McColl Retail : Chairman's Statement

McColl's Retail Group plc Annual Report and Accounts 2020

Chairman's statement

Angus Porter

Chairman

Dear shareholder

The last 12 months have of course been dominated by the COVID-19 pandemic, which has engulfed the UK and wider world, and naturally, our response to the pandemic has been the primary focus for our Chief Executive, Jonathan Miller, and his management team.

As an essential retailer, and one that provides a crucial service to local neighbourhoods, not only for food but other services including Post Office and Collect+, we knew that our communities would rely heavily on us throughout the crisis. The fact that we were able to keep our stores open, and continue to do so, is testament to the dedication and hard work of everyone at McColl's.

At the start of the pandemic, the management team worked tirelessly to ensure the safety of colleagues and customers. We moved quickly to adapt stores for social distancing measures, temporarily removed non-essential items from sale such as scratch cards due to potential transmission risks, reduced trading hours to manage deliveries and staff absence levels, as well as fitting stores with the necessary protections such as perspex screens at the till counter.

We also deployed a full range of personal protective equipment (PPE) for our store colleagues and offered them double discounts for an extended period to help to support them during these times.

We rapidly deployed remote working for our Retail Support Centre colleagues, whilst finalising the sale of our head office - meaning we have yet to benefit fully from the much better working environment afforded by our new headquarters.

The resilience shown by all our colleagues under such challenging circumstances, over months and months, has been inspiring. We will continue to prioritise their support and wellbeing, as well as the communities we serve as the nation navigates its way through the pandemic.

Review of the year

Demand for our local convenience retail offering has never been higher, highlighted by like-for-like revenue growth of 12.0% during the year. This growth was primarily driven by the pandemic, with us welcoming many new customers as a result of the positioning of our stores in key neighbourhood locations and the breadth and range of product on offer.

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McColl's Retail Group plc Annual Report and Accounts 2020

Strategic report

Governance

Financial statements

This strong top-line performance did not carry through to profit, as changing shopping behaviours and product mix led to a dilution of operating margins, with higher-margin sales of impulse products, for example, being severely impacted. This was on top of the ongoing COVID-19 related costs that the business has had to absorb. Adjusted EBITDA (pre IFRS 16) in the year was £29.1m, lower than the £32.2m delivered in the prior year. The business rates relief and VAT deferral from the Government provided us with crucial support throughout this period and I must emphasise how grateful we are, enabling us to continue to support our local communities that rely on us.

Demand for our local convenience retail offering has never been higher, highlighted by like-for-like revenue growth of 12.0% during the year.

Despite the disruption caused by the pandemic, the business made good progress on its strategic objectives. We extended our customer range and selectively invested in essential items to offer better value for money. A new operations structure was also created to create a flatter, simpler and more effective organisation for the future.

Our store optimisation programme was accelerated during the period, which saw 179 stores close, as we focus our business on larger, food-led convenience stores.

This strategy has been reinforced during the pandemic, with the strongest revenue performance being delivered with stores with the highest grocery mix. It is clear that customers demand a convenience offering with a broad fresh food range, at competitive prices. This has been exemplified by the trial of 31 Morrisons Daily stores, which have performed strongly.

Therefore, I am pleased to report that we have extended our relationship with Morrisons by a further three years, which will give us an even wider range of product, as well as benefitting from a total of 300 Morrisons Daily format store conversions within the next three years. This is in addition to the fact that Morrisons has become our sole wholesale supplier, enabling us to simplify our operations even further.

We will continue to work with Morrisons to optimise the performance of the remainder of our store estate, continuing to develop the Safeway product range as part of a broader programme of range reviews.

To help support our Morrisons plans, we recently engaged with our banking syndicate, and I am pleased to say that our financing arrangements have been amended to give us more flexibility to help execute on our strategy in 2021 and beyond. Further detail is provided in the financial review.

Board and Executive changes

I'd like to take this opportunity to thank all of our people for their contributions this year, particularly under such challenging circumstances. Everyone from the Board, Jonathan and his management team, to our frontline retail colleagues have gone above and beyond their duties, adapting to a rapidly changing environment, while keeping a positive attitude.

Having the right, talented senior leadership in place is critically important to help navigate our business through a variety of challenges including the current coronavirus crisis, coupled with a highly competitive sector and weak consumer confidence.

There were several changes to the leadership team and Board over the last year. Robbie Bell stepped down from his position as Chief Financial Officer to pursue a new opportunity. The Board undertook a thorough process and welcomed a new Chief Financial Officer, Giles David, who joined the Group in June 2020. Giles brings 15 years of experience as a Chief Financial Officer across consumer facing businesses. I would like to thank Robbie for all he achieved for our business.

Richard Crampton, Chief Commercial Officer (CCO), was also appointed to the Board in June 2020. The appointment was recognition of the significant contribution that Richard has made since joining McColl's in September 2019. Richard has been responsible for accelerating the development of the Group's commercial strategy and further enhancing the customer proposition. The Board and I welcome Giles and Richard to their new roles and wish them every success in the future.

We were also delighted to strengthen the Board with two new Non-Executive Director appointments. Dominic Lavelle joined the Board in May 2020, succeeding Sharon Brown as Chair of the Audit & Risk Committee. I thank Sharon

for her valuable contribution during her time at McColl's. Dominic also sits on the Remuneration Committee and Nomination Committee. Benedict Smith joined the Board in July 2020, and sits on the Audit & Risk Committee, Remuneration Committee and Nomination Committee. Both Dominic and Benedict bring a wealth of relevant experience that we will benefit from.

I am also pleased that we have strengthened the support centre team by making critical senior appointments in Technology, Investor Relations, Property and Operations, and believe we are now much better equipped for success.

Optimism for the future

I am confident that we will emerge from this crisis as a better and stronger business, and one that remains focused on delivering our core strategic objectives. The importance of neighbourhood stores has never been greater, and we are well positioned to continue enhancing our convenience offer by further developing our partnership with Morrisons, and further improving the quality of our estate and our overall customer experience.

Angus Porter

Chairman

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