McColl’s has issued a response to press speculation over the weekend that the convenience retailer needs to raise capital within weeks or risk collapsing into administration.
Sky News reported that McColl’s was racing to secure new funding to stave off a collapse. This includes working with advisers on attempts to find a buyer or third parties willing to inject fresh capital into the business.
The news channel revealed that the EG Group, the forecourt giant controlled by the Issa brothers, has held discussions about making an offer for the operator of over 1,100 managed convenience stores and newsagents but decided against doing so last week.
The report stated that Morrisons was also monitoring the situation closely with a view to possibly acquiring hundreds of its stores out of insolvency. McColl’s is currently rolling out the Morrisons Daily format to stores in its estate and has a wholesale supply agreement with the supermarket group.
McColl’s endured torrid trading conditions and supply chain issues last year, impacting both its revenue and profit. Its shares have fallen by 70% in the past year and they are hovering near record lows – closing on Friday at 7p. The company, which carries debts of around £100m, now has a market capitalisation of less than £20m, with Sky News branding the shares are effectively “worthless”.
In a statement issued this morning, McColl’s said it remains in ongoing discussions with its lending banks, as previously announced on 29 November, as it looks towards a longer-term agreement on its banking facility.
It added: “The group has received the necessary agreement to roll forward its financial covenant test periodically, and continues to receive credit support from its key commercial partner to enable these discussions. The group continues to believe that a financing solution will be found that involves its existing partners and stakeholders. A further update will be made as and when these discussions conclude.”
Giving an update on recent trading, the retailer said group like-for-like sales had increased by 5.9% in the 11 weeks to 13 February 2022 compared to the same pre-pandemic period two years ago. McColl’s noted that it was starting to experience strengthening margin as impulse product sales recover, with it taking further mitigating actions, including a full review of pricing and costs.
While there has been a “tangible improvement” in product availability, McColl’s revealed that it was hit by a recent decline in footfall due to the emergence of the Omicron variant, particularly over the Christmas period. Although demand has since picked up, the retailer said revenues in the first quarter are behind expectations.
As a result, McColl’s now expects full-year adjusted EBITDA to come in slightly behind current market expectations.
However, the group highlighted the success of its Morrisons Daily roll-out with converted stores delivering like-for-like sales growth that is at least 20% better than non-converted, comparable stores. Over 200 of its stores are now operating under the format with it on track to complete 450 conversions by the end of its current financial, which it claimed will “fundamentally reshape the business into a more profitable and sustainable model in the medium term.”
As well as seeking a long-term financing solution, McColl’s concluded its statement by saying it also had other options available to it. The group confirmed that it had recently received an approach for the whole business, which was subsequently withdrawn. It stressed that there had been no further discussions with that party or any other party in relation to an offer for the whole business. However, McColl’s revealed that it received indications of interest for parts of the business. “The Board will consider all options with the aim of maximising value for all stakeholders,” it said.
The group is in the process of finalising its full results from last year, but said today that now expects to publish these in May to allow additional time for the banking discussions to conclude.
NAM Implications:
- One for the City…
- From a NAM’s-eye-view, it is key for suppliers to check their exposure:
- ‘Divide sales outstanding by your net margin and multiply by 100…
- …to calculate the incremental sales required to recover from the customer going into liquidation’
- Meanwhile, any initiatives have to be short-term…
- Longer-term, McColl’s could be taken over by Morrisons.
- In which case, a quick check for possible prices & terms disparities could prevent issues later…
