B&M European Value Retail S.A.

Good. Well, good morning, everyone, and welcome to this presentation of B&M European Value Retail's 2026 Financial Year Preliminary Results. My name is Andrew Orchard, Head of Investor Relations, and joining us today to present the results are Chair Diagon, our Chief Executive Officer, and Pete Waterhouse, our Interim Chief Financial Officer. So we'll start, as usual, with some prepared remarks, and then we'll devote some time at the end of the meeting to your questions. We'll take those both from you assembled in the room, and also anyone joining by the webcast can put a question into the chat function, and we relay them into the room by that method. And with that, let me hand over to Chet.

Yeah, thank you. Thank you very much, Andrew. Let's see if this works. Yeah, it works. So yeah, welcome to everyone to this presentation in the room and online. Before, I'm going to hand over to Piet. for the financial review of FY26. I would like to share the key highlights of the year set out on the slide number three behind me. So first of all, I'm pleased to announce, you know, profit came in at our midpoints of current guidance, adjusted EBITDA of 459. I'm also pleased that on the back of good working capital management, leverage came back within our range at 1.4. And I think that's a good foundation for driving future growth and over time share all the returns. Secondly, we're progressing at pace with back to BNM basics. Our actions are well advanced and the early indicators are encouraging, but much more to cover later. We've also started the phase two of our plan, where a lot of initiatives are already underway. And if you put it in perspective, phase two is all about balancing new space with investing in existing estate. And finally, I'm really pleased with the performance of our French business, so BNM France, growing like for likes, attracting more customers, and gaining share in a competitive market. But much more on all of this later. And before that, I would like to hand over to Pete to take us through the financial review of FY26. Pete, the floor is yours.

Just remember to pick up the clicker. Thanks for the introduction, Chair. Good morning, everyone. For those of you who have been with us a while, you may recall that I presented once before for BNM Although that was some time ago, not very used to speaking on the mics just yet. I'm pleased to be back with you today to take you through the group's financial performance in FY26. As I go through it, there's three or four things I'd like to focus on as we go through the financial information. The first is, it's been a tough year in relation to profitability with margin, cost line pressures. However, we've had robust cash flow, healthy leverage, and that drives investment flexibility for the future. Finally, I'll touch on the continued strong performance of France. Let's look at our key financial indicators. As Church just highlighted, FY26 represented a difficult year for the group. Profit was around the midpoint of our current guidance, and leverage end of the year in our one to one and a half times range. Our key indicators include revenue growth of 3.6%, driven by our store expansion program with flat like-to-like sales in B&M UK. Our profits were down. This was a result of trading margin and cost inflation impacts. Our out-term was an adjusted EBITDA of 459 million and profit before tax of 284 million. Whilst at the midpoint of our current guidance, these are significantly down on last year. Despite this, we've had strong cash generation with post-tax free cash flow of 321 million, which is 10 million better than last year. And leverage is also back in our target range. This demonstrates that we have the financial flexibility to make the investment choices that we need to make over the coming year. I'll now go into more detail. Our 3.6% revenue growth was driven by a new store opening program in the UK, where like-to-like sales were flat. And they also incorporated another strong performance from BNM France, with 13.4% overall sales growth, delivering an extra 73 million in group revenue. The chart in the top right illustrates the B&M UK estate program, which includes disciplined relocations and closures with older, lower contribution stores often replaced by larger, more productive stores within the same catchments. Like-for-like sales were flat. That's a significant step up from the prior results of negative 3.1%. Quarter by quarter, B&M have shown an improving like-for-like trajectory, except for the impact of the unusually warm and dry spring weather in quarter one last year. This directional improvement resulted in a positive 0.1% like-for-like in quarter four. France continues to be positive in each quarter. I'll call out their exceptional second quarter this year that benefited from annualizing the impact of introducing their new warehouse management system in FY25. That's an investment which keeps them set up for success into the future. It's also worth highlighting that France's positive delivery covers both FMCG and general merchandise categories. our year was underpinned by two key cost elements, trading margin pressures and cost inflation. In general margin, this includes both bought-in margins and clearance activity with pressures in both areas easing in FY27. We expect recovery here. FMCG margin is a result of our deliberate price investment to sharpen our value proposition on key value lines. This is how to be communicated in January at our quarter three trading update. This strategy strengthens our competitive position in the market as we move forwards. Here we can see the margin impact of the FMCG price investment and clearance activity that has taken place. we'll begin to annualize that investment from August. General merchandise showed encouraging signs of improvement in the second half, but we expect to build upon in FY27 as we restore our trading margin further. The other key cost element is our increased operating costs. A bridge is provided here. Key points of reference are the impact from statutory changes, national insurance, national minimum wage, and the new extended producer responsibility tax. That represented overall 66 million pound headwinds that was not sufficiently mitigated in FY26. Looking ahead, though, these pressures are materially reduced in FY27. And through the Back to B&M Basics program, we are taking targeted action to improve our cost control. More specifically, statutory pressures are easing in FY27, and whilst the Middle East conflict poses cost challenges around fuel, energy and freight, these are not on the same scale as the headwinds that we faced in FY26. Nevertheless, initiatives are alive in the business to address these cost pressures and ensure that the operating costs are kept under tight control going forwards. The result of our challenging year is lower profit delivery. This was signposted during the year with our final outturn around the center of our most recently issued guidance in January. I'd also call out France's strong performance on this slide, with profitability growth from 48 million to 53 million. That's an increase of 11.8%. Whilst their profit margin dropped slightly This is due to the planned investment made in their distribution center infrastructure, and that sets them up well to continue their overall growth into the future. France is a business that continues to impress. Lower profits did not mean lower cash, however. Our work in capital discipline, a feature of our back to B&M basics program, deliver strong free cash flow, reduce net debt, and finish the year with leverage back inside our one to one and a half times range. We do expect leverage to spike at the start of the golden quarter due to our usual seasonal trends. But over the full year, we expect to at least maintain working capital at this reduced level, and we are targeting further improvements in FY27. Our maintenance capex remains low at 1.1% of revenue. More than half of our overall FY26 capex represented new stores or DC infrastructure expansion. That included distribution center improvements at Ellesmere Port and Rugby, representing improvements to our supply chain network, and that will drive future benefits. Our cash generation and leverage profile gives us the ammunition to make capital investment choices, including disciplined investment in our existing estate as part of our strategic plan. Kirt will cover that more in his section. Our strong cash generation gives us clear capital allocation options. Our disciplined approach ensures that we prioritise investment back into the business whilst paying our regular ordinary dividends back to our shareholders. Where appropriate, our robust cash flow leaves space for opportunistic M&A, although this is not a priority at the moment, or additional capital returns with share buybacks now unlocked following the completion of our redumpsile process. Consistent with our usual seasonal cash profile, Any decision regarding additional returns is likely to take place immediately following our golden quarter in January 2027. In reflection. A difficult year driven by margin and cost challenges. Areas we've identified clearly in which we are addressing with early evidence of progress. Importantly, cash flow remains strong and leverage within our targeted range. That allows the necessary investment choices to be made to support the business strategy whilst maintaining our financial discipline. France, meanwhile, remains standout in performance terms, demonstrating how consistently strong execution of the BNN model can drive impressive performance and growth potential for the future. Finally, we're proposing to pay a final dividend of 6.1 pence per share giving total ordinary dividend of 9.6 pence per share for the year. This is in line with our 40 to 50% range specified in our capital allocation policy, and it's also in line with consensus. I'll now pass over to Chird. He'll take you through our strategic approach for FY27 and beyond.

