B&M European Value Retail S.A.

Sorry, I was just giving you 30 seconds. OK. Are we good to go, James? Good morning, everyone. Thank you for coming. I think we have a big audience also in audio. And we'll be taking questions via Dave, basically, on the call as well. We're going to be very short today. I want to give us much time. as we come to questions. So hopefully the whole presentation is going to be 20, 25 minutes, and then we go straight into Q&A. First of all, I want to make a few introductions. You're going to see more of this every time we meet. So if you remember in our half one results, you met Gareth Bilton, who is the B&M UK Retail Director. He's not here. You're going to see him again in half one. And you met Tony Dobbs, who runs Heron Foods. So I'm going to quickly introduce you briefly Ian Pratt, UK Property Director, Anthony Giron, Franz MD, John Parry, UK Logistics Director, Mike Schmidt, I think we all know Mike, we have James Holderton and Peter Waterhouse and Dave in the room, you know, and not least importantly you have Bobby Arora sitting on the side. Is this the first time you've... Yeah, first, maybe last, but I don't know. I think the... Last time he came was on IPO, and I want to say two things about Bobby. I think it's a given that he's an extraordinary trading director. But more importantly, he's incredibly good fun to work with. And I mean that genuinely not because he's here. I think he keeps me on my toes, and I certainly keep him on his toes. So thank you for coming, Bobby. And try not to catch him at the end with tricky questions, please, okay? So, I'll keep it short and sharp. First slide. Let's concentrate on three key numbers. You've already seen this at the RNS, and then I'll go straight to the bullet point. Total revenue growth for the group, 6.6% for the year. EBITDA, 573 million at the top end of the half of the range I guided. Operating cash, 866 million for the year. Don't underestimate how clean the stock is to deliver 896 million. We have a clean stock position. Now I'll come back to margin in the next 10 months. We concentrate on the last two bullet points. Very pleased with BNM UK, the first nine weeks, plus 8.3% LFL. highly driven by customer count and transaction numbers you can assume that at least half of that lfl are customers on the till and i'll keep coming back to standards and transaction numbers every month since june last summer lfl transactions at bnm uk are positive and healthy that number at least half of that lfl are till receipts, customer numbers, and that means trade down into us. FY24 EBITDA is going to go up. Before you ask me a question on a 52, 53 or 54 week basis. FY24 EBITDA is going to go up. I'll come back in a bit of detail how and why. Not least importantly, 347 million pounds of shareholder returns, including the special dividend that we announced a few months back. I think you already know this chart. If you look at the orange, that bar is going to grow. And I'm very confident the way we've started the season. that you can assume FY23, we're totally normalized. We're back to compounding profitable growth with discipline across the three businesses, France, BNM UK and Heron. LFL matters to me immensely. I'll speak on store standards and why It's so important in terms of driving profitable growth. Pipeline is improving. Ian is going to present you what we're doing. I'm very confident that actually the opening plan is taking in the right direction. Franz, you're going to hear from Anthony. And Heron, I will close with one slide. Performing incredibly well. Okay? Mike, to you.

