m charge for
that period.
We have identified a number of exceptional items in
the current financial period. These items are explained
more fully in note 6 to the financial statements on
page 73.
McColl's Retail Group Annual Report and Accounts 2014 17
Jonathan Miller FCA
Chief financial officer
I am pleased to
report another period
of sales growth
Strategic ReportGovernanceFinancial Statements Strategic Report
Financial review continued
Striking the right
balance
As a neighbourhood
business, we know how
important it is to make the
most of local knowledge
and commitment, and we
encourage this across our
stores and regions – giving
our people freedom to
anticipate and respond to
their neighbourhood needs.
At the same time we make
sure we maintain strong
central control and
management, for example
through our modern
EPoS systems.
Net finance costs
We were able to substantially reduce our finance costs
following the IPO. Net finance costs before exceptional
items reduced to £6.2m (2013: £12.5m).
Both the current and the prior period included
exceptional restructuring costs associated with
refinancing of the group’s debt facilities. These items
are explained more fully in note 6 on page 73.
Profit before tax
Profit on ordinary activities before taxation increased to
£12.6m (2013: £4.4m) reflecting stronger operating profit
and a reduction in finance costs.
Taxation
The tax charge for the period increased to £2.7m (2013: tax
credit of £0.8m), representing an effective tax rate of 21.6%
compared to the statutory rate for the period of 21.7%.
Earnings per share
Basic earnings per share increased to 10.2 pence
(2013: 6.9 pence). Adjusted earnings per share, stated
before exceptional items, increased to 15.6 pence
(2013: 12.6 pence).
Dividends
The board has recommended a final dividend of 6.8 pence
per share (2013: nil), which will be paid on 29 May 2015 to
shareholders on the register at the close of business on
1 May 2015, subject to approval by shareholders at the
annual general meeting. The total dividend for the 9 month
period post IPO will therefore be 8.5 pence per share.
Balance sheet
Shareholders’ funds at the end of the period were £117.2m
(2013: £55.9m), an increase of £61.3m. This is principally due
to the restructuring of the balance sheet at IPO, and the
profitable growth of the business for the period.
The book value of goodwill and other intangibles, property,
plant and equipment increased by £8.3m to £202.2m (2013:
£193.9m), following an increase in capital expenditure.
18 McColl's Retail Group Annual Report and Accounts 2014
Operating profit before
exceptional items
(£million)
2014
2013
2012
25.5
22.5
21.3
£25.5m
+13.2%
2013 £22.5m
Net debt
(£million)
37.4
2014
2013
2012
£37.4m
-56.6%
2013 £86.2m
86.2
86.2
Current assets at the end of the period decreased
to £87.3m (2013: £100.5m), due to a reduction in cash
balances. As a result of the more flexible banking facilities
introduced at IPO we have been able to minimise drawings
under our working capital facility at the period end.
Our current liabilities decreased to £116.9m (2013: £128.7m),
reflecting lower trade and other payables as a result of the
impact of the 53rd week and a reduction in short term
borrowings following the IPO.
Non current liabilities reduced to £61.9m (2013: £114.4m),
principally reflecting a reduction in borrowings post IPO.
Pensions
We operate two defined benefit pension schemes, both
of which are closed to future accrual. The combined
surplus in the two schemes improved by £1.6m to £1.3m
(2013: £0.3m combined deficit).
Cash flow and net debt
We continued to generate strong operational cash flow.
Net cash provided by operating activities for the period
was £34.6m (2013: £28.4m).
Adjusted EBITDA increased by £3.1m to £37.3m (2013: £34.2m).
Working capital outflow of £2.3m (2013: £2.2m outflow)
was impacted by the 53rd week, which meant that the
period included additional cash outflows. The impact
on working capital was an outflow of £11.7m, and the
underlying position was therefore an inflow of £9.4m.
Net capital expenditure increased by £8.7m to £19.3m
(2013: £10.6m). This primarily reflected an increase in
expenditure on acquisitions and store developments.
Finance expense of £4.2m was £6.7m lower than the prior
year due to the lower cost capital structure post IPO.
The interim dividend paid in the period was £1.8m.
Net debt at the end of the period improved to £37.4m
(2013: £86.2m). Adjusting for the impact of the 53rd week
in the current period, underlying net debt was £25.7m,
representing 0.7 times Adjusted EBITDA.
Initial Public Offering (IPO)
On 28 February 2014 the company’s shares opened
for trading on the main market of the London Stock
Exchange. The company received £49.8m proceeds
from the issue of new shares and incurred issue costs of
£2.7m. At the same time the group entered into a new
£85.0m working capital facility of which £60.9m was
initially drawn, incurring refinancing costs of £1.4m. The
net proceeds of the share issue and drawings under the
new facility were used to repay existing loans of £109.4m.
At the end of the current period drawings against the
working capital facility had reduced to £46.0m.
This represents a significant improvement in our
capital structure and as a result we have been able
to successfully accelerate our growth strategy and
are well placed to continue to do so.
Jonathan Miller FCA
Chief financial officer
McColl's Retail Group Annual Report and Accounts 2014 19
Strategic ReportGovernanceFinancial Statements Strategic Report
Corporate responsibility
Making a
positive difference
CO2 emissions
Tonnes
56,131
Colleagues
Full-time
6,690
Total number 18,685
Store colleagues
Gender
Male
Female
38%
62%
Senior managers
Gender
Male
68%
Female
32%
Directors
Gender
Male
67%
Female
33%
We want to be at the heart of the
UK’s neighbourhoods – over 80%
of our stores are in such locations,
serving the everyday needs of
people living close by. Being
responsible is part and parcel of
this neighbourhood commitment.
Communities
One of the key ways we live up to our community
commitment is through our group-wide support of
the charity Cardiac Risk in the Young (CRY).
Every week in the UK, 12 apparently fit and healthy young
people die suddenly from undiagnosed heart conditions.
In 80% of cases, there are no signs or symptoms. CRY is
dedicated to helping reduce these deaths through
greater awareness, research and its pioneering screening
programme – which now tests around 15,000 young
people every year.
For the second year running, colleagues and customers
across the group took part in fundraising events and
made in-store donations over Halloween – raising over
£170,000 for the TreatCRY initiative.
Environment
Recycling packaging
Through our arrangements with our two key distributors
we recycle plastic and cardboard used in our business.
The same lorries that arrive with products leave with
plastic and cardboard – it’s a neat, energy-efficient
way to recycle packaging. So far, we have recycled
well over 1,500 tonnes of waste.
Improving energy efficiency
Since 2012, with the introduction of our energy
management initiative, we have made great progress
in improving our energy efficiency. This has included
removing surplus or particularly inefficient kit from our
stores; undertaking measures such as last man out
switches; photocells that switch lighting on and off
when areas aren’t used; and doors and timers on chillers.
As a result, in 2013 we reduced our like-for-like energy
consumption by 5.6% and in 2014 by a further 1.6%.
20 McColl's Retail Group Annual Report and Accounts 2014
Our responsible approach has five pillars:
From our roots in the business
established by our chief
executive James Lancaster
in 1973, we have grown to
become the UK’s largest
neighbourhood retailer
across the country.
We support a variety of local,
regional and national good
causes and charities – from
raising money across the
group for Cardiac Risk in the
Young (CRY) to donating to
local football teams.
1 We are a UK business
2 We support good causes
3 We are a sustainable retailer
4 We offer local services
5 We employ local people
We offer a variety of essential
everyday services to local
communities – from post
offices to internet collections
and returns, from delivering
newspapers to food-to-go.
We employ and seek to
develop the skills and
potential of local people.
We are committed to
achieving good environmental
practice and strive to make a
positive impact.
Colleagues
Our colleagues make our brands. Their commitment,
friendliness and professionalism make all the difference
to our business. To reinforce this contribution, we invest in
recruiting, retaining and developing great people, many
of them from the local communities we serve.
Developing people
We are committed to equal opportunities for colleagues
at all levels.
In 2014, we relaunched our induction programme
for our store-based colleagues, including additional
modules on, for example, security and fresh foods in
response to the ongoing growth and developments
in our convenience business.
We also relaunched our area managers’ academy and
strengthened our apprenticeship programme, offering a
broader range of NVQ qualifications. Currently we have
251 apprentices across the group and offer a range of
retail-based qualifications to other colleagues.
We run a very successful onwards and upwards development
programme for our colleagues, focusing on some of the key
roles within the business. Many of today’s store managers
started out with us on a paper round or as sales assistants,
underlining the career opportunities we provide and the
role we play for local people.
Rewarding people
We offer a range of benefits for colleagues as well as flexible
working opportunities. We are keen to make sure everyone
understands what’s available to them as well as what is
expected of them and to this end we launched a new
colleague handbook in 2014 for everyone in the group.
Human rights
Whilst the group does not have a specific human
rights policy at present, people are treated in line with
internationally proclaimed human rights principles. There
are a range of policies in place demonstrating effective
management of human rights issues in the business.
Health and safety
We are committed to a strong health and safety culture.
In 2014, we established two health and safety forums –
a management-level forum which looks at the strategic
direction for health and safety and risk as a business,
and a broader forum which enables our store-based
colleagues to provide their input.
We developed a three-year health and safety
strategy designed to enable us to take a consistent and
collaborative approach to creating a safe place for our
employees and customers.
McColl's Retail Group Annual Report and Accounts 2014 21
Strategic ReportGovernanceFinancial Statements Strategic Report
Principal risks
How we identify,
assess and
manage risk
We are committed to good corporate governance. To this end, we
follow a sound risk management process closely aligned to our strategy.
Principal risks
Risk
Mitigation
Business strategy
If the board either adopts the wrong
strategy or fails to communicate or
implement its strategies effectively,
our aims may not be met and the
business may suffer.
• Strategic development is led by
the chief executive and senior
management and considered
by the board.
• Strategy is communicated via
numerous channels.
• Implementation plans are aligned
to our strategic targets and
monitored closely by the board.
Competition
Customer proposition
Economy
We operate in a competitive market
and compete with a wide variety of
retailers locally and nationally. Failure
to maintain market share could affect
our performance and profitability.
• Competition is monitored and our
flexible model enables the business
to be adapted accordingly.
• Customer trends are
continually reviewed
(see 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.
All our revenue is derived from the UK.
The continued challenging economic
environment could reduce our
customers’ income and therefore
affect our revenues.
• Regular product reviews ensure
customer needs and wants are met.
• We regularly review our positioning
against competitors.
• We introduced a customer focused
loyalty scheme during 2014.
• We offer both value products and
premium brands, which lowers our
exposure to a reduction in
discretionary spend.
• Our wide range of locations means
we do not rely on any one site or
geographical area.
Risk change in year
Increased
Maintained
Decreased
22 McColl's Retail Group Annual Report and Accounts 2014
Principal risks
Risk
Mitigation
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
Operational cost base
Regulation
Supply chain
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.
We have a relatively high 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.
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.
We rely on a small number of key
distributors and may be adversely
affected by changes in supplier
dynamics and interruptions in supply.
• We have a committed £85m
working capital facility available
until 31 August 2018.
• Our treasury department
forecasts and manages
funding requirements.
• The board approves budgets
and business plans.
• Our risks associated with financial
instruments are disclosed in note
26 on pages 86 to 89.
• All business critical systems are well
established and are supported by
an appropriate disaster recovery
strategy designed to ensure the
continuity of the business.
• We operate a flexible staff model
aligned to revenue levels.
• Property management is a key
function with regular review
processes in place.
• We minimise energy costs by
combining energy efficiency
initiatives and forward purchasing.
• We have clear accountability
for compliance with all areas
of regulation.
• Our policies and procedures are
designed to meet all relevant laws
and regulations.
• We have a health and safety
compliance steering group.
• Our distribution partners are
carefully selected and maintain
their own contingency planning.
• We monitor supplier performance
including service level agreements.
The strategic report set out on pages 1-23 has been approved by the board and signed on its behalf by
Jonathan Miller
2 March 2015
McColl's Retail Group Annual Report and Accounts 2014 23
Strategic ReportGovernanceFinancial Statements Governance
Board of directors
A strong, very
experienced and
well-connected team
John Coleman
Chairman,
non-executive director*•†
John joined the board on 7 February
2014 and is chairman of the board and
the nomination committee. He was
considered independent until his
appointment as chairman on 22 July
2014. He is a non-executive director of
Bonmarché Holdings plc, non-executive
chairman of Aga Rangemaster Group plc
and formerly senior independent director
of Travis Perkins plc. Between 1996 and
2006 John was chief executive of House
of Fraser plc and prior to this he was chief
executive of Texas Homecare and an
executive director of Ladbrokes plc
between 1993 and 1995. Prior to that, he
was managing director of Dorothy Perkins
between 1991 and 1993 and managing
director of Topshop and Topman between
1986 and 1991, all of which were divisions
of The Burton Group plc.
James Lancaster
Chief executive†
Jonathan Miller
Chief financial officer
James established the group in 1973,
becoming group managing director in
1984, chief executive in 1990 and then
chairman and chief executive in 1995.
Under his direction McColl’s has grown
to be a leading neighbourhood retailer in
the UK. James led a management buyout
of the business in 1995 and a secondary
buyout in 2005. James was appointed
chairman and chief executive of the
listed holding company, on 3 February
2014, shortly after its incorporation on
20 November 2013. Post IPO, James
stepped down as chairman on 22 July
2014 to focus on his role as chief executive
and in compliance with provision A.2.1
of the UK Corporate Governance Code.
James was appointed a member of the
nomination committee on 7 February 2014.
Jonathan joined the group in 1991
working initially as financial director
of tobacco vending operations and
subsequently in group finance. He was
appointed finance director of the group’s
retail businesses in 1998 and chief financial
officer in 2004. Jonathan has extensive
experience of financial operations in a
retail environment, as well as a broad
knowledge across the business having
managed the store development, human
resources and information technology
teams for a number of years. He has
significant corporate finance experience
and has successfully led the group
through a number of successful
transactions including the IPO in 2014.
Jonathan was appointed chief financial
officer of the listed holding company on
3 February 2014.
24 McColl's Retail Group Annual Report and Accounts 2014
Sharon Brown
Independent
non-executive director*•†
Sharon joined the board on 7 February
2014 and is chairman of the audit
committee. She is a non-executive
director and audit committee chairman
of Fidelity Special Values plc and F&C
Capital and Income Investment Trust plc.
Between 1998 and 2013 Sharon was
finance director and company secretary
of Dobbies Garden Centres Limited which
became a division of Tesco plc in 2007.
Between 1991 and 1998, she held a senior
financial position within the retail division
of John Menzies plc and she was also a
Queen Margaret University Court member
and audit committee chairman between
2006 and 2011.
Georgina Harvey
Independent
non-executive director*•†
Georgina joined the board on 7 February
2014 and is chairman of the remuneration
committee. She is a non-executive
director of William Hill PLC and Big Yellow
Group PLC. Georgina started her media
career at Express Newspapers plc where
she was appointed advertising director in
1994. She joined IPC Media Limited in 1995
and went on to form IPC Advertising in
1998, where she was managing director.
Between 2005 and 2012, Georgina was
managing director, regionals division and
a member of the executive committee
of Trinity Mirror.
David Thomas
Chief operating officer
David joined the group in 1998, initially
as a regional manager for convenience
stores. He was appointed operations
general manager in 2000 and operations
director in 2005. David was appointed
operations director of the listed holding
company on 3 February 2014. On 22 July
2014 David became chief operating
officer. David has extensive retail
experience and has spent most of his
career in operational roles within the
supermarket and convenience sectors.
His retail career began at Iceland Foods
where he was instrumental in the
company’s new store opening programme
and the conversion of Bejam stores to
the Iceland trading format. He then
progressed to Southern Co-operative
as operations manager and was
responsible for developing their
supermarkets into a modern
convenience format.
* Remuneration committee member
• Audit committee member
† Nomination committee member
McColl's Retail Group Annual Report and Accounts 2014 25
Strategic ReportGovernanceFinancial Statements Governance
Directors’ report
Directors’
report
Introduction
The directors present their annual report and
audited consolidated financial statements for
the period ended 30 November 2014.
In accordance with the Companies Act 2006 as
amended, and the Listing Rules and the Disclosure
and Transparency Rules, McColl’s Retail Group plc
(the “company”) present their directors’ report and the
directors’ remuneration report. These documents should
be read in conjunction with one another, and the
strategic report.
Directors
The current directors and their appointment dates
are shown in the biographies on pages 24 and 25.
In addition Martyn Aguss served as a director until 30 July
2014. Richard Spedding and Travers Smith Limited served
as directors of the company from incorporation to
3 February 2014.
The company
Although the company was incorporated on
20 November 2013 to act as a holding company for
the group, the group itself has existed over 40 years.
The company registration number is 08783477. As part
of the IPO group restructuring, the company 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. On 28 February
2014 McColl’s Retail Group plc was listed on the London
Stock Exchange (“Admission”).
Principal activities
The principal activities of the group are described in
the strategic report on pages 1 to 23.
Share capital
Details of the share capital from incorporation to
30 November 2014 are shown in note 27 of the
financial statements,
The nominal value of the total issued ordinary share
capital of the company immediately following admission to
the London Stock Exchange was £104,712.04 being divided
into 104,712,042 fully paid ordinary shares of £0.001 each.
The rights attaching to the shares can be summarised
as follows:
• 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 company.
• Each ordinary share ranks equally in the right to
receive a relative proportion of shares on the event
of a capitalisation of reserves.
• The ordinary shares are freely transferable with the
following 2 exceptions:
1. Cavendish Square Partners (General Partner) Limited
in accordance with the IPO Underwriting Agreement
is prohibited from selling their shares for 180 days after
the date of admission and for the following 12 month
period after the expiry of the prohibited period, only
to dispose of their shares through the company’s
broker Numis so as to maintain an orderly market.
2. The directors and employee shareholders in
accordance with the Underwriting Agreement are
prohibited from selling their shares for 365 days after
the date of admission and for the following 12 month
period after the expiry of the prohibited period, only
to dispose of their shares through the company’s
broker Numis so as to maintain an orderly market.
• The Group has an Employee Benefit Trust (EBT) for
the benefit of employees and former employees of
the Group. Currently the EBT holds no ordinary shares
in the company.
26 McColl's Retail Group Annual Report and Accounts 2014
Substantial shareholdings
The company has been notified of the notifiable interests
in the ordinary share capital of the company set out in the
table below.
Board composition
Shareholder
James Lancaster
Jonathan Miller
Fidelity Investments Limited
Premier Fund Managers, Limited
Cavendish Square Partners
Aberforth Partners LLP
Miton Asset Management Limited
Laxey Partners Limited
Henderson Global Investors Limited
As at 30
November
20144
10.9%3
10.9%3
10.0%2
6.0%1
5.6%1
5.1%2
4.7%1
3.7%1
3.2%1
1. Held direct.
2. Held indirect.
3. The ordinary shares held by James Lancaster and Jonathan Miller include shares
held beneficially via various individual holdings and holdings of connected persons
(as defined in sections 252 to 255 of the Companies Act.)
4. There have been no changes between the end of the period and the date of the
annual report.
Board balance and composition
The parent company listed on the London Stock Exchange
on 28 February 2014. On listing the board comprised 7
directors, 3 of whom were independent non-executives of
which 2 were female board members. As at 30 November
2014 the board comprised 6 directors, (2 of whom are
considered as independent non-executive directors and 2
of whom were female board members). Since the company
was listed the following changes were made to the board:
• On 9 July 2014 Jonathan Miller was replaced as secretary
to the company by Capita Company Secretarial Services
Limited. He continues to serve on the board as a director
and the chief financial officer.
• On 22 July 2014 John Coleman succeeded James
Lancaster as chairman. James Lancaster remains a
director and chief executive.
• On 30 July 2014 Martyn Aguss resigned as a director of the
board and chief operating officer and David Thomas, a
serving director, succeeded him as chief operating officer.
• On 24 November 2014 John Coleman resigned and
Georgina Harvey replaced him as chairman of the
remuneration committee.
The board has experience and the balance of skills is
regularly reviewed. The executive board has combined
experience of 80 years’ within the group and the non-
executive directors bring considerable further experience
from retail and other relevant industries. Further details of the
directors’ backgrounds can be found on pages 24 and 25.
Directors’ interests
All of the directors hold shares in the company and details
of their shareholdings can be found in the directors’
remuneration report on page 53.
Executive directors
Chairman
Independent non-executive directors
50%
17%
33%
Directors’ indemnities and insurance
As is customary for listed companies, the company has
had in place directors’ and officers’ indemnity insurance
in respect of each of the directors since listing on the
London Stock Exchange on 28 February 2014.
Appointment of directors
At the first annual general meeting since the company
was incorporated, and in accordance with the company’s
articles of association, all the directors are required to
stand for election by the shareholders. Going forward
and in accordance with the UK Corporate Governance
Code 2012 (“Code”) all directors will be considered for
re-election annually. Details of the non-executive directors’
letters of appointment are given in on page 33 under Role
of the non-executive directors. The executive directors have
service contracts under which 12 months’ notice is required.
Employee engagement
The group employs 18,685 employees and had 6,690
full time equivalents at the period end.
The group actively involves employees in the business
and ensures that they are engaged in matters impacting
them. This includes consulting with employees or their
representatives on a regular basis so that the views of
employees are understood by management and can
be taken into account in making decisions which are likely
to affect their interests. This is primarily achieved via senior
management meetings and briefings.
Employees are also made aware of the financial and
economic factors affecting the performance of the group
via newsletters and briefings by management. The group
encourages the involvement of employees in the group’s
performance through operation of a bonus scheme
which applies to approximately 85 employees and
provides an incentive to the employees.
McColl's Retail Group Annual Report and Accounts 2014 27
Strategic ReportGovernanceFinancial Statements Governance
Directors’ report continued
The group provides its employees with a variety of
opportunities to learn new skills that will help them to
develop and be successful in their careers. This includes
using a combination of video learning, on the job
coaching and some classroom based workshops where
applicable. In addition, all employees receive induction
training when they commence employment with the
group. The group is intending to grant awards under
its CSOP in 2015 to further encourage the involvement
of its senior managers in the group’s performance.
For those employees wishing to progress, the group
operates a development programme focusing on some
of the key roles within the business. Each individual is
provided with a tailored training plan based on their
current job knowledge and skill sets to help them
achieve their career goals.
The group also works in partnership with Skillnet, a
national provider of vocational qualifications, offering
opportunities to all eligible colleagues to gain retail
based qualifications whilst working in their current role.
The directors recognise the importance of ensuring the
highest standards of health and safety are maintained
for employees, customers and others who may be
affected by the activities of the business.
The group is committed to being an equal
opportunities employer:
• It provides full and fair consideration to all applications
for employment with the group including disabled
persons, having regard to their particular aptitudes
and abilities;
• It also endeavours to continue the employment of, and
for arranging appropriate training for, employees of the
group who become disabled whilst employed by the
group; and
• It provides disabled employees with the training,
career development and promotion whilst employed
by the group.
