McColls Retail Group plc Preliminary Results 52 Weeks to 27 - - PowerPoint PPT Presentation

McColl’s Retail Group plc

Preliminary Results 52 Weeks to 27 November 2016

Preliminary Results 52 weeks to 27 November 2016 2

This presentation has been prepared by McColl’s Retail Group plc (the “Company”) in connection with the publication of the company’s preliminary results for the 52 weeks ended 27 November 2016. This presentation does not constitute an invitation,

• ffer to sell or any solicitation of any offer 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 of the information or opinions contained in this presentation and no member of the group or any

• f their respective officers, directors, employees,

representatives, agents or advisers take any responsibility for, or accepts any liability in respect

• f, the accuracy or completeness of such

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• therwise to persons to whom, or at which, it may
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• therwise.

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Important notice

Preliminary Results 52 weeks to 27 November 2016 3

A strengthened McColl’s team

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

Preliminary Results 52 weeks to 27 November 2016 4

2016 – a year of significant progress

Further investment in estate 1,000 convenience stores Growth in Subway franchise 13 units now trading Improving customer experience Contactless roll out Project Refresh West Horndon pilot Expansion of Post Office 559 branches Operational efficiency LED lighting roll out Transformational acquisition 298 quality convenience stores Amazon lockers roll out 183 units

Preliminary Results 52 weeks to 27 November 2016 5

2016 – a transformational acquisition

• Acquisition of portfolio of 298 quality

convenience stores from the Co-op

• Well invested and profitable stores in

complementary neighbourhood locations

• Excellent strategic fit for McColl’s
• Attractive and deliverable deal
• Acquisition expected to be significantly

earnings enhancing – 2015 illustrative combined revenue £1.3bn and EBITDA £54m

• Straightforward transition with further synergy
• pportunities to be unlocked over time

“McColl’s transformation on track.”

The Herald

28 July 2016

Preliminary Results 52 weeks to 27 November 2016 6

2016 – a good financial performance

Revenue (£million)

£950.4

+1.9% vs 2015 Adjusted EBITDA (1) (£million)

£36.7

Dividend per share (pence)

10.2p

Maintained vs 2015 15.6 15.9 16.0 2014 2015 2016 8.5 10.2 10.2 2014 2015 2016 Adjusted earnings per share (2) (pence)

16.0p

+0.9% vs 2015

• 2.8% vs 2015

904.4 932.2 950.4 2014 2015 2016 36.6 37.7 36.7 2014 2015 2016

All 2014 comparatives are on a 52 week basis, where applicable

Financial Review

Preliminary results 52 weeks to 27 November 2016

1

Preliminary Results 52 weeks to 27 November 2016 8

Sixth successive year of sales growth, significant increase in gross margin

1

Summary income statement (£million, unless stated)

2016 2015 Revenue 950.4 932.2 Like-for-like sales (1) (1.9%) (1.9%) Gross profit 238.7 227.5 Gross profit margin 25.1% 24.4% Administrative expenses (2) (239.4) (226.9) Administrative expenses/revenue 25.2% 24.3% Other operating income, including property profits (2) 24.3 23.6 Operating profit (2) 23.5 24.3 Adjusted EBITDA (3) 36.7 37.7 Adjusted EBITDA (3) margin 3.9% 4.0%

Year on year growth principally driven by on- going store investment programme

periods, and sales include VAT but exclude sales of fuel, lottery and mobile phone top-up

Legislative wage inflation and higher cost (but also profit) of operating convenience stores Increased profit on disposal of fixed assets Improved mix of stores and introduction of higher margin products, alongside decline in lower margin traditional categories e.g. tobacco After absorbing £0.5m costs incurred in advance of Co-op store integration; underlying performance is a 1.3% reduction Consistent trend, traditional category decline

Preliminary Results 52 weeks to 27 November 2016 9

Overcoming structural headwinds

1

Structural headwinds

• National Living Wage /

National Minimum Wage

• Apprenticeship levy
• Business rates
• Traditional category declines

(e.g. tobacco and news)

• Future food cost price inflation

Strategic responses

• Leverage increased scale

achieved through acquisitions

• Increase mix of higher margin

convenience categories

• Infrastructure improvements

(e.g. LED lighting)

• Operational efficiency

measures

Preliminary Results 52 weeks to 27 November 2016 10

Summary balance sheet (£million, unless stated)

A strengthening balance sheet, double-digit % increase in net assets

1

2016 2015 Non-current assets 232.1 220.1 Current assets 97.7 99.9 Current liabilities (139.1) (135.8) Non-current liabilities (50.2) (58.3) Net assets 140.5 126.0 Net debt (37.0) (31.6) Net debt:Adjusted EBITDA (1) 1.0x 0.8x