Thank you, Alex. Okay, so let's start on slide eight with an overview of our financial figures. If you look over the last three years, the group's made very significant strides that you can see on the slide. Revenues have now reached £5 billion, so that's a very substantial 30% increase compared to the 2020 financial year. We've achieved £573 million of adjusted EBITDA, which is a remarkable 67% increase. compared to the pre-pandemic period. And as we exit 2023, critically, we see that 2023 year as a clean baseline from which we're going to grow earnings. It is worth noting the comparison versus FY22. Adjusted EBITDA and also adjusted profit before tax are lower than the 2022 comparative. but that's due to the non-comparability of that 2022 year that benefited from lockdown period. But even when making that comparison year on year, I particularly note that we have seen growth in trading profit in the second half of the year, year on year. The positive momentum that we're building is evident across all three segments, BNM, UK, BNM France and Heron. And as Alex has mentioned, that trend has very much carried over into the first quarter of the 2024 financial year. So let's dive into the figures in more detail. Slide nine, focusing on group revenue. We've achieved a group compound annual growth rate of 9.3% over the past three years. The growth has been very much driven across all three segments of the business. Critically, the UK, which just due to relative scale is absolutely core to the group, delivered 9% three-year CAGR. But there is a truly exceptional performance also to note from BNM France and the three-year CAGR that you can see there that just gives the evidence as to how well the BNM proposition is resonating in a new market. Across the group, the progress has been underpinned by the healthy mix of transaction volume growth, basket value growth, and expansion of our selling space that we intend to continue. And our development, therefore, is very much driven by the sustainable acquisition of new customers. So moving on to slide 10. Looking at the underlying drivers of UK growth in a bit more detail. Start off on the right-hand side of the slide, evidencing the point I was making previously. You can see the growth is being driven by the impact of the new space that we've delivered, but also the like-for-like sales performance. On the left-hand side, you can see the increasing momentum in the UK business, particularly as we look at the first quarter of this year and the 8.3% like-for-like trading growth we delivered over the first nine weeks. And so that momentum, that progress is clearly building in the business. Moving on to group gross margin. Splitting it down between the halves. As previously mentioned, we talked about back in November, the first half of the financial year, we did see a significant impact from increased clearance activities in garden categories. However, our second half margin performance, which was a decline year on year of 92 basis points, very much aligned with our internal plans and incorporated a normal level of clearance activities and a balanced category mix. So within our categories, we've achieved healthy trading margins in the second half, strong performance in general merchandise in particular, helped in part by reduced freight rates. And this positive trend has very much carried over into the first nine weeks of this new financial year. We're on track, we're confident that we're going to conclude the garden season with solid trading margins and a clean stock position. France and Heron have also demonstrated resilient gross margin performance as part of this mix overall. Turning to slide 12, EBITDA. We feel it's appropriate to look at the performance over a three-year period, considering the effects of COVID lockdowns on the two intervening financial years. Each of our three group businesses made significant strides forward. We're confident that BNM UK's margin is well underpinned at 12.4%. It's consistent with historical levels, and within our 12% to 13% through the cycle guidance range, despite inflationary cost pressures that we're managing. France has made remarkable progress in recent years. We anticipate further gains as sales densities progress. And Heron's EBITDA margin, we feel, compares favorably to any other sector peers you would choose. And we're going to balance price competitiveness in setting our targeted margins. Slide 13 shows the operating cost base of each segment. France, again, has been the standout performer, showing the impact of driving the sales densities and scale of that business. But actually across the group, as with all retailers, inflation has of course posed a challenge to our cost base, affecting wages in particular, energy costs and supplier prices. The impact of this has been very much managed in minute detail in the business. You can't operate the EDLP, the value retail model, that we do without backing that up with very low costs, and we drill that into the teams every day. We are and we have been driving productivity to mitigate inflation's impact, and overall, as we look forward, we see the shape of our P&L remaining consistent despite inflationary pressure. And our forward commitment to key cost lines across the operating cost structure mean that as we look at the next 12 months, we've got confidence in that outcome, that we're going to keep that shape of the P&L consistent. Looking at last year, the increase in costs largely reflects reinvestment in our businesses, actually, particularly in B&M UK, where we've targeted spending to improve store and distribution standards that we believe is underpinning the like-for-like growth that you can see coming through. So lastly, let's just conclude with a focus on the cash and the balance sheet on slide 14. We generated operating cash of 550 million pounds before the effects of IFRS 16 during the year. This is driven by our inherently cash generative model, the favorable working capital inflow that we saw underpinned by the movement in our stock position and the clean stock position we exited the year with. And then thirdly, of course, the disciplined capital investment that we will always maintain. As we look ahead, working capital requirements will remain consistent with revenue growth and our capital expenditure approach is going to remain unchanged and going to carry on being disciplined. We've strengthened our long-term capital structure by extending bank facilities at effectively unchanged rates. So they now sit there with a potential maturity of 2030, assuming we exercise our two one year extension options. And our financial profile is now financial debt profile is now split across 2025 to 2028 and 2030. And so this all gives us confidence that as we grow our profits next year and beyond, we'll continue to generate excess cashflow that we will deploy through our capital allocation policy. But this year that's meant that we've declared a final dividend of 9.6 pence, resulting in total ordinary dividends across the year of 147 million pounds, which is equivalent to 40% of our earnings in line with our policy. Additionally, we're of course pleased to reward shareholders with another special dividend announced back in January of 200 million pounds. And as we move forward, we very much remain committed to returning excess cash to shareholders at the appropriate times. So finally, let me sum up what I see as the key takeaways from a financial perspective. Firstly, last year's numbers serve as the baseline. They reflect the increased scale of the group that we now have, the strong margins and the excellent cash generation. We've entered this year strongly. We've traded well over the first nine weeks. We're on track to trade out of the garden season, the current garden seasons, with solid margins and a clean stock position. And finally, as we look ahead, we expect the financial shape of our business to remain consistent. And as we deliver revenue growth, we're very much confident of driving substantial value for shareholders. So I'm now going to hand back to Alex and the team to delve into some of the operating activities.

