Your favourite
Neighbourhood
shop
McColl’s Retail Group plc
Annual Report and Accounts 2019
a
Contents
Strategic report
Governance
Financial statements
IFC 2019 highlights
02 Chairman’s statement
04 Where we operate
06 What we offer
08 Chief Executive’s review
16 Market overview
20 Our business model
Resources and relationships
22
24 Our key performance indicators
25
30
36
40
Financial review
Sustainability review
Principal risks and uncertainties
EU Non-Financial reporting directive
41 Chairman’s governance statement
Leadership and Company purpose
42
46 Division of responsibilities
48 Composition, Succession
and Evaluation
52 Audit, Risk and Internal control
56
74
80 Directors’ responsibilities statement
Remuneration
Directors’ report
81
Independent Auditor’s report to the
members of McColl’s Retail Group plc
89 Consolidated income statement
Consolidated statement of
89
comprehensive income
90 Consolidated statement of
financial position
91 Consolidated statement of changes
in equity
91 Consolidated statement of cash flows
92 Notes to the financial statements
119 Company balance sheet
119 Company statement of changes
in equity
120 Notes to the Company
financial statements
123 Glossary of terms
IBC Contacts, addresses and
shareholder information
Stabilising
the business
Right product, right place,
right store
Capital discipline
building resilience
Highlights
Revenue
£1.2bn
–1.8% 2018
Adjusted gross profit*
£315.7m
–2.1% 2018
Adjusted EBITDA*
£32.1m
–8.2% 2018
Adjusted profit before tax*
£7.3m
–30.2% 2018
Adjusted earnings per share*
5.6p
–16.8% 2018
Net debt*
£94.1m
–4.5% 2018
Read more from our Chairman on
Pages 2 and 3
Read more about our Customer First
proposition on Pages 8 to 15
Read more from our CFO on
Pages 25 to 29
* The Group has defined and outlined the purpose
of its alternative performance measures, including
its key measures, in the glossary of terms on pages
123–124. Full details of adjusted EBITDA can be found
in note 6 on page 101.
McColl’s Retail Group plc Annual Report and Accounts 2019
“ We will become
‘your favourite
neighbourhood shop’
by making life easier. ”
Our business exists to make life easier for our customers,
colleagues and the communities we serve. This is our
purpose, it’s the reason our stores stand out in their
neighbourhoods, and it’s how we have built a reputation for
friendliness, helpfulness, speed of service and ease of shop.
We have re-focused on our customer proposition in 2019,
sharpening our strategy and reviewing our range of products
and services. We continue to refresh our stores and are
further developing our strong neighbourhood convenience
offer to meet the changing needs of customers.
1
Read more about our Customer First
proposition on Pages 8 to 15
Financial statementsGovernanceStrategic report Chairman’s statement
“ A year of
consolidation and
of strengthening
the team. ”
2 McColl’s Retail Group plc Annual Report and Accounts 2019
Stabilising the business
Dear shareholder
Following a challenging year in 2018, we have
rebuilt momentum in 2019 and focused our
efforts on preparing the business to maximise
the opportunities ahead.
Focus on customers, people and the
fundamentals of retail
Our Chief Executive, Jonathan Miller, and his
team were tested by the issues that affected our
supply chain throughout 2018. The residual effects
of the disruption, combined with weak consumer
confidence and political uncertainty, created
a challenging trading environment for McColl’s
as we entered 2019.
That’s why this year has been a year in which our
teams have worked hard to stabilise the business
and deliver sound retail execution. We have
renewed our focus on our customers, supported
our people and concentrated hard on the
fundamentals of retail, especially the areas that
are most important in the convenience sector.
With our distribution network now in a much better
place we can continue to make progress on
enhancing our offer.
The strenuous, and often meticulous, efforts we have
made in 2019 are helping us develop an optimal
range and promotional proposition that is beginning
to bear fruit. Whilst much hard work lies ahead,
I believe they will also provide a strong platform
for the future growth of McColl’s.
Continuing financial discipline
Good capital discipline and maintaining a flexible
balance sheet are the basis on which we build our
business, enabling us to explore opportunities to
invest sensibly for growth, while always looking to
take further action to reduce leverage.
Despite difficult conditions, the business achieved
level like-for-like sales, maintained gross margin
and generated reduced net debt. Our proposed
test stores with optimised range, display and
pricing and innovative food-to-go and last mile
delivery trials, are a small part of the overall picture
today, but have potential for driving sales growth,
as we expand our range of products and services
into new areas.
We continued to realise proceeds both from the
disposal of non-core assets, and from the sale
and leaseback of the remaining freeholds we
acquired as part of our acquisition in 2016. This has
helped us to meet our commitment to reducing
net debt, while investing in strategic initiatives
to drive future growth. We have also continued
with our store optimisation programme, acquiring
a small number of high-potential convenience
stores, while closing or disposing of smaller or less
efficient stores.
All of this has contributed to the strengthening of
our base this year, a crucial factor in our resilience
as a business and our ability to grow sustainably.
Having engaged with our banking syndicate in
the latter part of 2019, I am pleased to report that
significant progress has been made regarding the
renewal of the current debt facility, which will give
us more certainty and flexibility to execute our
strategic initiatives in 2020, and beyond.
Dividends
We always consider our cash allocation carefully,
balancing the need to invest in our technology,
people and the fabric of our stores, reduce our
debt and provide returns to shareholders.
Deleveraging the balance sheet is one of our key
priorities for 2020 so, in combination with a number
of cash management initiatives implemented by
the Executive team, the Board has taken the difficult
but prudent decision to suspend the final dividend
for the 2019 financial year. The Board recognises
that dividend payments are an important part
of the Group’s returns to shareholders and will
keep the dividend policy under review with the
aim of reinstating the payment of dividends at an
affordable and sustainable level, once our strategic
change programme gathers momentum and the
Group deleverages.
Organising for the future
I’d like to take this opportunity to thank all of our
people for their contributions this year – from the
Board, Jonathan and his team, through to all our
colleagues who either serve customers on the front
line, or make it easier for them to do that every day.
It’s been a great team effort, and I’m also delighted
to welcome two key appointments, who have not
only strengthened our executive team but have
been instrumental in invigorating our strategic drive.
Robbie Bell joined the Board as Chief Financial
Officer in January 2019, bringing his extensive
experience and expertise in finance and retail to
the business. Joining us in September 2019, Richard
Crampton is our new Chief Commercial Officer.
Richard brings extensive experience in convenience
and food retail and is already heavily engaged in
our evolving commercial strategy.
We have recently announced two further changes
to the Board. Sharon Brown, who has been Chair
of the Audit Committee for the last six years, has
announced her intention to step down in the
summer, and a search for her replacement is
at an advanced stage.
Dave Thomas, who has provided long and
valuable service to McColl’s, most recently as
Chief Operating Officer, has also announced his
intention to retire in April. As we move forwards, we
will continue to assess the suitability of the Board
structure, bolstering it with the relevant skill and
experience as and when necessary. I’d like to give
my thanks on behalf of the Board to both Sharon
and Dave for the immense contributions they have
made to McColl’s, and my own personal thanks
for the support they have given me throughout the
recent challenging times for the business.
Whilst Jonathan says more about organisational
changes to his team within his review, I’d like to
mention just one of those changes here. I am
delighted that Karen Bird, our Colleague Director,
has accepted a role which gives her additional
responsibility for Operations, and I am confident
that she will be able to draw on her extensive
operational experience at Tesco and elsewhere
to ensure we are organised for future success.
Looking forward
We approach 2020 with cautious optimism,
confident in the groundwork we have laid down
this year and ongoing reshaping of the business.
The convenience market continues to grow, and we
will compete for a greater share of that market, with
the momentum borne of improved product ranges,
new services and innovative store concepts.
Concerns remain over the impact of Brexit and
the uncertainty for businesses and consumers that
may arise during 2020 and beyond. However, the
food and grocery retail sector remains resilient to
economic downturn, while the long-term social and
lifestyle trends we see in the UK continue to support
growth in the convenience channel.
The Board remains committed to our strategy and
we will maintain focus on deleveraging, as we
position ourselves for growth in the coming years.
We will continue to improve the business and
forge ever greater links with the communities we
serve, as we strive to fulfil our ambition to become
everybody’s favourite neighbourhood shop.
Angus Porter
Chairman
3
Strategic reportGovernanceFinancial statements Where we operate
Serving people
where they live
Our network of convenience stores and
newsagents provides essential groceries
and services to 1,443 neighbourhoods
across the UK.
2011
47%
Convenience
2019
83%
Convenience
5
8
8
1,263
stores
5
7
6
24
4
1,443
stores
1
,
1
9
9
Convenience stores
Newsagents
4 McColl’s Retail Group plc Annual Report and Accounts 2019
Scotland
169 30
1,443
TOTAL STORES
North
West
207 23
North
East
71
8
Yorkshire
and Humber
115 10
East
Midlands
64 11
West
Midlands
66 30
East
of England
115 62
Wales
49
4
South
East
London
13
4
180 44
South West
150 18
Number of stores
0 – 100
101 – 200
200+
Convenience stores
Newsagents
Convenience stores
1,199
CONVENIENCE
STORES
McColl’s has a proud retail history that
can be traced back to 1901 when the
first RS McColl opened. However, our
move into the convenience sector came
just a quarter of a century ago, with
the launch of the Group’s first food-
based stores.
Through acquisitions and the conversion
of hundreds of our newsagents, we have
become a leading neighbourhood
retailer with 1,199 convenience stores
across the UK.
Refreshing our stores
During the year we refitted 23 stores,
including 10 under the Morrisons Daily
fascia. We now have 99 McColl’s Project
Refresh stores trading and they continue
to demonstrate sales uplifts.
This project has been on hold in the latter
part of the year, as we re-focus on what
we do best and concentrate on the
market segments our stores serve. We will
be trialling new concepts in 2020 that
could redefine our look and feel, range
of products and services, and the way
we interact with customers.
Morrisons Daily
During the first half of the year, we
converted ten of our stores to the
Morrisons Daily fascia, with ranges
that include Morrisons own-branded
products. We have had a positive
response from customers and as sales
have been encouraging, we have plans
to convert c20 more in the near term.
Newsagents
Our newsagents are branded Martin’s
across the UK, except in Scotland where we
operate under our heritage brand, RS McColl.
We are happy to continue to trade profitable
newsagent stores.
244NEWSAGENTS
5
Strategic reportGovernanceFinancial statements What we offer
Our vision is to
be your favourite
neighbourhood shop
Every community is different and so are our
stores. We apply consistent high standards
wherever we are, but we tailor local offers
to meet the needs of your neighbourhood.
We provide the groceries, food-to-go,
everyday essentials and useful services that
make your life easier and every day better.
See our business model
Page 20
“Whether our customers
need to grab breakfast
on the run, pick up an
item they’ve forgotten
or return a parcel they’ve
bought online, we’re on
their doorstep, and we’re
here to help.
”
6 McColl’s Retail Group plc Annual Report and Accounts 2019
Customer focus
Local
Our warm and friendly colleagues don’t just provide
excellent customer service every day, they play
a prominent role in their communities and are the
key to making McColl’s your neighbourhood’s
favourite shop.
We’re at the heart of our customers’
neighbourhoods, just minutes away or on their
way to work or school. And with long opening
hours, we’re the convenient choice at almost
any time of day.
26%
OF CUSTOMERS
VISIT US EVERY DAY
55%
OF CUSTOMERS LIVE OR
WORK WITHIN 400m OF
THEIR LOCAL McCOLL’S
Products
Everyday services
Communities
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. Our Safeway range offers
quality food at a price that makes it easier to
eat well.
So much more than local shops, our stores are
neighbourhood hubs – providing people with great
products and useful services, close to where they
live and available when they need them.
Our customers value the support we give to
communities around our stores. Our ‘Making
a Difference Locally’ programme has helped
hundreds of local organisations and good causes.
+3%
YEAR-ON-YEAR
INCREASE IN
FOOD-TO-GO SALES
612
POST OFFICES
£1m
TARGET
GREAT ORMOND ST
7
Strategic reportGovernanceFinancial statements Chief Executive’s review
Chief Executive’s review
Building foundations
for success
We have stabilised the business and re-focused
on retail execution in 2019. The market remains
highly competitive, with challenging trading
conditions, but we have made good progress while
maintaining strong capital discipline, reducing net
debt and making appropriate levels of investment.
This steady performance reflects a deliberately
calm year for McColl’s. A year in which we have
gone back to basics, focused on good retail
execution, and given the business a chance
to breathe. We have taken time to look at our
strategy and purpose, to understand our business
better and to improve our thinking around
improving and growing our convenience offer.
At the same time, I am immensely proud that
our store colleagues have continued to deliver
first class customer service, improving on almost
every metric in the annual HIM Convenience
2019 Report.
Period of stabilisation
The last few years have seen different pressures
on our business, with the acquisition of 298 shops
in 2016, their integration in 2017, and then supply
chain disruption in 2018. This meant that a period
of stabilisation was required, and I am encouraged
by the performance we have delivered this year,
as we regain greater operational stability, in what
has remained an uncertain economy.
Total revenue was slightly down primarily due
to closures and store divestments as part of our
continuing optimisation programme. LFL sales
were level in 2019, an improvement on the decline
seen in 2018, but were held back by the general
retail market slowdown over the summer, as the UK
experienced a prolonged period of poor weather
compared to the previous year’s long hot summer.
We also arrested the decline in margin, and
achieved strong cost control, broadly offsetting
inflationary pressures, including rent, wages and
general inflation.
8 McColl’s Retail Group plc Annual Report and Accounts 2019
Your favourite
neighbourhood shop
We have gone back to basics,
considered our identity and
differentiating factors, and
concluded that our purpose
is to make life easier for our
customers, communities
and colleagues.
OUR VISION
YOUR FAVOURITE
NEIGHBOURHOOD SHOP
OUR PURPOSE
We make life easier for our customers,
communities & colleagues
OUR MINDSET
Working together to deliver a great
customer experience
GREAT PLACE
GREAT PLACE
TO WORK
TO WORK
EASY TO RUN
STORES
CUSTOMERS
Heart
AT THE
OUR VALUES
STRONG CUSTOMER
OFFER
IMPROVING
OUR STORES
Simple &
Consistent
Customer
First
Caring &
Compassionate
Community
Champions
9
Strategic reportGovernanceFinancial statements Chief Executive’s review continued
Strengthening our team
To increase momentum in the business, we have
made some changes to the McColl’s leadership
team structure. We now have a smaller executive
team of four, who focus not just on delivering results
but also on long-term strategic direction, and, in
place of the previous Retail Board, we now have a
senior leadership team of 12 people who take more
responsibility for running the business and executing
our strategy.
Having brought in Robbie Bell, our highly
experienced Chief Financial Officer, back in
January, I was delighted to also welcome Richard
Crampton as our new Chief Commercial Officer in
September. Richard brings extensive experience in
convenience and food retail to our business, and
will play a key role in paving the way for our journey
in 2020 and beyond. After 23 years in the business,
Dave Thomas has stood down from his role as COO
and I am delighted that Karen Bird will now take on
operational management for stores in addition to
her responsibilities as Colleague Director.
Karen has extensive experience in senior
operational roles within the retail sector and will
be an invaluable leader as we navigate difficult
economic conditions whilst seeking to implement
operational, structural and cultural change within
our business.
These senior appointments are just a small part of
the new personnel coming into the business – we
have also recruited new people with excellent
technical experience to look at our range and
space models and property portfolio. This creates
a positive tension with long-term McColl’s people,
blending our established company experience with
new ideas and energy.
Strategic review
The new leadership team has taken the opportunity
during the year to fully review our strategy.
Our vision to be your favourite neighbourhood shop
remains unchanged, but our mind-set more than
ever needs to be focused on delivering a great
customer experience.
“We’ve gone back to basics,
focused on good retail
execution, and given the
business a chance
to breathe.
”
IMPROVING CUSTOMER SATISFACTION
Research shows that we are keeping shoppers
happy in the areas that matter most, and that we
are making progress year-on-year in most areas
of customer satisfaction.
When it comes to staff friendliness and helpfulness,
ease of shop, speed of service, and cleanliness
of our stores, we remain one of the leaders in the
convenience sector. We have also improved
our customer satisfaction scores in these areas
compared to last year, achieving scores between
9.1 and 9.4 in each of these critical areas (compared
to a range of 8.7 and 9.3 last year).
10 McColl’s Retail Group plc Annual Report and Accounts 2019
This is important, as we know that our shoppers
are typically most interested in the service they
receive from our people, the impact we have on
their community, and how clean our stores are.
They are also very keen to find a good range of
products, especially quality food products, that are
available when they need them. We were delighted
to see that our customer satisfaction scores in all
these areas, as well as value for money and prices,
increased significantly during the year.
We are therefore embarking on a medium-term
strategic change programme, centred on the
customer, and recognising the need to segment the
estate to better meet the needs of the communities
we serve. Our strategy is built on four key pillars;
strong customer offer, easy to run stores, improving
our stores and a great place to work.
Strong customer offer
Informed by better customer insight, we are
segmenting our stores by location, performance,
size and demographics, as we strengthen our
targeting of products, promotions and services to
local audiences and shopping missions. To support
these changes we have recently strengthened our
space, range and format team.
Our range reviews have already enhanced our
product offers and are helping us respond better
to customer needs. The full review of our beer and
cider range by the end of April saw an increase in
the number of lines and space allocated to growing
categories such as craft and world beers, resulting
in a significant improvement in our performance
in this category. With full reviews in soft drinks,
confectionery, wine and healthy snacks, and
several other categories completed by the end of
the year, I am delighted with the results and expect
to see continued uplifts in 2020 as we tackle the
remaining product categories.
As well as improving range, we will continue to
develop our offer using greater customer insight
to optimise our brand and value position. It’s early
days, but there are changes ahead on food-to-
go at many stores, with growing opportunities in
breakfast, coffee and hot food, and with the trial of
a new format launched in our new Coventry store.
Our recent trial with Uber Eats is another example
of how we are evolving to meet the needs of
today’s customers.
Strategic report
Governance
Financial statements
DEVELOPING
OUR POST OFFICE SERVICES
With the changing face of our
High Streets and local shopping
areas, the neighbourhood Post
Office provides an important
public service to the communities
we serve.
In some of our bigger shops, the
Post Office section occupies a larger
section of the store with a separate
counter, though we still offer some
counter services even when the main
Post Office section is closed.
We are proud to be part of our
communities, and we offer Post
Office services in more than 600 of
our stores, having added 20 outlets
in 2019. We are the Post Office’s
biggest partner and we run double
the number of Post Office outlets that
they run themselves.
Most of our Post Office counters simply
sit alongside our retail tills, but we
are typically open 6am-10pm, much
longer than a regular Post Office.
We are always working to improve the
services we offer in every area of our
business, exploring new formats and
making system changes to improve
our business model. This includes
integrating the Post Office system
with our own, to simplify the way we
work with them. We are also trialling
self-service Post Office counters, to
help drive more volume, as younger
people often choose this option in
preference to being served at a till.
11
UBER EATS TRIAL –
ATTRACTING
A DIFFERENT
DEMOGRAPHIC
Our store trial with Uber Eats has
already delivered interesting insight
and is driving new perceptions of
what we have to offer, especially for
a younger generation.
We have been trialling Uber Eats in
nine stores in late 2019 and, while
it is still early days, we have seen
an increase in sales and a change
to our typical customer base,
which is normally skewed towards
older customers, more used to the
convenience store ethos.
Offering Uber Eats is already helping us
to diversify our revenue streams, and
they also provide valuable market
intelligence on customers’ buying
habits. Getting the technology right
will be the key to our success with the
likes of Uber Eats, but we expect this to
become a significant opportunity as
we improve and expand the offer.
12 McColl’s Retail Group plc Annual Report and Accounts 2019
Easy to run stores
We made great progress during the year in
establishing a more stable distribution platform and
better on-shelf availability. We intend to continue to
refine our operating model to make our stores easier
to run and easier to shop, and have embarked on
an end-to-end review of ways of working across the
business but primarily focused on stores.
Increasingly, technology will be an enabler in
improving our operating model so that we can
use the hours we have to serve customers better.
We are investing in a new Electronic Point of
Sale (EPOS) system that will bring many benefits,
including making self-scanning a reality at our stores
in the near future. We will also be launching a new
Enterprise Resource Planning (ERP) software system
in 2020 to give us more visibility into performance.
In early 2020, we will be trialling new ideas on price,
range, brand, layout and cost to serve, using a
modified operating model in a small number of
stores that we believe will be simpler to operate.
We will be looking for quick wins that we can
rollout immediately, as well as medium-to long-
term benefits that can become part of our new
store model. We will adapt our ideas as we go
and use them to drive improvements across the
whole estate.
Improving our stores
Building the foundations for long-term success
means not only delivering on our purpose of making
life easier for our customers and colleagues, but
also optimising stores by continuing to improve the
quality of our estate. This work will continue into next
year, but we have made good progress and our
colleagues have already delivered against these
priorities in 2019.
We opened 10 new convenience stores this year,
relocating some existing stores to better sites, and
we will continue to explore opportunities to add
new stores in 2020.
We have also accelerated our store optimisation
programme for underperforming stores as we
continue to evolve towards a smaller, convenience
focused and more profitable estate, having closed
or sold 120 stores during the year.
In addition, the trial stores planned in 2020, as well
as testing our future operating model, will also
update our thinking for our future refit programme.
We still have 400-500 stores that require updating,
so there remains a positive refurbishment
opportunity ahead.
This year we completed 23 store refreshes in the
year, including ten stores as part of a trial of the
Morrisons Daily fascia. This trial is helping us with
range development and is also an opportunity
to explore the potential for this type of format.
Sales are strong, the response from customers
has been positive, and we are expanding into an
additional 20 stores to further evaluate.
85,000+
DELIVERIES A DAY
Life in our communities has changed
over the past few years and, while some
local services have declined due to a
lack of demand, there is still a vital need
for traditional services many people rely
on, close to where they live.
For example, we are unique in the current
marketplace, delivering more than 85,000
newspapers every day and accounting
for around 10% of the home newspaper
delivery market.
Undoubtedly though, the biggest change
has come with so many bank and building
society branches disappearing from our
high streets and communities. More than
3,000 branches closed between 2015 and
2019, with an average of 55 closing each
month. While this has been driven by a
decline in the use of physical branches,
many people and small businesses still rely
on local banking services.
This is a particular challenge in rural areas,
and in areas with higher populations of
elderly customers. The Post Office banking
services we provide offer people a lifeline,
allowing them to withdraw cash, check
their balance and pay cash and cheques
into their account.
OUR HALLOWEEN PROMOTION
OUTPERFORMED THE MARKET
Consumer interest in Halloween continues to
surge in the UK, providing a great opportunity for
convenience operators in particular to engage
with customers and increase spend in store.
This year, we undertook a more detailed analysis
of the market opportunity and this led to a
very deliberate and targeted approach to our
Halloween campaign. The promotion came off
the back of our successful ‘Big Night In’ Autumn
campaign and, based on our research, we
targeted confectionery, multipacks and sharing
bags to maximise the ‘trick or treat’ opportunity.
The outcome was encouraging. In terms of sales
growth, we outperformed the convenience sector
by 5.6%, proving that good forward planning and
market analysis can make a material difference
to the performance of our promotions.
13
5.6%
SALES OUT-
PERFORMANCE
Strategic reportGovernanceFinancial statements Great place to work
We fundamentally believe that the route to great
customer service is through our colleagues, ensuring
that they enjoy working with us and are engaged
with our plans for the business.
We have made fantastic progress with our plans
for colleagues during the year. We have launched
and embedded a new performance framework,
launched our six key leadership skills, developed
a model to identify and develop talent and
succession pipelines, as well as progressing with
our listening and responding plans, connecting
with our colleagues through various forums.
I am delighted that in our most recent engagement
survey 80% of respondents rated McColl’s as a great
place to work.
We will build on the successes of 2019 with a number
of new initiatives planned, with the aim of better
supporting our colleagues to do a great job, and
listening and responding to ensure that we are all
engaged in the future success of this great business.
Exciting times ahead
As we came into 2019, we recognised that the
business needed to change – that’s why we’ve
strengthened our management structures, hired
people into key roles, focused on our purpose
and sharpened our strategy. With the market
as competitive as ever, there will be challenges
ahead, but we are well positioned and confident
in our plans for long-term growth.
The convenience sector remains supportive, with
lifestyle changes underpinning growth forecasts
for at least the medium-term. Customers will
always need top-up shops and food-for-now and
later, while the convenience sector complements
online ordering.
NEW STORE FORMAT TRIALS
While 2019 has been mostly about
stabilising the business, we have
been looking hard at potential new
store formats and ideas that will
drive growth in the years ahead.
In Coventry we have been trialling a
‘Food-to-go’ store, offering a full over
the counter service for breakfast,
coffee, lunch, and ‘meals for tonight’.
Our customers don’t even have to
‘go’, as we have also provided seating
areas in the store.
We believe this is fulfilling a growing
demand, but it’s only Phase 1 of
our plans. We’re starting off small
to see what works. In the first half of
2020, we have lined up a few sites to
implement all of our latest thinking
on price, range, layout and cost-to-
serve that could lead to fundamental
changes in our store formats over time.
Any quick wins coming from the trial
stores will be rolled out immediately
across our estate, while other ideas
will shape McColl’s stores in the years
to come.
So, watch this space, the trials are
just beginning!
14 McColl’s Retail Group plc Annual Report and Accounts 2019
We will continue to reshape the business,
developing our strong neighbourhood convenience
offer to meet the changing needs of customers.
I am confident that by making life easier for our
customers, colleagues and their communities, and
by maintaining the cash generative and profitable
nature of our business, we will deliver sustainable
returns for shareholders over the long-term.
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 Officer
SOCIAL ENGAGEMENT
WITH OUR CUSTOMERS
We refreshed our customer website in 2019
and took to Twitter, Instagram and Facebook
in a big way, as part of a brand new social
engagement programme.
Engaging with our customers is something we do
every day, typically face-to-face in store, and our
colleagues up and down the country are very
good at it. 2019 saw us begin seriously to address
the opportunities with our online audience and
the people we could reach through social media
channels, which have become central to so many
of our lives.
