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B&M European Value Retail S.A.
Annual Report and Accounts 2017
value
Strategic Report
Corporate Governance
Financial Statements
HIGHLIGHTS
Group overview
B&M is a fast growing limited range discount retailer,
operating from 537 B&M stores across the UK and
75 Jawoll stores in Germany.
Our B&M and Jawoll stores offer customers a range
of leading brands, in both grocery and general
merchandise, from food, drink, cleaning and petcare
through to housewares, home textiles, furniture, toys,
electrical, DIY and garden products, at great value for
money prices so limited household spending budgets
stretch that much further.
We like to provide our customers with a bargain hunting
shopping experience, delivering consistently great
value to make them want to visit our stores time and
time again.
Group revenues
Adjusted EBITDA*
£2,430.7m
+19.4%
2016: £2,035.3m
£234.9m
+22.0%
2016: £192.5m
Contents
Strategic Report
Highlights
At a glance
Strategy in action
Chairman’s statement
Market overview
Business model
Chief Executive Officer’s review
Strategy
Financial review
Key performance indicators
Principal risks and uncertainties
Corporate social responsibility
Corporate Governance
Board of Directors
Corporate governance statement
Audit & Risk Committee report
Directors’ remuneration report
Directors’ report and business review
Statement of Directors’ responsibilities
1
2
4
10
12
14
16
20
22
26
28
33
38
40
46
50
60
65
Financial Statements
66
Independent Auditor’s report
Consolidated statement of comprehensive income 67
Consolidated statement of financial position
68
Consolidated statement of changes
in shareholders’ equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Independent Auditor’s report
Company balance sheet
Company profit and loss account
Notes to the annual accounts
General information
69
70
71
105
106
107
108
116
Operating cash flow
UK store estate
Germany store estate
£210.9m
+23.4%
2016: £170.9m
• Group revenues have increased by
19.4% to £2,430.7m.
• Group Adjusted EBITDA increased by
22.0% to £234.9m.
• Adjusted profit before tax increased by
25.6% to £190.1m.
• Profit before tax increased by 18.4% to
£182.9m
• Net cash flow from operations
£210.9m, an increase of 23.4%.
• Continued investment in infrastructure
and a reduction in the net debt to
Adjusted EBITDA ratio to 1.71 times.
+7.6%
+33.9%
• 38 net new B&M stores opened,
growing the estate by 7.6% to 537
stores in the UK.
• Strong pipeline of new stores and on
track to achieve between 40 and 50
net new UK store openings in FY18.
• 19 net new Jawoll stores opened,
growing the estate by 33.9% to 75
stores in Germany. 10 new stores were
organic openings and 9 were from the
acquisition of a small chain.
• Strong pipeline of new stores and on
track to achieve 15 net new Germany
store openings in FY18.
*
The directors consider adjusted figures to be more
reflective of the underlying business performance of the
Group and believe that this measure provides additional
useful information for investors on the Group’s
performance. See reconciliation of adjusted measures
to statutory measures on page 25.
B&M European Value Retail S.A. Annual Report and Accounts 2017
1
AT A GLANCE
Ournumbers
B&M is a growth company. The strong appeal of our offer to
customers both in the UK and Germany, the small market shares we
have in our chosen product categories and the fact that so many
communities don’t have access to our stores, means that we have a
very long runway for growth ahead of us.
UK store growth
Germany store growth
537 B&M stores
in the UK 2017
• Liverpool – Head office
Northern Ireland
28
North West
107
Wales
34
South West
36
Scotland
61
•
North East / Yorkshire
94
Midlands
98
South East
79
75 Jawoll stores
in Germany 2017
• Soltau – Head office
1
12
•
29
7
5
12
3
1
3
2
Revenue
£2,252.3m
+18.4%
Adjusted EBITDA
£223.2m
+23.4%
Employees
24,536
+9.8%
New locations
38
+7.6%
Revenue
£178.4m
+34.4%
Employees
1,514
+21.9%
Adjusted EBITDA
£11.7m
+0.4%
New locations
19
+33.9%
2
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Product range
Our brand
Our UK stores trade under the
B&M brand, with out-of-town stores
predominantly being the larger
B&M Homestore formats, and B&M
Bargain facia’s for smaller in-town
store locations. Our German stores
trade under the Jawoll brand in
all locations.
We deliver great value for money to customers
right across our product categories.
We stock a wide variety of products but a
narrow assortment within categories.
There’s something for everyone, whether it’s
for the home, garden or food & drink.
Our limited product assortment of best-
selling products within each range is key to
providing customers with bargain prices, so
that they want to return again and again.
Our offer includes the following categories:
• Home furnishings
• Halloween &
& adornment
• Electricals
• Toys
• Clothing & footwear
• Household goods
• Toiletries
• Food
• Confectionery
• Soft drinks
• Alcohol
Christmas goods
• Giftware
• Stationery & crafts
• Gardening, outdoor
& leisure
• Petcare
• DIY & decorating
• Travel accessories
B&M European Value Retail S.A. Annual Report and Accounts 2017
3
STRATEGY IN ACTION
Storeexpansion
We know that customers in Bradford
and Bedford or Swinton and Swindon
are really no different, they want the
same great value, week-in, week-out
on the things they buy regularly for
their homes and families. So making
our offer more accessible to the
hundreds of communities that don’t
yet have one of our stores is a top
priority for us. That’s why we opened
53 new stores in the UK and 19 in
Germany in the year, with another 55
to 65 planned for the year ahead.
4
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
The general merchandise discount sector remains an underpenetrated part of the retail
landscape and B&M is one of the leaders in driving the structural shift towards value
retailing. We believe there is potential for at least 950 B&M stores in the UK alone and
hundreds more in Germany. Added to that, the excellent performance of our new stores
across our chosen markets continue to give us the confidence to push on with expansion,
while at the same time supporting our continuing investment in local jobs and communities.
B&M European Value Retail S.A. Annual Report and Accounts 2017
5
5
STRATEGY IN ACTION continued
The buying power we have of
more than £1billion per annum
is a big part of how we deliver
great value for customers. Also,
being a limited assortment
discount retailer means we
concentrate our purchasing into
a narrow range of products in
any given category, so that we
maximise both the efficiency of
our buying and of our store
operations. Delivering low prices
and big savings for customers
is sustained by being highly
efficient in everything we do.
Big Brands
Big Savings
6
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Our growth is also a big attraction for suppliers in a world in which growth is harder to
find for many other retailers. We already sell many of the well-known consumer brands
in product categories where brands are an important customer requirement, whether
that’s from packaged food to household goods, pet food to toys, or electrical goods to
DIY. And every year more and more brand owners are joining us on our journey, which
is great for customers and for us.
Big Savings
B&M European Value Retail S.A. Annual Report and Accounts 2017
7
STRATEGY IN ACTION continued
Digitalmarketing
We connect directly with our customers through
digital marketing. We actively use social media,
our online newsletter and our website to
engage with customers and raise awareness
of new store launches, new products, pricing
and offers, competitions and seasonal
campaigns as a means of driving sales and
also as part of building the B&M brand.
8
B&M European Value Retail S.A. Annual Report and Accounts 2017
Digitalmarketing
Strategic Report
Corporate Governance
Financial Statements
As well as great value, newness in our ranges is a big part of our appeal for customers.
There’s always something new at B&M with 100 new products a week on our shelves, plus
the changing seasonal emphasis across our categories, from garden and outdoor in the
Spring and Summer to toys and Christmas through Autumn and Winter.
By responding to our customers’ desire to keep up to date with what’s new, we now
have well over 1 million Facebook likes. Last December we had a record 5.5 million visits
to the B&M website. Over 660,000 people have also actively requested that our regular
on-line newsletter is sent straight to their email boxes, so they get to see what’s new as
soon as it’s in the stores.
B&M European Value Retail S.A. Annual Report and Accounts 2017
9
CHAIRMAN’S STATEMENT
B&M has made excellent progress over the past twelve months,
delivering outstanding results, making good progress with the
implementation of its strategy for growth and a powerful return
in its trading performance in the second half of the period.
“Through the strength of its
unique business model and its
continued rapid expansion,
B&M is emerging as one of the
clear leaders in the structural
shift toward value retail which is
increasingly shaping the
retailing industry.”
Sir Terry Leahy
Chairman
Revenue
£2,430.7m
+19.4%
2016: £2,035.3m
10
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
This stronger performance reinforces our confidence in the outlook for
the business in the year ahead, for three important reasons:
•
first, it helps to offset significant cost headwinds which all retailers
are having to manage at present, particularly including the effect
of the introduction of the living wage, rising business rates and the
weakening of the pound against the US dollar from the onset of the
Brexit referendum;
•
• secondly, it affirms that the B&M offer continues to resonate well
with customers during a period of economic uncertainty and
profound structural change in UK retailing in particular; and
finally, our trading form is primarily driven by rising customer
numbers, and this acceleration reinforces our belief that the
business still has huge scope for further store expansion ahead,
particularly given the large number of catchments where we have
little or no representation presently.
Looking ahead, with the broader economic and consumer climate
remaining uncertain, and with inflation returning to the UK economy
for the first time in several years, we believe B&M is extremely
well-positioned to prosper in a more challenging retailing
environment generally.
Sir Terry Leahy
Chairman
24 May 2017
I am pleased to report to shareholders another successful year for
B&M, following its third year as a public company. The business has
made excellent progress over the past twelve months, delivering
outstanding results, making good progress with the implementation
of its strategy for growth and showing a powerful return to trading
form during the second half of the financial year.
In 2016/17, B&M has achieved further strong increases in revenues,
profits and cash generation. In the three years since the IPO, the
business has grown revenues by 91.1%, adjusted EBITDA* by 85.6%
and operating cash flow by 135.6%. Few retailers, whether online,
through stores or multi-channel retailing, have delivered similarly
outstanding, high returning growth consistently in that same period.
Through the strength of its unique business model and its continued
rapid expansion, B&M is emerging as one of the clear leaders in the
structural shift to value retail which is increasingly shaping the
retailing industry, both in the UK and in Europe. We added 72 new
stores in the UK and Germany combined during the year, being 57 net
of closures and relocations, and we plan to open at least a further 55
during the current year in the UK and Germany together.
Given the high-returning nature of our store formats, we are confident
the business has many years of profitable expansion ahead of it in its
chosen markets.
One of the most pleasing features of B&M’s performance has been the
robust return of trading momentum in the UK business during the second
half of the financial year, and also into the early weeks of the new
financial year, with like-for-like sales picking up strongly in our third
quarter, helped by a very successful Christmas period. Easter trading has
also been very strong, benefitting from this year’s later timing of the bank
holidays as well as some warm, dry spring weather.
*
The directors consider adjusted figures to be more reflective of the underlying business
performance of the Group and believe that this measure provides additional useful
information for investors on the Group’s performance. See reconciliation of adjusted
measures to statutory measures on page 25.
B&M European Value Retail S.A. Annual Report and Accounts 2017
11
MARKET OVERVIEW
Wellpositioned
UK
We principally operate in the UK retail market and
our store network comprises 537 stores. The UK
market is broadly split into two main segments,
grocery retailers and specialist retailers and
there is also an emerging third segment; general
merchandise discount retailers, in which we
believe we are a leading player.
Germany
We have been operating in Germany since
2014, following our acquisition of an 80%
stake in Jawoll in April of that year. The
German retail market had store-based retail
value sales of €416 billion in 2016 and has
grown by a compound annual growth rate
of 1.4% between 2011 and 2016. (Source:
Euromonitor International)
There are a very significant number of catchments
still without a B&M store in the UK and potential for
considerable expansion looking ahead in Germany.
UK retail market
£301bn.approx
UK stores
Target 950
2017
2016
2015
German retail market
€416bn.approx
German stores
537
499
425
2017
2016
2015
75
56
50
12
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
UK merchandise
The UK retail market had total store-based retail sales of £301 billion in
2016 and has grown by a compound annual growth rate (CAGR) of
1.0% between 2011 and 2016. (Source: Euromonitor International)
the original 850 store target. Those stores either have a lower
catchment population or a higher socio demographic profile, but the
return on investment in those locations remains very attractive. We
therefore now believe a UK store target of 950 is achievable.
Our market
Grocery retailers account for the largest segment with total store-based
retail value sales of £164 billion, which have grown by a CAGR of 1.6%
between 2011 and 2016. Specialist retailers, which include apparel,
electronics, health and beauty, home and garden, leisure and
department stores, had total store-based retail value sales of £130 billion
in 2016, which remained flat between 2011 and 2016. General
merchandise discount retailers, which principally include retailers that
focus on a discount price model, including those that specialise on fixed
prices but excluding grocery retail, had total store-based retail value sales
of £7.0 billion in 2016, growing by a CAGR of 9.0% between 2011 and 2016.
(Source: Euromonitor International).
Our multi-segment positioning allows us to compete across all three
retail segments. We have several core categories we focus on within
each segment. In the grocery segment, we focus mainly on ambient
grocery products (confectionery, soft drinks, canned food, shelf-stable
meals etc.); in the speciality segment, we focus on home and home
related products (soft furnishings, decorative products, kitchen
equipment, electrical products etc.), seasonal products (toys, garden,
Christmas decorations) and DIY. However, there are certain large
categories in which we do not compete significantly, such as fresh,
chilled and frozen foods in the grocery segment and fashion apparel in
the speciality segments, both of which constitute significant parts of the
UK retail market.
UK opportunities
B&M has the ability to trade profitably across a range of retail locations
including town centres, urban district malls, city centre secondary
pitches, retail parks and solus standalone sites. We operate a wide
range of store sizes in these locations from 5,000 sq ft to 40,000 sq ft.
The stores we opened in FY17 averaged 20,000 sq ft and, given both
the location and size flexibility, there are many towns and cities yet still
that could support multiple stores. We believe that a store target of 950
stores in the UK is readily achievable, and we currently trade from 537
locations. We originally had a target of 850 stores at the time of the IPO
in June 2014. We have recently updated the analysis based on external
consultancy research to include those stores which have opened since
2014. We are now trading from 70 locations which were not included in
German merchandise
The German retail market is broadly split into three main segments:
grocery retailers, specialist retailers, and general merchandise
discount retailers. Grocery retailers in Germany had total store-based
retail value sales of €199 billion, which have grown by a CAGR of 1.5%
between 2011 and 2016. Specialist retailers in Germany had total
store-based retail value sales of €215 billion in 2016. General
merchandise discount retailers, had total store-based retail value
sales of €2 billion in 2016. (Sources: Euromonitor International, which
includes all companies in the Euromonitor defined ‘variety stores’
segment except Tchibo due to the lack of comparability).
Jawoll principally competes in the German general merchandise discount
segment with only a limited range of grocery items, thereby differentiating
itself from the highly competitive grocery discount channel dominated by
Aldi and Lidl. Jawoll’s strength in seasonal goods, household goods and
gardening products differentiate it from other non-grocery discount
retailers. The partnership with B&M provides Jawoll with the opportunity
to expand the breadth of its non-grocery range, as well as to potentially
develop its branded grocery and FMCG offer.
German opportunities
We believe that Jawoll has the opportunity to expand both within its
core regions and outside those regions. In the last financial year we
opened 10 stores organically and we acquired a 9-store chain which
we have converted to the Jawoll store facia and format.
The German value retail market appears fragmented without a leading
variety goods retailer operating successfully on a national scale.
We have successfully trialled some smaller stores in the last financial
year, which allow for more site opportunities than those typical of the
current Jawoll estate which is largely out-of-town.
Note: Certain information on pages 12 and 13 above on the general merchandise
discount retail market is from independent market research carried out by
Euromonitor International Limited but should not be relied upon in making, or
refraining from making, any investment decision. Any statements sourced from
Euromonitor International regarding market data refer to data on estimated sales
as of November 2016.
B&M European Value Retail S.A. Annual Report and Accounts 2017
13
BUSINESS MODEL
Valueretailing
Inputs: Strengths
Operation
Modern store network
Our network of over 600 well-located and well-invested
stores, mostly acquired or built in the last 10 years, are in
convenient locations in high streets, popular district
centres or modern retail parks close to where people live.
They are easy to get to and easy to shop for customers.
See page 13 for more detail.
Well-invested infrastructure
We have a modern supply chain and scalable systems
infrastructure to support the operations and growth of the
business. In 2015/16 we increased our distribution centre
operations with the commissioning of 2 large new further
Distribution Centres, providing us with an additional
800,000 sq ft of distribution centre capacity.
Strong & growing brand reputation
The B&M brand in the UK and Jawoll in North-Western
Germany each have a strong and growing reputation for
delivering consistently great value, innovation and
newness on the things people buy regularly for their
homes and families and that’s what keeps customers
coming back to our stores week-in, week-out.
Skilled buying teams & lasting supplier
relationships
Keeping our ranges at the leading edge of value as well
as fresh and on-trend takes skill, experience and
discipline. It’s also about developing and maintaining
strong long-term supplier relationships, and many of our
suppliers have grown with us over many years.
1
Targeted grocery offering
We offer a targeted range of branded convenience grocery products at
competitive prices which are located at the front of each B&M store,
which delivers great value to our customers. The offer is complementary
to, rather than a substitute for, a customer’s weekly grocery shop. We
enjoy long standing relationships with many global FMCG suppliers
ensuring consistency of supply and delivery.
2
Compelling non-grocery offer
We sell non-grocery products across a broad range of product
categories including housewares, electrical, gardening, toys
and petcare. This broad choice of general merchandise at great
value encourages a “treasure hunt” browsing experience, which is
something customers enjoy and also offers us the opportunity to
drive average transaction values.
3
Disruptive sourcing process
Our direct sourcing process is a key element of our ability to offer
non-grocery products at competitive or disruptive prices without
compromising on product quality. Our buying teams are constantly
monitoring the prevailing consumer trends and we invest in our
in-house design capability to develop new products and designs,
which we then source directly from factories in the Far East without the
need for a Far East exporter or UK distributor in the supply chain,
ensuring we benefit from advantageous cost prices.
4
SKU discipline
We maintain a disciplined approach to SKUs (“Stock Keeping Unit”),
focused on the “best sellers” only. This focus and hence volume for the
selected SKU creates buying power and allows us to benefit from
advantageous buying terms. This SKU discipline also ensures that our
buying teams adopt a “clear as you go” markdown strategy since we
aim to sell through an under-performing SKU prior to introducing
a new product into the range.
14
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
B&M is a limited range discount retailer
with stores across the UK and in Germany,
selling an assortment of grocery and
general merchandise products.
Operation
Outputs: Creating stakeholder value
Customers
Our key focus is on creating value for customers. B&M and
Jawoll are about helping our customers spend less on the
things they buy regularly for their homes and families;
that’s what the B&M business model is designed to
deliver consistently whatever the broader economic
outlook.
Employees
Our people are vital to the delivery of the B&M and Jawoll
offer for customers and our growth provides job
opportunities in the communities where we trade. Also
importantly, there’s plenty of scope for everyone to get on
and build a career in our businesses as they continue to
expand at a significant rate.
Partners
Growth is not just good for B&M and Jawoll, but it’s very
good for our suppliers, many of whom have been with us
for a number of years, being well-known brands, or more
recently as partners with us in the development of
exclusive and other branded product ranges.
Investors
Creating value for our other stakeholders is an essential
underpin to creating shareholder value for investors.
B&M’s characteristics of low capital-intensity and high
returning cash generative growth, is a relatively rare and
powerful combination in retailing today.
5
Seasonal flex
We actively change our store floor space throughout the year so
that the product offering is aligned to seasonal trading patterns.
The seasonal space is typically 20% of the store footprint and in
the Spring/Summer season we offer a compelling range of
garden and outdoor living products, whereas in the Autumn/
Winter season this space is occupied by ranges of toys and
Christmas decorations. This allows us to minimise seasonal low
trading periods, unlike single category specialist retailers.
6
Format flexibility
We are able to successfully trade from both town centre and out
of town locations. The town centre stores are well positioned to
benefit from convenience shopping and have a greater
emphasis on grocery and FMCG products, whereas the out of
town stores carry the full product offering. This flexible approach
ensures we have the ability to open new stores in a wide range
of locations and that new store growth is not inhibited.
7
Cost efficiency
The adherence to a low cost discipline is key to ensuring we can
maintain a price advantage over our competitors. We do not
seek to open stores in prime shopping centres or prime city
centre locations where there is more demand for retail space.
We are therefore able to maintain a low store rent base. Our
limited SKU discipline ensures that variable operating costs as a
percentage of sales can be tightly controlled. We pass the
savings from our low cost model to our consumers in the form of
everyday low prices.
B&M European Value Retail S.A. Annual Report and Accounts 2017
15
CHIEF EXECUTIVE OFFICER’S REVIEW
B&M is at the centre of one of the most appealing sweet spots
in retailing today, with a winning, value-led, low cost, focused
assortment offer aimed at customers who enjoy or who need
a bargain.
“Our buying and store
operations teams have
delivered attractive, great
value products in stores,
which are increasingly set
out well for customers with
more consistent standards
and quality of service.”
Simon Arora
Chief Executive Officer
Profit Before Tax
£182.9m
+18.4%
2016: £154.5m
16
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Overview
Almost three years have passed since the IPO of B&M and I am very
pleased with the progress we have made in that time. During that
period we have expanded our UK store network by 44%, grown our
revenues by 91.1% and our adjusted EBITDA* by 85.6%, successfully
integrated our first international acquisition of Jawoll and grown its
store estate by over 50%. We now have over 26,000 colleagues in the
UK and Germany and today we are a more regular part of customers’
shopping habits in the locations where we currently trade.
For many commentators, the current economic uncertainty is
generating concern about UK consumers and the impact on the retail
sector. At B&M we know we are at our best when household budgets
are under pressure and consumers are looking even harder at
making savings. In an environment of rising prices, we think that
consumers become even more receptive to discount propositions
such as ours. We are therefore confident that the business is
well-positioned to deliver further growth in the year ahead, even in an
uncertain political environment or challenging economy.
The structural shift toward value in retailing, in which B&M has
emerged as a UK leader, still has a long way to run, irrespective of the
economic climate. Even with the very good progress we have made
since our IPO, there remains a significant growth opportunity in both
the UK and those European markets which are still underpenetrated
by general merchandise discount formats. Our market shares within
individual product categories remain very small which provides scope
for the business to maintain an attractive level of growth in the UK and
as we extend our geographic reach in the years ahead.
Our business is better equipped to grasp this opportunity than it has
ever been before. Operationally we are in very good shape having
invested in our stores, supply chain management and product
assortment. Our product offering has been winning new customers,
not just in new locations but also in existing stores. We had a strong
Spring/Summer season this year, and at Christmas we delivered
strong growth on top of an already very good performance in that
period in the previous year, which contributed to our best-ever
quarterly like-for-like sales performance in our third quarter this year.
Our buying and store operations teams have delivered attractive,
great value products in stores, which are increasingly well set out for
customers with more consistent standards and quality of service. Our
supply chain infrastructure has grown significantly in the last three
years to support our growth and we are benefiting from greater
stability from the two additional distribution centres we commissioned
in 2015. The combination of these things has helped to contribute to
and underpin the stronger trading momentum we have achieved
through the second half of the 2017 financial year and into the early
weeks of the new financial year.
Strategic Development
B&M’s strategy for driving sustainable growth in revenues, earnings
and free cash flow has four key elements and the business has made
good progress during the year with each of these priorities,
strengthening its position as the UK’s leading general merchandise
value retailer:
1. Delivering great value to our customers;
2. Investing in new stores;
3. Developing our international business; and
4. Investing in our people and infrastructure.
*
The directors consider adjusted figures to be more reflective of the underlying business
performance of the Group and believe that this measure provides additional useful
information for investors on the Group’s performance. See reconciliation of adjusted
measures to statutory measures on page 25.
B&M European Value Retail S.A. Annual Report and Accounts 2017
17
CHIEF EXECUTIVE OFFICER’S REVIEW continued
Delivering great value for our customers
B&M has grown fast and built-up scale, but our customer offer
remains a simple one. We sell a wide but disciplined range of
products at everyday low prices which are consistently and
significantly below those offered by both specialist and general
retailers. We offer a range of categories from soft drinks to DIY and
from pet care to stationery, but within each we focus on the
best-selling products. This disciplined approach to ranging is
integral to the efficiency of our business model and supports B&M’s
highly competitive pricing proposition.
We largely source products direct from producers, including major
brands from the large multi-national FMCG companies, as well as our
own exclusive ranges through long-established supplier relationships
in the Far East. Our low cost, uncomplicated but disruptive model
means that we can pass on big savings to our customers.
Our range is constantly changing so customers can always find
something new in store. We also flex a big portion of our store
space from season to season and also in non-seasonal
promotional events for selected product categories. For example we
emphasise toys in the period up to Christmas, gardening in the
Spring and Summer months and non-seasonal promotions during
‘shoulder’ months such as home cleaning products, pet care and
furniture. Customers increasingly see B&M as a destination for
these types of products and more, from Christmas decorations and
gifts to garden furniture and plants. We saw a very strong
performance in each of these categories particularly during 2017, as
well as in DIY and homewares.
Investing in new stores
We know that customers in Bradford and Bedford or Swinton and
Swindon are really very similar to one another; they generally want
the same great value, week-in, week-out on the things they buy
regularly for their homes and families. Making our offer more
accessible to the hundreds of communities that don’t already have
one of our stores today remains therefore a top priority for us. That
is why we opened 53 more new stores in the UK (38 net of closures
and relocations) and a further 19 net new stores in Germany in the
financial year, with between 55 to 65 (40 to 50 in the UK and 15 in
Germany) planned for the financial year ahead.
During the year, we took advantage of opportunities to relocate nine
UK stores, replacing smaller, older, lower contribution Bargain
format stores, many coming to the end of leases, with larger,
modern and in some cases purpose-built Homestores, which have
substantially higher revenue and profit potential. Overall, this activity
delivered a step up in the quality of our store estate. Importantly,
these new store opportunities are at attractive rental levels and our
investment returns continue to be excellent.
As referred to above, the general merchandise discount sector remains
a small, underpenetrated part of the retail landscape and our business
is still under-represented in large areas of the UK. At the time of our IPO
in 2014, we saw the opportunity for up to 850 B&M stores in the UK as
we expanded successfully, both in our heartland regions and
increasingly in the south of the country. Our experience over the last
three years of trading in a wider variety of catchment types, including
across towns and cities in southern England where previously we had
few or no stores, has convinced us that we have more scope for
high-returning expansion than we had assumed. Having looked at the
potential for expansion again in light of the locations where we have
opened stores over the last three years, we are confident today that
there is demand and availability of suitable locations for at least 950
B&M stores in the UK.
We are now targeting new store numbers in the range 40 to 50
stores per annum and looking ahead, a larger proportion of our
new UK stores are likely to be purpose-built. This will mean that
more of our new stores will be developed to our own specification
and will be predominantly in our preferred, larger Homestore
format in retail park locations. Investment returns on these
purpose-built stores also remain highly attractive.
Developing our international business
We are pleased with Jawoll’s progress overall, particularly in
delivering a demanding 19 net new store expansion programme in
the year and a significant increase in Jawoll’s existing supply chain
infrastructure capacity last Summer. Our colleagues in Jawoll
should be congratulated on delivering full year revenues of €212.6m
against €181.5m the prior year, which is a rate of growth that is much
higher than they had experience of prior to becoming part of the
Group.
Progress has also been pleasing in terms of the growth in the
proportion of directly-sourced general merchandise which has
continued to grow.
However, a weak performance in its clothing and footwear category
during the second half of the financial year, linked to unusually cold
winter weather, has slightly depressed an otherwise good set of
Jawoll results. Headline profitability was also affected by the
requirement to take the one-off cost of stock clearance through the
income statement in respect of the inventory in the nine store Knüller
chain acquired by Jawoll in the year prior to refurbishment and
rebranding as Jawoll. We are confident that the absence of these
factors in the current financial year will see margins rebound.
18
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Investing in our people and infrastructure
We have continued to invest in the recruitment of colleagues in the UK
and Germany to support our new store opening programmes. The
total headcount of colleagues in the UK rose from approximately
22,300 to 24,500 and in Germany from approximately 1,200 to 1,500
as at the 2016/17 financial year end.
Outlook
We look forward to the year ahead and beyond with confidence. The
business has made an excellent start to the new financial year, even
allowing for the helpful timing of Easter. We are confident that the first
quarter as a whole will represent a period of continued strong
momentum for B&M.
During the financial year we recruited Andy Monk as our UK Supply
Chain director. Andy brings with him over 30 years of supply chain
distribution and logistics experience.
We have invested in a new warehouse management system in the UK
which we successfully piloted first in one of our 6 distribution centres
and are now in the process of the next phase of rolling it out across
the whole warehouse estate.
In Germany following the commissioning of a significant extension to
the distribution centre at Jawoll’s head office site in Soltau last year, I
am pleased to report that the additional space is fully operational with
the project having been very successfully executed by our Jawoll
team.
Corporate social responsibility
B&M is about doing what we can to help our customers spend less on
everyday things for their homes and families, helping tight household
budgets go further. While this is our key purpose, we also fully
recognise that as a responsible business we have obligations to other
key stakeholders, particularly our colleagues and our suppliers, as
well as to the wider community and the environment.
We have made good progress this year on our broader corporate
responsibility agenda. To highlight a few areas, we have:
• created 2,500 new local jobs in the UK and Germany together,
mainly through our store expansion;
• maintained our commitment to our long-term supplier
relationships;
• continued to recycle high levels of supply chain waste, with 100% of
trade packaging in the UK being recycled and 94.0% in Germany.
We have a strong, high returning business model, a clear and
deliverable strategy for growth and excellent, experienced
management and operational teams. B&M is at the centre of one of
the most appealing sweet spots in retailing today; a winning,
value-led, low cost, focused assortment offer aimed at customers
who enjoy or who need a bargain. Importantly, the improving
operational performance of the business, which has driven a
powerful return of trading momentum over recent months can, we
believe, continue to provide these very appealing qualities to more
customers, more consistently than ever before.
On behalf of the Board, I would like to thank all our colleagues for their
hard work this year. Their passion and loyalty is at the heart of our
current success.
The retail industry remains competitive and there are of course
uncertainties around the broader economy and consumer sentiment,
but we believe B&M is well positioned for whatever challenges and
opportunities lie ahead.
Simon Arora
Chief Executive Officer
24 May 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
19
STRATEGY
Long-term
focus
Aims
£
Progress
Deliver great value to our customers
We offer our shoppers very attractive prices across a
range of both grocery and general merchandise products.
We continue to expand our own label brands in the general
merchandise product categories which has allowed us to continue to
increase our mix of directly sourced products from the Far East.
Within our grocery areas our emphasis is on leading
brands at Every Day Low Prices. Within our general
merchandise areas we look to develop our licensed
brand products and maintain a focus on directly
sourcing these products.
Our direct to retail licensing model, where we use heritage brands to
enhance the product quality and value to the customer, has been
expanded into new areas including electrical goods and small
appliances, kitchenware and general household goods, and motor
and cycling maintenance and accessories.
Future objective
Performance KPIs
We aim to provide great value products to our customers, concentrating
on best-selling lines of branded and private label products.
UK revenue growth
We will continue to invest in modernising and refitting our store estate to
provide our customers with a pleasant shopping experience and in a
safe environment.
+19.4%
UK Like-for-Like sales growth*
Develop our international business
We wish to replicate our variety retailing model in
appropriate markets outside of the UK.
In April 2014 the Group acquired a majority stake in Jawoll
in Germany. We have continued to integrate the Jawoll
business in relation to our sourcing and retail format and to
prepare it for greater expansion.
Jawoll opened 10 new stores by organic growth and 9 new stores from
a small independent chain acquisition this year.
Those 19 stores now take Jawoll’s total estate to 75 stores overall as at
the end of the financial year 2016/17.
Jawoll has completed a significant extension to its main distribution
centre at its head office in Soltau, to provide the necessary supply chain
capacity to support its store opening expansion plans. This extension
was successfully executed and is now operational.
Invest in new stores
We believe that B&M has the potential for at least 950
stores in the UK over the long term and for significantly
increasing our German store estate over the years ahead.
In the UK we have opened 53 new stores in the financial year 2016/17
(38 net of closures and relocations). This includes vacant existing
properties and new build stores.
In Germany our new store expansion in the year was 19 (see further
above).
Invest in our people and infrastructure
The Group invests in recruitment and the promotion of
colleagues as new store expansion continues in both the
UK and Germany.
Opening new stores and refreshing existing ones is an
ongoing programme across our store estates in the UK
and Germany.
We have strengthened our Supply Chain team with the appointment of
Andy Monk as UK Supply Chain Director, and we have continued to invest
in other key functions across our businesses in the UK and Germany.
In the UK we created approximately 2,200 new jobs and in Germany
approximately 300 in the year under review.
We have continued to recognise the need to continually refresh our
existing store estate and we invested £14.4m across the Group in
maintenance capital expenditure as part of a rolling programme of
continuous investment in the store estate, in the financial year 2016/17.
20
B&M European Value Retail S.A. Annual Report and Accounts 2017
We plan to grow our store estate in Germany through organic store
openings by c. 10-15% in store numbers per annum, as well as looking
Germany new store growth
+3.1%
For more information see page 23
+33.9%
For more information see page 18
53
For more information see page 18
+9.4%
For more information see page 19
UK gross new store openings
for in-fill acquisition opportunities.
We will ensure that appropriate investments in infrastructure and people
are made to facilitate that growth.
We look for acquisition opportunities in other European countries where
we believe the business could provide a platform to roll out the B&M
model in these locations, and where we believe the capital invested will
provide an acceptable level of return.
We have a UK target to grow our estate to 950 stores. We currently have
537 stores and we are targeting to open 40-50 stores per annum,
depending upon the availability of suitable locations. The achievement
of this target will provide the UK business with at least another 8 years
of growth.
next 3 years.
Additionally, investments will be made in the HGV fleet and IT systems
to ensure we continue to have a fit for purpose infrastructure.
Growing our estate to 950 stores will require additional colleagues to
work in those stores and the warehouses servicing them. We will
continue to invest to ensure that we have appropriate processes to
attract, retain and incentivise colleagues, as well as continuing to invest
in strengthening the management team and the central head
office functions.
To ensure we can service the store estate in an efficient manner as we
grow, we plan to invest in a new warehouse in the South of the UK in the
New colleagues across the Group
Aims
£
Progress
Deliver great value to our customers
We offer our shoppers very attractive prices across a
range of both grocery and general merchandise products.
We continue to expand our own label brands in the general
merchandise product categories which has allowed us to continue to
increase our mix of directly sourced products from the Far East.
Within our grocery areas our emphasis is on leading
brands at Every Day Low Prices. Within our general
merchandise areas we look to develop our licensed
brand products and maintain a focus on directly
sourcing these products.
Our direct to retail licensing model, where we use heritage brands to
enhance the product quality and value to the customer, has been
expanded into new areas including electrical goods and small
appliances, kitchenware and general household goods, and motor
and cycling maintenance and accessories.
Develop our international business
We wish to replicate our variety retailing model in
appropriate markets outside of the UK.
In April 2014 the Group acquired a majority stake in Jawoll
in Germany. We have continued to integrate the Jawoll
business in relation to our sourcing and retail format and to
prepare it for greater expansion.
Jawoll opened 10 new stores by organic growth and 9 new stores from
a small independent chain acquisition this year.
Those 19 stores now take Jawoll’s total estate to 75 stores overall as at
the end of the financial year 2016/17.
Jawoll has completed a significant extension to its main distribution
centre at its head office in Soltau, to provide the necessary supply chain
capacity to support its store opening expansion plans. This extension
was successfully executed and is now operational.
Invest in new stores
We believe that B&M has the potential for at least 950
stores in the UK over the long term and for significantly
increasing our German store estate over the years ahead.
In the UK we have opened 53 new stores in the financial year 2016/17
(38 net of closures and relocations). This includes vacant existing
properties and new build stores.
In Germany our new store expansion in the year was 19 (see further
above).
Invest in our people and infrastructure
The Group invests in recruitment and the promotion of
colleagues as new store expansion continues in both the
We have strengthened our Supply Chain team with the appointment of
Andy Monk as UK Supply Chain Director, and we have continued to invest
in other key functions across our businesses in the UK and Germany.
UK and Germany.
Opening new stores and refreshing existing ones is an
ongoing programme across our store estates in the UK
and Germany.
In the UK we created approximately 2,200 new jobs and in Germany
approximately 300 in the year under review.
We have continued to recognise the need to continually refresh our
existing store estate and we invested £14.4m across the Group in
maintenance capital expenditure as part of a rolling programme of
continuous investment in the store estate, in the financial year 2016/17.
