B&M European Value Retail S.A. (LON:BME), the UK’s leading variety goods value retailer, has announced its Preliminary Results for the 52 weeks to 25 March 2023.
HIGHLIGHTS
| · | Group revenues of £4,983m were 30.7% ahead of pre-pandemic FY20 levels on a constant currency1 basis |
| · | Group adjusted EBITDA4 (pre-IFRS 16) of £573m normalising from COVID boosted FY22 of £619m; in line with guidance and significantly ahead of pre-pandemic FY20 levels of £342m |
| · | Group adjusted EBITDA4 (pre-IFRS 16) margin of 11.5% has stepped up compared to the 9.0% achieved in FY20. Group adjusted EBITDA4 (post-IFRS 16) was £796m (FY22: £828m) |
| · | Group cash generated from operations was £866m (FY22: £598m), year-on-year (“YoY”) growth of 44.8% reflecting planned stock reductions of £99m YoY and inventory discipline |
| · | Group statutory profit before tax of £436m (FY22: £525m) with statutory diluted earnings per share 34.7p (FY22: 42.1p) |
| · | B&M UK LFL customer transaction numbers increased every month since June – demonstrating underlying growth and widening of appeal |
| · | B&M UK fascia2 revenue increased by 4.0% YoY, driven by one-year like-for-like3 (“LFL”) revenue increase of 0.7% and the increase in space through new store openings. Q4 LFL run rate of 3.2%, exiting the year with momentum |
| · | B&M UK fascia adjusted EBITDA4 % (pre-IFRS 16) normalised to 12.4% (FY22: 14.4%), with a full year trading trading gross margin8 % reduction of 148 bps. Trading gross margins significantly improved into the second half versus the first, with a 92 bps reduction versus last year |
| · | 707 B&M stores in the UK with 21 gross new store openings offset by 15 closures and relocations. Total average selling area increased by 3.6% with relocated stores providing typically 3x greater sales square footage helping drive total sales growth from relocations |
| · | Sales in France increased by 22.1% YoY with adjusted EBITDA4 (pre-IFRS 16) of £41m (FY22: £32m), representing a margin of 9.6% (FY22: 9.2%) further evidences the continued strategic and operational progress as product ranging is evolved |
| · | Sales in Heron Foods increased by 18.1% YoY with adjusted EBITDA4 (pre-IFRS 16) of £30m (FY22: £23m), representing a margin of 6.1% (FY22: 5.5%) which underlines the attraction of our convenience discount offering to customers |
| · | In the first 9 weeks of FY24, B&M UK LFL sales have run at 8.3%, France and Heron continue their trading momentum and we expect full year Group adjusted EBITDA4 (pre-IFRS 16) to be higher than FY23 |
| · | Year-end net debt5 of £724m, with net debt5 to adjusted EBITDA4 leverage ratio (pre-IFRS 16) of 1.3x (FY22: 1.3x) |
| · | Recommended final dividend6 of 9.6p per share (FY22: 11.5p), bringing the full year ordinary dividend to 14.6p per share (FY22: 16.5p) in addition to the 20.0p special dividend6 paid in January 2023 (FY22: 25.0p) |
Alejandro Russo, Chief Executive, said,
“FY23 has been another year of strong underlying progress for B&M and the long-term future looks very positive. It has also been a year of planned management transition. Simon Arora has stepped down after 19 years of leading this business and we thank him and wish him well for the future.
B&M has many years of profitable growth ahead, to be delivered through our four channels of growth (existing B&M UK stores, new B&M UK stores, France and Heron) and in delivering this growth, B&M will generate cash and compound earnings growth for our shareholders. We are actively responding to the short-term pressure on consumers from the cost-of-living crisis, with a relentless focus on price and value. A strengthened management team and the hard work of our 39,000 employees executing our unchanged strategy will help us deliver in the current financial year. We expect to grow sales and profits in FY24, despite economic uncertainty.”