From nothing at the start of the year, we now
have 20,000 followers on Twitter, Instagram and
Facebook, and our refreshed customer website
now attracts more than a million customers every
year. We are now actively using all these channels
to promote the business – with exciting competitions
and big brand promotions – and we are even using
it for new product development.
1M
VISITS EVERY
YEAR
15
Strategic reportGovernanceFinancial statements Market overview
Macro conditions
Economic outlook
UK GDP growth slowed materially in 2019 and at
the time of writing was expected to be flat in Q4.
Growth was dampened by slower global growth
and elevated Brexit-related uncertainties.
The UK economic outlook remains uncertain, with
the exit from the European Union in January and
a transition period due to conclude by the end of
2020 continuing to weigh.
Growth is expected to remain modest, although
overall business investment may improve as the
economic and political uncertainty recedes.
Higher government spending plans and short-term
tax cuts promised in the 2019 General Election may
also drive higher growth in the UK economy in 2020
and beyond.
GDP growth (% per annum)
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
2017
2018
2019
2020
Source: ONS, PwC economic outlook report.
16 McColl’s Retail Group plc Annual Report and Accounts 2019
Shoppers’ top personal economic concerns for the year ahead
88%
72%
Food prices
Energy bills
Petrol prices
No wage increase
48%
39%
Interest rates
28%
Tax and benefit changes
27%
Change in personal circumstance
28%
26%
Job insecurity
House prices
10%
Source: IGD Shopper Vista 2019.
Consumer concerns
remain a key factor
Consumer confidence remains subdued, with
concerns over job security, wage rises and energy
bills. While few consumers expect to be better
off financially in the year ahead, almost 90%
of shoppers expect food and grocery prices to
increase. As a consequence, people are becoming
increasingly cost conscious, but there is still an
acceptable premium in the sector for convenience.
A key trend developing within convenience,
possibly to offset weak consumer confidence, is the
rise of ‘meal occasions’. Whilst a third of shoppers
visit a fast food outlet on a monthly basis, and half
eat out at least once a month, 80% of shoppers are
eating food cooked at home daily. This ‘occasion’
shopping includes meals curated for dining in at
home, food ordered in for sharing, cooking from
scratch and food suggestions expertly matched
with a drink.
Managing any
Brexit risks
Despite the uncertainties that remain around the
impact of Brexit, the grocery sector is renowned for
withstanding economic pressures and consumers
often manage their budgets by shopping little
and often, locally, in stores like ours. That’s why
broader negative economic trends sometimes
offer benefits and opportunities in the convenience
market sector.
Changing shopping
habits in a highly
competitive sector
The grocery retail sector remains highly
competitive, with challenging trading conditions.
Traditional supermarkets are contracting, while
discounters, online and convenience are growing,
reflecting changes in the way people are choosing
to shop.
The exit from the European Union (EU) does present
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, and our sector could
be affected by a potential shortage of labour
if a restriction on free movement is imposed
following Brexit.
Consumers are shopping across channels, with
more doing their regular shop at the discounters
and online and then topping up in other channels.
Faced with increasing shopping choice, we are
seeing a return to ‘little and often’ shopping habits.
Shoppers are not buying any more, but they are
spending their cash at a broader set of stores,
across a larger number of trips.
However, any impacts should be minimal during
the transition period and it is expected that the UK
will have a deal in place with the EU by the end of
2020. Should this not happen, import tariffs under
a no-deal Brexit could be higher, increasing the
cost of goods, and import delays could mean short
shelf life products expire before they can reach
their destination. In this case, our principal suppliers
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.
Retail trading over summer 2019 was lower year-on-
year, and there was a slowdown in the second half
of the year, but we grew our market share, in part
through our ‘taste of summer’ promotion, which
focused on our fresh and frozen food categories.
“The convenience channel
”
is growing, with increased
demand for smaller and
more frequent trips.
17
Strategic reportGovernanceFinancial statements Market overview continued
Convenience trends
Shopping little and
often, locally
While the discounters have increased their product
ranges to attract more customers and online is often
favoured for big bulk orders, convenience shopping
has been one of the fastest growing channels in the
UK grocery market over the last five years. Longer life
expectancy, more single person households,
lengthy commutes and a greater emphasis on
leisure time are all lifestyle and societal trends that
have led to people choosing to shop little and
often, locally.
Total convenience sales grew by 2.7% in 2019,
driven across the sector by strong like-for-like
performance, better fresh and chilled ranges and
more competitive value. Forecasts from the Institute
of Grocery Distribution (IGD) suggest that the UK
convenience market is set to grow by £6.8bn in the
next five years, topping £48bn by 2024. With new
store openings over the period, this is expected to
fuel a compound annual growth rate of 3.1%.
Channel forecasts (Channel share %)
Supermarkets
2024
2019
Convenience
2024
2019
Discount1
2024
2019
Hypermarkets
£48.2bn (22.2%)
£41.4bn (21.4%)
£34.3bn (15.8%)
£24.5bn (12.6%)
£16.2bn (7.4%)
£16.3bn (8.4%)
2024
2019
Online
2024
£16.7bn (7.7%)
2019
£11.6bn (6.0%)
Other retailers2
2024
£9.4bn (4.3%)
2019
£9.8bn (5.1%)
£92.8bn (42.6%)
£90.0bn (46.5%)
Convenience sector
undergoing a period
of consolidation
The convenience channel remains highly
fragmented, with around 46,000 UK stores, almost
three-quarters of which are independently owned.
The number of stores has remained fairly static in
recent years and this trend is expected to continue,
with limited availability of new greenfield and
brownfield sites. However, there are opportunities
for consolidation, particularly for retailers with a
flexible operating model, looking to fine-tune the
store offering to a local market.
28% 72%
6%
9%
ti v e s
e r a
p
7%
ains and c o- o
ltiple c
11%
h
u
M
1%
38%
28%
e sses
u sin
S m a ll b
Source: IGD UK market and channel forecasts June 2019.
Unaffiliated independents
Multiples
1 ‘Discount’ includes all sales of Aldi, Lidl, and grocery only sales of the principal variety discounters.
2 ‘Other retailers’ including specialist food and drink retailers, CTNs, and the food sales of mainly non-food
retailers and street markets.
Symbol groups –
Independents
Symbol groups –
Multiples
Co-operatives
Forecourts – Independents
Forecourts – Multiples
Source: IGD Research, Wm Reed Business Media, Experian Catalist.
18 McColl’s Retail Group plc Annual Report and Accounts 2019
McColl’s addressing key trends
in convenience
Driving top-up
shopping
Technology enabling
convenience
• Automated payment solutions
• ‘Just walk-out’ technology
and frictionless stores
• Delivering on-demand and the last mile
• New innovative tailored formats
• Targeting new missions and
offering new solutions
• Modular convenience stores
• Convenient shopper-led merchandising
• Stronger frozen, prepared dishes
and food for later
• Non-food categories emerging
Going beyond
c-store retailing
Redefining
product range
Stronger
health focus
The traditional top-up shop is still the leading driver
of visits to our stores, with 54% of shoppers saying
that a top-up shop is the reason for their most
recent visit to a convenience store. That’s followed
by a rising trend in ‘food-to-go’ missions with 32%
of shoppers giving this is as their key reason for last
visiting a convenience store (up from 27% in 2018).
Location remains a key driver of top-up shopping,
but as retailers expand, develop and refine their
ranges, they are making more use of shopper data.
This indicates that a good choice of products and
the efficient use of space that makes the store quick
to shop are becoming increasingly important.
Older shoppers prefer a convenient location, while
younger shoppers tend to shop in convenience
stores because it’s quicker and easier. And with
the average shopper spending fewer than eight
minutes in a convenience store, it is vital they can
get what they need, as quickly as possible.
Top 5 reasons for last store trip
It is a convenient location
• Fresh-focused store concepts
81%
• Expanding health and wellness ranges
It was quicker/easier
• Responding to new health trends
52%
Better minimart
and local stores
• Urban local stores
• Community focused initiatives
• Serving wider community needs
It has good quality products
31%
It has good choice/availability
24%
It helps me to save money
8%
Source: IGD Shopper Vista 2019.
Source: IGD Shopper Vista 2019.
Attracting new
shoppers through
‘mission-based’ offers
Offers like lunchtime meal deals, coffee-to-go and
breakfast solutions are playing a bigger part in
convenience shopping and retailers are defining
‘missions’ that meet local customer needs and
create value for shoppers. Food-to-go and evening
meal solutions are growing categories as these are
two time-saving missions that are very popular with
younger customers.
Though it is declining, the traditional 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
is still the largest single product area, with its value
supported by ongoing manufacturer price rises
and duty increases, despite falling volumes.
Shopping missions claimed to be conducted on
shoppers’ last convenience store visit
Food-to-go
Top-up shop
Health
and
beauty
Non-food
Tobacco/
news/lottery
Main
shop
Evening
meal
Source: IGD Shopper Vista 2019. Scale of circles indicates proportion of
shopping missions conducted.
19
Strategic reportGovernanceFinancial statements Our business model
Our vision is to become your
favourite neighbourhood shop
by delivering on our purpose of
making life easier for our customers,
communities and colleagues.
1. The resources and
relationships we need
Colleagues
Our colleagues are central to our vision to become your
neighbourhood’s favourite shop and we do everything
we can to make McColl’s a great place to work.
Stores
We directly manage all of our 1,443 stores across the UK (1,199
convenience stores and 244 newsagents). We make them easy
to run, easy to shop at and ensure strong retail standards.
2. How we manage
our supply chain
We have a long-term partnership with
Morrisons. They supply c.1,180 of our
convenience stores and newsagents with
a range of branded products as well as
an ‘own label’ range of fresh food and
groceries under the Safeway brand.
by
Our business model is underpinned
by our core values:
Partners and suppliers
To run our stores efficiently we need a strong relationship
with our supply partners.
Simple and
consistent
Customer
first
Caring and
compassionate
Community
champions
20 McColl’s Retail Group plc Annual Report and Accounts 2019
Brand and reputation
McColl’s has been part of communities for more
than 100 years. As the business evolves, our brand
and reputation help our customers understand what
we can do for them.
IT systems
Our information systems are crucial to the smooth and
efficient running of our business, and we continue to invest
to ensure they are fit for the future.
Robust financials
We maintain strong capital discipline and a resilient
balance sheet to invest in our strategic plans.
We buy from wholesale distributors, which
means we do not have the investment and
working capital costs associated with a
distribution network of our own. This gives
us greater flexibility and allows us to focus
on our retail operations.
Nisa supply 263 of the convenience stores
that we acquired in 2016. These stores will
transition to Morrisons supply over time.
3. What makes us a leading
neighbourhood retailer
55%
of our customers
live within 400m
of our stores
o c a l
L
t h e h e a r t
g a t
o u r h o o d s means
e i n
h e c o n v e nient
b
h
e i g
e ’r e t
c u s t o mers.
e f o r
w
o i c
h
c
Customer
First
c.400
Safeway products
26%
of customers visit
our stores every day
B
o f n
ns.
s, fresh
als
o,
riety of
-to-g
e
y m
d missio
d
o
o
f
d
e
a
p
e
r
a
v
e
d
w
a
i
r
r
p
o
f
n
a
s
d
e
e
n
rie
e
c
o
r
g
d
n
a
d
o
o
d
a
e
r
,
s
e
b
a
l
t
e
g
e
v
f
l
a
s
t
c
u
d
o
r
P
i
t
n
e
d
n
s
a
y
l
r
e
h
t
s
a
r
e
m
e
c
r
f
o
t
s
e
u
c.3,100
products in a typical
convenience store
s
d
e
t
i
u
w
c
n
h
t
i
r
f
a
W
c
O
o
ll
e
ur w
C
u
n
a
s
h
g
b
u
o
eig
e
r
vic
arm and friend l y
fi rst, providing the excellen t
es put our custom e r s
e they expect from the i r
urhood’s favourite sho p.
stomer focus
9.4
On average customers
rate us 9.4 out of 10 for
colleague friendliness/
helpfulness
7 days
Our stores are open
seven days a week
736
Collect+ points and
Amazon lockers
O
Eve
ur store
s
vidin
a
r
r
e
pro
useful s
n
y
d
a
g
n
y
e
e
e
r
v
i
d
t
g
r
e
i
g
e
s
c
a
h
h
e
t
b
e
1,026
ATMs
t
h
e
s
,
m
p
o
r
u
r
e
w
o
r
y
a
h
d
h
v
li
n
e
u
o
i
v
d
n
c
o
e
.
w
p
t
s
d
c
h
e
a
h
e
o
r
e
p
l
n
d
e
u
b
s
–
e
s
612
Post Offices
h
c
u
y
b
r
a
e
s
s
ard
nitie
w m
eir n
ork h
u
W e k n o w ho
m unitie
m
aro und our stores.
p le v alue th
m
p a n d we w
o
p ort the c
o
o
s h
t o s u
p
e
m
o
p
C
£1m
3-year fundraising
target for Great
Ormond Street
4. The value
this creates
Customers
We provide essential services, fresh
food and grocery products for
millions of people.
Colleagues
We look after our colleagues so that
they can look after our customers.
Social
We are an integral part of our
communities and support a wide range
of local organisations and a national
good cause.
Economic
We invest for long-term growth,
helping our suppliers and the wider
economy prosper.
Shareholder returns
We are committed to delivering
long-term value to shareholders.
Margins
We are committed to strengthening
our sales mix to reduce our reliance on
traditional low margin categories and
drive improvements in our gross margin.
5m
customers
every week
>90%
enjoy working
at McColl’s
£1m
fundraising target
for Great Ormond St
Hospital Charity
£14.4m
gross capital
expenditure
1.3p
full year dividends
25.9%
gross margin
Cash generation
As a cash generative business, we manage our
debt and invest strategically. In 2019, our net
cash benefited from proceeds from sale and
leaseback transactions.
£20m
Net cash from
operating activities
21
Strategic reportGovernanceFinancial statements
Resources and relationships
Solid foundations for a successful business
Our colleagues
Our stores
Central to our vision to become your favourite
neighbourhood shop
Many of our colleagues live locally to our stores
and this helps them understand the needs of
our customers. They have a strong sense of
community and customers consistently rate us
highly on colleague friendliness and helpfulness – for
example, they scored us 9.4 out of 10 on average in
the HIM! Convenience Tracking Programme 2019.
Easy to run, easy to shop and with strong
retail standards
In many of our locations, McColl’s is the only shop,
so we fulfil an important role for local people.
We like being where people live, and more than half
of our customers walk to our stores. We offer them
a wide range of products and services while our
consistency and professionalism set us apart from
the independent retailers we mostly compete with.
Of course, excellent customer service is a
cornerstone of our success and we can only deliver
this through the hard work and dedication of our
colleagues. We had 18,652 people in total at the
end of 2019, including more than 4,900 Home News
Deliverers. Altogether, and accounting for part-time
working patterns in the business, we employ the
equivalent of 7,483 full-time colleagues.
We conduct an annual colleague survey and an
interim ‘pulse’ survey, which enables colleagues to
share their views on working for McColl’s. The surveys
also help us identify things we need to improve on.
In 2019, more than 90% of our people said that they
enjoy their job and over 80% would recommend
McColl’s as a great place to work.
Our scale means we can focus on the fabric of our
estate. We are moving towards more preventative
solutions, rather than just reactive maintenance.
For example, linking fridges up to the internet can
generate real-time reports when a fault develops.
It’s all about making our stores easier to run, which in
turn will make them easier to shop.
We are also working on stronger store segmentation
– by location, performance, size, demographics
and what is nearby. This is helping us define the
key ‘missions’ for each store, identifying our hyper-
local stores, our commuter-route stores and others.
We can then fine tune them and optimise our range
of products and services for our customers.
ENSURING OUR
COLLEAGUES’ AND
CUSTOMERS’ SAFETY
We have a duty of care to understand and
address the risks within the business to ensure
that, as far as is practically possible, we keep
our colleagues and customers safe at all
times. Where there are incidents, we examine
the circumstances and learn lessons from
what has occurred so that we can continually
improve our approach to safety.
22 McColl’s Retail Group plc Annual Report and Accounts 2019
Our partners
and suppliers
Our brand
and reputation
Strong relationships with our supply partners
Our distribution arrangements with
Morrisons are now almost two years in.
Morrisons brought huge retail experience to our
business which complements our understanding of
the convenience sector.
We are developing greater mutual understanding
with Morrisons of their role and what we need from
them. We also launched Morrisons Daily in 2019,
ten stores run by us on behalf of Morrisons, which is
an appealing format to customers and sales have
been strong.
We have supply agreements directly with large fast
moving consumer goods (FMCG) manufacturers like
Mars and Coke, and a large number of the stores
acquired in 2016 continue to receive their wholesale
supplies from Nisa. In 2020, we will have high level
meetings with all our key suppliers to share best
practice and seek further improvements.
Part of communities for more than 100 years
It all began in 1901, when the famous Scottish
footballer Robert Smyth McColl opened the first
RS McColl store in Glasgow. However, the Group
as it exists today was founded in 1973, starting out
as a vending business before moving into food retail,
newsagents and convenience. Within 25 years,
McColl’s had become the largest independent
neighbourhood retailer in the UK.
By the time the Group successfully floated on the
London Stock Exchange in 2014, we had acquired
a strong reputation for providing great products and
value, when our customers need them – close to
where they live. We have developed into a business
of real scale, operating in the growing convenience
grocery sector, with a clear and considered strategy
for long-term success. As the business continues
to evolve, we will build on our strong brand and
reputation to help customers understand what we
can do for them and how we can fulfil their daily
shopping ‘missions’.
Our IT systems
Investing to ensure we are fit for the future
Improving our operating model is a big priority
for McColl’s, so that we can use the hours we
have to serve our customers better. We are using
technology to make our model more efficient and
this will lead to more profits as well as investment in
further improvements across the business.
Our new EPOS platform, which will rollout in 2020,
brings new process efficiencies and will enable self-
scanning tills at our stores. It is designed to be much
faster and much more reliable, and will make our
stores easier to run. For example, when a colleague
is using a till, they currently have to log on and log
off, but our new tills will use fingerprint recognition.
We also plan to have a new end-to-end enterprise
resource planning (ERP) software system in place
in 2020. This will give us more visibility of stock,
as well as better information and metrics for
our commercial teams. The new ERP will be the
foundation for many technology improvements over
the coming years, including a more efficient store
ordering system.
23
Strategic reportGovernanceFinancial statements Our key performance indicators
Progress in 2019
We have a range of key
performance indicators (KPIs) by
which we assess our performance.
The Board monitors these KPIs
on a regular basis, to ensure
that our strategic objectives are
being achieved. To ensure our
management’s focus is aligned
with our shareholders, our KPIs
are reflected in their remuneration
through our management
incentive schemes.
We keep our KPIs under review to
ensure they remain appropriate and
align with our strategic goals.
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 123–124.
2 Full details of adjusted EBITDA can be found in note 6 on page 101.
24 McColl’s Retail Group plc Annual Report and Accounts 2019
Financial KPIs
Revenue
£1.22bn
-1.8% vs 2018
Like-for-like sales1
0.0%
2018: -1.4%
2019
2018
£1.22bn
£1.24bn
-1.4%
2019 0.0%
2018
2017
+0.1%
2017
Relevance
Growing our business efficiently is
fundamental to our business model.
£1.15bn
Relevance
This is an important measure of
underlying performance
Performance
Total revenue was down by 1.8%, reflecting
store closures and divestments as we progress
our store optimisation programme.
Performance
Despite weaker summer trading and lower
consumer confidence, like-for-like sales
performance was stable, after the decline
in 2018.
Adjusted EBITDA1,2
£32.1m
-8.2% vs 2018
2019
2018
£32.1m
£35.0m
Adjusted earnings per share
5.6p
-16.8% vs 2018
2019
2018
5.6 pence
6.7 pence
Adjusted gross profit margin
25.9%
2018: 26.0%
2019
2018
25.9%
26.0%
Relevance
Recovering gross margin following
the supply chain disruption in 2018 is a
cornerstone to our recovery.
Performance
Gross margin was broadly level on last
year, having improved in H2 due to self
help initiatives and working closely with
our suppliers.
Average basket size
£6.28
+4.8% vs 2018
2019
2018
£6.28
£5.99
2017
Relevance
Recovering profitability is a foundation for
long term success.
£44.0m
2017
Relevance
An important measure of the underlying
earnings capacity of the business.
18.3 pence
2017
Relevance
Illustrates how much our customers are
spending with us.
£5.02
Performance
Lower revenues, resulting from softer market
conditions and store closures, were partly
offset by improving gross margins in H2.
Performance
Adjusted earnings per share decreased
to 5.6 pence reflecting the lower profit
year-on-year.
Performance
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.
Financial review
Our financial priorities in 2019 included
strengthening our balance sheet, improving
working capital, rebuilding gross margin, mitigating
cost inflation and further optimising our estate.
While there remain a number of challenges,
we have demonstrated our resilience this year
with a robust underlying performance.
Building capital
resilience
Solid revenue performance
Full year revenue was down by 1.8% to £1.22bn
(2018: £1.24bn) primarily driven by the closure or
divestment of 120 under-performing newsagents
and smaller convenience stores as part of our store
optimisation programme.
LFL sales performance was level in the year (2018:
–1.4%), with LFL growth affected in the summer
months in particular as the whole sector suffered
from strong year-on-year comparatives coupled
with colder weather this year and lower consumer
confidence. This was a relatively good performance
and a recovery from 2018 levels which were
impacted by the collapse of Palmer & Harvey.
Tobacco continues to perform strongly, benefitting
from inflation as a result of manufacturer and duty
rises. Other traditional categories such as news and
confectionery, where we still over-index as a result
of our heritage, continue to steadily decline and
impact LFL sales.
LFL sales were supported by good growth in
beers, wines and spirits, where our performance is
improving following our range review in the first half
of the year; soft drinks, which have been helped
by some great innovation as well as inflation; and
food-to-go, which remains a small category for
McColl’s but has great potential to grow as we
continue to extend our offer.
Gross profit margin stabilised
Gross margin before adjusting items1 was broadly
level at 25.9% (2018: 26.0%). Margin improved in the
second half, year on year, as we continue to make
progress, both through self-help initiatives such as
improved promotional investment planning, and
by working together with Morrisons. As in previous
years, profit delivery was weighted towards the
second half of the year due to the seasonal
sales mix, and further supported by year-on-year
margin improvement.
In terms of overall value, adjusted gross profit fell
by 2.1% to £315.7m (2018: £322.5m) reflecting the
decline in total sales.
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 123–124.
25
Strategic reportGovernanceFinancial statements Financial review continued
Adjusted gross profit1
£315.7m
-2.1% 2018
2019
2018
2017
£315.7m
£322.5m
£307.4m
Net cash from operating activities
£20.0m
£61.8m 2018
Net debt1
£94.1m
£98.6m 2018
Net debt/adjusted EBITDA ratio1
2.9x
2.8x 2018
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 123–124.
26 McColl’s Retail Group plc Annual Report and Accounts 2019
Summary Income Statement
£’000
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Profits/(losses) arising on property-related
items
Operating profit/(loss)
Adjusted
2019
£m
Adjusted
2018
£m
%
change
Statutory
2019
£m
Statutory
2018
£m
%
change
1,218,700
(902,968)
315,732
1,241,539
(919,003)
322,536
(1.8)% 1,218,700
(1.7)% (902,968)
(2.1)%
315,732
1,241,539
(920,431)
321,108
(306,684)
6,255
39
(311,442)
6,811
416
(1.5)% (406,489)
(8.2)%
6,255
(90.6)%
(5,938)
(318,560)
6,811
6,525
(1.8)%
(1.9)%
(1.7)%
+27.6%
(8.2)%
n/a
15,342
18,321
(16.3)% (90,440)
15,884
n/a
Net finance costs
Profit/(loss) before tax
(8,043)
7,299
(7,859)
10,462
+2.3%
(8,203)
(30.2)% (98,643)
(8,017)
7,867
+2.3%
n/a
Earnings/(loss) per share
5.55p
6.67p
(12.1)% (83.30)p
5.95p
n/a
Good cost control mitigates cost pressures
and wage inflation
Although we experienced a number of cost
pressures and wage inflation was a challenge
during the year, our administrative expenses fell
year-on-year as a result of good cost control and
the impact of our store optimisation programme.
The business was focused on mitigating the National
Living Wage driven inflation of around 5%, while
further head-winds came from the additional rent
as a consequence of our sale and lease back
programme (£3m in total). Adjusted administrative
expenses as a percentage of revenue remained
broadly flat at 25.2% (2018: 25.1%).
With continuing cost pressures, we will keep our
estate under review to ensure that we maintain
a sustainably profitable network of stores. We are
improving the quality of the estate through both
the acquisition of high potential convenience stores
and the planned closure or disposal of under-
performing stores. During the year, we acquired 10
convenience stores and closed or disposed of 120
newsagents and smaller convenience stores.
We are pleased with the implementation of the
store optimisation strategy so far, moving away
from low margin newsagents and focusing on
convenience and the more efficient newsagents.
EBITDA (adjusted)
Adjusted EBITDA decreased to £32.1m
(2018: £35.0m), reflecting the softer market
conditions in the second half reducing revenue for
the year, despite the recovering gross margin rate in
H2. The adjusted EBITDA margin of 2.6% (2018: 2.8%)
has been broadly maintained due to the good cost
control measures in place.
Interest and tax
Net finance costs before adjusting items increased
slightly year-on-year to £8.0m (2018: £7.9m) reflecting
slighter higher interest rate, partly offset by a
reduction in the term loan.
The tax credit for the year was £2.7m (2018: £1.0m
charge). The comparable effective tax rate in 2019
excluding the impact of non-deductible adjusting
items was 12.4% (2018 26.6%). The difference
between this and the current statutory rate of
19.0% in the period is due principally to goodwill
impairment which had limited tax relief.
Adjusting items
Adjusted operating profit (see note 5 for definition)
decreased to £15.3m (2018: £18.3m).
After adjusting items, the Company
incurred a statutory operating loss of £90.4m
(2018: £15.9m profit).
In total there were £105.8m of adjusting items within
the statutory operating loss for 2019.
The most significant item was a one-off, non-
cash goodwill impairment charge of £98.6m.
In accordance with IAS 36 we have performed
an annual impairment review of goodwill, and
the write-down was required following a rebasing
of financial projections, based on lower (albeit
improving) underlying gross margin, National Living
Wage and retail cost inflation pressures.
