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Delivering what customers want
Big brands, big savings
B&M European Value Retail S.A.
Annual report and accounts
2018
We provide our customers with
great value right across all product
ranges at our B&M, Jawoll and
Heron Foods stores, so they keep
coming back to our stores again
and again for a rewarding and
exciting shopping experience.
The B&M Group is a fast growing variety goods value
retailer with stores operating in the UK and Germany.
Our Group includes:
• the B&M general merchandise and grocery stores,
with a chain of 576 stores throughout the UK;
• the Jawoll general merchandise and grocery
stores, with a chain of 86 stores which are
predominantly in the North-West of Germany; and
• the Heron Foods convenience stores, with a chain
of 265 stores which are predominantly in the North
of England.
At all of our B&M, Jawoll and Heron Foods stores we
offer customers leading branded products at
compelling prices so they receive great value every
time they shop with us and their shopping budgets
go that bit further.
Big brands, big savings
Value retailing
Customer copy
Big savings
Great value
general merchandise
grocery, chilled & frozen
variety & seasonal
products
Convenient locations
See page 8 for our business model
TOTAL:
HAPPy
customers
For more information on
investor relations visit
www.bandmretail.com
or
for our customer website visit
www.bmstores.co.uk
01
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Highlights
Financial highlights
Group revenues1
Profit before tax1
£3,029.8m
+24.6%
2017: £2,430.7m
£229.3m
+25.4%
2017: £182.9m
Group revenues (52 weeks)2
Adjusted EBITDA (52 weeks)2
£2,976.3m
+22.4%
2017: £2,430.7m
£279.0m
+18.8%
2017: £234.9m
Cash generated from operations1
Diluted earnings per share1
£242.0m
+14.8%
2017: £210.9m
Store highlights
UK store estate
+7.3%
18.6p
+30.0%
2017: 14.3
Germany store estate
+14.7%
B&M Stores
• 39 net new B&M stores opened, growing
the estate by 7.3% to 576 stores in the UK.
• Strong pipeline of new stores and on track
to achieve between 40 and 45 net new
UK store openings in FY19.
Jawoll Stores
• 11 net new Jawoll stores opened, growing
the estate by 14.7% to 86 stores in Germany.
• Strong pipeline of new stores and on track
to achieve 10 net new German store
openings in FY19.
Contents
Strategic Report
Highlights
Company overview
Chairman's statement
Market overview
Business model
Strategy
Chief Executive Officer's review
Financial review
Key performance indicators
Principal risks and uncertainties
Corporate social responsibility
Case study:
Store growth
01
02
04
06
08
10
12
20
24
26
31
16
Case study:
Convenience stores
18
Corporate Governance
Board of Directors
Corporate governance report
Audit & Risk Committee report
Directors' remuneration report
Directors’ report and business review
Statement of Directors’ responsibilities
38
40
48
52
65
70
+3.5%
Heron Food Stores
• 9 net new Heron Food Stores opened since
acquisition, growing the estate by 3.5% to
265 stores in the UK.
• Strong pipeline of new stores and on track
to achieve between 15 and 20 net new UK
store openings in FY19.
1 Each of these items are 53 week figures. See also footnote 2 below.
2 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. EBITDA, Adjusted EBITDA and Adjusted Profit
are non-IFRS measures and therefore we provide a reconciliation from the statement of comprehensive income. See the reconciliation of
adjusted measures to statutory measures on page 21 for further details. EBITDA represents profit on ordinary activities before net finance
costs, taxation, depreciation and amortisation. Unless otherwise stated the figures presented in the strategic report are for the 52 weeks
ended 24 March 2018, which is comparable with the previous year rather than the statutory reported 53 week period. Notes: (i) Group
revenues in the year on a 52 week basis were £2,976.3m and on a statutory 53 week basis were £3,029.8m, (ii) the Group’s Adjusted
EBITDA on a 52 week basis was £279.0m and it was £283.3m on a 53 week basis, and (iii) the Group’s Adjusted Profit Before Tax on a
52 week basis was £221.5m and it was £224.8m on a 53 week basis. The statutory 53 week period profit before tax was £229.3m.
71
74
Financial Statements
Independent Auditor's report
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of changes in
76
shareholders' equity
Consolidated statement of cash flows
77
Notes to the consolidated financial statements 78
112
Independant auditor's report
114
Company balance sheet
115
Company profit and loss account
116
Notes to the annual accounts
123
General information
75
SRCGFSStrategic Report 02
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Company overview
A fast-growing value retailer
We are a growth business operating in markets where our overall
market share is small compared with specialist merchandise
retailers and grocery retailers, which means we have a big
opportunity for continued expansion right across our B&M,
Jawoll and Heron Foods businesses and store estates.
Positioned for growth1
UK stores
576 B&M stores in the UK 2018
See page 16 for more information
52 weeks
Revenue
£2,566.0m
+13.9%
Adjusted EBITDA
£261.7m
+17.2%
34 weeks
Revenue
£210.0m
Employees
26,496
+8.0%
New locations
39
+7.3%
Employees
3,956
Region
Scotland
Northern
Ireland
North East
& Yorkshire
North West
Midlands
Wales
South East/
East Anglia
South West
Heron
Foods
B&M
–
65
30
–
100 122
70
110
67
105
5
38
1
89
–
39
265 Heron Food stores in the UK 2018
Adjusted EBITDA
New locations
See page 18 for more information
£11.7m
9
+3.5%
Germany stores
52 weeks
Revenue
£200.3m
+12.3%
Employees
1,581
+4.4%
Germany
86
86 Jawoll stores in Germany 2018
Adjusted EBITDA
New locations
See page 13 for more information
£5.6m
-51.9%
11
+14.7%
1 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 further the footnotes on page 1. Each of the financial figures above are for the 52 weeks ended 24 March 2018, which is comparable with the previous year rather than the
statutory reported 53 week period for B&M.
03
B&M European Value Retail S.A.
Annual Report and Accounts 2018
New products
every week
c.100
Big brands, big savings
PRODUCT
CATEGORIES
Home furnishings
& Adornment
Electricals
Toys
Clothing & footwear
Household goods
health & beauty
Food
Confectionery
Soft drinks
Alcohol
Seasonal goods
Giftware
Stationery & crafts
Gardening
outdoor & leisure
Petcare
DIY & decorating
Travel accessories
TOTAL:
Variety goods
Keep an eye out for Frozen
food in a store near you
See page 12 for more information
Something for everyone
Product range
In our B&M, Jawoll and Heron Foods
stores we provide customers with a
limited assortment within each of our
product ranges so they can access the
best-selling items at value retail prices.
Our products are mainly sourced direct
from manufacturers and leading brand
household names. The combination
of this gives our customers the goods
they want at the prices they want.
This is what we achieve through the
successful execution of our business
model. The same approach applies to
our bargain stores, homestores and
convenience stores in all of our three
value retail businesses.
Our brands
Our UK bargain and homestores for
general merchandise and grocery
trade under the B&M brand in both
in-town and out-of-town retail park
store formats throughout the UK.
Our convenience stores for frozen,
chilled and ambient food and
convenience merchandise ranges
trade under the Heron Foods brand
and are located in local shopping
streets and shopping parades
predominately in the North of England.
Our stores in Northern Germany for
general merchandise and grocery
trade under the Jawoll brand in both
in-town and out-of town retail park
store formats.
Happy
customer
“Today when I bought
a dining set the team
were really helpful
and friendly, they
even helped to pack
the items in the car.
Brilliant staff.”
Julie Wood
B&M Customer, Wakefield
SRCGFSStrategic Report
04
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Chairman's statement
A year of excellent progress
“B&M’s growth trajectory has continued with the business
once again delivering strong increases in revenues,
profits and cash generation.”
Group revenues (52 weeks)1
£2,976.3m
+22.4%
2017: £2,430.7m
Adjusted earnings per share
(52 weeks)1
17.8p
2017: 14.9p
Having succeeded Sir Terry Leahy as Chairman
on the first of March this year, I am delighted to
be able to report to shareholders on another
year of excellent progress for B&M. In a retailing
industry which has been struggling to cope
with profound structural change, significant cost
headwinds and subdued consumer demand,
B&M’s growth trajectory has continued, with the
business once again delivering strong increases
in revenues, profits and cash generation.
I am pleased to have joined a company enjoying
such success and which has clear potential
for profitable long-term growth in its chosen
markets. The B&M model is simple, robust
and highly relevant for the current economic
environment. While the pervasive influence
of the internet is fundamentally altering how
we shop, in two large and growing areas of
retailing, being value and convenience, physical
stores remain strong and I believe B&M is well-
positioned to benefit in the coming years from
the strength of these trends.
In the last few months I have had the opportunity
to see all the key parts of the business and meet
many people in stores, distribution centres and
offices across the Group during a very enjoyable
and comprehensive induction programme. A
very talented, committed executive team is in
place and I have also inherited an able group
of Non-Executive Directors with a diverse range
of backgrounds and experience. With corporate
governance requirements changing and the
continued growth in the Company we will evolve
and develop the skills, experience and diversity of
the Board and executive team in the coming years.
On behalf of the Board I would like to express
my thanks to Sir Terry Leahy who, during his
tenure as Chairman, put in place a robust and
effective corporate governance structure as
well as contributing his outstanding business
acumen to B&M during a critically important
phase of its development. David Novak also
retired from the Board earlier this year, having
made a valuable contribution to the business
since Clayton Dubilier & Rice (“CD&R”), the private
equity majority investor in B&M at the time of the
IPO, bought a substantial stake in the business
in 2013. CD&R sold their residual shareholding
in B&M in January this year, bringing to an end
a very positive and beneficial partnership with
the Group.
1 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 further the footnotes
on page 1.
Peter Bamford
Chairman
05
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Investment Proposition
Market position
B&M is the fastest growing general
merchandise value retailer in a structurally
growing sector in the UK with 576
stores. The Group has also entered the
value convenience retail market with its
acquisition of Heron Foods in August 2017,
which now has 265 convenience stores.
Business model
B&M has a unique, disruptive business
model with its limited assortment, direct
sourcing and simple low cost approach.
This is a distinctive retail proposition
which resonates well with customers by
providing them with bargains on everyday
household general merchandise and
grocery purchases at our stores.
See page 6 for more information
See page 8 for more information
£
Financial returns
Our Group has a strong financial track
record with rapid growth, high returns,
and being strongly cash generative.
Over the period since IPO in June 2014
to 31 March 2018 it has generated a
total shareholder return of over 58%
(see further on page 53 below).
Growth opportunity
Each new B&M store we open continues
to produce excellent returns and, with
a target of at least 950 stores in the UK,
there is substantial scope for further
expansion. Heron Foods has given the
Group a platform for growth in the value
convenience sector and with Jawoll we
are developing the model for realising
the significant potential which exists in
Germany and other European markets
in the longer term.
See page 16 for more information
See page 20 for more information
Difficult economic times and tough trading
conditions in the broader retail sector provide
challenges but also opportunities. The Group
successfully acquired Heron Foods in August
2017, providing it with the platform to broaden
B&M’s product offer into chilled and frozen foods
as well as adding another arm of growth in the
strategically attractive value convenience sector
for the Group. Heron Foods is an excellent fit
with B&M and we are delighted with progress
to date. In the general merchandise market,
weaker retailers are exiting the industry and
some are downsizing, freeing-up pockets of
market share in key categories and making
available attractive store assets, a number of
which fit our new store locations and selection
criteria. We will continue to take advantage of
these opportunities as they arise.
In the Group’s German business Jawoll, we are
pushing ahead in 2018/19 with a rapid pace of
change under an experienced new management
team, as we move its operating and product
sourcing model much closer to the B&M approach.
In doing so, we are learning in Germany how to
apply the B&M business model in other countries in
the future, as we believe we are only in the foothills
of the emergence of a large, profitable general
merchandise value retailing sector across Europe
in the years ahead.
I would like to take this opportunity to thank all of
our shareholders for their support and all of the
people who work so hard for B&M to deliver great
value for our customers each day.
Peter Bamford
Chairman
29 May 2018
SRCGFSStrategic Report 06
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Market overview
Well positioned in our markets
Each of our businesses remain well positioned for further
continued expansion in the UK and Germany in the years ahead.
Expansion potential
The UK retail market in which B&M operates had total
store-based retail sales of c.£300 billion in 2017 1. B&M
has a small share of this market, being less than 1%.
There are a significant number of catchments which still
do not have easy access to a B&M store. We believe that
a store target of 950 B&M fascia stores overall in the UK
is achievable.
B&M stores
576
2018
2017
2016
576
537
499
The German retail market had store-based retail value sales
of over c.€400 billion in 2017 1. The general merchandise
value retail market remains fragmented in Germany and
there are no variety goods retailers operating successfully
on a national scale. Given both the size of the German
market and the small market share that Jawoll has, we
believe we have the opportunity to expand both within its
core regions and also outside those regions.
Jawoll stores
86
2018
2017
2016
86
75
56
Heron Foods operates in the convenience sub-sector of
the c.£160 billion UK Grocery market in 20171. Convenience
is one of the areas of growth in grocery retailing in the
UK. Heron Foods brings an attractive value proposition to
this market which has been primarily based otherwise on
premium pricing by other retailers.
Heron Foods stores
265
At 31 March 2018
07
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Customer APPEAL
The customer mission at a B&M store includes customers
who are going for a specific destination purchase but who
then often buy additional impulse products during store visits.
This is supported by the constant refreshment of the ranges
and introduction of new products in our stores.
P r o fil e
D e s tin a tio n p u r c h a s e
A s p a r t o f t h e s h o p p e r m i s s i o n , w e b e l i e v e t h e
c u s t o m e r r e g a r d s B & M a s a d e s t i n a t i o n s t o r e
a c r o s s o u r f u l l r a n g e o f p r o d u c t c a t e g o r i e s
a n d b a s e d u p o n o u r o w n r e s e a r c h c . 8 0 %
o f c u s t o m e r s v i s i t s a r e p l a n n e d . F o r s o m e
c u s t o m e r s t h e t a r g e t e d g r o c e r y o f f e r a t
c o m p e t i t i v e p r i c e s i s t h e i r m a i n r e a s o n t o v i s i t
o u r s t o r e s , w h i l e f o r o t h e r c u s t o m e r s t h e n e e d
t o b u y g e n e r a l m e r c h a n d i s e a t g r e a t v a l u e
p r i c e s ( f o r e x a m p l e k i t c h e n a n d h o m e o r D I Y
a n d g a r d e n w a r e s , s e a s o n a l g o o d s a t
C h r i s t m a s , H a l l o w e e n a n d E a s t e r o r t o y s
f o r c h i l d r e n ’s b i r t h d a y ’s ) i s t h e i r
m a i n r e a s o n t o v i s i t .
Impulse Buying /
Treasure Hunt
Profile
Once the destination customer has
completed their primary shopper mission, the
mission then changes as they then also see
the broad choice of other products at great
value prices, leading to a “treasure hunt”
which is the opportunity for B&M to increase
its basket size of sales. From research we
conducted, although c.80% of customers
come to our stores for a destination
purchase, when the basket is analysed
nearly 50% of purchases are impulse buys.
New Products
Profile
A key part of our B&M product offering relates
to the number of new products which are
introduced into our B&M UK stores each week.
We average around 100 new products per week
predominately within our general merchandise
categories, but while still maintaining the
discipline of our limited assortment model. The
number of new products introduced gives the
customer a reason to visit the store frequently
while limited lines remain available and to see
what’s new as well. Last year we averaged 4.1
million customer transactions a week across the
B&M UK store estate.
UK Market Segments
The UK market is broadly split into two main
segments, comprising general merchandise
specialist retailers and grocery retailers. Both
segments are also occupied by value retailers and
discounters. We believe we are a leading player
among those value retailers and discounters
who compete in these two main segments.
UK General Merchandise1
Specialist retailers, which include apparel,
electronics, health and beauty, home and garden,
leisure and department stores, had total store-
based retail value sales of around £130 billion in
2017. General merchandise value and 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
over £7.0 billion in 2017.
UK Grocery1
Grocery retailers account for the largest segment
with total store-based retail value sales of over
£160 billion in 2017. In the grocery segment, we
focus mainly on ambient grocery products including
confectionery, soft drinks, and canned food as
well as cleaning and toiletries. Within the UK grocery
market there is also a convenience retail sub-sector
which Heron Foods operates in.
German Market 1
The German retail market is broadly split into three
main segments, being grocery retailers, specialist
retailers, and general merchandise value and
discount retailers. Grocery retailers in Germany had
total store-based retail value sales of around €200
billion, and specialist retailers in Germany had total
store-based retail value sales of around €210 billion
in 2017.
Jawoll principally competes in the German general
merchandise value and discount segment with
only a limited range of grocery lines, 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 value and discount retailers also.
As part of B&M’s Group this provides Jawoll with the
opportunity to expand the breadth of its non-grocery
range, as well as potentially developing its producer
branded grocery and FMCG offering.
1 Figures are based on management estimates having regard to
the size of the relevant market also in the previous year.
SRCGFSStrategic Report 08
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Business model
Value retailing
B&M is a value retailer with stores across the UK and in
Germany, selling a limited assortment range of general
merchandise and grocery products.
Inputs—
Strengths
Operation
Modern store network
Our network of over 900 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.
Well-invested infrastructure
We have a modern supply chain
and scalable systems infrastructure
to support the operations and
growth of the business. In the
last few years we increased our
distribution centre operations with
the commissioning of two 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 is 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 is also about
developing and maintaining strong
long-term supplier relationships,
and many of our suppliers have
grown with us over many years.
7
1
6
5
2
3
4
Adjusted EBITDA
(52 weeks)1
£279.0m
2017: £234.9m
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. 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 SKU's (“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.
Corporate social responsibility
In relation to our supply chain & ethics
see page 34 for more information
Risk management
In relation to our principal risks and risk
mitigations see page 27 for more information
Sustainability
In relation to our environmental sustainability
see page 36 for more information
09
B&M European Value Retail S.A.
Annual Report and Accounts 2018
5
Seasonal flex
We actively change our store floor space throughout the
year so 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.
1 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 further the footnotes
on page 1.
Big brands, big savings
Creating
stakeholder value
Happy 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.
Valued 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.
Respected 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.
Committed 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.
Financial performance
In relation to our financial performance
see page 20 for more information
TOTAL:
Sustainable
Business model
SRCGFSStrategic Report 10
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Strategy
Long-term focus for our Group
Our strategy is about delivering long-term success
through our continued expansion.
Initiatives
Progress
£
Deliver great value to our customers
We continue to offer our customers attractive prices and
excellent value for money across our ranges of both general
merchandise and grocery. We also look to introduce new
product categories where there is strong consumer demand,
whilst still maintaining our limited assortment model.
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 branded products and
maintain our strategy of direct sourcing of those products
whenever we can.
Develop our international business
We wish to replicate our variety goods value retailing model
in other markets in Europe.
Since April 2014 the Group has owned a majority stake in
Jawoll in Germany. We are now accelerating the integration
of the Jawoll business into our sourcing and retail formats in
order to prepare it for expansion opportunities.
Invest in new stores
We believe B&M has the potential for at least 950 stores in
the UK over the long term and to significantly increase both
our German store estate and our UK convenience store
chain following the acquisition of Heron Foods, over the
years ahead.
Invest in our people and infrastructure
The Group continues to invest in the recruitment and the
promotion of colleagues as new store expansion continues
in both the UK and Germany.
We continue to refresh our existing stores through an
ongoing refurbishment programme across our estates in
the UK and Germany.
Our continuing expansion means we plan ahead to ensure
we have sufficient warehouse infrastructure to meet our
store roll-out strategy.
Following the acquisition of Heron Foods, in the B&M estate we
have started to introduce ranges of frozen and chilled products
in a number of selected stores.
We have introduced additional brands into our stores, including
Lego and Playmobil as well as continuing to expand our brands
in the general merchandise product categories.
We have increased the development of our direct to retail licensing
model to more product lines and categories in the year, where we
use a number of heritage brands to enhance the product quality
and value to the customer.
See page 12 for more information
Jawoll opened 12 new stores (11 net of 1 closure) by organic
growth, taking the store estate to 86, representing a 14.7%
increase in its store estate.
The Christmas ranges of Jawoll which were bought through the
B&M supply chain performed well in the Christmas trading period.
In order to accelerate the changes in FY19 at Jawoll to replicate the
UK model in Germany, we have strengthened the Jawoll senior
leadership team with the recruitment of a new CEO in Germany,
supported also by new Operations and Buying Directors.
See page 14 for more information
In the B&M business we have opened 47 new stores in FY18 (39
net of closures and relocations), including both vacant existing
properties and new build stores.
In our convenience store chain, Heron Foods, we have opened 15
new stores (9 net of closures and relocations) since we acquired
the business in August 2017.
In Germany our new store expansion in the year was 11 net new
stores (see further above).
See page 16 for more information
In the Group we created approximately 1,200 new jobs.
