9 November 2023

B&M European Value Retail S.A.

FY24 Interim Results Announcement

Disciplined profitable growth momentum

B&M European Value Retail S.A. ("the Group"), the UK's leading variety goods value retailer, today announces its interim results for the 26 weeks to 23 September 2023.

Highlights

Alex Russo, Chief Executive, said:

"Another strong half year has seen the Group deliver 10.4% total sales growth, 16.1% adjusted EBITDA⁴ (pre-IFRS 16) growth and £352m cash generated from operations. All four of our channels of growth are delivering strong results, underpinned by our relentless focus on low prices, cost control, simplicity in everything we do and disciplined profitable growth. Highlights for the half include:

?           Existing B&M UK stores saw like-for-like³ sales increase by 6.2%, with around half coming from increased customer transaction numbers and helped by the material step change in store operational standards - a key focus for management

?           Opened 13 gross new B&M UK stores, a net increase of 5 stores, with total sales area outgrowing growth in store numbers. We expect to open not less than 35 stores this financial period, and not less than 45 stores in each of the next two years

?           France delivered total sales growth of over 26%, with LFL sales growth in double figures. France remains on track for 10 new stores across this financial year, and at least the same number next year

?           Heron Foods total sales were up 17.0% including 9 net new stores. We remain on track to open 20 new stores in this financial year

The agreement to acquire up to 51 ex-Wilko stores is a significant step which underpins our opening programme. Over the next three years we expect to open not less than 125 new B&M stores in the UK, adding up to 20% to our sales area.

I am delighted that many of our existing shareholders have been with us since our IPO and continue to see our long-term growth potential. With our new store number guidance (of not less than 1,200 B&M UK stores) and continued LFL growth, we have the runway to at least double our size in the UK in the medium term, while France also offers sizeable long-term potential."

Current trading and outlook

In the first six weeks of the Golden Quarter, B&M UK LFL³ growth has been 1.6%. Momentum has been particularly strong in the last three weeks, with LFL³ exit growth of 4.5%. The Group is trading against tough comparatives making this a pleasing result against an uncertain and ever-changing economic background.

This volatile background makes forecasting for the full year difficult. However, given the strong first half results and positive momentum, the Group's FY24 adjusted EBITDA (pre-IFRS 16) guidance is increased to a range of £620m - £630m, materially higher than FY23 performance (£573m).   

Financial results (unaudited)

Notes:

1.     Constant currency comparison involves restating the prior year Euro revenues using the same exchange rate as that used to translate the current year Euro revenues.

2.     References in this announcement to the B&M UK business include the B&M fascia stores in the UK except for the 'B&M Express' fascia stores. References in this announcement to the Heron Foods business include both the Heron Foods fascia and B&M Express fascia convenience stores in the UK. When reporting adjusted EBITDA (pre-IFRS 16) and adjusted operating profit, B&M UK also includes the corporate segment as referred to in note 2 of the financial information, and includes an adjusted loss of £2m in this period (H1 FY23: adjusted loss of <£1m).

3.     One-year like-for-like revenues relate to the B&M UK estate only (excluding wholesale revenues) and include each store's revenue for that part of the current period that falls at least 14 months after it opened compared with its revenue for the corresponding part of FY23. This 14-month approach has been adopted as it excludes the 2-month halo period which new stores experience following opening.

4.    Adjusted values are considered to be appropriate to exclude unusual, non-trading and/or non-recurring impacts on performance which therefore provides the user of the accounts with additional metrics to compare periods of account. See notes 2, 3 and 4 of the financial information for further details.

5.   Trading gross margin is considered to be a meaningful measure of profitability as it refers to the measure of gross margin used by management to commercially run the business. It differs to the statutory definition for B&M UK, which increased 233 bps from 34.5% to 36.8%, due to technical accounting adjustments in relation to the allocation of gains and losses from derivative foreign exchange accounting, commercial income and storage costs, with the derivative adjustments the main factor.

6.     Dividends are stated as gross amounts before deduction of Luxembourg withholding tax which is currently 15%.

7.     Net debt comprises interest bearing loans and borrowings, overdrafts and cash and cash equivalents. Net debt was £700m at the half year end (H1 FY23: £736m), reflecting £924m (H1 FY23: £959m) as the carrying value of gross debt netted against £224m of cash (H1 FY23: £223m). See note 7 of the financial information for more details.