Strategic Report
Corporate Governance
Financial Statements
How we plan to deliver our objectives:
Future objective
Performance KPIs
We aim to provide great value products to our customers, concentrating
on best-selling lines of branded and private label products.
UK revenue growth
We will continue to invest in modernising and refitting our store estate to
provide our customers with a pleasant shopping experience and in a
safe environment.
+19.4%
UK Like-for-Like sales growth*
+3.1%
For more information see page 23
Germany new store growth
+33.9%
For more information see page 18
UK gross new store openings
53
For more information see page 18
New colleagues across the Group
+9.4%
For more information see page 19
*
Like-for-like revenues includes each store’s revenue for that part of the current period
that falls at least 14 months after it opened; and it is compared with its revenue for the
corresponding part of the previous period. This 14 month approach has been taken
as it excludes the two month halo period which new stores experience
following opening.
We plan to grow our store estate in Germany through organic store
openings by c. 10-15% in store numbers per annum, as well as looking
for in-fill acquisition opportunities.
We will ensure that appropriate investments in infrastructure and people
are made to facilitate that growth.
We look for acquisition opportunities in other European countries where
we believe the business could provide a platform to roll out the B&M
model in these locations, and where we believe the capital invested will
provide an acceptable level of return.
We have a UK target to grow our estate to 950 stores. We currently have
537 stores and we are targeting to open 40-50 stores per annum,
depending upon the availability of suitable locations. The achievement
of this target will provide the UK business with at least another 8 years
of growth.
To ensure we can service the store estate in an efficient manner as we
grow, we plan to invest in a new warehouse in the South of the UK in the
next 3 years.
Additionally, investments will be made in the HGV fleet and IT systems
to ensure we continue to have a fit for purpose infrastructure.
Growing our estate to 950 stores will require additional colleagues to
work in those stores and the warehouses servicing them. We will
continue to invest to ensure that we have appropriate processes to
attract, retain and incentivise colleagues, as well as continuing to invest
in strengthening the management team and the central head
office functions.
B&M European Value Retail S.A. Annual Report and Accounts 2017
21
FINANCIAL REVIEW
Our revenues, gross margin, profit and cash generation all
showed a strong performance in the year.
“The like-for-like store estate
has benefitted from the
operational improvements
in the supply chain leading
to better on-shelf product
availability and strong
seasonal ranging.”
Paul McDonald
Chief Financial Officer
Increase in store estate FY17
+10.3%
Number of stores 25 March 2017
612
2016: 555
Adjusted Profit Before Tax3
£190.1m
+25.6%
2016: £151.4m
22
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Accounting period
The FY2017 accounting period represents the 52 trading weeks to 25
March 2017 and the comparative FY2016 period represents trading for
the 52 weeks to 26 March 2016.
Revenue
The Group revenue in FY2017 was £2,430.7m (FY2016: £2,035.3m), this
represents an increase of 19.4% and on a constant currency basis, an
18.3% increase1.
In the UK, revenues increased by 18.4% to £2,252.3m, principally
driven by the new store openings, including both the annualisation of
revenues from the 74 net new store openings in FY2016 and the 38 net
new store openings in FY2017.
There was a total of 53 new store openings and 15 store closures in the
year. The 53 openings contributed revenues of £152.3m in FY2017, the
new stores have performed well and returns on investment remain
attractive. The 15 store closures include nine relocations, where we
have taken advantage of opportunities to relocate stores to larger,
more modern premises, with higher levels of store contribution. These
relocations allow us to provide our customers with access to our full
offer in those catchments.
Sales in the like-for-like store estate2 grew by +3.1% (FY2016: +0.9%) with a
particularly strong performance in the second half of the year. The
exceptionally strong third quarter performance of +7.2% was followed by
pleasing growth of +2.9% in the fourth quarter, despite the negative
impact of Easter trading falling into our new financial year. In total, we
achieved like-for-like growth of +5.4% during the second half of FY2017.
Some of the factors that had impacted the like-for-like performance in
FY2016 have started to ease, including deflation on grocery retail
prices and the cannibalisation of revenues from the record number of
new store openings in FY2016. We have annualised the FY2016 new
stores openings as the year has progressed and as the economy has
entered a more inflationary environment towards the end of FY2017.
Additionally, the like-for-like store estate has benefitted from the
operational improvements in the supply chain leading to better
on-shelf product availability and strong seasonal ranging.
In our German business Jawoll, revenues grew to £178.4m, which
was a 34.4% increase over the £132.7m achieved in FY2016. In local
currency revenues increased by 17.1% which was driven by the 19
new stores opened in the year and the annualisation of the 6 stores
opened in FY2016 combined with modest like-for-like revenue growth.
Gross margin
Our gross margins increased by 26 basis points to 34.8% (FY2016: 34.5%).
In the UK business the margin increased by 29 basis points. We managed
to mitigate the adverse impact of US Dollar strength through a range of
factors such as increased buying power, some product re-engineering
and an improved sales mix towards higher margin general merchandise.
In Germany we saw a margin deterioration of 55 basis points to 37.3%,
affected by the strength of the US Dollar and the one-off impact of clearing
the entirety of the stock in the nine store chain that we acquired in the year
prior to those stores’ conversion to the Jawoll format.
Operating costs and adjusted EBITDA3
Costs continue to be carefully controlled whilst allowing strategic
investments to be made in the head office functions in both the UK
and German businesses ahead of anticipated future growth. The
operating costs of the Group in FY2017, excluding depreciation and
adjusting costs, grew by 19.7% to £610.9m, including new store
pre-opening costs. The depreciation and amortisation charge grew by
27.4% to £26.0m, largely reflecting the investment in new stores.
In the UK, operating costs excluding depreciation and adjusting costs
increased to £556.0m (FY2016: £471.9m), an increase of 17.8% and costs as
a percentage of revenues decreased by 12 basis points to 24.7%. The new
store opening programme was the principal reason for the cost increases,
driven by the number of new store openings in the year and the
annualisation of costs from the new store openings in FY2016 and the
variable operating costs required to service the new stores.
Additionally, within operating costs the UK business incurred an increase
in fixed occupancy costs of £1.2m in the year, as a result of the
annualisation of costs from the warehouses that were opened part way
through FY2016. For the first time the UK business invested in a national TV
advertising campaign in the run up to Christmas 2016 and some more
localised TV advertising in the last quarter of the year at a total cost of
£4.0m. New store pre-opening costs of £4.6m were £2.4m lower than last
year as a result of the lower number of new store openings.
In Germany, costs excluding depreciation and adjusting costs increased
by 42.1% to £54.9m, at constant currency 23.9%. This reflected the increase
in costs as a result of the 19 stores that were opened in the year, the
annualisation of costs from those stores opened in FY2016 and a further
£1.1m incurred on new store pre-opening costs following the acceleration
in the store opening programme. The business incurred additional costs
associated with investments being made ahead of the planned new store
growth, including those costs associated with the new warehouse as well
as investments in head office teams including the new store acquisition
team.
B&M European Value Retail S.A. Annual Report and Accounts 2017
23
FINANCIAL REVIEW continued
We report an adjusted EBITDA3 to allow investors to understand
better the underlying performance of the business, and the items
that we have adjusted are detailed in note 3 on page 81, they
totalled £3.4m in FY2017 (FY2016 £(3.6)m).
In the UK the adjusted EBITDA3 increased by 23.4% to £223.2m
(FY2016: £180.9m) and in Germany adjusted EBITDA3 increased by
0.4% to £11.7m. The Group adjusted EBITDA3 increased in the year by
22.0% to £234.9m (FY2016: £192.5m) and on a statutory accounting
basis EBITDA3 increased by 18.1% to £231.5m (FY2016: £196.1m).
Financing costs
During the year the Group refinanced its existing debt and
introduced a high yield bond, and we replaced the £440m bank
debt and £150m revolving credit facility with a £300m bank term
loan, maturing in August 2021, a £250m 5-year high yield bond at a
coupon of 4.125% and a new £150m revolving credit facility. The
Group has received a net inflow of cash of £104.8m after fees. The
refinancing has allowed the Group to extend the term on its debt, to
diversify the sources of capital with the introduction of a high yield
bond, whilst ensuring that we have sufficient facilities to operate,
invest and continue to grow the business.
The net interest charge in the year was £22.6m (FY2016: £21.1m),
representing an increase of 7.0%. The interest cost can be split
between the underlying cost of £18.7m which comprises bank and
finance lease interest and interest receivable £17.3m (FY2016:
£19.2m) amortised fees of £1.4m (FY2016: £1.4m). The balance is the
exceptional non-cash cost of £3.7m for fees written off relating to
the previous bank and debt facilities and the non-cash interest
charge on the Jawoll put/call option £0.2m (FY2016: £0.4m).
Profit before tax
The statutory profit before tax was £182.9m, which compares to
£154.5m in FY2016. We also report an adjusted profit before tax to
allow investors to understand better the operating performance of
the business. The adjusted profit before tax3 was £190.1m (FY2016:
£151.4m) which reflected a 25.6% increase.
Taxation
The tax charge for the year was £38.9m (£28.7m in FY2016). The
FY2016 tax figure was impacted by a prior year adjustment of £1.8m
relating to the FY2015 tax return which related to the treatment of
interest on the pre-IPO capital structure and a non-cash credit of
£2.0m relating to the deferred tax on the brand asset as a result of
the future reduction in the rate of corporation tax. The underlying
charge at 21.3% was in line with last year (FY2016: 21.1%). We expect
the tax charge going forward to reflect the mix of the impact of the
tax rates in the countries in which we operate, being 19% in the UK
and 30% in Germany, with the effective rate likely to be
approximately 70 basis points higher, reflecting non-qualifying
expenditure.
As a Group we are committed to paying the right tax in the territories in
which we operate. In the UK the total tax we paid was £213.7m. This is
mostly those taxes which are ultimately borne by the company in the
sum of £121.9m, which includes corporation tax, customs duties,
business rates, employers national insurance contributions and stamp
duty land taxes. The balance of £91.8m are taxes we collect from
customers and employees on behalf of the UK Exchequer which
includes Value Added Tax, Pay As You Earn and employee national
insurance contributions. A detailed breakdown is provided below.
d
e
t
c
e
l
l
o
C
C
o
m
p
a
n
y
UK Tax £213.7m
27.2% Business rates
13.8% Corporation tax
10.0% Customs
5.4%
ER NI
0.6% Other
32.5% VAT
5.9% PAYE
EE NI
4.6%
Profit after tax and earnings per share
The profit after tax was £144.0m compared to £125.8m in FY2016
and the fully diluted earnings per share was 14.3p (FY2016: 12.4p),
being an increase of 15.3%.
On an adjusted profit after tax basis3, which we consider to be a
better measure of performance due to the reasons outlined above,
it was £149.9m which was a 21.5% increase over last year (FY2016:
£123.4m) and the adjusted fully diluted earnings per share* was
14.9p (FY2016: 12.2p), being an increase of 22.1%.
Investing activities
The Group’s net capital expenditure during the year was £50.4m. This
was principally driven by the new store opening programme, with 72
gross stores having been opened in the year, with a capital expenditure
of £28.1m and £4.4m in the UK and German businesses respectively.
We ended the year with 537 stores in the UK and 75 in Germany.
The Group additionally incurred infrastructure expenditure of £3.5m
including the expenditure associated with the warehouse extension
in Germany and new warehouse management software in the UK.
The Group also continues to invest in its existing store estate, and an
additional £14.4m was incurred on maintenance expenditure,
representing 0.6% of revenues, including investments made in store
refits and IT hardware.
We additionally incurred a further £2.4m on acquiring a nine store
chain in Germany.
*
The directors consider adjusted figures to be more reflective of the underlying
business performance of the Group and believe that this measure provides
additional useful information for investors on the Group’s performance.
See reconciliation of adjusted measures to statutory measures
on page 25.
24
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Net debt and cashflow
The Group continues to be strongly cash generative and during the year
the cash flow from operations increased by 23.4% to £210.9m (FY2016:
£170.9m). This reflects the continued growth in EBITDA3 and the tight
control over working capital, with the year end working capital as a
percentage of revenue being 9.2% (FY2016: 9.4%), and the attractive
cash paybacks from the new store opening programme.
During the year the Group paid £151.0m of dividends including a
£100.0m special dividend and there was a net inflow of cash of
£104.8m as a result of the refinancing.
The Group’s net debt in the year has increased to £401.9m (FY2016: £354.2m)
and the net debt to adjusted EBITDA3 has fallen to 1.71 times from 1.84 times
at the end of FY2016, remaining well within our 2.25 times target.
The Board adopted a long-term capital allocation policy in 2016 to provide
a framework to help investors understand how the Group will continue to
balance the funding requirements of a growth business like B&M with the
desire to return surplus capital to shareholders. The Board will continue to
evaluate opportunities to invest and support the growth of the business
along with the scope for any incremental return of capital to shareholders
in the context of that framework.
Ordinary dividend
An interim dividend of 1.9p was paid in December 2016 and it is proposed
to pay a final dividend of 3.9p per share. The total dividend of 5.8p for the
2016/17 financial year reflects the upper end of the dividend policy of 30 to
40% of normalised post IPO earnings**. Subject to approval of the dividend
by shareholders at the AGM on 28 July 2017, the final dividend of 3.9p per
share is to be paid on 4 August 2017 to shareholders on the register of the
Company at the close of business on 23 June 2017. The ex-dividend date
will be 22 June 2017.
** Dividends are stated as gross amounts before deduction of Luxembourg withholding tax
which is currently 15%.
Paul McDonald
Chief Financial Officer
24 May 2017
1
2
3
Constant currency comparison involves restating the prior year Euro revenues using the
same exchange rate as used to translate the current year Euro revenues.
Like-for-like revenues includes each store’s revenue for that part of the current period
that falls at least 14 months after it opened; and it is compared with its revenue for the
corresponding part of the previous period. This 14 month approach has been taken as it
excludes the two month halo period which new stores experience following opening.
EBITDA, adjusted EBITDA and Adjusted Profit are non-IFRS measures and therefore
we provide a reconciliation from the statement of comprehensive income opposite.
EBITDA represents profit on ordinary activities before net finance costs, taxation,
depreciation and amortisation.
Summary operating profit
£ millions
Number of stores
UK
Germany
Total stores
Revenue
Gross profit
%
Adjusted operating costs
UK
Germany
Adjusted EBITDA
%
Depreciation
Interest
Adjusted profit before tax
Exceptional costs
Exceptional interest costs
Profit before tax
2017
2016
%
537
75
612
499
56
555
2,430.7
2,035.3
845.8
34.8%
703.0
34.5%
(556.0)
(471.9)
(54.9)
234.9
9.7%
(26.0)
(18.7)
190.1
(3.4)
(3.9)
182.9
(38.6)
192.5
9.5%
(20.4)
(20.7)
151.4
3.6
(0.4)
154.5
+7.6%
+33.9%
+10.3%
+19.4%
+20.3%
0.3%
+17.8%
+42.1%
+22.0%
+0.2%
+27.4%
-9.4%
+25.6%
-194.2%
+765.6%
+18.4%
Reconciliation of adjusted items
Period to
Profit on ordinary activities before
interest and tax
Add back depreciation and amortisation
EBITDA
Effect of derivatives in cost of sales
Effect of derivatives in administrative
expenses
Adjusted EBITDA
52 weeks ended
25 March
2017
£’000
52 weeks ended
26 March
2016
£’000
205,508
26,015
231,523
1,479
1,890
234,892
175,658
20,426
196,084
–
(3,577)
192,507
For further information and segmental detail of adjusted measures see note 3
to the financial statements on page 81.
B&M European Value Retail S.A. Annual Report and Accounts 2017
25
KEY PERFORMANCE INDICATORS
The key financial performance indicators we use to
monitor the performance of the Group and how we
performed against them are as follows:
Strategy key
Financial KPIs
£
Deliver great value
to our customers
Develop our
international
business
Invest in new stores
Invest in our people
and infrastructure
Total sales growth (%)
Capital expenditure (£m)
19.4%
2017
2016
2015
£50.4m
19.4
23.6
2017
2016
2015
29.5
50.4
56.2
35.7
Rationale
The strategy is to grow our business in new
markets both in the UK and in Germany and
this measure alongside the number of new
store openings demonstrates whether we are
achieving that goal.
2017 Performance
The business grew revenues by 19.4% and store
numbers by 10.3% and we remain on track.
Rationale
Given our growth is mainly derived from the
investment in new stores, we monitor capital
expenditure to ensure that expenditure on new
store investments is not excessive and that we
are also investing sufficient capital to maintain
the existing store estate.
2017 Performance
We incurred £50.4m of net capital expenditure
in the year which was within our budget targets.
£
Adjusted EBITDA (£m)*
Adjusted EBITDA (%)*
£234.9m
9.7%
2017
2016
2015
192.5
171.4
234.9
2017
2016
2015
9.7
9.5
10.4
Rationale
In addition to growing sales as we open
new stores, we want to ensure that the sales
growth is profitable and we measure adjusted
EBITDA*.
Rationale
In order to ensure that we are not diluting
our earnings as we expand our business, in
addition to the cash adjusted EBITDA* we also
measure this as a percentage.
2017 Performance
The Group’s adjusted EBITDA* grew by +22.0%,
which is slightly higher than the sales growth
and our strategy remains on track.
2017 Performance
The Group’s Adjusted EBITDA* grew by 21 basis
points to 9.7%.
£
£
*
The directors consider adjusted figures to be more reflective of the underlying business performance of
the Group and believe that this measure provides additional useful information for investors on the Group’s
performance. See reconciliation of adjusted measures to statutory measures on page 25.
26
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Financial KPIs
Non-financial KPIs
Adjusted diluted earnings per share (p)*
UK like-for-like sales growth (%)*
Net new stores opened – 2017
57
UK market share
c.0.7%
14.9p
2017
2016
2015
+3.1%
14.9
2017
3.1
12.2
10.2
2016
0.9
2015
4.9
Rationale
We recognise that it’s important to our investors
to grow our earnings per share as well as our
adjusted EBITDA*, since it’s a measure after we
have taken account of depreciation, interest
and tax charges.
2017 Performance
The adjusted diluted earnings per share* grew
by 22.1%.
£
Rationale
Although the main driver of growth in the
Group is the new store opening programme,
we are cognisant of the fact that we do not
want to see any deterioration in the profitability
of the existing store estate. The main indicator
to ensure that the profitability of existing store
estate is not deteriorating is like-for-like sales.
2017 Performance
We grew our UK like-for-like sales by +3.1%,
which was a pleasing performance given the
UK market remains relatively flat.
Cash generated from operations (£m)
Profit before tax (£m)
£210.9m
£182.9m
2017
2016
2015
170.9
152.9
210.9
2017
2016
2015 39.9
182.9
154.5
Rationale
In addition to monitoring EBITDA* growth, we
are committed to ensuring that we continue
to be efficient in generating cash. We monitor
this to ensure that we are actively managing
our working capital and in particular our stock
levels.
Rationale
We monitor our overall profit before tax growth
in addition to EBITDA so that we monitor our
depreciation and amortisation expenses and
our interest costs.
2017 Performance
We grew our profit before tax by 18.4%.
2017 Performance
We grew our cash from operations by 23.4% in
the year which was higher than the adjusted
EBITDA* growth and we remain on track.
£
£
B&M European Value Retail S.A. Annual Report and Accounts 2017
27
PRINCIPAL RISKS AND UNCERTAINTIES
Risk management
The following principal risks and uncertainties
could have an impact on our business
model and strategy. Mitigating steps aimed
at managing and reducing those impacts
are being employed by the Group as
summarised below.
Overall responsibility
Risks and mitigation are reviewed as part of the oversight by the Audit & Risk Committee of the system of internal controls and reported on
to the Board which takes overall responsibility for risk management.
The Internal Audit function of the Group reports on the effectiveness of internal control procedures to the Audit & Risk Committee as part of
its annual internal audit plan, taking into account current business risks.
Risk management
Identify and evaluate
The responsibility for identifying and
evaluating new and emerging risks and
mitigating actions lies with management.
The Audit & Risk Committee, with the
support of the Internal Audit department
and the General Counsel, is responsible
for monitoring risks and mitigating actions
and for reporting matters of concern to
the Board.
Action plan
The Board oversees the risk management
of the Group. It evaluates the
recommendations made by the Audit
& Risk Committee and determines
the framework of the type of controls
and mitigating steps required to be
implemented, in the context of how those
risks could impact the overall objectives of
the business and risk appetite.
Implementation
The responsibility for implementation of
processes and controls in relation to the
management of risk is delegated by the
Board to the executive and operational
senior management of the UK and
German businesses.
The Internal Audit department reports
on the progress of implementation by
management of recommendations made
to them, to the Audit & Risk Committee
at each meeting during the year, being a
continuous cycle of review.
28
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Risk appetite
The Group’s framework for managing its consideration of risk appetite forms part of the annual risk management cycle and is used to drive and
inform actions undertaken in response to the principal risks identified by the Board. Within this framework, the Group’s appetite for risk is
defined with reference to the expectations of the Board for both commercial opportunity and internal control and it is used to inform the Group’s
annual internal audit plan.
Tolerance
Medium
Low to medium
Low
Extremely low
10
Category of risk
Strategic
Operational
Financial
Compliance
Risk management
High
t
c
a
p
m
I
WMS
Low
Low
9
8
7
4
11
12
3
1
5
13
2
6
Likelihood
High
Changes in principal risks
Following review by the Board this year:
•
the UK’s exit from the EU has been added as a principal risk as
there are uncertainties in the UK generally in relation to the
outcome of the exit negotiations and how that might affect
matters such as the economic and regulatory environment,
customs duties, availability and cost of labour in the UK;
• during the last year a new warehouse management system
(‘WMS’) was implemented as a pilot initially at 1 of our 6 UK
warehouses. The pilot implementation was successful and the
system is now in the process of being rolled out across the rest
of the UK warehousing estate. The new WMS system is no
longer considered to be a principal risk, as indicated on the
heat map above going forward.
B&M European Value Retail S.A. Annual Report and Accounts 2017
29
PRINCIPAL RISKS AND UNCERTAINTIES continued
Risk type
Risk No
Description
Risk mitigations
Movement
Competition
Economic
environment
IT systems,
cyber security
and business
continuity
1
2
3
Regulation and
compliance
4
Credit risk and
liquidity
Commodity
prices/cost
inflation
Supply chain
5
6
7
The Group operates in a highly
competitive retail market both in
the UK and Germany and this
could materially impact the Group’s
profitability and limit the growth
opportunities.
A reduction in consumer
confidence resulting in a fall in
customer spending as a result of
the prevailing macro-economic
conditions in the markets in which
we operate.
The Group is reliant upon key
IT systems, and disruption to
these would adversely affect the
businesses operations. Data
protection failure may lead to
a potential prosecution and
reputational damage to the brand.
This risk also encompasses the
IT Security risk and the risk of
management over-ride of controls.
This risk has increased as cyber
crime is a threat to all organisations
and cyber attacks are increasing in
scale and sophistication.
The Group is exposed to regulatory
and legislative requirements,
including those surrounding the
import of goods, the Bribery Act,
Modern Slavery Act, health &
safety, employment law, data
protection, the environment and
the listing rules, which could lead to
financial penalties and reputational
damage.
This risk has decreased as B&M
have introduced new anti-bribery
& corruption measures which
have been issued to Buyers and
suppliers.
The Group’s level of indebtedness
and exposure to interest rate and
currency rate volatility could impact
the business and its growth plans.
This risk has increased as
currency exchange rate volatility
has increased due to the UK’s
planned exit from the European
Union.
Escalation of costs within the supply
chain arising from factors such
as increases in raw material and
wage costs. Additionally, increased
fuel and energy costs impacting
on distribution and the store and
warehouse overhead base.
The lead times in the supply chain
could lead to a greater risk in
buying decisions and potential
loss of margins through higher
markdowns. Disruption to the
supply chain arising from civil
unrest, natural disasters, ethical or
quality standards failure could lead
to reputational damage and a risk
that consumers may be harmed.
• Continuous monitoring of competitor pricing and product offering.
• Development of new product ranges within the product categories to
identify new market opportunities to target new customers.
• We offer a range of products and price points for consumers which allows
them to trade up and down.
• We maintain a low cost business model that allows us to maintain our selling
prices as low as possible.
• We have an extensive forecasting process that enables actions to be
undertaken reflecting the economic conditions.
• All critical business systems have third party maintenance contracts in place
and are industry standard.
• We utilise the services of a third party IT consultancy support to ensure that any
investments made in technology are fit for purpose; IT investments/budgets
are approved at Board-level.
• We have a disaster recovery strategy.
• We have an on-going PCI compliance strategy.
• IT Security is monitored at board level and includes penetration testing and up
to date security software.
• Significant decisions for the business are made by the Group or operational
boards with segregation of duties enforced on key business processes, such
as the payables process, and a robust IT control environment is in place.
• We have a number of policies and codes across the business, including a
code of conduct that incorporates an anti-bribery & corruption policy, outlining
the mandatory requirements within the business. These are communicated
to the staff via an employee handbook which is made available to anyone
joining the company.
• Operational management are responsible for liaising with the General
Counsel and external advisors where required to ensure that we identify and
manage any new legislation.
• We have an internal audit function, and a whistle blowing procedure and
policy which allows colleagues to confidentially report any concerns or
inappropriate behaviour within the business.
• A treasury policy is in place to govern foreign exchange, interest rate exposure
and surplus cash.
• Regular weekly cash flow forecasts are produced and monitored.
• Forward looking cash flow forecasts and covenant test forecasts are prepared
to ensure sufficient liquidity and covenant headroom exists.
• Freight rates, energy and currency are bought forward to mitigate volatility
and allow the business to plan and maintain margins.
• Wage increases are offset where possible by productivity improvements.
• Forecasts and projections produced by the business include the expected
impact of the national living wage and therefore the Board’s strategic
planning takes account of these effects.
• An experienced sourcing team is responsible for maintaining an efficient
and effective supply chain.
• A range of alternative supply sources are maintained across the product
categories and we are not over reliant on any single supplier.
• The combination of individual buyers and supplier employees conduct
factory visits.
30
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Risk type
Risk No
Description
Risk mitigations
Movement
Stock
management
Infrastructure
Key
management
reliance
Store
expansion
International
expansion
UK exit from
the European
Union
8
9
10
11
12
13
Ineffective controls over the
management of stock could impact
on the achievement of our gross
margin objectives. Lack of product
availability could impact on working
capital and cashflows
• Highly disciplined SKU count by season and effective and regular markdown
action on slow moving product lines.
• Initial stock orders do not exceed c. 14 weeks of forecast sales and action is
undertaken after c. 4 weeks of trading to either repeat the order, refresh the
product design or delete the product line.
• Consistent levels of stock cover by product category are maintained through
regular reviews of open to buy, supported by the disciplined SKU count.
The Group could suffer the loss of
one of its warehousing facilities
which would impact short/
medium term trading and could
materially impact the profitability of
the business. Failure to maintain
and invest in the warehousing
and transport infrastructure as the
business continues to grow the
store portfolio.
This risk has increased as B&M’s
store expansion means that the
loss of a warehouse would impact
on a larger number of stores and
customers.
The Group is reliant on the
high quality and ethos of the
executive team as well as strong
management and operational
teams.
• Forward plans are in place for additional warehousing capacity to support
the new store opening programme. The Group in the UK has 6 separate
warehousing locations and conducts disaster recovery planning.
• The Group maintains adequate business interruption and increased cost of
working insurance in the event of such a loss.
• The key senior and operational management are appropriately incentivised
through bonus and share arrangements such that talent is retained.
• The composition of the executive team is kept under constant review to
ensure that it is appropriate to the delivery of the Group’s plans.
The ability to identify suitably
profitable new store locations is key
to delivering our growth plans.
• Our Chief Executive Officer actively monitors the availability of retail space with
the support of internal and external property acquisition consultants.
• The flexibility of the trading format allows us to take advantage of a range
store sizes and locations.
• Each new store opening is approved by the CEO ensuring that property risks
are minimised and ensuring that lease lengths are appropriate.
• Where new locations may impact on existing locations, the cannibalisation
effects are estimated and then monitored and measured to ensure an overall
benefit to the Group is realised.
• Significant international experience on the main Board. The senior leadership
team in Germany is experienced and incentivised.
• Clear focus on markets in which we operate to ensure they are appropriate
for value retailing and the product ranges are developed and selected by
local buying teams rather than through the parent company.
• Continuing to invest in both the infrastructure and technology of our
international subsidiaries.
• Monitoring and investigating potential new opportunities for growth
in strategically identified locations.
• Short-term exchange rate volatility has been mitigated by our currency
forward position. Any continued volatility will affect the economic inflationary
environment as a whole.
• Regarding the more fundamental changes, the level of risk is currently
unknown due to significant uncertainty regarding the outcome of the exit
negotiations and British leadership’s position on these.
• The board will continue to monitor developments and understand the
interpretations with respect to potential risks, and then act accordingly.
NEW
The ability to develop into new
territories is important to the
Group’s future growth plans.
Expanding into new markets
creates additional challenges
and risks.
The UK’s planned exit from the
European Union has several
potential impacts in the areas
of economic & regulatory
environment; withholding tax paid
on internal dividends; import of
goods due to currency exchange
volatility & increased import duties;
availability & cost of labour; and
several potentially as yet
unknown impacts.
Movement key
Increased risk
No change
Decreased risk
B&M European Value Retail S.A. Annual Report and Accounts 2017
31
PRINCIPAL RISKS AND UNCERTAINTIES continued
Viability statement
In accordance with the UK Corporate Governance Code, the
Directors have assessed the viability of the Group. This assessment
has been based upon the Group’s three year strategic plan
(the”plan”) and has taken into account the current position of the
Group, the principal risks and uncertainties as detailed on pages 30
and 31 of the strategic report and the Group’s prospects.
In making their assessment the Directors considered:
•
the Group’s current balance sheet, its strong track record of
generating operational cash flows and returns to shareholders
and stress testing of the key trading assumptions within the
Group’s plan;
the potential impact of one or more of the principal risks set out
on pages 30 and 31 occurring in the period on the Group’s
business model, future trading expectations and liquidity; and
the likely degree and effectiveness of possible mitigating actions
in relation to the principal risks.
•
•
Going concern statement
As a discount retailer, the Group is well placed to withstand volatility
within the economic environment. The Group’s forecasts and
projections, taking into account reasonably possible changes in
trading performance, show that the Group will trade within its
current banking facilities. After making enquiries, the Directors are
confident that the Group has adequate resources to continue its
successful growth. Accordingly, they continue to adopt the going
concern basis in preparing the financial statements.
The stress testing undertaken included the flexing of a number of
key assumptions within the three year plan, namely future revenue
growth, including both like-for-like revenues and revenues from the
new store openings, gross margins, operating costs, the impact of
interest rates and working capital management, which may be
impacted by one or more of the principal risks to the Group. A
number of challenging but plausible scenarios which aggregated
these individual assumptions were reviewed by the Board.
We operate in a competitive retail environment and need to be
able to react to changes in retail markets and consumer trends.
Accordingly we set our strategic plan on a 3-year cycle, which is
also common in the retail industry.
Based on the assessment referred to above, the Directors confirm
they have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over the
next three years to 28 March 2020.
32
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
CORPORATE SOCIAL RESPONSIBILITY
Our approach
We are committed to operating our
business as a good corporate citizen,
which means managing environmental,
social and ethical business matters in a
way which is responsible, progressive
and recognises the interests of all our
stakeholders.
Packaging waste recycled
by the Group in 2017
99.4%
+101bps
2016: 98.4%
B&M’s approach to CSR is to look where we can for continuous
improvement in all our areas of operation. This includes:
• providing job opportunities through our continued expansion in local
•
communities and central operations;
training and career progression opportunities to help colleagues
step-up to the next level and retain them in our business;
• maintaining and building on long term trading relationships with our
•
suppliers and promoting ethical and responsible trading
relationships with them;
in relation to the environment, monitoring our existing operations
and investing in initiatives which help to limit our impact overall
where feasible; and
• supporting local communities by contributing to good causes on a
regional and more localised level.
B&M European Value Retail S.A. Annual Report and Accounts 2017
33
CORPORATE SOCIAL RESPONSIBILITY continued
Keeping costs and unnecessary waste down throughout our supply
chain operations, both from sourcing to port and from distribution
centres to stores, is a key component of our business model. This
approach is an example of what we mean in practical terms about
actually being a ‘good corporate citizen’ at B&M, by delivering both
cost and environmental efficiency throughout our business as it
continues to expand and grow at a considerable pace.
Customers
B&M is about doing what we can to help our customers get better
value for money on everyday and other items for their homes and
families and helping tight household budgets go further. At the heart
of this and underpinning our aim to deliver value for money to our
customers day-in, day-out, is a passion for reducing waste and
unnecessary consumption wherever we can, to keep costs down and
at the same time ensure that we have as sustainable and
environmentally friendly a business as possible.
We work hard to provide a high quality customer experience for
shoppers across all our stores in the UK and Germany. We invest in
our stores to present them in a light, clean and tidy format, with new
store fit-outs and refurbishments including investments in LED lighting
and refreshed floor coverings. This provides environmental benefits in
terms of energy consumption (as referred to below) as well as an
enhanced store environment for our customers to shop in.
We also aim to provide customers with a fun and exciting shopping
experience and our store colleagues are focussed on taking a helpful
and friendly approach with customers so they enjoy coming back to
our stores time and time again. Our ‘no quibble’ customer returns
policy highlights our emphasis on great value for money and good
quality rather than just aiming to be cheaply priced.
Environment
We are committed to try and minimise where we can the
environmental impacts of our retailing and distribution operations. In
particular this relates to management of waste recycling, utility usage
and fuel efficiency relating to our carbon footprint. Our performance
and initiatives in each of those areas in the year are set out below.
Packaging recycling
We have dedicated facilities to recycle waste at our warehousing
locations. They allow us to collect waste cardboard, plastic, metal and
wood from our 537 stores in the UK back to our central distribution
locations. The main source of waste comes from packaging. We seek
with our suppliers to minimise where we can the packaging of
products beyond what is necessary for the safe carriage of them.
64.2% of waste in our UK business in the financial year 2016/17 was
directly recycled through our in-house facilities. This was an increase
on the previous financial year which was 63.7%.
The remainder of the waste is processed by a specialist third party for
recycling, which leads to a further 35.8% of waste being recycled.
In total for the year under review we are pleased to report that 100% of
our waste in the UK was recycled. This was an increase from the
previous financial year of 99.2%, as even our residual waste is
recycled into energy production.
Our German business, Jawoll recycled 94.0% of its waste packaging
in the year. This was a significant increase from the previous financial
year which was 79.77%.
The total level of packaging waste recycled by the overall Group in the
financial year 2016/17 was 99.4%.
Carrier bags
We have seen an overall reduction of carrier bag usage across our UK
stores following the 5p carrier bag levy which was introduced in
England and Wales in October 2015.
We donate the proceeds from the levy in relation to the carrier bags
used to a number of good causes. Colleagues across the UK business
were consulted on appropriate recipients of charitable grants from
the levy proceeds. In the financial year 2016/17 we have donated
over £960,000 to a range of charities, including children’s hospitals,
hospices, air ambulance and educational and arts trusts, often being
at a regional level in different parts of the UK as well as some national
charities.
Greenhouse gas emissions reporting
In the year around 79% of our carbon footprint in the UK is as a result
of our electricity and gas usage from our stores and our warehouse
facilities. Diesel accounts for the remaining 21%. Our store estate in
both the UK and Germany is continuing to increase at a significant
rate and is expected to do so into the future also. Consequently
therefore our overall carbon footprint has and will inevitably continue
to increase.
We express our annual emissions as a quantifiable factor by
reference to our revenues as the basis for our intensity ratio.
Scope 1 GHG emissions have been calculated based upon the
quantities of fuel purchased for our commercial fleet and Scope 2
GHG emissions are calculated from electricity and gas usage and
then using the published factors.
In the UK our overall intensity ratio has improved by 9.2% to
47.19 T/CO2. The intensity ratio for Jawoll in Germany improved by
16.8% to 79.79 T/CO2 and for the overall Group for the period there
was an improvement of 9.6% to 49.58 T/CO2.
