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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| B&m European Value Retail S.a. | LSE:BME | London | Ordinary Share | LU1072616219 | ORD 10P (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.60 | -0.11% | 524.20 | 525.60 | 526.00 | 532.60 | 524.20 | 528.00 | 3,406,926 | 16:35:08 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Misc Retail Stores, Nec | 4.98B | 348M | 0.3470 | 15.16 | 5.27B |
From Apr 2019 to Apr 2024
TIDMBME
RNS Number : 9610Z
B&M European Value Retail S.A.
23 May 2019
23 May 2019
B&M European Value Retail S.A.
Preliminary Results Announcement
Strong Q4 and On-going Performance
B&M European Value Retail S.A. ("the Group"), the UK's leading variety goods value retailer, today announces its Preliminary Results for the 52 weeks to 30 March 2019.
HIGHLIGHTS
-- Group revenues(1) increased by 17.1% to GBP3,486.3m (2018: GBP2,976.3m), 17.0% at constant currency(2) for the 52 week comparable period to the previous year
-- UK B&M(3) store fascia revenue(1) growth of 8.7%, including Like-for-Like revenue(4) growth of 0.7% for the year, including 5.8% in the fourth quarter, unadjusted for Easter timing (+6.7% after Easter adjustment)
-- Group profit before tax increased by 8.7% to GBP249.4m for the 52 week period (2018: GBP229.3m), diluted earnings per share 20.5p (2018:18.6p)
-- UK B&M store fascia Adjusted EBITDA(1&5) growth of 13.5% to GBP297.0m (2018: GBP261.7m), with a 45bps increase in margin to 10.6% of revenue
-- Important progress clearing out slow-moving inventory in both Germany and France with more work to be done to implement the direct sourcing model in those markets
-- Cash generated from operations of GBP259.4m for the 52 week period (2018: GBP242.0m), year-end net debt(6) of GBP621.6m and net debt(6) to EBITDA of 1.99x, which equates to 1.75x excluding the capital expenditure incurred to date on the Bedford distribution centre (2018: 1.72x)
-- Recommended final dividend(7) increased to 4.9p per share (FY18: 4.8p) to be paid on 2 August 2019, bringing full year ordinary dividend to 7.6p per share, an increase of 5.7%
-- 44 net new B&M UK fascia stores opened in the period (54 gross) and at least a further 50 gross new stores planned for this financial year, benefiting from plentiful availability of attractive new store opportunities
-- New 1m sq ft distribution centre under construction in Bedford (to support UK store expansion needs for foreseeable future) on schedule for January 2020 commissioning, with rental and commissioning costs of c.GBP12m being incurred in FY20 before operational efficiencies are realised in FY21
-- Pleasing start to Q1 with mid-single digit Like-for-Like(4) in B&M UK fascia stores.
Simon Arora, Chief Executive, said,
"B&M has again delivered strong results against the challenging backdrop of continued structural change in our industry, rising costs and uncertain times for consumers, demonstrating that its value credentials remain as resonant as ever with customers, whether they need a bargain or just enjoy one.
We have made important progress in establishing platforms for further long term expansion in both Germany and France although there is much work to be done to implement the disruptive, value-led B&M model in these large new markets.
We enter the new financial year with renewed trading momentum particularly in the UK, a high quality new store expansion programme in place, and investing in our new infrastructure to support future growth. I'm confident B&M is well-positioned to deliver further strong progress in the current year and beyond."
Financial Results
Hot Features
Premium
FY 2019 FY 2018 Change FY 2018
(52 weeks) (52 weeks) (Statutory)
Total Group Revenues
B&M 2,789.4 2,566.0 8.7% 2,619.5
Heron 354.1 210.0 68.6% 210.0
Jawoll 213.7 200.3 6.7% 200.3
Babou 129.1 - - -
Total 3,486.3 2,976.3 17.1% 3,029.8
------------- ------------- ---------- --------------
Number of Stores
Group 1,093 927 17.9% 927
B&M 620 576 7.6% 576
Heron Foods 281 265 6.0% 265
Jawoll 96 86 11.6% 86
Babou 96 - - -
------------- ------------- ---------- --------------
Adjusted EBITDA(5) 312.3 279.0 11.9% 283.3
B&M 297.0 261.7 13.5% 265.9
Heron Foods 19.9 11.7 69.6% 11.7
Jawoll (10.2) 5.6 -281.9% 5.6
Babou 5.6 - - -
------------- ------------- ---------- --------------
Adjusted EBITDA %(5) 9.0% 9.4% -0.4% 9.4%
------------- ------------- ---------- --------------
Profit Before Tax 249.4 226.1 10.3% 229.3
------------- ------------- ---------- --------------
EPS 20.5 18.3 12.0% 18.6
------------- ------------- ---------- --------------
Adjusted Profit Before
Tax(5) 239.8 221.5 8.2% 224.8
------------- ------------- ---------- --------------
Adjusted Diluted EPS(5) 19.7 17.8 10.7% 18.0
------------- ------------- ---------- --------------
Ordinary Dividends(7) 7.6p 7.2p 5.7% 7.2p
------------- ------------- ---------- --------------
(1) The figures presented in this announcement are for the 52 week period ended 30 March 2019, and unless otherwise stated, the comparable figures for the previous year are for the 52 week period ended 24 March 2018 rather than the statutory reported 53 week period for that prior year.
(2) Constant currency comparison involves restating the prior year Euro revenues using the same exchange rate as used to translate the current year Euro revenues.
(3) References in this announcement to the B&M 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.
(4) Like-for-like revenues relate to the B&M estate only 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 the previous period. This 14 month approach has been used as it excludes the two month halo period which new stores experience following opening.
(5) The Directors consider adjusted figures to be more reflective of the underlying business performance of the Group and believe
that this measure provides additional useful information for investors on the Group's performance. Further details can be found in note 3.
(6) Net Debt comprises interest bearing loans and borrowings, overdrafts, cash/cash equivalents and finance leases excluding capitalised fees. See notes 18, 21 and 25 for more details.
(7) Dividends are stated as gross amounts before deduction of Luxembourg withholding tax which is currently 15%.
(8) Net capital expenditure includes the purchase of property, plant and equipment, intangible assets and proceeds of sale of any of those items.
Analyst Meeting & Webcast
An Analyst Meeting in relation to the final results will be held on Thursday 23 May 2019 at 08:30 am (UK) by invitation only at:
Bank of America Merrill Lynch
2 King Edward Street
London
EC1A 1HQ
The meeting can be accessed live via a dial-in facility on:
UK & International: +44 (0) 203 0095710 US: 19177200178
Participant Pin Code: 6770969
A simultaneous audio webcast and presentation slides will be available via the B&M corporate website at www.bandmretail.com
Enquiries:
B&M European Value Retail S.A.
For further information please contact +44 (0) 151 728 5400
Simon Arora, Chief Executive
Paul McDonald, Chief Financial Officer
Steve Webb, Investor Relations Director
Investor.relations@bandmretail.com
Media
For media please contact +44 (0) 207 379 5151
Maitland
Daniel Yea
bmstores-maitland@maitland.co.uk
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.
Notes to editors
B&M European Value Retail S.A. is a variety retailer with 620 stores in the UK operating under the "B&M" brand, 281 stores under the "Heron Foods" and "B&M Express" brands, 96 stores in Germany primarily operating under the "Jawoll" brand, and 96 stores in France operating under the "Babou" brand as at 30 March 2019. It was admitted to the FTSE 250 index in June 2015.
The B&M Group was founded in 1978 and listed on the London Stock Exchange in June 2014. For more information please visit www.bmstores.co.uk
Chief Executive's Review
Overview
It is pleasing to report another year of continued revenue and earnings growth and renewed trading momentum, whilst absorbing the necessary costs of preparing the business for long term growth and success.
The core B&M business had a good year, tempered in part by the weak performance of our Homewares categories during the second and third quarters; an issue which was temporary and which has now been resolved, as referred to below. A strong return to trading form in the fourth quarter, with a strong performance from new stores and a robust gross margin, combined with diligent control of costs, delivered a good overall outcome in terms of profit growth and cash generation. We remain pleased by our acquisition of Heron Foods, which continued to perform well.
In Germany, performance was hampered by the need to clear obsolete stock to make way for new ranges and a greater proportion of product sourced through B&M's supply chain. With most of this costly activity now concluded, the Jawoll team are able to offer its shoppers a more compelling product range, utilising B&M's approach to limited assortment and directly-sourced product, being the key drivers of our disruptive pricing in the UK.
We are delighted to have completed the acquisition of Babou in France last October. It is a business with modern, well-invested stores and infrastructure, ideally suited we believe for the introduction of our model. The new management team have made good early progress but we are at the beginning of a far-reaching change to the product offer in the business. This is an ongoing process which will continue over the coming financial year.
Strategic development
Driving forward B&M's growth strategy in the UK and in Europe's two largest consumer markets in Germany and France are the key areas of our focus. We are applying the lessons learned from our early experience of operating in Germany to France, with the aim of unlocking substantial long term value for the Group in those markets.
We have a long growth runway in the UK, a winning formula and plentiful opportunities to add new stores profitably. The same is not yet proven in Germany and France but I am hopeful that we have made significant strides towards that objective in recent months as we deal with legacy slow-moving stock issues in both those businesses. We remain excited about the strategic opportunity in all our chosen markets.
B&M's strategy for driving sustainable growth in revenues, earnings and free cash flow has four key elements and the business has made further progress during the year with each of these priorities:
1. Delivering great value to our customers
Consistently good value across a limited range of products and categories, which customers buy regularly for their homes and families, is at the heart of our appeal. Combined with constant newness in our general merchandise offer, with typically c.100 new lines per week, it is why over 4 million shoppers now come to our UK stores each week. A significant proportion of our customers visit our stores at least once every two weeks, reflecting our success in becoming a core part of their shopping habits.
Our disciplined approach to keeping running costs low, buying large volumes per product line direct from factories and stocking only a limited assortment of the best-selling items in any one category, is why we are able to be so competitive and also profitable. Successful value retailing is centred on an obsession with keeping costs and prices low; but it is more than that for B&M, we are not just about selling cheap products, we are about selling good quality products, including many leading brands, at discounted prices to customers who either need or enjoy a bargain.
This year we have achieved significant progress in some key categories which suggest customers increasingly see B&M as a destination retailer. This is an important change from even a few years ago and one that augers well for the future. For example, our share of the UK Toy market today is c.7% versus our share of total retail spending in the UK at under 1%. Toy category revenues have grown faster than the business for some time with the result that more key suppliers, such as Lego, Disney and MGA, are partnering with us and helping us build more authoritative ranges for customers. We see more opportunity in this already important category.
Our Homewares ranges endured a period of marked underperformance in the second and third quarters of the year but after a complete category review, reset and re-merchandising of our stores, featuring improved product and display, Homewares have resumed growth and have returned to positive like-for-like growth on the prior year. This remains a large, highly fragmented market from which a number of existing retailers are continuing to exit space either locally or nationally and, with our strengthening offer, we see this as an important opportunity for B&M.
Our seasonal category sales had a very good year. We saw strong demand during the summer months for Garden and Outdoor Leisure products, but with the prolonged summer we were short on stock. Christmas Decorations sold well at full price during the peak trading period for those lines. Our great sell-through in both those seasons led to a robust overall gross margin performance. These products are right in B&M's sweet spot; they are where our pricing is at its most disruptive, and where the flexible use of our store space can be used to its best advantage. We believe there is an opportunity to continue to grow our market share in these large categories, given our competitive advantage and the structural challenges faced by incumbent retailers in those sectors.
2. Investing in new stores
The opportunity to expand B&M's UK store network, both in heartland areas and in areas where we have few or no stores, remains large. Our 950 store target for the UK, excluding Heron Foods and B&M Express, gives us years of growth runway at current rates of expansion. New store performance and investment returns continue to be excellent and the flow of attractive, profitable opportunities to open either purpose-built or existing real estate is strong. Importantly, this is allowing us to open a number of new stores over and above our long-term planned objective, and it also means that we are able to be very selective, maintaining a high level of site and asset quality as well as competitive rental levels.
Some 54 main B&M fascia stores were opened in the year. Five of these were relocations, principally where we were able to secure a larger, more modern unit in the same catchment area. Ten stores were closed, reflecting mainly end-of-lease circumstances, leaving the B&M fascia with overall net new openings in the year at 44 and total store numbers at 620 at the year-end. The programme for the current year is strong, with some 50 gross new stores now planned compared with our initial forecast for the year of 45. The forward pipeline for FY21 is also in very good shape.
Heron Foods traded well throughout the year, continuing to benefit from improvements to its product assortment. Heron Foods opened 20 new stores in the year and closed or replaced 4 stores, ending the year with 281 total stores. A similar new store programme for Heron Foods is planned for the current year.
In Germany, Jawoll opened, as planned, a total of 10 new stores, including 6 under the B&M fascia in regions outside its heartland trading area. A further existing store was also converted to the B&M fascia, with pleasing results. Jawoll finished the year with 96 total stores. Approximately 5 new stores are planned for the current year, with a strong pipeline of potential new stores in place which could support an acceleration of openings in the future if the performance of the business improves sufficiently quickly. Babou has plans to open 5 new stores most of which had been committed to and were under negotiation before acquisition. Babou operated 96 total stores at the year-end.
3. Developing our international business
We took two significant steps in the year as we pursue our ambition to develop a substantial international business. The first was to accelerate the clearing through of poor-selling legacy ranges in our German business, Jawoll. The second was to acquire Babou, a 95-strong discount store chain in France, giving us a platform to develop in a third large European market. In France we have adopted a fast pace of change in the business as we apply the lessons learned from our early experience of operating in Germany.
These are important steps. The Jawoll management team's ability to drive revenue and earnings growth has been hindered by the poor performance of product ranges assembled by the previous management team. Whilst progress has been made, the overall performance, in both revenue and profit terms, has been hindered by the need to mark down and clear that slow selling legacy inventory. This activity has been costly but is now largely complete, which will allow the team to now focus on further improving the offer for customers alongside improving the efficiency of logistics and distribution.
The performance of the Jawoll categories in which the range changes are advanced or completed has been encouraging. Significantly, the product departments that benefited from the B&M Supply Chain have performed well, particularly where they have not been hindered by legacy stock still in the business. Much work remains to be done in logistics and distribution but we have much greater clarity in terms of how to generate profitable growth in new markets.
It is early days in France but the new management team has already benefited from the knowledge and experience gained in Germany and from the opportunity to gain an understanding of the B&M sourcing and ranging model. We have a comprehensive integration plan which we developed well ahead of the acquisition. Furthermore, the costs associated with the necessary changes in Babou's product ranges have also been built into our plans. The initial phase of inventory clearance in Babou, focused primarily on clothing, is already underway, as is the forward ordering of B&M sourced general merchandise and also impulse grocery and FMCG items. The team has a lot to do but the transformation of Babou is on track and the initial reaction to B&M sourced products has been pleasing and gives us confidence to believe that the deliberate shift to reduce the size of the Clothing and Footwear categories is the correct strategy for that business.
4. Investing in our people and infrastructure
Construction of our new Southern UK Distribution Centre in Bedford is nearing completion. We expect handover to take place in the next few weeks, and indeed our fit-out of the early phases of the building has commenced. We are on track for the initial operational phase of the centre from January 2020 onward, after Christmas peak trading. In FY20 we will incur rental and occupation costs (subject to completion of a sale and lease back) of approximately GBP6m and also commissioning costs of approximately GBP6m, which we expect to recover through the cash development profit realised on a sale and leaseback. From FY21 onwards we expect efficiency savings in our Transport function to largely offset the additional rent. We expect the new Distribution Centre will provide sufficient capacity for our expansion plans into the foreseeable future, including our 950 store target for B&M.
Over the course of the financial year under review, we completed the roll-out of a best-in-class Warehouse Management System across our key Distribution Centres in the North West. The cost of the roll-out, training and implementation had impacted the costs of the warehouse operation but this investment should now lead to improved productivity, resilience and scalability going forward.
At our store level in the coming year we are investing in a digital technology compatible Workforce Management System which will be implemented over the course of that year. This investment will help to plan work rotas between colleagues, manage Time & Attendance effectively and allow colleagues to use smart phones to carry out what were previously paper-based processes. This investment will benefit both the business and our colleagues.
We have created a plan to invest in strengthening our senior management to support the continued rapid expansion of the business of the Group. The implementation of the plan has commenced during the year with senior manager recruitments in European-wide areas of responsibility in the Group for Finance and FMCG. Other senior recruitments have been made in our Buying teams in the UK and France in particular, and others are planned in relation to other areas of strategic and operational importance as the Group continues to grow.
Corporate social responsibility
B&M's presence in local towns and communities helps to create new jobs each time we open a new store and it extends our reach to more new customers who want or need a bargain on everyday purchases for their households. This helps limited spending budgets go further. Our Heron Foods, Jawoll and Babou stores similarly serve the communities in which those stores are located and where new ones are opened each year. We also recognise the important part we have to play in relation to other aspects of our operations and their impacts in relation to colleagues, suppliers, the wider community socially and the environment. Some points I would like to highlight this year include:
-- the creation of over 1,600 new local jobs in the UK and Germany together, mainly through our store expansion;
-- the development and training of our own talent through our Step-Up Programme promoting 202 colleagues to B&M Deputy and Store Manager positions;
-- our recycling of high levels of supply chain waste, with 99.5% of the Group's trade packaging waste being recycled; and
-- proudly supporting for a third year the Mission Christmas charity appeal through sponsorship, with yet more of our stores participating as collection points for presents donated for underprivileged or poorly children for the appeal.
Outlook
Our UK strategy for high-returning growth is on track and our new Southern warehouse infrastructure is almost ready. This will give us the capacity to fulfil our long-term objectives in a market where we see considerable opportunity for our winning formula. Consequently, we look forward to the year ahead and beyond with confidence.
