OREANDA-NEWS. Nisa Retail Limited ("Nisa"), the specialist delivered wholesaler and convenience retail expert, today reports its full-year results for the 53 weeks ended 3 April 2016.

Highlights:

Sales

·      Sales are ?1,309m,

o  1.9% lower than FY15 (3.8% if adjusting for week 53), but

o  2.3% higher when adjusting for the loss of Costcutter (and week 53)

·      Fresh sales up 6.0% to ?210m

·      Heritage sales up 7.9% to ?119m

·      476 new member stores

Costs

·      Improved margin performance by ?3.8m while growing member numbers

·      Distribution costs per case reduced by 3.2%

·      Overhead costs reduced by 12.3%

Profit

·      Adjusted earnings * ?7.3m (target was ?7.2m; FY15 was a loss of ?2.9m)

·      Underlying profit of ?0.6m (FY15: loss of ?5.4m)

Outlook

·      Weekly sales to week 12 of FY17 have been tracking 3.5% better than last year

·      Rebates of ?3.1m, withheld during the year, now fully released to members

Nick Read, CEO of Nisa Retail Limited, commented: "It has been a challenging, but ultimately pleasing year for Nisa. The business experienced the biggest swing in profit in its 39 year history as we sought to stabilise the company, address historical issues and lay the foundations to return to profitable growth and build for it a sustainable business model. Nisa is now very much back on an upward curve, with the business having already seen a 3.5% increase in weekly sales in the first 12 weeks of FY17, and we are extremely positive about our future."

Notes:

* Adjusted earnings are earnings before interest, tax, depreciation, exceptional items and employee bonus

Throughout the following abbreviations are used:

FY15 - the financial year (52 weeks) ended 29 March 2015

FY16 - the financial year (53 weeks) ended 3 April 2016

FY17 - the financial year (52 weeks) ended 2 April 2017

CEO REVIEW

This has been a transformational year for Nisa; the measures we have taken in stabilising the business have put it on a firm footing for future success in FY17 and beyond.

The company was pleased to achieve year end adjusted earnings of ?7.3m, ?0.1m better than the target and amounting to the biggest annual swing in profit in Nisa's 39 year history. By exceeding the year-end target, we have also secured the repayment of deferred rebates to Nisa members, resulting in ?3.1m becoming available to the membership in July 2016.

It has been an extremely busy period, and during the course of the year the business has secured an extension to its banking facilities, reduced central overheads by 12.3%, addressed loss making accounts, recruited substantial commercial contracts, and, excluding Costcutter, reversed the downward trend in total sales, all of which delivered benefits to the wider membership.

In the wake of the losses the new management team inherited in early 2015, the group embarked on a strategic review.  This piece of work was completed in March 2016 and has been helpful in confirming that while there is much to do to continue transforming the business, Nisa is now on a more stable footing.  The review also considered where the refinement of key services within the business could further strengthen the company and position it for future growth, and this is a key focus for the business going forward.

Retailing continues to see significant changes and evolution; for Nisa these have been largely driven by the continued growth of online models and the success of discounters.  I see great potential for the convenience sector to benefit from some of these changes, and the next few years will be a crucial time for Nisa and its peers.

For example, as the market evolves, consumers increasingly see the convenience sector as a destination shop rather than just for top up, and so the importance of having a strong chilled and fresh range becomes ever more critical. Our consumers are increasingly seeking good quality produce and we are supporting this growing demand through our award winning own label brand, Heritage. Elsewhere, a squeeze on disposable income, which has also driven footfall to convenience stores in an attempt to control spend with smaller, more frequent visits, has also raised the importance of a strong and competitive own label range. Pleasingly, during the year Heritage saw its fresh meat sales increase 41.2%, ready meals jump 48.1% and wet salads grow 62.5% year-on-year, highlighting its growing importance for the Nisa business and also the significance of fresh and chill categories to the convenience sector.

Nisa's overall sales performance was encouraging, with the business achieving sales of over ?1.3bn for the year. In addition, we enjoyed a positive year of recruitment boosting membership numbers by 476 stores to reach an overall total of 2,915, excluding export accounts. This is testament to the faith retailers place in the long term future of Nisa's business model and its unrivalled offer, which makes Nisa the partner of choice for independent retailers.

Recruitment into Nisa of independent & symbol stores resulted in 177 new sites joining in FY16, a net gain of 18 stores, while business categorised as being large groups saw a net increase of 190 stores. Specialist business, excluding export accounts, saw a net gain of 50 stores.