8.     UK market share is calculated based on the reported revenues of B&M UK and Heron Foods, compared to NIQ Scantrack, Total Store, Total Coverage inc. Discounters, 52 weeks ending 31.12.22.

Results Presentation

An in-person presentation for analysts in relation to these FY24 Interim Results will be held today at 09:30 am (UK) at London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. Attendance is by invitation only and attendees must be registered in advance. 

A simultaneous live audio webcast and presentation will be available via the B&M corporate website at  https://www.bandmretail.com/investors/presentations/year/2023

Enquiries

B&M European Value Retail S.A.

For further information please contact: +44 (0) 151 728 5400 Ext 6363

Alex Russo, Chief Executive Officer

Mike Schmidt, Chief Financial Officer

Dave McCarthy, Head of Investor Relations

Investor.relations@bandmretail.com

Media

For media please contact:

Sam Cartwright, H-advisors, sam.cartwright@h-advisors.global +44 (0) 7827 254 561      

Jonathan Cook, H-advisors, jonathan.cook@h-advisors.global +44 (0) 7730 777 865

Disclaimer

This announcement contains statements which are or may be deemed to be 'forward-looking statements'. Forward-looking statements involve risks and uncertainties because they relate to events and depend on events or circumstances that may or may not occur in the future. All forward-looking statements in this announcement reflect the Company's present view with respect to future events as at the date of this announcement. Forward-looking statements are not guarantees of future performance and actual results in future periods may and often do differ materially from those expressed in forward-looking statements. Except where required by law or the Listing Rules of the UK Listing Authority, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect any events or circumstances arising after the date of this announcement.

About B&M European Value Retail S.A.

B&M European Value Retail S.A. is a variety retailer with 712 stores in the UK operating under the "B&M" brand, 328 stores under the "Heron Foods" and "B&M Express" brands, and 119 stores in France also operating under the "B&M" brand as at 23 September 2023. It was admitted to the FTSE 100 index on 21 September 2020.

The B&M Group was founded in 1978 and listed on the London Stock Exchange in June 2014. For more information, please visit www.bandmretail.com

Chief Executive's review

Another half of disciplined profitable growth

This has been another strong first half for the Group with adjusted EBITDA (pre-IFRS 16) up 16.1%.  Total sales were up 10.4%, including 6.2% LFL³ growth in our core B&M UK fascia. Our Group adjusted EBITDA⁴ (pre-IFRS 16) margin of 10.5% is 52 bps ahead of the comparable period last year. Exceptionally strong sales in the first quarter ensured that limited markdowns were required in the second quarter leading to a strong gross margin for the half. Strong first quarter growth moderated as expected in the second quarter, hindered by unseasonal weather which was unhelpful to the retail industry overall.  Despite this backdrop, we delivered profitable sales growth across the half. This was underpinned by a step change in our store standards and by our pricing position. Our laser focus on prices and store standards is core to our offer and underpins future growth in existing and new stores.

In addition to the 13 gross new B&M stores opened in the half, we also announced the agreement to acquire up to 51 ex-Wilko stores which underpins our well-established store opening programme. We confidently expect to open not less than 125 new B&M UK stores over next three years. We will never over-extend ourselves or compromise on the quality of our store locations in pursuit of achieving a promised number of openings. We will not neglect our core estate in pursuit of an excessive number of new openings. Our growth will be disciplined and not at the expense of excellence in standards.

Delivering compounding, profitable growth and strong cash generation is our core investment objective. To deliver this we must remain relevant to the consumer, be highly competitive through price, store standards and the right product range. We are an Every Day Low Price discounter and so we must also remain an Every Day Low Cost operator. Once again, despite high cost and high labour inflation we were able to deliver underlying cost ratios broadly in line with sales.

Our strategy is intact and unchanged, and is underpinned by several sustainable competitive advantages, which include:

?        Improving store standards. As many retailers look to cut costs, with a resultant reduction in store standards, so we continue to improve ours, without impacting our cost ratios. Over the last 12-18 months, there has been a step change in store standards and this has helped drive our LFL sales. This has put us firmly on the virtuous circle of retailing, where improved sales finances further improvements in the overall offer, leading to further sales gains.