Other small adjusting items within administrative
expenses includes £0.2m of professional fees
relating to a health and safety breach, £0.4m
relating to an old asbestos claim and £0.6m relating
to business reorganisation.
Net property-related adjusting items of £6.0m
included £9.2m of costs associated with closures
and impairment and a net gain of £3.3m in property
profits from the final tranche of sale and leaseback
transactions arising from the major acquisition in
2017. 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 net debt.
Finance costs relating to the store closures included
within adjusting items were £0.2m.
Before adjusting items, profit before tax was £7.3m
(2018: £10.5m). After adjusting items, loss before tax
was £98.6m (2018: profit of £7.9m).
“We will keep our estate
under review to ensure that
we maintain a sustainably
profitable network of
stores.
”
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 123–124.
27
Strategic reportGovernanceFinancial statements Financial review continued
Financial review continued
CONSTANTLY INVESTING
IN THE ESTATE
• We are working towards a higher quality,
more efficient estate
• We continue to invest in the estate through
refreshes and acquisitions
• Closed or sold 100+ underperforming
newsagents and smaller convenience stores
• Efficient use of capital to maximise profit
• Removal of old and inefficient equipment
28 McColl’s Retail Group plc Annual Report and Accounts 2019
Earnings per share
Basic losses per share was 83.3 pence (2018:
earnings 6.0 pence). Adjusted basic earnings per
share were 5.6 pence (2018: 6.7 pence).
Balance sheet and net debt
Total shareholder funds at the end of the year
were £38.7m (2018: £141.5m). The book value of
non-current assets fell by £112.5m to £246.9m
(2018: £359.3m), reflecting the goodwill and store
asset impairment, completion of our sale and
leaseback programme and divestment or closure
of underperforming stores.
Current assets at the end of the period increased to
£163.4m (2018: £150.3m) as a result of a net increase
in stock and trade receivables, plus an increase in
cash and cash equivalents of £8.5m.
As explained in note 32 of the financial statements,
the management team has undertaken a
review of certain balance sheet classifications.
The 2018 balance sheet has been restated for
errors in two areas. Firstly, £10m of the term loan
has been disclosed as a current liability in line
with the term loan agreement and repayment
schedule. Secondly, a £2.6m accrual previously
classified against the carrying value of inventory
has been reclassified as a current liability.
Neither reclassification has any impact on the
statement of comprehensive income or total
shareholder funds as reported in the prior year.
Current liabilities decreased to £229.3m
(2018: £233.4m), reflecting lower trade and
other payables, borrowings, tax and provisions.
Non-current liabilities increased to £142.3m
(2018: £134.7m) due to increased loans and
borrowings, payables and provisions.
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 123–124.
Net debt (total borrowings less cash and cash
equivalents) at the end of the year was £94.1m
(2018: £98.6m). The business remains focused on
working capital and cash management to reduce
business leverage, with a number of initiatives
currently underway. At the end of the year our net
debt to EBITDA ratio was 2.9x on a rolling 12-month
basis, with a two-year target to be at or below 2.0x.
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 in the two
defined benefit pension schemes operated by the
Group decreased to £7.9m (2018: £11.9m).
The last actuarial review of the two schemes in June
2017 concluded that the combined funding deficit
was £12.6m, and the Group currently contributes
approximately £2.1m per year, inclusive of fees
and levies.
Cash flow and capital expenditure
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. Cash generation continues to support
this investment, while continuing to reduce net
debt levels.
Gross capital expenditure was £14.4m (2018:
£19.7m). Net capital expenditure, including property
proceeds from the sale and leaseback of freehold
properties, reduced to £2.9m (2018: £7.7m inflow).
Interest paid is slightly lower at £7.4m, due to a
reduction in the term loan, offset by a slighter
higher interest rate on last year. The interim and
final dividends paid in the period totalled £2.2m
(2018: £11.9m).
Banking facilities
The current banking facilities mature in July 2021, so
I am pleased to report that supportive discussions
with our bank syndicate to amend and extend
certain of the terms therein are well advanced and
we expect to announce shortly. See the Directors
Report for a further explanation of going concern in
relation to the facilities agreement.
Financial outlook
We will continue to develop our customer
proposition to leverage our brand recognition
within the growing convenience sector. This will be
combined with an equal focus on cost mitigation
and cash generation; with the combined strategy
to produce a growing customer proposition with a
healthy and robust balance sheet and debt level.
I am very much looking forward to working with
Jonathan and the team to further our strategic
plans in 2020 and beyond.
Net cash provided by operating activities in the year
was £20.0m (2018: £61.8m), with the prior year seeing
a one-off cash flow benefit from the inception of
improved payment terms immediately following our
transition to a new wholesale supplier.
Robbie Bell
Chief Financial Officer
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 123–124.
29
Strategic reportGovernanceFinancial statements Sustainability review
Being a good neighbour
We are committed to operating
responsibly and being a good
neighbour to our customers
and communities – that means
managing our environmental
impact, supporting local people
and organisations, and looking
after our colleagues.
£1M
FUNDING TARGET
OVER 3 YEARS
OUR NEW COMPANY CHARITY
GREAT ORMOND STREET HOSPITAL
We think it’s important to give back to the communities
that we live and work in, and one of the ways we do that
is by adopting charities that make a difference to our
customers’ lives.
In November 2019, we began local fundraising for Great
Ormond Street Hospital Charity (GOSH). Our target is to raise
£1m to support parent/family accommodation at the hospital,
which helps people stay close to their children when they are
undergoing treatment there.
We chose GOSH because the hospital means something to
people all around the country, as children from all parts of the
UK go there for specialist treatment. Some of our Executive
team have visited the hospital to see first-hand the great
work they do there. Our Chief Executive, Jonathan Miller, has
also been appointed to the Great Ormond Street Corporate
Partnerships Board.
30 McColl’s Retail Group plc Annual Report and Accounts 2019
Our communities matter
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 make a really positive impact on a
local area. But our role goes way beyond being
a neighbourhood retailer.
Making a difference locally
Selected stores actively support their local
communities through Nisa’s ‘Making a Difference
Locally’ scheme, where a proportion of the sales
we make on selected products are donated to a
local charity fund. Through this scheme, we have
supported more than 500 local organisations,
charities and good causes, each chosen by the
local store, including scout groups, schools, hospitals
and local charities.
This year, we have also appointed a new campaign
charity – Great Ormond Street Hospital Charity
(GOSH). Fundraising began in November, and
our people have already raised over £150,000.
The children’s hospital takes patients from all over
the UK and there are parents up and down the
country who have a connection to GOSH who are
involved in the fundraising with our stores.
The money raised will go to refurbish McColl’s House
at the hospital, where parents can stay when their
children are there for treatment. We have organised
a variety of fundraising and awareness events.
Rewarding and recognising our people
We know how important it is that colleagues
feel valued and are recognised for their hard
work. Once again, we celebrated outstanding
contributions from a number of our store colleagues
at our annual awards evening.
We offer a range of benefits for colleagues as well
as flexible working opportunities. These range from
colleague discounts in our stores to health care
plans and a wide range of offers on days out and
experiences. We also encourage involvement in our
strategic performance through the operation of a
performance-related bonus scheme for more than
100 senior employees and provide an incentive for
retail colleagues through an active sales scheme
that means they can earn a bonus each period.
We are our people
We want all our colleagues to feel they are a vital
part of McColl’s. They make us who we are as a
business and build strong relationships between
us and their customers. That’s why engaging with
our people, ensuring they have every opportunity
to learn and develop, and keeping them safe
and healthy at work is really important. They enjoy
working for us and we listen to their views when
making decisions that affect them.
Listening to our colleagues
We hold regular business briefings and senior
manager meetings that give colleagues an
opportunity to ask questions and give us feedback.
We use these briefings, our annual retail exhibition
and our colleague magazine to keep them up-to-
date on our business strategy and performance, as
well as the broader financial or economic factors
that may affect us all.
Through our annual colleague survey and an interim
‘pulse’ survey, colleagues can share their views on
working for McColl’s, helping us identify things we
need to improve on. Our new colleague forums
also allow us to engage with 250 colleagues on a
deeper level to understand any issues or concerns
they may have and gain more insight into the data
behind our colleague survey.
Supporting our people’s development
We invest in our colleagues throughout their careers
at McColl’s, helping them develop the skills they
need to do their job and to progress. Our ‘onward
and upward’ development programme focuses
on some of the key roles within the business our
people could move to. We also have a process
called ‘talking performance’ that makes it easier
for us to have effective conversations and support
colleagues’ individual performance.
We have a good track record of promoting
colleagues – 62% of Store Manager vacancies are
filled internally, 48% of our Area Managers were
promoted from store management and 70% of
our Regional Managers were 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 in supporting local people
and younger people into work. We also operate
a successful apprenticeship programme, with 148
colleagues currently enrolled on the programme.
Our performance framework helps us identify
individuals who have the potential to broaden their
skills and move to more senior roles. Also, to ensure
our leaders have the right skills to do their job, all
managers are offered coaching in our six leadership
skills; empathy, collaboration, results focus, leading
change, developing yourself and others, and
customer focus.
31
Strategic reportGovernanceFinancial statements Sustainability review continued
Gender diversity (based on actual year-end headcount)
Board of Directors
Male 5
Female 2
29%
71%
Senior managers – Directors and managers
Male 49
60%
Female 32
40%
Store managers
Male 649
46%
Female 753
54%
All colleagues*
Male 5,191
34%
Female 10,118
66%
* excluding home delivery network employees under the age of 16.
“We have taken action
to ensure talented
women progress at
McColl’s, including a
review of our flexible
working policy.
”
32 McColl’s Retail Group plc Annual Report and Accounts 2019
Valuing 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
also apply to the way all colleagues treat visitors,
customers, suppliers and former colleagues.
If a colleague develops a disability while employed
by us, we consider the matter carefully and try
to accommodate their needs. 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.
Closing the gender pay gap
In line with current legislation, we show the difference
in the average pay between men and women
across the entire business, regardless of job role.
66% of our colleagues are women and we are very
pleased to report that our gender pay gap, when
calculated on a median rank order basis, is now
0% (2018: 2.7%), confirming that men and women
are paid the same salary for fulfilling the same role
at McColl’s. Our gender pay gap calculated on
a mean basis was 13.6% (the UK average gender
pay gap is 17.3% – ONS, 2019), reflecting a higher
weighting of men in supervisory/managerial roles.
We have taken action to ensure talented women
progress at McColl’s, including a review of our
flexible working policy with the aim of providing more
options for working parents and instilling an inclusive
culture. Our Women at McColl’s programme is
designed to develop the skills and confidence in
women who have the potential to move to more
senior roles. There has been a significant increase
over the period of females in managerial grades
demonstrating that our actions have been effective.
Our leadership team and senior managers have all
completed unconscious bias training.
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.
Focus on health and safety
Our commitment to health and safety starts from
the top and all Senior Leadership Team Directors
and Senior Operations Managers have completed
nationally recognised training in health and safety.
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.
This committee, comprising Executives and Senior
Management, along with the Health and Safety
Manager, manage and monitor all health and
safety initiatives.
As a food-led convenience business, food safety is
a priority. Our ‘strive for five’ programme is designed
to drive a consistent standard of food excellence
across all stores and our field management
teams have all completed nationally recognised
qualifications in food safety.
Of course, colleague safety remains a key focus
and we continue to invest in technology that
will protect our people across key locations.
For example, we have worked with two partners,
SoloProtect and Positive Response, to install lone
working devices, and train colleagues to use them.
These devices have panic alarms connected to
monitoring centres with audio capability and offer
an enhanced police response.
We have a partnership with Kingdom Services
to provide guarding cover to some of our more
vulnerable stores; and we link up with other
retailers and the Police through our partnership
with National Business Crime Solutions, allowing
intelligence to be shared quickly and efficiently.
We also work closely with insurers, brokers and
local authorities to improve our risk management.
Although there are inevitably incidents and
accidents across a large estate of stores like ours,
by increasing proactive risk management in stores
and the level of compliance across our business, we
have seen a reduction in both employee and public
liability claims in recent years.
Commitment to human rights
We treat people in line with internationally
recognised human rights principles. While the
Group does not have a specific human rights
policy, we do have a number of policies in place
that demonstrate the effective management of
human rights issues in the business. These include
our Anti-Bribery and Anti-Corruption Policy, our
Anti-Harassment and Bullying Policy, our 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 2019/20
(pursuant to section 54 of the Modern Slavery Act
2015) can be found at www.mccollsplc.co.uk/
modernslaverystatement.
SATISFYING OUR COMMUNITIES’ NEEDS
McColl’s ‘neighbourhood’ ethos is at the core
of our purpose to make life easier for our
customers, colleagues and the communities
we serve.
Our colleagues take pride in knowing our
customers by name and this all adds to the
way we differentiate our stores and build a
competitive advantage. Around half of our
customers live within 400 metres of our shops and
most of our colleagues live in the surrounding
area. This helps us drive customer loyalty and
footfall, becoming another reason for people to
come into our stores.
Beyond the products we sell, we are the ‘best-
in-class’ for the services we offer and our list of
services is endless: from click and collect and
Amazon lockers; to Uber Eats and Subways; to
bill payments and other Post Office services; to
magazine and newspaper deliveries. There’s
something for everyone, and we’re adding more
services all the time.
That’s why, when you look at the customer
satisfaction surveys that are published each year,
McColl’s is always somewhere near the top.
33
Strategic reportGovernanceFinancial statements Sustainability review continued
Protecting the environment
Taking a responsible approach to the environment
is not an add-on for our business, we aim to act in
a sustainable way at all times, driving efficiency,
reducing waste and improving our recycling.
Improving our energy efficiency
Our ongoing commitment to improving energy
efficiency has helped us to reduce our energy
consumption, despite further increases in our
overall chilled and frozen space during the year.
This is helped during store refits by replacing
older refrigeration units with new, more efficient
models that can offer up to a 20% reduction
in consumption.
Some of our stores now have live energy monitors,
so we can see how much energy they use in real
time and actively manage them accordingly.
We have also invested in our building energy
management systems to give us greater control of
our energy use at site level and, by understanding
our most energy intensive sites, we can make
targeted investments in energy-efficient technology.
We continue to remove surplus and inefficient
equipment 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.
We are working closely with trusted energy
consultants and partners to reduce our energy
use. These include our three-year SMART services
programme with BIU, a leading energy and utility
consultancy, giving us access to their experts and
extensive data to identify opportunities across
the estate to drive efficiency. We 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 an efficient
way to recycle packaging, though we are looking
at new ways for our stores and head office to
recycle everything and are also considering brand
selections that better meet environmental concerns.
Food waste
The way we manage waste is a key metric for all
our Store Managers. In particular, our regular waste
management routines ensure that we maintain very
low levels of food waste and always seek to reuse,
give away or distribute it instead.
We conduct weekly reviews of food waste that have
resulted in a number of different actions, including:
a move to smaller case sizes; changes to our
ordering algorithms; reviews of product quality and
pricing; changes to product pack sizes; reducing
or even delisting of particular products; and store
training to improve waste routines such as stock
rotation and mark-downs.
Reducing single-use plastics
In line with wider moves across the retail sector,
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.
Climate change
We recognise the risk that climate change poses to
our business and manage this by reducing carbon
emissions throughout our operations.
Carbon reduction
We continue to invest in carbon reduction initiatives,
including the installation of LED lighting and energy-
efficient refrigeration. We achieved a 17% reduction
in carbon emissions in 2019.
Our overall carbon emissions were 40,027 tonnes
CO2 (2018: 48,033 tonnes CO2) as we reduced
the size of our estate footprint. Scope 1 emissions
reduced to 6,056 tonnes, with improvement in both
fuel combustion and refrigerants and Scope 2
emissions, purchased electricity, reduced to 33,971.
Our carbon intensity ratio, which measures the level
of emissions per £100,000 of revenue, reduced to
3.3, down from 3.9 in 2018.
The Group’s total greenhouse gas (GHG) footprint
is shown in the table below:
Greenhouse Gas Emissions 2018–2019
The Group is required to measure and report direct
and indirect greenhouse gas (GHG) emissions
pursuant to the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013.
This is the sixth 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.
The Group’s total GHG footprint, in line with section
7 of the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013, is shown in
the table below.
34 McColl’s Retail Group plc Annual Report and Accounts 2019
• The Group has reported on all the measured
emissions sources required under the Companies
Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013;
• The Group has used the guidance as set out in
DEFRA’s Environmental Reporting Guidelines:
including mandatory greenhouse gas emissions
reporting guidance, dated June 2013;
• Emission factors are based upon UK Government
conversion factors for Company Reporting 2019
(the year in which the majority of emissions
occurred). The electricity emissions are influenced
favourably by a reduced emission factor for
electricity in 2019, reflecting the UK’s continued
growth in the use of renewable energy in the
overall electricity generation mix;
• The Group has engaged a consultancy firm,
The Miles Consultancy (TMC), 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 2019 emission factors for diesel and petrol
(bio-fuel blends);
• 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;
• The figures disclosed below for 2018-9 and the
methodology used to collate the information has
been reviewed by Project Rome Ltd;
Data reported in 2019 includes Scope 1 and 2 emissions for the period 26 November 2018 to 24 November 2019.
2014
(Base Year)
2015**
2016**
2017**
2018**
Tonnes CO2(e)
Tonnes
CO2(e)
Tonnes
CO2(e)
Tonnes
CO2(e)
Tonnes
CO2(e)
2,125
2,122
4,247
1,931
2,733
4,664
2,268
2,897
5,165
2,357
4,569
6,926
2,460
4,401
6,861
2019
Tonnes
CO2(e)
1,859
4,197
6,056
51,884
56,131
49,945
54,609
46,151
51,316
46,725
53,651
41,172
48,033
33,971
40,027
6.1
5.9
5.4
4.7
3.9
3.3
Scope 1
Fuel combustion (natural gas,
vehicle fuels and other fuels)
Refrigerants
Total
Scope 2
Purchased Electricity
Total Scope 1 and 2 Emissions
Intensity – CO2e tonnes per £100,000
of revenue
* 2014 data is presented as the base year.
** We have also included the 2015, 2016, 2017 and 2018 reporting numbers for trend comparison.
• The emissions relating to the consumption of
electricity in the reporting period are significantly
lower than those reported in 2017-8 as a result
of reduced electricity consumption (11% as
a result of closure of some stores and energy
efficiency projects). The reported emissions also
reflect the significant (10%) reduction in the
emission factor for UK electricity generation
in the reporting period;
• Transport fuel data has been collated from
information received from the Group’s fleet
management consultant TMC, and 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 used utilises
annual leakage rates as set out in Appendix C
of the Environmental Reporting Guidelines for
mandatory greenhouse gas emissions applying
the Screening Methodology;
• Refrigerant emissions have reduced marginally
this year as a result of disposal of some properties,
and retrofiting refrigerant equipment with lower
global warming potential, and
• Despite no material change in the statutory
turnover of the business in the current fiscal
year the Group’s reduction in carbon intensity
has again been positive as a result of reduced
emissions across utilities, refrigeration and travel.
35
Strategic reportGovernanceFinancial statements
Principal risks and uncertainties
How we identify and manage risk
It is essential that we take a
proactive approach to matters
that could threaten the successful
delivery of either our short- or
long-term goals. Like all businesses,
McColl’s is exposed to internal
and external factors which can
affect its performance, positively
or negatively.
Our risk framework seeks to identify such threats,
quantify how likely it is they will occur, and
determine how significant their impact could
be. It also identifies any mitigating actions that
can be applied to reduce the likelihood and
impact to a level that is acceptable to the Board.
The effectiveness of these actions is monitored to
ensure that they deliver the intended outcomes.
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.
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 the 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, as well as the
protection of our assets. At Group level, we consider
a wide range of factors when assessing the main
threats to our business, such as customer trends,
competition, economic conditions, regulatory
developments, technological issues, counterparty
security and financial matters.
Risk ownership
Following identification of a risk, responsibility
for management of that risk is clearly defined.
This applies equally 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.
36 McColl’s Retail Group plc Annual Report and Accounts 2019
Risk appetite and risk policies
The Board, guided by the Audit & Risk Committee,
considers the risks facing the business and the
level of risk that can be accepted in pursuit of
the Group’s 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. Fostering an appropriate
risk culture is a vital component of the Board’s risk
related responsibilities.
The McColl’s values, adopted in 2017, are:
Simple and
consistent
Customer
first
Caring and
compassionate
Community
champions
These have been incorporated into our risk-related
policies, and other policies, over the last two years.
The Board determines its risk appetite and the
strategy that can be delivered within acceptable
risk parameters, taking into account the threats
faced and the extent to which they have been
reduced, eliminated or transferred. 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, whether operational or strategic, are reported
to the Group Health, Safety and Compliance
Committee. The Committee, comprising the
Executive team, Senior Managers from across
the business, the Health & Safety Manager
and the Company Secretary, brings together
senior representatives from all areas 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 Senior Leadership Team, which
has responsibility for supporting the Executive team,
led by 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 to
ensure that the risk management framework is
appropriately understood by colleagues and
embedded throughout the business.
Risk management structure
Our risk framework is supported by the risk management structure
detailed below:
Board
Executive Team
Audit & Risk Committee
Senior Leadership Team
Health, Safety and
Compliance Committee
Functional Areas
Colleagues
External support
and expertise
37
Strategic reportGovernanceFinancial statements Principal risks and uncertainties continued
The risk management processes
described above are continual and
risks evolve over time. At present,
the Board, with the assistance
of the Audit & Risk Committee,
considers the following to be the
principal risks facing the Group.
The risks are not intended to be
an exhaustive list. Information
Technology, Regulation and Supply
Chain Transition were previously
identified as principal risks, whilst
they are still considered as areas of
potential risks, taking into account
mitigating factors, the Board no
longer categorises these areas as
principal risks.
Maintained
Increased
38 McColl’s Retail Group plc Annual Report and Accounts 2019
Area
Risk
Customer proposition
Competitive supply
chain partner
Operating model and cost
efficiency challenges
Customer shopping habits are influenced
by a wide range of factors and are
constantly evolving. If we do not respond
to their changing needs, with internal
processes and resource allocated
appropriately to adapt in terms of offer,
price, range and availability – they are
more likely to shop with a competitor,
resulting in falling revenues.
We rely on a small number of key
distributors and may be adversely affected
by uncompetitive pricing or processes
and procedures being unable to support
customer innovation, range development
or have agility in customer responsiveness
We have a high operational cost base,
consisting primarily of wages (impacted
by the National Living Wage), property
rental and energy costs. Increases in
these costs without a corresponding
increase in revenues could adversely
impact our profitability.
Availability of funding/cash
Strategic vision
Macroeconomic factors
Customer trends
Crime/colleague welfare
The main financial risks are the availability
If the Board either adopts the wrong
All our revenue is generated in the UK.
We operate in a competitive
We need to provide and maintain a safe
of short- and long-term funding to meet
strategy or does not implement its strategy
Any deterioration in the UK economy,
environment, which is continually
environment for our colleagues and
business needs, fluctuations in interest rates,
effectively business performance and
for example as a consequence of Brexit,
changing and has been subject to
customers. Failure to do so restricts the
movements in energy prices and other
reputation may suffer.
could affect consumer spending and cost
ongoing consolidation. Failure to maintain
ability to recruit new colleagues and
post-Brexit impacts.
of goods, which in turn would impact our
market share could have an adverse effect
impacts negatively to the willingness of
sales and profitability.
on our core business.
customers to frequent our stores.
Mitigation
• Significant insight and tracking of
• We establish long-term relationships
• We continually seek to remove
• We produce daily cash forecasts
• Our strategic development is led by
• We sell food and household essentials
• We monitor competitor activity,
• We monitor, on a weekly basis
with trusted suppliers
• Joint business plans are developed
with our key partners
• We look for opportunities to work closer
with our key partners, to unlock areas
of business benefit; such as ‘implants’
within our commercial department to
collaboratively develop promotional
and range strategies
• We monitor the financial stability of
key partners
customer habits, convenience channel
trends and utilising supply base to
understand trends and innovations
• Review of promotional programmes
to assess effectiveness, convenience
sector trends and how best to offer
customers good value
• Our strong customer service standards,
delivered through our store colleagues
are reflected in our evolving
brand strategy
• We are building our presence in
social media to better engage
with customers
• A Format, Space and Range team has
been established to review customer
journey segments, and how optimally
to align the proposition
unnecessary complexity from our
operational procedures to optimise
performance; whilst engaging external
review of our operating model to
identify opportunities
• We review options to deploy
technology to further simplify and
reduce cost from our operating model
• 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, including a full maintenance
strategy review
• We minimise energy costs by
combining energy efficiency initiatives
and forward purchasing
• We retender external contracts to
ensure they remain market-competitive
• We have an ongoing programme
of estate optimisation to remove
unprofitable and marginal stores
covering at least the next three periods
an experienced Board, Executive and
which are considered to be less
customer trends and feedback
• We work with our banking syndicate,
with regular communication
to manage our funding and
leverage position
Senior Leadership Team
discretionary than other competing
• An annual strategic review takes place
spend areas
• Regular meetings are held with key
suppliers to discuss evolving trends and
• Stores are categorised by security
alongside our budget-setting process
• We offer a wide range of services, such
options to optimise our offer
• The McColl’s strategy is widely
• The existing bank facilities (due to
communicated and understood across
expire in July 2021) have been subject
the business
to early engagement with our lenders,
and discussions are well advanced to
amend and extend
• Business plans are developed,
monitored and reviewed against
strategic KPIs with a newly created
as post office and ‘last mile’ internet
package collection/delivery which
helps sustain footfall
• The majority of stores are local area,
community based, with lower exposure
to high street footfall
• There is a full working capital initiative
Programme Management function
• Our flexible business model allows us
in place, to bolster the cash position,
to operationalise
through review of stock levels and
supplier terms
• Senior Management are incentivised
with performance-related rewards to
our ranges
to respond to changes in customer
behaviour, for example, by adapting
• The programme of estate optimisation
deliver our strategic goals
targets a level of proceeds, from the
sale of stores to further improve the
cash position
• The freehold Head Office has recently
been subject to an approved
application to convert to housing,
resulting in a successful sale to release
cash proceeds; a relocation to a
leased Head Office is scheduled for
the summer
• 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
has undertaken significant planning
pre-Brexit (including becoming an
authorised economic operator)
• Our supply chain partner, Morrisons,
format development
key incidents concerning
colleague welfare
and safety risk, with measures
deployed accordingly; ranging from
physical security to internal asset
protection devices
• The internal Risk Committee meets
regularly, and specifically considers
colleague safety and available
options to provide heightened
assurance to colleagues and deter
anti-social behaviour in our stores
are considered by the Group Health,
Safety & Compliance Committee to
further enhance safety and security,
ranging from ‘staff safe’ audio
connectivity to ‘staff cam’ visual
recording deterrents
• Customer awareness programmes
combine both local and
national initiatives, supported by
digital marketing
• The format and customer feel for our
estate is developed through defined
store trials, encapsulating latest
internal and external thinking on our
brand credentials
through our supply partners are
deployed in store to differentiate
our offer
• We operate, as part of our ongoing
strategic development a test and
learn approach to new customer
initiatives, to assess options for
• Supermarket grade product, accessed
• Latest technological advancements
Area
Customer proposition
Competitive supply
Operating model and cost
Availability of funding/cash
Strategic vision
Macroeconomic factors
Customer trends
Crime/colleague welfare
chain partner
efficiency challenges
Risk
Customer shopping habits are influenced
We rely on a small number of key
We have a high operational cost base,
by a wide range of factors and are
distributors and may be adversely affected
consisting primarily of wages (impacted
constantly evolving. If we do not respond
by uncompetitive pricing or processes
by the National Living Wage), property
to their changing needs, with internal
and procedures being unable to support
rental and energy costs. Increases in
processes and resource allocated
customer innovation, range development
these costs without a corresponding
appropriately to adapt in terms of offer,
or have agility in customer responsiveness
increase in revenues could adversely
impact our profitability.
price, range and availability – they are
more likely to shop with a competitor,
resulting in falling revenues.