The uplift in growth in the closing stages of FY16 marks an increased confidence in the Nisa business brought about by early successes in the execution of its three-year turnaround strategy.  This resulted in a return to profitable growth, an enhanced trading margin, better distribution efficiencies and a successful reduction of central overheads.

OPERATIONAL REVIEW

Distribution

Nisa's distribution service remains, consistently, the jewel in its crown. Stock availability for the year of 97.5% was on target, while the business beat its distribution cost per case target achieving 96.8 pence versus a target of 97.0 pence. Delivery on day was 99.9% for the year while delivery on time was 95.0%, inclusive of the start-up of all new contracts in the period under review. The pick error rate for the business was 0.04% or 99.96% accurate, which is a tremendous achievement and highlights the strength of our distribution effectiveness.

Heritage

Heritage, Nisa's award winning own label range offering over 800 products across a three tiered structure consisting of Heritage Pantry, Heritage and Heritage Gourmet, has been through a period of rebranding and reformulation. During FY16 Heritage sales rocketed on the back of an extensive relaunch of the range.  Overall Heritage recorded an impressive 7.9% sales increase in value and 9.0% in volume year-on-year, highlighting its growing importance for the Nisa business. In FY17 we will increase our efforts on growing the brand further and establishing it as the leading own label range for our sector by developing an improved pricing structure and promotional offer.

Range

Nisa has one of the broadest ranges in the convenience market covering over 13,000 products, which has proved an important factor in recruiting larger format businesses during FY16. Nisa's range of products is a key strength, but equally there are some areas which would benefit from improvement to further enhance the customer experience of both Nisa's members and their shoppers. Range optimisation is an area of focus for the business in FY17 and something we are confident we can develop to the greater benefit of the business and our members.

Stock management

Stock management hasn't been as effective as it could have been over the year, and this had an impact on Nisa's working capital at times. While the business managed the situation, Nisa's current stock management process can lead, on occasion, to holding more stock than is necessary.  With this in mind we have already begun investing in stock management software which will improve our stock management ability, significantly reducing the amount of cash we have tied up in held stock on a week to week basis and thus improving our cash flow as a business.

Loss making accounts

The business also set a precedent in FY16 by addressing loss making business within the Nisa membership, and working with a number of businesses to improve performance. This will remain an important strategic theme moving through FY17 as we seek to strengthen and grow Nisa, while ensuring the business is run for the benefit of all members.

Making A Difference Locally

Making A Difference Locally ("MADL") has donated to 1,367 good causes in member stores' local communities totalling ?874k between April 2015 and March 2016. There have been 13 national donations totalling ?250k plus 107 staff donations totalling ?32k, which have included causes such as:

·      Contact the Elderly, which tackles isolation in the elderly community

·      The Veterans Artisans Bakery, which through therapeutic baking give the veterans a purpose and skills that they take back out into civilian life

·      Bumps and Babes, two midwives offering advice and support to underprivileged pregnant women.

These are only a few community examples of the difference MADL makes.

Outlook: a return to profitable growth

With a successful FY16 now behind us, Nisa's focus for the FY17 financial year begins with executing a fast start in quarter one, delivering enhanced promotions to our members and growing the business further, building on the 476 new member stores that joined Nisa in FY16. This has already been evident through the two Bank Holiday Bonanzas and the Black Friday style promotions that Nisa launched in May, which generated over ?1m of additional sales.

Encouragingly, Nisa's weekly sales through quarter one have been tracking ahead of budget and 3.5% ahead of where Nisa was in the same period last year, which points to the continuing success of our turnaround strategy.

The fast start to FY17 will also encompass some of the key outputs of the strategic review, namely own label, stock management, range and loss making account mitigation and the business aims to make further strides in these areas over the next year.

We will continue the work on simplification of terms but recognise that we need to fundamentally change our approach to this. Given the feedback we received from members last year we are going to trial a number of different "test and learn" approaches throughout the year. This will ensure Nisa avoids a risky "big bang" approach and recognises the difficulty we have getting a set of terms that is appropriate for all members.

With so much to be positive about in quarter one of FY17, it was therefore regrettable that on 21 June My Local, one of our newer members, gave notice of its intention to go into administration.  However, this was anticipated and no material loss is expected to arise after recovery of insurance proceeds and utilisation of provisions held at the year end.