Your
Neighbourhood’s
favourite shop
McColl’s Retail Group plc
Annual Report and Accounts 2018
It’s been an incredibly busy couple of years for McColl’s,
integrating a major acquisition, launching an extensive
refresh programme and transitioning to a new wholesale
supply partner, whilst dealing with unprecedented supply
chain disruption, which has impacted like-for-like sales
and profitability.
However, we have never lost our focus on improving the
customer experience and providing convenient services to
local communities. We remain committed to our vision to be
your neighbourhood’s favourite shop.
McColl’s Retail Group plc Annual Report and Accounts 2018
Revenue*
£1.24bn
+8.1% 2017
Adjusted EBITDA**
£35.0m
-20.5% 2017
Earnings per share
5.9p
-51.7% 2017
Profit before tax
£7.9m
-57.3% 2017
Net debt**
£98.6m
–30.7% 2017
* To better reflect the core operations of the Group, Post Office
revenue, previously included in other operating income, is now
recognised in statutory sales. In order to ensure comparability 2017
full year revenue, gross margin, gross profit and other operating
income have been restated.
** The Group has defined and outlined the purpose of its alternative
performance measures, including its key measures, in the glossary
of terms on pages 125–126. Full details of adjusted EBITDA
can be found in note 6 on page 102.
Strategic report
Chairman’s statement
Where we operate
Market overview
IFC 2018 highlights
2
4
6
10 What we offer
12 Our business model
14 Chief Executive’s review
22 Our key performance indicators
23
27
34
Financial review
Social and environmental review
Principal risks and uncertainties
Governance
39 Chairman’s governance statement
39 Compliance with the UK Corporate
Governance Code
Board of Directors
Retail Board
40
42
44 Corporate governance report
48 Nomination Committee report
Audit & Risk Committee report
52
Directors’ remuneration report
57
Directors’ remuneration policy
59
66 Annual report on remuneration
74
80 Directors’ responsibilities statement
Directors’ report
Financial statements
81
Independent Auditor’s report to the
members of McColl’s Retail Group plc
91 Consolidated income statement
Consolidated statement of
91
comprehensive income
92 Consolidated statement of financial position
93 Consolidated statement of changes in equity
93 Consolidated statement of cash flows
Notes to the financial statements
94
121 Company balance sheet
121 Company statement of changes in equity
122 Notes to the Company financial statements
125 Glossary of terms
IBC Contacts, addresses and
shareholder information
2018 highlights
Strategic report
Governance
Financial statements
Continued strategic progress,
despite supply chain challenges
The start of a new partnership
18 months on from signing our partnership, Morrisons
has helped us navigate a supply chain crisis and
established a brand new distribution network to
supply 1,300 of our stores across the UK.
Read more
Page 15
An exclusive deal bringing
Safeway back to the shelves
We have been delighted to bring the Safeway
brand back to the shelves. Customers love the
freshness and quality of the products and there
is a great opportunity to develop the range.
Read more
Page 16
Showcasing a great fresh offer
In 2018 we embarked on our refresh programme
following its successful trial. The completely
refurbished stores showcase our great fresh
and chilled range, as well as our rapidly growing
food-to-go offer and are delivering sustained,
meaningful sales uplifts.
Read more
Page 19
1
Chairman’s statement
A year of
transition
It’s been a challenging year as the McColl’s team
have navigated their way through unprecedented
supply chain disruption. Having transitioned 1,300
of our stores to a new wholesale supply partner,
the business can now look forward to rebuilding
momentum and capitalising on the opportunities
that lie ahead.
“ The team have shown
enormous strength,
determination and
resilience.”
2 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
The business began the 2018 financial year with
great confidence, having successfully integrated
a major acquisition and signed a new wholesale
supply agreement with Morrisons.
However, just days into the new year we
experienced a significant setback following the sad
failure of Palmer & Harvey (P&H). The loss of supply
to 700 stores created major disruption and required
us to put in place an interim supply solution for nine
months, during which we accelerated the transition
of 1,300 stores to Morrisons supply.
Moving to a new wholesale supply partner, at a
much faster pace than anticipated, created its own
challenges and severely disrupted our plans for the
launch of Safeway. We are working with our partner
Morrisons and remain confident that together we
can develop an optimal range and promotional
offer for the future.
Strong cash performance and new financing
arrangements provide flexibility
Whilst the considerable supply chain disruption we
suffered held back like-for-like (LFL) sales and profit,
the business continues to generate very strong
cash returns. In the year, we have benefited from
significant working capital improvements as we’ve
transitioned to our new wholesale supply partner.
We have also realised proceeds from the sale and
leaseback of a number of freeholds we acquired as
part of our acquisition in 2017. This has allowed us to
continue to invest in our strategic initiatives that will
drive future growth, such as new store acquisitions
and our store refresh programme, as well as pay
down debt more quickly than anticipated.
In addition, in the second half of the year we
engaged with our banking syndicate, and have
amended our financing arrangements to give us
more flexibility to execute our business plans.
Dividends
We need to give careful consideration to our cash
allocation, striking the right balance between
investing in the business, reducing our debt and
providing returns to shareholders.
The Board is recommending a final dividend of 0.6
pence per share, making a total dividend for the
period of 4.0 pence, as part of our commitment to
provide returns to shareholders. This dividend will be
paid on 6 June 2019, to shareholders on the register
at the close of business on 26 April 2019, subject
to approval at the forthcoming Annual General
Meeting. Our policy of a 50% payout ratio to profit
after tax (before adjusting gains but after adjusting
losses) is unchanged.
Strengthening the Executive team
I’m delighted that after a rigorous and extensive
search, Robbie Bell has recently joined the business
as Chief Financial Officer. Robbie has over 20 years
of finance and retail experience, most recently as
CEO of Welcome Break, and previously in senior
finance roles at Screwfix, Travelodge and Tesco.
He is a great addition to the Board and as he settles
into his new role I am confident that the business will
benefit from his extensive experience and expertise.
We have made a number of additional senior
appointments during the year, including Tim Fairs,
our first Customer Director, and Greg Goodwin
who joined us in the newly created role of Head
of Buying. We are committed to bringing in
commercially focused talent to support the
business in the future.
I’d also like to thank Simon Fuller for the significant
contribution he has made during his time as CFO
at McColl’s.
Looking forward
Jonathan and the team have shown enormous
strength, determination and resilience in the face
of immense challenges, and after an exceptionally
difficult 2018 we begin 2019 with a more secure
supply chain.
In the coming year, the business can move forward
with a renewed focus on customers and the core
elements of convenience retailing, to rebuild
confidence and momentum.
Ensuring a strong balance sheet will be imperative
and we will maintain good capital discipline,
exploring opportunities to take further action to
reduce our debt whilst maintaining appropriate
levels of investment in the business.
Whilst it may take longer than anticipated to deliver
the benefits of the Morrisons partnership this will be
important to our continued transition to a food-led
convenience offer. With the distribution network
firmly established we can continue to enhance
our offer, through further development of Safeway
as we realise further value from the relationship.
Although Brexit and the current political
environment continues to create uncertainty for
businesses and consumers, food and grocery
retail has a history of resilience during economic
downturn and long-term social and lifestyle trends
support growth in the convenience channel.
The Board remains committed to our strategy and,
as we get back on track, we can look forward to
a brighter future.
Angus Porter
Chairman
3
Where we operate
Serving communities
across the UK
Through our network of convenience stores
and newsagents we provide essential
groceries and neighbourhood services to
1,556 local communities across the UK.
2011
47%
Convenience
2018
81%
Convenience
5
8
8
1,263
stores
5
7
6
3
0
3
1,556
stores
1
,
2
5
3
Convenience stores
Newsagents
4 McColl’s Retail Group plc Annual Report and Accounts 2018
Scotland
174 37
1,556
Total stores
North
West
216 30
North
East
71
9
Yorkshire
and Humber
122 14
East
Midlands
73 16
West
Midlands
60 30
East
of England
121 73
Wales
48
5
South
East
London
13 10
188 55
South West
167 24
Number of stores
0 – 100
101 – 200
200+
Convenience stores
Newsagents
Convenience stores
Newsagents
Strategic report
Governance
Financial statements
Convenience stores
McColl’s has a long and rich history and we
can trace our roots back to 1901 when the
first RS McColl opened. In 1994, the strategy to
convert to convenience was launched and the
Group’s first food-based stores were opened.
Since then we have grown through acquiring
new convenience stores as well as converting
our newsagents.
Today, we are a leading neighbourhood retailer
with 1,253 convenience stores across the UK.
Refreshed stores 2018
Since our early pilots at
the end of 2016 we have
completely refitted 86 of
our convenience stores as
part of Project Refresh, and
these stores are delivering
good, sustainable sales
uplifts. We believe there
are another c.400 stores
that could benefit
from this treatment.
4
0
0
8
6
Newsagents
Our newsagents are an established part
of the business and they have provided a
valuable foundation for our continued growth
in convenience through our programme
of conversions.
Our newsagents are branded Martin’s across
the UK, except in Scotland where we operate
under our heritage brand, RS McColl.
1,253
Convenience stores
59in 2018
303Newsagents
5
Market overview
Macro conditions
Economic outlook
For 2018 as a whole, UK GDP growth slipped to its lowest since
2012, and slowed in the final quarter as all three drivers –
services, production and construction, shrank during December.
Although it remains difficult to predict how the UK economy will
perform in the months ahead, assuming the planned exit from
the European Union takes place smoothly, growth is expected to
remain modest, reflecting the drag on business investment from
ongoing economic and political uncertainty. However, higher
government spending and short-term tax cuts announced in
the 2018 Autumn budget should provide some boost to growth
in 2019.
Source: Office for National Statistics, PwC UK Economic Outlook, November 2018.
GDP growth
3
2
1
2016
2017
2018(F)
2019(F)
Source: ONS for 2016-17, PwC main scenario for 2018-19
Food prices top personal
economic concerns
Over the course of 2018 consumer confidence has
been subdued and towards the end of the year
fell, despite the easing of inflationary pressures, as
consumers worried about the economic outlook for
the next 12 months amidst uncertainty around Brexit.
Only 20% of consumers expect to be better off
financially in the year ahead and the top personal
economic concern for shoppers is food prices with
80% of shoppers expecting food and grocery prices
to increase over this time period.
Shoppers’ top personal economic concerns
for the year ahead
Food prices
Energy bills
Petrol prices
No wage increase
Interest rates
46%
33%
26%
Tax and benefit changes
20%
Change in personal circumstance
19%
Job insecurity
13%
House prices
11%
None of these
7%
Other
4%
Don’t know
4%
64%
56%
Brexit
The planned exit from the European Union (EU)
creates some risks and uncertainties for many UK
businesses, including grocery retailers.
It is estimated that around a third of the food we eat
in the UK is sourced from the EU. In the event of a
no-deal Brexit import tariffs could be higher, increasing
the cost of goods, and import delays could mean
short shelf life products expire before they can reach
their destination. A number of grocery retailers,
including Morrisons and the Co-op have applied for
‘approved economic operator status’, which means
that goods will be fast tracked through customs,
reducing the risk with their non UK suppliers.
The sector could also be impacted by a potential
shortage of low skilled workers if a restriction on
free movement is imposed following Brexit.
As the scheduled date for leaving the EU approaches
consumer spending has been restrained, and
until there is greater clarity on the exit process
it is difficult to predict the impact on retailers.
Read more about how McColl’s is mitigating risks
associated with Brexit Page 38
6 McColl’s Retail Group plc Annual Report and Accounts 2018
Source: IGD Shopper Vista 2018, KPMG-BRC Retail Sales Monitor
Dec 2018.
However, the grocery sector has a proven record
of withstanding economic downturn and in recent
periods of uncertainty consumers have tended
to manage their budgets by shopping little and
often, locally. Therefore, the convenience channel
in particular can benefit from, broader negative
economic trends.
Source: The British Retail Consortium (BRC).
Competition in the grocery sector
remains intense
The grocery sector remains intensely competitive
and 2018 has been another year of significant
change as businesses look to gain strength
and scale through acquisitions, mergers and
partnerships, including the proposed merger
of the second and third largest retailers in
the sector.
Although the hot summer and the World Cup
provided a boost, towards the end of the year
sales have slowed across the sector, and price
competition between retailers has driven a
slowdown in food inflation despite increasing
input prices.
One of the main drivers of competition is that
shoppers continue to use a range of channels for
their grocery shopping. On average they use four
to five channels per month, with nearly all shoppers
visiting a supermarket or hypermarket, and nine out
of ten visiting a convenience store. Shoppers are
also increasingly combining channels with 76%
using four or more channels in the last four weeks,
and half of shoppers having visited a large store,
convenience store, food discount store and variety
discounter in the last four weeks.
Despite a recent slowdown growth is forecast across
all the major grocery channels over the next five
years, with online and discount set to account for
over half of the increase in market value to 2023.
Source: IGD Shopper Vista 2018, IGD Channel Forecasts June 2018.
Strategic report
Governance
Financial statements
Convenience trends
Solid growth in
convenience continues
Long-term lifestyle and societal trends continue
to impact the way we shop with more people
choosing to shop little and often, locally.
For example, longer life expectancy, more single
person households, lengthy commutes and
a greater emphasis on leisure time all support
convenience shopping and it has been one of
the fastest growing channels in the UK grocery
market over the last five years.
Over the next five years, the Institute of Grocery
Distribution (IGD) are expecting this trend to
continue and are forecasting solid growth in
convenience, with the channel adding a further
£7.1bn in value in the next five years, representing
a compound annual uplift of 3.3%.
£218.5bn
£190.3bn
2023
2018
2023
2018
2023
2018
£47.2bn
£40.1bn
£31.5bn
£23.1bn
2023
£16.7bn
2018
£16.4bn
2023
£17.3bn
2018
£11.4bn
2023
£9.9bn
2018
£10.2bn
Supermarkets
Discounters
Online
Opportunities to consolidate
a highly fragmented channel
The convenience channel remains highly
fragmented and around three-quarters of the
c.46,000 UK stores are independently owned.
The number of stores has been fairly static in recent
years with fewer opportunities for new greenfield
and brownfield sites. However, there remains plenty
of opportunity for consolidation, particularly for
retailers with a flexible operating model.
ti v e s 28% 72%
10%
7%
e r a
p
6%
17%
ains and c o- o
ltiple c
h
10%
u
M
2%
29%
36%
31%
e sses
u sin
S m a ll b
Unaffiliated independents
Co-operatives
Symbol groups
Forecourts
— Independents
— Multiples
— Multiples
— Independents
Convenience
Hypermarkets
Other retailers
Multiples
Source: IGD Channel Forecast June 2018.
Source: IGD Research, Wm Reed Business Media, Experian Catalist.
7
Market overview continued
The top-up shopping mission
remains popular, and shoppers
value convenience
The traditional top-up shop is still the leading
driver of convenience store visits and it accounts
for around half of all shopping missions.
Two key product categories for top-up shopping
are chilled foods and alcohol, and together these
contribute over 28% of total convenience store sales.
Whilst it is in long-term decline, the newsagent
mission remains important with one in five shoppers
claiming to have last visited a convenience store
for tobacco, news or lottery. Within this, tobacco
remains the largest single product area, with its
value supported by ongoing manufacturer price
rises and duty increases, despite falling volumes.
Food-to-go and evening meal solutions are growing
categories as these are two time-saving missions
that are very popular with younger customers.
Shoppers are prepared to pay more to shop in
convenience stores and 40% say they shop at their
nearest store even though it is more expensive.
This rises to over 50% for post millennials born
between 1992 and 1999.
However, the premium shoppers are prepared
to pay for convenience has somewhat reduced in
the last four years, with customers expecting to pay
on average 10% more than in a larger store versus
14% more in 2014.
Source: IGD Shopper Vista 2018, HIM! Convenience Tracking
Programme 2018.
8 McColl’s Retail Group plc Annual Report and Accounts 2018
Shopping missions claimed to be conducted on
shoppers’ last convenience store visit
Food-to-go
Top-up shop
Tobacco/
news/lottery
Evening
meal
Source: IGD Shopper Vista 2018. Scale of
circles indicates proportion of shopping
missions conducted.
Non-food
Main
shop
Saving time is a priority and
choice is becoming increasingly
important
The reasons for visiting a convenience store can
significantly differ by shopper type, with older
shoppers favouring their convenient location
and younger shoppers choosing to shop in
convenience stores because it’s quicker and
easier in store.
There has also been a significant increase in
shoppers choosing convenience stores for the
good choice of products as retailers continue to
expand, develop and define their ranges in small
stores. Almost a quarter of shoppers now claim this
is their reason for shopping in a convenience store
compared to less than 20% 12 months ago.
79%
51%
It is a convenient location
It was quicker/easier
It has good quality products
23%
It has good choice/availability
23%
It helps me to save money
9%
It’s more enjoyable
8%
Source: IGD Shopper Vista 2018.
What our customers like
“ I feel like a
somebody
in McColl’s.”
Strategic report
Governance
Financial statements
“ You’ve got good
staff and that
makes all the
difference.”
“ I think the
Safeway range is
just as good as a
supermarket.”
9
What we offer
Our vision is to be
your neighbourhood’s
favourite shop
Every community is different and with our flexible
model we tailor our offer to meet the needs of local
neighbourhoods, offering a wide range of groceries,
everyday essentials, and useful services.
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See our business model
Page 12
10 McColl’s Retail Group plc Annual Report and Accounts 2018
Customer focus
Local
Our warm and friendly colleagues provide
excellent customer service and are a driving
force in our journey to becoming your
neighbourhood’s favourite shop.
Being at the heart of neighbourhoods,
with long opening hours, means we’re a
convenient choice for lots of our customers.
1/3
Around a third of our
customers visit us
every dayday
58%
of customers live or work
within 400m of their
local McColl’s
Strategic report
Governance
Financial statements
Products
With essential food and groceries, fresh fruit
and vegetables, ready meals and freshly
prepared food-to-go, we cater for a wide
variety of customer needs and missions.
The new Safeway range offers quality food
at a price that makes it easier to eat well.
Everyday services
Communities
We think of ourselves as a neighbourhood
hub – providing great products and useful
services, close to where people live, and
available when they need them.
We know just how important it is to support
communities around our stores. We’ve been
able to help hundreds of local organisations
and good causes through the ‘Making a
Difference Locally’ programme.
12%
year-on-year increase in fresh,
chilled and frozen food sales
591
Post Offices
500+
local organisations
and good causes
supported
11
Our business model
Our vision is to become your
neighbourhood’s favourite shop
through our strategy focused on
increasing our neighbourhood
presence, growing our
convenience offer and providing
excellent customer service.
The resources and
relationships we need
How we manage
our supply chain
Colleagues
Our colleagues are our most important asset and a key driver
in our vision to become your neighbourhood’s favourite shop.
Stores
We operate 1,556 stores across the UK comprising of 1,253
convenience stores and 303 newsagents. We directly manage all
of our stores which means we can ensure strong retail standards.
by
We have a long-term partnership with
Morrisons. They supply c.1,300 of our
convenience stores and newsagents with
a range of branded products as well as a
best in class ‘own label’ range of fresh food
and groceries through the Safeway brand.
Our business model is underpinned
by our core values:
Partners & suppliers
Our ability to run our stores efficiently relies on
a strong relationship with our supply partners.
We buy from wholesale distributors which means
we do not have the investment and working
capital costs associated with a distribution
network. It gives us greater flexibility and
allows us to focus on our retail operations.1
Customer
first
Simple and
consistent
Caring and
compassionate
Community
champions
1
In addition, a number of non-grocery categories are delivered directly by
specialist suppliers, including news & magazines, and greetings cards.
2 HIM! Convenience Tracking Programme 2018.
3 See glossary of terms on page 125 for definition
12 McColl’s Retail Group plc Annual Report and Accounts 2018
12 McColl’s Retail Group plc Annual Report and Accounts 2018
Brand & reputation
The McColl’s name has been around for over 100 years.
Our brand and reputation are important to us and as the
business evolves we are helping customers understand
what they can expect from McColl’s.
IT
The information systems we have in place are crucial to
the smooth running and efficiency of our business, and we
continue to invest to ensure our systems are fit for purpose.
Robust financials
We need a resilient balance sheet to invest in our strategic plans.
Nisa supply the c.300 convenience stores
that we acquired in 2017. These stores will
transition to Morrisons supply over time.
What makes us a leading neighbourhood retailer
The value this creates
Strategic report
Governance
Financial statements
58%
of our customers
live within 400m
of our stores
o c a l
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ustomer focus
9.3
On average customers rate
us 9.3 out of 10 for colleague
friendliness/helpfulness2
7 days
Our stores are open
seven days a week
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the year
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500+
local organisations
and good causes
supported
Customers
We provide access to essential services,
fresh food and grocery products for
millions of people.
5m
customers
every week
Colleagues
We are committed to looking after our
colleagues so that they can look after
our customers.
>90%
enjoy working
for McColl’s
Social
Our stores are run by local people for local
people which gives us a strong sense
of community. We support a wide range
of local organisations and good causes.
500+
local organisations
Economic
We are investing for long-term growth,
which helps both our suppliers and the
overall UK economy prosper.
£25.3m
gross capital
expenditure3
Shareholder returns
We are committed to delivering value to
shareholders and sharing in our success
through dividends.
4.0p
full year dividend
Margins
In the longer term a strengthening mix
in our sales will drive improvement in our
gross margin as we become less reliant
on low margin traditional categories.
26.0%
gross margin
Strong cash generation
We are a cash generative business that
enables us to manage our debt and invest
in our strategic plans. In 2019 net cash was
supported by proceeds from sale and
leaseback transactions and working
capital improvements.
£61.8m
Net cash from
operating activities
13
Chief Executive’s review
Getting back
on track
In approaching 30 years in the business I have
never known a year as challenging as 2018.
However, I couldn’t be prouder of the McColl’s
team and how we have all pulled together in the
midst of unprecedented supply chain disruption.
We move into 2019 with a more stable and secure
distribution network, and we remain a profitable,
cash generative business. As we work to get back
on track there are plenty of opportunities to grow.
We began the new financial year with the business
in great shape. We had just surpassed the milestone
of £1bn of annual revenues, with an improving
sales trend and a strengthening product mix and
margin. We were also excited to begin working with
our new wholesale partner, Morrisons, and were
making preparations for the launch of Safeway.
However, just 48 hours into the year we received
the sad news that P&H, the wholesale supplier to
700 of our convenience stores and newsagents,
had entered into administration and deliveries
would cease immediately.
In those early weeks, in the build-up to the
busy festive period, we experienced significant
availability issues as we established an interim
supply solution with the help of our existing
wholesale supply partner, Nisa, and our new
partner, Morrisons. We are extremely grateful
to both of them for their support.
14 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
A fresh
partnership
1,300
Stores supplied
Morrisons began supplying our stores with
a range of branded products, as well as a
best in class ‘own label’ range of fresh food
and groceries through the Safeway brand,
in January 2018. The phased rollout was
accelerated following the collapse of P&H
and the transition of 1,300 stores completed in
August 2018, three months ahead of schedule.
15
Chief Executive’s review continued
Renowned for British
quality
and value
Safeway is known for offering good value on
everything from milk and juice to British meat and
vegetables. We’re committed to serving up quality
food at a price that makes it easier to eat well.
With a new range of around 350 Safeway products
including convenience store essentials from a
name they can trust, our customers can enjoy great
tasting food and drink – knowing that they are
getting freshness and quality at their convenience.
350
Safeway
products
16 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Whilst we were able to largely ensure continuity
of supply within a number of weeks, the interim
solution was complex and more costly. It also
diverted management focus from some of our
wider strategic initiatives as we prioritised securing
the supply chain.
Morrisons enabled us to re-establish tobacco supply
within a week and agreed to accelerate the planned
transition of 1,300 stores in 2018. This completed in
August, three months ahead of schedule.
Setting up a national distribution network from
scratch was an enormous undertaking and
accelerating this process understandably created
some operational issues which have impacted
availability. This is improving week by week and we
expect these issues to further improve as we move
through 2019.
Prioritising the transition has also set back some of our
wider plans including range development, and
improving some of our cost prices. We are working
together to develop an optimal range
and promotional programme for our customers.
In the year, these supply chain impacts, in addition
to the dilutive effect of a robust performance on
tobacco, have weighed down on our gross margin,
which has declined by 0.8%.
However, given the challenges we have faced,
we scaled back our programme, acquiring 11 new
convenience stores during the year, and we expect
to complete a small number in 2019.
Increasing our presence is also about fostering
strong links with the communities we serve.
Our neighbourhood locations and local colleague
base provides us with regular opportunities to
connect with customers.
Increase neighbourhood presence
Following the major acquisition of 298 convenience
stores in 2017, we resumed our single store
acquisition programme. There is no shortage
of opportunities, with around three-quarters of
the UK’s 46,000 convenience stores remaining
independently owned.
In the last five years we have supported well over
500 local good causes, including scout groups,
schools, hospitals and local charities. All of these
have been chosen by colleagues and customers
in our stores.
Vision
Goals
Key building
blocks
Values
Your
neighbourhood’s
favourite shop
1.
Growing
convenience
offer
2.
Excellent
customer
service
3.
Increase
neighbourhood
presence
Brand
Offer
Customer
Stores
Colleagues
Customer
first
Simple and
consistent
Caring and
compassionate
Community
champions
1
2
Growing convenience offer
Working with our carefully selected supply
partners we offer an ever-greater range of
products and services to meet the evolving
needs of neighbourhoods across the UK.
Excellent customer service
Understanding customers and doing
everything that we can to meet their
everyday needs is at our core. We strive
to build loyalty and strengthen our
reputation in the neighbourhoods we serve,
by providing a warm and friendly welcome
along with a host of services that make the
lives of our customers easier.
3
Increase neighbourhood presence
We will grow our neighbourhood
presence by strengthening our brand
and acquiring new stores. We will continue
to play an important role in supporting the
communities we serve.
17
Chief Executive’s review continued
We have seen good growth in our average
basket size which was up by 37p to £5.99. This was
supported by the EUTPD2 regulations, introduced
in May 2017, banning the sale of smaller packs of
tobacco, and by growth in top-up shopping as we
have grown grocery sales.
Food-to-go remains a small but growing category
with lots of potential, as more meals are eaten
outside of the home. We’ve extended our offer
during the year and now have approaching 400
stores with a hot food-to-go offer and around 600
with a coffee unit. We now have 23 Subways trading,
including the first of the new fresh forward concept.
Our store refresh programme presents a tremendous
opportunity to grow our convenience offer and
unlock the value inherent in our existing estate.
During the year, we completed 59 refreshes,
redesigning the store layout to provide more
refrigerated space for chilled foods and new
In addition, the recent launch of our social media
channels (Facebook, Twitter and Instagram)
is giving us new ways to engage with customers
and get valuable feedback.
Growing convenience offer
We have taken an important step in growing our
convenience offer with the launch of Safeway.
The range of around 350 fresh, chilled and ambient
groceries, and household products is now available
in the majority of our stores and over time it will roll
out to the entire estate. We are delighted with the
quality of the products and customer feedback so
far has been excellent.
We have seen good growth in a number of
categories following the launch, including fresh
meat and fruit and vegetables, but this has
been offset to some extent by deflation as we’ve
introduced lower price points on popular lines,
such as eggs, microwave rice and soft drinks.
The accelerated transition to Morrisons supply led
to a more rapid launch of Safeway than we had
originally planned and constrained our ability to fully
establish and promote the new range. As a result of
this, and some challenges with availability, we have
yet to see the meaningful increase in overall store
performance that we would ultimately expect.
Despite this we have made progress towards our
strategic target for grocery and alcohol to be our
biggest sales category. It now represents over a third
of our sales, and as we develop the Safeway range
over the coming months we expect this to increase
further. We are also commencing a full range review
process, to respond to customer trends and get
the most out of our newly established supply chain.
1 HIM! Convenience Tracking Programme 2018.
18 McColl’s Retail Group plc Annual Report and Accounts 2018
food-to-go fixtures. These stores support a broader
range of convenience products and we are seeing
sustained sales uplifts of over 5%. In 2019, we plan to
continue with our refresh programme and expect
to complete a further 20–30 stores.
Excellent customer service
Our biggest strength has always been our warm
and friendly colleagues and this year has been no
different. We continue to score very highly in terms
of colleague friendliness and helpfulness, and their
dedication and hard work has meant that in a
recent survey we have improved on every single
customer metric, despite the challenges of the last
12 months.1
A great shopping trip at McColl’s also involves
access to a range of useful neighbourhood services.
It is a growing part of our offer and customers
are twice as likely to visit our stores for this reason.
We now have around 850 internet collection and
return points and we’ve cemented our position
as the UK’s largest operator of Post Offices. We’ve
opened over 25 in the year and plan to open
another 20 in the year ahead.
Strategic report
Governance
Financial statements
Continued
investment
59
Stores refreshed
in 2018
We began our refresh programme in 2016
with our first pilot stores. Our refresh stores,
are completely redesigned around shopping
missions with more space dedicated to fresh
and chilled foods and a greater focus on
food-to-go. We’ve now completed 86 stores
and they are delivering sustained sales uplifts
of over 5%.
19
Chief Executive’s review continued
Post Office Retailer of the Year
McColl’s Queensway Worle in Weston-super-Mare was awarded Post Office
Retailer of the Year at the Retail Industry Awards 2018.
The Post Office is an important partner to McColl’s, attracting over 600,000
visits to our stores every week. We know that it is the service that has the
most positive impact on a local area1 and we’re proud to be the UK’s largest
Post Office partner with around 600 branches.
1 Association of Convenience Stores (ACS) Local Shop Report 2018.
20 McColl’s Retail Group plc Annual Report and Accounts 2018
Whilst our existing financing is in place until mid-2021,
to ensure that we maintain flexibility to execute our
strategic plans, last summer we initiated discussions
with our banking syndicate and a number of
improvements have been made to the terms.
Looking ahead
Over the coming months the grocery sector will
remain intensely competitive as we experience
ongoing political and economic uncertainty
making consumers cautious about spending.
We will need to ensure that we manage cost
pressures and maintain competitive retail
pricing. But as we work through the issues we’ve
experienced in 2018 there are exciting opportunities
ahead. We remain confident in our strategy and
will continue to enhance our convenience offer,
through developing the Safeway range; increase
our neighbourhood presence through stronger
engagement with our communities; and continue
to provide excellent customer service by focusing
on the core elements of convenience retailing.
Finally, I would like to take this opportunity to thank
all of my colleagues at McColl’s for their continued
hard work and commitment.
Jonathan Miller
Chief Executive
Following the completion of the transition of 1,300
stores to our new wholesale partner we are now
refocusing on the core elements of neighbourhood
retailing and prioritising what is most important to
our customers. We have launched our Customer
Champions – four characters that represent our four
priorities – making sure all customers get a warm
greeting, that our shelves are well stocked, that we
highlight great offers and promotions, and that the
shopping trip is quick and easy.
Driving efficiency and maintaining
financial flexibility
Like all retail businesses, we have had to manage
cost pressures during the year, the increase in the
National Living Wage being the most significant.
We remain focused on driving in-store efficiency
and have made a number of improvements during
the year, including the introduction of automated
bake plans for hot food-to-go. We are also exploring
new technological solutions. For example, we have
recently introduced biometric scanners that monitor
colleague time and attendance to ensure we can
more accurately manage our payroll.
Cost pressures are expected to intensify in 2019,
with a further increase in wage rates, energy
inflation and an increase in our annual rent
following our sale and leaseback activity. In light
of this we continue to review our estate, assessing
how future cost increases impact profit forecasts.
During the year, we have closed or sold a number
of underperforming stores and we expect to make
further disposals in the year ahead.
We have completed a number of sale and
leaseback deals on the freeholds we acquired as
part of the major acquisition in 2017. The proceeds
from these sales have helped to fund a number
of strategic projects, including the store refresh
programme and pay down debt to a significantly
lower level than anticipated.
Q&A with the Chief Executive
Strategic report
Governance
Financial statements
“ As I reflect on
the last 12 months
I am reassured by
the resilience of
the business.”
Did the failure of P&H
take you by surprise?
Q
A We were aware that P&H was vulnerable.
It’s one of the reasons we had re-tendered
our wholesale supply contract earlier that
year. What was a surprise was the speed with which
they entered into administration and deliveries ceased.
We were fortunate to have the support of Nisa and
Morrisons which enabled us to move quickly to
implement an interim supply solution.
Is it risky to move to one wholesale supply partner
for the whole estate? What happens if they fail?
Q
A Working with a FTSE 100 grocery retailer with
a strong balance sheet gives us more security
than we’ve had before. However, we’re not
complacent and have developed contingency plans
in the event that there is an issue with supply.
When do you think you will recover
from the setbacks of the last year?
Q
A We expect to see LFL sales improvement during
the year and a modest improvement in profit.
As we resolve the issues we’ve experienced as a
result of the rapid rollout to Morrisons supply and develop
the Safeway range we expect to build momentum back
into the business and see further improvement.
How do you plan to make
Safeway a success?
Q
A We’ve not yet been able to fully get behind
the Safeway launch or develop the range
as we’d planned. But we’re getting on with
it now – for example, there are some key categories
that aren’t currently in the range that we hope to be
able to launch soon.
How are you feeling after such
a difficult year?
Q
A It’s been without doubt the most challenging
year I’ve experienced in almost 30 years in the
business. I’m feeling incredibly proud of how hard
the team have worked and relieved that the disruption is
behind us. There are still headwinds – we face significant
cost pressures that are not expected to abate any time
soon and these are clearly uncertain times for consumers
and the UK economy. But as I reflect on the last 12 months
I am reassured by the resilience of the business. Despite a
major supplier failure we have remained cash generative
and profitable and I am positive about the future.
21
Our key performance indicators
Progress in 2018
In 2018, despite the challenges
we faced we made progress
against a number of our key
performance indicators (KPIs).
We use six KPIs to monitor the performance
of the business.
We keep KPIs under review to ensure they
remain appropriate and help determine
remuneration policy.
Successfully delivering against our three
strategic goals drives improvements in
our KPIs.
1. Growing convenience offer
2. Excellent customer service
3. Increase neighbourhood presence
1 To better reflect the core operations of the Group, Post Office
revenue, previously included in other operating income, is now
recognised in statutory sales. In order to ensure comparability 2017
full year revenue, gross margin, gross profit and other operating
income have been restated. Details of the restatements can be
found in note 4 on page 101.
2 The Group has defined and outlined the purpose of its alternative
performance measures, including its key measures, in the glossary
of terms on pages 125–126.
3 Full details of adjusted EBITDA can be found in note 6 on page 102.
22 McColl’s Retail Group plc Annual Report and Accounts 2018
Revenue1
£1.24bn
+8.1% 2017
Like-for-like sales2
-1.4%
2017: +0.1%
Adjusted EBITDA2, 3
£35.0m
-20.5% 2017
2018
2017
2016
£1.24bn
-1.4%
£1.15bn
£0.97bn
-1.9%
2018
2017
2016
+0.1%
2018
2017
2016
£35.0m
£44.0m
£36.7m
Total revenue grew by 8.1%, principally
driven by the annualisation of the major
acquisition in 2017.
Like-for-like sales (LFL) decreased
by 1.4%, impacted by supply chain
disruption and availability issues.
Adjusted EBITDA was down £9.0m
year-on-year, driven by the adoption of
temporary supply terms and accelerated
transition to Morrisons supply.
Adjusted earnings per share2
6.7p
-63.5% 2017
Average basket size
£5.99
+6.6% 2017
Grocery and alcohol sales2
28%
34%
6.7 pence
2018
2017
2016
18.3 pence
16.0 pence
2018
2017
2016
£5.99
£5.62
£5.24
Adjusted earnings per share
decreased to 6.7 pence.
We have seen continued growth
in our average basket size as we
develop our convenience offer and
increase the proportion of top-up
shopping missions at McColl’s.
38%
We have seen growth in grocery
and alcohol sales and they now
account for 34% of our total
sales compared to 32% in 2017.
Grocery and alcohol
Cigarettes and tobacco
Impulse, news and other
Financial review
Strategic report
Governance
Financial statements
A focus on strong
capital discipline
Annual revenue growth supported by 2017
major acquisition
Full year revenue grew to £1.24bn (2017: £1.15bn1),
an increase of 8.1%. This year-on-year growth
was driven by the major acquisition we completed
in 2017 which has added around 30% to our
total sales.