34
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Greenhouse gas data
FY2017 relates to the period from April 2016 to March 2017 and FY2016 relates to the period from April 2015 to March 2016:
Scope 1
Scope 2
Total
UK
22,377
FY2017
GER
802
TOTAL
UK
23,179
23,902
83,910
13,433
97,343
106,287
14,235
120,522
75,014
98,916
FY2016
GER
639
12,115
12,753
Total
24,541
87,129
111,669
%
UK
-6.4%
11.9%
7.5%
%
GER
25.4%
10.9%
11.6%
%
Group
-5.6%
11.7%
7.9%
FY2017
FY2016
%
%
%
TCo2/£m
TCo2/£m
TCo2/£m
TCo2/£m
TCo2/£m
TCo2/£m
UK
GER
Group
9.94
37.26
47.19
4.49
75.30
79.79
9.54
40.05
49.58
12.56
39.42
51.98
4.80
91.09
95.89
12.05
42.79
54.85
-20.9%
-5.5%
-9.2%
-6.5%
-17.3%
-16.8%
-20.9%
-6.4%
-9.6%
Scope 1
Scope 2 = Elec & Gas
Total
Tonnes CO2 / £m Revenues
We have a number of on-going initiatives to reduce our carbon footprint:
• as we purchase new cars for our company car fleet, we are moving to
either hybrid or low emission cars. Given that these have lower C02
emissions, and currently 51% of our car fleet are now hybrid models.
We plan to increase this level by a further 10-15% as company cars
become due for replacement;
• on directly imported merchandise from the Far East, we use slow
steamer container ships which are more environmentally friendly;
• our UK warehouses are based in the North West of England and
approximately 70% of imported goods are shipped to the Port of
Liverpool, thereby reducing the extent of overland transport from
ports in the South of England;
• we invest in energy efficient LED lighting in our new stores, and as
part of existing store estate maintenance programme we invest in
switching to LED lighting;
• we continue to upgrade our transport fleet and we have recently
placed an order for delivery of new HGV tractor units that have the
latest fuel efficient engines;
• we have continued to invest in double-decker trailers and we have
recently placed an order for new “wedge” trailers which increase
trailer capacity by 20% for our store delivery HGV fleet to maximise
transport utilisation and therefore minimise distribution mileage
travelled; and
• additionally to improve the efficiency of our fleet and save on miles
driven, fuel and emissions we are introducing a new transport
scheduling system to optimise routes and reduce mileage.
Suppliers
We have a significant number of long standing relationships with our
suppliers. We regard our suppliers as business partners in terms of
our relationships and dealings with them. We like to maintain simple,
transparent net prices and to minimise the use of rebates and
retrospective discounts.
We use a standard set of terms and conditions of purchase, and provided
the goods meet relevant quality and safety standards, we will pay the
supplier within the agreed payment terms, and our import suppliers are
normally paid in advance of the goods arriving into the UK.
It is important, both in terms of ensuring our products are safe and fit
for sale and that the factories we use comply with local laws and
regulations, that our customers can be assured of the safety, quality
and integrity of the products they buy from our stores.
In relation to anti-slavery and human trafficking, we prohibit slavery,
forced labour and human trafficking of any kind in relation to our
business and supply chain. We support the promotion of ethical
business practices and policies to protect workers from any kind of
abuse or exploitation in relation to our business and supply chain.
In the last year we have taken the following steps in relation to our
policy on anti-slavery and human trafficking:
• we have communicated our Workplace Policy Statement to our
suppliers, sourcing agents and employees, which sets out the
standards and principles which we expect our suppliers and
employees to adhere to in relation to our supply chain; and
• we have revised our standard terms and conditions of purchase,
making it a condition that our suppliers adhere to our Workplace
Policy standards, which enhances the profile and importance of
the principles and standards we require them to agree to as a
condition of their trading relationships with us.
A copy of our anti-slavery policy statement and our Workplace Policy
are available under the Corporate Responsibility section of our
websites at www.bmstores.co.uk and www.bandmretail.com
In relation to the Group’s assessment of risk, a balance is drawn
between reasonable reliance on blue-chip brand suppliers who have
their own comprehensive procedures and policies in place, and, those
where other forms of verification processes are required by B&M or
our sourcing agents.
B&M European Value Retail S.A. Annual Report and Accounts 2017
35
CORPORATE SOCIAL RESPONSIBILITY continued
The vast majority of products which are imported into the UK by B&M
are sourced from China. These are mainly machine manufactured
goods, as opposed to labour intensive handmade products.
Where necessary overseas suppliers are required by B&M or its sourcing
agents to provide social compliance reports, as a check on compliance
with local laws and regulations including labour practices.
Employees
We now employ over 26,000 people, the vast majority of which are
based in the UK. We look to ensure that all colleagues are treated
fairly and with respect, that no employee is discriminated against on
grounds of gender, race, colour, religion, disability, sexual orientation
and that B&M is recognised as a responsible employer providing all
our colleagues with a great place to work.
B&M’s main Hong Kong based sourcing agent and, where
practicable, members of our UK buying team, visit new suppliers also
as part of our verification processes.
In financial year 2016/17 we have created over 2,200 new jobs in our UK
stores. With our continued store roll out plans for the year ahead we will
continue to create jobs in various communities in the UK where those
new store openings take place.
In the event of any suspected failure by a supplier to comply with our
Workplace Policy Statement, we will then investigate the
circumstances of it with the supplier. In the event of a breach of our
policy being identified as a result of such an investigation, we will
review what appropriate remedial action we require the supplier to
undertake and also determine on a case by case basis whether our
trading relationship with that supplier should be monitored,
suspended or terminated.
We continue to strive to find effective ways of improving
communication and adherence to ethical business practices and
assessment of risks and always welcome feedback from all
stakeholders in relation to our business. Our policies, procedures and
approach to verification processes are geared toward what we think
are balanced and reasonable, practical and effective.
Health and safety
The Board has overall responsibility for ensuring that we maintain
high standards of health and safety in our business. The Board and
the executive management monitor on a monthly basis key
performance indicators in relation to trends in the business, including
reports on the number of accidents and those reported to the Health
and Safety Executive.
We have a dedicated health and safety team of qualified
professionals who are responsible for ensuring that we comply with
current statutory requirements and that our health and safety policy is
communicated to all our colleagues.
In the financial year 2016/17 there were 119 reported accidents (0.2 per
store) reportable to the Health & Safety Executive, (FY2016: 46 reported
accidents and 0.1 per store), which should be viewed in context of
196 million shopper visits per annum.
Our apprenticeship programme across our UK stores now has over
350 colleagues enrolled.
We also have a successful initiative focused on getting the long-term
unemployed back into work. In the year under review, 96 long term
unemployed people secured a role within B&M.
We develop our own talent from within our own business wherever
we can, under our Step-Up programme in the UK. Under this
programme we encourage our store colleagues to put themselves
forward to progress to deputy and store manager positions.
We reward our store management teams through an annual bonus
scheme and we also run regular incentive schemes to drive
performance and excite the teams. B&M also has a share incentive
plan which is open to all employees after 12 months service to take-up
the opportunity to participate in the future success of B&M.
We communicate to our teams through our newsletter, the “B&M
Standard”, with updates on business strategy, new stores, new
products, and the work of our support centre teams.
National Living Wage
The National Living Wage was introduced in April 2016 and we have
included the impact of it into our business model and plans. We have
seen some increase in store wage costs which we have absorbed and
made some productivity improvements to mitigate the overall impact.
At B&M we want to attract and retain great people; they make a real
difference to our business. The implementation of the living wage
supports this aim by ensuring our teams are motivated. We anticipate
that we will also see benefits through higher retention rates, and
therefore lower staff turnover, which reduces the cost of recruitment and
training new colleagues and brings improved productivity as a result.
36
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Diversity
Under B&M’s equal opportunities policy we recognise and actively
encourage the benefits of having a diverse workforce across our
business. Our Board comprises one female member who is an
Independent Non-Executive Director and Chair of the Board’s
Remuneration Committee. Full details of the composition of B&M’s
Board are set out on pages 38 and 39. Below the Board and at the
senior management level the percentage of employees who are
female increased to 29.2% from 19.0% in the previous year, and for all
employees the female percentage of colleagues increased to 55.3%.
Directors
Senior Managers
All Employees
Male
Female
7
17
11,601
1
7
14,358
Community
We are keen to ensure that B&M plays an important part in the life of
the places where we trade. We have an internal team to manage the
distribution of the proceeds of the carrier bag levy to a variety of local
(as well as national) worthy causes as referred to above on page 34.
This helps us to build relationships within communities where we
operate our stores and our store colleagues’ work and live. When we
open a new store, we like to try and find a ‘local hero’ as a member of
the local community known for their charitable or other work in the
community, to perform the ribbon cutting ceremony on the opening
day, to support their good work within the local community.
At a regional and national level, we are proud sponsors of ‘Mission
Christmas’, an initiative run by Cash4Kids, a children’s charity. In
addition to sponsorship funding, our stores in participating towns
act as collection points for toys and gifts to be distributed to
underprivileged children at Christmas. The appeal, in which we play
an important part, was able to distribute more than £15m of gifts and
vouchers in Christmas 2016.
The Company’s Strategic Report is set out on pages 1 to 37. Approved
by the Board on 24 May 2017 and signed on its behalf by:
Simon Arora
Chief Executive Officer
B&M European Value Retail S.A.
B&M European Value Retail S.A. Annual Report and Accounts 2017
37
BOARD OF DIRECTORS
The Board of Directors of B&M European Value Retail S.A.
Sir Terry Leahy
Non-Executive Chairman of the Board
and Chairman of the Nomination Committee
Sir Terry joined the B&M Group as Non-Executive Chairman on 6
March 2013. He brings with him a wealth of retailing and senior
executive experience, having worked at Tesco for 32 years during
which time he served in a number of senior positions, including Chief
Executive Officer from 1997 to 2011. He is currently a senior adviser
to private equity firm Clayton, Dubilier & Rice LLC, Non-Executive
Chairman of BUT in France and a Non-Executive Director of Motor
Fuel Group. Sir Terry is the Chairman of the Board of Directors of B&M
and he also chairs the Nomination Committee. Age 61.
Simon Arora
Chief Executive Officer
Simon has been Chief Executive Officer of the B&M Group since
1 December 2004. He has a background in consumer goods,
corporate finance and consulting having been a co-founder and
Managing Director of wholesale homeware business, Orient
Sourcing Services, before acquiring B&M jointly with his family
and prior to that holding various positions with McKinsey & Co.,
3i and Barclays Bank. Simon is also a member of the Nomination
Committee of B&M. Age 47.
Paul McDonald
Chief Financial Officer
Paul is a chartered certified accountant and has over 20 years’
experience in value and discount retailing. He joined the B&M Group
as Chief Financial Officer on 3 May 2011. He has held senior financial
management roles at Littlewoods, Ethel Austin and TJ Hughes
and carries with him a depth of experience and skills in financial
management and business operations in this sector. Age 51.
Thomas Hübner
Senior Independent Non-Executive Director
Thomas has over 28 years’ experience in the European retail sector,
during which time he has held senior executive management roles
in pan-European business operations of Carrefour, Metro and
McDonald’s in Europe. He is currently Chairman at Burger King SEE,
Independent Non-Executive Director of Geberit, Advisory Board
Member of VR Equitypartner and Director of Panda Retail Company
(Jeddah, Saudi Arabia). Thomas is the Senior Independent Director
of B&M and a member of the Audit & Risk Committee and the
Nomination Committee. Thomas was appointed to the Board on
29 May 2014 and is aged 59.
38
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Kathleen Guion
Independent Non-Executive Director
and Chair of the Remuneration Committee
Kathleen’s experience in the retail sector spans more than 40 years,
during which time she has held senior executive management
positions in retail operations in United States retail chains involved in
rolling-out large expansion programmes. She was division president
and executive vice president of Dollar General Corporation from
2003 to 2011, and held senior positions in E-Z Serve Corporation,
7-Eleven Corporation, Duke and Long Distributing and Devon
Partners. She is currently a Non-Executive Director and Chairperson
of the Nominating and Governance Committee of the True Value
Company in the US. Kathleen chairs the Remuneration Committee
and is a member of the Nomination Committee of B&M. Kathleen
was appointed to the Board on 29 May 2014 and is aged 65.
Harry Brouwer
Independent Non-Executive Director
Harry has over 30 years’ experience working in the FMCG supply
chain sector, during which time he has held a number of senior
executive management, marketing and customer development
positions in national, pan-European and international businesses
of Unilever. He is currently the Executive Vice President of Unilever
Food Solutions globally and prior to that held senior management
roles with Unilever in Germany, Austria, Switzerland, Benelux, UK,
Ireland, the United States and Asia. Harry is a member of the Audit &
Risk Committee, the Remuneration Committee and the Nomination
Committee of B&M. Harry was appointed to the Board on 29 May
2014 and is aged 58.
Ron McMillan
Independent Non-Executive Director
and Chairman of the Audit & Risk Committee
Until 2013 Ron worked in PwC’s assurance business for 38 years and
has deep knowledge and experience in relation to auditing, financial
reporting, regulatory issues and governance. He was the Global
Finance Partner and Northern Regional Chairman of PwC in the UK
and Deputy Chairman of PwC in the Middle East and acted as the
audit engagement leader to a number of major listed companies.
He is the Senior Independent Director and Audit Committee
Chairman of N Brown Group PLC, SCS PLC and 888 Holdings PLC.
Ron is also Chairman of Welcome to Yorkshire. Ron chairs the Audit
& Risk Committee and is a member of the Remuneration Committee
and the Nomination Committee of B&M. Ron was appointed to the
Board on 29 May 2014 and is aged 64.
David Novak
Non-Executive Director
David has over 25 years’ experience in private equity and corporate
finance, and has held a number of Non-Executive Directorships in
investee companies which also include B&M, having been appointed
as a Non-Executive Director of B&M on 27 November 2012. He is
a partner at Clayton, Dubilier & Rice LLC (“CD&R”) responsible for
CD&R’s European business and is a member of CD&R’s Investment
and Management Committees. David is a Non-Executive Director of
Mauser and Kalle in Germany and Motor Fuel Group in the UK. David
was previously a Non-Executive Director of British Car Auctions, Jafra
Cosmetics International Inc., Brakes Group and HD Supply among
others and a member of the Supervisory Board at Rexel. David serves
as Chair of the American School in London. Age 48.
B&M European Value Retail S.A. Annual Report and Accounts 2017
39
CORPORATE GOVERNANCE STATEMENT
Introduction
This report sets out the main elements of the Company’s corporate governance structure and how it complies with the UK Corporate
Governance Code. It also includes information required by the Listing Rules and the UK FCA Disclosure and Transparency Rules (“DTR’s”).
Code compliance
The Board is committed to high standards of corporate governance. Except where otherwise stated below in this report, the Company has
complied throughout the year under review with the provisions of the UK Corporate Governance Code published in September 2014 (the “Code”)
and the DTRs. A copy of the Code is available on the UK Financial Reporting Council’s website at www.frc.org.uk.
Our Corporate Governance structure at a glance
B&M’s Board
The Board of Directors of B&M has 8 members comprising the Chairman, CEO, CFO
& 5 Non-Executive Directors of which 4 are independent directors
See page 41 for details of matters reserved for the Board
Audit & Risk Committee
Nomination Committee
Remuneration Committee
This committee is made up of 3
Independent Non-Executive Directors
The main responsibilities of the
Committee are:
•
reviewing and monitoring the integrity
of the financial statements and price
sensitive financial releases of the
Company;
• monitoring the quality, effectiveness
and independence of the external
auditors and approving their
appointment fees;
• monitoring the independence and
activities of the Internal Audit function;
• assisting the Board with the risk
•
management strategy, policies and
current risk exposures;
review of the adequacy and
effectiveness of the Group’s internal
financial controls and control and risk
management systems.
This committee is made up of the
Chairman, CEO and 4 Independent
Non-Executive Directors
The main responsibilities of the
Committee are:
•
reviewing the structure, size and
composition of the Board, including
the balance of executive and
non-executive directors;
• putting in place plans for the orderly
succession of appointments to the
Board and to senior management;
identifying and nominating
candidates, for the approval of the
Board, to fill Board vacancies as and
when they arise;
•
• ensuring, in conjunction with the
Chairman of the Company, that new
Directors receive a full, formal and
tailored induction.
This committee is made up of 3
Independent Non-Executive Directors
The main responsibilities of the
Committee are:
• setting the policy for the Group on
executive remuneration
• determining the level of remuneration
of the Chairman, the Executive
Directors of the Company and certain
other members of senior
management of the Group;
• preparing an annual Directors’
Remuneration Report for approval by
shareholders at the Annual General
Meeting of the Company;
• designing shares schemes for
approval by the Board for employees
and approving awards to Executive
directors and certain other senior
management of the Group
See pages 46 to 49 for a copy
See pages 43 and 44 for a copy
See pages 50 to 56 for a copy
of the Committee’s report
of the Committee’s report
of the Committee’s report
Terms of Reference of each of the Committees are available on B&M’s website at
www.bandmretail.com
Executive Management
The Executive Management of the Group is responsible for implementation of day to day operational and strategic matters
delegated to it by the Board in relation to the UK and German retail businesses of the Group. A management committee of senior
executives chaired by the CEO holds regular monthly meetings to review progress and management activities of the Group.
40
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Board responsibilities
The Board is responsible for the strategy and long-term success of the
Group, and for ensuring there is an effective system of internal controls
in the business for the assessment and management of risks.
Board and Committee meetings and attendance
The Board has a rolling programme of Board and Committee meetings
throughout the year and also an annual strategy day in addition to the
scheduled Board meetings.
The Board has delegated certain responsibilities to three main
Committees to assist in discharging its duties and the implementation
of matters approved by it (see the table above). The reports of each of
the Committees for the year under review are set out on pages 43 and
44, 46 to 49 and 50 to 56.
A detailed presentation of the business, activities and performance of
the Group is provided by the CEO at each Board meeting, together with
comprehensive financial reports and analysis presented by the CFO.
During months falling outside the regular cycle of Board meetings, the
CEO also provides a report and management accounts pack updating
the Board in the interim ahead of each next meeting.
The Executive Directors of the German business also give
presentations to the Board in person twice a year at Board and overall
strategy group meetings of the Board and senior management.
The Board actively invites and encourages attendance and
participation from broader members of senior management within the
Executive Committee of the Group and German Executive
management at meetings and distribution and store tours of the
Board during the course of the year as well as strategy days.
Implementation of Board strategy, decisions and policies are
delegated to the Executive Directors for implementation in relation to
day to day operational management of the Group. The Executive
Directors are also supported by senior management in each of the UK
Retail and German Retail businesses of the Group.
Schedule of matters reserved to the Board for its approval:
• approving the long-term strategy and objectives of the Group
and reviewing the Group’s performance and management
controls;
• approving any changes to the capital structure of the Group;
• approving the financial reporting, budgets, dividend policy
and any significant changes in accounting policies and
practices of the Group;
• approving any major capital projects of the Group;
• ensuring a satisfactory dialogue with shareholders based on
the mutual understanding of objectives;
• approving the structure, size and composition of the Board
and remuneration of the Non-Executive Directors;
• ensuring the maintenance of a sound system of internal
•
controls and risk management;
reviewing the Company’s overall corporate governance and
approving the division of responsibilities of members of the
Board; and
• approving and supervising any material litigation, insurance
levels of the Group and the appointment of the Group’s
professional advisers.
The Group’s strategy day includes attendance and participation from
broader members of senior management within the Executive
Committee of the Group and German Executive management.
The General Counsel of the Group also attends all Board meetings
and is responsible for advising the Board on corporate governance
and compliance.
The Board held 6 board meetings during the financial year 2016/17.
Attendance at Board and Committee meetings was as follows:
Board
(6 meetings)
Audit & Risk
Committee
(4 meetings)
Nomination
Committee
(4 meetings)
Remuneration
Committee
(4 meetings)
6
6
6
6
6
6
6
4
–
–
–
4
–
4
4
–
4
4
–
4
4
4
4
–
–
–
–
–
4
4
4
–
Sir Terry Leahy
Simon Arora
Paul McDonald
Thomas Hübner
Kathleen Guion
Ron McMillan
Harry Brouwer
David Novak*
* David Novak was unable to attend one Board meeting due to a prior commitment
in the US which he had notified in advance to the Chairman, and another Board
meeting and the strategy day (which was held on the next day) due to a family
bereavement overseas.
A Board Strategy Day was also held in 2016/17 with full attendance by
the Board (except as noted above).
Further meetings of the Board, Audit & Risk Committee and the
Remuneration Committee have also been held since the year-end.
Meetings of the Non-Executive Directors without the Executive Directors
being present are held annually with and without the Chairman.
Board composition
The Board comprises 8 members, including the Chairman, 2 Executive
Directors including the CEO and CFO, 4 Independent Non-Executive
Directors and a Non-Executive Director appointed by CD&R European
Value Retail Investment S.à.r.l. (“CD&R Holdco”) being a significant
shareholder in the Group.
The Code recommends that at least half of the Board, excluding the
Chairman, should comprise Independent Non-Executive Directors. The
Company meets this requirement and has done so throughout the year
under review, with each of Thomas Hübner (Senior Independent Director),
Kathleen Guion, Ron McMillan and Harry Brouwer being Independent
Non-Executive Directors. Each of them are considered by the Board to be
independent in character and judgment and are free from relationships
or circumstances which may affect, or could appear to affect their
judgment as Directors. Independence is determined by ensuring that the
Non-Executive Directors do not have any material business relationships
or arrangements (apart from their fees for acting as Non-Executive
Directors) with the Group or its Directors, which in the opinion of the Board
could affect their independent judgment.
B&M European Value Retail S.A. Annual Report and Accounts 2017
41
CORPORATE GOVERNANCE STATEMENT continued
The Chairman, Sir Terry Leahy, and David Novak are not regarded as
independent for the purpose of the UK Corporate Governance Code in
view of their positions respectively as a senior adviser and partner in
Clayton, Dubilier & Rice, LLC (“CD&R”) and their respective interests in
funds advised by CD&R which hold shares through CD&R European
Value Retail Investment S.à r.l (“CD&R Holdco”) in the Company.
The Company does not comply with the independence criteria in
relation to the appointment of the Chairman under the UK Corporate
Governance Code. The Directors believe that it continues to be
appropriate that Sir Terry Leahy holds office as Chairman as his
FTSE100 retailer and executive board experience from his time
previously as CEO of Tesco plc provides significant value and benefit to
the Group and stewardship of the Board. The Directors consider that
he exercises his role as Chairman independently of management and
exercises his judgment in the interests of all shareholders.
CD&R Holdco entered into a Relationship Agreement with the Company
that came into effect on admission of the Company to trading on the
London Stock Exchange in June 2014 (“Admission”) and which continues to
remain in force. Under the terms of that agreement CD&R Holdco are
entitled to appoint two Non-Executive Directors to the Board for so long as
CD&R Holdco (together with its associates) holds 10% or more of the
ordinary shares in the capital of the Company, and one Non-Executive
Director for so long as CD&R Holdco (together with its associates) holds
5% or more (but less than 10%) of the ordinary shares in the capital of the
Company. While Sir Terry Leahy remains a Director of the Company, CD&R
Holdco have the right to appoint only one other Non-Executive Director,
and the present such other Director appointed by it is David Novak. At the
year ended 25 March 2017, CD&R Holdco held 11.41% of the total issued
shares in the Company.
Simon Arora, Bobby Arora and Robin Arora and SSA Investments S.à r.l.
(“SSA Investments”) (together “Arora Family”) entered into a Relationship
Agreement with the Company which came into effect on Admission and
which continues to remain in force. Under the terms of that agreement for
as long as the Arora Family, together with their associates, hold 10% or
more of the ordinary shares in the capital of the Company, they are
entitled to appoint one Director to the Board, and the first Director
appointed by them is Simon Arora. At the year ended 25 March 2017, SSA
Investments (together with Praxis Nominees Limited as it’s nominee) held
20.99% of the total issued shares in the Company.
The Board believes that the terms of the Relationship Agreements
referred to above will continue to ensure that the Company and other
members of the Group are capable of carrying on their business
independently of CD&R Holdco and the Arora Family and that
transactions and relationships between those parties and the Group
are at arm’s length on normal commercial terms.
All Directors have service agreements or letters of appointment in
place and the details of their terms are set out in the Directors’
Remuneration Report on pages 50 to 56.
Division of responsibilities
There is a clear division of the roles and responsibilities between the
Chairman and the CEO and no individual has unrestricted powers of
decision-making.
Sir Terry Leahy, as the Chairman of the Board, is responsible for leading
the Board, setting its agenda and overseeing its effectiveness. The
Chairman facilitates the contribution of the Non-Executive Directors and
constructive relations between them and the Executive Directors.
Simon Arora, as the CEO, together with Paul McDonald as the CFO, is
responsible for the day-to-day management of the Group and
implementation of strategy approved by the Board and implementation
of other Board decisions.
Diversity
Details of the Company’s diversity and involvement of women in the
management of the Group are included in the Corporate Social
Responsibility Report on pages 33 to 37. The Company has one female
Board member and one of the three main standing Committees of the
Board is also chaired by that female member. The Board and
Nomination Committee are aware of the need to monitor and keep
under review the level of diversity in relation to the Board and senior
management of the Group.
While recognising the benefits which diversity can bring, appointments
by the Group are made on merit based on the skills and experience of
relevant candidates, without regard to gender, race, religion or other
similar personal characteristics.
Conflict of interests
The Chairman and David Novak have an interest in the shares held by
CD&R Holdco, which holds 11.41% of the ordinary share capital and
voting rights in the Company, as a result of their interests in Clayton,
Dubilier & Rice Fund VIII, L.P.
Simon and Bobby Arora own shares in SSA Investments S.à.r.l., which
(together with Praxis Nominees Limited as its nominee) holds 20.99%
of the ordinary share capital and voting rights in the Company either
directly or indirectly as the beneficial owner.
Simon Arora, Bobby Arora, Ropley Properties Ltd and Triple Jersey Ltd
are all landlords of certain properties leased by the Group. Ropley
Properties Ltd and Triple Jersey Ltd are owned by Arora family trusts.
Except as referred to above there are no potential conflicts of interest
between any of the Directors or senior management with the Group
and their private interests.
42
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
There is an established process of the Board for regularly reviewing
actual or potential conflicts of interest. In particular there is a process
for reviewing property lease transactions proposed to be entered into
by related parties of Directors with any entities in the Group, including
professional advice and consideration of it by the Board and the
Company’s sponsor on the application of the Listing Rules, the
applicability and appropriateness of any exemptions in respect of any
transactions in the ordinary course of business and reporting to
general meetings of shareholders’ under Luxembourg Company Law.
This process also includes:
•
reports by the Property Estates team of B&M on the subject store
suitability and location and details of the principal terms of
proposed lease;
reports from the external Property Consultants of B&M who are
retained to advise on new store acquisitions, store suitability and
location strategy;
reports from external independent Property Consultants on the
principal terms and site location;
review of reports ahead of presentation to the Board by the
Chairman, CFO and General Counsel and circulation of them to the
Company’s sponsor;
the Chairman and General Counsel, and also independently of
them, the sponsor, discuss the reports of the external independent
Property Consultants with them as part of the process of review on
behalf of the Board;
the sponsor provides a written opinion to the Board in advance of
the Board’s consideration of the relevant transactions;
•
•
•
•
•
• copies of all the reports referred to above and the Sponsor Opinion
•
are provided to the Board in advance;
the Board consider the appropriateness of the relevant transactions
independently of Arora family interests and excluding the CEO,
Simon Arora, from those deliberations, and also in relation to
Jawoll, independently of Stern family interests.
In addition to the above processes, the Chairman of the Audit & Risk
Committee monitors on behalf of the Board a rolling report produced
to the Board and the sponsor, which is updated throughout the year,
on the number of related party leases and rents as a proportion of the
overall property estate and rents of the Group.
In relation to certain properties leased by the Group’s German business
from the CEO of Jawoll, Ingo Stern, reports from external independent
Property Consultants on leases are commissioned by the Group, the
opinion of the sponsor is obtained and the matter is put to the Board
independently of Stern family interests.
See page 62 in relation to details of related party transactions entered
into in the financial year 2016/17 and also as set out in note 25 on page
100 of the financial statements.
Audit & Risk Committee
The Audit & Risk Committee consists of 3 Independent Non-Executive
Directors and the Chairman of the Committee has recent and relevant
financial experience.
The members of the Committee are Ron McMillan (Chair), Thomas
Hübner (Senior Independent Director) and Harry Brouwer.
The duties of the Committee as delegated by the Board are contained
in the terms of reference available on the Group’s corporate website
(as referred to above) and are summarised in the table also at page
40 above.
All meetings of the Committee are attended by the CFO and General
Counsel, and the Chairman of the Board also regularly attends
meetings of the Committee, in each case at the invitation of the
Chairman of the Committee. Also attendance and participation is
made, by invitation of the Chairman of the Committee, by members of
the Group’s Internal Audit function and the Luxembourg and UK audit
partners of the Group’s external auditors.
The Audit & Risk Committee Report on pages 46 to 49 sets out details
of the role and activities of the Committee in the last financial year.
Remuneration Committee
The Remuneration Committee consists of 3 Independent Non-
Executive Directors. The members of the Remuneration Committee are
Kathleen Guion (Chair), Ron McMillan and Harry Brouwer.
The terms of reference of the Remuneration Committee are available
on the Group’s corporate website (as referred to above) and are
summarised in the table also at page 40 above.
All meetings of the Committee are attended by the General Counsel
and also the Chairman of the Board and the CEO regularly attend
meetings of the Committee, in each case at the invitation of the Chair
of the Committee.
The Committee also retains FIT Remuneration Consultants LLP as
external advisors who attend and participate at all meetings at the
request of the Chair of the Committee.
The Directors Remuneration Report on pages 50 to 56 sets out details
of the role and activities of the Remuneration Committee in the last
financial year.
Nomination Committee
The Nomination Committee consists of 6 Directors, being the
Chairman of the Board, the CEO and each of the 4 Independent
Non-Executive Directors of the Company.
The duties of the Nomination Committee as delegated to it by the
Board are contained in the terms of reference available on the
Company’s corporate website (as referred to above) and are
summarised in the table also on page 40 above.
The members of the Nomination Committee are Sir Terry Leahy (Chair),
Simon Arora, Thomas Hübner (Senior Independent Director) Kathleen
Guion, Ron McMillan and Harry Brouwer. All meetings of the
Committee are also attended by the General Counsel, at the invitation
of the Chairman of the Committee.
The Committee’s terms of reference provide that it will meet not less
than twice a year, and it has had four meetings in the year under
review.
During the year the Nomination Committee has reviewed the Board’s
size, structure, composition, experience and skills of its members to
ensure the effective working of the Board and the standing
Committees and the commitment of their members. It has also
reviewed and updated the Company’s succession plan for the offices
of the Chairman, CEO and also for recruitments of further non-
executive members of the Board to cover either vacancies as
retirements arise in the future and/or additional appointments.
B&M European Value Retail S.A. Annual Report and Accounts 2017
43
CORPORATE GOVERNANCE STATEMENT continued
The Chairman has also met with each of the Non-Executive Directors
during the year without the Executive Directors being present to
discuss matters relating to the Board, its balance and the monitoring
of the powers of the Executive Directors.
A performance review was undertaken in the year, by the external
consultancy Consilium, of the Board, its Committees and Directors.
Consilium specialise in board reviews and evaluations and it has no
commercial relationship with the Group other than the provision of
those services.
The review process included the completion of confidential
questionnaires by all Directors and the General Counsel, attendance
by Consilium as an observer at one of the Board meetings, one to one
interviews by Consilium of each of the Directors and the General
Counsel and a review and presentation of recommendations by
Consilium with the Directors and General Counsel together.
The review carried out by Consilium covered the effectiveness of the
Board and its members, composition, dynamics and relationships,
corporate governance and the functioning of each of the Committees,
and board succession.
The findings from the review highlighted overall:
• a high degree of effectiveness of the Board, each of its three
•
•
•
•
Committees, the Chairman and the General Counsel;
the Board has successfully led the transition of the business from a
founder family private business to a public listed company over the
last 3 years, establishing effective and strong Board and
governance processes, ethics and controls;
the Board is highly aligned on all matters of substance such as
Group strategy and business risks and controls;
there is a culture which is respectful of the roles, insights and
different skills and inputs which each of the Executive Directors and
Non-Executive Directors have on the Board; and
there is a strong focus on shareholder interests and continuing to
develop a deeper understanding with investors and analysts of the
discount variety goods retail model in the retail sector.
From the review the following outcomes were discussed as particular
areas for further development and enhancement by the Board and its
processes going forward:
• agenda management and planning to provide more time for the
Board to devote to strategic items where a fuller and richer debate
could be beneficial;
• developing a closer linkage of the agenda throughout the annual
cycle of Board meetings with strategic items considered at the
annual strategy day of the Board and senior management team;
and
in addition to the head office and store tours throughout the year in
the UK and Germany, increasing further the exposure of the Board
generally to the broader senior management team throughout the
year.
•
Where Directors have external appointments, the Board is satisfied
that they do not impact on the time the Director needs to devote to the
Company. The Chairman was appointed as Non-Executive Chairman
of BUT in France in 2016. The Board is satisfied that appointment does
not affect the time commitment or availability to the Board or the
Group of the Chairman.
No changes to any of the Committees or their respective Chairs have
been recommended by the Nomination Committee following the
reviews this year.
The Nomination Committee has recommended and the Board has
proposed the re-election of all members of the Board at the
Company’s Annual General Meeting on 28 July 2017.
Appointments, induction and development
Where any new Director may need to be appointed by the Board, the
Nomination Committee will lead the process, evaluate the balance of
skills, experience, independence, knowledge and diversity on the
Board, and in the light of that prepare a description of the role and
capabilities required and identify candidates for the Board to consider
using external consultants as appropriate.
All new Directors will receive a full, formal and tailored induction
programme and briefing with members of senior management. They
will also be required to meet major shareholders where requested.
A manual is available for new Directors containing information about
the Group, Directors duties and liabilities under Luxembourg Company
Law and obligations under the Listing Rules and DTRs, together with
governance policies and the UK Corporate Governance Code.
The Directors update their knowledge and familiarity with the business
throughout the year by a mix of central operations tours, store tours
and senior management briefings and presentations in relation to
both the UK and German businesses.
The Chairman meets each Non-Executive Director individually at least
once a year and this includes discussion where necessary of any
further training and development needs.
The Nomination Committee also considers training and development
needs of the Executive Directors. The Directors also receive regular
updates at Board meetings of regulatory and governance matters and
developments from the Group’s General Counsel.
There is a procedure for Directors to have access to independent
professional advice, at the Company’s expense, in relation to their
duties should they require it at any time.
Re-election of Directors
Following the reviews and Board evaluation exercise carried out in
2016/17, the Nomination Committee has recommended that each of
the Directors be re-elected to the Board.
The Board and the Chairman consider that all the members of the
Board continue to be effective and to demonstrate commitment to their
roles, and are able to devote sufficient time to their Board and
Committee roles and duties. Accordingly, each of the Directors seek
re-election at the Company’s Annual General Meeting on 28 July 2017.
44
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Risk Management and Internal Control
The Board has overall responsibility for ensuring that the Group
maintains a strong system of internal control.
The system of internal control is designed to identify, manage and
evaluate, rather than eliminate, the risk of failing to achieve business
objectives. It can therefore provide reasonable but not absolute assurance
against material misstatement, loss or failure to meet objectives of the
business, due to the inherent limitations of any such system.
An internal audit function was established by the Group over 2 years
ago, following a review of the monitoring and reporting systems of the
Group by the Audit & Risk Committee.
The Board is satisfied that the key risks to the business and relevant
mitigating actions are acceptable for a business of the type, size and
complexity as that operated by the Group.
The key elements of the Group’s system of internal controls are as follows:
Financial reporting: monthly management accounts are provided to
the members of the Board that contain current financial and
operational reports. Reporting includes an analysis of actual versus
budgeted performance and overviews of reasons for significant
differences in outcomes. The annual budget is reviewed and approved
by the Board. The Company reports half yearly and publishes trading
updates in line with market practice;
Risk management: the creation and maintenance of a risk register,
which is continuously updated and monitored, with full reviews
occurring on at least an annual basis, facilitated by the Internal Audit
function of the Group. Each risk identified on the risk register is
allocated an owner, at least at the level of a senior manager within the
business, and the action required, or acceptance of the risk is also
recorded. The risk registers are provided to the Audit & Risk Committee
and the Committee reports key risks and mitigating actions to the
Board for monitoring as appropriate;
Monitoring of controls: following the establishment of the Internal
Audit function, the Audit & Risk Committee receive regular reports from
the Internal Audit function as well as those from the external auditors.
There are formal policies and procedures in place to ensure the
integrity and accuracy of the accounting records of the Group and to
safeguard its assets; and
Shareholder relations
The Board recognises that good, regular communication is key to
maintaining shareholder relations, and as such we will endeavour to
explain our performance, management actions and financial results,
and also to respond to investor feedback.