Thanks very much, Pete. And let's move on to the next slide. which is slide 18. And as a reminder, we're executing our plan at pace. And in the chart in the top right, you can actually see the three phases. So phase one is back to B&M basics. We're in full flight of rollout and execution. Phase two is deepening our foundations. And I'm pleased to say we've already started on phase two. And phase three is accelerating growth. The focus today is really giving you an update on back to B&M basics, but also already give you a few for phase two. On back to BNN basics, I would say we're well advanced. Last week, we actually began the FMCG range rationalization rollout. And there's many moving parts, but I can say here the early indicators are really encouraging, and I'll provide more detail in the next slides. And turning to phase two, we've really made good progress against our operating model. We've worked on format optimization. That work is now complete. And we're using data-driven insight to trial and refine store formats. And we're applying the same test and learn discipline that we've used in range rationalization also for our formats to validate outcomes before committing to rollout. And again, if you put it in perspective, we're adopting, I think, a bit more balanced approach. We're still investing in new stores, but we're also enhancing our existing estate in order to drive sales growth. And in addition to what Peter already said, France continues to perform strongly. More customers served, good value proposition, gain market share, and having solid like-for-like sales growth. And then I'm really pleased with the Q4 focus on inventory reduction, clearance discipline, mainly in the month of January. We really saw stock levels drop and stock quality improve, a stronger gas position. Much easier for people in store to execute, but also much easier for the colleagues in the distribution center. And as a consequence, net debt reduced and leveraged back in target range, which is a good platform for future growth. Moving on to the next slide, I would like to give you more color on the four extremes. And I'll start with the first one, which is price. I think what's really good to see is that we've become very disciplined and very consistent in the application of our price policy. I think we were very clear we already had a good index, but we now also have a very disciplined execution of a line by line comparison. And against our closest competitor in the UK, we remain highly competitive and you can see the development over time. 96% of our lines benchmarked, we were either same or lower price compared to our key competitor. And the same number versus key competition in supermarkets, we were 90% equal or lower, and average discount is 15%. And you could ask, so why is there a 10% or 4% discrepancy? That's mainly driven by promotions and their temporary and not at all structural We've also focused very much on seasonal competitiveness, so we were very strong with Christmas, but also Easter to make sure that we provide great value for customers. The next phase, after having achieved an index, is price perception, and that's the focus for this summer. In conjunction with more focused ranges, we will focus hard on building an even better price perception. Yeah, on promotions, you know, we are now much more focused on customer moments. So really trading the season, using front of store space in a much stronger way. We've really seen over Christmas, Valentine's, Easter, garden, that really helps us. So we've made a decision to double the front of store space in hundreds of our stores over summer, which we think will drive more engagement. And the first results have been really positive of that. of having a much more customer-focused range in front of the store. So the next four work streams on slide 20, with range, we initially started with three range pilots. We've added four later in the year. And in total, we have trialed six months of seven pilot categories. And six of the seven categories, we've been able to conclude with a positive sales outcome, so lower SKU counts, higher sales. And we feel very confident now we can roll out, and we started to roll out last week, of the SQ reduction across the year. Our first focus is the more normalized categories that have no longer a seasonal impact that will be concluded in August. And then September, October, there's two categories that have a very strong seasonal character. We will conclude those by the end of the year. And for customers, this actually means a meaningful reduction of items on shelf, 20 to 25%, much simpler and easier to shop, but also true benefit for colleagues in store and supply chain with having much less complexity to manage our products across the estate. Availability, I think this was the most embarrassing update I gave you when we shared these numbers. So we've worked hard. on making sure customers could find these items on shelf whenever they come to our stores. And in the top 250 best-selling SKUs, we've rolled out nationally a different way of working. And I'm pleased to say that we have moved from like an 86% availability to about 95% last week. And we aim to go beyond that number later in the year. That's in the top 250 best-selling items. We are extending our support to stores or focusing on better availability across the estate. And we're doing it in a focused way with a store availability alerts where on source specific measure, the top 30 items that are having a stock record in store, but no sales are being alerted to the store team. So that can have a very targeted focus on improving availability, but also we take an end to end approach. We just do that only focus on the store. We look at supply performance, distribution center, stock levels, inter-execution. So it's an end-to-end focus on availability. But in summary, I would say back to B&M Basics progressing really well. We've completed delivery in three work streams and the fourth one is now in full rollout. And then moving on to phase two, slide 21 behind me here. So even though we didn't fully conclude phase one, we've actually started and made progress already in phase two. And we outlined in November that we are starting to use customer insights, customer data to flex and evolve our store formats. And I think at that stage probably was still a bit more, that's a hypothetical. We've made it really tangible now. And we are really focusing on making sure that we optimize the range for customers in the locations where they shop. But it's really hard to tailor to 800 different locations. So we've grouped them in six clusters. And these six clusters have a very similar homogeneous customer mission, very similar frequency type of shop, similar environment. And interestingly, only two of the six are more traditional, the BNM stores that we would be focusing on. And four clusters actually are quite new for us and have evolved from the start of the BNM model, which means we've got an opportunity to serve as customers much better to optimize range and the proposition at cluster level. And that's exactly