Increase reflects higher trade and other payables, as business expands Programme of investment for future growth Reduction in facility borrowings Efficient funding of expansion and operational improvements e.g. LED lighting roll-out

Preliminary Results 52 weeks to 27 November 2016 11

A year of significant investment in the business

1

Cash flow (£million)

Significant investment in the business for future growth: 58 acquisitions, 59 newsagent conversions & 12 Subways Reversal in 2015 of the 53rd week impact of c£12m in 2014. 2016: £2.3m cash payment to surrender Woking office lease, £1.4m impact of Co-op stores acquisition financing and £1m deposit relating to the acquisition of Co-op stores Payment of Co-op stores acquisition expenses

2016 2015 Adjusted EBITDA (1) 36.7 37.7 Cash impact of exceptional items (2.3) (0.6) Tax paid (5.1) (4.1) Change in working capital (7.7) 10.5 Operating Cashflow 21.6 43.5 Net capital expenditure (25.7) (23.9) Net interest paid (2.7) (2.5) Dividend paid (11.0) (10.7) Net cash generated (17.8) 6.4

Consistent pence per share, but with interim dividend paid

• n c10% increased share capital

Substantial investment but Net debt:Adjusted EBITDA held at 1.0x

Preliminary Results 52 weeks to 27 November 2016 12

• McColl’s is a significantly cash generative business
• Management focus is to strike right balance between

capital investment, deleveraging and dividends

Optimising capital allocation

1

Capex investment Debt reduction Dividend payments Forward annual capital spend anticipated of c£20m, broadly split:

• £6m run and

maintain / maintenance

• £14m expansion

(e.g. acquisitions, store conversions, food-to-go) £100m term loan quarterly repayments commence in November 2017 Net debt:Adj. EBITDA multiple currently expected to reduce to <2.0x by 2018 and <1.5x before end of 5- year facility term Management expect pence per share pay-out to increase post integration

• f Co-op stores (driven by

enhanced earnings) Short-term pay-out ratio guidance revised from c60 to c50% of PAT (1) c2x Dividend cover (up from c1.5x)

Preliminary Results 52 weeks to 27 November 2016 13

Q1 update, an encouraging start to the year

1

Market data (£m)

• Total sales up 2.1%
• Consistently strong

performance in recently acquired and converted stores

• LFL sales down 1.3%

– Fourth consecutive quarter

• f improved performance
• 3.0
• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 Q1 Q2 Q3 Q4 Q1

LFL sales

2015/16 2016/17

Preliminary Results 52 weeks to 27 November 2016 14

Outlook: a changing environment

1

Structural headwinds Impacts of Brexit decision Macro- economic uncertainty

• Uncertainty amongst

consumers

• Sterling devaluation
• CPI / RPI inflation
• Commodity price

inflation

• Changing shape of

worldwide trade

• National / Living Wage
• Apprenticeship levy
• Business rates

changes

Preliminary Results 52 weeks to 27 November 2016 15

Outlook: a changing environment in which McColl’s can thrive

1

Market data (£m)

• McColl’s has an important role to play across

many of the UK’s neighbourhoods

• Significantly scaled up business has the

renewed firepower to succeed

• Investing for future growth will remain a key

management priority

Operating Review

Preliminary results 52 weeks to 27 November 2016

2

Preliminary Results 52 weeks to 27 November 2016 17

Met target of 1,000 convenience stores

A true convenience business

2

546 601 904 180 161 161 167 239 239 459 374 349

Total store base by type Premium Convenience Standard Convenience Food & Wine Newsagents

Total Convenience Stores 893 Total Convenience Stores 1,001 Total Convenience Stores 1,304 46% increase

• n 2015

73% convenience 80% convenience

Nov 2015 1,352 stores Nov 2016 1,375 stores Aug 2017 (Forecast) 1,653 stores

Preliminary Results 52 weeks to 27 November 2016 18

Increasing neighbourhood presence: significant investment

2

58 96 30+

Development Number achieved

New convenience store acquisitions Newsagents converted to food and wine format with addition of alcohol and grocery New Post Offices or Post Office developments Convenience stores benefitting from an enhanced food-to-go offer

59 12

New Subway partnerships in our stores

Preliminary Results 52 weeks to 27 November 2016 19

Strong growth in key convenience categories

• Alcohol

– Beers, wines and spirits sales up 10% – Bottled lagers >10% LFL – New specialist beer range

• Food-to-go (FTG)

– Sales up 19% – 30+ new FTG units – 200+ coffee ends, sales up 40% – 13 Subways

• Fresh foods

– Trial of extended fresh range in 22 stores – Core component of top-up baskets

Growing convenience offer: expansion of key categories

2

New target: “For grocery plus alcohol to be our biggest individual sales category”