Meetings and calls are regularly held with institutional investors and
analysts in order to provide the best quality information to the market.
The formal reporting of our full year results will be a combination of
webcasts, presentations, group calls and one-to-one meetings in a
variety of locations. The Board members, including the Chairman, the
Senior Independent Director and each of the other Non-Executive
Directors, are available to meet with major shareholders where they
wish to raise issues outside of the above environments.
The Company will also communicate with its shareholders through the
Annual General Meeting, at which the Chairman will give an account
of the progress of the business over the past year, and will provide the
opportunity for shareholders to raise questions with the Chairman and
the Chairs of each of the Committees of the Board.
Following the launch of the £250m bond in February 2017, the
Company will hold conference calls and one-to-one meetings where
practical in accordance with market practice generally during the
course of each financial year with bondholders.
The Company’s corporate website at www.bandmretail.com is regularly
updated with our releases to the market and other information and
includes a copy of this Annual Report and Financial Statements.
Other disclosures
Where information is applicable under Listing Rule 9.8.4R in relation to
the Group, the following matters can be found on the following pages
of this report:
(a) arrangements under which the B&M European Value Retail S.A.
Employee Share Ownership Trust has waived or agreed to waive
dividends or future dividends – page 61
(b) relationship agreements and independence statement – page 62.
Disclosures under DTR 7.2.6R with regard to share capital are set out in
the sections headed ‘Share capital’, ‘Shareholders’ and ‘Section (a)
Share capital structure’, in the Directors’ report and business review on
pages 60 to 64 below.
Staff policies: there are formal policies in the Group in place in
relation to anti-bribery and corruption, anti-slavery and whistle-
blowing policies in relation to reporting of any suspected wrong doing
or malpractice. Those policies are reviewed and updated by the Group
as required from time to time.
Sir Terry Leahy
Chairman
24 May 2017
The Board and the Audit & Risk Committee have carried out a review of
the effectiveness of the system of internal controls during the year
ended 25 March 2017 and for the period up to the date of approving
the Annual Report and Financial Statements.
Information on the key risks and uncertainties of the Group are set out
on pages 28 to 31.
B&M European Value Retail S.A. Annual Report and Accounts 2017
45
AUDIT & RISK COMMITTEE REPORT
“The Audit & Risk
Committee acknowledges
and embraces its role of
protecting the interests of
shareholders as regards
the integrity of published
financial information and
the effectiveness of audit.”
Ron McMillan
Chairman of the Audit & Risk Committee
Dear Shareholder,
The Committee exercises oversight of the Group’s financial policies and
reporting. It monitors the integrity of the financial statements and reviews
and considers significant financial and accounting estimates and
judgements. The Committee satisfies itself that the disclosures in the
financial statements about these estimates and judgements are
appropriate and obtains from the external auditor an independent view of
the key disclosure issues and risks. In relation to risks and controls, the
Committee ensures that these have been identified and that appropriate
responsibilities and accountabilities have been set.
A key responsibility of the Committee is to review the scope of work
undertaken by the internal and external auditors and to consider
their effectiveness.
The Committee has also considered the narrative in the Strategic
Report and believes that sufficient information has been provided to
give shareholders a fair, balanced and understandable account of the
Group’s business.
During the year, the Committee again oversaw the process used by the
Board to assess the viability of the Group, the stress testing of key trading
assumptions and the preparation of the Viability Statement, which is set
out on page 32, in the principal risks and uncertainties section of the
Strategic Report.
The Committee also reviewed, on the Board’s behalf, the Group’s
adoption of policies and procedures in relation to compliance with the
Market Abuse Regulation which came into effect in July 2016.
Further information on the Committee’s responsibilities and the manner in
which they have been discharged is set out below.
Going forward, I shall ensure that the Committee continues to
acknowledge and embrace its role of protecting the interests of
shareholders as regards the integrity of published financial information
and the effectiveness of audit.
I shall also be available at the Annual General Meeting on 28 July 2017 to
answer any questions you may have on this report and I would like to
thank my colleagues on the Committee for their continued help and
support during the year.
Ron McMillan
Chairman of the Audit & Risk Committee
24 May 2017
46
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Committee composition
The Committee comprises three members, each of whom is an
independent Non-Executive Director of the Company. Two members
constitutes a quorum. The Committee must include one financially
qualified member with recent and relevant financial experience. The
Committee Chairman fulfils that requirement. All members are
expected to have an understanding of financial reporting, the Group’s
internal control environment, relevant corporate legislation, the roles
and functions of internal and external audit and the regulatory
framework of the business. As reflected in the biographical
summaries on pages 38 and 39, all members of the Committee have
significant experience of working in or with companies in the retail
and consumer goods sectors.
The members of the Committee during the year, each of whom has
been in the post since June 2014, were Ron McMillan, Thomas Hübner
and Harry Brouwer. Details of Committee meetings and attendances
are set out on page 41 of the Corporate Governance report. The timing
of Committee meetings is set to accommodate the dates of release of
financial information and the approval of scope of and reviews of
outputs from work programmes executed by the internal and external
auditors. In addition to scheduled meetings, the Chairman of the
Committee met with the CFO and the internal and external auditors.
Although not members of the Committee, Paul McDonald as CFO, the
General Counsel and representatives from the internal and external
auditors attend all meetings and, in addition, the Chairman of the
Board regularly attends meetings.
Responsibilities
The responsibilities of the Audit & Risk Committee, as delegated by the
Board, are set out in its terms of reference which are available on the
Group’s corporate website. They include the following:
•
reviewing the integrity of the financial statements, price sensitive
financial releases of the Group and the significant financial
judgements and estimates relating thereto;
• monitoring the scope of work, quality, effectiveness and
independence of the external auditors and approving their
appointment, reappointment and fees;
• monitoring and reviewing the independence and activities of the
internal audit function;
• assisting the Board with the development and execution of a risk
management strategy, risk policies and current risk exposures,
including the maintenance of the Group’s risk register; and
• keeping under review the adequacy and effectiveness of the
Group’s internal financial controls and internal control and risk
management systems.
Committee activities in 2016/17
In discharging its oversight of the matters referred to in the
introductory letter to this report and as set out below, the Committee
was assisted by management, the General Counsel and the internal
and external auditors.
The recurring work of the Committee comprised:
• consideration of the annual report and financial statements of
the Group;
• consideration of the interim results report and non-statutory
financial statements of the Group for the half year;
• consideration of key significant areas of accounting estimation
or judgement;
• consideration of the significant risks included in the annual report;
• approval of the external auditors terms of engagement, audit plan
and fees; and
• approval of the internal audit plan.
The Committee also considered the following matters during the year:
• Market Abuse Regulation & Insider Dealing Policies;
• Data Protection compliance;
• Related party transactions in relation to store leases;
•
•
• each of the matters listed below under the section headed
the external and internal audit plans;
the viability statement prepared by management;
Internal Audit where reports were provided during the year to
the Committee; and
• each of the other key matters which are reported on under each of
the sections below.
IT systems and business continuity
The success of the business relies on the development and operation
of IT systems which are efficient and effective. In addition, the integrity
and security of the IT systems are vital from a commercial standpoint.
During the year, internal audit reported on IT controls and the Group’s
disaster recovery plan. Based on their work, the Committee was
satisfied that IT controls are effective and that the Group has an
effective disaster recovery plan.
Regulation
The Group operates within a fast moving and increasingly regulated
market place and is challenged by regulatory requirements across the
board, including those controlling bribery and corruption, the
importation of goods, data protection and health and safety. This
creates risk to the organisation as non-compliance can lead to
financial penalties and reputational damage in respect of customers,
employees, suppliers and stakeholders.
The new insider dealing regime under the Market Abuse Regulation
came into effect in July 2016. The Committee, with the assistance of the
General Counsel, carried out a detailed review and revision of the Group’s
General Share Dealing Policy, Share Dealing Code, Disclosure Policy and
implementation procedures relating to Insider Lists and records, which
were then formally presented to and approved by the Board.
In addition to the work in relation to the review of policies in the
previous year relating to anti-bribery and corruption, the Committee
reviewed the compliance procedures and outcomes of the annual
assessment process carried out during the year, and was satisfied
with both the process and the results of compliance with the policy.
B&M European Value Retail S.A. Annual Report and Accounts 2017
47
AUDIT & RISK COMMITTEE REPORT continued
Related party transactions
There is an established process for the consideration and review of
related party store lease transactions of the Group with Arora Family
and Stern Family interests. Details of that process are set out on page
43 of the Corporate Governance Statement above.
The Committee reviews and monitors for the Board the overall total
number of related party store leases and rents of the Group with those
related parties during the course of the year, with a view to assessing any
potentially material increases in the proportion of those store leases or
rents compared with the overall store estate and rent roll.
Internal control and risk management
The Board has overall responsibility for ensuring that the Group
maintains a sound system of internal control. There are inherent
limitations in any system of internal control and no system can provide
absolute assurance against material misstatements, loss or failure.
Equally, no system can guarantee elimination of the risk of failure to
meet the objectives of the business. Against that background, the
Committee has helped the Board develop and maintain an approach
to risk management which incorporates risk appetite, the framework
within which risk is managed and the responsibilities and procedures
pertaining to the application of the policy.
the risks and the impact they may have;
The Group is proactive in ensuring that corporate and operational
risks are identified and managed. A corporate risk register is
maintained which details:
1.
2. actions to mitigate risks;
3. risk scores to highlight the implications of occurrence;
4. ownership of risks; and
5. target dates for actions to mitigate risks.
A description of the principal risks is set out on pages 28 to 31.
The Board has confirmed that it has carried out a robust assessment
of the principal risks facing the Group, including those which threaten
its business model, future performance, solvency or liquidity.
The Board considers that the processes undertaken by the Committee
are appropriately robust and effective and in compliance with the
guidelines issued by the Financial Reporting Council. During the year, the
Board has not been advised by the Committee nor has it identified itself,
any failings, frauds, or weaknesses in internal control which it has
determined to be material in the context of the financial statements.
The Committee continues to believe that appropriate controls are in place
throughout the Group, that the Group has a well-defined organisational
structure with clear lines of responsibility and a comprehensive financial
reporting system. The Committee also believes that the Company
complies with the FRC guidance on Risk Management, Internal Control
and related Financial Business Reporting.
Reviewing the draft interim and annual reports
The Committee considered in particular the following:
•
the accounting principles, policies and practices adopted and the
adequacy of related disclosures in the reports;
the significant accounting issues, estimates and judgements of
management in relation to financial reporting;
•
• whether any significant adjustments were required as a result of
the audit;
• compliance with statutory tax obligations and the Group’s
tax policy;
• whether the information set out in the Strategic Report was
balanced, comprehensive, clear and concise and covered both
positive and negative aspects of performance; and
• whether the use of “alternative performance measures” obscured
IFRS measures.
Going concern
The Committee considered the going concern position of the Group
and the Viability Statement set out on page 32. In so doing, the
Committee ensured that the assumptions underpinning forecasts
were stress tested and that the factors which impact risks and
uncertainties were properly considered.
External auditors
KPMG Luxembourg Société Coopérative (KPMG) replaced Grant
Thornton as the Group’s new independent external auditors (réviseur
d’entreprises agréé) for the financial year ended 25 March 2017.
KPMG’s appointment was approved by shareholders at the Annual
General Meeting on 29 July 2016. The partners responsible for the
audit are Thierry Ravasio, a partner in KPMG’s Luxembourg office and
Nicola Quayle, a partner in KPMG’s Manchester office. The Committee
has reviewed the performance of KPMG, a process which involved all
Committee members, the CFO and senior members of the financial
function and the General Counsel. The conclusions reached were
that KPMG performed the external audit in a very professional and
efficient manner and it was, therefore, the Committee’s
recommendations that the reappointment of KPMG be put to
shareholders at the Annual General Meeting on 28 July 2017. Given
that this was the first year of KPMG’s tenure as auditors, the Board
has no present plans to consider an audit tender process.
The Committee reviewed the reports prepared by KPMG on key audit
findings and any significant deficiencies in the control environment, as
well as the recommendations made by KPMG to improve processes
and controls together with management’s responses to those
recommendations. KPMG did not highlight any significant internal
control weaknesses and management has committed to making
appropriate changes in controls in other areas highlighted by KPMG.
48
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Non-audit work
The Board’s policy in relation to the auditors undertaking non-audit
services is that they are normally subject to tender processes with the
allocation of work being done on the basis of competence, cost
effectiveness, regulatory requirements, potential conflicts of interests
and knowledge of the Group’s business.
Committee effectiveness
The effectiveness of the Committee during the year was evaluated as
part of a broader externally facilitated board effectiveness review, as
described on page 44 above.
KPMG were paid £418,000 during the year, £88,000 of which was for
non-audit work with the remaining balance relating to audit services.
The majority of the non-audit work (£85,000) related to work
associated with the high yield bond that was issued during the year.
Ron McMillan
Chairman of the Audit & Risk Committee
24 May 2017
KPMG was engaged in relation to the high yield bond issue as they
had carried out the review of the Group’s half year results as auditors,
which the bond issue circular was then based on.
The Committee is mindful of the attitude investors have to the auditors
performing non-audit services. The Committee monitors the
appointment of the auditors for non-audit services with a view to
ensuring that non-audit services do not compromise the objectivity
and independence of the auditors. Going forward, the Committee will
ensure that fees for non-audit services will not exceed 70% of
aggregate audit fees measured over a three year period.
Internal audit
The Group internal auditor has a direct reporting line to the Committee
and attends all Committee meetings either in person or otherwise by
telephone conference. During the year, internal audit undertook a
programme of work which was discussed with and agreed by both
management and the Committee and which was designed to
address both risk management and areas of potential financial loss.
Internal audit has also established procedures within the business to
ensure that new risks are identified, evaluated and managed and that
any necessary changes are made to the risk register.
IT Systems & Business Continuity;
During the year, the Committee received reports from the internal
audit function in relation to:
• The Internal Audit Plan & Work Schedule;
• Regulatory Compliance;
•
• External Risks & Trends in Fraud;
• Quality Assurance & Improvement Programme;
Independence & Objectivity;
•
•
International Expansion;
• Shop Audits & Shrinkage;
• Freight Charges;
• Supplier Discounts;
• Commodity Prices cost inflation; and
• The Risk Register.
In relation to each of the above, internal audit made recommendations
for improvements, the vast majority of which were agreed by
management and either have been or are being implemented.
The Committee has evaluated the performance of internal audit and has
concluded that it provides constructive challenge to management and
demonstrates a constructive and commercial view of the business.
B&M European Value Retail S.A. Annual Report and Accounts 2017
49
DIRECTORS’ REMUNERATION REPORT
Annual statement by the Chair of the Remuneration Committee
The LTIP granted to the CFO initially awarded shortly following IPO will
vest in August 2017 on its third anniversary. This was subject to two
performance conditions being that the Group’s underlying UK EBITDA*
increased by at least 30% over the period to 31 March 2017 (which has
been met) and that the Company’s Total Shareholder Return grew by at
least 15% over the 3 year period to 1 August 2017. This period has not
yet ended but the condition seems likely to be met.
Implementation of remuneration policy for 2017/18
Base salary levels for the two Executive Directors were increased by 2% in
line with the average for UK staff generally. The AIP and LTIP
arrangements remain substantially unchanged from the previous year.
Again, the Chief Executive will not participate in an LTIP grant in 2017/18.
Policy review
The policy approved by shareholders at the 2015 AGM has served the
Company well over the last two years. As it will reach the end of its
three year life at the 2018 AGM, the Committee will shortly commence
a review of the policy to consider what, if any, changes may be
appropriate in suggesting a revised policy to that AGM. The
Committee will consult, as appropriate, with major shareholders in
due course as part of that review.
Format of the report
The report sets out the Company’s Annual Remuneration Report on
pages 51 to 56, which details the remuneration paid to the Directors in
the 2016/17 financial year, and which is subject to a shareholder
advisory vote at our 2017 AGM.
Consistent with best practice, we have set out the remuneration policy
table which was approved in 2015 on pages 57 to 59, and the full
policy report is available in the 2015 Annual Report on our website
at www.bandmretail.com.
We have continued to work to ensure that the Company’s remuneration
arrangements provide an appropriate balance between the interests
of shareholders and those of the executives. Accordingly, we hope we
can count on your support on this year’s vote on the remuneration
report.
This report has been prepared under the regulations adopted in the
UK in 2013 for the reporting of executive remuneration, as was also the
case last year. As the Company is a Luxembourg registered company,
it is not subject to that regime, however, the Committee considers
those regulations to be reflective of best practice and has, therefore,
followed that practice, while maintaining our status as a Luxembourg
registered company.
The Committee welcomes any questions or feedback in relation to this
report from our shareholders.
Kathleen Guion
Chair of the Remuneration Committee
24 May 2017
*
The directors consider adjusted figures to be more reflective of the underlying
business performance of the Group and believe that this measure provides
additional useful information for investors on the Group’s performance. See
reconciliation of adjusted measures to statutory measures on page 25.
“The policy approved by
shareholders at the 2015
AGM has served the
Company well over the
last two years.”
Kathleen Guion
Chair of the Remuneration Committee
Dear Shareholder,
I am pleased to present this year’s Remuneration Committee (the
“Committee”) report on behalf of the Board. The report includes details of
the remuneration of the Directors for the financial year 2016/17 and how
the present shareholder approved policy will be applied for 2017/18.
The votes at the AGM last year on the report on the Directors’
remuneration were over 99% in favour of the report.
Performance and rewards for 2016/17
The performance of the Group in 2016/17 has been strong. Total Group
revenues increased by 19.4%, adjusted profit before tax* increased by
25.6%, the Group’s cash flow from operations increased by 23.4% and
there was also a 7.6% increase in UK store openings and 33.9% in
Germany in the year.
This resulted in an Annual Incentive Plan (“AIP”) out-turn for the CEO
and CFO of 80% and 73% of their respective maximums, which
reflected this strong financial performance together with the
Committee’s assessment against the objectives set for each of them
at the start of the year.
50
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Annual Remuneration Report
Implementation of Remuneration Policy
The Committee has operated the remuneration policy in accordance with the Directors’ Remuneration Policy (the “Policy”) which was approved
by shareholders at the Company’s AGM on 30 July 2015.
This section of the report sets out how the Policy has been applied in the financial year 2016/17 and any significant changes in how it will be
applied in the next financial year.
Where sections of the report have been subject to audit, they are marked accordingly.
Single figure table of total remuneration of Executive Directors – audited
The audited table below shows the aggregate remuneration of the Executive Directors of the Company during the financial year 2016/17.
Executive Directors
Simon Arora (CEO)
Paul McDonald (CFO)
Year1
Salaries
£
Benefits2
£
Bonus
£
2015/16
2016/17
2015/16
2016/17
575,000
589,375
290,000
297,250
26,260
32,028
3,258
5,941
–
678,692
–
216,565
Value of
long term
incentives³
£
–
–
–
221,674
Pension4
£
Total
£
378
103,636
38,603
39,235
601,638
1,403,731
331,861
780,665
The 2015/16 year is for the 52 weeks ended 26 March 2016 and the 2016/17 year is for the 52 weeks ended 25 March 2017.
1
2 Benefits in 2015/16 and 2016/17 include company car/car allowance cash equivalent as a benefit in kind, fuel and running costs, critical illness insurance, for the CFO only
3
4
permanent healthcare insurance, and, (from 2016/17 only) life assurance for each Executive Director.
LTIP awards in 2015/16 and 2016/17 were subject to pre-vest performance conditions, so they will be included on the satisfaction of those conditions. The performance
targets for the LTIP are set out on page 53. While the 2014/15 grant cannot be finally tested, it appears likely to fully meet those conditions as explained on page 52 so it has
been included in the above figures using the average share price over the last 3 months of the financial year of £2.9926p.
For each of 2015/16 and 2016/17, pensions include auto-enrolment pension employer contributions and (except for 2015/16 in relation to the CEO, being nil in that year) a
cash equivalent allowance to pension contribution entitlement less employers’ NICs.
Salary
As referred to last year, the Executive Directors received a 2.5% increase in base salaries with effect from the beginning of the financial year
under review.
The Executive Directors received a 2% increase in their base salaries with effect from the beginning of the 2017/18 financial year.
The next planned salary review for the Executive Directors will be from the beginning of the 2018/19 financial year, being the financial year when
the remuneration policy for Directors will be next due for consideration and voting on by shareholders.
The comparator group of retailers used in the benchmarking exercise at the time of setting the CEO and CFO base salaries and overall
remuneration packages included the following FTSE 350 retailers (being both the FTSE General Retailers Sector and the FTSE Food and Drug
Retailers Index constituents): AO World, Booker, Debenhams, Dignity, Dunelm, Greggs, Halfords, Home Retail Group (since taken over), Inchcape,
J Sainsbury, JD Sports Fashion, Kingfisher, Marks & Spencer, Morrison Supermarkets, N Brown, Next, Ocado, Pets At Home, Poundland, Saga,
Sports Direct, SSP, Supergroup, Tesco and WH Smith.
Benefits
Benefits are set by the Committee in accordance with the remuneration policy set out on pages 57 to 59 below. There are no changes proposed
to the overall benefits framework for 2017/18.
Pension
Pension contributions are in line with the remuneration policy. The amounts paid in the year represent either the amount contributed to personal
pension plans, or the equivalent cash value (adjusted for the cost of employers’ NICs) as salary supplements. As reported last year, the CEO
waived his entitlement to his annual pension benefit in full in the financial year 2015/16, but has taken up his entitlement for 2016/17.
There are no increases proposed to the rates of the pension benefits of the Executive Directors for 2017/18 which remain at 20% of base salary
(or cash equivalent less Employers’ NICs) for the CEO and 15% of base salary (or cash equivalent less Employers’ NICs) for the CFO, in line with the
remuneration policy.
B&M European Value Retail S.A. Annual Report and Accounts 2017
51
DIRECTORS’ REMUNERATION REPORT continued
Bonus
Executive Directors received bonus payments in 2016/17 in line with the
remuneration policy and the terms of the Annual Incentive Plan (“AIP”),
in the amounts set out in the table on page 51 above.
The Committee reviewed the AIP during the year and remains satisfied
that it continues to be appropriate for the Company, together with the
EBITDA gateway and cap on other performance measures going forward.
The financial targets for 2016/17 were set against Adjusted Group
EBITDA performance as follows:
Threshold
Target
Max
Adjusted Group
EBITDA target¹
£210.78m
£234.20m
£245.91m
% maximum overall
Bonus opportunity
12.5%
25%
50%
1
The performance condition as originally set was applied without the exercise of
discretion except that, as the base EBITDA was set adjusted for the set up costs of new
store openings, the end EBITDA was calculated on the same basis which added back
£6.3m in the year (2016: £7.6m) of new store pre-opening costs to the reported figure.
There is a straight-line vesting between the threshold, target and maximum points
achieved.
The other 50% of the AIP related to personal and leadership
development objectives which would only deliver a payment to the
extent the above financial range was also met (i.e. executives received
the lower of the financial out-turn percentage and the assessment of
their personal and leadership development). These objectives focused
on a number of key performance indicators ranging from strategic,
operational and investor relations matters.
In particular:
CEO
CFO
Personal Objectives
(30% weighting)
The CFO’s targets
focused on financial
reporting, treasury
and banking
including the
refinancing,
development of
internal audit function
and investor relations.
The CEO was set a
target for UK new
store openings which
was exceeded with
53 gross new stores
being opened. He
was also set targets
relating to supply
chain and other costs
efficiency which were
assessed as
between on-target
and maximum, and
investor relations
which was fully met.
Overall 27 out of 30
Overall 23 out of 30
Personal
Development
Objectives (20%
weighting)
This focused on
establishing a robust
executive committee,
which was achieved.
This focused on the
coaching of direct
reports and
collaboration with
peers. In particular,
the CFO supported
the 9 store chain
Knüller acquisition
by Jawoll.
Overall 13 out of 20
Overall 10 out of 20
As the non-financial out-turn for the CEO of 40 out of 50 was marginally
higher than the financial out-turn of 39.86, the amount awarded was
reduced to this lower level. The CFO received the assessed out-turn of 33
out of 50.
Accordingly, for 2017/18, the maximum bonus opportunity for the CEO and
CFO will remain at 150% and 100% of base salary respectively. Under the
awards for 2017/18, 50% of the maximum bonus opportunity is again
based on the achievement of an EBITDA target, 30% on achievement of
individual KPI’s and 20% on other personal leadership and development
criteria (although the EBITDA condition again applies as a gateway to the
individual and personal measures as explained below).
The maximum level of bonus for 2017/18 will be dependent on
achievement of the maximum EBITDA target and the highest individual
and other personal performance ratings. No bonus will be paid unless a
threshold level of EBITDA is achieved. Also the percentage rate achieved of
the EBITDA target will apply as a similar percentage rate cap on the
amounts due in respect of the individual and other personal targets.
Therefore, any amounts due under the individual and personal targets will
be the lower of the EBITDA achievement and the achievement under those
targets. The Committee does not disclose those targets in advance as they
are commercially sensitive and it is not market practice to do so. Suitable
disclosure of the financial target ranges will again be included in next
year’s report retrospectively.
Long term Incentives
No performance share awards granted at any time under the
Company’s Long-Term Incentive Plan (“LTIP”) vested in the year 2016/17
as no awards reached the end of the relevant performance period.
However, the award granted on 1 August 2014 to the CFO was based
on a combination of underlying UK EBITDA to 31 March 2017 which has
been met (74.7% growth compared with a target of 30%) and, while
TSR will be measured to 1 August 2017, it appears likely that that target
will also be met (currently tracking approximately 45% growth
compared with a target of 15%). On this basis, the award has been
included within the single figure on an estimated basis.
Under the LTIP, subject to meeting performance conditions set by the
Committee, awards will ordinarily vest on the third anniversary of the date
of grant with, for awards from 2015 onwards, a further two year holding
period applying. The maximum individual limits for awards are capped at
100% of base salary (or 200% in exceptional circumstances).
No awards were granted to the CEO under the LTIP in 2016/17 and
none are envisaged in 2017/18.
An award was made to the CFO under the LTIP on 18 August 2016 over
shares then worth 100% of his base salary. Details of the award are set
out on page 53.
For 2017/18, it is expected that awards will be made shortly following
the announcement of the 2016/17 results. This will be for the CFO only
and will be equal to 100% of base salary, with performance measures
unchanged from those applying to the LTIP grant for 2016/17. The TSR
condition will be the same as the LTIP for 2016/17. The EPS range is set
out on page 53. There will again be a holding period expiring on the
fifth anniversary of the date of the grant.
52
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Remuneration of the Chairman and Non-Executive Directors – audited
The Chairman does not receive any fees as he is not an independent Chairman of the Company. One of the other five Non-Executive Directors,
David Novak, does not receive any fees as he is not an independent Director.
The fees of the Non-Executive Directors are set by the Board and take account of Chairmanship of Board committee’s and the time and
responsibility of the roles of each of them.
The fees paid for 2016/17 to the Non-Executive Directors were as follows:
Director
Sir Terry Leahy
Thomas Hübner
Kathleen Guion
Ron McMillan
Harry Brouwer
David Novak
2016/17
Fee £
–
71,500
66,000
66,000
55,000
–
2015/16
Fee £
–
71,500
66,000
66,000
55,000
–
Scheme interests awarded during the financial year – audited
The audited table shows all share awards held by Directors, together with awards made in 2016/17. Each award takes the form of nil cost options under
the LTIP scheme, with each grant being equal to 100% of base salary. None of the share awards granted in any year have yet vested.
Director
Date of grant
Number of
shares over
which award
was granted
Share price at
date of grant
Face value of
award
% of face
value that
would vest at
threshold
performance
Paul McDonald
01.08.14
05.08.15
£2.715
£3.570
74,074
81,232
£201,110.91
£289,998.24
100%
25%
18.08.16
£2.726
109,042
£297,248.49
25%
Vesting on performance over date
Third anniversary of the date of grant
Third anniversary of the date of grant. Subject to an
additional two year holding period
Third anniversary of the date of grant. Subject to an
additional two year holding period
Performance targets for outstanding LTIP awards
The performance conditions for the LTIP award made on 1 August 2014 are that the award will vest in full if:
(a) the Company’s underlying UK consolidated EBITDA in the financial year ended 31 March 2017 is not less than 130% of its underlying UK
consolidated EBITDA in the financial year ended 31 March 2014; and
(b) the total shareholder return over the period 1 August 2014 to 1 August 2017 is at least 15%.
The “shareholder return” includes the difference in the share price at the end of that period less the price at the beginning of the period plus the total
cash value of dividends, distributions, bonus shares and dividend reinvestments relating to the shares on or before 1 August 2017.
The performance conditions for each of the LTIP awards made on 5 August 2015 and 18 August 2016 (and the award due to be made in 2017) are
as follows:
(a) 50% of the relevant award shares vest based on the Company’s relative TSR performance against the FTSE 350 retailers (being both the FTSE
General Retailers Sector and the FTSE Food and Drug Retailers Index constituents) over the three year period commencing from the beginning
of the financial year in which the relevant award was granted (the “Performance Period”) as derived by comparing the one month prior to the
start and end of the relevant Performance Period. Vesting occurs on achievement (as a threshold level) of a median relative TSR performance
ranking being attained at the end of the relevant Performance Period, with 25% of that portion of the relevant award shares then becoming
exercisable. On attaining an upper quartile relative TSR performance ranking at the end of the relevant Performance Period, 100% of that
portion of the relevant award shares would become exercisable at the expiry of the relevant holding period explained below, with a
straight-line proportion vesting between median and upper quartile ranking being achieved; and
(b) 50% of the relevant award shares vest based on growth in adjusted EPS of the Company over the Performance Period. Vesting occurs on
achievement of the following EPS ranges (with straight-line interpolation between those targets):
August 2015 award
August 2016 award
2017 award (planned)
Financial year
assessed
2017/18
2018/19
2019/20
Threshold
(25% of that
part vesting)
Stretch (100%
of that part
vesting)
15p
17.5p
19p
19p
22.5p
24p
Consistent with best practice guidelines, the Committee has discretion to adjust these targets if, in its view, the reported out-turn is unduly
impacted by share buy-backs (or equivalent unanticipated transactions) to ensure that participants do not receive an unintended benefit from
such transactions.
B&M European Value Retail S.A. Annual Report and Accounts 2017
53
DIRECTORS’ REMUNERATION REPORT continued
The awards made on 5 August 2015 and 18 August 2016 each have a
holding period expiring on the fifth anniversary of the date of the grant
of the relevant award as will the proposed 2017 award.
Payments to past Directors and loss of office payments – audited
There were no payments to past Directors or for loss of office in the
year ended 25 March 2017.
Directors’ shareholding and share interests – audited
Under the remuneration policy, the shareholding guideline for
Executive Directors is for a shareholding to be built up and maintained
by them of 200% of base salary. Where an Executive Director does not
meet the shareholding guideline, they are expected to retain all shares
which vest under the LTIP (or any other share plans in the future) after
allowing for tax.
The Committee reviews share ownership levels annually. The
shareholding guideline requirement is exceeded by the CEO in relation
to the interests as referred to in the table below. The CFO does not
currently hold any shares in the Company, not having been a
shareholder in the Group prior to or on the IPO of the Company in June
2014. The CFO has unvested LTIP awards following the IPO which,
subject to performance conditions being achieved and them vesting
during the course of 2017/18 and following years, will in that event then
count toward the guideline requirement.
Total Shareholder Return (Rebased)
Source: Datastream (Thomson Reuters)
B&M European Value Retail
FTSE 250 (Ex IT)
130
125
120
115
110
105
100
95
90
12 June 2014
28 March 2015
26 March 2016
25 March 2017
This graph shows the value by 25 March 2017 of £100 invested in B&M
from 12 June 2014 (the date on which the Company’s shares were first
conditionally traded) compared with the value of £100 invested in the
FTSE 250 Index (excluding investment trusts).
Remuneration of the CEO
The table below shows the remuneration for the CEO for each of the
last three financial years since the IPO of the Company in June 2014.
Single Figure
£166,606
£601,638
£1,403,731
Bonus as a %
of max
LTIP as a % of
max
N/A
0%
76.77%
N/A
N/A
N/A
The table below sets out the number of shares held or potentially held
by Directors (including their connected persons or related parties
where relevant) as at the financial year ended 2016/17.
2014/15
2015/16
2016/17
Director
Sir Terry Leahy2
Simon Arora
Paul McDonald
Thomas Hübner
Kathleen Guion
Ron McMillan
Harry Brouwer
David Novak2
Shares held
beneficially1
Unvested options
with performance
conditions3
–
209,880,828
–
11,111
11,111
37,037
18,518
–
–
–
264,348
–
–
–
–
–
1
2
Includes any shares held by connected persons or related parties.
Sir Terry Leahy and David Novak have an interest in the shares held by CD&R
European Value Retail Investment S.à.r.l, which holds 114,100,528 of the ordinary
share capital being 11.41% of the voting rights in the Company, as a result of their
interests in Clayton, Dubilier & Rice Fund VIII, L.P.
3 Nil cost options.
There have been no changes in the Directors’ interests in shares in the
Company between the end of the 2016/17 financial year and the date
of this report.
Performance graph and pay table
The chart below illustrates the Company’s Total Shareholder Return
(“TSR”) performance against the performance of the FTSE 250 Index
(excluding investment trusts) of which the Company is a constituent,
from 12 June 2014 (the date on which the Company’s shares were first
conditionally traded).
Change in remuneration of the Chief Executive
The table below shows the percentage changes in the CEO’s
remuneration between the financial year ended 26 March 2016 and
25 March 2017 compared to the amounts for UK full time employees of
the Group for each of the following elements of pay:
CEO
UK full time employees
(average)1
Salary
increase/
(decrease)
Annual bonus
increase/
(decrease)
Taxable
benefits
increase/
(decrease)
2.5%
N/A2
21.97%
2.91%
-2.10%
8.28%
1
2
This includes all salaried UK employees.
The annual bonus increase has been shown as N/A as the 2015/16 bonus was
zero so the percentage increase cannot be calculated.
Relative importance of the spend on pay
The table below shows the movement in spend on pay for all
employees compared with distributions to shareholders for the
financial years ended 26 March 2016 and 25 March 2017.
£’000
2015/16
2016/17
% change
Total pay for employees
Distributions to shareholders1
240,189
41,000
290,983
151,000
21.2%
268.3%
1
There have not been any buy-backs of shares so this element has been excluded
from the above table.
54
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Service contracts
The service contract for the CEO is terminable by either the Company
or the CEO on 12 months’ notice and the service contract for the CFO by
either party on 6 months’ notice. Each of their service contracts allow
for early termination with payment in lieu of notice. There are no
enhanced provisions on a change of control under the Executive
Directors’ service contracts. The service contracts of the Executive
Directors are available for inspection at the registered office of the
Company. The service contracts are dated 29 May 2014 in relation to
the CEO and 2 July 2015 in relation to the CFO.
External appointments
Subject to Board approval, Executive Directors are permitted to take on
non-executive positions with other companies and to retain their fees
in respect of such positions. Simon Arora is a non-executive director of
Anglesource Limited. No fees were received by him for that external
appointment during the year ended 25 March 2017.
Chairman and Non-Executive Directors
A review of the Non-Executive Directors fees (other than in relation to
the Chairman and the other Non-Independent Director) has been
carried out by the Board for 2017/18. The Board consulted FIT
Remuneration Consultants LLP in relation to benchmarking of
Non-Executive Director fees. As a result of the review, the fees for the
Non-Executive Directors were increased as set out below with effect
from the beginning of the 2017/18 financial year.
The revised rates are in line with the median range compared with
FTSE 350 companies generally, but without any premium for the extra
time commitment of staying and travelling to Board and Committee
meetings which are all held outside the UK. The structure of the fees
remains the same as they were set by the Board at the time of the IPO,
which take account of Chairmanships of Board Committees and the
role of the Senior Independent Director.
The following fee rates per annum are payable following that review to
the Non-Executive Directors in 2017/18:
• base fee £58,000 (2016/17: £55,000);
• senior independent director supplemental fee £16,500
(2016/17: £16,500);
• committee chair supplemental fee £12,000 (2016/17: £11,000).
All fees are subject to the aggregate fee cap for Directors in the
Articles of Association of the Company, which remains currently at
£800,000 per annum.
The Chairman and one of the other Non-Executive Directors of the
Company, David Novak, do not receive any fees from the Company.
The Committee has responsibility for determining fees paid to the
Chairman of the Board. While, subject to the cap above, Chairman’s
fees may be paid for that role at any time in the future, in 2016/17 there
were no fees paid to the Chairman.