The source of our competitive advantage is the model itself and the next challenge for us is to bring the same price disruption and value for money to our new markets in Germany and France when fully applied as it does in our home market. That is the task we have set for ourselves. Success must ultimately be measured in revenues, profits and returns and we recognise there is much work to be done over the next 2 years in these two subsidiaries.
Our core B&M fascia, representing 80% of our Group Revenues, ended the year with good trading momentum, despite not having the benefit of Easter trading and the continued general political uncertainty. I am pleased to report that this strong positive momentum has continued into the new financial year. We just achieved our best ever Easter trading season, with healthy positive like-for-likes, but it would be prudent to expect more moderate like-for-like growth in the full year as a whole.
On behalf of the Board I would like to thank all of our colleagues in stores, distribution centres and offices across the Group for their continued hard work and commitment.
Simon Arora
Chief Executive Officer
23 May 2018
Financial Review
Accounting period
The FY19 accounting period represents the 52 weeks trading to 30 March 2019 and the comparative financial period represents the 53 week period for the B&M UK segment to 31 March 2018. Throughout the financial review and unless otherwise stated, the FY19 commentary will refer to the 52 weeks to 24 March 2018 for the FY18 comparative, to ensure consistency.
Financial Performance
Group
The Group revenue in FY19 was GBP3,486.3m (FY18: GBP2,976.3m), this represents an increase of 17.1% and on a constant currency basis, a 17.0% increase(2) . The overall gross margin was 34.1% (FY18: 33.9%).
The operating costs of the Group, excluding depreciation and amortisation, grew by 20.0% to GBP877.1m, including new store pre-opening costs. Depreciation and amortisation expenses grew by 37.4% to GBP49.7m, reflecting the investment in new stores and the additional depreciation on the non-comparable period relating to Heron Foods and Babou.
We report an adjusted EBITDA(5) to allow investors to understand better the underlying performance of the business. The items that we have adjusted are detailed in note 3, they totalled GBP(2.5)m in FY19 (FY:18 GBP4.9m).
Overall Group adjusted EBITDA(5) increased by 11.9% to GBP312.3m.
B&M UK
In the UK, B&M revenues increased by 8.7% to GBP2,789.4m, principally driven by the new store opening programme, including both the annualisation of revenues from the 39 net new store openings in FY18 and the 44 net new store openings in FY19, and an additional GBP11.5m from wholesale revenue.
There were 54 gross new store openings in the year, and 10 closures, with 5 of the closures being relocations. The 54 openings contributed GBP100.7m of revenues in FY19, and the stores continue to deliver attractive returns on investment, and where appropriate, we will continue to take advantage of relocation opportunities that allow us to open modern, large stores that allow our customers access to our full product offering.
Revenues in the like-for-like store estate(4) grew by 0.7% (FY18: 4.7%) and we are continuing to see a strong performance on the Grocery/FMCG ranges as the UK consumer structurally continues to seek out value. The Homewares categories account for c. 16% of the revenue mix and have had a disappointing year, which has been a drag on the overall like-for-like(4) of 1.8% but it was encouraging that the new Homeware ranges that have been introduced in the fourth quarter have performed well and we had a strong finish to the year with the overall fourth quarter like-for-like revenues growing by 5.8% despite the headwind of the timing of Easter trading.
In the B&M UK business the margin increased by 29 basis points reflecting the strong sell through on the seasonal ranges despite the drag from the mix effect of the strong like-for-like(4) revenue performance on the lower margin Grocery and FMCG products.
In the B&M UK business, operating costs, excluding depreciation and adjusting costs, grew by 8.0% to GBP657.0m, while costs as a percentage of revenues decreased by 16 basis points to 23.6%. Within the year the business has managed to largely absorb the impact of the living wage through efficiency savings, although there have been inflationary cost pressures on transport and distribution costs. The absolute cash increase in costs was principally driven by the new store opening programme, from both the new stores opened in the year and the annualisation of costs from the new stores opened in FY18 and also the variable operating costs required to service the new stores.
In the B&M UK business the adjusted EBITDA(5) increased by 13.5% to GBP297.0m (FY18: GBP261.7m) and the adjusted EBITDA(5) margin increased by 45bps to 10.6%.
Jawoll
At our German business, Jawoll, revenues grew to GBP213.7m, which was a 6.7% increase over the GBP200.3m achieved in FY18. The growth was driven by the annualisation of the 11 net stores opened in FY18 and the 10 openings in FY19 and some modest like-for-like sales growth.
In our German business, margins reduced by 392 basis points as we have continued to clear old slow-moving stocks ahead of the new Spring/Summer seasonal ranges arriving in store from the B&M Far East supply chain.
Operating costs excluding depreciation, grew by 18.4% to GBP79.4m with costs as a percentage of revenues increasing by 368 basis points to 37.2%. This increase is largely as a result of increased warehouse costs supporting the move to direct sourcing.
The EBITDA decreased by 281.9% to GBP(10.2)m (FY18: GBP5.6m).
Heron
Revenues at our convenience store business, Heron Foods grew to GBP354.1m (FY18: GBP210.0m)
of which GBP121.0m was attributable to the period when there was no FY18 comparison with the business having being acquired in August 2017. The business has delivered a strong sales performance with revenues benefitting from an improved ambient food offer leveraging from the B&M supply chain and relationships. The new store programme has accelerated and we opened 20 gross stores in FY19 (net 16 stores) and we have plans to open at least 15 in FY20.
The impact of a higher mix of branded product has resulted in a gross margin reduction of 54bps but as a result of strong cost control and the operating leverage on the fixed cost base,
operating costs as a percentage of revenues decreased by 57bps to 25.9% (FY18: 26.4%).
The EBITDA(5) was GBP19.9m, which compares to the GBP11.7m for the part period of ownership in FY18 and the EBITDA margin improved by 3 bps to 5.6%.
Babou
Following the acquisition of Babou in October 2018, we have generated revenues of GBP129.1m and the business is progressing with the planned changes to the product mix and direct sourcing, as we move the business closer to the B&M format in the UK. One new store was opened in March 2019, taking the total store estate to 96. There are 5 new store units most of which had been committed to and were under negotiation before the acquisition. Those openings will be second half weighted. An additional GBP5.6m of EBITDA was achieved under our ownership of Babou.
Financing costs
The net interest charge in the year was GBP15.7m (FY18: GBP12.2m) representing an increase of 28.9%.
The interest cost represents the underlying cost of GBP22.9m (FY18: GBP21.6m) which was an increase of 6.0% reflecting the impact of the additional borrowings undertaken to finance the acquisition of Babou. The underlying charge can be analysed between bank, high
yield bond, finance lease interest and interest receivable of GBP21.0m (FY18: GBP20.1m) and amortised fees of GBP1.9m (FY18: GBP1.5m).
Interest income on an unadjusted basis amounted to GBP7.2m (FY18: GBP9.4m) and comprised a GBP8.1m revaluation in the put/call option relating to the 20% shareholding in Jawoll that is not owned by the Group (FY18: GBP8.0m) and a GBP0.9m expense relating to the accounting for the deferred consideration following the Heron Foods acquisition.
Profit before tax
The statutory profit before tax was GBP249.4m, which compares to GBP229.3m in FY18 for the 53 week statutory period in that year. We also report an adjusted profit before tax to allow investors to understand better the operating performance of the business (see note 3). The adjusted profit before tax(5) was GBP239.8m (FY18: GBP221.5m) which reflected a 8.2% increase.
Taxation
The tax charge in the year was GBP46.7m (GBP43.5m in FY18 for the 53 week statutory period) and the effective rate was 19.0%. We expect the tax rate going forward to reflect the mix of the impact of the tax rates in the countries in which we operate being 19% in the UK, 30% in Germany and 28% in France, with an effective rate of 20% in FY20.
As a Group we are committed to paying the right tax in the territories in which we operate. In the UK the total tax paid was GBP277.0m. This is mostly those taxes which are ultimately borne by the company amounting to GBP153.5m which includes corporation tax, customs duties, business rates, employers national insurance contributions and stamp duty and land taxes. The balance of GBP123.5m 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
The profit after tax was GBP202.7m compared to GBP185.8m in FY18 and the fully diluted earnings per share was 20.5p (FY18: 18.6p for the 53 week statutory period), being an increase of 10.2%.
On an adjusted profit after tax basis(5) , which we consider to be a better measure of performance due to the reasons outlined above, it was GBP194.6m which was a 9.5% increase over last year (FY18: GBP177.7m) and the adjusted fully diluted earnings per share(5) was 19.7p (FY18: 17.8p), being an increase of 10.7%.
Investing activities
There was a net cash outflow of GBP75.9m (net of cash acquired) following the acquisition of Babou in October 2018, this was financed by an additional loan facility.
The Group's net capital expenditure(8) during the year was GBP105.7m, which was principally driven by the new store programme across the fascias, with a capital expenditure of GBP30.9m, GBP5.1m, GBP2.9m and GBP1.2m respectively in B&M, Heron Foods, Jawoll and Babou.
The Group continues to invest in its store estate and an additional GBP34.9m was incurred on maintenance expenditure. The overall maintenance expenditure represented 1.0% of revenues and included other in-store investments and IT investments.
Following the acquisition of the land in the UK in FY18 for the new UK distribution centre in Bedford in the South of the UK we have incurred a further GBP20.5m on the build costs of the facility. An additional GBP10.3m was incurred in acquiring 5 freehold retail properties. It remains the Groups intention to enter into a sale and leaseback of the facility in FY20.
Net debt and cash flow
As a Group we continue to be strongly cash generative and the cash flow from operations increased by 7.2% to GBP259.4m (FY18: GBP242.0m for the 53 week statutory period).
The cash generation reflects the continued growth in the Group's EBITDA(5) and the continued attractive cash paybacks from the new store opening programme, combined with the Group's working capital control.
During the year the Group paid GBP75.0m of dividends.
The Group's net debt(6) in the year has increased to GBP621.6m (FY18: GBP535.3m) and the net debt(6) to adjusted EBITDA(5) has increased to 1.99 times (FY18: 1.92 times). This remains comfortably within our 2.25 times leverage target, and excluding the costs incurred on the new Southern distribution centre, the leverage would have reduced to 1.75 times.
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.
New accounting standards
The Group will adopt IFRS 16, being the new accounting standard relating to leases, which will apply to the financial statements of the Group for the financial year 2019/20. The adoption of this new standard will have a significant impact on the statement of comprehensive income and the statement of financial position and there will be a presentational change on the statement of cash flows although there will be no change to the overall cash flow of the Group.
The new standard requires that all leases are recognised on the balance sheet with a lease liability equal to the discounted future payments expected to be made under the lease, and a right to use the asset which is initially equal to the lease liability. The rental payments will be accounted for as a repayment of the lease liability, which includes an implied interest element and the asset that has been recognised will be amortised on a straight line basis over the length of the lease.
The Group has decided to adopt the fully retrospective approach which means that we will restate the brought forward equity balance and we will recognise a lease liability in the region of GBP1.1bn and a right of use asset in the region of GBP1.0bn, with an adjustment to be made to retained earnings in the region of GBP60m. This is based on the duration of contracts and judgments we have made in relation to cases where the Group is reasonably certain that it will exercise any contractual extension or break options, but not in relation to leases which have expired (including those where the Group continues to trade) where the Group has not concluded lease renewal terms.
In terms of the impact on the profit before tax and earnings per share ("EPS"), this is dependent upon the lease maturity profile of the Group. IFRS16 is dilutive at the commencement of a lease and accretive towards the end of a lease, with the interest charge being front-end loaded relative to the straight line rental charge under IAS 17. Given the Group has a typically younger lease profile, we are therefore in the period when IFRS is dilutive and this is likely to remain the same whilst we continue to open new stores. The impact on the FY19 profit before tax would have been a reduction in the region of GBP14m, with the rental expense of GBP167m being replaced by an amortisation and interest charge in the region of GBP126m and GBP55m respectively.
As previously described there is no cash-flow impact from the transition to IFRS16 and the adoption of this standard will have no impact on the way we commercially evaluate new store opportunities and lease renewals. Additional detail is contained in note 31.
There are two new accounting standards that apply to the Group in the financial year under review. IFRS 9 (Financial Instruments) introduced a new impairment model on expected loss and limited changes to the classification and measurements of financial assets. IFRS 15 (Revenue from Contracts with Customers) was in relation to some changes to the recognition of revenues. We have adopted both of these new standards and neither standard had any material impact in relation to the accounting of the Group.
Dividends
The Group has a dividend policy which targets a pay-out ratio of between 30 to 40% of net income on a normalised tax basis. The Group generally pays the interim and final dividends for each financial year approximately in proportions of one-third and two-thirds respectively of the total annual dividend.
The Group is strongly cash generative and its capital policy is to allocate cash surpluses in the following order of priority:
1. the roll-out of new stores with a strong payback profile;
2. ordinary dividend cover 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 it is not an exhaustive list 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. As the parent company is a Luxembourg registered company the Board is permitted, subject to using distributable profits first, to have recourse to the company's share premium account as a distributable reserve. It remains the Groups policy though generally 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. The Group's consolidated balance sheet position as at 30 March 2019 includes distributable profit reserves of GBPGBP458m. The vast majority of these reserves have been generated by and are on the balance sheet of the principal trading subsidiary of the Group in the UK, B&M Retail Limited. There are intermediate holding companies in the Group structure between B&M Retail Limited and the Group's ultimate parent company, but those intermediate holding companies do not carry on retail trading business operations and there are no dividend blocks of any material amounts in any year from expenses which those companies may incur.
The Board is satisfied that as the Group remains strongly cash generative it is in a very good position to fund and maintain its dividend policy. The principal risks of the Group and in particular those relating to competition, economic environment, commodity prices, supply chain, infrastructure and international expansion are relevant to the ability of the Group to maintain its 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 competes across a very broad section of the retail markets in our chosen locations.
In the last year the Group has continued to invest to support the growth of the business with particular highlights being the acquisition by the Group of Babou with an enterprise value of EUR91.2m and also the construction in Bedford of a 1 million sq ft Southern distribution centre.
When the construction phase of the Southern distribution centre has been completed, it is intended to release the cash investment made in that project back to the Group by a sale and leaseback of the distribution centre.
Notwithstanding those investments the Group has maintained its dividend this year at the higher end of its dividend policy. An interim dividend of 2.7p per share was paid in December 2018 and it is proposed to pay a final dividend of 4.9p per share(7) . Subject to approval of the dividend by shareholders at the AGM on 26 July 2019, the final dividend of 4.9p per share is to be paid on 2 August 2019 to shareholders on the register of the Company at the close of business on 21 June 2019. The ex-dividend date will be 20 June 2019.
Paul McDonald
Chief Financial Officer
23 May 2019
Consolidated Statement of Comprehensive Income
52 weeks ended 53 weeks ended
Period ended 30 March 2019 31 March 2018
Note GBP'000 GBP'000
Revenue 2,4 3,486,295 3,029,802
Cost of sales (2,296,861) (2,000,927)
Gross profit 1,189,434 1,028,875
Administrative expenses (925,058) (789,072)
Operating profit 5 264,376 239,803
Share of profits in associates 13 775 1,711
Profit on ordinary activities before
net finance costs and tax 3 265,151 241,514
Finance costs 6 (25,951) (23,948)
Finance income 6 369 182
Gain on revaluation of financial instruments 6, 20 9,857 11,568
Profit on ordinary activities before
tax 249,426 229,316
Income tax expense 11 (46,717) (43,511)
Profit for the period 2 202,709 185,805
-------------- --------------
Attributable to non-controlling interests (2,445) (78)
Attributable to owners of the parent 205,154 185,883
Other comprehensive income for the period
Items which may be reclassified to profit
and loss:
Exchange differences on retranslation
of subsidiary and associate investments (2,285) 205
Fair value movement as recorded in the
hedging reserve 19,996 (15,659)
Items which will not be reclassified
to profit and loss:
Actuarial gain on the defined benefit
pension scheme 5 21
Tax effect of other comprehensive income 11 (3,481) 2,470
-------------- --------------
Total comprehensive income for the period 216,944 172,842
-------------- --------------
Attributable to non-controlling interests 29 (2,805) 119
Attributable to owners of the parent 219,749 172,723
Earnings per share
Basic earnings per share attributable
to ordinary equity holders (pence) 12 20.5 18.6
Diluted earnings per share attributable
to ordinary equity holders (pence) 12 20.5 18.6
-------------- --------------
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
30 March 31 March
2019 2018
As at Note GBP'000 GBP'000
Assets
Non-current
Goodwill 14 949,606 929,718
Intangible assets 14 126,559 120,962
Property, plant and equipment 15 389,952 308,653
Investments in associates 13 6,920 5,140
Other receivables 17 10,989 3,187
Deferred tax asset 11 9,195 5,654
----------- -----------
1,493,221 1,373,314
----------- -----------
Current assets
Cash at bank and in hand 18 86,202 90,816
Inventories 16 670,721 558,690
Trade and other receivables 17 71,640 34,042
Other financial assets 20 6,294 -
Income tax receivable 3,781 -
838,638 683,548
----------- -----------
Total assets 2,331,859 2,056,862
----------- -----------
Equity
Share capital 23 (100,056) (100,056)
Share premium (2,474,249) (2,474,249)
Retained earnings (458,132) (327,073)
Hedging reserve (1,984) 14,532
Legal reserve (10,010) (10,000)
Merger reserve 1,979,131 1,979,131
Foreign exchange reserve (5,909) (7,833)
Put/call option reserve 13,855 13,855
Non-controlling interest (10,887) (13,692)
(1,068,241) (925,385)
----------- -----------
Non-current liabilities
Interest bearing loans and borrowings 21 (562,941) (558,426)
Finance lease liabilities 25 (7,104) (7,306)
Other financial liabilities 20 - (19,209)
Other liabilities 19 (92,891) (87,130)
Deferred tax liabilities 11 (27,148) (24,495)
Provisions 22 (374) (379)
----------- -----------
(690,458) (696,945)
----------- -----------
Current liabilities
Interest bearing loans and borrowings 21 (124,272) (47,212)
Overdrafts 18 (5,646) (6,112)
Trade and other payables 19 (395,966) (336,072)
Finance lease liabilities 25 (3,630) (1,870)
Other financial liabilities 20 (13,731) (16,666)
Income tax payable (23,197) (19,677)
Provisions 22 (6,718) (6,923)
----------- -----------
(573,160) (434,532)
----------- -----------
Total liabilities (1,263,618) (1,131,477)
----------- -----------
Total equity and liabilities (2,331,859) (2,056,862)
----------- -----------
The accompanying accounting policies and notes form an integral part of these consolidated financial statements. This consolidated statement of financial position was approved by the Board of Directors and authorised for issue on 22 May 2019 and signed on their behalf by:
Simon Arora, Chief Executive Officer.