Like-for-like (LFL) sales performance was impacted
throughout the year by the supply chain disruption
we experienced following the collapse of P&H
and continued operational challenges as we
established our new partnership with Morrisons.
Full year LFL sales were down 1.4%, but improved
during the year, with sales in the final quarter being
broadly flat.
Across the industry tobacco continues to face
long-term structural decline. However, it currently
remains our largest category and we saw strong
sales growth during the year. It was the most resilient
part of our supply chain and sales were supported
by significant inflation as a result of manufacturer
and duty increases. Sales in our other traditional
categories, principally news and confectionery,
continue to decline as expected.
We have, however, seen good overall growth in
a number of key grocery categories, including
fresh food, bringing us closer to our strategic target
for grocery and alcohol to be our largest sales
category. It now represents 34% of our total sales,
an improvement of two percentage points year-
on-year, and from 27% before the major acquisition
in 2017.
Gross profit margin impacted
by supply chain challenges
With the evolution of our sales mix towards higher
margin products we would typically expect
to see an improvement in gross profit margins.
However, adjusted gross margin has declined
by 0.8% year-on-year to 26.0% (2017: 26.8%1,
2018 gross margin 25.9%). This is partly a result of
the adoption of temporary supply terms as we
implemented an interim distribution solution and
a robust performance on tobacco, which is a low
margin category.
In addition, as Morrisons established its wholesale
operation this has initially resulted in some
higher than anticipated cost prices on certain
convenience lines. These are expected to improve
during 2019 as we leverage and benefit from our
joint buying capabilities and our partnerships
with suppliers.
In terms of overall value, total gross profit grew
by 4.5% to £321.1m (2017: £307.4m1), benefiting
from the contribution of stores acquired in 2017.
Within gross profit, partly offsetting the decline is
supplier income relating to both the wind down
of a legacy contract and the transition to our new
wholesale partner (recognised over the ongoing
life of the contract).
23
Our financial performance in 2018 was inevitably
impacted by the unprecedented disruption the
business faced following the failure of a major
supplier and the transition to a new wholesale
supply partner. I am delighted to have joined the
McColl’s Board at this crucial time for the business.
As we begin to recover from a difficult period we
are focused on strong capital discipline and careful
cost management to enable the business to rebuild
momentum and return to sustainable value creation.
1 To better reflect the core operations of the Group, Post Office revenue, previously included in other
operating income, is now recognised in statutory sales. In order to ensure comparability 2017 full year
revenue, gross margin, gross profit and other operating income have been restated. Details of the
restatements can be found in note 4 on page 101.
Financial review continued
“ Cash generation
continues to support
investment in our
strategic plans, whilst
reducing debt.”
1 To better reflect the core operations of the Group, Post Office revenue, previously included in other
operating income, is now recognised in statutory sales. In order to ensure comparability 2017 full year
revenue, gross margin, gross profit and other operating income have been restated. Details of the
restatements can be found in note 4 on page 101.
2 The HMRC ruling relates to missed payment in relation to a number of colleagues opening and closing
stores outside of scheduled working hours. We have recently introduced biometric scanners in-store that
monitor colleague time and attendance to ensure we can accurately manage our payroll.
24 McColl’s Retail Group plc Annual Report and Accounts 2018
Good cost management in the face
of significant headwinds
We continued to face cost pressures during the
year, the most significant being wage inflation as
a result of further increases in the National Minimum
Wage and National Living Wage, which since
inception in 2016 have resulted in 4–5% annual
inflation in our biggest cost line.
Adjusting items include £(1.7)m associated with the
failure of P&H and £(4.9)m resulting from the set-up
of our new partnership with Morrisons, which has
now been expensed in 2018 rather than spread over
the life of the contract. Included within this £(4.9)m
cost is store set-up and merchandising, clearance of
displaced product lines, new product establishment
and other incremental store costs.
We have kept good control of costs and in
aggregate administrative expenses, before
adjusting items, as a percentage of revenue,
were broadly flat year-on-year at 25.1% (2017: 25.0%).
This has in part been supported by ongoing
investment in systems and processes; for
example, the introduction of colleague time
and attendance technology.
In the face of continued cost pressures it is also
essential to keep our estate under review to ensure
that we maintain a sustainably profitable network
of stores. We continue to enhance the quality of the
estate through both the acquisition of high potential
convenience stores and the planned closure or
disposal of underperforming stores. During the
year, we acquired 11 convenience stores and
closed or disposed of 66 newsagents and smaller
convenience stores.
Operating profit impacted by supply chain
disruption and transition to a new supply partner
Other operating income1 decreased by £1.0m to
£6.8m (2017: £7.8m1) reflecting a lower level of ATM
cash withdrawals and lower commission rates in line
with market trends.
Operating profit before adjusting items (see note 6
for definition), decreased to £18.3m (2017: £31.4m),
impacted by the supply chain disruption
and transition.
In total there were £(2.6)m of gross (pre-tax)
adjusting items. This comprised £(14.5)m of costs
and £11.9m of income. Net adjustments (post-tax)
were £0.8m.
We also had adjusting items of £(0.6)m relating to
pensions following the impact on our schemes of
the GMP equalisation judgment made against
Lloyds Banking Group and £(1.2)m of other
adjustments, principally relating to fines for a
historic health and safety incident (see page 31)
and the cost of an HMRC ruling on minimum wage
compliance.2
In addition, we had £(6.0)m of costs associated with
closures and impairment and a net gain of £11.9m
in property profits following the acceleration of our
sale and leaseback activity, which was materially
larger in 2018 than had been anticipated.
As well as releasing immediate value through
this programme, the proceeds have allowed us
to continue our capital investment programme
including store refreshes, as well as reduce our net
debt to a level materially better than expected.
We expect the final tranche of sale and leaseback
transactions relating to the major acquisition in 2017
to conclude in the first half of 2019.
Finance costs increased to £8.0m (2017: £6.7m).
This reflects the increase in our average debt as
we annualised the major acquisition in 2017.
Profit on ordinary activities before taxation
decreased to £7.9m (2017: £18.4m). This was
impacted by the £2.6m of adjusting items described
above, alongside the impact of supply chain
disruption on sales and gross margin, partially offset
by transitional support. However, included within this
profit measure was £6.1m of net property profits
(being the combination of sale and leaseback
gains, impairments and store closures).
Before adjusting items, profit before tax was
£10.5m (2017: £26.3m).
Tax
The tax charge for the period decreased to £1.0m
(2017: £4.2m), representing an effective tax rate
of 12.9% (2017: 22.9%). The difference between the
current statutory rate of 19.0% and the effective
tax rate excluding the impact of non-deductible
adjusting items of 26.6% in the period is due to the
sale and leaseback and closure cost transactions,
all of which are classified as adjusting items.
Earnings per share
Basic earnings per share reduced to 5.9 pence
(2017: 12.3 pence). Adjusted earnings per share
were 6.7 pence (2017: 18.3 pence).
Dividend per share
The Board has recommended a final dividend of
0.6 pence per share (2017: 6.9 pence). The total
dividend for the period of 4.0 pence per share
(2017: 10.3 pence), reflects our commitment to
provide returns to shareholders. Our policy of a
50% payout ratio to profit after tax (before adjusting
gains but after adjusting losses), is unchanged.
Improved payment terms drives an increase in
current assets and liabilities
Total shareholder funds at the end of the year
reduced by £4.4m to £141.5m (2017: £145.9m).
This reflects a reduction in the book value of
goodwill and other intangibles, property, plant and
equipment by £7.4m to £345.1m (2017: £352.5m)
following our store closure and sale and
leaseback programmes.
Current assets at the end of the period increased
to £147.7m (2017: £130.6m). This increase of £17.1m is
a result of an increase in stock of £1.2m and trade
receivables of £2.2m, plus an increase in cash and
cash equivalents of £14.3m.
Our current liabilities increased to £220.8m
(2017: £173.4m), reflecting higher trade and other
payables as a result of our improved payment terms.
Non-current liabilities reduced to £144.7m
(2017: £177.6m), reflecting reduced borrowings.
Pension schemes
We operate two defined benefit pension schemes,
the TM Group Pension Scheme and the TM Pension
Plan, both of which are closed to future accrual.
The combined accounting surplus (based on
corporate bond yields) in the two schemes at the
end of the period was £11.9m (2017: £10.3m), as a
result of strong returns on assets.
The last actuarial review of the two schemes in June
2017 concluded that the combined funding deficit
of our two pension schemes was £12.6m.
The Company currently contributes approximately
£1.6m per year, inclusive of fees and levies.
Strong cash generation supports deleveraging
and investment in strategic initiatives
Cash generation continues to support investment
in our strategic plans, whilst reducing debt levels.
Net cash provided by operating activities increased
in the year to £61.8m (2017: £54.2m). This was aided
by the transition to our new wholesale supplier with
more favourable payment terms, and proceeds
from the sale and leaseback programme.
Adjusted EBITDA (see note 6 on page 102 for
definition), one of our key performance indicators,
fell by £9.0m to £35.0m (2017: £44.0m), impacted by
the supply chain disruption and transition.
We continue to invest in the business for growth,
including our programme of store acquisitions
and refreshes, alongside the development and
extension of our services and food-to-go offer.
In the period, alongside our acquisitions, we
completed 59 store refreshes and delivered five
new Subways in our stores.
Strategic report
Governance
Financial statements
Gross profit1
£321.1m
+4.5% 2017
2018
2017
2016
£321.1m
£307.4m
£255.0m
Dividend
4.0p
10.3p 2017
Net cash from operating activities
£61.8m
£54.2m 2017
1 To better reflect the core operations of the Group, Post Office
revenue, previously included in other operating income, is now
recognised in statutory sales. In order to ensure comparability 2017
full year revenue, gross margin, gross profit and other operating
income have been restated. Details of the restatements can be
found in note 4 on page 101.
25
Financial review continued
Net debt1
£98.6m
£142.2m 2017
Net debt/adj. EBITDA ratio1
2.8x
3.2x 2017
After £26.3m of proceeds, predominantly from
our sale and leaseback programme, net capital
expenditure (which excludes the acquisition of
stock), was £(1.0)m (2017: £20.3m).
Net finance expense of £8.0m was higher than the
prior year, reflecting increased borrowings following
the major acquisition that completed in July 2017.
The interim and final dividends paid in the period
totalled £11.9m.
Changes to banking terms provide flexibility
In 2016, we refinanced to support our major
acquisition in 2017. This included a £100m working
capital facility and a £100m repayment term
loan. Both of these elements run through until
July 2021, with the interest rate reducing as the
business deleverages.
However, in light of the challenges we faced in the
year, during the summer we initiated discussions
with our banking syndicate to make a number of
changes to the terms of our banking arrangements.
1 The Group has defined and outlined the purpose of its alternative
performance measures, including its key measures, in the glossary
of terms on pages 125–126.
26 McColl’s Retail Group plc Annual Report and Accounts 2018
These included increasing the covenant headroom
and increasing flexibility in the facilities. All of
these agreed changes will provide extra flexibility
to deliver our convenience strategy.
Net debt at the end of the period was £98.6m
(2017: £142.2m), representing 2.8 times adjusted
EBITDA (2017: 3.2 times adjusted EBITDA).
At the end of 2018 the banking covenant on
net debt: adjusted EBITDA was 3.0x and this is
maintained throughout 2019, other than at the end
of the first quarter when it is 3.25x.
At the end of the period, drawings against the
total facility were £125.5m (2017: £154.5m).
Future outlook
In the short term, mitigating cost pressures will
continue to be a priority. In addition to a further
c.5% increase in the National Living Wage, we will
need to manage significant energy cost inflation
and additional rental costs following the sale and
leaseback programme. To improve efficiency we
are continuing to invest in systems and processes,
alongside pursuing further estate optimisation.
We have already taken some further action in the
new financial year, including a head office and
overheads efficiency review.
Alongside a strengthened balance sheet, rebuilding
gross margin momentum will be our key focus.
I am very much looking forward to working with
Jonathan and the team to further our strategic
plans in 2019 and beyond.
Robbie Bell
Chief Financial Officer
Non-Financial Information Statement
We aim to comply with the new Non-Financial
Reporting requirements as set out in sections
414CA and 414CB of the Companies Act 2006.
Throughout the Annual Report and Accounts
we report certain information on environmental,
employee and social matters but in our Social
and environmental review we have set out
a summary of the Group’s approach for the
five areas covered by the new requirements,
together with signposts to other relevant
sections of the Annual Report and Accounts.
Environmental information pages 32-33
Employees pages 28-31
Human rights page 31
Social matters page 28
Anti-corruption and anti-bribery page 31
Business model pages 12-13
A number of Group policies and internal
standards/guidelines are not published
externally. Defining and implementing risk-
related policies is an important element to
our overall approach to risk management.
Robust processes and controls to identify and
report key policy outcomes are in place and
were followed in 2018.
Social and environmental review
Strategic report
Governance
Financial statements
McColl’s
and
responsibility
We are committed to operating responsibly,
supporting neighbourhoods where our
customers live, and our colleagues work.
27
Social and environmental review continued
Our vision is to be your neighbourhood’s
favourite shop. We will only achieve this
vision if we are a good neighbour in all
respects and that means managing
our environmental impact, supporting
local communities and looking after
our colleagues.
With everyday access to fresh food and groceries,
plus a range of services such as ATMs, bill payment,
Post Offices and online order collection points, our
stores provide a vital service to lots of communities.
In fact, based on a recent survey, convenience
stores and Post Offices are the two services that
have the most positive impact on a local area*.
Community champions
Our role in the local community goes beyond being
a neighbourhood retailer and our stores are actively
involved in supporting their local communities.
Through the ‘Making a Difference Locally’ scheme,
where a proportion of sales we make on selected
products are donated to a charity fund, we have
supported a range of local causes, chosen by each
store, including scout groups, schools, hospitals and
local charities.
To date we have supported over 500 local
organisations, charities and good causes.
Through our Halloween charity campaign
colleagues and customers also raised money to
support St George’s University Hospital’s research
into sudden cardiac death in young people.
We recently presented them with a cheque for
£200,000 which brings our total to over £1.2m
in funds to support this important research.
Colleagues
Making all the difference
Excellent customer service is essential to the success
of our business and that’s why it’s a strategic priority
for us. We can only deliver excellent customer
service with the hard work and dedication of our
colleagues. We have 20,551 colleagues, including
over 5,500 Home News Deliverers, and altogether
we employ the equivalent of 8,879 full-time
colleagues. Many of our colleagues live locally to
our stores which helps give them a strong sense
of community and customers consistently rate us
highly on colleague friendliness and helpfulness.
In the HIM! Convenience Tracking Programme 2018
on average customers scored us 9.3 out of 10 for
this measure.
* Association of Convenience Stores Local Shop Report 2018.
28 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Listening to our colleagues
We want all our colleagues to feel a part of
McColl’s. Making sure they are engaged is really
important to us, so that they enjoy working for
McColl’s and management can take into account
their views when making decisions that will
impact them.
We hold a series of regular business briefings and
senior manager meetings that give colleagues an
opportunity to ask questions and give feedback.
We also conduct an annual colleague survey
and an interim ‘pulse’ survey. This enables all our
colleagues to share their views on working for
McColl’s, and helps us identify things we need
to improve on. Last year, over 90% of colleagues
said that they enjoy their job and over 80% would
recommend McColl’s as a great place to work.
We are also rolling out our colleague forums that will
give us an opportunity to engage 250 colleagues
on a deeper level to really understand any issues or
concerns they may have and gain more insight into
the data behind our colleague survey.
Through our business briefings, annual retail
exhibition and colleague magazine, we keep
colleagues updated on business strategy and
performance, as well as any broader financial or
economic factors that may impact us.
We encourage colleague involvement in our
strategic performance through operation of a
performance-related bonus scheme which applies
to over 100 senior employees and provides an
incentive to them. We also operate an active sales
incentive that gives stores the opportunity to earn
a bonus each period, creating an incentive for
retail colleagues.
Developing our people
Whether they are at the start of their career with
McColl’s or looking to take the next step, we
are investing in our colleagues and making sure
they have the right skills they need to do their
job. We want all our colleagues to be their best
and to help drive individual performance we
have introduced a new process called ‘talking
performance’ that makes it easier to have effective
conversations and support all colleagues.
For those colleagues wishing to progress, we
operate our successful ‘onward and upward’
development programme focusing on some of the
key roles within the business. We have a good track
record of promoting colleagues with 58% of Store
Manager vacancies being filled internally, 51% of our
Area Managers having been promoted from store
management and 60% of our Regional Managers
having been promoted from area management.
Many of our 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 and the younger generation.
We also have a successful apprenticeship
programme, with 150 colleagues currently enrolled
on the programme.
To help us identify individuals who have the
potential to broaden their skills and move to
more senior roles, we have also rolled out a new
performance framework. Also, to ensure our leaders
have the right skills to do their job, all managers are
being offered coaching in our six new leadership
skills – empathy, collaboration, results focus, leading
change, developing yourself and others, and
customer focus.
Rewarding and recognising our people
We offer a range of benefits for colleagues as
well as flexible working opportunities. Through our
colleague handbook, our online colleague portal
updates and our Talking Shop magazine, we
explain the benefits that are available. These range
from colleague discount in our stores to health
care plans and a wide range of offers on days out
and experiences.
We know how important it is that colleagues feel
valued and are recognised for their hard work.
This year we celebrated outstanding contributions
from a number of our store colleagues at our annual
awards evening.
29
Social and environmental review continued
Supporting women to reach their potential
The Women at McColl’s programme aims to develop the next female
leaders in the business. As part of the programme, the colleagues involved
wanted to find a way to work together and demonstrate our role as
community champions. Supporting Girlguiding was an obvious choice – their
events, adventures and regular meetings empower girls to be their best and
become confident women. It seemed fitting, 100 years on from Parliament
passing the law giving women the vote, to host a group of 120 girls to
celebrate women, and the Girlguiding Association, through history at our
Retail Support Centre in Brentwood.
30 McColl’s Retail Group plc Annual Report and Accounts 2018
Gender diversity (based on actual
year-end headcount)
Board of Directors
Male 5
Female 2
29%
71%
Senior managers – Directors and managers
Male 37
Female 18
33%
Store managers
Male 726
Female 823
All colleagues
Male 5,700
Female 10,816
35%
67%
47%
53%
65%
Fostering diversity and inclusion
We are an equal opportunities employer. We recruit
and promote based on suitability and capability
and do not discriminate against colleagues on
the basis of age, disability, gender, marital or civil
partnership status, pregnancy or maternity, race,
colour, nationality, ethnic or national origin, religion
or belief, or sexual orientation. These principles of
non-discrimination and equality of opportunity also
apply to the way in which colleagues treat visitors,
customers, suppliers and former colleagues.
If a colleague develops a disability during their
employment with us we consider the matter
carefully, trying to accommodate colleagues’
needs, and if it is not possible to make reasonable
adjustments to help them overcome any difficulties
we try to find an alternative solution such as a
different role.
From April 2018, the UK Government requires all
employers with more than 250 employees to publish
their gender pay gap, showing the difference in the
average pay between men and women across the
entire business, regardless of job role.
65% of our colleagues are women and our gender
pay gap in 2018 was 2.7% (the UK average gender
pay gap is 17.9% – ONS, 2018), compared to 3.0%
in 2017. We are confident that men and women
are paid the same salary for fulfilling the same job
role at McColl’s. We have made good progress in
terms of the proportion of women represented in
the highest paid quartile. However, a gender pay
gap still exists in our business because women are
under-represented in some of the most senior roles.
Strategic report
Governance
Financial statements
We know that taking considered and deliberate
action to ensure talented women progress is
important, together with instilling an inclusive
culture. Last year, we launched our Women at
McColl’s programme to develop the skills and
confidence in women who have the potential to
move to more senior roles. Our leadership team has
completed unconscious bias training and all senior
managers will have accessed this by the end of
2019. We know that childcare commitments are one
of the barriers to women progressing and we have
reviewed our flexible working policy with the aim
of providing more options for working parents.
More information on the results of our gender
pay gap analysis and our approach to
developing female talent can be found at
www.mccollsplc.co.uk/genderpaygap.
Health and safety
We continue to demonstrate our commitment to
health and safety across the Group. It is discussed
by the Board, and through our health and safety
committee we take a consistent and collaborative
approach to creating a safe place for our
colleagues, customers and visitors.
All initiatives are managed and monitored through
a health and safety committee of Executives and
Senior Management, together with the Health
and Safety Manager.
In 2018, all Retail Board Directors and Senior
Operations Managers completed nationally
recognised training in health and safety.
As an increasingly food-led convenience business,
food safety is a priority. In 2018, we launched our
‘strive for five’ programme designed to drive a
consistent standard of food excellence across
all stores and our field management teams all
completed nationally recognised qualifications
in food safety.
Colleague safety remains a key focus and we
continued to invest in colleague safety technology
across key locations, working with our two partners,
SoloProtect and Positive Response, to install, and
train colleagues to use lone working devices.
These devices have panic alarms connected
to monitoring centres with audio capability and
improved police response. Our partnership with
Kingdom Services provides guarding cover in
some of our more vulnerable stores; and our
partnership with National Business Crime Solutions,
provides us with a vital link to other retailers and the
Police, allowing intelligence to be shared quickly
and efficiently.
In addition, we work closely with insurers,
brokers and local authorities to advance our risk
management, for example, by increasing proactive
risk management in stores. By improving the level
of compliance across our business we saw a
continued downturn in both employee and public
liability claims, although across a large estate of
stores, there are inevitably incidents and accidents.
We recognise we have a duty of care to understand
and address the risks within the business in order to
ensure, as far as possible, we keep our colleagues
and customers safe. Where there are incidents, we
examine the circumstances and draw learnings
from what occurred so that we can continually
improve our approach to safety. In December
2017, we received a fine of £0.6m relating to a
historic health and safety incident following the
installation of a ramp at one of our stores by a third
party. Alongside the contractor involved, we take
responsibility for this regretful incident and have
taken a number of actions relating to contractor
works, monitoring risk assessment, issue escalation
and local training to ensure that the risk of such an
event in the future is materially reduced.
Looking ahead
Our colleagues are our greatest asset and in the
year ahead we will continue to work to ensure that
every colleague feels welcome at McColl’s, that
they feel safe at work, that they have the training
they need to do their job, and that they have the
opportunity to progress if they wish to.
Human rights
We treat people in line with internationally recognised human rights
principles. The Group does not have a specific human rights policy;
however, a number of policies are in place that demonstrate effective
management of human rights issues in the business, including an Anti-Bribery
and Anti-Corruption Policy, Anti-Harassment & Bullying Policy, Health and
Safety Policy and a Policy for Speaking up in Confidence.
We are absolutely committed to preventing modern slavery in all
our activities and ensuring that our supply chain is free from slavery
and trafficking. Our Modern Slavery Statement for the year 2018/19
(pursuant to section 54 of the Modern Slavery Act 2015) can be found
at www.mccollsplc.co.uk/modernslaverystatement.
31
Social and environmental review continued
Reducing single-use plastics
We are committed to reducing single-use plastics. We have engaged our
wholesale supply partner Morrisons to ensure that they are using appropriate
packaging and understand the steps that they are taking to address this
important environmental issue. They have set a target for all own brand
packaging to be reusable, recyclable or compostable by 2025, which will
include the Safeway range sold in McColl’s.
32 McColl’s Retail Group plc Annual Report and Accounts 2018
Environment
As part of our commitment to being a responsible
business, we aim to act in a sustainable way,
through driving efficiency, reducing waste,
and improving recycling and compliance.
Improving energy efficiency
We have an ongoing commitment to improving
our energy efficiency. Many of our stores have live
energy monitors so we can see how much energy
each store uses in real time, which enables us to
actively manage them accordingly.
We continue to remove surplus or particularly
inefficient equipment from our stores and install
‘last person out’ switches (where all the lights can
be switched off via one switch), as well as photocells
that switch lighting on and off when areas
aren’t used.
Our store refit programme, Project Refresh, is helping
us become more energy-efficient as we replace
older refrigeration with new, more efficient models.
This has led to as much as a 20% reduction in
consumption in some stores.
In 2018, the energy-saving measures we have put
in place have helped us reduce our LFL energy
consumption by a further 0.5%, despite increasing
our overall chilled and frozen space. We have also
refreshed our energy policy and set new targets for
reducing our carbon footprint.
To reduce our energy use in the years ahead we
will work closely with our trusted energy consultants
and partners. In 2018, we signed up to a new three-
year SMARTservices programme with BIU, a leading
energy and utility consultancy. This will allow us to
work with their experts and use extensive data to
identify opportunities across the estate to drive
efficiency. We will be investing in our building energy
management systems to give us greater control of
our energy use at site level and surveying our most
energy intensive sites in order to make targeted
investment in energy-efficient technology.
We will also continue to engage with colleagues
across the business to make sure they are following
the correct routines and processes to minimise
energy use at source.
Managing waste
Recycling
Through our arrangements with our key wholesale
supply partners we recycle plastic and cardboard
used in our business. The same lorries that arrive with
products leave with plastic and cardboard, so no
additional miles are involved – it’s a neat energy-
efficient way to recycle packaging.
Food waste
Our regular waste management routines ensure
that we maintain very low levels of food waste.
We have a strong focus on managing waste
and it’s a key metric for all our Store Managers.
We conduct weekly reviews of the previous weeks’
waste which can result in a number of different
actions, including, working with our wholesale
distributors to supply smaller case sizes; changing
our ordering algorithms; reviewing product quality
and pricing; changing product pack sizes; reducing
distribution of particular products, and in some
cases delisting; and store training to improve waste
routines such as stock rotation and mark-downs.
We are a supporter of The Grocer’s campaign to
reduce food waste, which aims to unite the grocery
industry in tackling this important issue.
Climate change
We recognise the risk that climate change poses
to our business and manage this by reducing
carbon emissions throughout our operations.
We continue to invest in ongoing carbon reduction
initiatives, including LED lighting and energy-efficient
refrigeration. We are committed to reducing our
carbon emissions and achieved a 10.5% reduction
in 2018.
Our overall carbon emissions were 48,033 tonnes
CO2 (2017: 53,651 tonnes CO2). Scope 1 emissions
were broadly flat year-on-year as increased fuel
consumption, following the set-up of our temporary
hub and spoke distribution network, was offset to
some degree by a fall in refrigeration emissions
as we have invested in the estate. Scope 2
emissions fell year-on-year, principally as a result
of a significant reduction in the emission factor
for UK electricity. Our carbon intensity ratio, which
measures the level of emissions per £100,000 of
revenue, reduced to 3.9, down from 4.7 in 2017.
The Group’s total greenhouse gas (GHG) footprint
is shown in the table below.
The Group is required to measure and report
direct and indirect GHG emissions pursuant
to the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013. This is
the fifth GHG emissions report in line with UK
mandatory reporting requirements set out by
the Department for Environment, Food and
Rural Affairs (DEFRA) and we have therefore
expressed the report alongside the ‘base
year’ of 2014 for comparison. The mandatory
requirement is for the disclosure of the Scope 1
and 2 emissions only. Scope 1 emissions include
heating (gas), vehicle fuel and fugitive emissions
(refrigerant leakage). Scope 2 emissions include
purchased electricity.
Emissions data for period 27 November 2017 to 25 November 2018
Scope 1
Fuel combustion (natural gas, vehicle fuels and other fuels)
Refrigerants
Scope 1 total
Scope 2
Purchased electricity
Total of Scope 1 and 2
2014
Tonnes
CO2(e)
(base year)
2,125
2,122
4,247
51,884
56,131
2017
Tonnes
CO2(e)
2,357
4,569
6,926
46,725
53,651
2018
Tonnes
CO2(e)
2,460
4,401
6,861
41,172
48,033
Intensity – CO2(e) tonnes per £100,000 of revenue
6.1
4.7
3.9
Strategic report
Governance
Financial statements
• The Group has reported on all the measured emissions sources
required under the Companies Act 2006 (Strategic Report and
Directors’ Reports) Regulations 2013
• The Group has used the guidance as set out in DEFRA’s
Environmental Reporting Guidelines: including mandatory
GHG emissions reporting guidance, dated June 2013
• Emission factors are based upon UK Government conversion
factors for Company Reporting 2018. The electricity emissions
are influenced favourably by a reduced emission factor
for electricity in 2018, reflecting the UK’s continued use of
renewable energy in the overall electricity generation mix
• The Group has engaged a consultancy firm, The Miles
Consultancy, to oversee the collection of vehicle data and
provide guidance on complying with appropriate regulations.
Data collected has included fuel use and mileage, and
business mileage has been calculated on the basis of actual
fuel use recorded, and emissions calculated by applying the
2018 emission factors for diesel and petrol (bio-fuel blends)
• The figures disclosed above for 2018 and the methodology
used to collate the information has been reviewed and
verified by Project Rome Ltd
• For electricity, gas and other fuels, consumption data has
been extracted from billing information from the start of
the reporting period 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 52-week consumption
figure. Data has been provided by British Independent Utilities
• Petrol and fuel data has been collated from information
received from the Group’s fleet management consultant,
and for 2018 full year actual data is reported
• 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. The methodology employed
utilises annual leakage rates as set out in Appendix C of the
Environmental Reporting Guidelines for mandatory GHG
emission applying the Screening Methodology
33
Principal risks and uncertainties
How we identify and manage risk
Risk management framework
Risk
identification
Risk
reporting
Risk
assessment
Strategy
setting
Risk
policies
Risk
ownership
Risk
appetite
Risk identification and assessment
Risks are identified and assessed at all levels
within the organisation, from individual store
risk assessments through to identification and
assessment of Group-wide strategic threats.
We operate detailed procedures and appropriate
training in store to ensure the safety and security of
our colleagues and customers and protection of
our assets. At Group level, we look at a wide range
of factors including customer trends, competition,
economic conditions, regulatory developments,
technological issues, counterparty security and
financial matters to work out the main threats to
our business.
Risk ownership
Once a risk has been identified, responsibility
for management of that risk is clearly defined.
This equally applies in our stores, where an
appropriate risk culture promotes personal
responsibility for operating safely and for
carrying out regular checks on potential hazards.
Where a hazard cannot be dealt with simply and
immediately, a reporting process exists to escalate
the matter for resolution. Similarly, at Group level,
risks relating to, for example, finance, legal, data,
trading partners and operations, are monitored and
managed through a variety of controls, including
detailed procedures and delegations of authority to
appropriately experienced and qualified individuals
or groups such as our Group Health, Safety and
Compliance Committee.
McColl’s, like all businesses, is
exposed to a number of internal
and external factors which can
positively or negatively affect
its performance. Whilst minor
variations in circumstances and
outcomes will always occur,
it is essential that we take a
proactive approach to those
significant matters that could
threaten successful delivery of
our short and long term goals.
Our risk framework seeks to identify those threats,
quantify how likely it is they will occur and how
significant their impact could be. Mitigating actions
are then applied to reduce the likelihood and
impact to a level that is acceptable to the Board.
The effectiveness of those actions is monitored to
ensure that they deliver the intended outcome.
Our understanding of these risks also informs our
strategic choices for the business.
We adopt a continual process of risk identification,
assessment, management and monitoring. As our
strategy and plans evolve and the environment in
which we operate changes, our assessment and
management of risk must keep pace.
34 McColl’s Retail Group plc Annual Report and Accounts 2018
Risk appetite and risk policies
Having quantified and understood our risks, the
Board, guided by the Audit & Risk Committee,
considers what level of risk can be accepted in
pursuit of our strategic goals. The Board requires all
risks to be appropriately managed and, where they
cannot be sufficiently reduced or removed entirely,
considers whether the risk should be transferred,
for example through insurance cover or hedging
arrangements. A vital component of the Board’s
risk related responsibilities is that of fostering an
appropriate risk culture.
During 2017 four new values were adopted, which
were incorporated into some of our risk-related
policies and introduced into others as they fell
due for review during 2018.
Our values are:
Customer
first
Simple and
consistent
Caring and
compassionate
Community
champions
Having understood the threats faced and the
extent to which they have been reduced,
eliminated or transferred, the Board determines
its risk appetite and the strategy that can be
delivered within acceptable risk parameters.
A new or amended strategy can often give rise
to new risks and these need to be identified and
assessed and built into the management and
reporting processes described above.
Risk reporting
The reporting of risk is an important step in
the overall process. Reporting not only raises
awareness and initiates discussion, it can also
provide additional insight into the aggregation
of risks that may not be immediately apparent
when a single factor is considered or managed
in isolation.
Risks, both operational and strategic, are reported
to our Group Health, Safety and Compliance
Committee (formerly known as the Group Risk
Committee), which comprises our Retail Board
members, Health & Safety Manager and Company
Secretary. This Committee also brings together
senior representatives from all areas of the business
to consider collectively, and from their different
functional perspectives, the more significant risks
faced by the business.
The Group Health, Safety and Compliance
Committee reports, and escalates as appropriate,
matters of risk to the Retail Board which has
responsibility for supporting the Chief Executive
in the delivery of the Group strategy and business
objectives. The Audit & Risk Committee periodically
reviews risks and makes recommendations to the
Board. Individual matters of a significant nature are
also escalated to the Board where appropriate.
Resources and structure
We have organised our internal resources in order
to ensure that the risk management framework
is appropriately understood by colleagues and
embedded throughout the business.
Strategic report
Governance
Financial statements
Risk management structure
Our risk framework is supported by the risk management structure
detailed below:
Board
Executive Directors
Audit & Risk Committee
Retail Board
Health, Safety and
Compliance Committee
Functional Areas
Colleagues
External support
and expertise
35
Principal risks and uncertainties continued
The risk management processes
described above are continual
and risks evolve. However, at
present, the Board, with the
assistance of the Audit & Risk
Committee, considers the
following to be the principal
risks facing the Group.
Maintained
Increased
36 McColl’s Retail Group plc Annual Report and Accounts 2018
l
i
a
p
c
n
i
r
P
k
s
i
R
f
o
e
r
u
t
a
N
k
s
i
R
e
h
t
Strategy
Competition
Customer Offer
If the Board either adopts the wrong
strategy or does not implement it effectively
the aims of the business, its performance
and reputation may suffer.
We operate in a highly competitive
environment, which is continually
changing and has been subject to
ongoing consolidation. Failure to
maintain market share could have an
adverse effect on our core business.
Customer shopping habits are influenced
by a wide range of factors. If we do not
respond to their changing needs they
are more likely to shop with a competitor,
resulting in falling revenues.
• Our strategic development is led
by an experienced Board and
Senior Management
• An annual strategic review takes place
alongside our budget-setting process
• The McColl’s strategy is widely
communicated and understood
across the business
• Business plans are developed,
monitored and reviewed against
strategic KPIs
• Senior Management are incentivised
with performance-related rewards
to deliver our strategic goals
s
n
o
i
t
a
g
i
t
i
m
k
s
i
R
• We monitor competitor activity and
customer trends
• Regular meetings are held with key
suppliers to optimise our offer
• We are increasing brand awareness
through marketing
• Improvement of our estate and stores
is ongoing
• Local refit programmes are undertaken
to counter specific competitive threats
• We have launched the Safeway brand
in store to differentiate our offer
• Membership of third party organisations
(such as the Association of Convenience
Stores) gives us greater insight into the
convenience channel trends
and developments
• Our Customer Director has enhanced
the Retail Board’s capability to address
changing customer needs
• Promotional programmes offer
customers great value
• Our strong customer service
standards are reflected in our evolving
brand strategy
• We have increased our marketing ad
campaigns and seasons events, both
in store and through local advertising
• We complete detailed customer
research for key projects, for example
our store refurbishment programme
• We have launched our presence
in social media to better engage
with customers
s Key strategic challenges for 2019 include
e
the continuing work to deliver the supply
g
n
chain benefits from our partnership with
a
h
Morrisons and further developing our
c
convenience offer. Ongoing change
t
n
and consolidation in the sector may
e
r
also impact our business and require
r
u
C
us to adjust our strategy accordingly.
We will work through individual category
reviews to ensure our offer, range and
price is competitive. Our ongoing store
refresh programme will enhance our
customers’ shopping experience.