Financial Results
| FY23 | FY22 | Change | |
| Total Group revenues | £4,983m | £4,673m | 6.6% |
| Group adjusted EBITDA4 (pre-IFRS 16) | £573m | £619m | (7.4)% |
| Group adjusted EBITDA4 (pre-IFRS 16) margin % | 11.5% | 13.2% | (174) bps |
| Group cash generated from operations | £866m | £598m | 44.8% |
| Group adjusted profit before tax4 | £459m | £524m | (12.6)% |
| Group statutory profit before tax | £436m | £525m | (17.0)% |
| Adjusted diluted EPS4 | 36.5p | 41.6p | (12.3)% |
| Statutory diluted EPS | 34.7p | 42.1p | (17.6)% |
| Ordinary dividends6 | 14.6p | 16.5p | (11.5)% |
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 includes 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 includes both the Heron Foods fascia and B&M Express fascia convenience stores in the UK. When reporting adjusted EBITDA, B&M UK also includes the corporate segment as referred to in Note 2 of the financial statements, an adjusted loss of £1m (FY22: profit 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 FY22. This 14-month approach has been adopted as it excludes the two-month halo period which new stores experience following opening. Three-year like-for-like revenues also relate to the B&M UK estate only, and includes each store’s revenue for that part of the current period that falls at least 38 months after it opened compared with its revenue for the corresponding part of FY20.
4. The Directors believe that our adjusted figures – as described in Note 1 of the financial statements – provide users of the accounts with measures of performance which are appropriate to the retail industry and presented by peers and competitors. 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 an additional metric to compare periods of account. See Note 3 of the financial statements for further details. Adjusted figures exclude the impact of IFRS 16.
5. Net debt comprises interest bearing loans and borrowings, and cash and cash equivalents. Net debt was £724m at the year end, reflecting £961m as the value of gross debt netted against £237m of cash. See Notes 17, 20 and 27 of the financial statements for more details.
6. Dividends are stated as gross amounts before deduction of Luxembourg withholding tax, which is currently 15%.
7. Net capital expenditure includes the purchase of property, plant and equipment, intangible assets and proceeds from the sale of any of those items. These exclude IFRS 16 lease liabilities.
8. 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, which declined 177 bps from 37.4% to 35.7%, due to technical accounting adjustments in relation to the allocation of gains and losses from derivative accounting, storage costs and commercial income, with the derivative adjustments the main factor.
9. 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.
10. NIQ Homescan, year to March 2023.
Results Presentation
An in-person presentation for analysts in relation to these FY23 Preliminary Results will be held today at 09:30 am (UK) at Bank of America Merrill Lynch, 2 King Edward St, London EC1A 1HQ. Attendance is by invitation only.
A simultaneous live audio webcast and presentation will be available via the B&M corporate website at www.bandmretail.com/investors/presentations/year/2023
Chief Executive’s Review
The last 12 months have been a year of major transition for B&M.
FY23 has been a good and significant year in the evolution of B&M. There have been planned management changes, there have been major economic headwinds and there has been material cost pressures to deal with. But B&M UK has weathered the difficult environment well and has delivered another excellent year of financial performance with an adjusted EBITDA margin4 of 12.4%. We have delivered strong sales growth and market share gains, an EBITDA margin substantially ahead of pre-pandemic levels, and strong cash generation helped by a clean inventory position. This reduction in inventories helped facilitate an extra £200m (20.0p per share) being returned to shareholders through a special dividend in January this year, on top of an interim dividend of 5.0p and a final ordinary dividend of 9.6p. This is a very pleasing reward for our shareholders and reflects growth of the business, good cost control and strong cash management.
A relentless focus on helping our customers navigate the cost-of-living crisis has been key to our success. Delivering strong results has been made possible through the hard work of our employees, and through a laser like focus on price and value for money. In contrast to some other businesses, we look to keep prices as low as we can, while delivering profitable growth and cash for our shareholders. At the same time, we continue to expand our store estate, upgrade the existing estate and to make improvements in our offer, whether through price investment or through improving store standards. Profitable growth is at the core of our strategic objectives, and to do that we need to put consumer needs at the centre of what we do.
The underlying strategy remains unchanged with the focus on simplicity and low costs across our four channels of growth, which are improved sales in existing stores, the expansion of our store estate in the UK, expansion in France and continued growth in Heron, our UK convenience store operation. I will return to these four channels later.
The long-term outlook for B&M remains very positive, with many years of profitable growth ahead. In the UK, B&M has a small market share9 and even less in France. Market share in both countries can be substantially higher and as we execute our strategy, we will deliver compounding earnings growth and cash returns for shareholders.