Grocery and non-grocery. Keep it very simple, guys. Availability is world class. I'm doing myself not less than 25 shops a week. That's excluding the competition. I see it, these guys see it, Bobby sees them. Entrepreneurial business in the detail without any bureaucracy. Groceries performing very well, price position rock solid. Not an inch of degrading price position against any competitor. And I would say FMCG availability on the shelves is probably the best the business has had in the last five years. I put my neck on the line on that. General merchandise performing incredibly well. You saw Q3 statement. You can imply that from the first nine weeks. Home, DIY, garden. General merchandise is performing very, very strongly. Margin is very, very good. And availability, again, is world class. Bobby and I were in Hong Kong months and a half ago. Phenomenal setup. on multi-lines, teams engaged, incredibly professional office, the buyers back into the factories post-COVID, mainline momentum. The product is looking fantastic. It's on the shelves and the price is rock solid. That's all what I'm going to say. If you ask any of the team, what excites me is the shop. Bobby gets excited on the product, on the price, I love the shops. That's where I spend most of my time. And I think we would have not had the Q3 golden quarter performance or this momentum without the systematic improvement we have on store standards, shop by shop, one by one, manager by manager. Let me be clear, that doesn't change my cost to sales It's self-funding. Get the right manager, get the stock on the shelves, the sales come. I personally prefer to spend my time in the shops than talking to these guys in the head office. And they probably enjoy it as well. This is the way we're going to do business every single day. I do 25 shops a week. The senior team above retail teams, we do 200 shops a week unannounced. 200. That's just BNM UK. That excludes France, excludes Heron. If you add those two businesses, we're probably doing 300 shops. The MD, myself, Gareth Bilton. 10 out of 10. That's not a doctor picture. That's what I mean by availability. Stock on the shelf 24-7. John Parry, you have two and a half minutes.

Thank you.

It was three originally.