Consolidated Statement of Changes in Shareholders' Equity
Total
Foreign Put/call Non- Share-
Share Share Retained Hedging Legal Merger exch. option control. holders'
capital premium earnings reserve reserve reserve reserve reserve interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 25
March 2017 100,000 2,472,482 204,077 (1,350) 10,000 (1,979,131) 7,825 (13,855) 13,573 813,621
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
Dividend
payments to
owners - - (63,013) - - - - - - (63,013)
Effect of
share options 56 1,767 112 - - - - - - 1,935
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
Total
transactions
with owners 56 1,767 (62,901) - - - - - - (61,078)
Profit/(loss)
for the
period - - 185,883 - - - - - (78) 185,805
Other
comprehensive
income - - 14 (13,182) - - 8 - 197 (12,963)
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
Total
comprehensive
income for
the period - - 185,897 (13,182) - - 8 - 119 172,842
Balance at 31
March 2018 100,056 2,474,249 327,073 (14,532) 10,000 (1,979,131) 7,833 (13,855) 13,692 925,385
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
Allocation to
legal reserve - - (10) - 10 - - - - -
Dividend
payments to
owners - - (75,042) - - - - - - (75,042)
Effect of
share options - - 954 - - - - - - 954
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
Total
transactions
with owners - - (74,088) - - - - - - (74,088)
Profit/(loss)
for the
period - - 205,154 - - - - - (2,445) 202,709
Other
comprehensive
income - - 3 16,516 - - (1,924) - (360) 14,235
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
Total
comprehensive
income for
the period - - 205,157 16,516 - - (1,924) - (2,805) 216,944
Balance at 30
March 2019 100,056 2,474,249 458,132 1,984 10,010 (1,979,131) 5,909 (13,855) 10,887 1,068,241
------- --------- -------- -------- -------- ----------- -------- -------- -------- ---------
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
52 weeks 53 weeks
ended 30 ended 31
March March
Period ended 2019 2018
Note GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 24 259,446 241,993
Income tax paid (47,271) (43,996)
---------- ----------
Net cash flows from operating activities 212,175 197,997
---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment 15 (103,652) (111,268)
Purchase of intangible assets 14 (2,654) (3,362)
Business acquisitions net of cash
acquired 7 (75,879) (106,436)
Acquisition of shares in associates 13 (1,200) -
Sale of shares in associates 13 - 310
Proceeds from sale of property, plant
and equipment 563 554
Finance income received 369 182
Dividends received from associates 13 570 1,149
---------- ----------
Net cash flows from investing activities (181,883) (218,871)
---------- ----------
Cash flows from financing activities
Receipt of bank loans 21 78,984 -
Net receipt of Group revolving bank
loans (5,000) 45,000
Net repayment of Heron facilities (2,298) (9,790)
Net repayment of Babou facilities (5,742) -
Finance costs paid (21,476) (20,192)
Receipt from exercise of employee
share options - 1,320
Capitalised fees on refinancing (935) (1,647)
Dividends paid to owners of the parent 33 (75,042) (63,013)
Repayment of finance lease (2,931) (1,651)
----------
Net cash flows from financing activities (34,440) (49,973)
---------- ----------
Net increase in cash and cash equivalents (4,148) (70,847)
Cash and cash equivalents at the beginning
of the period 84,704 155,551
---------- ----------
Cash and cash equivalents at the end
of the period 80,556 84,704
---------- ----------
Cash and cash equivalents comprise:
Cash at bank and in hand 18 86,202 90,816
Overdrafts (5,646) (6,112)
---------- ----------
80,556 84,704
---------- ----------
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
1 General information and basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
The Group's trade is general retail, with trading taking place in the UK, France and Germany. The Group has been listed on the London Stock Exchange since June 2014.
The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss. The measurement basis and principal accounting policies of the Group are set out below and have been applied consistently throughout the consolidated financial statements.
The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (GBP'000), except when otherwise indicated.
The consolidated financial statements cover the 52 week period from 1 April 2018 to 30 March 2019 which is a different period to the parent company stand alone accounts (from 1 April 2018 to 31 March 2019). This exception is permitted under article 330 (2) of the Luxembourg company law of 10 August 1915 as amended as the Directors believe that;
-- the consolidated financial statements are more informative when they cover the same period as used by the main operating entity, B&M Retail Ltd; and
-- that it would be unduly onerous to rephase the year end in this subsidiary to match that of the parent company.
The year end for B&M Retail Ltd, in any year, would not be more than six days prior to the parent company year end.
B&M European Value Retail S.A. (the "Company") is the head of the Group and there is no consolidation that takes place above the level of this company.
The principal accounting policies of the Group are set out below.
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings, together with the Group's share of the net assets and results of associated undertakings, for the period from 1 April 2018 to 30 March 2019. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting. The results of companies acquired are included in the consolidated statement of comprehensive income from the acquisition date.
During the year, on 19 October 2018, the Group acquired Paminvest SAS, a discount general merchandise retailer group operating under the trading name Babou in France ("Babou"). Babou has been consolidated in the Group accounts from this date. For more details see note 7.
During the prior year, on 2 August 2017, the Group acquired Heron Food Group Limited ("Heron"), a convenience retailer incorporated in the UK. Heron has been consolidated in the Group accounts from this date. For more details see note 7.
During the prior year the Group incorporated two new entities, Retail Industry Apprenticeships Limited (incorporated in the UK) and Bedford DC Investments Limited (incorporated in Jersey). Both have been consolidated from their incorporation date. See note 26 for a full list of the constituent Group entities.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
-- power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee),
-- exposure, or rights, to variable returns from its involvement with the investee, and, -- the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-- the contractual arrangements with the other vote holders of the investee, -- rights arising from other contractual arrangements, and, -- the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary, excluding the situations as outlined in the basis of preparation.
Going concern
As a value retailer, the Group is well placed to withstand volatility within the economic environment. The Group's forecasts and projections, taking into account reasonably possible changes in trading performance, show that the Group will trade within its current banking facilities for the next twelve months.
Included within these forecasts is the proposed sale & leaseback of the new Southern warehouse. If this does not occur, then the Group also has the unconditional ability to extend the Babou acquisition loan facility when it is due for repayment in October 2019, for a further 12 months.
After making enquiries, the Directors are confident that the Group has adequate resources to continue its successful growth. Accordingly, they continue to adopt the going concern basis in preparing these financial statements
Note also that viability and going concern statements have been made in the 'Principal risks and uncertainties' section of this annual report.
Revenue
Under IFRS 15 Revenue is recognised when all the following criteria are met;
-- the parties to the contract have approved the contract; -- the Group can identify each parties rights regarding the goods to be transferred; -- the Group can identify the payment terms; -- the contract has commercial substance;
-- it is probable that the Group will collect the consideration we are entitled to in respect to the goods to be transferred.
In the vast majority of cases the Group's sales are made through stores and the control of goods is immediately transferred at the same time as the consideration received via our tills. Therefore revenue is recognised at this point.
The Group does not actively sell vouchers to use in the future or operate discount schemes and, therefore, no deferred revenue is recognised.
The Group operates a small wholesale function which recognises revenue when goods are delivered and the invoice is raised. The revenue is considered collectable as the Group's wholesale customers are usually related parties to the Group (such as our associates) or are subject to credit checks before trade takes place.
Revenue is the total amount receivable by the Group for goods supplied, in the ordinary course of business, excluding VAT and trade discounts, and after deducting returns and relevant vouchers and offers.
Other administrative expenses
Administrative expenses include all running costs of the business, except those relating to inventory (which are expensed through cost of sales), tax, interest and other comprehensive income. Transport and warehouse costs are included in this caption.
Elements which are unusual and significant, such as material restructuring costs, may be separated as a line item.
Goodwill
Goodwill is initially measured at cost, being the excess of the fair value of consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed at the date of acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the relevant cash-generating units (CGUs) that are expected to benefit from the combination.
Goodwill is tested for impairment at each year end and at any time where there is any indication that it may be impaired. Internally generated goodwill is not recognised as an asset.
Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the executive directors of the Group. The executive directors are responsible for assessing the performance of the business for the purpose of making decisions about resources to be allocated.
Alternative performance measures
The Group reports a selection of alternative performance measures as detailed below and in note 3, as the Directors believe that these measures provide additional information that is useful to the users of our accounts.
The alternative performance measures we report in these accounts are:
-- Earnings before interest, tax, depreciation and amortisation (EBITDA) -- Adjusted EBITDA -- Adjusted Profit -- Adjusted Earnings per share
Interest, tax, depreciation and amortisation are as defined statutorily whilst the items we adjust for are those we consider not to be reflective of the underlying performance of the business as detailed in note 3. These adjustments relate to the effect of ineffective derivatives and foreign exchange on intercompany balances, which do not relate to underlying trading, and costs incurred in relation to acquisitions, which are non-recurring and do not relate to underlying trading.
The alternative performance measures used are not measures of performance or liquidity under IFRS and should not be considered in isolation or as a substitute for measures of profit, or as an indicator of the Group's operating performance or cash flows from operating activities as determined in accordance with IFRS.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition date fair value. Acquisition-related costs are expensed depending on their nature with costs of raising finance amortised over the term of the relevant element of finance provided and the remainder expensed when incurred.
Brands
Brands acquired by the business are amortised if the corresponding agreement is specifically time limited, or if the fair valuation exercise (carried out for brands acquired via business combinations) identifies a fair lifespan for the brand. This amortisation is charged to administrative expenses.
Otherwise, brands are considered to have an indefinite life on the basis that they form part of the cash generating units within the Group which will continue in operation indefinitely, with no foreseeable limit to the period over which they are expected to generate net cash inflows.
Where brands are considered to have an indefinite life they are reviewed at least annually for impairment or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly with the write down charged to administration expenses.
Intangible assets
Intangible assets acquired separately, including computer software, are measured on initial recognition at cost comprising the purchase price and any directly attributable costs of preparing the asset for use.
Following initial recognition, assets are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation begins when an asset is available for use and is calculated on a straight line basis to allocate the cost of the asset over its estimated useful life as follows:
Computer software acquired - 3 or 4 years
Previously the Group amortised computer software over a period of four years. There has been a change in this policy during the year following the acquisition of Babou and given the common practice of amortising computer related items over 3 years in France. This has not affected the rest of the Group as management believes the range 3-4 years to be reasonable.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses.
Cost comprises purchase price and directly attributable costs. Unless significant or incurred as part of a refit programme, subsequent expenditure will usually be treated as repairs or maintenance and expensed to the income statement.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised.
Freehold land is not depreciated. For all other property, plant and equipment, depreciation is calculated on a straight line basis to allocate cost, less residual value of the assets, over their estimated useful lives as follows.
Depreciation
Depreciation is provided on all other items of property, plant and equipment and the effect is to write off the carrying value of items by equal instalments over their expected useful economic lives. It is applied at the following rates:
Leasehold buildings - Life of lease (max 50 years) Freehold buildings - 2-4% straight line Plant, fixtures and equipment - 10% - 33% straight line Motor vehicles - 12.5% - 33% straight line
Residual values and useful lives are reviewed annually and adjusted prospectively, if appropriate.
There has been a minor change to the policy since the prior year regarding the rates for computer equipment (within the Plant, fixtures and equipment category). In line with common practice in France the Group now allows items of computer equipment to be depreciated at 3-4 years (previously 4 years). This does not affect the existing items in the remainder of the Group.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income when the asset is derecognised.
Investments in associates
Associates are those entities over which the Group has significant influence but which are neither subsidiaries nor interests in joint ventures. Investments in associates are recognised initially at cost and subsequently accounted for using the equity method. However, any goodwill or fair value adjustment attributable to the Group's share of associates is included in the amount recognised as investment in associates.
All subsequent changes to the share of interest in the equity of the associate are recognised in the Group's carrying amount of the investment. Changes resulting from the profit or loss generated by the associate are reported in "share of profits of associates" in the consolidated income statement and therefore affect net results of the Group. These changes include subsequent depreciation, amortisation and impairment of the fair value adjustments of assets and liabilities.
Items that have been recognised directly in the associate's other comprehensive income are recognised in the consolidated other comprehensive income of the Group. However, when the Group's share of losses in an associate equals or exceeds its interest in the associate the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the consolidated financial statements of associates have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
During the year the Group has acquired a new associate, Centz Retail Holdings Limited, based in Ireland. See note 13 for more details.
Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required (for goodwill or indefinite life assets), the Group estimates the asset's recoverable amount.
The Group bases its impairment calculation on detailed budgets and forecasts which are prepared separately for each of the Group's cash generating units (CGU's) to which the individual assets are allocated. These budgets and forecast calculations cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Indications of impairment might include (for goodwill and the brand assets, for instance) a significant impairment to the like for like sales of established stores, sustained negative publicity or a drop off in visits to our website and social media accounts.
An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs to sell and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
Impairment losses of continuing operations, including impairment of inventories, are recognised in the income statement in those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill and acquired brands with indefinite lives, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount.
A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement, except for impairment of goodwill which is not reversed.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets even if that right is not explicitly specified in an arrangement.
The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset, or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged in the income statement over the period of the lease.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
All other leases are regarded as operating leases and the payments made under them are charged to the statement of comprehensive income on a straight line basis over the lease term.
Lease premiums and incentives
Lease premiums and lease incentives (as reverse lease premiums) are required to be spread over the term of the lease (as an element of the rent charge), with the resulting balance on the statement of financial position recorded in receivables or payables as appropriate.
Favourable and unfavourable leases
Upon acquisition of a subsidiary a fair value review is performed to determine if certain leases held are favourable or unfavourable to the business when compared to an estimate of the underlying market rate. To the extent that a lease is determined to be favourable or unfavourable a balance is recognised in receivables or payables and then released over the remaining lease term as part of the rent charge for that lease.
Also see note 31 for a note on the implementation of IFRS 16 from 31 March 2019.
Onerous leases
The Group carries a property provision which relates to leasehold property where an exit can be reasonably expected to occur, and the relevant lease is considered to be onerous.
A lease is considered onerous when the economic benefits of occupying the leased properties are less than the obligations payable under the lease.
The amount held covers any costs expected to accrue before the end of the contract, netted against any income, as well as a portion related to any dilapidation expense which may arise.
Inventories
Inventories are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items.
Stock purchased in foreign currency is booked in at the hedge rate applicable to that stock (if effectively hedged) or the underlying foreign currency rate on the date that the item is brought into stock.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs to sell. Transport, warehouse and distribution costs are not included in the valuation of inventory.
Share options
The Group operates share option schemes, with the first such scheme commencing in August 2014.
The schemes have been accounted for under the provisions of IFRS 2, and accordingly have been fair valued on their inception date using appropriate methodology (the Black Scholes and Monte Carlo models).
A cost is recorded through the income statement in respect of the number of options outstanding and the fair value of those options. A corresponding credit is made to the retained earnings reserve and the effect of this can be seen in the statement of changes in equity. See note 10 for more details.
Taxation
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Group operates and generates taxable income. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except:
-- When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
-- In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:
-- When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
-- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Financial instruments
The Group uses derivative financial instruments such as forward currency contracts, fuel swaps and interest rate swaps to reduce its foreign currency risk, commodity price risk and interest rate risk.
Derivative financial instruments are recognised at fair value. The fair value is derived using an internal model and supported by valuations by third party financial institutions.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement. Effectiveness of the derivatives subject to hedge accounting is assessed prospectively at inception of the derivative, and at each reporting period end date prior to maturity.
Where a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset, such as an item of inventory, the associated gains and losses are recognised in the initial cost of that asset.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately.
Financial assets
IFRS 9 has replaced IAS 39 during the year, and as such the Group's policy has been restated as follows. The new policy has had no impact on the statements of comprehensive income or financial position for the year.
IFRS 9 eliminates the previous IAS 39 category for financial assets of loans and receivables. Under IFRS 9, on initial recognition, a financial asset is classified as measured at amortised cost, fair value through profit or loss or fair value though other comprehensive income.
A financial asset is measured at amortised cost if it meets both of the following conditions: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Under IFRS 9 trade receivables, without a significant financing component, are classified and held at amortised cost, being initially measured at the transaction price and subsequently measured at amortised cost less any impairment loss.
IFRS 9 introduces an 'expected loss' model ('ECL') for recognising impairment of financial assets held at amortised cost. The Group has elected to measure loss allowances for trade receivables at an amount equal to lifetime ECLs. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group's historical experience and informed credit assessment and including forward-looking information. The Group performs the calculation of expected credit losses separately for each customer group.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with changes in fair value recognised in profit and loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the asset have expired and the entity has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full and either (a) the entity has transferred substantially all the risks and rewards of the asset, or (b) the entity has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Financial liabilities
The implementation of IFRS 9 has not significantly impacted the Group's financial liabilities policy.