Competitive Position
To deliver on our long-term aims, we must remain highly competitive in a rapidly developing retail market. We must remain relevant through price, edited range and location, and these requirements drive our strategy. We continue to be relentlessly focused on price and compared to last year, our price advantage over the mainstream supermarkets is as strong as it was through consistency of everyday low prices (“EDLP”).
Many consumer trends favour B&M, including trading down, as does the changing structure of grocery retailing. Currently, many consumers are switching to the two German Limited Assortment Discounters (“LADs”) which remain heavily focused on own label. Our branded offer is highly complementary to them. Independent research shows that most LADs shoppers also shop elsewhere10, and where we are co-located, our stores tend to trade exceptionally well. This is as true in France as it is in the UK.
In non-grocery our aggressive focus on price is also working, with General Merchandise performing very well. Price comparisons are inevitably harder in this area due to a lack of brands, differences in products and our constantly evolving product mix but our price positioning remains market leading. While improving our price position, over the last several years we have also improved our product quality. Hence our value for money credentials are substantially improved, as evidenced by the increased number of monthly transactions and by our retaining many of the customers who tried us for the first time during lockdowns.
Strategic progress review
The macroeconomic outlook remains uncertain, with the consumer challenged by high inflation, rising interest rates and by declining real incomes. Despite a tough backdrop, we remain focused on delivering through our existing four channels of growth in FY24.
1: Existing B&M UK stores: A core driver of growth
In FY23 there was a sharp focus on delivering growth through our existing stores. This led to major improvements in store standards and increased product availability, which in turn led to improvements in like-for-like3 (“LFL”) sales. In the second half, driven by improvements in store standards, B&M UK delivered 5.1% LFL sales growth. This shows the power of improving the offer in existing stores, while the benefits of operational gearing are evidenced in cash and profits.
Our stores have the capacity to keep growing their sales for many years ahead. Due to operational gearing and no extra capital, such growth should be highly profitable, should deliver incremental returns on investment and should allow further reinvestment back into lower prices to drive further profitable growth.
2: New B&M UK stores: Square footage growth outpaces our growth in net new stores
Total average net sales area (including garden centres) increased by 3.6% in the last financial year. This is greater than the increase in net new stores (6 stores or a 0.9% increase) and is driven by three factors: 1) new stores tend to be bigger than existing store average, 2) new stores are more likely to have a small garden centre than existing stores and 3) replacement stores are usually much larger than the stores they replace.
Previously we have made it clear that the 950 target for store numbers is conservative but even so, it represents c.35% more stores than today, and with newer stores being on average bigger than existing stores and having higher total sales, the sales growth should be even greater than this 35%.
The sales contribution from our gross new store openings continues to be very healthy in 2023 and reinforces the strategy of replacing older, smaller stores at the end of their leases with new stores where there is a catchment opportunity to do so.
We will accelerate our new store openings back towards 40 stores per annum, with c.30 expected in FY24, but focus will always remain on new stores generating a leading return on investment. We will not compromise on our investment targets, and we will not open unprofitable stores just to meet a store opening target. Sustainable profitable growth is at the core of our business.
3: France will provide growth for many years to come
France has undergone a major transformation, with recent results highlighting the long-term potential. All stores have been branded B&M, clothing (which was a major part of the offer when the business was acquired) has been removed and the FMCG range is building. The business was loss making just two years ago but in FY23, France delivered 22.1% sales growth and an adjusted EBITDA4 (pre-IFRS 16) margin of 9.6%. As the business continues to evolve and benefit from the B&M supply chain and infrastructure, there remains the prospect of further growth in EBITDA margin.
New store growth will also deliver economies of scale and operational gearing benefits. In FY23 we opened 7 new stores in France. In FY24 we plan to open another 10 new stores, with a potential for an acceleration in openings in future years. With just 114 stores currently, in a country with a similar population to the UK, France can sustain a strong opening programme for the long term.
4: Heron Foods offers growth and offers other benefits to the core business
Heron Foods has had an outstanding year, delivering substantial sales growth and a leading EBITDA margin in its area. It currently operates 319 stores, but as a low-priced convenience store operator there remains the scope to open many more. The scale of the opportunity may be judged by the fact that the market leader in the UK operates over 2,000 convenience stores.