We have acquired the land for a new 1 million sq ft UK
warehouse based in the South of the UK, which will have
capacity for at least a further 300 stores including frozen and
chilled food storage capability.
We have continued to refresh our existing store estate and
we invested £18m across the Group in maintenance capital
expenditure as part of a rolling programme of continuous
investment in the Group’s store estate in FY18.
See page 32 for more information
11
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Performance
future aims
UK revenue growth (52 weeks)1
+13.9% B&M
+23.3% Total UK
UK like-for-like sales growth2
+4.7%
See page 20 for more information
Germany revenue growth
+12.3%
See page 20 for more information
UK gross new store openings
47 B&M
15 Heron Foods
See page 13 for more information
New colleagues across
the Group (including
Heron Foods)
+19.5%
See page 14 for more information
We always aim to provide great value products to our
customers and concentrate on best-selling lines of
branded and private label products.
We will have rolled-out the frozen and chilled food
ranges to around 80 B&M stores in FY19.
We will continue to invest in modernising and refitting
our store estate to provide our customers with a pleasant
shopping experience and a safe environment.
We plan to accelerate the rate of products sourced for
Jawoll through the B&M supply chain in FY19.
We plan to grow our store estate in Germany through
organic store openings by c. 10-15% of store numbers per
annum, as well as looking for in-fill acquisition opportunities.
We continue to 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 those
locations, and where we believe the capital invested will
provide an acceptable level of return.
We have a UK target to grow our B&M estate to at least
950 stores. We currently have 576 stores and we are
targeting to open 40-50 stores per annum, dependent
on the availability of suitable locations.
While we have not provided a store target for our Heron
Foods convenience store chain, given the geographical
representation of Heron Foods, there is the opportunity
to grow the store estate by around 10% per annum.
We plan to have completed the construction of the Southern
distribution centre and for it to be operational by Spring 2020.
Additionally, investment will be made in the HGV fleet
and our IT systems to ensure we continue to have a fit for
purpose infrastructure.
We will continue to invest to ensure that we have
appropriate training and processes to attract, retain and
incentivise colleagues, as well as continuing to invest in
strengthening the management team and the central head
office functions of each of the businesses in the Group.
1 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. Group revenues in the year on a 52 week basis were £2,976.3m and on a statutory 53 week basis were, £3,029.8m.
2 Like-for-like revenues relate to the B&M estate only and include each store’s revenue for that part of the current period that falls at least 14 months after it opened; compared with its revenue for the
corresponding part of the previous period. This 14 month approach has been used as it excludes the two month halo period which new stores experience following opening.
SRCGFSStrategic Report 12
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Chief Executive Officer's review
Customers always
like great bargains
“Making our offering accessible to the hundreds of communities
which do not already have one of our stores remains
a top priority for us.”
Overview
In a retail industry which is undergoing profound
structural change, B&M continues to prosper.
In part, this is because our model is one of
those disruptive changes to the old order which
are fundamentally reshaping the industry. Of
the three key trends in modern retailing; the
growing importance of the internet, the rapid
expansion of the value retail sector and the
increasingly pervasive presence of convenience
retailing, B&M is participating in two of these
three main trends as customer shopping
habits evolve. We are already the UK’s leading
general merchandise value retailer and, with the
successful addition of Heron Foods to the Group,
we have also become a participant in the growth
of the convenience sector.
While we keep the option under review, and
we are increasing our investment in digital
marketing, we have chosen not to participate
in online retailing principally because we
believe it would add significant costs to our low
cost model and also because, in general, the
products and the ways in which our customers
buy from us simply do not lend themselves to
transacting online. For more than a decade now,
B&M has been able to grow rapidly alongside
the increasing influence of the internet on the
wider retail sector and I am confident that, given
the uniquely competitive nature of our model,
we can continue to do so.
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 further
progress during the year with each of these
priorities:
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.
Delivering great value to our customers
Our business model is all about delivering great
value to customers week-in, week-out on the things
they buy regularly for their homes and families.
Our broad product category coverage means
that they have plenty of reasons to keep coming
back regularly to our stores. We sell a wide but
disciplined range of only the best-selling products,
in areas from food to DIY and from homewares
to stationery, at everyday low prices which are
consistently and significantly below those offered
by both specialist and general retailers.
Profit before tax
£229.3m
+25.4%
2017: £182.9m
Simon Arora
Chief Executive Officer
13
B&M European Value Retail S.A.
Annual Report and Accounts 2018
á Heron Foods acquisition
We acquired Heron Foods, a value convenience
store retail business, in August 2017. At the end
of the 2017/18 financial year, Heron Foods had
265 stores predominately based in the North
of England.
See page 18 for more information
With inflation having returned to the UK retail
sector last year, spurred by the devaluation of
Sterling particularly against the US Dollar in the
Summer of 2016, and with shoppers noticing
prices increasing in their usual stores, many new
customers have come to B&M over the last 18
months, either because they enjoy a bargain or
because they need a bargain. B&M has tried
hard to mitigate the impact of the rising cost of
imported products on prices in its stores and,
as a result, customers have continued to reward
B&M, either by shopping with us for the first time
or by buying more from us when they visit.
Newness in our ranges is an essential feature
of B&M’s customer appeal. Our ranges are
constantly changing so that customers can
always find something new and different on our
shelves. We are also an increasingly seasonal
retailer and flex a significant proportion of
our in-store space in the course of a year. For
example, some 20% of a typical store’s space
will be given to toys and Christmas decorations
from October to December and to garden and
outdoor leisure products from March to August.
In these categories, our ranges and prices are
seen by customers as powerful reasons to visit
our stores and they have become destination
categories for B&M.
We saw a good performance in the 2017 Spring/
Summer garden and outdoor leisure season.
Frustratingly, our 2018 Spring/Summer ranges
have seen a slow start due to the exceptionally
cold March weather. The disappointing fourth
quarter held back what would have otherwise
been a very strong second half. The Christmas
seasonal period was particularly strong in the
year, and it was particularly pleasing to see
solid like-for-like revenue growth in the third
quarter on top of the outstanding performance
achieved in the prior year. DIY and pet care also
saw strong growth during the year alongside
the continued outperformance of our food and
grocery categories.
Investing in new stores
Making our offering accessible to the hundreds of
catchments which do not already have one of our
stores remains a top priority for us. In the UK we
opened 47 new B&M fascia stores and, net of 8
relocations and closures, we finished the 2017/18
financial year with 576 B&M stores.
Taking advantage of a limited number of
opportunities to relocate older, smaller, lower
contribution stores, which are coming to the end
of leases, with larger, modern, high contribution
stores is now a regular part of B&M's expansion
programme. There are still a relatively small number
of stores in our portfolio for which such a relocation
would be an attractive alternative to a lease renewal.
The performance of the latest cohort of new stores
continues to be excellent, reinforcing our confidence
in the strong returns available from the long-term
opportunity we see for B&M to expand to a network
of at least 950 B&M fascia stores across the UK in
the years ahead.
With the acquisition of Heron Foods in August 2017,
the Group purchased a second UK format and
fascia for expansion. With its roots in the North of
England and with a high returning store model,
Heron Foods has significant scope for expansion
outside its heartland region, just as B&M itself did
a few years ago. At the moment Heron Foods is
pursuing an organic expansion programme of 15
to 20 new stores per annum until the Group’s large
new Southern distribution centre in Bedford, which
will have multi-temperature chambers, comes on
stream in 2020. This new capacity will enable an
acceleration in Heron Foods’ rate of store expansion
across a broader geography in the future, subject of
course to availability of attractive sites.
In Germany, Jawoll is continuing to expand with 12
new stores opened during the financial year (being
11 net after one relocation). This was a slower rate
of expansion than originally planned, reflecting the
priority of the new management team in Germany
which, for the time being, is focused instead on
the accelerated transition of Jawoll’s operating and
product sourcing model to become much closer to
that of B&M’s in the coming months.
SRCGFSStrategic Report 14
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Chief Executive Officer's review continued
Developing our international business
From a strategic perspective, we see the
long-term opportunity for the development of
a pan-European general merchandise value
retail sector in the years ahead, mirroring the
structural shift that has taken place in North
America over the last few decades, as being
very exciting. Multi-country retail formats are
beginning to emerge in Europe and we believe
the B&M model can be one of these.
Our German business, Jawoll, has had a
challenging year in which we saw its Adjusted
EBITDA1 fall by 52% to £5.6m (2017: £11.7m).
Initially, the poor seasonal weather in the first
half of the financial year heavily impacted the
plant and gardening ranges, which are a key
strength and footfall driver of the business. The
end of the year was also challenging following
the snow and cold weather spells in March
having a similar negative effect on the important
Easter start to the gardening season. There has
also been some natural disruption arising out of
the transitioning from the previous management
team led by the minority shareholder to a new
team which has been appointed by the Group.
The new team is tasked with accelerating the
transition from the previous business model to
the B&M model.
We are learning the lessons of not applying
sooner in Germany the twin aspects of the
B&M model which allow it to be so disruptive
in the UK, being in particular a limited, highly
disciplined product assortment and a high
proportion of general merchandise sourced
direct from factories in Asia. Consequently, the
pace of change picked up in the final quarter of
the year driven by a desire to clear older stock
ahead of a substantial increase in the proportion
of Jawoll’s product offer being sourced through
B&M’s supply chain in the months ahead. These
significant changes will continue to disrupt
Jawoll’s performance in the first half of this
financial year but we anticipate improvement
beginning to come through as the year
progresses. We are targeting a return to profit
growth by Jawoll in the current financial year,
weighted towards the second half of that period.
Investment in our people and infrastructure
Investing ahead of growth in the capability of our
teams and in the key infrastructure we need to
support growth, continue to be high priorities.
At store level, we recognise that the highly
delegated style of our store ordering makes
the development of our store teams a priority.
We pride ourselves on our store learning and
development teams, with a Step-Up Programme
to develop talent for the future as we continue to
grow our store network. Across our business, we
recognise the importance of recruiting talented
colleagues. We are helped in this regard by our
status as a retailer with strong growth, and a
business therefore where personal development
and career opportunities are fully available.
For example, we take pride in the fact that the
strong majority of our Store Managers and
Deputy Managers are internal appointments
and promotions.
In terms of infrastructure, we have taken
significant strides in the UK to prepare the
business for further expansion. We are
continuing to roll-out our new warehouse
management system to our largest distribution
centres, having trialled the system in a single
distribution centre last year. Where we have
implemented the new system it has improved
both picking accuracy and productivity in our
supply chain logistics.
We have also now obtained consents for a major
new 1m sq ft distribution centre for the South of
the UK, in Bedford. When complete, this new
facility will provide sufficient additional capacity
to support our expanding store network for the
foreseeable future, both for B&M itself and for
Heron Foods as it builds up its own network from
its heartland in the North of England. The costs
of running the new centre will be largely funded
by the reduced mileage cost incurred by our
lorry fleet which is currently servicing our stores
in the South from our existing facilities in the
North-West. We also ultimately intend, when
the facility has been built and commissioned,
to enter into a sale and leaseback which will
release the capital we have invested in it.
Corporate social responsibility
B&M’s presence in local towns and communities
helps to create new jobs each time we open
a new store and it extends our reach to more
new customers who want or need a bargain
on everyday purchases for their households.
This helps limited spending budgets go further.
Our Heron Foods and Jawoll stores similarly
serve the communities in which those stores
are located and where new ones are opened
each year. We also recognise the important
part we have to play in relation to other aspects
of our operations and their impacts in relation
to colleagues, suppliers, the wider community
socially and the environment. Some of the points
I would like to highlight this year include:
•
the creation of 1,200 new local jobs in the UK
and Germany together, mainly through our
store expansion;
the development and training of our own
talent through our Step-Up Programme
promoting 194 colleagues to B&M Deputy
and Store Manager positions;
the adoption of a new diversity policy under
which we plan to bring forward female
candidates to build further on our gender mix
on the Board and the executive management
committee in the future;
•
•
• our recycling of high levels of supply chain
waste, with 99.4% of the Group's trade
packaging waste being recycled; and
• proudly supporting for a second year the
Mission Christmas charity appeal through
sponsorship and our stores in participating
towns being used as collection points for
presents donated for children for the appeal.
1 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 further the footnotes
on page 1.
15
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Outlook
We look forward to the year ahead and into the
longer term with confidence. We have a winning,
high returning business model, a clear and
deliverable strategy for growth and talented,
experienced management and operational
teams to put our plans into effect. In the current
challenging and competitive environment there
are of course uncertainties but there are also
opportunities; some retailers are finding it more
difficult to keep pace with a rapidly changing
industry and are downsizing and some others
are exiting the market altogether.
These moves provide opportunities for B&M
to grow its share of the market in some key
categories. They also encourage a continued
flow of existing store assets onto the market,
some of which offer further scope for us to
expand into geographic areas where B&M is still
under-represented. This constant flow of existing
retail space onto the market is also maintaining
downward pressure on retail rents, which is a
helpful factor given that we operate a wholly
leasehold store estate.
All our fascias including, importantly, B&M
in the UK, have delivered a pleasing trading
performance in the early weeks of the new
financial year. Excluding the Easter week B&M
UK like-for-like revenue grew by 3.1% in the first
8 weeks of the first quarter. Whilst there are five
weeks still to go to the end of the period, we are
confident of a solid outcome for the quarter.
On behalf of the Board, I would like to thank all
our colleagues in stores, distribution centres and
offices across the business for their hard work
this year. Their commitment is at the heart of
B&M’s success.
Simon Arora
Chief Executive Officer
29 May 2018
SRCGFSStrategic Report 16
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Case study
Store growth
We opened 47 new B&M stores and 15 new Heron
Foods stores in the UK and 12 new Jawoll stores in
Germany this year and still have huge scope for
further expansion for many years ahead of us.
17
B&M European Value Retail S.A.
Annual Report and Accounts 2018
B&M UK new
store openings
+47
Heron Foods new
store openings
+15
B&M is a growth story and the lion’s share of
that growth comes from its continued store
expansion. Over the past 14 years, being the
period in which the Arora family have been
involved in the expansion of B&M, it has grown
from being a chain of 21 stores in the North
West of England to a UK wide 576 B&M store
chain, together also with a further 86 Jawoll
stores in Germany plus 265 Heron Foods value
convenience stores.
Importantly, despite our fast pace of growth over
recent years, there still remains huge scope for
further expansion of the B&M formats in the
UK. Our target is for at least 950 B&M stores in
the UK, and at the present rate of expansion
involving some 47 new stores (including
relocations) per annum, we still have many years
of growth ahead of us. Currently, this is our main
focus for expansion but, taken together with
the opportunity we see in other markets across
Europe for value retailing, we believe we are
still only in the foothills of the overall long-term
strategic opportunity for the Group in our
chosen markets.
As a store-based retailer with a proven,
profitable, high-returning business model,
the challenging trading environment currently
across much of the store-based retailing sector
is actually helpful for B&M. In that particular
sense our business is counter-cyclical in that
the competitive pressures across the industry
today which are freeing up retail space are
seen by us as an opportunity to take up both
more and attractive new stores. These market
forces are also making pockets of market share
in key product categories more available to
us with the downsizing and closure of some
specialist category retailers in recent months.
Consequently, our pipeline of new stores
continues to be strong and the outlook for new
opportunities remains attractive .
With a pace of expansion which is very easily
affordable to us, we are able to choose from
some of the best opportunities across the UK to
continue to expand our estate. This also means
that increasingly our new stores are purpose
built for B&M. For example, c.40% of new
stores opened in the financial year were built
by developers to our specification and often as
larger stores in retail parks and adjacent to other
complementary retailers. This is very good for
B&M because we get the store configuration we
want and it is also very good for customers too
because the shopping experience for them is
better and more consistent.
A good flow of new store opportunities has also
meant we can selectively replace a modest
number of our first generation stores when
they are coming to the end of their leases, with
brand new units capable of making much larger
profit contributions. Our presence in a number
of locations was upgraded in this way during
the financial year under review. The number of
stores which we want to upgrade by relocations
to new premises remains relatively small, but
current property market conditions make it a very
attractive way of improving the quality as well as
the overall size of our store estate.
A certain element of our new store expansion
programme in previous years has been the
acquisition of individual units or packages
of stores from other retailers who had been
downsizing or closing. Although the flow of
such opportunities has slowed in the last few
years, in the current environment we are seeing
an increasing number of such assets again
becoming available. Whilst we are taking some
of these to supplement our existing organic
expansion plans, we are selective and always
maintain our discipline around the quality of
locations and the new space which has been
part of the bedrock of our success.
SRCGFSStrategic Report 18
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Case study
Convenience
stores
Heron Foods business model, like B&M, is based on
having a limited product assortment, keeping its
business simple and its costs low, so that it always
offers great value to customers.
19
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Heron Foods' own temperature controlled
distribution facilities and lorry fleet have provided
the platform for B&M to take an important step
with some of its stores to enter the large market
of frozen and chilled food categories.
This is something which the Group has been
keen to do with its B&M stores for some time,
having studied the success enjoyed by the
dollar store sector in the United States. This is
a similar move and Heron Foods infrastructure
and experience have provided the smooth
implementation of a trial of 300 such products
in 60 B&M stores by the year end and our early
trial results are promising.
Capitalising both on the opportunity which Heron
Foods has to expand its convenience store
network, and to extend the frozen and chilled
ranges into more B&M stores, will require us to
expand the Group’s dedicated frozen and chilled
distribution infrastructure capacity. Accordingly,
the site which the Group has purchased this year
for its new 1m sq ft distribution centre in Bedford
to accommodate B&M’s expansion up to its 950
store target, will commence the construction
phase shortly. It will also incorporate dedicated
frozen and chilled food chambers, with the
infrastructure planned to be in place in 2020 to
step up the pace of growth into these important
product categories.
Total number of
Heron Food stores
265
Heron Foods, previously a family owned value
convenience retailer, which is based in the North
of England was acquired by the Group in August
2017 with the two-fold objective of providing B&M
with the infrastructure to begin its entry into the
frozen and chilled food market, and, to become
another arm of growth for the Group with a value
retail convenience store network. Heron Foods
performance since becoming part of the B&M
Group has been strong and significant progress
has already been made with our strategy
outlined at the time of the acquisition.
Heron Foods now trades from 265 stores which
typically have 2,750 sq ft of retail space and
are located mainly in neighbourhood locations,
including suburban high streets, small towns
and shopping parades in local areas in the
North and North Midlands of England. Like B&M,
Heron Foods' business model is built around a
limited range of products, keeping its business
simple and costs low and concentrating its
buying power so that it offers great value to
customers. A typical Heron Food store sells a
range of c.1,400 items of frozen, chilled and
ambient foods to customers who live within a
mile or so of the store.
By adding a limited assortment of B&M’s
general merchandise product range in areas
like laundry and cleaning products, pet care
and convenience lines like batteries, light
bulbs and Christmas paper, the strong sales
performance which Heron Foods was already
delivering at acquisition has continued to grow.
Overall, Heron Foods is already proving to be an
excellent addition to the Group.
The convenience business has huge scope to
expand its store network. That growth potential
is complementary to the continued expansion of
B&M, both in towns and cities where the Group
is not currently represented and further also into
its heartland areas. At the moment, Heron Foods
geographic footprint only covers a small fraction
of the UK and its already proven business
model means that its business can also become
multiple times larger in the years ahead.
SRCGFSStrategic Report 20
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Financial review
A strong performance for the year
“We continue to be strongly cash generative which has enabled
us to make recent investments in distribution infrastructure and
the acquisition of Heron Foods, while remaining comfortably
within our leverage target.”
Increase in store estate FY18
51.5%
Number of stores
31 March 2018
927
2017: 612
Adjusted profit before tax3
£221.5m
+16.5%
2017: £190.2m
Paul McDonald
Chief Financial Officer
Accounting period
The FY18 accounting period represents the
53 trading weeks to 31 March 2018 and the
comparative FY17 period represents trading for
the 52 weeks to 25 March 2017. Throughout the
financial review and unless otherwise stated, the
FY18 commentary will refer to the unaudited 52
week period to 24 March 2018, to better reflect
the underlying performance of the business.
There were 47 gross new store openings in
the year, and 8 closures, with 5 of the closures
being relocations. The 47 openings contributed
£128.4m of revenues in FY18, and the stores
continue to have attractive returns on investment,
and where appropriate, we will continue to take
advantage of relocation opportunities that allow
us to open modern, large stores that allow our
customers access to our full product offering.
Revenue
The Group revenue in FY18 was £2,976.3m
(FY17: £2,430.7m), this represents an increase
of 22.4% and on a constant currency basis, a
22.0% increase1.
In the UK, B&M revenues increased by 13.9%
to £2,566.0m, principally driven by the new
store opening programme, including both the
annualisation of revenues from the 38 net new
store openings in FY17 and the 39 net new store
openings in FY18.