Annual general meeting
The board welcome the opportunity to meet with
shareholders at the annual general meeting which
will be held on 17 April 2015 at 2 pm at the registered
office McColl’s House, Ashwells Road, Brentwood,
Essex CM15 9ST.
Dividend
The directors have proposed a final dividend of 6.8 pence
per share, amounting to £7.1m, which is subject to
shareholder approval at the annual general meeting.
Provided shareholder approval is received the final
dividend will be paid on 29 May 2015 to those
shareholders on the register at the close of business
on 1 May 2015.
External auditors
Deloitte LLP have given their independent report on the
financial statements to the shareholders of the company
on pages 56 to 61.
Directors’ statement of disclosure of information to auditors
Having made the requisite enquiries, the directors in office
at the date of this annual report and financial statements
have each confirmed that, so far as they are aware, there
is no relevant audit information (as defined by section 418
of the Companies Act 2006) of which the group’s auditors
are unaware, and each of the directors has taken all the
steps he/she ought to have taken as a director to make
himself/herself aware of any relevant audit information
and to establish that the group’s auditors are aware of
that information.
Auditor reappointment
The auditor Deloitte LLP has indicated its willingness to
continue as the company’s auditor, and accordingly
a resolution to appoint Deloitte LLP as auditors of the
company and the group will be proposed at the 2015
annual general meeting.
Financial risk management
Financial risk management objectives and policies,
including information on financial risks that materially
impact the group can be found in note 26 of the financial
statements on pages 86 to 89.
Going concern
In making their going concern assessment the directors
have considered the group’s business activities, its
financial position, the market in which it operates and
the factors likely to affect its future development.
The directors have reviewed the group’s forecasts, taking
into account a range of sensitivities, and how they impact
headroom against its bank facilities, and its ability to meet
its capital investment and operational needs.
The group has net current liabilities of £29.6m at the period
end. The directors have additionally considered this
position to determine if it presents any going concern
issues. The group is profitable and cash generative and
has in place a committed £85.0m working capital facility
available to be drawn until 31 August 2018. As at 30
November 2014 £46.0m was drawn against the facility,
and therefore there is sufficient headroom to meet the
group’s debts as they fall due.
The directors believe there is reasonable basis on which
they can satisfy themselves that the business is a going
concern and that it is appropriate for the financial
statements to be prepared on a going concern basis.
Post period end events
Between 30 November 2014 and the date of this
report there have been no material events that
require disclosure.
Political donations
The group did not make any political donations during
the period (2013: £nil).
Listing rules
The following table provides cross-references to where
the relevant required information by Listing rule 9.8.4R
for the period is disclosed.
28 McColl's Retail Group Annual Report and Accounts 2014
Section Listing rule requirement
Location
1
2
4
5
6
7
8
9
10
11
12
13
14
Interest capitalised
Publication of unaudited
financial information
Details of long-term
incentive schemes
Waiver of emoluments
by a director
Waiver of future
emoluments by a director
Non pre-emptive issues
of equity for cash
Item (7) in relation to major
subsidiary undertakings
Parent participant in
placing by a listed
subsidiary
Contracts of significance
Provision of services by
a controlling shareholder
Shareholder waivers
of dividends
Shareholder waivers
of future dividends
Agreements with controlling
shareholder
Not applicable
Not applicable
Directors’
remuneration
report on page 44
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Greenhouse gas emissions
The group is required to measure and report direct and
indirect greenhouse gas (GHG) emissions pursuant to the
Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013. As this is the first GHG emissions report in line
with UK mandatory reporting requirements set out by the
Department for Environment, Food and Rural Affairs (DEFRA),
there is no comparative year. The mandatory requirement is
for the disclosure of the scope 1 and 2 emissions only. These
are direct emissions such as heating, vehicle fuel and indirect
emissions such as purchased electricity.
The group’s total GHG footprint in line with section 7 at the
companies act (strategic report and directors) regulations
2013 is shown in the table below.
Emissions data for period 25 November 2013
to 30 November 2014
Scope 1
Fuel combustion (natural gas, vehicle fuels
and other fuels)
Refrigerants
Scope 2
Purchased electricity
Total
Greenhouse gas emissions intensity ratio:
CO2e tonnes per £100,000 of revenue
1,888
2,122
4,010
52,121
56,131
2014
6.1
Note that:
• The group has reported on all the measured
emissions sources required under the Companies
Act 2006 (Strategic Report and Director’s Reports)
Regulations 2013;
• The group has used the guidance as set out in DEFRA’s
Environmental Reporting Guidelines: including
mandatory greenhouse gas emissions reporting
guidance, dated June 2013;
• The group has engaged a consultancy firm, BDO LLP,
to oversee the collection of data and provide guidance
on complying with appropriate regulations. The figures
disclosed above for 2014 and the methodology used to
collate the information has been reviewed and
approved by BDO LLP;
• For electricity, gas and other fuels, consumption data
has been extracted from billing information from 25
November 2013 to the date of the last bill received for
each type of supply. Therefore some extrapolation has
been required in order to calculate the full 53 week
consumption figure;
• Petrol and fuel data has been collated from
information received from the group’s fleet
management consultant;
• Refrigerant data has been calculated by reference to
individual items of equipment and then extrapolating
this based on an estimated level of equipment within
each property used by the group;
• Data collected is in respect of the 53 weeks ended
30 November 2014. The carbon conversion factors
used are those published by Defra for 2014; and
• This is the group’s first year of MER reporting since the
group achieved listing, therefore 2014 represents the
base reporting year.
The strategic report, the directors’ report and the
directors’ remuneration report were approved by
the board.
Approved by the board and signed on its behalf:
Yours sincerely
Jonathan Miller
Director and chief financial officer
2 March 2015
McColl's Retail Group Annual Report and Accounts 2014 29
Strategic ReportGovernanceFinancial Statements Governance
Corporate governance report
Corporate
governance report
Chairman’s letter
Dear shareholder
Since the company’s admission to the
London Stock Exchange, the board has
adopted compliance with the UK Corporate
Governance Code (the ‘code’) published
by the Financial Reporting Council in
September 2012*.
It is the opinion of the board that the company has
been compliant with the provisions of the code since
the company listed on the 28 February 2014 with the
following exceptions:
• The code recommends that the roles of chairman and
chief executive should not be exercised by the same
individual (code A.2.1). Prior to 22 July 2014 the role of
the chief executive and chairman was combined but
as at that date, I succeeded James Lancaster as the
company’s non-executive chairman. The board,
however, does not consider such non-compliance
to be detrimental to the interests of the group or the
shareholders as a whole on the basis of the current
directors’ experience, judgement and character.
Details are given in the nomination committee report.
• The code recommends that the board should appoint
one of the independent non-executive directors to be
the senior independent director (the SID) (code A.4.1).
Until 22 July 2014 I acted as the company’s SID. However,
when I was appointed as chairman the position of SID
became vacant and after further consideration it was
decided that the appointment of a SID to the company
was unnecessary at the current time. The board will keep
the need for a SID under review.
• The code recommends that the chairman should hold
meetings with the non-executive directors without the
executives present and the non-executive directors
should meet without the chairman present at least
annually to appraise the chairman’s performance
(A.4.2.). The chairman has met with non-executive
directors without the executive directors present and
the non-executive will meet without the chairman
when assessing the chairman’s performance.
• The code recommends that there should be a
nomination committee which should lead the process
for board appointments and make recommendations
to the board. (B.2.1.). The membership of the company’s
nomination committee is the chairman, 2 non-executive
directors and the chief executive, therefore only half of
the committee is independent. However, the board
believe it is appropriate to include both the chairman
and chief executive to ensure the business needs are
met and potential directors are of suitable calibre for
the group.
• The code recommends the board should undertake
a formal and rigorous annual evaluation of its own
performance and that of its committees and individual
directors (code B.6). As this report relates to the
company’s first year as a listed company and the
chairman and non-executive directors are new to
the company, the board has not, as yet, carried out a
board, committee or directors performance evaluation
as their focus has been on developing the company’s
business model and creating processes and procedures
within which the company should operate. The board
felt it more appropriate to wait until such time as the
board and its committees were fully established before
carrying out a full evaluation. The board have scheduled
a board evaluation by way of an internal assessment
to be undertaken during 2015. Furthermore, a full
assessment of each director’s suitability was undertaken
prior to the company’s listing and it was felt that this was
sufficient to discharge its duties under the code.
* https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/
UK-Corporate-Governance-Code-September-2012.aspx
30 McColl's Retail Group Annual Report and Accounts 2014
In readiness for the company being listed on the London
Stock Exchange, new non-executive directors were
appointed in February 2014 and I believe that we have
a board that will support and challenge the executive
management when appropriate or necessary to drive
forward its objectives.
As chairman, I would like to state my full commitment
to preserving high corporate governance principals.
Yours sincerely
John Coleman
Chairman
• The code recommends that the board should establish
a remuneration committee of at least 3, or in the case
of smaller companies 2, independent non-executive
directors. In addition the company chairman may also
be a member of, but not chair, the committee if he or
she was considered independent on appointment as
chairman (code D.2.1). On 22 July 2014, I was appointed
as chairman to the board although I continued to act
as chairman of the remuneration committee, in
contravention of this provision of the code. The board
recognised my experience enabled me to make a
valuable contribution during the consultation process
with the remuneration consultants whilst being both
the board and remuneration committee chairman.
Subsequently on the 24 November 2014, I stepped
down as remuneration committee chairman and
Georgina Harvey was appointed and thus the company
is now in compliance with this provision of the code.
• The code also recommends that at least half the
board, excluding the chairman, should comprise
independent non-executive directors and that
a smaller company should have at least two
independent non-executive directors (code B1.2).
The board recognises that the company’s current
composition meets the smaller company regulation,
however, the board does not consider this to be
detrimental to the interests of the group or the
shareholders as a whole on the basis of the current
directors’ experience, judgement and character.
McColl's Retail Group Annual Report and Accounts 2014 31
Strategic ReportGovernanceFinancial Statements Governance
Corporate governance report continued
Role of the board
The board provides leadership and direction to the
group and is ultimately responsible to the company’s
shareholders for the success of the group. The board
recognises the significant importance of its role as the
company’s guardian. To this end it has established a
robust corporate governance framework. The board,
together with the help and guidance of the company
secretary, have implemented detailed procedures and
processes which the board believe will help to facilitate
the success of the company.
Matters reserved for the board
The board has approved matters reserved for its own
consideration which details the board’s role and purpose
to ensure that it fully discharges its responsibilities. At least
annually, the board undertakes a review of its matters
reserved for the board to ensure it is in line with best
practice, the code and other regulatory requirements.
The board is responsible for the following items:
• Strategy and overall management and leadership of
the group and for setting the company’s values and
standards and reviewing the company’s performance;
• Financial items – including the group’s annual budget,
published accounts, accounting, taxation and treasury
policies, dividends and monetary limits;
• Internal control and risk management;
• Contracts with a third party not in the ordinary
course of business;
• Legal, administration and pension – including the
group’s corporate governance statement, directors
and officers insurance, litigation and changes to the
pension fund;
• Communication with shareholders – including approval
of any shareholder meeting, announcements or press
releases, the issue of circulars; and
• Board and senior management appointments and
removals arrangements.
Number of meetings held
James Lancaster
Jonathan Miller
David Thomas
John Coleman
Sharon Brown
Georgina Harvey
Martyn Aguss*
The board delegates certain of its responsibilities to
its committees. The board has delegated to the chief
executive the responsibility for implementing the group’s
business model and for the day-to-day operational
management of the group. The chief executive is
supported in carrying out his responsibilities by the chief
financial officer, chief operating officer and a number of
senior executives. The composition and purpose of each
committee is given within each committee report.
The board meets at regular intervals and has met 5 times
during the period since listing on the London Stock
Exchange. The directors are encouraged to challenge
and constructively comment on matters presented to the
board. In addition the directors have ongoing dialogue
on a variety of issues between board meetings.
Area of focus
The board has several recurring agenda items included
at each board meeting. These include the chief
executive’s report, chief financial officer’s report, chief
operating officer’s report, updates from the board
committees, company secretarial report and investor
relations report. In addition there are more in depth
presentations and reports in specific operational areas
of the business.
The board is supported in their work by the following
board committees:
• Audit committee;
• Remuneration committee; and
• Nomination committee.
A copy of the committees’ terms of reference are can be
found at http://www.mccolls.co.uk/investor/committees.
aspx. Capita Company Secretarial Services Limited serves
as secretary to these committees.
The directors attendance at board and committee
meetings since the company was admitted to the London
Stock Exchange are given below. The board chairman
and committee chairman are supported by the company
secretary in organising and circulating the board papers
for these meetings.
Main board
Audit
committee
Remuneration
committee
Nomination
committee
5
5
5
5
5
5
5
3
3
3**
3**
n/a
3
3
3
n/a
3
3**
3**
n/a
3
3
3
n/a
2
2
n/a
n/a
2
2
2
n/a
* Martyn Aguss resigned on 30 July 2014 and therefore was only entitled to attend 3 board meetings.
** attended as invitee.
32 McColl's Retail Group Annual Report and Accounts 2014
Division of responsibilities
Role of the chairman
The chairman is responsible for leading and managing
the business of the board and ensuring its effectiveness.
He sets the agenda for board discussions and ensures
that the directors receive accurate, timely and clear
information from the company’s senior managers. There
is a clear division of responsibilities between the chairman
and chief executive, which is set out in writing and agreed
by the board.
Role of chief executive
The role of the chief executive is to provide a link between
the board and the management of the group and to
ensure that the company’s strategic decisions are
effectively implemented.
Role of the non-executive directors
The non–executive directors provide valuable
experience, judgement and independent support to
the board. They assist in the development of strategy
and exercise constructive challenge and support to
management. The non-executive directors’ letters of
appointment set out their duties and the level of
commitment expected. Non-executive directors are
appointed for an initial 3 year term with typical tenure
expected to be 2 x 3 year terms but may be invited by the
board to serve an additional term, subject to re-election
by shareholders. They are expected to commit at least
15 - 20 days per annum to their role. In the board’s opinion
the non-executive directors have exercised independent
judgement by providing constructive challenge to the
executive directors.
Key elements of the non-executive directors’ roles are:
• Strategy – constructively challenge and develop
proposals on strategy;
• Performance – scrutinise the performance of
management in meeting agreed goals and objectives
and monitor reporting performance;
• Risk – to satisfy themselves in relation to the integrity of
financial information and that financial controls and
systems of risk management are robust and defensible;
• People – determine appropriate levels of remuneration
of executive directors and have a prime role in the
appointment and where necessary the removal of
executive directors and succession planning;
• Time – devote time to develop and refresh their
knowledge and skill;
• Standards – uphold high standards of integrity and
probity and support to the board developing the
appropriate culture, values and behaviours in the
board room and beyond;
• Information – insist upon receiving high quality
information sufficiently in advance of board meetings
to make informed decisions; and
• Shareholders – consider the views of shareholders and
other stakeholders.
Directors’ training
Each new director this year has received a tailored
induction and familiarisation programme implemented by
the chief executive so that they learn about the business.
The directors and senior managers have received training
on their statutory duties, Listing Rules and the Disclosure
and Transparency Rules.
Conflicts of interest
The articles of association provide that the directors
may authorise any actual or potential conflict of interest
that a director may have, with or without imposing any
conditions that they consider appropriate on the director.
Directors are not able to vote in respect of any contract,
arrangement or transaction in which they have a
material interest and in such circumstances they
are not counted in the quorum. A process has been
developed to identify any of the directors’ potential
or actual conflicts of interest. This includes declaring any
potential new conflicts before the start of each board
and committee meeting. There were no actual or
potential conflicts of interest which were required to
be authorised by the board during the period under
review or to the date of this report.
Internal control and risk management
The board recognise that it is their responsibility to
present a balanced and understandable assessment
of the group’s position and long term prospects and has
responsibility for ensuring that management maintain an
effective system of risk management and internal control
and for reviewing its effectiveness. The purpose of risk
management is to manage rather than eliminate risk
entirely and to achieve the business objectives.
Effectiveness of internal controls
The board has overall responsibility for the group’s
internal control system and for reviewing their
effectiveness. This has been designed to assist the
board in making better, more risk-informed, strategic
decisions with a view to creating and protecting
shareholder value. The group’s internal control procedures
provide an ongoing process for identifying, evaluating
and managing significant risks. The board recognises that
such a system has its limitations in that risk management
requires independent judgement on the part of directors
and executive management. Internal controls are
designed to manage rather than eliminate the risk of
failure to achieve business objectives, and can provide
only reasonable and not absolute assurance against
material misstatement or loss.
The control environment includes high level group-wide
controls, as well as controls over business processes both
centrally and at store level. Process controls include those
over sales and pricing, stock, payroll, property, central
expenditure, cash, payment processing, information
technology and risk management.
McColl's Retail Group Annual Report and Accounts 2014 33
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Corporate governance report continued
Whistleblowing
The group has a policy and formal procedures to ensure
that colleagues can confidentially raise concerns about
possible improprieties. This policy takes into account the
Public Interest Disclosure Act 1998, which protects
employees making disclosures about certain matters of
concern, where those disclosures are made
in accordance with the provisions of the Act. This year
one issue was reported which related to an employee
grievance and was investigated accordingly. If any
significant incident occurs, the directors will be informed
and the incident investigated immediately.
Relations with shareholders
The board is committed to maintaining an open and
honest relationship with its shareholders. Directors
encourage all shareholders to participate at the
annual general meeting.
The chief executive, the chief financial officer and
the chief operating officer have had meetings with
institutional investors to explain the group strategy
and performance and to learn what is important to them.
The non-executive directors would be willing to meet with
shareholders if they requested a meeting. In addition the
group’s broker, Numis, informs them of analyst and investor
views.
The group’s website (http://www.mccolls.co.uk/investor.
aspx) contains all the latest announcements, press
releases and published financial information including the
annual report. The notice of the annual general meeting
will be distributed to shareholders at least 20 working days
before the meeting and is also available from the website.
Each resolution will be proposed separately at the
meeting and those shareholders attending will be asked
to cast their vote. Proxy votes already received will be
countered and after the vote has been taken on a show
of hands the proxy vote will be displayed.
Risk governance
Effective risk management is essential to the long term
success of the business and it requires an appropriate risk
governance structure.
Management have established a risk register for
identifying, evaluating and managing risk faced by the
group on an ongoing basis, both at an operational and
strategic level. The risk identification and mitigation
processes have been designed to be responsive to
likelihood of occurrence. Appropriate action is taken
to manage and mitigate risks identified.
Key features of the risk management and internal
control systems
The key areas which the framework details, are:
• risk governance environment (as described above); and
• maintenance of a key risk register, incorporating risk
management procedures to gather and document
risk information relating to new risks, progress on any
mitigations requiring action, changes to current risks
or mitigations and changes to the overall risk profile.
A risk register is an important instrument of the group’s
risk framework arrangements, as it documents the
identification and assessment of risks, any mitigation
requiring action and accountability within the senior
management team. The directors have identified the
principal risks and uncertainties facing the group,
many of which are considered key to the successful
implementation of strategy and long term growth.
The key risks, and how they are mitigated, are
described on pages 22 and 23.
Financial and business reporting
The board seeks to present a fair, balanced and
understandable assessment of the group’s position
and prospects in all half year, full year and any other
price-sensitive reports and other information
published externally.
The board receives a number of reports, including those
from the audit committee, to enable it to monitor and
clearly understand the group’s financial position. A new
disclosure policy was put in place during the period
following IPO to enhance the process for ensuring that
price-sensitive information is identified effectively and all
communications with the market are released at the
appropriate times.
Anti-fraud, bribery and corruption
The group aims to promote honest and ethical conduct.
To support this, it has in place an anti-bribery policy, which
aims to ensure compliance with the Bribery Act 2010.
34 McColl's Retail Group Annual Report and Accounts 2014
Nomination
committee report
• propose the re-election by shareholders of any director
having due regard to their performance and ability to
continue to contribute to the board in the light of the
knowledge, skills and experience required and the need
for progressive refreshing of the board (particularly in
relation to directors being re-elected for a term beyond
6 years);
• evaluate the balance of skills, knowledge, experience
and diversity on the board and, in the light of this
evaluation, prepare a description of the role and
capabilities required for a particular appointment,
before any appointment is made by the board;
• prior to the appointment of a director, require the
proposed appointee to disclose any other business
interests that may result in a conflict of interest and to
report any future business interests that could result in
a conflict of interest;
• review annually the time required from non-executive
directors; and
• review the results of the board for performance
evaluation process that relates to the composition
of the board.
Composition of the committee
The members of the committee during the period
were John Coleman as chairman, James Lancaster,
Sharon Brown and Georgina Harvey. Half of the members
of the committee are independent non-executive
directors of the board. There have been no changes in
the membership of the committee since the period end.
The committee will normally meet not less than twice
a year when appropriate. After each committee
meeting, the chairman reports to the board on the
main items discussed.
The role and duties of the nomination committee
The nomination committee’s responsibilities are to:
• regularly review the structure, size and composition
(including the skills, knowledge, experience and
diversity) required of the board and make
recommendations to the board;
• give full consideration to succession planning for
directors, the chairman and committee members and
other senior executives in the course of its work, taking
into account the challenges and opportunities facing
the company;
• keep under review the leadership needs of the
organisation, both executive and non-executive, with a
view to ensuring the continued ability of the organisation
to compete effectively in the marketplace;
• be responsible for identifying and nominating for the
approval of the board, candidates to fill board
vacancies as and when they arise;
McColl's Retail Group Annual Report and Accounts 2014 35
Strategic ReportGovernanceFinancial Statements Governance
Corporate governance report continued
In addition the committee can confirm that all
directors are required to disclose all significant outside
commitments prior to appointment and the board has
approved a policy requiring disclosure and approval by
the board of all additional appointments for executive
or non-executive directors. There have been no material
changes in the outside commitments of a director during
the period which impacted on the time required to
commit to the company.
Board diversity
The board supports diversity, recognising the benefits
that diverse viewpoints can contribute in decision-
making. It is the intention of the board always to keep
the benefits that derive from a diverse board in mind
when making appointments. The board does not believe
that setting a quota is the most appropriate method for
achieving a balanced board and all appointments are
made on merit. Currently 33% of the board is comprised
of female directors.
Diversity, including gender diversity, is pursued throughout
the business and the board continues to follow a policy of
appointing talented people at every level to deliver high
performance. This will ensure development in this area is
consistent with the group’s own strategic objectives and is
enhancing in terms of board effectiveness.
Main activities during 2014
Prior to the company’s IPO, the board appointed an
executive search consultant, the Inzito Partnership, with
whom the company has no other connection, to identify
candidates to fill 3 non-executive board vacancies.
Following a rigorous selection process, John Coleman,
Sharon Brown and Georgina Harvey were appointed
non-executive directors.