what we're doing. So similar to the range rationalization, we're trialing stuff. So we're now investing in the estate, and we really want to invest in the estate to maximize the match between range in that store and the customer mission. And there's three work streams in play here to make sure we take the right decision later in the year. First of all, it's relaying space. So this is really about optimizing offer, optimizing range for that customer mission, that cluster in the existing store space. No investments in the store fabric. And there are six stores currently in flight where we are trialing and see if there's a sales uplift, which we expect on the back of this work. And also taking the learnings, what happens with tweaking various category ranges, changes per format. The second one is probably a more conventional way of looking at uh investing in your estate that we call it refits the same same work so we're optimizing range and in addition we're targeting some improvements in the store in layout and lighting flooring custom areas but also in colleague areas and and we have now 10 stores have been refreshed across the country from the north to the south and that's also now a focus area for us to see if we can drive benefits in terms of sales And finally, the third one is a bit more far out. We call this B&M 2.0. It's a completely new store concept, actually very much inspired by a French store concept. More engaging, more intuitive, easier to shop. We used a lot of customer and colleague feedback to improve that store concept. And the first store of that generation will open at the end of Q2 this year. The goal of all of these three work streams are very similar. It's ultimately driving like-for-like sales, it's improving sales densities, and it's a consequence, of course, margin expansion. But the good thing also, given our leverage, given our net debt, we can self-fund this through cost and working capital efficiencies. And also, I think that the rollout of new space is now a bit more balanced. So we target 25 to 35 new gross BNM UK stores in 27, which is in line with our organic growth rates. And if the trials are successful, we will then also supplement that with investments in existing estate. So moving to France, slide 23, well-performing business, positive like-for-like sales last year, every single quarter. We've become a bit more mature business, so we're now subscribing to market share data, and we also see that we're gaining share in the markets. Top line is growing, of course, strongly also on the back of openings. And talking about openings, we have achieved 150 as a store in the country. So we're coming at a sizable business. And talking about sizable businesses, the French market in terms of inhabitants, total, let's say, size of market is not dissimilar to the UK. So obviously with 150 stores, there's a good runway for expansion in that country. And in terms of current trading, we saw a good start to the first quarter of the financial year with both higher footfall and continued market share gains. So good start in France in FY27. And then Heron Foods. In January, we announced that we would conduct a strategic review of its customer proposition. And we've taken the learnings and the outcomes of that. And the conclusion is we actually see significant opportunities to improve its customer proposition. And if you would scan the UK convenience retail market, you would be able to see and observe that many elements that are now quite mainstream in convenience stores we haven't captured yet. So a stronger food for now offer like coffee on the go and better meal deal, but also elements that in forecourt and convenience stores across the country are quite normal are not, let's say, part of our offering yet. So we will incorporate these over time. The team has been focused very much on winning clearance parcels, and they've done a good job because actually we see a good start to the year, positive like for likes also for Heron. And we will also continue to invest in team and talent in Heron to support future growth. So then putting things in a bit more strategic perspective, back to our business model, but now let's say aligning business model with our plans. And I think This slide really illustrates how we are aligning execution of our priorities with the strengths of our business model. And it starts, you know, with driving top line growth through back to B&M basics. Pete already alluded to it. We are rebuilding gross margins, especially in non-food this year. We are embarking on a much more measured and a much more disciplined, focused approach on cost control. And of course, that's being helped by simplification and range. And also we would like to invest more in supporting our teams with more digital tools. And I think continuing a selective and effective growth in space is ultimately creating this virtuous cycle, supporting margin improvement and cash generation. And cash generation, we've even to outform last year, the year before actually on a lot of this level. So I think we've all demonstrated our ability to do so. So just a reminder, you know, why we are here for shareholders. This is our shareholder return algorithm. Ultimately, we are growth-focused. It starts with restoring like-for-likes. Back to B&M Basics is the main driver. It's supplemented by new store growth in UK and France. And also, we would like, as we share today, to implement new store growth, new space growth with investing in core estate and to boost customer engagement and sales. It's all about restoring trading margin, focusing on cost out, and in order ultimately to go back to a low double digit EBITDA margin for BNM UK in the medium term as an outcome, not as a financial input. As you know, our business is very strong in terms of cash generation, and we believe together this is an attractive total shareholder return. And then finalizing my update, to conclude, we're really executing BNM back to basics at good pace, and I believe we're making the right progress. Our trading margins are improving, supporting the model, but at the same time, our pricing has never been as competitive as it is today. Our leverage is back within target range, and we're taking, in my view, a much more balanced approach to investments in new space. And in terms of current trading, BNM UK, we've seen a bit of a slower start to seasonal trading. I think most of you know that we have close to 300 garden centers. So this quarter is quite, let's say, weather and external impact dependent. So especially April last year was phenomenal. We had double-digit like-for-like growth. It's a difficult month to cycle this year. We've seen improvements in recent weeks, as you could see outside, the weather has turned positively. So we've also seen a recovery in our seasonal categories. France and Heron, they've both started the year very positively. And while attention may soon turn to the World Cup, I think there's still plenty to play for this season, both on the pitch and in our stores. And with that, I would like to hand over to questions. Thank you very much.