It was. Morning. As Alex said, John Parry, I'm the UK B&M Supply Chain Director. I joined nine months ago, 28 years in retail logistics supply chains, latterly in Asda, Walmart, running their logistics network for them. I just want to spend a few minutes just talking about the UK supply chain, what we're doing, how we're focusing on things here. First and foremost, just to talk about our core purpose, of serving our customers better than anyone else. What does that really mean? Well, it means two or three things. First, it means very much about the shops. It means making sure that we are flowing goods effectively and efficiently at pace into the stores. Absolutely about driving, as Alex talked to it, best-in-class availability on the shelf. Real big focus for us. The other point there in terms of our customers is about Bobby and the trading team and making sure that we are providing efficient capacity for the trading teams to accelerate their growth across their departments and their categories. Really important. And the balancing factor to that is always about operating at the lowest possible cost. So driving everyday low-cost initiatives sustainably that offer value back to the business so that we can continue to reinvest in price and get that flywheel turning in the right way. How do we do that? Well, we do that through a number of building blocks. I'll focus on a few right at the bottom. It is absolutely about continuously improving our processes. It's about driving brilliant basics. It's about making sure that we execute those processes brilliantly always. Really key for all the teams across transport distribution and imports. Also, it's about making sure that we drive leverage. So we sweat the assets that we've got, our distribution network, our transport fleet, and making sure that we really do sweat the capacity and the solutions through them, not adding space where we don't need it, of course. And very much then about operational excellence. So an evolving operating model, driving excellence at heart of how we do things, and all measured across the five Cs, which you can see there. Compliance, customer, cost, capacity, and culture. Compliance is a given, safe and legal in everything that we do. Customer, incredibly important. So really being thoughtful about the end-to-end processes from origin all the way through the network, through the ports, into the stores. Again, no apologies for saying it, driving absolute best-in-class availability in our stores at the shelf edge on every product, whether that be grocery or non-grocery, particularly through seasonal entrance and exit. Very, very important indeed for us. And then in terms of cost, so I've referenced that before, driving an EDLC program, really focusing hard on productivity, whether that be in transport productivity, fewer miles on the road, always knowing where to save a pound or indeed a euro through our distribution network, getting our colleagues more productive through the network that we've got, really critical for us. Capacity, as mentioned. very much about utilising the capacity that we've got across the assets that we've got, re-engineering accordingly to get more and more product through more efficiently. And then finally, culturally, about diversity engagement, but most importantly, it is about a performance management culture, absolutely getting the best of our colleagues from rewarding and recognising accordingly. So back to where I started firstly, about our core purpose, it is about two or three things. It's absolutely about providing the stores with the right products at the right time to drive best-in-class availability, providing Bobby and his team with the capacity to grow their business through the current network by sweating our assets and doing all of that at the lowest possible cost. Absolutely driving the EDLC agenda through initiatives so we can create value and reinvest back into the business through price and get that flywheel turning. And that's me. I'm going to hand over to you, Ian.

Thank you, John. Ian.

Two and a half minutes.

Good morning, everyone. I'm Ian Pratt, the property director at B&M, and I've been with the business for eight years. The main points that I'd like you to take away this morning in respect to the B&M UK pipeline, number one, FY24 gross new store pipeline is in a strong and improving position. For FY23, the gross new stores that we opened have performed well across the board. And number three, the long-term target of 950 B&M UK stores is well underpinned. In a bit more detail on the FY24 store pipeline for B&M, we expect to open approximately 30 gross new stores, including relocations, many with new garden centers. The focus is always on new space in good quality retail locations for B&M. It's illustrated by several deals that we have under contract for FY24 delivery, and they're in principle out of town retail shopping parks and destinations across the North and the Midlands. Some good stores coming through that, very good stores coming through that pipeline. As far as FY23 is concerned, we opened 21 gross new stores, That included five relocations and 12 of those 21 stores had garden centres. All of the new stores have performed well with the quality of the stores being strong and the estate at the end of the year is enhanced as a result of that. Turning to the relocations specifically and some analysis on those, the five relocations in FY23 achieved 193% additional sales space. via those five stores. And in tandem, those relocation stores are all in better locations than the smaller stores that we closed in turn. The closure of the small former stores in favor of larger, better located modern stores gives us a progressive improvement to our estate. And finally, as far as the long-term target is concerned, 950 B&M UK stores remains a conservative target, We're continually seeking good quality new space and where we're unrepresented at the moment, plus good quality relocations to enhance the existing estate that we've got. Thank you. Thank you.

You have four minutes instead of five now.