Initial recognition and measurement
Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss or other financial liabilities. The entity determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial derivatives held for trading. Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group. Gains or losses on liabilities held-for-trading are recognised in profit and loss.
Other financial liabilities
After initial recognition, interest bearing loans and borrowings, trade and other payables and other liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to mark-to-market valuations obtained from the relevant bank (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, less bank overdrafts.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares;
-- "Share premium" represents the excess of the consideration made for the shares, over and above the nominal valuation of those shares;
-- "Legal reserve" representing the statutory reserve required by Luxembourg law as an apportionment of profit within each Luxembourg company (up to 10% of the standalone share capital);
-- "Hedging reserve" representing the fair value of the derivatives held by the Group at the period end that are accounted for under hedge accounting and that represent effective hedges;
-- "Merger reserve" representing the reserve created during the reorganisation of the Group in 2014;
-- "Retained earnings reserve" represents retained profits;
-- "Put/call option reserve" representing the initial valuation of the put/call option held by the Group over the non-controlling interest of J.A. Woll Handels GmbH (Jawoll);
-- "Foreign exchange reserve" represents the cumulative differences arising in retranslation of the subsidiaries results;
-- "Non-controlling interest" representing the portion of the equity which belongs to the non-controlling interest in the Group's subsidiaries.
Foreign currency translation
These consolidated financial statements are presented in pounds sterling.
The following Group companies have a functional currency of pounds sterling;
-- B&M European Value Retail S.A. -- B&M European Value Retail 1 S.à r.l. (Lux Holdco) -- B&M European Value Retail Holdco 1 Ltd (UK Holdco 1) -- B&M European Value Retail Holdco 2 Ltd (UK Holdco 2) -- B&M European Value Retail Holdco 3 Ltd (UK Holdco 3) -- B&M European Value Retail Holdco 4 Ltd (UK Holdco 4) -- Bedford DC Investments Limited -- EV Retail Ltd -- B&M Retail Ltd -- Opus Homewares Ltd -- Retail Industry Apprenticeships Ltd -- Heron Food Group Ltd -- Heron Foods Ltd -- Cooltrader Ltd -- Heron Properties (Hull) Ltd
The following Group companies have a functional currency of the Euro;
-- B&M European Value Retail 2 S.à r.l. (SBR Europe) -- B&M European Value Retail Germany GmbH (Germany Holdco) -- J.A. Woll Handels GmbH (Jawoll) -- Jawoll Vertriebs GmbH -- Paminvest SAS -- SAS Babou -- Babou Relationship Partners - BRP SAS
The Group companies whose functional currency is the Euro have been consolidated into the Group via retranslation of their results in line with IAS 21 Effects of Changes in Foreign Exchange Rates. The assets and liabilities are translated into pounds sterling at the year end exchange rate. The revenues and expenses are translated into pounds sterling at the average monthly exchange rate during the period. Any resulting foreign exchange difference is cumulatively recorded in the foreign exchange reserve with the annual effect being charged/credited to other comprehensive income.
Transactions entered into by the company in a currency other than the currency of the primary economic environment in which it operates (the "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.
Pension costs
The Group operates a defined contribution scheme and contributions are charged to profit or loss in the period in which they are incurred.
Provisions
Provisions are recognised when a present obligation (legal or constructive) exists as a result of a past event and where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be reliably estimated. Provisions are discounted where the time value of money is considered to be material.
Critical judgements and key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial information was prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Critical judgments
Investments in Associates
Multi-lines International Company Ltd (Multi-lines), which is 50% owned by the Group, has been judged by management to be an associate rather than a subsidiary or a joint venture.
Under IFRS 10 control is determined by:
-- Power over the investee. -- Exposure, or rights, to variable returns from its involvement with the investee.
-- The ability to use its power over the investee to affect the amount of the investor's returns.
Although 50% owned, B&M Group does not have voting rights or substantive rights. Therefore, the level of power over the business is considered to be more in keeping with that of an associate than a joint-venture, and hence it has been treated as such within these consolidated financial statements.
Hedge accounting
The Group hedge accounts for stock purchases made in US Dollars.
There is significant management judgment involved in forecasting the level of dollar purchases to be made within the period that the forward hedge has been bought for.
Management takes a prudent view that no more than 80% of the operational hedging in place can be subject to hedge accounting, due to forecast uncertainties, and assesses every forward hedge taken out, on inception, if that figure should be reduced further by considering general purchasing trends, and discussion of specific purchasing decisions.
Fair values on acquisition
When the Group acquires a business it recognises the assets and liabilities acquired in the consolidated statement of financial position at fair value.
There is both significant management judgment and estimation uncertainty required in relation to this process, and specifically over key areas such as significant fixed assets, inventory, brand, the lease estate and the underlying basis for recording any goodwill.
In order to aid management in their decision making process, third parties are engaged to value significant items, and, as allowed by IFRS 3 ("Business Combinations"), a period of up to 12 months after acquisition is allowed for any additional information to be sourced that may affect the judgments made.
See note 7 for the outcome of this process in relation to recent acquisitions.
Inventory Valuation
Under IAS 2 ("Inventories") inventory is required to be recognised at the lower of cost and net realisable value.
Management has exercised significant judgment in relation to the net realisable value of inventory acquired through the Babou acquisition.
In order to make this judgment, management considered the age, quality and sell through of these items of inventory immediately prior to acquisition as reflected in due diligence performed. Based on this, management judged that certain stock had to be written down on the basis that it would not realistically achieve the carrying value when sold through the existing Babou store network and irrespective of any future strategic decisions made, or to be made on or post acquisition.
Estimation uncertainty
Goodwill impairment
The Group's calculation for goodwill impairment includes several assumptions that are based upon managerial judgment.
As well as those discussed in note 14 around the inputs, they include the basis of the calculation itself i.e. which cash flows should be included, whether allowance should be made for growth of the store estate and, related to this, the level of capital expenditure to be included and on which timescale.
Management believes that the key element in determining whether an impairment is required is the value in use of the cash generating units themselves, which can be summarised as the return made by those cash generating units when considering the costs directly attributable to making those sales.
Standards and Interpretations applied and not yet applied by the Group
See note 31 for a detailed note on the implementation of IFRS 16, which the Group will apply from 31 March 2019.
Adoption of New and Revised Standards
The following amendments to accounting standards and interpretations, issued by the International Accounting Standards Board (IASB), have been adopted for the first time by the Group in the period with no significant impact on its consolidated results or financial position:
-- Annual Improvements to IFRSs 2014-2016 Cycle
-- IFRIC 22 'Foreign Currency Transactions and Advance Consideration'
-- Amendments to IAS 40 Investment Property
-- IFRS 9 'Financial Instruments'
-- IFRS 15 'Revenue from Contracts with Customers'
IFRS 9 'Financial Instruments'
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after 1 January 2018 and simplifies the classification of financial assets for measurement purposes.
The Group has applied IFRS 9 from 1 April 2018. There is no impact on the income statement or financial position from the adoption of IFRS 9.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue and related interpretations.
The Group has applied IFRS 15 from 1 April 2018 using the cumulative effective method (without practical expedients), with the effect of initially applying this standard being recognised at the date of initial application (1 April 2018). Comparative information has, therefore, not been restated.
Under IAS 18 revenue was recognised either over time where there was continuing service provided to the customer or at the point in time when the risks and rewards of ownership transferred to the customer. Under IFRS 15 revenue is recognised when performance obligations are satisfied. For the Group the transfer of control under IFRS 15 and satisfaction of performance obligations remains consistent with the transfer of risks and rewards to the customer under IAS18. Consequently, there were no profit or loss impacting adjustments required on application of IFRS 15.
Revenue is measured at the fair value of the consideration received or receivable and is recognised at the initial point of sale goods to the customers, when the risks and rewards of the ownership of the goods has passed to the buyer. Revenue is stated net of discounts, rebates, refunds and value-added tax.
Revenue principally represents the amounts receivable from customers for goods supplied. The vast majority of goods are supplied immediately at the point of sale in a retail store environment, and, therefore, performance obligations are considered to have been met at the point of sale.
Other
The Group continues to monitor the potential impact of other new standards and interpretations which may be endorsed and require adoption by the Group in future reporting periods. The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements.
2 Segmental information
IFRS 8 ("Operating segments") requires the Group's segments to be identified on the basis of internal reports about the components of the Group that are regularly reviewed by the chief operating decision maker to assess performance and allocate resources across each reporting segment.
The chief operating decision maker has been identified as the executive directors who monitor the operating results of the retail segments for the purpose of making decisions about resource allocation and performance assessment.
For management purposes, the Group is organised into four operating segments, UK B&M, UK Heron, France Babou and Germany Jawoll segments. The France Babou segment has been active since the acquisition of Babou in October 2018. The UK Heron segment has been active since the acquisition of Heron Food Group in August 2017.
Items that fall into the corporate category include those related to the Luxembourg or associate entities, Group financing, corporate transactions, any tax adjustments and items we consider to be adjusting (see note 3).
The average euro rate for translation purposes was EUR1.1341/GBP during the year, with the year end rate being EUR1.1648/GBP (2018: EUR1.1336/GBP and EUR1.1410/GBP, respectively).
52 week period to 30 UK UK Germany France
March 2019 B&M Heron Jawoll Babou Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2,789,431 354,057 213,663 129,144 - 3,486,295
EBITDA (note 3) 296,398 19,923 (10,223) 5,596 3,131 314,825
Depreciation and amortisation (30,579) (9,950) (4,677) (4,466) (2) (49,674)
Net finance income/(costs) 136 (765) (525) (62) (14,509) (15,725)
Income tax expense (50,531) (1,750) 4,782 (352) 1,134 (46,717)
Segment profit/(loss) 215,424 7,458 (10,643) 716 (10,246) 202,709
Total assets 1,760,772 215,529 156,130 172,700 26,728 2,331,859
Total liabilities (342,511) (52,830) (32,977) (80,251) (755,049) (1,263,618)
Capital expenditure* (63,394) (15,432) (4,927) (2,963) (19,590) (106,306)
53 week period to 31 UK UK Germany France
March 2018 B&M Heron Jawoll Babou Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2,619,488 210,008 200,306 - - 3,029,802
EBITDA (note 3) 266,269 11,746 5,621 - (5,240) 278,396
Depreciation and amortisation (26,485) (6,001) (4,392) - (4) (36,882)
Net finance income/(costs) 109 (481) (370) - (11,456) (12,198)
Income tax expense (45,580) (1,000) (258) - 3,327 (43,511)
Segment profit/(loss) 194,313 4,264 601 - (13,373) 185,805
Total assets 1,718,328 204,162 127,078 - 7,294 2,056,862
Total liabilities (361,834) (56,909) (27,287) - (685,447) (1,131,477)
Capital expenditure* (45,986) (8,610) (4,987) - (55,047) (114,630)
* includes capital expenditure on intangible assets.
3 Reconciliation of non-IFRS measures from the statement of comprehensive income
EBITDA, Adjusted EBITDA and Adjusted Profit are non-IFRS measures and therefore reconciliations from the statement of comprehensive income are set out below.
52 weeks ended 53 weeks ended
30 March 31 March
Period to 2019 2018
GBP'000 GBP'000
Profit on ordinary activities before interest
and tax 265,151 241,514
Add back depreciation and amortisation 49,674 36,882
-------------- --------------
EBITDA 314,825 278,396
Reverse the effect of derivatives recorded
within cost of sales (61) (509)
Reverse the effect of derivatives recorded
within administrative expenses (5,646) 4,334
Foreign exchange on intercompany balances 2,799 -
Remove costs associated with the acquisition
of Babou 425 -
Remove costs associated with the acquisition
of Heron - 1,049
Adjusted EBITDA 312,342 283,270
Depreciation and amortisation (49,674) (36,882)
Net adjusted finance costs (see note 6) (22,899) (21,596)
-------------- --------------
Adjusted profit before tax 239,769 224,792
Adjusted tax (45,182) (44,437)
-------------- --------------
Adjusted profit for the period 194,587 180,355
-------------- --------------
Attributable to non-controlling interests (2,445) (78)
Attributable to owners of the parent 197,032 180,433
The adjusting items are the effects of derivatives, one off refinancing fees, foreign exchange on the translation of intercompany balances and the effects of revaluing or unwinding balances related to the acquisition of subsidiaries, such as the call/put option held over the non-controlling interest of our German operation. Significant project costs may also be included if incurred, as they have been in both years in relation to acquisitions (see note 7). Adjusted tax represents the tax charge per the statement of comprehensive income as adjusted only for the effects of the other adjusting items detailed above.
The segmental split in EBITDA and Adjusted EBITDA reconciles as follows;
52 week period to 30 UK UK Germany France
March 2019 B&M Heron Jawoll Babou Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit before interest
and tax 265,819 9,973 (14,900) 1,130 3,128 265,151
Add back depreciation
and amortisation 30,579 9,950 4,677 4,466 2 49,674
-------- -------- --------- -------- ---------- --------
EBITDA 296,398 19,923 (10,223) 5,596 3,131 314,825
Adjusting items detailed
above - - - - (2,483) (2,483)
Adjusted EBITDA 296,398 19,923 (10,223) 5,596 648 312,342
-------- -------- --------- -------- ---------- --------
53 week period to 31 UK UK Germany France
March 2018 B&M Heron Jawoll Babou Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit before interest
and tax 239,784 5,745 1,229 - (5,244) 241,514
Add back depreciation
and amortisation 26,485 6,001 4,392 - 4 36,882
-------- -------- -------- -------- ---------- --------
EBITDA 266,269 11,746 5,621 - (5,240) 278,396
Adjusting items detailed
above - - - - 4,874 4,874
Adjusted EBITDA 266,269 11,746 5,621 - (366) 283,270
-------- -------- -------- -------- ---------- --------
Adjusted EBITDA and related measures are not measures of performance or liquidity under IFRS and should not be considered in isolation or as a substitute for measures of profit, or as an indicator of the Group's operating performance or cash flows from operating activities as determined in accordance with IFRS.
4 Reconciliation of the 52-week results from the 53-week adjusted results
As in the prior year, in the commentary accompanying these accounts management consider that presenting an adjusted 52-week result for the prior year is helpful to the users of this annual report in order to directly compare like for like periods.
Therefore, a reconciliation to an adjusted 52-week statement of comprehensive income derived from the adjusted 53-week statement of comprehensive income by removing the final week of the financial year, is set out below.
Revenue and gross margin were directly taken from the specific week 53 figures and other costs were apportioned accordingly by considering the final accounting month of the year.
The adjusting items are those detailed in note 3.
52 weeks 52 weeks 53-weeks
to to to
30 March 24 March 31 March
2019 2018 Week 53 2018
GBP'000 GBP'000 GBP'000 GBP'000
Adjusted
Revenue 3,486,295 2,976,274 53,528 3,029,802
Cost of sales (2,302,711) (1,966,071) (35,366) (2,001,437)
----------- ----------- ----------- -----------
Gross profit 1,183,584 1,010,203 18,162 1,028,365
Administrative expenses (920,916) (767,309) (14,668) (781,977)
----------- ----------- ----------- -----------
Profit before net finance
costs and tax 262,668 242,894 3,494 246,388
Add back depreciation
and amortisation 49,674 36,155 727 36,882
----------- ----------- ----------- -----------
EBITDA 312,342 279,049 4,221 283,270
Depreciation and amortisation (49,674) (36,155) (727) (36,882)
Net finance costs (22,899) (21,350) (246) (21,596)
----------- ----------- ----------- -----------
Profit before tax 239,769 221,544 3,248 224,792
Tax (45,182) (43,804) (633) (44,437)
----------- ----------- ----------- -----------
Profit after tax 194,587 177,740 2,615 180,355
----------- ----------- ----------- -----------
Attributable to non-controlling
interests (2,445) (78) - (78)
Attributable to owners
of the parent 197,032 177,818 2,615 180,433
The 53(rd) week only affects the UK B&M segment as the European retail segments report annual figures. Therefore we also present a reconciliation of the 52 week profit and loss UK retail segment figures as follows:
52-weeks 52 weeks 53-weeks
to to to
30 March 24 March 31 March
2019 2018 Week 53 2018
GBP'000 GBP'000 GBP'000 GBP'000
UK B&M segment
Revenue 2,789,431 2,565,960 53,528 2,619,488
EBITDA 296,398 262,048 4,221 266,269
Depreciation and amortisation (30,579) (25,758) (727) (26,485)
Net finance income 136 107 2 109
Income tax expense (50,531) (44,916) (664) (45,580)
Segment profit 215,424 191,481 2,832 194,313
5 Operating profit
The following items have been charged in arriving at operating profit:
52 weeks ended 53 weeks ended
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Auditor's remuneration 440 354
Payments to auditors in respect of non-audit
services:
Taxation advisory services - -
Other assurance services 82 78
Other professional services - 21
Inventories:
Cost of inventories recognised as an expense
(included in cost of sales) 2,296,861 2,000,927
Depreciation of property, plant and equipment:
Owned assets 44,969 34,234
Leased assets 2,547 997
Amortisation (included within administration
costs) 2,158 1,652
Operating lease rentals 178,168 149,469
New store pre-opening costs 6,742 4,956
Loss on sale of property, plant and equipment 644 277
(Gain)/loss on foreign exchange (8,572) 2,201
6 Finance costs and finance income
Finance costs include all interest related income and expenses. The following amounts have been included in the statement of comprehensive income line for each reporting period presented:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Interest on debt and borrowings (20,999) (19,960)
Ongoing amortisation of finance fees (1,862) (1,491)
Finance charges payable under finance leases
and hire purchase contracts (407) (327)
----------- -----------
Total adjusted finance expense (23,268) (21,778)
Unwinding of deferred acquisition costs for
subsidiaries (2,683) (2,170)
----------- -----------
Total finance costs (25,951) (23,948)
----------- -----------
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Interest income on loans and bank accounts 369 182
----------- -----------
Total adjusted finance income 369 182
Gain on revaluing call/put option held over
the minority interest of Jawoll 9,141 11,568
Gain on revaluing deferred consideration
in respect of Heron 716 -
----------- -----------
Total finance income 10,226 11,750
----------- -----------
Total net adjusted finance costs are therefore;
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Total adjusted finance expense (23,268) (21,778)
Total adjusted finance income 369 182
----------- -----------
Total net adjusted finance costs (22,899) (21,596)
----------- -----------
7 Business combination
On 19 October 2018 the Group acquired Paminvest SAS a discount general merchandise retailer group operating under the trading name Babou in France ("Babou"). As part of the same transaction the Group acquired the third party distribution service provider to Babou and these operations were immediately brought into the Paminvest group.
