High K Co is one of the three largest supermarket chains in the country of Townia. Its two principal competitors, Dely Co and Leminster Co, are of similar size to High K Co. In common with its competitors (but see below), High K Co operates three main types of store:

– Town centre stores – these sell food and drink and a range of small household items. High K Co’s initial growth was based on its town centre stores, but it has been shutting them over the last decade, although the rate of closure has slowed in the last couple of years.
– Convenience stores – these are smaller and sell food and drink and very few other items. Between 2003 and 2013, High K Co greatly expanded the number of convenience stores it operated. Their performance has varied, however, and since 2013, High K Co has not opened any new stores and closed a number of the worst-performing stores.
– Out-of-town stores – these sell food and drink and a full range of household items, including large electrical goods and furniture. The number of out-of-town stores which High K Co operated increased significantly until 2010, but has only increased slightly since.

The majority of town centre and out-of-town stores premises are owned by High K Co, but 85% of convenience stores premises are currently leased.

High K Co also sells most of its range of products online, either offering customers home delivery or ‘click and collect’ (where the customer orders the goods online and picks them up from a collection point in one of the stores).

High K Co’s year end is 31 December. When its 2016 results were published in April 2017, High K Co’s chief executive emphasised that the group was focusing on:

– Increasing total shareholder return by improvements in operating efficiency and enhancement of responsiveness to customer needs
– Ensuring competitive position by maintaining flexibility to respond to new strategic challenges
– Maintaining financial strength by using diverse sources of funding, including making use in future of revolving credit facilities

Since April 2017, Dely Co and Leminster Co have both announced that they will be making significant investments to boost online sales. Dely Co intends to fund its investments by closing all its town centre and convenience stores, although it also intends to open more out-of-town stores in popular locations.

The government of Townia was re-elected in May 2017. In the 18 months prior to the election, it eased fiscal policy and consumer spending significantly increased. However, it has tightened fiscal policy since the election to avoid the economy overheating. It has also announced an investigation into whether the country’s large retail chains treat their suppliers unfairly.

Extracts from High K Co’s 2016 financial statements and other information about it are given below:

High K Co statement of profit or loss extracts
Year ending 31 December (all amounts in $m)

Required:
(b) Discuss how High K Co may seek to finance an investment programme. (4 marks)