McColls Retail Group plc Interim Results 26 Weeks to 28 May 2017 - - PowerPoint PPT Presentation

McColl’s Retail Group plc

Interim Results

26 Weeks to 28 May 2017

Interim Results 26 weeks to 28 May 2017 2

This presentation has been prepared by McColl’s Retail Group plc (the “Company”) in connection with the publication of the Company’s interim results for the 26 weeks ended 28 May 2017. This presentation does not constitute an invitation, offer to sell or any solicitation of any

• ffer to buy or subscribe for any securities in

the company or any of its subsidiaries or associated companies or its or their affiliates (the “Group”). No reliance may be placed for any purpose whatsoever on the completeness or accuracy

• f the information or opinions contained in this

presentation and no member of the group or any of their respective officers, directors, employees, representatives, agents or advisers take any responsibility for, or accepts any liability in respect of, the accuracy or completeness of such information. This presentation is directed at and is only being distributed (A) in member states of the European Economic Area to persons who are “qualified investors” within the meaning of Article 2(1)e of the Prospectus Directive (Directive 2003/71/EC, as amended); (B) in the United Kingdom to persons who have professional experience in matters relating to investments and who fall within the definition

• f “investment professionals” in Article 19(5)
• f the Financial Services and Markets Act

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• ther person should act or rely on this

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• r not such results will be achieved. As a

result, recipients of this presentation, should not rely on such forward-looking statements due to the inherent uncertainty therein. Forward-looking statements speak only as of the date such statements and, except as required by the Financial Conduct Authority, the London Stock Exchange or applicable law, the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation is not for distribution, directly

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Important notice

3 Interim Results 26 weeks to 28 May 2017

2017 – H1 highlights

H1 2017 – building momentum Slide 4 McColl’s well positioned Slide 17 A multi-part growth strategy Slide 12 2017 – a year of change and an evolving sector Slide 14 Excellent customer service Slide 24 Growing convenience offer Slide 19 Maximising opportunities for growth Slide 26 Increase neighbourhood presence Slide 22

4 Interim Results 26 weeks to 28 May 2017

2017 H1 – building momentum

Revenue (£million)

£504.8

+7.6% vs 2016 Adjusted EBITDA (1)(£million)

£16.5

Interim dividend per share (pence)

3.4p

Maintained vs 2016 3.4 3.4 3.4 2015 2016 2017 Underlying adjusted earnings per share (2)(pence)

5.9p

• 2.3% vs2016

+2.9% vs 2016 16.2 16.0 16.5 2015 2016 2017 6.1 6.1 5.9 2015 2016 2017 459.3 469.2 504.8 2015 2016 2017

(1) Before exceptional items and excluding property gains and losses (2) Before exceptional items and £1.3m pre-opening costs

Interim Results 26 weeks to 28 May 2017

Financial Review

1

6 Interim Results 26 weeks to 28 May 2017

Strong revenue and margin growth 1

Summary income statement (£million, unless stated)

H1 2017 H1 2016 Revenue 504.8 469.2 Like-for-like sales (1) 0.2% (2.2%) Gross profit 128.3 115.0 Gross profit margin 25.4% 24.5% Administrative expenses (2) (131.5) (118.0) Administrative expenses/revenue 26.0% 25.2% Other operating income, including property profits (2) 12.1 12.6 Operating profit (2) 8.9 9.6 Adjusted EBITDA (3) 16.5 16.0 Adjusted EBITDA (3) margin 3.3% 3.4%

Year on year growth principally driven by on-boarding

• f stores acquired from the Co-op

fuel, lottery, mobile phone top-up and travel tickets

Legislative wage inflation and higher cost (but also profit) of operating convenience stores Reflects lower contribution from property profits and lower number of Post Office conversions Increased mix of convenience stores and margin accretive products, and improvement in trading terms

After absorbing £1.3m pre-opening costs for the Co-op stores, therefore underlying adjusted EBITDA £17.8m (increase of 11%)

