McColl’s Retail Group plc · Forward annual capital spend anticipated of c£20m, broadly split: • £6m run and maintain / maintenance • £14m expansion (e.g. acquisitions, store

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,

offer 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

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of their respective officers, directors, employees,

representatives, agents or advisers take any

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of, the accuracy or completeness of such

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investors” within the meaning of Article 2(1)e of

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as amended); (B) in the United Kingdom to

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Article 19(5) of the Financial Services and

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This presentation may include statements,

estimates, opinions and projections with respect

to anticipated future performance of the group

(“forward-looking statements”) which reflect

various assumptions concerning anticipated

results taken from the group’s current business

plan or from public sources which may or may not

prove to be correct. Such forward-looking

statements reflect current expectations based on

the current business plan and various other

assumptions and involve significant risks and

uncertainties and should not be read as

guarantees of future performance or results and

will not necessarily be accurate indications of

whether or 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

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undertakes no obligation to update or revise

publicly any forward-looking statements, whether

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Important notice


A strengthened McColl’s team

David ArchibaldDevelopment Director

Steve GoswellRetail Operations Director

Jonathan MillerChief Executive

Dave ThomasChief Operating Officer

Neil HodgeIT Director

Karen BirdHR Director

Simon FullerChief Financial Officer

Peter MillerTrading Director

Steve GreenRetail Finance Director


2016 – a year of significant progress

Further investment in estate 1,000 convenience stores

Growth in Subway franchise13 units now trading

Improving customer experienceContactless roll out

Project RefreshWest Horndon pilot

Expansion of Post Office559 branches

Operational efficiencyLED lighting roll out

Transformational acquisition298 quality convenience stores

Amazon lockers roll out183 units


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 opportunities to be unlocked over time

“McColl’s

transformation on

track.” The Herald

28 July 2016


2016 – a good financial performance

Revenue (£million)

£950.4+1.9% vs 2015

Adjusted EBITDA (1) (£million)

£36.7

Dividend per share (pence)

10.2pMaintained vs 2015

15.615.916.0

201420152016

8.510.210.2

201420152016

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

(1) Before exceptional items and excluding property gains and losses(2) Before exceptional items

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

Financial Review

Preliminary results 52 weeks to 27 November 2016

1


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

(1) Like-for-like sales reflect sales from stores that have traded throughout the current and prior financial

periods, and sales include VAT but exclude sales of fuel, lottery and mobile phone top-up (2) Before exceptional items(3) Before exceptional items and excluding property gains and losses

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


Overcoming structural headwinds1

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


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

(1) Before exceptional items and excluding property gains and losses


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

on c10% increased share capital

Substantial

investment but Net

debt:Adjusted

EBITDA held at 1.0x

(1) Before exceptional items and excluding property gains and losses


• McColl’s is a significantly cash generative business

• Management focus is to strike right balance between

capital investment, deleveraging and dividends

Optimising capital allocation1

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

of 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)(1) Before exceptional gains but after exceptional losses


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

of 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


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


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


2


Met target of 1,000 convenience stores

A true convenience business2

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

on 2015

73%

convenience

80%

convenience

Nov 2015

1,352 stores

Nov 2016

1,375 stores

Aug 2017 (Forecast)

1,653 stores


Increasing neighbourhood presence: significant investment2

58

96

30+

DevelopmentNumber 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


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 categories2

New target:

“For grocery plus alcohol to be our

biggest individual sales category”


• 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 services2

PayPoint

Post Offices

Internet collections

Newspaper delivery


Developing our existing estate -Project Refresh2

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


Delivering an improved shopping experience2

New branding Extended fresh offer Enhanced services

BE

FO

RE

AF

TE

R


Transformational acquisition of stores from Co-op2

• 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


First Co-op stores trading well2

• 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


3


A growing and consolidating sector 3


Food driving convenience growth3


• 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 customers3


A clear and simple strategy3


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


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 offer3

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


19,500 McColl’s colleagues,

our 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 work3


• 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 succeed3


2017 – an exciting year ahead3

Transformational acquisitionIntegration of 298 stores

Improve fresh & chilled Develop fresh range and skills

Pricing reviewFocus on known value items

Store operationsConsistent operating standards

Project RefreshAccelerate mature store

conversions

Digital strategyDevelop social media

channels, digital engagement

BrandImprove brand recognition

Customer insightInvest in research

Documents

McColl’s Retail Group plc · Forward annual capital spend anticipated of c£20m, broadly split: • £6m run and maintain / maintenance • £14m expansion (e.g. acquisitions, store