Sales in the like-for-like store estate² grew by
4.7% (FY17: 3.1%) with sales in the first three
quarters being particularly strong. During
this period we have benefitted from a more
inflationary environment in the economy, and
in particular on grocery products. One of the
features has been the strong performance
of grocery as the UK consumer structurally
continues to seek out value. The like-for-like in
the fourth quarter was slower, with the quarter
having been impacted by the winter weather.
The like-for-like continues to benefit from the
operational improvements through the
supply chain.
In the UK we also generated £210.0m of
revenues following the acquisition of Heron
Foods in August 2017. Convenience stores
in the UK have performed well and we have
seen a strong like-for-like performance, with
the business benefitting from extended ranges
from the B&M supply chain. Under our period of
ownership we have opened 9 net new stores,
taking the store estate to 265 and we are
planning to open at least 15 to 20 stores in FY19.
In our German business Jawoll, revenues grew
to £200.3m, which was a 12.3% increase over
the £178.4m achieved in FY17. In local currency
revenues increased by 6.8% which was driven
by the 11 net new stores opened in the year and
the annualisation of the 19 stores opened in FY17.
The statutory Group revenue was £3,029.8m
which represents an increase of 24.6% against
the prior year.
21
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Summary operating profit
53 weeks to 31
March 2018
Pro-Forma 52
weeks to 24
March 2018
52 weeks to 25
March 2017
£ millions
Number of stores
UK
Germany
Total stores
Revenue
Gross profit
%
Operating costs
B&M
Heron
Germany
Adjusted EBITDA
%
Depreciation
Interest
Adjusted profit before tax
Adjusted costs
Adjusted interest income
Profit before tax
Reconciliation of adjusted items
841
86
927
841
86
927
537
75
612
3,029.8
1,028.4
33.9%
2,976.3
1,010.2
33.9%
2,430.7
845.8
34.8%
(622.5)
(55.5)
(67.1)
283.3
9.3%
(36.9)
(21.6)
224.8
(4.9)
9.4
229.3
(608.6)
(55.5)
(67.1)
279.0
9.4%
(36.2)
(21.4)
221.5
(4.9)
9.4
226.1
(556.0)
–
(54.9)
234.9
9.7%
(26.0)
(18.7)
190.1
(3.4)
(3.9)
182.9
56.6%
14.7%
51.5%
22.4%
19.4%
-0.9%
9.4%
n/a
22.3%
18.8%
-0.3%
39.0%
14.0%
16.5%
44.7%
-343.2%
23.6%
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
Heron acquisition costs
Adjusted EBITDA
Audited 53
weeks to 31
March 2018
Pro-Forma 52
weeks to 24
March 2018
Audited 52
weeks to 25
March 2018
241,514
36,882
238,020
36,155
278,396
(509)
4,334
1,049
274,175
(509)
4,334
1,049
205,508
26,015
231,523
1,479
1,890
–
283,270
279,049
234,892
For further information and segmental detail of adjusted measures see notes 2, 3 and 4 to the financial statements
on pages 86 to 88.
Gross margin
Our gross margin decreased by 86 basis points
to 33.9% (FY17: 34.8%). In the B&M UK business
the margin decreased by 69 basis points,
impacted by the strength of the grocery sales
and some additional markdown activity as we
adjusted to new rates of sales on some general
merchandise products where retail prices had
increased following the impact of US Dollar
inflation. The margin was additionally impacted
by 14 basis points as a result of the Heron Foods
product offer with grocery, chilled and frozen
products having a lower percentage margin. In
our German business, margins reduced by 100
basis points as we accelerated the clearance
of products ahead of the new products arriving
from the B&M Far East supply chain, and
following the change of management we are
accelerating this move towards product being
supplied from the B&M Far East supply chain.
Operating costs and adjusted EBITDA3
As an everyday low price value retailer we
remain committed to ensuring that our costs are
carefully managed but also recognising that we
need to continue to invest strategically to allow
us to continue to grow the business.
In the B&M UK business, operating costs,
excluding depreciation and adjusting costs, grew
by 9.4% to £608.6m while costs as a percentage
of revenues decreased by 97 basis points to
23.7%, with the business benefitting from the
operational leverage on the fixed cost base
following the strong like-for-like performance,
efficiencies within logistics and continued control
of store wages. The absolute cash increase in
costs was principally driven by the new store
opening programme, from both the new stores
opened in the year and the annualisation of
costs from the new stores opened in FY17 and the
variable operating costs required to service the
new stores.
The Group incurred further costs of £55.5m
excluding depreciation and adjusting items in
relation to Heron Foods for the 8 month period
since the acquisition.
SRCGFSStrategic Report 22
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Financial review continued
In Germany, costs excluding depreciation and
adjusting costs increased by 22.3% to £67.1m
(FY17: £54.9m). This reflected the increase in costs
as a result of the 11 net new stores opened in the
year and the annualisation of the stores opened
in FY17.
We report an adjusted EBITDA3 to allow investors to
understand better the underlying performance of
the business. The items that we have adjusted are
detailed in note 3 on page 87, they totalled £4.9m
in FY18 (FY17 £3.4m).
In the B&M UK business the adjusted EBITDA3
increased by 17.2% to £261.7m (FY17: £223.2m)
and in Germany adjusted EBITDA3 decreased by
51.9% to £5.6m. An additional £11.7m, of adjusted
EBITDA was generated from the 8 months of
ownership of Heron Foods. The overall Group
adjusted EBITDA3 increased in the year by 18.8% to
£279.0m (FY2017: £234.9m) and on an unadjusted
basis EBITDA increased by 18.4% to £274.2m
(FY2017: £231.5m).
Financing costs
The net interest charge in the year was £12.2m
(FY17: £22.6m) representing a decrease of 46.0%.
The interest cost can be split between the
underlying cost of £21.6m (FY17: £18.7m) which
was an increase of 15.3% reflecting the full year
impact of the refinancing that was undertaken
in February 2017. The underlying charge can be
analysed between bank, high yield bond, finance
lease interest and interest receivable of £20.1m
(FY17: £17.3m) and amortised fees of £1.5m
(FY17: £1.4m).
Interest income on an adjusted basis amounted
to £9.4m (FY17: £(3.7)m) and comprised a £10.1m
revaluation in the put/call option relating to the
20% shareholding in Jawoll that is not owned
by the Group (FY17: £0.2m) and a £0.7m expense
relating to the accounting for the deferred
consideration following the Heron Foods
acquisition. The deferred consideration cost
will be £1.2m in a full year.
Additionally, in FY17 there was a £3.7m cost
which related to fees associated with the Group's
previous bank and debt facilities which was
written off.
Following the acquisition of Heron Foods we
kept the existing Heron Foods loan and overdraft
facilities in place in order to maximise the liquidity
within the Group.
Profit before tax
The statutory profit before tax was £229.3m,
which compares to £182.9m in FY17. We also
report an adjusted profit before tax to allow
investors to understand better the operating
performance of the business (see note 3).
The adjusted profit before tax3 was £221.5m
(FY17: £190.2m) which reflected a 16.5% increase.
The Group net capital expenditure4 during the
year was £114.1m, and was principally driven
by the new store programme across the three
fascias, with a capital expenditure of £45.9m,
£8.2m and £5.0m respectively in B&M, Heron
Foods and Jawoll. There was also capital
expenditure by the Group of £55.0m on the
Southern distribution centre.
Taxation
The tax charge in the year was £43.5m (£38.9m
in FY17) and the effective rate was 19.7% which
was lower than FY17, principally as a result of
the acquisition of Heron Foods and a greater
proportion of the Group’s profits being taxed at the
UK Corporation Tax rate. We expect the tax rate
going forward to reflect the mix of the impact of
the tax rates in the countries in which we operate
being 19% in the UK and 30% in Germany, with an
effective rate of 19.8% in FY19.
The Group continues to invest in its store estate
and an additional £18.0m was incurred on
maintenance expenditure, which includes
£3.6m on the B&M UK estate rolling out a frozen
and chilled product offer to 60 stores. The overall
maintenance expenditure represented 0.6% of
revenues and included other in-store investments
and IT investments. As a result of the Heron Foods
acquisition and the higher capital intensive nature
of the Heron Foods estate, we expect this to
increase to 0.7% in FY19.
As a Group we are committed to paying the right
tax in the territories in which we operate. In the
UK the total tax paid was £258.8m. This is mostly
those taxes which are ultimately borne by the
company amounting to £143.2m which includes
corporation tax, customs duties, business rates,
employers national insurance contributions
and stamp duty and land taxes. The balance of
£115.6m are taxes we collect from customers and
employees on behalf of the UK Exchequer which
includes Value Added Tax, Pay As You Earn and
employee national insurance contributions.
Profit after tax and earnings per share
The profit after tax was £185.8m compared to
£144.0m in FY17 and the fully diluted earnings per
share was 18.6p (FY2017: 14.3p), being an increase
of 30.0%.
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 £177.7m
which was a 18.6% increase over last year (FY17:
£149.9m) and the adjusted fully diluted earnings
per share3 was 17.8p (FY17: 14.9p), being an
increase of 19.5%.
Investing activities
There was a net cash outflow of £107.5m following
the acquisition of Heron Foods in August 2017 and
there is a further £12.8m of deferred consideration
due in FY20, which we anticipate will be payable.
In the UK, B&M Retail has acquired land at a
capital cost of £55.0m for a new UK distribution
centre in Bedford in the South of the UK. The
planned opening date for the distribution centre
will be early 2020 and the facility will be capable
of servicing 350 stores as well as having frozen
and chilled food capability. In order to maintain its
capital light model the Group intends to enter into
a sale and leaseback of the facility.
Net debt and cashflow
As a Group we continue to be strongly cash
generative and the cash flow from operations
increased by 14.8% to £242.0m (FY17: £210.9m)
including £15.7m from Heron Foods in the
8 months following the acquisition.
The cash generation reflects the continued
growth in the Group’s EBITDA and the attractive
cash paybacks from the new store opening
programme, combined with the Group’s
working capital control, with working capital as a
percentage of revenues being 8.9% (FY17:9.2%).
During the year the Group paid £63.0m
of dividends.
The Group’s net debt in the year was increased
to £535.3m (FY17: £401.9m) and the net debt to
adjusted EBITDA³ has marginally increased to 1.92
times (FY17: 1.71 times). This remains comfortably
within our 2.25 times leverage target, and
excluding the costs incurred on the new Southern
distribution centre, the leverage would have
reduced to 1.72 times.
23
B&M European Value Retail S.A.
Annual Report and Accounts 2018
The Board adopted a long-term capital allocation
policy in 2016 to provide a framework to help
investors understand how the Group will continue
to balance the funding requirements of a growth
business like B&M with the desire to return surplus
capital to shareholders. The Board will continue to
evaluate opportunities to invest and support the
growth of the business along with the scope for
any incremental return of capital to shareholders
in the context of that framework.
New accounting standards
There are two new accounting standards that
will apply to the Group from the financial year
commencing 1 April 2018. IFRS 9 (Financial
Instruments) introduces a new impairment model
on expected loss and limited changes to the
classification and measurements of financial
assets. IFRS 15 (Revenue from Contracts with
Customers) is in relation to some changes to the
recognition of revenues. We have completed an
assessment of both of these new standards and
we do not consider that the adoption of either
standard will have a material impact in relation
to the accounting of the Group.
IFRS 16 which relates to the new lease accounting
standard, will apply to the financial statements
of the Group for the financial year 2019/20.
The adoption of this new standard will have a
significant impact on the consolidated Statement
of Financial Position and Income Statement of
the Group, given that we have in excess of 900
property leases of stores and distribution centres
in the UK and Germany.
Dividends
The Group has a dividend policy which targets a
pay-out ratio of between 30 to 40% of net income
on a normalised tax basis. The Group generally
pays the interim and final dividends for each
financial year approximately in proportions of
one-third and two-thirds respectively of the total
annual dividend.
The Group is strongly cash generative and its
capital policy is to allocate cash surpluses in the
following order of priority:
1.
the roll-out of new stores with a strong
payback profile;
2. ordinary dividend cover to shareholders;
3. mergers & acquisition opportunities; and
4. returns of surplus cash to shareholders.
The above list is a summary of the main items,
but it is not an exhaustive list as other factors may
arise from time to time which require investment
to support the long-term growth objectives of
the Group.
The parent company of the Group is an
investment holding company which does not
carry on retail commercial trading operations. Its
distributable reserves are derived from intra-group
dividends originating from its subsidiaries. As
the parent company is a Luxembourg registered
company the Board is permitted, subject to
using distributable profits first, to have recourse
to the company’s share premium account as a
distributable reserve. It remains the Groups policy
though generally to have recourse to distributable
profits from within the Group, and accordingly,
ahead of interim dividends, and also ahead of
the year end in relation to final dividends, the
Board reviews the levels of dividend cover in the
parent company to maintain sufficient levels of
distributable profits in the parent company for
each of those dividends. The Group’s consolidated
balance sheet position as at 31 March 2018
includes distributable profit reserves of £327.1m.
The vast majority of these reserves have been
generated by and are on the balance sheet of the
principal trading subsidiary of the Group in the UK,
B&M Retail Limited. There are intermediate holding
companies in the Group structure between
B&M Retail Limited and the Group’s ultimate
parent company, but those intermediate holding
companies do not carry on retail trading business
operations and there are no dividend blocks of
any material amounts in any year from expenses
which those companies may incur.
The Board is satisfied that as the Group remains
strongly cash generative it is in a very good
position to fund and maintain its dividend
policy. The principal risks of the Group set out on
pages 26 to 29 below, and in particular those
relating to competition, economic environment,
commodity prices, supply chain, infrastructure and
international expansion are relevant to the ability
of the Group to maintain its dividend policy in the
future. The Group however maintains strategies
to mitigate those risks, as referred to on pages
27 to 29 below, and the Board believes the Group
has a robust and resilient business model through
the combination of having a value led product
assortment which competes across a
very broad section of the retail markets in our
chosen locations.
In the last year the Group has continued to
invest to support the growth of the business with
particular highlights being the acquisition by the
Group of Heron Foods with an enterprise value
of £122.5m and also the acquisition of the site in
Bedford for the development of a 1 million sq ft
Southern distribution centre which will also include
further frozen and chilled storage capacity for
the Group.
In 15 months’ time when the construction phase
of the Southern distribution centre has been
completed, it is intended to release the cash
investment made in that project back to the Group
by a sale and leaseback of the distribution centre.
Notwithstanding those investments the Group
has maintained its dividend this year at the higher
end of its dividend policy. An interim dividend of
2.4p per share was paid in December 2017 and
it is proposed to pay a final dividend of 4.8p per
share*. Subject to approval of the dividend by
shareholders at the AGM on 30 July 2018, the
final dividend of 4.8p per share is to be paid on
6 August 2018 to shareholders on the register of
the Company at the close of business on 29 June
2018. The ex-dividend date will be 28 June 2018.
Paul McDonald
Chief Financial Officer
29 May 2018
1 Constant currency comparison involves restating the prior
year Euro revenues using the same exchange rate as used to
translate the current year Euro revenues.
2 Like-for-like revenues relate to the B&M estate only and include
each store’s revenue for that part of the current period that falls
at least 14 months after it opened; compared with its revenue
for the corresponding part of the previous period. This 14
month approach has been used as it excludes the two month
halo period which new stores experience following opening.
3 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. EBITDA, Adjusted EBITDA
and Adjusted Profit are non-IFRS measures and therefore we
provide a reconciliation from the statement of comprehensive
income. See the reconciliation of adjusted measures to
statutory measures on page 21 for further details. EBITDA
represents profit on ordinary activities before net finance costs,
taxation, depreciation and amortisation. Unless otherwise
stated the figures presented in the strategic report are for the
52 weeks ended 24 March 2018, which is comparable with
previous year rather than the statutory reported 53 week
period. Notes: (i) Group revenues in the year on a 52 week
basis were £2,976.3m and on a statutory 53 week basis were
£3.029.8m, (ii) the Group’s Adjusted EBITDA on a 52 week basis
was £279.0m and was £283.3m on a 53 week basis and (iii)
the Group’s Adjusted Profit Before Tax on a 52 week basis was
£221.5m and was £224.8m on a 53 week basis. The statutory
53 week period profit before tax was £229.3m.
4 Net capital expenditure includes the purchase of property,
plant and equipment, intangible assets and proceeds of sale
of any of those items.
* Dividends are stated as gross amounts before deduction of
Luxembourg withholding tax which is currently 15%.
SRCGFSStrategic Report
24
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Key performance indicators
Monitoring performance
The key financial performance indicators we use to monitor the performance
of the Group and how we performed against them are as follows:
Financial
Total sales growth (%)
(52 weeks)1
22.4%
2018
2017
2016
Strategic link
£
Net capital expenditure (£m)2
£114.1m
Adjusted EBITDA (£m)
(52 weeks)1
£279.0m
22.4
19.4
23.6
2018
2017
2016
50.4
56.2
114.1
2018
2017
2016
279.0
234.9
192.5
Strategic link
£
Strategic link
£
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.
2018 Performance
The business grew revenues by 22.4% and store
numbers by 51.5% 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.
2018 Performance
We incurred £59.1m of capital expenditure,
excluding £55.0m of the expenditure incurred on
the development of a new southern distribution
centre. The southern distribution centre will
ultimately be the subject of a sale and lease-back
transaction. Our capital expenditure was within
our budget targets.
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.
2018 Performance
The Group’s adjusted EBITDA grew by +18.8%,
which is slightly higher than the sales growth
and our strategy remains on track.
Adjusted EBITDA (%)
(52 weeks)1
Adjusted diluted earnings per share
(52 weeks)1
Cash generated from operations (£m)
9.4%
2018
2017
2016
Strategic link
£
17.8p
9.4
9.7
9.5
2018
2017
2016
Strategic link
£
£242.0m
14.9
12.2
17.8
2018
2017
2016
242.0
210.9
170.9
Strategic link
£
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.
2018 Performance
The Group’s Adjusted EBITDA reduced by
29 basis points.
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.
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.
2018 Performance
The adjusted diluted earnings per share grew
by 19.5%.
2018 Performance
We grew our cash from operations by 14.8% in
the year.
25
B&M European Value Retail S.A.
Annual Report and Accounts 2018
NON-Financial
UK like-for-like sales growth (%)3
Net new stores opened – 2018
+4.7%
2018
2017
2016
0.9
Strategic link
£
4.7
3.1
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.
2018 Performance
We grew our UK like-for-like sales by +4.7%,
which was a pleasing performance given the UK
market remains relatively flat.
Profit before tax (£m)
£229.3m
229.3
182.9
154.5
2018
2017
2016
Strategic link
£
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.
2018 Performance
We grew our profit before tax by 23.6%.
59
2018
2017
2016
UK market share
c.0.9%
2018
2017
59
57
80
0.9
0.7
Link to strategic initiatives
£
Deliver great
value for our
customers
Invest in
new stores
Develop our
international
business
Invest in our people
and infrastructure
1 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. EBITDA, Adjusted EBITDA and Adjusted Profit are non-IFRS
measures and therefore we provide a reconciliation from the statement of comprehensive income.
See the reconciliation of adjusted measures to statutory measures on page 21 for further details.
EBITDA represents profit on ordinary activities before net finance costs, taxation, depreciation and
amortisation. Unless otherwise stated the figures presented in the strategic report are for the 52
weeks ended 24 March 2018, which is comparable with previous year rather than the statutory
reported 53 week period. Notes: (i) Group revenues in the year on a 52 week basis were £2,976.3m
and on a statutory 53 week basis were £3.029.8m, (ii) the Group’s Adjusted EBITDA on a 52 week
basis was £279.0m and was £283.3m on a 53 week basis and (iii) the Group’s Adjusted Profit
Before Tax on a 52 week basis was £221.5m and was £224.8m on a 53 week basis. The statutory
53 week period profit before tax was £229.3m.
2 Net capital expenditure includes the purchase of property, plant and equipment, intangible assets
and proceeds of sale of any of those items.
3 Like-for-like revenues relates to the B&M estate only and includes each store’s revenue for that part
of the current period that falls at least 14 months after it opened; compared with its revenue for the
corresponding part of the previous period. This 14 month approach has been taken as it excludes
the two month halo period which new stores experience following opening.
SRCGFSStrategic Report 26
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 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.
Category of risk
Strategic
Financial
Operational
Compliance
Tolerance
Medium
Low to medium
Low
Extremely low
Risk management
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.
High
t
c
a
p
m
I
4
3
5
1
9
11
6
10
12
2
8
7
13
Low
Low
Likelihood
High
Changes in principal risks
There were no changes in B&M’s principal risks during 2017-18. There
are no new principal risks to note, and no existing principal risks have
been removed.
Movements in B&M’s existing principal risks are detailed below.