So I'm Anthony Giron. I'm the MD for France, like Alex said. I've been with the business for three years. So I will present to you the progress of France and where we stand. So yeah, you see on this first slide, we have three planks I will describe rapidly today in four minutes. The first plank is really on the customer proposition. What you see here is the evolution of the customer proposition we did in the last three years. There has been a dramatic turnover in terms of in terms of category proposition. You see the big decline and the exit from textile and a big increase in two areas. One is FMCG and the other one is home slash seasonal goods. These are extremely important categories in which we grow very much and as a result, I must say that there's an extremely strong response from the customer, the French customer, to the provision we provide, to the point that we've been elected for the second year in a row best retailer in France for non-food discounts and best retailer in France for home decoration. This is a very big achievement for a brand that has been on the market just for three years, effectively. So this is, for us, extremely key, this first plank on the value proposition. The second plank is the operational excellence. So we exactly put ourselves in the footstep of the UK when it comes to the store excellence, the quality of operation, This is a key focus for us, extremely key. We want to replicate the highest level of quality for the customer experience as it is in the UK. To do that, we have incorporated inside our team some of the key skills coming from the UK. Some of the key managers are helping us in France to replicate the methodologies, the tools, the management processes that are in action in the UK. We also have now a very experienced team of managers in France. The management team, but also I would say the top 10, top 20 guys in the French business are really very experienced guys coming from different horizons. So this is very, very, very reassuring for the future. And, yeah, this is the key part of the operation. And another key part is also the transport and distribution on which we are also implementing more or less what the UK is doing best there, okay, when it comes to FMCG, but as well non-grocery. And the last plank, of course, is footprint growth. Okay, so you saw that in 2021, Three FY23, we opened seven stores. All of them are contributing on par or above the company average EBITDA. So that's very good. All of them were very successful, successful openings. All of them have a space of 20,000 square feet, except one, except for one, which is smaller than that. When you're looking at the FY24, We're looking at opening 10 stores this year, so a bit increased versus last year. It's exactly like what Ian said. The focus is every store must be a success. So no risk, best locations need to be seen as a brand that is looking for the best locations, the best profile possible. So we prefer to open less stores, but excellent stores. Thank you.

And Anthony, we welcome you guys in June in Lille for the ones who are coming to the day we have lined up. So it's an important point where we can see all of this in life. Heron Foods, I'm going to skip it. It's booming. I'm really pleased with Heron. Don't meddle with it. It's working fine. Tick. Last slide. I think you can read the key points, but I will just close with three points. We have three businesses of different sizes, different cultures, but all of them work together as one team. I only have two meetings in a week. One is a property one, which is expansion, and the other one is the one that Bobby and I chair at 8 o'clock on a Monday with the three businesses, the top 15 people. That's what we tried. Test and learn, cross-fertilize, three equal businesses. Entry in FY24 is very strong. That 8.3%, I'm just going to say at least half of that is positive LFL transactions. That's customer count. That's trading down happening. LFL transactions at BNM UK have grown positively every month since June last year, 12 months in a row. Space growth, quality and in good shape. I'm going to choose my words carefully for the year ahead. EBITDA is going to grow on a 52, 53 or 54 week basis. BNM UK is trading very well. And I would say that spring summer season is in the bag. I'm going to repeat that. Spring summer season is in the bag. You can extrapolate what that means for gross margin percentage. I'm not going to spell it out. Spring summer season is in the bag. Stock is clean. and it's best in class. You can extrapolate what that means for margin in the second half. The quality of the leadership team, not only at BNM UK, but France and Heron, is very strong and settled. Anthony will allow me to say this, hopefully. France is being run by a French team, but a very international French team. It's not just MD, it's a buying director, it's the buyers, it's the operational piece. It's an international French team. I'll open straight away to questions.

Can you just talk a bit more about your... Sorry, Simon Irwin, Credit Suisse, for now. Can you just talk about your expectations around inflation and what you're seeing particularly in the non-food side of the business as we go forward over the next year or so? And is there a challenge you see going forwards as inflation rolls off but wage inflation in particular remains stubbornly high?

It's a very good question. In terms of inflation generally on general merchandise, I think we have certainly passed the peak. So I expect it to start moderating. We play to the game we stick to, which is best sellers, high volume, edited range. The negotiation is strong and hard and focused. So we've passed the peak in terms of the cost structure of the base, as Mike said, BNM UK, cost to sell and change to last year.

Great. And just to follow up, within B&M and that gross margin movement last year, was there any mix shift between food and the non-food sides of the business, or was it all principally down to individual product and particularly that clearance in the first half?