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.
If the Board either adopts the wrong
strategy or does not implement its strategy
effectively business performance and
reputation may suffer.
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 operate in a 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.
We need to provide and maintain a safe
environment for our colleagues and
customers. Failure to do so restricts the
ability to recruit new colleagues and
impacts negatively to the willingness of
customers to frequent our stores.
Mitigation
• Significant insight and tracking of
• We establish long-term relationships
• We continually seek to remove
• We produce daily cash forecasts
• Our strategic development is led by
• We sell food and household essentials
customer habits, convenience channel
with trusted suppliers
• Joint business plans are developed
with our key partners
unnecessary complexity from our
operational procedures to optimise
performance; whilst engaging external
review of our operating model to
• We look for opportunities to work closer
identify opportunities
with our key partners, to unlock areas
of business benefit; such as ‘implants’
within our commercial department to
• We review options to deploy
technology to further simplify and
reduce cost from our operating model
• Our strong customer service standards,
collaboratively develop promotional
delivered through our store colleagues
and range strategies
• We monitor legislation and
• We monitor the financial stability of
key partners
trends and utilising supply base to
understand trends and innovations
• Review of promotional programmes
to assess effectiveness, convenience
sector trends and how best to offer
customers good value
are reflected in our evolving
brand strategy
• We are building our presence in
social media to better engage
with customers
• A Format, Space and Range team has
been established to review customer
journey segments, and how optimally
to align the proposition
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, including a full maintenance
strategy review
• We minimise energy costs by
combining energy efficiency initiatives
and forward purchasing
• We retender external contracts to
ensure they remain market-competitive
• We have an ongoing programme
of estate optimisation to remove
unprofitable and marginal stores
covering at least the next three periods
• We work with our banking syndicate,
an experienced Board, Executive and
Senior Leadership Team
• 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 with a newly created
Programme Management function
to operationalise
• Senior Management are incentivised
with performance-related rewards to
deliver our strategic goals
with regular communication
to manage our funding and
leverage position
• The existing bank facilities (due to
expire in July 2021) have been subject
to early engagement with our lenders,
and discussions are well advanced to
amend and extend
• There is a full working capital initiative
in place, to bolster the cash position,
through review of stock levels and
supplier terms
• The programme of estate optimisation
targets a level of proceeds, from the
sale of stores to further improve the
cash position
• The freehold Head Office has recently
been subject to an approved
application to convert to housing,
resulting in a successful sale to release
cash proceeds; a relocation to a
leased Head Office is scheduled for
the summer
which are considered to be less
discretionary than other competing
spend areas
• We offer a wide range of services, such
as post office and ‘last mile’ internet
package collection/delivery which
helps sustain footfall
• The majority of stores are local area,
community based, with lower exposure
to high street footfall
• 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
• Our supply chain partner, Morrisons,
has undertaken significant planning
pre-Brexit (including becoming an
authorised economic operator)
• We monitor competitor activity,
customer trends and feedback
• Regular meetings are held with key
suppliers to discuss evolving trends and
options to optimise our offer
• Customer awareness programmes
combine both local and
national initiatives, supported by
digital marketing
• The format and customer feel for our
estate is developed through defined
store trials, encapsulating latest
internal and external thinking on our
brand credentials
• Supermarket grade product, accessed
through our supply partners are
deployed in store to differentiate
our offer
• We operate, as part of our ongoing
strategic development a test and
learn approach to new customer
initiatives, to assess options for
format development
• We monitor, on a weekly basis
key incidents concerning
colleague welfare
• Stores are categorised by security
and safety risk, with measures
deployed accordingly; ranging from
physical security to internal asset
protection devices
• The internal Risk Committee meets
regularly, and specifically considers
colleague safety and available
options to provide heightened
assurance to colleagues and deter
anti-social behaviour in our stores
• Latest technological advancements
are considered by the Group Health,
Safety & Compliance Committee to
further enhance safety and security,
ranging from ‘staff safe’ audio
connectivity to ‘staff cam’ visual
recording deterrents
39
Strategic reportGovernanceFinancial statements EU Non-Financial reporting directive
Strategic report
Governance
Financial statements
• We operate corporate policies in these
• The Group has already integrated non-
areas, which comply with or exceed legal
and regulatory requirements in our markets.
• Good employee relations are a vital part of
our business. We prioritise these through our
policies and engagement, development
and recognition programmes.
• We discuss each of these areas in the
Resources and Relationships sections of this
report on pages 22 and 23.
financial inputs and outputs into its business
model and strategic planning. This is
discussed further in the business model on
pages 20 and 21.
• Non-financial risks are routinely considered
by the Audit & Risk Committee, and are
disclosed where deemed material in the
‘How we identify and manage risk’ section
on pages 36 to 39.
• KPIs are monitored by the Group and are
described on page 24.
Environmental, social and
employee related matters
Business model, policies,
principal risks, KPIs
Human rights and anti-bribery
related matters
Diversity policy and approach
• We discuss our approach to Human Rights,
which is not deemed a material issue for
the Group.
• The Group operates anti-bribery policies
which support compliance with the UK
Bribery Act.
• These are discussed further on page 33.
• We discuss our approach to diversity on
page 32.
• The Board places great importance on the
positive benefits that diversity of experience,
background and viewpoints can bring and is
supportive of the objectives of the Hampton-
Alexander review and other reviews
on diversity.
• Policies and initiatives are operated
throughout the business and these will be
monitored to assess progress.
40 McColl’s Retail Group plc Annual Report and Accounts 2019
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
Non-Executive Chairman
Chairman’s governance statement
“ My fellow Directors and
I remain committed to
ensuring the governance and
leadership of the business
are effective in allowing
McColl’s to succeed as a
grocery convenience retailer. ”
As a Board we are mindful of supporting and
promoting the McColl’s values, taking the lead on
incorporating these values into our work:
Compliance with the
UK Corporate Governance Code
• Customer first
• Simple and consistent
• Caring and compassionate
• Community champions
As reported last year, the Company will be reporting
against the UK Corporate Governance Code
published by the FRC in July 2018 for the financial
period ending November 2020. The Board is again
reporting against the 2016 Corporate Governance
Code, although where practical is aligning content
to recognise the new Code.
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.
Approved by the Board and signed on its behalf:
Angus Porter
Non-Executive Chairman
Leadership and Company purpose
(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 42 to 45
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 46 to 47
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 48 to 51
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 52 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 57 to 73
41
Financial statementsStrategic reportGovernance Leadership and Company purpose
Board of Directors
1
Angus Porter
Non-Executive Chairman 2, 3
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.
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: Angus is Co-Chairman of Direct
Wines Ltd and a Non-Executive Director of Hilton Food
Group plc.
Other directorships: Robbie is a Non-Executive
Director and Chair of the Audit Committee of UP
Global Sourcing Holdings plc.
2
Jonathan Miller
Chief Executive 3
2
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.
Board Changes
It was announced on 27 January 2020 that,
after 23 years with the Company, Dave Thomas,
Chief Operating Officer, has confirmed his
intention to stand down from his role and also
from the Board. He will remain available in a
consultative capacity until 6 April 2020.
It was announced in October 2019 that Sharon
Brown will be stepping down from the Board in
the summer of 2020.
As reported last year, Simon Fuller left the
business on 22 February 2019 following a period
of handover to his successor, Robbie Bell, who
succeeded him as Chief Financial Officer on
17 January 2019.
42 McColl’s Retail Group plc Annual Report and Accounts 2019
1
3
4
6
5
4
Georgina Harvey
Senior Independent
Director1, 2, 3
5
Sharon Brown
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: 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
of Celtic plc, BMO Capital and Income Investment Trust
plc, European Opportunities Trust PLC and The Baillie
Gifford Japan Trust PLC. She is also a Non-Executive
Director of a number of limited companies 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. She was also a
Non-executive Director of William Hill PLC.
Other directorships: Georgina is also an Independent
Non-Executive Director of Big Yellow Group PLC,
Superdry plc and Capita plc.
6
Jens Hofma
Independent Non-Executive
Director1, 2, 3
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.
43
Financial statementsStrategic reportGovernance Leadership and Company purpose continued
Executive management
The Executive team, under
Jonathan Miller’s leadership,
is ambitious in its vision,
responsible in its management,
cohesive in its leadership and
effective in its delivery.
1
Karen Bird
Colleague & Operations Director
2
Richard Crampton
Chief Commercial Officer
Current appointment: Karen was appointed
Colleague and Operations Director in January 2020,
having joined as Colleague Director in 2016.
Experience: Karen has extensive experience in
convenience and food retail. Prior to joining McColl’s
she had over 20 years experience with Tesco in both
HR and Operational roles, including leading significant
change programmes.
Current appointment: Richard joined as Chief
Commercial Officer in September 2019.
Experience: Richard has extensive experience in
convenience and food retail. He was Managing
Director of the Buying Group at the Co-op from 2015
to 2019, representing the eight largest Co-ops’ joint
interests in grocery retail buying. Prior to this, Richard
spent 7 years’ at Sainsbury’s where he undertook a
number of commercial roles.
3
Jonathan Miller
Chief Executive
Read more on page 42
4
Robbie Bell
Chief Financial Officer
Read more on page 42
44 McColl’s Retail Group plc Annual Report and Accounts 2019
Engaging with stakeholders
The McColl’s Board is responsible 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.
The Chairman also 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 and engaging with those other stakeholders
will have increased focus going forward. To enhance the
Board’s engagement with colleagues across the business,
an employee survey is carried out annually with a six-monthly
pulse survey to gauge progress.
McColl’s general meetings are used to encourage
investor communication and participation
The McColl’s Board recognises that our shareholders are
a key stakeholder group, so engaging with them and
hearing their views are important. The Annual General
Meeting provides an essential opportunity for shareholders
to meet directly with our Directors and, in particular, the
Chairs 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. This is 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.
45
Financial statementsStrategic reportGovernance Division of responsibilities
McColl’s is led by an effective Board, which is responsible
for delivering long-term success in the business
The Board comprises an independent Chairman, Angus
Porter, three independent Non-Executive Directors, Sharon
Brown, Georgina Harvey and Jens Hofma and two Executive
Directors, Jonathan Miller, Chief Executive Officer and Robbie
Bell, Chief Financial Officer. The experience of the Board is
detailed in the biographies on pages 42 and 43.
There is a schedule of matters reserved for the Board with
other matters delegated to the three Committees of the
Board, the Audit & Risk Committee, the Remuneration
Committee and the Nominations Committee.
The schedule is periodically reviewed but the matters it
covers are as listed below.
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
The responsibilities of the Board and the Executive are
clearly defined and no individual has unfettered powers
of decision
8. Key Group entity structure
9. Board and other senior appointments
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, Chief Operating Officer, Chief
Commercial Officer and Colleague & Operations Director.
The Chief Operating Officer retired in January 2020. The Board
has no current intention to replace the role.
These responsibilities are defined as part of a scheme of
delegation established by the Board. This is one element of
the controls used by the Board as it 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.
10. Corporate governance matters and delegations
11. Group policies
12. Pensions and other legal matters
Matters that are not reserved for 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.
Until September 2019 the Group had a Retail Board
comprising the Executive Directors and the most senior
managers within the business. The Retail Board was
collectively responsible for supporting the Chief Executive
in delivering the Group’s strategic objectives. However, as
part of the strategy review in the summer, the structure of the
management team was changed and a Senior Leadership
Team was established to replace the Retail Board. The Senior
Leadership Team is a wider cross-functional group of senior
managers who support the Executive team with the delivery
of the Company’s strategy. The Senior Leadership Team 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 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.
46 McColl’s Retail Group plc Annual Report and Accounts 2019
The Chairman is responsible for leading the Board and
ensuring the Board is effective in all aspects of its role
Specific roles have been delegated to the Chairman.
As reported last year, the Chairman worked closely with
the Chief Executive on the appointment of the new Chief
Financial Officer in January 2019. He was also involved in the
recruitment of the Chief Commercial Officer in September
2019. The Chairman is currently leading the recruitment for
a new Audit & Risk Committee Chair as Sharon Brown is
stepping down in the summer of 2020.
The Chairman 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.
The Chairman also leads the annual evaluation process to
assess the effectiveness of the Board and its Committees.
Further details of the Board evaluation are provided on page
49. The Chairman’s performance is appraised by the Non-
Executives who, led by the Senior Independent Director,
meet annually in his absence 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, while 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 the sustainable achievement of our vision.
All of this must be done without adopting an inappropriate
approach to risk and risk management that could jeopardise
enterprise value.
The Non-Executive Directors are key to this process,
providing feedback informed by their different backgrounds,
experience and skills and with the benefit of being
independent of the process through 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.
The Board takes time annually to review the existing
strategy and to refresh the agreed approach, priorities
and expectations. The Board receives relevant reports and
background presentations from both internal and external
parties to provide context for its consideration and debate of
management’s strategic proposals.
Having set the strategic priorities, the Board monitors and
incentivises their delivery (whether short or long-term) on a
continual basis, regularly reviewing the controls and resources
we have in place, the risks faced by the business and how we
are managing those risks.
Separate reports by the Board’s three main Committees –
the Audit & Risk Committee, Remuneration Committee and
Nomination Committee – are provided on pages 50 to 73.
47
Financial statementsStrategic reportGovernance Composition, succession and evaluation
The McColl’s Board has a strong balance of skills,
experience, independence and knowledge of
the business
Details of the experience, background and skills of individual
Directors can be found on pages 42 to 43. The Board has a
strong balance of skills, experience and knowledge. It was
announced in October 2019 that Sharon Brown, Audit & Risk
Committee Chair, will be stepping down from the Board in
summer 2020. Recruitment for a successor is ongoing and will
be reported in due course. It was also announced in January
2020 that Dave Thomas, Chief Operating Officer, has retired
after 23 years with the business. There is currently no intention
to replace his role.
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 32.
The Board welcomes diversity in all its forms. Ultimately,
diversity brings different perspectives to our debates and
ensures that, as a Board, we consider matters from a variety
of angles. In particular, the balance of skills, experience and
qualifications of members of the Board and its Committees
and the mix of different backgrounds they have is of great
importance to the effectiveness of our strategic leadership
and our governance arrangements.
In terms of Board recruitment activity during the year, as
previously advised, Redgrave Partners were engaged
for the recruitment of a Chief Financial Officer to replace
Simon Fuller. They helped to ensure we searched a wide
pool of potential candidates and assessed them against
objective criteria to identify someone with the appropriate
skills. Further details about this process, which was led by our
Nomination Committee, are provided on page 50. Since the
year-end, Nurole Limited have been engaged for the
recruitment of an Audit & Risk Committee Chair to succeed
Sharon Brown.
Attendance at meetings
Angus Porter
Jonathan Miller
Simon Fuller3
Robbie Bell4
Dave Thomas5
Georgina Harvey
Sharon Brown
Jens Hofma
Board
Audit & Risk¹
Remuneration²
Nomination
9/9
9/9
2/9
9/9
9/9
9/9
9/9
9/9
–
–
–
–
–
4/4
4/4
4/4
5/5
–
–
–
–
5/5
5/5
5/5
2/2
2/2
–
–
–
2/2
2/2
2/2
1 Angus Porter, Jonathan Miller, Simon Fuller, Robbie Bell and Dave Thomas attended meetings of the Audit & Risk Committee by invitation.
2 Jonathan Miller, Simon Fuller, Robbie Bell and Dave Thomas attended meetings of the Remuneration Committee by invitation.
3 Simon Fuller ceased to be a Director on 22 February 2019.
4 Robbie Bell was appointed Chief Financial Officer on 17 January 2019.
5 Dave Thomas ceased to be a Director on 24 January 2020.
48 McColl’s Retail Group plc Annual Report and Accounts 2019
Our Directors are required to dedicate sufficient time
to their responsibilities
The commitment of our Directors to their roles, including the
time committed by our Non-Executive Directors, is a crucial
factor in ensuring that our skilled Board is able to lead the
business effectively and 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 50 and 51.
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.
These include meetings and calls with management and
external advisers, shareholder dialogue and background
reading. However, the formal/scheduled meeting
attendance statistics, set out in the table, 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 is especially important following a new appointment
to the Board and, accordingly, all new Directors undergo
a formal induction process that is described on page 51.
However, to perform their duties as well as possible, all
Directors also need ongoing development. The Board
recognises this ongoing requirement and seeks 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.
Arrangements are in place to provide Directors with good
quality information
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 so that they can 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. 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 2019,
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
In 2019, we engaged Lintstock to facilitate an evaluation of
the performance of the Board. Lintstock is a London-based
advisory firm that specialises in Board effectiveness reviews
and has no other connection with McColl’s.
The first stage of the review involved Lintstock representatives
engaging with the Chairman, Chief Executive, Senior
Independent Director and Company Secretary to set the
context for the evaluation, and to tailor survey content to the
specific circumstances of McColl’s. The surveys addressed
core aspects of the Board’s performance, with a particular
focus on the following areas:
• The clarity and strength of the McColl’s investment case,
and the effectiveness with which the investment case is
communicated externally
• The Board’s understanding of the views of key stakeholders,
including shareholders, customers, local communities
and suppliers
The performance of the Chairman and Committees of the
Board were also evaluated, and Board members were invited
to assess their own individual contribution to the Board.
The anonymity of all responses was guaranteed throughout
the process to promote open and honest feedback.
A number of actions were identified for improvement,
including greater engagement between the Non-Executive
Directors and the Executive Team in between meetings, a
more structured programme of accompanied store visits, to
complement the visits already made individually by Directors,
establishment of a regular programme of deep-dive Board
discussions on key matters of strategic importance and some
enhancements to Board and Committee papers.
• The Board’s engagement with colleagues and
effectiveness in monitoring the culture and values
throughout McColl’s
• The appropriateness of the Board’s composition,
including the skills represented and the level of diversity
among members
• The extent to which the Board provides effective support
and constructive challenge to management, and
engages with the business outside meetings
• The Board’s understanding of trends in the convenience
sector and the competitive landscape
• The appropriateness of the Board’s focus on risk and
oversight of the Company’s risk management processes
• The Board’s oversight of talent and succession, and the
Company’s capacity to deliver the new strategy
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 2020,
all current Directors have been unanimously recommended
by the Board for re-election, following an assessment
of individual performance. Biographical details for the
Directors are provided on pages 42 and 43 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.
Board evaluation process
Externally facilitated
Completion of
online surveys
Collation
of results
Presentation
of results
to Directors
Consideration
of findings
and actions
agreed
49
Financial statementsStrategic reportGovernance Composition, Succession and Evaluation continued
Nomination Committee report
Dear shareholder
On behalf of the Nomination Committee, I am pleased to
present our report for 2019.
Committee composition and effectiveness
The Nomination Committee comprises myself as Chairman,
together with the three Independent Non-Executive Directors
and the Chief Executive. The Committee is supported by the
Company Secretary.
As part of the Board’s performance evaluation 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.
Attendance at scheduled Nomination Committee meetings,
two of which were held during the year, is indicated below.
In addition there was a sub-committee call to approve the
appointment package of Robbie Bell.
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
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.
As reported in the 2018 Annual Report, it was necessary to
search for a Chief Financial Officer following the resignation
of Simon Fuller in July 2018. This process was led by the
Committee and 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. In the latter part of 2019,
it was announced that Sharon Brown would be stepping
down from the Board in the summer of 2020. Nurole Limited
have been selected as part of the recruitment process which
remains ongoing. An announcement will be made when a
successor is identified. Both agents, Redgrave and Nurole,
are independent of the Company.
The key matters considered at each of the Committee’s
meetings during the year are summarised in the
following table.
Meeting date Key agenda items
Feb
Nov
• review of Non-Executive
Directors independence
• consideration of suitability of Directors for
re-election at the Annual General Meeting
• performance evaluation
• 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
the leadership team
of the business in
“ We have strengthened
the past year . ”
Angus Porter
Nomination Committee Chairman
50 McColl’s Retail Group plc Annual Report and Accounts 2019
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.
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 commitments.
The time commitments required of Non-Executive Directors
are set out in their letters of engagement and are 35-40
days per year for the Chairman and 20-25 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 to enable the Chairs of the
Audit & Risk and Remuneration Committees to fully perform
their roles in addition to their other duties. All Non-Executive
Directors actively perform their 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 2020.
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.
Robbie Bell and Richard Crampton, who joined the business
in January 2019 and September 2019 respectively have also
gone through the induction process which 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, its 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
We have 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.
Board Diversity
Gender
Diversity
2
2
Executive
vs
Independent
4
4
Female
Male
Executive
Independent Non-Executive*
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 a variety of backgrounds 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 exist within the business to
support our colleagues in achieving their aspirations and
potential. Some of these initiatives 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.
We are particularly pleased with the progress that has been
made in appointing more women to senior management
positions this year.
More detail about our colleague engagement and initiatives
and plans to support and develop colleagues can be found
on pages 30 to 32.
As a business, McColl’s is a significant employer of women.
Like many other organisations, women at McColl’s 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 32.
This report was approved by the Nomination Committee
and signed on its behalf:
Angus Porter
Nomination Committee Chairman
* The Chairman was deemed independent on appointment.
51
Financial statementsStrategic reportGovernance 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 53 to 56.
The McColl’s approach to risk and risk management is
described on pages 36 to 39 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 financial statements, 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.
52 McColl’s Retail Group plc Annual Report and Accounts 2019
Audit & Risk Committee report
“ Following an audit
tender last year, BDO
LLP were appointed
Auditor to the Group
in April 2019. BDO LLP
will be standing for
appointment at the
forthcoming AGM. ”
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 year of stabilisation for the business, rebuilding
momentum and focusing efforts to maximise opportunities
ahead (further details are contained in the Strategic Report
on pages 2 to 40). The Audit & Risk Committee leads the
Board’s focus on matters of risk, as well as the integrity of
the Group’s financial reporting. As a Committee we remain
mindful of the risks and pitfalls that a developing business
can face and our responsibility to ensure that controls are
sufficiently robust and that behaviours are appropriate.
During the year the Committee has been active in ensuring
its responsibilities are carefully discharged. The Committee’s
report which follows provides information on how we have
done so.
As announced last year, we conducted an audit tender for
the financial year ending November 2019. Following a formal
process, the Audit & Risk Committee recommended to the
Board the appointment of BDO LLP as Auditor to the Group,
succeeding Deloitte LLP who had been Auditor to the Group
since 2006. BDO were appointed in April 2019.
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
Committee composition and effectiveness
The Committee comprises Sharon Brown as Chair and
the two independent Non-Executive Directors, Georgina
Harvey and Jens Hofma. As part of the Board’s performance
evaluation, the Audit & Risk Committee also reviewed its
own performance. The conclusion was that the Committee
was functioning well and the suggestions identified are to
be incorporated into our 2020 workplan. 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 43.
53
Financial statementsStrategic reportGovernance Audit, Risk and Internal control continued
Audit & Risk Committee report continued
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 the appointment of
the Company’s external Auditor and approval of financial
disclosures, including the Annual Report and Accounts and
the Group’s 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. The Committee 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 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 review of its terms of reference
during the year but no changes were considered
necessary, the terms of reference having been updated
for best practice last year. A copy of the Committee’s
terms of reference is available on the McColl’s website
at www.mccollsplc.co.uk/committees.
54 McColl’s Retail Group plc Annual Report and Accounts 2019
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. Planning the year ahead 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 2019 is summarised in the
table of key agenda items.
During the year the Committee considered emerging risks
and mitigations.
Meeting date Key agenda items
Jan
Feb
Jul
Oct
Nov
• reviewed the draft Annual Report and
Accounts 2018 and related matters
• considered year-end external audit outcomes
• approved the Annual Report and Accounts
2018 and related matters
• considered the external Auditor
independence, objectivity
and reappointment
• facilitated an audit tender
• assessed the principal risk disclosures
• reviewed the performance evaluation of
the Committee
• approved a Group guarantee for
subsidiary companies
• considered half year external audit
review outcomes
• approved the half year 2019 announcement
and related matters
• reviewed the risk register
• approved the Committee terms of reference
• reviewed an early draft external 2019
audit plan
• considered the approach in implementing
IFRS 16 (lease accounting)
• considered the risk register as background to
the Board’s strategy review
• amended the policy on provision of non-audit
services by the Auditor
• approved the policy on related
party transactions
• approved the year-end external 2019
audit plan
• reviewed key accounting policies
• reviewed financial and internal controls and
risk management systems
• considered the requirement for an internal
audit function
• reviewed incidents of compliance, fraud,
whistle-blowing and bribery
• approved 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 Audit & Risk Committee Chair receives
regular updates from the Chief Financial Officer relating to
Audit & Risk Committee matters and responsibilities.