27
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Risk change key
Increased risk
No change
Decreased risk
Risk type
Risk NO Description & potential impact
Risk mitigations
Change
Competition
Economic
environment
Regulation and
compliance
1
2
3
The Group operates in highly competitive retail
markets in the UK and Germany and this could
materially impact the Group’s profitability, share
price and limit growth opportunities.
A reduction in consumer confidence could impact
upon customer spending and subsequently
revenue and profitability, as a result of the
prevailing macro-economic conditions in the
markets in which we operate.
The Group is exposed to regulatory and
legislative requirements, including those relating
to the importation of goods, the Bribery Act,
Modern Slavery Act, tax evasion, health &
safety, employment law, data protection, the
environment and the Listing Rules. The impact of
this is that it could lead to financial penalties and
reputational damage.
This risk has increased due to the General Data
Protection Regulation ("GDPR") which will apply in
the EU from 25 May 2018. This regulation gives
rise to increased data protection compliance
requirements backed by potential heavy financial
penalties for compliance failures.
• 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 effective forecasting process that enables actions
to be undertaken reflecting the economic conditions.
• 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.
• The Company has adopted a Group-wide GDPR policy and
appointed a Data Supervisor of the overall Group. As a result
of the new legal requirements of GDPR a number of key
changes have been implemented by the Group. They include
changes in our privacy policies, a new process in relation
to data subject rights requests, issuing privacy notices to all
colleagues and updating the privacy notices for users of our
websites. We have also sent new consent requests to all
existing subscribers to our on-line mailing list.
Infrastructure
4
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.
• Forward plans are in place for additional warehousing
capacity to support the new store opening programme.
The Group in the UK has six separate warehousing locations
and conducts disaster recovery planning. An additional
warehouse location has been confirmed which will support
expansion in the South of England; building will commence in
the financial year 2018/19.
• The Group maintains adequate business interruption and
increased cost of working insurance in the event of such
a loss.
This risk has increased as the B&M Group
acquired Heron Foods in the financial year
2017/18 and the Group’s warehousing and
transport infrastructure has therefore expanded
to include storage and transport for frozen food
products. Unforeseen delays in the completion of
the additional warehouse in the South of England
would also potentially impact on medium term
growth and expansion of the business.
SRCGFSStrategic Report 28
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Principal risks and uncertainties
continued
Risk change key
Increased risk
No change
Decreased risk
Risk type
International
expansion
IT systems,
cyber security
and business
continuity
Risk NO Description & potential impact
5
6
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 which could impact
upon overall Group performance, growth and
profitability.
The Group is reliant upon key IT systems, and
disruption to these would adversely affect
businesses operations including in warehouses
and in stores. The potential impact of data
protection failure is that it may lead to a
potential prosecution and reputational damage
to the brand. This risk also encompasses the
IT Security risk of failing to protect the Group’s
systems and data from viruses, cyber threats
and sabotage.
This risk ranking has decreased in risk number
due to the increasing significance to the
business of the risks relating to regulation &
compliance, infrastructure and international
expansion.
Credit risk and
liquidity
7
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 ranking has decreased in risk number
due to the increasing significance to the
business of the risks relating to infrastructure
and international expansion.
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 could impact
upon distribution and the store and warehouse
overhead base.
This risk ranking has decreased in risk number
due to the increasing significance to the
business of the risks relating to infrastructure
and international expansion.
Commodity
prices/cost
inflation
Supply chain
8
9
Change
Risk mitigations
• 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.
• 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.
• 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.
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 may impact upon brand
reputation as there is a risk that consumers
may be harmed.
• 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.
• A combination of individual buyers and supplier
employees conduct factory visits.
This risk ranking has decreased in risk number
due to the increasing significance to the
business of the risks relating to infrastructure
and international expansion.
29
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Risk type
Risk NO Description & potential impact
Risk mitigations
Change
Stock
management
10
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.
This risk ranking has decreased in risk number
due to the increasing significance to the
business of the risks relating to infrastructure
and international expansion.
• 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.
Key
management
reliance
11
The Group is reliant on the high quality and
ethos of the executive team as well as strong
management and operational teams. There
is a risk that a lack of succession planning
for staff leavers will impact on organisational
performance and delivery.
• 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.
Store
expansion
12
UK exit from
the European
Union
13
This risk ranking has decreased in risk number
due to the increasing significance to the
business of the risk relating to international
expansion.
The ability to identify suitably profitable new
store locations is key to delivering our growth
plans. Failure to identify suitable locations in
areas targeted for new stores could impact
upon store expansion plans and reduce the
rate of growth in the business.
This risk ranking has decreased in risk number
due to the increasing significance to the
business of the risk relating to international
expansion.
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.
We do not consider this risk to have increased
as the majority of imported goods from the
Far East are made directly into the UK or
German business where they are to be sold
(as opposed to any material amount of goods
being supplied between the UK and German
businesses to each other). The amount of
goods imported between the UK and Europe is
not material.
• 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.
• 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.
• The Board and management will maintain professional
contacts in order to assist with this process.
SRCGFSStrategic Report 30
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 27 to 29 of the strategic report
and the Group’s prospects.
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 three-year cycle, which is also common in the retail
industry.
Going concern statement
As a value retailer, the Group is well placed to withstand volatility within
the economic environment. The Group’s forecasts and projections, taking
into account reasonably possible changes in trading performance, show
that the Group will trade within its current banking facilities. 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.
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 27 to 29 occurring in the period on the Group’s business model,
future trading expectations and liquidity;
the likely degree and effectiveness of possible mitigating actions in
relation to the principal risks;
the Group’s plan following its acquisition of Heron Foods; and
the Group’s longer term distribution infrastructure plan.
•
•
•
•
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.
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
27 March 2021.
31
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate social responsibility
Operating our business as
a good corporate citizen
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.
“Each time we open
a new store we create
employment in local
communities and also
provide more customers
with value purchases which
helps their limited spending
budgets go further.”
Simon Arora
Chief Executive Officer
Our approach
B&M’s approach to CSR is to look where we can for continuous
improvement in all our areas of operation. This includes:
Job opportunities
Providing job opportunities through our
continued expansion in local communities
and central operations.
Building relationships
Maintaining and building on long-term
trading relationships with our suppliers and
promoting ethical and responsible trading
relationships with them.
See page 32 for more information
See page 34 for more information
Training
Training and career progression
opportunities to help colleagues step-up
to the next level and retain them in our
business.
Enivronmental initiatives
Monitoring our existing operations and
investing in initiatives which help to limit
our environmental impact overall where
feasible.
See page 32 for more information
See page 36 for more information
Diversity
Recognising and actively encouraging
the benefits of having a diverse
workforce.
Social and community
Supporting local communities through the
jobs we create and the value provided
to customers at our new stores and
contributing to good causes on a
local level.
See page 32 for more information
See page 33 for more information
SRCGFSStrategic Report 32
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate social responsibility
continued
People
Employee engagement
The Group’s policy in relation to our colleagues
is to provide equality of opportunity in relation to
recruitment and promotions, a safe and clean
environment to work in at our stores, distribution
centres and our transport operations and to
ensure colleagues are treated with dignity and
respect. We have a number of policies relating
to terms and conditions of employment and to
comply with employee rights under applicable
legislation. The outcome and impact of our
policies and activities in relation to opportunities
for new colleagues to join the Group, how our
colleague base has grown during the year under
review and our Step-Up Programme in relation
to promotions to management positions at our
stores is as follows.
We now employ over 31,000 people across our
three businesses in the Group, the vast majority
of which are based in the UK. In financial year
2017/18 we have created over 1,000 new jobs
alone in B&M in the UK.
We develop our own talent from within our own
business wherever we can, under our Step-Up
Programme in the UK (see further in the box
opposite). We also reward our store management
teams through an annual bonus scheme and
we also run regular incentive schemes to drive
performance and also to engage with the teams
by rewarding them for high performance.
B&M also has a share incentive plan which is
open to all B&M UK employees after 12 months
service to take up the opportunity to participate
in the future success of B&M.
B&M has developed an e-based portal which
provides engagement for our regional and
area managers with our central operations
team and with each other. This gives them
instant information updates through smart
tablets distributed by B&M to them on a range
of business, operational and workplace
engagement matters on a daily basis. It keeps
them connected and they are then able to
cascade relevant information on to their own
store managers for their teams throughout the
whole store estate.
We also 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.
Diversity
Under our equal opportunities policies we recognise
and actively encourage the benefits of having a
diverse workforce across our business. 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.
In relation to gender diversity and implementation
of the policy, the Board currently has 14% female
representation with one female member. That
female member chairs the Remuneration
Committee, being one of the three main
Committees of the Board. Full details of the
composition of B&M’s Board are set out on pages
38 and 39.
Details of the new Diversity Policy adopted by the
Company in March 2018 in relation to the Board
and senior management positions are set out on
page 45 below.
The Board is planning to bring forward female
candidates within its diversity criteria to build further
on its gender mix and aims to do so by 2020, but
without setting a specific target.
While the executive committee of B&M does not
have any female representation the proportion
of female managers among the direct reports to
that committee is 40.5%. Notwithstanding that the
Company intends, within the diversity criteria in the
policy referred to on page 45 below, to see that
there is a greater mix at the executive committee of
B&M by 2020.
In relation to ethnic diversity and the Parker Review
recommendations, the Company already complies
with that in relation to Board representation and
also on its executive committee.
At the senior management level of direct reports
to the executive committee the percentage of
employees who are female was 40.5% in the year
under review.
In relation to all employees of the Group, the
female percentage of colleagues was 57.5% in the
year under review.
Board of Directors
Senior Managers
(across the Group)
All Group
Employees
Male
6
28
Female
1
17
13,181
17,834
Step-Up Programme
We want to ensure that we offer our store
colleagues the opportunity to progress and
develop their career with B&M.
A key part of this is identifying talent within
our store operation teams and including
that talent in our store promotion planning
programme.
This generally involves colleagues
participating in our Step-Up Programme,
where they have training over an 8 month
period on various aspects of our store
operations. This includes store standards,
merchandising, productivity and how to
manage store teams effectively.
Overall in the last financial year 194
colleagues were promoted to either store
manager or deputy manager positions with
B&M in the UK.
Promotions to B&M Deputy
and Store Manager levels
194
33
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Number of employees
across the business
Over 31,000
social
Social and community engagement
Our policy on social and community engagement
is to continue to make investments in new stores
and jobs in local communities where we are
under-represented or not represented at all in
the UK, provide value for money to our customers
and foster long standing relationships with our
suppliers and promote ethical trading policies
and practices within our supply chains. We have
formal policies of the Group in place in relation
to anti-bribery and corruption, anti-slavery policy
statements on our websites, a workplace policy
which our suppliers are required to adhere
to in relation to anti-slavery and respect for
human rights, and whistle-blowing policies in
relation to reporting of any suspected wrong
doing or malpractice. The approach of our
policy on social matters and the impact of that
on our engagement in relation to communities,
customers, suppliers and respect for human
rights in our supply chains is described in each of
the following sections below.
We like to be an important part in the life of
people in local communities where we trade by
providing job opportunities and also through
our value pricing business model enabling
household budgets to go that bit further.
This helps us to build relationships within
communities where we operate our stores,
where our store colleagues and our customers
work and live.
When we open a new store, we try to 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. This is one
small way in which we can help promote and
support the good work which they do in their
local community, and we actively encourage
our store managers to maintain their local hero
relationship going forward.
With our continued store expansion programme
for the year ahead of B&M, Heron Foods and
Jawoll we will continue to create jobs in various
communities in the UK and Germany where
those new store openings take place.
In relation to both jobs at stores and also in our
Distribution Centers we have had a successful
initiative over a number of years now in the
UK which is focused on helping long-term
unemployed back into work. In the year under
review, another 175 long-term unemployed
people secured a role within B&M (FY2017: 96).
Again in this last year at a regional and national
level we were proud sponsors of Mission
Christmas, an initiative run by Cash4Kids, a
children’s charity providing Christmas presents to
underprivileged children at Christmas time in the
UK. We are a significant headline sponsor and
nationally our B&M stores in participating towns
acted as collection points for the toys and gifts
which were donated for the appeal. The Mission
Christmas appeal distributed overall more than
£17.5m of gifts and vouchers in Christmas 2017,
and we are proud to have played a small but
committed part in that for the last two years.
Gender diversity
Board of directors
l Male
l Female
6
1
85.7%
14.3%
Senior managers
l Male
l Female
28
17
62.2%
37.8%
All employees
l Male
l Female
13,181
17,834
42.5%
57.5%
SRCGFSStrategic Report 34
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate social responsibility
continued
SOCIAL CONTINUED
Gender pay gap reporting
In accordance with the Equality Act (Gender Pay
Gap Information) Regulations we have published
our data online in relation to B&M and Heron
Foods as at 5 April 2017.
With regard to hourly pay of B&M the mean hourly
rate for females is 7.6% lower than males and the
median hourly rate is the same for females and
males. For Heron Foods the mean hourly rate for
females is 14.9% lower than males and the median
hourly rate for females is 1.4% lower than males.
In relation to bonuses of B&M, 4% of females and
18.6% of males were paid a bonus. The mean
bonus pay for females was 34.4% lower than
males and the median bonus pay for females was
37.4% lower than males. For Heron Foods, 3.6% of
females and 33.2% of males were paid a bonus.
The mean bonus pay for females was 8.9% lower
than males and the median bonus pay for females
was 33.3% higher than males.
Full details of the reports are available on
our websites at www.bandmretail.com
and www.heronfoods.com and on
gender-pay-gap.service.gov.uk
Colleagues of the Group in Germany and
Luxembourg are not included in this data.
Customers
B&M, Heron foods and Jawoll each help their
customers to get better value for money on
everyday and other items for their homes and
families, helping tight household budgets go
further. We work hard to provide a high quality
customer experience for shoppers across the
stores in each of our businesses 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. The purpose of this is to provide
environmental benefits and also attractive and
clean store environments for our customers to
enjoy their shopping experience with us.
We also look to provide customers with a fun
and exciting shopping experience at our stores.
We have had throughout the year a series of
focused promotional events on categories such
as cleaning and home care, baby products and
pet care products. Each of these events have
been aimed at giving even bigger bargain prices
while they are running in our stores.
We take pride in the fact that we train our store
colleagues to be focused on taking a helpful and
friendly approach with customers, so that our
customers enjoy coming back to our stores time
and time again and that we are valued by them
for the contribution we make to the livelihood
of people in their local communities through
our pricing approach and job creation. Our ‘no
quibble’ customer returns policy highlights our
emphasis on great value for money and good
quality for our customers to enjoy.
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 2017/18 for the UK in B&M
there were 207 reported accidents (0.4 per store)
reportable to the Health & Safety Executive
(FY2017: 119 reported accidents and 0.2 per store),
in the context of 217 million shopper visits
per annum.
Supply chain & ethics
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 have a zero tolerance policy on 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:
• B&M has continued to communicate its
Workplace Policy to new suppliers along
with our standard terms and conditions
of purchase which make it a condition of
trading with B&M that suppliers adhere to
our Workplace Policy standards;
• since joining our Group, Heron Foods
has adopted its first Anti-Modern Slavery
Statement which has been displayed on
its website. It has adopted the Workplace
Policy of B&M in relation to its business and
suppliers and updated its standard terms
and conditions of purchase making it a
condition of trading with Heron Foods that
suppliers adhere to the Workplace Policy
standards. The Workplace Policy standards
contained in Heron Foods terms and
conditions have been provided by it to its
suppliers; and
• Jawoll has also adopted the Workplace
Policy of B&M in relation to its business and
suppliers and they have provided copies
which are set out together in both English
and German to their suppliers.
A copy of our Anti-Slavery Statement and our
Workplace Policy are available in 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 our Group
businesses or our sourcing agents.
Heron Foods convenience food product lines
are sourced from leading brand suppliers. A
small number of foods are sourced direct from
produce suppliers. These are from a limited
number of major suppliers who operate highly
mechanised businesses which are non-labour
intensive.
35
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Customer transactions at
our B&M UK stores this year
217m
Our Internal Audit function carried out a review
and audit of our supply chain and procurement
in the financial year 2015/16 including checks
on social compliance procedures with suppliers
and sourcing agents and sampling those reports
as part of a due diligence exercise which they
undertook in Hong Kong. As the result of that
due diligence was that there were no modern
slavery issues disclosed, it was determined that
the next due diligence exercise be undertaken
again in the 2018/19 financial year. Within the
whistle blowing reports of B&M in the UK in
relation to the year under review, no reports
have been made of any instances of actual
or suspected modern slavery or human rights
abuses relating to human trafficking or other
kinds of forced labour in our supply chain.
Anti-bribery and corruption
Our policy on anti-bribery and corruption is
also one of zero tolerance. Our colleagues
are aware of the importance of reporting any
offers of inducements by any third parties
up the management chain in each business
immediately up to director level. Each year an
annual review is also undertaken of our buying
teams in the UK and also this year in Germany
requiring written reports to be completed of
any suspected or actual incident of bribery or
corruption between any third party and the
business. That due diligence disclosed no
instances in our businesses this year of any
such activity having taken place or having been
suspected. Within the whistle blowing reports
of B&M in the UK in relation to the year under
review, no reports have been made of any
instances of bribery or corruption between B&M
and any third parties.
A significant proportion of Jawoll’s suppliers are
European based suppliers and wholesalers.
Where Jawoll source and import products
themselves directly from China they increasingly
use the same suppliers and sourcing agents of
B&M, which is part of an on-going integration
and change-over of Jawoll’s procurement by
sourcing products from B&M’s supply chain.
Heron Foods sell a limited number of products
imported from China which are procured from
the B&M supply chain and benefit from the
checks and verification processes of B&M and its
sourcing agents on a Group basis.
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.
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 the event of any suspected failure by a
supplier to comply with our Workplace Policy,
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.
SRCGFSStrategic Report 36
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate social responsibility
continued
Environment
Environmental sustainability
Our Environmental policy is to operate and
maintain a modern, clean and efficient
infrastructure in relation to stores, distribution
centres and transport fleet for the benefit of all
of our customers and colleagues in the UK and
Germany as part of our commitment to providing
a sustainable environment in communities and
the workplace. We also look continuously for
opportunities to reduce or minimise our waste
and consumption where we can, in particular
in areas of scale in our operations where we
can make an impact. For example, we seek
to do this with packaging waste recycling, our
continued programme of introducing LED lighting
into stores and the upgrading of our transport
fleet. The impacts of our policy are set out in the
following parts of this report.
Recycling
We have dedicated facilities to recycle waste at
our B&M warehousing locations in the UK. They
allow us to collect waste cardboard, plastic,
metal and wood from our 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.
61.0% of waste in our B&M business in the UK in
the financial year 2017/18 was directly recycled
through our in-house facilities. This was a
decrease on the previous financial year which
was 64.2%.
The remainder of the waste was processed by a
specialist third party for recycling, which leads to
a further 39.0% of B&M’s 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 as even our residual waste is recycled
into energy production.
Our German business, Jawoll recycled 93.3% of
its waste packaging in the year (FY2017: 94.0%).
The total level of packaging waste recycled by
B&M and Jawoll overall in the financial year
2017/18 was 99.4%.
Heron Foods has not been included in any of
the environmental statistics in this report as they
have only been part of the Group since August
2017. With the reporting protocols which are
being set up, Heron Foods will be included in the
next report for the financial year ending
30 March 2019.
Greenhouse gas emissions
In the year around 74% of our carbon footprint
in relation to the UK operations of B&M is as
a result of our electricity and gas usage from
our stores and our warehouse facilities. Diesel
accounts for the remaining 26%. 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 our
overall carbon footprint has and will inevitably
continue to increase.
Greenhouse gas data
FY2018 relates to the period from April 2017 to March 2018 and FY2017 relates to the period from April 2017 to March 2018:
Scope 1
Scope 2
Total
Scope 1
Scope 2 = Elec & Gas
Total
FY2018
UK
25,035
GER
712
TOTAL
25,747
69,878
19,980
89,858
94,913
20,692
115,605
FY2018
GER
3.56
99.90
103.46
UK
9.56
26.68
36.24
TOTAL
9.13
31.88
41.01
UK
22,377
73,370
95,747
UK
9.94
32.58
42.52
FY2017
GER
802
Total
23,179
13,433
86,803
14,235
109,982
%
UK
11.9%
-4.8%
-0.9%
%
GER
-11.2%
48.7%
45.4%
%
Group
11.1%
3.5%
5.1%
FY2017
%
%
%
GER
4.51
75.47
79.97
Total
9.54
35.72
45.26
UK
GER
-3.8%
-18.1%
-14.8%
-21.0%
32.4%
29.4%
Group
-4.2%
-10.8%
-9.4%
The FY2017 figures have been restated following a change in the GHG conversion factors that one of our suppliers had not applied correctly in FY2017.
37
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 relation to our UK operations of B&M our
overall intensity ratio has improved by 14.8%
to 36.24 T/£m. The intensity ratio for Jawoll in
Germany worsened by 29.4% to 103.46 T/£m
but for the overall Group for the period there was
an improvement of 9.4% to 41.01 T/£m.