Thank you, Chia. Thank you, Pete. So, yes, let's turn the floor over to your questions. Jonathan, why don't we start with you? We'll bring the mic around to you.

Thanks. Good morning, Jonathan. Just on perception, two sort of an A and a B, really. Firstly, obviously, better to be, better that, you know, perception follows reality, so better to have the reality in the right place. But what's the next step in terms of getting that price perception shifted because I think you mentioned that. How do you actually do that? Obviously, as I say, the reality is in a good place. How do you shift the perception? Just back on current trading. Excuse me. A tricky April, a better May. Have you actually ended up pretty much where you thought you would be? Have those two sort of played a draw where you would touch behind or where you thought you'd be? And then obviously a much more data approach being used on existing space. Have you started to apply that to new space now? And is that educating new store opening decisions?

Yeah, good questions. So I have three questions. So first of all, on price perception, it doesn't really help drive price perception that your best-selling item and the item that we invest most in price is a one-facing. So naturally, when we have pruned our ranges and the key items have got space to breathe, This will give a natural boost to the way customers evaluate their pricing. That said, if you walk into our stores today, especially on, let's say, end caps or let's say feature ends, I think we're not strong enough in terms of price messaging. So we're embarking on a much stronger, let's say, price communication, install price communication focus over summer. And then basically we've waited until the range rationalization was completed. And that's the natural next phase. But I'm 100% with you. The index is just a starting point. It's driving perceptions ultimately through success here. So is current trading in line with our expectations? We never expected April to be positive this year because last year was just exceptional. And we would look at a season in totality and the season is not over yet. So there's still a lot to play for. And obviously, the last couple of weeks were probably better than our expectations. But overall, You know, we haven't concluded the season and in July, I'd be delighted to share with you the Q1 results. And then finally, a good point. We are indeed using a much more rigorous approach in terms of analyzing the opportunity for a new store. It is quality over quantity is very much the focus. We want to make sure we have very good paybacks, good accretive store contribution margins, And indeed, we are also applying the learnings from the existing estate to optimizing the best possible location for a new site. But in a way that we want to invest prudently and ultimately have the right return for shareholders. So that's also what we're doing there. Thank you.

Next question, Warwick from BMP.

Good morning. I've got two questions, please. One on FMCG, one on general merchandise. On FMCG, as you've rationalized the top selling lines, are you seeing any better terms from your suppliers as you've sort of trimmed the range? Or is that perhaps to come? And then secondly, on general merchandise, could you just talk about any changes you might be making to ranges under your new buying director? Yeah.

Yeah, so clearly any discussion on terms is a commercial discussion between two parties that probably is not very helpful to share here in public. But obviously, if you would think about what's in it for our supply partners with less range comes ultimately more volume per item, so a much more efficient supply chain. And ultimately, when we have realized and analyzed very high substitution levels across brands, which we can actually demonstrate with consumer data, Obviously, then the brand that wants to invest most in B&M probably will be able to work with us in a stronger way. So I think that that's what I would like to say. On general merchandise, actually, the insight for us is France. We've seen in the UK, I think we said it before, a very strong push about 18 months ago on mainly focusing our general merchandise ranges on entry, entry-level, entry price, so reducing what I would say was already great value to even better value. The problem only is that it's very hard to compare prices in general merchandise. You don't really get credit from customers for doing that. And secondly, I'm not sure how many OREC ironing boards covers you by annually, but probably not much, not very frequent. And we actually did decrease those items quite a bit. I think the insight for us is in our own company, in a market where probably customer confidence is as depressed as the UK is. We're gaining share, we're growing like for likes, and we've got a range which is much more good, better, best tiering. We have a great value item at the top benchmark that's a very strong French retailer, but great value at BNM. We've got a good mid-tier and we've got a good entry price targeting another retailer that's quite well-known in France, making sure we have great value at entry price. And that strategy works really well in France because you tailor to customers that actually have a limited budget. So you're there for entry, but customers who have a bit more money to spend, but don't want to spend the same amount of cash at another retailer can find a similar item for a much better value at B&M. And I think that's the insight we're going to apply also at B&M UK. So the journey for us in general merchandise in our core ranges is much more about good, better, best tiering, much more coordination of design, and less of a focus of only playing in price entry.