?        Low-cost structure leads to low prices. We are able to sell cheaper than our rivals because we operate a low-cost structure and are able to share the benefits with our customers through a laser focus on price. As we continue to grow, so we will benefit from further operational leverage through our central, logistics and store fixed costs.

?           Strong supply chain and sourcing for non-grocery, built over several decades with direct sourcing. This ensures we retain low buying-in prices, have excellent availability and have rapid replenishment from suppliers.

?        Strong and improving relationships with FMCG suppliers. We only stock known brands and we remain a key growth channel for many FMCG suppliers in the UK. With an edited range and growing sales, our negotiating and buying position is strong and continues to build, helping ensure our price competitive position is continually strengthened.

Competitive position

The retail industry remains highly competitive and the consumer remains under pressure. We are seeing many retailers struggle, fail and close stores, but against a tough industry background we continue to prosper and expand profitably. The consumer has seen purchasing power cut over the last two years, with rising interest rates reducing disposable and discretionary incomes. Through our low prices, best in class availability and depth of range - we are helping consumers through the ongoing cost-of-living crisis and in doing so, are winning new customers and are building lasting loyalty. In our grocery range we remain significantly cheaper than the mainstream supermarkets. In non-grocery, compared to specialist retailers, our price position is even stronger than it is in grocery.

The move by consumers to discounters is a major trend in many countries and is set to continue over the long term. In the UK and France, we are at the forefront of this trend. In the UK, we have a little over 2% market share⁸ and much less in France, meaning there are many more years of growth ahead. While market share gain is not an objective in itself, it is a consequence of what we are delivering to the consumer - a strong price-based offer, a relevant product range and excellence in store standards.

Strategic progress review

Our strategy remains unchanged. The short-term outlook for the consumer remains challenging but the long-term potential for growth is highly attractive. We believe in the broadening appeal of our offer, the continued move by consumers to discounting and greater penetration of our offer withing existing catchment areas. Our strategy continues to be relevant in both the short-term (cost of living crisis) and the long-term (structural shift by consumers to discounting). We believe our laser focus on price is a winner in any market.

1.   Existing B&M UK stores:

We continue to improve store standards and will always strive for best-in-class product availability. This has been a key driver in our strong LFL sales in the first half. LFL³ growth of 6.2% is the equivalent sales contribution of over 40 new stores, without any incremental investment required. Focusing on our core estate is highly profitable, it increases cash generation and improves return on invested capital. We will not make the mistake of neglecting existing stores in the pursuit of an excessive number of new openings, nor will we compromise on the quality of our new openings.

2.   New B&M UK stores:

Our opening programme is building strongly and is well underpinned. Over the next three years we plan to open not less than 125 stores, supported by the agreement to acquire up to 51 ex-Wilko stores. These ex-Wilko stores will be converted steadily over the next 12 months and in many instances will take the B&M offer to more consumers in more parts of the country. In total, we now expect to open 35 stores in the current financial year and not less than 45 stores in each of the next two financial years.

We are increasing our long-term store target to not less than 1,200 stores, up from the 950 we announced in FY17, this underlines the clear runway of growth ahead. Underpinning this guidance, we have updated our previous analysis to take account of our significant LFL sales growth and strong track record of successfully opening stores in closer proximity to one another. The performance of new stores has been extremely positive and provides us with confidence for our continued UK expansion. 

3.   France:

The potential in France is substantial. In a country with a population similar in size and demographics to the UK, we have just 119 stores. In H1 FY24, we have opened 5 stores, and these are all performing strongly, helping further increase the profitability of the business as it scales up. France is highly successful but there remain more significant opportunities, such as increasing sales densities by improving the offer (e.g. increasing the FMCG range) and to expand the store network without adding to the current infrastructure. There is also the added benefit of sharing knowledge between  our French operations and the UK business.

4.   Heron Foods:

Our discount neighbourhood convenience store offer continues to perform well during these challenging times for the consumer. We see the great-value, highly-local Heron proposition resonating as customers budget through the month by purchasing only what they need, and only when they need it. Once again Heron has delivered strong growth through new and existing stores, with an adjusted EBITDA⁴ (pre-IFRS 16) margin higher than most of its competitors. We will continue to expand the business steadily with 20 new stores this year, making this a complementary and cash generating fourth channel of growth.