During 2014, the nomination committee played an
important part in ensuring that the leadership of the
business was suitable for a newly premium listed
company. In particular it has:
• given consideration to separating the roles of chairman
and chief executive held by James Lancaster and of
John Coleman’s appointment as chairman and
accordingly this separation of roles took effect from
22 July 2014. The board recognised the rationale given
in the code to splitting these roles and the benefit to
the company of having different individuals;
• following Martyn Aguss tendering his resignation as
chief operating officer on 22 July 2014 and as a director
of the company with effect from 30 July 2014, the
nomination committee recommended David Thomas
as his successor;
• subsequent to John Coleman’s appointment as
chairman the position of SID became vacant and
after further consideration it was decided that the
appointment of a SID to the company was unnecessary
at the current time given the size and scale of the
business, but that this would be kept under review.
The shareholders are free to raise any concerns
they have with any board member including the
independent non-executive directors;
• considered if John Coleman should remain as
remuneration committee chairman in breach of
code provision D 2.1. The nomination committee felt
that initially it was in the best interests of the company
to allow John to continue to lead the remuneration
committee; however, it has subsequently recommended
to the board that Georgina Harvey be appointed
remuneration committee chairman (from 24 November
2014) although John Coleman has remained a member;
• discussed the succession planning at board and senior
executive level; and
• reviewed the committees rolling agendas and overview
of duties which enables it to fulfil its responsibilities.
36 McColl's Retail Group Annual Report and Accounts 2014
Audit
committee report
Chairman’s introduction
On behalf of the board, I am pleased to present the first
formal report of the audit committee to shareholders.
The audit committee was established as part of the
governance processes adopted by the company,
following admission to the premium list of the London
Stock Exchange on 28 February 2014, and this report
relates to the period since this date. Best practice is for
audit committee members to be non-executive directors,
independent in character and judgement. Consequently,
the committee has been comprised of the 3 non-
executive directors of the board.
The primary responsibilities of the committee are to ensure
the integrity of the company’s financial reporting and the
appropriateness of the risk management processes and
internal controls. The following report details how we carry
out this role.
One of the key considerations for the committee
in the period was to ensure that the company had
effective and resilient policies and controls in place,
to the standard expected of a public listed company.
This has resulted in the formalisation and strengthening
of a number of the company’s policies and processes.
In addition, we reviewed the reporting changes required
for a listed company to ensure that the 2014 annual report
was prepared in line with best practice.
The committee considered and is satisfied that, taken
as a whole, the 2014 annual report is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the company’s performance
and strategy. If any shareholder has comments or
suggestions relating to the report, please do get in touch.
Finally, on behalf of the committee, I would like to
acknowledge the significant amount of work that is
involved with becoming a public listed company and
thank my colleagues at the group who have worked
tirelessly to achieve this.
Yours sincerely
Sharon Brown
Chairman of the audit committee
2 March 2015
McColl's Retail Group Annual Report and Accounts 2014 37
Strategic ReportGovernanceFinancial Statements
Governance
Corporate governance report continued
Committee composition and meetings
The members of the committee during the period were
Sharon Brown as chairman, John Coleman and Georgina
Harvey. The majority of the committee are independent
non-executive directors of the board. The committee
considers that collectively the members have appropriate
recent and relevant financial experience to fully
discharge their responsibilities. There have been no
changes in the membership of the committee since
the period end.
Capita Company Secretarial Services Limited serves
as secretary to the committee. The chief executive,
chief financial officer and audit partner from the external
auditor attend committee meetings by invitation.
The committee will normally meet not less than 3 times
a year at the appropriate times in the financial reporting
and audit cycle. During the period the committee
chairman also meets privately with the external auditor
to give them an opportunity to discuss any issues
without management present. After each committee
meeting, the chairman reports to the board on the
main items discussed.
Role and responsibilities of the audit committee
The committee’s authority and duties are defined in
its terms of reference. The first audit committee meeting
was held on 9 July 2014, at which the committee’s terms
of reference, membership and annual programme of
work were approved.
The principal activities carried out during subsequent
meetings were:
• Financial reporting – the committee considered the
company’s financial reports, including the implications
of new accounting standards and regulatory changes,
significant accounting issues and the appropriateness
of the accounting policies adopted. This included
consideration of the changes in reporting required
as a new listed company;
• Internal and external audits – the committee considered
the scope of the external audit plan and the subsequent
findings of this work. The committee also considered
whether an internal audit function was necessary.
The internal control framework to be followed by
employees is communicated by line management,
training and manuals and the routine internal control
activities are performed by the finance team. The retail
support centre includes a team of stock compliance
auditors, who conduct visits at least twice a year to
each store to analyse the stock and review the
compliance with company policies and practices.
The committee concluded that an internal audit
function was not currently appropriate but would
be kept under review;
• Risk and internal control – the committee considered
the key risks facing the company and the adequacy
and effectiveness of the internal controls and risk
management processes. This resulted in the formalisation
and strengthening of a number of policies and
procedures; and
• External auditor – the committee considered the
independence, effectiveness and fees of the external
auditor, as detailed later in this report.
Significant issues considered by the committee
during the period
The annual report and financial statements are the
responsibility of the board and the statement of directors’
responsibilities is on page 54. The audit committee
advises the board on the form and content of the
annual report and financial statements, any issues that
may arise in relation to these and any specific areas
that require judgement.
Summarised below are the most significant issues
considered by the committee in respect of these financial
statements and how these issues were addressed.
• First time plc reporting – this is the group’s first annual
report since listing on 28 February 2014, resulting in an
increase in reporting requirements and new reporting
deadlines. The committee reviewed management’s
plan and monitored progress and the use of third party
advisors where appropriate;
• Property provisions – the committee considered the
reasonableness of the provisions for closed branches,
onerous leases and future dilapidations expenses, in
particular management’s judgement of future costs
at the group’s former head office;
38 McColl's Retail Group Annual Report and Accounts 2014
• Supplier income – the committee considered the policy
for the recognition of income receivable from suppliers
and the controls in place over contract negotiation.
The committee reviewed the independent verification
procedures employed by management throughout the
year and at the period end;
• Goodwill impairment – the committee considered the
process for testing goodwill impairment including the
determination of the appropriate CGUs, the
reasonableness of the underlying assumptions and
the results of the review;
• Inventory valuation and provisions – the committee
reviewed internal controls over physical stock
records, the valuation methodology and the basis
for provisioning;
• Revenue recognition – the committee reviewed
the internal controls over revenue recognition;
• Exceptional items – the committee reviewed the
treatment and disclosure of non-recurring items; and
• Materiality – the committee considered what would
be an appropriate level of materiality and agreed the
amount over which the auditors should report matters
to the committee.
Management have reported to the committee that they
were not aware of any material misstatements within the
annual report and the external auditors reported that
they found no material misstatements in the course of
their work.
Relationship with the independent auditor
There are no contractual obligations which restrict the
committee’s choice of auditor. Deloitte LLP has been
the group’s auditor since 2006 and Sukie Kooner is the
new audit partner for the company’s 2014 audit. In line
with professional guidelines, each partner can serve for
up to 5 years. The continued appointment of Deloitte is
considered by the audit committee each year, taking
into account relevant guidance and best practice and
considering the independence and effectiveness of the
external audit process.
As part of the review of auditor independence and
effectiveness, Deloitte has confirmed that they are
independent of the company and have complied with
relevant accounting standards. The audit committee
has established a policy to ensure that any provision of
non-audit services by the external auditor does not impair
their independence and objectivity. This policy prohibits
certain services and limits the level of non-audit services
payable to the auditors to an aggregate of 100% of the
previous year’s audit fee. Any services in excess of this
would require prior approval from the audit committee.
The breakdown of fees between audit and non-audit
services for the period ending November 2014 is provided
on page 74. The non-audit fees relate to advisory work
for the IPO, debt refinancing and audit of the financial
statements for the half year and initial accounts. The
audit committee is satisfied that it was appropriate for
the auditors to carry out this work, and that it did not
impair their independence or objectivity.
With regard to Deloitte’s performance and the
effectiveness of the audit process, the committee
considered their fulfilment of the agreed audit plan
and the audit findings report subsequently issued by
them. The committee also took into account the
competitiveness of their fees and obtained feedback
from management regarding the performance of
the audit team.
The committee is satisfied with the independence and
performance of the auditor and has recommended their
reappointment for a further year.
Whistleblowing
The committee is responsible for ensuring that employees
are able to raise any concerns, in confidence, regarding
any possible improprieties in financial reporting or other
matters. During the period the committee reviewed the
company’s formal whistleblowing process and how this
operated in practice. Whistleblowing reports will be
reviewed at least annually by the committee or more
frequently should it be considered necessary.
McColl's Retail Group Annual Report and Accounts 2014 39
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report
Remuneration
report
The information provided in this part
of the directors’ remuneration report
is not subject to audit.
Dear shareholder
Following my appointment as chair of the
remuneration committee in November 2014,
I am pleased to present the first directors’
remuneration report since the company’s
incorporation and listing on the London Stock
Exchange, for the financial period ended
30 November 2014.
2014 has been a period of significant change for the
group – we undertook our IPO and progressed with
implementing our ambitious growth strategies. We have
seen good growth, with total sales increasing 6.1% and
like-for-like sales ahead 0.7%. Results for the 2014 financial
period have been broadly in line with expectations in a
challenging market. We have identified attractive growth
opportunities especially in the convenience part of our
business, whilst recognising the challenges we face in the
market place. Despite strong results in 2014, operating
profit did not exceed the stretching targets set by the
committee for the annual bonus. Therefore no annual
bonus awards have been made to the executive
directors in respect of the period under review.
The remuneration committee has undertaken
a comprehensive review of the remuneration
arrangements in place for our senior executives,
with support and advice provided by Kepler Associates,
who are independent. This covered all aspects
of remuneration and how best to use remuneration to
support the future development of the group. The review
highlighted that incentive opportunities for executive
directors at the group were behind market levels. The
full activities of the committee during the period are
summarised on page 49.
In line with our commitment to maintain an open
dialogue with shareholders on remuneration, and to
explain the rationale for key remuneration decisions,
the company chairman and I consulted with our major
shareholders to discuss and help develop our key
remuneration proposals for 2015. These proposals have
been guided by the committee’s view of what would best
promote the success of the group whilst taking account
of expectations among our investors on remuneration
best practice and feedback received from shareholders
during the consultation process.
40 McColl's Retail Group Annual Report and Accounts 2014
During the year, James Lancaster stepped away from
the chairman role to focus solely on the role of chief
executive. John Coleman was appointed as non-
executive chairman and I took on John Coleman’s
former role as remuneration committee chairman.
The fee for the new role of non-executive chairman
was set at £115,000 from 1 December 2014, to be
competitive for a group of our size.
The committee has presented the remuneration report
in line with recent regulations governing the disclosure
and approval of directors’ remuneration. At our annual
general meeting, which will be held on 17 April 2015, the
first section of this report, the Policy Report, will be put
to shareholders for binding vote, and the second, the
annual report on remuneration, which outlines the
implementation of our policy for the forthcoming
financial year, will be subject to an advisory vote.
Finally, I would like to thank my colleagues on the
committee for their hard work during 2014 and for
the support we have received from the group’s
executive team.
Yours sincerely
Georgina Harvey
Chairman of the remuneration committee
The key aspects of our proposed policy are
outlined below:
• A proposal to introduce a new annual bonus scheme,
the majority of which (80% in the 2015 financial period)
will be based on profit performance, with the balance
(20% in the 2015 financial period) linked to strategic
performance measures selected annually by the
remuneration committee to reflect other key
performance indicators for the period ahead.
Bonuses will be paid in cash following the period
end, based on performance over the previous
financial period. The maximum bonus opportunity
for executive directors is 100% of salary, as approved
by shareholders at listing, but will be 75% of salary for
the 2015 financial year.
• A proposal to introduce a new long term incentive plan,
in the form of performance shares. These awards will vest
based on three years’ financial performance, to include
earnings per share (EPS) and total shareholder return
(TSR). EPS will be weighted at least 50% (70% in the 2015
financial period) and TSR will be measured on a relative
basis against a relevant benchmark (the combined
constituents of the FTSE All Share General Retailers Index
and the FTSE All Share Food & Drug Retailers Index for
the 2015 financial period). The committee believes
that this combination of measures will create the best
alignment for the delivery of the company’s growth
plans. Executive directors’ vested shares will be subject
to an additional two-year holding period before being
released to participants.
Full details of the executive directors’ remuneration
policy can be found in the directors’ remuneration
policy on pages 42 to 49. The rules underlying our new
incentive plans have been designed to reflect best
practice, in particular, the introduction of clawback
and malus provisions.
During the year, executive directors’ salaries were
reviewed and a salary increase for one of our three
executive directors was awarded. This was to reflect the
additional responsibilities assumed by our chief financial
officer during the year and the impact of inflation since
his last review on 1 December 2012. David Thomas was
appointed as chief operating officer during the year
and his salary was set at £276,000 to reflect his new role.
McColl's Retail Group Annual Report and Accounts 2014 41
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
Directors’ remuneration policy
This section describes the group’s proposed remuneration
policy for directors which, if approved, will apply for up to
3 years from the date of the annual general meeting.
The policy for executive director remuneration will be to
provide a competitive package of fixed and variable pay
that will enable the group to attract, motivate and retain
executives with the right skills and experience, and will link
executive pay to shareholder interests and the company’s
long term success.
The fixed component of each executive’s remuneration
package will comprise salary, pension and benefits. The
variable component may comprise an annual bonus and
eligibility to participate in a long term incentive plan (LTIP).
The majority of the bonus will be linked to annual profit
performance, although an element may be linked to
strategic performance measures that will help drive the
group’s growth. The group adopted an LTIP when the
company listed on 28 February 2014 that provides the
opportunity to earn shares based on three-year
performance. Each element of remuneration is designed
to target a specific aim of the remuneration policy and
to help further align the interests of executives with those
of shareholders.
Future policy table
The key components of executive directors’ remuneration
are as follows:
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Fixed pay
Base salary
To attract and retain talent
of the right calibre and with
the ability to contribute to
strategy, by ensuring base
salaries are competitive in
the relevant talent market.
Fixed pay
Pension
Provide post-retirement
benefits for participants in
a cost-efficient manner.
Base salaries are reviewed
annually, with reference
to individual performance,
experience, market
competitiveness, salary
increases across the group
and the position holder’s
experience, competence
and criticality to the
performance of
the business.
Executive directors’
salary increases will
normally be in line with
those for the wider
employee population.
However, larger changes
to salary may be made
where there is a change
in role or responsibilities
or a significant
market misalignment.
Individual and group
performance is taken into
account when determining
appropriate salaries.
Any increases are
generally effective
from 1 December.
The current chief
executive and chief
financial officer receive
a salary supplement in
lieu of pension. The chief
operating officer is, and
any new appointee would
be, eligible to participate
in the group’s defined
contribution scheme (or
any replacement scheme)
or to receive a salary
supplement in lieu of
pension provision.
None.
Pension contributions
vary based on individual
circumstances. Pension
benefits will be capped at
20% of salary, excluding
legacy arrangements for
the current chief executive
and chief financial officer.
Further details are set out
on page 51.
42 McColl's Retail Group Annual Report and Accounts 2014
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Benefits
To provide competitive
benefits for each role.
Variable pay
Annual bonus
Aims to focus executives on
achieving stretching profit
targets and delivering the
strategic business priorities for
the financial period.
Benefits currently include
the provision of car or car
allowance, fuel, private
medical insurance and
life assurance.
There is no overall
maximum value set on
benefits. They are set at
a level that is comparable
to market practice.
None.
Reasonable relocation,
travel and subsistence
allowances and other
benefits may be provided
based on individual
circumstances.
The committee retains
the discretion to amend
benefits in exceptional
circumstances or in
circumstances where
factors outside of the
group’s control have
materially changed
(e.g. increases in
insurance premiums).
Performance measures
and targets are set prior
to or shortly after the start
of the financial period.
The maximum bonus
opportunity for executive
directors will be up to
100% of salary.
At the end of the
financial period, the
remuneration committee
will determine the extent
to which the targets have
been achieved.
Awards are delivered
in cash.
The committee has
discretion to reduce
the bonus in the event
of serious financial
misstatement or gross
misconduct. In extreme
cases of gross misconduct,
the committee may
claw back annual
bonus payments
previously made.
For the 2015 financial
period the maximum
bonus opportunity will be
set at 75% of salary.
Up to 40% of maximum
will vest for target
performance. The
committee may award
up to 10% of maximum for
threshold performance.
80% of the award for
2015 will be based on
achievement of group
operating profit of which
none will vest below target.
20% of the award for
2015 will be based on
achievement of strategic
performance measures of
which none will vest until
the operating profit target
is achieved.
The majority of the annual
bonus will be based on
achievement of a stretching
profit target. The remainder
will be based on strategic
performance measures,
selected annually by the
remuneration committee
to reflect other key
performance indicators
for the year ahead.
Details on the measures
used during the period
under review are set out
on page 51.
The committee has discretion
to adjust the formulaic bonus
outcome downwards (or
upwards with shareholder
consultation) within the
limits of the plan, to ensure
alignment of pay with the
underlying performance
of the business.
McColl's Retail Group Annual Report and Accounts 2014 43
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Variable pay continued
Long term incentive
plan (LTIP)
Aligns the interests of
executives with shareholders
in growing the value of the
business over the long term.
Awards may be made
up to a maximum of
150% of salary in normal
circumstances and up
to 250% in exceptional
circumstances.
For the 2015 financial
period executive directors’
awards will be up to 50%
of salary. The award size
is reviewed in advance
of grant.
The plan provides
for annual awards of
performance shares
to eligible participants.
Vesting is based on
three-year performance.
Executive directors’
vested shares will be
subject to an additional
two-year holding period
before being released
to participants.
The committee has
discretion to reduce
any unvested long
term incentive awards
(including those in a
holding period), or to
vary the opportunities
for future awards, in
case of serious financial
misstatement or gross
misconduct. In extreme
cases of gross misconduct,
the committee may claw
back vested long term
incentive awards.
Participants are eligible
to receive cash or shares
equal to the value of
dividends that would have
been paid over the vesting
period on shares that vest.
Awards will vest on
achievement of financial
performance measures,
measured over a three-year
performance period, to
include both EPS and TSR.
EPS will receive a weighting
in the LTIP of at least 50%.
For the 2015 financial period
the weightings on EPS and
TSR will be 70% and 30%
respectively.
TSR will be measured on
a relative basis against a
relevant peer group.
Other measures may be
considered in future years to
help capture the strategic
goals of the business and
may be used in conjunction
with these metrics.
Nothing will vest below
threshold. 25% of each
element will vest for
achievement of threshold
performance under each
metric, then increase on
a straight-line basis to
full vesting for achieving
stretch performance.
The committee has discretion
to adjust the formulaic
LTIP award downwards (or
upwards with shareholder
consultation), within the
limits of the plan, to ensure
alignment of pay with the
underlying performance of
the business.
Further details of awards
to be made during the
upcoming financial period
are set out on page 51.
44 McColl's Retail Group Annual Report and Accounts 2014
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Other arrangements
Shareholding guidelines
To align directors’ interests
with the long term interests
of shareholders.
Non-executive directors’ fees
To reflect the time
commitment in preparing for
and attending meetings, the
duties and responsibilities of
the role and the contribution
expected from the non-
executive directors.
Executive directors are
required to retain a
minimum shareholding
in the company at least
equal to base salary, and
are required to retain at
least 50% of shares vesting
(after tax) under the LTIP
until the shareholding
guideline has been met.
All-inclusive annual fee
for chairman.
Annual base fee for
non-executive directors.
Additional fees paid
to the chairmen of
board committees.
Non-executive directors
do not participate in any
incentive schemes, nor do
they receive any pension
or benefits (other than
nominal travel expenses).
n/a
n/a
None.
Any increases to non-
executive director fees
will be considered as a
result of the outcome of
a review process and
taking into account
wider market factors,
e.g. inflation. There is no
prescribed individual
maximum fee.
Further details are set
out on page 52.
Notes to the policy table
Performance measure selection and approach to target setting
Profit is considered to be the best measure of the group’s annual performance and will continue to determine the
majority of the annual bonus. This will be supplemented by an element based on strategic performance measures,
selected annually to reflect the group’s key strategic priorities for the financial period ahead.
EPS is considered to be the best measure of the group’s bottom line financial performance over the longer term
and will determine the vesting for at least 50% of the overall LTIP award. TSR will also be captured to further align
the interests of LTIP participants with those of shareholders.
Annual bonus targets will be selected prior to or shortly after the start of the financial period. Profit targets will be
calibrated with reference to the group’s budget for the upcoming financial period and the group’s profit for the prior
financial period. No element of the strategic performance measures will begin to pay out until the profit element starts
to vest. Strategic performance measures will be selected to reflect the most important strategic goals for the
upcoming financial period. No strategic performance measures were selected for the period under review.
Threshold and stretch performance levels under the EPS element of the LTIP will be set prior to the start of the three-
year performance period. The remuneration committee aims to set stretching but achievable targets, taking account
of a range of reference points, including broker forecasts and the group’s strategic plan. Performance targets for initial
awards are detailed on page 51. The element linked to TSR will vest based on three-year TSR compared to a peer
group comprising the constituents of the FTSE All Share General Retailers Index and the FTSE All Share Food & Drug
Retailers Index. Threshold vesting for the TSR element will be set at median ranking and stretch will be set at upper
quartile. This range is in line with market practice for other listed companies and is expected to capture the range
of good to excellent performance for the group.
McColl's Retail Group Annual Report and Accounts 2014 45
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
Differences in remuneration policy operated for other employees
Senior management’s remuneration has the same components as set out in the policy, being base salary, annual
bonus, pension, life assurance and benefit provision. They may also be invited to participate in the LTIP or alternatively
the company’s share option plan. Annual bonus arrangements have the same structure and pay-out arrangements
but are based on specific key performance indicators relevant to each job function. The maximum award varies
according to seniority.
All employees receive a basic salary and all eligible employees are automatically enrolled into a pension scheme.
Store managers participate in a bonus scheme that targets specific key performance indicators for their store.
Other
In addition to the above elements of remuneration, any commitment made prior to, but due to be fulfilled after,
the approval and implementation of the policy detailed in this report will be honoured.
Performance scenarios
The graphs below provide estimates of the potential future reward opportunities for executive directors, and the
potential split between the different elements of remuneration under three different performance scenarios;
‘Minimum’, ‘Target’ and ‘Maximum’.