Working with our new supply partner we
will focus on the breadth and depth of our
offer, particularly in key categories such as
fresh and chilled food. We will also look to
broaden our seasonal relevance e.g. in non
food areas.
Strategic report
Governance
Financial statements
Supply chain
Supply chain transition
Information Technology
Financial and treasury
We rely on a small number of key
distributors and may be adversely
affected by changes in supplier
dynamics and interruptions in supply.
• We establish long-term relationships
with trusted suppliers
• Our distribution partners maintain their
own contingency planning as do we
• We closely monitor supplier
performance including service levels
and hold regular discussions with them
to address any issues (with contractual
protections in place)
• We monitor the financial stability of
key partners
• We regularly review our supply chain
arrangements, with full tenders
completed in 2013 and 2017
• We have a flexible electronic ordering
process, with established links to the key
UK wholesalers
• Our supply chain partner, Morrisons,
is undertaking significant pre-Brexit
planning (including becoming an
authorised economic operator)
The collapse of P&H in November 2017
tested our contingency arrangements as
did the accelerated transition to Morrisons
supply in 2018. Going forwards into 2019 it is
important to fully stabilise and then optimise
arrangements, including responding to the
outcomes of Brexit.
During 2018, we transitioned the wholesale
arrangements for the majority of our estate
to a new supplier. The accelerated timeline
introduced additional complexity and risk.
We depend on the reliability and capability
of key information systems and technology.
A major failure, a breach, or prolonged
performance issues with store or head office
systems could have an adverse impact on
the business and its reputation.
The main financial risks are the availability
of short- and long-term funding to meet
business needs, fluctuations in interest rates,
movements in energy prices and other post-
Brexit impacts.
• There is close oversight by the Retail
Board and Senior Management
• We undertook a significant amount
of planning and testing work to
identify and resolve potential issues
and have instigated close monitoring
of performance
• All business-critical systems are well
established and are supported by an
appropriate disaster recovery strategy
designed to ensure continuity of
the business
• Business continuity plans are tested on
an annual basis
• Committed loan facilities are in place to
deliver our strategy, with amendments in
the year delivering additional covenant
headroom (see notes 20 and 27)
• Funding requirements are managed
through regular forecasting and
treasury management
• We have a dedicated and
• Regular reviews assess our vulnerability
• The Board approves budgets and
skilled management team with
extensive experience of managing
supply arrangements
and our ability to re-establish operations
in the event of a failure
business plans
• Relationships with lenders are managed
• Testing is performed to ensure data is
through regular meetings
• We have established clear lines of
controlled and protected
communication and a joint project
management approach with our
new supplier
• The final phase of the transition will,
in due course, incorporate all of the
learnings from 2018
• Transitional support has been provided
by our new wholesale partner
• We are currently investing in a new ERP
system (Oracle Fusion) to improve head
office efficiency
• We have processes in place to ensure
GDPR compliance
• Our risks associated with financial
instruments are disclosed in note 27
on page 113
Issues relating to availability, product set
up and cost prices are being worked
through with suppliers and our new
wholesale partner. We expect to exit
2019 with an improved trajectory.
We have a future IT roadmap and have
plans to upgrade our EPOS systems in the
next 24 months. We will also continue to
evolve our store back office systems to
improve efficiency and effectiveness.
We will continue to work with our banking
syndicate to optimally manage our funding
position and further deleverage. We plan
to conclude our 2017 acquisition sale and
leaseback programme in H1 2019.
Ensuring supply chain continuity
2018 was marked by significant
supply chain change and disruption
for the business, as we transitioned
arrangements. When P&H collapsed
into administration in November 2017
we lost supply to over 700 of our stores
(principally newsagents and smaller
convenience stores). We worked
with both Morrisons and Nisa to
implement contingency plans and also
accelerated our transition to Morrisons
(our partnership was announced
in summer 2017). This accelerated
transition, whilst helping to ensure these
stores continued to trade, has resulted
in a number of challenges that our
partners are working hard to address.
Most significantly the McColl’s gross
margin has been impacted by the
adoption of temporary terms and a
delay in realising the benefits of the
new partnership with Morrisons. It is
anticipated that further progress will
be made in 2019, which will also focus
on the full realisation of the benefits
of launching Safeway products
in store. Going forwards, working
with a FTSE 100 wholesaler provides
additional reassurance over supply
chain continuity.
37
Principal risks and uncertainties continued
l
i
a
p
c
n
i
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P
k
s
i
R
f
o
e
r
u
t
a
N
k
s
i
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e
h
t
s
n
o
i
t
a
g
i
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i
m
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Economy
All our revenue is generated in the UK. Any
deterioration in the UK economy, for example as
a consequence of Brexit, could affect consumer
spending and cost of goods, which in turn would
impact our sales and profitability.
• We sell food and household essentials which are
not considered to be highly discretionary
• We offer a wide range of products at different
price points, e.g. value and premium brands
• Our flexible business model allows us to respond
to changes in customer behaviour, for example,
by adapting our ranges
• We are growing our range of own brand products
through the rollout of Safeway
• We are working with supply partners
and manufacturers to build our Brexit
contingency plans
s As the impacts of Brexit on the UK economy become
e
clearer we will continue to evolve our strategy to
g
n
mitigate any impacts. As included with the section
a
h
on going concern (page 77) we have modelled
c
various scenarios to ensure we have sufficient
t
n
mitigation options.
e
r
r
u
C
38 McColl’s Retail Group plc Annual Report and Accounts 2018
Brexit
We recognise that the UK’s planned exit from
the European Union (EU) creates some risks
and uncertainties. We do not expect it to have
a material impact on the business except in
the event that the UK leaves the EU with no
deal in place and this results in the most severe
economic scenario.
Customers
Except in the event of a severe economic shock
to the UK economy, we do not expect Brexit to
have any significant impact on the behaviour
of customers in McColl’s. The grocery sector as
a whole has a proven record of withstanding
economic downturn. In recent periods of
economic uncertainty consumers have tended
to manage their budgets by shopping little and
often, locally. Therefore the convenience sector in
particular is largely protected from, and can even
benefit from, broader negative economic trends.
Supply chain
It is estimated that around 35% of all the food we
eat in the UK is sourced from the EU. Due to the
nature of our product mix, we estimate that the
proportion of products we source from the EU is
considerably lower than average.
The most significant risk to food supplies is in the
event of a no-deal Brexit where import delays
could mean short shelf life products expire
before they can reach their destination. We sell a
relatively low proportion of chilled and fresh food
with a short shelf life and as such are less exposed
to this risk than other grocery retailers.
The majority of our products are sourced via
UK wholesale partners. Morrisons is our largest
wholesale partner, directly supplying c.1,300
of our stores. As the UK’s second largest food
manufacturer, they source and manufacture a
high proportion of products in the UK. To mitigate
the risk of a no-deal Brexit Morrisons have applied
for and been granted “approved economic
operator status”, which means that goods will be
fast tracked through customs, hence reducing the
risk with their non UK suppliers.
Labour
It is likely that in leaving the European Union
there will be a restriction on free movement that
could lead to a shortage of low skilled workers.
We do not believe this presents a significant risk
to the business because we have a low number
of transient workers. The majority of our store
colleagues work on a part-time basis and live
locally to their store. However, we recognise that
there is some risk that we could be impacted by
the UK experiencing a greater demand for low
skilled workers that could create recruitment
challenges and lead to wage inflation.
Operational cost base
Regulation
We have a relatively high cost base, consisting
primarily of salary, 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. Regulations include alcohol licensing,
employment, health and safety, data protection and
the rules of the Stock Exchange. Failure to comply with
relevant laws and regulations could result in sanctions
and reputational damage.
• We continually seek to remove unnecessary
• We have clear accountability for compliance
complexity from our operational procedures to
optimise performance
with all laws and regulations
• Our policies and procedures are designed to
• We operate a flexible staffing model aligned to
meet all relevant requirements
• We train colleagues to comply with all
relevant legislation
• We have established governance groups, such
as our Health and Safety Strategy Committee to
review and manage our compliance
• Through third party memberships and expert
advice, we keep up to date with evolving statute
revenue levels
• We monitor legislation and developments related
to our costs, e.g. minimum wage, rents and energy
tariffs, to allow us to plan and mitigate increases
• 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 regularly retender external contracts to ensure
they remain market-competitive
• We have an ongoing programme of estate
optimisation to remove unprofitable stores
• We manage exposure to fluctuating energy prices
by forward buying electricity. We acknowledge
that the forward contracts in place are derivatives,
they are treated as a pre-agreed price
for electricity
National Living Wage and National Minimum Wage
will again increase above the rate of inflation in
2019. We have set up a group to focus on delivering
efficiencies and process improvements in our
operations.
Regulations impacting our business continue to
change but we have processes in place to make sure
we take proper account of regulatory developments
in the way we conduct our business.
This Strategic report, which has been prepared in
accordance with the requirements of the Companies Act
2006, has been approved and signed on behalf of the Board.
Angus Porter
Chairman
Chairman’s governance statement
Strategic report
Governance
Financial statements
As a Board we will also be mindful of how we can do
more to support and promote the McColl’s values:
Compliance with the
UK Corporate Governance Code
• Customer first
• Simple and consistent
• Caring and compassionate
• Community champions
It is important that we take the lead on
incorporating these values into our work.
Following publication of the new UK Corporate
Governance Code by the FRC in July 2018, which
the Company will be reporting against for the
financial year ending November 2020, the Board
is reviewing the revised principles and provisions
and will make any changes deemed necessary
in due course.
Approved by the Board and signed on its behalf:
Strong corporate
governance
Angus Porter
Non-Executive Chairman
As Chairman I am pleased to report that the
Company has continued to strengthen its
corporate governance arrangements. I and my
fellow Directors are fully committed to making
sure governance and leadership of the business
are sufficiently strong and effective to embrace
the challenge of becoming a successful grocery
convenience retailer.
We will be reporting in compliance with the
2016 Corporate Governance code, but where
practical will align some content to recognise
the new July 2018 Governance code
Board leadership
(including shareholder relations)
The Board is responsible for leading the business in the
way which it believes is most likely to lead to long-term
sustainable success. This includes effective engagement
with our stakeholders and particularly our colleagues
Read more on pages 40 to 44
Division of responsibilities
We ensure we have the right combination of executive
and non-executive directors without any individual or
group of individuals who dominate the decision making
Read more on pages 44 to 45
Composition, Succession
and Evaluation
Our practices aim to ensure that we have a balanced
board with the appropriate skills to govern the business,
and an effective evaluation and succession plan.
The Nomination committee is appointed to act on behalf
of the Board
Read more on pages 45 to 47
Audit, Risk and Internal control
The Board defines McColl’s strategy, taking account of
the need to avoid unnecessary or unacceptable risks.
The Audit and risk committee is appointed to oversee this
process on behalf of the Board
Read more on pages 51 to 56
Remuneration
Our remuneration policy aims to incentivise strong
performance whilst avoiding excess. We are also mindful
of the pay of our colleagues across the business
Read more on pages 56 to 73
It is the opinion of the Board that the Company has
been compliant with all the applicable provisions
of the Code throughout the year under review.
39
Board of Directors
Strong
leadership
Angus Porter
Non-Executive Chairman 2, 3
Jonathan Miller
Chief Executive 3
Robbie Bell
Chief Financial Officer
Current appointment: Angus was appointed as an
Independent Non-Executive Director on 1 April 2016
and was appointed Non-Executive Chairman on
27 April 2017.
Key strengths: Angus has extensive knowledge
and experience in strategy, innovation, and brand
development as well as significant leadership skills.
Experience: Angus has held numerous executive and
non-executive roles across a range of industry sectors,
including senior marketing and general management
roles at Mars, BT, Abbey National and WPP. Recently,
he was Chief Executive of the Professional Cricketers
Association from 2010–2016, Senior Independent
Director and Chairman of the Remuneration
Committee of Punch Taverns Plc. from 2012–2017, and
a Non-Executive Director of TDC A/S until 2018.
Other directorships: Angus is Co-Chairman of Direct
Wines Ltd and a Non-Executive Director of Hilton Food
Group plc.
Current appointment: Jonathan was appointed
Chief Executive of McColl’s in 2016. He has worked
in the Group since 1991 when he was recruited as
Financial Director of cigarette vending operations,
becoming Finance Director of retail operations in
1998. Prior to his current role he was the Group’s Chief
Financial Officer.
Key strengths: Through his long history with McColl’s,
Jonathan has developed an in-depth understanding
of both the business and the wider convenience
retail market.
Experience: Jonathan has had a major role in all
of the key initiatives that have shaped the Group,
including a secondary buyout in 2005, numerous
corporate acquisitions and the IPO in 2014. As Chief
Executive he has put in place a clear strategy and
vision for the Group and led the major acquisition
of 298 stores in 2016, the negotiation in 2017 of the
Group’s new wholesale arrangements with Morrisons
and in 2018 steered the business through the
significant disruption following the collapse of P&H.
Current appointment: Robbie was appointed as the
Group’s Chief Financial Officer in January 2019.
Key strengths: Robbie has over 20 years of retail and
finance experience.
Experience: Robbie was appointed CFO of Welcome
Break in 2017 before taking on the role of CEO in early
2018, where he managed the sale and ownership
transition of the business. From 2009–2017 he was CFO
of Screwfix Direct Limited, a subsidiary of Kingfisher
plc, where he oversaw significant business growth,
driven by strong like-for-like sales and an extensive
store opening programme. He was the UK Finance
Director of Travelodge from 2006–2008. Prior to this
he held a number of senior finance positions at
Tesco PLC, including roles within commercial buying
and convenience.
Other directorships: Robbie is a Non-Executive
Director and Chair of the Audit Committee of UP
Global Sourcing Holdings plc.
Simon Fuller
It was announced in July 2018 that Simon Fuller,
Chief Financial Officer, had decided to leave the
business to pursue his career in another sector.
He left the business on 22 February 2019 following
a period of handover to his successor, Robbie
Bell, who succeeded him on 17 January 2019.
Simon was appointed as the Group’s Chief
Financial Officer in 2016, having joined
McColl’s in December 2015 as Deputy
Chief Financial Officer.
40 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Dave Thomas
Chief Operating Officer
Current appointment: Dave was appointed as the
Group’s Chief Operating Officer in 2014 but his history
with McColl’s dates back to 1998 when he joined
the business as Regional Manager for convenience.
He became Operations General Manager in 2000
and was made Operations Director in 2005.
Key strengths: His long career rooted in the UK
supermarket and convenience sector means Dave
has extensive operational knowledge, enabling him
to orchestrate a process of continual improvement
and modernisation of the McColl’s offering across our
evolving estate.
Experience: Dave’s retail career began with Iceland
where he led a programme of new store openings as
well as conversion of Bejam stores. Subsequently he
joined Southern Co-operative as Operations Manager,
developing a modern convenience format for the
business. More recently within McColl’s, he successfully
managed the 2017 conversion of the 298 acquired
stores to the McColl’s format as well as taking a key
role in the negotiations and implementation of new
supply arrangements.
Georgina Harvey
Senior Independent
Director1, 2, 3
Sharon Brown
Independent Non-Executive
Director1, 2, 3
Jens Hofma
Independent Non-Executive
Director1, 2, 3
Current appointment: Georgina was appointed as
an Independent Non-Executive Director on 7 February
2014 and is Chairman of the Company’s Remuneration
Committee. On 24 May 2016 Georgina was appointed
as the Company’s Senior Independent Director.
Current appointment: Sharon was appointed as an
Independent Non-Executive Director on 7 February
2014 and is Chairman of the Company’s Audit & Risk
Committee. Sharon previously served as the Group’s
Interim Chairman.
Key strengths: Georgina has significant experience
across highly competitive consumer-facing markets
and delivering successful transformational change.
Key strengths: Sharon has deep knowledge of
finance and audit-related matters, combined with
over 25 years’ experience in the retail sector.
Experience: 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.
Other directorships: Georgina is also an Independent
Non-Executive Director of William Hill PLC and Big
Yellow Group PLC.
Experience: Sharon is a management accountant
and has extensive financial experience, gained whilst
Finance Director and Company Secretary of Dobbies
Garden Centres Limited between 1998 and 2013.
She also held a senior financial position within the
retail division of John Menzies plc from 1991 to 1998.
She is, and has been, Audit Committee Chairman for
a number of companies.
Other directorships: Sharon is a Non-Executive Director
and Audit Committee Chairman of Fidelity Special
Values PLC, F&C Capital and Income Investment Trust
plc, and Celtic plc and is a Non-Executive Director
of a number of limited companies in the retail sector.
Current appointment: Jens was appointed as an
Independent Non-Executive Director on 1 July 2017.
Key strengths: Jens has particular expertise in
consumer goods as well as the restaurant and food-
to-go industry. He also possesses in-depth experience
of growing multi-site businesses.
Experience: Jens is Chief Executive Officer of Pizza Hut
Restaurants in the UK. He joined the Pizza Hut business
in February 2009 and has since led a private equity
funded buyout of its dine-in restaurants. Prior to his
involvement with Pizza Hut, Jens spent five years with
Yum! Brands, working in the UK and in Europe. He has
also previously worked for Nestlé and McKinsey in
various European countries.
Other directorships: Jens is Chief Executive Officer
of Pizza Hut (UK) Limited.
1 Member of the Audit & Risk Committee.
2 Member of the Remuneration Committee.
3 Member of the Nomination Committee.
41
Retail Board
Retail Board
The Group’s Retail
Board comprises the
Executive Directors
and the most senior
Managers within the
business. The Retail
Board is collectively
responsible for
supporting the
Chief Executive in
delivering the Group’s
strategic objectives.
Jonathan Miller
Chief Executive
Robbie Bell
Chief Financial Officer
Dave Thomas
Chief Operating Officer
Read more on page 40
Read more on page 40
Read more on page 41
Neil Hodge
Information
Technology Director
Current appointment: Neil was appointed
Information Technology Director in 2011
but has worked for the Group since
1993, initially as Field Support Manager
and then, from 1997, as Information
Technology Manager.
Experience: As well as ensuring the day-
to-day IT and data needs of the Group
are well serviced, Neil plays a key role in
the planning and delivery of numerous
strategic initiatives across the business, the
majority of which are technology-enabled.
Before joining McColl’s, Neil worked at
Dexham Shops and Royal Doulton.
42 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Steve Green
Retail Finance Director
Karen Bird
Colleague Director
David Archibald
Development Director
Peter Miller
Trading Director
Tim Fairs
Customer Director
Current appointment: Steve joined
McColl’s as Retail Finance Director in
May 2016.
Current appointment: Karen joined
McColl’s as Colleague Director in
October 2016.
Current appointment: David was
appointed Development Director in 2006
having joined the Group in 1993.
Experience: Since joining McColl’s,
Steve has restructured the finance team,
improved controls, and delivered financial
support to all of the business’s major
initiatives. Before joining McColl’s, Steve
was the Group Financial Controller for
Tesco’s Malaysian business. In total, Steve
was with Tesco for 14 years, both in the UK
and overseas.
Experience: Since joining the business,
Karen has restructured the HR team,
focusing on the key processes and
priorities to strengthen the function.
Karen has developed a strategic HR plan
for the business, working on capability,
performance and talent development.
Karen was previously People Director
at Tesco, where she worked in both
HR and Operational roles, including
leading change programmes on culture
and service.
Experience: Responsible for our
acquisitions and estate management,
David has been instrumental in ensuring
conversion of the 298 stores to the McColl’s
format proceeded to plan and is also
playing a key role in our programme of
shop refresh activity to deliver significant
benefits from store modernisation.
Previously David worked at Independent
Stores, Fine Fare, Asda, Victoria Wine and
the Ministry of Defence.
Current appointment: Peter was
appointed Trading Director in 2015, having
originally joined McColl’s as Buying Director
in 2011.
Experience: Peter has a wealth of grocery
sector experience, ensuring McColl’s
trading performance is supported through
effective and competitive supplier
relationships. Before joining McColl’s,
Peter was Group Trading Director at SPAR
UK Ltd. Prior to this, Peter worked as Director
of Trading at Big Food Group and Group
Buying Director at Booker PLC.
Current appointment: Tim was appointed
Customer Director in January 2018.
Experience: Tim is responsible for the
customer agenda, a key pillar of our
strategy, by helping to define our brand
proposition and bringing the McColl’s
brand to life as well as establishing effective
relationships with our customers after they
have left the store. Tim is passionate about
customers and has extensive relevant
experience, most recently as VP Marketing
and E-Commerce at Clintons, and prior
to that as Head of Marketing at Dixons
Carphone where he launched the service
brand KNOWHOW.
43
Corporate governance report
Engaging with Stakeholders
The McColl’s Board has responsibility for ensuring
that dialogue with shareholders and other stakeholders
is active and based on a mutual understanding
of objectives
McColl’s has continued with its investor relations activities,
which comprise individual meetings with investors, investor
presentations and investor and analyst store visits. The Board
receives regular reports on the investor relations programme
and, as part of this, shareholder views are fed back to
the Board.
Specific consultations are undertaken from time to time with
our major shareholders where deemed necessary. In addition
the Chairman has direct dialogue with some of the major
shareholders. The Board is conscious that the views and
interests of other stakeholders in the business are important.
Engaging with those other stakeholders is an aspect
which the Board recognises will be a focus going forward.
To enhance the Board’s engagement with colleagues across
the business, an employee survey was carried out in the latter
part of the year.
McColl’s general meetings are used to encourage
investor communication and participation
The McColl’s Board recognises that our shareholders are a
key group of stakeholders in the business and their views and
engagement are important. The Annual General Meeting
provides an essential opportunity for shareholders to meet
directly with our Directors and, in particular, the Chairmen
of our Committees. We publicise the outcome of proxy votes
received in advance of general meetings.
Shareholders who wish to raise issues with the Company may
contact us via email at investor.relations@mccolls.co.uk.
Investor Store Visits
During the year we hosted analysts and investors on a
number of store visits. It’s a great way for them to see the
business close up and get valuable insight into how we
operate. It also gives them an opportunity to meet some
of the wider management team and see how we execute
our strategic plans such as the store refresh programme.
44 McColl’s Retail Group plc Annual Report and Accounts 2018
Division of responsibilities
The matters covered by the schedule are listed below.
The schedule is periodically reviewed.
McColl’s is headed by an effective Board which
is responsible for delivering long-term success in
the business
The Executive team, under Jonathan’s leadership, is
ambitious in its vision, responsible in its management,
cohesive in its leadership and effective in its delivery.
During what has been a challenging year, Jonathan has
received outstanding support from his fellow Executives,
Dave Thomas (Chief Operating Officer) and, until February
this year, Simon Fuller (Chief Financial Officer). Simon’s
successor, Robbie Bell, joined the Board on 17 January 2019.
Simon left the business on 22 February 2019, following an
orderly handover.
The responsibilities of the Board and the Executive are
clearly defined and no individual has unfettered powers
of decision
The Chief Executive is responsible for delivering the Group’s
strategy and for its operational performance. The Chief
Executive is supported in carrying out their responsibilities by
the Chief Financial Officer and Chief Operating Officer.
These responsibilities are defined as part of a scheme
of delegation established by the Board. The scheme of
delegation is one element of the controls by which the Board
seeks to ensure that risk is adequately and appropriately
managed within the business.
The starting point for those delegations is the schedule of
matters reserved for the Board. This schedule sets out those
decisions which will not be delegated to any other group
or individual but will always require Board sign off.
1. Strategy and values
2. Annual budget and business performance
3. Major acquisitions and disposals and new
business developments
4. Risk appetite, risk management and internal controls
5. Shareholder communications
6. Capital structure, borrowings and treasury policy
7. Dividend payments and recommendations
8. Key Group entity structure
9. Board and other senior appointments
10. Corporate governance matters and delegations
11. Group policies
12. Pensions and other legal matters
Matters that are not reserved to the Board may be
delegated, for example, by:
•
•
terms of reference to a committee;
role description to an individual;
• policies and procedures to colleagues within certain
functions or of a certain grade; or
• contract to external parties.
The Group also has a Retail Board comprising the Executive
Directors and the most senior Managers within the business.
The Retail Board is collectively responsible for supporting the
Chief Executive in delivering the Group’s strategic objectives.
Biographical details for the Retail Board members are
provided on pages 42 and 43.
The Non-Executive Directors are key to this process, providing
feedback based on their different backgrounds, experience
and skills and with the benefit of having a degree of
distance from the process by which initial proposals are
developed. Active and robust debate of proposals with the
Non-Executive Directors enables new perspectives to be
considered and ensures that the ambitions and actions of
management are subject to challenging oversight.
The Board sets the strategic direction of the Group, taking
account of factors such as the external environment and
trends, the resources and existing challenges of the business,
opportunities and risks.
In the last year the Board has implemented an additional
step in the strategy process designed to capture the inputs
of the Board earlier in the development of the strategy and
three year plan.
The Board takes time annually to review the existing
strategy and to refresh the agreed approach, priorities
and expectations. To inform and provide context for its
consideration and debate of management’s strategic
proposals, the Board receives relevant reports and
background presentations from both internal and
external parties.
Having set the strategic priorities, the Board monitors and
incentivises delivery of these objectives (whether short or
long-term) on a continual basis, regularly reviewing the
controls and resources that are in place, the risks faced by
the business and how those risks are managed.
Separate reports by the Board’s three main Committees –
the Audit & Risk Committee, Remuneration Committee and
Nomination Committee – are provided on pages 48 to 73.
The Retail Board is supported by other specific operational
committees within the business which help ensure that
strategic actions are disseminated and managed, that
progress and issues are appropriately reported and
escalated and that management are properly accountable
for the performance of their areas of responsibility.
Further details of the different roles performed by the Chief
Executive and the Chairman are provided on the Group’s
website www.mccollsplc.co.uk/leadership.
The Chairman is responsible for leadership of the
Board and ensuring the Board is effective in all
aspects of its role
Specific roles have been delegated to the Chairman. In the
year the Chairman worked closely with the Chief Executive
on the appointment of the new Chief Financial Officer. He is
responsible for the operation of the Board and for leading
the Group’s governance. This includes setting the Board
agenda and leading the Board’s discussions and decision-
making. In addition, the Chairman’s role is to actively
promote a culture of openness and debate by facilitating
the effective contribution of the Independent Non-Executive
Directors. He is available to discuss matters with shareholders
and is responsible for ensuring that the Board is kept well
informed about shareholder views. In order to assess the
effectiveness of the Board and Committees, the Chairman
leads the annual evaluation process. Further details of the
Board evaluation are provided on page 47. The Chairman’s
performance is appraised by the Non-Executives who, led
by the Senior Independent Director, meet in his absence
annually to discuss this.
Our Non-Executive Directors constructively challenge
and help develop McColl’s strategy
Our shareholders have entrusted the Board with promoting
the long-term success of the Company, whilst remaining true
to the culture and values that we have set for the business.
The Board does this by establishing a range of short and long-
term objectives, monitoring and challenging progress made
towards attaining them and incentivising behaviours that are
likely to result in sustainable achievement of our vision for the
business. All of this must be achieved without adopting an
inappropriate approach to risk and risk management that
could jeopardise enterprise value.
Strategic report
Governance
Financial statements
Composition, Succession
and Evaluation
The McColl’s Board has a strong balance of skills,
experience, independence and knowledge of
the business
We made changes to the Board’s composition, and that of
its Committees, in 2017 in order to enhance the collective
skills, experience and knowledge, and also address the
independence issues of the Board and its Committees.
Apart from the announcement that Simon Fuller was leaving
the business the Board structure has been stable.
Details of the experience, background and skills of individual
Directors can be found on pages 40 to 41.
Diversity in all its forms is something that the Board welcomes.
Ultimately diversity brings different perspectives to our
debates and ensures that, as a Board, we are considering
matters from a variety of angles. In particular, the balance
of skills, experience and qualifications of the Board and its
Committees and the mix of different backgrounds is of great
importance to the effectiveness of our strategic leadership
and our governance arrangements.
45
Corporate governance report: Composition, Succession and Evaluation continued
Our Board recruitment processes are formal, rigorous
and transparent
Our policy is not to set a quota or target for Board diversity
but we are fully committed to transparent and robust
practices to identify the individual best suited to any
vacancy. Recruitment is based on an assessment of the
skills, experience, qualifications and other attributes sought
and we support this principle being applied throughout
the organisation. Further details of our approach to issues
of diversity and, in particular, support for women within the
business, can be found within the Nomination Committee
report on page 50 and in relation to our wider organisation,
on page 30.
For our Board recruitment activity during the year, the
recruitment of a Chief Financial Officer to replace Simon
Fuller, we engaged an external firm, Redgrave Partners.
They helped to ensure we searched a wide pool of potential
candidates and assessed them against objective criteria
in order to identify someone with the appropriate skills.
Further details about this process, which was led by our
Nomination Committee, are provided on page 49.
Our Directors should dedicate sufficient time
to their responsibilities
The commitment of our Directors to their roles, including
the time commitment of our Non-Executive Directors, is a
crucial factor in ensuring that our skilled Board is able to lead
the business effectively to build sustainable value for our
shareholders. Non-Executive Directors’ letters of appointment
define their duties and, taking account of these, the
Nomination Committee has reviewed the time commitment
required of our Non-Executive Directors. Further details
regarding this can be found on pages 48 to 49.
The number of meetings attended by our Directors
does not fully reflect their involvement in the business as,
between meetings, they are regularly involved in other
activities. Such activities include meetings and calls with
management and external advisers, shareholder dialogue
and background reading. However, formal/scheduled
meeting attendance statistics, set out below, can provide
an indication of the degree of commitment.
New Directors receive a formal induction and ongoing
development activities apply to the whole Board
The talents of our Board members can be put to best use
when we ensure that they are properly informed. All Directors
need to be kept up to date about the business including
trends and developments in the market, changes in the
regulatory environment and other factors.
This need particularly arises on appointment and,
accordingly, all new Directors undergo a formal induction
process that is described on page 50. However, Directors
also need ongoing development in order to perform their
duties as well as possible. As a Board we recognise this
ongoing requirement and seek to identify and address these
needs through a variety of individual and group activities
such as in-depth board briefings, store and site visits and
presentations by external advisers.
Attendance at meetings
Angus Porter
Jonathan Miller
Simon Fuller
Dave Thomas
Georgina Harvey
Sharon Brown
Jens Hofma
Board
Audit & Risk1
Remuneration2
Nomination
9/9
8/9
9/9
9/9
8/9
9/9
9/9
–
–
–
–
5/5
5/5
5/5
6/6
–
–
–
6/6
6/6
6/6
3/3
3/3
–
–
3/3
3/3
3/3
1 Angus Porter, Jonathan Miller, Simon Fuller and Dave Thomas attended meetings of the Audit and Risk Committee by invitation.
2 Jonathan Miller, Simon Fuller and Dave Thomas attended meetings of the Remuneration Committee by invitation.
46 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
All Directors are subject to annual re-election
The re-election of the Directors is considered annually by
the Nomination Committee in advance of the Company’s
Annual General Meeting. A recommendation for re-election
is not automatic but is dependent upon the Nomination
Committee being satisfied that the contribution of each
Director warrants being proposed.
For the Annual General Meeting to be held on 3 April 2019,
following an assessment of individual performance, all
Directors are unanimously recommended by the Board for
re-election, with the exception of Robbie Bell who, having
been appointed to the Board on 17 January 2019, will
stand for election by shareholders in accordance with the
Company’s Articles of Association. Biographical details for
the Directors are provided on pages 40 and 41 and further
details accompany the notice of Annual General Meeting,
including the reasons the proposed re-election of each
Director has been agreed by the Board.
Arrangements are in place to provide Directors with
good quality information in a timely manner
Directors, and in particular Non-Executive Directors who
are not involved in the business on a day-to-day basis, must
receive high quality, relevant information in a timely manner
if they are to be able to make appropriate decisions for
the business. Meeting agendas need to prioritise salient
matters and ensure that the Board is considering the right
issues at appropriate times. Reports must be thorough so
that Directors arrive at meetings well briefed and ready to
dedicate the valuable time the Board have together to
challenging and testing rationales, risks and alternatives, for
example, as opposed to seeking background information
and facts that could readily have been addressed in the
original papers. The Company Secretary plays a key role at
McColl’s in ensuring that this is the case. Rachel Peat FCIS
was appointed Company Secretary in November 2018.
The Directors of any business can face difficult issues from
time to time and it is important that they always feel they
are able to address those issues with the appropriate
knowledge and advice at their disposal. Accordingly, all
Directors, having notified the Chairman in the first instance,
are able to take independent professional advice at the
Company’s expense if they feel such advice is necessary
in the furtherance of their duties. During 2018, no Director
felt it necessary to take such individual advice. They also
have access to the advice and services of the Company
Secretary, who is responsible for advising the Board, through
the Chairman, on all governance matters, and who is also
available to any Director who wishes to seek their counsel.
A Board evaluation has been conducted
As agreed last year, the Board and Committee evaluation
for 2018 was conducted internally using a questionnaire
approach followed up with discussions. The evaluation
concluded that the Board was effective, however it identified
some areas for continuing improvement, such as a greater
focus on succession planning and talent management and
the need to have an even longer term view on strategy.
The feedback from those discussions was reviewed by the
Board and the committees during the year in order to assess
progress since the last evaluation and to identify any further
enhancements that can be made.
The Board wish to develop and enhance the opportunities
available for Non-Executive Directors to engage with
colleagues and are continuing to assess how we can do this
looking for a range of ways in which we can listen to and
learn from the people who make McColl’s a success.
As part of the evaluation process, the Senior Independent
Director led an evaluation of the Chairman’s performance,
after which it was concluded that he continues to provide
effective leadership of the Board.
Board evaluation process
Internally facilitated
Completion
of questionnaire
Collation
and reporting
of results
Individual
discussions
with Chairman
Discussion of
findings and
update of
action plan
47
Corporate governance report: Composition, Succession and Evaluation continued
Nomination Committee report
“ Our balance of skills, experience,
qualifications and diversity remains
appropriate to the strategic ambitions
of the business.”
Angus Porter
Nomination Committee Chairman
Dear Shareholder
On behalf of the Nomination Committee, I am pleased to
present our report for 2018.
Attendance at Nomination Committee meetings during the
year is indicated in the table below. Three meetings were
held during the year.
Committee composition and effectiveness
The Nomination Committee comprises myself as Chairman,
together with three Independent Non-Executive Directors
and the Chief Executive. The Committee is actively
supported by the Company Secretary.
As part of the Board’s performance evaluation which
conducted during the year, the Nomination Committee also
reviewed its own performance. The results of this exercise will
continue to shape the future activities of the Committee.
Meeting
attendance
Angus Porter
Chairman of the Board
(considered independent on appointment)
Sharon Brown
Nomination Committee Member
Independent Non-Executive Director
Georgina Harvey
Nomination Committee Member
Senior Independent Director
Jens Hofma
Nomination Committee Member
Independent Non-Executive Director
Jonathan Miller
Chief Executive
48 McColl’s Retail Group plc Annual Report and Accounts 2018
The Nomination Committee’s responsibilities
and activities
The Nomination Committee’s responsibilities, which are set
out in full in the Committee’s terms of reference (available
from www.mccollsplc.co.uk/committees), and the activities
through which the Committee has discharged those
responsibilities, are explored in more detail below.
During the year it was necessary to start the search for
a Chief Financial Officer following the resignation of
Simon Fuller in July 2018, a process led by the Committee.
Redgrave Partners were selected as the executive selection
agent. Redgrave Partners are signatories to the Voluntary
Code of Conduct for Executive Search Firms which sets out
best practice in relation to addressing gender diversity in
executive recruitment.
The key matters considered at each of the Committee’s
meetings during the year are summarised in the
following table.
Composition of the Board and its Committees
The composition of our Board is fully compliant with the
Code’s higher standard of independence requirements that
apply to FTSE 350 companies.
The Committee regularly reviews the composition of the
Board and its Committees to provide assurance that our
balance of skills, experience, qualifications and diversity
remains appropriate to the strategic ambitions of the
business and the challenges it faces.
Performance Evaluation
As well as reviewing its terms of reference during the year, the
Committee also considered its performance and reviewed
the outcomes of the Board evaluation process as a whole.
The Board had an external evaluation in 2017 facilitated by
Deloitte. This year the evaluation was conducted internally.