As we acquired Heron Foods in August 2017,
our UK emissions data does not include Heron
Foods in the financial year ended 31 March 2018,
but it will be included in our reporting in the next
financial year.
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 2017/18 we have donated around
£500,000 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.
Initiatives
We have a number of on-going initiatives
to reduce our carbon footprint:
• our UK warehouses are based
in the North West of England and
approximately 65% 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 continue to invest in energy efficient
LED lighting in our new stores, and
as part of our existing store estate
maintenance and refresh programmes
we invest in switching to LED lighting
wherever we feasibly can. We now also
have LED lighting installed in three of our
four main distribution centre locations;
• we continue to upgrade our transport
fleet and we have introduced 50 new
tractor units in FY2018 and we have
ordered a further 60 units for delivery in
the summer of 2018. The vast majority of
our B&M transport fleet in the UK is now
less than 2 years old;
• we have continued to invest in “wedge”
trailers which increase trailer capacity
and therefore maximises transport
utilisation and minimises distribution
mileage travelled. We have acquired 50
of these trailers in FY2018 and ordered a
further 50 for FY2019; and
• additionally to improve the efficiency of
our fleet and save on miles driven, fuel
and emissions, we have introduced a
new transport scheduling system which
has optimised routes and reduced
mileage.
Packaging waste recycled by
the Group in 2018
99.4%
2017: 99.4%
SRCGFSStrategic Report 38
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance
Board of Directors
The Board of Directors of B&M European Value Retail S.A.
Peter Bamford
Non-Executive Chairman of
the Board and Chairman of the
Nomination Committee
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
Thomas Hübner
Senior Independent
Non-Executive Director
Appointment: March 2018
Appointment: Dec 2004
Appointment: May 2011
Appointment: May 2014
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.
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.
Thomas has over 29 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 Independent Non-
Executive Director of Geberit
(Jona, Switzerland), Panda Retail
Company (Jeddah, Saudi Arabia)
and bPost (Brussels, Belgium).
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.
Peter joined the Board of B&M
as Non-Executive Chairman on
1 March 2018. He has extensive
experience, in both executive
and non-executive roles, of the
retail sector and high growth
international businesses and
brands. He is also a seasoned
PLC director and chairman having
served on PLC boards for over
21 years and chaired a variety of
boards over the last 10 years. In his
executive career he was a Director
of Vodafone Group Plc from 1998
to 2006 where he held senior
executive roles, including Chief
Marketing Officer, Chief Executive of
Vodafone NEMEA region and Chief
Executive of Vodafone UK. Prior to
that he held a number of board
and senior executive positions
with leading retailers including WH
Smith, Tesco and Kingfisher. Peter
is currently Chairman of Superdry
plc and Deputy Chairman and
Senior Independent Director of Spire
Healthcare Group plc.
Committee membership:
Committee membership:
Committee membership:
Committee membership:
NOM
NOM
—
A&R
NOM
39
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Committee membership:
A&R
Audit & Risk
REM
Remuneration
NOM
Nomination
Committee Chair
Kathleen Guion
Independent Non-Executive
Director and Chair of the
Remuneration Committee
Ron McMillan
Independent Non-Executive
Director and Chairman of the
Audit & Risk Committee
Harry Brouwer
Independent Non-Executive
Director
Appointment: May 2014
Appointment: May 2014
Appointment: May 2014
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
member of the Audit Committee
and Remuneration Committee
of FJ Management Inc 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.
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 and Chairman of
the Audit Committee of HomeServe
plc. 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.
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.
Committee membership:
Committee membership:
Committee membership:
REM
NOM
A&R
REM
NOM
A&R
REM
NOM
SRCGFSCorporate Governance 40
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance
Corporate governance report
“Carrying out the Board evaluation
review at an early stage following my
appointment has been useful in providing
me with a good insight and context as the
new Chairman, from which I can now take
up the reins of the governance programme
of the Board.”
Peter Bamford
Chairman
Chairman's introduction
Following a thorough induction process from January 2018, I joined the
Company as your Chairman on 1 March 2018. I am delighted to say
that I have joined a talented Board with a very broad range of skills and
experience. The directors have had many years of operating in leading
retail and consumer product supply chain businesses across a range of
international markets. I am both proud and pleased to be leading that
team as your new Chairman.
an internal evaluation of the Board and its Committees which was led by
me and with the assistance of the Group’s General Counsel. Carrying out
the Board evaluation review at an early stage following my appointment
has been useful in providing me with a good insight and context as the
new Chairman, from which I can now take up the reins of the governance
programme of the Board going forward. The key actions from the review
process are set out further on page 45 below.
I would like to thank my predecessor Sir Terry Leahy for his commitment,
stewardship and oversight in relation to the solid and effective corporate
governance structure and processes which he ensured were put in
place, and for his successful leadership of the Board since the IPO of the
Company in 2014. As your Chairman I intend to develop the approach to
governance further as the company continues to grow and mature and as
new themes and objectives in relation to corporate governance evolve, not
least with the revised UK Corporate Governance Code which is currently
expected to be published in the Summer of this year.
Both during my induction and since my appointment, I have met each of
the Executive and Non-Executive Directors of the Board on a one-to-one
basis, we have also held the first Nomination Committee meeting so far
under my Chairmanship of that Committee, and we have revised and
adopted a new Diversity Policy for the Board and senior management of
the Group.
I have discussed with Consilium Board Consultants, who conducted the
external evaluation review of the Board and its Committee’s last year, the
findings and recommendations from their report on that review. I also
invited feedback on those findings and recommendations from each of
the members of the Board this year, in relation to progress which has
been made during the course of the last 12 months and on any areas for
further development. In conjunction with that we have also conducted
In relation to succession planning and diversity, we have also commenced
a search process for at least one further Non-Executive Director to join
the Board sometime hopefully in 2018. For Board appointments it is our
intention to improve our gender balance on the Board (and at other senior
management levels) but at the same time to take into account other
aspects of diversity which are important to us to maintain the right degree
of relevant experience in relation to such appointments. Further information
on our Diversity Policy is set out on page 45 below.
Finally, our corporate governance structures and processes are intended
to ensure that we maintain robust oversight and effective Board decision
making. In that context as your Chairman I will continue to ensure that we
maintain a culture of healthy open debate at the Board, and, that the Board
provides constructive challenge to the management team, so that the best
outcomes are achieved for the Group, its employees, our shareholders and
all other stakeholders in the years ahead.
Peter Bamford
Chairman
29 May 2018
41
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 April 2016 (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.
How we govern
The Board and Committee structure of the Company is as follows:
B&M’s Board
The Board of Directors of B&M as at the date of this report has 7 members comprising the Chairman,
2 Executive Directors & 4 Independent Non-Executive Directors.
See pages 38 and 39 for more information
Audit & Risk Committee
Nomination Committee
Remuneration Committee
This committee is made up of 3 Independent
Non-Executive Directors
This committee is made up of the Chairman,
CEO and 4 Independent Non-Executive Directors
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.
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 approval by 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.
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 share schemes for approval by
the Board for employees and approving
awards to Executive Directors and certain
other senior management of the Group.
See pages 48 to 51 for a copy of the
Committee’s report
See pages 44 and 45 for a copy of
the Committee’s report
See pages 52 to 64 for a copy 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 Directors of the Group are responsible for implementation of day to day operational and strategic matters delegated to it
by the Board in relation to each of the UK and German retail businesses of the Group which include B&M, Heron Foods and Jawoll.
An executive committee of senior executives chaired by the CEO holds regular monthly meetings to review progress and
management activities of the Group.
SRCGFSCorporate Governance 42
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance report
continued
Board responsibilities
The Board is collectively responsible for the strategy and long-term success
of the Group, and for ensuring there is an effective system of internal controls
within the Group for the assessment and management of key 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 on page 41). The reports of each of the
Committees for the year under review are set out on pages 44 and 45, 48
to 51 and 52 to 64.
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
and CFO also provide reports and management accounts packs updating
the Board on the current trading performance of each of the B&M, Heron
Foods and Jawoll businesses.
Members of the broader senior management teams of B&M, Heron Foods
and Jawoll participate at meetings and store tours of the Board during the
course of the year and attend the annual strategy day of the Group.
Implementation of Board strategy, decisions and policies are delegated to
the Executive Directors of the Company for implementation in relation to
day to day operational management of the Group. The Executive Directors
are also supported by senior management teams in each of the B&M,
Heron Foods and Jawoll businesses of the Group.
Schedule of matters reserved to the Board
The following matters are 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
members of the broader senior management teams of B&M, Heron Foods
and Jawoll.
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 2017/18.
Attendance at Board and Committee
meetings was as follows:
Board
6
Attended
Audit & Risk
Committee
Nomination
Committee
Remuneration
Committee
4
3
4
Attended
–
Attended
Attended
–
Meetings during 2017
Directors
Peter Bamford
– Chairman
(appointed 1
March 2018)¹
Simon Arora
Paul McDonald
Thomas Hübner
Kathleen Guion
Ron McMillan
Harry Brouwer
–
–
–
–
–
–
–
–
–
–
–
–
Directors who retired from the Board during 2017/18:
Sir Terry Leahy
(retired 1 March
2018)²
David Novak (retired
18 January 2018)³
1 From Peter Bamford’s appointment on 1 March 2018 to the year ended 31 March 2018 there was
1 Board Meeting and 1 Nomination Committee meeting. He attended and chaired both meetings,
being a 100% attendance record since his appointment for the period under review.
2 Sir Terry Leahy was unable to attend 1 of the 5 Board meetings held during his term of office due
to illness.
3 David Novak was unable to attend 1 of the 5 Board meetings held during his term of office due to
a prior commitment which he had notified in advance to Sir Terry Leahy as Chairman at that time.
43
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Further meetings of the Board, Audit & Risk Committee, Nomination
Committee and the Remuneration Committee have also been held since
the year end.
The Company held one general meeting of shareholders in the year under
review, being the Annual General Meeting on 28 July 2017. That meeting
was attended by all the Directors.
During the year a meeting of the Non-Executive Directors was held
without the Chairman being present and following the new Chairman’s
appointment in March 2018 meetings of the Non-Executive Directors have
also been scheduled for the new financial year, both with and without
the Chairman.
The new Chairman has also had one-to-one meetings in the year under
review with the Senior Independent Director and each of the other three
Independent Non-Executive Directors.
Board composition
In November 2017 the Company announced the successful conclusion of
the external search process for a new Chairman, with the appointment
of Peter Bamford who joined the Board as Chairman on 1 March 2018 as
successor to Sir Terry Leahy who retired from the Board on that date. Peter
has extensive experience of the retail sector and high growth international
businesses and brands, and, strength in depth as a director and chairman
having served on PLC boards for over 21 years. In his executive career
Peter was formerly Chief Executive of Vodafone NEMEA region and Chief
Executive of Vodafone UK until 2006, and before that he held a number
of board and senior executive positions with leading retailers including
WH Smith, Tesco and Kingfisher. Peter is currently also the Chairman of
Superdry plc and Deputy Chairman and Senior Independent Director of
Spire Healthcare Group plc.
Other changes to the Board in the year included the retirement of David
Novak on 18 January 2018 following Clayton, Dubilier & Rice, LLC, (which
together with funds advised by them held shares through CD&R European
Value Retail Investment S.à r.l in the Company) having sold their remaining
shareholding in the Company.
The Board also comprises 2 Executive Directors, being the CEO and CFO,
and 4 Independent Non-Executive Directors.
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 whole
of 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.
While the Company did not comply with the independence criteria in
relation to the appointment of the Chairman under the Code previously
in relation to Sir Terry Leahy (in view of his position as a senior adviser
to Clayton, Dubilier & Rice, LLC), the Company has complied with the
independence criteria relating to the appointment of the Chairman
under the Code, on the appointment of Peter Bamford as Chairman (in
succession to Sir Terry Leahy) on 1 March 2018.
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 31 March 2018, SSA Investments (together with Praxis Nominees Limited
as its nominee) held 14.98% of the total issued shares in the Company.
The Board believes that the terms of the Relationship Agreement will
continue to ensure that the Company and other members of the Group are
capable of carrying on their business independently of the Arora Family
and that transactions and relationships between them 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 the terms of them are set out in the Directors’
Remuneration Report on pages 57 and 58.
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.
Chief Executive
responsibilities:
Simon Arora, as the Group CEO,
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. His role is
supported by the Group CFO and
the executive committee of B&M
and senior management in each of
the Group's businesses.
Chairman key
responsibilities:
Peter Bamford, as the Chairman
of the Board, is responsible for
leading the Board and ensuring
its effectiveness, setting its agenda
and high standards of corporate
governance. The Chairman
facilitates the contribution of the
Non-Executive Directors and
constructive relations between
them and the Executive Directors.
The Chairman is also responsible
for ensuring the Company
maintains effective communication
with shareholders and that their
views are communicated to
the Board.
Diversity
Details of the Company’s gender diversity in relation to the management of the
Group are included in the Corporate Social Responsibility Report on pages 31
to 37. The Company currently has one female Board member and one of the
three main standing Committees of the Board is also chaired by that female
member. The Nomination Committee has reviewed the Company’s diversity
policy this year and adopted a new policy which has been approved by the
Board which relates to all aspects of diversity including gender, in relation to
appointments of the Board and the senior management team. Further details
of the policy are set out on page 45 below.
SRCGFSCorporate Governance 44
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance report
continued
Conflict of interests
Simon and Bobby Arora own all the shares in SSA Investments S.à.r.l., which
(together with Praxis Nominees Limited as its nominee) holds 14.98% 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.
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 the provision of professional
advice and consideration of it by a Related Party Leases Committee of the
Board (which includes the Chairman of the Board, Chairman of the Audit
& Risk Committee and the General Counsel of the Group) and also by the
Company’s Sponsor in providing its opinion on the application of the Listing
Rules and the applicability and appropriateness of any exemptions in respect
of any transactions in the ordinary course of business. Each of the transactions
are also reported to general meetings of shareholders’ in accordance with
Luxembourg Company Law. The above processes include:
•
reports by the Property Estates team of B&M on the relevant subject store's
suitability and location and details of the principal terms of the 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
commercial terms of the proposed lease and site location of the proposed
subject store;
•
•
• each of the Chairman and General Counsel, and also independently of
them, the Company’s Sponsor, discuss where necessary, the reports of
the external independent Property Consultants with them as part of the
process of review for the Related Party Leases Committee of the Board;
the Company’s Sponsor provides a written opinion to the Company in
advance of the Related Party Leases Committee’s consideration of the
relevant proposed transactions;
•
• copies of all the reports referred to above and the Sponsor's Opinion are
reviewed by the Related Party Leases Committee on behalf of the Board,
and, in its updates to the Board the Committee provide copies of all the
above reports and opinions to the Board;
the Related Party Leases Committee of the Board considers the
appropriateness of the relevant transactions independently of Arora
family interests, and the CEO, Simon Arora, does not participate in those
deliberations, and in relation to Jawoll they are considered 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
Related Party Leases Committee, 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 interests of Ingo Stern (while he was Jawoll's CEO until 31 October 2017
when he retired from the Group), 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 67 in relation to details of related party transactions entered into in
the financial year 2017/18 and also as set out in note 28 on page 108 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 Committee as a whole
has competence relevant to the retail sector. See further the biographies of
each of the members of the Committee on pages 38 and 39 above.
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 also summarised in the table on page 41 above.
All meetings of the Committee are attended by the CFO, the General Counsel,
and the Chairman of the Board, in each case at the invitation of the Chairman
of the Committee. Also attendance and participation is made at each meeting
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 48 to 51 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 also summarised in
the table on page 41 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 52 to 64 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 (who chairs the Nomination Committee), 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 also summarised in the table on page
41 above.
The members of the Nomination Committee are Peter Bamford (Chair), Simon
Arora, Thomas Hübner, 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 three meetings in the year under review.
45
B&M European Value Retail S.A.
Annual Report and Accounts 2018
During the year under review the main activities of the Committee are
as follows:
Chairman succession
The Committee oversaw the process of identifying and recommending the
appointment of the new Chairman of the Board to succeed Sir Terry Leahy. The
search was carried out by the Committee with the assistance of The Zygos
Partnership (now part of Russell Reynolds Associates) who were a signatory
to the voluntary code of conduct for executive search firms, and they had no
other connection with the Group.
A wide ranging search was undertaken and a number of potential
candidates were identified and interviewed as part of that process. The
Committee considered the experience and skills of the candidates and each
of the members of the Committee participated in interviews with the final
preferred candidates. This process was successfully concluded with the
recommendation to the Board, and its approval of, the appointment of Peter
Bamford as the new Chairman with effect from 1 March 2018.
Diversity policy
In relation to diversity the overall objective of the Nomination Committee is to
ensure that the Company has a well-balanced Board at all times in terms
of the necessary skills, experience and independence of character and
judgement of its members, for the Group to be managed effectively for its long
term success.
To assist the Board in relation to diversity, and with regard to the Alexander-
Hampton Review and the Parker Review, the Committee recommended to the
Board the adoption of a new Diversity Policy, and that policy was approved by
the Board in March this year.
While appointments to the Board are based on merit so that the best
candidates are appointed, the Company recognises the value which a
diverse Board brings to the business and it embraces diversity in relation to
gender, race, age, educational and professional backgrounds. Along with that
criteria, diversity in relation to international experience (in particular in relation
to the Group’s chosen markets), recent senior management or professional
experience in retail and/or supply chain sectors and functional experiences
in relation to membership and chairmanship of board committees are also
relevant criteria of the Company.
In relation to gender diversity and implementation of the policy, the Board
currently has 14% female representation with one female member. That
female members chairs the Remuneration Committee, being one of the
three main Committees of the Board. The Board is conscious of the minimum
recommended voluntary target of 33% female representation by 2020. The
Board is therefore planning to bring forward female candidates within its
diversity criteria to build on its gender mix and aims to do so by 2020 but
without setting a specific target.
The executive committee of B&M does not have any female representation but
the proportion of female managers among the direct reports to that committee
is 40.5%. Again it is the Board’s intention within the diversity criteria referred to
above to see that there is a greater mix on the executive committee by 2020.
In relation to ethnic diversity and the Parker Review recommendations, the
Company already complies with those in relation to Board representation and
also the executive committee of B&M.
Board and Committee effectiveness review
Board and Committee effectiveness reviews for the year were conducted
after the appointment of Peter Bamford as the new Chairman. As part of that
process the Chairman met with each of the Executive and Non-Executive
Directors on a one-to-one basis to discuss matters relating to the Board,
its balance and the monitoring of the exercise of powers of the Executive
Directors. The Directors also provided feedback through the Group’s General
Counsel on progress made in the year in relation to the report on the
external Board review last year of Consilium Board Consultants. Each of the
three main Committees of the Board also carried out an internal evaluation
exercise this year with the completion of questionnaires, which was
facilitated by the Group’s General Counsel, and the results of which were
considered by the Board.
From each of the above reviews it was noted that:
•
there was a unanimous view that the Board, its Committees and each of
their members remain effective;
the Board has a very good balance of skills with its current members, but
it could also be enhanced further by the recruitment of an additional Non-
Executive Director with recent and relevant experience of and exposure to
the investment community; and
•
• while progress has been made in relation to arranging more time at
Board meetings to be devoted to discussions on strategic items along with
participation and presentations from members of the executive committee
and broader senior management teams, an annual programme of areas
for in-depth consideration by the Board for the year ahead has also been
prepared and agreed by the Board, which links back to key areas which
were discussed at the annual strategy day in March this year.
Following each of the above evaluations and reviews, the Chairman is satisfied
that the current Board and standing Committees have an appropriate balance
of skills and experience to discharge their duties and remain effective.
No changes to any of the Committees or their respective Chairs have been
recommended by the Nomination Committee following the reviews this year,
other than the succession by Peter Bamford to Sir Terry Leahy as Chair of the
Nomination Committee on 1 March 2018.
In light of the new Chairman’s appointment only having taken place on
1 March 2018, the Senior Independent Director will lead a review of the
Chairman’s performance during the year ahead, with sounding also being
taken from the other Independent Non-Executive Directors.
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 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 to be held on 30 July 2018.
SRCGFSCorporate Governance 46
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance report
continued
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 of documents is available for new Directors containing information
about the Group, Directors duties and liabilities under Luxembourg Company
Law and obligations under the Listing Rules, DTRs and the Market Abuse
Regulation, together with governance policies and the UK Corporate
Governance Code.
The induction of Peter Bamford as the new Chairman took place this
year with:
• a series of structured meetings over 2 months with each of the
Executive Directors, members of the Executive Committee of B&M and
the Group’s General Counsel;
• his participation as an observer at the January Board meeting and two
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 30 July 2018.
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 3 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.
