McColl's warns possible funding could see shareholders lose out

McColl’s Retail Group shares essentially halved on Monday morning, after the company warned that a possible funding deal could see shareholders walk away with nothing.

The London-listed convenience retailer said it was in talks with banks and lenders to secure fresh funding, as soaring inflation, high levels of debt and supply chain headaches took a toll on the company.

“The group acknowledges and appreciates short term credit support received from its commercial partners and senior lenders,” McColl’s said in its statement.

“A potential financing solution is under active discussion with its key commercial partner and lenders which would resolve the short term funding issues and create a stable platform for the business going forward.

“It should be noted that even if such a successful outcome is achieved it is increasingly likely to result in little or no value being attributed to the group's ordinary shares.”

McColl’s also reported weaker trading over Easter, citing reduced consumer spending and disruption to supply chains, after a recovery in the first half of March.

“The group is working closely with its wholesale supplier to mitigate product availability issues.”

Despite that, McColl’s said its ‘Morrisons Daily’ nameplate was performing strongly, delivering like-for-like sales growth at least 20% better than non-converted comparable stores, and ahead of the total convenience market.

All Morrisons Daily conversions in 2022 benefited from the introduction of a Morrisons food-to-go proposition, McColl’s noted.

The firm said the Morrisons Daily store conversion programme was continuing “at pace”, with 69 stores opened in the 2022 financial year so far, as the group continued to work on the previously-communicated programme of store conversions.

It said the move to convert stores to the Morrisons Daily format was “fundamentally reshaping” the business into a “more profitable and sustainable model” in the medium-term.

Looking ahead, the McColl’s board said it now expected adjusted EBITDA for the current financial year to be no higher than what it achieved in 2021, being £20m on a pre-IFRS 16 basis.

The group said it was reviewing costs across all parts of the business in order to help mitigate challenging trading conditions, as well as being “even more targeted” in its capital deployment.

At 1157 BST, shares in McColl’s Retail Group were down 49.94% at 1.9749p.