Supported by favourable weather and an improving mix

• f products

7 Interim Results 26 weeks to 28 May 2017

Resilient performance in light of macro tensions 1

• Increasing pressure on incomes

– Inflation coupled with falling average weekly earnings

• National Living Wage

– increase to £7.50 April 2017

• Apprenticeship Levy

– 0.5% of payroll, introduced April 2017

1.7% 2.7%

• 2

2 4 6 May-08 Feb-09 Nov-09 Aug-10 May-11 Feb-12 Nov-12 Aug-13 May-14 Feb-15 Nov-15 Aug-16 May-17 Change, rolling 3m on same 3m year before (%)

Change in CPI vs change in average weekly earnings

% change in average weekly earnings % change in CPI inflation

8 Interim Results 26 weeks to 28 May 2017

Continued improvement in LFL

1

• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17

LFL sales

• Return to positive LFL and another consecutive quarter of improving trend
• Prolonged period of good weather (in contrast to prior year)

– average temperature in April and May more than 10% higher year-on-year

• Well-ordered and well-managed transition to new tobacco regulations (EU

TPD2)

Q2 H1 Convenience stores 1.4% 0.2% Newsagents 1.4% 0.4% Recently acquired or converted stores1 3.8% 2.8% Total 1.4% 0.2%

9 Interim Results 26 weeks to 28 May 2017

Summary balance sheet (£million, unless stated)

Material increase in asset base 1

H1 2017 H1 2016 Non-current assets 322.4 221.8 Current assets 136.9 106.6 Current liabilities (174.8) (132.0) Non-current liabilities (151.0) (71.9) Net assets 133.5 124.5 Net debt (110.7) (42.3)

Increase reflects the on-boarding of around two thirds of the stores acquired from the Co-op in the first half Increased borrowings to support the acquisition Movement in current assets and liabilities driven by impact of growth on working capital and payment timing differences versus prior year Partial draw down of £100m term loan to support acquisition, remainder in H2

10 Interim Results 26 weeks to 28 May 2017

Significantly cash generative

• perations

1

Cash flow (£million)

Significant investment in the business for future growth – acquisition of around two thirds of Co-op stores completed in H1 Driven by benefits to working capital cycle from increased scale and a temporary payroll timing benefit Relates to legal and professional fees associated with the acquisition

H1 2017 H1 2016 Adjusted EBITDA (1) 16.5 16.0 Cash impact of exceptional items (1.4) (0.0) Tax paid (2.6) (2.0) Change in working capital 21.5 (7.3) Operating Cash flow 34.0 6.7 Net capital expenditure (96.9) (8.8) Net interest paid (3.0) (1.3) Dividend paid (7.8) (7.1) Net cash generated (73.7) (10.5)

Consistent pence per share, but with (final) dividend paid on c10% increased share capital

Net position through operations, and acquisition principally funded through debt, in-line with managements expectations

11 Interim Results 26 weeks to 28 May 2017

• Management focus is to strike right balance between capital investment,

deleveraging and dividends

Recap – capital allocation principles 1

Debt reduction Dividend payments Capex investment £100m term loan, with quarterly repayment commencing in H2 Maintained at 3.4 pence per share in H1 Dividend pence per share expected to increase as earnings increase Forward annual capital spend anticipated of c£20m, broadly split:

• 30% run and maintain
• 70% expansion

12 Interim Results 26 weeks to 28 May 2017

• Return to acquisitions

– 10-12 convenience stores

• Refresh of existing estate

– Over 20 stores

• Further expansion of Subway partnership

– 4 new units

• Continued optimisation of the estate

– 19 closures/disposals in H1 – Further sales in H2

A multi-part growth strategy 1

Interim Results 26 weeks to 28 May 2017

Market Review

2

14 Interim Results 26 weeks to 28 May 2017

2017 – a year of significant change

2

Jan Feb March April May June

Tesco-Booker merger announced Article 50 triggered All major grocery retailers in growth for first time in 3.5 years General election results in hung parliament New tobacco regulations come into force First price inflation recorded for over 2 years

+0.2%

Aldi overtakes Co-op as the 5th largest grocer Sainsbury’s reported as exclusive bidder for Nisa