Committee meetings this year;
The key elements of the Group’s system of internal controls are as follows:
• a distribution centre and store tour at B&M;
• meetings with senior management of Heron Foods and Jawoll at each
of their headquarters; and
• meetings with the Group’s brokers and advisors.
The induction process provided Peter with early exposure to each of the
three businesses in the Group and how the business model is applied and
executed by them in relation to each of their retail operations. In relation
to corporate governance he was provided with a comprehensive manual
of documents in relation to all main aspects of B&M's governance and
compliance as a Luxembourg registered company and as a UK listed
company. He has also had meetings with the Group’s General Counsel in
relation to the workings of the Board and each of its Committees.
The Directors update their knowledge and familiarity with the businesses of
the Group throughout the year with a mix of central operations tours and
B&M, Heron Foods and Jawoll stores along with members of the senior
management of each of those businesses, and also senior management
briefings and presentations in relation to each of the B&M, Heron Foods
and Jawoll 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 and Committee meetings on law, regulatory and governance
matters and future 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 the
financial year 2017/18 as referred to on page 45 above, the Nomination
Committee has recommended that each of the Directors be re-elected to
the Board.
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
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.
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
31 March 2018 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 26 to 29.
47
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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
holds 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 66;
(b) relationship agreement and independence statement – page 67.
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 65
to 69 below.
Peter Bamford
Chairman
29 May 2018
SRCGFSCorporate Governance 48
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance
Audit & Risk Committee report
“The Audit & Risk 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.”
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.
To achieve its objectives, the Committee works closely with the Board and
B&M’s management to ensure that all significant risks are considered
on an ongoing basis and that all communications with shareholders are
properly considered.
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.
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 30, in the principal risks and uncertainties section of the
Strategic Report.
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 30 July 2018
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.
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.
Ron McMillan
Chairman of the Audit & Risk Committee
29 May 2018
49
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 and, as such, the
Audit Committee as a whole has competence relevant to the retail sector.
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 42 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 the 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 2017/18
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:
• Data Protection compliance in relation to GDPR;
• Related party transactions in relation to store leases;
•
•
• each of the matters listed below under the section headed 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
the external audit plan;
the viability statement prepared by management;
sections below.
Accounting matters
The Committee considered the following accounting matters in particular
during the year:
•
•
• accounting for put and call options in relation to the Jawoll acquisition;
• accounting relating to the acquisition of Heron Foods including the
impairment testing of Jawoll goodwill and related Annual Report disclosures;
the methodology applied by Jawoll to value inventory;
treatment of deferred consideration and the valuation of intangibles;
the accounting for supplier rebates; and
the implications for the Group of adopting IFRS 9, 15 and 16.
•
•
Each of the above accounting matters was considered by the Committee
during the year under review and, with the exception of IFRS 16 on the new
lease accounting standard, none of these accounting matters was considered
to be of a significant nature. To consider the impact of IFRS 16 going forward,
the Committee was satisfied that the Group has developed a model to
be able to understand the impact on the financial statements of the new
standard. The Committee was also satisfied that the Group has mitigated risks
associated with it by having engaged KPMG (outside of the audit procedures)
to test the assumptions and the methodology included in the model.
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, the Committee reviewed the Group’s IT controls and the
Group’s business continuity plans and was satisfied that IT controls are
effective and that the Group has effective business continuity plans.
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 Committee reviewed the Group’s compliance procedures and the
application of policies relating to fraud, anti-money laundering, anti-bribery
and whistle-blowing.
SRCGFSCorporate Governance 50
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Audit & Risk Committee report
continued
GDPR
The Committee reviewed the Group’s Data Protection and GDPR policy and
the actions being taken to comply with the GDPR. Responsibility for GDPR
compliance ultimately rests with the Board.
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 44 of the
Corporate Governance Report 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. The Committee
also reviews the trading performance of stores which have related party
leases.
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 Group is proactive in ensuring that corporate and operational risks
are identified and managed. A corporate risk register is maintained which
details:
the risks and the impact they may have;
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 27 to 29.
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.
Reviewing the draft interim and annual report
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 30. 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) were re-appointed by
shareholders at the Annual General Meeting on 28 July 2018 as the
Group’s independent external auditors (réviseur d’entreprises agréé) for
the financial year ended 31 March 2018. 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 has continued to perform the external audit in a very professional
and efficient manner and it is, therefore, the Committee’s recommendation
that the reappointment of KPMG be put to shareholders at the Annual
General Meeting on 30 July 2018. Given KPMG’s relatively short tenure
as auditors for the last two financial years only, 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.
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.
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.
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.
Furthermore, the Internal Audit function has carried out a robust
assessment of the effectiveness of actions taken by management to
mitigate significant risks and this has been reviewed by the Committee.
KPMG were paid £452,500 during the year, £98,500 of which was for
non-audit work with the remaining balance relating to audit services.
The majority of the non-audit work of £98,500 related to work associated
with the half year interim report.
51
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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. The Committee will continue to 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 Audit function has a direct reporting line to the
Committee and they are represented at all Committee meetings in person.
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.
During the year, the Committee received reports from the Internal Audit
function in relation to:
• Product recalls and customer complaints;
• Repair and maintenance programmes;
• Employee eligibility checks;
• Heron Foods supply chain;
• Staff expense claims;
• Store stock taking procedures;
• Refunds at stores;
• Regulatory compliance in Heron Foods;
• Corporate policies and procedures;
• Warehouse management systems;
• The risk registers and risk mitigations;
• The Corporate Criminal Offences Act 2017;
• GDPR data permeation mapping;
• Foreign currency and interest rate volatility; and
• Payroll processes and stock holdings in Jawoll.
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.
Committee effectiveness
The effectiveness of the Committee during the year was evaluated as part
of a broader Board effectiveness review conducted internally and led by
the Chairman of the Board as described on page 45 above. The overall
conclusion of the review was that the Committee remains effective in
discharging its functions and reporting to the Board.
Ron McMillan
Chairman of the Audit & Risk Committee
29 May 2018
SRCGFSCorporate Governance 52
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate governance
Directors' remuneration report
Annual Statement by the Chair of the Remuneration Committee
“I am pleased to present our revised
remuneration policy subject to approval
by shareholders at our AGM this year.”
Kathleen Guion
Chair of the Remuneration Committee
Dear Shareholder,
I am pleased to present this year’s annual report on remuneration.
Key developments for 2017/18
The Remuneration Committee (the “Committee”) introduced a formal
Directors’ Remuneration Policy for the Company at the 2015 AGM which
received the support of 99.71% of shareholders who voted on the resolution
in relation to the policy.
•
Format of the report
The report below sets out:
•
the Company’s forward-looking Directors’ Remuneration Policy from
2017/18, on pages 53 to 58, which is subject to a shareholder advisory
vote at our 2018 AGM; and
the Company’s Annual Remuneration Report which details the
remuneration paid to the Directors’ in the 2017/18 financial year, on
pages 59 to 64, which is subject to a separate shareholder advisory
vote at our 2018 AGM.
As required by UK law, such policies need to be renewed at least every
three years. Although, as a Luxembourg company, the Company is not
subject to this regime, the Committee has decided to adopt an approach
which is consistent with those regulations on a voluntary basis, while
maintaining the Company’s status as a Luxembourg registered company.
There will also be a vote at this years’ AGM on the changes to the LTIP and
on the introduction of the deferred bonus plan.
I hope that you will agree with the various decisions of the Committee and
support the resolutions to be presented to the AGM.
Shareholder consent is being sought at the 2018 AGM for approval of an
updated policy as set out below.
Yours sincerely
Kathleen Guion
Chair of the Remuneration Committee
29 May 2018
Performance and awards for 2017/18
The performance of the Group in 2017/18 has continued to be strong. Total
Group revenues increased by 24.6%, profit before tax increased by 25.4%,
the Group’s cash flow from operations increased by 14.8% and there was
also a 7.3% increase in the number of B&M UK stores in the year. The
Group also successfully completed the acquisition of the frozen and chilled
food value convenience retailer, Heron Foods.
This resulted in an Annual Incentive Plan (“AIP”) out-turn for the CEO and
CFO of 69% and 64% of their respective maximums, which reflected this
continued strong financial performance together with the Committee’s
assessment against the objectives set for them this year.
The LTIP granted to the CFO awarded in 2015 has reached the end of
the relevant performance period. This was subject to two performance
conditions being the adjusted earnings per share and the relative TSR
performance of the Company against FTSE 350 retailers, each being over a
3 year performance period measured at 31 March 2018. The TSR condition
was fully met. The adjusted earnings per share was 17.8p being a 77.5%
out-turn under that measure and giving an 89% overall vesting of that
award at the end of the holding period which will be in August 2020.
53
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Remuneration policy report
Role of the Remuneration Committee
The Committee has responsibility for determining the Company’s policy on
remuneration of the Executive Directors and the Chairman and other senior
management of the Group who are members of its Executive Committee.
The Committee’s key aims in developing the remuneration policy are
to attract, retain and motivate high-calibre senior management and to
focus them on the delivery of the Group’s strategic business objectives,
to promote a strong and sustainable performance culture, to incentivise
high growth and to align the interests of Executive Directors and senior
management with those of shareholders. In promoting these objectives,
the Committee’s aims are to develop a remuneration policy in a simple,
transparent and understandable way and to ensure that no more than
is necessary is paid. The framework for the forward-looking policy from
2018/19 has been structured to adhere to the principles of good corporate
governance and having regard to pay across the wider workforce and to
appropriate risk management.
The Committee’s terms of reference are available on the Company’s
website at www.bandmretail.com
How the views of shareholders are taken into account
The Committee recognises that developing a dialogue with shareholders is
constructive and informative in developing and applying the remuneration
policy. The Committee has consulted with a number of shareholders and
investor bodies, before the publication of the policy in this report.
There will be a vote on the forward-looking remuneration policy, the
remuneration report for 2017/18, the changes to the LTIP and the
introduction of the deferred bonus plan at this year’s AGM.
The Committee also welcomes feedback generally at any time which will
be considered as part of its annual review of remuneration policy.
Remuneration policy overview
Over the period since IPO to 31 March 2018, the Company’s share price has
increased from £2.70 at IPO to £3.91 (being a 45% increase) as at the end
of the 2017/18 financial year. In addition, each shareholder has received
dividends of 26.4p in respect of this period generating a total shareholder
return of 58%.
Similarly, revenues have increased in the same period by 138% and
Adjusted EBITDA1 by 123% and the number of stores has increased by 148%
(both organically and following the acquisition of Heron Foods) and the
balance sheet remains strong with net debt to Adjusted EBITDA1 of 1.92
times being well within the Group’s 2.25 times target.
The Company has continued to outperform other retailers, being ranked in
the upper quartile of FTSE350 retailers over the last 3 years.
The Committee feels that these excellent returns have been delivered
through the contribution of a strong, committed and very experienced
management team in this sector. The overall philosophy for the Company
remains to pay at no more than a market median level and, in respect of
both of the current Executive Directors, even with the proposed increases
under the updated policy, their total target packages will remain at a
material discount to market median level. The Committee, being mindful
of the external environment and the intent of the Company to remain
conservative, and, also to recognise the outstanding results delivered to
shareholders, has looked to strike an appropriate balance and proposes
the increases as set out below.
1 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 further the footnotes on page 1
above. These items are based on statutory accounting periods which include the 53 week
period for the financial year 2017/18.
The Committee considers that the current policy, as approved in 2015, has
served the Company well and, therefore, proposes its renewal with only a
limited number of modifications. The material changes to the policy which
are proposed are:
• consistent with developments in best practice since its adoption in
2015, going forward, bonuses will include provision for 1/3 of any
bonus achieved to be deferred into shares for 3 years;
• an increase in the maximum bonus opportunity for the CFO to 125%
•
of salary (the 150% limit for the CEO remaining unchanged);
the LTIP has provided an appropriate means of aligning the
remuneration of the Executive Directors with the wider shareholder
experience and already reflects best practice with a two year holding
period subsequent to the three year performance period. However,
the plan provides for awards significantly below market levels in two
respects, there is a normal annual limit of one times base salary
(compared with a market norm of at least two times base salary) and
the plan is not aligned with shareholder experience by not including
any credit for participants with any dividend accrual on awards when
they vest. It is proposed that the updated policy and the LTIP plan be
modified to reflect these features.
Other proposed changes to the policy are more procedural and are
highlighted in the policy below.
While technically outside the policy, the Committee has invested
considerable time since IPO in aligning the bonus out-turn to a robust
performance management system and considers that the Company is
now ready to simplify the bonus metrics to a more conventional metric with
75% linked to financial performance (which will initially remain Adjusted
Group EBITDA) and 15% linked to personal KPIs with the final 10% linked to
personal development objectives. The Committee has retained discretion
to reduce the out-turn under the non-financial elements if it does not
consider the assessment to be reflective of the overall performance.
Finally, although permitted under the existing policy the CEO had voluntarily
chosen not to participate in the LTIP, with effect from the 2018/19 grant it is
proposed that the CEO will participate at the appropriate market level (2
times base salary) with the CFO participating at 1.75 times base salary.
These revised arrangements lead to the CEO and CFO’s total target
package being set at least 7% below the median data (even before taking
into account January 2018 salary reviews in the market place generally)
for companies of an equivalent market cap and at least a 20% discount
to median for retailers of a comparable size which demonstrates the
Committee’s commitment to adopting a responsible approach to setting
pay levels.
The Directors’ remuneration policy
The Remuneration Committee presents the Directors’ Remuneration Policy
looking forward from 2018/19, which will be put to an advisory vote at the
Annual General Meeting on 30 July 2018. The revised policy, if approved
by shareholders, will take effect from the 2018 AGM and remain in force,
unless a different policy is approved by shareholders, until the conclusion
of the 2021 AGM.
SRCGFSCorporate Governance 54
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' remuneration report
continued
Policy Table
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.
Change: no material changes; cap re-
expressed in pounds to comply with recent
guidance.
Benefits
To provide benefits which are valued by the
individual and assist them in carrying out
their duties.
Change: clarifying that tax equalisation
payments would be permitted in
appropriate circumstances.
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 £750,000
increasing in line with UK RPI from the date of the
2018 AGM. In practice though the Committee would
normally expect to keep it below this level.
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
for a limited period and/or tax equalisation payments
may be paid.
Base salary is typically paid 4 weekly in cash.
Base salaries are reviewed annually with changes
usually taking effect from 1 April. Salaries will increase
by 5% from 1 April 2018 and it is envisaged that
subsequent increases during the currency of this
policy will not normally exceed the average increase
awarded to other salaried staff.
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.
Pension
To provide an appropriate level of
contribution to retirement planning.
Change: reduce the cap for new directors.
Provide a market competitive pension contribution
(or equivalent cash allowance) of a total maximum
value up to 20% of base salary for the current CEO
and 15% (or equivalent cash allowance) for other
Executive Directors (including any new CEO).
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).
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.
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B&M European Value Retail S.A.
Annual Report and Accounts 2018
Element and purpose
Policy and opportunity
Operation and performance conditions
Annual bonus
To incentivise and reward individuals
for the delivery of annual
performance targets.
Change: increase the limit for other
executive directors to 125% of salary.
Change: deferral of one-third of annual
bonuses into shares.
The proposed annual bonus potential for the CEO is
150% of base salary and 125% 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 up to two-thirds in cash and at least
one-third in shares with the share element normally
contingent on employment for a further three years.
Such deferred shares, will be credited on vesting with
dividends paid during the vesting period.
The performance measures are reviewed annually by
the Committee in line with the Company’s strategy.
The performance measures applied may be financial
(with at least a 75% weighting on such measures)
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.
Long-term incentives
To incentivise the delivery of strategic
objectives over the longer term, the Group
operates the Long-Term Incentive Plan
(“LTIP”).
The policy is to make awards to Executive Directors
of shares with a face value on grant of up to 200% of
base salary each year under the LTIP. In practice, it is
envisaged that the CEO may receive a grant of up to
200% and other Executive Directors up to 175%.
Change: increase the plan limit to 2x
base salary and permit dividend roll-up to
vesting.
For grants from 2018 onwards, the LTIP will
permit participants to be credited, on the vesting
of any awards, with dividends paid during the
performance period and any holding 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.
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.
SRCGFSCorporate Governance 56
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' remuneration report
continued
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.
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.
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 B&M 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 B&M in the UK.
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.
Notes to the policy table:
The Company has received advice that, under the 2013 regulations made under amendments to the Companies Act 2006 relating to reporting of executive director remuneration, caps
are required on each element of pay which are included in the policy. This report has therefore been prepared on that basis, notwithstanding any variations in market practice generally on
company remuneration policy reporting and also while maintaining the Company’s status as a Luxembourg registered company. Any maximum caps in the table, on any element of pay in
the policy, are not intended to represent amounts which will necessarily be awarded at any time but are caps only.
Existing awards
The Company will honour any commitments already entered into in the
2014/15 financial year with Executive Directors and/or any other pre-
existing commitments on any person joining the Board.
Remuneration policy and other employees
As part of the review of the remuneration policy, the benchmarking review
of the Executive Directors’ remuneration also included a review of the
remuneration of other members of the executive committee of the Group.
Their base salaries have also been reviewed with effect from 1 April 2018.
As well as the Executive Directors, other members of the executive
committee of the Group will also participate in the performance based
Annual Incentive Plan. Other members of the executive committee of
the Group and a group of other senior management also participate in
restricted stock awards.
The remuneration policy for senior executives is more weighted toward
variable pay than for other employees. However the Company is
committed to widespread share ownership. The Company operates an All-
employee UK Share Incentive Plan (“SIP”). Under the SIP, Executive Directors
are eligible to participate on a consistent basis to all other employees.
In setting the remuneration policy for Executive Directors, the Committee
will also have regard to pay structures across the broader Group. The
Committee does not consult directly with employees when reviewing
Executive Directors remuneration, but it will take account of the general
basic salary increase for the broader salaried workforce when undertaking
annual salary reviews for the Executive Directors going forward.
The Committee takes advice from FIT, its independent remuneration
consultants, on the benchmarking and structure of remuneration packages
for Executive Directors and other senior management.
Operation of variable pay
Annual Incentive Plan
The Committee will set the performance targets annually under the annual
incentive plan to take account of the Company’s strategic plan and financial
performance. The performance targets are set by the Committee based on
a range of factors including against the budget for the financial year. The
metrics adopted by the Committee and the weighting of them may vary in
relation to the Company’s strategy each year.
The Committee sets a threshold pay-out, target and a maximum pay-out
target under the plan. There is a straight line vesting between those points.
For 2018/19, the plan comprises the following elements:
• 75% EBITDA;
• 15% linked to personal KPIs (which may include financial measures); and
• 10% linked to personal development.
The Committee has retained discretion to reduce the out-turn under
the non-financial elements if it does not consider the assessment to be
reflective of the overall performance.
Long Term Incentive Plan
The Committee will regularly review the performance targets in relation
to the LTIP to take account of the Company’s strategic plan and financial
performance. Targets will be set by the Committee at the time of the grant
of each award. In making awards for 2018/19 the Committee is adopting
a combination of financial and market-based performance conditions for
the LTIP, with 50% based on relative TSR and 50% EPS growth as a target
approach to reward long-term performance. The target ranges for 2018/19
awards are set out in the implementation report on page 62 below.
57
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Annual Report and Accounts 2018
Clawback
The Annual Incentive Plan and LTIP rules include provision for clawback (and
malus during any holding period under the LTIP) within a three year period
following payment or vesting if the Committee concludes that there has
been material misstatement of financial results, or there are circumstances
which would have warranted summary dismissal of the participant, or there
are circumstances having an impact on the reputation of the Company or
the Group which justify clawback being operated, or where the Committee
discovers information from which it concludes that a bonus or award was
paid or vested to a greater extent than it should have been.
Potential reward scenarios
The table below shows an estimate of the total potential rewards of the
Executive Directors’ remuneration packages for the financial year ending
31 March 2018, as a percentage of total potential remuneration and total
value, for the policy as it will be implemented in 2018/19. Share price
movements and dividend accrual have been excluded from the indicative
scenarios below.
Chief Executive Officer
£4.0m
£3.5m
£3.0m
£2.5m
£2.0m
£1.5m
£1.0m
£0.5m
£0
}
Additional LTIP
value if share
price grows
by 50%
£3,635,834
17%
35%
26%
22%
£3,004,612
42%
32%
26%
£1,584,365
20%
30%
50%
£795,338
100%
Minimum
Target
Maximum
Maximum +
Share Price Growth
Total fixed remuneration
Annual bonus
LTIP
Chief Financial Officer
£2.0m
£1.5m
£1.0m
£0.5m
£374,323
100%
£712,575
20%
28%
52%
£1,329,387
42%
30%
28%
£1,607,948
17%
35%
25%
23%
£0
Minimum
Target
Maximum
Maximum +
Share Price Growth
Assumptions:
•
•
•
the minimum scenario reflects fixed remuneration only which is base
salary, pension and benefits;
the on-target scenario reflects fixed remuneration plus 50% of the
maximum annual bonus under the annual incentive plan, and 25%
vesting under the LTIP being the threshold level (assuming an award of
200% of salary to the CEO and 175% to the CFO under the LTIP);
the maximum scenario reflects fixed remuneration plus 100% of the
maximum annual bonus under the annual incentive plan which is
150% of base salary for the CEO and 125% of base salary for the CFO,
100% vesting under the LTIP (assuming an award of 200% of salary to
the CEO and 175% to the CFO under the LTIP).