The potential reward opportunities illustrated are based on the policy which will apply from the annual general
meeting on 17 April 2015, applied to the base salary in force at 1 December 2014 for James Lancaster and
David Thomas and the proposed salary to be implemented in 2015 for Jonathan Miller. The projected value
of LTIP amounts excludes the impact of share price movement or dividend accrual. The assumptions made
in illustrating potential reward opportunities are shown in the table below:
£1,580
19%
28%
53%
£1,090
7%
16%
77%
£838
100%
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
r
o
t
c
e
r
i
d
e
v
i
t
u
c
e
x
E
Fixed pay
Annual bonus
Long term incentive plan
£884
19%
28%
53%
£611
7%
16%
77%
£470
100%
£337
100%
£454
8%
18%
74%
£682
20%
30%
50%
Minimum
Target
Maximum
Minimum
Target
Maximum
Minimum
Target
Maximum
James Lancaster
Jonathan Miller
David Thomas
Performance scenario
Fixed pay
Annual bonus
LTIP
Minimum
Salary as at most recent review date.
Target
Maximum
Salary supplements in lieu of pension
contributions of 31.6% and 31% of
salary for the chief executive and
chief financial officer respectively,
and a pension contribution of 15%
of salary for the chief operating officer.
Benefits as for the most recent
financial period.
No annual bonus
payable.
On target annual
bonus payable (40%
of maximum).
Threshold not achieved
(0%).
Performance warrants
threshold vesting for
2015 (25% of maximum).
Maximum annual
bonus payable for 2015
(75% of salary).
Performance warrants
full vesting for 2015 (50%
of salary).
46 McColl's Retail Group Annual Report and Accounts 2014
Approach to remuneration for new director appointments
In the cases of hiring or appointing a new executive director, the remuneration committee may make use of all the
existing components of remuneration, as follows:
Component
Base salary
Pension
Benefits
Annual bonus
LTIP
Approach
Maximum opportunity
The base salaries of new appointees will be determined
based on the experience and skills of the individual,
relevant market data and their current basic salary.
New appointees will be entitled to participate in the
group’s defined contribution scheme (or any replacement
scheme) or to receive a salary supplement in lieu of
pension contributions.
New appointees will be eligible to receive benefits in line
with the policy which may include (but are not limited to)
the provision of a company car or car allowance, fuel,
private medical insurance and life assurance.
The structure described in the policy table will apply to new
appointees with the relevant maximum being pro-rated to
reflect the proportion of employment over the year.
20% of base salary.
100% of base salary.
New appointees will be granted awards under the LTIP
on similar terms as other executives, as described in the
policy table.
150% of base salary (250% in
exceptional circumstances).
In determining appropriate remuneration for a new
director, the committee will take into consideration all
relevant factors to ensure that arrangements are in the
best interests of the group and its shareholders. The
committee may make an award in respect of a new
appointment to ‘buy out’ incentive arrangements
forfeited on leaving a previous employer, using Listing
Rule 9.4.2 R if necessary. In doing so, the committee
will take account of relevant factors including any
performance conditions attached to these awards,
the likelihood of those conditions being met and the
proportion of the vesting period remaining. The fair
value of any buyout will not exceed that of the award
being foregone.
In cases of appointing a new executive director by way
of internal promotion, the approach will be consistent with
the policy for external appointees detailed above. Where
an individual has contractual commitments made prior
to their promotion to executive director level, the group
will continue to honour these arrangements. Incentive
opportunities for below board employees are no higher
than for executive directors, but measures may vary.
In recruiting a new non-executive director, the
remuneration committee will use the policy as set
out in the table on page 45.
Service contracts and exit payment policy
Non-executive directors
The current chairman and non-executive directors were
appointed as directors on 7 February 2014. Their letters
of appointment set out the terms of their appointment
and are available for inspection at the company’s
registered office and at the annual general meeting.
They are not eligible to participate in the annual bonus
or any equity schemes, nor do they receive any
additional pension or benefits (other than nominal
travel expenses) on top of the fees disclosed on page 52.
Non-executive directors have a notice period of one
month and receive no compensation on termination.
Executive directors
On 24 February 2014, each of the executive directors,
James Lancaster, Jonathan Miller, David Thomas and
Martyn Aguss, entered into a service agreement with
the company. Martyn Aguss resigned from the company
on 22 July 2014 and ceased to be an executive director
effective 30 July 2014. Each of the agreements are
terminable by the relevant executive directors or the
company on not less than 12 months’ prior written notice.
The executive directors may be put on garden leave
during their notice period, and the company can elect to
terminate their employment by making a payment in lieu
of notice equivalent to up to 12 months’ basic salary and
benefits (although it should be noted that each of the
executive directors can terminate their respective service
agreements by giving 12 months’ prior written notice to
the company). Executive director service contracts are
available for inspection at the registered office and at
the annual general meeting.
McColl's Retail Group Annual Report and Accounts 2014 47
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
James Lancaster and Jonathan Miller’s pension
arrangements were reviewed in 2008 upon closure of
the group’s defined benefit pension schemes to future
accrual. They now receive a salary supplement in lieu of
their previous defined benefit arrangements representing
the actuarial valuation of the defined benefit foregone.
This is kept under review by the committee. Pension
arrangements for other executives are in line with the
remuneration policy set out on page 42.
The committee acknowledges that executive directors
may be invited to become independent non-executive
directors of other quoted companies which have no
business relationship with the company and that these
duties can broaden their experience and knowledge
to the benefit of the company.
Executive directors are permitted to accept such
appointments with the prior approval of the chairman.
Approval will only be given where the appointment does
not present a conflict of interest with the group’s activities
and the wider exposure gained will be beneficial to the
development of the individual. Where fees are payable
in respect of such appointments, these would be retained
by the executive director.
The employment of each executive director is terminable
with immediate effect without notice in certain
circumstances, including where such executive director
commits any act of serious misconduct, commits any
material or persistent breach of any of the terms or
conditions of his service agreement, has a bankruptcy
order made against him, is convicted of any criminal
offence, commits any act which constitutes an offence
under the Bribery Act 2010, is disqualified from acting as
a director, acts in any way which may bring the company
or any member of the group into disrepute or discredit,
fails to comply with any policy of the company or any
member of the group which has been communicated
to him, enters into any transaction which constitutes an
offence for the purposes of Part V of the Criminal Justice
Act 1993 or which constitutes market abuse for the
purposes of Part VIII of the Financial Services and
Markets Act, or commits any material breach of his
duties as a director.
The company’s policy on termination payments is to
consider the circumstances on a case-by-case basis,
taking into account the executive’s contractual terms,
the circumstances of termination and any duty to
mitigate. The table below summarises how incentives
are typically treated in different circumstances:
Reason for leaving
Timing of vesting
Calculation of vesting / payment
Bonus
Summary dismissal, resignation1
Awards lapse.
Not applicable.
Good leaver2
Awards may vest pro-rata.
The annual bonus plan for the period under review
would normally be pro-rated for the portion of
the financial period for which the participant was
employed by the company, with performance
measured to the end of the financial period. In
exceptional circumstances, the committee may bring
forward the date of award to the termination date and
base it on performance over the period to termination.
Awards will normally be pro-rated for time unless the
committee determines otherwise.
LTIP
Summary dismissal, resignation
Awards lapse.
Not applicable.
Good leaver2
In line with the vesting
schedule at grant.
Unvested LTIP shares are normally pro-rated for
performance to the end of the performance period. In
exceptional circumstances, the committee may bring
forward the vesting date to the termination date and
vest on performance over the period to termination.
Awards will normally be pro-rated for time unless the
committee determines otherwise.
1. Under the current chief executive and chief financial officer contracts, they are eligible to receive a pro-rata bonus payment upon termination of employment for any reason excluding
summary dismissal. The current chief operating officer’s contract and any future executive director contracts will be operated in line with the above policy.
2. Under the 2014 LTIP, ‘good leaver’ is defined as a participant ceasing to be employed by the group by reason of death, injury, ill health, redundancy, retirement with the consent of the
group, the company of employment ceasing to be a member of the group or any other reason that the committee determines in its absolute discretion (excluding summary dismissal or
resignation to join a competitor).
48 McColl's Retail Group Annual Report and Accounts 2014
Consideration of employment conditions elsewhere
in group
The committee takes into account the general basic
salary increase being offered to employees elsewhere in
the group when annually reviewing the salary increases
and remuneration for the executive directors. Employees
have not been consulted in respect of the design of the
group’s senior executive remuneration policy.
Consideration of shareholder views
The company listed on the London Stock Exchange
on 28 February 2014. The policy report herein contained
will be the first for which a shareholder vote will be sought.
After the listing, but prior to publication of this first
directors’ remuneration report, the committee
consulted with shareholders regarding the proposed
remuneration policy for executive directors, with the
majority of shareholders consulted broadly supportive
of the proposals.
Associates provided initial support to management
concerning remuneration arrangements at IPO. They
were then appointed independent advisers to the
remuneration committee through a competitive tender
process and fees for advice provided to the remuneration
committee were £49,550 for the financial period under
review. Fees covered support in conducting a
comprehensive review of senior executive remuneration
at the group, including relevant developments in
corporate governance and market trends, benchmarking
of senior executives, a review of non-executive chairman
fees and ongoing support and advice for the committee.
Kepler Associates do not provide any other services to the
group and the committee is satisfied that they provide
independent and objective remuneration advice to the
company. Kepler is a signatory to the Code of Conduct
for Remuneration Consultants in the UK, details of which
can be found on the Remuneration Consultants Group’s
website at www.remunerationconsultantsgroup.com.
Annual report on remuneration
Remuneration committee membership and advisers
The remuneration committee was established as part
of the governance processes adopted by the company,
following admission to the London Stock Exchange on
28 February 2014. The remuneration committee consists
of two independent non-executive directors, Georgina
Harvey (committee chair from 24 November 2014) and
Sharon Brown, and the company chairman John
Coleman (committee chair until 24 November 2014).
During the period since its formation, the remuneration
committee has held 3 scheduled meetings. The
remuneration committee meets not less than twice
a year and at such other times as required. The chief
executive and chief financial officer, and the committee’s
independent advisers, Kepler Associates, attend
committee meetings by invitation. After committee
meetings, the chairman reports to the board.
The remuneration committee has responsibility
for the determination of the terms and conditions of
employment, remuneration and benefits of the chairman
and members of the board, including pension rights and
any compensation payments, and recommending and
monitoring the level and structure of remuneration for
senior managers and the implementation of share
option or other performance-related schemes.
The committee’s principal external advisers are Kepler
Associates, who were appointed by the committee and
attend committee meetings from time to time, and who
also provide remuneration advice to the group. Kepler
Committee activities
During 2014, the committee met to consider the following
remuneration matters:
• Comprehensive review of remuneration arrangements,
including:
– salary levels to be awarded to the executive directors
and senior executives for the 2015 financial period;
– performance measures and opportunities for the
annual bonus; and
– performance measures, time horizons and
opportunities for the LTIP and CSOP;
• CSOP and LTIP rules for board approval;
• Chairman’s fee following the appointment of John
Coleman as non-executive chairman on 22 July 2014;
• Review and approval of executive director
service contracts;
• Procedure for the approval of directors’ expenses;
• Latest developments in corporate governance
of relevance to the committee; and
• Remuneration policy to be put to vote at the annual
general meeting.
McColl's Retail Group Annual Report and Accounts 2014 49
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
The information provided in this part of the directors’ remuneration report is subject to audit.
Single figure for total remuneration of executive directors
The table below sets out a single figure for the total remuneration received by each executive director employed by
the company for the period ended 30 November 2014 and the prior period:
Salary
Pension
benefit
Taxable
benefits1
Single-year
variable2
Multiple-year
variable3
Compensation
for loss of
office
Total
£000
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
James Lancaster
Jonathan Miller
David Thomas4
Martyn Aguss5
594
315
168
185
594
315
168
277
188
98
25
58
188
98
25
86
56
36
19
19
52
34
16
26
–
–
–
–
– 2,361
– 2,173
225
541
20
–
–
–
–
–
–
–
–
129
– 3,199
– 2,622
–
437
–
932
834
447
230
389
1. Taxable benefits include car or car allowance, of £34k, £22k, £9k and £9k to James Lancaster, Jonathan Miller, David Thomas and Martyn Aguss respectively for 2014 (£34k, £22k, £9k
and £13k for 2013), fuel allowance of £7k, £7k, £5k and £4k for 2014 (£7k, £7k, £5k and £6k for 2013), healthcare of £12k, £7k, £5k and £6k for 2014 (£9k, £5k, £2k and £7k for 2013), and
other benefits of £2k for James Lancaster in 2014 and 2013.
2. Annual bonus paid for performance over the relevant financial period, based on operating profit only. Annual bonus payable in cash.
3. No long term incentives were in operation during the reported periods. A share-based payment arose in 2014 relating to shares allocated prior to the IPO for nil consideration, in which
unallocated employee shares held in an employee benefit trust were allocated to employee shareholders pro rata to their existing holdings. Awards of 1,132,299, 1,132,299, 117,584 and
283,123 shares were made to James Lancaster, Jonathan Miller, David Thomas and Martyn Aguss respectively at the share price of £1.91 upon IPO. A further 104,050 and 5,339 shares were
allocated to James Lancaster and Jonathan Miller prior to the IPO at nil cost in connection with the conversion of preference shares held by them into ordinary shares. The company met
employer’s national insurance contributions on the value of such shares at the IPO offer price.
4. David Thomas changed role on 22 July 2014.
5. Martyn Aguss resigned from the company on 22 July 2014 and ceased to be an executive director on 30 July 2014. Martyn Aguss received compensation for loss of office of £129k,
comprising salary of £92k, pension of £28k and taxable benefits of £9k, due in respect of the period of his garden leave from 30 July 2014, in accordance with his contractual
entitlement and in line with the provisions for leavers set out in the policy above.
6. Richard Spedding and Travers Smith Limited were directors of the company prior to IPO, and resigned on 3 February 2014. They received no remuneration from the company.
Single figure for total remuneration for non-executive directors
The table below sets out a single figure for the total remuneration received by each non-executive director for the
period ended 30 November 2014. All three current non-executive directors were appointed by the company on
7 February 2014; they therefore did not receive any remuneration during the period ended 24 November 2013.
£000
John Coleman
Sharon Brown
Georgina Harvey
Total
2014
2013
50
42
38
–
–
–
Basic annual salary
Base salaries are reviewed annually, with any changes normally effective from 1 December, with reference to
individual performance, experience, market competitiveness and salary increases across the group.
Salaries paid to the executive directors and senior executives were reviewed by the committee, taking into account
the competitiveness of total remuneration in comparison to comparable roles at listed retail companies of a broadly
similar size and other listed organisations of a similar size.
Following the review, the committee determined that the chief executive’s salary would be unchanged at £594,224.
The chief financial officer’s salary will be increased by 5% to £331,207 being broadly in line with inflation over the two
years since his previous increase, and to reflect increased responsibility following the reduction in the executive board
from 4 members to 3 members. The increase will become effective during 2015 at the same time as the general pay
review at the group’s head office is implemented. The chief operating officer’s salary was set at £276,000 to reflect his
appointment as chief operating officer. The average salary increase awarded across the wider employee population
was c.2% for the 2015 financial period.
Purpose and link to strategy
1 December 2014
1 December 2013
% change
James Lancaster
Jonathan Miller
David Thomas2
Martyn Aguss3
£594,224
£315,381¹
£276,000
n/a
£594,224
£315,382
£168,000
£276,900
0%
0%
64%
n/a
1. Jonathan Miller’s salary will be increased to £331,207 during 2015 at the same time as the general pay review at the group’s head office.
2. David Thomas changed role on 22 July 2014.
3. Martyn Aguss resigned from the company on 22 July 2014 and ceased to be an executive director effective 30 July 2014.
50 McColl's Retail Group Annual Report and Accounts 2014
Annual bonus
The group operates an annual performance related
bonus scheme for a number of senior executives including
executive directors.
For the 2014 financial period, annual bonuses for the
executive directors were capped at 62.5% of salary and
based 100% on exceeding an operating profit target of
£25.5m. No bonus would vest for operating profit at or
below target. Actual operating profit before exceptional
items for the year ending 30 November 2014 was £25.5m,
therefore none of the awards vested and no bonuses
were paid to the executive directors.
For the 2015 financial period, annual bonuses for the
executive directors will be based 80% on operating profit
and 20% on three key strategic performance measures
being: like-for-like sales, the number of convenience stores,
and expanding the range of products and services. The
target for convenience store numbers will be to have 900 in
operation by 31 December 2015 (799 as at 30 November
2014). The targets for the other performance metrics are not
being disclosed at present for reasons of commercial
sensitivity, but will be disclosed retrospectively in the next
annual report on remuneration, subject to the information
no longer being commercially sensitive.
For the operating profit element of the 2015 annual
bonus no vesting will occur below target. At target
40% of the profit element of the bonus will be awarded.
Annual bonus payments will then increase on a straight-
line basis between 40% of maximum and full vesting
for achievement of 110% of target. For the strategic
performance element of the bonus, no awards will
vest prior to the attainment of target operating profit.
The committee has discretion to adjust the formulaic
bonus outcome downwards, or upwards with shareholder
consultation, within the plan limits, to ensure alignment
of pay with the underlying performance of the business.
The committee may also reduce future annual bonus
opportunities in light of material misstatement or gross
misconduct. In extreme cases of gross misconduct, the
committee may claw back annual bonus payments
previously made.
Long term incentive plan (LTIP)
Prior to approval of the LTIP outlined in the director’s
remuneration policy above, no long term incentive
plan had been in operation. In 2015, it is expected that
executive directors will be granted shares equivalent to
50% of salary under the LTIP. These shares will vest on EPS
and TSR performance over a three-year period,
as follows:
70% based on cumulative earnings per share, measured
over 3 financial years:
Cumulative EPS for financial
periods 2015/2016/2017
61.5p or above
Between 55.9p
and 61.5p
Below 55.9p
% of the EPS element
of the award which
can be exercised
100%
Straight-line vesting
between 25% and 100%
0%
30% based on relative total shareholder return relative to
the constituents of the FTSE All Share General Retailers
Index and the FTSE All Share Food & Drugs Retailers Index,
measured over 3 financial years.
Relative TSR ranking
Upper quartile or above
Between median
and upper quartile
Below median
% of the TSR element
of the award which
can be exercised
100%
Straight-line vesting
between 25% and 100%
0%
In addition, for LTIP awards to become exercisable the
committee must be satisfied that the formulaic LTIP
outcome is a genuine reflection of the underlying
performance of the business. The committee has
discretion to adjust the formulaic LTIP outcome
downwards, or upwards with shareholder consultation,
within the plan limits.
An additional holding period of two years will apply
to vested shares from the end of the performance period.
The committee has discretion to claw back any unvested
long term incentive awards, or to vary the opportunities
for future awards, in case of serious financial misstatement
or gross misconduct. In extreme cases of gross
misconduct, the committee may claw back vested
long term incentive awards.
Awards made under the LTIP and any other share-based
schemes (the CSOP) will not exceed the Investment
Association’s guideline on dilution of 10% in aggregate
over a 10-year rolling period.
Executive directors’ pension arrangements
The current chief executive, the chief financial officer
and the former chief operating officer receive a salary
supplement in lieu of pension. For the period ending 30
November 2014, pension contributions were equal to 31.6%
of salary for James Lancaster, 31% for Jonathan Miller and
31% for Martyn Aguss. The current chief operating officer
participates in the group’s defined contribution scheme
for which the company contributes 15% of salary. For the
period ending 29 November 2015, executive directors’
pensions will be unchanged.
McColl's Retail Group Annual Report and Accounts 2014 51
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
Non-executive director fees
For the 2015 financial period, the base fee for non-
executive directors will remain at £45,000 p.a., with an
additional fee of £5,000 p.a. paid to the chairmen of
the remuneration and audit committees. Following the
appointment of John Coleman as non-executive chairman
on 22 July 2014, the committee set his fee at £115,000 p.a.
from 1 December 2014.
Payments for loss of office
Martyn Aguss resigned from the company on 22 July 2014
and ceased to be an executive director effective 30 July
2014. In light of this, he is contractually entitled to receive
salary and benefits for the period of 12 months’ notice,
for which he has been on garden leave.
Payments to previous directors
Except for the above payments for loss of office, no
further payments were made to previous directors
during the financial period under review.
The information in this part of the annual report
on remuneration is not subject to audit.
Historical performance graph and chief executive single
figure of remuneration
The graph below shows the total shareholder return of the
group and the FTSE All Share Index since listing. The FTSE
All Share Index is chosen as it is a broad market index of
which the group is a member.
Increase in chief executive’s remuneration
The table below sets out the percentage increase in the
remuneration of the chief executive and the average
increase across all employees excluding the board
between the years 2013 and 2014.
Chief executive annual cash
2014
2013
Increase
Average
increase
across all
employees
Salary
Pension benefit
Taxable benefits
Annual variable
£594,224 £594,326
£187,776 £187,776
£51,729
Nil
£55,635
Nil
0.0%
0.0%
7.6%
0.0%
2.0%
0.0%
3.8%
0.0%
Distribution statement
The following chart shows for the current and preceding
financial period the actual expenditure and % change in
total remuneration paid to or receivable by employees
and distributions to shareholders.
+11%
£133m
£120m
2014 financial period
2013 financial period
FTSE All-Share Index
McColl’s
)
£
(
g
n
i
t
s
i
l
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
120
100
80
Feb 14
Mar 14
Apr 14
May 14
Jun 14
Jul 14
Aug 14
Sep 14
Oct 14
Nov 14
James Lancaster, chief executive
Single figure of remuneration (£000)
Annual bonus outcome (% of max)
LTIP vesting (% of max)
2014
3,199
0%
n/a
2013
834
0%
n/a
Employee remuneration
Distributions to shareholders
£8.9m
£nil
in 2013
The increase of 11% in 2014 includes the share-based
payments of £5,532,000 (see note 6 on page 73) and the
additional wage cost incurred in the 60 stores acquired
in 2014. The underlying increase in 2014 is 2%.
The group listed on the London Stock Exchange on 28
February 2014, and has since paid an interim dividend
of £1.78m representing the 3 month period post listing.
The board has recommended a final dividend of 6.8p per
share subject to approval by shareholders at the annual
general meeting, representing an additional payment
of £7.12m.
52 McColl's Retail Group Annual Report and Accounts 2014
Statement of shareholder voting
The group listed on the London Stock Exchange on 28 February 2014. The directors’ report on remuneration herein
contained will be the first for which a shareholder vote will be sought; the outline of the remuneration arrangements
were detailed in the prospectus, which received shareholder support.
Directors’ shareholdings and interest in shares
The executive directors each own significant shareholdings in the company. The committee sets shareholding
guidelines which require executive directors to maintain, over time, a personal shareholding in the company
of at least equivalent to one times salary.
Director
Executive directors
James Lancaster2
Jonathan Miller2
David Thomas
Martyn Aguss3
Non-executive directors
John Coleman
Sharon Brown
Georgina Harvey
Owned
outright
Unvested
and subject
to deferral
Unvested
and
subject to
performance
Vested but
not exercised
Unvested
and subject
to continued
employment
Current
shareholding
(% of salary
/fee1)
Share-
holding
requirement
(% of salary
/fee)
Guideline
met?