Heron Foods has undergone a strategic repositioning over the last 18 months. The number of freezer units in each store has been reduced – but not the Frozen range. Instead, products have been merchandised more intensively freeing up extra space in store. This extra space has allowed the chilled and ambient ranges to be extended and this has driven a step change in sales densities.
As well as being a strong business in its own right, Heron brings other benefits to the Group. It enhances our buying economies, provides other economies of scale and is an invaluable source of learning and knowledge, as is our French operation.
Management Changes
As stated earlier, this year has seen some major planned changes in the management team. After 19 highly successful years, Simon Arora stepped down as CEO and has now exited the business. We thank Simon for his outstanding contributions to B&M and to the UK economy.
After two years as Chief Financial Officer, I am delighted to have taken the role of Chief Executive Officer. I have strengthened the management team with a number of key appointments, including:
• Mike Schmidt as CFO, with 22 years experience, following 9 years at DFS
• Jon Parry as Supply Chain Director with 26 years experience, following 12 years at Asda
• Philippe Brasleret as Retail Stores Director in France with 18 years experience, following 9 years at Aldi France
• James Kew as Head of Retail Operations for B&M UK with 16 years experience, following 5 years as Head of Productivity and Change at B&M UK
These represent a planned strengthening of our management team and we will strengthen our team further with new appointments in the coming months.
Current trading and outlook
Our business has now normalised to a new, sustainable and higher level of underlying sales and margin compared to the pre-pandemic year of FY20. We remain highly cash generative and in the absence of acquisition opportunities for batches of stores, we will look to return excess cash to shareholders at the appropriate time in line with our capital allocation framework.
Against the ongoing cost-of-living crisis, we will help our customers by remaining highly price competitive and growing our business, through existing and new stores in the UK and France. As well as expecting further LFL growth in existing stores, during FY24 we plan to open c.30 new B&M stores in the UK, c.10 in France and c.20 Heron Foods stores.
The business will maintain a high degree of discipline on EDLP pricing, limited range assortment and a low-cost operating model.
In the first 9 weeks of FY24, B&M UK LFL sales have run at 8.3%, France and Heron continue their trading momentum and we expect full year Group adjusted EBITDA4 (pre-IFRS 16) to be higher than FY23.
Alejandro Russo
Chief Executive Officer
30 May 2023
Financial Review
Accounting period
The current accounting period represents the 52 weeks trading to 25 March 2023 (“FY23”) and the comparative period represents the 52 weeks to 26 March 2022 (“FY22”). The upcoming accounting period represents 53 weeks trading to 30 March 2024 (“FY24”).
The Group financial statements have been prepared in accordance with IFRS and are reported as such. Underlying figures presented before the impact of IFRS 16 continue to be reported where they are relevant to understanding the performance of the Group and to aid comparability with previous years.
Financial performance
Group
This is the first year since the outbreak of COVID-19 where trading patterns have normalised. We believe FY23 can be viewed as the Group’s new underlying revenue and profit base level from which we grow from – with Group adjusted EBITDA4 (pre-IFRS 16) of £573m. We now have the proven evidence there has been a step change in performance of the Group since the pandemic, where Group adjusted EBITDA4 (pre-IFRS 16) in FY20 was £342m. Trading was exceptional during each of FY21 and FY22, particularly during the periods where non-essential retail was closed, including some of the first quarter of FY22. Our performance relative to pre-pandemic levels evidences that we are retaining the new customers won during the pandemic years. Importantly though, the robust profit margins and cash conversion characteristics of the business remain unchanged.
Total Group revenue in FY23 was £4,983m (FY22: £4,673m), representing a year-on-year increase of 6.6%. On a constant currency basis1, revenues increased by 6.5%. This has been driven by positive like-for-like3 (“LFL”) in all businesses, which includes inflation and mix effects, and by strong trading from new stores.