Recruitment and promotions
The remuneration package for a new Executive Director would be set in
accordance with the terms of the Company’s remuneration policy at the
time of the appointment.
Additionally, on the appointment of any new Executive Director (whether
by external recruitment or internal promotion) the remuneration policy will
permit the following:
•
the UK regulations do not require that the caps on fixed pay apply to
a new recruit and the Committee reserves the right to set fixed pay at
such levels as it considers necessary although, in practice, it envisages
abiding by the caps set out in the policy;
if a new executive’s salary is set on appointment below the appropriate
market rates, phased increases (as a percentage of salary) above
those granted generally to other employees may be awarded subject
to the individual’s performance and development;
the Company may compensate a new Executive Director for amounts
foregone from the individual’s former employer (as permitted under the
Listing Rules) taking account of the amount forfeited, the extent of any
performance conditions, the nature of the award and the time period
to vesting;
the annual incentive plan would operate in accordance with its terms,
pro-rated for the period of employment and, dependent on the
appointment and timing, different performance targets might be set as
the Committee considers appropriate;
•
•
•
• on an internal appointment, any variable pay element awarded in
respect of the individual’s former role would be allowed to pay out
according to its terms, with any relevant adjustment to take account of
the appointment. Any other ongoing remuneration obligations existing
prior to the appointment would also continue;
• on any appointments, the Committee may agree that the Company will
meet appropriate relocation expenses.
Service contracts and payments for loss of office
Main provisions on termination
The service contract for the CEO is terminable by either the Company or the
CEO on twelve months’ notice and the service contract for the CFO by either
party on six months’ notice. The service contracts are dated 29 May 2014 in
relation to the CEO and 2 July 2015 in relation to the CFO.
}
Additional LTIP
value if share
price grows
by 50%
An Executive Director’s service contract can also be terminated without notice
or payment of compensation except for pay accrued up to the termination
date on the occurrence of certain events such as gross misconduct.
Payment in lieu of notice equal to base salary only for the unexpired period of
notice can be paid under both of the Executive Directors’ service contracts.
There are no enhanced provisions on a change of control under the
Executive Directors’ service contracts.
Any new contracts will be on similar terms.
The service contracts of the Executive Directors are available for inspection
at the registered office of the Company.
Annual bonus on termination
There is no contractual entitlement to annual bonus on termination. Under
the Annual Incentive Plan, the Committee has an absolute discretion
to permit a bonus to be paid to a leaver based on the full or part year
performance, subject to consideration by the Committee of the reasons for
the individual leaving. A full or pro-rata time based bonus may be awarded,
and this may be paid either at or before the normal payment date.
SRCGFSCorporate Governance
58
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' remuneration report
continued
To the extent that part of a bonus has been paid in deferred shares, such
shares will normally vest on the third anniversary of the date of them
initially being awarded. In the event of voluntary resignation or dismissal
for cause, such awards will be forfeited (unless the Committee determines
otherwise). In other leaver situations, the awards will normally remain
outstanding although the Committee has discretion to release such shares
early. Such awards will normally also vest early on a change of control
unless the Committee determines otherwise.
Performance share plans on termination
Share-based awards made under the Company’s share plans are
governed by the relevant plan rules. Under the rules of the LTIP, awards
lapse if they have not vested on giving or being given notice of termination
of employment for any reason, unless the Committee in its discretion
permits an award to vest in whole or in part and on such terms as it may
specify in its absolute discretion (in which event it will normally apply time
pro-rating). Awards which have vested before giving or receiving notice
of termination of employment remain exercisable for a period of twelve
months after leaving or (if later) the expiry of any holding period which the
award was subject to. Similar treatment may also apply in the event of a
change of control.
External appointments
Subject to Board approval, Executive Directors are permitted to take on
non-executive positions with other companies and to retain fees in respect
of those appointments.
Chairman and Non-Executive Directors
Fees
The fee levels and structure of the Non-Executive Directors was set by
the Board from Admission. The fees of the Non-Executive Directors are
set by the Board (excluding the Non-Executive Directors) taking account
of Chairmanship of Board committees and the time and responsibility of
the roles of each of them. The fees are paid in cash. The Committee has
responsibility for determining fees paid to the Chairman of the Board. All
fees are subject to the aggregate fee cap for Directors in the Articles of
Association of the Company, which is proposed to be increased at an EGM
to be held on 30 July 2018 immediately following the 2018 AGM on that
date to £1,000,000 per annum. In addition, expenses may be reimbursed.
Letters of appointment
All the Non-Executive Directors of the Company have letters of appointment
dated 24 May 2017 (except for the Chairman’s letter of appointment which
is dated 13 November 2017) with the Company for three years subject to
three 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.
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.
59
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 2017/18 and how, if the revised policy is approved at the AGM, it is
intended to be applied in 2018/19.
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 2017/18.
Executive Directors
Simon Arora (CEO)
Paul McDonald (CFO)
Year1
2016/17
2017/18
2016/17
2017/18
Salaries
£
589,375
612,497
297,250
308,911
Benefits2
£
32,028
37,873
5,941
8,273
Bonus
£
678,692
618,416
216,565
193,408
Value of
long term
incentives³
£
–
–
221,674
298,573
Pension4
£
103,636
107,294
39,235
40,367
Total
£
1,403,731
1,376,080
780,665
849,532
1 The 2016/17 year is for the 52 weeks ended 25 March 2017 and the 2017/18 year is for the 53 weeks ended 31 March 2018. The Executive Directors received a 2% increase to their base salaries in 2017/18.
The figures in the table above also include the impact of an additional week's pay.
2 Benefits in 2016/17 and 2017/18 include company car/car allowance cash equivalent as a benefit in kind, fuel and running costs, critical illness insurance, for the CFO only permanent healthcare insurance,
and, life assurance for each Executive Director.
3 LTIP awards in 2016/17 and 2017/18 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 62. The 2015/16 grant has been tested and the result of that is explained on page 61 so it has been included in the above figures although it will not vest until the expiry of the holding period being on
5 August 2020.
4 For each of 2016/17 and 2017/18, pensions include auto-enrolment pension employer contributions and a cash equivalent allowance to pension contribution entitlement less employers’ NICs.
Salary
As referred to last year, the Executive Directors received a 2% increase in
base salaries with effect from the beginning of the financial year under
review.
The Executive Directors received a 5% increase in their base salaries with
effect from the beginning of the 2018/19 financial year (which is within the
cap in the current policy) as set out in the proposed updated remuneration
policy for Directors.
The comparator group of retailers used in the benchmarking exercise
in relation to the updated remuneration policy from the beginning of
the 2018/19 financial year 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): Card Factory, Dignity, Dixons
Carphone, Greggs, Halfords, Inchcape, J Sainsbury, JD Sports Fashion,
Marks & Spencer, Morrison Supermarkets, Next, Ocado, Pets At Home,
Sports Direct, SSP, Tesco and WH Smith. In addition, the Committee reviews
pan-sector data of companies with a comparable market capitalisation to
the Company.
The increase in base salaries is reflective of the considerations made by the
Committee in its review of the remuneration policy as referred to on page
53 along with changes proposed to elements of variable pay (as referred
to below) and both reflecting the development of the Company since
the first policy was adopted in 2015 and the increased experience and
performance of the Executive Directors in their roles and maintaining the
overall approach of the Company to total remuneration being at no more
than market median levels.
Benefits
Benefits are set by the Committee in accordance with the remuneration policy set
out on page 54 above. There are no changes proposed to the overall benefits
under the proposed updated remuneration policy from the beginning of the
2018/19 financial year except to clarify that tax equalisation payments would be
permitted in appropriate circumstances, although none are currently envisaged.
Pension
Pension contributions are in line with the existing 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.
There are no increases proposed to the rates of the pension benefits of the
Executive Directors under the proposed updated remuneration policy from
the beginning of the 2018/19, 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, and any new Executive
Directors will be capped at 15% of base salary in accordance with the
proposed changes to the remuneration policy.
Bonus
Executive Directors received bonus payments in 2017/18 in line with the
remuneration policy and the terms of the Annual Incentive Plan (“AIP”), in
the amounts set out in the table on this page above.
The financial targets for 2017/18 were set against Adjusted Group EBITDA
performance as follows:
Threshold
Target
Max
Actual
Adjusted Group
EBITDA target*
£239.85m
£266.50m
£279.825m
£271.4m
% maximum overall
Bonus opportunity
12.5%
25%
50%
68.6%
* There is a straight-line vesting between the threshold, target and maximum points achieved.
SRCGFSCorporate Governance 60
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' remuneration report
continued
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 CEO was set:
(i) a target range for UK new store openings of which over 90% of
the target range of between 40 to 50 was achieved with 47 gross
new stores being opened in the year under review;
(ii) trading growth Like-for-Like performance was exceeded
against both budget and UK market comparators;
(iii) targets relating to cost efficiencies, were fully achieved as a result
of controls on overall labour costs as a percentage of revenue;
(iv) environmental reductions in Like-for-Like estate power
consumption goals, were met in full as a result of the continuing
roll-out and investment in LED lighting and efficiencies within the
store estate; and (v) investor relations outcomes were assessed
as having been achieved, demonstrated by the strong share
price and valuation improvement and significant large new
longer term shareholders being added to the register this year
while placings of over 11% of Company's equity took place on
the sell downs by CD&R.
The CFO’s targets focused on:
(i) financial reporting quality standards tested by the Audit &
Risk Committee, of which 75% was assessed as having been
achieved based on the overall assessment of the Committee,
as being of a high standard generally;
(ii) treasury and banking including benchmarking of interest cost
against the sector, which was assessed at a 75% performance
overall with all the core elements having been successfully achieved;
(iii) targets relating to cost control reductions measured as a
proportion of total revenues were not met having remained
broadly at the same percentage as the prior year; and
(iv) investor relations outcomes were assessed as having
been achieved demonstrated by the strong share price and
valuation improvement and significant large new longer
term shareholders being added to the register this year while
placings of over 11% of Company's equity took place on the sell
downs by CD&R.
Overall 29 out of 30
Overall 17.5 out of 30
Personal
Development
Objectives (20%
weighting)
This included:
(i) development of strategy including M&A and integration of
acquisitions, which was assessed at 50% with the very successful
acquisition of Heron Foods but the integration of Jawoll is expected
to accelerate in the 2018/19 financial year; and
(ii) succession planning in relation to acquisitions made by the Group,
which was assessed as having been fully achieved as a result of the
successful execution of the recruitment of a new CEO and broader
executive team at Jawoll and the promotion of the operations director
at Heron Foods to managing director of that business, in succession to
board retirements at both of those businesses.
This included:
(i) leading on due diligence on M&A acquisitions, which was
assessed at 50% as demonstrated through the financial due
diligence on the acquisition of Heron Foods and also measured
against areas for development in relation to acquisitions in the future;
(ii) execution of financial aspects of M&A, which was assessed
at 100% as demonstrated on the very successful acquisition of
Heron Foods; and
(iii) integration of finance and reporting functions of acquired
businesses, coaching of broader finance teams and development
of collaboration between finance and operational functions,
which were assessed at 50% each in relation to progress in
the year to date overall. In relation to Jawoll, this is expected to
develop further in the 2018/19 financial year with the new broader
executive team now in place in the German business.
Overall 15 out of 20
Overall 12 out of 20
As the non-financial out-turn for the CEO of 44 out of 50 was higher than the financial out-turn of 68.58%, the amount awarded was reduced to this lower
level. The CFO received the assessed out-turn of 29.5 out of 50.
Under the proposed updated remuneration policy from the beginning of the 2018/19 financial year to be approved at the 2018 AGM, it is not proposed
to change the maximum bonus opportunity limit for the CEO but to increase it for other Executive Directors from 100% to 125% of base salary. The bonus
metrics are also proposed to be simplified to a more conventional one with 75% linked to financial performance (which will initially remain Adjusted Group
EBITDA) and 15% linked to personal KPIs with the final 10% linked to personal development objectives. The Committee will retain discretion to reduce the
out-turn under the non-financial elements (and, indeed, more generally) if it does not consider the assessment to be reflective of the overall performance.
Awards are also subject to malus and claw-back provisions.
Accordingly, subject to shareholders approval of the updated policy, for 2018/19 it is proposed that the maximum bonus opportunity for the CEO remains at
150% of base salary and for the CFO it be increased to 125% of base salary. In relation to each award 1/3 of any bonus earned will be deferred into shares
for 3 years.
The bonus metrics summarised above are to apply to the awards. The Committee does not disclose Adjusted EBITDA 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
The share award granted under the Company’s Long-Term Incentive Plan (“LTIP”) on 1 August 2014 to the CFO vested in full in the financial year 2017/18.
61
B&M European Value Retail S.A.
Annual Report and Accounts 2018
No other performance share awards vested in the financial year 2017/18 as other awards had not reached the end of the relevant performance period.
However, the award granted on 5 August 2015 was based on a combination of EPS and TSR measured to 31 March 2018 and the out-turn of those targets
was that the TSR condition was fully met and the adjusted earnings per share was 17.8p being an out-turn under that measure of 77.5%. While the award
does not vest until the expiry of the holding period being on 5 August 2020, on the basis that the exercise conditions have been satisfied to the extent of
89% that proportion of the award has been included within the single figure.
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) under the existing remuneration policy and LTIP Plan rules.
No awards were granted to the CEO under the LTIP in 2017/18, with the CEO having voluntarily chosen not to participate in LTIP awards in the period under
review, similarly to the two previous financial years.
An award was made to the CFO under the LTIP on 7 August 2017 over shares then worth 100% of his base salary. Details of the award are set out in the
table below.
For 2018/19, it is expected that awards will be made shortly following the announcement of the 2017/18 results. Subject to shareholders approval of the
updated policy and changes to the LTIP rules, those awards are proposed for the CEO to be equal to 200% of base salary and for the CFO 175% of base
salary, with performance measures unchanged from those applying to the LTIP grant for 2017/18. The TSR condition will be the same as the LTIP for 2017/18.
The EPS range is set out on page 62. There will be a holding period expiring on the fifth anniversary of the date of the grant.
The proposed increased level of LTIP awards from 2018/19 is reflective of market levels of awards. It also maintains the overall total of salary and variable
pay at being at no more than market median levels.
Remuneration of the Chairman and Non-Executive Directors – audited
Sir Terry Leahy did not receive any fees as Chairman of the Company for the financial year under review up to the date of his retirement from the Board on
1 March 2018. One of the other Non-Executive Directors, David Novak who retired from the Board on 18 January 2018, did not receive any fees either as he
was not an independent Director.
The fees of the Chairman are set by the Remuneration Committee. The fees of each 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 2017/18 to Peter Bamford who was appointed as Chairman of the Board with effect from 1 March 2018 and each of the Non-Executive
Directors were as follows, and the Non-Executive Directors fees will be the same as those in 2017/18 for 2018/19:
Director
Sir Terry Leahy (retired from the Board 1 March 2018)
Peter Bamford (appointed to the Board 1 March 2018)¹
Thomas Hübner
Kathleen Guion
Ron McMillan
Harry Brouwer
David Novak (retired from the Board 18 January 2018)
2017/18
Fee £
–
34,592
74,500
70,000
70,000
58,000
–
2016/17
Fee £
–
–
71,500
66,000
66,000
55,000
–
1 Peter Bamford received fees of £9,592 as a non-executive director of a group subsidiary for January and February 2018 only which are not on-going fees, and from appointment to the Board and as
Chairman of the Company on 1 March 2018 his on-going fee is £300,000 per annum.
Scheme interests awarded during the financial year – audited
The audited table shows all share awards held by Directors, together with awards made in 2017/18. Each award takes the form of nil cost options under
the LTIP scheme, with each grant being equal to 100% of base salary.
Number of
shares over
which award
was granted
Number
of awards
exercised in
the year
Number
of awards
lapsed in the
year
Number of
awards held
at 31 March
2018
Share price at
date of grant
Face value of
award
% of face
value that
would vest at
threshold
performance
Director
Date of grant
Vesting on performance over date
Paul McDonald
01.08.14
05.08.15
£2.715
£3.570
74,074
81,232
74,074
–
18.08.16
£2.726
109,042
07.08.17
£3.733
81,220
–
–
–
–
–
–
–
£201,110.91
81,232 £289,998.24
109,042 £297,248.49
81,220
£303,194.26
100% Third anniversary of the date of grant
25% Third anniversary of the date of grant
subject to an additional two year
holding period
25% Third anniversary of the date of grant
subject to an additional two year
holding period
25% Third anniversary of the date of grant
subject to an additional two year
holding period
SRCGFSCorporate Governance 62
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' remuneration report
continued
Performance targets for outstanding LTIP awards
The performance conditions for each of the LTIP awards made on 5 August
2015, 18 August 2016 and 7 August 2017 (and the award due to be made in
2018) are as follows:
(a) 50% of the relevant award shares will 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.
The amount due to vest is determined at the end of the performance
period although awards only vest at the end of the subsequent holding
period. This determination 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 will vest based on growth in adjusted
EPS of the Company over the Performance Period. The amount due
to vest is determined at the end of the performance period although
awards only vest at the end of the subsequent holding period. This
determination occurs on achievement of the following EPS ranges (with
straight-line interpolation between those targets):
August 2015 award
August 2016 award
August 2017 award
2018 awards (proposed for the CEO
and CFO)
Financial year
assessed
2017/18
2018/19
2019/20
2020/21
Threshold
(25% of that
part vesting)
Stretch (100%
of that part
vesting)
15p
17.5p
19p
23p
19p
22.5p
24p
28p
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.
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 was not a shareholder in the Group
prior to or on the IPO of the Company in June 2014. The CFO has had one LTIP
award granted on 1 August 2014 which vested and was exercised during the
period under review. He has retained those shares (except for those allowing
for tax on the whole award) toward the guideline requirement. The CFO also
has an unvested LTIP award granted on 5 August 2015, and other unvested
LTIP awards which subject to performance conditions being achieved during
the course of 2018/19 and following years, will in that event then count
toward the guideline requirement on a net of tax basis.
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 2017/18.
Director
Sir Terry Leahy (retired from
the Board 1 March 2018)
Peter Bamford (appointed to
the Board 1 March 2018)
Simon Arora
Paul McDonald
Thomas Hübner
Kathleen Guion
Ron McMillan
Harry Brouwer
David Novak (retired from
the Board 18 January 2018)
Shares held
beneficially1
Unvested options
with performance
conditions²
Unvested options
not subject to
performance
–
–
–
–
149,880,828
39,171
11,111
11,111
37,037
18,518
–
–
190,262
–
–
–
–
–
–
81,232
–
–
–
–
–
–
–
1 Includes any shares held by connected persons or related parties.
2 Nil cost options.
There have been no changes in the Directors’ interests in shares in the
Company between the end of the 2017/18 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).
All of the above awards have a holding period expiring on the fifth
anniversary of the date of the grant of the relevant award as will the
proposed 2018 awards.
Total Shareholder Return (Rebased)
Source: Datastream (Thomson Reuters)
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 31 March 2018.
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.
170
160
150
140
130
120
110
100
90
t
n
e
m
t
s
e
v
n
i
t
i
n
u
0
0
1
a
f
l
o
e
u
a
V
-
R
S
T
4
1
0
2
e
n
u
J
2
1
n
o
e
d
a
m
B&M European Value Retail
FTSE 250 (Ex IT)
12 June 2014
28 March 2015
26 March 2016
25 March 2017
31 March 2018
This graph shows the value by 31 March 2018 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).
63
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Remuneration of the CEO
The table below shows the remuneration of the CEO for each of the last
four financial years.
2014/15
2015/16
2016/17
2017/18
Single Figure
£166,606
£601,638
£1,403,731
£1,376,080
Bonus as a %
of max
LTIP as a % of
max
N/A
0%
76.77%
68.58%
N/A
N/A
N/A
N/A
Change in remuneration of the Chief Executive
The table below shows the percentage changes in the CEO’s remuneration
between the financial years ended 25 March 2017 and 31 March 2018
compared to the amounts for UK full time employees of the Group for each
of the following elements of pay:
Salary
increase/
(decrease)
Annual bonus
increase/
(decrease)
CEO
UK full time employees (average)1
2%
1.65%
-8.88%
12.53%
1 This includes salaried UK employees.
Taxable
benefits
increase/
(decrease)
8.13%
8.99%
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
25 March 2017 and 31 March 2018.
£’000
2016/17
2017/18
% change
Total pay for employees
Distributions to shareholders1
290,983
151,000
365,396
63,013
25.6%
-58.6%
1 There have not been any buy-backs of shares so this element has been excluded from the above
table.