Details of the fees which were paid to Non-Executive Directors in 2016/17
and for the prior year are set out in the table on page 53 above. The
Chairman and the Non-Executive Directors are entitled to reimbursement
of all expenses reasonably incurred by them in the performance of their
duties. The Chairman and the Non-Executive Directors do not participate
in any bonus or share plans of the Company.
All the Non-Executive Directors of the Company have letters of
appointment dated 24 May 2017 with the Company for a period of 3 years
subject to 3 months’ notice of termination by either side at any time and
subject to annual re-appointment as a Director by the shareholders. The
appointment letters provide that no other compensation is payable on
termination. Those letters remain in force without any changes proposed
to them.
Insurance
All of the members of the Board have the benefit of Directors’ and
Officers’ liability insurance which gives them cover for legal action
which may arise against them personally except in relation to any
fraud or dishonesty.
Remuneration Committee
The members of the Committee for 2016/17 comprise 3 independent
Non-Executive Directors, being, Kathleen Guion (Committee Chair),
Ron McMillan and Harry Brouwer.
The responsibilities of the Committee are set out in the Corporate
Governance section of the Annual Report on page 40.
The Committee is assisted by the General Counsel of the Group
who is invited to attend Committee meetings. The Committee invites
the Chairman and the CEO as and when the Committee considers it
appropriate, to attend meetings and assist the Committee in its
deliberations. No person is present during any deliberations relating
to their own remuneration or is involved in determining their
own remuneration.
The attendance of members of the Committee at meetings of it was
as follows:
Director
Kathleen Guion
Harry Brouwer
Ron McMillan
Role
Meetings attended
Committee Chair
Committee Member
Committee Member
4 out of 4
4 out of 4
4 out of 4
The effectiveness of the Committee during the year was evaluated as
part of a broader externally facilitated board effectiveness review,
details of which are set out on page 44. The overall conclusion of the
review was that the Committee is highly effective in discharging its
functions and reporting to the Board.
B&M European Value Retail S.A. Annual Report and Accounts 2017
55
DIRECTORS’ REMUNERATION REPORT continued
Shareholder voting
The resolutions to approve the directors’ remuneration policy at the 2015 AGM and the remuneration report at the 2016 AGM were passed as follows:
Resolution
Votes for
% for
Votes against
% against
Total votes cast
% of shares on
register
Votes withheld
To approve the remuneration policy
(2015)
843,228,764
99.71
2,487,049
0.29
845,715,813
84.57
194,847
To approve the remuneration report
(2016)
830,714,276
99.41
4,964,369
0.59
835,678,645
83.57
846,486
Advisors to the Committee
FIT Remuneration Consultants LLP (“FIT”) has been appointed as remuneration consultants by the Committee. FIT are retained to provide advice
on remuneration for the Executive Directors and some other members of the senior management. FIT does not provide any other services to the
Group. FIT were appointed by the Committee after appropriate consideration of their experience in this sector.
FIT are a member of the Remuneration Consultants Group and subscribes to its Code of Conduct which requires that its advice must be objective
and impartial. For the financial year 2016/17 FIT’s total fees were £25,083 excluding vat and expenses.
Remuneration Policy Table
The table below summarises the Company’s Directors’ Remuneration Policy, as approved by shareholders at the 2015 AGM. It has been
reproduced in the same form from last year’s report. A full copy of the whole of the remuneration policy is set out in pages 35 to 41 of the 2015
Annual Report, which is available on our website at www.bandmretail.com.
This report has been approved by the Board of Directors of the Company and signed on behalf of the Board by:
Kathleen Guion
Chair of the Remuneration Committee
24 May 2017
56
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Policy Table (from the Directors’ Remuneration Policy approved by shareholders at the AGM in 2015)
The table below describes the elements of remuneration paid to the Executive Directors:
Element and purpose
Policy and opportunity
Operation and performance conditions
Base salary
This is the basic pay and reflects the
individual’s role, responsibility and
contribution to the Group
Benefits
To provide benefits which are valued by the
individual and assist them in carrying out
their duties
Base salaries are reviewed annually.
Changes typically take effect from the
beginning of the relevant financial year
On reviews, consideration is given by the
Committee to a range of factors including
the Group’s overall performance, market
conditions and individual performance of
executives and the level of salary increase
given to employees across the Group
Base salaries are benchmarked against
companies with a comparable market
capitalisation, with base salaries generally
being set then by the Committee against a
median or lower level
Similarly, in practice the Committee will
typically discount the data to recognise that
the cost of living in the North West is lower
than in some other parts of the UK
Given the requirement under UK regulations
for a formal cap, the Committee has limited
the maximum salary it may award to 110% of
the median of salaries for the role in the FTSE
350 retailers. In practice though the
Committee would normally expect to keep it
below the median of this benchmark
Provide market competitive benefits
The Group may periodically review benefits
available to employees. Executives will
generally be eligible to receive those
benefits on similar terms to other senior
employees
The cost of benefits paid to an Executive in
any one year are capped at £75,000, but this
may be exceeded in exceptional
circumstances if the cost of a benefit were to
increase significantly
In addition, where the Committee considers
it appropriate to do so, additional relocation
expenses may be paid
Base salary is paid 4 weekly in cash
Base salaries are reviewed annually with
changes usually taking effect from 1 April
Executives are entitled to a car allowance or
a company car, car insurance and other
running costs and fuel for business use,
death in service life assurance, permanent
disability and critical illness insurance and
any other Group wide benefits including a
10% B&M stores discount card
Business travel and associated hospitality
are provided in the normal course of
business and authorised by the Committee
on a standing basis
B&M European Value Retail S.A. Annual Report and Accounts 2017
57
DIRECTORS’ REMUNERATION REPORT continued
Element and purpose
Policy and opportunity
Operation and performance conditions
Pension
To provide an appropriate level of contribution
to retirement planning
Provide a market competitive pension
contribution (or equivalent cash allowance)
of a total maximum value up to 20% of base
salary for the CEO and 15% (or equivalent
cash allowance) for other Executive Directors
Executives may take pension benefits as
contributions to defined contribution personal
pension plans, or elect to receive cash in lieu
of all or part of that benefit (this is not taken into
account as salary for calculating bonus, LTIP or
other benefit awards)
Annual bonus
To incentivise and reward individuals for the
delivery of annual performance targets
Long-term incentives
To incentivise the delivery of strategic
objectives over the longer term, the Group
operates the Long-Term Incentive Plan (“LTIP”)
which was adopted prior to Admission
The current annual bonus potential for the CEO
is 150% of base salary and 100% of base
salary for other Executive Directors. Their
threshold bonus levels will be no more than
25% of their respective maxima, and, their
target bonus levels 50% of their respective
maxima. As the regulations require a formal
cap for a three year period, future bonus
potential will only increase where appropriate
against market data and, in any event, will be
subject to an overall maxima of 200% of salary
for any Executive Director
Clawback provisions apply to the annual
bonus plan
Bonuses are paid in cash although the
Committee reserves the power to impose
deferral should it consider that to be
appropriate
The policy is to make awards to Executive
Directors of shares with a face value on grant
of up to 100% of base salary each year under
the LTIP
Awards of up to 200% of base salary can be
made if the Committee considers that
exceptional circumstances exist
No LTIP awards are proposed to be made to
the CEO while he continues to hold a
significant shareholding above the minimum
shareholding guidelines set out below
The LTIP does not credit participants with
dividends paid during the performance period
Clawback and malus provisions apply to
awards made under the LTIP from 29 March
2015 onward
LTIP awards may, subject to the discretion of
the Committee, be made subject to holding
periods during which the participant may not
dispose of the shares for a period of time after
they become exercisable
If the individual elects to receive any part of
their pension contribution benefit as a cash
allowance instead, employers’ NICs are
deducted from that element
The performance measures are reviewed
annually by the Committee in line with the
Company’s strategy
The performance measures applied may be
financial and/or operational and corporate,
divisional and/or individual
Performance conditions once set will
generally remain unaltered, but the
Committee has the right in its absolute
discretion to make adjustments during any
performance period to reflect any events
arising which were unforeseen when the
performance conditions were originally set
by the Committee
Awards may be made annually of nil cost
options based on performance conditions
The Committee may set three year
performance conditions based on financial
and/or operational and corporate, divisional
and/or individual criteria as it considers
appropriate
Performance conditions once set will generally
remain unaltered, but the Committee has the
right in its absolute discretion to make
adjustments during any performance period in
case of any events arising which were
unforeseen when the performance conditions
were originally set by the Committee
No more than 25% of an award can be earned
for threshold performance
Where a holding period is imposed in the
discretion of the Committee in relation to any
LTIP award, the default position (unless the
Committee determines otherwise) is for the
holding period to expire on the fifth anniversary
of the date of grant of the relevant award
58
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Element and purpose
Policy and opportunity
Operation and performance conditions
Shareholding guidelines
To encourage share ownership and create
alignment of interests of Executive Directors
and shareholders
Executive Directors are expected to retain all
shares which vest under the LTIP (or any
other plans which may be adopted in the
future) on a net of tax basis until they hold
shares of a specified value
Shares subject to these guidelines and any
unvested share awards may not be hedged
or used as security for loans
All-employee share plans
To encourage share ownership by
employees and participate in the long-term
success of the Group, the Group operates
an all-employee share incentive plan for
UK employees which was adopted prior
to Admission
Executive Directors can participate in the
all-employee share incentive plan (“SIP”) on
the same terms as other employees of the
Group in the UK
The required level of shareholding is 200%
of the base salary of the relevant executive
Executive Directors are expected to maintain
their minimum shareholding levels once
they have obtained those shareholding
levels. The Committee will review
shareholdings annually against the policy
and as share awards mature
The Committee reserves the right to alter the
shareholding guidelines during the period
of the policy but without making the
guidelines any less onerous overall
Under the rules of the SIP employees can
purchase a maximum of £1,800 worth of
shares per annum from their pre-tax and
pre-national insurance salary through a UK
resident SIP Trust
The rules also permit an award of free
shares worth up to £3,600 per year and for
purchased shares to be matched on up to a
2:1 basis although these elements have not
been operated to date
B&M European Value Retail S.A. Annual Report and Accounts 2017
59
DIRECTORS’ REPORT AND BUSINESS REVIEW
The Directors present their report (the “Management Report”) under
Luxembourg Law and DTR4.1.5R, together with the consolidated
financial statements and annual accounts of the Group and of the
Company as at 25 and 31 March 2017 respectively and for the
accounting periods then ended. As permitted under Luxembourg Law,
the Directors have elected to prepare a single Management Report
covering both the Group and the Company. The Strategic Report,
Corporate Governance Report and Directors’ Remuneration Report on
pages 1 to 37, 40 to 45 and 50 to 56 respectively form part of this
report.
Employees
The Group has continued its practice of keeping staff informed of
matters affecting them as employees through local meetings,
company newsletters and notice boards. The Group seeks to ensure
that disabled people, whether applying for a vacancy or already in
employment, receive equal opportunities in respect of those vacancies
that they are able to fill, are not discriminated against on the grounds
of their disability and are given full and fair consideration of
applications, continuing training while employed and equal
opportunity for career development and promotion.
Company status
B&M European Value Retail S.A. (the “Company”) is the holding
company of the Group. It was incorporated on 19 May 2014 as a public
limited liability company (Société Anonyme) under the laws of the
Grand-Duchy of Luxembourg and it is domiciled in Luxembourg. The
Company has a premium listing on the London Stock Exchange.
Directors
The Directors of the Company as at 31 March 2017 and their interests in
shares and share awards made to them under share incentive
schemes in the Company are shown on page 53. There have been no
changes in the Board of the Company between 31 March 2017 and the
date of this report.
Branches
The Group had no registered external branches during the reporting
period.
In accordance with the Articles of Association of the Company (the
“Articles”), all the Directors will retire at the Annual General Meeting
(”AGM”) on 28 July 2017. All the retiring Directors, being eligible, will
stand for re-election as Directors at that meeting.
Principal activity
The principal activity of the Group is variety retailing in the UK and
Germany. The Company has a corporate office in Luxembourg.
Business review
This report together with the Strategic Report on pages 1 to 37, sets out
the review of the Group’s business during the financial year ended 25
March 2017, including factors likely to affect the future development
and performance of the business and a description of the principal
risks and uncertainties the Group faces, and the Strategic Report is
incorporated by reference in this report.
Directors indemnities
The Company’s Articles of Association permit the Company to
indemnify its Directors in certain circumstances, as well as to provide
insurance for the benefit of its Directors. The Company has Director’s
and Officer’s insurance in place in respect of all the Directors. The
insurance does not provide cover where a Director has acted
fraudulently or dishonestly.
Political donations
No political donations were made in the financial year.
Results and dividend
The Group’s profit after tax for the financial year ended 25 March 2017
of GBP £144.0m is reported in the consolidated statement of
comprehensive income on page 67.
Financial instruments
Details of the Group’s objectives and policies on financial risk
management, and of the financial instruments currently in use, are set
out in note 17 to the consolidated financial accounts.
The Board is recommending a final dividend of 3.9p per ordinary
share, which together with the interim dividend of 1.9p per ordinary
share paid in December 2016 is a total dividend for the year of 5.8p,
which reflects the upper end of the dividend policy of paying 30-40%
of normalised post-IPO earnings¹.
Share capital
The Company’s share capital and changes to it in the financial year,
are set out on page 63 below and in note 20 to the consolidated
financial statements on page 94 which forms part of this report.
1 Dividends are stated as gross amounts before deduction of Luxembourg
withholding tax which is currently 15%.
Post balance sheet events
There have been no post balance sheet events that either require
adjustment to the financial statements or are important in the
understanding of the Group’s current position.
Corporate social responsibility
Our CSR activity is set out in the Corporate Social Responsibility report
on pages 33 to 37.
Greenhouse gas emissions
Details of the Group’s greenhouse gas emissions are contained in the
Corporate Social Responsibility report on pages 33 to 37 which forms
part of this report.
In common with other Luxembourg registered companies, the
Directors have authority to allot ordinary shares in the Company and to
dis-apply pre-emption rights under certain limits and conditions as
permitted under the Articles of Association of the Company. The
Directors intend to comply with the Pre-Emption Group’s Statement of
Principles, in relation to any issue of shares of the Company to the
extent practical as a Luxembourg registered company.
The Board intends to seek an authorisation of shareholders at the
AGM on 28 July 2017 that the Company, purchase, acquire or receive
B&M European Value Retail S.A.‘s own shares. This resolution will
usually be requested at each AGM. No shares of the Company have
been repurchased and no contract has been entered into at any time
since the incorporation of the Company.
60
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Each ordinary share entitles the holder to vote at general meetings of
the Company in person or by proxy. Unless otherwise provided by
Luxembourg Company Law or the Articles, all decisions by an annual
or general shareholders’ meeting are taken by a simple majority of
votes cast regardless of the proportion of capital represented by
shareholders in attendance at the meeting. The notice of the Annual
General Meeting specifies deadlines for exercising voting rights and
appointing a proxy to vote.
Holders of ordinary shares may receive a dividend and on liquidation
may share in the assets of the Company. Subject to meeting certain
thresholds, holders of ordinary shares may requisition a general
meeting of the Company or the proposal of resolutions at general
meetings. The rights (including full details relating to voting),
obligations and any restrictions on transfers relating to the Company’s
ordinary shares, as well as the powers of the Directors, are set out in
the Articles of Association.
Change of control
The Company has a senior facilities agreement (the ‘SFA’) in relation to
a £300 million term loan (which has been drawn in full) and a £150
million revolving credit facility. The SFA provides that on a change of
control of the Company, each lender has the right to require early
repayment of their loans and to cancel all their commitments under
the SFA on not less 10 Business Days’ notice to the Company.
The Company has £250 million 4.125% senior secured notes due 2022,
of which all £250 million remain outstanding. On a change of control
of the Company, each bondholder has the option to require the
Company to repurchase all or part of the notes of such holder at a
purchase price of 101% of the principal amount plus accrued interest
up to the date of repurchase.
The Group’s credit and loan facilities with its banks and fleet finance
agreements for HGV’s contain customary cancellation and repayment
provisions upon a change of control.
Details of agreements and control rights which may result in
restrictions on transfers of shares are set out in section (b) on page 63
below. The Company is not aware of any other agreements between
shareholders that restrict the transfer of shares or voting rights
attached to the shares.
Employee share incentive schemes also have customary change of
control provisions triggering vesting and exercise on performance
conditions being met or (in the discretion of the Company) being
waived.
Employee share ownership trust
The Company established the B&M European Value Retail S.A.
Employee Share Ownership Trust with Capita Trustees Limited as the
trustee in Jersey on 14 October 2014 (the “ESOT”) to facilitate the holding
of shares in the Company by employees and Executive Directors. The
trustee of the trust has waived its right to receive dividends on the
Company’s shares which it holds from time to time. Where the
Company directs at any time that the trustee may vote in relation to
any unallocated shares held by it, the trustee has power in its absolute
discretion to vote or not to vote in such manner it thinks fit. During the
financial year to 25 March 2017 and up to the date of this report, no
shares in the Company have been held at any time by the ESOT.
Shareholders
As at 24 May 2017, the following shareholders have notified the
Company of their interest in 5% or more of the Company’s issued
ordinary shares:
Shareholder
FMR LLC
CD&R European Value Retail
Investment S.à r.l.
SSA Investments S.à r.l.*
No of ordinary
shares
59,225,998
114,100,528
209,880,828
% share
capital
5.92
11.41
20.99
*
Includes 8,055,494 shares held by Praxis Nominees Limited on its account.
Amendment to the Articles of Association
The Company’s Articles of Association may only be amended at an
extraordinary shareholders’ meeting where at least one half of the
issued share capital is represented (or if that condition is not satisfied
at a second meeting regardless of the capital represented at that
meeting) and when adopted by a resolution passed by at least
two-thirds of the votes cast. No amendments are proposed to be
made to the existing Articles of Association at the Annual General
Meeting of shareholders on 28 July 2017.
Annual General Meeting
A notice convening the Company’s third Annual General Meeting on
28 July 2017, will be issued to shareholders. In addition to the ordinary
business of the AGM, the Directors are seeking certain other approvals
and authorities, details of which are set out in the notice.
Corporate governance
The compliance by the Company with the UK Corporate Governance
Code and the requirements of Article 68bis of the Luxembourg
Company Law of 19 December 2002, as subsequently amended, are
set out in the Principal Risks and Uncertainties on pages 28 to 32, the
Corporate Governance report on pages 40 to 45 and the Directors’
Remuneration Report on pages 50 to 56, each of which form part of
this report.
The Statement of Directors’ Responsibilities in relation to the
consolidated financial statements and annual accounts of the Group
and the unconsolidated financial statements and annual accounts of
the Company appears on page 65, which forms part of this report.
Independent Auditor
KPMG Luxembourg Société Cooperative is the independent auditor
(“réviseur d’entreprises agréé”) of the Company. Their reappointment
as the Company’s auditor, together with authority for the Directors to
fix the auditor’s remuneration, will be proposed at the AGM on 28 July
2017 as set out in the notice.
Information on forward looking statements
The Annual Report and financial statements include forward-looking
statements that reflect the Company’s or, as appropriate, the Directors’
current views with respect to, among other things the intentions,
beliefs and current expectations of the Company or the Directors
concerning, amongst other things, the results of operations, the
financial condition, prospects, growth, strategies and dividend policy
of the Company and the industry in which it operates. Statements that
include the words “expects”, “intends”, “plans”, “believes”, “projects”,
“forecasts”, “predicts”, “assumes”, “anticipates”, “will”, “targets”, “aims”,
B&M European Value Retail S.A. Annual Report and Accounts 2017
61
DIRECTORS’ REPORT AND BUSINESS REVIEW continued
“may”, “should”, “shall”, “would”, “could”, “continue”, “risk” and similar
statements of a future or forward-looking nature can be used to
identify forward-looking statements.
In the financial year 2016/17 the following transactions were entered into
by the Group with Arora Family related parties (including their associates):
• 6 leases of new stores were entered into by the Group in the UK
All forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that may or may
not occur in the future. Undue reliance should not be placed on such
forward-looking statements because they involve known and
unknown risks, uncertainties and other factors that are in many cases
beyond the Group’s control.
Independence compliance statement
CD&R European Value Retail Investment S.à r.l. (“CD&R Holdco”) and Simon
Arora, Bobby Arora, Robin Arora and SSA Investments S.à r.l. (“SSA
Holdco”) (the “Arora Family”) entered into relationship agreements with the
Company at the time of and with effect from the admission of the
Company to trading on the London Stock Exchange in June 2014
(“Admission”) and which continues to remain in force, which regulate the
ongoing relationship between the Company and CD&R Holdco and the
Arora Family, respectively, following Admission (together the “Relationship
Agreements” and each, a “Relationship Agreement”).
The principal purpose of the Relationship Agreements is to ensure that the
Company and its subsidiaries are capable of carrying on their business
independently of CD&R Holdco and the Arora Family (and their respective
associates), and that transactions and relationships between the Group
and CD&R Holdco and the Arora Family (and their respective associates)
are at arm’s length and on normal commercial terms.
For the purpose of this section of the Annual Report, the terms
“controlling shareholder(s)” and “associate(s)” have the same
meanings as in the UK Listing Rules.
The Relationship Agreements contain undertakings that each of CD&R
Holdco and the Arora Family and each of its respective associates, will:
(a) conduct all transactions and relationships with the Company at
arm’s length and on normal commercial terms;
(b) not take any action that would have the effect of preventing the
Company from complying with its obligations under the Listing
Rules; and
(c) not propose or procure the proposal of a shareholder resolution
which is intended or appears to be intended to circumvent the
proper application of the Listing Rules.
(together the “Independence Provisions”).
The Relationship Agreements will continue for so long as CD&R Holdco
or the Arora Family together with their respective associates, as the
case may be, hold 5% or more, respectively, of the issued ordinary
shares of the Company.
with Arora Family related parties as landlords of those new stores,
representing 11.3% of the total number of 53 gross new store
openings of the Group in the UK in that period; and
• 1 agreement for lease was conditionally exchanged by the Group
with Arora Family related parties as landlords, which is due to be
completed as a new store opening in the next financial year
2017/18 (together also with 1 other which was conditionally
exchanged in the previous financial year).
The total number of leases of UK stores and rents of the Group with
Arora Family related parties as at the end of the period under review
were 69 store leases, representing 12.8% of a total number of 537 UK
stores of the Group with all landlords, and 12.9% of the overall rent roll
of all UK stores as at the year end.
In the year there were 5 renewals of existing Jawoll store leases (and
of the head office in Soltau) with Jawoll’s CEO's family related parties
as landlords (“Stern Family”). The total number of leases of German
stores and rents of the Group with Stern Family related parties as at
the end of the period under review were 10 store leases, representing
13.3% of a total number of 75 German stores of the Group with all
landlords, and 24.5% of the overall lease charge¹ as a proportion of
the total rental expense (for comparative purposes) of all the German
stores as at the year end. At each of these property lease renewal
locations, the landlord and tenant relationship between Jawoll and
Stern Family related parties pre-dated the acquisition of Jawoll by the
Group.
A summary of the corporate governance and Listing Rules processes
and assessments undertaken by the Group and the Board together
with reports of advisors and the opinion of the Sponsor, in relation to
related party leases, is included on page 43 of the Corporate
Governance Statement.
Further details of related party transactions are also included also in
note 25 of the Financial Statements on page 100.
The Board confirms that during the financial year 2016/17:
(i)
the Company has complied with the independence provisions
included in each of the Relationship Agreements;
(ii) so far as the Company is aware, the independence provisions
included in each of the Relationship Agreements have been
complied with by the controlling shareholders and their respective
associates;
(iii) so far as the Company is aware, the procurement obligations in
each of the Relationship Agreements have been complied with by
the controlling shareholders and their respective associates,
and that the Company has acted independently of CD&R Holdco and
the Arora Family (and their respective associates).
1
The overall lease charge proportion is based on the actual income statement rent
charge and therefore excludes annualisation for the 19 new stores acquired
during the year at different times (each of which are with non-related party
landlords), and the P&L impact of the properties held under finance leases which
would together significantly reduce the proportion relating to Stern Family leases.
62
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Section (d) – Special control rights
All the issued and outstanding shares of B&M European Value Retail
S.A. have equal voting rights and there are no special control rights
attached to shares of B&M European Value Retail S.A., except that
B&M European Value Retail S.A. can direct that shares held in the ESOT
be applied by the trustee to satisfy the vesting of outstanding awards
under its long-term incentive plan or any other employee share
schemes established by the Group.
Section (e) – Control system on employee share scheme
B&M European Value Retail S.A. is not aware of any matters regarding
section (e) of Article 11 of the Luxembourg Law on Takeovers of 19 May
2006, as subsequently amended, save where referred to in (d) above.
Section (f) – Voting rights
Each share issued and outstanding in B&M European Value Retail S.A.
represents one vote. The Articles do not provide for any voting restrictions.
In accordance with the Articles shareholders may be represented and
proxies shall be received by the Company a certain time before the date
of the relevant meeting. In accordance with the Articles, the Board of
Directors may determine such other conditions that must be fulfilled by
shareholders in person or by proxy. Additional provisions may apply
under Luxembourg Law. Luxembourg legislation requires shareholders to
register their intention to vote at least 14 days before the date of the
meeting (the “Record Date”). In accordance with Article 24.6.12 of the
Articles, the right of a shareholder to participate in a general meeting and
to exercise the voting rights attached to its shares are determined by
reference to the number of shares held by such shareholder at midnight
on the Record Date. In accordance with article 28 of the Luxembourg law
on transparency obligations of securities issuers dated 11 January 2008
(“Luxembourg Transparency Law“), as long as the notice of crossing a
major shareholding in the Company has not been notified to the
Company in the manner prescribed, the exercise of the voting rights
relating to those shares which exceed the threshold that should have
been notified is suspended. The suspension of the voting rights is lifted
when the shareholder makes the notification provided for in the
Luxembourg Transparency Law.
Section (g) – Shareholders’ agreements with transfer restrictions
B&M European Value Retail S.A. has no information about any
agreements between shareholders which may result in restrictions on the
transfer of securities or voting rights other than restrictions on transfer
under the orderly sale arrangements referred to in section (b) above.
Section (h) – Appointment of Board members, amendment of
Articles of Association
The appointment and replacement of Board members and the
amendment of the Articles are governed by Luxembourg Law and the
Articles of Association of the Company (in particular Article 10 and
Article 24.6). The Articles of Association are published under the
Investors section on the Company’s website at www.bandmretail.com.
The Board confirms that this statement is supported by each of the
independent Directors of the Company and there have been no
instances where any of them declined to support this statement.
In accordance with Article 13.10 of the Articles of Association of the
Company a report will be made at the 2017 AGM of transactions with
the Company or its subsidiary undertakings in which any Directors
may have had an interest, including each of the related party
transactions with Directors (or which they may have directly or
indirectly had an interest) entered into in the financial year 2016/17
referred to above and in note 25 of the Financial Statements on page
100, together with any other such transactions entered into after the
financial year-end on 25 March 2017 up to the date of the AGM,
similarly to each of the two previous AGMs.
Article 11 report
The following disclosures are made in accordance with Article 11 of the
Luxembourg Law on Takeovers of 19 May 2006, as subsequently
amended, and form part of this Directors’ Report.
Section (a) – Share capital structure
B&M European Value Retail S.A. has issued one class of shares which
is admitted to trading on the London Stock Exchange. No other shares
have been issued by B&M European Value Retail S.A. The issued share
capital of B&M European Value Retail S.A. as of 25 March 2017
amounts to GBP £100,000,000 represented by 1,000,000,000 shares
with a nominal value of GBP £0.10 each. B&M European Value Retail
S.A. has a total authorised share capital of GBP £297,222,222.20. All
shares issued by B&M European Value Retail S.A. have equal rights as
set out in the Articles of Association of the Company (the “Articles”).
Section (b) – Transfer restrictions
As at the date of this report, all B&M European Value Retail S.A. shares
are freely transferable subject to the conditions set out in Article 6.3 of
the Articles, except as set out below.
On 12 June 2014, CD&R European Value Retail Investment S.à r.l., SSA
Investments S.à r.l., Simon Arora, Bobby Arora, Robin Arora, Rani 1 Life
Interest Trust, Rani 2 Life Interest Trust and Praxis Nominees Limited
entered into an agreement pursuant to which SSA Investments S.à r.l.
shall require the consent of CD&R European Value Retail S.à r.l. for the
sale of any shares of the Company for a period of two years
immediately following the expiry of the initial twelve month lock-up on
16 June 2015, which they entered into pursuant to the Underwriting
Agreement on the listing of the Company on the premium listing
segment of the Official List of the London Stock Exchange and the
admission to trading of the shares of the Company on the main market
for listed securities of the London Stock Exchange on 17 June 2014. This
restriction applies to fifty percent (50%) of their shareholding in the
Company following the ‘Global Offer’ as defined in the Prospectus
issued on the listing of the Company. This Agreement requires all
parties to co-operate for a three year period (subject to certain
permitted exemptions) to maintain an orderly market in the event of
the proposed sale of any shares in the Company by any of the parties.
Section (c) – Major shareholdings
Details of shareholders holding more than 5% of the issued share capital
of B&M European Value Retail S.A. notified to B&M European Value Retail
S.A. in accordance with Luxembourg Transparency Law are set out on
page 61.
B&M European Value Retail S.A. Annual Report and Accounts 2017
63
DIRECTORS’ REPORT AND BUSINESS REVIEW continued
Section (i) – Powers of the Board of Directors
The Board of Directors is vested with the broadest powers to take any
action necessary or useful to realise the purposes of the Company
with the exception of the powers reserved to the general meeting of
shareholders by the Luxembourg law on commercial companies
dated 10 August 1915, as subsequently amended, and by the Articles.
In common with other Luxembourg public companies, the authority of
the Board to issue ordinary shares on a non-pre-emptive basis is set
out in the Articles of Association of the Company (the “Articles”). The
Articles authorise the Directors to dis-apply pre-emption rights (a) for
the issue for cash of shares representing up to a maximum of 5% (five
per cent) of issued ordinary share capital of the Company per year (b)
to deal with fractional entitlements on otherwise pre-emptive issues of
shares (c) in connection with employee share options, and, also (d) for
the issue for cash of shares representing up to an additional 5% (five
per cent) of the issued ordinary share capital per year which can be
used only for the purposes of financing (or refinancing, if the authority
is to be used within six (6) months of the original transaction) an
acquisition or other capital investment of a kind contemplated by the
Statement of Principles on Disapplying Pre-emption Rights most
recently published by the Pre-emption Group of the Financial Reporting
Council. The Board intends to follow the Statement of Principles to the
extent practical as a Luxembourg company.
The Board was authorised by the AGM of shareholders held on 29 July
2016, in the name and on behalf of the Company, to purchase, acquire or
receive B&M European Value Retail S.A.‘s own shares representing up to
10% of the issued share capital from time to time of B&M European Value
Retail S.A. on such terms as the Board may decide in accordance with the
law. No shares where purchased pursuant to this authority in the year
under review or since then up to the date of this report.
The Board intends to seek a new renewal of this authority for the
Company to purchase its shares, at the AGM of the shareholders on
28 July 2017. This resolution will usually be requested at each AGM.
Section (j) – Significant agreements or essential business contracts
The Board of Directors is not aware of any significant agreements to
which B&M European Value Retail S.A. is a party and which take effect,
alter or terminate upon a change of control of the Company following
a takeover bid other than (a) the Company has a senior facilities
agreement (the ‘SFA’) in relation to a £300 million term loan (which has
been drawn in full) and a £150 million revolving credit facility. The SFA
provides that on a change of control of the Company, each lender has
the right to require early repayment of their loans and to cancel all their
commitments under the SFA on not less 10 Business Days’ notice to the
Company, (b) the Company has £250 million 4.125% senior secured
notes due 2022, of which all £250 million remain outstanding. On a
change of control of the Company, each bondholder has the option to
require the Company to repurchase all or part of the notes of such
holder at a purchase price of 101% of the principal amount plus
accrued interest up to the date of repurchase (c) the Group has credit
and loan facilities with its banks and fleet finance agreements for
HGV’s, which contain customary cancellation and repayment
provisions upon a change of control (d) Employee share incentive
schemes in relation to shares in the Company, have customary
change of control provisions triggering vesting and exercise on
performance conditions being met or (in the discretion of the
Company) being waived.
Section (k) – Agreements with Directors and employees
No agreements exist between B&M European Value Retail S.A. and its
Directors or employees which provide for compensation if Directors or
employees resign or are made redundant without valid reason, or if
their employment ceases because of a takeover bid other than as
disclosed in the Directors’ Remuneration Report on page 55.
Approved by order of the Board
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
24 May 2017
64
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
Group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Company
financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by the EU
and applicable law and have prepared the Company financial
statements in accordance with Luxemburg legal and regulatory
requirements regarding the preparation of annual accounts (“Lux GAAP”).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and Company and of their profit or
loss for that period. In preparing each of the Group and Company
financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• present the financial statements and policies in a manner that
provides relevant, reliable, comparable and understandable
information;
• state whether they have been prepared in accordance with IFRSs
We confirm that to the best of our knowledge:
•
the consolidated financial statements of B&M European Value
Retail S.A. (“Company”) presented in this Annual Report and
established in conformity with International Financial Reporting
Standards as adopted in the European Union give a true and fair
view of the assets, liabilities, financial position, cash flows and
profits of the Company and the undertakings included within the
consolidation taken as a whole;
the annual accounts of the Company presented in this Annual
Report and established in conformity with the Luxembourg legal
and regulatory requirements relating to the preparation of annual
accounts give a true and fair view of the assets, liabilities, financial
position and profits of the Company;
the Strategic Report includes a fair review of the development and
performance of the business and position of the Company and the
undertakings included within the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
it faces; and
this Annual Report (including the financial statements), taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
•
•
•
as adopted by the EU;
Approved by order of the Board
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
24 May 2017
• provide additional disclosures when compliance with the specific
requirements in IFRSs or in accordance with Lux GAAP are
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s financial
position and financial performance; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that its
financial statements comply with the company law. They have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud
and other irregularities.
The Directors are responsible for preparing the Annual Report in
accordance with applicable laws and regulations. Having taken advice
from the Audit & Risk Committee the Directors consider the Annual Report
and the financial statements taken as a whole, provides the information
necessary to assess the Group’s performance, business model and
strategy and is fair balanced and understandable.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
The financial statements are published on the Company’s website.
Legislation in Luxembourg governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
B&M European Value Retail S.A. Annual Report and Accounts 2017
65
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of B&M European Value Retail S.A.
B&M European Value Retail S.A.
9, allée Scheffer
L-2520 Luxembourg
Report of the Réviseur d’Entreprises agréé
Report on the consolidated financial statements
Following our appointment by the General Meeting of the
Shareholders on 29 July 2016, we have audited the accompanying
consolidated financial statements of B&M European Value Retail S.A.,
which comprise the consolidated statement of financial position as at
25 March 2017, the consolidated statements of profit and loss and
other comprehensive income, changes in equity and cash flows for
the 52-week period then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Other information
The Board of Directors is responsible for the other information. The
other information comprises the information included in the Directors’
report and the Corporate Governance Statement but does not include
the consolidated financial statements and our report of Réviseur
d’Entreprises Agréé thereon.
Our opinion on the consolidated financial statements does not cover
information and we do not express any form of assurance conclusion
thereon.
Board of Directors’ responsibility for the consolidated financial
statements
The Board of Directors is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards as adopted by the
European Union, and for such internal control as the Board of
Directors determines is necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Responsibility of the Réviseur d’Entreprises Agréé
Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing as adopted for
Luxembourg by the Commission de Surveillance du Secteur Financier.
Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the judgement of the
Réviseur d’Entreprises Agréé, including the assessment of the risks of
material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the
Réviseur d’Entreprises Agréé considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by the Board
of Directors, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and
fair view of the consolidated financial position of B&M European Value
Retail S.A. as of 25 March 2017, and of its consolidated financial
performance and its consolidated cash flows for the 52-week period
then ended in accordance with International Financial Reporting
Standards as adopted by the European Union.
In connection with our audit of the consolidated financial statements,
our responsibility is to read information and, in doing so, consider
whether other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If, based on
the work we have performed, we conclude that there is a material
misstatement of other information, we are required to report this fact.
We have nothing to report in this regard.
Other matters
The Corporate Governance Statement includes information required
by Article 68bis paragraph (1) of the Luxembourg law of 19 December
2002 on the commercial and companies register and on the
accounting records and annual accounts of undertakings, as
amended.