11,399,500
11,399,500
1,183,792
2,850,362
31,413
10,471
10,471
–
–
–
–
n/a
n/a
n/a
–
–
–
–
n/a
n/a
n/a
–
–
–
–
n/a
n/a
n/a
–
–
–
–
n/a
n/a
n/a
3,453%
6,506%
1,268%
n/a
94%
38%
42%
100%
100%
100%
n/a
n/a
n/a
n/a
Yes
Yes
Yes
n/a
n/a
n/a
n/a
1. Based on closing share price of £1.80 and prevailing salary or fees (including committee fees) on 30 November 2014.
2. The ordinary shares held by James Lancaster and Jonathan Miller include shares held beneficially via various individual holdings and holdings of connected persons.
3. Martyn Aguss resigned from the company on 22 July 2014 and ceased to be an executive director on 30 July 2014.
4. There have been no changes in the directors’ interests in the shares issued or options granted by the company between the end of the period and the date of this report.
Note: Richard Spedding and Travers Smith Limited served as directors of the company from incorporation to 3 February 2014 and held no shares in the company.
McColl's Retail Group Annual Report and Accounts 2014 53
Strategic ReportGovernanceFinancial Statements Governance
Remuneration report continued
Statement
of directors’
responsibilities
The directors are responsible for preparing
the annual report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors are required to prepare the group financial
statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European
Union and Article 4 of the IAS Regulation and have
chosen to prepare the parent company financial
statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law).
Under company law the directors must not approve the
accounts unless they are satisfied that they give a true
and fair view of the state of affairs of the company and
of the profit or loss of the company for that period.
In preparing the parent company financial statements,
the directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• state whether applicable UK Accounting Standards
have been followed, subject to any material departures
disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
company will continue in business.
In preparing the group financial statements, International
Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures when compliance with
the specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance; and
• make an assessment of the company’s ability to
continue as a going concern.
54 McColl's Retail Group Annual Report and Accounts 2014
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the company and enable them to ensure that the
financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the
assets of the company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance
and integrity of the corporate and financial information
included on the company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted
by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
company and the undertakings included in the
consolidation taken as a whole;
• the strategic report includes a fair review of the
development and performance of the business and the
position of the company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face; and
• the annual report and financial statements, taken as
a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the company’s performance, business model
and strategy.
By order of the board
James Lancaster
Chief executive
2 March 2015
Jonathan Miller
Chief financial officer
2 March 2015
Financial Statements
Financial Statements
56 Independent Auditor’s Report
to the members of McColl’s
Retail Group plc
62 Consolidated income statement
62
Consolidated statement
of comprehensive income
63 Consolidated balance sheet
64 Consolidated statement
of changes in equity
64 Consolidated cash flow
statement
Notes to the financial statements
65
100 Company balance sheet
101 Notes to the company
financial statements
104 Contacts, addresses and
shareholder information
McColl's Retail Group Annual Report and Accounts 2014 55
GovernanceStrategic Report Independent Auditor’s Report to the members
of McColl’s Retail Group plc
Opinion on financial statements of
McColl’s Retail Group plc
Separate opinion in relation to
IFRSs as issued by the IASB
Going concern
Our assessment of risks of
material misstatement
In our opinion:
• the financial statements give a true and fair view of the state of the group’s
and of the parent company’s affairs as at 30 November 2014 and of the
group’s and the parent company’s profit for the 53 week period then ended;
• the group financial statements have been properly prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
• the parent company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice;
and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The financial statements comprise the consolidated income statement,
the consolidated statement of comprehensive income, the consolidated
company balance sheets, the consolidated cash flow statement, the
consolidated statement of changes in equity, the parent company
reconciliation of movements in shareholders’ funds and the related notes
1 to 32 for the consolidated financial statements and the related notes
1c to 10c in the parent company financial statements. The financial reporting
framework that has been applied in the preparation of the group financial
statements is applicable law and IFRSs as adopted by the European Union.
The financial reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law and United
Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
As explained in note 1 to the group financial statements, in addition to
complying with its legal obligation to apply IFRSs as adopted by the European
Union, the group has also applied IFRSs as issued by the International
Accounting Standards Board (IASB).
In our opinion the group financial statements comply with IFRSs as issued
by the IASB.
As required by the Listing Rules we have reviewed the directors’ statement
contained within the directors’ report on page 28 that the group is a going
concern. We confirm that:
• we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate; and
• we have not identified any material uncertainties that may cast significant
doubt on the group’s ability to continue as a going concern.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the group’s ability to continue as
a going concern.
The assessed risks of material misstatement described on page 57 are those
that had the greatest effect on our group audit strategy, the allocation of
resources in the audit and directing the efforts of the engagement team.
56 McColl's Retail Group Annual Report and Accounts 2014
Financial Statements Risk
How the scope of our audit responded to the risk
Our audit procedures included, but were not limited to:
Testing the design and implementation of controls in place over supplier
income and understanding of the commercial process and interaction with
financial accountants via meetings with the trading team.
For a statistical sample of supplier income agreements, we understood the
contract terms and recalculated the expected supplier income by comparing
the amounts used in the calculations to actual purchases in the year taken
from system generated reports for which we gained assurance over the
validity and completeness.
Performing analytical work on supplier income trends across suppliers and
product categories, challenging management’s estimates based on this
work by investigating any unexpected variances and corroborating with
supporting evidence.
Assessing the recoverability of a sample of accrued supplier income was
evaluated by agreement to subsequent invoicing and cash receipts, or
in the cases where these have yet to be settled, performing alternative
procedures such as tracing to third party documentation or contracts to
corroborate the accrual.
Inspecting a sample of post year end credit notes for evidence of refunds
or of invoiced amounts not being valid.
For each of the property provisions:
We obtained management’s calculations and selected statistical samples
of individual properties where we recalculated the provision by testing and
challenging the inputs, assumptions and discount rate used and corroborated
to supporting external evidence including, but not limited to, lease contracts
and dilapidation schedules issued by landlords.
We performed sensitivity analysis on the key inputs applied to assess
whether a reasonable fluctuation in these would change the provision
by a material level.
We reviewed the list of branches that had been closed during the period
to assess the completeness of the provision.
Supplier income
Supplier income is generated
from a number of commercial
agreements with suppliers including
incentives, rebates and discounts.
In the current period, this represents
a deduction to cost of sales which
is material to the group financial
statements. There are a large
number of individual arrangements
which can be complex in nature.
The process involves significant
manual adjustments as well as
determining whether the amounts
are recorded in the correct period.
Contracts span the end of the
reporting period, meaning that
estimates and judgements are
necessary to calculate the amounts
receivable under the terms of
the contracts.
See cost of sales accounting policy
in note 2 to the financial statements.
Property provisions
The group has an extensive and
diverse property portfolio, including
both leasehold and freehold
property across the UK. As a result,
there are several technically
complex areas and judgemental
aspects to consider when
accounting for property and
leases across the group, including:
• provisions for closed branches
and onerous leases on vacant
or part vacant properties which
represent future expenditure
comprising the rental payable
under the lease agreement which
is not recoverable from sub-letting
the property and an estimate of
ongoing service costs.
• future dilapidations expenses
These provisions are material and
include judgements around the
future cash flows and the
discounting of these.
See provisions accounting policy in
note 2 to the financial statements.
McColl's Retail Group Annual Report and Accounts 2014 57
Financial StatementsGovernanceStrategic Report Independent Auditor’s Report to the members of McColl’s Retail Group plc continued
Risk
How the scope of our audit responded to the risk
Goodwill impairment
The goodwill value of £137.1m is
supported by forecasts of future
cash flows of the businesses.
There are inherent risks within these
forecasts due to the uncertainties
as a result of changing industry
and economic conditions and
the resulting judgements required.
The group holds a significant value
of goodwill which has been
generated through acquisitions of
businesses, individual and groups
of stores. In the current period, the
CGUs to which this goodwill has
been applied for impairment testing
has been changed as a result of a
reassessment by management.
See goodwill impairment
accounting policy in note 2 and
note 13 to the financial statements.
Stock provisioning
Judgement is necessary to assess
the carrying value of stock due to
the fast-moving and in some cases,
perishable nature of stock. There is
an obsolescence risk where stock
is valued incorrectly due to
inadequate stock provisions.
Stock counts are performed on a
rotational basis throughout the year,
rather than at the year end. Stock
provisions are based on estimates
and stock values are based on a
perpetual system as at the reporting
date presenting a risk of existence.
See inventories accounting policy
in note 2 to the financial statements.
Revenue recognition
Over 99% of revenue is generated
through transactions via the EPOS
system, these are settled in cash
or credit card.
There are manual adjustments
between this system and the
financial statements which could
be vulnerable to manipulation.
See revenue accounting policy in
note 2 to the financial statements.
We evaluated management’s goodwill impairment calculations and have
challenged their calculations by:
Recalculating the discount rates applied to future cash flows, working with our
internal valuation specialists to assess the appropriateness of the underlying
calculations and assumptions; we have benchmarked the resulting discount
rates against other companies operating in the retail sector.
Performing sensitivity analysis on the inputs applied (including discount rates
and growth rates) to determine whether any reasonable fluctuations in these
would impact the headroom to a material extent.
Comparing the assumed growth rates and forecasted cash flows against
recent trading activity, historic trends and our understanding of the future
prospects of the business to identify whether these scenarios could give rise to
further impairment.
We have assessed the change in the way that management group CGUs for
the purpose of goodwill impairment against IAS36 to determine whether it
complies with the standard.
We assessed the appropriateness of the disclosures in the financial statements.
We critically assessed the appropriateness of the methodology used to
calculate the stock provisions at the period end date.
We challenged management’s assumptions and tested the mathematical
accuracy and the logic of the calculations which supported the provisions.
We attended stock counts at a sample of stores and compared the results
to the stock system. In addition to this, we tested the controls around the
perpetual stock system to gain assurance over this process which is used
as the basis for year end stock provisions which are based on estimates.
We have performed tests of operating effectiveness of controls around the
revenue cycle including using our IT specialist team to test the automated
controls over the EPOS system.
We understood the nature of the manual adjustments, we investigated and
challenged a sample of these. We agreed these back to appropriate
supporting evidence.
The description of risks above should be read in conjunction with the significant issues considered by the audit
committee discussed on pages 38 and 39.
Our audit procedures relating to these matters were designed in the context of our audit of the financial
statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the
financial statements is not modified with respect to any of the risks described above, and we do not express an
opinion on these individual matters.
58 McColl's Retail Group Annual Report and Accounts 2014
Financial Statements Our application of materiality
An overview of the scope
of our audit
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced.
We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
We determined materiality for the group to be £994,870, which is
approximately 5.2% of adjusted pre-tax profit, and 0.9% of equity. Pre-tax
profit has been normalised by adjusting for exceptional items (the one-off
costs relating to the IPO, the increase in the provision for future costs for the
group’s former head office, a share-based payment charge related to shares
allocated to employees prior to the IPO for nil consideration and income
from the post office in relation to converting 191 of the group’s existing post
offices). We believe this is an appropriate basis for materiality as it reflects
recurring performance.
We agreed with the audit committee that we would report to the Committee
all audit differences in excess of £50,000 as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We
also report to the audit committee on disclosure matters that we identified
when assessing the overall presentation of the financial statements.
The group business consists of a collection of retail stores and operates as a
single operating segment, entirely within the UK, as defined in note 5 to the
financial statements. The financial results of the group are aggregated at a
consolidated level without the need for consolidation adjustments to account
for eliminations between group statutory companies. Therefore we identify
only one reporting component being the group itself, which includes the
parent company audit (which we audit to a lower materiality level), on which
we perform our audit using a single audit team.
As this was the first period reporting as a listed group, we considered the
additional requirements and performed additional audit procedures to
address these risks including, but not limited to: reviews of UKGAAP to IFRS
adjustments, treatment of IPO related costs and corporate governance
disclosure checklists.
Opinion on other matters
prescribed by the Companies
Act 2006
In our opinion:
• the part of the directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and the directors’ report for the
financial year for which the financial statements are prepared is consistent
with the financial statements.
McColl's Retail Group Annual Report and Accounts 2014 59
Financial StatementsGovernanceStrategic Report Independent Auditor’s Report to the members of McColl’s Retail Group plc continued
Matters on which we are required to report by exception
Adequacy of explanations
received and accounting records
Directors’ remuneration
Corporate governance statement
Our duty to read other information
in the annual report
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our
audit; or
• adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches not
visited by us; or
• the parent company financial statements are not in agreement with the
accounting records and returns.
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of directors’ remuneration have not been made or the part
of the directors’ remuneration report to be audited is not in agreement with
the accounting records and returns. We have nothing to report arising from
these matters.
Under the Listing Rules we are also required to review the part of the
corporate governance statement relating to the company’s compliance
with ten provisions of the UK Corporate Governance Code. We have nothing
to report arising from our review.
Under International Standards on Auditing (UK and Ireland), we are required
to report to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial
statements; or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the
directors’ statement that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately discloses those
matters that we communicated to the audit committee which we consider
should have been disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
60 McColl's Retail Group Annual Report and Accounts 2014
Financial Statements Respective responsibilities
of directors and auditor
Scope of the audit of the
financial statements
As explained more fully in the directors’ responsibilities statement, the directors
are responsible for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for
Auditors. We also comply with International Standard on Quality Control 1 (UK
and Ireland). Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our quality controls
and systems include our dedicated professional standards review team and
independent partner reviews.
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s 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 company and the company’s
members as a body, for our audit work, for this report, or for the opinions we
have formed.
An audit involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the accounting policies
are appropriate to the group’s and the parent company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the directors;
and the overall presentation of the financial statements. In addition, we read
all the financial and non-financial information in the annual report to identify
material inconsistencies with the audited financial statements and to identify
any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Sukhbinder Kooner (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
2 March 2015
McColl's Retail Group Annual Report and Accounts 2014 61
Financial StatementsGovernanceStrategic Report Consolidated income statement
53 week period ended 30 November 2014
53 weeks ended 30 November 2014
52 weeks ended 24 November 2013
Before
exceptional
items
£’000
Exceptional
items
(note 6)
£’000
After
exceptional
items
£’000
Before
exceptional
items
Restated
(note 4)
£’000
Exceptional
items
Restated
(note 6)
£’000
Notes
5
922,420
(699,647)
222,773
–
–
–
922,420
(699,647)
869,416
(658,424)
222,773
210,992
(223,045)
25,749
(10,187)
6,743
(233,232)
32,492
25,477
(3,444)
22,033
(6,351)
121
(6,230)
(3,166)
–
(3,166)
(9,517)
121
(9,396)
7
7
9
(212,977)
24,483
22,498
(12,997)
488
(12,509)
After
exceptional
items
Restated
(note 4)
£’000
869,416
(658,424)
210,992
(212,977)
24,483
22,498
(18,594)
488
(18,106)
–
–
–
–
–
–
(5,597)
–
(5,597)
19,247
(6,610)
12,637
9,989
(5,597)
4,392
10
(4,018)
1,288
(2,730)
(556)
1,306
750
15,229
(5,322)
9,907
9,433
(4,291)
5,142
12
12
15.6p
15.6p
10.2p
10.1p
12.6p
12.4p
6.9p
6.7p
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Finance expense
Finance income
Net finance costs
Profit on ordinary activities
before taxation
Tax on profit on ordinary
activities
Profit on ordinary activities
after taxation
Earnings per share
Basic
Diluted
Consolidated statement of comprehensive income
53 week period ended 30 November 2014
Profit for the period
Items of other comprehensive income that will not be reclassified to profit or loss:
Actuarial gain recognised on pension scheme
UK deferred tax attributed to actuarial gain:
Arising from the origination of and reversal of current and deferred tax differences
Arising from changes in the tax rate
Other comprehensive income for the period
Total comprehensive income for the period
53 weeks
ended
30 November
2014
£’000
Notes
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
9,907
5,142
31
10
10
631
8,613
(138)
–
493
10,400
(1,722)
(223)
6,668
11,810
62 McColl's Retail Group Annual Report and Accounts 2014
Financial Statements Consolidated balance sheet
30 November 2014
Non-current assets
Goodwill
Other intangible assets
Property, plant & equipment
Investments
Pension scheme surplus
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial assets
Total current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Provisions
Corporation tax
Total current liabilities
Net current liabilities
Non-current liabilities
Borrowings
Other payables
Provisions
Deferred tax liabilities
Pension scheme liability
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Equity share capital
Share premium account
Own shares
Retained earnings
30 November
2014
£’000
Notes
24 November
2013
Restated
(note 4)
£’000
13
13
14
15
31
17
18
19
26
20
22
24
22
21
24
25
31
27
27
27
137,112
2,039
63,063
18
6,504
208,736
45,757
30,117
11,396
–
87,270
296,006
130,353
2,141
61,377
18
4,568
198,457
44,224
32,754
23,528
34
100,540
298,997
(112,586)
–
(2,285)
(2,023)
(117,927)
(6,978)
(2,702)
(1,114)
(116,894)
(128,721)
(29,624)
(28,181)
(44,852)
(3,922)
(3,194)
(4,701)
(5,200)
(97,216)
(6,093)
(1,094)
(5,117)
(4,842)
(61,869)
(114,362)
(178,763)
(243,083)
117,243
55,914
105
47,836
–
69,302
117,243
75
734
(45)
55,150
55,914
These financial statements of McColl’s Retail Group plc, registered number 08783477, were approved and authorised
for issue by the board of directors on 2 March 2015.
Signed on behalf of the board of directors
Jonathan Miller
Director
McColl's Retail Group Annual Report and Accounts 2014 63
Financial StatementsGovernanceStrategic Report Consolidated statement of changes in equity
53 week period ended 30 November 2014
Equity
share capital
£’000
Share
premium
account
£’000
75
–
–
–
–
75
–
–
–
30
–
30
105
712
–
22
–
22
734
–
–
–
47,102
–
47,102
47,836
Balance at 25 November 2012
Profit for the period (restated note 4)
Movement in preference shares
Actuarial gain recognised on pension scheme
Total comprehensive income for the period
Balance at 24 November 2013
Profit for the period
Credit for share-based payments
Dividends paid
Issue of share capital
Actuarial gain recognised on pension scheme
Total comprehensive income for the period
Balance at 30 November 2014
Consolidated cash flow statement
53 week period ended 30 November 2014
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of businesses, net of cash acquired
Investments
Finance income
Net cash used in investing activities
Cash flows from financing activities
Repayment of loans
Repayment of hire purchase loans
New loans received
Issue costs
Proceeds on issue of shares
Dividend paid
Finance expense
Hire purchase interest paid
Net cash used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
64 McColl's Retail Group Annual Report and Accounts 2014
Own shares
£’000
Retained
earnings
£’000
(45)
43,340
Total
£’000
44,082
5,142
22
6,668
11,832
55,914
9,907
5,532
(1,780)
47,177
493
61,329
117,243
5,142
–
6,668
11,810
55,150
9,907
5,532
(1,780)
–
493
14,152
69,302
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
34,615
28,353
(15,188)
11,317
(16,827)
–
121
(20,577)
(109,414)
(2,276)
46,000
(4,099)
49,802
(1,780)
(4,186)
(177)
(26,130)
(12,092)
23,488
11,396
(10,779)
5,270
(5,424)
(18)
644
(10,307)
(140,428)
(2,172)
111,533
(4,621)
–
–
(10,844)
(217)
(46,749)
(28,703)
52,191
23,488
–
–
–
–
(45)
–
–
–
45
–
45
–
Notes
29
16
22
11
9
19
19
Financial Statements Notes to the financial statements
53 week period ended 30 November 2014
1. Basis of preparation
The group financial statements for 2014 consolidate the financial statements of McColl’s Retail Group plc (the
“company”) and all its subsidiary undertakings (together, “the group”) drawn up to 30 November 2014. The group’s
accounting period covers the 53 weeks ended 30 November 2014. The comparative period covered the 52 weeks
ended 24 November 2013. Acquisitions are accounted for under the acquisition method of accounting.
The group financial statements have been prepared on the going concern basis and in accordance with IFRS and IFRS
Interpretations Committee (IFRIC) interpretations, as adopted by the European Union and with those parts of the
Companies Act 2006 applicable to companies reported under IFRS. The group’s going concern position is set out
in the corporate governance section on page 28.
An explanation of the transition to IFRS is provided in the IPO prospectus, which can be found at
http://www.mccolls.co.uk/investor/mccolls-ipo.
The consolidated financial information is presented in sterling, the group’s functional currency, and has been rounded
to the nearest thousand (£’000).
The preparation of financial information in compliance with adopted IFRS requires the use of certain critical
judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial information and the reported amounts of revenues and expenses during the reporting period. It also requires
group management to exercise judgement in applying the group’s accounting policies.
The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial information are disclosed in note 3.
Basis of measurement
The consolidated financial information has been prepared on a historical cost basis, except for the following items
(refer to individual accounting policies for details):
• Derivative financial instruments – fair value through profit or loss; and
• Net defined benefit pension asset or liability – actuarial basis.
Basis of consolidation
Where the company has the power, either directly or indirectly, to govern the financial and operating policies
of another entity or business so as to obtain benefits from its activities it is classified as a subsidiary. The consolidated
financial information presents the results of the company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial information incorporates the results of business combinations using the purchase method.
In the group balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The results of acquired operations are included in the group
income statement from the date on which control is obtained. They are deconsolidated from the date on which
control ceases. Acquisition costs are expensed as incurred.
Adoption of new and revised standards
In the current financial period, the group has applied for the first time IAS19 ‘Employee Benefits’ (revised).
See note 4 on page 72 for full details.
McColl's Retail Group Annual Report and Accounts 2014 65
Financial StatementsGovernanceStrategic Report 1. Basis of preparation (continued)
New standards in issue but not yet effective
At the date of authorisation of these financial statements, the following standards and interpretations, which have not
been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been
adopted by the EU).
IFRS9 ‘Financial Instruments’
IFRS10 ‘Consolidated Financial Statements’
IFRS11 ‘Joint Arrangements’
IFRS12 ‘Disclosure’
IAS27 ‘Separate Financial Statements’
IAS28 ‘Investments in Associates and Joint Ventures’
Amendments to IFRS10, IFRS12 and IAS27 ‘Investment Entities’
Amendments to IAS32 ‘Offsetting Financial Assets and Financial Liabilities’
Amendments to IAS36 ‘Recoverable Amount Disclosures for Non-Financial Assets’
Amendments to IAS39 ‘Novation of Derivatives and Continuation of Hedge Accounting’
IFRIC Interpretation 21 ‘Levies’
The directors anticipate that the adoption of these standards and interpretations in future periods will have no material
impact on the group’s financial statements when the relevant standards come into effect.
In addition to the above new standards or amendments, there are additional new standards and amendments which
will not be applicable to the group and as such have not been listed.