Richard from RBC. Let's take your question.

Thank you. Yeah, Richard Chamber from RBC. Three for me, if I may. First of all, just wondered if you're already seeing a sort of direct correlation between availability improvements and line for line. I think you call out 86% to 95% in the presentation, is that already leading to some light for light benefits? Second one is we're starting to see some higher priced items coming through in the store. I'm thinking things like garden furniture, sort of 400 pound type garden furniture. Sure they are. But is that changing your thinking in terms of how you think about price architecture or scope for more of those items? And then the third one is just on capital allocation. I wonder if you can just give an update on what you're looking for in terms of optimal leverage and when we might, or you could consider share buybacks. So I guess, thanks.

So Pete on my right side will answer the third question because he also has a role to play today. And then the first two I will take. So it's really hard to isolate the impact of variability with a total store performance, but What we did see, so we are trialing now availability alerts, because the problem is with the first batch of stores that we rolled out, we're nationwide now. So you can no longer have a control group measuring the ice-legged impact. We did see with the availability alerts, the moment stores started adjusting and correcting stock records, we did see in those stores quite a decent uplift in sales on the items they corrected. So over time, it's natural that it ultimately will support drive and black flag sales on the back of their ability. But of course there's more elements to play, but we do see a correlation emerging. On the higher priced items, it's exactly what I explained in our core ranges, so good, better, best. It's seasonal. We are able to actually move a bit faster because the buys are, I'd say, one offs. So you're able to change your range a bit easier than updating an existing structure. And we are, I think we started already just before I came, we started indeed adding higher priced items to the range. Still great value. And we've seen good customer uplift, if anything, especially that we had a 40 pound large oversized mirror earlier in the year. And that sold tremendously well. So actually we see better value items, but on a higher price point, actually do really well at B&M. And I think we'll get to our location. I think it's good to give an update where we're headed at now.

So I think the first question was where do we want leverage to be? And so in terms of where we want leverage to be, our target range remains at one to one and a half times. We measure that on a full year basis. So we believe and accept that it will drift outside of that range, for instance, at the start of the golden quarter when we need to have higher stock levels. And then it will reduce as we go for the golden quarter and sell that stock. That leads to a natural point in the year when we will usually make our capital return decisions or allocation decisions, which is always in January, just after the golden quarter closes. That's traditionally when we've made this decision in the past, and our seasonal trends won't change. So we do expect to be in a position to make that decision in January 2027. Okay, great. Thank you.

Let's take a question online before returning to the room. So one here from Wayne Brown in Liverham. In fact, two, I think for you, Chair, both on the store estate. First, given the confidence, why no upward step change to the rate of openings this year in the UK? And also, any view on net closures in the year ahead? And specifically, what's the hurdle rate in terms of triggering a decision to close a store?

Yes. So I think we were very transparent last update that the underlying growth rate of new space online organic pipeline is about 25 to 35 new sites we have enjoyed the last two years distressed opportunities mainly the Wilco estate and home base that's why we were able to open over 40 shops a year so the distressed opportunity pipeline would say currently is drying up and many of the pumpkin sites that have become available we're not really fitting our requirements So that's the natural evolution. But I also would like to stress that it's quality over quantity, so we're not chasing a number here. We're going for really quality sites. And I would say if you believe, and I do believe, there's upside in investing in our existing estate, then probably from a total capital perspective, having a bit of a slower pace of store openings, but But using capital, as you would say, the new space to invest in existing space is probably not a bad idea if it drives good returns. I think on closures, we did have an elevated number of closures last year. Again, if a store doesn't work, it's better to close it. And given the network that we have, in most cases, quite a big part of that sales will flow through the adjacent stores. And we can actually re-employ colleagues in the stores around us. We normally don't guide on store closures. I expect the level to be probably similar level as last year. And in terms of our hurdle rates, we're looking at a vast range of metrics, but the most important one is store contribution. And if the store contribution drops below a minimum level, there's not a sufficient, in my view, economic reason for a store to actually stand on its own feet. And as a consequence, then, if we don't believe there's opportunities to drive better performance, we then close the store.

Great. Let's take a question from Kate. Kate Colbert at Investec.

Thank you. Morning. Just two questions for me. As you move into phase two and invest in your store estate, what proportion of your portfolio do you think you will just relay versus refit? And I assume that B&M too comes in a couple of years' time. And my second question is just on the stock coming into the business now. Are you happy with the quality of that stock? coming in or is there potential for more clearance in the first half?

So I'll cover the first one. So it's really about test and learn. I think ultimately it's probably both. So relaying clearly doesn't require CapEx. And if it's demonstrating positive sales results, Probably the opportunity is to go quite broad across the estate, but again, we need to test and learn. And the second one, the refits, ultimately will come with an investment. Clearly, we can fund this ourselves. We're self-funding in a way, but there's a capacity constraint that the store teams are able to, and the store development teams are able to execute. And there's also a focus element. So there's a natural ceiling to how many stores you could do in a year. Clearly, we've got our views, but let's first make sure that the results come through as we would like them to come through. We expect positive sales, good-like-for-like growth on the back of this, and then we'll take the decision to roll out. But that's where currently our thinking is. In terms of stock quality and further clearance, you might give some perspective, Pete?