The consolidated financial statements of B&M European Value Retail
S.A. for the 52-week period ended 26 March 2016, were audited by the
predecessor auditor who expressed an unmodified opinion on those
statements on 2 June 2016.
Report on other legal and regulatory requirements
The Directors’ report is consistent with the consolidated financial
statements and has been prepared in accordance with the applicable
legal requirements.
The information required by Article 68bis paragraph (1) letters c) and d)
of the Luxembourg law of 19 December 2002 on the commercial and
companies register and the accounting records and annual accounts
of undertakings, as amended and included in the Corporate
Governance Statement is consistent with the consolidated financial
statements and has been prepared in accordance with applicable
legal requirements.
Luxembourg, 24 May 2017
KPMG Luxembourg
Société coopérative
Cabinet de Révision Agréé
Thierry Ravasio
66
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Period ended
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Share of profits in associates
Profit on ordinary activities before net finance costs and tax
Finance costs
Finance income
Profit on ordinary activities before tax
Income tax expense
Profit for the period
Attributable to non-controlling interests
Attributable to owners of the parent
Other comprehensive income for the period
Items which may be reclassified to profit and loss:
Exchange differences on retranslation of subsidiary and associate investments
Fair value movement as recorded in the hedging reserve
Items which will not be reclassified to profit and loss:
Actuarial gain on the defined benefit pension scheme
Tax effect of other comprehensive income
Total comprehensive income for the period
Attributable to non-controlling interests
Attributable to owners of the parent
Earnings per share
Basic earnings per share attributable to ordinary equity holders (pence)
Diluted earnings per share attributable to ordinary equity holders (pence)
52 weeks
ended
25 March
2017
£’000
52 weeks
ended
26 March
2016
£’000
Note
2,430,660
2,035,285
(1,586,324)
(1,332,263)
2
844,336
703,022
(639,833)
(528,530)
4
10
5
5
8
2
8
26
9
9
204,503
174,492
1,005
1,166
205,508
175,658
(24,110)
1,520
(21,573)
460
182,918
154,545
(38,885)
(28,745)
144,033
125,800
1,107
142,926
1,264
124,536
7,479
(1,667)
5,505
–
16
324
5
13
150,185
131,323
2,082
148,103
1,265
130,058
14.3
14.3
12.5
12.4
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
B&M European Value Retail S.A. Annual Report and Accounts 2017
67
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
Assets
Non-current
Goodwill
Intangible assets
Property, plant and equipment
Investments in associates
Other receivables
Deferred tax asset
Current assets
Cash and cash equivalents
Inventories
Trade and other receivables
Other financial assets
Total assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Luxembourg legal reserve
Put/call option reserve
Hedging reserve
Foreign exchange reserve
Non-controlling interest
Non-current liabilities
Interest bearing loans and borrowings
Finance lease liabilities
Other financial liabilities
Other liabilities
Deferred tax liabilities
Provisions
Current liabilities
Trade and other payables
Finance lease liabilities
Other financial liabilities
Income tax payable
Provisions
Total liabilities
Total equity and liabilities
25 March
2017
£’000
26 March
2016
£’000
Note
11
11
12
10
14
8
15
13
14
17
20
18
22
17
16
8
19
16
22
17
19
841,691
103,693
165,748
5,669
2,413
824
837,450
101,174
138,050
3,995
2,771
473
1,120,038
1,083,913
155,551
462,119
35,398
410
91,148
356,312
28,761
4,769
653,478
480,990
1,773,516
1,564,903
(100,000)
(2,472,482)
1,979,131
(204,077)
(10,000)
13,855
1,350
(7,825)
(13,573)
(100,000)
(2,577,688)
1,979,131
(115,898)
(614)
13,855
–
(1,273)
(11,883)
(813,621)
(814,350)
(543,725)
(6,469)
(17,886)
(76,961)
(18,845)
(922)
(435,142)
(4,252)
(16,041)
(66,544)
(20,119)
(2,047)
(664,808)
(544,145)
(267,815)
(994)
(2,070)
(19,339)
(4,869)
(189,743)
(1,119)
(487)
(10,290)
(4,769)
(295,087)
(206,408)
(959,895)
(750,553)
(1,773,516)
(1,564,903)
The accompanying accounting policies and notes form an integral part of these consolidated financial statements. This consolidated statement
of financial position was approved by the Board of Directors and authorised for issue on 24 May 2017 and signed on their behalf by:
Simon Arora
Chief Executive Officer
68
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Share
capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Hedging
reserve
£’000
Legal
reserve
£’000
Merger
reserve
£’000
Foreign
exchange
reserve
£’000
Put/call
option
reserve
£’000
Non-
controlling
interest
£’000
Total
share-
holders’
equity
£’000
Balance at 28 March 2015
100,000 2,600,000
10,392
Allocation to legal reserve
Dividend payments to owners
Dividends to non-controlling
interest
Effect of share options
Total for transactions with
owners
Profit for the period
Other comprehensive income
Total comprehensive income for
the period
–
–
–
–
–
–
–
–
–
(614)
(22,332)
(18,668)
–
–
–
235
(22,332)
(18,433)
–
–
–
124,536
17
124,553
Balance at 26 March 2016
100,000
2,577,668
115,898
Allocation to legal reserve
Dividend payments to owners
Release of non-controlling
interest
Effect of share options
Total transactions with owners
Profit for the period
Other comprehensive income
Total comprehensive income
for the period
–
–
–
–
–
–
–
–
(6,776)
(2,610)
(98,410)
(52,590)
–
–
224
254
(98,410)
(52,112)
–
–
–
142,926
(25)
–
(1,350)
142,901
(1,350)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,979,131)
(4,232)
(13,855)
10,655
723,829
614
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,505
5,505
–
–
–
–
–
–
–
–
–
–
(37)
–
–
(41,000)
(37)
235
(37)
(40,802)
1,264
1
125,800
5,523
1,265
131,323
614 (1,979,131)
1,273
(13,855)
11,883
814,350
9,386
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,552
6,552
–
–
–
–
–
–
–
–
–
–
–
(151,000)
(392)
–
(168)
254
(392)
(150,914)
1,107
975
144,033
6,152
2,082
150,185
Balance at 25 March 2017
100,000 2,472,482 204,077
(1,350)
10,000 (1,979,131)
7,825
(13,855)
13,573
813,621
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
B&M European Value Retail S.A. Annual Report and Accounts 2017
69
CONSOLIDATED STATEMENT OF CASH FLOWS
Period ended
Cash flows from operating activities
Cash generated from operations
Fees associated with the IPO and associated restructuring
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of trade and assets of German entity
Proceeds from sale of property, plant and equipment
Finance income received
Dividends received from associates
Net cash flows from investing activities
Cash flows from financing activities
Repayment of bank loans
Receipt of High Yield Bonds
Finance costs paid
Dividends paid to non-controlling interest
Capitalised fees on refinancing
Acquisition of non-controlling interest in BestFlora
Dividends paid to owners of the parent
Repayment of finance lease
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Cash and cash equivalents comprise:
Cash at bank and in hand
Note
21
12
11
27
10
18
18
26
26
30
52 weeks
ended
25 March
2017
£’000
52 weeks
ended
26 March
2016
£’000
210,873
–
(31,759)
170,934
(770)
(27,558)
179,114
142,606
(49,160)
(2,796)
(2,374)
1,542
137
–
(54,912)
(1,801)
–
538
183
1,295
(52,651)
(54,697)
(140,000)
250,000
(14,983)
–
(5,208)
(175)
(151,000)
(694)
–
–
(19,662)
(37)
–
–
(41,000)
(1,005)
(62,060)
(61,704)
64,403
91,148
155,551
15
155,551
155,551
26,205
64,943
91,148
91,148
91,148
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
70
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 General information and basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards issued by the
International Accounting Standards Board (IASB) as adopted by the European Union.
The Group’s trade is general retail, with trading taking place in the UK and Germany. The Group has been listed on the London Stock Exchange
since June 2014.
The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of financial
assets and financial liabilities at fair value through profit or loss. The measurement basis and principal accounting policies of the Group are set
out below and have been applied consistently throughout the consolidated financial statements, except that in the current period a policy of
applying hedge accounting for qualifying foreign exchange derivatives has been adopted, and therefore a hedging reserve has been
recognised for the first time. An accounting policy for financial instruments is set out below.
The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (£’000), except
when otherwise indicated.
The consolidated financial statements cover the 52 week period from 27 March 2016 to 25 March 2017. This is a different period to the parent
company stand alone accounts (from 1 April 2016 to 31 March 2017) this exception is permitted under article 330 (2) of the Luxembourg company
law of 10 August 1915 as amended as the management believe that;
•
the consolidated financial statements are more informative when they cover the same period as used by the main operating entity, B&M
Retail Ltd; and
that it would be unduly onerous to rephrase the year end in this subsidiary to match that of the parent company.
•
We note that the year end for B&M Retail Ltd, in any year, would not be more than six days prior to the parent company year end.
B&M European Value Retail S.A. (the “Company”) is the head of the Group and there is no consolidation that takes place above the level of this
company.
The principal accounting policies of the Group are set out below.
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings, together with the Group’s
share of the net assets and results of associated undertakings, for the period from 27 March 2016 to 25 March 2017. Acquisitions of subsidiaries
are dealt with by the acquisition method of accounting. The results of companies acquired are included in the consolidated statement of
comprehensive income from the acquisition date.
A Group company, Meltore Limited, was disposed of during the year. Meltore Limited was a dormant entity in the prior year and the disposal
has had no significant effect on the consolidated financial statements.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee),
• exposure, or rights, to variable returns from its involvement with the investee, and,
•
the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances
in assessing whether it has power over an investee, including:
•
•
•
the contractual arrangements with the other vote holders of the investee,
rights arising from other contractual arrangements, and,
the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the
three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group
loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in
the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary,
excluding the situations as outlined in the basis of preparation.
B&M European Value Retail S.A. Annual Report and Accounts 2017
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 General information and basis of preparation continued
Going concern
Viability and going concern statements have been made in the ‘Principal risks and uncertainties’ section of this annual report. On the basis of
these, the directors have determined that it is appropriate to continue to use the going concern basis for production of these consolidated
financial statements.
Turnover
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured,
regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable.
Revenue is the total amount receivable by the Group for goods supplied in the ordinary course of business excluding VAT and trade discounts,
and after deducting returns and relevant vouchers and offers. Store retail turnover is recognised at the initial point of sale of goods to customers,
when the risks and rewards of the ownership of the goods have been transferred to the buyer.
Other administrative expenses
Administrative expenses contain all running costs of the business, except those relating to inventory (which are expensed through cost of sales),
tax, interest and other comprehensive income.
Elements which are unusual and significant may be separated as a separate line item, this would include items such as material restructuring costs.
Goodwill
Goodwill is initially measured at cost, being the excess of the fair value of consideration transferred over the fair value of the net identifiable
assets acquired and liabilities assumed at the date of acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to the relevant cash-generating units (CGUs) that are expected to
benefit from the combination.
Goodwill is tested for impairment at each year end and at any time where there is any indication that goodwill may be impaired. Internally
generated goodwill is not recognised as an asset.
Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief
operating decision maker has been identified as the executive directors of the Group. The executive directors are responsible for assessing the
performance of the business for the purpose of making decisions about resources to be allocated.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at the acquisition date fair value. Acquisition-related costs are expensed depending on their nature with
costs of raising finance amortised over the term of the relevant element of finance provided and the remainder expensed when incurred.
Brands
Brands acquired as part of a business combination are initially recognised at fair value and subsequently reviewed at least annually for
impairment or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying
value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down
accordingly, and charged to administration expenses.
Brands are considered to have an indefinite life on the basis that they form part of the cash generating units within the Group which will continue
in operation indefinitely, with no foreseeable limit to the period over which they are expected to generate net cash inflows.
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B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Intangible assets
Intangible assets acquired separately, including computer software, are measured on initial recognition at cost comprising the purchase price
and any directly attributable costs of preparing the asset for use.
Following initial recognition, assets are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation begins
when an asset is available for use and is calculated on a straight line basis to allocate the cost of the asset over its estimated useful life
as follows:
Computer software acquired
4 years
–
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses.
Cost comprises purchase price and directly attributable costs. Unless significant or incurred as part of a refit programme, subsequent
expenditure will usually be treated as repairs or maintenance and expensed to the income statement.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount
of the replaced part is derecognised.
Freehold land is not depreciated. For all other property, plant and equipment, depreciation is calculated on a straight line basis to allocate cost,
less residual value of the assets, over their estimated useful lives as follows.
Depreciation
Depreciation is provided on all other items of property, plant and equipment and the effect is to write off the carrying value of items by equal
instalments over their expected useful economic lives. It is applied at the following rates:
Leasehold buildings
Freehold buildings
Plant, fixtures and equipment
Motor vehicles
Life of lease
2-4% straight line
10% – 25% straight line
20% – 25% straight line
–
–
–
–
Residual values and useful lives are reviewed annually and adjusted prospectively, if appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of comprehensive income when the asset is derecognised.
Investments in associates
Associates are those entities over which the Group has significant influence but which are neither subsidiaries nor interests in joint ventures.
Investments in associates are recognised initially at cost and subsequently accounted for using the equity method. However any goodwill or fair
value adjustment attributable to the Group’s share of associates is included in the amount recognised as investment in associates.
All subsequent changes to the share of interest in the equity of the associate are recognised in the Group’s carrying amount of the investment.
Changes resulting from the profit or loss generated by the associate are reported in “share of profits of associates” in the consolidated income
statement and therefore affect net results of the Group. These changes include subsequent depreciation, amortisation and impairment of the
fair value adjustments of assets and liabilities.
Items that have been recognised directly in the associate’s other comprehensive income are recognised in the consolidated other
comprehensive income of the Group. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate,
the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. If the associate
subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of
losses not recognised.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in
the consolidated financial statements of associates have been adjusted where necessary to ensure consistency with the accounting policies
adopted by the Group.
B&M European Value Retail S.A. Annual Report and Accounts 2017
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 General information and basis of preparation continued
Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when
annual impairment testing for an asset is required (for goodwill or indefinite life assets), the Group estimates the asset’s recoverable amount.
Indications of impairment might include (for goodwill and the brand assets, for instance) a significant impairment to the like for like sales of
established stores, sustained negative publicity or a drop off in visits to our website and social media accounts.
An asset’s recoverable amount is the higher of an asset’s or CGU's fair value less costs to sell and its value in use. It is determined for an
individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU.
The Group bases its impairment calculation on detailed budgets and forecasts which are prepared separately for each of the Group’s CGUs to
which the individual assets are allocated. These budgets and forecast calculations cover a period of five years. For longer periods, a long-term
growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment of inventories, are recognised in the income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding goodwill and acquired brands with indefinite lives, an assessment is made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group
estimates the asset’s or CGU's recoverable amount.
A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s
recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years. Such reversal is recognised in the income statement, except for impairment of goodwill which
is not reversed.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The
arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement
conveys a right to use the asset or assets even if that right is not explicitly specified in an arrangement.
The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the
ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset, or, if
lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is
recognised as a finance leasing liability.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged in the income
statement over the period of the lease.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership
by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
All other leases are regarded as operating leases and the payments made under them are charged to the statement of comprehensive income
on a straight line basis over the lease term. Lease incentives are spread over the term of the lease.
Onerous leases
The Group carries a property provision which is recognised on specific sites within the Group’s leasehold property portfolio where an exit can be
reasonably expected to occur, and a lease is considered onerous.
A lease is considered onerous when the economic benefits of occupying the leased properties are less than the obligations payable under
the lease.
The amount held covers any costs expected to accrue before the end of the contract, netted against any income, as well as a portion related to
any dilapidation expense which may arise.
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Strategic Report
Corporate Governance
Financial Statements
Inventories
Inventories are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Net
realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs
to sell.
Share options
The Group operates share option schemes, with the first such scheme commencing in August 2014.
The schemes have been accounted for under the provisions of IFRS 2, and accordingly have been fair valued on their inception date using
appropriate methodology (the Black Scholes and Monte Carlo models).
A cost is recorded through the income statement in respect of the number of options outstanding and the fair value of those options. A
corresponding credit is made to the retained earnings reserve and the effect of this can be seen in the statement of changes in equity.
Taxation
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the
taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the
reporting date, in the countries where the Group operates and generates taxable income. Tax is recognised in the income statement, except to
the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary
differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business
•
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilised, except:
• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit
or loss.
In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures,
deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the temporary differences can be utilised.
•
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Financial instruments
The Group has altered their policy on financial instruments since the prior year end, with the intention of applying hedge accounting to qualifying
derivatives. The new policy is as follows, and this has been in place since the start of the financial year.
The Group uses derivative financial instruments such as forward currency contracts, fuel swaps and interest rate swaps to reduce its foreign
currency risk, commodity price risk and interest rate risk.
Derivative financial instruments are recognised at fair value. The fair value is derived using an internal model and supported by valuations by
third party financial institutions.
B&M European Value Retail S.A. Annual Report and Accounts 2017
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 General information and basis of preparation continued
Financial instruments continued
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly
probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging
reserve. Any ineffective portion of the hedge is recognised immediately in the income statement. Effectiveness of the derivatives subject to
hedge accounting is assessed at inception of the derivative, when the derivative matures and at each reporting period end date between.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the
hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance
with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain
or loss recognised in equity is recognised in the income statement immediately.
Financial assets
Initial recognition and measurement
The classification of financial instruments is determined at initial recognition. The Group has the following types of financial assets: Trade and
other receivables and cash which are classified within the IAS 39 definition of loans and receivables and derivative contracts which are
classified within the IAS 39 definition of fair value through profit and loss. All financial assets are recognised when the Group becomes a party to
the contractual provisions of the instrument. All financial assets are initially recognised at fair value plus transaction costs other than for financial
assets carried at fair value through profit or loss.
The Group does not have any held-to-maturity or available-for-sale financial assets.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as described below:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After
initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less
impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation and the losses arising from impairment are recognised in profit and loss.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include derivative financial instruments entered into by the Group that are not designated as
hedging instruments in hedge relationships as defined by IAS 39. Financial assets at fair value through profit or loss are carried in the statement
of financial position at fair value with changes in fair value recognised in profit and loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights
to receive cash flows from the asset have expired and the entity has transferred its rights to receive cash flows from the asset or has assumed
an obligation to pay the received cash flows in full and either (a) the entity has transferred substantially all the risks and rewards of the asset, or
(b) the entity has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is
impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of
one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the
estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss or other financial liabilities.
The entity determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial derivatives held for trading. Financial liabilities are classified as held-for-
trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the
Group. Gains or losses on liabilities held-for-trading are recognised in profit and loss.
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Strategic Report
Corporate Governance
Financial Statements
Other financial liabilities
After initial recognition, interest bearing loans and borrowings, trade and other payables and other liabilities are subsequently measured at
amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are
derecognised as well as through the effective interest rate method (EIR) amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in finance costs.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to mark-to-market
valuations obtained from the relevant bank (bid price for long positions and ask price for short positions), without any deduction for
transaction costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, less bank overdrafts.
Equity
Equity comprises the following:
•
•
•
“Share capital” represents the nominal value of equity shares;
“Share premium” represents the excess of the consideration made for the shares, over and above the nominal valuation of those shares;
“Legal reserve” representing the statutory reserve required by Luxembourg law as an apportionment of profit within each Luxembourg
company (up to 10% of the standalone share capital);
“Hedging reserve” representing the fair value of the derivatives held by the Group at the period end that are accounted for under hedge
accounting and that represent effective hedges.
“Merger reserve” representing the reserve created during the reorganisation of the Group in 2014;
“Retained earnings reserve” represents retained profits;
“Put/call option reserve” representing the initial valuation of the put/call option held by the Group over the non-controlling interest of J.A. Woll
Handels GmbH (Jawoll);
“Foreign exchange reserve’’ represents the cumulative differences arising in retranslation of the subsidiaries results;
“Non-controlling interest” representing the portion of the equity which belongs to the non-controlling interest in the Group’s subsidiaries.
•
•
•
•
•
•
Foreign currency translation
These consolidated financial statements are presented in pounds sterling.
The following Group companies have a functional currency of pounds sterling;
• B&M European Value Retail S.A.
• B&M European Value Retail 1 S.à r.l. (Lux Holdco)
• B&M European Value Retail Holdco 1 Ltd (UK Holdco 1)
• B&M European Value Retail Holdco 2 Ltd (UK Holdco 2)
• B&M European Value Retail Holdco 3 Ltd (UK Holdco 3)
• B&M European Value Retail Holdco 4 Ltd (UK Holdco 4)
• EV Retail Ltd
• B&M Retail Ltd
• Opus Homewares Ltd
The following Group companies have a functional currency of the Euro;
• B&M European Value Retail 2 S.à r.l. (SBR Europe)
• B&M European Value Retail Germany GmbH (Germany Holdco)
• J.A. Woll Handels GmbH (Jawoll)
• Jawoll Vertriebs GmbH
• BestFlora GmbH
B&M European Value Retail S.A. Annual Report and Accounts 2017
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 General information and basis of preparation continued
Foreign currency translation continued
The Group companies whose functional currency is the Euro have been consolidated into the Group via retranslation of their accounts in line
with IAS 21 Effects of Changes in Foreign Exchange Rates. The assets and liabilities are translated into pounds sterling at the year end exchange
rate. The revenues and expenses are translated into pounds sterling at the average monthly exchange rate during the period. Any resulting
foreign exchange difference is cumulatively recorded in the foreign exchange reserve with the annual effect being charged/credited to other
comprehensive income.
Transactions entered into by the company in a currency other than the currency of the primary economic environment in which it operates (the
“functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are
translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and
liabilities are recognised immediately in profit or loss.
Pension costs
The Group operates a defined contribution scheme and contributions are charged to profit or loss in the period in which they are incurred.
Provisions
Provisions are recognised when a present obligation (legal or constructive) exists as a result of a past event and where it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be reliably estimated. Provisions
are discounted where the time value of money is considered to be material.
Critical judgements and key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group
based its assumptions and estimates on parameters available when the financial information was prepared. Existing circumstances and
assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the
Group. Such changes are reflected in the assumptions when they occur.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair
value less costs to sell and its value in use.
The fair value less costs to sell calculation is based on available data from binding sales transactions, conducted at arm’s length for similar
assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash
flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet
committed to or significant future investments that will enhance the performance of the CGU being tested.
The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash
inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different
CGUs, including a sensitivity analysis, are disclosed and further explained in note 11.
Investments in Associates
Multi-lines International Company Ltd (Multi-lines), which is 50% owned by the Group, has been considered by management to be an associate
rather than a subsidiary or a joint venture. Under IFRS 10 control is determined by:
• Power over the investee.
• Exposure, or rights, to variable returns from its involvement with the investee.
• The ability to use its power over the investee to affect the amount of the investor’s returns.
Although 50% owned, B&M Group does not have voting rights or substantive rights. Therefore the level of power over the business is
considered to be more in keeping with that of an associate than a joint-venture, and hence it has been treated as such within these
consolidated financial statements.
Put/call options on Jawoll non-controlling interest
The purchase agreement for Jawoll included call and put options over the shares not purchased by the Group, representing 20% of Jawoll. The
options are arranged such that it is considered likely that either the call or put option will be taken at the exercise date in 2019.
The exercise price of the options contains a variable element and as such the risk and rewards of the options are considered to remain with the
non-controlling interest. The purchase of the non-controlling interest will be recognised upon exercise of one of the options (see note 17).
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B&M European Value Retail S.A. Annual Report and Accounts 2017
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Strategic Report
Corporate Governance
Financial Statements
A financial liability has been recognised carried at amortised cost to represent the expected exercise price, with the corresponding debit entry to
the put/call option reserve. Management have estimated the future measurement inputs in arriving at this value, using knowledge of current
performance, expected growth and planned strategy. Any subsequent movements in the liability will be recognised in profit or loss.
Standards and Interpretations applied and not yet applied by the Group
The following amendments to accounting standards and interpretations, issued by the International Accounting Standards Board (IASB), have
been adopted for the first time by the Group in the period with no significant impact on its consolidated results or financial position:
• Annual Improvements to IFRSs 2012-2014 Cycle
• Amendments to IAS 1 ‘Disclosure Initiative’
• Amendments to IAS 16 and IAS 38 ‘Clarification of acceptable methods of depreciation and amortisation’
• Amendments to IAS 27 ‘Equity method in separate financial statements’
IFRS 9 ‘Financial Instruments’ will be applicable after 1 January 2018. This standard will simplify the classification of financial assets for
measurement purposes, but it is not anticipated to have a significant impact on financial statements.
IFRS 15 ‘Revenue from contracts with customers’ will be applicable after 1 January 2018. This standard applies to all contracts with customers
except those that are financial instruments, leases or insurance contracts and will result in increased disclosure requirements, but is not
expected to have a significant impact on the financial statements.
IFRS 16 Leases is expected to be applicable after 1 January 2019. If endorsed, this standard will significantly affect the presentation of the Group
financial statements with all leases apart from short term leases being recognised as on-balance sheet finance leases with a corresponding
liability being the present value of lease payments. The Group is currently considering the implications of IFRS 16 on the Group’s consolidated
results and financial position.
The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a
significant impact on the financial statements.
B&M European Value Retail S.A. Annual Report and Accounts 2017
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
2 Segmental information
IFRS 8 (“Operating segments”) requires the Group’s segments to be identified on the basis of internal reports about the components of the Group that
are regularly reviewed by the chief operating decision maker to assess performance and allocate resources across each reporting segment.
For management purposes, the Group is organised into two reportable segments, being the UK retail segment and the German retail segment.
The chief operating decision maker has been identified as the executive directors who monitor the operating results of the retail segments for
the purpose of making decisions about resource allocation and performance assessment.
The average euro rate for translation purposes was €1.1915/£ during the year, with the year end rate being €1.1559/£ (2016: €1.3677/£ and
€1.2670/£, respectively).
52 week period to 25 March 2017
Revenue
Gross profit
EBITDA (note 3)
Finance income
Finance costs
Income tax expense
Segment profit/(loss)
Total assets
Total liabilities
Other disclosures:
Capital expenditure (including intangible)
Depreciation and amortisation
Share of profit of associates
Investment in associates accounted for by the equity method
52 week period to 26 March 2016
Revenue
Gross profit
EBITDA (note 3)
Finance income
Finance costs
Income tax expense
Segment profit/(loss)
Total assets
Total liabilities
Other disclosures:
Capital expenditure (including intangible)
Depreciation and amortisation
Share of profit of associates
Investment in associates accounted for by the equity method
UK
retail
£’000
2,252,265
777,785
223,722
112
(5)
(40,310)
161,241
Germany
retail
£’000
178,395
66,551
11,677
12
(292)
(2,406)
5,257
Corporate
£’000
Total
£’000
– 2,430,660
844,336
–
231,523
(3,876)
1,520
1,396
(24,110)
(23,813)
(38,885)
3,831
144,033
(22,465)
1,640,398
(325,372)
126,040
(27,399)
7,078
(607,124)
1,773,516
(959,895)
(44,492)
(22,277)
–
–
UK
retail
£’000
1,902,557
652,775
182,035
170
(51)
(32,877)
131,509
(7,464)
(3,734)
–
–
Germany
retail
£’000
132,728
50,247
11,588
13
(162)
(2,636)
6,150
–
(4)
1,005
5,669
(51,956)
(26,015)
1,005
5,669
Corporate
£’000
–
–
2,461
277
(21,360)
6,768
(11,859)
Total
£’000
2,035,285
703,022
196,084
460
(21,573)
(28,745)
125,800
1,450,936
(247,490)
104,636
(19,577)
9,331
(483,486)
1,564,903
(750,553)
(51,760)
(17,768)
–
–
(4,935)
(2,653)
–
–
(18)
(5)
1,166
3,995
(56,713)
(20,426)
1,166
3,995
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B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
3 Reconciliation of non-IFRS measures from the statement of comprehensive income
EBITDA, adjusted EBITDA and Adjusted Profit are non-IFRS measures and therefore we provide a reconciliation from the statement of
comprehensive income below.
In the prior year the Group reported a greater number of adjusting items. However management believe that the simplified measure now
presented is a clearer measure of performance. The comparative information has been restated accordingly.
Period to
Profit on ordinary activities before interest and tax
Add back depreciation and amortisation
EBITDA
Reverse the effect of derivatives recorded within cost of sales
Reverse the effect of derivatives recorded within administrative costs
Adjusted EBITDA
Depreciation and amortisation
Net adjusted finance costs (see note 5)
Adjusted profit before tax
Adjusted tax
Adjusted profit for the period
Attributable to non-controlling interests
Attributable to owners of the parent
52 weeks
ended
25 March
2017
£’000
205,508
26,015
231,523
1,479
1,890
234,892
(26,015)
(18,726)
190,151
(40,273)
52 weeks
ended
26 March
2016
£’000
175,658
20,426
196,084
–
(3,577)
192,507
(20,426)
(20,667)
151,414
(28,030)
149,878
123,384
1,095
148,783
1,264
122,120
The adjusting items are the effects of derivatives, one off refinancing fees (as set out in note 5) and the effects of the call/put option held over the
non-controlling interest of our German operation (as set out in note 5). Significant project costs may also be included if incurred. Adjusted tax
represents the tax charge per the statement of comprehensive income as adjusted only for the effects of the other adjusting items detailed
above.
Under the previous measure, Adjusted EBITDA would have been £242.1m (2016: £202.5m) and Adjusted profit for the period would have been
£155.4m (2016: £131.5m)
The segmental split in EBITDA and Adjusted EBITDA reconciles as follows;
52 week period to 25 March 2017
Profit on ordinary activities before interest and tax
Add back depreciation and amortisation
EBITDA
Reverse the effect of derivatives
Adjusted EBITDA
52 week period to 26 March 2016
Profit on ordinary activities before interest and tax
Add back depreciation and amortisation
EBITDA
Reverse the effect of derivatives
Adjusted EBITDA
UK
retail
£’000
Germany
retail
£’000
201,445
22,277
223,722
–
223,722
7,943
3,734
11,677
–
11,677
UK
retail
£’000
Germany
retail
£’000
164,267
17,768
182,035
–
182,035
8,935
2,653
11,588
–
11,588
Corporate
£’000
Total
£’000
(3,880)
4
(3,876)
3,369
205,508
26,015
231,523
3,369
(507)
234,892
Corporate
£’000
2,456
5
2,461
(3,577)
Total
£’000
175,658
20,426
196,084
(3,577)
(1,116)
192,507
Adjusted EBITDA and related measures are not measures of performance or liquidity under IFRS and should not be considered in isolation or as
a substitute for measures of profit, or as an indicator of the Group’s operating performance or cash flows from operating activities as
determined in accordance with IFRS.
B&M European Value Retail S.A. Annual Report and Accounts 2017
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
4 Operating profit
The following items have been charged in arriving at operating profit:
Period ended
Auditor’s remuneration
Payments to auditors in respect of non-audit services:
Taxation advisory services
Other assurance services
Inventories:
Cost of inventories recognised as an expense (included in cost of sales)
Depreciation of property, plant and equipment:
Owned assets
Leased assets
Amortisation (included within administration costs)
Operating lease rentals
New store pre-opening costs
(Profit)/loss on sale of property, plant and equipment
Gain on foreign exchange
52 weeks
ended 25
March
2017
£’000
330
–
88
52 weeks
ended
26 March
2016
£’000
367
–
9
1,595,471
1,349,161
24,305
916
794
126,798
6,285
(405)
(214)
18,946
780
700
104,621
7,573
52
(70)
5 Finance costs and finance income
Finance costs include all interest related income and expenses. The following amounts have been included in the statement of comprehensive
income line for each reporting period presented:
Period ended
Interest on debt and borrowings
Ongoing amortisation of finance fees
Finance charges payable under finance leases and hire purchase contracts
Total adjusted finance expense
One-off costs incurred on raising debt finance
Unwinding of the call/put option held over the minority interest of Jawoll
Total finance costs
Period ended
Interest income on loans and bank accounts
Total adjusted finance income
Gain on financial instruments at fair value through profit or loss
Gain on revaluing call/put option held over the minority interest of Jawoll
Total finance income
Total net adjusted finance costs are therefore;
Period ended
Total adjusted finance expense
Total adjusted finance income
Total net adjusted finance costs
52 weeks to
25 March
2017
£’000
52 weeks to
26 March
2016
£’000
(17,446)
(1,381)
(23)
(19,325)
(1,384)
(141)
(18,850)
(20,850)
(3,687)
(1,573)
–
(723)
(24,110)
(21,573)
52 weeks to
25 March
2017
£’000
52 weeks to
26 March
2016
£’000
124
124
117
1,279
1,520
183
183
277
–
460
52 weeks to
25 March
2017
£’000
(18,850)
124
52 weeks to
26 March
2016
£’000
(20,850)
183
(18,726)
(20,667)
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Strategic Report
Corporate Governance
Financial Statements
6 Employee remuneration
Expense recognised for employee benefits is analysed below:
Period ended
Wages and salaries
Social security costs
Pensions – defined contribution plans
52 weeks to
25 March
2017
£’000
277,054
12,907
1,022
52 weeks to
26 March
2016
£’000
229,229
10,126
834
290,983
240,189
There are £73k of defined contribution pension liabilities owed by the Group at the period end (2016: £70k).
The Group has one employee who is a member of a defined benefit scheme (2016: one employee). The liability held on the balance sheet at the
year end was £267k (2016: £258k).
The scheme is considered immaterial to the Group and the effect of the year end actuarial valuation can be seen within other comprehensive income.
The average monthly number of persons employed by the Group during the period was:
Period ended
Sales staff
Administration
7 Key management remuneration
Key management personnel and Directors’ remuneration includes the following:
Period ended
Directors’ remuneration:
Short term employee benefits
Benefits accrued under the share option scheme
Key management expense (includes Directors’ remuneration):
Short term employee benefits
Benefits accrued under the share option scheme
Amounts in respect of the highest paid director emoluments:
Short term employee benefits
Benefits accrued under the share option scheme
52 weeks to
25 March
2017
52 weeks to
26 March
2016
25,418
639
26,057
22,359
570
22,929
52 weeks to
25 March
2017
£’000
52 weeks to
26 March
2016
£’000
2,177
124
2,301
4,648
124
4,772
1,393
–
1,393
1,175
80
1,255
2,627
80
2,707
576
–
576
The emoluments disclosed above are of the directors and key management personnel who have served as a director within any of the
Group companies.
B&M European Value Retail S.A. Annual Report and Accounts 2017
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
8 Taxation
The relationship between the expected tax expense based on the standard rate of corporation tax in the UK of 20% (2016: 20%) and the tax
expense actually recognised in the statement of comprehensive income can be reconciled as follows:
Period ended
Current tax expense
Deferred tax credit
Total tax expense
Result for the year before tax
Expected tax charge at the standard tax rate
Effect of:
Expenses not deductible for tax purposes
Income not taxable
Foreign operation taxed at local rate
Changes in the rate of corporation tax
Adjustment in respect of prior years
Other
Actual tax expense
Deferred taxation
Statement of Financial Position
Accelerated tax depreciation
Relating to intangible brand assets
Fair valuing of assets and liabilities (asset)
Fair valuing of assets and liabilities (liability)
Movement in provision
Relating to share options
Held over gains on fixed assets
Other temporary differences (asset)
Other temporary differences (liability)
Net deferred tax liability
Deferred tax asset
Deferred tax liability
Statement of Comprehensive Income
Accelerated tax depreciation
Relating to intangible brand assets
Fair valuing of assets and liabilities
Movement in provision
Relating to share options
Held over gains on fixed assets
Other temporary differences
Net deferred tax credit
Total deferred tax in profit or loss
Total deferred tax in other comprehensive income
52 weeks to
25 March
2017
£’000
52 weeks to
26 March
2016
£’000
40,186
(1,301)
38,885
29,930
(1,185)
28,745
182,918
154,545
36,584
30,909
2,615
(734)
985
(1,027)
382
80
1,812
(1,076)
883
(1,963)
(1,827)
7
38,885
28,745
25 March
2017
£’000
(819)
(17,473)
607
(82)
85
98
(471)
34
–
26 March
2016
£’000
(552)
(18,275)
351
(880)
82
40
(403)
–
(9)
(18,021)
(19,646)
824
(18,845)
473
(20,119)
52 weeks to
25 March
2017
£’000
52 weeks to
26 March
2016
£’000
(267)
802
1,054
3
58
(68)
43
1,625
1,301
324
69
1,538
(499)
(22)
2
221
(111)
1,198
1,185
13
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and
the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
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Corporate Governance
Financial Statements
9 Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit or loss for the financial period attributable to ordinary equity holders
of the parent by the weighted average number of ordinary shares outstanding at each period end.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during each year plus the weighted average number of ordinary shares that would be issued
on conversion of any dilutive potential ordinary shares into ordinary shares.