2. Significant accounting policies
Revenue
Revenue represents the amounts receivable for goods and services sold through retail outlets in the period which
fall within the group’s principal activities, stated net of value added tax. Revenue is shown net of returns. Revenue
is recognised when the significant risks and rewards of goods and services have been passed to the buyer and can
be measured reliably.
Commission from the sale of lottery tickets and electronic phone top-ups is recognised net within turnover, when
transactions deriving commissions are completed, as the company acts as an agent.
In the opinion of the directors, the group engages in one principal area of activity, that of operators of convenience
and newsagent stores. Turnover is derived entirely from the United Kingdom.
Cost of sales
Cost of sales consists of all direct costs to the point of sale including warehouse and transportation costs. Supplier
incentives, rebates and discounts are recognised as a credit to cost of sales in the period in which the stock to which the
discounts apply is sold. The accrued amount at the reporting date is included in prepayments and accrued income.
Other operating income
Post office, rental income and ATM commissions are recognised in the consolidated income statement when the
services to which they relate are earned.
Goodwill
Goodwill represents the excess of the fair value of the consideration of an acquisition over the fair value of the group’s
share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is recognised as an
asset on the group’s balance sheet in the year in which it arises. Goodwill is not amortised but is tested for impairment
at least annually and is stated at cost less any provision for impairment. Any impairment is recognised in the income
statement and is not subsequently reversed.
For the purposes of impairment testing, goodwill is allocated to each of the group’s cash-generating units expected
to benefit from the synergies of the combination. Cash-generating units (CGU) to which goodwill has been allocated
are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired.
If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata
on the basis of the carrying amount of each asset in the unit.
66 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss
on disposal.
See note 13 on pages 79 and 80 for further details of cash-generating units and impairment testing.
Computer software within intangible assets
Computer software is stated at cost less accumulated amortisation and any provision for impairment. Externally
acquired computer software and software licences are capitalised and amortised on a straight-line basis over
their useful economic lives of five to eight years and are included within other intangible assets. Costs relating to
development of computer software for internal use do not meet the recognition criteria of IAS38 Intangible Assets
and are recognised as an expense as incurred.
Property, plant and equipment
Tangible fixed assets are stated at cost, net of accumulated depreciation and any provision for impairment. Cost
includes the original purchase price of the asset and the costs incurred attributable to bringing the asset to its working
condition for intended use.
Depreciation is provided so as to write off the cost of tangible fixed assets less their estimated residual values on
a straight-line basis over the expected useful economic lives of the assets concerned. Principal rates used for this
purpose are:
Land and buildings
Depreciation of land and buildings is charged as follows:
Freehold (including land where it is not separately identifiable)
Long leaseholds improvements
Short leaseholds improvements:
– Shops
– Other
Leasehold premiums
– 50 years
– 50 years
– 10 years
– term of the lease
– the unexpired portion of the lease
Motor vehicles, fixtures and equipment
Depreciation of motor vehicles, fixtures and equipment is charged as follows:
– Motor vehicles
– Computer equipment
– Furniture and fittings
– 4 years
– between 5 and 8 years
– between 5 and 10 years
Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount and are
recognised within operating profit.
Fixed asset impairments
At each reporting date, the group reviews the carrying amounts of its property, plant and equipment and intangible
assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset, which is the higher of its fair value less costs
to sell and its value in use, is estimated in order to determine the extent of the impairment loss. Where the asset does
not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the
cash-generating unit (CGU) to which the asset belongs. For property, plant and equipment and intangible assets
excluding goodwill, the CGU is deemed to be each trading store. Any resulting impairment is charged to
administrative expenses.
Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of
ownership to the group. All other leases are classified as operating leases. For property leases, the land and building
elements are treated separately to determine the appropriate lease classification.
Finance leases/hire purchase contracts
Assets funded through finance leases or hire purchase contracts are capitalised as property, plant and equipment
and depreciated over their estimated useful lives or the lease term, whichever is shorter. The amount capitalised is the
lower of the fair value of the asset or the present value of the minimum lease payments during the lease term at the
inception of the lease. The resulting lease obligations are included in liabilities net of finance charges. Finance costs
on finance leases are charged directly to the income statement so as to produce a constant periodic rate of interest.
McColl's Retail Group Annual Report and Accounts 2014 67
Financial StatementsGovernanceStrategic Report 2. Significant accounting policies (continued)
Operating leases
Assets leased under operating leases are not recorded on the balance sheet. Rental payments are charged directly
to the income statement on a straight-line basis over the lease term.
Sale and leaseback
A sale and leaseback transaction is one where a vendor sells an asset and immediately reacquires the use of that
asset by entering into a lease with the buyer. The accounting treatment of the sale and leaseback depends upon the
substance of the transaction and whether or not the sale was made at the asset’s fair value. For sale and operating
leasebacks, generally the assets are sold at fair value, and accordingly the profit or loss from the sale is recognised
immediately in the income statement.
Leases incentives
Lease incentives primarily include up-front cash payments or rent-free periods. Lease incentives are capitalised and
spread over the period of the lease term.
Leases with predetermined fixed rental increases
Where a lease has predetermined fixed rental increases, these rental increases are accounted for on a straight-line
basis over the term of the lease.
Operating lease income
Operating lease income consists of rentals from sub-tenant agreements and is recognised as earned.
Inventories
Inventories consist of goods for resale and are stated at the lower of cost and net realisable value. Cost is calculated
using a retail method which for each category of stock reduces the net selling price by the attributable average gross
margin. Net realisable value is the price at which the stocks can be realised in the normal course of the business net of
selling and distribution costs. Provision is made for obsolete, slow-moving or defective items where appropriate.
Financial instruments
Financial assets
The group classifies its financial assets into one of the categories discussed below, depending on the purpose for which
the asset was acquired. The group has not classified any of its financial assets as held to maturity.
Receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise principally from the group’s trading operations (e.g. trade receivables), but also incorporate other
types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest
rate method, less provision for impairment.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on
the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of
the amounts due under the terms receivable, the amount of such a provision being the difference between the net
carrying amount and the present value of the future expected cash flows associated with the impaired receivable.
For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with
the loss being recognised within administrative expenses in the consolidated income statement. On confirmation
that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the
associated provision.
The group’s receivables comprise trade and other receivables and cash and cash equivalents in the group
balance sheet.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid
investments with original maturities of three months or less, and – for the purpose of the statement of cash flows – bank
overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities in the group balance sheet.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired
or where the group has transferred substantially all risks and rewards of ownership.
68 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Financial liabilities
The group classifies its financial liabilities into one category:
Other financial liabilities
Other financial liabilities include:
• Interest-bearing bank loans and overdrafts – these are recorded initially at fair value, which is generally the proceeds
received, net of direct issue costs. Subsequently, these liabilities are held at amortised cost using the effective interest
method. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are
accounted for on an accrual basis in the income statement using the effective interest method and are added to
the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Where
existing debt is refinanced with the same lender it is treated as an extinguishment of the original debt and a new
financial liability if the modified terms are substantially different from the previous terms.
• Trade payables and other short term monetary liabilities which are initially recognised at fair value and subsequently
at amortised cost using the effective interest method.
Fair value estimation
The methods and assumptions applied in determining the fair values of financial assets and financial liabilities are
disclosed in note 26.
Derivative financial instruments
The only derivative financial instruments that the group enters into are interest rate swaps. The purpose of these
transactions is to manage the interest rate risk arising from the group’s operations and sources of finance.
The group does not hold derivative financial instruments for speculative purposes.
All derivative financial instruments are initially measured at fair value on the contract date and are also measured
at fair value at subsequent reporting dates.
Changes in the fair value of derivative financial instruments, including interest rate swaps (unless qualifying as cash
flow hedge accounting) are recognised in the income statement as finance income or costs as they arise.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the
asset and settle the liability simultaneously.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares
or options are shown in equity as a deduction, net of tax, from the proceeds.
Taxation
Current taxation
Current tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or
substantively enacted at the balance sheet date. Current tax is charged or credited to the income statement, except
when it relates to items charged to equity or other comprehensive income, in which case the current tax is also dealt
with in equity or other comprehensive income respectively.
Deferred taxation
Deferred tax is accounted for on the basis of temporary differences arising from differences between the tax base
and accounting base of assets and liabilities.
Deferred tax is recognised for all temporary differences, except to the extent where a deferred tax liability arises
from the initial recognition of goodwill or from the initial recognition of an asset or a liability in a transaction that is
not a business combination and, at the time of transaction, affects neither accounting profit nor taxable profit. It is
determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date
and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability
is settled.
Deferred tax assets are recognised only to the extent that the directors consider that, on the basis of all available
evidence, it is probable that there will be suitable future taxable profits from which the future reversal of the underlying
differences can be deducted.
Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited
directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other
comprehensive income respectively.
McColl's Retail Group Annual Report and Accounts 2014 69
Financial StatementsGovernanceStrategic Report 2. Significant accounting policies (continued)
Provisions
The group recognises provisions for liabilities of uncertain timing or amounts, including those for onerous leases,
leasehold dilapidations and legal disputes. Provisions are recognised when there is a present legal or constructive
obligation as a result of a past event, for which it is probable that an outflow of economic benefit will be required to
settle the obligation, and where the amount of the obligation can be reliably estimated. Provisions are measured at
the present value of the best estimate of expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The
increase in the provision due to passage of time is recognised as interest expense.
Onerous contracts/leases
Provisions for onerous leases, measured net of expected sub-let rental income, are recognised when the leased
property becomes vacant and is no longer used in the operations of the business.
Dilapidations
Provisions for dilapidations and similar contractual property costs are recognised on a lease-by-lease basis when the
need for expenditure has been identified, being the point at which the likely expenditure can be reliably estimated.
Pensions
The group operates two defined benefit pension schemes in addition to several defined contribution schemes,
which require contributions to be made to separately administered funds.
Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the income statement in the year to which
they relate.
Defined benefit schemes
Defined benefit scheme surpluses and deficits are measured at:
• The fair value of plan assets at the reporting date; less
• Scheme liabilities calculated using the projected unit credit method discounted to its present value using yields
available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus
• Unrecognised past service costs; less
• The effect of minimum funding requirements agreed with scheme trustees.
A surplus is recognised where the group has an unconditional right to the economic benefits in the form of future
contribution reductions or refunds.
Any difference between the expected return on assets and that actually achieved, and any changes in the liabilities
over the year due to changes in assumptions or experience within the scheme, are recognised in other comprehensive
income in the period in which they arise.
Costs are recognised separately as operating and finance costs in the income statement. Operating costs comprise
the current service cost, any income or expense on settlements or curtailments and past service costs where the
benefits have vested.
Past service costs are recognised directly in income unless the changes to the pension scheme are conditional on the
employees remaining in service for a specified period of time. In this case, the past service costs are amortised on a
straight-line basis over the vesting period.
Finance items comprise the interest on scheme liabilities and the expected return on scheme assets.
Further information on pensions is disclosed in note 31.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the group’s accounting policies, which are described in note 2, the directors are required to
make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.
70 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Critical judgements in applying the group’s accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately
below), that the directors have made in the process of applying the group’s accounting policies and that have the
most significant effect on the amounts recognised in financial statements.
Supplier income
Supplier income is generated from commercial agreements with suppliers including incentives, rebates and discounts.
Agreements are typically for the calendar year so are not concurrent with the financial reporting period. Judgement
is required as to the level of income which should be accrued for in relation to achieving pre-set trading targets in the
final month of the calendar year. Changes in the judgements used would not have a significant effect on the group’s
consolidated income statement.
Operating segment
IFRS8 requires segment information to be presented on the same basis as that used by the board for assessing
performance and allocating resources. Management has used its judgement in determining that the group has one
single operating segment. This is based on the reports reviewed by the board of directors to make strategic decisions.
Cash-generating units (CGUs)
The group determines CGUs for the purpose of goodwill impairment based on the way it manages the business.
Judgement is required to ensure this assessment is appropriate and in line with IAS36. This is expanded upon in
note 13 on pages 79 and 80.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
Goodwill impairment
The group is required to test, on an annual basis, whether goodwill has suffered any impairment based on the
recoverable amount of its cash-generating units (CGUs). The recoverable amount is determined based on value in
use calculations. The use of this method requires the estimation of future cash flows and the determination of a pre-tax
discount rate in order to calculate the present value of the cash flows. More information including carrying values is
included in note 13 on pages 79 and 80.
Impairment of tangible and intangible assets excluding goodwill
Financial and non-financial assets are subject to impairment reviews based on whether current or future events and
circumstances suggest that their recoverable amount may be less than their carrying value.
Recoverable amount is based on the higher of the value in use and fair value less costs to sell. Value in use is
calculated from expected future cash flows using suitable discount rates and includes management assumptions
and estimates of future performance. Fair values for individual trading stores are based on a multiple of its average
weekly sales performance.
Details of the accounting policy on the impairment of tangible and intangible assets, excluding goodwill, are provided
in note 2 on page 66.
Pensions
The costs, assets and liabilities of the defined benefit pension schemes operated by the group are determined
using methods relying on actuarial estimates and assumptions, including rates of increase in pensionable salaries
and pensions, expected returns on scheme assets, life expectancies and discount rates. Details of the key assumptions
are set out in note 31. The group takes advice from independent actuaries relating to the appropriateness of the
assumptions and the recognition of any surplus. Changes in the assumptions used may have a significant effect
on the group statement of comprehensive income and the group balance sheet.
Provisions
Provisions have been made for onerous leases and dilapidations. These provisions are estimates, in particular the
assumptions relating to market rents and vacant periods, and the actual costs and timing of future cash flows are
dependent on future events. Any difference between expectations and the actual future liability will be accounted
for in the period when such determination is made. Details of provisions are set out in note 24.
McColl's Retail Group Annual Report and Accounts 2014 71
Financial StatementsGovernanceStrategic Report 4. Changes in accounting policy and prior period misstatement
In the current financial period, the group has applied for the first time IAS19 ‘Employee Benefits’ (revised). The most
significant change that has impacted the group is that the amendment requires the expected returns on pension plan
assets, currently calculated based on management’s best estimate of expected returns, to be calculated using the
same (high quality bond) discount rate used to measure the defined benefit obligation. IAS19 (revised) requires
retrospective application in line with IAS8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.
The impact on the consolidated income statement is as follows:
Operating profit
Net finance costs
Profit on ordinary activities before taxation
Tax on ordinary activities
Profit on ordinary activities after taxation
The impact on the consolidated statement
of comprehensive income is as follows:
Profit for the period
Re-measurement of defined benefit pension plans
Deferred tax attributable to actuarial gain
Total comprehensive income for the period
52 weeks ended 24 November 2013
As originally
presented
£’000
23,269
(18,361)
4,908
797
5,705
5,705
8,097
(1,842)
11,960
Impact
of IAS19
(revised)
£’000
Impact of
deferred tax
movement
£’000
(771)
255
(516)
103
(413)
(413)
516
(103)
–
–
–
–
(150)
(150)
(150)
–
–
(150)
Restated
£’000
22,498
(18,106)
4,392
750
5,142
5,142
8,613
(1,945)
11,810
Prior period restatement
It has become apparent that in preparing prior period financial statements under IFRS, a temporary difference
on which deferred tax should have been recognised was omitted. The noted temporary difference arises in relation
to tax deductible goodwill recognised on new store acquisitions accounted for as business combinations where
the group entered into sale and leaseback arrangements in relation to acquired freehold property. The financial
statements and accompanying notes have been restated to include this deferred tax asset in line with IAS8
‘Accounting Policies, Changes in Accounting Estimates and Errors’. The restatement reduced goodwill by £832,000
and reduced the deferred tax provision by the same amount.
5. Segmental analysis and revenue
In accordance with IFRS8 ‘Operating segments’ an operating segment is defined as a business activity whose
operating results are reviewed by the chief operating decision maker and for which discrete information is available.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker, as required by IFRS8. The chief operating decision maker, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified as the board of directors. The principal
activities of the group are currently managed as one segment. Consequently all activities relate to this segment,
being the operation of convenience and newsagent stores in the UK.
An analysis of the group’s revenue is as follows (all continuing operations):
Sales of goods
Property rental income (note 7)
Other operating income (note 7)
Investment revenue (note 9)
Total revenue as defined in IAS 18
72 McColl's Retail Group Annual Report and Accounts 2014
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
Restated
(note 4)
2013
£’000
922,420
869,416
3,253
29,239
32,492
3,368
21,115
24,483
121
488
955,033
894,387
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 6. Exceptional items
Due to their significance or one-off nature, certain items have been classified as exceptional as follows:
Costs associated with IPO included within administrative expenses1
Share-based payments included within administrative expenses2
Property related costs included within administrative expenses3
Post office costs included within administrative expenses4
Post office income included within other operating income4
Unamortised financing costs included in finance expense5
Additional interest included in finance expense5
Tax effect6
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
£’000
1,823
5,532
2,440
392
(6,743)
3,444
3,166
–
6,610
(1,288)
5,322
–
–
–
–
–
–
1,188
4,409
5,597
(1,306)
4,291
1 Costs associated with IPO
During the 53 weeks ended 30 November 2014 one-off IPO costs of £4,539,000 were incurred of which £1,823,000
was charged to the income statement and £2,716,000 was charged to the share premium account as being directly
related to the issue of new shares.
2 Share-based payments
During the 53 weeks ended 30 November 2014 share-based payments totalling £5,532,000 were made by way of an
allocation of shares to employees prior to the IPO for nil consideration. The fair value of the shares was calculated by
reference to the issue price on admission to the stock market on 28 February 2014. The total number of shares allocated
was 2,900,332. Details of share-based payments to directors can be found in the directors’ remuneration report on
pages 40 to 53.
3 Property related costs
Provision of £2,440,000 has been made for the onerous lease relating to the group’s former head office. The provision
has been made to recognise an expected shortfall in rental income compared with rent payable and other property
related costs. In calculating the provision a pre-tax discount rate of 10% has been used.
4 Post office income
During the 53 weeks ended 30 November 2014 the group received £6,743,000 income from the Post Office in relation
to an agreement to convert 191 of the group’s existing post offices to a new local format. The group incurred costs
of £392,000 associated with the conversions.
5 Restructuring costs
On 4 March 2014 the group completed an early debt refinancing which resulted in the write-off of £3,166,000
of unamortised financing costs. On 15 March 2013 the group completed an early debt refinancing which resulted
in the write-off of £1,188,000 of unamortised financing costs and additional interest of £4,409,000.
6 Tax effect of exceptional items
The tax effect of the exceptional items is a credit of £1,288,000 (2013: credit £1,306,000).
McColl's Retail Group Annual Report and Accounts 2014 73
Financial StatementsGovernanceStrategic Report
7. Operating profit
a) Operating profit is stated after charging:
Depreciation of property, plant and equipment (note 14)
Amortisation of software (note 13)
Impairment of property, plant and equipment (note 14)
Goodwill impairment losses (note 13)
Goodwill impairment correction to prior period (note 13)
Cost of inventories recognised as an expense
Write-downs of inventories recognised as an expense
Operating lease payments
– property
– plant and machinery
The analysis of the auditors remuneration is as follows:
Audit of company
Audit of subsidiaries
Total audit
Audit related assurance services (including interim review)
Other assurance services
Total assurance services
Tax compliance services
Tax advisory services
Total services relating to taxation
Services related to corporate finance transactions not covered above
Other non-audit services not covered above
Total other non-audit services
Total non-audit services
Total fees
b) Other operating income:
Other operating income
Rental income
Profit on disposal of fixed assets
Negative goodwill on acquisitions
Total other operating income
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
Restated
(note 4)
2013
£’000
11,989
687
519
382
(631)
721,432
6,624
30,642
9
11,134
606
(346)
1,359
–
683,208
5,671
29,933
160
20
154
174
48
–
48
50
51
101
175
36
211
360
534
20
130
150
–
–
–
50
124
174
384
24
408
582
732
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
28,074
3,253
1,099
66
32,492
20,030
3,368
700
385
24,483
Other operating income includes income from the operation of sub-post offices and commission earned from ATMs.
74 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 c) Adjusted EBITDA
Operating profit before exceptional items
Depreciation and amortisation
Impairment of property, plant and equipment (note 14)
Goodwill impairment losses (note 13)
Goodwill impairment correction to prior period (note 13)
Profit on disposal of fixed assets
Negative goodwill on acquisitions
8. Employee benefits
Wages and salaries
Social security costs
Other pension costs
The employee benefits cost excludes directors’ emoluments.
Average number of employees:
Retailing
Central administration
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
25,477
12,676
519
382
(631)
(1,099)
(66)
37,258
22,498
11,740
(346)
1,359
–
(700)
(385)
34,166
53 weeks
ended
30 November
2014
£’000
117,753
5,196
1,001
123,950
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
111,177
5,032
761
116,970
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
18,360
325
18,685
18,455
309
18,764
The group employee benefit trust held title to 2,900,332 ordinary shares which were allocated to the employee
shareholders on 24 February 2014 pro rata to their existing holdings of ordinary shares in the company. In addition the
trust held 33,668 shares which were sold at IPO, the proceeds of which were utilised to repay loans outstanding from
the group.
McColl's Retail Group Annual Report and Accounts 2014 75
Financial StatementsGovernanceStrategic Report 9. Net finance costs
Finance income
Interest receivable
Gains on fair value movement on interest rate swap
Other
Total finance income
Finance expense
Bank loans and overdrafts
Hire purchase interest
Unwinding of the discount included in provisions
Amortisation of issue costs
Loss on fair value movement on interest rate swap
Other
Total finance expense
Net finance costs
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
112
–
9
121
(5,280)
(177)
(187)
(3,820)
(34)
(19)
(9,517)
454
34
–
488
(15,590)
(217)
(80)
(2,365)
–
(342)
(18,594)
(9,396)
(18,106)
The bank loans and overdraft interest includes an exceptional amount in 2013. The amortisation of issue costs includes
exceptional costs in both 2014 and 2013. See note 6 on page 73 for further details.
76 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 10. Taxation
Income statement
Current tax:
Current tax on profit for the period
Adjustments in respect of prior periods
Deferred tax:
Origination and reversal of temporary differences
Associated with pension deficit
Arising from change in tax rate
Adjustments in respect of prior periods
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
3,400
(59)
3,341
(715)
178
–
(74)
(611)
1,683
(911)
772
(578)
(30)
(858)
(56)
(1,522)
Income tax expense/(credit) for the period
2,730
(750)
Other comprehensive income
Deferred tax in respect of actuarial valuation of retirement benefits
Arising from change in rate of tax
The tax charge for the period can be reconciled to accounting profit as follows:
Profit before tax
Profit before tax multiplied by the blended applicable corporation
tax rate for 2014 of 21.67% (2013: 23.33%)
Disallowed expenses and non-taxable income
Adjustments in respect of prior years
Arising from change in rate of tax
Total tax expense/(credit)
138
–
138
1,722
223
1,945
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
12,637
4,392
2,738
125
(133)
–
2,730
1,025
50
(967)
(858)
(750)
Changes in tax rates and factors affecting the future tax charge
The 2013 Finance Act reduced the standard rate of corporation tax from 23% to 21% with effect from 1 April 2014 and
from 21% to 20% with effect from 1 April 2015.