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 adopted last year was amended this year
following review. The policy will continue to be 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.
McColl’s does not currently have an internal audit function.
The Audit & Risk Committee reviews annually whether it
would be appropriate for such 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, again concluded that
it was not necessary to establish an internal audit function.
This decision will be reviewed again during 2020.
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 Chair 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.
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.
Included within the audit fee total for the year is an amount
of £45,000 that is deemed to be non-recurring in nature.
FRC Review
The Financial Reporting Council’s Audit Quality Review team
reviewed Deloitte LLP’s audit for McColl’s financial year
to 25 November 2018. The Committee have reviewed the
correspondence from the FRC, which noted that there were
no significant findings arising from the FRC’s review.
Auditor reappointment
As mentioned in last years report, Deloitte had been the
Company’s Auditor since 2006 and we had therefore made
the decision to retender the audit. The Committee invited
three audit firms to tender and received formal presentations
from two companies. The Committee considered each audit
firm’s breadth of relevant experience, technical knowledge,
commercial insight, independence, cultural fit and ability
to deliver high-quality audits. Based on these criteria, the
Committee selected BDO LLP as their preferred external
Auditor and, following consultation with management,
recommended their appointment to the Board. Based on
the Audit & Risk Committee’s recommendation, the Board
are proposing that shareholders approve the appointment
of BDO LLP at the AGM on 3 April 2020. The Audit & Risk
Committee would like to thank Deloitte, on the Board’s
behalf, for their contribution to McColl’s over their tenure.
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.
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.
55
Financial statementsStrategic reportGovernance Audit, Risk and Internal control continued
Audit & Risk Committee report continued
Remuneration
banking facilities available to the Group, which were due to
expire in July 2021, noting that discussions with lending banks
to amend and extend the facility are well advanced.
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 Chair
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 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 business. During the year an
impairment charge of £98.6m in respect of goodwill and
£2.7m in respect of store assets has been made, reflecting
management’s view of the carrying value of these assets.
The forecasts used to determine this carrying value were
considered by the Committee. 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 note 5. 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
Long-term forecasts were revised given the continued
challenging trading conditions, covering all elements of
income, balance sheet and cash flow, taking a prudent view
of LFL improvement and margin progression. The Committee
in considering going concern assessed the sensitivity of the
long-term forecast, modelling scenarios and considering
mitigating actions. The Committee also considered the
56 McColl’s Retail Group plc Annual Report and Accounts 2019
Annual statement
Georgina Harvey
Remuneration Committee Chair
Dear shareholder
I am pleased to present the Directors’ Remuneration Report
for the financial period ended 24 November 2019. 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 2020.
There will be the normal advisory vote on the Directors’
Remuneration Report (the Remuneration Policy was
approved by shareholders at the 2018 AGM so need not be
approved this year as there are no changes) at the 2020
AGM. In addition, shareholder approval will be sought for a
HMRC tax-favoured Save As You Earn all-employee plan.
Pay and Performance for 2019
As explained elsewhere in this Annual Report and Accounts,
2019 was another challenging year for the business. As such,
no bonus will be payable to the Executive Directors in respect
of the 2019 performance year and the LTIP awards granted in
2017 will lapse in full in 2020.
Implementation of the Remuneration Policy for Executive
Directors for 2020
No changes will be made to base salary, benefit or pension
provision for 2020. The maximum bonus opportunity continues
to be set at 100% of base salary and will be based on a
combination of financial and strategic performance targets.
Reflecting the current share price, LTIP award levels will, for
the second year running, be granted materially lower than
the normal 150% of salary grant level. Vesting will continue to
be based on challenging EPS and TSR performance targets.
Remuneration Policy review
The Committee intends to review the current policy during
2020 and in advance of the 2021 AGM given that it is nearing
the end of its three year term. As part of the review, the
latest developments in remuneration corporate governance
(e.g. pension provision and post cessation guidelines) will
be considered.
Yours sincerely,
Georgina Harvey
Remuneration Committee Chair
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Financial statementsStrategic reportGovernance Remuneration continued
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 24 November 2019.
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.
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To provide post-retirement
benefits for participants
in a cost-efficient manner.
To provide a competitive
and balanced package
of benefits.
Jonathan Miller
2019
2018
Robbie Bell1
2019
Dave Thomas
2019
2018
76%
76%
17% 7% £590
17% 7% £591
86%
10%
4%
£348
82%
82%
12% 6% £356
12% 6% £356
Annual bonus
Long Term Incentive Plan (LTIP)
2018
83%
12% 5% £348
Variable pay
Simon Fuller2
2019
83% 12% 5% £82
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stretch profit targets as well as the delivery
of key strategic priorities for the year.
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To align the interests of Executives with
shareholders in growing the value of the
business over the long term.
Basic salary
Pension benefit
Other benefits
Single-year variable
Multiple-year variable
1 Robbie Bell was appointed a Director on 17 January 2019.
2 Simon Fuller ceased to be a Director on 22 February 2019.
These figures are described in more detail on page 68.
58 McColl’s Retail Group plc Annual Report and Accounts 2019
Directors’ remuneration policy
This section of the report sets out a summary of the Company’s Directors’ remuneration policy which was approved by a binding
vote of shareholders at the 2018 AGM. 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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Financial statementsStrategic reportGovernance
Remuneration continued
Directors’ remuneration policy continued
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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 2019
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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Financial statementsStrategic reportGovernance
Remuneration 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);
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.
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.
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.
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.
The structure described in the policy table will apply
to new appointees with the relevant maximum
being pro-rated to reflect the proportion of
employment over the year.
20% of basic salary.
100% of basic salary.
b. the Committee would not make an adjustment where the change results in less than a 5%
Annual bonus
impact on EPS; and
c. adjustments will be considered between the upper and lower limits defined in a. and b.
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.
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).
62 McColl’s Retail Group plc Annual Report and Accounts 2019
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.
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
Jonathan Miller and Robbie Bell entered into service agreements with the Company on
1 April 2016 and 3 January 2019 respectively.
The Committee acknowledges that Executive Directors may be invited to become
Independent Non-Executive Directors of other quoted companies which have no business
relationship with the Company and that these duties can broaden their experience and
knowledge to the benefit of the Company. Executive Directors are permitted to accept such
appointments with the prior approval of the Chairman. Approval will only be given where the
appointment does not present a conflict of interest with the Group’s activities and the wider
exposure gained will be beneficial to the development of the individual. Where fees are
payable in respect of such appointments, these would be retained by the Executive Director.
The Executive Directors’ service agreements are 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.
63
Financial statementsStrategic reportGovernance Remuneration continued
Directors’ remuneration policy continued
Reason for leaving
Bonus
Timing of vesting
Calculation of vesting/payment
Summary dismissal, resignation 1
Awards lapse.
Not applicable.
Good leaver1, 2
Normally at year-end.
Change of control1
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 leaver1, 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 2019
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 2019, 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 has introduced 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. A similar
exercise is anticipated in respect of a review of the Policy during 2020 in advance of
shareholder approval at the 2021 Annual General Meeting.
65
Financial statementsStrategic reportGovernance Remuneration 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 24 November 2019
and sets out how we intend to implement our remuneration policy for the 2020 financial
year. This report, along with the Chair’s annual statement, will be subject to a single
advisory vote at the 2020 AGM.
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 (“FIT”), attend
committee meetings by invitation.
To assist them in their work, the Committee appointed FIT as its principal external adviser
during 2018. FIT’s fees for advice provided to the Remuneration Committee for the year
under review were £27,000 (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.
Remuneration Committee activities
During the 2019 financial year, the Committee met formally four times to consider the
following remuneration matters:
Meeting attendance during the year was as follows:
Meeting date
Key agenda items
Meeting attendance
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 options 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.
Jan
Feb
Jul
Nov
• considered Executive Directors’ salary increases
• considered 2018 annual bonus outturn
• considered 2016 LTIP and CSOP vesting
• considered 2019 LTIP award levels
• considered the value of outstanding CSOP options
• reviewed gender pay gap reporting
• approved 2018 annual bonus outturn
• considered 2016 LTIP and CSOP vesting
• deferred the decision to grant 2019 LTIP awards
• considered 2019 bonus targets
• approved the gender pay gap report
• evaluated the Committee’s performance as part of Board evaluation
• ratified the grant of LTIP and CSOP awards
• approved the remuneration package of the Chief Commercial Officer
• considered pay and benefits and changes over the previous 12 months
• reviewed CEO pay ratio data
• approved the terms of reference
• approved the policy on Directors’ expenses
• reviewed potential 2019 bonus outturn
• reviewed progress against targets on existing LTIP and CSOP awards
• considered corporate governance updates
In addition, the Committee met by telephone on 3 January 2019 to approve the remuneration
package of Robbie Bell prior to his appointment as Chief Financial Officer.
66 McColl’s Retail Group plc Annual Report and Accounts 2019
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 group practice, and pay and conditions in place for the wider workforce. Examples of the information
that may be provided to the Remuneration Committee, when making key decisions, is set out below.
Decision
Information needed
1.
2.
3.
4.
5.
6.
7.
8.
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
• LTIP rules and share dilution limits
• EPS and TSR performance
• consideration of underlying performance of the business
and wider circumstances, as appropriate
Determining Executive Directors’
or Senior Managers’ benefits
on recruitment
• 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)
Considering pay and conditions
across the business
• 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
67
Financial statementsStrategic reportGovernance Remuneration 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 24 November 2019.
Fee
Taxable Benefit1
Total
£’000
Sharon Brown
Georgina Harvey
Jens Hofma
Angus Porter
2019
53
58
45
145
2018
53
58
45
145
2019
2018
5
–
1
1
4
–
1
2
2019
58
58
46
146
2018
57
58
46
147
1 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 for the current Executive Directors are as follows:
Executive Director
Jonathan Miller
Robbie Bell1
1 January 2020
£450,840
£340,000
1 January 2019
(or appointment if
later)
£450,840
£340,000
% change
0%
0%
1 Robbie Bell was appointed to the Board on 17 January 2019. His salary was set c.16% higher than that of his predecessor
reflecting his significant experience in consumer facing businesses (including the role of CFO then CEO of Welcome Break).
When considering the salary positioning, Robbie Bell’s reduced pension provision should also be noted.
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 24 November 2019 and the
prior period:
Salary
Pension
Benefit4
Taxable
Benefit5
Annual
Bonus6
LTIP7
Total
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Jonathan Miller
Robbie Bell1
451
298
451
–
103
36
103
–
Former
Directors
Simon Fuller²
Dave Thomas³
68
293
289
293
10
44
43
44
36
14
4
19
37
–
16
19
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
590
348
591
–
82
356
348
356
1 Robbie Bell was appointed to the Board on 17 January 2019.
2 Simon Fuller ceased to be a Director on 22 February 2019.
3 Dave Thomas retired from the Board on 24 January 2020.
4 Pension benefits comprise pension contributions and/or salary supplement payments.
5 Taxable benefits for Jonathan Miller, Dave Thomas, Robbie Bell and Simon Fuller include healthcare and a car allowance.
6 Further details of the 2019 annual bonus are provided below.
7 No vesting has been assumed in respect of the 2017 LTIP awards vesting in 2020.
68 McColl’s Retail Group plc Annual Report and Accounts 2019
Annual bonus (audited)
The Group operates an annual performance related bonus scheme for a number of Senior
Managers including Executive Directors. For the 2019 financial period, annual bonuses for the
Executive Directors were based 70% on operating profit, 10% on revenue targets and 20% on
key strategic performance measures.
The maximum total bonus potential for 2019 was 100% of salary for Executive Directors.
The targets, and achievement against them, were as follows:
Anticipated value of 2017 LTIP Awards (audited)
The LTIP values included in the single figure table above relate to awards granted on 17 March
2017 which vest on 17 March 2020 dependent on EPS and TSR performance measured over
the three year period ended 24 November 2019.
Under the EPS performance target (70% of awards), 25% of this part of an award vests for
cumulative EPS of 60.4p increasing pro-rata to 100% vesting for cumulative EPS of 68.6p.
The vesting level is as follows:
Measure
Adjusted operating profit*
Revenue and strategic
performance
Total
Weighting
(% of
salary)
70%
30%
100%
£16.4m £19.3m £22.4m
£15.3m
See table
below
0%
0%
0%
Threshold
Target
Stretch Achievement
(% of salary)
Cumulative 3 Year Adjusted EPS
Payout
Performance target
Threshold
Maximum
EPS
60.4p
EPS
68.6p
Actual
EPS
Vesting %
(max 100%)
30.5p
0%
* Before bonus, profit on asset disposals and adjusting items.
Strategic performance
salary) Committee assessment
Weighting
(% of
Achieve LFL revenue growth
of at least 1%
Reduce Net Debt to below
£85m
Refresh corporate strategy,
including development
and articulation of the
investment case
10%
10%
10%
Since the threshold operating profit
target was not reached, no bonus is
payable against any of the strategic
targets notwithstanding some
progress was made
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
–3%
27%
Actual
TSR
Vesting %
(max 100 %)
Below
median
0%
Payout
(% of salary)
0%
0%
0%
As a result of EPS (70% of awards) and TSR (30% of awards) performance, the gross value of LTIP
share awards expected to vest on 17 March 2020 are as follows:
Performance target
Jonathan Miller
Dave Thomas
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)
237,634
153,225
0%
0%
0%
0%
0
0
0
0
69
Financial statementsStrategic reportGovernance Remuneration continued
Annual report on remuneration continued
LTIP awards granted in 2019
The following LTIP awards were granted to Executive Directors during the year:
Executive
Jonathan Miller
Dave Thomas
Robbie Bell
Date of grant
2 May 2019
2 May 2019
2 May 2019
Proportion
of salary1
Maximum shares
awarded
EPS2 (50% of awards)
68%
68%
125%
364,240
237,163
505,350
25% of this part of an award vests for three-year EPS
growth of 7% per annum increasing pro-rata to 100%
vesting for three-year EPS growth of 18% per annum,
measured to the period ending November 2021
TSR2 (50% of awards)
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, measured over the thee years
from the grant date
1 The awards of Jonathan Miller and Dave Thomas are based on the same number of shares as granted in the previous year rather than the normal 150% of salary grant level, reflecting the Company’s share price decline. The award for Robbie Bell, who was
appointed Chief Financial Officer in January 2019, formed part of his recruitment package as disclosed in the Annual Report and Accounts 2018.
2 Reflecting the Board’s desire to both deliver earnings growth and restore the Company’s share price, EPS and TSR were weighted equally for the 2019 awards (compared to a 70:30 split between EPS:TSR for previous awards).
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.
A post vesting period of 2 years will apply.
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
Robbie Bell
1 Call Price per Award Share: £0.001.
Date of grant
15 March 2017
21 March 2018
15 August 2018
2 May 2019
15 March 2017
21 March 2018
15 August 2018
2 May 2019
2 May 2019
Number of shares
Share price1
(pence)
Face value
(£’000)
Face value
(% salary)
Vesting for threshold
performance2, 3, 4
(% of maximum)
237,634
196,017
168,223
364,240
153,225
127,630
109,533
237,163
505,350
186
230
134
84
186
230
134
84
84
442
451
225
306
285
294
147
199
425
100%
100%
50%
68%
100%
100%
50%
68%
125%
25%
25%
25%
25%
25%
25%
25%
25%
25%
2 2017 LTIP EPS performance condition range is 60.4 pence to 68.6 pence (70% of awards), TSR versus retailer comparator group (30% of awards). The performance period ended on 24 November 2019.
3 2018 LTP EPS performance condition range is 60.4 pence to 71.9 pence (70% of awards), TSR versus retailer comparator group (30% of awards). The performance period ends on 29 November 2020.
4 Details of the 2019 LTIP performance conditions/period are set out in the section above.
70 McColl’s Retail Group plc Annual Report and Accounts 2019
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 each Director’s interests in McColl’s shares and share options as at 24 November 2019.
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
Robbie Bell
Non Executive Directors
Georgina Harvey
Sharon Brown
Angus Porter
Jens Hofma
–
–
–
n/a
n/a
n/a
n/a
966,114
627,551
505,350
n/a
n/a
n/a
n/a
33,568
27,972
–
n/a
n/a
n/a
n/a
–
–
–
n/a
n/a
n/a
n/a
11,649,500
1,183,792
–
10,471
17,471
5,814
–
1,098
170
–
8
14
2
–
200%
200%
200%
n/a
n/a
n/a
n/a
1 Based on closing share price of 42.5 pence at 22 November 2019 (the last trading day before the year-end) and prevailing salaries/fees on 24 November 2019.
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
No
No
n/a
n/a
n/a
n/a
71
Financial statementsStrategic reportGovernance Remuneration 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. 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. Dave Thomas received a salary
supplement in lieu of pension equivalent to 15% of his basic salary. Robbie Bell received a
combination of salary supplement in lieu of pension and pension contributions equivalent,
in aggregate, to 12% of his basic salary. The Committee will review pension provision for both
incumbents and new joiners as part of the Remuneration Policy review in advance of the
2021 AGM.
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
From
1 February
2020
£145,000
£45,000
£5,000
£8,000
£8,000
From
1 February
2019
£145,000
£45,000
£5,000
£8,000
£8,000
Payments for loss of office (audited)
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.
Dave Thomas retired from the role of Chief Operating Officer and also from the Board on
24 January 2020. In order to ensure a smooth handover, he will remain an employee until
6 April 2020 at which point he will leave the Company. Dave will continue to receive his
basic salary, benefits and pension until cessation and will then be paid the remainder of
his 12 month notice period. He will receive no bonus for 2019 and will not be eligible for a
2020 bonus and his LTIPs will vest at the normal vesting dates, subject to performance and
time pro-rating. Full details of the payments made will be disclosed in next year’s Directors’
Remuneration Report.
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 2019
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
Nov
2019
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
James Lancaster
Jonathan Miller1
2013
2014
2015
2016
2016
2017
2018
2019
Single figure of remuneration (£’000)
Annual bonus outcome (% of max)
LTIP vesting (% of max)
834
0%
n/a
3,199
0%
n/a
339
504
840
750
0% 39.4% 39.4% 15.0%
n/a 30.0%
n/a
n/a
591
0%
0%2
590
0%
0%
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 2018
and 2019.
Statement of shareholder voting
The following table shows the results of the binding vote on the remuneration policy at the
2018 Annual General Meeting and the advisory vote on the 2018 Annual Statement and
Annual Report on Remuneration at the 2019 Annual General Meeting.
Salary (£’000)
Pension benefit (£’000)
Taxable benefits (£’000)
Annual variable (£’000)
Chief Executive annual cash (£’000)
2018
451
103
37
0
2019
451
103
36
0
Average change
across all
employees
+4%
+46%
0%
0%
Change
0%
0%
–3%
0%
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
2019
2018
Distribution to shareholders
2019
2018
–81.6%
£2.2m
–1.8%
£191m
£194m
£11.9m
The Group paid an interim dividend of 1.3 pence per share. The Directors are not proposing a
final dividend, therefore a total payment of £2.2m for 2019.
Votes
Annual Statement and Annual Report
on Remuneration (2019 AGM)
Remuneration policy (2018 AGM)
For
Against
Withheld
Number
%
Number
%
Number
92,971,587
98.57
1,349,540
1.43
286,563
85,683,168
86.08
13,850,649
13.92
1,668,070
Shareholder consultations
The Remuneration Committee welcomes feedback from shareholders in respect of our
Remuneration Policy and its implementation. Noting that the current Policy is due to reach the
end of its three year shareholder approved life in 2021, the Committee will review the Policy
during 2020 and intends to consult with major shareholders and the main representative
bodies on any proposed changes.
Implementation of the Remuneration Policy for 2020
The proposed implementation of the Policy for 2020 is as follows:
• 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. 60% of the
annual bonus will be determined by operating profit targets, 15% will be determined by
working capital improvement targets, 10% will be determined by LFL sales growth targets
and 15% 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 2020 Directors’ Remuneration report.
• Reflecting the current share price, LTIP awards will, for the second year running, be granted
at materially lower levels than the normal 150% of salary. The CEO will receive an award of
50% of salary while the CFO will receive an award of 100% of salary. Vesting will continue
to be based on EPS and relative TSR, weighted equally. For EPS, 25% of this part will vest for
EPS growth of 12% per annum increasing to 100% vesting for EPS growth of 25% per annum.
For TSR, the normal median to upper quartile range will apply for between 25% and 100%
of this part of the awards, measured against the FTSE All Share General Retailer and Food
& Drug Retailers. A two year holding period will apply to any awards granted in 2020.
Approved by the Remuneration Committee and signed on its behalf:
Georgina Harvey
Chair of the Remuneration Committee
73
Financial statementsStrategic reportGovernance Directors’ report
McColl’s Retail Group plc
(the ‘Company’ or ‘McColl’s’,
or ‘Group”) operates more than
1,443 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 2 to 40.
Governance at McColl’s
Corporate governance
The Board comprises two 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 50 to 73 and form part of this Directors’ report.
Directors
Details of our current Directors can be found on pages 42
and 43. The following Directors served during the year.
Director
Angus Porter
Position
Appointment date1
Non-Executive
Chairman
1 April 2016
Jonathan Miller
Chief Executive
3 February 2014
Simon Fuller²
Robbie Bell
Dave Thomas³
Georgina Harvey
Sharon Brown
1 April 2016
17 January 2019
3 February 2014
7 February 2014
7 February 2014
Chief Financial
Officer
Chief Financial
Officer
Chief Operating
Officer
Senior Independent
Director
Remuneration
Committee
Chairman
Independent
Non-Executive
Director Audit &
Risk Committee
Chairman
Jens Hofma
Independent Non-
Executive Director
1 July 2017
1 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.
2 Simon Fuller resigned as a Director and left the business on 22 February 2019
following a period of handover to his successor, Robbie Bell.
3 Dave Thomas retired as Chief Operating Officer and ceased to be a Director
on 24 January 2020.
74 McColl’s Retail Group plc Annual Report and Accounts 2019
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. The Company also 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.
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.
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 51.
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 72.
McColl’s shareholders
Share capital
Details of the share capital from 26 November 2018 to
24 November 2019 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 £115,173.51 (being
divided into 115,173,515 fully paid ordinary shares) and at
the end of the year was £115,193.90, (being divided into
115,193,909 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. on a show of hands each shareholder has one vote and
on a poll each shareholder has one vote per ordinary
share held;
3. each ordinary share ranks equally for any
dividend declared;
4. each ordinary share ranks equally for any distributions
made on a winding up of the Company; and
5. 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
Financial statementsStrategic reportGovernance 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 24 November 2019, 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 share holdings
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 25 February 2020, 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.
76 McColl’s Retail Group plc Annual Report and Accounts 2019
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.
24 November 2019
25 February 2020
Number of
shares
% interest
in shares
Number of
shares
% interest
in shares
14,534,277
12.62% 15,120,277
13.13%
11,649,500
11,399,500
10.11% 11,649,500
9.90% 11,399,500
6,713,277
6,300,000
5.82% 6,713,277
5.47% 6,300,000
10.11%
9.90%
5.82%
5.47%
5,950,000
5.17% 5,950,000
5.17%
5,779,091
3,867,360
3,600,000
3,500,000
5.01% 5,779,091
3.36% 3,867,360
3.13% 3,600,000
3.04% 3,500,000
5.01%
3.36%
3.13%
3.04%
Shareholder
Aberforth
Partners LLP
Jonathan Miller1
Klarus Capital
Limited
FIL Limited
Premier Miton
Group plc
Chelverton Asset
Management
FMR LLC
Laxey Partners Ltd
CI Investments Inc
Jerry Zucker
Revocable Trust
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).
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 31 and 32.
Corporate responsibility and the environment
The Company’s sustainability review, including information
about our greenhouse gas emissions and approach to
corporate responsibility, is set out on pages 34 and 35.
In 2017 we defined four corporate values to inform the way
the business, through its colleagues, operates and behaves.
Our values are:
Simple and
consistent
Customer
first
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 colleagues is ongoing.
The Board and its Committees regularly review the Group’s
policies and take responsibility for them.
In considering going concern, the Directors have also
assessed sensitivity scenarios of the long-term forecast.
These could include a short-term reduction in sales, pressures
on gross margin, a short-term delay in asset disposal and
a higher level of cost inflation. The overall going concern
scenarios the Company has modelled include assessing LFL
0.5% lower than plan, nil year-on-year gross margin growth
(despite anticipated product mix), and a delay in asset
disposal. Whilst in the short-term the covenant headroom is
tighter, having modelled these scenarios and the mitigating
actions which will aim to be implemented by the Directors,
the Directors remain confident that the business is a
going concern.
The Directors have made this assessment 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.
Financial matters
External Auditor
BDO LLP have given their independent report on the financial
statements to the shareholders of the Company on pages 81
to 88.
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
On 21 February 2020, the Group exchanged contracts for the
sale of the Group’s head office building with a completion
date of 31 December 2020 or earlier on three weeks’ notice
from the Group. The agreed selling price was £7.3m.
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 affect
the Group can be found in note 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 36 to 39.
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 89 to 122.
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.
At the end of the period, the Group had drawn down
£129.5m (2018: £125.5m) of its facilities.
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 £77.5m
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.
The Directors revised the long-term forecasts, given the
continued challenging trading conditions, covering
all elements of income, balance sheet and cash flow,
taking a prudent view of like for like improvement and
margin recovery. 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.
77
Financial statementsStrategic reportGovernance 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 five year period through to 2024 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. 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 (with significant progress
made on extending the facility), 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 review capital spend linked to
expansionary projects, whilst accelerating working capital
and cost saving initiatives.
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 2024.
78 McColl’s Retail Group plc Annual Report and Accounts 2019
Annual General Meeting (AGM)
Our 2020 AGM
The Board welcomes the opportunity to meet and engage
with shareholders at the AGM which will be held on 3 April
2020 at 1.30pm at the registered office: McColl’s House,
Ashwells Road, Brentwood, Essex CM15 9ST. The Chairman
of the Board and the Chairs of each of its Committees will
attend the AGM to answer questions from shareholders.
All Directors will be standing for re-election at the AGM,
with the exception of Dave Thomas who has retired from
the Board. 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 will stand for re-election at the
Company’s 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.