Adjusted basic and diluted earnings per share are calculated in the same way as above, except using adjusted profit attributable to ordinary
equity holders of the parent, as defined in note 3.
There are share option schemes in place which has a dilutive effect on both periods presented.
The following reflects the income and share data used in the earnings per share computations:
Period ended
Profit for the period attributable to owners of the parent
Adjusted profit for the period attributable to owners of the parent
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution:
Employee share options
Weighted average number of ordinary shares adjusted for the effect of dilution
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
10 Investments in associates
Period ended
Cost and net book value
Carrying value at the start of the period
Dividends received
Share of profits in associates since the prior year valuation exercise
Effect of foreign exchange on translation
Carrying value at the end of the period
25 March
2017
£’000
142,926
148,783
26 March
2016
£’000
124,536
122,120
Thousands
Thousands
1,000,000
1,000,000
148
475
1,000,148
1,000,475
Pence
Pence
14.3
14.3
14.9
14.9
12.5
12.4
12.2
12.2
25 March
2017
£’000
26 March
2016
£’000
3,995
–
1,005
669
5,669
3,822
(1,295)
1,166
302
3,995
The Group has a 50% interest in Multi-lines International Company Ltd, a company incorporated in Hong Kong. The principal activity of the
company is the purchase and sale of goods. The Group also holds 40% of the ordinary share capital of Home Focus Group Ltd, a company
incorporated in Republic of Ireland and whose principal activity is retail sales.
Neither entity has discontinued operations or other comprehensive income, except that on consolidation both entities have a foreign exchange
translation difference.
B&M European Value Retail S.A. Annual Report and Accounts 2017
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
10 Investments in associates continued
Period ended
Multi-lines
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenue
Profit
Home Focus Group
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenue
Profit
25 March
2017
£’000
26 March
2016
£’000
1,409
36,109
–
(26,010)
11,508
1,118
24,621
–
(18,603)
7,136
128,976
2,767
109,111
2,682
617
6,052
(130)
(4,387)
2,152
290
4,980
–
(3,322)
1,948
16,910
18
12,680
15
The figures for multi-lines show 12 months to December 2016 (2016: 12 months to December 2015), being the period used in the valuation of the
associate.
11 Intangible assets
Cost or valuation
At 28 March 2015
Additions
Disposals
Effect of retranslation
At 26 March 2016
Additions due to purchase of Knüller
Additions
Disposals
Effect of retranslation
At 25 March 2017
Accumulated amortisation/impairment
At 28 March 2015
Charge for the year
Disposals
Effect of retranslation
At 26 March 2016
Charge for the year
Disposals
Effect of retranslation
At 25 March 2017
Net book value at 25 March 2017
Net book value at 26 March 2016
Goodwill
£’000
Software
£’000
Brands
£’000
835,258
–
–
2,192
837,450
1,322
–
–
2,919
841,691
–
–
–
–
–
–
–
–
–
841,691
837,450
1,372
1,801
(76)
26
3,123
–
1,596
(132)
33
98,053
–
–
343
98,396
–
1,200
–
451
4,620
100,047
–
–
–
–
–
–
–
–
–
586
416
(54)
15
963
574
(132)
20
1,425
3,195
2,160
Other
£’000
1,263
–
–
100
1,363
–
–
–
131
1,494
407
284
–
54
745
220
–
78
Total
£’000
935,946
1,801
(76)
2,661
940,332
1,322
2,796
(132)
3,534
947,852
993
700
(54)
69
1,708
794
(132)
98
1,043
2,468
100,047
98,396
451
618
945,384
938,624
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Strategic Report
Corporate Governance
Financial Statements
Impairment review of intangible assets held with indefinite life
Impairment test of intangible assets held in the UK segment
The Group holds a goodwill asset of £807.5m (2016: £807.5m) and brand assets of £94.9m (2016: £93.7m), that relate to the UK Retail Segment.
The goodwill and £93.7m of the brand asset figure (the “B&M" brand) relates to the acquisition of the UK segment by the Group in 2013.
The brand intangible assets have been identified as having indefinite life, as management believe that these assets will hold their value for an
indefinite period of time.
The goodwill and brand assets had previously been allocated to two groups of cash generating units (CGUs), being the two fascia’s that the
Group operates within its UK retail segment (Bargain stores and Home stores), however because these groups of CGUs;
(i) are not separately operated, managed or regularly reviewed;
(ii) carry the same products and utilise the same supply chain;
(iii) utilise the same support functions within the business;
(iv) carry the same branding;
(v) do not form separate operating segments;
the Group no longer considers that this approach is appropriate. Therefore the goodwill and brand assets have been allocated to one group of
CGUs, being the store estate within the B&M business.
The Group performs impairment tests at each period end. The impairment test involves assessing the net present value (NPV) of the expected
cash flows in relation to the stores within each CGU according to a number of assumptions (more detail on which follows below) to calculate the
value in use (VIU) for the group of CGUs. The results of the impairment tests identified that the VIU was significantly in excess of the carrying
value of assets within the group of CGUs at the period end dates. No indicators of impairment were noted.
The key assumptions used were
(i) The Group’s discount rate, sourced from a review of the market.
(ii) The inflation rate for expenses, which has been based upon the consumer price index for the UK.
(iii) The like for like sales growth, a prudent estimate made by management.
The values for the assumptions were:
As at
Discount rate
Inflation rate for expenses
Like for like sales growth
25 March
2017
26 March
2016
8.0%
2.3%
3.0%
9.2%
0.5%
2.0%
These assumptions are held for five years in the forecast and then a perpetuity is performed over the year five figures, effectively assuming no
further like for like growth, or inflation after that point.
In order to demonstrate the sensitivity of the assumptions, it was calculated that the Group would first be required to recognise an impairment if
(all other assumptions being held equal);
(i) The Group’s discount rate was 45.6% (2016: 24.7%).
(ii) The inflation rate for expenses was 19.8% (2016: 36.9%).
(iii) The like for like sales suffered a contraction of 8.5% (2016: 11.0%) per annum.
The prior year sensitivities above have been restated for the change in approach in grouping the CGUs. Under the previously used grouping the
sensitivities would have been that the Group would first be required to recognise an impairment if (all other assumptions being held equal);
(i) The Group’s discount rate was 40.4% (2016: 23.8%).
(ii) The inflation rate for expenses was 17.5% (2016: 33.1%).
(iii) The like for like sales suffered a contraction of 7.0% (2016: 9.8%) per annum.
B&M European Value Retail S.A. Annual Report and Accounts 2017
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
11 Intangible assets continued
Impairment test of intangible assets held in the German segment
The Group holds a goodwill asset of €39.5m (2016: €38.0m) and brand assets of €6.0m (2016: €6.0m) that relate to the German Retail Segment.
€38.0m of the goodwill and the entire brand asset figure relates to the acquisition of the German segment by the Group in 2014.
The addition this year to goodwill is in relation to the Knüller acquisition – see note 27 for more details. The Knüller stores were immediately
rebranded as Jawoll stores and as such, the goodwill addition has been made to that fascia.
Further, the Hafu stores are in the process of being rebranded as Jawoll stores with the process materially complete by the year end. The back
office systems, product offering, management reporting and supply chains of the relevant stores have all been fully integrated into the Jawoll
systems. Therefore we consider that the German retail segment now contains one group of CGUs and will proceed accordingly.
Currently the goodwill is valued at £34.2m (2016: £30.0m) and the brands at £5.1m (2016: £4.7m) on the Group’s statement of financial position,
however as the functional currency of Jawoll is the Euro, all impairment calculations have been calculated in Euros and therefore it is that
currency that is referred to in the following disclosure.
The brand intangible assets have been identified as having indefinite life, as management believe that these assets will hold their value for an
indefinite period of time.
The Group performs impairment tests at each period end. The impairment test involves assessing the net present value (NPV) of the expected
cash flows in relation to the stores within each CGU according to a number of assumptions (more detail on which is set out below) to calculate
the value in use (VIU) for the group of CGUs. The results of the impairment tests identified that the VIU was significantly in excess of the carrying
value of assets within the group of CGUs at the period end dates. No indicators of impairment were noted.
The key assumptions used were
(i) The Group’s discount rate, is as per above.
(ii) The inflation rate for expenses, which has been based upon the consumer price index for Germany.
(iii) The like for like sales growth, a prudent estimate made by management.
The values for the assumptions used were:
As at
Discount rate
Inflation rate for expenses
Like for like sales growth
25 March
2017
26 March
2016
8.0%
1.6%
2.5%
9.2%
0.3%
1.5%
These assumptions are held for five years in the forecast and then a perpetuity is performed over the year five figures, effectively assuming no
further like for like growth, or inflation after that point.
In order to demonstrate the sensitivity of the assumptions, it was calculated that an impairment would first require impairment if (all other
assumptions being held equal);
(i) The Group’s discount rate would need to be in excess of 100% (2016: 86.8%).
(ii) The inflation rate for expenses was 22.8% (2016: 21.2%).
(iii) The like for like sales suffered a contraction of 11.9% (2016: 12.4%) per annum.
The prior year sensitivities above have been restated for the change in approach in grouping the CGUs. Under the previously used grouping the
sensitivities would have been that the Group would first be required to recognise an impairment if (all other assumptions being held equal);
(i) The Group’s discount rate was 98.3% (2016: 85.3%).
(ii) The inflation rate for expenses was 21.4% (2016: 19.8%).
(iii) The like for like sales suffered a contraction of 11.4% (2016: 12.3%) per annum.
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Corporate Governance
Financial Statements
Land and
buildings
£’000
27,214
6,493
(270)
1,313
34,750
–
7,971
2,539
(847)
1,837
46,250
4,932
3,435
–
156
8,523
3,941
(26)
247
12,685
Motor
vehicles
£’000
Plant,
fixtures and
equipment
£’000
Total
£’000
125,882
54,912
(1,451)
1,914
181,257
42
49,160
2,539
(2,152)
2,799
95,445
47,290
(326)
573
142,982
42
40,508
–
(547)
925
183,910
233,645
17,750
15,559
(316)
141
33,134
20,586
(531)
227
24,059
19,726
(881)
303
43,207
25,221
(1,014)
483
53,416
67,897
3,223
1,129
(855)
28
3,525
–
681
–
(758)
37
3,485
1,377
732
(565)
6
1,550
694
(457)
9
1,796
33,565
26,227
1,689
130,494
165,748
1,975
109,848
138,050
12 Property, plant & equipment
Cost or valuation
28 March 2015
Additions
Disposals
Effect of retranslation
26 March 2016
Acquisition of Knüller
Additions
Remeasurement of finance leases
Disposals
Effect of retranslation
25 March 2017
Accumulated depreciation
At 28 March 2015
Charge for the period
Disposals
Effect of retranslation
At 26 March 2016
Charge for the period
Disposals
Effect of retranslation
At 25 March 2017
Net book value at 25 March 2017
Net book value at 28 March 2016
The carrying value of assets held under finance lease and hire purchase contracts at 25 March 2017 was £6.7m (2016: £4.6m) and total
depreciation charged on these assets during the period was £0.9m (2016: £0.8m). The assets held under hire purchase contracts are pledged
as security for the related finance lease and hire purchase liabilities.
Under the terms of the loan and notes facilities in place at 25 March 2017, fixed and floating charges were held over £13.8m of the net book value of
land and buildings, £1.4m of the net book value of motor vehicles and £119.7m of the net book value of the plant, fixtures and equipment.
Under the terms of the loan facilities in place at 26 March 2016, fixed and floating charges were held over £10.4m of the net book value of land
and buildings, £1.7m of the net book value of motor vehicles and £104.0m of the net book value of plant, fixtures and equipment.
Included within land and buildings is land with a cost of £2.3m (2016: £2.1m) which is not depreciated.
As at
The net book value of land and buildings comprises:
Freehold land and buildings
Short leasehold improvements
25 March
2017
£’000
26 March
2016
£’000
16,141
17,424
33,565
12,501
13,726
26,227
B&M European Value Retail S.A. Annual Report and Accounts 2017
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
13 Inventories
As at
Goods for resale
25 March
2017
£’000
26 March
2016
£’000
462,119
356,312
Included in the amount above was a net charge of £3.5m related to inventory provisions (2016: £0.1m net gain). In the period to 25 March 2017
£1,595m (2016: £1,349m) was recognised as an expense for inventories.
14 Trade and other receivables
Non-current
Lease premiums
Current
Trade receivables
Deposits on account
Provision for impairment
Net trade receivables to non-related parties
Prepayments
Related party receivables
Lease premiums
Other receivables
25 March
2017
£’000
26 March
2016
£’000
2,413
2,413
3,447
6,451
(18)
9,880
23,525
1,335
567
91
35,398
2,771
2,771
4,172
2,855
(51)
6,976
20,056
799
586
344
28,761
Trade receivables are stated initially at their fair value and then at amortised cost as reduced by appropriate allowances for estimated
irrecoverable amounts. The carrying amount is determined by the directors to be a reasonable approximation of fair value.
The following table sets out an analysis of provisions for impairment of trade and other receivables:
Period ended
Provision for impairment at the start of the period
Impairment during the period
Utilised/released during the period
Balance at the period end
25 March
2017
£’000
26 March
2016
£’000
(51)
(17)
50
(18)
(9)
(48)
6
(51)
Trade receivables are non-interest bearing and are generally on terms of 30 days or less.
There were no significant balances within debtors at either March 2017 or March 2016 and as such there is no specific concentration of credit risk.
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Strategic Report
Corporate Governance
Financial Statements
The following table sets out a maturity analysis of all trade and other receivables, including those which are past due but not impaired:
As at
Neither past due nor impaired
Past due less than one month
Past due between one and three months
Past due for longer than three months
Balance at the period end
15 Cash and cash equivalents
As at
Cash at bank and in hand
As at 25 March 2017 the Group had available £128.7m of undrawn committed borrowing facilities (2016: £134.2m).
16 Trade and other payables
As at
Non-current
Accruals
Reverse lease premium
Current
Trade payables
Other tax and social security payments
Accruals and deferred income
Reverse lease premium
Related party trade payables
Other payables
25 March
2017
£’000
34,119
806
372
101
35,398
26 March
2016
£’000
26,166
49
1,225
1,321
28,761
25 March
2017
£’000
155,551
26 March
2016
£’000
91,148
25 March
2017
£’000
897
76,064
76,961
199,901
1,869
39,832
10,791
6,472
8,950
26 March
2016
£’000
1,012
65,532
66,544
139,396
6,924
24,711
8,718
2,181
7,813
267,815
189,743
Trade payables are generally on 30 day terms and are not interest bearing. The carrying value of trade payables approximates to their fair
value. For further details on the related party trade payables, see note 25.
17 Other financial assets and liabilities
Other financial assets
As at
Current financial assets at fair value through profit and loss:
Foreign exchange forward contracts
Fuel swap contracts
Current financial assets at fair value through other comprehensive income:
Foreign exchange forward contracts
Total current other financial assets
Total other financial assets
25 March
2017
£’000
26 March
2016
£’000
61
232
117
410
410
4,769
–
–
4,769
4,769
Financial assets through profit or loss reflect the fair value of those derivatives that are not designated as hedge relationships but are
nevertheless intended to reduce the level of risk for expected sales and purchases.
B&M European Value Retail S.A. Annual Report and Accounts 2017
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
17 Other financial assets and liabilities continued
Other financial liabilities
As at
Non-current financial liabilities at fair value through profit and loss:
Put/call options over the non-controlling interest of Jawoll
Total non-current other financial liabilities
Current financial liabilities at fair value through profit and loss:
Foreign exchange forward contracts
Fuel swap contracts
Interest rate swaps
Current financial liabilities at fair value through other comprehensive income:
Foreign exchange forward contracts
Total current other financial liabilities
Total other financial liabilities
25 March
2017
£’000
26 March
2016
£’000
17,886
17,886
16,041
16,041
287
–
–
1,783
2,070
307
63
117
–
487
19,956
16,528
The put/call options over the non-controlling interest in Jawoll arose as part of the acquisition of the entity. The valuation at year end reflects
management’s latest projections for the final amount to be exchanged at the year end foreign exchange rate. The option matures in 2019 and
the carrying value has been discounted to present value.
The other financial liabilities through profit or loss reflect the fair value of those foreign exchange forward contracts, interest rate swaps and fuel swaps
that are not designated as hedge relationships but are nevertheless intended to reduce the level of risk for expected sales and purchases.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
• Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
As at the reporting dates, the Group held the following financial instruments carried at fair value on the balance sheet:
25 March 2017
Foreign exchange contracts
Fuel swap contract
Put/call options on Jawoll non-controlling interest
26 March 2016
Foreign exchange contracts
Interest rate swaps
Fuel swap contract
Put/call options on Jawoll non-controlling interest
Total
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
(1,892)
232
(17,886)
4,462
(117)
(63)
(16,041)
–
–
–
–
–
–
–
(1,892)
232
–
–
–
(17,886)
4,462
(117)
(63)
–
–
–
–
(16,041)
The put/call option was valued with reference to the sale and purchase agreement underpinning the acquisition, and the key variable in
determining the fair value of the option, being the forecast EBITDA of Jawoll as prepared by management.
The movement in the valuation of the call/put option reconciles as follows:
Period ended
Opening value
Unwinding of the call/put option valuation
Adjustment to the valuation of the call/put option
Effect of foreign exchange
Closing value
52 weeks to
25 March
2017
£’000
52 weeks to
26 March
2016
£’000
16,041
1,573
(1,279)
1,551
17,886
14,219
723
–
1,099
16,041
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Corporate Governance
Financial Statements
As the valuation is a multiple of German EBITDA, it is sensitive to the movement in the projection of this value, a 5% movement in EBITDA would
therefore effect a 5% change in the valuation.
The valuation is also sensitive to the Group discount rate. As an indication the sensitivities (all other inputs being held equal) to a change in the
year end discount rates are as follows:
As at
Effect on profit before tax
Change in
discount rate
+50bps
-50bps
25 March
2017
£’000
160
(162)
26 March
2016
£’000
202
(206)
The other instruments have been valued by the issuing bank, using a mark to market method. The bank has used various inputs to compute the
valuations and these include inter alia the relevant maturity date and strike rates, the current exchange rate, fuel prices and LIBOR levels.
18 Financial liabilities – borrowings
As at
Non-current
High yield bond notes
Term facility bank loans (new facilities)
Term facility bank loans (old facilities)
25 March
2017
£’000
26 March
2016
£’000
246,815
296,910
–
–
–
435,142
543,725
435,142
The Group refinanced during the year, repaying the previous loan facilities, totalling £440.0m, and replacing them with a new loan facility of £300.0m
and high yield bond notes released by the parent entity of £250.0m. Details of maturities and interest rates are included in the table below.
The new term facility bank loans and high yield bond notes are held at amortised cost and were initially capitalised in February 2017 with £3.2m
and £3.3m (respectively) of fees attributed to them.
The old term facility bank loans were held at amortised cost and were initially capitalised in June 2014 with £7.3m of fees attributed to them. These
facilities were refinanced in February 2017, at which point the remaining unamortised fees of £3.7m were expensed to the income statement.
The maturities of the loan facilities and finance leases (see note 22) are as follows.
Current interest bearing loans and borrowings
Finance leases
Non-current interest bearing loans and borrowings
UK Holdco term loan A (old facility)
UK Holdco term loan B (old facility)
UK Holdco term loan A (new facility)
High yield bond notes
Finance leases
Interest rate
%
Maturity
25 March
2017
£’000
26 March
2016
£’000
1.2–3.9%
2016–18
994
1,119
2.75/3.25% + LIBOR
3/3.5% + LIBOR
2.25% + LIBOR
4.125%
1.2%-3.9%
2019
2020
2021
2022
2018-24
–
–
300,000
250,000
6,469
300,000
140,000
–
–
4,252
The information relating to the old facilities maturity was the contractual final maturity date. These facilities were refinanced during the year with
an actual maturity date of February 2017.
Term loans A and B, and the high yield bond notes have carrying values which include transaction fees allocated on inception.
B&M European Value Retail S.A. Annual Report and Accounts 2017
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
19 Provisions
At 28 March 2015
Provided in the period
Utilised during the period
Released during the period
Effect of retranslation
At 26 March 2016
Provided in the period
Utilised during the period
Released during the period
Effect of retranslation
At 25 March 2017
Current liabilities 2017
Non-current liabilities 2017
Current liabilities 2016
Non-current liabilities 2016
Property
provisions
£’000
3,155
1,219
(534)
(1,250)
12
2,602
1,367
(374)
(1,855)
16
1,756
834
922
555
2,047
Other
£’000
4,105
2,259
(1,745)
(405)
–
4,214
2,770
(1,857)
(1,092)
–
4,035
4,035
–
4,214
–
Total
£’000
7,260
3,478
(2,279)
(1,655)
12
6,816
4,137
(2,231)
(2,947)
16
5,791
4,869
922
4,769
2,047
The property provision relates to the expected future costs on specific leasehold properties. This is inclusive of onerous leases and dilapidations
on these properties. The timing in relation to utilisation is dependent upon the individual lease terms.
The other provisions principally relate to disputes concerning insurance liability claims. A prudent amount has been set aside for each claim as
per legal advice received by the Group. These claims are individually non-significant and average £8.3k per claim (£7.5k in 2016).
20 Share capital
As at
Allotted, called up and fully paid
B&M European Value Retail S.A.
1,000,000,000 ordinary shares of 10p each
25 March
2017
£’000
26 March
2016
£’000
100,000
100,000
100,000
100,000
Ordinary shares
Each ordinary share ranks pari passu with each other ordinary share and each share carries one vote. The Group parent is authorised to
release up to a maximum of 2,972,222,222 ordinary shares.
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Corporate Governance
Financial Statements
21 Cash generated from operations
Period ended
Profit before tax
Adjustments for:
Net interest expense
Depreciation
Amortisation of intangible assets
Transaction fees through administrative expenses
(Profit)/loss on remeasurement of finance leases
(Profit)/loss on disposal of property, plant and equipment
Loss on share options
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions
Share of profit from associates
Non-cash foreign exchange effect from retranslation of subsidiary cashflows
Loss/(Profit) resulting from fair value of financial derivatives
52 weeks
ended
25 March
2017
£’000
52 weeks
ended
26 March
2016
£’000
182,918
154,545
22,590
25,221
794
–
(317)
(405)
254
(99,662)
(6,666)
84,575
(1,042)
(1,005)
249
3,369
21,113
19,726
700
770
–
52
235
(67,184)
7,855
37,153
312
(1,166)
400
(3,577)
Cash generated from operations
210,873
170,934
22 Commitments
Operating leases
The vast majority of the Group’s operating lease commitments relate to the property comprising its store network. At the year-end over 95% of
these leases expire in the next 15 years (2016: >90%) The leases are separately negotiated and no subgroup is considered to be individually
significant nor to contain individually significant terms. The Group was not subject to contingent rent agreements at the year end date. The
following table sets out the total future minimum lease payments under non-cancellable operating leases, taking account of lease premiums.
As at
Not later than one year
Later than one year and not later than five years
Later than five years
The lease and sublease payments recognised as an expense in the periods were as follows:
As at
Lease payments
Sublease receipts
25 March
2017
£’000
133,696
484,814
494,478
26 March
2016
£’000
113,660
429,494
457,450
1,112,988
1,000,604
25 March
2017
£’000
127,369
(571)
26 March
2016
£’000
105,062
(441)
126,798
104,621
B&M European Value Retail S.A. Annual Report and Accounts 2017
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
22 Commitments continued
Finance leases
At both year ends, all of the Group’s finance leases related to buildings used in the operation of the German business. Future minimum lease
payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:
As at
Not later than one year
Later than one year and not later than five years
Later than five years
25 March 2017
26 March 2016
Minimum
payments
£’000
1,227
4,791
2,295
8,313
PV of
minimum
payments
£’000
994
4,227
2,242
7,463
Minimum
payments
£’000
1,119
3,401
1,105
5,625
PV of
minimum
payments
£’000
1,119
3,245
1,007
5,371
Capital commitments
There were £3.5m of contractual capital commitments not provided within the Group financial statements as at 25 March 2017 (2016: £3.8m).
23 Group information and ultimate parent undertaking
The financial results of the Group include the following entities.
Company name
Country
Date of incorporation
B&M European Value Retail 1 S.à.r.l. (Lux Holdco)
B&M European Value Retail Holdco 1 Ltd (UK Holdco 1)
B&M European Value Retail Holdco 2 Ltd (UK Holdco 2)
B&M European Value Retail Holdco 3 Ltd (UK Holdco 3)
B&M European Value Retail Holdco 4 Ltd (UK Holdco 4)
B&M European Value Retail 2 S.à.r.l. (SBR Europe)
EV Retail Limited
B&M Retail Limited
Opus Homewares Limited
B&M European Value Retail Germany GmbH (Germany Holdco)
J.A. Woll Handels GmbH (Jawoll)
Jawoll Vertriebs GmbH I
BestFlora GmbH
Luxembourg
UK
UK
UK
UK
Luxembourg
UK
UK
UK
Germany
Germany
Germany
Germany
November 2012
December 2012
December 2012
November 2012
November 2012
September 2012
September 1996
March 1978
April 2003
November 2013
November 1987
September 2007
July 2002
Percent held
within the
Group
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
80%
80%
Principal activity
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
General retailer
Dormant
Holding company
General retailer
General retailer
Supplier of items for retail
Changes during the year
Meltore Limited, previously a dormant 100% owned subsidiary of EV Retail Limited, has been disposed of and is no longer a member of the
Group. Jawoll acquired the non-controlling interest in BestFlora GmbH, and now owns 100% (previously 75%) of that entity (the percent held
within the Group increased from 60% to 80%). Neither of these transactions has had nor will have significant accounting effects for the Group.
German company restructuring (Prior year)
The German Group was restructured during the prior year such that the former Group companies Jawoll Sonderposten GmbH, Jawoll
Sonderposten Vertriebs GmbH, Stern Sonderposten Vertriebs GmbH and Stern Handels GmbH were all fully integrated into the remaining
German Group companies, Jawoll and Jawoll Vertriebs GmbH I.
Associates
The Group has a 50% interest in Multi-lines International Company Limited, a company incorporated in Hong Kong and a 40% interest in Home
Focus Group Limited, a company incorporated in the Republic of Ireland following the acquisition of SBR Europe on 6 March 2013. The share of
profit/loss from the associates is included in the statement of comprehensive income.
Ultimate parent undertaking
The directors of the Group consider the parent and the ultimate controlling related party of this Group to be B&M European Value Retail SA,
registered in Luxembourg.
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Corporate Governance
Financial Statements
24 Financial risk management
The Group uses various financial instruments, including bank loans, related party loans, finance company loans, cash, equity investment,
derivatives and various items, such as trade receivables and trade payables that arise directly from its operations.
The main risks arising from the Group’s financial instruments are market risk, currency risk, cash flow interest rate risk, credit risk and liquidity
risk. The directors review and agree policies for managing each of these risks and they are summarised below.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below. In
order to manage the Group’s exposure to those risks, in particular the Group’s exposure to currency risk, the Group enters into forward foreign
currency contracts. No transactions in derivatives are undertaken of a speculative nature.
Market risk
Market risk encompasses three types of risk, being currency risk, fair value interest rate risk and commodity price risk. Commodity price risk is
not considered material to the business as the Group is able to pass on pricing changes to its customers.
Despite the impact of price risk not being considered material, the Group engages in a swap contract over the cost of fuel in order to minimise
the impact of any volatility.
The sensitivity to these contracts for a reasonable change in the year end fuel price is as follows
As at
Effect on profit before tax
Change in
fuel price
+5%
-5%
25 March
2017
£’000
159
(151)
26 March
2016
£’000
64
(64)
This has been calculated by taking the spot price of fuel at the year end, applying the change indicated in the table, and projecting this over the
life of the contract assuming all other variables remain equal.
The Group’s policies for managing fair value interest rate risk are considered along with those for managing cash flow interest rate risk and are
set out in the subsection entitled “interest rate risk” below.
Currency risk
The Group is exposed to translation and transaction foreign exchange risk arising from exchange rate fluctuation on its purchases from
overseas suppliers.
In relation to translation risk, this is not considered material to the business as amounts owed in foreign currency are short term of up to 30 days
and are of a relatively modest nature. Transaction exposures, including those associated with forecast transactions, are hedged when known,
principally using forward currency contracts.
All of the Group’s sales are to customers in the UK and Germany and there is no currency exposure in this respect. A proportion of the Group’s
purchases are priced in US Dollars and the Group generally uses forward currency contracts to minimise the risk associated with that exposure.
Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in US Dollar period end exchange rates with all other variables
held constant.
The impact on the Group’s profit before tax and other comprehensive income is largely due to changes in the fair value of the FX options.
As at
Effect on profit before tax
Effect on other comprehensive income
Change in
USD rate
+2.5%
-2.5%
+2.5%
-2.5%
25 March
2017
£’000
(2,309)
2,428
(9,403)
7,919
26 March
2016
£’000
(1,797)
3,115
–
–
B&M European Value Retail S.A. Annual Report and Accounts 2017
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
24 Financial risk management continued
Foreign currency sensitivity continued
The following table demonstrates the sensitivity to a reasonably possible change in the Euro period end exchange rates with all other variables
held constant. The effect on other comprehensive income is due to the foreign exchange reserve on retranslation of the Group’s subsidiaries that
have the Euro as a functional currency.
As at
Effect on profit before tax
Effect on other comprehensive income
Change in
Euro rate
+2.5%
-2.5%
+2.5%
-2.5%
25 March
2017
£’000
(4)
5
(1,997)
2,101
26 March
2016
£’000
2
(4)
(1,712)
1,807
These calculations have been performed by taking the year end translation rate used on the accounts and applying the change noted above.
The balance sheet valuations are then directly calculated. The valuation of the foreign exchange derivatives are projected based upon the spot
rate changing and all other variables being held equal.
Interest rate risk
Interest rate risk is the risk of variability of the Group cash flows due to changes in the interest rate. The Group is exposed to changes in interest
rates as the Group’s bank borrowings are subject to a floating rate based on LIBOR.
The Group’s interest rate risk arises mainly from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. The Group’s exposure to interest rate fluctuations is not considered to be material, however the Group has in the past used
interest rate swaps to minimise the impact.
At year end, if LIBOR interest rates had been 50 basis points higher/lower with all other variables held constant, the effect upon calculated
pre-tax profit for the year would have been:
As at
Effect on profit before tax
Basis point
increase/
decrease
+50
-50
25 March
2017
£’000
(1,891)
1,891
26 March
2016
£’000
(499)
499
This sensitivity has been calculated by changing the interest rate for each interest payment and accrual made by the Group over the period, by
the amount specified in the table above, and then calculating the difference that would have been required.
It also includes the effect on the year end valuation of the interest rate swap contract, where the percentage change in LIBOR indicated above
has been applied to the year end spot rate and this has then been projected over the remaining life of the contracts with the assumption that all
other variables are held equal.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial
loss. The Group’s principal financial assets are cash and trade receivables. The credit risk associated with cash is limited as the main
counterparty is a UK clearing bank with a high credit rating (A- long term and A-2 short term (standard & poor), (2016: A, A-1 respectively). The
principal credit risk arises therefore from the Group’s trade receivables.
Credit risk is further limited by the fact that the vast majority of sales transactions are made through the store registers, direct from the customer
at the point of purchase, leading to a low trade receivables balance.
In order to manage credit risk, the directors set limits for customers based on a combination of payment history and third party credit references.
Credit limits are reviewed by the credit controller on a regular basis in conjunction with debt ageing and collection history. Provisions against
bad debts are made where appropriate.
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Corporate Governance
Financial Statements
Liquidity risk
Any impact on available cash and therefore the liquidity of the Group could have a material effect on the business as a result.
The Group’s borrowings are subject to quarterly banking covenants against which the Group has had significant headroom to date with no
anticipated issues based upon forecasts made. Short term flexibility is achieved via the Group’s rolling credit facility. The following table shows
the liquidity risk maturity of financial liabilities grouping based on their remaining period at the balance sheet date. The amounts disclosed are
the contractual undiscounted cash flows:
25 March 2017
Interest bearing loans
Forward foreign exchange contracts
Trade payables
26 March 2016
Interest bearing loans
Fuel swap contract
Interest swap contract
Forward foreign exchange contracts
Trade payables
Within
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
More than
5 years
£’000
Total
£’000
19,433
2,070
206,373
19,433
–
–
603,738
–
–
15,044
63
117
307
141,577
15,044
–
–
–
–
464,069
–
–
–
–
–
–
–
–
–
–
–
–
642,603
2,070
206,373
494,157
63
117
307
141,577
Fair value
The fair value of the financial assets and liabilities of the Group are not materially different from their carrying value. Refer to the table below.
These all represent financial assets and liabilities measured at amortised cost except where stated as measured at fair value through the profit
and loss.
As at
Financial assets
Fair value through profit and loss
Forward foreign exchange contracts
Fuel price swap
Fair value through other comprehensive income
Forward foreign exchange contracts
Loans and receivables
Cash and cash equivalents
Trade receivables
Other receivables
Financial liabilities
Fair value through profit and loss
Forward foreign exchange contracts
Fuel price swap
Interest rate swap
Put/call options over the non-controlling interest of Jawoll
Fair value through other comprehensive income
Forward foreign exchange contracts
Amortised cost
Interest-bearing loans and borrowings
Trade payables
Other payables
25 March
2017
£’000
26 March
2016
£’000
61
232
117
155,551
11,215
91
287
–
–
17,886
1,783
4,769
–
–
91,148
7,775
344
307
63
117
16,041
–
543,725
206,373
8,950
435,142
141,577
7,813
B&M European Value Retail S.A. Annual Report and Accounts 2017
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
25 Related party transactions
The Group has transacted with the following related parties over the periods:
Multi-lines International Company Limited, a supplier, and Home Focus Group, a customer, have been associates of the Group since
March 2013.
Ropley Properties Ltd, Triple Jersey Ltd, TJL UK Ltd, Rani Investments and Multi Lines International (Properties) Ltd, all landlords of properties
occupied by the Group, are directly or indirectly owned by director Simon Arora, his family, or his family trusts (together, the Arora related
parties).
Jawoll Immobilien GmbH, Stern Grundstück Entwicklungs GmbH, DS Grundstücks GmbH and Silke Stern are all landlords of properties occupied
by the Group and are related by virtue of connection to a director of J.A.Woll-Handels GmbH (together, the German related parties). Some of
these are held under finance lease, as detailed below.
The following table sets out the total amount of trading transactions with related parties included in the statement of comprehensive income,
including the P&L impact of any finance leases;
Period ended
Sales to associates of the Group
Home Focus Group Limited
Total sales to related parties
Purchases from associates of the Group
Multi-lines International Company Ltd
Purchases from parties related to key management personnel
Multi-Lines International (Properties) Ltd
DS Grundstücks GmbH
Jawoll Immobilien GmbH
Rani Investments
Ropley Properties Ltd
Silke Stern
Stern Grundstück Entwicklungs
TJL UK Ltd
Triple Jersey Ltd
Total purchases from related parties
25 March
2017
£’000
26 March
2016
£’000
2,503
2,503
770
770
121,351
98,105
154
759
524
192
2,811
148
591
42
10,250
134
581
458
191
2,811
133
475
–
7,176
136,822
110,064
Included in the current year figures above are 6 leases of new stores and no renewals of existing stores, entered into by Group companies
during the current period with the Arora related parties (2016: 6 new, or extensions to existing, leases and 1 renewal). The total expense on these
leases in the period was £763k (2016: £927k). There were also 2 conditionally exchanged leases (1 of which was new in the period) with Arora
related parties in the current period with long stop completion dates likely to be in the next financial year (2016: 3), and no expense is incurred
under them until they are completed.
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Corporate Governance
Financial Statements
The following table sets out the total amount of trading balances with related parties outstanding at the period end. Note that the receivables
balance held with Multi-lines International is with our German operation (a deposit on account) and the payables balance is with our UK
operation.
As at
Trade receivables from associates of the Group
Home Focus Group Ltd
Multi-lines International Company Ltd
Trade receivables from companies owned by key management personnel
DS Grundstücks GmbH
Total related party trade receivables
Trade payables to companies owned by key management personnel
Multi-lines International Company Ltd
Rani Investments
Ropley Properties Ltd
TJL UK Ltd
Triple Jersey Ltd
Total related party trade payables
25 March
2017
£’000
26 March
2016
£’000
706
629
–
1,335
3,385
–
850
85
2,152
6,472
251
546
2
799
–
39
852
–
1,290
2,181
Outstanding trade balances at the balance sheet dates are unsecured and interest free and settlement occurs in cash. There have been no
guarantees provided or received for any related party trade receivables or payables.