The Board currently intends to conduct the 2019 evaluation
internally, on the basis that the 2018 evaluation revealed no
material issues requiring independent assessment.
Meeting date
Key agenda items
Feb
Oct
Nov
• review of Non-Executive Directors independence
• consideration of suitability of Directors for re-election at the Annual General Meeting
• performance evaluation
• recruitment of Chief Financial Officer
• review of Board Committee composition
• review of the Board and committee evaluation process
• review of Directors’ conflict of interest authorisations
• review of Non-Executive Directors’ time commitment
• review of Nomination Committee terms of reference
• agreement on future focus on succession planning and talent
• review of the balance of the Board
Strategic report
Governance
Financial statements
Our Non-Executive Directors’ key skills
2
2
3
Areas of
Experience
4
2
2
Finance
Strategy
Operations
Retail
Multi-site business
Consumer brands
Independence, interests and commitment
The Committee is responsible for reviewing, at least
annually, the independence of Board members, Directors’
potential conflicts of interest, the re-election of Directors at
the Company’s Annual General Meeting and Directors’
time commitment.
The time commitments required of Non-Executive Directors
are set out in their letters of engagement and are 25–30
days per year for the Chairman and 15–20 days per year
for other Non-Executive Directors. However, a review by the
Nomination Committee recognised that an additional five
days per annum are required in order for the Chairmen of the
Audit & Risk and Remuneration Committees to fully perform
their roles in addition to their other duties.
The Committee reviewed all Directors’ interests and
concluded that conflicts of interest have been appropriately
disclosed and authorised. Following the Committee’s
recommendations on these matters, the Board has
confirmed that it considers all Non-Executive Directors to be
independent and has proposed all Directors for re-election
at the Company’s Annual General Meeting to be held on
3 April 2019.
49
Corporate governance report: Composition, Succession and Evaluation continued
Nomination Committee report
Induction and Board development
The Director induction is a formal process that involves
providing background information about the business and its
regulatory environment through, for example, the sharing of
reports and governance documents. Face-to-face meetings
are arranged with other Directors, key personnel within the
business and its advisers and site visits are also undertaken.
The last Non-Executive Director to go through the induction
process was Jens Hofma when he joined the Board in 2017.
More recently Robbie Bell, who joined the business in January
2019 has gone through the induction process, together
with a period of handover with Simon Fuller. The process is
considered to be adequate.
The ongoing development of Board members is also a priority
and regular in-depth reviews are undertaken to ensure that
the Non-Executive Directors have a full understanding of the
business, specific functional strategies and projects, changes
to the regulatory environment and market developments.
Additional development activities are planned over the
coming months including various site visits, attendance at our
annual colleague and supplier conference and an update
on the evolving governance landscape for listed businesses.
Succession planning, talent management and diversity
There is a Group colleague plan which addresses issues
including succession within the business, the identification
and nurturing of talent, and the diversity and inclusion
agenda. This is an ongoing area of focus.
The Board and Nomination Committee are committed
to ensuring that inclusion and diversity, including gender
diversity, are fully supported at Board level and throughout
the business. We recognise that an organisation that
embraces difference will benefit from the range of
perspectives brought by variety of background and other
influences. Accordingly, all appointments are based upon
an assessment of the skills, qualifications and experience
of individuals. It is not the Board’s policy to establish a quota
of women for appointment.
A number of wider initiatives have been established within
the business during the year to ensure that we support our
colleagues to achieve their aspirations and potential. We are
particularly pleased with the progress that has been made in
appointing more women to senior management positions.
Some of these are aimed at ensuring that we provide good
support to women, whatever stage they are at in their
life and career, to succeed in the workplace. More detail
about our colleague engagement and initiatives and
plans to support and develop colleagues can be found on
pages 29 to 31.
As a business, McColl’s is a significant employer of women.
Like many other organisations, at McColl’s women are under-
represented at senior management levels but it is good news
that more than half our stores are managed by women.
A focus group was run to learn from the real experiences
of our female colleagues, and we have been analysing
the data gathered for our gender pay gap reporting to
understand better where efforts need to be more focused.
Details of our gender pay gap are provided on page 30.
This report was approved by the Nomination Committee
and signed on its behalf:
Angus Porter
Nomination Committee Chairman
Board Diversity
2
Gender
Diversity
Executive
vs
Independent
4
3
5
Female
Male
Executive
Independent Non-Executive*
* The Chairman was deemed
independent on appointment.
50 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Our Board is responsible for determining the principal
risks that it considers to be acceptable in order to
achieve McColl’s strategic objectives
The Board recognises that effective risk management is
essential to the long-term success of the business and to
protecting shareholder value. It has overall responsibility for
the Group’s system of risk management and internal controls
and for ensuring those systems are effective. Although no
system can provide absolute assurance, our systems are
considered adequate to appropriately manage the risk
of failure to achieve business objectives and to provide
reasonable protection from material misstatement or loss.
Our Board has established formal and transparent
arrangements for considering how corporate reporting,
risk management and internal control principles should
be applied and how an appropriate relationship with the
external Auditor can be maintained
The Board has established an Audit & Risk Committee
comprising Independent Non-Executive Directors, including
individuals who have experience relevant to the retail sector.
This Committee is chaired by Sharon Brown, who has recent
and relevant financial experience, and who has provided a
separate report on behalf of the Audit & Risk Committee on
pages 52 to 56.
The McColl’s approach to risk and risk management is
described on pages 34 to 38 where a summary of our key risks
and how they are mitigated is also provided. These principal
risks have been agreed following robust and regular
assessment. They include the risks that could threaten our
business model, performance, solvency or liquidity.
The Audit & Risk Committee Report describes the
membership, responsibilities and activities of the Committee
and how it has discharged its duties during the year.
Audit, Risk and Internal control
The McColl’s Board recognises its duty to present a fair,
balanced and understandable assessment of the Group’s
position and prospects
The Annual Report and Accounts, together with other
published information, provide important disclosures
that enable shareholders and other readers to assess the
performance, strategy and business model of the Company.
The Group has thorough assurance processes in place in
respect of the preparation, verification and approval of
periodic financial reports, including:
• a system of financial and other internal controls,
•
the involvement of qualified, professional employees with
an appropriate level of experience (both in our finance
team and throughout the business),
• a transparent process to ensure full disclosure of
information to the external Auditor,
• access to external help and advice on highly
technical subjects,
• comprehensive review and, where appropriate,
challenge from appropriate senior managers and
Executive Directors,
• oversight by the Audit & Risk Committee as described in
more detail on pages 52 to 56.
These processes provide reasonable assurance to the Board
when they approve the Annual Report and Accounts and
other published documents that the disclosures they contain,
including the viability and going concern statements, are not
misleading and are sufficient for users of those documents to
form a reasonable view of the business and its prospects.
Safer for Stores
Our Safer for Stores programme is designed to help
colleagues manage security risks. Across a large estate
of stores, there are inevitably incidents and accidents.
We recognise we have a duty of care to understand
and address the risks within the business in order to
ensure, as far as possible, we keep our colleagues and
customers safe.
51
Corporate governance report: Audit, Risk and Internal control continued
Audit & Risk Committee report
“ As highlighted last year,
we are in the process of
an audit tender for 2019.”
Sharon Brown
Audit & Risk Committee Chair
The composition of the Audit & Risk Committee and the skills
we collectively bring to our work, the ways in which we have
performed our role, the key matters that we have considered
and the recommendations that we have made to the Board
are described in the remainder of this report.
Sharon Brown
Audit & Risk Committee Chair
Dear Shareholder
I am pleased to present, on behalf of the Board, the Audit &
Risk Committee’s formal report.
It has been a challenging year for the business but our
strategy for the future remains on track (see page 17 in the
Strategic Report). We must remain mindful of the risks and
pitfalls that a developing business can face and ensure
that controls are sufficiently robust and that behaviours are
appropriate. The Audit & Risk Committee leads the Board’s
focus on matters of risk, as well as on integrity of the Group’s
financial reporting, and has been busy during the year in
ensuring that we discharge our responsibilities carefully.
The Committee’s report which follows provides information
on how we have done so.
As highlighted in last year’s Annual Report, we are in the
process of an audit tender. Deloitte LLP was first appointed
as the Group’s auditor in 2006. At that point the Group
was a private business but following the Group’s listing in
2014, the Group is now subject to regulatory requirements
on audit re-tender. Although the Group’s external audit
arrangements need to be re-tendered no later than 2024, the
Audit Committee recommended a tender for the 2019 audit.
Deloitte LLP will be recommended for re-appointment as
auditor until the tender process is complete and a successor
is identified, at which point Deloitte will resign as auditor to
the Group.
52 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Audit & Risk Committee’s activities
Given its extensive remit, it is vital that the Audit &
Risk Committee organises its time so as to cover all its
responsibilities regularly. Agendas are planned, with
the support of the Company Secretary, to ensure that
the responsibilities set out in the Committee’s terms of
reference are fully discharged at the most appropriate
time in the annual calendar. For example, the Audit & Risk
Committee conducted a full review of the risk register and
risk management framework in advance of the Board’s
strategy meeting in order to inform the Board’s consideration
of strategic plans.
Planning the year ahead also helps ensure that less time-
critical matters can be spread evenly across meetings so
that adequate time can be provided at meetings for full
discussion. The way in which the Audit & Risk Committee
divided its time during 2018 is summarised in the table of
key agenda items on page 54.
Committee composition and effectiveness
As part of the Board’s performance evaluation, the Audit &
Risk Committee also reviewed its own performance. The Audit
& Risk Committee has confirmed that the collective financial
and sector experience of its members is considered to be
appropriate, relevant and sufficiently recent to enable the
Committee to discharge its responsibilities in full.
Meeting
attendance
Sharon Brown
Audit & Risk Committee Chairman
Independent Non-Executive Director
Member of the Chartered Institute
of Management Accountants
Previous experience as a Finance Director
Chairs the Audit Committees of a number
of other companies
Georgina Harvey
Audit & Risk Committee Member
Senior Independent Director
Jens Hofma
Audit & Risk Committee Member
Independent Non-Executive Director
The biography of each member of the Audit & Risk
Committee can be found on page 41.
Audit & Risk Committee’s responsibilities
The Board has delegated a number of responsibilities to
the Audit & Risk Committee in order to provide the Board
and Shareholders with assurance that key financial and risk
matters are being overseen and challenged by Independent
Non-Executive Directors who are not involved on a day-to-
day basis with the management or control of those functions.
The Committee oversees financial reporting, external audit
and internal controls, and reviews factors that influence
the effectiveness of the external Auditor, for example their
independence. The Audit & Risk Committee is responsible
for making recommendations to the Board on a number
of different matters including on the appointment of the
Company’s external Auditor and approval of financial
disclosures, including the Annual Report and Accounts
and Interim Financial Statements.
In addition, the Committee has responsibility for oversight
of risk and risk management systems, in the absence of a
separate risk committee. It reviews the Company’s relevant
key policies to ensure that wrong-doing such as bribery and
fraud is, as far as possible, prevented and, where it occurs,
is detected and lessons are learned. As part of this, the
Committee is responsible for ensuring that there are effective
arrangements in place to enable colleagues to speak up
in confidence if they become aware of any wrong-doing
occurring within the business, including any conduct that
is illegal.
The Committee undertook a thorough review of its terms of
reference during the year and adopted several changes to
ensure continued compliance with best practice. A copy
of the Committee’s terms of reference is available on the
McColl’s website at www.mccollsplc.co.uk/committees.
53
Corporate governance report: Audit, Risk and Internal control continued
Audit & Risk Committee report
Meeting date
Key agenda items
• draft Annual Report and Accounts 2017 and related matters
• new Enterprise Resource Planning (ERP) system
Jan
Feb
Jul
Oct
Nov
• year-end external audit outcomes
• Annual Report and Accounts 2017 and related matters
• external Auditor independence, objectivity and reappointment
• principal risk disclosures
• Committee performance evaluation
• consideration of Group guarantee for subsidiary companies
• half year external review outcomes
• half year 2018 announcement and related matters
• risk register
• Committee terms of reference
• early draft external audit plan
• IFRS 16 (lease accounting) project update
• risk register as background to the Board’s strategy review
• policy on provision of non-audit services by the Auditor
• policy on related party transactions
• year-end external audit plan
• key accounting policies
• financial and internal controls
• risk management systems
• consideration of the requirement for an internal audit function
• compliance, fraud, whistleblowing, bribery incidents review
• policies on speaking up in confidence, anti-bribery and employment of former employees
of the external Auditor
Making sure the Audit & Risk Committee is well informed
The information that is provided to the Audit & Risk
Committee is key to ensuring that Committee members
are sufficiently well informed to enable them to form a
reasonable view of the matters they are considering.
Written reports are provided in advance and meetings are
attended, by invitation, by the Chairman, Executive Directors,
external Audit Partner and others so that the written reports
can be discussed and challenged.
Regular opportunity is also provided for the Committee
to meet with the Auditor in the absence of management.
Between meetings the Chairman of the Audit & Risk
Committee receives regular updates from the Chief
Financial Officer relating to Audit & Risk Committee matters
and responsibilities.
Another source of assurance to the Audit & Risk Committee
could come from an internal audit function which the
business does not currently have. The Audit & Risk Committee
reviews annually whether it would be appropriate for an
internal audit function to be established. During the year
the Audit & Risk Committee received a detailed report on
the existing controls within the business and, after discussion,
concluded that it was not necessary to establish an internal
audit function at this stage. This decision will be reviewed
again in 2019.
After each Audit & Risk Committee meeting, actions
are clearly identified, tracked and reported back to the
Committee as progress is made in completing them.
The Committee Chairman reports to the Board on
the main items discussed at each meeting, including
recommendations on any items requiring further
consideration and decision by the Board. The Board
also receives copies of the Committee’s full minutes.
54 McColl’s Retail Group plc Annual Report and Accounts 2018
Auditor re-appointment
The decision whether to recommend re-appointment of the
external Auditor is reviewed annually.
Deloitte was first appointed as the Group’s auditor in 2006.
At that point the Group was a private business but, following
the Group’s listing in 2014, the Group is subject to regulatory
requirements on audit re-tender. Although not required
to tender until 2024, as reported last year, the Audit & Risk
Committee has commenced a tender for the 2019 audit.
This process is underway, the results will be reported to
shareholders in due course. It is recommended that Deloitte
be re-appointed until such time as a successor is identified.
Strategic report
Governance
Financial statements
Significant accounting judgements and uncertainties
considered by the committee during the year
Summarised below are the most significant issues considered
by the Committee in respect of these financial statements
and how these issues were addressed. Having reviewed
the audit plan initially and considered and discussed the
draft financial statements and disclosures in the light of
the external Auditor’s work and findings, the Audit & Risk
Committee were satisfied with the significant accounting
judgements made in preparing them.
Supply Chain Transition
On 31 July 2017 the Group entered into a new wholesale
supply agreement with Morrisons. Under this agreement
the business received contract incentives. In addition, as
a result of the complex launch and transition period after
the collapse of P&H, the business has received transitional
support payments.
Treatment of Supplier Income
Judgement is required on the level of accrued supplier
income and the profit element recognised for the
amounts not invoiced or specifically agreed with suppliers.
Judgement is also required in determining the period over
which the reduction in cost of sales should be recognised,
requiring both a detailed understanding of the contractual
arrangements themselves as well as complete and
accurate source data to which the arrangements apply.
As the process of appropriate recognition can involve
significant manual adjustments, these have the potential for
inappropriate manipulation.
Non-audit services
The assurance provided by the external audit process
is key to ensuring confidence in our financial reporting.
The Audit & Risk Committee therefore regards the continued
independence of the external Auditor as vitally important.
The Group has a clear and robust policy relating to the
provision of non-audit services by the external Auditor.
The policy was adopted last year and is reviewed annually.
There are specific services identified that are prohibited
and may not be provided by the external Auditor in any
circumstances. These include (but are not limited to) all
tax services, bookkeeping, payroll, executive recruitment,
internal audit, internal control and risk management,
expert services (beyond audit) and valuations.
Where the external Auditor provides non-audit services
which are not prohibited, the Audit & Risk Committee
has established as part of the policy that, other than
in exceptional circumstances, the total cost of all non-
audit services provided by the external Auditor must not
exceed 70% of the cost of statutory audit services (based
on the average of the last three years). Audit and non-
audit fees are shown here and disclosed in note 6 to
the financial statements.
The non-audit fees paid during the year related to an interim
review, turnover certificates and banking covenants.
42
Audit and
non-audit
fees
275
Audit fees (£’000)
Non-audit fees (£’000)
Included within the audit fee total for the year is an amount
of £51,000 that is deemed to be non-recurring in nature.
55
Corporate governance report: Audit, Risk and Internal control continued
Audit & Risk Committee report
Arrangements for speaking up in confidence
Consistent with the McColl’s values, the Group seeks
to operate according to the highest ethical standards.
An important aspect of this is ensuring that, if a colleague
becomes concerned about suspected wrong-doing
within the business, they are aware of how they can report
their concerns, in confidence, so that the matter can be
investigated and dealt with appropriately. The Committee
considers the policy for colleagues to speak up in confidence
and the procedures that support it to be appropriate for
the size and scale of the business with no further changes
deemed necessary currently. The Committee will continue
to review this at least annually.
Conclusion
The Audit & Risk Committee has advised the Board that
the processes in place to ensure that the Annual Report
and Accounts, when taken as a whole, is fair, balanced
and understandable, are adequate. The Committee is
also satisfied that appropriate governance continues to
be applied to the Company’s systems of internal control,
risk management and other compliance areas.
Approved by the Audit & Risk Committee and signed
on its behalf:
Sharon Brown
Audit & Risk Committee Chairman
Remuneration
Our approach to Executive Directors’ remuneration
is designed to support strategy and promote the
long-term sustainable success of the business
The Directors’ Remuneration report on pages 57 to 73
describes in detail our approach to Executive Directors’
remuneration, the different elements that make up their
remuneration package, the targets on which performance
elements are based, and termination arrangements.
One of the key factors of which the Remuneration
Committee takes account when it is considering potential
changes to Executive remuneration, is the pay and
conditions that prevail across the wider group and industry.
Non-Executive Directors are paid a fee that reflects the
time commitment required of them and their responsibilities.
Non-Executive Directors do not receive any performance-
related benefits. There have been no changes to the fees
of Non-Executive Directors during the year.
There is a formal and transparent procedure for
developing Executive remuneration and for determining
individual packages
The Remuneration Committee, comprised wholly of
Independent Non-Executive Directors, is responsible for
setting our Executive team’s remuneration, including
performance conditions, and for determining the extent
to which relevant targets have been met. It consults with
shareholders, in particular when changes are proposed,
and did so prior to the 2018 Annual General Meeting
at which a revised remuneration policy was approved.
The Remuneration Committee’s duties are set out in full
in the Committee’s terms of reference (available from
www.mccollsplc.co.uk/committees). The Directors’
Remuneration report on pages 57 to 73 describes in more
detail how the Remuneration Committee discharges
these duties.
Impairment accounting
Given the difficult trading faced by the Group over the year,
there is increased judgement in the carrying value of the
Group’s stores and consideration for impairment indicators.
In addition, the Group holds a significant value of goodwill
generated through acquisitions of businesses, individual
and groups of stores. The goodwill balance is highly material.
The value of stores and goodwill is supported by forecasts
of future cash flows of the businesses. There are inherent
risks within these forecasts due to uncertainties as a result
of changing industry and economic conditions.
Presentation and classification of results
In reviewing the presentation of adjusted profits, the
Committee fully recognise the importance of ensuring that
the rationale applied in identifying items for adjustment
is clear, appropriate and consistent with the Group’s
accounting policies. The most significant items of adjustment
are identified in the Financial Review on page 23 and in the
Auditor’s Report on page 85. The Audit & Risk Committee
challenged and debated the appropriateness of each
of these significant adjusting items with Management
and sought an explanation of the judgement made and
confirmation that a consistent Group policy, which also
took account of market norms to ensure the treatment was
consistent with best practice and the practice of others in
our industry, was applied to the treatment of such items.
The Committee was also mindful of the need for adequate
disclosure. The inclusion of relevant defined terms in the
glossary is helpful in this respect.
Going Concern
The Committee has considered going concern by reviewing
long-term forecasts, taking into account the revised banking
facilities available to the Group. When considering the
possible impacts of Brexit (details of which are contained in
the Principal risks and uncertainties section on page 38), a
number of scenarios have been modelled as detailed in
the Going concern statement on page 77. The Committee
challenged the assessment performed, including the severity
of the downside scenarios and the reasonableness of the
mitigating actions, to ensure that sufficient headroom still
remained when applying these sensitivities.
56 McColl’s Retail Group plc Annual Report and Accounts 2018
Directors’ remuneration report
Annual statement
Georgina Harvey
Remuneration Committee Chair
Dear shareholder
I am pleased to present the Directors’ Remuneration Report
for the financial period ended 25 November 2018. This report
has been prepared in accordance with the Large and
Medium-sized Companies and Group (Accounts and
Reports) Regulations 2013, as amended, and the principles
of the prevailing UK Corporate Governance Code.
The report is split into three sections:
• This Annual Statement summarising the work of the
Committee, our approach to remuneration and an ‘at a
glance’ summary of Executive Director remuneration;
• The Directors’ Remuneration policy, which sets out the
current shareholder approved policy; and
• The Annual Report on Remuneration, which sets out the
remuneration arrangements and incentive outcomes for
the year under review and how the Committee intends
to implement the Policy in 2019.
There will be two remuneration-related votes at the 2019
AGM, the first being the advisory vote on the Directors’
Remuneration Report (the Remuneration Policy was
approved by shareholders at the 2018 AGM Policy so
need not be approved this year as there are no changes).
Secondly, a resolution will be tabled for shareholders to
approve the deferred bonus plan rules which were approved
in principle last year.
Strategic background
In the last 12 months, the supply chain disruption, which
has resulted in the need to accelerate the rollout of our
new supply agreement, has created significant challenges.
This has impacted our LFL sales performance as well as put
pressure on gross margin, resulting in lower profits for the 52
weeks ended 25 November 2018. Going forwards, continued
cost pressures and uncertainty for consumers is likely to
require us to demonstrate further competitive retail pricing.
Pay and Performance for 2018
As explained elsewhere in this Annual Report and Accounts,
2018 was a difficult year for the business. As such, no bonus
will be payable to the Executive Directors in respect of the
2018 performance year and the LTIP awards granted in 2016
will lapse in full in 2019. While three-year TSR performance to
25 November 2018 resulted in part of these awards vesting
(there was no vesting against EPS targets), the Remuneration
Strategic report
Governance
Financial statements
Committee exercised its discretion and determined that
there should be no vesting in respect of the 2016 awards in
light of recent share price performance.
Implementation of the Remuneration Policy
for Executive Directors for 2019
No changes will be made to base salary, benefit or pension
provision for 2019. The maximum bonus opportunity continues
to be set at 100% of base salary. For 2019, 70% of the annual
bonus will be determined by performance against operating
profit targets, 10% will be determined by performance against
revenue targets and 20% will be determined by strategic
performance targets. This is to ensure that the Executive team
will be focussed not only on delivering the current year’s
financial targets but also on establishing the foundations
needed for sustainable future growth. These targets are
currently regarded as commercially sensitive although
disclosure of the targets and performance against the targets
will be set out in the 2019 Directors’ Remuneration Report.
Given the current share price volatility and noting the
recent appointment of our new Chief Financial Officer, the
Remuneration Committee considers it appropriate to delay
the normal LTIP grant for 2019 for a period of time. LTIP award
levels will be reviewed in advance of the awards being
granted although it should be noted that the Chief Executive
and Chief Operating Officer’s LTIP award levels are expected
to be materially lower than the normal 150% of salary grant
level to reflect the recent share price decline (noting that
the Chief Financial Officer’s award level of 125% of salary
was agreed as part of his recruitment package and will
therefore be honoured, albeit granted later than originally
envisaged). While the Committee is not in a position to agree
and disclose the performance targets at this point, they
will be appropriately challenging and fully disclosed in the
RNS published shortly after the grant date and in next year’s
Directors’ Remuneration Report. A two-year holding period
will apply to any LTIP awards granted in 2019.
Yours sincerely
Georgina Harvey
Remuneration Committee Chair
57
Directors’ remuneration report continued
Remuneration at a glance
The following is a summary of the key components of Executive Directors’ remuneration
and their single figure total remuneration for the 52 weeks ended 25 November 2018.
Key components
Single figure remuneration of Executive Directors (£’000)
Basic salary
Pension benefits
Other benefits
Fixed pay
To attract and retain talent
of the right calibre and with
the ability to contribute to
strategy, by ensuring basic
salaries are competitive in
the relevant talent market.
e
s
o
p
u
P
r
To provide post-retirement
benefits for participants
in a cost-efficient manner.
To provide a competitive
and balanced package
of benefits.
Annual bonus
Long Term Incentive Plan (LTIP)
Variable pay
e To incentivise focus on achievement of
s
o
p
u
P
stretch profit targets as well as the delivery
of key strategic priorities for the year.
r
To align the interests of Executives with
shareholders in growing the value of the
business over the long term.
77%
59%
17% 6% £591
14%
6%
9%
12%
£750
82%
12%
6%
£356
61%
9%
5%
9%
17% £469
83%
12% 5%
£348
64%
10% 4%
10%
13% £427
Jonathan Miller
2018
2017
Dave Thomas
2018
2017
Simon Fuller
2018
2017
Basic salary
Pension benefit
Other benefits
Single-year variable
Multiple-year variable
These figures are described in more detail on page 68.
58 McColl’s Retail Group plc Annual Report and Accounts 2018
Directors’ remuneration policy
Strategic report
Governance
Financial statements
This section of the report sets out the Company’s Directors’ remuneration policy which
was approved by a binding vote of shareholders at the 2018 AGM. It is intended that the
policy will apply for the three years from the date of approval.
The Remuneration Committee’s key objective in designing the policy was to ensure that it
serves the business and its shareholders well by incentivising appropriate behaviours and
management focus on strategic and financial objectives and by remaining attractive as
an employer.
Summary Policy table
The key components of the remuneration policy approved by shareholders at the AGM held on 12 April 2018 are described below. The full policy can be found in the 2017 Annual Report.
Basic salary
Pension
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.
To provide post-retirement benefits for participants in a cost-efficient
manner.
Other benefits
To provide competitive benefits for each role.
Fixed pay
Basic 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.
Generally, the case for making any increases is considered annually.
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.
All the current Executive Directors receive a salary supplement in
lieu of pension but, in the case of the Chief Financial Officer, his
supplement is reduced by the amount that is contributed towards his
participation in the Group’s defined contribution scheme. Any new
Executive Director would be eligible to participate in that scheme
(or any replacement scheme) or to receive a salary supplement
in lieu of pension provision.
Pension contributions vary based on individual circumstances.
Pension benefits will be capped at 20% of salary, excluding legacy
arrangements for the current Chief Executive.
Individual and Group performance is taken into account when
determining appropriate salaries.
None.
Benefits may currently include the provision of a car or car allowance,
fuel, private medical insurance and life assurance.
Reasonable relocation, travel and subsistence allowances and other
benefits may be provided based on individual circumstances.
These benefits are set at a level that is comparable
to market practice.
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).
None.
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59
Directors’ remuneration report continued
Directors’ remuneration policy continued
e
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t
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Annual bonus
Variable pay
Long Term Incentive Plan (LTIP)
To focus Executive Directors on achieving stretching profit targets as well as delivering the strategic business
priorities for the financial period. The partial deferral of bonus into shares is intended to further align
Directors’ interests with those of shareholders.
To align the interests of Executive Directors with those of shareholders in sustainably growing the value
of the business over the long term.
Performance measures and targets are set prior to or shortly after the start of the financial period. At the
end of the financial period, the Remuneration Committee will determine the extent to which the targets
have been achieved.
The plan provides for annual awards of performance shares to eligible participants. Vesting is based on
three-year performance. Executive Directors’ vested shares are subject to an additional two-year holding
period before being released to participants.
One-third of any bonus award will be deferred into shares that must be retained for a period of three years,
with the remainder paid 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.
The maximum bonus opportunity for Executive Directors is up to 100% of salary.
10% and 50% of maximum will be payable for threshold and on target performance respectively. Stretch
targets apply to the full award.
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 may be made up to a maximum of 150% of salary in normal circumstances and up to 250%
in exceptional circumstances.
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 and strategic priorities for the year ahead. The latter is intended to
ensure that Executive Directors maintain focus not only on current year financial targets, but also on longer-
term strategic goals to drive sustainable growth.
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.
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%.
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,
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.
60 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Shareholding guidelines
Non-Executive Directors’ fees
To align Directors’ interests with the long-term interests of shareholders.
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.
Other arrangements
Executive Directors will be required to build up and retain a minimum shareholding in the Company
at least equal to 200% of basic salary.
To help Executive Directors achieve the required shareholding levels, some mandatory share deferral
arrangements have been built into the variable elements of pay. One-third of any future annual
bonus paid will be subject to mandatory deferral into shares to be held for three years. All share
options that vest under the LTIP, but which must be held for a further period of two years prior to
exercise, will count towards achievement of the shareholding guideline.
An all-inclusive annual fee is paid to the Chairman.
An annual base fee is paid to other Non-Executive Directors which is inclusive of their membership (but not
chairmanship) of all Board Committees. Additional fees are paid to the Chairmen of the Audit & Risk and
Remuneration Committees and to the Senior Independent Director.
Non-Executive Directors do not participate in any incentive schemes, nor do they receive any pension or other
benefits (other than reasonable out-of-pocket expenses incurred in the proper performance of their duties).
There is no prescribed individual maximum fee but there is an aggregate limit of £500,000.
None.
None.
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61
Directors’ remuneration report continued
Directors’ remuneration policy continued
Performance measure selection and approach to target setting
Annual bonus targets are selected prior to or shortly after the start of the financial period.
Operating profit is considered to be the best measure of the Group’s annual financial
performance and will continue to determine the majority of the annual bonus. The profit
target is calibrated with reference to the Group’s budget for the upcoming financial period.
The profit target is supplemented by an element based on further financial and/or strategic
performance measures which are selected annually to reflect the Group’s key strategic
priorities for the financial period ahead. No bonus pay-out can be made based upon the
strategic measures unless the profit target is at least achieved at threshold level.
For the LTIP which incentivises delivery of longer-term success, EPS is considered to be the
best measure of the Group’s bottom line financial performance over this time frame and will
always determine the vesting for at least 50% of the overall LTIP award. Relative TSR against an
appropriate peer group will also be captured to further align the interests of LTIP participants
with those of shareholders.
Threshold and stretch performance levels under the EPS element of the LTIP are set at 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. Threshold vesting for the TSR element is set
at median ranking with the stretch target set at upper quartile. These targets are in line with
market practice for other listed companies and are expected to capture a range of good to
excellent performance for the Group.
The Remuneration Committee has established the following performance adjustment
principles in order for there to be a shared understanding of the process for making
adjustments to LTIP performance criteria in appropriate circumstances:
a. the Committee will consider making an adjustment where a change is recognised as a
Class 1 transaction (as defined by the UKLA Listing Rules);
b. the Committee would not make an adjustment where the change results in less than a 5%
impact on EPS; and
Jonathan Miller
Minimum
On-target
Maximum
Robbie Bell
Minimum
On-target
Maximum
Dave Thomas
Minimum
c. adjustments will be considered between the upper and lower limits defined in a. and b.
On-target
Differences in remuneration policy operated for other employees
Senior management’s remuneration has the same components as set out in the policy,
being basic salary, annual bonus, pension, life assurance and other 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 but are subject to lower
salary multiples, with the potential varying with seniority. Payout arrangements are based on
specific key performance indicators relevant to each job function and for Senior Managers
below Board level, part of the Bonus may be deferred. Shareholding guidelines apply to Retail
Board members.
All colleagues receive a basic salary and all eligible colleagues are automatically invited
to enrol into a pension scheme. Store Managers participate in a bonus scheme that targets
specific key performance indicators for their store.
Maximum
Fixed pay
Annual bonus
Long Term Incentive Plan
62 McColl’s Retail Group plc Annual Report and Accounts 2018
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 graph below provides 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’. In these scenarios it
has been assumed that the incentive arrangements are operated at the maximum level
permitted under the policy, which for the LTIP will not be the case in 2019, as indicated in
the Annual Statement on page 57.
Executive Director remuneration scenarios (£’000)
100%
£600
60%
35%
100%
£396
57%
32%
100%
£359
58%
33%
23%
17%
£994
26%
39%
£1,727
25%
18%
£693
27%
41%
£1,246
24%
18%
£615
27%
40%
£1,092
Approach to remuneration for new Director appointments
When recruiting or appointing a new Executive Director, the Remuneration Committee may
make use of all the existing components of remuneration, as follows:
Component
Approach
Maximum opportunity
Basic salary
Pension
Other benefits
The basic 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.
20% of basic salary.
Annual bonus
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.
100% of basic salary.
LTIP
New appointees will be granted awards under the LTIP
on similar terms as other Executives, as described in the
policy table.
150% of basic salary (250% in
exceptional circumstances).
Strategic report
Governance
Financial statements
In determining appropriate remuneration for a new Executive 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 forgone.
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
colleagues 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 summarised above.
63
Directors’ remuneration report continued
Directors’ remuneration policy continued
Service contracts and exit payment policy
Non-Executive Directors
The Chairman, Angus Porter, was appointed as a Non-Executive Director on 1 April 2016.
Georgina Harvey and Sharon Brown were both appointed as Non-Executive Directors on
7 February 2014 and Jens Hofma was appointed on 1 July 2017. All Non-Executive letters
of appointment set out the terms of the individual’s 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 out of pocket expenses directly incurred in the
performance of their role) on top of their standard fees disclosed. Non-Executive Directors
have a notice period of one month and receive no compensation on termination.
Executive Directors
On 24 February 2014, Dave Thomas entered into a service agreement with the Company.
Both Jonathan Miller and Simon Fuller entered service agreements with the Company
on 1 April 2016. In the case of Jonathan Miller, the contract reflected his promotion from
Chief Financial Officer to Chief Executive. Post year end, Robbie Bell entered into a service
agreement dated 3 January 2019.
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.
Each of the Executive Directors’ service agreements is terminable by the relevant individual
or the Company on not less than 12 months’ prior written notice. 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. The employment of each Executive Director is terminable with
immediate effect without notice in certain circumstances which include, for example, where
an Executive Director commits an act of serious misconduct, commits a 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 a criminal offence, is disqualified from acting as a director
or acts in a way which may bring the Company or any member of the Group into disrepute.
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.
Executive Director service contracts are available for inspection at the registered office
and at the Annual General Meeting.
Reason for leaving
Bonus
Timing of vesting
Calculation of vesting/payment
Summary dismissal, resignation 1
Awards lapse.
Not applicable.
Good leaver 1, 2
Normally at year end.
Change of control 1
On change of control, or shortly thereafter.
The annual bonus plan for the period under review would normally have 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.
The annual bonus plan for the period under review would normally be paid immediately and be based
on pro-rata performance to date, with Committee discretion to treat otherwise.
LTIP
Summary dismissal, resignation
Unvested awards and vested awards that have not
been called, including shares subject to a holding
period, lapse.
Not applicable.
Good leaver 1, 2
In line with the vesting schedule at grant.
Change of control
On change of control.
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.
Unvested LTIP shares are normally pro-rated for performance to the date of change of control and paid
immediately. Awards will normally be pro-rated for time unless the Committee determines otherwise.
1 The treatment of shares subject to deferral or holding periods will be subject to the Remuneration Committee’s discretion and will take into account the circumstances at the time.
2 A ‘good leaver’ is 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
Remuneration Committee determines in its absolute discretion (excluding summary dismissal or resignation to join a competitor).
64 McColl’s Retail Group plc Annual Report and Accounts 2018
Consideration of employment conditions elsewhere in the Group
The Committee takes into account the levels of basic salary being offered to colleagues
elsewhere in the Group and, when annually reviewing the salary increases and remuneration
for the Executive Directors, it looks at what increases are planned for the wider employee
population. During 2018, the Committee additionally received information about the Group’s
gender pay gap. Colleagues have not been consulted in respect of the design of the Group’s
Senior Executive remuneration policy although the Board is reviewing an employee feedback
mechanism in light of the new UK Corporate Governance Code.