Accordingly, deferred tax balances have been recognised at 20% for 2013 and 2014 being the rate of corporation tax
substantively enacted at each balance sheet date.
McColl's Retail Group Annual Report and Accounts 2014 77
Financial StatementsGovernanceStrategic Report 11. Dividends
The board has recommended a final dividend of 6.8 pence per share (2013: nil), totalling £7,120,000, subject to
shareholder approval at the annual general meeting to be held on 17 April 2015. The final dividend will be paid on 29
May 2015 to those shareholders on the register at the close of business on 1 May 2015. The payment of this dividend will
not have any tax consequences for the group. The interim dividend, declared and paid, was 1.7 pence per share
(2013: nil), totalling £1,780,000.
12. Earnings per share
Basic weighted average number of shares
Dilutive effect of warrant shares issued
Diluted weighted average number of shares
Profit attributable to ordinary shareholders (£’000)
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share:
Profit attributable to ordinary shareholders
Exceptional items (note 6)
Tax effect of adjustments (note 6)
Adjusted profit after tax
Basic
Diluted
53 weeks
ended
30 November
2014
52 weeks
ended
24 November
2013
97,432,203
356,129
75,000,000
1,242,483
97,788,332
76,242,483
9,907
5,142
10.2p
10.1p
6.9p
6.7p
9,907
6,610
(1,288)
15,229
15.6p
15.6p
5,142
5,597
(1,306)
9,433
12.6p
12.4p
78 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 13. Intangible assets
Cost
At 25 November 2012
Additions
Deferred tax asset movement
Disposals
At 24 November 2013
Additions
Deferred tax asset movement
Disposals
At 30 November 2014
Accumulated amortisation and impairment
At 25 November 2012
Provision
Impairment losses
Disposals
At 24 November 2013
Provision
Impairment losses
Correction to prior period impairment charge
Disposals
At 30 November 2014
Net book value
As of 25 November 2012
As of 24 November 2013
As of 30 November 2014
Software
£’000
5,072
196
–
(766)
4,502
585
–
(1)
Goodwill
Restated
(note 4)
£’000
135,958
590
(150)
(463)
135,935
6,235
56
(558)
Total
Restated
(note 4)
£’000
141,030
786
(150)
(1,229)
140,437
6,820
56
(559)
5,086
141,668
146,754
2,520
606
–
(765)
2,361
687
–
–
(1)
4,762
–
1,359
(539)
5,582
–
382
(631)
(777)
7,282
606
1,359
(1,304)
7,943
687
382
(631)
(778)
3,047
4,556
7,603
2,552
131,196
2,141
130,353
133,748
132,494
2,039
137,112
139,151
The prior period impairment charge was overstated by £631,000 as the net book value of cash-generating units used in
the impairment of goodwill IFRS conversion was incorrect.
McColl's Retail Group Annual Report and Accounts 2014 79
Financial StatementsGovernanceStrategic Report 13. Intangible assets (continued)
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are
expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of
goodwill had been allocated as follows:
CGU1
CGU2
CGU3
30 November
2014
£’000
24 November
2013
£’000
25 November
2012
£’000
95,476
6,525
35,111
94,725
6,369
29,259
94,648
6,736
29,812
137,112
130,353
131,196
For the current period, the group has reassessed the way in which it determines CGUs for the purpose of goodwill
impairment to align with the management of the business, following the fundamental changes to the group’s
operations, including the completion of changes to the supply chain initiated in 2013. Previously each store had been
classed as a CGU for goodwill impairment testing. On a review of CGUs the group have concluded that three groups
of CGUs for the purpose of goodwill impairment is more appropriate.
The three groups are as follows:
CGU1 – Goodwill which arose from a management buy-out in 2005, including all goodwill held at that time;
CGU2 – Goodwill generated on a significant acquisition in 2008; and
CGU3 – Goodwill acquired on all other acquisitions after the management buy-out in 2005.
Under the old method, with each store being a CGU, goodwill impairment is £382,000 and this has been included in
the current period charge. Under the revised approach, there is no impairment. £382,000 is not considered material
to the business.
The recoverable amounts of all three CGUs are determined from value in use calculations with a discounted cash
flow model used to calculate this amount. The key assumptions for the value in use calculation include discount rates,
growth rates and time. In addition to the value in use calculation, a fair value is estimated based on a multiple of
average weekly sales. The group have used a forward looking cash flow of 25 years and a pre-tax 10% discount rate.
Management consider 25 years an appropriate period of time to base the forward looking cash flow as stores are
expected to trade for at least this period of time. There has been no growth rate applied on a prudent basis. The fair
value estimate uses an established market valuation method which management use when making acquisitions.
The group has conducted sensitivity analysis on the impairment testing for goodwill using both the old and new
methods of assessing CGUs. With reasonable possible changes in key assumptions, there is no indication that the
carrying amount of goodwill would be significantly reduced. Increasing the forward looking cash flow to perpetuity
would reduce the goodwill impairment by £72,000. A 1.0% change in the discount rate would result in either a
reduction or increase, depending whether the rate was increased or decreased, of £60,000. Applying a 1.0% growth
rate would reduce the impairment charge by £64,000. A 25% reduction in the fair value calculation would increase
the impairment charge by £100,000.
80 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 14. Property, plant and equipment
Cost
At 25 November 2012
Acquisitions
Additions
Disposals
At 24 November 2013
Acquisitions
Additions
Disposals
At 30 November 2014
Accumulated depreciation
At 25 November 2012
Charge
Reversal of impairment losses
Disposals
At 24 November 2013
Charge
Impairment losses
Disposals
At 30 November 2014
Net book value
As of 25 November 2012
As of 24 November 2013
As of 30 November 2014
Land and
buildings
£’000
Plant and
machinery
£’000
25,397
4,259
3,438
(12,708)
20,386
8,100
6,625
(10,186)
80,587
205
7,959
(22,548)
66,203
1,146
8,760
(895)
Total
£’000
105,984
4,464
11,397
(35,256)
86,589
9,246
15,385
(11,081)
24,925
75,214
100,139
10,257
2,155
–
(8,439)
3,973
2,553
–
(44)
34,778
8,979
(346)
(22,172)
21,239
9,436
519
(600)
45,035
11,134
(346)
(30,611)
25,212
11,989
519
(644)
6,482
30,594
37,076
15,140
16,413
45,809
44,964
60,949
61,377
18,443
44,620
63,063
The net book value of tangible fixed assets includes an amount of £3,947,000 (2013: £4,941,000) in respect of assets held
under finance leases and hire purchase contracts. The related depreciation charge on these assets for the period was
£1,726,000 (2013: £1,647,000). They all relate to plant and machinery.
See note 2 on page 67 for details of impairment review and assumptions.
McColl's Retail Group Annual Report and Accounts 2014 81
Financial StatementsGovernanceStrategic Report 15. Investments
Investments at cost
30 November
2014
£’000
24 November
2013
£’000
18
18
The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of
the directors, principally affected the group during the period.
All held by a subsidiary undertaking unless stated.
Name of company
Bracklands Limited
Clark Retail Limited
Dillons Stores Limited
Key Food Stores Limited
Martin McColl Limited
Martin Retail Group Limited
Martin McColl Retail Limited *
Price Smasher Limited
Smile Holdings Limited
Smile Stores Limited
Thistledove Limited
TM Group Holdings Limited
TM Vending Limited
Tog Limited
* 100% held by the company.
Country of registration
(or incorporation)
and operation
England and Wales
Scotland
England and Wales
England and Wales
England and Wales
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Holding
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Proportion
of voting
rights and
shares held
Nature
of business
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Property Company
Retailing
Retailing
Intermediate Holding Company
Retailing
Retailing
Predecessor Holding Company
Intermediate Holding Company
Intermediate Holding Company
Retailing
Intermediate Holding Company
Intermediate Holding Company
Corporate activities
Intermediate Holding Company
16. Business combinations
During the period, the group made 60 acquisitions, none of which was individually considered material to the group.
The cash consideration for these acquisitions and the assets acquired are summarised as follows:
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
£’000
9,246
1,412
6,225
(557)
501
16,827
4,464
333
786
(410)
251
5,424
30 November
2014
£’000
24 November
2013
£’000
45,757
44,224
Tangible fixed assets (note 14)
Inventory
Goodwill (net of negative goodwill)
Deferred tax liability
Deferred tax asset
Cash consideration
17. Inventories
Goods for resale
82 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 18. Trade and other receivables
Trade receivables
Supplier rebates
Prepayments
Other receivables
Ageing of past due but not impaired receivables
Trade receivables
31 – 60 days
61 – 90 days
91 – 120 days
Supplier rebates
31 – 60 days
61 – 90 days
91 – 120 days
19. Cash and cash equivalents
Cash at bank
Cash held in employee benefit trust
20. Trade and other payables
Trade payables
Other taxation and social security
Other payables
Amounts due under hire purchase obligations
Accrued interest
Accruals
Deferred income
Holiday pay accrual
30 November
2014
£’000
24 November
2013
£’000
3,060
16,705
5,561
4,791
30,117
3,113
17,695
6,191
5,755
32,754
424
142
323
889
1,483
231
186
1,900
496
108
158
762
2,305
187
64
2,556
30 November
2014
£’000
24 November
2013
£’000
11,396
–
11,396
23,488
40
23,528
30 November
2014
£’000
24 November
2013
£’000
85,348
3,494
3,125
2,185
213
14,323
2,987
911
88,779
3,942
2,354
2,268
1,059
16,659
1,886
980
112,586
117,927
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice.
Thereafter, interest is charged on the outstanding balances at various interest rates. The group has financial risk
management policies in place to ensure that all payables are paid within the pre-agreed credit terms.
The directors consider that the carrying amount of trade payables approximates to their fair value.
McColl's Retail Group Annual Report and Accounts 2014 83
Financial StatementsGovernanceStrategic Report 21. Non-current liabilities – other payables
Other payables
Amounts due under hire purchase obligations
Preference shares
22. Borrowings
Details of loans and credit facilities are as follows:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
Total borrowings
Less: unamortised issue costs
Less: current borrowings (net of amortised issue costs)
Non-current borrowings
30 November
2014
£’000
24 November
2013
£’000
2,198
1,724
–
3,922
2,912
3,135
46
6,093
30 November
2014
£’000
24 November
2013
£’000
–
–
46,000
46,000
(1,148)
–
44,852
8,519
7,922
91,338
107,779
(3,585)
(6,978)
97,216
The long term loans are secured by a fixed charge over the group’s head office property together with a floating
charge over the company’s assets.
On 4 March 2014 the group completed a debt refinancing and entered into a new £85,000,000 working capital facility
available until 31 August 2018 at an annual interest rate of 2.5% above LIBOR. £60,900,000 was drawn against the
group’s new working capital facility which, together with the proceeds from the primary fundraising at flotation was
utilised to repay the group’s existing borrowings. On 30 July 2014 the annual interest rate was reduced to 2.25% above
LIBOR. The facility drawn as at 30 November 2014 was £46,000,000.
Details of loans and hire purchase obligations repayable within two to five years are as follows:
Mezzanine Loan repayable on 31 December 2016 at 18.0%
Senior Term Loan A repayable on 30 April 2016 at 4.5% above LIBOR
Senior Term Loan B repayable on 30 June 2016 at 5.0% above LIBOR
Revolving facility available until 31 August 2018 at 2.25% above LIBOR
Hire purchase obligations
30 November
2014
£’000
24 November
2013
£’000
–
–
–
46,000
836
46,836
47,279
6,434
37,625
–
1,129
92,467
84 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 23. Net debt
Cash at bank and in hand
Loans due:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
Total borrowings
Less: unamortised issue costs
Amounts due under hire purchase obligations
Preference shares
Net debt
30 November
2014
£’000
24 November
2013
£’000
11,396
23,488
–
–
(46,000)
(46,000)
1,148
(44,852)
(3,909)
–
(8,519)
(7,922)
(91,338)
(107,779)
3,585
(104,194)
(5,403)
(46)
(48,761)
(109,643)
(37,365)
(86,155)
The underlying net debt is £25,685,000 adjusting for the cash flow impact of the 53rd week (see note 29).
24. Provisions
At 25 November 2012
Utilised during the period
Unwinding of the discount included in provisions
Additional provision
Released unused
At 24 November 2013
Utilised during the period
Unwinding of the discount included in provisions
Additional provision
Released unused
At 30 November 2014
Included in current liabilities
Included in non-current liabilities
Dilapidations
£’000
Onerous
contracts
£’000
1,704
(454)
15
916
(455)
1,726
(604)
28
760
(436)
2,229
(427)
65
382
(179)
2,070
(716)
159
2,692
(200)
1,474
4,005
1,474
–
1,474
811
3,194
4,005
Total
£’000
3,933
(881)
80
1,298
(634)
3,796
(1,320)
187
3,452
(636)
5,479
2,285
3,194
5,479
Dilapidations
The provision will include estimates for certain properties for which the extent of the dilapidation has not been
established. The level of uncertainty associated with the use of estimates is not considered to be significant. It is
expected that most of these costs will be incurred in the next five years.
Onerous contracts
A provision is recognised for the rent due less estimated rent receivable until the anticipated disposal of a vacant
property. The periods of vacant property commitments range from one to 10 years. In addition, provision has been
made for excess rent over market rent on one leasehold property as part of fair value assessments made on
acquisition. Judgement is used for certain properties in respect of how long the property will remain vacant.
The level of uncertainty associated with the use of estimates is not considered to be significant.
£2,440,000 of the additional provision made in the period was exceptional and is described in further detail in
note 6 on page 73.
McColl's Retail Group Annual Report and Accounts 2014 85
Financial StatementsGovernanceStrategic Report 25. Deferred tax liabilities
Deferred tax movements are as follows:
At 25 November 2012
Arising on acquisition
Income statement (note10)
Other comprehensive income (note 10)
At 24 November 2013 (restated note 4)
Arising on acquisition
Income statement (note 10)
Other comprehensive income (note 10)
At 30 November 2014
Pension
deficit/
surplus
£’000
(1,969)
–
(30)
1,945
(54)
–
178
138
262
Fixed
asset
£’000
2,519
–
(810)
–
1,709
–
(355)
–
1,354
Rolled-over
capital
gains
£’000s
Goodwill
£’000
Freehold
property
£’000
Other
temporary
differences
£’000
5,200
–
(600)
–
4,600
–
16
–
4,616
(725)
(256)
149
–
(832)
(501)
86
–
(1,247)
–
410
(410)
–
–
557
(557)
–
–
(485)
–
179
–
(306)
–
22
–
(284)
Total
£’000
4,540
154
(1,522)
1,945
5,117
56
(610)
138
4,701
Deferred tax has arisen owing to accelerated capital allowances, business combinations, pension deficit/surplus and
other temporary differences and also in respect of the taxable gains arising on the disposal of intangible fixed assets
where the gains have been rolled into replacement assets.
Deferred tax at 30 November 2014 has been measured at 20% (2013: 20%) being the tax rate substantively enacted
at the balance sheet date expected to be effective for future periods.
26. Financial instruments and risk management
Derivatives and other financial instruments
The group’s principal financial instruments comprise loans, cash and short term deposits together with interest rate
derivatives. The main purpose of these financial instruments is to raise finance for the group’s operations. The group
has various other financial instruments such as trade and other receivables and trade and other payables that
arise directly from its operations.
The main risks arising from the group’s financial instruments are interest rate risk and liquidity risk. The board reviews
and agrees policies for managing each of these risks and they are summarised below. The group’s exposure to
financial instrument risk has reduced in 2014 as a result in the reduction in borrowings. There have been no substantive
changes in the group’s objectives, policies and processes for managing and measuring those risks during the periods
in this report unless otherwise stated.
On 4 March 2014 the group completed a debt refinancing and entered into a new £85,000,000 working capital
facility available until 31 August 2018 at an annual interest rate of 2.5% above LIBOR. £60,900,000 was drawn against
the working capital facility which, together with the proceeds from the primary fundraising at flotation, was utilised
to repay the group’s existing borrowings. On 30 July 2014 the annual interest rate was reduced to 2.25% above LIBOR.
The facility drawn as at 30 November 2014 was £46,000,000.
86 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Interest rate risk
The group is exposed to interest rate risk from its use of interest bearing financial instruments. This is a market risk
that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates.
Floating rate financial liabilities on which interest is paid bear interest at rates based on one month LIBOR. It is the
group’s policy to consider the need for interest rate hedging on an ongoing basis. No interest rate hedging is currently
in place.
In prior years the group managed an element of its floating interest rate risk through interest rate swaps. The derivative
agreements to which the group was party to at 24 November 2013 guaranteed a maximum fixed rate borrowing cost
on a portion of the group’s debt up to 30 April 2015. At 24 November 2013, the interest rate derivative contract had an
aggregate fair value of £34,000. In March 2014 these derivative agreements were terminated.
Interest rate risk profile of financial liabilities and assets
The interest rate profile of the financial liabilities of the group as at 30 November 2014 was as follows:
Financial liabilities
Fixed rate
financial
liabilities
£’000
Floating rate
financial
liabilities
£’000
Financial
liabilities on
which no
interest
is paid
£’000
Total
£’000
2,405
47,504
109,105
159,014
The floating rate financial liabilities comprise a sterling denominated working capital facility and hire purchase
borrowings.
The interest rate profile of the financial liabilities of the group as at 24 November 2013 was as follows:
Financial liabilities
49,597
63,586
114,675
227,858
The interest rate profile of the financial assets of the group as at 30 November 2014 was as follows:
Fixed rate
financial
liabilities
£’000
Floating rate
financial
liabilities
£’000
Financial
liabilities on
which no
interest
is paid
£’000
Total
£’000
Financial assets
Floating rate
financial
assets
£’000
Financial
assets on
which no
interest
is paid
£’000
Total
£’000
–
35,970
35,970
The interest rate profile of the financial assets of the group as at 24 November 2013 was as follows:
Financial assets
Floating rate
financial
assets
£’000
Financial
assets on
which no
interest
is paid
£’000
Total
£’000
–
50,143
50,143
If interest rates had been 0.5% higher during the period ended 30 November 2014, with all other variables held
constant, the post tax profit for the period would have been approximately £282,000 lower (2013: £180,000) as a
result of higher interest expense.
Liquidity risk
Liquidity risk arises from the group’s management of working capital and the finance charges on its debt instruments
and repayments of principal. It is the risk that the group will encounter difficulty in meeting its financial obligations as
they fall due.
The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of
overdrafts and credit facilities to ensure that it will always have sufficient cash to allow it to meet its liabilities when
they become due.
McColl's Retail Group Annual Report and Accounts 2014 87
Financial StatementsGovernanceStrategic Report 26. Financial instruments and risk management (continued)
Maturity of financial liabilities
The maturity profile of the group’s financial liabilities based on the remaining period at the balance sheet date to the
contractual maturity date, was as follows:
Up to 3 months or on demand
In 3 – 12 months
In more than 1 year but not more than 2 years
In more than 2 years but not more than 5 years
In more than 5 years
30 November
2014
£’000
24 November
2013
£’000
107,485
1,607
1,591
48,331
–
112,879
9,625
10,650
94,230
474
159,014
227,858
The disclosures above are the contractual undiscounted cash flows and exclude unamortised finance costs.
Borrowing facilities
The group had certain borrowing facilities available to it for general working capital requirements of which £46,000,000
had been drawn at 30 November 2014 (24 November 2013: £nil).
Credit risk
Given the nature of the group’s operations, credit risk is not considered significant and arises mainly from cash deposits
held with banks and financial institutions which have a good credit rating. Credit risk also arises from trade and other
receivables which comprise amounts due from credit card institutions and rebates due from suppliers.
Derivative financial instruments
Fair value of interest rate swaps
Financial assets – current
30 November
2014
£’000
24 November
2013
£’000
–
34
The fair value of a derivate financial instrument is split between current and non-current depending on the remaining
maturity of the derivative contract and its contractual cash flows. The interest rate swaps are designated as fair value
through profit or loss at initial recognition. The fair value of the group’s interest rate derivatives is calculated as the
present value of future expected net contracted cash flows at market related rates, which are current at the balance
sheet date.
88 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Set out below is a comparison by category of carrying values and fair values of all the group’s financial assets and
financial liabilities:
Financial liabilities
At amortised cost
Short term borrowings and current portion of long term borrowings
Trade and other short term payables
Hire purchase borrowings
Long term borrowings
Long term payables
Financial assets
Other investments carried at cost
Classified as receivables
Short term receivables
Cash and short term deposits
At fair value
Interest rate swaps
At 30 November 2014
At 30 November 2013
Carrying
value
£’000
Fair
value
£’000
Carrying
value
£’000
Fair
value
£’000
–
(106,907)
(3,909)
(46,000)
(2,198)
–
(106,907)
(3,909)
(46,000)
(2,198)
(8,519)
(111,717)
(5,403)
(99,260)
(2,958)
(8,519)
(111,717)
(5,403)
(99,260)
(2,958)
(159,014)
(159,014)
(227,857)
(227,857)
18
18
18
18
24,556
11,396
24,556
11,396
26,563
23,528
26,563
23,528
–
–
34
34
35,970
35,970
50,143
50,143
Capital disclosures
The group’s objectives when maintaining capital are to safeguard the entity’s ability to continue as a going concern
and to provide an adequate return to shareholders. Capital comprises the group’s equity i.e. share capital including
share premium and retained earnings, excluding pension asset and liability.
The group’s net debt to capital ratio is as follows:
Net debt (as per note 23)
Total equity (as defined above)
Debt to capital ratio
30 November
2014
£’000
24 November
2013
£’000
37,365
115,939
0.3
86,155
56,188
1.5
McColl's Retail Group Annual Report and Accounts 2014 89
Financial StatementsGovernanceStrategic Report 27. Authorised, issued and fully paid share capital
Issued ordinary shares at 25 November 2012
Movement on share premium
Issued ordinary shares at 24 November 2013
Warrant shares issued to Cavendish Square Partners
(General Partners) Ltd
Conversion of £0.10 ordinary shares to £0.001 ordinary shares
in preparation of IPO
Conversion of preference shares into ordinary shares
Transfer of own shares
Ordinary shares issued at listing
Share issue costs associated with listing
Number of
shares
750,000
–
750,000
19,228
76,153,572
1,715,910
–
26,073,332
–
Equity
share
capital
£’000
Share
premium
account
£’000
Own shares
£’000
75
–
75
–
–
–
–
30
–
712
22
734
2
–
46
–
49,770
(2,716)
(45)
–
(45)
–
–
–
45
–
–
–
Issued ordinary shares of £0.001 each at 30 November 2014
104,712,042
105
47,836
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.