The transaction has been accounted for via the acquisition method of accounting. The Group purchased 100% of the share capital for a fair value of EUR90.1m (GBP79.4m at the acquisition date exchange rate of 1.1346 EUR/GBP) which was made in cash funded by the drawdown of a new loan facility (see note 21).
The fair values of the identifiable assets and liabilities of Babou, which are provisional and can be updated up to 12 months after acquisition under IFRS 3, on the date of the acquisition were:
Assets EUR'000
Babou brand asset (10 year life) 4,690
Favourable lease contracts 1,946
Other intangible assets 1,402
Property, plant and equipment 32,049
Inventories 83,280
Corporation and deferred tax 2,671
Receivables and other assets 24,629
Cash 4,038
--------
Total assets 154,705
--------
Liabilities
Unfavourable lease contracts (6,016)
Creditors and accruals (64,947)
Finance leases (5,114)
Bank loans (12,488)
--------
Total liabilities (88,565)
--------
Net assets acquired 66,140
Fair value of consideration 90,130
Goodwill recognised on acquisition 23,990
None of the receivables recognised were considered irrecoverable at the acquisition date.
Fees of GBP0.4m were incurred during the acquisition all of which have been expensed through the P&L, and which are treated as adjusting for the purposes of note 3.
The goodwill (which translates to GBP21.1m on the acquisition date) largely relates to the growth potential of the business, the current location of the stores and the existing workforce. None of the elements which make up goodwill can, or are not material enough to be recognised as a separate intangible asset.
The effect the acquisition has had on the consolidated income statement can be seen in the segment note (note 2). Had the company been bought at the start of the year it would have contributed an estimated extra EUR162.3m to revenue and EUR2.8m to operating profit under their local accounting policies (French GAAP, on the basis that it was not practical to translate to IFRS). These translate to GBP143.1m and GBP2.5m at the exchange rate used for the Group consolidated income statement.
The balance on the consolidated statement of cash flows reconciles as follows:
EUR'000 GBP'000
Initial cash consideration 90,130 79,438
Cash acquired (4,038) (3,559)
Net cash for acquisitions 86,092 75,879
------- -------
In the prior year, on 2 August 2017 the Group acquired Heron Food Group Limited ("Heron"), a discount convenience retailer incorporated in the UK.
The transaction was accounted for via the acquisition method of accounting. The Group purchased 100% of the share capital, for a fair value of GBP122.5m, which breaks down as follows:
GBP'000
Initial cash consideration 112,123
Fair value of deferred consideration 10,422
-------
Total 122,545
-------
The deferred consideration represented a cash amount of GBP12.8m payable in 2019 based upon certain conditions. As this is now payable imminently it has been fully unwound to an expected final value of GBP12.1m (see note 20).
The fair values of the identifiable assets and liabilities of Heron on the date of the acquisition were:
Assets GBP'000
Heron brand asset 14,178
Favourable lease contracts 1,385
Other intangible assets 1,305
Property, plant and equipment 67,299
Inventories 13,835
Receivables and other assets 8,081
Cash 8,315
--------
Total assets 114,398
--------
Liabilities
Unfavourable lease contracts (9,984)
Creditors and accruals (32,395)
Provisions (1,538)
Corporation and deferred tax (4,107)
Finance leases (3,199)
Overdraft (2,628)
Bank loans (25,582)
--------
Total liabilities (79,433)
--------
Net assets acquired 34,965
Fair value of consideration 122,545
Goodwill recognised on acquisition 87,580
None of the receivables recognised were considered irrecoverable at the acquisition date.
Fees of GBP1.0m were incurred during the acquisition all of which have been expensed through the P&L, and which are treated as adjusting for the purposes of note 3.
The goodwill largely related to the growth potential of the business, the current location of the stores and the existing workforce. None of the elements which make up goodwill could, or were not material enough to be recognised as a separate intangible asset.
The effect the acquisition has had on the consolidated income statement can be seen in the segment note (note 2) for both the prior and current year. Had the company been bought at the start of the prior year it would have contributed an estimated extra GBP108.6m to revenue and GBP3.4m to operating profit, under their local accounting policies (FRS 102 compliant, on the basis that it was not practical to translate to IFRS), to our prior year results.
The balance on the consolidated statement of cash flows reconciles as follows:
GBP'000
Initial cash consideration 112,123
Cash acquired (8,315)
Overdraft acquired 2,628
-------
Net cash for acquisitions 106,436
-------
8 Employee remuneration
Expense recognised for employee benefits is analysed below:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Wages and salaries 391,708 347,027
Social security costs 20,290 16,945
Pensions - defined contribution plans 3,312 1,424
----------- -----------
415,309 365,396
----------- -----------
There are GBP116k of defined contribution pension liabilities owed by the Group at the period end (2018: GBP221k).
The Group has one employee who is a member of a defined benefit scheme (2018: one employee). The liability held on the balance sheet at the year end was GBP245k (2018: GBP250k).
The scheme is considered immaterial to the Group and the effect of the year end actuarial valuation can be seen within other comprehensive income.
Babou operates a scheme where they must provide a certain amount per employee to pay upon their retirement date. The accrual on this scheme was GBP1,174k at year end.
The average monthly number of persons employed by the Group during the period was:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
Sales staff 32,768 30,758
Administration 1,035 1,284
----------- -----------
33,803 32,042
----------- -----------
9 Key management remuneration
Key management personnel and Directors' remuneration includes the following:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Directors' remuneration:
Short term employee benefits 2,204 3,067
Benefits accrued under the share option scheme 219 226
----------- -----------
2,423 3,293
----------- -----------
Key management expense (includes Directors'
remuneration):
Short term employee benefits 5,278 7,103
Benefits accrued under the share option scheme 328 280
Pension 40 4
----------- -----------
5,647 7,387
----------- -----------
Amounts in respect of the highest paid director
emoluments:
Short term employee benefits 1,212 2,049
Benefits accrued under the share option scheme 84 -
----------- -----------
1,296 2,049
----------- -----------
The emoluments disclosed above are of the directors and key management personnel who have served as a director within any of the Group companies.
10 Share Options
The Group operates two share option schemes, both of which split down to various tranches. Details of these schemes follow.
1) The Company Share Option Plan (CSOP) scheme
The CSOP scheme was adopted by the Group as a Schedule 4 CSOP Scheme on 29 March 2014. No grant under this scheme can be made more than 10 years after this date.
Eligibility
Employees and executive directors of the Group are eligible for the CSOP and the awards are made at the discretion of the remuneration committee.
Limits & Pricing
A fixed number of options offered to each participant, with the pricing set as the close price on the grant date. The options offered to each individual cannot exceed a total value of GBP30,000 measured as the option price multiplied by the number of options awarded, with the whole scheme limited to 10% of the share capital in issue.
Vesting & Exercise
The awards vest on the third anniversary of grant, subject to the following condition:
In order for an option to be eligible for vesting, the underlying UK EBITDA in the last financial year that ended prior to the third anniversary of the grant should not be less than 130% of the underlying UK EBITDA in the last financial year that ended before the grant was made.
Once vested the award can be exercised up until the tenth anniversary of the grant.
Tranches
To the end of March 2019 there have been four tranches of the CSOP, details are as follows:
Tranche 1 Tranche 2 Tranche 3 Tranche 4
Date of grant 1 Aug 2014 11 Aug 2014 17 Dec 2015 19 Aug 2016
Option price 271.5p 267.0p 286.0p 276.8p
Options granted 596,646 104,860 10,489 21,676
Fair value of each option
at date of grant 83p 81p 79p 50p
Options outstanding at
25 March 2017 460,375 59,920 10,489 21,676
Granted - - - -
Forfeited (22,098) - - -
Exercised (427,228) (59,920) - -
Options outstanding at
31 March 2018 11,049 - 10,489 21,676
Granted - - - -
Forfeited - - - -
Lapsed - - (10,489) -
Exercised - - - -
Options outstanding at
30 March 2019 11,049 - - 21,676
2) Long-Term Incentive Plan (LTIP) Awards
The LTIP was adopted by the board on 29 May 2014. No grant under this scheme can be made more than 10 years after this date.
Eligibility
Employees and executive directors of the Group are eligible for the LTIP and the awards are made at the discretion of the remuneration committee.
Limits & Pricing
A fixed number of options offered to each participant, with the pricing set at GBPnil. The options offered to each individual cannot exceed a total value of 100% (200% under exceptional circumstances) of the participants base salary where the value is measured as the market value of the shares on grant multiplied by the number of options awarded, with the whole scheme limited to 10% of the share capital in issue.
Dividend Credits
All participants in any new LTIP awards granted after 1 April 2018 are entitled to a dividend credit where the notional dividend they would have received on the maximum number of shares available under their award is converted into new share options and added to the award based upon the share price on the date of the dividend. These additional awards have been reflected in the tables below.
Vesting & Exercise
The share options vest on the third anniversary of the grant date, subject to a set of conditions as follows:
LTIP 2014:
-- The Total Shareholders Return (TSR) must exceed 15%, where the TSR is a measure of the change in share price and dividends paid in the vesting period.
-- The underlying UK EBITDA in the Financial Year ended March 2017 is at least 130% greater than the underlying UK EBITDA in the Financial Year ended March 2014.
LTIP 2015, 2016, 2017A, 2018A:
-- 50% of the awards are subject to a TSR performance condition, where the Group's TSR over the vesting period is compared with a comparator group. The awards vest on a sliding scale where the full 50% is awarded if the Group falls in the upper quartile, 12.5% vests if the Group falls exactly at the median, and 0% below that.
-- 50% of the awards are subject to an EPS performance target. The awards vest on a sliding scale based upon the Earnings per share as follows:
Award 50% paid 12.5% paid
EPS as at at at
LTIP 2015 March-18 19.0p 15.0p
LTIP 2016 March-19 22.5p 17.5p
LTIP 2017A March-20 24.0p 19.0p
LTIP 2018A March-21 28.0p 23.0p
Below the 12.5% boundary, no options vest.
LTIP 2017/B1, 2017/B2, 2018/B1, 2018/B2.
-- Group EBITDA must be positive in each year of the LTIP. -- The awards also have an employee performance condition attached.
Vested awards can be exercised up to the tenth anniversary of grant.
Tranches
To the end of March 2019 there have been nine awards of the LTIP, with the details as follows.
Note that the LTIP 2015, LTIP 2016, LTIP 2017A and LTIP 2018A have been split into the element subject to the TSR (50%) and the element subject to the EPS (50%) since these were valued separately.
2014 2015-TSR 2015-EPS 2016-TSR 2016-EPS
Date of grant 1 Aug 2014 5 Aug 2015 5 Aug 2015 18 Aug 2016 18 Aug 2016
Nil price options granted 200,000 40,616 40,616 122,385.5 122,385.5
Fair value of each option
at date of grant 134p 210p 341p 164p 254p
Options outstanding at
25 March 2017 74,074 40,616 40,616 122,385.5 122,385.5
Granted - - - - -
Forfeited - - - - -
Exercised (74,074) - - - -
Options outstanding at
31 March 2018 - 40,616 40,616 122,385.5 122,385.5
Granted - - - - -
Forfeited - - (9,139) - -
Exercised - - - - -
Options outstanding at
30 March 2019 - 40,616* 31,477* 122,385.5 122,385.5
Core Valuation Assumptions
Risk Free Rate 1.39% 0.92% 0.92% 0.09% 0.09%
Expected Life (Years) 3 5 5 5 5
Volatility 25% 24% 24% 26% 26%
Dividend Yield 0% 0.95% 0.95% 1.73% 1.73%
* These share options have vested but are in a holding period.
2017A-TSR 2017A-EPS 2017/B1 2017/B2 2018/B1
Date of grant 7 Aug 2017 7 Aug 2017 7 Aug 2017 14 Aug 2017 23 Jan 2018
Nil price options granted 40,610 40,610 287,963 101,654 19,264
Fair value of each option
at date of grant 272p 351p 361p 360p 400p
Options outstanding at
25 March 2017 - - - - -
Granted 40,610 40,610 287,963 101,654 19,264
Forfeited - - (16,072) - -
Exercised - - - - -
Options outstanding at
31 March 2018 40,610 40,610 271,891 101,654 19,264
Granted - - - - -
Forfeited - - (8,036) (8,025) (2,408)
Exercised - - - - -
Options outstanding at
30 March 2019 40,610 40,610 263,855 93,629 16,856
Core Valuation Assumptions
Risk Free Rate 0.52% 0.52% 0.25% 0.25% 0.25%
Expected Life (Years) 5 5 3 3 3
Volatility 32% 32% 32% 32% 32%
Dividend Yield 1.4% 1.4% 1.4% 1.4% 1.4%
2018A-TSR 2018A-EPS 2018/B2
Date of grant 22 Aug 2018 22 Aug 2018 20 Aug 2018
Nil price options granted 224,914.5 224,914.5 236,697
Fair value of each option
at date of grant 240p 409p 406p
Options outstanding at
31 March 2018 - - -
Granted 224,914.5 224,914.5 236,697
Granted via dividend credit 1,758 1,758 1,797
Forfeited - - (11,190)
Exercised - - -
Options outstanding at
30 March 2019 226,672.5 226,672.5 227,304
Core Valuation Assumptions
Risk Free Rate 0.97% 0.97% 0.25%
Expected Life (Years) 5 5 3
Volatility 29% 29% 30%
Dividend Yield 0% 0% 0%
No LTIP options have lapsed in either period. The summary year end position is as follows;
30 March 31 March
Period ended 2019 2018
Share options outstanding at the start of
the year 843,246 952,537
Share options granted during the year (including
via dividend credit) 691,839 490,101
Share options forfeited or lapsed during
the year (49,287) (38,170)
Share options exercised in the year - (561,222)
Share options outstanding at the end of the
year 1,485,798 843,246
Of which;
Share options that are not vested 1,402,656 832,197
Share options that are vested, but are not
eligible for exercise (in holding) 72,093 -
Share options that are vested and eligible
for exercise 11,049 11,049
All exercised options are satisfied by the issue of new share capital.
In the year, GBP954k has been charged to the income statement in respect to the share option schemes (2018: GBP615k). At the end of the year the outstanding share options had a carrying value of GBP1,733k (2018: GBP788k).
11 Taxation
The relationship between the expected tax expense based on the standard rate of corporation tax in the UK of 19% (2018: 19%) and the tax expense actually recognised in the statement of comprehensive income can be reconciled as follows:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Current tax expense 50,732 44,039
Deferred tax credit (4,015) (528)
----------- -----------
Total tax expense recorded in profit and
loss 46,717 43,511
----------- -----------
Current tax charge/(credit) in other comprehensive
income 2 (54)
Deferred tax charge/(credit) in other comprehensive
income 3,479 (2,416)
----------- -----------
Total tax charge/(credit) recorded in other
comprehensive income 3,481 (2,470)
----------- -----------
Result for the year before tax 249,426 229,316
Expected tax charge at the standard tax rate 47,391 43,570
Effect of :
Expenses not deductible for tax purposes 3,804 2,440
Income not taxable (3,723) (2,709)
Foreign operations taxed at local rates (758) 790
Changes in the rate of corporation tax (58) 55
Adjustment in respect of prior years (114) (485)
Other 175 (150)
----------- -----------
Actual tax expense 46,717 43,511
----------- -----------
Deferred taxation
30 March 31 March
Statement of financial position 2019 2018
GBP'000 GBP'000
Accelerated tax depreciation (3,250) (4,671)
Relating to intangible brand assets (20,955) (18,339)
Fair valuing of assets and liabilities (asset) 2,942 5,030
Fair valuing of assets and liabilities (liability) (2,427) (1,035)
Movement in provision 1,308 11
Relating to share options 360 206
Held over gains on fixed assets (450) (450)
Losses carried forward 4,501 -
Other temporary differences (asset) 84 407
Other temporary differences (liability) (67) -
-------- --------
Net deferred tax liability (17,953) (18,841)
Analysed as;
Deferred tax asset 9,195 5,654
Deferred tax liability (27,148) (24,495)
52 weeks to 53 weeks to
30 March 31 March
Statement of comprehensive income 2019 2018
GBP'000 GBP'000
Accelerated tax depreciation 1,411 129
Relating to intangible brand assets (1,530) 107
Fair valuing of assets and liabilities (4,278) 2,278
Movement in provision 326 (75)
Relating to share options 153 108
Held over gains on fixed assets - 21
Losses carried forward 4,501 -
Other temporary differences (39) 376
Effect of foreign exchange (8) -
Net deferred tax credit 536 2,944
Analysed as;
Total deferred tax in profit or loss 4,015 528
Total deferred tax in other comprehensive
income (3,479) 2,416
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
12 Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit or loss for the financial period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding at each period end.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during each year plus the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares.
Adjusted (and adjusted 52 week) basic and diluted earnings per share are calculated in the same way as above, except using adjusted adjusted 52-week profit attributable to ordinary equity holders of the parent, as defined in notes 3 and 4.