Consideration of shareholder views
The Committee considers shareholder feedback carefully when reviewing remuneration.
As part of its work to propose the new remuneration policy for approval at the 2018 Annual
General Meeting, it took advice on current best practice and institutional shareholder
guidelines. The Committee also undertook an active consultation exercise with shareholders
representing approximately 65% of the shareholder base in line with the Committee’s policy
to consult with significant shareholders prior to making any major changes to its Executive
remuneration structure. Shareholder bodies and advisors were also consulted.
Feedback from the consultation indicated broad support for the proposals.
Some respondents sought additional assurance that performance targets would be
sufficiently stretching considering the proposed increase in potential. In its responses to these
points, the Committee was able to make reference to the historically low annual bonus
payouts (approximately 13% on average over the previous three years) as evidence of the
Committee’s commitment to setting challenging targets. The Committee also explained
that increasing the proportion of the annual bonus that would be conditional upon strategic
objectives was intended to ensure that management maintained appropriate focus on these
important initiatives as well as on delivery of current year financial targets.
The shareholders and advisory bodies who responded, in particular, widely welcomed the
introduction of mandatory bonus deferral and the proposed increase in the shareholding
guideline to 200% of salary.
Strategic report
Governance
Financial statements
65
Directors’ remuneration report continued
Annual report on remuneration
This section details the remuneration payable to the Executive and Non-Executive
Directors (including the Chairman) for the financial year ended 25 November 2018 and
sets out how we intend to implement our remuneration policy for the 2019 financial year.
This report, along with the Chair’s annual statement, will be subject to a single advisory
vote at the AGM on 3 April 2019.
Remuneration Committee composition
The Remuneration Committee is comprised wholly of Independent Non-Executive Directors
and is supported by the Company Secretary who attends all meetings. The Chief Executive,
Chief Financial Officer, Chief Operating Officer and Colleague Director, together with the
Committee’s independent advisers, FIT Remuneration Consultants LLP, attend committee
meetings by invitation.
Jan
Meeting attendance during the year was as follows:
Meeting attendance
Feb
Georgina Harvey
Remuneration Committee Chair
Senior Independent Director
Sharon Brown
Remuneration Committee member
Independent Non-Executive Director
Jens Hofma
Remuneration Committee Member
Independent Non-Executive Director
Angus Porter
Remuneration Committee member
Chairman of the Board (considered independent on appointment)
Remuneration Committee responsibilities
The Remuneration Committee has responsibility for deciding the terms and conditions of
employment, remuneration and benefits of the Executive Directors, including pension rights
and any compensation payments, and for setting the level and structure of remuneration
for Senior Managers and the implementation of share option or other performance-related
schemes. In discharging its responsibilities, the Committee must review and have regard to
the pay and employment conditions across the business. It must also have regard to the views
of shareholders, the risk appetite of the Group and McColl’s strategic objectives.
To assist them in their work, the Committee appointed FIT as its principal external adviser
during the year, replacing Kepler, following a competitive tender process. FIT’s fees for
advice provided to the Remuneration Committee from appointment were £4,500 (exc. VAT).
Kepler’s fees for 2018, up to the date FIT was appointed, were £51,635 (exc. VAT). FIT does
not provide any other services to the Group and the Committee is satisfied that it provides
independent and objective remuneration advice. FIT 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.
66 McColl’s Retail Group plc Annual Report and Accounts 2018
Remuneration Committee activities
During the 2018 financial year, the Committee met six times to consider the following
remuneration matters:
Meeting date
Key agenda items
• considered Remuneration policy consultation
• approved Executive Directors’ salary increases
• considered 2017 annual bonus outturn
• considered 2015 LTIP and CSOP vesting
• reviewed gender pay gap reporting
• approved 2017 annual bonus outturn
• considered 2015 LTIP and CSOP vesting
• approved, in principle, the 2018 LTIP and CSOP performance conditions
• approved 2018 bonus targets
• considered gender pay gap information
• evaluated the Committee’s performance as part of Board evaluation
• reviewed 2018 LTIP and CSOP performance conditions
• considered Remuneration resolutions for the AGM
Mar
• commenced a formal review of the Committee’s independent advisor
• considered CEO pay ratio and Executive Directors’
Jul
remuneration reporting
• approved 2015 LTIP and CSOP vesting
Oct
Nov
• formally appointed FIT Remuneration Consultants LLP as the
Committee’s independent advisor following a competitive
tender process
• approved updated terms of reference
• considered gender pay gap and pay ratio information
• reviewed proposed pay increases for colleagues across the Group
• reviewed the Committee’s terms of reference in light of the new UK
Corporate Governance Code
• reviewed proposed salary increases for Senior Managers
• reviewed potential 2018 bonus outturn
• reviewed progress against targets on existing LTIP and CSOP awards
Strategic report
Governance
Financial statements
Making sure the Remuneration Committee is well informed
In considering remuneration arrangements, Remuneration Committee members need
sufficient information to enable them to take account of factors including the Group’s strategy
and attitude to risk, its financial position and prospects, competitive markets including peer
Decision
Information needed
group practice, and pay and conditions in place for the wider work force. Examples of
the information that may be provided to the Remuneration Committee, when making key
decisions, is set out below.
Determining the remuneration policy
• understanding of Group strategy and risk appetite
• remuneration consultancy advice
• benchmarking data
• best practice and shareholder guidelines, including
new developments and emerging trends
• feedback from shareholder consultations
Deciding Executive Directors’
and Senior Managers’ basic
salary increases
• benchmarking or market data
• assessment of individual effectiveness
• shareholder views
• details of pay and conditions across the business
and in particular the pay increases proposed for the
wider workforce
Determining annual bonus potential
and performance conditions
• remuneration policy limits
• market data
• Group budget information
• strategic priorities for the business
• Group risk appetite
• shareholder views
Determining annual bonus payouts
• financial results for relevant period
• information on the extent to which relevant strategic
• consideration of underlying performance of the
business and wider circumstances, as appropriate
priorities have been achieved
Determining LTIP awards and
performance conditions
• remuneration policy limits
• LTIP rules and share dilution limits
• market data
• relevant financial forecasts based on Group strategy
• Group risk appetite
• shareholder views
Determining extent of LTIP vesting
Determining Executive Directors’
or Senior Managers’ benefits
on recruitment
Considering pay and conditions
across the business
• LTIP rules and share dilution limits
• EPS and TSR performance
• consideration of underlying performance of the
business and wider circumstances, as appropriate
• benchmarking or market data
• evidence of existing pay and rewards package
• shareholder views
• evidence of potential payouts under existing
employer’s incentive arrangements (where applicable)
• details of pay and conditions across the business
• details of proposed pay increases
• alignment of incentives and reward with culture
• pay ratio calculations
• gender pay gap information
1.
2.
3.
4.
5.
6.
7.
8.
67
Directors’ remuneration report continued
Annual report on remuneration continued
Shareholder views are expressed through formal consultation as well as the shareholder
advisory vote on the remuneration report and, every third year, the binding vote on the
remuneration policy. In addition, account is taken of published institutional investor guidelines.
Single figure for total remuneration for Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each
Non-Executive Director for the period ended 25 November 2018.
Shareholder consultations are conducted periodically when more significant issues arise
or when changes to the remuneration policy are being considered.
Written reports are provided in advance and meetings are attended, by invitation, by the
Executive Directors, Colleague Director and external remuneration adviser so that the written
reports can be discussed with them and challenged appropriately.
After each Remuneration Committee meeting, actions are clearly identified, tracked and
reported back to the Committee as progress is made in completing them. The Committee
Chairman reports to the Board on the main items discussed at each meeting.
The Board also receives copies of the Committee’s full minutes unless their circulation
is deemed inappropriate.
The information provided in this part of the Directors’ Remuneration Report is subject to audit.
Single figure for total remuneration of Executive Directors (audited)
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 25 November 2018 and the
prior period:
Salary
Pension
Benefit1
Taxable
Benefit2
Annual
Bonus3
LTIP4
Total
Salary
Taxable Benefit3
Total
£’000
Sharon Brown
Georgina Harvey
Jens Hofma1
Angus Porter2
2018
53
58
45
145
2017
50
55
19
103
2018
2017
4
–
1
2
2
–
–
–
2018
57
58
46
147
2017
52
55
19
103
1 Jens Hofma was appointed a Non-Executive Director on 1 July 2017.
2
Angus Porter was appointed a Non-Executive Director on 1 April 2016 and became Non-Executive Chairman on 27 April 2017.
3
Taxable benefits include nominal travel expenses to and from Company meetings and tax incurred on those expenses.
The aggregate fees paid to Non-Executive Directors for the year fell within the £500k
aggregate limit set out in the Company’s Articles of Association.
Basic annual salary (audited)
Current basic salary levels are as follows:
Executive Director
Jonathan Miller
Dave Thomas
Robbie Bell1
1 January 2019
1 January 2018
% change
£450,840
£293,550
£340,000
£450,840
£293,550
n/a
0%
0%
n/a
£’000
2018
Jonathan Miller 450
Dave Thomas
293
Simon Fuller
289
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
1 Robbie Bell was appointed a Director with effect from 17 January 2019.
441
284
273
103
44
43
103
43
41
38
19
16
46
21
16
0
0
0
66
43
41
0
0
0
94
78
56
591
356
348
750
469
427
1 Pension benefits comprise pension contributions and/or salary supplement payments. Pension contributions were paid during
the year for Simon Fuller of £10k (£10k in 2017).
2 Taxable benefits for Jonathan Miller, Dave Thomas and Simon Fuller include healthcare and a car allowance.
3 Annual bonus awarded for performance over the relevant financial period (no bonus was awarded for 2018). Further details
are provided below.
4 The LTIP values presented above for 2017 represented an estimate of the value of the awards that were expected to vest in
2018. The actual values, based on the share price at vesting for Jonathan Miller, Dave Thomas and Simon Fuller were £45k, £37k
and £28k respectively, based on the 30% of the total awards which vested. No vesting has been assumed in respect of the 2016
LTIP awards vesting in 2019.
68 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Anticipated value of 2016 LTIP Awards (audited)
The LTIP values included in the single figure table above relate to awards granted on 11 April
2016 which vest on 11 April 2019 dependent on EPS and TSR performance measured over the
three year period ended 25 November 2018.
Under the EPS performance target (70% of awards), 25% of this part of an award vests for
cumulative EPS of 52.5p increasing pro-rata to 100% vesting for cumulative EPS of 60.1p.
The vesting level is as follows:
Performance target
Cumulative 3 Year Adjusted EPS
Threshold
EPS
52.5p
Maximum
EPS
60.1p
Actual
EPS
40.9p
Vesting %
(max 100%)
0%
Under the TSR performance target (30% of awards), 25% of this part of an award vests for
median TSR increasing pro-rata to full vesting for upper quartile TSR, as follows:
Performance target
v FTSE All Share General Retailers,
Food & Drugs Retailers
Median
TSR
Upper
quartile
TSR
Actual
TSR
Vesting %
(max 100%)
-31%
13%
10%
97%
Notwithstanding the vesting against the TSR performance condition, the Remuneration
Committee used its discretion to determine that there should be no vesting in light of share
price performance following the year end.
Annual bonus (audited)
The Group operates an annual performance related bonus scheme for a number of Senior
Managers including Executive Directors. For the 2018 financial period, annual bonuses
for the Executive Directors were based 70% on operating profit and 30% on key strategic
performance measures.
For the operating profit element of the 2018 annual bonus, the performance condition was
set such that no vesting would occur below threshold, being 95% of target. At threshold
and target, 10% and 50% of the profit element of the bonus would be awarded respectively.
Maximum vesting of the profit element would be awarded for achievement of the stretch
condition of 110% of on-target operating profit. Payments in between these points of
measurement increase on a straight-line basis. Achievement of threshold operating profit
is required before any of the strategic performance element of the bonus can vest.
The maximum total bonus potential for 2018 was 100% of salary for Executive Directors.
The targets, and achievement against them, were as follows:
Measure
Adjusted operating profit*
Strategic performance
Total
Weighting
(% of
salary)
70%
30%
Threshold
Target
Stretch Achievement
£33.9m £36.7m £41.3m
£17.9m
See table
below
* Before bonus, profit on asset disposals and exceptional items.
Weighting
(% of
Strategic performance
salary) Committee assessment
Successful transition of all
stores to the new wholesale
supply arrangements,
including the launch of the
Safeway range*
Delivery of the Group’s store
refresh programme for 2018
Implementation of a new
customer plan
10%
10%
10%
Since the threshold operating
target was not reached, no bonus
is payable against any of the three
strategic targets, notwithstanding
that some of the objectives (x, y, z)
had been achieved.
* Except the 298 Co-op stores acquired in 2017 which are subject to a separate supply agreement.
Payout
(% of
maximum)
0%
0%
0%
Payout
(% of salary)
0%
0%
0%
69
Directors’ remuneration report continued
Annual report on remuneration continued
As a result of EPS (70% of awards) and the downward discretion applied in respect of the
TSR (30% of awards) performance, the gross value of LTIP share awards expected to vest on
11 April 2019 are as follows:
Performance target
Jonathan Miller
Dave Thomas
Simon Fuller
Total shares
under award
Proportion to
vest based on
EPS (70%)
Proportion to
vest based on
TSR (30%)
Number of
shares to vest
Value
(£’000)
Executive
259,036
166,265
159,638
0%
0%
0%
0%
0%
0%
0
0
0
0
0
0
Jonathan Miller
Dave Thomas
Simon Fuller
LTIP awards granted in 2018
The following LTIP awards were granted to Executive Directors during the year:
Date of
grant
Proportion
of salary
Maximum
shares
awarded
EPS
(70% of awards)
TSR
(30% of
awards)
21 March
2018
15 August
2018
21 March
2018
15 August
2018
21 March
2018
100%
196,017
50%
168,223
100%
127,630
50%
109,533
100%
122,704
Note 1
Note 2
Note 1
Note 2
Note 1
Note 3
1 25% of this part of an award vests for cumulative EPS for 2018, 2019 and 2020 of 60.4p increasing pro-rata to 100% vesting for
cumulative EPS of 71.9p.
2 25% of this part of an award vests for cumulative EPS for 2018, 2019 and 2020 of 64.5p increasing pro-rata to 100% vesting for
cumulative EPS of 71.9p.
3 25% of this part of an award vests for median performance increasing pro-rata to 100% vesting for upper quartile against the
constituents of the FTSE All Share General Retailers and FTSE All Share Food & Drugs Retailers.
In addition, for the 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 2 years will apply.
70 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Outstanding LTIP Awards
Unvested LTIP grants in respect of Executive Directors who served during the year are outlined below:
Executive Director
Jonathan Miller
Dave Thomas
Simon Fuller
Date of grant
Number of shares
Share price1
(pence)
Face value
(£’000)
Face value
(% salary)
Vesting for threshold
performance2, 3, 4
(% of maximum)
11 April 2016
15 March 2017
21 March 2018
15 August 2018
11 April 2016
15 March 2017
21 March 2018
15 August 2018
11 April 2016
15 March 2017
21 March 2018
259,036
237,634
196,017
168,223
166,265
153,225
127,630
109,533
159,638
147,311
122,704
166.00
186.00
230.00
134.00
166.00
186.00
230.00
134.00
166.00
186.00
230.00
430
442
451
225
276
285
294
147
265
274
282
100%
100%
100%
50%
100%
100%
100%
50%
100%
100%
100%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
End of performance
period
25 November 2018
24 November 2019
29 November 2020
29 November 2020
25 November 2018
24 November 2019
29 November 2020
29 November 2020
25 November 2018
24 November 2019
29 November 2020
1 Call Price per Award Share: £0.001.
2 2016 LTIP EPS performance conditions range is 52.5 pence to 60.1 pence (70% of awards), TSR versus retailer comparator group (30% of awards).
3 2017 LTIP EPS performance conditions range is 60.4 pence to 68.6 pence (70% of awards), TSR versus retailer comparator group (30% of awards).
4 2018 LTIP EPS performance conditions are set out in the section above.
Directors’ shareholdings and interest in shares (audited)
The current Remuneration Policy sets shareholding guidelines which require Executive Directors to acquire and maintain, over time, a personal shareholding in the Company of at least
equivalent to 200% of salary.
The table below sets out, for Directors who served during the year, their interests in McColl’s shares and share options as at 25 November 2018.
Options held3
Shares held3
Unvested and
subject to
deferral
Unvested and
subject to
performance
Vested but not
exercised
Unvested and
subject to continued
employment
Owned outright
Current shareholding
(% of salary/fee1)
Shareholding
requirement
(% of salary/fee)
Guideline met?
Director
Executive Directors
Jonathan Miller2
Dave Thomas
Simon Fuller
Non Executive Directors
Georgina Harvey
Sharon Brown
Angus Porter
Jens Hofma
–
–
–
n/a
n/a
n/a
n/a
860,910
556,653
429,653
n/a
n/a
n/a
n/a
33,568
27,972
20,134
n/a
n/a
n/a
n/a
–
–
–
n/a
n/a
n/a
n/a
11,399,500
1,183,792
–
10,471
17,471
5,814
–
3,192
509
–
24
40
5
–
200%
200%
200%
n/a
n/a
n/a
n/a
1
Based on closing share price of £1.2625 at 23 November 2018 (the last trading day before the year-end) and prevailing salaries/fees on 25 November 2018.
2
The ordinary shares held by Jonathan Miller include shares held beneficially via holdings of connected persons.
3
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.
Yes
Yes
No
n/a
n/a
n/a
n/a
71
Directors’ remuneration report continued
Annual report on remuneration continued
Executive Directors’ pension arrangements (audited)
Jonathan Miller, received a salary supplement in lieu of pension for the full year. As a
percentage of salary this payment represented 22.9% of basic salary paid to him in the
year. The monetary amount of his pension supplement shall remain fixed until it reaches
20% of his salary, at which point it will increase in accordance with the Remuneration policy.
Dave Thomas received a salary supplement in lieu of pension equivalent to 15% of his basic
salary. Simon Fuller received a combination of salary supplement in lieu of pension and
pension contributions equivalent, in aggregate, to 15% of his basic salary.
Non-Executive Director fees (audited)
Non-Executive Director fees are as follows:
Chairman
Base fee
Additional fee for Senior Independent Director
Additional fee for Audit & Risk Committee Chair
Additional fee for Remuneration Committee Chair
1 From appointment on 27 April 2017.
From
1 February
2019
From
1 February
From
1 February
2018
2017
£145,000
£45,000
£5,000
£8,000
£8,000
£145,000
£45,000
£5,000
£8,0002
£8,0002
£145,0001
£45,000
£5,000
£5,000
£5,000
2 As reported last year, these fees were increased on 1 February 2018 to reflect the increasing time commitment required
for these roles.
Payments for loss of office (audited)
No compensation payments were made for loss of office during the year.
Simon Fuller ceased to be a Director on 22 February 2019. He was paid salary and benefits
to the date of cessation. He is not eligible for an annual bonus for 2019 and all LTIP awards
lapsed at cessation. No other payments will be made.
Payments to previous Directors (audited)
No payments were made to previous Directors during the financial period under review.
72 McColl’s Retail Group plc Annual Report and Accounts 2018
The information in this part of the Annual Report on Remuneration is not subject to audit.
Total shareholder return
Historical Performance graph – Value of £100 invested on 28 February 2014
200
180
160
140
120
100
80
60
40
20
0
McColl’s
FTSE All Share General Retailers Index
FTSE All Share Index
FTSE All Share Food & Drug Retailers Index
Feb
2014
Nov
2014
Nov
2015
Nov
2016
Nov
2017
Nov
2018
The graph above shows the total shareholder return of the Group and the FTSE All Share
Index and the FTSE All Share Food & Drug Retailers Index since listing. The FTSE All Share
Index is chosen as it is a broad market index of which the Group is a member, and the
FTSE All Share Food and Drug Retailers Index is chosen to illustrate performance relative
to sector comparators.
Chief Executive single figure of remuneration
2013
2014
2015
2016
2017
2018
James Lancaster
Single figure of remuneration
(£’000)
Annual bonus outcome
(% of max)
LTIP vesting (% of max)
Jonathan Miller1
Single figure of remuneration
(£’000)
Annual bonus outcome
(% of max)
LTIP vesting (% of max)
834
0%
n/a
–
–
–
3,199
0%
n/a
–
–
–
840
0%
n/a
–
–
–
339
39.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
504
750
591
39.4%
n/a
15.0%
30.0%
0%
0%2
1
Jonathan Miller was appointed Chief Executive upon the retirement of James Lancaster from that position on 1 April 2016.
2 The Remuneration Committee used its discretion to reduce the formulaic vesting of 29% to zero.
Change in Chief Executive’s remuneration
The table below sets out the percentage change in the remuneration of the Chief Executive
and the average increase across all employees excluding the Board between the years 2017
and 2018.
Salary (£’000)
Pension benefit (£’000)
Taxable benefits (£’000)
Annual variable (£’000)
Chief Executive annual cash (£’000)
2017
441
103
46
160
2018
450
103
38
0
Average change
across all
employees
2.7%
0%
0%
-52.9%
Change
2%
0%
-17%
-100%
Distribution statement
The following chart shows for the current and preceding financial period the actual
expenditure and percentage change in total remuneration paid to or receivable by
colleagues and distributions to shareholders.
Employment remuneration
2018
2017
Distribution to shareholders
2018
2017
+9%
£191m
£176m
+1%
£11.9m
£11.7m
The Group paid an interim dividend of 3.4 pence per share and the Board has recommended
a final dividend of 0.6 pence per share subject to approval by shareholders at the Annual
General Meeting, representing a total payment of £4.6m for 2018.
Statement of shareholder voting
The following table shows the results of the binding vote on the remuneration policy and the
advisory vote on the 2017 Annual Statement and Annual Report on Remuneration at the
12 April 2018 Annual General Meeting.
Votes
Number
%
Number
%
2017 Annual Statement and Annual
Report on Remuneration
Remuneration policy 2018
101,088,652
85,683,168
99.9
86.1
110,235
13,850,649
0.1
13.9
For
Against
Withheld
Number
3,000
1,668,070
Strategic report
Governance
Financial statements
that the Committee wished to propose to shareholders for approval at the Annual General
Meeting in 2018 together with some details about potential changes to the Committee’s
implementation of the policy. Feedback indicated broad support for the proposed changes
although the Committee noted a small minority of shareholders failed to support the
new policy.
Implementation of the Remuneration Policy for 2019 and details of new
Chief Financial Officer’s package
In respect of the Chief Executive (Jonathan Miller) and Chief Operating Officer
(Dave Thomas):
• There will be no changes to base salary, benefits and pension provision.
• The maximum bonus opportunity will continue to be set at 100% of base salary. 70% of the
annual bonus will be determined by operating profit targets, 10% will be determined by
revenue targets and 20% will be determined by strategic performance. The targets are
commercially sensitive although disclosure of the targets and performance against the
targets will be set out in the 2019 Directors’ Remuneration report.
• Given the current share price volatility and noting the recent appointment of our new
Chief Financial Officer (see below), the Remuneration Committee considers it appropriate
to delay the normal LTIP grant for 2019 for a period of time. Awards will be granted to
the Executive Directors, although it should be noted that the Chief Executive and Chief
Operating Officer’s LTIP award levels will be reduced from the normal 150% of salary level
to reflect the recent share price decline (noting that the Chief Financial Officer’s award
level of 125% of salary was agreed as part of his recruitment package and will therefore be
honoured). While the Committee is not in a position to agree and disclose the performance
targets at this point, they will be appropriately challenging and fully disclosed in the RNS
published shortly after the grant date and in next year’s Directors’ Remuneration report.
A two year holding period will apply to any awards granted in 2019.
As announced on 4 January 2019, Robbie Bell was appointed Chief Financial Officer on
17 January 2019. Details of the main elements of his package are as follows:
• Base salary: £340,000
• Pension: 12% of salary
• Annual bonus: 100% of salary (pro-rated for the year of joining) with targets aligned
to the Chief Executive and Chief Operating Officer.
• LTIP: 125% of salary for 2019 with targets aligned to the Chief Executive
and Chief Operating Officer.
Approved by the Remuneration Committee and signed on its behalf:
Shareholder consultations
In December 2017 the Remuneration Committee Chairman wrote to advisory bodies and
shareholders holding 1% or more of the Company’s capital, who collectively represented
approximately 65% of all shares. The letter described changes to the remuneration policy
Georgina Harvey
Chair of the Remuneration Committee
73
Directors’ report
McColl’s Retail Group plc
(the “Company” or “McColl’s”,
or “Group”) operates more than 1,550
convenience and newsagent stores
offering a wide range of products
and services to neighbourhoods
across the United Kingdom. Our
principal activities are described
in more detail in the Strategic Report
on pages 1 to 38.
Governance at McColl’s
Corporate governance
The Board comprises three Executive Directors, led by our
Chief Executive, Jonathan Miller, our Chairman, Angus Porter
who was deemed independent on appointment, and three
Independent Non-Executive Directors. The Board fully meets
the higher standard of independence requirements that
apply to FTSE 350 companies under the provisions of the UK
Corporate Governance Code (the Code).
The Board’s full commitment to the Code is described
in the Corporate Governance report, together with the
memberships, remits and activities of the Nomination, Audit
& Risk and Remuneration Committees, all of which are set out
on pages 44 to 73 and form part of this Directors’ report.
Directors
Details of our current Directors can be found on pages
40 and 41. The following Directors served during the year,
with the exception of Robbie Bell who was appointed Chief
Financial Officer in January 2019.
Director
Angus Porter
Position
Appointment date2
Non-Executive
Chairman
1 April 2016
Jonathan Miller
Chief Executive
3 February 2014
Simon Fuller1
Robbie Bell
Dave Thomas
Georgina Harvey
Sharon Brown
Jens Hofma
Chief Financial
Officer
Chief Financial
Officer
Chief Operating
Officer
Senior Independent
Director
Remuneration
Committee
Chairman
Independent Non-
Executive Director
Audit & Risk
Committee
Chairman
Independent Non-
Executive Director
1 April 2016
17 January 2019
3 February 2014
7 February 2014
7 February 2014
1 July 2017
1 Simon Fuller resigned as a Director and left the business on 22 February 2019
following a period of handover to his successor, Robbie Bell.
2 Appointment dates for Jonathan Miller, Dave Thomas and Simon Fuller indicate
when they were appointed to the Board of the Company. All were employees of
the Group prior to the appointment dates shown and, in the case of Jonathan
Miller and Dave Thomas, were Directors of the previous holding company prior
to IPO.
74 McColl’s Retail Group plc Annual Report and Accounts 2018
Powers of Directors
The general powers of the Directors are set out in article 94 of
the Company’s articles. This provides that the business and
affairs of the Company shall be managed by the Directors,
subject to any limitations imposed by the articles, prevailing
legislation or any directions given by special resolution of the
shareholders of the Company.
Conflicts of interest
The Board considers and authorises potential or actual
conflicts as appropriate and these decisions are kept
under review by the Nomination Committee. Directors with
a conflict do not participate in the discussion or vote on
the matter in question. Further detail can be found in the
Corporate Governance Report on page 49.
Compensation for loss of office
The Company does not have arrangements with any
Director that would provide compensation for loss of office
or employment resulting from a takeover, except that
provisions of the Company’s share plans may cause options
and awards granted under such plans to vest on a takeover.
Further information is provided in the Remuneration Report
on page 64.
Directors’ indemnities and liability insurance
As is standard practice for listed companies, the Company
has granted a third party indemnity to each of its Directors
against any liability that attaches to them in defending
proceedings brought against them to the fullest extent
permitted under English law. In addition, the Company
maintains directors’ and officers’ indemnity insurance
cover for any legal action brought against its Directors.
Specific public offering and securities insurance cover was
also placed on 28 February 2014 with a six year run-off period.
The Company’s articles of association
The Company’s articles of association (“articles”) set out
the rights of shareholders including voting rights, distribution
rights, attendance at general meetings, powers of Directors,
proceedings of Directors as well as borrowing limits and
other governance controls. A copy of the articles can be
requested from the Company Secretary. The Company may
alter its articles by special resolution passed at a general
meeting of the Company and intends to seek shareholder
approval at the forthcoming AGM. Further details on the
proposed changes can be found on page 79.
Disclosures required under Listing Rule 9.8.4
Details of long term incentive schemes are included in the
Directors’ Remuneration Report. The remaining disclosures
required by Listing Rule 9.8.4 are not applicable to McColl’s.
Strategic report
Governance
Financial statements
McColl’s shareholders
Share capital
Details of the share capital from 27 November 2017 to
25 November 2018 are shown in note 25 of the financial
statements. The nominal value of the total issued ordinary
share shares of 0.1 pence each in the capital of the
Company at the start of the year was £115,172.77 (being
dividend into 115,172,774 fully paid ordinary shares) and at the
end of the year was £115,173.51, (being divided into 115,173,515
fully paid ordinary shares).
The rights attached to the shares can be summarised
as follows:
1.
the ordinary shares rank equally for voting purposes;
2.
3.
4.
5.
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; and
each ordinary share ranks equally in the right to receive
a relative proportion of shares on the event of a
capitalisation of reserves.
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.
75
Directors’ report continued
Shareholders’ rights
The rights attaching to the ordinary shares are governed by
the articles and prevailing legislation. There are no specific
restrictions on the size of a holding. Subject to applicable law
and the articles, holders of ordinary shares are entitled to
receive all shareholder documents, including notice of any
general meeting; to attend, speak and exercise voting rights
at general meetings, either in person or by proxy; and to
participate in any distribution of income or capital.
Restrictions on transfers of securities
As at 25 November 2018, the ordinary shares are freely
transferable with the following specific exception.
In compliance with the Company’s share dealing code,
the Directors, designated employees and their connected
persons require approval to deal in the Company’s shares.
There are no restrictions on the transfer, or limitations on the
holding of ordinary shares. The Company is not aware of any
other agreements between shareholders that may result in
restrictions on the transfer of securities or voting rights.
Substantial shareholdings
Information on major interests in shares provided to the
Company under the Disclosure and Transparency Rules
(DTR) of the UK Listing Authority is published via a Regulatory
Information Service and on the Company’s website at
www.mccollsplc.co.uk/rns.
As at the financial year-end and as of 28 February 2019
(being the last practical day before printing) the Company
has been notified of the interests detailed in the following
table, each of which represented holdings of 3% or more
of the ordinary shares of the Company. This information
was correct at the date of notification.
It should be noted that these holdings may have changed
since notified to the Company. However, notification of any
change is not required until the next applicable threshold
is crossed.
Shareholder
Klarus Capital
Limited
Aberforth
Partners LLP
25 November 2018
28 February 2019
Number of
shares
% interest
in shares
Number of
shares
% interest
in shares
13,118,391
11.39% 13,118,391
11.39%
11,598,247
10.07% 11,598,247
10.07%
Jonathan Miller1
11,399,500
9.90% 11,399,500
FIL Limited
6,713,277
5.82% 6,713,277
Miton Group plc
6,305,354
5.47% 4,243,296
Chelverton Asset
Management
FMR LLC
5,950,000
5,779,091
5.17% 5,950,000
5.01% 5,779,091
Laxey Partners Ltd
3,867,360
3.36% 3,867,360
CI Investments Inc
3,600,000
3.13% 3,600,000
9.90%
5.82%
3.68%
5.17%
5.01%
3.36%
3.13%
Jerry Zucker
Revocable Trust
–
–
3,500,000
3.04%
Directors’ interests
There is a shareholding guideline within the Remuneration
Policy that encourages Executive Directors to establish and
hold McColl’s shares equivalent in value to 200% of salary.
The Directors are not required to hold shares in the Company
under the articles or under their letters of appointment or
service agreements. All of the Directors, except Simon Fuller,
Jens Hofma and Robbie Bell, hold McColl’s shares and details
of their shareholdings can be found in the Remuneration
Report on page 71.
McColl’s stakeholders
Colleague engagement
Further information about our colleague engagement is
provided on pages 29 to 31.
Corporate responsibility and the environment
The Company’s social and environmental review, including
information about our greenhouse gas emissions and
approach to corporate responsibility, is set out on pages
27 to 33.
In 2017 we defined four corporate values to inform the way
the business, through its colleagues, operates and behaves.
Our values are:
Customer
first
Simple and
consistent
Caring and
compassionate
Community
champions
The process overall to embed these values into our everyday
operations by incorporating them into policies and
procedures and by communicating them clearly so that
there is a good level of awareness and understanding about
what is expected of McColl’s colleague is ongoing.
The Board and its Committees regularly review the Group’s
policies and take responsibility for them.
76 McColl’s Retail Group plc Annual Report and Accounts 2018
1 The ordinary shares held by Jonathan Miller include shares held beneficially
via individual holdings of connected persons (as defined in sections 252 to 255
of the Companies Act 2006).
Financial matters
External Auditor
Deloitte LLP have given their independent report on the
financial statements to the shareholders of the Company
on pages 81 to 90.
Directors’ statement of disclosure of information
to Auditor
The Directors who held office at the date of approval of
this Directors’ Report confirm that, so far as they are each
aware, there is no relevant audit information (as defined
in Section 418(2) of the Companies Act 2006) of which the
Company’s Auditor is unaware; and each Director has taken
all the steps that they ought to have taken as a Director to
make themselves aware of any relevant audit information
and to establish that the Company’s Auditor is aware of
that information. This confirmation is given and should be
interpreted in accordance with the provisions of Section 418
of the Companies Act 2006.
Post year-end events
Between 25 November 2018 and the date of this report there
have been no material events.
Financial risk management
The Company manages its risks to ensure that the Group’s
performance is not adversely affected by its exposure to
financial risks resulting from its operation and sources of
finance. Financial risk management objectives and policies,
including information on financial risks that materially
impact the Group can be found in notes 20 and 27 of the
Group’s financial statements. Details are also available in the
summary of the principal risks and uncertainties faced by the
business and management’s approach to identifying and
managing risk which are provided on pages 34 to 38.
Future developments within the Group
Disclosures in relation to likely future developments within the
Group are contained in the Strategic Report.
Going concern
The Directors have made appropriate enquiries and consider
that the Group has adequate resources to continue in
operational existence for the foreseeable future, which
comprises the period of at least 12 months from the date of
approval of the financial statements. The Directors continue
to adopt the going concern basis in preparing the financial
statements. The financial position of the Group, its cash flows
and liquidity position are set out in the financial statements
section on pages 91 to 124. Furthermore, notes 18 and
27 to the Consolidated Financial Statements include the
Group’s objectives and policies for managing its capital, its
financial risk management objectives, details of its financial
instruments and its exposure to credit and liquidity risk.
In November 2018, the Company signed an amended credit
facility agreement, which provides improved headroom
against the covenants. The updated facility consists of a
£100m Revolving Credit Facility and an amortising £87.5m
term loan (originally £100m initially being repaid at £2.5m per
quarter). In addition, there is a £50m unsecured accordion
facility available at the Company’s option. At the end of the
period, the Group had drawn down £125.5m (2017: £154.5m)
of its facilities.
Following a disruptive year, the Directors reviewed the long-
term forecasts covering all elements of income, balance
sheet and cash flow. The Directors, taking into account these
forecasts and the revised facilities available to the Group,
continue to adopt the going concern basis in preparing the
financial statements.
Strategic report
Governance
Financial statements
In considering going concern, the Directors have assessed
the possible impacts of Brexit on the business and specifically
its financial covenants. These potential impacts could
include a short-term reduction in sales, due to product
shortages, pressures on gross margin and a higher level
of cost inflation. The overall going concerns scenarios the
Company has modelled include assessing a 1% LFL worsening
compared to plan, nil year on year gross margin growth
despite anticipated product mix improvements and delays to
the intended sale and leaseback programme. This review has
been completed alongside a general consideration of the
potential medium term impacts of an unfavourable Brexit.
As well as this, other scenarios have been modelled to
consider potential shorter term effects, including looking
at a more material sales reduction of approximately 11% in
April and May and then 2% thereafter, as customers migrate
to new products and/or supply chains stabilise. In both the
short and medium term considerations it is expected that
the majority of product cost inflation would be passed on
to customers and therefore could be mitigated overall.