The business has not recorded any impairment of trade receivables relating to amounts owed by related parties at 25 March 2017 (2016: no
impairment). This assessment is undertaken each year through examining the financial position of the related party and the market in which the
related party operates.
The future operating lease commitments on the Arora related parties are:
As at
Not later than one year
Later than one year and not later than five years
Later than five years
The future operating lease commitments on the German related parties are:
As at
Not later than one year
Later than one year and not later than five years
Later than five years
25 March
2017
£’000
14,544
57,704
76,341
148,589
26 March
2016
£’000
10,995
43,648
61,073
115,716
25 March
2017
£’000
26 March
2016
£’000
578
561
–
1,139
785
1,039
–
1,824
B&M European Value Retail S.A. Annual Report and Accounts 2017
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
25 Related party transactions continued
The balances remaining on the finance lease asset and liabilities at each year end is as follows:
As at
Finance lease assets from parties related to key management personnel
DS Grundstücks GmbH
Jawoll Immobilien GmbH
Silke Stern
Stern Grundstück Entwicklungs
Total assets held under finance lease from related parties
Finance lease liabilities with parties related to key management personnel
DS Grundstücks GmbH
Jawoll Immobilien GmbH
Silke Stern
Stern Grundstück Entwicklungs
Total finance lease liabilities held with related parties
25 March
2017
£’000
26 March
2016
£’000
2,386
1,161
632
2,520
6,699
2,531
1,332
733
2,707
7,303
994
1,194
701
1,695
4,584
1,196
1,370
815
1,899
5,280
All related party finance leases are on properties occupied by the German business. During the year six of these properties were extended,
resulting in a profit of £317k on remeasurement.
For further details on the transactions with key management personnel, see note 7 and the remuneration report.
26 Non-controlling interest
Non-controlling interest balances are valued on acquisition as a proportion of the fair value of net assets to which the non-controlling interest
relates. Post acquisition the non-controlling interest is valued as the original value plus/minus the profit/loss owed to the non-controlling interest
and minus any dividend paid to the non-controlling interest.
There exists a non-controlling interest in Jawoll, an 80% subsidiary of B&M European Value Retail Germany GmbH, which was created on
purchase of that company in April 2014. The percentage has not changed over the period of ownership.
In the 52 weeks to 25 March 2017, £2,082k has been accrued to the non-controlling interest in Jawoll (2016: £1,229k), and no dividends have
been paid (2016: no dividends).
The summarised financial information of the subsidiary is as follows.
Revenue
EBITDA
Profit after tax
Net cashflow
As at
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
52 weeks
ended
25 March
2017
£’000
178,395
11,677
5,908
(3,586)
25 March
2017
£’000
38,062
55,334
(9,248)
(19,026)
52 weeks
ended
26 March
2016
£’000
132,728
11,588
5,458
(4,587)
26 March
2016
£’000
28,574
47,201
(6,353)
(13,464)
65,122
55,958
There previously existed an additional non-controlling interest in BestFlora GmbH, which was a 75% subsidiary of Jawoll at the start of the
current year. This company was incorporated into the Group in April 2014. In December 2016 Jawoll purchased the remaining 25% share and
therefore this additional non-controlling interest no longer exists.
During the year £nil was accrued to the non-controlling interest (2016: £36k) and £nil was paid out in dividends (2016: £36k).
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Jawoll bought out the non-controlling interest for €210k, when it had a book value on the Group accounts of €476k. There was therefore a profit
recognised in reserves of €266k, which has translated to £224k for these accounts.
The effects of this transaction can be seen in the Statement of Changes in Equity.
BestFlora is considered immaterial for further disclosure.
27 Business combinations
On 1 August 2016, the business acquired the trade and assets of a small chain of German stores (Knüller).
The details of the assets acquired are as follows:
Property, plant & equipment
Cash (floats)
Inventory
Total assets acquired
Purchase price paid
Goodwill recognised
€’000
50
50
1,204
1,304
2,879
1,575
The goodwill recognised represents the stores location and customer base and it was not possible to separate this out further into material
separately identifiable and recognisable intangible assets. It has been considered for impairment as part of the overall impairment test carried
out annually by the Group (see note 11).
The purchase price paid net of the cash acquired was €2,829 and this translates to £2,374k as shown on the consolidated statement of cash flows.
The business was incorporated directly into the German entities, with the stores reopening as rebranded Jawoll stores.
The Group considers that the transaction is immaterial for further disclosure.
28 Capital management
For the purpose of the Group’s capital management, capital includes issued capital and all other equity reserves attributable to the equity
holders of the parent. The primary objective of the Group’s capital management is to maximise the shareholder value.
In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial
covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial
covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any
interest-bearing loans and borrowing in the current or prior period.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the
financial covenants.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue
new shares.
The Group uses the following definition of net debt:
External interest bearing loans and borrowings less cash and short-term deposits.
The interest bearing loans figure used is the gross amount of cash borrowed at that time, as opposed to the carrying value under the amortised
cost method, and includes finance leases.
As at
Interest bearing loans and borrowings
Less: Cash and short term deposits
Net debt
25 March
2017
£’000
557,463
(155,551)
26 March
2016
£’000
445,371
(91,148)
401,912
354,223
B&M European Value Retail S.A. Annual Report and Accounts 2017
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
29 Post balance sheet events
There have been no material events between the balance sheet date and the date of issue of these accounts.
30 Dividends
A special dividend of 10.0 pence per share (£100,000,000) was paid in July 2016.
An interim dividend of 1.9 pence per share (£19,000,000) was paid in December 2016.
A final dividend of 3.9 pence per share (£39,000,000), giving a full year (non-special) dividend of 5.8 pence per share (£58,000,000), is proposed.
Relating to the prior year;
An interim dividend of 1.6 pence per share (£16,000,000) was paid in January 2016.
A final dividend of 3.2 pence per share (£32,000,000), giving a full year dividend of 4.8 pence per share (£48,000,000) was agreed at the AGM
and paid in August 2016.
31 Contingent liabilities and guarantees
As at 25 March 2017, B&M European Value Retail S.A., B&M European Value Retail 1 S.à r.l., B&M European Value Retail 2 S.à r.l., B&M European
Value Retail Holdco 1 Ltd, B&M European Value Retail Holdco 2 Ltd, B&M European Value Retail Holdco 3 Ltd, B&M European Value Retail Holdco
4 Ltd, EV Retail Ltd and B&M Retail Ltd are all guarantors to both the loan and notes agreements which are formally held within B&M European
Value Retail SA. The amounts outstanding as at the period end were £300.0m for the loan, with the balance held in B&M European Value Retail
Holdco 4 Ltd, and £250.0m for the notes, with the balance held in B&M European Value Retail S.A.
As at 26 March 2016, B&M European Value Retail S.A., B&M European Value Retail 1 S.à r.l., B&M European Value Retail 2 S.à r.l., B&M European
Value Retail Holdco 1 Ltd, B&M European Value Retail Holdco 2 Ltd, B&M European Value Retail Holdco 3 Ltd, B&M European Value Retail Holdco
4 Ltd, EV Retail Ltd, B&M Retail Ltd and Opus Homewares Ltd were all guarantors to the loan agreement which was formally held within B&M
European Value Retail SA. The amount outstanding as at the period end was £440.0m, with the balance held in B&M European Value Retail
Holdco 4 Ltd.
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Financial Statements
INDEPENDENT AUDITOR’S REPORT
To the shareholders of B&M European Value Retail S.A.
9, allée Scheffer
L-2520 Luxembourg
Report of the Réviseur d’Entreprises agréé
Report on the annual accounts
Following our appointment by the General Meeting of the
Shareholders on 29 July 2016, we have audited the accompanying
annual accounts of B&M European Value Retail S.A., which comprise
the balance sheet as at 31 March 2017, and the profit and loss account
for the year then ended, and a summary of significant accounting
policies and other explanatory information.
Other information
The Board of Directors is responsible for the other information. The
other information comprises the information included in the Directors’
report and the Corporate Governance Statement but does not include
the annual accounts and our report of Réviseur d’Entreprises Agréé
thereon.
Our opinion on the annual accounts does not cover other information
and we do not express any form of assurance conclusion thereon.
Board of Directors’ responsibility for the annual accounts
The Board of Directors is responsible for the preparation and fair
presentation of these annual accounts in accordance with
Luxembourg legal and regulatory requirements relating to the
preparation of the annual accounts, and for such internal control as
the Board of Directors determines is necessary to enable the
preparation of annual accounts that are free from material
misstatement, whether due to fraud or error.
Responsibility of the Réviseur d’Entreprises Agréé
Our responsibility is to express an opinion on these annual accounts
based on our audit. We conducted our audit in accordance with
International Standards on Auditing as adopted for Luxembourg by
the Commission de Surveillance du Secteur Financier. Those
standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether
the annual accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the annual accounts. The
procedures selected depend on the judgement of the Réviseur
d’Entreprises Agréé, including the assessment of the risks of material
misstatement of the annual accounts, whether due to fraud or error. In
making those risks assessments, the Réviseur d’Entreprises Agréé
considers internal control relevant to the entity’s preparation and fair
presentation of the annual accounts in order to design audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting
estimates made by the Board of Directors, as well as evaluating the
overall presentation of the annual accounts.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis of our audit opinion.
Opinion
In our opinion, the annual accounts give a true and fair view of the
financial position of B&M European Value Retail S.A. as of 31 March
2017, and of the results of its operations for the year then ended in
accordance with Luxembourg legal and regulatory requirements
relating to the preparation of the annual accounts.
In connection with our audit of the annual accounts, our responsibility
is to read other information and, in doing so, consider whether the
other information is materially inconsistent with the annual accounts
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report this fact. We have nothing to
report in this regard.
Other matters
The Corporate Governance Statement includes information required
by Article 68bis paragraph (1) of the Luxembourg law of 19 December
2002 on the commercial and companies register and on the
accounting records and annual accounts of undertakings, as
amended. The annual accounts of B&M European Value Retail S.A. for
the year ended 31 March 2016, were audited by the predecessor
auditor who expressed an unmodified opinion on those accounts on
2 June 2016.
Report on other legal and regulatory requirements
The Directors’ report is consistent with the annual accounts and has
been prepared in accordance with the applicable legal requirements.
The information required by Article 68bis paragraph (1) letters c) and d)
of the Luxembourg law of 19 December 2002 on the commercial and
companies register and on the accounting records and annual
accounts of undertakings, as amended and included in the Corporate
Governance Statement is consistent with the annual accounts and has
been prepared in accordance with applicable legal requirements.
Luxembourg, 24 May 2017
KPMG Luxembourg
Société coopérative
Cabinet de Révision Agréé
Thierry Ravasio
B&M European Value Retail S.A. Annual Report and Accounts 2017
105
COMPANY BALANCE SHEET
As at 31 March, 2017
ASSETS
FIXED ASSETS
Tangible assets
Other fixtures and fittings, tools and equipment
Financial assets
Shares in affiliated undertakings
CURRENT ASSETS
Debtors
Amounts owed by affiliated undertakings
becoming due and payable within one year
Other debtors
becoming due and payable within one year
Cash at bank and in hand
TOTAL ASSETS
CAPITAL, RESERVES AND LIABILITIES
CAPITAL AND RESERVES
Subscribed capital
Share premium account
Reserves
Legal reserve
Profit or loss for the financial year
Interim dividends
Total capital and reserves
CREDITORS
Debenture loans
Non-convertible loans
becoming due and payable within one year
becoming due and payable after more than one year
Trade creditors
becoming due and payable within one year
Amounts owed to affiliated undertakings
becoming due and payable within one year
Other creditors
Tax authorities
Social security authorities
Other creditors
becoming due and payable within one year
TOTAL CAPITAL, RESERVES AND LIABILITIES
Note
31 March 2017
GBP
31 March 2016
GBP
11,802
15,343
2,624,999,999
2,624,999,999
2,625,011,801
2,625,015,342
287,935,431
90,259,786
149,712
67,627
288,085,143
90,327,413
41,124
12,022
2,913,138,068
2,715,354,777
31 March 2017
GBP
31 March 2016
GBP
100,000,000
2,472,481,847
100,000,000
2,577,668,086
10,000,000
614,110
95,913,332
(19,000,000)
52,199,651
(16,000,000)
2,659,395,179
2,714,481,847
3
4
5
6
7
1,718,750
250,000,000
251,718,750
–
–
–
1,378,608
183,057
17,860
17,860
605,815
–
612,819
23,259
21,856
35,935
2,024,139
872,930
2,913,138,068
2,715,354,777
The accompanying notes form an integral part of these annual accounts.
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Financial Statements
COMPANY PROFIT AND LOSS ACCOUNT
For the financial year ended 31 March 2017
Raw materials and consumables and other external expenses
Other external expenses
Staff costs
Wages and salaries
Social security costs
relating to pensions
other social security costs
Value adjustments
In respect of formation expenses and of tangible and intangible assets
Other operating expenses
Income from participating interests
Derived from affiliated undertakings
Other interest receivable and similar income
Derived from affiliated undertakings
Other interest and similar income
Interest payable and similar expenses
Other interest and similar expenses
Tax on profit or loss
Profit or loss after taxation
Other taxes not included in the previous caption
Profit or loss for the financial year
Notes
31 March 2017
GBP
31 March 2016
GBP
8
9
10
11
12
13
14
14
(4,593,284)
(813,479)
(147,677)
(149,425)
(13,250)
(8,782)
(10,919)
(20,092)
(3,540)
(245,878)
(3,864)
(1,278,102)
99,750,000
52,611,000
2,760,408
279,605
2,257,929
242,617
(1,771,775)
–
(41,337)
(4,242)
96,005,827
(92,495)
52,790,086
(590,435)
95,913,332
52,199,651
B&M European Value Retail S.A. Annual Report and Accounts 2017
107
NOTES TO THE ANNUAL ACCOUNTS
For the financial year ended 31 March 2017
Note 1 – General information
B&M European Value Retail S.A., hereinafter the “Company”, was incorporated on 19 May 2014 as a “société anonyme” for an unlimited period.
The Company is organised under the laws of Luxembourg, in particular the law of August 10, 1915 on commercial companies, as amended.
The registered office of the Company is established in Luxembourg City and is registered at the Trade and Companies register in Luxembourg
under the number B 187 275.
With effect as of 1 April 2016, the registered office of the Company was moved from 16, avenue Pasteur, L-2310 Luxembourg to 9, allée Scheffer, L-2520
Luxembourg.
The main purpose of the Company is to act as an investment holding company and to coordinate the business of any corporate bodies in which
the Company is for the time being directly or indirectly interested and to acquire (whether by original subscription, tender, purchase, exchange
or otherwise) the whole or any part of the stock, shares, debentures, debenture stocks, bonds and other securities issued or guaranteed by any
person and any other asset of any kind and to hold the same as investments, and to sell, exchange and dispose of the same.
The Company also prepares consolidated financial statements, which are published according to the provisions of the law.
The Company is listed on the London Stock Exchange under the ticker symbol “BME".
Note 2 – Summary of significant accounting policies and valuation methods
Basis of preparation
These annual accounts have been prepared in accordance with Luxembourg legal and regulatory requirements under the historical cost
convention. Accounting policies and valuation rules are, besides the ones laid down by the law of December 19, 2002, as subsequently
amended (the “Law”), determined and applied by the directors of the Company (the “Board of Directors”).
These annual accounts have been prepared on a going concern basis.
The preparation of annual accounts requires the use of certain critical accounting estimates. It also requires Management to exercise its
judgement in the process of applying the accounting policies. Changes in assumptions may have a significant impact on the annual accounts in
the period in which the assumptions changed. Management believes that the underlying assumptions are appropriate and that the annual
accounts therefore present the financial position and results fairly.
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities in the next financial year. Estimates
and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances.
Presentation of comparative financial data
The provisions of the law of 18 December 2015 on the annual accounts and consolidated accounts and the grand-ducal regulation of
18 December 2015 on the layout of balance sheet and profit and loss accounts, amending the law of 19 December 2002 have been transposed
in these annual accounts. The layout and the headings of certain balance sheet and profit and loss account captions have been modified
accordingly. Some comparative figures have been reclassified for the same reason. These reclassifications impact neither the result for the year
ended 31 March 2016 nor the equity as at March 31, 2016.
Significant accounting policies
The main accounting policies and valuation rules applied by the Company are the following:
Tangible assets
Tangible assets are valued at purchase price including the expenses incidental thereto. Tangible assets are depreciated over their estimated
useful economic lives.
The depreciation rates and methods applied are as follows:
Company vehicle
Rate of
depreciation
Depreciation
method
20.00%
Straight line
Where the Company considers that a tangible asset has suffered a durable depreciation in value, an additional write-down is recorded in order
to reflect this loss. These value adjustments are not continued if the reasons for which they were made have ceased to apply.
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Financial assets
Shares in affiliated undertakings are valued at purchase price including the expenses incidental thereto.
In the case of durable depreciation in value according to the opinion of the Board of Directors, value adjustments are made in respect of
financial assets, so that they are valued at the lower figure to be attributed to them at the balance sheet date. These value adjustments are not
continued if the reasons for which they were made have ceased to apply.
Debtors
Debtors are valued at their nominal value. They are subject to value adjustments where their recovery is compromised. These value adjustments
are not continued if the reasons for which the value adjustments were made have ceased to apply.
Foreign currency translation
The Company maintains its accounting records in GBP (GBP) and the balance sheet and the profit and loss accounts are expressed in this currency.
Transactions expressed in currencies other than GBP are translated into GBP at the exchange rate effective at the time of the transaction.
Long term non-monetary assets expressed in currencies other than GBP are translated into GBP at the exchange rate effective at the time of the
transaction. At the balance sheet date, these assets remain converted using the exchange rate at the time of the transaction (the “historical
exchange rate”).
Cash at bank is translated at the exchange rate effective at the balance sheet date. Exchange losses and gains are recorded in the profit and
loss account of the year.
Other assets and liabilities are translated separately respectively at the lower or at the higher of the value converted at the historical exchange
rate or the value determined on the basis of the exchange rates effective at the balance sheet date. The realised and unrealised exchange
losses are recorded in the profit and loss account. The exchange gains are recorded in the profit and loss account at the moment of their
realisation.
Provisions
Provisions are intended to cover losses or debts, the nature of which is clearly defined and which, at the date of the balance sheet are either
likely to be incurred or certain to be incurred but uncertain as to their amount or as to the date at which they will arise.
Provisions may also be created to cover charges which originate in the financial year under review or in a previous financial year, the nature of
which is clearly defined and which at the date of the balance sheet are either likely to be incurred or certain to be incurred but uncertain as to
their amount or the date at which they will arise.
Provision for taxation
Provisions for taxation corresponding to the tax liability estimated by the Company for the financial years for which the tax return has not yet
been filed are recorded under the caption “Tax authorities”. The advance payments are shown in the assets of the balance sheet under the
caption “Other debtors”, if applicable.
Creditors
Creditors are stated as their reimbursement value. Where the amount repayable on account is greater than the amount received, the difference
is shown in the profit and loss account when the debt is issued.
Issuance costs
Issuance costs are expensed through the profit and loss account at the time that they are incurred. This is considered to be the date on which
the relevant issuance is legally performed.
B&M European Value Retail S.A. Annual Report and Accounts 2017
109
NOTES TO THE ANNUAL ACCOUNTS continued
For the financial year ended 31 March 2017
Note 3 – Financial assets
The undertaking in which the Company holds interests in its share capital is as follows
Undertaking’s name
B&M EVR 1*
Registered office
Luxembourg
*
B&M EVR 1 refers to B&M European Value Retail 1 S.à.r.l.
Percentage of
holding
Net equity as at
31 March 2017
GBP
Net result for the
financial year
ended 31 March
2017
GBP
Net book value as
at 31 March 2017
GBP
100%
646,832,905
99,738,188
2,624,999,999
At the balance sheet date, the Board of Directors assessed the valuation of the underlying operations and concluded that no value adjustment is
deemed necessary on the investment.
The B&M EVR 1 accounts have yet to be approved by their Directors.
Note 4 – Amounts owed by affiliated undertakings
becoming due and payable within one year:
B&M European Value Retail Holdco 4 Ltd. (“B&M Holdco 4”)
B&M European Value Retail 2 S.à.r.l. (“B&M EVR 2”)
B&M EVR 1 – Dividend receivable (Note 11)
Total (Note 12)
March 2017
GBP
March 2016
GBP
248,935,413
18
39,000,000
90,259,786
–
–
287,935,431
90,259,786
The amounts owed by B&M Holdco 4 are interest bearing (Note 12) and payable on demand. The amounts owed by B&M EVR 1&2 are non-
interest bearing and payable on demand. Where interest is calculated it has been done on an arm’s length basis.
Note 5 – Other debtors
becoming due and payable within one year:
Prepaid VAT
Prepaid income and net wealth taxes
Other advances
Total
March 2017
GBP
March 2016
GBP
131,787
14,230
3,695
149,712
44,708
12,216
10,703
67,627
Note 6 – Capital and reserves
Subscribed capital and share premium account
As 31 March 2017, the share capital is set at GBP 100,000,000 divided into 1,000,000,000 shares with a nominal value of GBP 0.10 each and the
un-issued but authorised share capital is set at GBP 297,222,222.20.
Movements for the period on the reserves and profit/loss captions are as follows:
As at the beginning of the financial year
Allocation of prior period’s result
Allocation of legal reserve
Allocate interim dividends
Final dividend
Special dividend
Interim dividends
Profit for the financial year
Share premium
and similar
premiums
GBP
Legal
reserve
GBP
2,577,668,086
–
(6,775,907)
614,110
–
9,385,890
–
(98,410,332)
–
–
–
–
–
–
Profit or loss
brought forward
GBP
–
52,199,651
(2,609,983)
(16,000,000)
(32,000,000)
(1,589,668)
–
–
Profit for the
financial period
GBP
52,199,651
(52,199,651)
–
–
–
–
–
95,913,332
Interim
dividends
GBP
(16,000,000)
–
–
16,000,000
–
–
(19,000,000)
–
Total
GBP
2,614,481,847
–
–
–
(32,000,000)
(100,000,000)
(19,000,000)
95,913,332
As at the end of the financial year
2,472,481,847
10,000,000
–
95,913,332
(19,000,000) 2,559,395,179
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Financial Statements
On 25 May 2016, the Board of Directors approved the declaration of a special dividend of 10 pence per ordinary share, in total being
GBP 100,000,000.
The Annual General Meeting held on 29 July 2016 resolved to transfer to the legal reserve (i) an amount of GBP 2,609,982.55 out of the net profit
realised by the Company as at 31 March 2016, and (ii) an amount of GBP 6,775,907.45 out of the share premium account of the Company. The
legal reserve has thus been credited in full and now represents 10% of the issued share capital of the Company.
On 14 November 2016, the Board of Directors unanimously approved the distribution of an interim dividend of 1.9 pence per ordinary share,
being a total aggregate distribution of 19 million paid by the Company in December 2016.
A final dividend of 3.9 pence per share (GBP 39,000,000), giving a full year non-special dividend of 5.8 pence per share (GBP 58,000,000), is
proposed.
Legal reserve
In accordance with article 197 of the Luxembourg company law dated 10 August 1915, as amended, the Company is required to allocate to a
legal reserve a minimum of 5% of its annual net profit until this reserve equals 10% of the subscribed share capital. This reserve may not be
distributed.
Note 7 – Creditors
Amounts due and payable for the accounts shown under “Debenture loans” are as follows:
Debenture Loans
Non convertible loans – Bonds interest
Non convertible loans – Bonds principal
Within
one year
GBP
After one year and
within five years
GBP
After more
than five years
GBP
March 2017
GBP
March 2016
GBP
1,718,750
–
–
250,000,000
1,718,750
250,000,000
–
–
–
1,718,750
250,000,000
251,718,750
–
–
–
On 2 February 2017, the Company issued GBP 250,000,000 4.125% Senior Secured Notes (herein after referred to as the “Bonds”) which are due
on 1 February 2022. Interest on the Notes will be paid semi-annually in arrears on 1 February and 1 August of each year, commencing on 1
August 2017. The Bonds are listed for trading on the Euro MTF market of the Luxembourg Stock Exchange. The Euro MTF Market of the
Luxembourg Stock Exchange is not a regulated market pursuant to the provisions of Directive 2004/39/EC on markets in financial instruments.
The Euro MTF Market falls within the scope of Regulation (EC) 596/2014 on market abuse and the related Directive 2014/57/EU on criminal
sanctions for market abuse.
The Company may redeem the Bonds in whole or in part at any time on or after 1 February 2019, in each case, at the redemption prices set out in
the Offering Circular. Prior to 1 February 2019, the Company will be entitled to redeem, at its option, all or a portion of the Bonds at a redemption
price equal to 100% of the principal amount of the Bonds, plus accrued and unpaid interest and additional amounts, if any, to the redemption
date, plus a “make-whole” premium, as described in the Offering Circular. Prior to 1 February 2019, the Company may, at its option, and on one
or more occasions, also redeem up to 40% of the original aggregate principal amount of the Bonds with the net proceeds from certain
equity offerings.
Additionally, the Company may redeem the Bonds in whole, but not in part, at a price equal to their principal amount plus accrued and unpaid
interest and additional amounts, if any, upon the occurrence of certain changes in applicable tax law. Upon the occurrence of certain events
constituting a change of control, the Company may be required to repurchase all or any portion of the Bonds at 101% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any, to the date of such repurchase.
The Bonds are senior obligations of the Company, guaranteed on a senior basis by its various affiliated companies.
B&M European Value Retail S.A. Annual Report and Accounts 2017
111
NOTES TO THE ANNUAL ACCOUNTS continued
For the financial year ended 31 March 2017
Note 7 – Creditors continued
Other amounts due and payable for the accounts shown under “Creditors” are as follows:
Trade creditors
Suppliers
Suppliers – Invoices not yet received (Note 7.1)
Amounts owed to affiliated undertakings
B&M EVR 2
Other creditors
Tax authorities
Corporate income tax
Net wealth tax
Other taxes
Social security authorities
Other creditors
Total
Within
one year
GBP
After one year and
within five years
GBP
After more
than five years
GBP
March 2017
GBP
March 2016
GBP
104,083
1,274,525
1,378,608
17,860
7,453
591,654
6,708
–
21,856
627,671
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
104,083
1,274,525
1,378,608
107,952
75,105
183,057
17,860
17,860
7,453
591,654
6,708
–
21,856
627,671
2,024,139
7,452
587,532
17,835
23,259
35,935
672,013
872,930
Note 7.1 – Suppliers-invoices not yet received balance during financial year ended 31 March 2017 relates mostly to accruals in relation to service
fees pertaining to the GBP 250,000,000 bonds issuance.
Note 8 – Raw materials and consumables and other external expenses
Other external expenses
Transaction costs for bond issuance (Note 7)
Advisory and consultancy fees
Marketing, communication and travel expenses
Staff recruitment expenses
Accounting and administrative fees
Audit fees
Government regulatory fees
Stock exchange fees
Rentals
Repairs and maintenance
Others
Total
Note 9 – Staff costs
During the financial period, the Company employed one part time employee and two full time employees.
March 2017
GBP
3,297,077
394,670
200,285
189,763
180,304
87,451
79,230
62,560
40,996
9,505
51,443
4,593,284
March 2016
GBP
–
178,530
171,682
–
175,458
97,118
70,446
57,002
39,536
8,402
15,305
813,479
112
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Note 10 – Other operating expenses
Director fees
Non-deductible VAT
Others
Total
Note 11 – Income from participating interests
Derived from affiliated undertakings:
Dividend income (Note 11.1)
Total
Note 11.1 – Dividend income relates to dividend declaration by B&M EVR 1.
Note 12 – Other interest receivable and similar income
Derived from affiliated undertakings (Note 12.1)
Interest recharge
Other interest and similar income
Realised foreign exchange gain
Reversal of previous period accrual
Other income
Total
March 2017
GBP
245,657
–
221
March 2016
GBP
255,073
1,015,569
7,460
245,878
1,278,102
March 2017
GBP
March 2016
GBP
99,750,000
52,611,000
99,750,000
52,611,000
March 2017
GBP
March 2016
GBP
2,760,408
2,257,929
2,760,408
2,257,929
279,111
–
494
279,605
49,528
192,000
1,089
242,617
3,040,013
2,500,546
Note 12.1 – The Company and its affiliates have entered into a Management Services Agreement (“MSA”). Included in the provisions of this
agreement was the right for the Company to charge or be charged interest on any intercompany balances held with affiliates outside of
Luxembourg (an “Interest recharge”). The basis for the interest recharge is the outstanding balance per management accounts at the start
and end of each month, and the marginal external rate of borrowing available to the Group as reviewed by management on an at least six
monthly basis.
Note 13 – Interest payable and similar expenses
Other interest and similar expenses:
Interest expense on bonds payable (Note 7)
Realised foreign exchange loss
Total
March 2017
GBP
March 2016
GBP
1,718,750
53,025
1,771,775
–
41,337
41,337
Note 14 – Taxation
The company is subject to the general tax regulation applicable to all Luxembourg commercial companies.
B&M European Value Retail S.A. Annual Report and Accounts 2017
113
NOTES TO THE ANNUAL ACCOUNTS continued
For the financial year ended 31 March 2017
Note 15 – Off balance sheet commitments and contingencies
At the balance sheet date, the Company has financial commitments relating to: i) share option plans; and ii) pledge agreements. The nature and
the commercial objective of the operations not disclosed on the balance sheet can be described as follows:
Note 15.1 – Share option plans
The Company operates four share option plans. The details of which are as follows:
(1) The B&M European Value Retail S.A. Tax Advantaged and non-tax advantaged Company Share Option Plans (CSOPs), starting (i) 1/8/14 (ii)
11/8/14 (iii) 17/12/15 (iv) 19/8/16.
(2) The B&M European Value Retail S.A. Long-Term Incentive Plan 2014 (LTIP 2014).
(3) The B&M European Value Retail S.A. Long-Term Incentive Plan 2015 (LTIP 2015).
(4) The B&M European Value Retail S.A. Long-Term Incentive Plan 2016 (LTIP 2016).
CSOPs
The CSOP schemes are market-value options with a non-market performance condition. They vest after a period of three years.
The options were valued using a black/scholes model. Given the grant date, no options have been exercised in the year.
Scheme
CSOP (1/8/14)
CSOP (11/8/14)
CSOP (17/12/15)
CSOP (19/8/16)
Date of grant
Date of vesting
Exercise price
1 Aug 2014
11 Aug 2014
17 Dec 2015
19 Aug 2016
1 Aug 2017
11 Aug 2017
17 Dec 2018
19 Aug 2019
271.5p
267.0p
286.0p
276.8p
Fair value
of option
GBP
Number of options
outstanding at
31 March 2016
Number of options
granted/(lapsed) in
the year
Number of options
outstanding at
31 March 2017
0.83
0.81
0.79
0.50
504,571
67,410
10,489
0
(44,196)
(7,490)
0
21,676
460,375
59,920
10,489
21,676
LTIPs
These awards are ordinary shares subject to a mixture of market based and non-market based performance conditions. They vest after a
period of three years.
All LTIPs except LTIP 2014 have been separated into two tranches based upon the conditions required for vesting, as the two tranches were
calculated to have separately identifiable and different fair values. The tranches are labelled “TSR" and “EPS" as the relevant key performance
conditions are based upon total shareholder return and earnings per share.
The options were valued using a monte carlo method. Given the grant dates, no options have been exercised in the year.
Scheme/tranche
LTIP 2014
LTIP 2015 / EPS
LTIP 2015 / TSR
LTIP 2016 / EPS
LTIP 2016 / TSR
Date of grant
Date of vesting
Exercise price
1 Aug 2014
5 Aug 2015
5 Aug 2015
18 Aug 2016
18 Aug 2016
1 Aug 2017
5 Aug 2018
5 Aug 2018
18 Aug 2019
18 Aug 2019
nil
nil
nil
nil
nil
Fair value
of option
GBP
Number of options
outstanding at
31 March 2016
Number of options
granted/(lapsed) in
the year
Number of options
outstanding at
31 March 2017
1.34
3.41
2.10
2.54
1.64
112,963
40,616
40,616
0
0
(38,889)
0
0
122,386
122,386
74,074
40,616
40,616
122,386
122,386
Assumptions
The fair valuing exercise uses several assumptions including the share price at grant (taken as the closing price on the day prior to the grant), the
volatility (see below), the expected life (3 years for the LTIP 2014, 5 years for LTIPs 2015 & 2016, 6.5 years for the CSOP) and the risk free rate of
interest, using the Bank of Englands zero coupon yield over the expected life.
In accordance with Luxembourg GAAP, as none of the option holders have vested their rights as at the balance sheet date, all related amounts
are reported as off balance sheet commitments.
The volatility assumption used the historic volatility of a group of comparable companies. This resulted in a 25% assumption for all the 2014
awares, 24% for the 2015 EPS award, 30% for the 2015 TSR award, and 26% for the 2016 awards.
114
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
Strategic Report
Corporate Governance
Financial Statements
Note 15.2 – Pledge agreements
Release of the share pledge created on 17 June 2014:
Pursuant to a release letter dated and effective as of 02 February 2017, Bank of America Merrill Lynch International Limited (“BAMLIL"), acting for
itself and as trustee for and on behalf of the Secured Parties has unconditionally and irrevocably released and discharged in full the pledge
created under the share pledge agreement dated 17 June 2014, entered into between the Company as Pledgor, BAMLIL acting for itself and as
trustee for and on behalf of for the Secured Parties and B&M EVR 1.
New share pledge effective as from 02 February 2017
Pursuant to a share pledge agreement dated (and effective as of) 02 February 2017, all shares and related assets owned from time to time in
B&M EVR 1 by the Company and, in particular, the 198,916,673 shares owned as of 31 March 2017 and including any shares acquired by the
Company in the future and related assets, have been pledged in favour of Deutsche Bank AG, London Branch, as security agent, acting for itself
and as security agent for and on behalf of the Secured Parties.
Note 16 – Directors Emoluments
The contractual emoluments granted to the members of the administrative managerial and supervisory bodies in that capacity are as follows:
Director fees paid to the non-executive directors of the Group
March 2017
GBP
258,500
258,500
March 2016
GBP
258,500
258,500
There were no obligations arising or entered into in respect of retirement pensions for former members of those bodies for the financial year.
There were no advances or loans granted during the financial year to the members of those bodies.
There are no pension obligations of members of those bodies.
There are no guarantees or direct substitutes granted or given of the members of those bodies
Note that the executive directors are remunerated through other Group companies.
Note 17 – Subsequent events
No other matters or circumstances of importance other than those already described in the present notes to the accounts have arisen since the
end of the financial year which could have significantly affected or might significantly affect the operations of the Company, the results of those
operations or the affairs of the Company.
The financial statements were approved by the Board of Directors and authorised for issue on 24 May 2017 and signed on its behalf by:
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
B&M European Value Retail S.A. Annual Report and Accounts 2017
115
GENERAL INFORMATION
Registered Office & Company Number
B&M European Value Retail S.A.
9, Allée Scheffer
L-2520 Luxembourg
Grand-Duchy of Luxembourg
R.C.S. Luxembourg: B 187275
Tel: +352 246 130 207
www.bandmretail.com
Share Registrar
(Shareholders)
Capita Fiduciary S.A.
9, Allée Scheffer
L-2520 Luxembourg
Grand-Duchy of Luxembourg
Tel: +352 440 929
Email: shareholderenquiries@capita.co.uk
www.capitaassetservices.com
Depositary Interests Registrar
(Depositary Interest holders)
Capita Registrars (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey GY2 4LH
Channel Islands
Email: custodymgt@capitaregistrars.com
Listing
Ordinary shares of B&M European Value Retail S.A. are listed
with a premium listing on the London Stock Exchange.
Auditor
KPMG Luxembourg Société Coopérative
39, Avenue John F. Kennedy
L-1855 Luxembourg
Tel: +352 22 51 51 1
www.kpmg.com/lu
Joint Brokers
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
Tel: +44(0)20 7628 1000
www.baml.com
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
Tel: +44(0)270 7260 1000
www.numis.com
Principal Bankers
Barclays Bank PLC
116
B&M European Value Retail S.A. Annual Report and Accounts 2017
B&M European Value Retail S.A. Annual Report and Accounts 2017
©2017. All rights reserved. B&M
and the B&M logo are registered trademarks
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