Group adjusted EBITDA4 (pre-IFRS 16) decreased to £573m (FY22: £619m) as we completed a full year of undisturbed post-pandemic trading. The continued Group revenue growth in the year was moderated by the reduction in the trading gross margin in B&M UK as described below, that led to a £49m or 2.7% growth in gross margin. Operating costs also increased by £94m or 8.3%, reflecting the cost of serving our increased revenues, opening new stores and also cost inflation, including the effects of the 6.6% increase to the UK national living wage. On a statutory basis, profit before tax declined to £436m from £525m, again reflecting the normalisation of trading to a post-pandemic period.
Group adjusted EBITDA4 (pre-IFRS 16) margin is now 11.5%, which is 253 bps higher than pre-pandemic levels (FY20: 9.0%). This reflects the structural change in our margin which the business has undergone in the last three years, with an evolution of our product range, greater economies of scale, the benefits of operational gearing from higher sales densities and other operational learnings.
On a post-IFRS 16 basis, Group adjusted EBITDA4 was £796m (FY22: £828m) which represented an adjusted EBITDA4 margin of 16.0% (FY22: 17.7%).
An adjusted EBITDA4 is reported to allow investors to better understand the underlying performance of the business. The adjusting items are detailed in note 3 of the financial statements and totalled £19m this year (FY22: £(12)m).
We closed the year with an unchanged leverage with a pre-IFRS 16 net debt5 to adjusted EBITDA4 leverage ratio of 1.3x (FY22: 1.3x), following the payment of £347m of ordinary and special dividends in the year. This reflects the Group continuing its strong track record for operating cash generation and capital expenditure efficiency. Significantly, operational efficiency in our stores and logistics and our discipline in implementing markdowns in garden categories contributed to a £99m stock reduction, that underpinned the total cash generated from operations across the year of £866m (FY22: £598m).
B&M UK
In the UK, total B&M fascia2 revenue increased by 4.0% to £4,067m (FY22: £3,909m), with one-year LFL revenue increasing by 0.7%. There was a strong run rate in the second half of the year with LFL sales growth of 5.1%, compared to a first half LFL of (3.9)% and the business has likewise entered the current year with strong momentum. Our LFL customer transaction numbers increased every month since June.
On a three-year basis, total revenue is 29.5% higher than in FY20, with LFL revenue3 13.3% higher. This reflects the underlying growth of the business during the pandemic and during lockdowns and is indicative that many customers won during lockdown have become regular customers.
At category level, we believe the one-year LFL performance has now broadly normalised against the peak of the pandemic. Demand for essential food and FMCG items has remained high, with many customers seeking out leading branded goods at the lowest possible price during this cost-of-living crisis. General Merchandise demand has also been resilient and performing in line with our plans, with seasonal categories such as Halloween, Christmas, Easter and most recently the Coronation all having a strong sell-through.
B&M’s trading gross margin8 reduced by 148 bps across the full financial year, driven by the reintroduction of usual markdown activity including the previously disclosed markdowns in the gardening category in H1. Consistent with this, a marked improvement in the year-on-year trend was seen in H2 relative to H1 (H2 trading gross margin down 92 bps versus FY22), due to strong sell through with only planned markdown activity in general merchandise categories, coupled with a significant reduction in freight rates.
There were 21 gross new openings of which 5 were replacements for smaller legacy stores and a further two relocations of FY23 closures will occur early in FY24. The replacement stores typically have 3x the total sales space of the stores they replaced and deliver a higher store contribution than the stores they replaced.
New stores, including replacements, are cash generative in year one and typically deliver a higher store contribution than the Group’s average.
In addition to revenue generated in-store, wholesale revenue decreased to £37m (FY22: £45m). Most of this represents sales made to the associate Centz Retail Holdings Limited, a chain of 54 variety goods stores in the Republic of Ireland.
Operating costs, excluding depreciation and amortisation, increased by 5.7% to £950m (FY22: £899m) which represented 23.4% of revenues (FY22: 23.0%). This was primarily because of an increase in store costs driven by a strategic decision to focus on store standards to drive LFL sales, partially offset against foreign exchange gains made due to our strong hedging position against the underlying spot rate.
Adjusted EBITDA4 (pre-IFRS 16) for the B&M UK business decreased by (10.9)% to £502m (FY22: £564m) and the adjusted EBITDA4 margin decreased by (207) bps to 12.4% (FY22: 14.4%). However, both remain significantly above historical levels. Statutory operating profit for the year was £479m (FY22: £569m).