There are share option schemes in place (see note 10) which have a dilutive effect on both periods presented. The following reflects the income and share data used in the earnings per share computations:
Period ended 30 March 31 March
2019 2018
GBP'000 GBP'000
Profit for the period attributable to owners
of the parent 205,154 185,833
Adjusted profit for the period attributable
to owners of the parent 197,032 180,433
Adjusted 52 week profit for the period attributable
to owners of the parent 197,032 177,818
Thousands Thousands
Weighted average number of ordinary shares
for basic earnings per share 1,000,561 1,000,353
Dilutive employee share options 453 298
----------
Weighted average number of ordinary shares
adjusted for the effect of dilution 1,001,014 1,000,651
---------- ----------
Pence Pence
Basic earnings per share 20.5 18.6
Diluted earnings per share 20.5 18.6
Adjusted basic earnings per share 19.7 18.0
Adjusted diluted earnings per share 19.7 18.0
Adjusted 52 week basic earnings per share 19.7 17.8
Adjusted 52 week diluted earnings per share 19.7 17.8
13 Investments in associates
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Net book value
Carrying value at the start of the period 5,140 5,669
Acquisition of holding in Centz Retail Holdings 1,200 -
Dividends received (570) (1,149)
Share of profits in associates since the
prior year valuation exercise 775 1,919
Impairment of holding in Home Focus Group - (208)
Sale of 20% holding in Home Focus Group - (310)
Effect of foreign exchange on translation 375 (781)
-------- ---------
Carrying value at the end of the period 6,920 5,140
-------- ---------
On 19 November 2018, the Group acquired a 22.5% holding in Centz Retail Holdings Limited, a company incorporated in Ireland, for EUR1,350,000. The principal activity of the company is retail sales and their registered address is 5 Old Dublin Road, Stillorgan, Co. Dublin.
The Group has a 50% (2018: 50%) interest in Multi-lines International Company Ltd, a company incorporated in Hong Kong. The principal activity of the company is the purchase and sale of goods and their registered address is 8/F, Hope Sea Industrial Centre, No. 26 Lam Hing Street, Kowloon Bay, Hog Kong..
The Group also holds 20% (2018: 20%) of the ordinary share capital of Home Focus Group Ltd, a company incorporated in Republic of Ireland and whose principal activity is retail sales and their registered address is Boole House, Beech Hill Office Campus, Beech Hill Road, Clonskeagh, Dublin 4.
During the prior year the Group sold 20% of the holding in Home Focus Group for EUR350k. The remaining 20% holding is also subject to a contract of sale in December 2020 for the same amount, therefore the remaining stake was revalued to EUR350k with a resulting impairment which has been recognised in profit and loss. The holding in Home Focus is considered immaterial for further disclosure.
None of the entities have discontinued operations or other comprehensive income, except that on consolidation all entities have a foreign exchange translation difference.
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Multi-lines
Non-current assets 2,344 1,106
Current assets 50,045 36,004
Non-current liabilities - -
Current liabilities (39,577) (25,555)
-------- ---------
Net assets 12,812 11,555
-------- ---------
Revenue 160,903 169,244
Profit 1,562 3,805
-------- ---------
The figures for Multi-lines show 12 months to December 2018 (2018: 12 months to December 2017), being the period used in the valuation of the associate.
Centz Retail Holdings Limited report to a year end of December. Given the limited period of ownership of six weeks until that date, no profit or loss has been recognised related to this entity at this year end and it is therefore considered immaterial for further disclosure.
14 Intangible assets
Goodwill Software Brands Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost or valuation
At 25 March 2017 841,691 4,620 100,047 1,494 947,852
Additions due to purchase of Heron 87,580 1,305 14,178 - 103,063
Additions - 1,612 1,750 - 3,362
Disposals - (289) - - (289)
Effect of retranslation 447 3 68 20 538
-------- -------- ------- ------- ---------
At 31 March 2018 929,718 7,251 116,043 1,514 1,054,526
Additions due to purchase of Babou 21,144 139 4,134 1,096 26,513
Additions - 2,404 250 - 2,654
Disposals - (51) - - (51)
Effect of retranslation (1,256) (28) (214) (59) (1,557)
-------- -------- ------- ------- ---------
At 30 March 2019 949,606 9,715 120,213 2,551 1,082,085
Accumulated amortisation / impairment
At 25 March 2017 - 1,425 - 1,043 2,468
Charge for the year - 1,436 13 203 1,652
Disposals - (289) - - (289)
Effect of retranslation - 3 - 12 15
-------- -------- ------- ------- ---------
At 31 March 2018 - 2,575 13 1,258 3,846
Charge for the year - 1,854 227 77 2,158
Disposals - (41) - - (41)
Effect of retranslation - (11) (5) (27) (43)
-------- -------- ------- ------- ---------
At 30 March 2019 - 4,377 235 1,308 5,920
Net book value at 30 March 2019 949,606 5,338 119,978 1,243 1,076,165
-------- -------- ------- ------- ---------
Net book value at 31 March 2018 929,718 4,676 116,030 256 1,050,680
-------- -------- ------- ------- ---------
Impairment review of intangible assets held with indefinite life
The Group holds the following assets with indefinite life:
30 March 31 March 31 March 31 March
Segment 2019 2019 2018 2018
Goodwill Brand Goodwill Brand
GBP'000 GBP'000 GBP'000 GBP'000
UK B&M 807,496 95,900 807,496 95,650
UK Heron 87,580 14,178 87,580 14,178
Germany Jawoll 33,934 5,108 34,642 5,215
France Babou 20,596 - - -
Not all items in the brand classification have an indefinite life as some are time limited. The brand intangible assets that have been identified as having an indefinite life are designated as such as management believe that these assets will hold their value for an indefinite period of time.
In each case the goodwill and brand assets have been allocated to one group of CGUs, being the store estate within the specific segment to which those assets relate. The Babou assets are a new addition in the year and the Heron assets were a new addition in the prior year, see note 7 for more details.
The Group performs impairment tests at each period end. The impairment test involves assessing the net present value (NPV) of the expected cash flows in relation to the stores within each CGU according to a number of assumptions to calculate the value in use (VIU) for the group of CGUs.
The Jawoll and Babou balances are held in Euros, with underlying balances of EUR39.5m and EUR24.0 for Goodwill respectively and EUR6.0m for the Jawoll brand (2018: Jawoll unchanged, Babou N/A). Since the cashflows that support the carrying values are also primarily in Euros, the impairment test for these assets have been carried out in that currency.
After a review, the impairment tests calculations were altered to include additional costs, such as those related to transport and distribution of stock, and the results below for the prior year have been restated to reflect this. There was no material impact on the result of the impairment test with no impairment required.
In each case, the results of the impairment tests identified that the VIU was in excess of the carrying value of assets within the group of CGUs at the period end dates.
The Jawoll business suffered a loss in the year (see note 2) but management believe that this was due to exceptional circumstances that will not be repeated. Looking ahead, Jawoll's results, and specifically the margin which was affected by the level of mark downs on old stock in the year, are expected to improve. As such the Jawoll gross margin has been added as a key assumption in this year's calculation. No other indicators of impairment were noted.
The key assumptions used were
(i) The Group's discount rate, calculated via an internal model.
(ii) The inflation rate for expenses, which has been based upon the consumer price index for the relevant country.
(iii) The like for like sales growth, an estimate made by management.
(iv) Gross margin for Jawoll, an estimate made by management.
(v) A terminal growth rate, an estimate made by management based upon the expected position of the business at the end of the five year forecast period.
The assumptions were as follows:
30 March 31 March
As at 2019 2018
Discount rate (B&M) 10.4% 10.7%
Discount rate (Heron) 10.7% 11.5%
Discount rate (Jawoll) 12.4% 13.2%
Discount rate (Babou) 12.4% N/A
Inflation rate for costs (B&M & Heron) 2.4% 3.6%
Inflation rate for costs (Jawoll) 1.3% 1.7%
Inflation rate for costs (Babou) 1.6% N/A
Like for like sales growth (B&M) 2.0% 2.0%
Like for like sales growth (Heron) 2.0% 3.0%
Like for like sales growth (Jawoll) 5.0% 2.0%
Like for like sales growth (Babou) 0.0% N/A
Gross margin (Jawoll) 38.0% N/A
Terminal growth rate (B&M) 0.5% 0.5%
Terminal growth rate (Heron) 3.0% 3.0%
Terminal growth rate (Jawoll) 3.0% 3.0%
Terminal growth rate (Babou) 3.0% 3.0%
These assumptions are reflected for five years in the CGU forecasts and beyond this a perpetuity calculation is performed using the assumptions made regarding terminal growth rates.
The sensitivity of the assumptions is set out below together with the levels at which an impairment would be triggered in relation to each of the key assumptions as set out above.
B&M Heron
30 March 31 March 30 March 31 March
2019 2018 2019 2018
Discount rate 35.8% 27.7% 22.4% 17.1%
Inflation rate for
expenses 11.3% 9.5% 8.5% 6.6%
Like for like sales (4.2)% (2.1)% (2.5)% 0.8%
Terminal growth
rate N/A* N/A* (26.8)% (6.9)%
Jawoll Babou
30 March 31 March 30 March 31 March
2019 2018 2019 2018
Discount rate 34.3% 29.6% 80.0% N/A
Inflation rate for expenses 8.1% 7.2% 8.9% N/A
Like for like sales (0.3)% (2.0)% (4.7)% N/A
Gross margin 31.3% N/A N/A N/A
Terminal growth rate N/A* (73.1)% N/A* N/A
* calculation is not sensitive to this input for this segment
15 Property, plant & equipment
Plant,
Land and buildings Motor vehicles fixtures and equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost or valuation
At 25 March 2017 46,250 3,485 183,910 233,645
Acquisition of Heron 31,388 5,787 30,124 67,299
Additions 58,097 4,493 48,678 111,268
Disposals (506) (1,313) (4,180) (5,999)
Effect of retranslation 306 5 164 475
------------------ -------------- ----------------------- -------
At 31 March 2018 135,535 12,457 258,696 406,688
Acquisition of Babou 153 63 28,030 28,246
Additions 34,960 5,628 63,064 103,652
Disposals (174) (1,231) (1,991) (3,396)
Effect of retranslation (492) (11) (1,266) (1,769)
------------------ -------------- ----------------------- -------
At 30 March 2019 169,982 16,906 346,533 533,421
Accumulated depreciation
At 25 March 2017 12,685 1,796 53,416 67,897
Charge for the period 4,607 1,559 29,065 35,231
Disposals (181) (1,106) (3,880) (5,167)
Effect of retranslation 41 2 31 74
At 31 March 2018 17,152 2,251 78,632 98,035
Charge for the period 5,028 2,671 39,817 47,516
Disposals (13) (686) (935) (1,634)
Effect of retranslation (144) (4) (300) (448)
------------------ -------------- ----------------------- -------
At 30 March 2019 22,023 4,232 117,214 143,469
Net book value at 30 March 2019 147,959 12,674 229,319 389,952
------------------ -------------- ----------------------- -------
Net book value at 31 March 2018 118,383 10,206 180,064 308,653
------------------ -------------- ----------------------- -------
The carrying value of assets held under finance lease and hire purchase contracts at 30 March 2019 was GBP10.8m (2018: GBP7.5m) and total depreciation charged on these assets during the period was GBP2.5m (2018: GBP1.0m). The assets held under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.
Under the terms of the loan and notes facilities in place at 30 March 2019, fixed and floating charges were held over GBP130.8m of the net book value of land and buildings, GBP12.3m of the net book value of motor vehicles and GBP190.4m of the net book value of the plant, fixtures and equipment. (2018: GBP99.6m, GBP9.7m, GBP167.5m respectively).
A significant addition was made to the land & buildings category in relation to the southern warehouse. At the year end the balance in relation to this stood at GBP72.2m (2018: GBP55.0m). The warehouse is undergoing a fit out phase and has not yet been brought into use and is therefore not yet depreciated. The intention is that the asset will undergo a sale & leaseback process near to or at completion. A further GBP1.0m of assets in the land & buildings category relates to other assets under construction (2018: GBP0.5m).
Included within land and buildings is land with a cost of GBP62.8m (2018: GBP62.6m) which is not depreciated.
16 Inventories
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Goods for resale 670,721 558,690
-------- --------
Included in the amount above was a net credit of GBP3.5m related to inventory provisions (2018: GBP1.3m net charge). In the period to 30 March 2019 GBP2,297m (2018: GBP2,001m) was recognised as an expense for inventories.
17 Trade and other receivables
30 March 31 March
2019 2018
GBP'000 GBP'000
Non-current
Lease premiums 1,786 2,150
Favourable leases 1,967 1,037
Other receivables 7,236 -
-------- --------
10,989 3,187
-------- --------
Current
Trade receivables 4,866 3,221
Deposits on account 5,507 1,575
Provision for impairment (247) (160)
-------- --------
Net trade receivables to non-related parties 10,126 4,636
Prepayments 39,190 27,165
Related party receivables 13,079 410
Lease premiums 251 324
Favourable leases 555 183
Other tax 3,213 -
Other receivables 5,226 1,324
-------- --------
71,640 34,042
-------- --------
Trade receivables are stated initially at their fair value and then at amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. The carrying amount is determined by the directors to be a reasonable approximation of fair value.
The following table sets out an analysis of provisions for impairment of trade and other receivables:
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Provision for impairment at the start of
the period (160) (18)
Impairment during the period (247) (145)
Utilised/released during the period 160 3
-------- --------
Balance at the period end 247 (160)
-------- --------
Trade receivables are non-interest bearing and are generally on terms of 30 days or less.
Aside from the related party balances (see note 28) there were no significant balances within debtors at either March 2019 or March 2018 and as such there is no specific concentration of credit risk.
The following table sets out a maturity analysis of trade receivables, including those which are past due but not impaired:
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Neither past due nor impaired 1,901 2,086
Past due less than one month 2,387 651
Past due between one and three months 66 230
Past due for longer than three months 513 254
-------- --------
Balance at the period end 4,867 3,221
-------- --------
18 Cash and cash equivalents
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Cash at bank and in hand 86,202 90,816
Overdrafts (5,646) (6,112)
-------- --------
Cash and cash equivalents 80,556 84,704
-------- --------
As at the year end the Group had available GBP93.4m of undrawn committed borrowing facilities (2018: GBP89.0m).
19 Trade and other payables
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Non-current
Accruals 503 250
Reverse lease premium 82,299 78,859
Unfavourable leases 9,810 8,021
Other payables 279 -
-------- --------
92,891 87,130
-------- --------
Current
Trade payables 306,902 264,224
Other tax and social security payments 14,933 7,845
Accruals and deferred income 45,430 28,251
Reverse lease premium 15,849 14,446
Unfavourable leases 2,234 1,165
Related party trade payables 3,248 12,345
Other payables 7,370 7,796
-------- --------
395,966 336,072
-------- --------
Trade payables are generally on 30 day terms and are not interest bearing. The carrying value of trade payables approximates to their fair value. For further details on the related party trade payables, see note 28.
20 Other financial assets and liabilities
Other financial assets
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Current financial assets at fair value through
profit and loss:
Foreign exchange forward contracts 2,383 -
Fuel swap contracts 127 -
Current financial assets at fair value through
other comprehensive income:
Foreign exchange forward contracts 3,784 -
Total current other financial assets 6,294 -
-------- --------
Total other financial assets 6,294 -
-------- --------
Financial assets through profit or loss reflect the fair value of those derivatives that are not designated as hedge relationships but are nevertheless intended to reduce the level of risk for expected sales and purchases.
Other financial liabilities
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Non-current financial liabilities at fair value
through profit and loss:
Put/call options over the non-controlling interest
of Jawoll - 8,076
Deferred consideration in relation to the purchase
of Heron - 11,133
Total non-current other financial liabilities - 19,209
-------- --------
Current financial liabilities at fair value through
profit and loss:
Deferred consideration in relation to the purchase
of Heron 12,084 -
Foreign exchange forward contracts 535 923
Current financial liabilities at fair value through
other comprehensive income:
Foreign exchange forward contracts 1,112 15,743
Total current other financial liabilities 13,731 16,666
-------- --------
Total other financial liabilities 13,731 35,875
-------- --------
The put/call options over the non-controlling interest in Jawoll arose as part of the acquisition of the entity. The valuation at year end reflects management's latest projections for the final amount to be exchanged at the year end foreign exchange rate. The option matures later in 2019.
The deferred consideration relates to the acquisition of Heron. The valuation at year end reflects management's calculation of the amount expected to be payable later in 2019.
The other financial liabilities through profit or loss reflect the fair value of those foreign exchange forward contracts that are not designated as hedge relationships but are nevertheless intended to reduce the level of risk for expected sales and purchases.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
-- Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
-- Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
As at the reporting dates, the Group held the following financial instruments carried at fair value on the balance sheet:
Total Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
30 March 2019
Foreign exchange contracts 4,520 - 4,520 -
Fuel swap contract 127 - 127 -
Deferred consideration in relation to Heron (12,084) - - (12,084)
31 March 2018
Foreign exchange contracts (16,666) - (16,666) -
Put/call options on Jawoll non-controlling interest (8,076) - - (8,076)
Deferred consideration in relation to Heron (11,133) - - (11,133)
The put/call option and deferred consideration were valued with reference to the sale and purchase agreements underpinning the relevant acquisition. The key variable in determining the fair value of these balances is the forecast EBITDA, respectively of Jawoll and Heron, as prepared by management.
The movement in the valuation of the call/put option reconciles as follows:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Opening value 8,076 17,886
Unwinding of the call/put option valuation 1,016 1,459
Adjustment to the valuation of the call/put
option (9,141) (11,568)
Effect of foreign exchange 49 299
----------- -----------
Closing value - 8,076
The valuation is based upon this years achieved EBITDA and is, therefore no longer considered sensitive to this variable. Previously a 5% change in EBITDA would have resulted in a 5% change to the valuation. It is also not considered sensitive to the discount rate because if a liability were to arise it would be expected to be within the next 12 months.