28. Leases and commitments
Operating leases
The group leases various properties and equipment under non-cancellable operating leases. The terms of the property
leases vary, although they tend to be with rent reviews every three to five years and many have break clauses.
The total future value of minimum lease rentals payable is as follows:
Land and buildings
Within one year
Within one to five years
After five years
30 November
2014
£’000
24 November
2013
£’000
26,154
69,019
60,937
23,965
65,918
50,738
156,110
140,621
As set out in note 7 property rental income earned during the year was £3,253,000 (2013: £3,368,000). The majority
of the properties held have committed tenants for the next five years. All operating lease contracts contain market
review clauses in the event that the lessee exercises its option to renew. The lessee does not have an option to
purchase the property at the expiry of the lease period.
90 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 At the balance sheet date, the group had contracted with tenants for the following future minimum lease payments:
Within one year
Within one to five years
After five years
30 November
2014
£’000
24 November
2013
£’000
631
1,238
518
2,387
1,071
1,271
268
2,610
Finance leases
The group acquires the majority of its motor vehicles and computer equipment under hire purchase agreements and
such assets are generally classified as finance leases.
Future lease payments are due as follows:
Minimum lease payments payable
Not later than one year
Later than one year and not later than five years
Less future interest
30 November
2014
£’000
24 November
2013
£’000
2,320
1,814
4,134
(225)
3,909
2,447
3,294
5,741
(338)
5,403
Capital commitments
The group has capital commitments of £235,000 as at 30 November 2014 (24 November 2013: £223,000).
McColl's Retail Group Annual Report and Accounts 2014 91
Financial StatementsGovernanceStrategic Report 29. Consolidated cash flow statement
Profit for the period
Income and expenses not affecting operating cash flows
Depreciation and amortisation
Impairment losses
Income tax
Finance expense
Finance income
Share-based payment charge
Profit on disposal of fixed assets
Negative goodwill
Changes in operating assets and liabilities
Decrease/(increase) in trade receivables
Decrease/(increase) in other receivables
(Increase)/decrease in inventory
(Decrease)/increase in trade payables
Decrease in other payables
Decrease in pensions
Increase in provisions
Cash generated by operations
Income taxes paid
Net cash provided by operating activities
Analysis of net debt
Cash and cash equivalent
Borrowings
Amounts due under hire purchase obligations
Preference shares
53 weeks
ended
30 November
2014
£’000
52 weeks
ended
24 November
2013
Restated
(note 4)
£’000
9,907
5,142
12,676
270
2,730
9,517
(121)
5,532
(1,099)
(66)
39,346
53
2,669
(121)
(3,431)
(1,726)
(1,383)
1,635
37,042
(2,427)
34,615
11,740
1,013
(750)
18,594
(488)
–
(700)
(385)
34,166
(423)
(3,817)
555
3,333
(1,678)
(1,908)
1,754
31,982
(3,629)
28,353
At 24
November
2013
£’000
23,488
(104,194)
(5,403)
(46)
Cash
flow
£’000
(12,092)
63,162
1,494
–
(86,155)
52,564
Other
non-cash
movements
£’000
At
30 November
2014
£’000
–
(3,820)
–
46
(3,774)
11,396
(44,852)
(3,909)
–
(37,365)
The current period is a 53 week period and therefore cash flow is impacted by certain additional payments to creditors
and receipts from debtors, the combined impact of which is to increase cash outflow by £11,680,000 relative to a 52
week period.
30. Contingent liabilities
The group did not have any material contingent liabilities at 30 November 2014 or 24 November 2013.
Certain subsidiaries of the company have assigned UK property leases in the normal course of business. Should the
assignees fail to fulfil any obligations in respect of these leases, members of the group may be liable for those defaults.
The group cannot reliably quantify the amount of such contingent liabilities due to their uncertain nature. The number
of such claims arising to date has been small and the liability, which is charged to the profit and loss account as it
arises, has not been material.
92 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 31. Retirement benefit schemes
The group accounts for pensions in accordance with IAS19 revised.
The group operates two defined benefit pension schemes in the UK, the TM Group pension scheme and the
TM pension plan, in addition to several defined contribution schemes which require contributions to be made to
separately administered funds. Pension costs for defined contribution schemes were £1,042,000 in 2014 (2013: £825,000).
The two defined benefit pension schemes are subject to the UK regulatory framework for pensions, including
the Scheme Specific Funding requirements. The schemes are operated under trust and as such, the trustees of the
schemes are responsible for operating the schemes and they have a statutory responsibility to act in accordance with
the trust deed and rules, in the best interest of the beneficiaries of the schemes, and UK legislation (including Trust law).
The nature of the schemes exposes the group to the risk of paying unanticipated additional contributions to the
schemes in times of adverse experience. The most financially significant risks are likely to be:
• Members living for longer than expected;
• Higher than expected actual inflation;
• Lower than expected investment returns; and
• The risk that movements in the value of the schemes’ liabilities are not met by corresponding movements
in the value of the schemes’ assets.
The sensitivity analysis disclosed is intended to provide an indication on the impact on the value of the schemes’
liabilities of the risks highlighted.
Full actuarial valuations of the two defined benefit pension schemes are carried out in accordance with legislative
requirements. The last full valuations of the schemes were carried out at 31 March 2013.
Contributions to the schemes are made in accordance with the advice of independent qualified actuaries on the
basis of valuations. The figures for this financial information have been based, in accordance with IAS19 revised, on
valuations using the projected unit method.
The contributions made in respect of the accounting period were £1,376,000 in 2014 (2013: £790,000). As at 30
November 2014 contributions of £126,000 (2013: £67,000) due in respect of the current reporting period had not been
paid over to the schemes.
The agreed contribution level for future years following the latest actuarial valuation of the schemes, is £1,533,000 per
annum increased annually by price inflation. This will be subject to annual review and at the next actuarial valuation
the contribution level will be reassessed.
Both defined benefits schemes ceased accrual on 1 July 2008 and now have no active members. Both schemes are
closed to new entrants.
The disclosures are based upon the valuation of the schemes which were carried out as at 31 March 2013, updated
to 30 November 2014 by qualified independent actuaries. The main assumptions when valuing the assets and liabilities
of the schemes under IAS19 revised are as follows:
RPI inflation
CPI inflation
Rate of increase in pensionable salaries
Rate of increase to pensions in payment:
5% LPI
2.5% LPI
Discount rate
Group pension schemes
30 November
2014
%pa
24 November
2013
%pa
2.95
1.95
n/a
2.90
2.10
3.50
3.35
2.35
n/a
3.25
2.20
4.25
The long term expected return on assets has been set with reference to current market yields on government and
corporate bonds, and expected outperformance of equities and property. The overall expected return on assets
reflects the relative weighting of different asset classes held by the scheme.
None of the group’s own financial instruments or property, either held or occupied by the group, are held as assets
within either schemes.
McColl's Retail Group Annual Report and Accounts 2014 93
Financial StatementsGovernanceStrategic Report – male
– female
– male
– female
– male
– female
– male
– female
– male
– female
– male
– female
30 November 2014
TM Group
pension
scheme
TM
pension
plan
86.8
88.9
89.2
90.5
86.1
88.3
86.9
88.6
89.2
90.2
86.2
88.1
24 November 2013
TM Group
pension
scheme
TM
pension
plan
86.4
88.1
87.5
89.7
85.7
88.3
85.7
88.0
87.5
89.7
86.2
88.3
30 November
2014
£’000
24 November
2013
£’000
82,076
(75,572)
6,504
76,652
(72,084)
4,568
30 November
2014
£’000
24 November
2013
£’000
237
(197)
40
351
20
371
31. Retirement benefit schemes (continued)
Demographic assumptions
Life expectancy of a pensioner aged 65
Life expectancy at age 65 for someone aged 45
Life expectancy at age 45 for someone aged 45
Life expectancy of a pensioner aged 65
Life expectancy at age 65 for someone aged 45
Life expectancy at age 45 for someone aged 45
TM Group pension scheme
Notes to the balance sheet
Fair value of scheme assets
Present value of funded scheme obligations
Net pension asset
Notes to the income statement
Current service cost including administration expenses
Net interest on defined benefit asset
Total included in ‘staff costs’
94 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Notes to the statement of comprehensive income (SCI)
Return on assets excluding amounts included in net interest
(Losses)/gains due to changes in demographic assumptions
(Losses)/gains due to changes in financial assumptions
Gains due to plan experience
Less accrued contributions
Total recognised in SCI
Recognition of defined benefit obligation
Opening defined benefit obligation
Administration costs
Interest cost on defined benefit obligation
Losses/(gains) due to changes in demographic assumptions
Losses/(gains) due to changes in financial assumptions
Gains due to plan experience
Benefits paid including expenses
Closing defined benefit obligation
Reconciliation of fair value of scheme assets
Opening fair value of scheme assets
Interest income on scheme assets
Employer contributions
Return on assets excluding amounts included in net interest
Benefits paid including expenses
Closing fair value of scheme assets
30 November
2014
£’000
24 November
2013
£’000
7,114
(480)
(5,510)
480
1,604
(38)
1,566
2,374
1,714
771
402
5,261
–
5,261
30 November
2014
£’000
24 November
2013
£’000
72,084
237
2,958
480
5,510
(480)
(5,217)
75,572
75,743
351
2,955
(1,714)
(771)
(402)
(4,078)
72,084
30 November
2014
£’000
24 November
2013
£’000
76,652
3,155
372
7,114
(5,217)
82,076
75,421
2,935
–
2,374
(4,078)
76,652
The group expects to contribute £459,000 to the TM Group pension scheme in the period ended 29 November 2015.
The major categories of scheme assets as a percentage of total scheme assets are as follows:
Equity securities
Debt securities – Corporate
Debt securities – Government
Real estate
Cash and cash equivalents
30 November
2014
30 November
2014
24 November
2013
24 November
2013
15,829
44,270
17,814
3,723
440
19.3%
53.9%
21.7%
4.5%
0.6%
82,076
100.0%
16,269
41,173
15,545
3,282
383
76,652
21.2%
53.7%
20.3%
4.3%
0.5%
100.0%
McColl's Retail Group Annual Report and Accounts 2014 95
Financial StatementsGovernanceStrategic Report 31. Retirement benefit schemes (continued)
Policy for recognising actuarial gains and losses
The group recognises actuarial gains and losses immediately in the Statement of Comprehensive Income.
Sensitivity analysis – TM Group pension scheme
Change in assumptions compared with 30 November 2014 actuarial assumptions
0.5% decrease in discount rate
1 year increase in member life expectation
0.5% decrease in inflation
Change in assumptions compared with 24 November 2013 actuarial assumptions
0.5% decrease in discount rate
1 year increase in member life expectation
0.5% decrease in inflation
Change in
actuarial
value of
liabilities on
30 November
2014
£’000
5,377
2,267
(2,275)
Change in
actuarial
value of
liabilities on
24 November
2013
£’000
4,915
2,163
(2,004)
The sensitivities disclosed are calculated using approximate methods taking into account the weighted average
duration of the Scheme’s liabilities (14 years). This is the same approach as in previous years.
TM pension plan
Notes to the balance sheet
Fair value of plan assets
Present value of funded plan obligations
Net pension liability
Notes to the income statement
Current service cost including administration expenses
Net interest on defined benefit liability
Total included in ‘staff costs’
30 November
2014
£’000
24 November
2013
£’000
43,502
(48,702)
(5,200)
40,886
(45,728)
(4,842)
30 November
2014
£’000
24 November
2013
£’000
258
190
448
420
322
742
96 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Notes to the statement of comprehensive income (SCI)
Return on assets excluding amounts included in net interest
(Losses)/gains due to changes in demographic assumptions
Losses due to changes in financial assumptions
Gains/(losses) due to plan experience
Less accrued contributions
Total recognised in SCI
Recognition of defined benefit obligation
Opening defined benefit obligation
Administration costs
Interest cost on defined benefit obligation
Losses/(gains) due to changes in demographic assumptions
Losses due to changes in financial assumptions
(Gains)/losses due to plan experience
Benefits paid including expenses
Closing defined benefit obligation
Reconciliation of fair value of scheme assets
Opening fair value of plan assets
Interest income on plan assets
Employer contributions
Return on assets excluding amounts included in net interest
Benefits paid including expenses
30 November
2014
£’000
24 November
2013
£’000
2,540
(619)
(3,262)
427
(914)
(21)
(935)
3,813
1,152
(325)
(1,288)
3,352
–
3,352
30 November
2014
£’000
24 November
2013
£’000
45,728
258
1,893
619
3,262
(427)
(2,631)
48,702
45,689
420
1,783
(1,152)
325
1,288
(2,625)
45,728
30 November
2014
£’000
24 November
2013
£’000
40,886
1,703
1,004
2,540
(2,631)
43,502
37,447
1,461
790
3,813
(2,625)
40,886
The group expects to contribute £1,074,000 to the TM pension plan in the period ended 29 November 2015.
The major categories of plan assets as a percentage of total plan assets are as follows:
Equity securities
Debt securities – Corporate
Debt securities – Government
Real estate
Cash and cash equivalents
30 November
2014
30 November
2014
24 November
2013
24 November
2013
19,624
17,073
3,015
3,723
67
45.1%
39.2%
6.9%
8.6%
0.2%
43,502
100.0%
19,243
15,995
2,119
3,282
247
40,886
47.1%
39.1%
5.2%
8.0%
0.6%
100.0%
McColl's Retail Group Annual Report and Accounts 2014 97
Financial StatementsGovernanceStrategic Report 31. Retirement benefit schemes (continued)
Policy for recognising actuarial gains and losses
The group recognises actuarial gains and losses immediately in the Statement of Comprehensive Income.
Sensitivity analysis – TM pension plan
Change in assumptions compared with 30 November 2014 actuarial assumptions
0.5% decrease in discount rate
1 year increase in member life expectation
0.5% decrease in inflation
Change in assumptions compared with 24 November 2013 actuarial assumptions
0.5% decrease in discount rate
1 year increase in member life expectation
0.5% decrease in inflation
Change in
actuarial
value of
liabilities on
30 November
2014
£’000
3,813
1,461
(2,417)
Change in
actuarial
value of
liabilities on
24 November
2013
£’000
3,482
1,372
(2,147)
The sensitivities disclosed are calculated using approximate methods taking into account the weighted average
duration of the plan’s liabilities (15 years). This is the same approach as in previous years.
32. Related party transactions
Only the directors and senior managers are deemed to be key management personnel and they have 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.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate
for each of the categories specified in IAS24 related party disclosures.
Short term employee benefits
Compensation for loss of office
Share-based payments
30 November
2014
£’000
24 November
2013
£’000
2,816
282
5,513
8,611
2,841
–
–
2,841
There were no material transactions or balances between the group and its key management personnel or members
of their close family.
98 McColl's Retail Group Annual Report and Accounts 2014
Financial StatementsNotes to the financial statements continued53 week period ended 30 November 2014 Additional information (unaudited)
Pro-forma earning per share
Adjusted profit after tax
Net finance costs before exceptional items
Pro-forma finance costs
Tax effect of adjustments
Deduction for 53rd week
Pro-forma profit after tax
Shares in issue at 30 November 2014
Pro-forma earnings per share
53 weeks
ended
30 November
2014
15,229
6,230
(2,689)
3,541
(765)
(340)
17,665
104,712,042
16.9p
The IPO of the group took place part way through the period and therefore results for the period reflect three months
of the pre-IPO capital structure and the weighted average number of shares does not reflect the number of shares
in issue at the period end. Pro-forma earnings per share has been calculated to adjust for these factors. Pro-forma
finance costs have been calculated by extrapolating finance costs incurred since the IPO over the full accounting
period. A further deduction has been made to remove the impact of the 53rd week in the current period.
See note 6 on page 73 for full details of the exceptional items, unamortised financing costs, additional interest
and tax effect of these adjustments.
McColl's Retail Group Annual Report and Accounts 2014 99
Financial StatementsGovernanceStrategic Report Company balance sheet
30 November 2014
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Net assets
Shareholders’ equity
Equity share capital
Share premium account
Retained earnings
30 November
2014
£’000
Notes
3c
4c
5c
6c
7c
7c
8c
77
77
53,465
8,220
61,685
61,762
(5,866)
(5,866)
55,896
105
47,836
7,955
55,896
These financial statements of McColl’s Retail Group plc, registered number 08783477, were approved and authorised
for issue by the board of directors on 2 March 2015.
Signed on behalf of the board of directors
Jonathan Miller
Director
100 McColl's Retail Group Annual Report and Accounts 2014
Financial Statements Notes to the company financial statements
53 week period ended 30 November 2014
1c. Basis of preparation
McColl’s Retail Group plc was incorporated on 20 November 2013 as De Facto 2075 Limited. 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, by way of a share exchange agreement, and Martin McColl Retail Limited (formerly
McColl’s Retail Group Limited) became a wholly owned subsidiary of McColl’s Retail Group plc. Under IFRS3 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.
The company’s financial period is the period from incorporation on 20 November 2013 to 30 November 2014.
After making enquiries, the directors have a reasonable expectation that the company has adequate resources to
continue in operational existence for the foreseeable future. The directors have considered the company forecasts
and projections, taking account of reasonably possible changes in trading performance and the current economic
uncertainty, and are satisfied that the company 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.
The company has taken advantage of the exemption contained in Section 408(4) of the Companies Act 2006 from
presenting its own profit and loss account. The company made a profit after tax of £4,600,000.
The company has taken advantage of the exemptions in FRS1 ‘Cash flow statements’ and has not prepared a cash
flow statement.
Accounting policies have been applied consistently throughout the period.
The company has not disclosed transactions with related parties that are part of the Martin McColl Retail Limited
(formerly McColl’s Retail Group Limited) group of companies, which are wholly owned, as permitted by FRS8
‘Related Parties’.
2c. Significant accounting policies
Investments
Fixed asset investments are shown at cost less provision for impairment.
Taxation
Current tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance
sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less
tax in the future have occurred at the balance sheet date.
Deferred tax assets are recognised only to the extent that the directors consider that, on the basis of all available
evidence, it is more likely than not that there will be suitable taxable profits from which the future reversal of the
underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which
timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
McColl's Retail Group Annual Report and Accounts 2014 101
Financial StatementsGovernanceStrategic Report 3c. Investments
Shares in subsidiaries
Cost
Additions
At 30 November 2014
30 November
2014
£’000
77
77
The carrying value of the investment in subsidiary undertakings has been reviewed at 30 November 2014 and no
impairment charge is required.
To avoid a statement of excessive length, details of investments which are not significant have been omitted.
The following information relates to those subsidiary undertakings whose results or financial position, in the opinion
of the directors, principally affected the company during the period:
All held by a subsidiary undertaking unless stated.
Country of registration
(or incorporation)
and operation
England and Wales
Scotland
England and Wales
England and Wales
England and Wales
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Holding
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Proportion
of voting
rights and
shares held
Nature
of business
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Property Company
Retailing
Retailing
Intermediate Holding Company
Retailing
Retailing
Predecessor Holding Company
Intermediate Holding Company
Intermediate Holding Company
Retailing
Intermediate Holding Company
Intermediate Holding Company
Corporate activities
Intermediate Holding Company
Name of company
Bracklands Limited
Clark Retail Limited
Dillons Stores Limited
Key Food Stores Limited
Martin McColl Limited
Martin Retail Group Limited
Martin McColl Retail Limited*
Price Smasher Limited
Smile Holdings Limited
Smile Stores Limited
Thistledove Limited
TM Group Holdings Limited
TM Vending Limited
Tog Limited
* 100% held by the company.
4c. Trade and other receivables
Amounts owed by group undertakings
5c. Cash and cash equivalents
Cash at bank
6c. Trade and other payables
Amounts owed to group undertakings
102 McColl's Retail Group Annual Report and Accounts 2014
30 November
2014
£’000
53,465
30 November
2014
£’000
8,220
30 November
2014
£’000
5,866
Financial StatementsNotes to the company financial statements continued53 week period ended 30 November 2014 7c. Authorised, issued and fully paid share capital
Issued ordinary shares at 20 November 2013
Transfer of Martin McColl Retail Limited (previously McColl’s
Retail Group Limited) shares
Conversion of £0.10 ordinary shares to £0.001 ordinary
shares in preparation of IPO
Conversion of preference shares into ordinary shares
Ordinary shares issued at listing
Share issue costs associated with listing
Number of
shares
2
769,226
769,228
76,153,572
1,715,910
26,073,332
–
Equity
share
capital
£’000
Share
premium
account
£’000
–
75
75
–
–
30
–
–
736
736
–
46
49,770
(2,716)
Issued ordinary shares of £0.001 each at 30 November 2014
104,712,042
105
47,836
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.
8c. Reconciliation of shareholders’ funds and movement on reserves
As at 20 November 2013
Issue of share capital (note 7c)
Profit for the period
Credit for share-based payments
Interim dividend paid
Equity
share
capital
£’000
Share
premium
account
£’000
Profit and
loss account
£’000
–
105
–
–
–
105
–
47,836
–
–
–
47,836
–
–
4,644
5,091
(1,780)
7,955
Total
£’000
–
47,941
4,644
5,091
(1,780)
55,896
9c. Dividends
The board has recommended a final dividend of 6.8 pence per share (2013: nil), totalling £7,120,000, subject to
shareholder approval at the annual general meeting to be held on 17 April 2015. The final dividend will be paid on
29 May 2015 to those shareholders on the register at the close of business on 1 May 2015. The payment of this dividend
will not have any tax consequences for the company. The interim dividend, declared and paid, was 1.7 pence per
share (2013: nil), totalling £1,780,000.
10c. Related party transactions
The company has not disclosed transactions with related parties that are part of the McColl’s Retail Group Limited
group of companies, as permitted by FRS8.
McColl's Retail Group Annual Report and Accounts 2014 103
Financial StatementsGovernanceStrategic Report Contacts, addresses and
shareholder information
Contacts and
addresses
Company registration number
08783477
Head office
McColl’s Retail Group plc
McColl’s House
Ashwells Road
Brentwood
Essex
CM15 9ST
Telephone: 01277 372916
Email: fclass@mccolls.co.uk
ISIN: GB00BJ3VW957
Shareholder
information
Registrar
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone 0871 664 0300
(or from outside the UK: +44 208 639 3399).
Calls to this number cost 10p per minute plus network
extras. Lines are open Monday – Friday, 9.00am – 5.30pm
(excluding UK public holidays).
Web Portal: www.capitashareportal.com
Corporate Broker
Numis Securities Limited
The London Stock Exchange building
10 Paternoster Square
London EC4M 7LT
Legal Advisors
Travers Smith LLP
10 Snow Hill
London EC1A 2AL
Independent Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Company Secretary
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
104 McColl's Retail Group Annual Report and Accounts 2014
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McColl’s Retail Group plc
McColl's House
Ashwells Road
Brentwood
Essex
CM15 9ST
T: 01277 372916
www.mccolls.co.uk
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