France
In France, revenues increased by 22.1% to £431m (FY22: £353m), reflecting strong LFL performance and new store openings delivering well. There were 7 new stores opened in FY23 increasing the average sales area of the total store estate by 4.7% to 3.1m sq. ft. (FY22: 3.0m sq. ft.).
Adjusted EBITDA4 (pre-IFRS 16) increased by £9m to £41m (FY22: £32m), with an adjusted EBITDA4 margin of 9.6% (FY22: 9.2%). The French business continues to build a sustainable underlying profit base and is primed to carry on delivering against the strategic and financial objectives set. Statutory operating profit for the year was £19m (FY22: £11m).
Gross margin remained broadly stable with far less emphasis placed on textiles and further steps taken towards aligning its product mix to that seen in B&M UK.
Operational consistency remained throughout the year. Operating costs as a percentage of sales improved by 1.2% to 34.9% (FY22: 36.1%).
Heron Foods
In the discount convenience chain, Heron Foods, revenues increased by 18.1% to £485m (FY22: £411m), reflecting a successful year and continued growth.
There were 14 gross new stores openings and 6 closures in FY23, with 3 of those closures being relocations. As with the B&M business, the store estate is carefully monitored and if an opportunity arises to open a new higher quality store in a new or existing area, the business will look to capitalise. Total average sales area of the store estate increased by 5.0% to 970k sq. ft. (FY22: 920k sq. ft.).
Heron Foods adjusted EBITDA4 (pre-IFRS 16) increased to £30m (FY22: £23m), with an adjusted EBITDA4 margin of 6.1% of sales (FY22: 5.5%), representing a successful result for the year. Statutory operating profit for the year was £38m (FY22: £30m).
Gross margin in Heron Foods remained resilient against FY22 with a strong performance across all categories – Chilled, Ambient and Frozen – with the latter being a growth driver later in the financial year as our customers look to avoid food wastage during the cost-of-living crisis.
Operating costs remained well-controlled, remaining broadly flat as a percentage of revenues.
Depreciation and amortisation
Depreciation and amortisation expenses, excluding the impact of IFRS 16, grew by 16.3% to £76m (FY22: £66m), representing only 1.5% of sales (FY22: 1.4%). The increase was largely due to continued investment in new stores across all fascias, with the Group growing the store numbers by 1.9% in the year.
The additional depreciation and amortisation charge relating to lease liabilities under IFRS 16 was £166m (FY22: £161m).
Finance expense
Net finance charges for the year, excluding IFRS 16, were £38m (FY22: £29m). This included bank and high yield bond interest of £38m (FY22: £27m) and amortised fees of £2m (FY22: £2m).
The interest charge relating to lease liabilities under IFRS 16 was £61m (FY22: £59m).
Profit before tax
Statutory profit before tax was £436m (FY22: £525m). An adjusted profit before tax4 is also reported to allow investors to better understand the operating performance of the business (see note 3 of the financial statements). Adjusted profit before tax4 (pre-IFRS 16) for the year decreased to £459m (FY22: £524m).
The impact of IFRS 16 on the Group financial statements was to decrease statutory profit before tax by £4m.
Taxation
The tax charge in FY23 was £88m (FY22: £103m), representing an effective tax rate of 20.1%. We expect the tax rate going forward to reflect the blended rate of taxes in the countries in which we operate. This is currently 19% in the UK and 25% in France, although the UK Corporation Tax rate has now increased to 25% from FY24 onwards.
As a Group, we are committed to paying the right tax in the territories in which we operate. The B&M UK business paid taxes totalling £527m in FY23, including £210m relating to those taxes borne directly by the Company such as corporation tax, customs duties, business rates, employer’s national insurance contributions and stamp duty and land taxes. The balance of £317m are taxes we collect from customers and employees on behalf of the UK Exchequer, which includes value added tax, pay as you earn and employee national insurance contributions.
Profit after tax and earnings per share
Statutory profit after tax was £348m (FY22: £422m) and the statutory diluted earnings per share was 34.7p (FY22: 42.1p).
Adjusted profit after tax4, which we consider to be a better measure of performance for the reasons outlined above, was £366m (FY22: £417m), and the adjusted fully diluted earnings per share4 was 36.5p (FY22: 41.6p).