Management changes

At the full year we highlighted the strengthened management team and we have added to that further with the appointment of Alex Simpson, who joins us from Amazon UK, as Group General Counsel. The fact that we are able to recruit from companies like Amazon and Walmart amongst others, is a strong testament of how far B&M has come and how large our opportunity remains.

I am also very pleased that Bobby Arora, Group Trading Director, has committed his future to the Group as announced in July 2023. Bobby is important in delivering the Group's long-term growth and profitability. I look forward to building further on our partnership as we continue to work together to deliver on our objectives for shareholders.

Alex Russo

Chief Executive Officer

8 November 2023

Financial review

Group

*includes depreciation on right-of-use assets of £84m - H1 total depreciation & amortisation was £124m (H1 FY23: £119m)

Group revenues for the 26 weeks ended 23 September 2023 increased by 10.4%, (10.3% on a constant currency basis¹), with growth across all fascias. In B&M UK, our offer has resonated with customers resulting in LFL growth but also we have seen new stores perform well. Both B&M France and Heron Foods meanwhile continue to drive sales densities with both reaching double digit LFL growth.

Group gross profit increased by 16.4% YoY thanks to the strong performance across the Group. The execution of the Garden & Outdoor trading periods in B&M UK was critical to this performance, with only limited markdowns being carried out in General Merchandise categories. 

Group adjusted EBITDA⁴ (pre-IFRS 16) increased by 16.1% to £269m (H1 FY23: £232m), representing a margin of 10.5% (H1 FY23: 10.0%). We saw inflationary pressure in our cost base, particularly following minimum wage changes, but these were managed effectively by each of the fascias.

Group adjusted operating profit⁴ increased by 19.1% moving in line with the above. Overall depreciation and amortisation grew by 5.1% due to the continued investment across the store estate, with 30 net more stores across the Group YoY.

B&M UK

In the B&M UK fascia² business, total revenues increased by 8.1% to £2,045m (H1 FY23: £1,892m), with LFL³ revenues up 6.2%. We started well in Q1, with LFL sales growth of 9.2%. LFL growth slowed in Q2 to 3.1% following the strong start and hindered by the unseasonal weather over the summer. Our LFL growth reflects a strong increase in customer transaction numbers and an increased basket value. Our balanced sales mix between FMCG and General Merchandise remains intact and in line with our expectations.

B&M UK's statutory gross profit margin increased by 233 bps to 36.8% from 34.5%, due to the sell-through driven by Q1 trading resulting in limited markdown activity requirement in Q2. Trading gross margin⁵ was 36.1%, up 114 bps year on year from 34.9%, with the growth in statutory gross margin mitigated chiefly by the inclusion of foreign exchange impacts, principally in respect of the prior period, which are recorded in statutory administration costs.

There were 13 gross new stores openings in H1. Most of our store openings for the financial period are H2 weighted and we remain on track to open no fewer than 35 new stores in this financial period.

In addition to revenue generated in-store, B&M UK revenues also included £15m of wholesale revenues (H1 FY23: £17m), the majority of which represented sales made to our associate Centz Retail Holdings Limited, a chain of 53 variety goods stores in the Republic of Ireland.

Adjusted EBITDA⁴ (pre-IFRS 16) increased by 16.6% to £233m (H1 FY23: £200m), with margin increasing by 83 bps to 11.4% (H1 FY23: 10.6%), from the gross profit margin expansion described above, partially offset by foreign exchange losses related to stock bought for future resale. Operating costs (excluding foreign exchange) were well managed holding at 25.0% of revenues compared to 25.5% in the prior year.

Statutory profit before interest and tax for the period was £235m (H1 FY23: £221m).

B&M France

In France, revenues increased by 26.1% to £232m (H1 FY23: £184m). This reflects the continual improvement of the range and in particular the strengthening of the FMCG offer and also the clear focus on store standards that resulted in an improvement in sales densities.  

The business is still on track to open 10 new stores by the end of the financial period, with 5 opened in H1 FY24.

Adjusted EBITDA⁴ (pre-IFRS 16) remained flat at £18m (H1 FY23: £18m) representing an adjusted EBITDA⁴ margin of 7.8% compared to 9.6% as reported in the prior year and an underlying margin of 7.3% in that comparative period. This underlying comparative excludes c.£5m of one-off government support received at the start of the prior period.

Statutory profit before interest and tax for the period was £25m (H1 FY23: £19m).