15 Interim Results 26 weeks to 28 May 2017

A growing, evolving sector

2

• Operates 1,740 Tesco Express

c-stores

• Operates 780 One Stop c-stores

plus 185 franchised stores

• Proposed merger with Booker
• Exploring wholesale/franchise
• ptions
• Trial with MRH – forecourt

franchise

• Trial with McColl’s – Co-op

products in 24 stores

• c. 575 c-stores
• 60% franchised stores
• Increasing rate of openings
• Announced 250 new food stores

by 2020

• Operates c. 800 c-stores
• Exploring franchise convenience

model via trial with Euro Garages – forecourt franchise (7 trading)

• Reportedly preferred bidder for

Nisa

• Sold convenience business My

Local in 2015

• Relaunching Safeway brand
• Trial with Rontec, Morrisons

Daily – forecourt franchise Wholesalers

• Booker – proposed merger with

Tesco

• Nisa reportedly seeking a buyer
• P&H reportedly seeking a buyer

Independents remain c.75% of stores, c.55% of sales

Convenience channel forecast to grow 18% to £47.1bn by 2022 (1)

Interim Results 26 weeks to 28 May 2017

Strategy and

• perations update

3

17 Interim Results 26 weeks to 28 May 2017

3 McColl’s well positioned to succeed

Growing estate of 1,292 convenience stores, as well as 358 newsagents Opportunity for organic growth through investment in existing stores Fully managed estate One of UK’s largest wholesale accounts 90% of stores in neighbourhood locations and most frequently compete with independent retailers

18 Interim Results 26 weeks to 28 May 2017

A clear strategy for growth

3

Slide 19 Slide 24 Slide 22

19 Interim Results 26 weeks to 28 May 2017

• Reviewing our route to market

– Leveraging our increased scale – Improving our customer offer

• Highly competitive wholesale sector

– Multiple interested parties

• Timeline

– First stage completed end of June – Second stage underway – Partner selection in H2

Growing convenience offer – wholesale supply opportunity

3

20 Interim Results 26 weeks to 28 May 2017

• Focus on fresh and chilled

– Significant learnings from acquired stores – Over 30% growth in chilled foods and 60% growth in fruit and vegetables – Key categories for top-up – Investing in fresh food training

• Trialling a recognised own-brand offer

– Three month pilot with Co-op launched in June – Fresh, chilled, ambient grocery, wine – 24 stores

Growing convenience offer – developing fresh food credentials

3

McColl’s Borehamwood – Co-op trial McColl’s Pudsey – Co-op conversion

21 Interim Results 26 weeks to 28 May 2017

3 Growing convenience offer

– driving growth in existing stores

• Designed to meet customer needs

– Improved ranges – Layouts to suit different shopping missions – Environment fit for fresh foods

• First two project refresh stores trading

well

– LFL sales up 10%

• Further 20 stores in H2 2017
• Potential future opportunity for

hundreds of stores

Before – McColl’s West Horndon After – McColl’s West Horndon

22 Interim Results 26 weeks to 28 May 2017

• Integration of 298 stores completed

– Opened on time – Minimal operational issues – Successful retention of colleagues

• Good customer feedback

– 800 interviews conducted – Net promoter scores on all metrics

• Performance in-line with

management’s expectations

• Phase II of integration underway

– Further develop offer in all stores – Consider opportunities for FTG, parcel collections, Post Office, Subway

Increasing neighbourhood presence – a very successful integration

3

After – McColl’s Bushey Heath Before – The Co-op Bushey Heath

23 Interim Results 26 weeks to 28 May 2017

Increasing neighbourhood presence – growing scale and visibility

3

• Acquisition programme restarted

– Typically single store, independently

• wned

– New acquisition criteria

• Creating a more visible brand in the

community

– Brand review underway – Initial results in August

24 Interim Results 26 weeks to 28 May 2017

Excellent customer service – understanding customers through insight

3

• Investing in bespoke customer insight

– IGD research into the value of time – 800 customer interviews for former Co-op stores – Customer feedback on trial of Co-op