Yes, the vast majority was the first half. I think the balance between FMCG and general merchandise is pretty good. I'm happy with where it is. It's well above pre-pandemic levels, and that is supportive, as we know.

Thank you.

Hi there, David Hughes from Stifel. On BNM France, just looking at the sales versus the square footage, it looks like the trading intensity is quite a lot lower than in the UK. Is that product mix, margin, just evolution over time? Where do you see that getting to?

Absolutely, it's evolution. That's where a lot of the upside is. The trajectory is to converge over time to the UK. As Anthony mentioned, as you start getting FMCG closer to weather propositions in the UK, you can see a footfall coming in, and I expect those sales densities to start converging to basically what the UK is. That's absolutely the transition the business is in. So all is equal. You see the performance on an LFL basis is very strong, and I expect it to continue to be so.

And in terms of your property rollout plans, are you still finding that there's plenty of sites that are just as attractive or is there any challenges you're finding as you get to kind of more and more stores both in the UK and France?

No, I think as Ian and Anthony mentioned, we're happy with the opening plan. I think the objective in B&M UK is getting to the usual 40. I think we're working hard without compromising quality. It's all around discipline. France is going from 6% to 10%. But I've said it before, we are not in a race. This is a long-term hope, and the objective that Anthony and I have is to create a successful, profitable, best-in-class French business for the next 50 years, not for the next three. Thank you.

David. Thanks. David Ru from Bank of America. Just to follow up with some questions on France, You mentioned sales densities may converge with what you see in the UK. How should we think about the longer-term margin opportunity there?

I knew you were going to ask me that question.

Versus the 12% to 13%. And then the other point is just on the ultimate sort of store potential in France. How should we think about that?

So EBITDA margins, look, it's a growing business. I'm going to give France the oxygen to learn, test, and optimize the business with the French consumer in the medium term, where it's two to three years, I'm very happy with a 10% everyday margin. Do I need to get France to the 12 to 13% view that actually is sustainable in the UK? Not in the short term. I'm very happy with 10%. In terms of long-term potential, it could be hundreds. Whether it's 200 or 400 is irrelevant in the short term for me. It's all around discipline growth and as Anthony says, returning high quality sites. In the near term, we're probably going to set up, Anthony, France 10 to 15 openings per annum. If the right add-on cluster of source come, of course we're going to look into it, but it's consistent confident growth, okay? Richard.

Thanks, Alex. Morning, Richard Chamberlain, RBC. A couple from me, please. Just on the UK, just over the next year, what are you guys expecting for UK store relocations and closures? Are you expecting any sort of packages of sites to come up on the market later this year?

As soon as they come, I'll grab it. The cash is there. why we keep it flexible i keep coming back to the same decision making in the uk all stores are highly profitable and cash generative so nine out of ten times i would only close one because i have the opportunity to open an adjacent one which is bigger that can display the offer yeah so look Ian and I are committing to 30 openings this year. I'm confident we're going to get the pipeline to the 40 or so per annum. But those 30 and the 40 will be with high level of returns discipline. And I cannot emphasize, Richard, that more strongly. It's all around the quality of the asset. There are competitors out there. I'm not going to name them. obsessed about market share, I'm not. This is around profitable compounding growth.

Okay, that's very clear. And the second one is, I was in a Dollarama store fairly recently, and I saw they were using self-scan checkouts, and I wondered if that's something that you guys have considered, or any point-of-sale efficiencies?

We're trying a couple of them in France. I'm a bit skeptical about it.

Is that because of shrink?

Yes, shrink. Look, we have a low-cost model. So it's not a payback which is easy to make. And I'm going to actually also mention what gives me confidence not to change. We don't have any constraints on finding good people. My labor turnover in retail continues to come down. year after year over the last three years. So I don't have hiring constraints. There is loyalty in the team. There is a family, I think entrepreneurial spirit that Bobby and Simon legacy have put in place. I have to maintain that. So I don't see the need is the honest answer. Okay, thank you. Boyko.