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 41 to 49 and
the Nomination Committee report on pages 50 and 51.
Reappointment of Auditor
BDO LLP were appointed in April 2019 following a formal audit
tender process. BDO LLP have indicated their willingness to
continue as the Company’s Auditor. Accordingly, a resolution
to reappoint BDO LLP as Auditor of the Company and the
Group will be proposed at the 2020 AGM. Further details
regarding the reappointment of the Auditor may be found
in the Audit & Risk Committee Report on page 53.
Save As you Earn
The Board is seeking shareholders’ approval of the all-
employee McColls Retail Group plc Savings-Related Share
Option Scheme (the ‘SAYE Scheme’), which will be proposed
as an ordinary resolution at the AGM. The Board considers
all-employee share ownership to be a key component of
the Company’s overall remuneration strategy, allowing the
Company to better align the interests of employees and
shareholders, while at the same time helping the Company
to recruit, retain and motivate employees at all levels within
the Group. The SAYE Scheme offers tax advantages to
participants in the UK in accordance with UK legislation.
A copy of the SAYE Scheme rules will be available for
inspection at the AGM.
Political donations
Further to shareholder approval at the 2019 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 24 November 2019 (2018: £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 2020 AGM 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.
Authority to allot shares
The Company was granted a general authority by its
shareholders at the 2019 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 2020 AGM to renew
these authorities.
Authority for the Company to purchase its own shares
A resolution was passed at the 2019 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
will be proposed at the 2020 AGM which will, if approved,
replace the existing authority and will lapse at the conclusion
of the 2021 AGM.
Dis-application of pre-emption rights
At the 2019 AGM the Board noted the proportion of votes cast
against Resolutions in respect of the disapplication of pre-
emption rights and disapplication of pre-emption rights in
relation to an acquisition or capital investment. The Board
have concluded that, as the majority of shareholders are
in support, renewal of the authorities in relation to the dis-
application of pre-emption rights and also the disapplication
of pre-emption rights in connection with an acquisition or
capital investment will again be put to shareholders at the
Annual General Meeting in 2020.
The Board remains committed to undertaking
shareholder consultations on significant share issues
whenever it is practicable to do so and to continued
shareholder engagement.
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
25 February 2020
79
Financial statementsStrategic reportGovernance Directors’ responsibilities statement
The Directors are responsible for
preparing the annual report and the
financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European
Union and 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 financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the Group and Company and of the profit
or loss for the Group for that period.
In preparing the Parent Company financial statements,
the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether they have been prepared in accordance
with UK GAAP, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business.
80 McColl’s Retail Group plc Annual Report and Accounts 2019
In preparing the Group financial statements, the Directors are
required to:
Directors’ responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
• The group financial statements have been prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and
Article 4 of the IAS Regulation and give a true and fair
view of the assets, liabilities, financial position and loss of
the Group.
• The annual report includes a fair review of the
development and performance of the business and the
financial position of the Group and the Parent Company,
together with a description of the principal risks and
uncertainties that they face.
• The annual report and financial statements, taken as
a whole, are fair, balanced, and understandable and
provides the information necessary for shareholders
to assess the Group’s performance, business model
and strategy.
This responsibility statement was approved by the Board of
Directors on 25 February 2020 and is signed on its behalf by:
Jonathan Miller
Chief Executive
Robbie Bell
Chief Financial Officer
25 February 2020
25 February 2020
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether they have been prepared in accordance
with IFRSs as adopted by the European Union, 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; and
• prepare a Director’s Report, a Strategic Report and
Director’s Remuneration Report which comply with the
requirements of the Companies Act 2006.
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 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
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.
Website publication
The Directors are responsible for ensuring the annual
report and the financial statements are made available
on a website. Financial statements are published on
the Company’s website in accordance with legislation
in the United Kingdom governing the preparation and
dissemination of financial statements, which may vary
from legislation in other jurisdictions. The maintenance
and integrity of the Company’s website is the responsibility
of the Directors. The Directors’ responsibility also extends
to the ongoing integrity of the financial statements
contained therein.
Financial statements
Independent Auditor’s report to the members of McColl’s Retail Group plc
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report,
in relation to which the ISAs (UK) require us to report to you whether we have anything
material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 36 to 39 that describe the principal
risks and explain how they are being managed or mitigated;
• the Directors’ confirmation set out on pages 38 and 39 in the Annual Report 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;
• the Directors’ statement set out on page 77 in the financial statements about whether
the Directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the Directors’ identification of any material
uncertainties to the Group and the Parent 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;
• whether the Directors’ statement relating to going concern required under the Listing
Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit; or
• the Directors’ explanation set out on page 78 in the Annual Report 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.
Opinion
We have audited the financial statements of McColl’s Retail Group plc (the ‘Parent
Company’) and its subsidiaries (the ‘Group’) for the 52 week period ended 24 November
2019 which comprise the Consolidated income statement, Consolidated statement of
comprehensive income, Consolidated statement of financial position, Consolidated and
Parent Company statement of changes in equity, Consolidated statement of cash flows,
Parent Company balance sheet and notes to the financial statements, including a summary
of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group
financial statements is applicable law and International Financial Reporting Standards (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 Financial Reporting Standard 101 Reduced
Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s and of the Parent Company’s affairs
as at 24 November 2019 and of the Group’s loss for the period then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs
as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance
with United Kingdom Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of
the Companies Act 2006; and, as regards the Group financial statements, Article 4 of the
IAS Regulation.
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
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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
81
GovernanceFinancial statementsStrategic report Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
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 including 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.
Key audit matter
How we addressed the matter in our audit
Supplier income
The cost of sales accounting policy, which includes the treatment of supplier income, is outlined
in note 2 to the financial statements.
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.
In addition, during the 52 week period ended 25 November 2018, 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 (Morrisons) on 31 July 2017. The supply chain disruption meant that McColl’s transition
to the new arrangement with Morrison’s was accelerated compared to the timetable originally
planned.
We identified a key audit matter relating to the supplier income arrangements, inclusive of
arrangements specific to the transition and the wholesale agreement with Morrisons.
Judgement is required in determining the period over which the reduction in cost of sales should be
recognised for volume based over-rider arrangements, requiring both a detailed understanding of
the contractual arrangements themselves as well as complete and accurate source data to which
the arrangements apply.
Further, whilst a significant element of income generated from volume based over-rider
arrangements has been settled at 24 November 2019, management judgement is required
within the process of estimating the level of supplier income as at the balance sheet date for
arrangements that either span two financial periods or where the income has not been fully settled
by the period end date.
In accordance with the auditing standards and in view of the judgements involved above, as well
as management being in a position to be able to override controls, we have presumed a risk of
fraud within this area.
Our audit procedures to address this risk included, but were not limited to:
Transition to the Morrisons wholesale agreement
• We developed an understanding of the contract terms between McColl’s and Morrisons by
reviewing the wholesale agreement and evaluating the accounting policies and treatment
applied by management for supplier income arising from the agreement;
• We recalculated the release of income deferred as at the previous balance sheet date,
recognised as income in the current financial period, and recalculated the level of income
deferred as at 24 November 2019. We checked the basis of deferral and agreed that this was
appropriate; and
• We confirmed that the classification applied to supplier income from Morrisons in the financial
statements is in accordance with the relevant standards.
Accrued supplier income
• We obtained an understanding of the related controls and assessed the design and
implementation of controls over commercial income. As a consequence of our conclusions,
we performed a test of operating effectiveness of the relevant controls related to volume based
over-riders and as well related to margin support agreements;
• We performed detailed substantive testing over a sample of arrangements in the period
through agreement of the arrangement to supplier contract and other correspondence, and
recalculation of the amounts recognised as income and the value of income accrued at the
balance sheet date;
• For non-coterminous rebate agreements we examined historical forecast outturn performed
by management and compared this against post-period end trading;
• We checked the ability to recover the rebate receivable for the sample selected through
cash received;
• To address the fraud risk, we performed procedures designed to check that supplier
arrangements are recorded in the correct period and reviewed manual journal postings
throughout the period; and
• We performed data integrity checks on the spreadsheets utilised to manage supplier
arrangements and checked the completeness of supplier rebate income by reference
to revenue in the period.
Key observations:
Following our work in respect of the Morrisons contract, we are satisfied with the timing over which
contributions are recognised and consider the disclosure in note 2 to be appropriate.
The results of our detailed testing in respect of accrued supplier income at the period 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 24 November 2019.
82 McColl’s Retail Group plc Annual Report and Accounts 2019
Key audit matter
How we addressed the matter in our audit
Impairment of goodwill and store assets
The Group’s accounting policies are disclosed in note 2 and goodwill is included as a key source
of estimation uncertainty in note 3.
As at 24 November 2019, the Group held £151.5m of goodwill, net of an impairment charge in the
current financial period of £98.6m, as disclosed in note 13.
The Group also hold 1,443 retail stores, which make up the majority of the carrying value of
property, plant and equipment (‘store assets’) held on the balance sheet at 24 November 2019
(£77.1m, as disclosed in note 12).
The accounting standards require that the value of goodwill is tested for impairment annually
and store assets are tested for impairment where indicators of impairment are identified.
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 £98.6m has
been recorded in respect of impairment provisions against goodwill and £2.7m against property,
plant and equipment.
Our audit procedures to address this risk included, but were not limited to:
• We evaluated the design and implementation of controls around the process of preparing and
performing the impairment reviews of the Group’s goodwill and store assets;
• We evaluated and challenged management’s impairment models by:
– understanding the underlying reasons and events giving rise to the goodwill impairment
charge in the period ended 24 November 2019;
– reviewing management’s workings for mechanical accuracy and compliance with relevant
accounting standards;
– determining an acceptable range for the discount rates applied to future cash flow and
working with our internal valuation team to compare to management’s rates;
– checking historical financial information against budget to assess accuracy of the budgeting
process and preparation of cash flow forecasts;
– challenging management’s assessment of the Cash Generating Units (CGUs) being assessed
for impairment;
– assessing the reasonableness of the assumed long-term growth rate of 0% in management’s
The key assumptions applied by the Directors in the impairment reviews are:
workings; and
• cash flow forecasts in the context of the going concern review, including assumptions of future
growth, gross margin and store costs and
• discount rates.
We considered this to be a key audit matter as the value of the store assets 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 and assumption is required. There is also a risk that assets held in,
and associated with, each store are not recoverable.
– reviewing management’s sensitivity analysis on the inputs applied.
• We reviewed the disclosures in the Annual Report, to assess whether they are in line with the
requirements of the relevant accounting standards.
Key observations:
Following the completion of our work, we are satisfied that the £98.6m impairment charge against
goodwill and £2.7m impairment charge against store assets is materially accurate.
83
GovernanceFinancial statementsStrategic report Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Key audit matter
Presentation and classification of results
Consistent with prior periods, management has identified certain adjusting items, relating to costs
or income that derive from events or transactions that do not fall within the normal activities of the
Group, and 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 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 loss before
tax of £98.6m to derive adjusted profit before tax of £7.3m.
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 treatment of:
• property profits resulting from sale and leaseback activity completed (£3.3m);
• costs associated with the unprofitable store programme (£6.6m); and
• goodwill and store asset impairment charges (£101.3m in total).
We have identified this key audit matter as a fraud risk as management has 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.
How we addressed the matter in our audit
We completed the following procedures during our audit:
• We evaluated the design and implementation of controls in the classification of the results and
presentation of these in the accounts;
• We evaluated the appropriateness of the inclusion of items, both individually and in aggregate,
within adjusted items, by:
– challenging the nature of items being identified by management as adjusting items;
– assessing the consistency of items period on period; and
– evaluating adherence to relevant accounting standards requirements and latest guidance
from regulators.
• We tested a sample of income and expenses recognised as adjusting, based on the nature
of each item;
• To test for completeness we assessed 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; and
• We reviewed the appropriateness of related disclosures provided in the Annual Report to check
in accordance with relevant accounting standards.
Key observations:
We are satisfied the adjusting items have been appropriately disclosed.
84 McColl’s Retail Group plc Annual Report and Accounts 2019
Key audit matter
How we addressed the matter in our audit
Going concern
The Group’s disclosure on application of the going concern principle is included in the Directors’
Report on page 77 and note 2 to the financial statements.
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 cease to operate as a going concern.
Management has performed an analysis of future trading performance and determined the
impact of this performance on future covenant requirements.
Management has also prepared a downside scenario for the business plan that models changes
in the forecast performance to test how resilient the business is to reasonably possible events,
including an analysis of what mitigating actions may be required to rectify forecast loss of
headroom.
Our audit procedures to address this risk included, but were not limited to:
• We assessed the design and implementation of the controls in place related to the preparation
of management’s going concern assessment;
• We obtained an understanding of the financing facilities, including the nature of the facilities,
repayment terms, covenants and attached conditions and any amendments to the facilities;
• We obtained and challenged management’s documented assessment of going concern and
the underlying workings to support their conclusion;
• We assessed the facility and covenant headroom calculations, and performed sensitivities
on management’s base case and downside scenarios;
• We challenged the appropriateness of management’s forecasts by testing their mechanical
accuracy, assessing historical forecasting accuracy and understanding management’s
consideration of downside sensitivity analysis;
• We 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
• We reviewed the wording of the going concern disclosures, and assessed its consistency with
management’s forecasts.
Key observations:
We are satisfied that management has performed an appropriate assessment of the Group’s ability
to continue as a going concern, including the assessment of appropriate sensitivities, which are
reasonably possible and may impact covenant compliance.
85
GovernanceFinancial statementsStrategic report Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and
in evaluating the effect of misstatements. We consider materiality to be the magnitude
by which misstatements, including omissions, could influence the economic decisions
of reasonable users that are taken on the basis of the financial statements. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also
take into account the nature of identified misstatements, and the particular circumstances
of their occurrence, when evaluating their effect on the financial statements as a whole.
The materiality for the Group was set at £750,000 and was determined with reference to the
benchmark of the Group’s revenue of which it represents 0.06%. We considered a number of
different measures and concluded that revenue is the most stable period on period measure
for determining materiality; this reflects the overall size of the business, which is largely
consistent period on period.
Materiality for the Parent Company was set at £745,000 and was determined with reference
to the benchmark of net assets of which it represents 1.5%. An asset based materiality
was considered appropriate for the Parent Company as this is a holding company with
few transactions.
Performance materiality is the application of materiality at the individual account or balance
level set at an amount to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality for the
financial statements as a whole.
Performance materiality for the Group was set at 65% of materiality at £487,500.
The Parent Company performance materiality was set at £484,000, which is 65% of Parent
Company materiality.
We agreed with the Audit Committee that we would report to them all audit differences
in excess of £22,500. We also agreed to report differences below this threshold that, in our
view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our Group Audit was scoped by obtaining an understanding of the Group and its
environment, including the Group’s system of internal control, and assessing the risks of
material misstatement in the financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there was evidence of bias by the
Directors that may have represented a risk of material misstatement due to fraud.
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.
Therefore we identified only one significant component, including the Parent Company audit
(which we audit to a lower materiality level), on which we perform our audit using a single
audit team.
The capability of the audit to detect irregularities including fraud
We gained an understanding of the legal and regulatory framework applicable to the Group
and the industry in which it operates, and considered the risk of acts by the Group which
were contrary to applicable laws and regulations, including fraud. These included but were
not limited to those that relate to the form and content of the financial statements, such as
the Group accounting policies, International Financial Reporting Standards (IFRS), the UK
Companies Act 2006 and the UK Corporate Governance Code; those that relate to the
payment of employees; and industry related such as compliance with health and safety and
food hygiene legislation.
We focused on laws and regulations that could give rise to a material misstatement in the
Group financial statements. Our audit procedures included, but were not limited to:
• Agreement of the financial statement disclosures to underlying supporting documentation;
• Enquiries of management;
• Review of minutes of Board meetings throughout the period; and
• Obtaining an understanding of the control environment in monitoring compliance with laws
and regulations.
Our audit procedures were designed to respond to risks of material misstatement in the
financial statements, recognising that the risk of not detecting a material misstatement due
to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the further removed
non-compliance with laws and regulations is from the events and transactions reflected
in the financial statements, the less likely we are to become aware of it.
86 McColl’s Retail Group plc Annual Report and Accounts 2019
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
period for which the financial statements are prepared is consistent with the financial
statements and those reports have been prepared in accordance with applicable
legal requirements;
• the information about internal control and risk management systems in relation to financial
reporting processes and about share capital structures, given in compliance with rules 7.2.5
and 7.2.6 in the Disclosure Guidance and Transparency Rules sourcebook made by the
Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and
has been prepared in accordance with applicable legal requirements; and
• information about the Company’s corporate governance code and practices and about
its administrative, management and supervisory bodies and their committees complies
with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Other information
The Directors are responsible for the other information. The other information comprises
the information included in the annual report other than the financial statements and
our Auditor’s report thereon.
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 the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically
address the following items in the other information and to report as uncorrected material
misstatements of the other information where we conclude that those items meet the
following conditions:
• 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 performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit Committee
does not appropriately address matters communicated by us to the Audit 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.
87
GovernanceFinancial statementsStrategic report Financial statements continued
Independent Auditor’s report to the members of McColl’s Retail Group plc continued
Matters on which we are required to report by exception
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company
and its environment obtained in the course of the audit, we have not identified material
misstatements in:
• the Strategic report or the Directors’ report; or
• the information about internal control and risk management systems in relation to financial
reporting processes and about share capital structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
• 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 and the part of the Directors’ remuneration
report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a corporate governance statement has not been prepared by the Parent Company.
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.
A further description of our responsibilities for the audit of the financial statements is located
on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our Auditor’s report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were appointed by the
Directors on 25 April 2019 to audit the financial statements for the 52 week period ended
24 November 2019. This is the first period audited by BDO LLP.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Parent Company and we remain independent of the Group and the Parent
Company in conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the
Parent Company’s members as a body, for our audit work, for this report, or for the opinions
we have formed.
Gary Harding (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Manchester
25 February 2020
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
88 McColl’s Retail Group plc Annual Report and Accounts 2019
Consolidated income statement
for the 52 week period from 26 November 2018 to 24 November 2019
Revenue
Cost of sales
Gross profit/(loss)
Administrative expenses
Other operating income
Profits/(losses) arising on property-related items
Operating profit/(loss)
Finance costs
Profit/(loss) before tax
Income tax (charge)/credit
Profit/(loss) for the period
Earnings/(losses) per share (pence)
Diluted earnings/(losses) per share (pence)
The above results were derived from continuing operations.
Note
4
4
6
8
9
11
11
Adjusted
2019
£’000
1,218,700
(902,968)
315,732
(306,684)
6,255
39
15,342
(8,043)
7,299
(902)
6,397
5.55p
5.55p
Adjusting
items
2019
Note 5
£’000
–
–
(99,805)
–
(5,977)
(105,782)
(160)
(105,942)
3,608
(102,334)
Total
2019
£’000
1,218,700
(902,968)
315,732
(406,489)
6,255
(5,938)
(90,440)
(8,203)
(98,643)
2,706
(95,937)
(83.30)p
(83.30)p
Adjusted
2018
£’000
1,241,539
(919,003)
322,536
(311,442)
6,811
416
18,321
(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)
(2,595)
1,762
(833)
Consolidated statement of comprehensive income
for the 52 week period from 26 November 2018 to 24 November 2019
(Loss)/profit for the period
Items that will not be reclassified subsequently to profit or loss
Remeasurement of defined benefit pension scheme
Deferred tax on defined benefit pension scheme
Corporation tax on defined benefit pension scheme
Total comprehensive (loss)/income for the period
The profit/(loss) and total comprehensive (loss)/income are attributable to the owners of the Parent Company.
Note
28
9
9
2019
£’000
(95,937)
(5,819)
706
316
(100,734)
Total
2018
£’000
1,241,539
(920,431)
321,108
(318,560)
6,811
6,525
15,884
(8,017)
7,867
(1,016)
6,851
5.95p
5.94p
2018
£’000
6,851
859
(150)
–
7,560
89
GovernanceFinancial statementsStrategic report Equity
Share capital
Share premium
Retained earnings
Equity attributable to owners of the Company
* see note 32.
Note
25
25
2019
£’000
(115)
(12,580)
(25,970)
(38,665)
2018
Restated*
£’000
(115)
(12,580)
(128,785)
(141,480)
These financial statements of McColl’s Retail Group, registered number 08783477, were
approved and authorised for issue by the Board on 25 February 2020 and signed on its
behalf by:
Robbie Bell
Director
Financial statements continued
Consolidated statement of financial position
for the 52 week period from 26 November 2018 to 24 November 2019
Note
2019
£’000
2018
Restated*
£’000
12
13
24
28
14
16
17
18
19
20
23
20
19
23
24
28
77,113
156,898
1,350
11,502
–
246,863
86,434
39,036
912
36,999
163,381
410,244
(215,534)
(11,231)
–
(2,528)
(229,293)
(65,912)
(119,887)
(10,755)
(3,186)
(4,813)
(3,645)
(142,286)
(371,579)
38,665
92,314
252,747
97
14,122
36
359,316
79,795
41,984
–
28,547
150,326
509,642
(215,986)
(12,148)
(673)
(4,627)
(233,434)
(83,108)
(114,989)
(9,552)
(1,042)
(6,895)
(2,250)
(134,728)
(368,162)
141,480
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
Income tax asset
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Income tax liability
Provisions
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
90 McColl’s Retail Group plc Annual Report and Accounts 2019
Consolidated statement of changes in equity
for the 52 week period from 26 November 2018 to 24 November 2019
Consolidated statement of cash flows
for the 52 week period from 26 November 2018 to 24 November 2019
At 26 November 2018
Loss for the period
Remeasurement of
defined benefit pension
scheme
Total comprehensive
income
Contributions by and
distributions to owners
Dividends
Deferred tax
Share-based payment
transactions
At 24 November 2019
At 27 November 2017
Profit for the period
Remeasurement of
defined benefit pension
scheme
Total comprehensive
income
Contributions by and
distributions to owners
Dividends
New share capital
subscribed
Deferred tax
At 25 November 2018
Note
10
9
29
Note
Share
capital
£’000
115
–
–
Share
premium
£’000
12,580
–
–
Retained
earnings
£’000
128,785
(95,937)
(4,797)
Total
equity
£’000
141,480
(95,937)
(4,797)
–
–
–
–
–
–
–
–
(100,734)
(100,734)
(2,188)
(14)
121
(2,188)
(14)
121
115
12,580
25,970
38,665
Share
capital
£’000
115
–
–
Share
premium
£’000
12,579
–
–
Retained
earnings
£’000
133,214
6,851
709
Total
equity
£’000
145,908
6,851
709
–
–
–
–
115
–
–
1
–
12,580
7,560
7,560
(11,862)
–
(127)
128,785
(11,862)
1
(127)
141,480
Cash flows from operating activities
(Loss)/profit for the period
Adjustments to cash flows from non-cash items
Depreciation and amortisation
Profit on disposal of property, plant and equipment
Profit from disposals of investments
Finance costs
Share-based payment transactions
Income tax (credit)/charge
Impairment losses
Increase in inventories
Decrease/(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
Acquisition of property, plant and equipment and
other intangibles
Proceeds from sale of property, plant and equipment
Acquisition of businesses, net of cash acquired
Proceeds from investments disposals
Net cash flows from investing activities
Cash flows from financing activities
Interest paid
Proceeds from issue of ordinary shares,
net of issue costs
Draw down/(repayment) of 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
* see note 32.
Note
2019
£’000
2018
Restated*
£’000
(95,937)
6,851
6
6
8
29
9
6
28
23
15
21
21
8
10
16,676
(1,497)
(132)
8,203
121
(2,706)
101,276
26,004
(6,600)
2,948
609
(1,804)
45
21,202
(1,205)
19,997
(14,427)
11,499
(1,188)
84
(4,032)
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
(19,672)
27,410
(4,513)
–
3,225
(7,412)
(7,928)
–
4,000
(1,741)
(172)
(2,188)
(7,513)
8,452
28,547
36,999
1
(29,000)
(1,858)
(148)
(11,862)
(50,795)
14,274
14,273
28,547
91
GovernanceFinancial statementsStrategic report
Financial statements continued
Notes to the financial statements
for the 52 week period from 26 November 2018 to 24 November 2019
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 2019 consolidate the financial statements of McColl’s
Retail Group plc (the ‘Company’) and all its subsidiary undertakings (together, ‘the Group’)
drawn up to 24 November 2019. 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.
92 McColl’s Retail Group plc Annual Report and Accounts 2019
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 24 November 2019.
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
Adoption of new IFRSs
The Group has adopted IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts
with Customers’ effective for the period commencing 26 November 2018.
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 Group has applied the standard using the modified retrospective approach to transition.
Any transition differences will be recognised as an adjustment to the opening reserves.
Management has assessed the impact of changes under the new standard. Given that the
Group does not hold significant financial assets and liabilities other than borrowings, payables
and receivables, operates under the ‘hold to collect’ business model, and the Group’s trade
debtors are very short term and all customers pay in cash or by credit card, the adoption of
IFRS 9 has not had a material impact on the Group’s accounting policies or classification and
measurement of financial instruments.
The Group has applied, the simplified approach for the expected credit loss for its financial
assets and there was no impact as the Group already had a procedure in place which not
only wrote down receivables when they are no longer recoverable (incurred losses) but also
took into consideration possible expected losses.
The Group has changed the classification of its financial assets, i.e. receivables have
become financial assets at amortised cost in line with IFRS 9 and there was no impact
on measurement.
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 Group has applied the standard using the modified retrospective approach to transition.
However there aren’t any transition differences required to be recognised as an adjustment
to the opening reserves. Due to the straightforward nature of the Group’s revenue streams
the revenue recognition policy under IFRS 15 is the same as the accounting policy previously
applied. The recognition of revenue at the point of sale and the absence of significant
judgement required in determining the timing of transfer of control, means the adoption
of IFRS 15 has not had a material impact on the timing or nature of the Group’s revenue
recognition. The point at which control passes is in line with when risks and rewards are
transferred under IAS 18. The Group recognises revenue only when it satisfies a performance
obligation by transferring control of a promised good or service to the customer.
In arriving at this conclusion management has reviewed the following revenue streams:
• Retail sales – recognised as revenue at the point of sale when customers pay for the
transaction at which point control passes to customers. There are no customer incentive
schemes for which customers can earn points to redeem later.