The movement in the valuation of deferred consideration reconciles as follows:
52 weeks to 53 weeks to
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Opening value 11,133 -
Recognised on acquisition of Heron - 10,422
Unwinding of the deferred consideration balance 1,667 711
Revaluation of the deferred consideration (716) -
Closing value 12,084 11,133
The balance is based upon the EBITDA over the preceding two years and is therefore no longer considered sensitive to this input. The balance is also not considered sensitive to the discount rate as it is expected to be due imminently and has therefore not been discounted.
The other instruments have been valued by the issuing bank, using a mark to market method. The bank has used various inputs to compute the valuations and these include inter alia the relevant maturity date and strike rates, the current exchange rate, fuel prices and LIBOR levels.
21 Financial liabilities - borrowings
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Current
Revolving facility bank loan 40,000 45,000
Acquisition facility 78,461 -
Babou loan facilities 3,599 -
Heron loan facilities 2,212 2,212
124,272 47,212
-------- --------
Non-current
High yield bond notes 248,194 247,558
Term facility bank loan 298,102 297,288
Babou loan facilities 5,362 -
Heron loan facilities 11,283 13,580
562,941 558,426
-------- --------
The acquisition facility of EUR92.0m was drawn down by the Group on 19 October 2018 to facilitate the purchase of Babou. It has an initial maturity date of October 2019, but can be extended at the sole discretion of the Group for up to one additional year. It is held at amortised cost with GBP0.9m of fees initially attributed to it. The gross amount and other details can be seen in the maturity table below.
The term facility bank loan and high yield bond notes are held at amortised cost and were initially capitalised in February 2017 with GBP3.2m and GBP3.3m (respectively) of fees attributed to them.
The Babou and Heron loan facilities were brought into the Group as part of the acquired balance sheets on 19 October 2018 and 2 August 2017 respectively, all are carried at their gross cash amount. The Babou loan facilities are held with various counterparties and at various margins and maturities, further details are included in the maturity table below.
The maturities of the loan facilities and finance leases (also see note 25) are as follows.
30 March 31 March
Interest rate Maturity 2019 2018
% GBP'000 GBP'000
Finance leases 1.0-6.0% 2019-37 10,734 9,176
Revolving facility
loan 2.00% + LIBOR Apr-19/18 40,000 45,000
Term facility bank
loan A 2.00% + LIBOR Jul-21 300,000 300,000
High yield bond notes 4.125% Feb-22 250,000 250,000
Acquisition facility 1.075% (see note) Oct-19 78,984 -
Heron loan facilities
- Melton 2.25% + LIBOR Jul-25 5,159 6,050
Heron loan facilities
- Offset 2.45% + LIBOR Sep-22 3,967 4,572
Heron loan facilities
- Term 2.50% + LIBOR Dec-21 4,370 5,170
Babou - BNP Paribas
(1) 1.96% + EURIBOR Jan-20 393 -
Babou - BNP Paribas
(2) 0.76% Jan-23 661 -
Babou - Caisse d'Épargne
(1) 1.50% + EURIBOR Feb-22 478 -
Babou - Caisse d'Épargne
(2) 1.45% + EURIBOR Feb-23 1,503 -
Babou - Caisse d'Épargne
(3) 1.50% + EURIBOR Feb-22 660 -
Babou - Caisse d'Épargne
(4) 1.51% Feb-24 612
Babou - CIC (1) 2.18% Jan-21 594 -
Babou - CIC (2) 1.45% Apr-20 191 -
Babou - CIC (3) 1.20% May-22 1,099 -
Babou - Crédit
Agricole (1) 2.07% Jan-20 218 -
Babou - Crédit
Agricole (2) 0.515% Jan-23 660 -
Babou - Crédit
Lyonnais 1.15% + EURIBOR Apr-20 266 -
Babou - Société
Générale
(1) 1.15% + EURIBOR Apr-20 332 -
Babou - Société
Générale
(2) 0.63% Dec-22 1,293 -
702,174 619,968
-------- --------
The acquisition facility, term loan A and the high yield bond notes have carrying values which include transaction fees allocated on inception.
The acquisition facility interest rate varies over the course of the year. The rate shown in the table is the effective rate. The P&L charge is based upon the effective rate.
The acquisition facility, all Babou facilities and an element of the finance leases have gross values in euros, and the values above have been translated at the period end rates of EUR1.1648/GBP (2018: EUR1.141/GBP).
22 Provisions
Property provisions Other Total
GBP'000 GBP'000 GBP'000
At 25 March 2017 1,756 4,035 5,791
Brought in on acquisition of Heron 1,538 - 1,538
Provided in the period 1,280 2,264 3,544
Utilised during the period (1,198) (1,807) (3,005)
Released during the period (538) (31) (569)
Effect of retranslation 3 - 3
------------------- ----------- --------
At 31 March 2018 2,841 4,461 7,302
Provided in the period 506 2,361 2,867
Utilised during the period (846) (1,857) (2,703)
Released during the period (374) - (374)
At 30 March 2019 2,127 4,965 7,092
Current liabilities 2019 1,753 4,965 6,718
Non-current liabilities 2019 374 - 374
Current liabilities 2018 2,462 4,461 6,923
Non-current liabilities 2018 379 - 379
The property provision relates to the expected future costs on specific leasehold properties. This is inclusive of onerous leases and dilapidations on these properties. The timing in relation to utilisation is dependent upon the individual lease terms.
The other provisions principally relate to disputes concerning insured liability claims. A prudent amount has been set aside for each claim as per legal advice received by the Group. These claims are individually non-significant and average GBP9.4k per claim (GBP8.4k in 2018).
23 Share capital
30 March 31 March
As at 2019 2018
Allotted, called up and fully paid GBP'000 GBP'000
B&M European Value Retail S.A.
1,000,561,222 ordinary shares of 10p each 100,056 100,056
100,056 100,056
Ordinary shares
Each ordinary share ranks pari passu with each other ordinary share and each share carries one vote. The Group parent is authorised to release up to a maximum of 2,971,661,000 ordinary shares.
B&M European Value Retail S.A. released 561,222 shares during the prior period in relation to exercised employee and director share options, see note 10.
24 Cash generated from operations
52 weeks ended 53 weeks ended
30 March 31 March
Period ended 2019 2018
GBP'000 GBP'000
Profit before tax 249,426 229,316
Adjustments for:
Net interest expense 15,725 12,198
Depreciation 47,516 35,231
Amortisation of intangible assets 2,158 1,652
Loss on disposal of property, plant and equipment 644 277
Loss on share options 954 615
Change in inventories (40,947) (79,099)
Change in trade and other receivables (26,847) (1,168)
Change in trade and other payables 15,728 39,377
Change in provisions (210) 1,511
Share of profit from associates (775) (1,711)
Non-cash foreign exchange effect from retranslation of subsidiary cashflows 1,781 (31)
Loss resulting from fair value of financial derivatives (5,707) 3,825
-------------- --------------
Cash generated from operations 259,446 241,993
-------------- --------------
25 Commitments
From 31 March 2019 the Group will apply IFRS 16, please see note 31 for more details.
Operating leases
The vast majority of the Group's operating lease commitments relate to the property comprising its store network. At the year-end over 95% of these leases expire in the next 15 years (2018: >95%) The leases are separately negotiated and no subgroup is considered to be individually significant nor to contain individually significant terms. The Group was not subject to non-trivial contingent rent agreements at the year end date. The following table sets out the total future minimum lease payments under non-cancellable operating leases, taking account of lease premiums.
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Not later than one year 194,334 154,508
Later than one year and not later than five years 669,634 554,293
Later than five years 658,614 548,974
--------- ---------
1,522,582 1,257,775
--------- ---------
The lease and sublease payments recognised as an expense in the periods were as follows:
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Lease payments 179,297 150,512
Sublease receipts (1,129) (1,043)
-------- --------
178,168 149,469
-------- --------
Finance leases
Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:
As at 30 March 2019 31 March 2018
Minimum payments PV of minimum payments Minimum payments PV of minimum payments
GBP'000 GBP'000 GBP'000 GBP'000
Not later than one year 3,769 3,630 2,121 1,870
Later than one year and not later
than five years 7,699 6,875 6,507 6,047
Later than five years 230 229 1,260 1,259
---------------- ---------------------- ---------------- ----------------------
11,698 10,734 9,888 9,176
---------------- ---------------------- ---------------- ----------------------
Capital commitments
There were GBP30.2m of contractual capital commitments not provided within the Group financial statements as at 30 March 2019 (2018: GBP44.1). The figures include an estimated GBP26.3m in relation to the build and fit out of the southern warehouse which, whilst the majority is not yet committed, is considered very likely to be incurred (2018: GBP40.7m). The southern warehouse is expected to undergo a sale & leaseback around the date of completion.
26 Group information and ultimate parent undertaking
The financial results of the Group include the following entities.
Percent held
within the
Company name Country Date of incorporation Group Principal activity
B&M European Value Retail
S.A. Luxembourg May 2014 Parent Holding company
B&M European Value Retail
1 S.à r.l. Luxembourg November 2012 100% Holding company
Bedford DC Investment Ltd Jersey June 2017 100% Property development
B&M European Value Retail
Holdco 1 Ltd UK December 2012 100% Holding company
B&M European Value Retail
Holdco 2 Ltd UK December 2012 100% Holding company
B&M European Value Retail
Holdco 3 Ltd UK November 2012 100% Holding company
B&M European Value Retail
Holdco 4 Ltd UK November 2012 100% Holding company
B&M European Value Retail September
2 S.à r.l. Luxembourg 2012 100% Holding company
September
EV Retail Limited UK 1996 100% Holding company
B&M Retail Limited UK March 1978 100% General retail
Opus Homewares Limited UK April 2003 100% Dormant
Retail Industry Apprenticeships
Ltd UK June 2017 100% Employment services
Heron Food Group Ltd UK August 2002 100% Holding company
Heron Foods Ltd UK October 1978 100% Convenience retail
September
Cooltrader Ltd UK 2012 100% Dormant
Heron Properties (Hull) Ltd UK February 2003 100% Dormant
B&M European Value Retail
Germany GmbH Germany November 2013 100% Holding company
J.A. Woll Handels GmbH Germany November 1987 80% General retail
September
Jawoll Vertriebs GmbH I Germany 2007 80% General retail
Paminvest SAS France July 2010 100% Holding company
SAS Babou France November 1977 100% General retail
Babou Relationship Partners Administrative
- BRP SAS France December 2012 100% services
Registered Offices
-- The Luxembourg entities are all registered at 9 allée Scheffer, L-2520, Luxembourg.
-- The UK entities are all registered at The Vault, Dakota Drive, Estuary Commerce Park, Speke, Liverpool, L24 8RJ.
-- The German entities are all registered at Am Hornberg 6, 29614, Soltau. -- Babou and Paminvest are registered at 8 rue du Bois Joli, 63800 Cournon d'Auvergne. -- BRP SAS are registered at 7 rue Biscornet, 75012 Paris.
Changes during the year
The Group acquired the French retailing group headed by Paminvest SAS. Initially this comprised six entities, but it has since been rationalised into the three entities given above. See note 7 for further details on the transaction.
Changes during the prior year
The Group acquired four businesses comprising the Heron Food Group as detailed in note 7. Retail Industry Apprenticeships Ltd and Bedford DC Investment Ltd were incorporated and are fully owned by the Group. BestFlora was fully incorporated into the other Germany entities and disposed of.
Associates
The Group has a 50% interest in Multi-lines International Company Limited, a company incorporated in Hong Kong, a 20% (40% prior to December 2017) interest in Home Focus Group Limited, a company incorporated in the Republic of Ireland, and a 22.5% (acquired in November 2018) interest in Centz Retail Holdings Limited, also incorporated in the Republic of Ireland. The share of profit/loss from the associates is included in the statement of comprehensive income, see note 13.
Ultimate parent undertaking
The directors of the Group consider the parent and the ultimate controlling related party of this Group to be B&M European Value Retail SA, registered in Luxembourg.
27 Financial risk management
The Group uses various financial instruments, including bank loans, related party loans, finance company loans, cash, equity investment, derivatives and various items, such as trade receivables and trade payables that arise directly from its operations.
The main risks arising from the Group's financial instruments are market risk, currency risk, cash flow interest rate risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below. In order to manage the Group's exposure to those risks, in particular the Group's exposure to currency risk, the Group enters into forward foreign currency contracts. No transactions in derivatives are undertaken of a speculative nature.
Market risk
Market risk encompasses three types of risk, being currency risk, fair value interest rate risk and commodity price risk. Commodity price risk is not considered material to the business as the Group is able to pass on pricing changes to its customers.
Despite the impact of price risk not being considered material, the Group has engaged in swap contracts over the cost of fuel in order to minimise the impact of any volatility.
The sensitivity to these contracts for a reasonable change in the year end fuel price is as follows
30 March 31 March
As at 2019 2018
Change in GBP'000
fuel price GBP'000
Effect on profit before tax +5% 159 -
-5% (159) -
This has been calculated by taking the spot price of fuel at the year end, applying the change indicated in the table, and projecting this over the life of the contract assuming all other variables remain equal.
The Group's policies for managing fair value interest rate risk are considered along with those for managing cash flow interest rate risk and are set out in the subsection entitled "interest rate risk" below.
Currency risk
The Group is exposed to translation and transaction foreign exchange risk arising from exchange rate fluctuation on its purchases from overseas suppliers.
In relation to translation risk, this is not considered material to the business as amounts owed in foreign currency are short term of up to 30 days and are of a relatively modest nature. Transaction exposures, including those associated with forecast transactions, are hedged when known, principally using forward currency contracts.
All of the Group's sales are to customers in the UK, France and Germany and there is no currency exposure in this respect. A proportion of the Group's purchases are priced in US Dollars and the Group generally uses forward currency contracts to minimise the risk associated with that exposure.
Approach to hedge accounting
As part of the Group's response to currency risk the currency forwards taken out are intended to prudently cover the majority of our stock purchases forecast for that period. However, the Group only hedge accounts for the part of the forward that we are reasonably certain will be spent in the forecast period, allowing for potential volatility. Therefore management always consider the likely volatility for a period and assign a percentage to each tranche of forwards purchased, usually in the range 60-80%
Effectiveness of the hedged forward is then assessed against the Group hedge ratio, which has been set by management at 80% as a reasonable guide to the certainty level we expect the hedged portions of our forwards to at least achieve. If they fail, or are expected to fail, to meet this ratio of effectiveness then they are treated as non-hedged items, and immediately expensed through Profit and Loss.
Ineffectiveness can be caused by exceptional volatility in the market, by the timing of product availability, or the desire to manage short term company cash flows, for instance, when a large amount of cash is required at relatively short notice.
If the Group did not hedge account then the difference is that the gain or loss in other comprehensive income would be presented in profit or loss and the assets and liabilities presented under the classification fair value through profit or loss would be at fair value through other comprehensive income.
The difference to the consolidated income statement if none of our forwards been hedge accounted during the year would have been a loss of GBP2.3m and a loss in other comprehensive income of GBP2.7m.
The net effective hedging gains transferred to the cost of inventories in the year was GBP2.8m (2018: net loss of GBP21.1m). At the year end the amount of outstanding US Dollar contracts covered by hedge accounting was GBP696m (2018:GBP689m).
Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in US Dollar period end exchange rates with all other variables held constant.
The impact on the Group's profit before tax and other comprehensive income (net of tax) is largely due to changes in the fair value of our foreign exchange derivatives and revaluation of creditors and deposits held on account with our US Dollar suppliers.
30 March 31 March
As at 2019 2018
Change in GBP'000
USD rate GBP'000
Effect on profit before tax +2.5% (4,648) (588)
-2.5% 4,886 618
Effect on other comprehensive
income +2.5% (7,976) (10,150)
-2.5% 8,385 10,671
The following table demonstrates the sensitivity (net of tax) to a reasonably possible change in the Euro period end exchange rates with all other variables held constant. The effect on other comprehensive income is due to the foreign exchange reserve on retranslation of the Group's subsidiaries that have the Euro as a functional currency.
30 March 31 March
As at 2019 2018
Change in GBP'000
Euro rate GBP'000
Effect on profit before tax +2.5% (418) 18
-2.5% 440 (19)
Effect on other comprehensive
income +2.5% (2,969) (2,012)
-2.5% 3,121 2,115
These calculations have been performed by taking the year end translation rate used on the accounts and applying the change noted above. The balance sheet valuations are then directly calculated. The valuation of the foreign exchange derivatives are projected based upon the spot rate changing and all other variables being held equal.
Interest rate risk
Interest rate risk is the risk of variability of the Group cash flows due to changes in the interest rate. The Group is exposed to changes in interest rates as the Group's bank borrowings are subject to a floating rate based on LIBOR.
The Group's interest rate risk arises mainly from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group's exposure to interest rate fluctuations is not considered to be material, however the Group has in the past used interest rate swaps to minimise the impact.
If LIBOR interest rates had been 50 basis points higher/lower throughout the year with all other variables held constant, the effect upon calculated pre-tax profit for the year would have been:
30 March 31 March
As at 2019 2018
Basis point GBP'000
increase
/ decrease GBP'000
Effect on profit before tax +50 (1,754) (1,716)
-50 1,754 1,716
This sensitivity has been calculated by changing the interest rate for each interest payment and accrual made by the Group over the period, by the amount specified in the table above, and then calculating the difference that would have been required.
The Group also has a very limited exposure to EURIBOR via the loans held by Babou, see note 21, however this is considered immaterial for disclosure.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group's principal financial assets are cash, derivatives and trade receivables. The credit risks associated with cash and derivatives are limited as the main counterparties are banks with high credit ratings (A long term and A-1 short term (standard & poor) or better, (2018: A-, A-1 (or better) respectively). The principal credit risk arises therefore from the Group's trade receivables.