Morning, Warwick O'Kines from BNP Parabatics. Firstly, a question on inventory. You said that seasonal inventories are clean. Are there other cost benefits associated with carrying that low level of stock year on year that are material?

So 100 million reduction, it's a whopping number for us. So if you take a US retailer, and I'm talking about the big boxes ones, the Home Depots, the Walmarts, the Lowe's, nobody will have exhibited that level of stock reduction. So the implication for us is, one, it's clean work, but there are no storage costs. But that in itself is actually a big benefit in the current year. And more importantly, that allows the buying team and Bobby to trade cleanly. You have less clutter in the system. You can flow it, as John says, back to the system more effectively. So yes, you can see the benefit on the working capital, but the real benefit you will see by the end of half one.

Understood. Thank you. Secondly, I think you've quietly parked your online trial and also the trials of Fresh and Frozen in B&M UK. Could you just talk about those decisions, please?

Yes, so basically we opened a learning trial on ECOM a year ago. The sales came through. They were interesting, but I took the decision that actually it was a marginal destruction. The sales were there, but it was an unprofitable marginal destruction. So I take the decision with Bobby and the board that we're going to stick to what we do best. We're going to be a physical business. we're going to win on price, product and store standards. And there is plenty of competition out there that can play the online game. I don't think the BNN proposition and the product lends itself particularly well. Good luck for the guys. I'm happy with playing the physical one. And in terms of frozen, look, we have a wonderful frozen business called Heron. It's a big proportion of the business. The business is performing very well. It's a bit cost-intensive for us. We trialed. We basically decided to remove it in the number of stores we had. It's not impacting sales at all. It's not part of the proposition. So it's a rational decision based on the facts.

Thank you. And so last one for me, actually. I know you've already mentioned your France EBITDA margin expectations in the medium term. but the second half EBITDA margin was lower than the first half and also lower year on year. Could you just explain what was going on? Was there some extra investment that you put in there?

It's a good question. I don't want to fudge the answer, but I suspect the first half might have benefited basically from some property benefits pre-COVID, but I would just take it the whole full year. I think it's quite representative, only a bit of ups and downs, but nothing exceptionally unique.

I've got a couple of questions coming through online. The first one is, can you give us some insight into the freight cost outlook for the current year and the margin outlook?

The answer to the second question is no. I think I'm not going to write a spreadsheet. Margin percentages are going to go up. Year on year, half one is in the back. Season is flying, so I'm very confident about margin. Freight is substantially lower than what it was. We put all of that on the pricing. So gross margin percentage BNM UK will be in root health. And I'm sure whoever asked the question will appreciate that I'm not going to give guidance.

Absolutely. The second question, Alex, is given the strong sales growth and the strong reduction in stock, is there a danger of shortages, product shortages, as you're going to peak trading in the summer?

No. I think it's always better to sell early. and the business is flexible enough to make sure that they can accommodate. We have a very low threshold in which we can replant. I would rather be in a position that I sell summer a bit earlier than a bit late. That's a first of all quality problem to have.

Morning. Hi, Nick Coulter from Citi. Hi, Nick. Hi, morning. A couple if I may, please. Just to follow up on your bullet point on the slide on factory gate prices in China, are you saying that you're seeing sequential declines or perhaps talk more about the supply-demand dynamic in your sourcing? And then secondly, on your point around the current trading light flights and half being transactions and taking customer share. Where do you think you're taking those customers from, please?

Look, the first question is supplier by supplier. It's category by category. But I think I would just say on a macro level, we've already passed the peak of inflation. So I'm confident that the negotiation is going to be strong on the general merchandise piece. There is capacity, there is flexibility. We have the relationships. We're highly flexible in reacting to that. Freights are coming down. There is capacity. The buyers are walking the factories. Bobby has a very close eye on that. I'm confident that actually it is supportive. In terms of winning customers, I don't know is the answer. I suspect if you look at the competition, whomever is reporting negative LFL transactions, that gives you the answer. I wouldn't want to guess. And I think that's public information, but it won't be appropriate for me to mention it. I think Bank of America has a strong view on that. Next question.