Whilst in the short term the covenant headroom is tighter,
having modelled these scenarios and the mitigating
actions, the directors remain confident that the business
is a going concern.
In the event of a far more challenging Brexit than the
scenarios modelled or the business currently anticipates,
there remain a number of further mitigating actions that
could be taken, including significantly reducing capex and
dividends and, for the most severe outcomes, reviewing our
current arrangements with our supportive banking syndicate.
The Directors have made this assessment after consideration
of various scenarios covering the sensitivity of assumptions
and management actions to mitigate, and in accordance
with the Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting published
by the UK Financial Reporting Council in September 2014.
77
Directors’ report continued
Viability statement
In accordance with provision C.2.2 of the Code, the Directors
have assessed the prospects of the Group over a longer
period than the 12 months required by the ‘going concern’
provision. The Directors have assessed the viability of the
Group over a three year period through to 2021 which
coincides with the Group’s strategic review period.
This assessment has considered the potential impact of the
principal risks on the business model, future performance
and liquidity over the period. In making this statement the
Directors have considered the resilience of the Group under
varying market conditions together with the effectiveness of
any mitigating actions.
As already described in the statement of going concern, as
part of this assessment the Directors have taken account of
the Group’s revolving credit facility with accordion option
which runs through to July 2021, strong track record of
operational cash inflow and revised long-term forecasts.
Additionally, the Directors have considered the impact of
government and legislative changes primarily Brexit and
concluded that whilst uncertainty exists, the business has
sufficient options available to mitigate these risks.
Finally it is noted that even in the event of a very severe
impact on the business through continued food deflation
and cost inflation, the business could reduce or suspend
acquisitions activity, re-assess the dividend payouts and
make further asset disposals.
Based on this assessment, the Directors have a reasonable
expectation that the Group will have sufficient resources to
continue in operation and meet its liabilities as they fall due
over the period to November 2021.
78 McColl’s Retail Group plc Annual Report and Accounts 2018
Dividend
The Board’s policy is that the Company will generally pay an
interim and a final dividend in the approximate proportions
one-third and two-thirds respectively.
An interim dividend of 3.4p per share was paid on
7 September 2018. The Directors have also proposed
a final dividend of 0.6 pence per share, amounting to
£691k, which is subject to shareholder approval at the AGM.
Provided shareholder approval is received the final dividend
will be paid on 6 June 2019 to those shareholders on the
register at the close of business on 26 April 2019.
Reappointment of Auditor
Deloitte LLP was originally appointed as McColl’s Auditor
in 2006 when it was a private limited group. Although the
Company has until 2024 to tender the external audit, the
Company advised last year that the audit tender process
would take place in 2019 and that process has now
commenced. Deloitte LLP, have indicated their willingness
to continue as the Company’s Auditor until the tender
process is completed. Accordingly a resolution to reappoint
Deloitte LLP as Auditor of the Company and the Group will
be proposed at the 2019 AGM. Further details regarding the
re-appointment of Auditor may be found in the Audit & Risk
Committee Report on page 55.
The Audit Partner last rotated during the year ended
30 November 2014 so this is the final year for the current
Audit Partner.
Annual General Meeting
AGM
The Board welcome the opportunity to meet and engage
with shareholders at the AGM which will be held on
3 April 2019 at 1.30pm at the registered office: McColl’s
House, Ashwells Road, Brentwood, Essex CM15 9ST.
The Chairman of the Board and of each of its Committees
will be in attendance at the AGM to answer questions
from shareholders.
All Directors will be standing for reappointment at the AGM.
The notice of the AGM and an explanation of the resolutions
to be put to the meeting are set out in the Notice of Meeting
accompanying this Annual Report and Accounts.
The Board fully supports all the resolutions and encourages
shareholders to vote in favour of each of them as they intend
to in respect of their own shareholdings.
Appointment and retirement of Directors
Following recommendation of the Nomination Committee,
all current Directors, with the exception of Simon Fuller and
Robbie Bell, will stand for re-election at the Company’s
Annual General Meeting (AGM) in voluntary compliance
with provision B.7 of the Code. This practice also exceeds the
requirement of the articles for Directors to retire by rotation
at every third AGM. Robbie Bell will stand for election having
been appointed to the Board on 17 January 2019. Simon Fuller
is leaving the business on 22 February 2019.
The Company may, in accordance with and subject to the
provisions of the Companies Act 2006, remove any Director
before expiry of his or her term of office by ordinary resolution
of which special notice has been given. The Company must
have a minimum of two Directors.
Further information on appointments to the Board is set out
in the Corporate Governance Report on pages 44 to 47 and
the Nomination Committee report on pages 48 to 50.
Authority to allot shares
The Company was granted a general authority by its
shareholders at the 2018 AGM to allot shares pursuant to a
rights issue up to an aggregate nominal amount of £76,780.
The Company also received authority to allot shares for
cash on a non pre-emptive basis up to a maximum nominal
amount of £38,390. As at the date of this report, no shares
have been issued under these authorities. These authorities
will expire at the conclusion of the 2019 AGM unless revoked,
varied or renewed prior to that meeting.
Resolutions will be proposed at the 2019 AGM to renew
these authorities.
Authority for the Company to purchase its own shares
A resolution was passed at the 2018 AGM authorising the
Company to purchase up to approximately 10% of its
ordinary shares (11,517,351 ordinary shares) at the Directors’
discretion. At the date of this report, no ordinary shares have
been purchased under this authority. A similar resolution
is proposed to be passed at the 2019 AGM which will, if
approved, replace the existing authority and will lapse
at the conclusion of the 2020 AGM.
Political donations
Further to shareholder approval at the 2018 AGM
empowering the Directors to make political donations
or incur political expenses, it is confirmed that no such
donations were made or expenses incurred in the year
ended 25 November 2018 (2017: £nil). The Company’s policy
is not to make political donations or incur political expenses
but a resolution to renew this authority on its expiry will be
put to the 2019 AGM in order to avoid any inadvertent
breach of the regulatory requirements that might occur
if a wide interpretation of political donation were to be
applied to, for example, some of the Group’s community
support activities.
Articles of Association
It is proposed that the Company adopts new Articles of
Association, principally in order to reflect developments in
law and practice since the Company’s current articles were
adopted in 2014. Full details of the changes can be found in
the Notice of Meeting.
A copy of the New Articles and a copy marked to show the
changes from the current Articles are available for inspection
and can be viewed on the Company’s website. Copies of
the New Articles will also be available for inspection at the
Annual General Meeting.
Deferred Bonus Plan
The Company’s Remuneration Policy requires Executive
Directors and members of the Retail Board to use a
proportion of their net bonus to acquire shares, which must
be held for a period of three years. In order to implement this
requirement, and to enable the Company to issue shares to
satisfy awards, the Board is proposing to adopt the McColl’s
Retail Group plc Deferred Bonus Plan (the “DBP”). A summary
of the DBP is set out in further detail in the Notice of AGM.
The Strategic Report, the Directors’ Report and the Directors’
Remuneration Report were approved by the Board.
By order of the Board
Rachel Peat
Company Secretary
17 February 2019
Strategic report
Governance
Financial statements
79
Directors’ responsibilities statement
The directors are responsible for
preparing the Annual Report and the
financial statements in accordance
with applicable law and regulations.
1 Where the financial statements are published on the internet we would
encourage inclusion of this paragraph in the directors’ responsibility statement
unless there is a disclaimer to similar effect on the website. If there is no
disclaimer on the website and it is not included here, consider inclusion in
the auditors’ report.
80 McColl’s Retail Group plc Annual Report and Accounts 2018
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 elected
to prepare the parent company financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards
and applicable law), including FRS 101 “Reduced Disclosure
Framework”. 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.
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.1
In preparing the parent company financial statements, the
directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgments 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;
• 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.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
relevant financial reporting framework, 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 position and performance, business
model and strategy.
This responsibility statement was approved by the board of
directors on 18 February 2019 and is signed on its behalf by:
Jonathan Miller
Chief Executive
17 February 2019
Robbie Bell
Chief Financial Officer
17 February 2019
Financial statements
Strategic report
Governance
Financial statements
Independent Auditor’s report to the members of McColl’s Retail Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of McColl’s Retail Group plc (the ‘parent company’) and its
subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the
parent company’s affairs as at 25 November 2018 and of the Group’s profit for the 52 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, including Financial
Reporting Standard 101 “Reduced Disclosure Framework”; and
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in
the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the
Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
• the financial statements have been prepared in accordance with the requirements of
Summary of our audit approach
the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the
IAS Regulation.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and company statements of financial position;
• the consolidated and company statements of changes in equity;
• the consolidated statement of cash flows; and
• the related notes 1 to 31 and C1 to C7.
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,
including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted
Accounting Practice).
Key audit matters
The key audit matters that we identified in the current year were:
• Accounting treatment of supplier income;
• Impairment of goodwill and retail stores;
• Presentation and classification of results; and
• Going concern.
Within this report, any new key audit matters are identified with
key audit matters which are the same as the prior year identified with
and any
.
Materiality
Scoping
The materiality that we used for the Group financial statements was £1.24m
which was determined on the basis of 0.10% of revenue of the Group for
the 52 week period. In the prior year, the basis for materiality was profit
before tax adjusted for certain items due to their nature and significance;
due to the trading difficulties faced by the Group in the current year we
considered revenue to be a more appropriate and stable measure.
The Group consists of a collection of retail stores and operates as a single
operating segment, entirely within the UK, as disclosed in note 4 to the
financial statements. The segment was audited as a single component by
the Group audit team.
Significant changes
in our approach
Given the difficult trading period experienced by the Group and the
impact on our work relating to management’s going concern assessment,
we identified going concern as a new key audit matter this year.
81
Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Conclusions relating to going concern, principal risks and viability statement
We confirm that
we have nothing
material to
report, add or
draw attention
to in respect of
these matters.
We confirm that
we have nothing
material to
report, add or
draw attention
to in respect of
these matters.
Going concern
We have reviewed the Directors’ statement in note 2 to the financial
statements about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s and Company’s
ability to continue to do so over a period of at least 12 months from the
date of approval of the financial statements.
We considered as part of our risk assessment the nature of the Group, its
business model and related risks including where relevant the impact of
Brexit, the requirements of the applicable financial reporting framework
and the system of internal control. We evaluated the Directors’ assessment
of the Group’s ability to continue as a going concern, including challenging
the underlying data and key assumptions used to make the assessment,
and evaluated the Directors’ plans for future actions in relation to their
going concern assessment. See key audit matters.
We are required to state whether we have anything material to add or
draw attention to in relation to that statement required by Listing Rule
9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering
whether they were consistent with the knowledge we obtained in the
course of the audit, including the knowledge obtained in the evaluation
of the Directors’ assessment of the Group’s and the Company’s ability to
continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
• the disclosures on pages 34 to 38 that describe the principal risks and
explain how they are being managed or mitigated;
• the Directors’ confirmation on page 51 that they have carried out a
robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity; or
• the Directors’ explanation on page 77 as to how they have assessed
the prospects of the Group, over what period they have done so and
why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the Directors’ statement relating
to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
82 McColl’s Retail Group plc Annual Report and Accounts 2018
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud) that
we identified. These matters included those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
Accounting treatment of supplier income
Key audit matter
description
Supplier income is generated from commercial agreements with suppliers
including incentives, rebates and discounts. This represents a deduction to
cost of sales which is material to the Group financial statements.
During the year, the Group experienced supply disruption as a result of a
key supplier, Palmer and Harvey, entering into administration in November
2017. McColl’s had entered into a substantial wholesale supply agreement
with WM Morrison Supermarkets on 31 July 2017. The supply chain disruption
meant that McColl’s transition to the new arrangement was accelerated
compared to the timetable originally planned.
We identified a key audit matter in respect of the accounting treatment
and disclosures relating to arrangements specific to McColl’s transition
to the wholesale agreement with Morrison’s, as these involved
complex elements.
We also identified a key audit matter relating to the ongoing supplier
income arrangements McColl’s has with its two principal suppliers,
Morrison’s and Nisa. Judgement is required in determining the period over
which the reduction in cost of sales should be recognised, requiring both
a detailed understanding of the contractual arrangements themselves as
well as complete and accurate source data to which the arrangements
apply. Our key audit matter focused on judgements around supplier
income accrued by the Group for amounts that had not been invoiced or
agreed with suppliers at year end.
As the process of appropriate recognition in the financial statements can
involve significant manual adjustments to estimate the level of supplier
income as at the balance sheet date, these have the potential for
inappropriate manipulation. We therefore considered this to be a potential
area for fraud due to the opportunity to manipulate results in the treatment
of this income.
The costs of sales accounting policy is outlined in note 2 to the financial
statements. The Audit & Risk Committee has included this as a key risk on
page 55.
Accounting treatment of supplier income continued
Key observations
How the scope
of our audit
responded to the
key audit matter
Our audit procedures to address this risk included, but were not limited to:
Transition to the Morrison’s wholesale agreement
• developing a detailed understanding of the contract terms between
McColl’s and Morrison’s by reviewing the wholesale agreement
and evaluating the accounting policies and treatment applied by
management for supplier income arising from the agreement;
• obtaining confirmation from Morrison’s as to the completeness of
the current and effective contracts and amendments provided to us
by management;
• performing a detailed review of disclosures and classification applied
to supplier income from Morrison’s in the accounts;
• evaluating the design and implementation of controls in place over
supplier income;
• obtaining management’s report on the availability of products from
the Morrison’s wholesale agreement to perform a recalculation of the
transitional support payments received and ensuring the classification
of these payments is appropriate;
• inspecting a sample of transitional support payments received prior to
the year end;
• for accrued income amounts in respect of Morrison’s at the year end,
we have obtained evidence as to subsequent invoicing and payment;
and
• reviewing the presentation of the amounts received to assess whether
these have been appropriately disclosed within the results for
the period.
Accrued supplier income
• evaluating the design and implementation of controls in place over
accrued supplier income;
• reviewing a statistical sample of supplier income agreement contract
terms to recalculate the expected supplier income and testing the IT
controls over system-generated reports relating to supplier income for
accuracy, validity and completeness;
• applying data interrogation tools to perform an analysis to determine
if any manual adjustments were recorded within the supplier
income balance;
• detailed look back procedures to ensure amounts accrued at the
previous year end were appropriately invoiced and recovered; and
• performing detailed testing on amounts accrued at the year end for
subsequent invoicing and payment.
Strategic report
Governance
Financial statements
The results of our detailed testing in respect of accrued supplier income
at the year end were satisfactory and we consider the disclosure around
supplier income to provide a reasonable understanding of the types of
supplier income received and the impact on the Group’s balance sheet
and profit as at 25 November 2018.
In respect of the Morrison’s contract we are in agreement that the contract
has been accounted for appropriately, taking into account the timing
over which the contributions are recognised. We have also evaluated the
disclosure of the overall contract and the impact that it has had in the year
and over the length of the contract. We are satisfied with the accounting
treatment adopted and the related disclosure.
83
Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Impairment of goodwill and retail stores
Key audit matter
description
As at 25 November 2018, the Group held £252.7m of goodwill from
acquisitions of businesses and Groups of stores, in the current year and
previous years, as disclosed in note 13.
How the scope
of our audit
responded to the
key audit matter
The Group also held 1557 retail stores, which make up the majority of the
carrying value of property, plant and equipment held on the balance
sheet at 25 November 2018 (£92.3m, as disclosed in note 12).
IAS 36 requires that the value of goodwill and retail stores are tested for
impairment annually or where indicators of impairment are identified.
The value of the stores and goodwill is supported by forecasts of future
cash flows of the businesses. There is inherent uncertainty within these
forecasts arising from changing industry and economic conditions and
thus significant management judgement is required. There is a risk that
assets held in, and associated with, each store are not recoverable.
The key assumption applied by the Directors in the impairment reviews are:
• cash flow forecasts in the context of the going concern review,
including assumptions of future growth, gross margin and store costs;
• future revenue growth; and
• discount rates.
Management performed a full impairment assessment for goodwill and
the loss-making stores to determine if the carrying value of these assets is
supported. As a result, a charge of £3.3m has been recorded in respect of
impairment provisions against property, plant and equipment, as disclosed
in note 12.
Due to the risk of management bias in the key assumptions input into
the impairment reviews we consider there to be a potential for fraud in
respect of this key audit matter.
Key observations
The Group’s accounting policies are disclosed in note 2 and goodwill is
included as a key source of estimation uncertainty in note 3. The Audit
& Risk Committee have considered this risk on page 56.
Our audit procedures to address this risk included, but were not limited to:
• evaluating the design and implementation of controls around the
process of preparing and performing the impairment reviews of the
Group’s goodwill and retail stores;
• evaluating and challenge management’s impairment models by:
– reviewing management’s workings for mechanical accuracy and
compliance with IAS 36;
– determining an acceptable range for the discount rates applied to
future cash flow and working with our internal valuation specialists to
challenge management’s rates;
– benchmarking the resulting discount rates against other companies
operating in the retail sector;
– assessing the reasonableness of the assumed growth rates in
management’s workings;
– evaluating the third party market value reports received for a
sample of stores, as data points for the calculation; and
– reviewing management’s sensitivity analysis on the inputs applied
(including discount rates and growth rates) to check that these are
within a material level of acceptability.
• challenging the key assumptions utilised in management’s cash flow
forecasts by comparing the assumed growth rates, forecast cash flows
and fair value calculations to recent trading activity, historical trends
and our understanding of the future prospects of the business; and
• reviewing the disclosures in the annual report, to assess whether they
are in line with the requirements of IAS 36.
We have challenged management on a number of the key assumptions,
particularly the discount rate and allocation of overheads in the store
impairment model, and note that the impact on the overall assessment of
store impairment is appropriate.
In respect of goodwill, we are satisfied with the additional disclosure
provided in the year and the disclosure of the impact on goodwill of
reasonably possible downside scenarios.
84 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Presentation and classification of results
Key audit matter
description
Management present adjusted profit excluding items that derive from
events or transactions that fall within the normal activities of the Group but
which, individually or, if of a similar type, in aggregate, are excluded from
the Group’s adjusted profit measure due to their size and nature in order
to reflect management’s view of the performance of the Group.
The presentation of income and costs within adjusted measures (to derive
‘adjusted profit before tax’) under IFRS is judgemental, as IFRS only requires
the separate presentation of material items.
In the Group’s reported results, significant adjustments have been made
to statutory profit before tax of £10.5m to derive adjusted profit before
tax of £7.9m. The Group’s accounting policy for adjusting items can be
found in note 2. Detail of these adjustments can be found in note 5 of
the financial statements.
Given their judgemental nature there is a risk that the adjusted items
should be presented as underlying results. In particular, we focused on
the judgements relating to the treatment of property profits resulting
from sale and leaseback activity completed (£11.9m), the costs
associated with the supplier disruption in the year (£0.9m) and the
overall treatment of Morrison’s income (£5.4m).
We have identified this key audit matter as a fraud risk as management
have the opportunity to manipulate results of the business through
classification of items as adjusting. In addition, we note that the
calculation for one of the Group’s covenants, Leverage Ratio, is based
on adjusted profit measures.
The Audit & Risk Committee has included this as a key risk on page 56.
How the scope
of our audit
responded to the
key audit matter
Key observations
Our audit procedures to address this risk included, but were not limited to:
• evaluating the design and implementation of controls in the
classification of the results and presentation of these in the accounts;
• evaluating the appropriateness of the inclusion of items, both
individually and in aggregate, within adjusted items, this included:
– assessing the consistency of items year on year; and
– evaluating adherence to IFRS requirements and latest guidance
from regulators;
• report on the total adjusted items and the classification of
these adjustments;
• auditing a sample of exceptional income and expenses at year end to
confirm that items recognised as adjusting meet the relevant definition
as adjusting;
• assessing unadjusted items, either highlighted by management or
identified through the course of our audit, which were regarded as
significant in nature and/or quantum for whether they should be
included within adjusted items;
• reviewing the quality of earnings to ensure any perceived ‘one-off’
debits or credits have been appropriately disclosed; and
• recalculating the adjusted items and considering the appropriateness
of related disclosures provided in the annual report.
We have challenged management on the rationale and disclosure for
the amounts included within adjusting items. We have also challenged
management and reviewed amounts not included within adjusting items
for appropriateness. On balance we are satisfied that these have been
appropriately disclosed and given the appropriate prominence with
reported numbers.
85
Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Going concern
Key audit matter
description
Two profit warnings were issued by management throughout the year.
These were largely driven by the supply disruption caused by the Palmer &
Harvey collapse in November 2017, contributing significantly to the decline
in performance year-on-year. The Group’s adjusted profit before tax for the
period ended 25 November 2018 was £10.5m (2017: £26.3m).
Given the key financial covenant conditions on the Group’s funding
facilities are linked to adjusted EBITDA, there is an increased risk that the
business may fail to comply with the required covenant conditions and
continue to operate as a going concern.
Management have performed an analysis of future trading
performance and determined the impact of this performance
on future covenant requirements.
Management have also prepared a downside scenario for the business
plan that models changes in the forecast performance to test how resilient
the business is to these, including in the event of a no-deal Brexit, and what
mitigating actions may be required to rectify forecast loss of headroom.
The Audit & Risk Committee has included the adoption of the going
concern basis of accounting as a key risk on page 56, see also
management’s going concern disclosure in the Director’s report on page
77 and note 2 to the financial statements.
How the scope
of our audit
responded to the
key audit matter
Key observations
Our audit procedures to address this risk included, but were not limited to:
• assessing the design and implementation of the controls in place
around the preparation of managements going concern assessment;
• obtaining an understanding of the financing facilities, including the
nature of the facilities, repayment terms, covenants and attached
conditions and any amendments to the facilities;
• obtaining and challenging management’s documented assessment
of going concern and the underlying workings to support
their conclusion;
• challenging management’s assessment of a reasonable downside
and Brexit scenario for their going concern assessment that included
consideration for the impact on availability of products and gross
margin as experienced during 2018;
• assessing the facility and covenant headroom calculations, and
performing sensitivities on each of management’s base case,
downside and ‘no-deal Brexit’ scenarios;
• challenging the appropriateness of management’s forecasts by
testing their mechanical accuracy, assessing historical forecasting
accuracy and understanding management’s consideration of
downside sensitivity analysis;
• considered the consistency of management’s forecasts with other
areas of the audit, such as the impairment financial models and the
forecasts underpinning the viability statement; and
• reviewed the wording of the going concern disclosures, and assessed
its consistency with management’s forecasts.
Management have provided detailed disclosures, including the impact of
an unfavourable Brexit outcome on their going concern assumption, along
with the mitigating actions that are available to them should the impact
be more severe than is anticipated. We are satisfied that Management
have performed appropriate sensitivities, including combined sensitivities
which are reasonably possible, and disclosed the impact this may have on
covenants and the need for appropriate action by Management.
86 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Our application of materiality
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.
An overview of the scope of our audit
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 4 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.
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Materiality
£1,240,000 (2017: £1,240,000)
£744,000 (2017: £154,000)
Group financial statements
Parent company
financial statements
Therefore we identified 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.
The Parent company
materiality equates to 1.5% of
net assets, which is capped at
35% of Group materiality.
As a holding company, we
considered net assets to be
the most appropriate measure
of the parent company’s
performance.
Basis for determining
materiality
0.10% of revenue
Rationale for the
benchmark applied
We considered a number
of different measures and
concluded that revenue is
the most stable year on year
measure for determining
materiality; this reflects the
overall size of the business,
which is largely consistent
year on year, although profit
margins have decreased. In
the prior year, we used 4.7%
of adjusted pre-tax profit. The
materiality applied in the prior
was equivalent to 0.11% of that
year’s revenue.
We agreed with the Audit & Risk Committee that we would report to the Committee all
audit differences in excess of £62,000 (2017: £62,000), as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Audit & Risk Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
87
Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the annual report
including the Strategic and Governance Reports, other than the financial
statements and our auditor’s report thereon.
We have nothing
to report in
respect of these
matters.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
In this context, matters that we are specifically required to report to you
as uncorrected material misstatements of the other information include
where we conclude that:
• Fair, balanced and understandable – the statement given by the
Directors that they consider the annual report and financial statements
taken as a whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
• Audit & Risk Committee reporting – the section describing the work of
the Audit & Risk Committee does not appropriately address matters
communicated by us to the Audit & Risk Committee; or
• Directors’ statement of compliance with the UK Corporate Governance
Code – the parts of the Directors’ statement required under the Listing
Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.
88 McColl’s Retail Group plc Annual Report and Accounts 2018
Responsibilities of Directors
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, and for such internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s
and the parent company’s ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the parent company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities,
including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located
on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of
our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities,
including fraud
We identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, and then design and perform audit procedures responsive to those risks,
including obtaining audit evidence that is sufficient and appropriate to provide a basis for
our opinion.
Strategic report
Governance
Financial statements
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including
fraud and non-compliance with laws and regulations, our procedures included the following:
• enquiring of management and the Audit & Risk Committee, including obtaining and
reviewing supporting documentation, concerning the Group’s policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations and whether they were
aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any
actual, suspected or alleged fraud;
– the internal controls established to mitigate risks related to fraud or non-compliance with
laws and regulations.
• discussing among the engagement team and involving relevant internal specialists,
including tax, valuations, pensions, and IT, regarding how and where fraud might occur
in the financial statements and any potential indicators of fraud. As part of this discussion,
we identified potential for fraud as bias in estimates, judgements, and inappropriate
adjustments in the accounting treatment of supplier income, assessment of the impairment
of goodwill and retail stores and the presentation and classification of results; and
• obtaining an understanding of the legal and regulatory framework that the Group
operates in, focusing on those laws and regulations that had a direct effect on the financial
statements or that had a fundamental effect on the operations of the Group. The key laws
and regulations we considered in this context included the UK Companies Act, Listing Rules,
pensions legislation and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified the accounting treatment of supplier
income, presentation and classification of results, and accounting for goodwill and store
impairment as key audit matters. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures we performed in response
to those key audit matters.
Our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to
assess compliance with relevant laws and regulations discussed above;
• enquiring of management, the Audit & Risk Committee and external legal counsel
concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that
may indicate risks of material misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit
reports and reviewing correspondence with HMRC; and
• in addressing the risk of fraud through management override of controls, testing the
appropriateness of journal entries and other adjustments; assessing whether the
judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside
the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks
to all engagement team members including internal specialists, and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout the audit.
89
Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Report on other legal and regulatory requirements
Other matters
Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
• 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;
and
• the strategic report and the Directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the parent company
and their environment obtained in the course of the audit, we have not identified any
material misstatements in the strategic report or the Directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
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
We have nothing
to report in
respect of these
matters.
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.
Directors’ remuneration
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 in
respect of these
matters.
Auditor tenure
Following the recommendation of the Audit & Risk Committee, we were appointed by the
Board of Directors on 3 February 2014 to audit the financial statements for the year ending
2014 and subsequent financial periods. The entity was listed on the London Stock Exchange
on 28 February 2014. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 5 years, covering the years ending 2014 to 2018.
Prior to 2014, we were appointed by the Board of Directors on 1 October 2006 to audit the
financial statements for the year ending 2006 and subsequent financial periods of McColl’s
Retail Group Ltd which was previously the parent company to the Group. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm was
13 years, covering the years ending 2006 to 2018.
Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit & Risk Committee we
are required to provide in accordance with ISAs (UK).
Use of our report
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.
Sukhbinder Kooner, (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
17 February 2019
90 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Consolidated income statement
for the 52 week period from 27 November 2017 to 25 November 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Profits arising on property-related items
Operating profit
Finance income
Finance costs
Net finance cost
Profit before tax
Income tax (expense)/receipt
Profit for the period
Earnings per share (pence)
Diluted Earnings per share (pence)
Note
4
4
6
4
8
9
11
11
Adjusted
2018
£’000
1,241,539
(919,003)
322,536
(311,442)
6,811
416
18,321
–
(7,859)
(7,859)
10,462
(2,778)
7,684
6.67p
6.66p
Adjusting
items
2018
Note 5
£’000
–
(1,428)
(1,428)
(7,118)
–
6,109
(2,437)
–
(158)
(158)
(2,595)
1,762
(833)
Total
2018
£’000
1,241,539
(920,431)
321,108
(318,560)
6,811
6,525
15,884
–
(8,017)
(8,017)
7,867
(1,016)
6,851
5.95p
5.94p
Adjusted
restated
2017
£’000
1,148,747
(841,370)
307,377
(286,889)
7,787
3,110
31,385
93
(5,200)
(5,107)
26,278
(5,228)
21,050
18.28p
18.19p
The above results were derived from continuing operations.
Consolidated statement of comprehensive income
for the 52 week period from 27 November 2017 to 25 November 2018
Profit for the period
Items that will not be reclassified subsequently to profit or loss
Remeasurement of defined benefit pension scheme
Tax on defined benefit pension scheme
Total comprehensive income for the period
Adjusting
items
2017
Note 5
£’000
–
–
(3,730)
–
(2,621)
(6,351)
–
(1,521)
(1,521)
(7,872)
1,014
(6,858)
2018
£’000
6,851
859
(150)
7,560
Total
restated
2017
£’000
1,148,747
(841,370)
307,377
(290,619)
7,787
489
25,034
93
(6,721)
(6,628)
18,406
(4,214)
14,192
12.32p
12.26p
2017
£’000
14,192
3,039
(517)
16,714
91
Equity
Share capital
Share premium
Retained earnings
Total Equity
Note
25
25
2018
£’000
2017
£’000
(115)
(12,580)
(128,785)
(141,480)
(115)
(12,579)
(133,214)
(145,908)
These financial statements of McColl’s Retail Group, registered number 08783477, were
approved and authorised for issue by the Board on 17 February 2019 and signed on its
behalf by:
Robbie Bell
Director
Financial statements continued
Consolidated statement of financial position
as at 25 November 2018
Note
2018
£’000
2017
£’000
12
13
24
28
14
16
17
18
19
20
23
20
23
24
28
92,314
252,747
97
14,122
36
359,316
77,146
41,984
28,547
–
147,677
506,993
(213,337)
(2,148)
(673)
(4,627)
–
(220,785)
(73,108)
(124,989)
(9,552)
(1,042)
(6,895)
(2,250)
(144,728)
(365,513)
141,480
103,565
248,899
172
13,609
36
366,281
75,965
39,810
14,273
581
130,629
496,910
(163,670)
(1,799)
(2,633)
(4,508)
(830)
(173,440)
(42,811)
(154,722)
(10,367)
(593)
(8,528)
(3,352)
(177,562)
(351,002)
145,908
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Retirement benefit asset
Investments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets in disposal groups classified as held for sale
Total current assets
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Income tax liability
Provisions
Liabilities directly associated with assets classified as
held for sale
Total current liabilities
Net current liabilities
Non-current liabilities
Loans and borrowings
Other payables
Provisions
Deferred tax liabilities
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Net assets
92 McColl’s Retail Group plc Annual Report and Accounts 2018
Consolidated statement of changes in equity
for the 52 week period from 27 November 2017 to 25 November 2018
Consolidated statement of cash flows
for the 52 week period from 27 November 2017 to 25 November 2018
Strategic report
Governance
Financial statements
As at 27 November 2017
Profit for the period
Remeasurement of
defined benefit pension
scheme
Total comprehensive
income
Dividends
New share capital
subscribed
Deferred tax
As at 25 November
2018
As at 28 November 2016
Profit for the period
Remeasurement
of defined benefit
pension scheme
Total comprehensive
income
Dividends
Share-based payment
transactions
As at 26 November 2017
Note
Share
capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Total
equity
£’000
115
12,579
133,214
145,908
–
–
–
–
–
–
–
–
–
–
1
–
6,851
6,851
709
709
7,560
(11,862)
7,560
(11,862)
–
(127)
1
(127)
115
12,580
128,785
141,480
Share
capital
£’000
115
Share
premium
£’000
12,579
–
–
–
–
–
–
–
–
–
–
115
12,579
Retained
earnings
£’000
127,812
14,192
Total
equity
£’000
140,506
14,192
2,522
2,522
16,714
(11,748)
436
133,214
16,714
(11,748)
436
145,908
10
24
Note
10
Cash flows from operating activities
Profit for the period
Adjustments to cash flows from non-cash items
Depreciation and amortisation
Profit on disposal of property plant and equipment
Finance income
Finance costs
Share-based payment transactions
Income tax expense
Impairment losses
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Decrease in retirement benefit obligation net of
actuarial changes
Increase in provisions
Cash generated from operations
Income taxes paid
Net cash flow from operating activities
Cash flows from investing activities
Interest received
Acquisitions of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of businesses, net of cash acquired
Net cash flows from investing activities
Cash flows from financing activities
Interest paid
Proceeds from issue of ordinary shares,
net of issue costs
Repayment of bank borrowing
New bank borrowing
Payment of finance lease creditors
Interest payment to finance lease creditor
Dividends paid
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
2018
£’000
2017
£’000
6,851
14,192
6
6
8
8
29
9
16
28
23
8
21
21
8
10
17,054
(14,994)
–
8,017
–
1,016
3,297
21,241
(737)
(1,593)
48,082
(906)
568
66,655
(4,811)
61,844
–
(21,295)
27,410
(4,513)
1,602
15,636
(489)
(93)
6,721
436
4,214
746
41,363
(20,924)
(3,970)
40,562
(1,633)
3,089
58,487
(4,267)
54,220
93
(25,655)
7,622
(122,409)
(140,349)
(7,928)
(6,327)
1
(29,000)
–
(235)
(148)
(11,862)
(49,172)
14,274
14,273
28,547
–
(37,000)
154,500
(2,506)
(274)
(11,748)
96,645
10,516
3,757
14,273
93
Financial statements continued
Notes to the financial statements
for the 52 week period from 27 November 2017 to 25 November 2018
1 General information
The Group is a public company limited by share capital, incorporated in England and Wales
and domiciled in United Kingdom.
McColl’s Retail Group plc
McColl’s House
Ashwells Road
Brentwood
Essex
CM15 9ST
United Kingdom
Principal activity
The Group engages in one principal area of activity, as an operator of convenience
and newsagent stores.
2 Accounting policies
Basis of preparation
The Group financial statements for 2018 consolidate the financial statements of McColl’s
Retail Group plc (the ‘Company’) and all its subsidiary undertakings (together, “the Group”)
drawn up to 25 November 2018. 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 Directors’
report section on page 77.
The consolidated financial information is presented in sterling, the Group’s functional
currency, and has been rounded to the nearest thousand (£’000). The prior period was
also a 52 week period.
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.
94 McColl’s Retail Group plc Annual Report and Accounts 2018
Basis of measurement
The consolidated financial information has been prepared on a historical cost basis,
except for net defined benefit pension asset or liability, (refer to individual accounting
policy for details).
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its
subsidiary undertakings drawn up to 25 November 2018.
The results of subsidiaries acquired or disposed of during the period are included in the
consolidated income statement from the effective date of acquisition or up to effective date
of disposal, as appropriate.
Business combinations
On acquisition, the assets, liabilities and contingent liabilities are measured at their fair values
at the date of acquisition.
Any excess of the cost of acquisition over the fair value of the identifiable net assets
acquired, including separately identifiable assets, is recognised as goodwill. Any discount
on acquisition, i.e. where the cost of acquisition is below the fair values of the identifiable net
assets acquired, is credited to the income statement in the period of acquisition.
Changes in accounting policy
New standards, interpretations and amendments not yet effective
The following newly issued but not yet effective standards, interpretations and amendments,
which have not been applied in these financial statements, will or may have an effect on the
Company financial statements in future:
IFRS 9 ‘Financial Instruments’
IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Recognition and Measurement’. The standard
was published in July 2014 and is effective for the Group from the period commencing
26 November 2018.
The standard is applicable to financial assets and financial liabilities, the main changes it
introduces are:
• new requirements for the classification and measurement of financial assets and
financial liabilities;
• a new model based on expected credit losses for recognising provisions; and
• provides for simplified hedge accounting by aligning hedge accounting more closely
with an entity’s risk management methodology.
Strategic report
Governance
Financial statements
Management have assessed the impact of the above changes and believes that the
adoption of IFRS 9 will not have a material impact on its accounting policies or classification
and measurement of financial instruments.