Preliminary Results 52 weeks to 27 November 2016 20

• Internet collection points

– 183 Amazon lockers – 676 Collect+ points

• 559 Post Offices

– 90% modernised to Post Office local format

• 1,375 PayPoint terminals
• >45 million newspapers and magazine

deliveries

Excellent customer service: a great range of convenient services

2

PayPoint Post Offices Internet collections Newspaper delivery

Preliminary Results 52 weeks to 27 November 2016 21

Developing our existing estate - Project Refresh

2

Investing in existing convenience stores

• Focus on what customers want
• Develop convenience offer

– Food-to-go – Produce and fresh foods – Healthy options – Beers, wines and spirits

• Range based on local demographic
• Mission-based store layouts
• Modern look and feel
• Driving LFL growth

– Early results encouraging – Some key categories up by double-digit %s

• 2017 – At least 20 refresh stores planned

Preliminary Results 52 weeks to 27 November 2016 22

Delivering an improved shopping experience

2

New branding Extended fresh offer Enhanced services

BEFORE AFTER

Preliminary Results 52 weeks to 27 November 2016 23

Transformational acquisition of stores from Co-op

2

• 298 quality convenience stores

– Strong neighbourhood locations – 116 freeholds, 172 leaseholds and 10 mixed – Average store size 1,700 sq. ft. – 38 Post Offices

• Favourable shift in product mix

– Stronger mix in grocery and alcohol – Less dependent upon mature and legacy categories e.g. tobacco and news

“The Co-op to sell 298 stores to McColl’s in ‘transformational’ deal”

The Grocer

15 July 2016

Preliminary Results 52 weeks to 27 November 2016 24

First Co-op stores trading well

2

• First converted store opened on

31 January in Canvey Island, Essex

• Over 20 stores now trading as

McColl’s

• Performance in line with expectations
• Expect to complete integration by

August 2017

Strategy update

Preliminary results 52 weeks to 27 November 2016

3

Preliminary Results 52 weeks to 27 November 2016 26

A growing and consolidating sector

3

Preliminary Results 52 weeks to 27 November 2016 27

Food driving convenience growth

3

Preliminary Results 52 weeks to 27 November 2016 28

• 4.5 million customer transactions per

week

• 53% of our customers live within 400m of

their store (1 in 5 within 100m)

• 31% of our customers visit every day
• 26% live in solo households
• 9% of visits are driven by the Post Office
• Growing average basket spend of

£5.24 (2015: £5.12)

Getting closer to our customers

3

Preliminary Results 52 weeks to 27 November 2016 29

A clear and simple strategy

3

Preliminary Results 52 weeks to 27 November 2016 30

Clear brand proposition

• Clear and consistent messaging
• Point of difference
• Drive customer awareness

Strengthening our brand and stores

Consistent execution

• Retain RS McColl’s/Martin’s newsagents brand
• Grow McColl’s as a single convenience brand

3

Introduce minimum standards

• Identify and implement minimum standards
• Review store maintenance

Upgrade existing estate

• Estate refurbishment to deliver stronger

fresh & chilled offer

Further hone acquisition criteria

• Neighbourhood focus
• Size, accessibility, FTG, services

Preliminary Results 52 weeks to 27 November 2016 31

Investing in customer insight

• Customer focus in all decisions
• Bespoke market research and broader insight,

used to drive business plans

Develop our digital channels

• Develop social media channels
• Re-launch Plus card

Improving customer focus and offer

3

Compete in fresh & chilled

• Leverage greater scale post acquisition
• Tailor offer through local store clusters

Improve price perception

• Develop simple pricing framework
• Focus on known value items

Develop food-to-go

• Develop competitive mealtime FTG offers
• Develop delivery channels

Preliminary Results 52 weeks to 27 November 2016 32

19,500 McColl’s colleagues,

• ur greatest asset
• Promote better engagement

throughout the business

– c85% took part in our colleague survey

• Colleagues at all levels influence

strategy and business plans

• Drive brand advocacy

– c80% of colleagues recommend us as a place to work – c85% of colleagues recommend us as a place to shop

A great place to work

3

Preliminary Results 52 weeks to 27 November 2016 33

• Co-op stores acquisition drives

significant growth in sales and profit

• Ongoing opportunity to optimise an

already profitable estate of 298 stores: – Sales vs. gross margin – Applying McColl’s operating model – Increased scale/improved economies

• Increased free cash flow to invest in the

business for the future

• A clear strategy aligned to growth

A bigger, stronger business built to succeed

3

Preliminary Results 52 weeks to 27 November 2016 34

2017 – an exciting year ahead

3

Transformational acquisition Integration of 298 stores Improve fresh & chilled Develop fresh range and skills Pricing review Focus on known value items Store operations Consistent operating standards Project Refresh Accelerate mature store conversions Digital strategy Develop social media channels, digital engagement Brand Improve brand recognition Customer insight Invest in research