Investing activities
Group net capital expenditure7 totalled £89m this year (FY22: £85m). Investment included £33m spent on 42 gross new stores across the Group’s fascias (FY22: £34m on 54 stores) and £16m on infrastructure projects to support the continued growth of the business (FY22: £9m). There was also investment of £40m on maintenance works to ensure that our existing store estate and warehouses are appropriately maintained (FY22: £42m). There was also a net expenditure of £(1)m relating to a small number of freehold acquisitions and disposals (FY22: net expenditure of £1m).
Net debt and cash flow
The Group continues to be highly cash generative, with cash generated from operations of £866m (FY22: £598m), helped by the planned stock reduction of £99m.
The strong performance and cash generation have enabled the Group to pay dividends totalling £347m6 in FY23. This includes a £200m6 special dividend paid in February 2023.
Net debt5 (on a pre-IFRS 16 basis), decreased to £724m (FY22: £790m). The net debt5 to adjusted EBITDA4 leverage ratio was 1.3x (FY22: 1.3x), the fourth year that we maintained it below 1.5x and comfortably within our published 2.25x leverage ceiling.
In March 2023, we entered into a new five-year senior facilities agreement, with two one-year extension options for a £225m senior term loan facility and a £225m senior revolving credit facility with a banking syndicate made up of seven banks. This facility gives us significant additional maturity, can be upscaled by up to £350m if required to support future growth, and provides a streamlined bank group that we look forward to working with in the future.
The Board adopted a long-term capital allocation policy in 2016 to provide a framework to help investors understand how the Group will continue to balance the funding requirements of a growth business like B&M with the desire to return surplus capital to shareholders. The Board will continue to evaluate opportunities to invest and support the growth of the business along with the scope for any incremental return of capital to shareholders in the context of that framework.
Dividends
During the year, the Company declared and paid an interim ordinary dividend of 5.0p6 per share in addition to a special dividend of 20.0p6 per share. Subject to approval by shareholders at the AGM on 25 July 2023, a final ordinary dividend of 9.6p6 per share is to be paid on 4 August 2023 to shareholders on the register of the Company at the close of business on 30 June 2023. The ex-dividend date will be 29 June 2023.
The Group has a dividend policy which targets an ordinary dividend pay-out ratio of between 30 to 40% of net income on a normalised tax basis. The Group generally aims to pay the interim and final dividends for each financial year in proportions of approximately one-third and two-thirds of the total annual ordinary dividend respectively.
The Group is strongly cash generative and its policy is to allocate cash surpluses in the following order of priority:
1. the rollout of new stores with a strong payback profile;
2. ordinary dividend to shareholders;
3. mergers & acquisition opportunities; and
4. returns of surplus cash to shareholders.
The above list is a summary of the main items but is not exhaustive as other factors may arise from time to time which require investment to support the long-term growth objectives of the Group.
The parent company of the Group is an investment holding company which does not carry on retail commercial trading operations. Its distributable reserves are derived from intra-group dividends originating from its subsidiaries. The parent company is a Luxembourg registered company, and as such, the Board is permitted to have recourse to the company’s share premium account as a distributable reserve. It remains the Group’s policy for dividend purposes to have recourse to distributable profits from within the Group, and accordingly, ahead of interim dividends, and also ahead of the year-end in relation to final dividends. The Board reviews the levels of dividend cover in the parent company to maintain sufficient levels of distributable profits in the parent company for each of those dividends. There are over £500m of distributable reserves in the principal trading subsidiary of the Group, B&M Retail Limited, and there are no dividend blocks between it and the Company.
Notwithstanding the current macroeconomic uncertainties, the Group has continued to be highly cash generative and is in a strong position to maintain its ordinary dividend policy. The principal risks of the Group are set out in its Annual Report, in particular those relating to supply chain, competition, economic environment, warehouse infrastructure and international expansion. These are relevant to the ability of the Group to maintain its ordinary dividend policy in the future. The Group however maintains strategies to mitigate those risks and the Board believes the Group has a robust and resilient business model through the combination of having a value-led product assortment which to a large extent comprises essential goods and also competes across a very broad section of the retail markets in our chosen locations.
Mike Schmidt
Chief Financial Officer, B&M European Value Retail S.A.
30 May 2023