The Group will apply the modified retrospective approach to transition and will not restate any
comparative amounts. Any transition differences will be recognised as an adjustment to the
opening balance sheet.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction Contracts’. The standard was published in May 2014 and is effective for the
Group from the period commencing 26 November 2018. It applies to all contracts with
customers, except those in the scope of other standards.
The standard establishes a principles based approach for revenue recognition and is based
on the concept of recognising revenue for obligations only when they are satisfied and the
control of goods or services is transferred.
Management have performed an assessment of the impact of IFRS 15 and believes the
adoption will not have a material impact on its consolidated financial statements.
The Group will apply the modified retrospective approach to transition and will not restate any
comparative amounts. Any transition differences will be recognised as an adjustment to the
opening balance sheet.
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’. The standard was published in January 2016 and is
effective for the Group from the period commencing 25 November 2019.
The standard represents a significant change in the accounting and reporting of leases
for lessees. The standard provides a single lessee accounting model, and as such, requires
lessees to recognise a right-of-use assets and lease liabilities for all leases unless the underlying
asset has a low value or the lease term is 12 months or less.
The Group has a portfolio of over 1,600 property leases and the accounting treatment for
each lease will change significantly.
Accounting requirements for lessors are substantially unchanged from IAS 17 and therefore
there is no material impact to the Group consolidated financial statements.
The standard offers two different transition methods and both result in significant changes to
income statement, balance sheet and disclosure. Management are assessing the transition
methods in conjunction with reviewing our current data and new systems processes.
Management continues to assess the impact of IFRS 16 and has therefore not concluded on
which transition method to follow as yet. As such it is not practicable to quantify the impact of
IFRS 16. From work performed to date, it is expected that implementation of the new standard
will have a substantial impact on the income statement, balance sheet and the alternative
performance measures used by the Group.
In addition to the above new standards or amendments, there are additional new standards
and amendments which have not been listed. None of the other standards, interpretations
and amendments which are effective for periods beginning on or after 26 November 2018
and which have not been adopted early, are expected to have a material effect on the
consolidated financial statements.
Alternative Performance Measures
In reporting financial information, the Directors have presented various Alternative
Performance Measures (APMs) of financial performance, position or cash flows, which are not
defined or specified under the requirements of International Financial Reporting Standards
IFRS. On the basis that these measures are not defined by IFRS, they may not be directly
comparable with other companies’ APMs, including those in the Group’s industry.
The Group believes that these APMs, which are not considered to be a substitute for or
superior to IFRS measures, provide stakeholders with additional useful information on the
performance of the business. These APMs are consistent with how the business performance is
planned, reported and analysed between reporting periods within the internal management
reporting to the Board. Some of these measures are also used for the purpose of setting
remuneration targets (and covenant calculations).
The key APMs that the Group uses include: adjusted EBITDA, adjusted profit before tax, like-for-
like sales (LFL), net debt and adjusted earnings per share. Each of the APMs, and others used
by the Group, are set out in the Glossary including explanations of how they are calculated
and how they can be reconciled to a statutory measure where relevant. These measures
have remained consistent with the prior year.
The Group makes certain adjustments to the statutory profit measures in order to derive many
of these APMs. The Group’s policy is to exclude items that are considered to be significant
in nature and/or quantum. Treatment as an adjusting items provides stakeholders with
additional useful information to assess the annual trading performance of the Group.
Revenue recognition
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.
95
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
2 Accounting policies continued
Commission from the sale of lottery tickets, travel tickets, electronic phone top-ups and
products sold through the Post Office in store is recognised net within turnover, when
transactions deriving commissions are completed, as the Group acts as an agent.
In the opinion of the Directors, the Group engages in one principal area of activity, that
of operators of convenience and newsagent stores. Turnover is derived entirely from 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
value at the reporting date is included in prepayments and accrued income.
Adjusting items
Adjusting items relate to costs or incomes that derive from events or transactions that fall
within the normal activities of the Group, but are excluded from the Group’s adjusted profit
before tax measure, individually or, if of a similar type in aggregate, due to their size and
nature in order to better reflect management’s view of the performance of the Group.
The adjusted profit before tax measure (profit before adjusting items) is not a recognised profit
measure under IFRS and may not be directly comparable with adjusted profit measures used
by other companies. Details of adjusting items are set out in note 5.
Other operating income
Rental income and ATM commissions are recognised in the consolidated income statement
when the services to which they relate are earned.
Tax
The tax expense for the period comprises current tax. Tax is recognised in profit or loss,
except that a change attributable to an item of income or expense recognised as other
comprehensive income is also recognised directly in other comprehensive income.
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 tax is accounted for on the basis of temporary differences arising from differences
between the tax base and accounting base of assets and liabilities.
96 McColl’s Retail Group plc Annual Report and Accounts 2018
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 the 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.
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
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 as follows:
Asset class
Land and buildings:
Depreciation method and rate
Freehold (including land where it is not separately identifiable)
Straight-line basis: 50 years
Long leaseholds improvements
Land (if separately identifiable)
Straight-line basis: 50 years
Nil
Short leaseholds improvements – Shops & Other
Straight-line basis: 10 years
Leasehold premiums
Furniture, fittings & equipment:
Motor vehicles
Computer equipment
Furniture and fittings
Straight-line basis: the unexpired
portion of the lease
Straight-line basis: 4 years
Straight-line basis: 5 years
Straight-line basis: 10 years
Gains and losses on disposal of any fixed assets are determined by comparing proceeds with
the asset’s carrying amount and are recognised within operating profit.
Strategic report
Governance
Financial statements
Fixed asset impairments
At each reporting date, the Group reviews the carrying amounts of its property, plant and
equipment and intangible assets 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.
Intangible assets impairment
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash
generating units (CGUs) expected to benefit from the synergies of the combination. CGUs 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.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Non-current assets held for sale
Non-current assets are classified as assets held for sale only if available for immediate sale in
their present condition, a sale is highly probable and expected to be completed within one
period from the date of classification. Such assets are measured at the lower of the carrying
amount and fair value less costs to sell and are not depreciated or amortised.
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.
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 finance
leasebacks, any apparent profit or loss from the sale is deferred and amortised over the
lease term. 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.
Following initial recognition, the lease treatment is consistent with those principles
described above.
Lease incentives
Lease incentives primarily include up-front cash payments or rent-free periods. Where lease
incentives relate to the whole term of the contract 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.
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 subsidiary 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 reversed in a subsequent period.
See note 13 for further details of CGUs and impairment testing.
97
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
2 Accounting policies continued
Other intangible assets
Other intangible assets includes computer software. Computer software is stated at cost less
accumulated amortisation and any provision for impairment. Externally acquired computer
software and software licences and costs relating to development of computer software for
internal use (to the extent that they meet the recognition criteria of IAS 38 Intangible Assets)
are capitalised and amortised on a straight-line basis over their useful economic lives of
five years and are included within other intangible assets. Costs relating to development
of computer software for internal use that do not meet the IAS 38 recognition criteria are
expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, cash in transit, deposits held at call with
banks, other short-term highly liquid investments with original maturities of three months or less.
When drawn, bank overdrafts are shown within loans and borrowings in current liabilities in the
Group balance sheet.
Trade receivables
Trade receivables are amounts due from customers for goods and services performed in
the ordinary course of business. If collection is expected in one year or less (or in the normal
operating cycle of the business if longer), they are classified as current assets. If not, they are
presented as non-current assets.
Trade receivables are recognised initially at the transaction price. A provision for the
impairment of trade receivables is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original terms of the
receivables. The amount of any loss is recognised in the income statement.
Inventories
Inventories consist of goods for resale and are stated at the lower of cost and net realisable
value. Cost is calculated using the retail method for each category of stock by reducing 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 business net of selling and distribution
costs. Provision is made for obsolete, slow-moving or defective items where appropriate.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the
ordinary course of business from suppliers. Trade payables are classified as current liabilities
if payment is due within one year or less (or in the normal operating cycle of the business if
longer). If not, they are presented as non-current liabilities.
98 McColl’s Retail Group plc Annual Report and Accounts 2018
Trade payables are recorded initially at fair value and subsequently measured at amortised
cost. Generally this results in their recognition at their nominal value.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction
costs. Borrowings are subsequently carried at amortised cost, with the difference between the
proceeds, net of transaction costs, and the amount due on redemption being recognised as
a charge to the income statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in
finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to
defer settlement of the liability for at least 12 months after the reporting date.
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
The Group compares the unavoidable costs of all leases with the expected economic
benefits on a store by store basis. Once a lease is considered onerous, a provision is
calculated based on the present value of the unavoidable costs net of expected benefits.
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.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only on the
occurrence or non-occurrence of uncertain future events outside the Group’s control, or
present obligations that are not recognised because it is not probable that a settlement will
be required or the value of such a payment cannot be reliably estimated. The Group does
not recognise contingent liabilities but discloses them. Refer to note 26 for the disclosures.
Strategic report
Governance
Financial statements
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.
Dividends
Dividend distribution to the Group’s shareholders is recognised as a liability in the
Group’s financial statements in the period in which the dividends are approved by the
Group’s shareholders.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services
are measured at the fair value of the equity instruments at the grant date. The fair value
determined at the grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group’s estimate of equity instruments
that will eventually vest, with a corresponding increase in equity. Where applicable at the end
of each reporting period, the Group revises its estimate of the number of equity instruments
expected to vest. The impact of the revision of the original estimates, if any, is recognised in
the income statement.
Defined contribution pension obligation
Contributions to defined contribution pension schemes are charged to the income statement
in the year to which they relate.
For further detail please refer to note 29.
Financial instruments
Defined benefit pension obligation
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 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; 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 interest income on scheme assets and that actually achieved
on assets, 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.
Finance items comprise the interest on the net defined benefit asset or liability.
Further information on pensions is disclosed in note 28.
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.
Loans and 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 counter party 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 loans and receivables comprise trade and other receivables and cash and cash
equivalents in the Group balance sheet.
Financial assets are de-recognised 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.
99
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
2 Accounting policies continued
Financial liabilities
The Group classifies its financial liabilities into the below category:
1) Other financial liabilities
• 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 27.
3 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, 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.
Critical accounting judgements
Critical judgements, apart from those involving estimations, that are applied in the
preparation of the consolidated financial statements are discussed below:
Adjusting items
During the year certain items are identified and separately disclosed as adjusting items.
Judgement is applied as to whether the item meets the necessary criteria as per the
accounting policy. This assessment covers the nature of the item, cause of occurrence and
the scale of impact of that item on reported performance. Note 5 provides information on all
of the items disclosed as adjusting in the current year financial statements.
100 McColl’s Retail Group plc Annual Report and Accounts 2018
Sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis. Sources of
estimation and uncertainty are discussed below:
Impairment
Where there are indicators of impairment, management performs an impairment test.
Recoverable amounts for CGUs are the higher of fair value less costs of disposal, and value
in use. Value in use is calculated from cash flow projections based on the Group’s three-
year internal forecasts. The forecasts are extrapolated to perpetuity with nil growth rate.
Key estimates and sensitivities for impairment of assets are disclosed in notes 12 and 13.
Supplier income
Supplier income is recognised as a credit within cost of sales. For some sources of supplier
income, management is required to make estimates in determining the amount and timing of
recognition of income. These estimates are based on documented evidence of agreements
with suppliers.
In determining the amount of volume-related allowances recognised in any period,
management estimate whether the Group will meet contractual target volumes, based on
historical and forecast performance.
For promotional funding relating to investment in the customer offer by a supplier, there is
limited estimation required as funding is pre-agreed and collected throughout the year
shortly after promotions have ended.
Outcomes within the next financial year that are different from management’s assumptions
could require a material adjustment to the carrying amount of the affected asset.
Pensions
The liabilities of the defined benefit pension schemes operated by the Group are determined
using methods relying on the actuarial estimates and assumptions, including rates of increase
in pensionable salaries and pensions, net defined benefit asset or liability, life expectancies
and discount rates. Details of the key assumption are set out in note 28. 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 invoice and the Group statement of
financial position.
Strategic report
Governance
Financial statements
5 Adjusting items
Due to their significance or one-off nature, certain items have been classified as adjusting
as follows:
2018
£’000
2017
£’000
4 Revenue and other income
In accordance with IFRS 8 ‘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. 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.
Cost of sales
Supplier administrationa
Supply chain transitionb
The analysis of the Group’s revenue for the period from continuing operations is as follows:
Gross loss
Revenue
Sale of goods
Other operating income1
Property rental income
Other rental income1
Finance income
Finance income
2018
£’000
2017
£’000
restated1
1,241,539
1,148,747
3,249
3,562
6,811
–
3,224
4,563
7,787
93
1,248,350
1,156,627
Administrative expenses
Fines (Health and Safety and Minimum Wage Compliance)c
Supplier administrationa
Supply chain transitionb
Defined benefit pension scheme – past service costd
Unprofitable store closure programmef
Co-op acquisition and integration costsh
(Profits)/losses arising on property-related items
Sale and leasebacke
Unprofitable store closure programmef
Impairmentg
1 During the year management performed a review of all revenue streams. As a result of the review all income from Post Office
will now be classified as revenue. The reclassification of £16.7m from other income to revenue is the net income received as an
agent in the transaction with the Post Office. This has increased gross profit by 1% from 25% to 26%. The prior year’s revenue has
also been restated on the same basis and the value of this restatement is £16.9m.
Finance costs
Co-op acquisition and integration costsh
Unprofitable store closure programmef
Tax effect on adjusting items
807
621
1,428
1,236
935
4,306
641
–
–
7,118
(11,941)
2,535
3,297
(6,109)
–
158
158
(1,762)
833
–
–
–
–
–
–
–
283
3,447
3,730
–
2,621
–
2,621
1,521
–
1,521
(1,014)
6,858
a. Supplier administration
The administration of P&H, our primary supplier to c.700 newsagents and small convenience stores, on 28 November 2017
created stock availability issues in store. To address this stock availability and to minimise disruption we entered into a short-
term contract with Nisa, a short-term contract with Fresh to Store, brought forward the commencement of the Morrisons
contract, and introduced a new supply chain solution for tobacco, via Clipper Logistics. As such, the Group incurred
additional one-off costs, which are not reflective of ongoing costs and therefore management have classified these as
adjusting items. Resulting in a net cash outflow of £1.7m.
101
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
5 Adjusting items continued
b. Supply chain transition
As a result of the integration of a new supply partner, Morrisons, material one-off costs of transitioning were incurred.
These costs included £1.3m of additional payroll cost, £1.8m of marketing, £1.5m of store preparation, including costs
associated with stock replacement and £0.3m of other costs. In line with the accounting policy for adjusting items, the
additional costs incurred as a result of the transition are classified as adjusting items. Resulting in a net cash outflow of £4.9m.
c. Fines (Health and Safety and Minimum Wage Compliance)
On 22 December 2017 the Group was found guilty of a health and safety breach relating to contractor works at a store and
subsequently a fine of £612k was issued to the Group. This was disclosed as a contingent liability in the Annual Report 2017.
Following the completion of a HMRC National Minimum Wage investigation the Group was fined £227k and paid arrears due
to colleagues of £397k. Each of these fines are fully paid. Management classify these fines as adjusting items due to the non-
recurring nature. Resulting in a net cash outflow of £612k.
d. Past service cost
Management have classified the amount for Guaranteed Minimum Pension (GMP) equalisation as an adjusting item due to its
non-recurring nature. In October 2018, the High Court ruled that Lloyds Banking Group will need to equalise pension benefits
for the effect of unequal GMP between men and women, which dates back to 1990. The impact of the GMP calculation on
our pensions was prepared following the C2 model. There was no cash impact from this adjustment.
e. Sale and leaseback
During the year the Group undertook a number of sale and leaseback transactions on its freehold property. In line with the
accounting policy for adjusting items management concluded that the profits for sale and leasebacks of property were
significantly higher than prior years (2017: £3m) and therefore not in line with ordinary business and should therefore be treated
as adjusting. Resulting in a net cash inflow of £26.7m.
f. Unprofitable store closure programme
Management have undertaken an ongoing review of poor performing stores and have made the decision to close a material
number of stores which are not economically viable to continue trading. The majority of these stores are either near lease
expiry or lease break date. The closure programme consists of stores which have either closed in 2018 or will close in 2019.
Management have adjusted onerous lease provisions, impairment, and other costs in relation to the closures. Provisions are
discounted to their present value at the reporting date, giving rise to a finance cost as the discount is unwound. Any other
closures costs which cannot be reliably estimated at present, may also be adjusting in 2019. Management have classified
these as adjusting due to the scale of the closure programme. Resulting in a net cash outflow of £861k.
g. Impairment
Management have assessed the value in use cash flow of each branch against the carrying value of its assets, as a result
of the impairment review an impairment charge was recognised in the year. Further information can be found in note 12.
There was no cash impact from this adjustment.
h. Co-op acquisition and integration costs
On 13 July 2016 management entered into an agreement to purchase 298 convenience stores from the Co-op, for an
aggregate consideration of £117m. The acquisition was approved by the Competition and Markets Authority on 20 December
2016. The acquisition was integrated during 2017 by Martin McColl Limited, a wholly-owned subsidiary of the Group.
The adjusting costs relate to legal fees, sponsor fees, implementation costs and finance costs. All 298 stores were successfully
transitioned by 13 July 2017. There was no cash impact from this adjustment in the current year.
102 McColl’s Retail Group plc Annual Report and Accounts 2018
6 Operating profit
Arrived at after charging/(crediting)
Depreciation and amortisation expense
Write-down of inventory recognised as an expense
Operating lease expense – property
Profit on disposal of property, plant and equipment
Impairment
Cost of inventories recognised as an expense
The analysis of the Auditors’ remuneration is as follows:
Audit fees
Audit of Group
Other services
Audit related assurance services (including interim review)
Other non-audit services not covered above
Note
12
2018
£’000
17,054
16,471
35,868
(12,150)
3,297
951,073
2017
£’000
15,636
13,766
33,810
(489)
746
876,599
2018
£’000
2017
£’000
283
43
–
43
326
242
41
14
55
297
Included within the audit fee total for the year is an amount of £51,000 that is deemed to be non-
recurring in nature.
Adjusted EBITDA and operating profit excluding property-related items
In order to provide shareholders with a measure of the underlying performance of the
business which is more aligned with the way that management monitor and manage the
business, the Group makes adjustments to profit before tax. Adjusting items relate to costs
or incomes that derive from events or transactions that fall within the normal activities of the
Group, but which are excluded from the Group’s adjusted profit before tax measure due
to their size and nature in order to better reflect management’s view of the performance
of the Group. The adjusted profit before tax measure (profit before adjusting items) is not a
recognised profit measure under IFRS and may not be directly comparable with adjusted
profit measures used by other companies. Details of adjusting items are set out in note 5.
Strategic report
Governance
Financial statements
2018
£’000
2017
£’000
8 Finance income and costs
Adjusted EBITDA excluding property-related items
Operating profit before adjusting items
Depreciation and amortisation
Profits arising on property-related items
Share-based payments
Adjusted operating profit excluding
property-related items
Operating profit before adjusting items
Less: Profits arising on property-related items
7 Employee costs
The aggregate payroll costs were as follows:
Wages and salaries
Social security costs
Pension costs, defined benefit scheme
18,321
17,054
(416)
–
34,959
18,321
(416)
17,905
2018
£’000
171,993
17,142
1,589
190,724
31,385
15,289
(3,110)
436
44,000
31,385
(3,110)
28,275
2017
£’000
157,111
15,268
1,549
173,928
The average number of persons employed by the Group (including Directors) during the
period, analysed by category was as follows:
Retailing
Central administration
2018
No.
20,507
507
21,014
2017
No.
20,749
512
21,261
Finance income
Interest income on bank deposits
Finance costs
Interest on bank overdrafts and borrowings
Interest on obligations under finance leases
and hire purchase contracts
Amortisation of issue costs
Other finance costs
Finance costs in relation to Co-op stores acquisition
and integration (included in adjusting items)
Total finance costs
Net finance costs
9 Income tax
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
Arising from change in tax rate
Adjustments in respect of prior periods
Income tax expense for the period
Equity items
Share-based payment
Fixed assets
Other comprehensive income
Deferred tax in respect of actuarial valuation
of retirement benefits
2018
£’000
2017
£’000
–
93
(7,289)
(4,522)
(148)
(415)
(165)
–
(8,017)
(8,017)
(274)
(381)
(23)
(1,521)
(6,721)
(6,628)
2018
£’000
2017
£’000
2,858
(7)
2,851
(2,123)
234
54
(1,835)
1,016
92
35
127
150
4,780
(173)
4,607
(81)
(14)
(298)
(393)
4,214
–
–
517
103
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
9 Income tax continued
The differences are reconciled below:
Profit before tax
Tax on profit calculated at standard rate for 2018 of 19.00%
(2017: 19.33%)
Income not taxable
Expenses not deductible
Deferred tax on share options
Adjustments in respect of prior years
Arising from change in rate of tax
Exempt amounts1
Disposal of business combination assets
Total tax charge
2018
£’000
7,867
1,495
–
817
55
47
234
605
(2,237)
1,016
2017
£’000
18,406
3,558
(8)
650
(18)
(471)
(14)
517
–
4,214
1
Include finance leases, land and buildings in use and disposal rebates against assets.
Changes to the UK corporation tax rates were enacted as part of Finance Bill 2016 on
6 September 2016. This included reductions to the main rate to reduce the rate to 17% from
1 April 2020.
The tax charge for the 52 week period was £1,016,000 (2017: £4,214,000) representing a rate
of 12.9% (2017: 22.9%). The comparable effective rate of tax in 2018 excluding the impact
of non-deductible adjusting items was 26.6% (2017: 19.9%). The difference between the
current and statutory rate of 19.0% in the period is due principally to the sale and leaseback
and closure cost transactions, all of which are classified as adjusting items, see note 5 for
further information.
Amounts recognised in other comprehensive income
2018
Tax
(expense)
/benefit
£’000
Before tax
£’000
Net of tax
£’000
Before tax
£’000
2017
Tax
(expense)
/benefit
£’000
Net of tax
£’000
859
(150)
709
3,039
(517)
2,522
Remeasurements
of post employment
benefit obligations
10 Dividends
Interim 2018 dividend of 3.40p (2017: 3.40p) per ordinary share
Final 2017 dividend of 6.90p (2016: 6.80p) per ordinary share
2018
£’000
3,916
7,947
11,863
2017
£’000
3,916
7,832
11,748
The Directors are proposing a final 2018 dividend of 0.6 pence (2017: 6.90 pence) per share
totalling £691,000 (2017: £7,947,000).
The proposed final dividend is subject to approval by shareholders passing a written resolution
and accordingly has not been included as a liability in these financial statements.
104 McColl’s Retail Group plc Annual Report and Accounts 2018
11 Earnings per share
Basic and diluted earnings per share are calculated by dividing the profit for the period
attributable to shareholders by the weighted average number of shares.
12 Property, plant and equipment
Basic weighted average number of shares
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 (£’000)
Adjusting items (note 5)
Tax effect of adjustments
Profit after tax and before adjusting items
Basic adjusted earnings per share
Diluted adjusted earnings per share
2018
£’000
2017
£’000
115,173,145
115,172,774
115,331,969
115,724,645
6,851
5.95p
5.94p
6,851
2,595
(1,762)
7,684
6.67p
6.66p
14,192
12.32p
12.26p
14,192
7,872
(1,014)
21,050
18.28p
18.19p
The difference between the basic and diluted average number of shares represents the
dilutive effect of share options in existence.
The diluted weighted average number of ordinary shares is calculated using the following:
Ordinary shares in issue at the start of the period
Effect of shares issued for the Co-op acquisition (full year)
Effects of shares issued during the period
115,172,774
–
741
Total shares in issue at the end of the year
Effect of shares to be issued for the long-term incentive plan (LTIP)
115,173,515
158,825
Weighted average number of ordinary shares at the end of the period 115,332,340
108,505,494
6,667,280
–
115,172,774
551,871
115,724,645
2018
£’000
2017
£’000
Cost or valuation
At 28 November 2016
Additions
Acquired through business combinations
Classified as held for sale
Disposals
At 26 November 2017
At 27 November 2017
Additions
Acquired through business combinations
Disposals
Transfers to software
At 25 November 2018
Depreciation
At 28 November 2016
Charge for period
Disposals
Impairment
Classified as held for sale
At 26 November 2017
At 27 November 2017
Charge for the period
Disposals
Impairment
Transfers to software
At 25 November 2018
Carrying amount
At 25 November 2018
At 26 November 2017
Strategic report
Governance
Financial statements
Land and
buildings
£’000
Furniture,
fittings and
equipment
£’000
Total
£’000
125,085
24,708
34,249
3,044
(8,932)
178,154
178,154
19,817
2,040
(14,044)
(1,133)
90,406
15,981
4,410
3,044
(3,690)
110,151
110,151
13,968
1,314
1,429
–
126,862
184,834
45,186
10,761
(1,525)
746
2,344
57,512
57,512
11,678
(1,279)
3,297
–
58,302
14,996
(1,799)
746
2,344
74,589
74,589
16,356
(1,628)
3,297
(94)
34,679
8,727
29,839
–
(5,242)
68,003
68,003
5,849
726
(15,473)
(1,133)
57,972
13,116
4,235
(274)
–
–
17,077
17,077
4,678
(349)
–
(94)
21,312
71,208
92,520
36,660
50,926
55,654
52,639
92,314
103,565
105
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
12 Property, plant and equipment continued
During the year the Group disposed of property in sale and leaseback transactions, the net
book value of these properties at disposal was £13,855,000.
13 Intangible assets
Included within fixture and fittings is £2,755,000 of finance lease assets.
For impairment testing the Group classes each branch as a CGU (cash generating unit).
Each CGU was tested for impairment at the period end date. Management recognise an
impairment where the recoverable amount of the CGU does not exceed its carrying value at
the balance sheet date. Recoverable amounts for CGUs are the higher of fair value less costs
of disposal, and value in use.
The key assumptions for the value in use calculation include the discount rate, long-term
growth rates and forecast cash flows. The value in use calculations use forecast cash flows
taking into account actual performance for the year and the Group’s cash flow forecast for
a three-year period, which has been approved by management. Cash flows beyond this
period are extrapolated using a long-term growth rate of nil and discounted with a weighted
average cost of capital (WACC) of 11.75% (2017: 8.9%). The change in WACC is driven by a
decrease in share price and reduction in borrowings.
The discount rate is based on the Group’s weighted average cost of capital, taking into
account the cost of capital and borrowings, to which specific market-related premium
adjustments are made.
Management extrapolated the cash flows to perpetuity with a growth rate of nil as this
was considered to be a prudent basis. In assessing the EBITDA sensitivities, we have also
considered the potential downside from Brexit and related mitigation, the impact of which
would not affect the carrying values. Further detail of our considerations and sensitivities are
included within going concern assessment in our accounting policies.
The annual impairment testing resulted in an impairment charge of £3,297,000 against
branch assets.
106 McColl’s Retail Group plc Annual Report and Accounts 2018
Cost or valuation
At 28 November 2016
Additions
Fair value adjustment for goodwill
Deferred tax on fair value adjustment of land and buildings
At 26 November 2017
At 27 November 2017
Additions
Transfers from PPE
At 25 November 2018
Amortisation
At 28 November 2016
Amortisation charge
At 26 November 2017
At 27 November 2017
Amortisation charge
Transfers from PPE
At 25 November 2018
Carrying amount
At 25 November 2018
At 26 November 2017
Goodwill
£’000
157,292
91,442
(560)
3,377
251,551
251,551
2,029
–
Other
intangible
assets
£’000
5,872
929
–
–
6,801
6,801
1,478
1,133
Total
£’000
163,164
92,371
(560)
3,377
258,352
258,352
3,507
1,133
253,580
9,412
262,992
4,234
–
4,234
4,234
–
–
4,579
640
5,219
5,219
698
94
8,813
640
9,453
9,453
698
94
4,234
6,011
10,245
249,346
247,317
3,401
1,582
252,747
248,899
Software includes £1,391,000 of internally generated development costs.
Transfers in the year relate to the reallocation of IT development costs, previously classified
within tangible assets.
Amortisation expenses of £698,000 (2017: £640,000) are included in administrative expenses.
Goodwill acquired in a business combination is not amortised, but is reviewed for impairment
on an annual basis, or more frequently if there are indications that goodwill may be impaired.
Strategic report
Governance
Financial statements
Growth rate
Management have assumed a long term growth rate to perpetuity after three years of nil,
which is considered a prudent basis. The growth rate in the next three years is based on
managements expectation of sales growth.
Budgeted cash flows
Management have conducted sensitivity analysis on the CGUs VIU by reducing the
anticipated future cash flows. A reduction of 2.2% in forecast cash flows would reduce the
headroom to nil.
14 Investments
Investments at cost
2018
£’000
36
2017
£’000
36
The investments relate to shares held in an entity outside the Group.
Management recognise an impairment where the recoverable amount of the CGU does
not exceed the carrying value of goodwill. For the purpose of goodwill, in line with the
accounting policy, the business manages and makes decisions as one group of CGUs and
therefore impairment is assessed on that single group. The recoverable amount of the CGU
is determined from value in use calculations with a discounted cash flow model used to
calculate this amount. Management has determined the values assigned to each of the
key assumptions.
The key assumptions for the value in use calculation include the discount rate, long-term
growth rates and forecast cash flows. The value in use calculations use forecast cash flows
taking into account actual performance for the year and the Group’s cash flow forecast for
a three-year period, which has been approved by management. Cash flows beyond this
period are extrapolated using a long-term growth rate of nil and discounted with a weighted
average cost of capital (WACC) of 11.75% (2017: 8.9%). The change in WACC is driven by a
decrease in share price and reduction in borrowings.
The discount rate is based on the Group’s weighted average cost of capital, taking into
account the cost of capital and borrowings, to which specific market-related premium
adjustments are made.
Management extrapolated the cash flows to perpetuity with a growth rate of nil as this
was considered to be a prudent basis. In assessing the EBITDA sensitivities, we have also
considered the potential downside from Brexit and related mitigation, the impact of which
would not affect the carrying value. Further detail of our considerations and sensitivities are
included within going concern assessment in our accounting policies.
Upon review of impairment, management have calculated the recoverable amount and it
exceeds the carrying amount and therefore have not included an impairment charge.
Significant estimates
Change in discount rate
The Group has conducted sensitivity analysis on the impairment testing for goodwill.
With reasonable possible changes in key assumptions including a 2 percentage point change
in WACC, management have concluded that the carrying amount of goodwill would be
likely to exceed the value in use.
107
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
14 Investments continued
Group subsidiaries
Details of the Group subsidiaries as at 25 November 2018 are as follows:
All are held by the Company unless stated. All subsidiaries are registered at the same address as McColl’s Retail Group plc, except for those registered in Scotland, whose registered address
is Unit 11, The Avenue, Newton Mearns, Glasgow, G77 6AA.
Name of subsidiary
A Harris Limited*
Birrell Limited*
Bracklands Limited*
Charnwait Management Limited*
Clark Retail Limited*
Dillons Stores Limited*
Forbouys Limited*
Key Food Stores Limited*
Lavells Limited*
Lewis Meeson Limited*
Marshell Group Limited*
Martin McColl Limited*
Martin McColl Retail Limited*
Martin Retail Group Limited*
Martin the Newsagent Limited*
NSS Newsagents Limited*
NSS Newsagents Retail Limited*
Price Smashers Limited*
RS McColl (UK) Limited*
Smile Holdings Limited*
Smile Property Limited*
Smile Stores Limited*
Thistledove Limited*
TM Group Limited*
TM Group Holdings Limited*
TM Pension Trustees Limited*
TM Vending Limited*
Tog Limited*
Trents Leisure Limited*
*
Indicates direct investment of the company.
Principal activity
Dormant
Dormant
Property Company
Retailing
Retailing
Retailing
Dormant
Intermediate Holding Co
Dormant
Dormant
Corporate activities
Retailing
Intermediate Holding Co
Retailing
Dormant
Dormant
Dormant
Intermediate Holding Co
Dormant
Intermediate Holding Co
Dormant
Retailing
Intermediate Holding Co
Dormant
Predecessor Holding Co
Dormant
Corporate Activities
Intermediate Holding Co
Dormant
Registered office
Scotland
Scotland
Scotland
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
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
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Proportion of ownership interest
and voting rights held 2018
Proportion of ownership interest
and voting rights held 2017
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
From the above table the following subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 25 November 2018:
Bracklands Limited, Charnwait Management Limited, Clark Retail Limited, Dillons Stores Limited, Martin McColl Limited, Martin McColl Retail Group Limited, Martin Retail Group Limited,
Smile Stores Limited, Thistledove Limited, TM Group Holdings Limited, TM Vending Limited. All the subsidiaries are included in the Group consolidated financial statements for the period.
The parent company will guarantee the debts and liabilities of these UK subsidiaries at the balance sheet date in accordance with section 479C of the Companies Act 2006.
108 McColl’s Retail Group plc Annual Report and Accounts 2018
15 Business combinations
During the period, the Group made 11 trade and asset acquisitions, none of which were
individually considered material to the Group. An immaterial contingent liability is recognised
in respect of off profile stock and store dilapidations. The trade goodwill acquired represents
the established reputation of the business and is not expected to be deductible for tax
purposes. The cash consideration for these acquisitions and the assets acquired are
summarised as follows:
Tangible fixed assets
Inventory
Goodwill
Cash consideration
16 Inventories
Finished goods and goods for resale
Classified as held for sale
17 Trade and other receivables
Trade receivables
Supplier rebates
Prepayments
Other receivables
Transferred to assets held for sale
Total current trade and other receivables
Ageing of past due trade receivables
31 to 60 days
61 to 90 days
Greater than 90 days
2018
£’000
2,040
444
2,029
4,513
2017
£’000
76,265
(300)
75,965
2017
£’000
1,945
24,746
6,972
6,238
(91)
39,810
2017
£’000
318
509
376
1,203
2018
£’000
77,146
–
77,146
2018
£’000
3,269
25,002
8,384
5,329
–
41,984
2018
£’000
262
103
360
725
Strategic report
Governance
Financial statements
Ageing of past due supplier rebates receivables
31 to 60 days
61 to 90 days
Greater than 90 days
18 Cash and cash equivalents
Cash at bank and in hand
19 Trade and other payables
Current
Trade payables
Accrued expenses
Holiday pay accrual
Social security and other taxes
Other payables
Accrued interest
Deferred income
Classified as assets held for sale
Non-current
Deferred income
2018
£’000
482
97
535
1,114
2017
£’000
1,299
818
621
2,738
2018
£’000
28,547
2017
£’000
14,273
2018
£’000
2017
£’000
164,110
30,814
1,272
9,868
2,107
335
4,831
–
213,337
9,552
9,552
119,400
27,432
1,281
9,321
1,925
394
4,385
(468)
163,670
10,367
10,367
Trade payables and accruals principally comprise amounts outstanding for trade purchases
and ongoing costs. For most suppliers no interest is charged on the trade payables, but for
certain suppliers we have agreement to extend payment terms for which interest is charged.
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.
109
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
20 Loans and borrowings
21 Net debt
Current
Finance lease liabilities
Non-current
Bank borrowings
Unamortised issue costs
Finance lease liabilities
2018
£’000
2,148
2,148
125,500
(1,458)
947
124,989
2017
£’000
1,799
1,799
154,500
(1,532)
1,754
154,722
The long-term loans are secured by a fixed charge over the Group’s head office property
together with a floating charge over the Group’s assets.
In November 2018, the Group amended some of the terms of the existing facility. The Group
has an amortising £87,500,000 term loan and a £100,000,000 revolving facility with a
£50,000,000 accordion. The current facility drawn as at 25 November 2018 is £125,500,000
(2017: £154,500,000).