Credit risk is further limited by the fact that the vast majority of sales transactions are made through the store registers, direct from the customer at the point of purchase, leading to a low trade receivables balance.
In order to manage credit risk, the directors set limits for customers based on a combination of payment history and third party credit references. Credit limits are reviewed by the credit controller on a regular basis in conjunction with debt ageing and collection history. Provisions against bad debts are made where appropriate.
Liquidity risk
Any impact on available cash and therefore the liquidity of the Group could have a material effect on the business as a result.
The Group's borrowings are subject to quarterly banking covenants against which the Group has had significant headroom to date with no anticipated issues based upon forecasts made. Short term flexibility is achieved via the Group's rolling credit facility. The following table shows the liquidity risk maturity of financial liabilities grouping based on their remaining period at the balance sheet date. The amounts disclosed are the contractual undiscounted cash flows:
Within 1 year Between 1 and 2 years Between 2 and 5 years More than 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
30 March 2019
Interest bearing loans 149,759 23,715 576,083 1,243 750,800
Forward foreign exchange
contracts 1,647 - - - 1,647
Trade Payables 310,150 - - - 310,150
Deferred consideration
(Heron) 12,084 - - - 12,084
31 March 2018
Interest bearing loans 66,273 21,109 587,778 2,099 677,259
Forward foreign exchange
contracts 16,666 - - - 16,666
Trade payables 276,569 - - - 276,569
Call/put option (Jawoll) - 9,637 - - 9,637
Deferred consideration
(Heron) - 12,800 - - 12,800
Fair value
The fair value of the financial assets and liabilities of the group are not materially different from their carrying value. Refer to the table below. These all represent financial assets and liabilities measured at amortised cost except where stated as measured at fair value through the profit and loss.
30 March 31 March
As at 2019 2018
Financial assets GBP'000 GBP'000
Fair value through profit and loss
Forward foreign exchange contracts 2,383 -
Fuel price swap 127 -
Fair value through other comprehensive income
Forward foreign exchange contracts 3,784 -
Loans and receivables
Cash and cash equivalents 86,202 90,816
Trade receivables 23,205 5,046
Other receivables 5,226 1,324
-------- --------
30 March 31 March
As at 2019 2018
Financial liabilities GBP'000 GBP'000
Fair value through profit and loss
Forward foreign exchange contracts 535 923
Put/call options over the non-controlling interest of Jawoll - 8,076
Deferred consideration in relation to the purchase of Heron 12,084 11,133
Fair value through other comprehensive income
Forward foreign exchange contracts 1,112 15,743
Amortised cost
Overdraft 5,646 6,112
Interest-bearing loans and borrowings 687,213 603,426
Trade payables 310,150 276,569
Other payables 7,370 7,796
-------- --------
28 Related party transactions
The Group has transacted with the following related parties over the periods:
Multi-lines International Company Limited, a supplier, and Home Focus Group and Centz Retail Holdings, both customers, are associates of the Group.
Ropley Properties Ltd, Triple Jersey Ltd, TJL UK Ltd, Rani Investments and Multi Lines International (Properties) Ltd, all landlords of properties occupied by the Group, and SSA Investments the beneficial owners of equipment hired to the Group are directly or indirectly owned by director Simon Arora, his family, or his family trusts (together, the Arora related parties).
David Heuck, a director of Heron is the landlord of a property occupied by the Group (Comprising the Heron related parties).
Jawoll Immobilien GmbH, Stern Grundstück Entwicklungs GmbH, DS Grundstücks GmbH and Silke Stern are all landlords of properties occupied by the Group and are related by virtue of connection to a shareholder of J.A.Woll-Handels GmbH (together, the German related parties). These were considered a related party as the shareholder was also a member of key management. However they left the business in the prior year and as such these entities are no longer considered related parties of the Group.
The following table sets out the total amount of trading transactions with related parties included in the statement of comprehensive income, including the P&L impact of any finance leases;
30 March 31 March
2019 2018
Period ended GBP'000 GBP'000
Sales to associates of the Group
Centz Retail Holdings Limited 8,858 -
Home Focus Group Limited 2,180 2,408
-------- --------
Total sales to related parties 11,038 2,408
-------- --------
30 March 31 March
2019 2018
Period ended GBP'000 GBP'000
Purchases from associates of the Group
Multi-lines International Company Ltd 141,015 146,360
Purchases from parties related to key management
personnel
Multi-Lines International (Properties) Ltd 410 151
David Heuck 43 28
DS Grundstücks GmbH - 794
Jawoll Immobilien GmbH - 550
Rani Investments 129 194
Ropley Properties Ltd 2,996 2,976
Silke Stern - 157
Stern Grundstück Entwicklungs - 620
SSA Investments 44 -
TJL UK Ltd 823 675
Triple Jersey Ltd 13,083 12,666
-------- --------
Total purchases from related parties 158,543 165,171
-------- --------
Included in the current year figures above are four new leases (three stores) and five renewals of existing stores, entered into by Group companies during the current period with the Arora related parties (2018: six new stores and two renewals). The total expense on these leases in the period was GBP1,412k (2017: GBP1,778k). There was also one conditionally exchanged lease with Arora related parties in the current period with a long stop completion date (2018: four), and no expense is incurred on this lease until it is completed.
The following table sets out the total amount of trading balances with related parties outstanding at the period end.
30 March 31 March
2019 2018
As at GBP'000 GBP'000
Trade receivables from associates of the Group
Centz Retail Holdings Ltd 2,045 -
Home Focus Group Ltd 143 316
Multi-lines International Company Ltd 10,891 94
Total related party trade receivables 13,079 410
-------- --------
30 March 31 March
2019 2018
As at GBP'000 GBP'000
Trade payables to associates of the Group
Multi-lines International Company Ltd 1,933 9,680
Trade payables to companies owned by key management
personnel
Rani Investments 26 40
Ropley Properties Ltd 655 643
TJL UK Ltd - 3
Triple Jersey Ltd 623 1,979
-------- --------
Total related party trade payables 3,237 12,345
-------- --------
Outstanding trade balances at the balance sheet dates are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party trade receivables or payables.
The business has not recorded any impairment of trade receivables relating to amounts owed by related parties at 30 March 2019 (2018: no impairment). This assessment is undertaken each year through examining the financial position of the related party and the market in which the related party operates.
The future operating lease commitments on the Arora related party properties are;
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Not later than one year 17,568 16,308
Later than one year and not later than five years 67,666 65,565
Later than five years 79,648 85,934
-------- --------
164,882 167,807
-------- --------
The future operating lease commitments on the German related party properties were (note these are no longer considered to be related parties);
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Not later than one year - 877
Later than one year and not later than five years - 2,438
Later than five years - -
-------- --------
- 3,315
-------- --------
The future operating lease commitments on the Heron related party properties are;
30 March 31 March
As at 2019 2018
GBP'000 GBP'000
Not later than one year 43 43
Later than one year and not later than five years 170 170
Later than five years 354 397
-------- --------
567 610
-------- --------
The balances remaining on the finance lease asset and liabilities at each year end is as follows (note that none of these entities are considered to be related parties at the 2019 year end)
30 March 31 March
2019 2018
As at GBP'000 GBP'000
Finance lease assets from parties related
to key management personnel
DS Grundstücks GmbH - 2,084
Jawoll Immobilien GmbH - 1,020
Silke Stern - 497
Stern Grundstück Entwicklungs - 2,213
-------- --------
Total assets held under finance lease from
related parties - 5,814
-------- --------
Finance lease liabilities with parties related
to key management personnel
DS Grundstücks GmbH - 2,262
Jawoll Immobilien GmbH - 1,170
Silke Stern - 577
Stern Grundstück Entwicklungs - 2,410
-------- --------
Total finance lease liabilities held with
related parties - 6,419
-------- --------
The Group disposed of part of the holding in Home Focus Group during the prior year, and received dividends from Multi-Lines International Company Limited. See note 13 for further information on the Group's associates.
For further details on the transactions with key management personnel, see note 9 and the remuneration report.
29 Non-controlling interest
Non-controlling interest balances are valued on acquisition as a proportion of the fair value of net assets to which the non-controlling interest relates. Post acquisition the non-controlling interest is valued as the original value plus/minus the comprehensive income/loss owed to the non-controlling interest and minus any dividend paid to the non-controlling interest.
There exists a non-controlling interest in Jawoll, an 80% subsidiary of B&M European Value Retail Germany GmbH, which was created on purchase of that company in April 2014. The percentage has not changed over the period of ownership.
In the 52 weeks to 30 March 2019 a loss of GBP2,805k was recorded in the non-controlling interest of Jawoll (52 weeks 2018: GBP119k gain), and no dividends have been paid (2018: no dividends).
The summarised financial information of the subsidiary is as follows:
Period ended Period ended
30 March 31 March
2019 2018
GBP'000 GBP'000
Revenue 213,663 200,306
EBITDA (10,223) 5,621
Profit after tax (10,643) 859
Net cashflows (3,099) 4,240
30 March 31 March
2019 2018
As at GBP'000 GBP'000
Non-current assets 42,802 38,756
Current assets 85,332 54,961
Non-current liabilities (6,450) (7,357)
Current liabilities (31,289) (20,310)
------------ ------------
Net assets 90,395 66,050
------------ ------------
30 Capital management
For the purpose of the Group's capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group's capital management is to maximise the shareholder value.
In order to achieve this overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current or prior period.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
The Group uses the following definition of net debt:
External interest bearing loans and borrowings less cash and short-term deposits.
The interest bearing loans figure used is the gross amount of cash borrowed at that time, as opposed to the carrying value under the amortised cost method, and includes finance leases.
30 March 31 March
2019 2018
As at GBP'000 GBP'000
Interest bearing loans and borrowings 702,174 619,968
Less: Cash and short term deposits - overdrafts (80,556) (84,704)
Net debt 621,618 535,264
-------- --------
31 Effects of applying the new lease standard (IFRS 16)
The new leasing standard, IFRS 16, is applicable to the Group from 31 March 2019 and will be applied to the financial statements for all future periods. This will have a significant effect on the presentation of the statement of comprehensive income, the statement of financial position and some effect on the statement of cashflows.
The Group has undertaken an extensive exercise to prepare for the introduction of the new standard, including production of a model, and the figures stated below are subject to a full substantive audit of the inputs of the model.
In adopting IFRS 16, the Group has chosen to implement it using the fully retrospective approach which means that we will restate our prior year accounts to include adoption of the standard and the tables below show the effect as currently calculated on this year's accounts.
Although the impact of IFRS 16 on the statement of comprehensive income is large, IFRS 16 is essentially presentational and does not impact on the underlying cash generation of the business nor how we commercially operate and manage the business and the store portfolio.
The figures below are indicative and are subject to final refinement of the key assumptions below and full substantive audit of the inputs to the model, the model itself and the judgments made by management over areas such as the appropriate lease term and selection of discount rates.
The figures have currently been produced based upon a lease term that is equivalent to the lease term used in our lease commitment disclosure (note 25) and discount rates based upon the external rate of borrowing available to the Group with adjustments made for inputs such as lease term, type of store, operating segment and regionality. The weighted average discount rate in the following is 5.2%.
The following indicative figures exclude the effect of:
-- Finance Leases
o For which the net effect is expected to be minor and for which the current interest, depreciation and net book value can be seen in notes 5, 6 and 15.
-- Favourable and unfavourable leases
o The effect of which is expected to be directly additive to the right of use asset and liabilities recognised, with no change to the P&L effect. The balances on these can be seen in notes 17 and 19.
-- Leases which are out of contract, including those from which the Group continues to trade, and leases which are out of scope.
o No assumption has currently been made regarding lease renewal other than where there is a contractual obligation to renew.
-- Tax
o A large deferred tax asset is expected to arise originating from the brought forward debit in the profit and loss reserves. This is realisable as contracts unwind since the final contractual position is net nil once expired.
o In terms of tax cash flow, B&M Retail's initial brought forward debit will unwind over the average length of lease to which it relates, whilst it is tax neutral elsewhere as no other local accounts will adopt it.
Effect on the financial statements
Under the current assumptions and with the caveats outlined above, the Group's estimated right of use assets would be in the region of GBP1.0bn and our lease liability in the region of GBP1.1bn as at 30 March 2019.
The rental charge going through operational costs at present will be excluded and replaced by the amortisation of the right of use asset and an interest charge on the unwinding of the lease liability.
This means that profit before interest and tax will be higher than currently reported, as will EBITDA (see note 3). Profit before tax could either increase or decrease, although with a typically young lease estate the overall effect will be to reduce profit, as reflected below.
52 weeks to
30 March
2019
GBP'm
Recognised Balances
Amortisation on right-of-use lease assets 126
Interest charge on lease liabilities 55
-----------
181
Derecognised Balances
Rental charge 167
Net effects
Net credit to Profit before interest and
taxation 41
Net debit to Profit before tax 14
Net credit to EBITDA (see note 3) 167
Over the full life of each individual lease the full profit or loss impact is the same under both the old and new accounting standards.
Cash flow in relation to rent is no longer considered to be an operational cash flow, and the relevant cash flows will be reclassified to financing activities and split between capital and interest.
Sensitivity of the discount rate
Where a leased asset does not have a known implicit rate of interest (as in most cases) the discount rate is a calculated using the marginal rate of borrowing available to the company for a similar asset over a similar timescale.
This is a calculation based on several inputs, including the start date, the underlying cost of borrowing of the company, length of the lease, the type of location in which a store is located and geography.
Whilst these inputs are not judgmental in themselves, how they impact on the discount rate selected is a matter of significant management judgment, and as such the calculation is sensitive to this process.
The below table shows the effects based upon a 50bps movement to the discount rate across the estate of assets which do not have an known implicit rate;
+50bps -50bps
GBP'm GBP'm
Debits shown as positive
Amortisation charge (3) 3
Interest charge 4 (4)
Right-of-use asset (24) 30
Lease liability 23 (28)
32 Post balance sheet events
There have been no material events between the balance sheet date and the date of issue of these accounts.
33 Dividends
An interim dividend of 2.7 pence per share (GBP27.0m) was paid in December 2018
A final dividend of 4.9 pence per share (GBP49.0m), giving a full year dividend of 7.6 pence per share (GBP76.0m), is proposed
Relating to the prior year:
An interim dividend of 2.4 pence per share (GBP24.0m) was paid in December 2017.
A final dividend of 4.8 pence per share (GBP48.0m), giving a full year dividend of 7.2 pence per share (GBP72.0m), was paid in August 2018.
34 Contingent liabilities and guarantees
As at 31 March 2019 and 30 March 2018, B&M European Value Retail S.A., B&M European Value Retail 1 S.à r.l., B&M European Value Retail 2 S.à r.l., B&M European Value Retail Holdco 1 Ltd, B&M European Value Retail Holdco 2 Ltd, B&M European Value Retail Holdco 3 Ltd, B&M European Value Retail Holdco 4 Ltd, EV Retail Ltd and B&M Retail Ltd are all guarantors to both the loan and notes agreements which are formally held within B&M European Value Retail SA. The amounts outstanding as at the period end were GBP419m for the loans (2018: GBP345m), with the balance held in B&M European Value Retail Holdco 4 Ltd, and GBP250m (2018: GBP250m) for the notes, with the balance held in B&M European Value Retail S.A.
As at 31 March 2018 and 30 March 2019, Heron Food Group Limited and Heron Foods Ltd are guarantors to the loans which are formally held within Heron Foods Ltd. The amount outstanding at the year end was GBP13m (2018: GBP16m) with the balance held in Heron Foods Ltd.
35 Directors
The directors that served during the period were:
Name
Peter Bamford
S Arora (CEO)
P McDonald (CFO)
T Hübner (see note below)
R McMillan
K Guion
H Brouwer (retired 14 November 2018)
T Hall (appointed 18 September 2018)
C Bradley (appointed 15 November 2018)
All directors served for the whole period except where indicated above.
As announced on 7 February 2019, Thomas Hübner retired from the board on 1 May 2019.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU and applicable law and have prepared the Company financial statements in accordance with Luxemburg legal and regulatory requirements regarding the preparation of annual accounts ("Lux GAAP").
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss
for that period. In preparing each of the Group and Company financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- present the financial statements and policies in a manner that provides relevant, reliable, comparable and understandable information;
-- state whether they have been prepared in accordance with IFRSs as adopted by the EU;
-- provide additional disclosures when compliance with the specific requirements in IFRSs or in accordance with Lux GAAP are insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the entity's financial position and financial performance; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with company law. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for preparing the Annual Report in accordance with applicable laws and regulations. Having taken advice from the Audit & Risk Committee the Directors consider the Annual Report and the financial statements taken as a whole, provides the information necessary to assess the Group's performance, business model and strategy and is fair, balanced and understandable.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The financial statements are published on the Company's website.
Legislation in Luxembourg governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
-- the consolidated financial statements of B&M European Value Retail S.A. ("Company") presented in this Annual Report and established in conformity with International Financial Reporting Standards as adopted
in the European Union give a true and fair view of the assets, liabilities, financial position, cash flows and profits of the Company and the undertakings included within the consolidation taken as a whole;
-- the annual accounts of the Company presented in this Annual Report and established in conformity with the Luxembourg legal and regulatory requirements relating to the preparation of annual accounts give a true and fair view of the assets, liabilities, financial position and profits of the Company;
-- the Strategic Report includes a fair review of the development and performance of the business and position of the Company and the undertakings included within the consolidation taken as a whole,
together with a description of the principal risks and uncertainties it faces; and
-- this Annual Report (including the financial statements), taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Approved by order of the Board.
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
22 May 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR LIFSEEDIVFIA
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May 23, 2019 02:03 ET (06:03 GMT)
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