Heron Foods

Our discount convenience offering, Heron Foods, generated revenues of £272m, up 17.0% (H1 FY23: £233m). Our LFL growth reflects a pleasing increase in customer transaction numbers and an increased basket value.

Heron opened 10 gross new stores in the period, on track for 20 at the end of the financial period.

Adjusted (pre-IFRS 16) EBITDA⁴ increased by 26.7% to £18m (H1 FY23: £14m) representing a sector-leading margin of 6.6% (H1 FY23: 6.1%).

Statutory profit before interest and tax for the period was £15m (H1 FY23: £9m).

Cashflow, capital expenditure and leverage

Cash generated from operations was £352m (H1 FY23: £370m), a decrease of 4.7% YoY reflecting a normalised first-half working capital movement with inventory build-up ahead of our golden quarter remaining tightly controlled.  We will continue to maintain our cash discipline in the second half, with working capital growth expected to be less than revenue growth, subject to any payment timing variances from the 53 week financial year.

Group net capital expenditure, excluding IFRS 16 right-of-use asset additions, was £48m (H1 FY23: £45m). This included £18m spent on 28 new stores opened in the first half across the Group (H1 FY23: £16m on 21 stores), £13m on maintenance works (<1% of H1 revenues) to ensure that our existing store estate and warehouses are appropriately invested (H1 FY23: £22m), and a total of £17m on infrastructure projects and opportunistic freehold acquisitions, which includes the consideration with respect of the Wilko transaction, to support the continued growth of the business (H1 FY23: £7m).

The Group has operated with net debt in a range of 1.0x - 1.5x since FY20. We remain comfortable with this range and believe it balances cost of capital efficiency with maintaining our strategic flexibility and level of resilience beneath our hard leverage ceiling of 2.25x EBITDA. Where we have no superior alternative use of our capital we will use special dividends to keep us operating within this 1.0x - 1.5x leverage range. Net debt⁷ to last-twelve-months adjusted EBITDA⁴ (pre-IFRS 16) is at 1.1x at the end of H1 FY24 (H1 FY23: 1.3x), at the lower end of our target range.  We will review our capital allocation and special dividend approach at the end of the key Golden Quarter trading period.

Dividend

An interim dividend of 5.1p⁶ per Ordinary Share will be paid on 15 December 2023 to shareholders on the register at 17 November 2023. The ex-dividend date will be 16 November 2023. The dividend payment will be subject to a deduction of Luxembourg withholding tax of 15%.

Shareholders and Depository Interest holders can obtain further information on the methods of receiving their dividends on our website or by visiting the website of our Registrar, Capita Asset Services at www.capitashareportal.com.

Future change of our key profit measure

The Group intends to use adjusted operating profit for future guidance, rather than adjusted EBITDA (pre-IFRS 16). For the current year, we will reference adjusted EBITDA (pre-IFRS 16), given it is the metric used in prior guidance and is the basis of targets in the current year's management incentive programme. For at least the next financial year, we will continue to report EBITDA (pre-IFRS 16) but will reduce its prominence.

Adjusted operating profit incorporates the effects of IFRS 16 and management believes it is a fair measure of underlying trading performance in a period. Further commentary on adjusted items and reconciliation to statutory figures can be found in notes 2 and 3 of the financial statements.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group remain those as set out on page 26 to 33 of our Annual Report and Financial Statement 2023: supply chain; competition; economic environment; regulation and compliance; international expansion; warehouse infrastructure; IT systems, cyber security and business continuity; key management reliance; store expansion and stock management. 

Recognising the progress that the Group has made in increasing the resilience of its distribution network and its controls over stock, the Board currently expects in May 2024 to consolidate the description of the 'warehouse infrastructure' and 'stock management' risks into a broadened supply chain risk.  The Board separately continues to monitor the political environment and increases in political intervention and regulation ahead of an anticipated 2024 general election; the outcome of this general election and the extent of any further political interventions could also increase the risks facing the Group. 

Mike Schmidt

Chief Financial Officer

8 November 2023

Condensed Consolidated Statement of Comprehensive Income

All profit and other comprehensive income is attributable to the owners of the parent.

The accompanying accounting policies and notes form an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Financial Position

The accompanying accounting policies and notes form an integral part of this financial information. The condensed financial statements were approved by the Board of Directors on 8 November 2023 and signed on their behalf by:

A. Russo, Chief Executive Officer.