Details of loans and hire purchase obligations repayable within two to five years are as follows:
Term loan and revolving facility available until July 2021
Finance lease liabilities
2018
£’000
125,500
947
126,447
2017
£’000
154,500
1,754
156,254
110 McColl’s Retail Group plc Annual Report and Accounts 2018
Cash at bank and in hand
Term loan and revolving facility available until July 2021
Less: unamortised issue costs
Amounts due under finance lease obligations
Note
18
2018
£’000
28,547
28,547
(125,500)
1,458
(124,042)
(3,095)
(98,590)
Net debt
Analysis of net debt
Cash and short-term deposits
Bank borrowings
Finance lease liabilities
2017
£’000
14,273
14,273
(152,968)
(3,552)
(156,520)
(142,247)
Cash flow
£’000
Other non-cash
movements
£’000
14,274
14,274
29,000
457
29,457
43,731
–
–
(74)
–
(74)
(74)
2017
£’000
14,273
14,273
(154,500)
1,532
(152,968)
(3,552)
(142,247)
2018
£’000
28,547
28,547
(124,042)
(3,095)
(127,137)
(98,590)
22 Leases and commitments
Group operating leases
The Group leases various properties under non-cancellable operating leases. The terms of the
property leases vary, with rent reviews every three to five years and many have break clauses.
The total future value of minimum lease payments is as follows:
Land and buildings
Within one year
In two to five years
In over five years
2018
£’000
2017
£’000
32,096
99,971
119,655
251,722
32,185
100,441
117,885
250,511
As set out in note 4 property rental income earned during the year was £3,249,000
(2017: £3,224,000). 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.
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
2018
£’000
283
549
382
1,214
Finance leases
The Group acquires the majority of its motor vehicles and LED lighting under contract
purchase agreements and such assets are generally classified as finance leases.
Future lease payments are due as follows:
Amounts due within one year
Amounts due within one to five years
Less future interest
2018
£’000
2,349
1,073
3,422
(327)
3,095
2017
£’000
273
427
261
961
2017
£’000
1,882
1,840
3,722
(170)
3,552
Other financial commitments
In order to manage its exposure to fluctuating energy prices, during the year the Group
entered into contracts to purchase 64.4 MW of electricity at a fixed price from SSE.
The contracts allow for a 10% over or underutilisation of the power contracted at the
rates secured. While management acknowledge that the forward contracts in place are
derivatives, they cannot be traded and are therefore treated as contracts that secure a
pre-agreed price for electricity requirements to operate the store portfolio. These are not on
the balance sheet and are used to give certainty over a key cost line to the business.
Strategic report
Governance
Financial statements
23 Provisions
At 27 November 2017 (including held
for sale)
Additional provisions
Utilised during the period
Unwinding of the discount included
in provisions
At 25 November 2018
Non-current liabilities
Current liabilities
Dilapidations
£’000
Onerous
contracts
£’000
3,870
871
(681)
14
4,074
–
4,074
1,231
1,138
(931)
157
1,595
1,042
553
Total
£’000
5,101
2,009
(1,612)
171
5,669
1,042
4,627
Dilapidations
The provision includes estimates for certain properties for which the extent of the dilapidation
has not been established. It is expected that most of these costs will be incurred in the next
five years.
Onerous contracts
A provision is recognised for the present value of the unavoidable costs of the lease net of
expected benefits for all leases that have been identified as onerous. The onerous lease
provisions are recognised for a period of up to two years.
111
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
24 Deferred tax
Deferred tax assets and liabilities
2018
Pension benefit obligations
Revaluation of property, plant and equipment
Revaluation of intangible assets
Other items including share options and temporary
differences
2017
Pension benefit obligations
Revaluation of property, plant and equipment
Revaluation of intangible assets
Other items
Deferred tax movement during the period
Asset
£’000
–
–
–
97
97
Asset
£’000
–
–
–
172
172
Liability
£’000
(2,018)
(957)
(3,920)
–
(6,895)
Liability
£’000
(1,744)
(3,174)
(3,610)
–
(8,528)
Net deferred
tax
£’000
(2,018)
(957)
(3,920)
97
(6,798)
Net deferred
tax
£’000
(1,744)
(3,174)
(3,610)
172
(8,356)
At
27 November
2017
£’000
Recognised in
income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised in
equity
£’000
At
25 November
2018
£’000
Pension benefit
obligations
Revaluation of property,
plant and equipment
Revaluation of
intangible assets
Other items including
share options and
temporary differences
Net tax assets/(liabilities)
(1,744)
(124)
(150)
(3,174)
2,182
(3,610)
(310)
172
(8,356)
(76)
1,672
–
–
–
(150)
–
35
–
–
35
(2,018)
(957)
(3,920)
96
(6,799)
112 McColl’s Retail Group plc Annual Report and Accounts 2018
Deferred tax movement during the prior period:
At
28 November
2016
£’000
Recognised in
income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised in
equity
£’000
At
26 November
2017
£’000
Pension benefit
obligations
Revaluation of property,
plant and equipment
Revaluation of intangible
assets
Other items
(1,020)
(422)
(3,414)
Net tax assets/(liabilities)
(4,856)
(207)
733
(196)
101
431
(517)
–
(1,744)
(3,485)
(3,174)
–
71
(3,610)
172
(8,356)
(517)
(3,414)
–
–
–
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 25 November 2018 has been measured at 17% (2017: 17%) being the tax rate
enacted at the balance sheet date expected to be effective for future periods.
25 Authorised, issued and fully paid share capital
At 28 November 2017
Shares issued during the period
At 25 November 2018
Number of ordinary
shares 0.1 pence each
Share capital
£’000
Share premium
£’000
115,172,774
741
115,173,515
115
–
115
12,579
1
12,580
The Board has authorised the allotment of shares equal to the nominal value of £77,000.
The Company has one class of ordinary shares which carry no right to fixed income. All issued
shares are fully paid.
The Group did not acquire any of its own shares for cancellation in the 52 weeks ending
25 November 2018 or 52 weeks ending 26 November 2017.
The 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.
Strategic report
Governance
Financial statements
26 Contingent liabilities
There are a number of contingent liabilities that arise in the normal course of business, which
if realised, are not expected to result in a material liability to the Group. The Group recognises
provisions for liabilities when it is more likely than not that a settlement will be required and the
value of such a payment can be reliably estimated.
At 25 November 2018, the Group has no material contingent liabilities. (2017: £600k).
27 Financial instruments and risk management
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. There are no financial instruments held at level 1, 2 or 3
fair value.
Floating rate financial liabilities on which interest is paid bear interest at rates based on
1 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 although this is kept under review
by management.
Interest rate risk profile of financial liabilities and assets
The interest rate profile of the financial liabilities of the Group is as follows:
Fixed rate financial liabilities
Floating rate financial liabilities
Financial liabilities on which no interest is paid
Financial liabilities
2018
£’000
3,095
125,500
218,055
346,650
2017
£’000
1,836
156,216
165,185
323,237
The floating rate financial liabilities comprise a sterling designated working capital facility
and hire purchase borrowings. The interest rate profile of the financial assets of the Group is
as follows:
Financial assets on which no interest is paid
2018
£’000
70,531
2017
£’000
54,692
If interest rates had been 0.5% higher during the period ended 25 November 2018, with
all other variables held constant, the post-tax profit for the period would have been
approximately £475,000 lower (2017: £339,000 lower) 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. Management carries out daily
cash forecasts covering the next three to four periods. In addition management consider
liquidity as part of the annual budgeting and long-term planning process.
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.
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 one year but not more than two years
In more than two years but not more than five years
In more than five years
2018
£’000
211,584
8,940
20,611
105,515
–
346,650
2017
£’000
155,268
1,349
3,561
162,778
282
323,238
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 £38,000,000 has been drawn at 25 November 2018 (2017: £57,000,000).
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.
113
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
27 Financial instruments and risk management continued
Set out below is a comparison by category of carrying values and fair values of all the Group’s
financial assets and financial liabilities:
26 November 2018
27 November 2017
Carrying value
£’000
Fair value
£’000
Carrying value
£’000
Fair value
£’000
28 Retirement benefit schemes
The Group accounts for pensions in accordance with IAS 19.
The Group operates two final salary 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 £1,649,000 (2017: £1,559,000).
Financial liabilities
Trade and other short-term payables
Hire purchase borrowings
Long-term borrowings
Long-term payables
Financial assets
Other investments carried at cost
Classified as loans and receivables
Short-term receivables
Cash and short-term deposits
(208,503)
(3,095)
(125,500)
(9,552)
(208,503)
(3,095)
(125,500)
(9,552)
(346,650)
(346,650)
(154,818)
(3,552)
(154,500)
(10,368)
(323,238)
(154,818)
(3,552)
(154,500)
(10,368)
(323,238)
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).
36
36
36
36
41,948
28,547
70,531
41,948
28,547
70,531
40,393
14,273
54,702
40,393
14,273
54,702
The long-term rating for all financial institution counter parties ranges from AAA to Baa1 per
Moody’s rating scale.
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:
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.
The ongoing funding position of the schemes are formally assessed on a triennial basis by an
independent qualified actuary. The results of the valuation are used by the Group and the
trustees of the schemes to agree a contribution schedule as required. Further details are set
out in the valuation documentation.
Net debt
Total equity (as defined above)
Debt to capital ratio
2018
£’000
98,590
129,608
0.76
2017
£’000
142,247
135,651
1.05
The last completed triennial full actuarial valuation of the schemes was carried out at
31 March 2016. Deficit repair contributions were agreed at £944,000 per annum from
1 April 2017, £1,150,000 per annum from 1 April 2018, and £1,400,000 per annum from
1 April 2019 to November 2025, index-linked, and subject to review at future valuations.
Additional contributions were agreed towards the costs of running the schemes.
The figures for this financial information have been based, in accordance with IAS 19,
on valuations using the projected unit method.
114 McColl’s Retail Group plc Annual Report and Accounts 2018
The disclosures are based upon the valuation of the schemes which were carried out as at
31 March 2016, updated to 25 November 2018 by qualified independent actuaries. The main
assumptions when valuing the assets and liabilities of the schemes under IAS 19 (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
2018
%pa
3.20
2.20
n/a
3.10
2.20
2.90
2017
%pa
3.15
2.15
n/a
3.05
2.15
2.60
None of the Group’s own financial instruments or properties, either held or occupied by the
Group, are held as assets within either schemes.
Demographic assumptions
Life expectancy of a pensioner
aged 65 – male
Life expectancy of a pensioner
aged 65 – female
Life expectancy at age 65
for someone aged 45 – male
Life expectancy at age 65
for someone aged 45 – female
Notes to the balance sheet
Fair value of scheme assets
Present value of funded scheme
obligations
Net pension asset/(liability)
TM Group Pension Scheme
TM Pension Plan
2018
years
86.9
88.9
88.3
90.5
2017
years
87.0
88.9
88.5
90.6
2018
years
87.0
88.9
88.3
90.4
2017
years
87.2
88.9
88.4
90.5
TM Group Pension Scheme
TM Pension Plan
2018
£’000
83,313
(69,191)
14,122
2017
£’000
89,097
(75,488)
13,609
2018
£’000
46,988
(49,297)
(2,309)
2017
£’000
48,104
(51,456)
(3,352)
Strategic report
Governance
Financial statements
On its balance sheet, the Group recognises £14,122,000 surplus in respect of the TM Group
Pension Scheme. Under IAS 19, the Group as employer is allowed to do this as it has
unconditional right to any surplus once the last Group benefits have been paid.
Notes to the income statement
Total service cost
Net interest
Total included in ‘staff costs’
TM Group Pension Scheme
TM Pension Plan
2018
£’000
451
(353)
98
2017
£’000
290
(319)
(29)
2018
£’000
749
69
818
TM Group Pension Scheme
TM Pension Plan
Notes to the statement of
comprehensive income (SCI)
Return on assets excluding amounts
included in net interest
Losses due to changes in
demographic assumptions
Gains due to changes in financial
assumptions
Gains due to plan experience
Total recognised in SCI
2018
£’000
(1,985)
422
2,461
(580)
318
2017
£’000
3,910
1,095
(2,415)
(339)
2,251
2018
£’000
(207)
306
1,763
(1,299)
563
2017
£’000
284
128
412
2017
£’000
3,070
268
(1,641)
(909)
788
115
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
28 Retirement benefit schemes continued
TM Group Pension Scheme
TM Pension Plan
Recognition of defined benefit obligation
Opening defined benefit obligation
Service costs (admin costs)
Past service costs (incl. curtailment)
Interest cost on defined benefit
obligation
Gains due to changes in
demographic assumptions
(Gains)/losses due to changes in
financial assumptions
Losses due to plan experience
Benefits paid including expenses
Closing defined benefit obligation
2018
£’000
75,489
273
178
2017
£’000
78,303
290
–
2018
£’000
51,456
225
524
1,862
2,182
1,324
(422)
(1,095)
(306)
(2,461)
580
(6,308)
69,191
2,415
339
(6,946)
75,488
(1,765)
1,299
(3,460)
49,297
TM Group Pension Scheme
TM Pension Plan
Recognition of defined benefit obligation
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
2018
£’000
89,098
2,215
293
(1,985)
(6,308)
83,313
2017
£’000
89,249
2,501
383
3,910
(6,946)
89,097
2018
£’000
48,104
1,255
1,296
(207)
(3,460)
46,988
2017
£’000
51,635
284
–
1,438
(268)
1,641
909
(4,183)
51,456
2017
£’000
46,791
1,310
1,116
3,070
(4,183)
48,104
116 McColl’s Retail Group plc Annual Report and Accounts 2018
The Group expects to contribute £319,000 to the TM Group Pension Scheme and £1,615,000
to the TM Pension Plan in the period ended 24 November 2019.
The major categories of scheme assets as a percentage of total scheme assets are as follows:
Derivatives (unquoted)
Overseas bonds (quoted)
Government bonds (quoted)
Real estate (quoted)
Cash and cash equivalents (quoted)
Overseas bonds (unquoted)
2018
£’000
(893)
34,583
25,715
4,392
1,671
17,845
83,313
TM Group Pension Scheme
2018
%
(1)
42
31
5
2
21
100
2017
£’000
625
38,302
25,655
4,207
1,600
18,710
89,099
2017
%
1
42
29
5
2
21
100
The major categories of scheme assets as a percentage of total scheme assets are as follows:
Derivatives (unquoted)
Overseas bonds (unquoted)
Government bonds (quoted)
Property (quoted)
Cash and cash equivalents (quoted)
Infrastructure (unquoted)
Overseas bonds (quoted)
2018
£’000
(102)
5,948
10,766
4,392
843
7,941
17,200
46,988
TM Group Pension Plan
2018
%
–
13
23
9
2
17
36
100
2017
£’000
608
6,237
10,510
4,207
1,279
7,698
17,565
48,104
2017
%
1
13
22
9
3
16
36
100
The investment strategy of the schemes is driven by their liability profiles. In particular:
• The weighted average duration of the schemes’ liabilities is 13 years for the TM Group
Pension Scheme and 15 years for the TM Pension Plan.
• Approximately 30% of the liabilities of the TM Group Pension Scheme and 40% of the
liabilities of the TM Pension Plan are in respect of deferred members, with the remaining
liabilities in respect of pensioner members.
• Annual benefit payments are expected to peak in 2025 for the TM Group Pension Scheme,
and in 2030 for the TM Pension Plan.
The assets of the schemes are managed by an independent pension and investment
consultant. The schemes invest in different types of bonds (including corporate and
government bonds) in order to align movements in the value of their assets with movements in
their liabilities arising from changes in market conditions.
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
TM Pension Plan
Change in assumptions
compared with 25 November 2018
and 26 November 2017 actuarial
assumptions
0.5% decrease in discount rate
1 year increase in member
life expectation
0.5% decrease in inflation
(including impact
of pension increases)
Change in
actuarial
value of
liabilities on
2018
£’000
Change in
actuarial
value of
liabilities on
2017
£’000
Change in
actuarial
value of
liabilities on
2018
£’000
4,637
2,768
5,355
3,020
3,728
1,972
Change in
actuarial
value of
liabilities on
2017
£’000
4,071
2,058
2,020
2,351
2,542
2,746
The sensitivities disclosed are calculated using approximate methods taking into account
the weighted average duration of the schemes’ liabilities (13 years for the TM Group Pension
Scheme and 15 years for the TM Pension Plan). This is the same approach as in previous years.
Strategic report
Governance
Financial statements
29 Share-based payments
The Group makes equity-settled share awards to Executive Directors and employees under
two different share option plans, a Long Term Incentive Plan (LTIP) and a Company Share
Options Scheme (CSOP). Further details of the plans and amounts recognised in respect of
these are provided below.
1) Long term incentive plan (LTIP)
Scheme details and movements
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. Options are
exercisable at a price of £0.001. The Remuneration 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 earnings per share (EPS) and total shareholder
return (TSR). EPS will receive a weighting in the LTIP of at least 50%. For all grants to date the
weightings on EPS and TSR were 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.
117
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
29 Share-based payments continued
The movements in the number of share options during the period were as follows:
Outstanding, start of period
Granted during the period
Forfeited during the period
Outstanding, end of period
2018
Number
1,988,210
952,929
(631,495)
2,309,644
2017
Number
1,410,740
778,221
(200,751)
1,988,210
The movements in the weighted average exercise price of share options during the period
were as follows:
Outstanding, start of period
Granted during the period
Forfeited during the period
Outstanding, end of period
2018
£’000
1.70
2.02
1.87
1.79
2017
£’000
1.58
1.86
1.48
1.70
No share options were exercised during the period.
Outstanding share options
Details of share options outstanding at the end of the period are as follows:
Weighted average exercise price (£)
Number of share options outstanding
Expected weighted average remaining life (years)
The contractual weighted average remaining life is 1.26 years.
The exercise price range is £1.70 to £2.02.
2018
1.79
2,309,644
1.26
2017
1.70
1,988,210
1.63
Fair value of options granted
The weighted average fair value per TSR unit (excluding dividends) of options granted during
the period at measurement date was £1.10.
The following table gives the assumptions applied to the options granted in the respective
periods shown. No assumption has been made to incorporate the effects of expected early
exercise. The main inputs are set out in the table below. The dates of grant of the options were
1 March 2018 and 15 August 2018 (2017: 15 March 2017).
Share price at date of grant (£)
Expected volatility (%)
Vesting period in years
Expected dividends, expressed
as a dividend yield (%)
Risk-free interest rate (%)
Number of employees subject
to option grant
Number of shares covered by option
15 August
2018
1 March
2018
1.34
39.00
3.00
7.86
0.68
2.30
35.00
3.00
4.43
0.93
2017
1.86
35.00
3.00
5.48
0.06
2016
1.68
33.46
3.00
6.08
0.33
2
277,776
10
675,153
9
778,221
6
803,309
Volatility is a measure of the amount by which a price is expected to fluctuate during
a period. This is based on an historical analysis of the volatility of McColl’s total return to
shareholders as measured daily over a historic period commensurate with the remaining
performance period at date of grant.
Risk-free rate is the yield to maturity on the date of grant on zero-coupon UK government
bond with a term commensurate with the remaining performance period at date of grant.
McColl’s embedded performance is based on TSR performance banked over the period
from the start of the averaging period to the date of grant.
Comparators embedded performance is based on the TSR performance banked by each
LTIP comparator over the period from the start of the averaging period to the date of grant.
118 McColl’s Retail Group plc Annual Report and Accounts 2018
Correlation is based on an historical analysis of the average TSR correlation observed across
the LTIP comparator group as measured fortnightly over a historic period commensurate with
the remaining performance period at date of grant.
The fair value of services received during the period were the tenure of employment.
IFRS 2 requires that TSR-vesting shares under McColl’s LTIP awards be expensed based
on fair value, taking into account the probability of achieving the market-based vesting
condition (relative TSR). The probability of achieving the vesting condition is influenced by the
performance already delivered between the start of the share price averaging period and
the date of grant. McColl’s has used a Monte-Carlo simulation model to determine the grant-
date fair value of performance shares for the TSR element of the scheme. Each Monte-Carlo
iteration calculates the future value of a performance share by projecting forward a future
TSR scenario for each of its TSR comparators. Valuations are based on the average of 10,000
iterations of the Monte-Carlo model.
Charge/credit arising from share-based payments
The total charge for the year for equity-settled share-based payments was £29,000
(2017: £393,000), of which £182,000 related to the reversal of prior year charge.
The carrying value of the liability arising from share-based payments was £422,000
(2017: £393,000).
2) Company share option scheme (CSOP)
Scheme details and movements
The scheme began operation in August 2015. The scheme meets the criteria of an equity-
settled share-based payment as the entity receives goods or services as consideration for
its own equity instruments (including shares or share options). Equity-settled share-based
payments are measured at fair value at the date of grant. The fair value determined at
the date of grant is expensed on a straight-line basis over the vesting period, based on the
Group’s estimate of shares that will eventually vest.
For CSOPs granted during the year, performance conditions are 100% TSR based, which
are consistent with the LTIP performance conditions. For CSOPs granted prior to 2018,
performance conditions are 100% dependent on reaching EPS growth targets which are
consistent with LTIP performance conditions. These are detailed in the Remuneration report on
page 69. EPS is a non-market based vesting condition and therefore fair value is determined
based upon the probability of achieving the target.
Strategic report
Governance
Financial statements
The movements in the number of CSOP share options during the period were as follows:
Outstanding, start of period
Granted during the period
Forfeited during the period
Outstanding, end of period
2018
Number
439,335
157,568
(65,325)
531,578
2017
Number
287,958
176,064
(24,687)
439,335
The movements in the weighted average exercise price of CSOP share options during the
period were as follows:
Outstanding, start of period
Granted during the period
Forfeited during the period
Outstanding, end of period
2018
£’000
1.68
2.30
1.68
1.86
2017
£’000
1.57
1.86
1.62
1.68
No options were exercised during the period.
Outstanding share options
Details of share options outstanding at the end of the period are as follows:
Weighted average exercise price (£)
Number of share options outstanding
Expected weighted average remaining life (years)
The contractual weighted average remaining life is 4.43 years.
The exercise price range is £1.68 to £2.30.
2018
1.86
531,598
4.43
2017
1.68
439,355
1.54
119
Financial statements continued
Notes to the financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
29 Share-based payments continued
Fair value of options granted
The weighted average fair value per TSR unit of options granted during the period at
measurement date was 37.2 pence.
The following table gives the assumptions applied to the options granted in the respective
periods shown. No assumption has been made to incorporate the effects of expected
early exercise. The main inputs are set out in the table below. The dates of grant of the
options were 21 March 2018. CSOP shares issued in previous periods did not have a
TSR performance measure.
Share price at date of grant (£)
Expected volatility (%)
Vesting period in years
Expected life of option in practice in years
Expected dividends, expressed as a dividend yield (%)
Risk-free interest rate (%)
Number of employees subject to option grant
Number of shares covered by option
21 March
2018
2.30
35.00
3.00
3.00
4.43
0.93
47
157,568
Volatility is a measure of the amount by which a price is expected to fluctuate during
a period. This is based on an historical analysis of the volatility of McColl’s total return to
shareholders as measured daily over a historic period commensurate with the remaining
performance period at date of grant.
Charge/credit arising from share-based payments
The total charge for the year for CSOP equity-settled share-based payments was £29,000
(2017: £43,000), of which £43,000 related to the reversal of prior year charge.
The carrying value of the liability arising from share-based payments was £14,000
(2017: £43,000).
30 Related party transactions
Only the Directors are deemed to be key management personnel. All transactions between
Directors and the Group are on an arm’s length basis and no period end balances have
arisen as a result of these transactions.
Salaries and other short-term employee benefits
Share-based payments
2018
£’000
1,917
29
1,946
2017
£’000
1,793
228
2,021
There were no material transactions or balances between the Group and its key
management personnel or members of their close family.
31 Subsequent events
Management have evaluated subsequent events through 19 February 2018, which is the date
the consolidated financial statements were available to be issued. There were no subsequent
events that required adjustment to or disclosure in the Group financial statements.
120 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Company balance sheet
for the 52 week period from 26 November 2017 to 25 November 2018
Company statement of changes in equity
for the 52 week period from 26 November 2017 to 25 November 2018
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Total current assets and net assets
Total assets
Shareholders’ equity
Equity share capital
Share premium account
Retained earnings1
Note
C4
C5
C6
C6
2018
£’000
77
77
49,088
49,088
49,165
115
12,580
36,470
49,165
2017
£’000
77
77
59,367
59,367
59,444
115
12,579
46,750
59,444
1
Included within retained earnings is profit of £1,583,000 (2017: £3,022,000).
These financial statements of McColl’s Retail Group plc, registered number 08783477,
were approved and authorised for issue by the Board of Directors on 17 February 2019.
Signed on behalf of the Board of Directors
Robbie Bell
Director
As at 27 November 2017
Shares issued
Profit for the period
Dividends paid
As at 25 November 2018
As at 28 November 2016
Profit for the period
Dividends paid
As at 26 November 2017
Called up
share
capital
£’000
115
–
–
–
115
Called up
share
capital
£’000
115
–
–
115
Share
premium
account
£’000
12,579
1
–
–
12,580
Share
premium
account
£’000
12,579
–
–
12,579
Profit
and loss
account
£’000
46,750
–
1,583
(11,863)
36,470
Profit
and loss
account
£’000
55,476
3,022
(11,748)
46,750
Total
£’000
59,444
1
1,583
(11,863)
49,165
Total
£’000
68,170
3,022
(11,748)
59,444
121
Financial statements continued
Notes to the Company financial statements
for the 52 week period ended 25 November 2018
C1. Basis of preparation
The Company’s financial period is the period from 27 November 2017 to 25 November 2018.
The parent company financial statements have been prepared in accordance with Financial
Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101) and the Companies Act
2006 (the ‘Act’). FRS 101 sets out a reduced disclosure framework for a ‘qualifying entity’ as
defined in the standard which addresses the financial reporting requirements and disclosure
exemptions in the individual financial statements of qualifying entities that otherwise apply
the recognition, measurement and disclosure requirements of EU-adopted IFRS.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions
available under that standard in relation to business combinations, financial instruments,
capital management, presentation of comparative information in respect of share capital,
tangible fixed assets and intangible assets, presentation of a cash flow statement and
related notes, standards not yet effective, impairment of assets, disclosures in respect
of the compensation of key management personnel and related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements of
McColl’s plc.
The parent company financial statements are prepared on a going concern basis as set
out in note 2 of the consolidated financial statements of the Group. The Directors have
taken advantage of the exemption available under section 408 of the Companies Act 2006
and not presented an income statement or a statement of comprehensive income for the
company alone.
A summary of the Company’s significant accounting policies is set out below.
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.
C3. Staff costs including Directors’ remuneration
The average number of employees (all Executive Directors of the Company) during the
financial year was three (2017: three).
The Schedule 5 requirements of SI 2008/410 for Executive Directors’ remuneration are included
within the Remuneration Report on pages 57 to 73.
C2. Significant accounting policies
Investments
Fixed asset investments are shown at cost less provision for impairment.
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.
C4. Investments
Shares in subsidiaries
Cost
Investments
25 November
2018
£’000
26 November
2017
£’000
77
77
The carrying value of the investment in subsidiary undertakings has been reviewed at
25 November 2018 and no impairment charge is required.
The following information relates to all UK subsidiary undertakings of the Group during
the period:
All subsidiaries are held by the Company unless stated. All subsidiaries are registered at the
same address as McColl’s Retail Group plc, except for those registered in Scotland, whose
registered address is Unit 11, The Avenue, Newton Mearns, Glasgow G77 6AA.
122 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
The following subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 25 November 2018. All the following subsidiaries
are included on the Group’s consolidated financial statements for the period.
The Group will guarantee the debts and liabilities of the below subsidiaries at the balance sheet date in accordance with section 479C of the Companies Act 2006.
All held by the Company unless stated
Name of company
Bracklands Limited*
Charnwait Management Limited*
Clark Retail Limited*
Dillons Stores Limited*
Forbouys Limited*
Key Food Stores Limited*
Lavells Limited*
Lewis Meeson Limited*
Marshell Group Limited*
Martin McColl Limited*
Martin McColl Retail Group Limited*
Martin Retail Group Limited*
Martin the Newsagent Limited*
NSS Newsagents Retail Limited*
Price Smashers Limited*
RS McColl (UK) Limited*
Smile Holdings Limited*
Smile Property Limited
Smile Stores Limited*
Thistledove Limited
TM Group Holdings Limited
TM Pension Trustees Limited*
TM Vending Limited*
Tog Limited*
* 100% held by a subsidiary undertaking.
Country of registration
(or incorporation)
and operation
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
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
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
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Property Co
Retail
Retailing
Retailing
Dormant
Intermediate Holding Co
Dormant
Dormant
Corporate activities
Retailing
Intermediate Holding Co
Retailing
Dormant
Dormant
Intermediate Holding Co
Dormant
Intermediate Holding Co
Dormant
Retailing
Intermediate Holding Co
Predecessor Holding Co
Dormant
Corporate Activities
Intermediate Holding Co
123
Financial statements continued
Notes to the Company financial statements continued
for the 52 week period from 27 November 2017 to 25 November 2018
C5. Trade and other receivables
Amounts owed by Group undertakings
C6. Authorised, issued and fully paid share capital
25 November
2018
£’000
26 November
2017
£’000
49,088
59,367
C7. Dividends paid and proposed
The Board has recommended a final dividend of 0.6 pence per share (2017: 6.9pence),
totalling £691,000, subject to shareholder approval at the Annual General Meeting to be held
on 3 April 2019. The final dividend will be paid on 6 June 2019 to those shareholders on the
register at the close of business on 26 April 2019. The payment of this dividend will not have any
tax consequences for the Group. The interim dividend, declared and paid, was 3.4 pence per
share (2017: 3.4p), totalling £3,916,000.
As at 27 November 2017
Issued during the period
As at 25 November 2018
Number
of shares
115,172,774
741
115,173,515
Share
capital
£’000
115
–
115
Share
premium
£’000
12,579
1
12,580
The Board has authorised the allotment of shares equal to the nominal value of £77,000.
All issued shares are fully paid.
The Group did not acquire any of its own shares for cancellation in the 52 weeks ending
25 November 2018 or 52 weeks ending 26 November 2017.
The shares rank equally for voting purposes. On a show of hands each shareholder has one
vote and on a poll each shareholder have 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.
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend of 6.9p (2017: 6.8p)
Interim for 2018: 3.4p (2017: 3.4p)
Dividends paid
Proposed for approval by shareholders at the AGM:
Final dividend for 2018: 0.6p (2017: 6.9p)
25 November
2018
£’000
26 November
2017
£’000
7,947
3,916
11,863
7,832
3,916
11,748
691
7,947
The proposed final dividend is subject to approval by shareholders passing a written resolution
and accordingly has not been included as a liability in these financial statements.
124 McColl’s Retail Group plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Glossary of terms
Introduction
In the reporting of financial information, the Directors have adopted various Alternative
Performance Measures (APMs) of financial performance, position or cash flows other than
those defined or specified under International Financial Reporting Standards (IFRS).
These measures are not defined by IFRS and therefore may not be directly comparable with
other companies’ APMs, including those in the Group’s industry.
APMs should be considered in addition to IFRS measures and are not intended to be a
substitute for IFRS measurements.
Purpose
The Directors believe that these APMs provide additional useful information on the underlying
performance and position of McColl’s.
APMs are also used to enhance the comparability of information between reporting periods
by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the
user in understanding McColl’s performance.
Consequently, APMs are used by the Directors and management for performance analysis,
planning, reporting and incentive-setting purposes and have remained consistent with
prior year.
The key APMs that the Group has focused on this period are as follows:
Like-for-like sales (LFL): This is a widely used indicator of a retailer’s current trading
performance and is a measure of growth in sales from stores that have been open for at least
a year.
Sales from stores that have traded throughout the whole of the current and prior periods, and
including VAT but excluding sales of fuel, lottery, mobile top-up, gift cards and travel tickets.
Adjusted EBITDA excluding property-related items: This profit measure shows the Group’s
Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for both property gains
and losses and other adjusting items.
Property gains and losses: Are incomes and costs that arise from events and transactions
in relation to the Group’s property and not from the principal activity of the Group,
i.e. that of an operator of convenience and newsagent stores.
Adjusting items: Relate to costs or incomes that derive from events or transactions that
fall within the normal activities of the Group but which, individually or, if of a similar type,
in aggregate, are excluded from the Group’s adjusted profit measures due to their size
and nature in order to reflect management’s view of the performance of the Group.
Adjusted operating profit: Operating profit before the impact of adjusting items
as explained above.
Adjusted earnings per share: Earnings per share before the impact of adjusting items.
125
Financial statements continued
Glossary of terms continued
APM
Income statement
Revenue measures
Closest equivalent
IFRS measure
Note reference
for reconciliation
Definition and purpose
Sales mix
No direct equivalent
Not applicable
The relative proportion or ratio of products sold compared to the same period in the prior year.
Like-for-like (LFL)
IFRS Revenue
£1,149m
Revenue YE17
£140m
Add VAT
Excl. non store rev. £(160)m
Excl. acq/closures £(45)m
£1,084m
LFL Sales 2017
£1,242m
Revenue 2018
£153m
Add VAT
Excl. non store rev. £(170)m
Excl. acq/closures £(156)m
£1,069m
LFL Sales 2018
(1.4)%
LFL%
Like-for-like is a measure of growth in Group sales from stores that have been open for at least a year (but
excludes prior year sales of stores closed during the year). It is a widely used indicator of a retailer’s current
trading performance and is important when comparing growth between retailers that have different profiles
of expansion, disposals and closures. It’s reported on an ‘including VAT’ basis, which aligns with the sales
measurement by the field and stores teams, whose focus is on the retail performance.
Profit measures
Adjusted EBITDA
Operating Profit
Note 6
Basic adjusted earnings
per share (EPS)
Diluted adjusted earnings
per share
Balance sheet measures
Net debt
Basic earnings per share
Note 9
Diluted earnings per share
Note 9
Borrowings less cash and
related hedges
Note 11
This profit measure shows the Group’s Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for
both property gains and losses and other adjusting items, in order to provide shareholders with a measure of true
underlying performance of the business.
This relates to profit after tax before adjusting items divided by the basic weighted average number of shares,
in order to provide shareholders with a measure of true underlying performance of the business.
The difference between basic and diluted metric is the impact of the dilutive effect of share options and
warrants in existence.
Net debt comprises bank and other borrowings, finance lease payables, and net interest receivables/
payables, offset by cash and cash equivalents and short-term investments. It is a useful measure of the progress
in generating cash and strengthening of the Group’s balance sheet position and is a measure widely used
by credit rating agencies.
Other
Capital expenditure (Capex): The additions to property, plant and equipment and
intangible assets.
Grocery lines: This includes ambient, fresh, frozen and household groceries, and food-to-go,
but excludes impulse categories (including confectionery, crisps and snacks, soft drinks and
ice cream), general merchandise, news and magazines, and services.
Quarter: The ‘first quarter’ refers to the 13-week period from 27 November 2017 to 25 February
2018, ‘second quarter’ refers to the 13-week period from 26 February 2018 to 27 May 2018,
‘third quarter’ refers to the 13-week period from 28 May 2018 to 26 August 2018 and ‘fourth
quarter’ refers to the 13-week period from 27 August to 25 November 2018.
126 McColl’s Retail Group plc Annual Report and Accounts 2018
Profits/(losses) arising on property-related items: This relates to the Group’s property
activities including: gains and losses on disposal of property assets, sale and lease back
of freehold interests; costs resulting from changes in the Group’s store portfolio, including
pre-opening and post-closure costs; and income/(charges) associated with impairment of
non-trading property and related onerous contracts. These items are disclosed separately
to clearly identify the impact of these items versus the other operating expenses related to
the core retail operations of the business. They can be one-time in nature and can have a
disproportionate impact on profit between reporting periods.
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: investor.relations@mccolls.co.uk
ISIN: GB00BJ3VW957
www.mccollsplc.co.uk/investor
Shareholder
information
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 auditor
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Company Secretary
Rachel Peat
McColl’s Retail Group plc
McColl’s House
Ashwells Road
Brentwood
Essex CM15 9ST
Registrar
Equniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone – UK: 0371 384 2030
from overseas, call +44 (0) 121 415 7047
Calls outside the United Kingdom will be charged at the
applicable international rate. Lines open 8.30am to 5.30pm,
Monday to Friday (excluding public holidays in England
and Wales)
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McColl’s Retail Group plc
McColl’s House
Ashwells Road
Brentwood
Essex
CM15 9ST
T: 01277 372916
www.mccollsplc.co.uk