• Commissions from third parties – these commissions are based on sales or service delivery
to customers and we recognise commissions as revenue at the point of sale or service
delivered to customers as at that point we have earned the commission and it is normally
remitted to us within a relatively short period of time.
IFRS 16 ‘Leases’
The Group is adopting IFRS 16 ‘Leases’ for the 53 weeks ending 29 November 2020 with a
transition date of 25 November 2019. The standard replaces IAS 17 and establishes principles
for the recognition, measurement, presentation and disclosure of leases. IFRS 16 eliminates
the classification of leases as either operating leases or finance leases and introduces a
single lessee accounting model. On the adoption of IFRS 16, lease agreements will give rise
to both a right-of-use asset and a lease liability for future lease payables. The right-of-use
asset will be depreciated on a straight-line basis over the life of the lease. Interest will be
recognised on the lease liability, resulting in a higher interest expense in the earlier years of
the lease term. The total expense recognised in the income statement over the life of the
lease will be unaffected by the new standard. However, IFRS 16 will result in the timing of lease
expense recognition being accelerated for leases which would be currently accounted for
as operating leases. The Group will elect to use the exemptions proposed by the standard
on lease contracts for which the lease terms end within 12 months as of the date of initial
application, and lease contracts for which the underlying asset is of low value.
Transition
The Group will apply the modified retrospective transition approach as at 25 November 2019,
and comparative amounts for the prior year will not be restated on first adoption. The
right-of-use assets will be measured on a lease by lease basis at either the amount of
the lease liability on adoption (adjusted for any prepaid or accrued lease expenses) or
retrospectively as if IFRS 16 had always applied. The Group will also adopt following transitional
reliefs (practical expedients):
• The Group is not required to re-assess whether existing contracts contain a lease on
transition instead it will apply the IFRS 16 definition of a lease to contracts entered (or
changed) on or after the date of initial application (25 November 2019). For all other
contracts, the Group will retain the assessment made under IAS 17/IFRIC 4.
• Apply a single discount rate to a portfolio of leases with similar characteristics.
• Apply IAS 37 onerous lease assessment recognised immediately before the date of initial
application instead of an IAS 36 impairment review.
• Exclude initial indirect costs from measurement of right-of-use asset at date of
initial application.
• Other income – this includes property and rental income, both of which are recognised in
• No requirement to recognise leases when the term ends within 12 months of the date of
the income statement on an accrual basis for the relevant period.
initial application.
The Group has not restated any comparative amounts as the impact of IFRS 9 and IFRS 15 is
not material.
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:
• Use hindsight such as in determination of lease term.
93
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
2 Accounting policies continued
Impact on the financial statements
Most significant lease liabilities relate to leases for shops and following an assessment of all
operating leases these are the only leases that will be transitioned.
On transition the opening balances for the Consolidated statement of financial position will
be adjusted for the right-of-use asset of approximately £197m (adjusted for onerous leases),
with corresponding lease liabilities of approximately £211m. The indicative impact on the
Consolidated income statement will reflect an increase to operating profit of approximately
£7.3m as the pre-IFRS 16 rental charge is replaced by a lower depreciation charge.
Profit before tax will decrease by approximately £1.6m as a result of an increase in the interest
charge of approximately £8.9m. We do not expect the adoption of IFRS 16 to have a material
impact on the Group’s effective tax rate.
There will be no impact on cash flows, although the presentation of the Cash Flow Statement
will change significantly, with an increase in net cash inflows from operating activities being
offset by an increase in net cash outflows from financing activities (interest paid).
Adoption of IFRS 16 is expected to result in higher net debt due to IFRS 16 lease liabilities of
£211m. EBITDA is expected to increase by £31m due to rent elimination of leases subject to
IFRS 16. The Group’s bank covenants are based on frozen accounting standards pre IFRS 16
adoption. IFRS 16 has no effect the Group’s business or cash flow, however it does impact the
way assets, liabilities and the income statement are presented.
Key judgements regarding incremental borrowing rates and lease terms have been
applied in deriving the anticipated impact of adoption of the new standard. One of these
judgements relates to the treatment of properties where the current lease term has expired
but the Group remains in occupation under the protection of Landlord and Tenants Act of
1954 s25-26. For these leases either party can serve a notice of 6–12 months to terminate the
lease. The Group has used judgement to evaluate that there is no significant penalty for
such leases and concluded that these leases will be non-enforceable under the provisions
of IFRS 16.
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
94 McColl’s Retail Group plc Annual Report and Accounts 2019
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 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. Treatment as 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 performance
obligations have been completed, control of goods and services have been passed to the
buyer and can be measured reliably.
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 supplier rebates receivables.
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 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 charge 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.
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
Depreciation method and rate
Land and buildings:
Freehold (including land where it is not separately identifiable)
Long leaseholds improvements
Land (if separately identifiable)
Short leaseholds improvements – Shops & Other
Leasehold premiums
Furniture, fittings & equipment:
Motor vehicles
Computer equipment
Furniture and fittings
Straight-line basis: 50 years
Straight-line basis: 50 years
Nil
Straight-line basis: 10 years
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.
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 capital profits.
Intangible assets impairment
For the purposes of impairment testing, goodwill is allocated to each of the Group’s CGUs
expected to benefit from the synergies of the combination. Cash generating units CGU to
which goodwill has been allocated are tested for impairment annually, or more frequently
when there is an indication that the unit may be impaired. If the recoverable amount of
the CGU is less than the carrying amount of the unit, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
95
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
2 Accounting policies continued
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.
96 McColl’s Retail Group plc Annual Report and Accounts 2019
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.
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. The internally generated software is recognised when an approval has
been agreed to develop software for internal use for which function and benefit has been
identified. Expenditure incurred in relation to the development of such software to prepare
it for use are pooled together in project and become the cost of the intangible asset (in line
with IAS 38 Intangible Assets). The costs are capitalised and amortised on a straight-line basis
over their useful economic lives of five years and are included within other intangible assets.
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 fair value which is generally equal to the
transaction price and subsequently held at amortised cost. They are amortised using the
expected loss model. We use a provision matrix that recognises an expected loss based
on age of the receivable as well as any specific receivable where 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 movement in the provision amount is recognised in the
income statement.
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.
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.
Trade payables are recorded initially at fair value and subsequently measured at amortised
cost. Generally this results in their recognition at their transaction cost.
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.
Dilapidations
The Group provides for property dilapidations, where appropriate, based on the future
expected repair costs required to restore the Group’s leased buildings to their fair condition
at the end of their respective lease terms.
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.
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.
Defined contribution pension obligation
Contributions to defined contribution pension schemes are charged to the income statement
in the year to which they relate.
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.
97
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
2 Accounting policies continued
Defined benefit pension obligation continued
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.
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.
For further detail please refer to note 29.
Financial instruments
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending
on the purpose for which the asset was acquired.
Amortised cost
The assets within the amortised cost category were included within loans and receivables
category under IAS 39.
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 (eg
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 expected credit loss. The Group operates a hold to collect model.
98 McColl’s Retail Group plc Annual Report and Accounts 2019
Impairment provisions are recognised using the expected loss model as well as any specific
financial asset where 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 financial assets,
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 financial asset will not be collectable, the gross carrying
value of the asset is written off against the associated provision.
The Group’s financial assets 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.
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 causing material adjustments in the following
year’s results.
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.
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 cash generating units 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 five 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. Estimation is limited to purchases for the final
month of the year which is done based on run rates of performance through the year.
Once purchases are estimated the amount due is based on contractual terms based on the
level of purchases.
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.
Supplier income first recognised in the period ended 25 November 2018 was being released
over the life of the contract. The methodology applied to releasing the income over the life
of the contract was updated in the year to reflect the store optimisation programme and
aligning income to trading stores and therefore management’s best estimate of the timing
of delivery of the performance obligation. This resulted in an additional £1.1m income being
recognised in the year.
Accrued income makes up 55% of the supplier rebates receivables at the balance sheet
date. Whilst accrued income involves management estimation, actual results are unlikely
to be materially different to the carrying amount on the balance sheet.
Pension
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 income and the Group statement of financial position.
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.
The analysis of the Group’s revenue for the period from continuing operations is as follows:
Revenue
Sale of goods
Other operating income
Property rental income
ATM commission and other income
2019
£’000
2018
£’000
1,218,700
1,241,539
3,004
3,251
6,255
1,224,955
3,249
3,562
6,811
1,248,350
99
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
5 Adjusting items
Due to their significance or one-off nature, certain items have been classified as adjusting
as follows:
Cost of sales
Supplier administrationa
Supply chain transitionb
Gross loss
Administrative expenses
Fines and compensationc
Supplier administrationa
Supply chain transitionb
Defined benefit pension scheme – past service costd
Business reorganisationh
Goodwill Impairmenti
(Profits)/losses arising on property-related items
Sale and leasebacke
Store optimisation programmef
Fixed asset Impairmentg
Finance costs
Store optimisation programmef
Tax effect on adjusting items
2019
£’000
2018
£’000
–
–
–
584
–
–
–
622
98,599
99,805
807
621
1,428
1,236
935
4,306
641
–
–
7,118
c. Fines and compensation
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. A total of £1,236k for these fines was recognised in 2018, In 2019 the Group recognised £234k mainly
professional fees related to the health and safety fine as well as £350k for a claim for historical asbestos-related illness. The cash
flow impact for the Group in 2019 was £234k.
d. Past service cost
Management has 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. There was no impact from
this adjustment in the current year.
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 relating to the sale and leaseback of property
were significant and therefore not in line with ordinary business and should therefore be treated as adjusting. This resulted in a
net cash inflow of £8.6m (2018: £26.7m).
f. Store optimisation programme
Management has 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 or strategically aligned. 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 2019 or
will close in 2020. Management has 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 2020. Management has
classified these as adjusting due to the one-off nature of the closure programme. This resulted in a net cash outflow of £580k
(2018: £861k).
(3,257)
(11,941)
g. Impairment
6,557
2,677
5,977
160
(3,608)
102,334
2,535
3,297
(6,109)
158
(1,762)
833
Management has assessed the value in use cash flow of each branch against the carrying value of its assets, and 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. Business reorganisation
During the period the Group has been reviewing its operations, and has been focusing on improving productivity and
efficiency. This has in turn led to material costs associated with restructuring, predominantly the cost of redundancies, resulting
in a net cash outflow in the period of £622k.
i. Goodwill impairment
Management has assessed goodwill impairment at the end of the year according to IAS 36. In assessing impairment
management has used value in use as it was higher than the market value of the business. The value in use cash flows were
lower than the aggregate of the Group’s total assets and therefore indicating impairment which resulted in goodwill being
impaired. Further information can be found in note 13. There was no cash flow impact in the year from this adjustment.
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 has classified these as
adjusting items. This resulted in a net cash outflow of £1.7m in 2018. There was no impact from this adjustment in the current year.
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. This resulted in a net cash outflow of
£4.9m in 2018. There was no impact from this adjustment in the current year.
100 McColl’s Retail Group plc Annual Report and Accounts 2019
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
Note
12/13
12/13
2019
£’000
16,676
17,587
36,961
(1,497)
101,276
928,260
2018
Restated*
£’000
17,054
16,471
35,868
(14,994)
3,297
951,073
*
restated profit on disposal of property, plant and equipment to be only proceeds less net book value.
The analysis of the Auditors’ remuneration is as follows:
Audit fees
Audit of Group
Other services
Audit related assurance services (including interim review)
2019
£’000
2018
£’000
245
30
275
283
43
326
Included within the audit fee total for the year is an amount of £45,000 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 Group also adjust for share-based payments as a non cash item. 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.
Adjusted EBITDA excluding property-related items
and share-based payments
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 contribution scheme
Share-based payment expenses
Note
2019
£’000
2018
£’000
15,342
16,676
(39)
121
32,100
15,342
(39)
15,303
2019
£’000
171,250
16,555
3,032
121
190,958
18,321
17,054
(416)
–
34,959
18,321
(416)
17,905
2018
Restated*
£’000
175,664
17,142
1,589
–
194,395
* Management has restated 2018 costs correcting an error. Note 7 now includes all payroll costs of the Group.
The average number of persons employed by the Group (including Directors) during the
period, analysed by category was as follows:
Retailing
Central administration
2019
18,857
457
19,314
2018
20,507
507
21,014
101
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
8 Finance income and costs
The differences are reconciled below:
Finance Income
Finance costs
Interest on bank overdrafts and borrowings
Interest on obligations under finance leases and hire
purchase contracts
Amortisation of loan issue costs
Other finance costs
Total 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 (credit)/charge for the period
Equity items
Share-based payment
Fixed assets
Other comprehensive income
Deferred tax in respect of actuarial valuation of retirement benefits
Corporation tax in respect of actuarial valuation of retirement
benefits
Total
102 McColl’s Retail Group plc Annual Report and Accounts 2019
2019
£’000
–
2018
£’000
–
(7,341)
(7,289)
(172)
(496)
(194)
(8,203)
(148)
(415)
(165)
(8,017)
2019
£’000
2018
£’000
507
(570)
(63)
(2,473)
260
(430)
(2,643)
(2,706)
14
–
14
(706)
(316)
(1,022)
2,858
(7)
2,851
(2,123)
234
54
(1,835)
1,016
92
35
127
150
–
150
(Loss)/profit before tax
Tax on profit calculated at standard rate for 2019 of 19.00%
(2018: 19.00%)
Fixed Assets
Expenses not deductible
Goodwill impairment
Deferred tax on share options
Adjustments in respect of prior years
Arising from change in rate of tax
Exempt amounts
Disposal of business combination assets
Total tax (credit)/charge
2019
£’000
(98,643)
(18,742)
(10)
407
16,755
31
(1,000)
260
721
(1,128)
(2,706)
2018
£’000
7,867
1,495
–
817
–
55
47
234
605
(2,237)
1,016
Changes to the UK corporation tax rates were enacted as part of Finance Bill 2015 on
18 November 2015. These included reductions to the main rate to reduce the rate to 19% from
1 April 2017 and to 18% from 1 April 2020. A subsequent change to reduce the UK corporation
tax rate to 17% from 1 April 2020 was enacted as part of Finance Bill 2016 on 6 September 2016.
The tax credit for the 52 week period was £2,706,000, (2018: £1,016,000 charge) representing a
rate of 2.7% (2018: 12.9%). The comparable effective rate of tax in 2019 excluding the impact of
non-deductible adjusting items was 12.4% (2018: 26.6%). The difference between the current
and statutory rate of 19.0% in the period is due principally to goodwill impairment which had
limited tax relief.
Amounts recognised in other comprehensive income
2019
Before tax
£’000
Tax benefit
£’000
Net of tax
£’000
Before tax
£’000
2018
Tax
(expense)
£’000
Net of tax
£’000
Remeasurements of
post-employment
benefit obligations
(5,819)
1,022
(4,797)
859
(150)
709
10 Dividends
12 Property, plant and equipment
Interim 2019 dividend of 1.3p (2018: 3.4p) per ordinary share
Final 2018 dividend of 0.6p (2017: 6.9p) per ordinary share
2019
£’000
1,497
691
2,188
2018
£’000
3,916
7,946
11,862
The Directors are not proposing a final 2019 dividend (2018: 0.6 pence).
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.
Basic weighted average number of shares
Diluted weighted average number of shares
(Loss)/profit attributable to ordinary shareholders (£'000)
Basic (losses)/earnings per share
Anti diluting (losses)/diluted earnings per share
Adjusted earnings per share:
(Loss)/profit attributable to ordinary shareholders (£'000)
Adjusting items (note 5) (£’000)
Tax effect of adjustments (£’000)
Profit after tax and before adjusting items (£’000)
Basic adjusted earnings per share
Diluted adjusted earnings per share
2019
2018
115,177,335
115,296,380
(95,937)
(83.30)p
(83.30)p
115,173,145
115,331,969
6,851
5.95p
5.94p
(95,937)
105,942
(3,608)
6,397
5.55p
5.55p
6,851
2,595
(1,762)
7,684
6.67p
6.66p
The difference between the basic and diluted average number of shares represents the dilutive
effect of share options in existence. As 2019 has an overall loss the shares are not diluting.
The diluted weighted average number of ordinary shares is calculated using the following:
Ordinary shares in issue at the start of the period
115,173,515
Effects of shares issued during the period
3,820
Weighted average shares in issue during the year
115,177,335
Effect of shares to be issued for the Long term incentive plan (LTIP)
119,045
Weighted average number of ordinary shares at the end of the period 115,296,380
115,172,774
371
115,173,145
158,824
115,331,969
* Effect of shares issued during the period are now weighted and the effect of shares to be issued for LTIPs revised.
2019
2018
As restated*
Cost or valuation
At 27 November 2017
Additions
Acquired through business combinations
Disposals
Transfers to software
At 25 November 2018
At 26 November 2018
Additions
Acquired through business combinations
Disposals
Transfers to software
At 24 November 2019
Depreciation
At 27 November 2017
Charge for period
Eliminated on disposal
Impairment
Transfers to software
At 25 November 2018
At 26 November 2018
Charge for the period
Eliminated on disposal
Impairment
Transfers to software
At 24 November 2019
Carrying amount
At 24 November 2019
At 25 November 2018
Land and
buildings
£’000
Furniture,
fittings and
equipment
£’000
68,003
5,849
726
(15,473)
(1,133)
57,972
57,972
3,238
430
(8,448)
(290)
52,902
17,077
4,678
(349)
–
(94)
21,312
21,312
4,590
(320)
1,816
(350)
27,048
25,854
36,660
110,151
13,968
1,314
1,429
–
126,862
126,862
9,482
95
(4,689)
–
131,750
57,512
11,678
(1,279)
3,297
–
71,208
71,208
11,237
(2,815)
861
–
80,491
51,259
55,654
Total
£’000
178,154
19,817
2,040
(14,044)
(1,133)
184,834
184,834
12,720
525
(13,137)
(290)
184,652
74,589
16,356
(1,628)
3,297
(94)
92,520
92,520
15,827
(3,135)
2,677
(350)
107,539
77,113
92,314
103
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
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 £5,320,000 (2018: £13,855,000).
13 Intangible assets
Included within fixtures and fittings is £4,196,000 of finance lease assets (2018: £4,655,000).
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
five-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 pre-tax weighted
average cost of capital (WACC) of 11.5% (2018: 11.75%). Management extrapolated the cash
flows to perpetuity with a growth rate of nil as this was considered to be a prudent basis.
Further detail of our considerations and sensitivities are included within the going concern
assessment set out in the Directors’ report section on page 77.
The annual impairment testing resulted in an impairment charge of £2,677,000
(2018: £3,297,000) against branch assets.
Cost or valuation
At 27 November 2017
Additions
Transfer from PPE
At 25 November 2018
At 26 November 2018
Additions
Disposals
Transfers from PPE
At 24 November 2019
Amortisation
At 27 November 2017
Amortisation charge
Transfer from PPE
At 25 November 2018
At 26 November 2018
Amortisation charge
Amortisation eliminated on disposals
Impairment
Transfers from PPE
At 24 November 2019
Carrying amount
At 24 November 2019
At 25 November 2018
Goodwill
£’000
251,551
2,029
–
253,580
253,580
745
–
–
254,325
4,234
–
–
4,234
4,234
–
–
98,599
–
102,833
151,492
249,346
Other
intangible
assets
£’000
6,801
1,478
1,133
9,412
9,412
2,933
(21)
290
12,614
5,219
698
94
6,011
6,011
849
(2)
–
350
7,208
Total
£’000
258,352
3,507
1,133
262,992
262,992
3,678
(21)
290
266,939
9,453
698
94
10,245
10,245
849
(2)
98,599
350
110,041
5,406
3,401
156,898
252,747
Amortisation expenses of £849,000 (2018: £698,000) are included in administrative expenses.
104 McColl’s Retail Group plc Annual Report and Accounts 2019
Budgeted cash flows
Management has conducted sensitivity analysis on the CGUs value in use by reducing the
anticipated future cash flows. A reduction of 0.5% in LFL sales would increase the impairment
by £12m.
14 Investments
Investments at cost
2019
£’000
–
2018
£’000
36
The investments related to shares held in an entity outside the Group which have
been disposed.
Group subsidiaries
Details of the Group subsidiaries as at 24 November 2019 are shown on page 106.
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.
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.
Management recognise an impairment where the carrying amount is more than the
recoverable amount of the CGU. The recoverable amount is the higher of the fair value less
costs to sell and the value in use of the CGU. For the purposes 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. Management has used value in use of
the CGU as the recoverable amount as it was higher than total enterprise value. The value in
use was calculated as a discounted cash flow model and 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 5-year period, which has been approved by the Board. Cash flows beyond this period are
extrapolated using a long-term growth rate of nil and discounted with a pre-tax weighted
average cost of capital (WACC) of 11.5% (2018: 11.75%). Management extrapolated the cash
flows to perpetuity with a growth rate of nil as this was considered to be a prudent basis.
Budget and forecast EBITDA is taken as the starting position for cash flows and any benefit
from future new business and the associated expenditure to acquire the new business
is excluded.
The budget and long term forecasts will have taken into consideration future business
environment and will include assumptions on growth of revenue and increase in costs
such as minimum wage increases. Revenue growth has been assumed at an average
of 1% annual growth for the five-year period. Wage inflation is assumed at around 3% per
annum whilst general cost inflation is assumed at an average annual growth rate of 2%.
In comparison to 2018 assumptions a reduction of annual margin improvement and a
downgrade on the outlook for sales growth has been assumed. It is this lower expectation
of sales and margin improvement which has materially reduced the recoverable amount.
The recoverable amount per value in use calculations was £228.6m versus the CGUs carrying
amount of £327.2m resulting in an impairment charge of £98.6m (2018: nil) included in
administrative expenses in the income statement.
Sensitivity analysis
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 0.5 percentage point
change in WACC, which would change the impairment by £10m.
105
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
14 Investments continued
Name of subsidiary
Bracklands Limited
Charnwait Management Limited
Clark Retail Limited
Dillons Stores Limited
Forbuoys 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 Retail Limited
Price Smasher 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
*
indicates direct investment of the Company.
Principal activity
Property Company
Retailing
Retailing
Retailing
Dormant
Intermediate Holding Co
Dormant
Dormant
Corporate activities
Retailing
Intermediate Holding Co
Retailing
Dormant
Dormant
Intermediate Holding Co
Intermediate Holding Co
Dormant
Retailing
Intermediate Holding Co
Predecessor Holding Co
Dormant
Corporate Activities
Intermediate Holding Co
Registered office
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
Proportion of ownership interest
and voting rights held 2019
Proportion of ownership interest
and voting rights held 2018
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 take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 24 November 2019:
Bracklands Limited, Charnwait Management Limited, Clark Retail Limited, Dillons Stores Limited, Martin McColl Limited, Martin McColl Retail 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’s consolidated financial statements for the period.
The Parent Company guarantee the debts and liabilities of these UK subsidiaries at the balance sheet date in accordance with section 479C of the Companies Act 2006.
106 McColl’s Retail Group plc Annual Report and Accounts 2019
15 Business Combinations
During the period, the Group made 3 trade and asset acquisitions, none of which were
individually considered material to the Group. 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
Dilapidations and off-profile stock provision
Cash consideration
16 Inventories
Finished goods and goods for resale
* see note 32.
Included in inventories is a stock provision of £2.1m (2018: £2.3m).
17 Trade and other receivables
Trade receivables
Supplier rebates
Prepayments
Other receivables
Total current trade and other receivables
2019
£’000
525
39
745
(121)
1,188
2018
£’000
2,040
444
2,029
–
4,513
2019
£’000
2018
Restated*
£’000
86,434
79,795
2019
£’000
2,730
22,301
7,338
6,667
39,036
2018
£’000
3,269
25,002
8,384
5,329
41,984
The table below presents the balance and movements in the provision for impairment of
trade and other receivables.
At the beginning of the year
IFRS 9 adjustment
Increase in allowance charged to Group income statement
At the end of the year
Ageing of past due but not impaired receivables
31 to 60 days
61 to 90 days
Greater than 90 days
Supplier rebates receivable ageing
31 to 60 days
61 to 90 days
Greater than 90 days
18 Cash and cash equivalents
Cash at bank and in hand
2019
£’000
2018
£’000
357
–
171
528
2019
£’000
387
101
324
812
2019
£’000
1,312
161
2,245
3,718
213
–
144
357
2018
£’000
262
103
360
725
2018
£’000
482
97
535
1,114
2019
£’000
36,999
2018
£’000
28,547
107
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
19 Trade and other payables
20 Loans and borrowings
Current
Trade payables
Accrued expenses
Holiday pay accrual
Social security and other taxes
Other payables
Accrued interest
Deferred rebates & lease premiums
Non-current
Deferred rebates & lease premiums
* see note 32.
2019
£’000
2018
Restated*
£’000
175,059
26,005
1,186
6,976
1,462
299
4,547
215,534
166,759
30,814
1,272
9,868
2,107
335
4,831
215,986
10,755
10,755
9,552
9,552
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 for the
first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding
balances at various interest rates. The Group has financial risk management policies in place
to ensure that all payables are paid within the pre-agreed credit terms.
The Directors consider that the carrying amount of trade payables approximates to their
fair value.
Current
Bank borrowings
Finance lease liabilities
Non-current
Bank borrowings
Unamortised issue costs
Finance lease liabilities
* see note 32.
2019
£’000
10,000
1,231
11,231
2018
Restated*
£’000
10,000
2,148
12,148
119,500
(962)
1,349
119,887
115,500
(1,458)
947
114,989
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.
The current facility drawn as at 24 November 2019 is £129,500,000 (2018: £125,500,000).
In November 2018, the Group amended some of the terms of the existing facility. The Group
has an amortising £77,500,000 term loan and a £100,000,000 revolving credit facility with
a £50,000,000 accordion.