The stock quality coming into the business at the moment, we're happy with it. We believe that we'll be able to trade it and merchandise it as we need to. The clearance is really a legacy item which we've had to address the stock that we've got in the business in the store rooms of the business that we need to get out on the floor and make space within the business to bring in the new lines. And essentially, a lot of that clearance activity is taking place, and we don't expect to have material issue with the stock coming in going forwards because we will be operating a clearing-as-you-go type regime over the new stock that comes in, which will leave our stock in a high-quality position overall.

Okay, thanks.

Thank you.

All right, let's stay in the room. Should we go to Ben, Ben Hunt, just there on the right, Katie?

Morning. If it's OK, do you mind if we sort of dwell in the past a bit on specifically Q4? Because I'm a little bit confused in the sense that December was a strong underlying lightfly number plus three. And I think the narrative back then was that there hadn't really been a base for top line from clearance at that point. Then we came to Q4 and it seemed like it's been a flatter profile. I think it started well, but there was a lot of clearance in there. What's happened here? Has the clearance benefited the top line at all in that period? Or was it the case that actually the existing or the underlying performance weakened across that specific period? And then the second question is, I think you mentioned back at Q3 that some of the supermarkets had stepped up the promotional activity, particularly Tesco and Loyalty. There's a nod to sort of potentially improving the trading margin in general merchandise. I noticed Do you feel that you're at the end of the journey in terms of price investment for FMCG, or do you still feel there's still quite a bit more to do there potentially?

Good question. Thank you. So I think the 3% Like for Like in December was actually really showcasing the strength of BNM's seasonal offering, but wasn't reflecting the outcomes of our plan, Big for BNM Basics. So I wasn't surprised that after the seasonal peak of Christmas, where we did normally well, we went back to a more normal trading, normalized trading pattern. We did see in January, indeed, positive like-for-likes, partially clearance, but partially just momentum going out of Christmas. February was probably flattish. And in March, we had the benefit of Easter a bit earlier. So FMCG was strong in March. Unfortunately, March last year, actually the garden season started quite early. So we saw already in March a double-digit negative sales number on garden and seasonal. So I would say that's the composition of the quarter. We're still pleased with a slightly positive like-for-like number. I wasn't expecting the 3% in December to continue throughout the year because ultimately the hard yards were not done yet, so we still have to work hard in making sure that all of the elements of driving like-for-likes are fully implemented. And it was pleasant, pleasing to see. You know, it showcases the strength of BNM in the seasonal periods, but we also have to be strong outside of seasonal periods, and that's what we're working on. In terms of pricing, The reset or the delta that we did was really large in August to September. We've been very competitive ever since. Every single week, you know, I can see the impact on our margins. It's quite stable. I think at the moment our FMCG margin rate is the lowest in seven, eight years, I guess. Yeah. So it was a meaningful investment. But if you would look at our margin since September, it's actually more or less at a similar level. And it's very interesting to see, because I know quite some detail how the bigger supermarkets are operating in the UK. And the pattern is not always very consistent, but our index is very consistent, which is 15% cheaper than all three of them versus their offerings. Yeah, so that's where we are. But I don't foresee at this stage further investments in FMCG pricing.

And if I may, just one more. Heron, you know, is quite a drop-off in profitability there. Obviously, you're sticking with it. I mean, do you feel there's some low-hanging fruit that's going to get you back quite quickly in those short order, or is it going to be a drain?

I would say it's interesting. So the 3% or 2.9% EBITDA margin we reported last year actually is not dissimilar to what probably the industry normally has in terms of convenience in the U.K., So probably we were outperforming the industry quite a bit in the past, but 3% is not, I would say, a business that's failing. It's probably a good metric for most convenience retailers. We're not happy with it, so we would like to see improvements. And I think I already outlined that if you would walk the convenience space in the UK, you look at more entrepreneurial convenience operators, they would have a much broader playbook of offerings for customers that we haven't really utilized. which we are going to implement. And in addition, you know, what we didn't do well last year, which we're improving to do, is be more assertive and aggressive on getting clearance parcels. And as a consequence, we stepped up our game quite a bit this year, and that's why trading is positive from a clearance perspective, but also from an underlying perspective. But more opportunities to go for, and indeed, we believe it's better to to have Heron as part of BNM because we believe there's good upsides for the future in improving the business.

Thank you, Chit. Let's go back online. We have a question here from Vandita Sud at Citi. And I think this is one for you, Chit. It's with regards to cost initiatives in the year ahead. Given our confidence that we can offset energy-related costs, could you give some examples of those initiatives? And how lean do you see the cost base this year compared with previous years?

Yeah, that's a good point. So on the Iran conflict, clearly nobody has a crystal ball. So I can only comment to what we've seen to date. And we've extrapolated to date cost levels to the remainder of the year to make an assessment of the impact on our business. That's how we went about doing it. I would like to unpick it in three elements. So first of all, it's electricity costs, energy costs in our stores. The second one is diesel for our trucks, and the third one is then freight costs for our products coming out of Asia. We actually have invested quite a bit in new stores, equipping them with building energy management system, or BEMS, and as a consequence, even though we've opened 100 more stores in the last four years, our energy consumption, total company, hasn't gone up, though we are still at the same level of total energy usage as four years ago. By chance, two weeks before the conflict started in February, we took a decision to now implement the system across the whole of the estate, also the older stores. So we actually feel quite good about being able to mitigate the rising energy costs in stores by having a lot of energy saving measures. So the residual impact actually will be limited, at least on today's pricing. And on diesel, so we update our fleet quite a bit. We've got our own trucks and we see diesel costs, of course, rising, but it's actually not a very material number. So also that one we believe it can absorb and we implemented a route scheduling system last year. So we're much more efficient in our delivery schedules to stores. And on shipping, we have a dedicated partnership with a very large shipping line. We believe we've got great value out of The cost of freight, we locked in a contract for the next 12 months. We do have a surcharge, but if you would look at the total number of the surcharge, the overall freight cost, it's actually not very high. So overall to date, we believe all three elements, components of the Iran conflict in terms of cost increase on our business, we can absorb. And we don't have to pass on to customers with higher pricing. And it doesn't have a, in our view, a material impact on our bottom line. I think overall costs for the year, obviously last year there was quite a significant statutory cost increase with, as Pete said, minimum wage, national insurance and the EPR, the packaging. That growth rate of cost will slow down this year. There will still be a growing cost element, but not to the same rate as last year. And we just shared that we are approaching this year with a much more cost-out focus It's early days, so I wouldn't want to commit to any numbers, but obviously we are going to work hard to simplify our business, take costs out so we can keep prices low for customers. But directly linked to the Iran conflict, we don't see an impact, let's say a large impact on our business.