I meant... Sorry, I have another question online. A lot of retailers have found it very difficult to reduce stock smoothly. without impacting sales and or margin. Why do you think you are able to achieve such a whopping reduction without disrupting the business? Was it lower buying? Was it good quality excess stock or something else altogether? And where are you now, and this is the important part, I think, where are you now on inventory levels versus your medium-term ambitions?

As Mike said, you can assume that FY23 exit is a normalized position on working capital. You can see it on the shelf on availability. Availability is in a very good position. Bobby has the infrastructure in the buying team with multi-lines to be able to react accordingly. And what happened last half? I remember we had the conversation. We are not on a business. Philosophically, we're not a business that carries bad stock. We deal with it. because the temptation of a business of not dealing with bad stock is a very slippery slope. We've never had bad stock. We traded very well and flexibly through the pandemic. We don't need that level of high stock any longer. The supply chain is resilient and flexible. We're absolutely in the right place. Is it impacting availability? No, absolutely not.

No more questions online. Any more from the hall? Yeah, Paul. Hi, Paul.

Paul Rossington, HSBC. Can you just explain why your freight contracts seem to be giving you perhaps a disproportionate advantage versus the wider sector? If we look at other retailers in this space, it's taking longer for freight rate reductions to feed through into margins because of the US dollar. But you're saying it feels like you've got a stronger benefit. So how is your freight rate contract structure that allows you to take that benefit?

You know that I'm not going to give the details to that question. You probably have the competition listening. But what I can tell you is we are a high-volume customer. We ship many tens of thousands of containers. We don't carry long tails. And it's a long-term relationship. So we negotiate well. I'm not going to pass that question to Bobby. It would be inappropriate. It's competitive. But we are a very high-volume customer. So we benefit from scale and long-term relationships.

Thank you. Perhaps a slightly different question then. We're seeing some of the other major grocers out there start to reinvest back into lower prices where they're seeing lower manufacturing or raw material costs come through. Should we expect the same from yourselves? I think we do it every day.

Absolutely. think an important question paul my price position whether it's fmcg or general merchandise on an edlp basis which is how we trade the business it's the lowest by a long way we don't do high lows it's low every day let them do whatever they want

Simon, can I just come back on current trading and just how you've seen this year? I mean, did we see a delayed start to the spring-summer season, particularly in February, March, and then some catch-up in year-to-date? And just what impact have you seen, say, from the coronation, the extra bank holidays year-to-date as well, just in terms of unpicking current trading?

It's a good question. There will be a bit of movement, but what I can say, general merchandise as a whole has performed consistently well every week of the first five weeks I have reported. As a whole. Some categories slightly better than others in certain weeks. That's normal. What I can also say is that general merchandise is having a very good positive LFL. In terms of coronation, all of these impacts, I think it's a bit of noise, but that hasn't fundamentally changed equation of the LFL. So I think if you ask me right now, I think it's quite representative as an average of the nine weeks. Hope that helps.

Okay, another question online. Why are all new B&M stores in the North and in the Midlands? Can you make the model work in the Southeastern London? Are EBIT margins lower there? Does that impact your opening plans?

No, I think we open and trade consistently well from profitability everywhere in the country. If you guys live in the South, go and see Bournemouth, our largest store. Go to Sussex, go to Portsmouth, go to North London, East London, go to Barking. It's side by side, catchment by catchment. We're agnostic where we open. North and South is a very simplistic, misleading generalization. It's catchment, retail park by retail park. Any final one or two questions?

They're more online and it looks like we're all done.

I'll ask the final question so you hear from Bobby, but it will be 10 seconds. Bobby, will you concur with me that the system is in good shape?

Yes, so it's the first time for a few years now where we haven't, we're not experiencing any headwinds. China's come back to normal, we're afraid to come back to normal. The UK's tenement for true values very much come back to normal and that's where we score the most.

What do you read from that, guys? EDLP. EDLP, the system is in the back. Thank you. Thank you, Bobby.