• wn brand
• 2017 him! convenience tracking

programme shows consistently high ratings

– Colleague friendliness/helpfulness – Ease of shop – Speed of shop

• Plus card driving bigger baskets

– c.700,000 members – Re-launched in former Co-op stores, double-digit basket penetration

25 Interim Results 26 weeks to 28 May 2017

• Four in ten trips to McColl’s involve

services

– Compared to convenience average of 25%

• Services drive incremental purchases

– Over 40% also buy fresh food

• Customers highly satisfied with

services missions

– 96% satisfaction rate

Excellent customer service – services driving satisfaction

3

10 20 30 40 50 Takeaway e.g. Subway Café/restaurant Mobile top-up Post office Parcel pick-up/return Cashpoint PayPoint National lottery Any services

% of most recent trips using services

McColl's Convenience

26 Interim Results 26 weeks to 28 May 2017

• Co-op stores acquisition complete,

significant growth in sales and profit expected

• Benefits of scale to be further realised

through wholesale retender

• Increased free cash flow to invest in

new stores and existing estate

• A clear strategy in a grocery channel

that is supportive of growth

Outlook – a business that is maximising its opportunities for growth

3

McColl’s Retail Group plc

Interim Results

26 Weeks to 28 May 2017

Appendix – business background

Interim Results 26 weeks to 28 May 2017 28

A long and rich history

1901 1973 1994 1998 2000 2005 2014

Robert Smyth McColl sets up the first RS McColl The Group was founded in vending

• perations

Retail operations were added to the Group The Martin’s chain of newsagents and convenience stores was acquired The Group sold its vending interests to focus entirely on retail operations. The Group successfully floated

• n the London

Stock Exchange The Group consolidated its store fascia – McColl’s for convenience and Martin’s or RS McColl for newsagents

2016

The Group met its target of operating 1,000 convenience stores

Interim Results 26 weeks to 28 May 2017 29

A leading neighbourhood retailer

Convenience stores Our 1,292 convenience stores provide a great range of everyday products and local services to our customers living in neighbourhoods across the UK. Newsagents With 358 newsagents across the country, we are the UK’s

• No. 1 specialist confectioner,

tobacconist and newsagent. Where we operate in the UK Our change in focus – convenience is the future 2011 2016 Summer 2017

Convenience stores Newsagents

1,650

stores

1,375

stores

1,263

stores

1,292 588 1,001 358 374 675

• Over 22,000

colleagues

• Over 5 million

customer transactions per week

• Growing

average basket spend of £5.62 in H1 2017 (2016: £5.24)

30 Interim Results 26 weeks to 28 May 2017

Over 150 years of retail experience

David Archibald Development Director Steve Goswell Retail Operations Director Jonathan Miller Chief Executive Dave Thomas Chief Operating Officer Neil Hodge IT Director Karen Bird HR Director Simon Fuller Chief Financial Officer Peter Miller Trading Director Steve Green Retail Finance Director

Interim Results 26 weeks to 28 May 2017

The McColl’s difference

A well managed and efficient supply chain Supplying our growing retail network Delivering great products and services at the heart

• f the neighbourhood

1,292

Convenience stores

568 358

Newsagents

Interim Results 26 weeks to 28 May 2017 32

A loyal and local customer base

• Our customers live locally and shop frequently

– 90% of our stores are in neighbourhood locations – 53% of our customers live within 400m of our shops – 31% of our customers visit every day

• They fulfil a variety of missions

– Top-up is fundamental – planned and distress – Services are a key footfall driver – Food-to-go is rapidly growing – Newsagent mission remains important

• Our customers rate us highly on:

– Staff friendliness/helpfulness – Ease of shop – Speed of service – Community involvement

“If I lost this store it would be an astronomical effect on our family life” “The staff are very helpful” “They do do a really good selection of fruit and veg”

Interim Results 26 weeks to 28 May 2017 33

Our clear and progressive strategy

Interim Results 26 weeks to 28 May 2017 34

A highly fragmented sector

Unaffiliated Independents