Thank you. I think that's Andy Wade from Jefferies at the back. Let's take your question, Andy.

Thanks very much. Three actually from me. First one. Digging a bit more into what Ben was asking around the clearance side of things. So FY27 benefit working capital was 90 million. And you've talked about that being almost all sort of stock benefit. And actually, you'd have expected to be more than that coming out from clearance because you would have expected to be growing the stock base given the bigger store count. And you probably didn't sell it at costal NRV. So, yeah, we're probably talking 100, 150 million revenue benefit in H2. I mean, maybe my maths is all out there, but that looks like sort of 5% boost to revenue in the second half. Is that 100 million on 2.3 billion of UK revenue in H2?

I think so. Part of the equation there is that some of that working capital benefit was unwinding our generally overstocked position in prior years. So all of that, so whereas clearance is a part of that working capital benefit, there are other working capital benefits we've got flowing through that line.

So it's not just the clearance impact. So how much of that 90 million is down to just clearance activity? Remember, it's more than 90 as well, because it would have been growing otherwise.

It's a difficult number to take out of our accounts, the exact amount that relates to the clearance.

But even if we said 50 million, right, and you're selling it at more than cost or NRV, you're talking about 2%, 3%, 4% benefit to sales.

It's a much smaller number. So I think this business was traditionally run on, in my view, quite high stock levels with significant cover. I think we should be able to demonstrate it to run this business on lower stock levels. And that's the majority of the working capital release. So the smaller part is the clearance of impact, but being more efficient with stock is the larger part.

Okay. All right. Thanks very much. Um, second one, um, talked about a couple of times you mentioned about gaining share. Just interested as to what benchmark are you using that? Cause obviously supermarkets, um, non-ONS non-food and home bargains.

So there was France. Um, it's, it's a panel panel company. I think it's called Sarkana. Um, um, and, and we're also subscribed of course, to the UK, uh, sort of a world panel, for example. And there you could be in the UK. We've hold our market share in the market. We've held it at similar levels, but in France, we're growing.

Which category would that be in the UK?

Is that discounted specifically or is that? That's world's pen on the contour data. Yeah. So it's within, that's within total food and non-food universe.

All right. Okay. Thanks very much. And then the final one, pretty encouraging impact from those range rationalization pieces you talked to there. 20% less skews, 3% to 4% like-for-like uplift. I think what we sort of hoped would happen. Just interested as to whether those two categories are outliers, as in they're the best. No, no, no.

That's a good question. So... Six categories were positive, and on average between 1% and 3% more or less. So these ones we show were probably representative. The seventh was negative, and of course your question is going to be why.

Why didn't you fix it?

So the seventh was a very high churn category. And what we've learned, and it's very interesting. So if you trial a lot, you can actually see a lot and learn a lot. So the six categories that were positive were probably more predictable, routine categories with a more static range. The seventh was actually crisps and snacks where we had negative sales. And the main learning is that we just overtrade and we use secondary, tertiary space in the store to merchandise crisps and snacks across the shop because it's an impulse product. We have a lot of when it's gone, it's gone products in our stores. And if you then have a test and learn laboratory trial setting, you actually limit the stores to trade because you want to measure properly. So we actually measured store not merchandising Christmas snacks across the state, but just in its home bay. Obviously, then you've got a negative outcome. So we've learned that that's a very high That's a churn category rate to merchandise much, much harder. But the numbers we focused on the presentation are representative of the seven categories.

And it's from a similar sort of space or maybe even less. Yeah.

Yes. So from a space perspective, you know, we outlined that we're going to increase the front of store space in about 300 stores, double the manager special area. And that's basically because we don't need as much space anymore for food because we've got condensed, let's say, ranges. Yeah. Cool, thanks.

Let's stay in the room. Richard from Bernstein, Richard Traynor.

Hello, Richard Traynor from Bernstein. Three quick ones from me. The UK consumer may be coming under more pressure. How do you expect that to impact B&M's customers and their behaviour? Secondly, a bit of a counterpoint there. In France, we hear elsewhere that the consumer there is under even more pressure. and yet it's a bright spark for B&M. What is B&M getting right in France? And then finally, have you considered a larger role for private label in food and FMCG categories?