Details of loans and hire purchase obligations repayable within two- to five-years are
as follows:
Term loan and revolving credit facility available until
July 2021
Finance lease liabilities
2019
£’000
2018
Restated*
£’000
119,500
1,349
120,849
115,500
947
116,447
108 McColl’s Retail Group plc Annual Report and Accounts 2019
21 Net debt
Cash at bank and in hand
Term Loan and revolving credit facility available until
July 2021
Less: unamortised issue costs
Amounts due under hire purchase obligations
Net debt
Analysis of net debt
Note
18
2019
£’000
36,999
36,999
2018
£’000
28,547
28,547
(129,500)
962
(128,538)
(2,580)
(94,119)
(125,500)
1,458
(124,042)
(3,095)
(98,590)
Non cash movements
2018
£’000
Cash flow
£’000
Amortisation
of issue costs
£’000
Finance
lease
additions
£’000
Non current
to Current
movement
£’000
2019
£’000
(10,000)
(114,042)
(124,042)
10,000
(14,000)
(4,000)
–
(496)
(496)
–
–
–
(10,000)
(10,000)
10,000 (118,538)
– (128,538)
(2,148)
(947)
(3,095)
1,741
–
1,741
–
–
–
(319)
(907)
(1,226)
(505)
505
–
(1,231)
(1,349)
(2,580)
Bank borrowings
Current
Non current
Sub total
Finance lease liabilities
Current
Non current
Sub total
Non cash movements
2017
£’000
Cash flow
£’000
Amortisation
of issue costs
£’000
Finance
lease
additions
£’000
Non current
to Current
movement
£’000
2018
£’000
(10,000)
(142,968)
(152,968)
10,000
19,000
29,000
–
(74)
(74)
–
–
–
(10,000)
10,000
–
(10,000)
(114,042)
(124,042)
(1,799)
(1,754)
(3,553)
1,858
–
1,858
–
–
–
(996)
(404)
(1,400)
(1,211)
1,211
–
(2,148)
(947)
(3,095)
Bank borrowings
Current
Non current
Sub total
Finance lease liabilities
Current
Non current
Sub total
Arising from financing activities
(156,520)
30,858
(74)
(1,401)
Cash at bank and in hand
14,273
14,274
–
–
Net Debt
(142,247)
45,132
(74)
(1,401)
–
–
–
(127,137)
28,547
(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:
Arising from financing activities
(127,137)
(2,259)
(496)
(1,226)
Cash at bank and in hand
28,547
8,452
–
–
Net Debt
(98,590)
6,193
(496)
(1,226)
–
–
–
(131,118)
36,999
(94,119)
Land and buildings
Within one year
In two to five years
In over five years
2019
£’000
32,840
98,208
151,900
282,948
2018
£’000
32,096
99,971
119,655
251,722
In the period interest was charged as follows current bank borrowings £615k (2018: £531k]),
non current bank borrowings £5,901k (2018: £5,812k), current finance leases £92k (2018: £92k)
and non current finance leases £80k (2018: £56k).
As set out in note 4 property rental income earned during the year was £3,004,000
(2018: £3,249,000). The majority of the properties held have committed tenants for the next
three to five years. All operating lease contracts contain market review clauses in the event
that the lessee exercises its option to renew. The lessee does not have an option to purchase
the property at the expiry of the lease period.
109
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
22 Leases and commitments continued
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
2019
£’000
538
1,453
613
2,604
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
23 Provisions
At 26 November 2018
Movement in provisions
Utilised during the period
Unwinding of the discount included in provisions
At 24 November 2019
Non-current liabilities
Current liabilities
2019
£’000
1,336
1,429
2,765
(185)
2,580
Dilapidations
£’000
Onerous
contracts
£’000
4,074
(799)
(157)
–
3,118
2,078
1,040
1,595
2,135
(1,294)
160
2,596
1,108
1,488
2018
£’000
2,349
1,073
3,422
(327)
3,095
Total
£’000
5,669
1,336
(1,451)
160
5,714
3,186
2,528
Dilapidations
The provision includes estimates for certain properties for which the extent of the dilapidation
has not been established and include estimates of the cost at the end of the lease.
The provision is built up over the lease term expensing to the income statement.
110 McColl’s Retail Group plc Annual Report and Accounts 2019
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.
24 Deferred tax
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 and fixed assets where the gains have been rolled
into replacement assets.
Deferred tax at 24 November 2019 has been measured at 17% (2018: 17%) being the tax rate
enacted at the balance sheet date expected to be effective for future periods.
The Group only recognises deferred tax assets where it is probable it will be recoverable and
the temporary differences do not expire.
Deferred tax assets and liabilities
2019
Pension benefit obligations
Fixed assets
Goodwill
Other items
2018
Pension benefit obligations
Fixed assets
Goodwill
Other items
Net
deferred
tax
£’000
(1,336)
1,264
(3,477)
86
(3,463)
Net
deferred
tax
£’000
(2,018)
(957)
(3,920)
97
(6,798)
Liability
£’000
(1,336)
–
(3,477)
–
(4,813)
Liability
£’000
(2,018)
(957)
(3,920)
–
(6,895)
Asset
£’000
–
1,264
–
86
1,350
Asset
£’000
–
–
–
97
97
24 Deferred tax continued
Deferred tax movement during the period:
At
26 November
2018
£’000
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in equity
£’000
At
24 November
2019
£’000
Pension benefit
obligations
Fixed Assets
Goodwill
Other items
Net tax (liabilities)/assets
(2,018)
(957)
(3,920)
97
(6,798)
(24)
2,221
443
3
2,643
706
–
–
–
706
–
–
–
(14)
(14)
(1,336)
1,264
(3,477)
86
(3,463)
Deferred tax movement during the prior period:
At
27 November
2017
£’000
Recognised
in income –
As restated
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in equity –
As restated
£’000
At
25 November
– As restated
2018
£’000
(1,744)
(3,174)
(3,610)
172
(8,356)
(124)
2,252
(310)
17
1,835
(150)
–
–
–
(150)
–
(35)
–
(92)
(127)
(2,018)
(957)
(3,920)
97
(6,798)
Pension benefit
obligations
Fixed Assets
Goodwill
Other items
Net tax (liabilities)/assets
25 Share capital
At 26 November 2018
Shares issued during the period
At 24 November 2019
Number of
shares
115,173,515
20,394
115,193,909
Share capital
£’000
Share premium
£’000
115
–
115
12,580
–
12,580
The Group did not acquire any of its own shares for cancellation in the 52 weeks ending
24 November 2019 or 52 weeks ending 25 November 2018.
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.
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 24 November 2019, the Group had no material contingent liabilities (2018: nil).
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 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 floating rate financial liabilities comprise a sterling designated working capital facility and
hire purchase borrowings
The interest rate profile of the financial liabilities of the Group is as follows:
The Group issued 20,394 ordinary shares at 0.1 pence per share equal to the nominal value
of £20 as part of exercising LTIP share options.
The Company has one class of ordinary shares which carry no right to fixed income. All issued
shares are fully paid.
Fixed rated financial liabilities
Floating rate financial liabilities
Financial liabilities on which no interest is paid
Financial liabilities
2019
£’000
(2,580)
(129,500)
(219,313)
(351,393)
2018
Restated1
£’000
(3,095)
(125,500)
(215,670)
(344,265)
1 Management has restated 2018 to correct for two items; i) removing £9.8m of social security payables out of financial
instruments and ii) adjusting for the impact of reclassification of £2.6m from inventory to accruals in current liabilities
as disclosed in note 32.
111
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
27 Financial instruments and risk management continued
The interest rate profile of the financial assets of the Group is as follows:
Financial assets on which no interest is paid
* Restated to remove prepayments included in error.
2019
£’000
2018 Restated
£’000
68,697
62,183
If interest rates had been 0.5% higher during the period ended 24 November 2019, with
all other variables held constant, the post-tax profit for the period would have been
approximately £660,000 lower (2018: £475,000 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 a period of at least three periods. In addition management considers
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
2019
£’000
207,933
11,855
124,173
6,579
853
351,393
2018
Restated1
£’000
204,365
13,774
20,611
105,515
–
344,265
The disclosures above are the contractual undiscounted cash flows and exclude unamortised
finance costs.
1 Management has restated 2018 to correct for two items; i) removing £9.8m of social security payables out of financial
instruments and ii) adjusting for the impact of reclassification of £2.6m from inventory to accruals in current liabilities
as disclosed in note 32.
112 McColl’s Retail Group plc Annual Report and Accounts 2019
Borrowing facilities
The Group had certain borrowing facilities available to it for general working capital
requirements of which £52,000,000 has been drawn at 24 November 2019 (2018: £38,000,000).
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.
Set out below is a comparison by category of carrying values and fair values of all the Group’s
financial assets and financial liabilities:
Financial liabilities
Trade and other
short-term payables
Hire purchase borrowings
Long-term borrowings
Long-term payables
Financial assets
investments carried at
cost
Short-term receivables
Cash and short-term
deposits
24 November 2019
25 November 2018
As restated1
Carrying value
£’000
Fair value
£’000
Carrying value
£’000
(208,558)
(2,580)
(129,500)
(10,755)
(351,393)
(208,558)
(2,580)
(129,500)
(10,755)
(351,393)
(206,118)
(3,095)
(125,500)
(9,552)
(344,265)
Fair value
£’000
(206,118)
(3,095)
(125,500)
(9,552)
(344,265)
–
–
36
36
31,698
36,999
68,697
31,698
36,999
68,697
33,600
28,547
62,183
33,600
28,547
62,183
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.
27 Financial instruments and risk management continued
The Group’s net debt to capital ratio is as follows:
Net debt
Total equity (as defined above)
Debt to capital ratio
2019
£’000
94,119
30,808
3.05
2018
£’000
98,590
129,608
0.76
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.
28 Retirement benefit schemes
The Group accounts for pensions in accordance with IAS 19.
The Group operates two defined benefit pension schemes in the UK, the TM Group Pension
Scheme and the TM Pension Plan, in addition to several defined contribution schemes which
require contributions to be made to separately administered funds. Pension costs for defined
contribution schemes were £3,032,000 (2018: £1,649,000).
The two defined benefit pension schemes are subject to the UK regulatory framework for
pensions, including the Scheme Specific Funding requirements. The schemes are operated
under trust and, as such, the trustees of the schemes are responsible for operating the
schemes and they have a statutory responsibility to act in accordance with the Trust
Deed and Rules, in the best interest of the beneficiaries of the schemes, and UK legislation
(including Trust Law).
The nature of the schemes exposes the Group to the risk of paying unanticipated additional
contributions to the schemes in times of adverse experience. The most financially significant
risks are likely to be:
• Members living for longer than expected;
• Higher than expected actual inflation;
• Lower than expected investment returns; and
• The risk that movements in the value of the schemes’ liabilities are not met by corresponding
movements in the value of the schemes’ assets.
The sensitivity analysis disclosed is intended to provide an indication of 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.
The disclosures are based upon the preliminary valuation of the schemes which were carried
out as at 31 March 2016, updated to 24 November 2019 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
2019
%pa
2.95
2.05
n/a
2.90
2.10
2.00
2018
%pa
3.20
2.20
n/a
3.10
2.20
2.90
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
TM Group
Pension Scheme
TM Pension Plan
2019
years
86.8
88.6
88.2
90.2
2018
years
86.9
88.9
88.3
90.5
2019
years
87.0
88.6
88.2
90.1
2018
years
87.0
88.9
88.3
90.4
113
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
28 Retirement benefit schemes continued
Notes to the balance sheet
Fair value of scheme assets
Present value of funded scheme obligations
Net pension asset/(liability)
TM Group
Pension Scheme
2019
£’000
89,068
(77,566)
11,502
2018
£’000
83,313
(69,191)
14,122
TM Pension Plan
2018
As restated2
£’000
2019
£’000
50,642
(54,287)
(3,645)
46,988
(49,238)
(2,250)
On its balance sheet, the Group recognises £11,502,000 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’
Notes to the statement of comprehensive income (SCI)
Return on assets excluding amounts included
in net interest
Gains due to changes in demographic assumptions
(Losses)/gains due to changes in financial assumptions
Losses due to plan experience
Total recognised in SCI
TM Group
Pension Scheme
TM Pension Plan
2019
£’000
207
(410)
(203)
2018
£’000
451
(353)
98
2018
As restated2
£’000
688
69
757
2019
£’000
226
48
274
TM Group
Pension Scheme
TM Pension Plan
2019
£’000
2018
£’000
2019
£’000
2018
£’000
7,035
847
(7,462)
(3,562)
(3,142)
(1,985)
422
2,461
(580)
318
3,393
589
(5,398)
(1,261)
(2,677)
(207)
306
1,763
(1,299)
563
2 Management has restated 2018 to correct for a revision down of past service cost (including curtailment) and therefore total
service cost by £61k and a reduction of gains due to changes in financial assumptions by £2k. The net result of these two
adjustments was a reduction of £59k of the present value of funded scheme obligations.
114 McColl’s Retail Group plc Annual Report and Accounts 2019
Recognition of defined benefit obligation
Opening defined benefit obligation
Service costs (admin costs)
Past service cost (including curtailment)
Interest cost on defined benefit obligation
Gains due to changes in demographic assumptions
Losses/(gains) due to changes in financial assumptions
Losses due to plan experience
Benefits paid including expenses
Closing defined benefit obligation
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
TM Group
Pension Scheme
TM Pension Plan
2019
£’000
69,191
207
–
1,954
(847)
7,462
3,562
(3,963)
77,566
2018
£’000
75,489
273
178
1,862
(422)
(2,461)
580
(6,308)
69,191
2019
£’000
49,297
226
–
1,393
(589)
5,398
1,261
(2,699)
54,287
2018
As restated2
£’000
51,456
225
463
1,324
(306)
(1,763)
1,299
(3,460)
49,238
TM Group
Pension Scheme
TM Pension Plan
2019
£’000
83,313
2,364
319
7,035
(3,963)
89,068
2018
£’000
89,098
2,215
293
(1,985)
(6,308)
83,313
2019
£’000
46,988
1,345
1,615
3,393
(2,699)
50,642
2018
£’000
48,104
1,255
1,296
(207)
(3,460)
46,988
The Group expects to contribute £328,000 to the TM Group Pension Scheme and £1,747,000 to
the TM Pension plan in the period ended 29 November 2020.
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)
TM Group Pension Scheme
2019
£’000
1,209
34,598
33,033
4,265
1,268
14,695
89,068
2019
%
1
39
37
5
1
17
100
2018
£’000
(893)
34,583
25,715
4,392
1,671
17,845
83,313
2018
%
(1)
42
31
5
2
21
100
28 Retirement benefit schemes continued
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)
TM Group Pension Scheme
2019
£’000
1,608
4,898
16,792
4,265
1,675
7,762
13,642
50,642
2019
%
3
10
33
8
3
15
28
100
2018
£’000
(102)
5,948
10,766
4,392
843
7,941
17,200
46,988
2018
%
0
13
23
9
2
17
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 2027 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
Change in assumptions compared with
24 November 2019 and 25 November 2018
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)
TM Group
Pension Scheme
TM Pension Plan
Change in
actuarial
value of
liabilities on
2019
£’000
Change in
actuarial
value of
liabilities on
2018
£’000
Change in
actuarial
value of
liabilities on
2019
£’000
Change in
actuarial
value of
liabilities on
2018
£’000
5,295
3,103
4,637
2,768
4,117
2,171
3,728
1,972
2,138
2,020
2,566
2,542
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.
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 Plan (CSOP). Further details of the plans and amounts recognised in respect of these
are provided below.
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 3-year performance. Executive Directors’ vested shares will be subject
to an additional 2-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
un-vested 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.
115
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
29 Share-based payments continued
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 2018 the
weightings on EPS and TSR were 70% and 30% respectively. In 2019 the weighting was 50%
each. 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.
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
Exercised during the period
Outstanding, end of period
2019
Number
2,309,644
1,523,813
(332,238)
(16,570)
3,484,649
2018
Number
1,988,210
952,929
(631,495)
–
2,309,644
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
Exercised during the period
Outstanding, end of period
2019
£
1.79
0.85
1.44
1.48
1.41
2018
£
1.70
2.02
1.87
–
1.79
16,570 share options were exercised during the period by a member of the senior leadership
team, when the market share price at the date of exercise was 63p.
116 McColl’s Retail Group plc Annual Report and Accounts 2019
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 1.33 years.
The exercise price range is £0.85 to £1.79.
2019
1.41
3,484,649
1.33
2018
1.79
2,309,644
1.26
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 £0.63.
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
2 May 2019 (2018: 1 March and 15 August).
2 May 2019 15 August 2018
1 March 2018
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
0.85
42.10
3.00
–
0.76
8
1,523,813
1.34
39.00
3.00
7.86
0.68
2
277,776
2.30
35.00
3.00
4.43
0.93
10
675,153
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.
29 Share-based payments continued
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 £86,000
(2018: £29,000), which includes a reduction of £58,000 which relates to the reversal of prior
years charge.
The carrying value of the liability arising from share-based payments was £508,000
(2018: £422,000).
Company share option plan (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, with targets
which are consistent with the LTIP performance conditions. For CSOPs granted prior to 2018
performance conditions are 100% dependent on reaching an EPS growth target, with 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.
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
2019
Number
531,578
362,629
(201,804)
692,403
2018
Number
439,335
157,568
(65,325)
531,578
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
2019
1.86
0.85
1.59
1.41
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 4.33 years.
The exercise price range is £0.85 to £1.86.
2019
1.41
692,403
4.33
2018
1.68
2.30
1.68
1.86
2018
1.86
531,598
4.43
117
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the financial statements continued
for the 52 week period from 26 November 2018 to 24 November 2019
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 20 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 date of grant of the options granted in the period was 2 May 2019. CSOP shares
issued prior to 2018 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
2019
0.85
42.10
3.00
3.00
4.71
0.94
46
362,629
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 £35,000
(2018: £(29,000)).
The carrying value of the liability arising from share-based payments was £49,000
(2018: £14,000).
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
118 McColl’s Retail Group plc Annual Report and Accounts 2019
2019
£’000
1,935
86
2,021
2018
£’000
1,917
29
1,946
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 has evaluated subsequent events through 25 February 2020, which is the date
the consolidated financial statements were available to be issued.
On 21 February 2020, the Group exchanged contracts for the sale of the Group’s head office
building with a completion date of 31 December 2020 or earlier on three weeks’ notice from
the Group. The agreed selling price was £7.3m.
32 Prior Year Restatements
1. At 25 November 2018 the total value of the term loan was disclosed as a non-current
liability. The element of the term loan that was due within the next 12 months (£10m) is now
included within current liabilities, which is consistent with the payment schedule within the
term loan agreement. Management has corrected the error within the 2018 statement of
financial position by reclassifying £10m as a current liability.
2. Management has reviewed the accounting for the purchase of inventory across the
product portfolio. As at 25 November 2018 an accrual of £2.6m was incorrectly classified
against the carrying value of inventory. Management has corrected the error within
the 2018 statement of financial position by reclassifying £2.6m as a current liability
within accruals.
Neither of the above has any impact on the statement of comprehensive income or total
shareholder funds previously reported. The consolidated statement of cash flows has
been restated to take into account the £2.6m reclassification above, with the appropriate
amendment made to the disclosure of ‘increase in inventories’ (reduced by £2.6m) and
‘increase in trade and other payables’ (increased by £2.6m) in the statement, both of which
net to a £nil impact to previously reported cash generated from operations. The consolidated
statement of cash flows has been further restated to remove £1.4m from cash flows from
acquisition of property, plant and equipment within net cash flows from investment activities,
which was financed by finance leases (with the corresponding increase of £1.4m made to
payment of finance lease creditors, within net cash flows from financing activities). There has
been no change to the total net increase in cash and cash equivalents previously reported.
Company balance sheet
24 November 2019
Company statement of changes in equity
24 November 2019
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Total current assets and net current assets
Total assets
Shareholders’ equity
Equity share capital
Share premium account
Retained earnings1
24 November
2019
£’000
25 November
2018
£’000
Note
C4
C5
C6
C6
77
77
49,622
49,622
49,699
115
12,580
37,004
49,699
77
77
49,088
49,088
49,165
115
12,580
36,470
49,165
1 Profit for the year was £2,722,000 (2018: £1,583,000).
These financial statements of McColl’s Retail Group plc, registered number 08783477,
were approved and authorised for issue by the Board of Directors on 25 February 2020.
Signed on behalf of the Board of Directors
Robbie Bell
Director
As at 26 November 2018
Profit for the period
Dividends paid
As at 24 November 2019
As at 27 November 2017
Shares issued
Profit for the period
Dividends paid
As at 25 November 2018
Called up
share
capital
£’000
115
–
–
115
Called up
share
capital
£’000
115
–
–
–
115
Share
premium
account
£’000
12,580
–
–
12,580
Share
premium
account
£’000
12,579
1
–
–
12,580
Profit
and loss
account
£’000
36,470
2,722
(2,188)
37,004
Profit
and loss
account
£’000
46,750
–
1,583
(11,863)
36,470
Total
£’000
49,165
2,722
(2,188)
49,699
Total
£’000
59,444
1
1,583
(11,863)
49,165
119
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the Company financial statements
for the 52 week period ended 24 November 2019
C1. Basis of preparation
The Company’s financial period is the period from 26 November 2018 to 24 November 2019.
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 Retail Group plc.
For financial assets under IFRS 9, amounts owed to/by Group undertakings are initially
recorded at fair value, which is generally the proceeds received. They are subsequently
carried at amortised cost.
Provision for impairment of amounts owed by Group undertakings have been assessed based
on lifetime expected credit losses. No credit loss is expected on outstanding intercompany
balances, and therefore no provision has been recognised in the 52 weeks ended
24 November 2019 (2018: £nil).
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.
Taxation
Current taxation
Current tax is provided at amounts expected to be paid using the tax rates and laws that
have been enacted or substantively enacted at the balance sheet date. Current tax is
charged or credited to the income statement, except when it relates to items charged to
equity or other comprehensive income, in which case the current tax is also dealt with in
equity or other comprehensive income respectively.
Deferred taxation
Deferred tax is accounted for on the basis of temporary differences arising from differences
between the tax base and accounting base of assets and liabilities.
Deferred tax is recognised for all temporary differences, except to the extent where a
deferred tax liability arises from the initial recognition of goodwill or from the initial recognition
of an asset or a liability in a transaction that is not a business combination and, at the time
of 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.
C3. Staff costs including Directors’ remuneration
The average number of employees (all Executive Directors of the Company) during the
financial year was three (2018: 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.
C4. Investments
Shares in subsidiaries
Cost
Investments
24 November
2019
£’000
25 November
2018
£’000
77
77
120 McColl’s Retail Group plc Annual Report and Accounts 2019
The carrying value of the investment in subsidiary undertakings has been reviewed at 24 November 2019 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.
The following subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 24 November 2019. All the following subsidiaries
are included in 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.
Name of company
All held by the Company unless stated
Bracklands Limited
Charnwait Management Limited
Clark Retail Limited
Dillons Stores Limited
Forbuoys 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 Retail Limited
Price Smashers 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
*
Indicates direct investment of the Company.
Country of registration (or
incorporation) and operation
Holding
Proportion of voting rights
and shares held
Nature of business
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
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Property Co
Retail
Retailing
Retailing
Dormant
Intermediate Holding Co
Dormant
Dormant
Corporate activities
Retailing
Intermediate Holding Co
Retailing
Dormant
Dormant
Intermediate Holding Co
Intermediate Holding Co
Dormant
Retailing
Intermediate Holding Co
Predecessor Holding Co
Dormant
Corporate Activities
Intermediate Holding Co
121
GovernanceFinancial statementsStrategic report Financial statements continued
Notes to the Company financial statements
for the 52 week period ended 24 November 2019
C5. Trade and other receivables
24 November
2019
£’000
25 November
2018
£’000
49,622
49,088
C7. Dividends paid and proposed
The Board is not recommending a final 2019 dividend (2018: 0.6p), subject to shareholder
approval at the Annual General meeting to be held on 3 April 2020.
Amounts owed by Group undertakings
C6. Authorised, issued and fully paid share capital
As at 26 November 2018
Issued during the period
As at 24 November 2019
Number of
shares
Share capital
£’000
Share premium
£’000
115,173,515
20,394
115,193,909
115
–
115
12,580
–
12,580
Declared and paid during the year:
Equity dividends on ordinary shares:
Final 2018 dividend of 0.6p (2017: 6.9p)
Interim for 2019: 1.3p (2018: 3.4p)
Dividends paid
Proposed for approval by shareholders at the AGM:
Final dividend for 2019: nil (2018: 0.6p)
24 November
2019
£’000
25 November
2018
£’000
691
1,497
2,188
7,947
3,916
11,863
–
691
The Board has authorised the allotment of shares equal to the nominal value of £20,
the details of which are in the Group’s accounts note 25.
All issued shares are fully paid.
The Group did not acquire any of its own shares for cancellation in the 52 weeks ending
24 November 2019 or 52 weeks ending 25 November 2018.
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.
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.
122 McColl’s Retail Group plc Annual Report and Accounts 2019
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).
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.
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.
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 and share-based payments:
This profit measure shows the Group’s Earnings Before Interest, Tax, Depreciation and
Amortisation adjusted for both property gains and losses, share-based payments 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.
123
GovernanceFinancial statementsStrategic report Glossary of terms continued
APM
Income statement
Revenue measures
Sales mix
Closest equivalent
IFRS measure
Note reference
for reconciliation
Definition and purpose
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
Revenue YE18
Add VAT
Excl. non store rev.
Excl. acq/closures
LFL Sales 2018
Revenue 2019
Add VAT
Excl. non store rev.
Excl. acq/closures
LFL Sales 2019
LFL%
£1,242m
£153m
£(170)m
£(62)m
£1,163m
£1,219m
£150m
£(171)m
£(35)m
£1,163m
0.0%
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 11
Diluted earnings per share
Note 11
Borrowings less cash and
related hedges
Note 21
This profit measure shows the Group’s Earnings Before Interest, Tax, Depreciation and Amortisation adjusted
for both property gains and losses, share-based payments 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 26 November 2018 to 24 February
2019, ‘second quarter’ refers to the 13-week period from 25 February 2019 to 26 May 2019,
‘third quarter’ refers to the 13-week period from 27 May 2019 to 25 August 2019 and ‘fourth
quarter’ refers to the 13-week period from 26 August to 24 November 2019.
124 McColl’s Retail Group plc Annual Report and Accounts 2019
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 advisers
Travers Smith LLP
10 Snow Hill
London EC1A 2AL
Independent Auditor
BDO LLP
3 Hardman Street
Manchester M3 3AT
Company Secretary
Rachel Peat
McColl’s Retail Group plc
McColl’s House
Ashwells Road
Brentwood
Essex CM15 9ST
Registrar
Equiniti 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