B&M European Value Retail S.A. (LON:BME), the UK’s leading variety goods value retailer, has announced its interim results for the 26 weeks to 23 September 2023.
Highlights
· Group revenues increased by 10.4% on prior year to £2,549m (+10.3% constant currency1)
· Group adjusted EBITDA4 (pre-IFRS 16) of £269m and margin of 10.5% (H1 FY23: 10.0%) represents 16.1% growth vs. last half year (H1 FY23: £232m)
· Group adjusted operating profit4 increased 19.1% to £263m (H1 FY23: £221m), with statutory operating profit of £275m (H1 FY23: £248m) and statutory profit before tax of £222m (H1 FY23: £201m)
· Group inventory in a clean exit position of £856m (H1 FY23: £837m)
· Group cash generated from operations was £352m (H1 FY23: £370m), reflecting a normalised working capital movement with strong stock availability ahead of the Golden Quarter across the three fascias
· All fascias trading well with positive transaction numbers and new space growth
· Now expect to reach not less than 1,200 B&M UK stores in total, vs. previous guidance of 950
· Opened 28 gross new stores across the Group (13 in B&M UK, 10 in Heron Foods and 5 in B&M France). Total average selling area increase continues to outpace the increase in number of stores
· Net debt7 to adjusted EBITDA4 (pre-IFRS 16) leverage ratio of 1.1x (H1 FY23: 1.3x)
· An interim dividend6 of 5.1p per Ordinary Share will be paid on 15 December 2023 (H1 FY23: 5.0p)
· FY24 Group adjusted EBITDA (pre-IFRS 16) guidance, increased to be in the range of £620m – £630m, materially higher than FY23 (£573m)
| Fascia perfomance | Revenue growth % | Adjusted EBITDA2,4 (pre-IFRS 16) margin % | ||||
| H1 FY24 | H1 FY23 | H1 FY24 | H1 FY23 | |||
| B&M UK2 | 8.1% | (0.9)% | 11.4% | 10.6% | ||
| B&M UK LFL3 | 6.2% | (3.9)% | – | – | ||
| B&M France | 26.1% | 18.2% | 7.8% | 9.6% | ||
| Heron Foods | 17.0% | 14.6% | 6.6% | 6.1% | ||
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)
| H1 FY24 | H1 FY23 | Change | |
| Total Group revenue | £2,549m | £2,309m | 10.4% |
| Group adjusted EBITDA2,4 (pre-IFRS 16) | £269m | £232m | 16.1% |
| Group adjusted EBITDA4 (pre-IFRS 16) margin % | 10.5% | 10.0% | 52 bps |
| Group adjusted operating profit2,4 | £263m | £221m | 19.1% |
| Group statutory operating profit | £275m | £248m | 11.0% |
| Group statutory operating profit margin % | 10.8% | 10.7% | 6 bps |
| Group cash generated from operations | £352m | £370m | (4.7)% |
| Group statutory profit before tax | £222m | £201m | 10.5% |
| Adjusted (pre-IFRS 16) diluted EPS4 | 15.5p | 14.4p | 7.6% |
| Statutory diluted EPS | 16.3p | 15.7p | 4.2% |
| Ordinary dividends6 | 5.1p | 5.0p | 2.0% |
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
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