Good questions. I think UK consumer, I think it's a bit hard to read at the moment, given the very strong influence of seasonal categories in our Q1. If you would analyze categories that are Not very seasonal. We actually do see good momentum in some categories, actually categories where you would expect customers to be more, let's say disciplined in their spend. Actually we do quite well. So one of the biggest surprises to me this year is that we see very strong sales of home decoration categories that are, let's say capsules that we drop. So we, for example, we dropped island life. So to decorate your house in like a Sicilian Sardinian type of style. We've dropped harvest last year, Halloween ranges, but also decorate for your house. And the trend we are seeing is that customers are treating their home like fashion. So they're buying their own clothes, but they're decorating the house with the season. So you see, and it's interesting because you would expect if you're typing cash, that's not the area you would spend money on. So actually we see in our numbers so far, no indication that customers are making different decisions. Actually, we could actually see the normal behavior in a more depressed consumer confidence climate that people go to value retail for, um, either necessity or, um, because they like to save money and spend it somewhere else. I think in France, I think a, we didn't have execution issues. So the French team has been consistently implementing its strategy without any hiccups like the ones we've had in the UK. So I think that's one. I think too, I think we have, we were, we are faced in France with a very different competitive competitive pressure. I think we all know that the competitor that's so strong in France, and I think we've been able to play to our strengths and not to their strengths. So what we did is we took about 400 lines across our store that we replicated one-to-one with the pricing of that competitor. Um, which meant that for customers, you could always see that the price of that item, similar to the level they would be used to in the other store. And then we've used the space increment that we have because our stores are about two and a half times larger than that retailer to actually showcase much more breadth and depth of range in a good, better, best ranging in, I would say probably a bit of a nicer shopping environment. So you still get value. You get more choice shopping environments with nicer. And we've aligned our promotional sequencing in such a way that every single week when you walk into a B&M France store, there's something new for customers, very similar to what the other retailer is doing. So we've replicated their, let's say, elements as a defense, and we've added, let's say, the strength of B&M France to it, and we didn't have any execution issues. And then finally, yeah, private label is indeed on our roadmap. It's the third phase. I've made a comment before that Aldi and Lidl have shifted the value expectations in some categories quite significantly when the branded suppliers were not, in my view, having great value for customers. And it's something, of course, we look into. And if you would think about our business, 90% of our non-food or general merchandise is private brands with a lot of licensed products, but we actually source the item and we have a deal with the license owner. So the capability to actually start doing the same thing in food and near food is not very complicated for us to start working on. But the focus now is really finishing back to basics, working on the estates. And this is a phase three opportunity. But it's very much on our roadmap to look into.

Thanks very much. We have time for two more questions. Matt, I know you have one. I'm just going to take one online first. And we've got a couple of questions on non-cash impairments. Could you comment on that?

and specifically is it tied to any actions on the back to bnm basics and therefore should we expect that kind of impairment to continue in terms of magnitude and regularity probably one for you pete yeah i'll say this one um so i'll take take the second part first that's all right so it's it's not related to the bnm basics program so this is a it's a technical calculation we have to carry out each year to analyze the assets at our stores And effectively, it is driven by the profitability of the stores. So it is natural that when profitability falls, more of our stores are dragged into the impairment calculation. And in a normal year, as our profitability was growing, we would be impairing a run rate of between 3 and 5 million per annum. And when we step back and profit this year, that means that we've got a bit of a catch-up going on, and that's what's driven the 35 million of impairment. Now, you can't impair the same asset twice, so we don't expect those sort of levels of impairment to continue. So as profitability grows going forward, we should revert back to our usual run rate level of about 3 to 5 million per annum.

Very clear. And Matt, thank you for your patience. Let's finish with your question, Matt, from Bartlett.

Sure, thank you. Matt Cohen from Barclays. Two questions if I can. One, BNM UK implications of the Employment Rights Act over the next two years, how that changes your management labour force. And the second one on Heron, going back to the earlier question, it felt like a kind of existential observation you made last year about the kind of clearance model and reduced surplus levels in the industry. What's been the key change since that observation? Thank you.

So on the Employment Rights Act, I think consultation started this week on the next phase of the rights. We as BNM, but also as member of the BRC are very clear. We would like to keep the flexibility and the agility with employment in our stores. We want to do the right thing for our people, but employing people should be an opportunity for both employee and employer and shouldn't be a liability. So we are very clear with government that we would like to see the Employment Rights Act finally drafted and implemented in a way that doesn't stop labor growth in retail. And if anything, most people in my company, including myself, started their careers at entry-level roles in retail, and then you can actually grow your career quite strongly. I think it would be a tragic mistake if the Employment Act would lead to retailers being much more stringent and much more competitive hesitant in employing new people on the back of it. So, so, and again, we are, we are as members of the BRC trying to influence government to do the right thing this time. Um, and obviously, you know, clearly if, if the legislation would come out, it's effective life, it will be level playing field for retailers. And we have just to accept and work with it. But at the moment we try to influence that it's a pro pro, um, business and ultimately pro employment. On Heron Foods, we actually said in January we are going to do a strategic customer review. We did say that clearance was challenging for us. But the good thing is, as I outlined today, we actually see quite some opportunities as terms of customer offering that we don't have a part of the playbook of Heron Foods. So food to go, lottery, coffee, sandwiches, much better meal deal. But there's quite some more elements, but that's probably commercially sensitive. So we feel actually that further investing in the offering of Heron Foods is the best use of the investment in Heron. And we will make sure that the right capability of people are working there and supporting the Heron Foods business. But we feel that there's opportunity still to go for at Heron Foods. Yeah.

Thank you, Chair. Thank you, Pete. Thank you for those of you attending and your questions and for those of your questions online. We look forward to returning mid-July with our Q1 trading statement, the date for which we will confirm shortly. That concludes the meeting. Thank you.