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 31 March 2018.
Chairman and Non-Executive Directors
As referred to in last years’ Annual Report a review of the Non-Executive
Directors fees (other than in relation to the Chairman) was carried out by
the Board for 2017/18, having 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 to
the amounts set out in the table on page 61 above with effect from the
beginning of the 2017/18 financial year.
The revised rates were 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.
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, but it is proposed to be increased to £1,000,000 under revisions
proposed to be made to the Articles of Association to be considered at an
EGM which is to be held on 30 July 2018 immediately following the 2018
AGM on that date.
Sir Terry Leahy as Chairman until his retirement from the Board on 1 March
2018 and one of the other Non-Executive Directors of the Company, David
Novak, who retired from the Board on 18 January 2018 did not receive any
fees from the Company. Peter Bamford was appointed as the Chairman
from 1 March 2018 with an annual fee of £300,000.
The Committee has responsibility for determining fees paid to the
Chairman of the Board.
Details of the fees which were paid to Non-Executive Directors in 2017/18
and for the prior year are set out in the table on page 61 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.
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 2017/18 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 41.
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 board effectiveness review conducted internally and led by
the Chairman of the Board, details of which are set out on page 45. The
overall conclusion of the review was that the Committee remains effective
in discharging its functions and reporting to the Board.
SRCGFSCorporate Governance 64
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' remuneration report
continued
Shareholder voting
The resolutions to approve the directors’ remuneration policy at the 2015 AGM and the remuneration report at the 2017 AGM were passed as follows:
Resolution
Votes for
% for
Votes against
% against
Total votes cast
To approve the remuneration policy (2015)
To approve the remuneration report (2017)
843,228,764
752,544,703
99.71
96.98
2,487,049
23,465,569
0.29
3.02
845,715,813
776,010,272
% of shares on
register
84.57
77.60
Votes withheld
194,847
826,564
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 subscribe to its Code of Conduct which requires that its advice must be objective and
impartial. For the financial year 2017/18 FIT’s total fees were £52,250 excluding vat and expenses.
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
29 May 2018
65
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate Governance
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 for the
period ended 31 March 2018. 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 47 and 52
to 64 respectively form part of this report.
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.
Branches
The Group had no registered external branches during the reporting period.
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 31 March 2018,
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.
Results and dividend
The Group’s profit after tax for the financial year ended 31 March 2018 of GBP
£185.8m is reported in the consolidated statement of comprehensive income
on page 74.
The Board is recommending a final dividend of 4.8p per ordinary share, which
together with the interim dividend of 2.4p per ordinary share paid in December
2017 is a total dividend for the year of 7.2p, which reflects the upper end of the
dividend policy of paying 30-40% of normalised post-IPO earnings¹.
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 31 to 37.
Greenhouse gas emissions
Details of the Group’s greenhouse gas emissions are contained in the
Corporate Social Responsibility Report on pages 36 and 37 which forms 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.
Directors
The Directors of the Company as at 31 March 2018 and their interests in shares
and share awards made to them under share incentive schemes in the
Company are shown on page 61 and 62. There have been no changes in the
Board of the Company between 31 March 2018 and the date of this report.
In accordance with the Articles of Association of the Company, all the Directors
will retire at the Annual General Meeting (”AGM”) on 30 July 2018. All the
retiring Directors, being eligible, will stand for re-election as Directors at
that meeting.
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.
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 27 to the
consolidated financial accounts.
Share capital
The Company’s share capital and changes to it in the financial year, are set out
on page 67 below and in note 23 to the consolidated financial statements on
page 103 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
30 July 2018 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 to
repurchase shares has been entered into at any time since the incorporation
of the Company.
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 ordinary
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 AGM 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.
SRCGFSCorporate Governance 66
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors' report and business review
continued
The Company is not aware of any 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 Link Trustees (Jersey) Limited (formerly 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 year under review 74,074
shares were used from the ESOT to satisfy vested awards made under a share
scheme of the Company. As at 31 March 2018 and since that date up to the
date of this report, the ESOT did not hold any shares in the Company.
Shareholders
As at 23 May 2018, the following shareholders have notified the Company of
their interest in 5% or more of the Company’s issued ordinary shares:
Shareholder
FMR LLC
SSA Investments S.à r.l.*
No of ordinary
shares
% share
capital
65,155,991
149,880,828
6.51
14.98
* Includes 8,055,494 shares held by Praxis Nominees Limited on its account.
Amendment to the Articles of Association
The Articles of Association of the Company (the “Articles”) may only be
amended at an extraordinary general meeting of shareholders 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 proportion of the issued
share capital represented at that meeting) and when adopted by a resolution
passed by at least two-thirds of the votes cast.
It is proposed that amendments be made to the Articles, as referred to on
page 68 below under the section headed ‘Section (h) – Appointment of Board
members, amendment of Articles of Association’. An Extraordinary General
Meeting of shareholders is to be held along with the AGM on 30 July 2018 to
consider those proposed amendments to the Articles.
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 than 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.
Annual General Meeting and Extraordinary General Meeting
Notices convening the Company’s fourth Annual General Meeting (“AGM”) and
an Extraordinary General Meeting (“EGM”), each to be held on 30 July 2018, 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 of the AGM.
Amendments are being proposed to the Articles of Association of the
Company to shareholders at the EGM as referred to further on page 68 below
under the section headed ‘Section (h) – Appointment of Board members,
amendment of Articles of Association’, and details of which are set out in the
notice of EGM.
Corporate governance
The compliance by the Company with the UK Corporate Governance Code
and the requirements of article 68ter of the Luxembourg Law on the Trade
and Companies Register and Annual Accounts of companies of 19 December
2002, as subsequently amended, are set out in the Principal Risks and
Uncertainties on pages 26 to 30, the Corporate Governance report on pages
40 to 47 and the Directors’ Remuneration Report on pages 52 to 64, 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 70, 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 the authority for the Directors to fix the auditor’s
remuneration, will be proposed at the AGM on 30 July 2018 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”, “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.
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.
67
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Independence compliance statement
Simon Arora, Bobby Arora, Robin Arora and SSA Investments S.à r.l. (“SSA
Holdco”) (the “Arora Family”) entered into a relationship agreement 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 regulates the ongoing relationship
between the Company and the Arora Family, following Admission (the
“Relationship Agreement”).
The principal purpose of the Relationship Agreement is to ensure that the
Company and its subsidiaries are capable of carrying on their business
independently of the Arora Family (and their associates), and that transactions
and relationships between the Group and the Arora Family (and their
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 Agreement contains undertakings that the Arora Family and
together with their 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 Agreement will continue for so long as the Arora Family
together with their associates hold 5% or more of the issued ordinary shares of
the Company.
In the financial year 2017/18 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 with Arora
Family related parties as landlords of those new stores, representing 12.8%
of the total number of 47 gross B&M new store openings of the Group in
the UK in that period; and
• 4 agreements for lease were conditionally exchanged by the Group with
Arora Family related parties as landlords, 1 of which is due to be completed
as a new store opening in the financial year 2018/19, 1 in 2019/20 and the
other 2 in 2020/21; and
• also during the year under review there were 2 renewals of leases
of existing stores between the Group and Arora Family related party
landlords which were made ahead of the expiry of the existing lease
terms.
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 77 store
leases, representing 13.4% of a total number of 576 UK B&M stores of the
Group with all landlords, and 14.2% of the overall rent roll of all UK stores as at
the year end.
The Group’s joint venture sourcing company, Multi-lines International Company
Ltd, has agreed terms during this financial year for the entry into a lease with
Arora Family related party landlords of an additional floor in the high rise
building which Multi-lines presently occupies in Kowloon Bay Hong Kong, for
further office and operational use which is to commence from May 2018.
There were no store lease transactions in the financial year under review
between Jawoll and Jawoll’s former CEO (Ingo Stern who retired from the
Group as Jawoll’s CEO as from 31 October 2017) 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 11.6% of a total number of 86
German stores of the Group with all landlords, and 22.4% 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
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 44 of the Corporate Governance Report.
Further details of related party transactions are also included also in note 28 of
the Financial Statements on page 108.
The Board confirms that during the financial year 2017/18:
(i). the Company has complied with the Independence Provisions included in
the Relationship Agreement;
(ii). so far as the Company is aware, the Independence Provisions included in
the Relationship Agreement have been complied with by the controlling
shareholder and its associates;
(iii). so far as the Company is aware, the procurement obligations in the
Relationship Agreement have been complied with by the controlling
shareholder and its associates;
and that the Company has acted independently of the Arora Family (and their
associates).
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 2018 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
in which they may have directly or indirectly had an interest) entered into in
the financial year 2017/18 referred to above and in note 28 of the Financial
Statements on page 108, together with any other such transactions entered
into after the financial year end on 31 March 2018 up to the date of the AGM,
similarly to each of the three 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 only, being
ordinary shares which are 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 31 March 2018
amounts to GBP £100,056,122.20 represented by 1,000,561,222 shares with a
nominal value of GBP £0.10 each. B&M European Value Retail S.A. has a total
unissued authorised share capital of GBP £297,166,100. 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.
1 The overall lease charge proportion is based on the actual income statement rent charge and
therefore excludes annualisation for the 11 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.
SRCGFSCorporate Governance 68
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Directors’ report and business review
continued
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
of Association of the Company.
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 the Luxembourg law on transparency obligations of securities
issuers dated 11 January 2008 as amended are set out on page 66.
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 section (d) above.
Section (f) – Voting rights
Each share issued and outstanding in B&M European Value Retail S.A.
represents one vote. The Articles of Association of the Company do not
provide for any voting restrictions. In accordance with the Articles of
Association shareholders may be represented and proxies shall be received
by the Company at a certain time before the date of the relevant meeting.
In accordance with the Articles of Association, 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 of Association, 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 as amended (“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.
Section (h) – Appointment of Board members, amendment of
Articles of Association
The appointment and replacement of Board members and the amendment
of the Articles of Association of the Company are governed by Luxembourg
Law and the Articles of Association (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 Articles of Association of the Company 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.
Amendments to the Articles of Association are being proposed by the
Company to be considered at an Extraordinary General Meeting of
shareholders which is to be held along with the AGM on 30 July 2018. These
amendments, which the Board believes are in the best interests of both the
Company and shareholders, are (i) to update the Articles of Association to
reflect changes made to the Luxembourg Law on Commercial Companies
under the Law of 10 August 2016, the principal purpose of which was to
modernise Luxembourg company law; (ii) to renew the existing five (5) year
authority of the Directors to issue shares in the Company within the limits of
the authorised share capital which would otherwise be due to expire on 28
August 2019, which authority is required to be incorporated in the Articles of
Association of the Company under Luxembourg company law (as opposed to
an ordinary resolution being proposed at an annual general meeting which
would not be a valid authorisation under the law).
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.
As referred to in section (h) above, along with the amendments proposed by
the Company to be made to the Articles of Association at an Extraordinary
General Meeting of shareholders (“EGM”) to be held along with the AGM on
30 July 2018 to reflect changes made to modernise Luxembourg company
law, the Company also proposes to renew the existing five (5) year authority
of the Directors to issue shares in the Company within the limits of the
authorised share capital in Article 5.2 of the Articles of Association.
The present five (5) year authority in Article 5.2 of the Articles of Association will
otherwise expire on 28 August 2019. As the Company is holding an EGM on
30 July 2018 to propose other changes to the Articles of Association following
the modernisation of Luxembourg company law (as referred to above), it is
convenient and efficient to renew this authority at the same time. The authority
of the Directors to issue shares in the Company is required to be incorporated
in the Articles of Association of the Company under Luxembourg company
law (as opposed to being granted by a resolution at an annual general
meeting which would not be a valid authorisation under the law). Subject to
shareholders approval of the renewal of the authority by way of amendment
to Article 5.2 at the EGM, the authority will apply for a period of five (5) years
commencing from 30 July 2018. The Board considers this amendment to be in
the best interests of both the Company and shareholders. The Board presently
has no intention to exercise this authority, save that it intends to use its authority
to issue ordinary shares (on a non-pre-emptive basis within the limits in Article
5.2 as referred to further below) on the exercise of employee share options or
similar awards.
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 of Association 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 the 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.
69
B&M European Value Retail S.A.
Annual Report and Accounts 2018
The Board was authorised by the AGM of shareholders held on 28 July 2017,
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% (ten
percent) 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 were 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 renewal of this authority for the Company to
purchase its shares, at the AGM of the shareholders on 30 July 2018. 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 than 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 and (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 57.
Approved by order of the Board
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
29 May 2018
SRCGFSCorporate Governance 70
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Corporate Governance
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the
Group and Company financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Group and Company
financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by the EU
and applicable law and have prepared the Company financial statements
in accordance with Luxemburg legal and regulatory requirements
regarding the preparation of annual accounts (“Lux GAAP”).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Company and of their profit or loss
for that period. In preparing each of the Group and Company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• present the financial statements and policies in a manner that provides
relevant, reliable, comparable and understandable information;
• state whether they have been prepared in accordance with IFRSs as
•
•
•
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.
adopted by the EU;
Approved by order of the Board.
• 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.
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
29 May 2018
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that its financial statements comply
with company law. They have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the Group and
to prevent and detect fraud and other irregularities.
The Directors are responsible for preparing the Annual Report in
accordance with applicable laws and regulations. Having taken advice
from the Audit & Risk Committee the Directors consider the Annual Report
and the financial statements taken as a whole, provides the information
necessary to assess the Group’s performance, business model and
strategy and is fair, balanced and understandable.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
The financial statements are published on the Company’s website.
Legislation in Luxembourg governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
71
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of B&M European Value Retail S.A. and its subsidiaries (the “Group”), which comprise the
consolidated statement of financial position as at 31 March 2018, and the consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the 53-week period then ended, and the notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at
31 March 2018, and of its consolidated financial performance and its consolidated cash flows for the 53-week period then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 on the audit profession (the “Law of 23 July 2016”)
and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (the “CSSF”). Our
responsibilities under those Regulation, Law and standards are further described in the Responsibilities of “Réviseur d’Entreprises agréé” for the audit of
the consolidated financial statements section of our report. We are also independent of the Group in accordance with the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional Accountants (the “IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethical
requirements that are relevant to our audit of the consolidated financial statements, and have fulfilled our other ethical responsibilities under those ethical
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements
of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Valuation of Inventory
Why the matter was considered to be one of the most significant in our audit of the
annual accounts of the current period
How the matter was addressed in our audit
The Group has significant levels of inventory due to its retail operations. As per
note 16, “Inventories”, the balance is £558.7 million at year end.
Per the Inventory accounting policy in note 1, inventories are valued at the lower of
cost or net realisable value.
Changing customer preferences, spending patterns and the seasonality of sales
all impact the rate of inventory turnover.
We focused on the valuation of inventory because of the significant judgements
and estimates required by management when assessing the level of the provision
required. These relate primarily to shrinkage and net realisable value provisions.
The significance of the inventory balance in relation to the Statement of Financial
Position, coupled with the significant judgments, required by management, has
caused us to identify inventory valuation as a key audit matter.
Our procedures over the valuation of inventory included, but were not limited to:
• Obtaining a detailed understanding and evaluating the design and implementation of
key controls that the Group has surrounding Inventory valuation.
• Evaluating the appropriateness of management’s judgements and assumptions
applied in calculating the value of inventory by:
- Understanding the inventory provisioning policy with specific consideration to net
realisable value and slow moving stock;
-
-
-
Testing the accuracy of net realisable value and shrinkage provision by performing
a recalculation and testing a sample of the underlying inputs of the provision
calculation to supporting documentation;
Analysing the year-end stock value against total sales during the year on a
line by line basis to assess whether there are any indicators that items may be
overstocked and using this as a basis to consider the need for a slow moving stock
provision;
Assessing the value of a sample of inventory lines to confirm whether it is held at
lower of cost or net realisable value, through comparison to sales receipts and
latest purchase invoice;
- On a sample basis of inventory lines, recalculating the weighted average cost to
test whether the cost has been updated correctly based on the latest sale and
purchase movement.
Acquisition accounting: Heron Foods
In 2017 the Group acquired 100% of the Share Capital of Heron Foods Group Limited for a
total consideration of £122.5 million. The details of the transaction are disclosed in note 7
Business combination.
The acquisition method of accounting for business combinations is a complex and
judgemental exercise, requiring the Group to determine the fair value of assets acquired
and liabilities assumed and consideration transferred.
Part of the purchase price includes a deferred consideration payable in 2019 based
upon certain conditions. Management has had to exercise judgement in determining
whether these conditions will be met.
Due to the size of the transaction and the significant judgement and complexities
involved in determining the fair value of assets acquired and liabilities assumed,
we considered the acquisition accounting as a key audit matter.
Our procedures over the acquisition of Heron Foods Group Limited included, but were
not limited to:
• Analysing the share purchase agreement to confirm the total consideration payable,
including deferred consideration;
• Agreeing the payments made to bank statements;
• Recalculating the deferred consideration recognised on acquisition and assessment of
certain key assumptions;
•
•
Involving our own valuation specialists in challenging the judgements made by the
management over the key assumptions applied in the valuation of intangible assets
acquired in the Heron Foods acquisition;
Tracing a sample of rental amounts payable to lease agreements for the favourable
and unfavourable leases identified.
SRCGFSFinancial Statements 72
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Independent Auditor's Report to the Shareholders of B&M European Value Retail S.A.
9, allée Scheffer L-2520 Luxembourg continued
Why the matter was considered to be one of the most significant in our audit of the
annual accounts of the current period
How the matter was addressed in our audit
Fraud risk over Revenue recognition
The Group’s Revenue amounts to £3,03 billion as per the Consolidated Statement of
Comprehensive Income and is mainly derived from the sale of goods to customers.
Retail revenue is recognised at the initial point of sale of goods to customers.
Although Revenue recognition is considered to be relatively straight forward on a
transactional level, the high volume of transactions makes it more susceptible to fraud
and error.
Revenue is a key performance indicator of the Group and is, therefore, subject to an
inherent risk of manipulation by management to meet targets or expectations. This,
together with the significance of the balance relative to other captions in Statement of
Comprehensive Income, has lead us to identify it as a key audit matter.
Our procedures over revenue recognition included, but were not limited to:
• Obtaining a detailed understanding and evaluating the design and implementation of
key controls that the Group has surrounding Revenue recognition.
• Reconciling cash and credit card receipts related to revenue from sales made in stores
and investigating outliers identified in this process;
• Assessing revenue trends throughout the year and investigating any unusual
variances;
• Analysing sales by store for the days pre- and post-year-end to assess whether sales
were recorded in the correct period;
• Analysing post year-end returns and credit notes to agree that sales have been
recognised in the correct period and to determine if a returns’ provision is required;
•
Journal entry testing focused on manual journal entries as well as entries with an
unexpected contra-account.
Other information
The Board of Directors is responsible for the other information. The other
information comprises the information stated in the consolidated annual report
including the management 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 the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the 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 this other information we
are required to report this fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors for the consolidated
financial statements
The Board of Directors is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance with
IFRSs 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.
In preparing the consolidated financial statements, the Board of Directors
is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Board of Directors
either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for assessing the Group’s
financial reporting process.
Responsibilities of the Réviseur d’Entreprises agréé for the
audit of the consolidated financial statements
The objectives of our audit are to obtain reasonable assurance about
whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue a report
of “Réviseur d’Entreprises agréé” that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the EU Regulation N° 537/2014, the Law of 23
July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the EU Regulation N° 537/2014, the
Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF,
we exercise professional judgment and maintain professional scepticism
throughout the audit. We also:
•
identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control;
• obtain an understanding of internal control relevant to the audit 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 Group’s internal control;
• evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made
by the Board of Directors;
• conclude on the appropriateness of Board of Directors’ use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our report of “Réviseur
d’Entreprises agréé” to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained
up to the date of report of “Réviseur d’Entreprises agréé”. However,
future events or conditions may cause the Group to cease to continue
as a going concern;
73
B&M European Value Retail S.A.
Annual Report and Accounts 2018
• evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation;
• obtain sufficient appropriate audit evidence regarding the financial
information of the entities and business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our report unless law
or regulation precludes public disclosure about the matter.
Report on other legal and regulatory requirements
We have been appointed as “Réviseur d’Entreprises agréé” by the
General Meeting of the Shareholders on 28 July 2017 and the duration
of our uninterrupted engagement, including previous renewals and
reappointments, is 2 years.
The management report on pages 65 to 69 is consistent with the
consolidated financial statements and has been prepared in accordance
with applicable legal requirements.
The accompanying Corporate Governance Statement is presented on
pages 40 to 47. The information required by Article 68ter paragraph (1)
letters c) and d) of the law of 19 December 2002 on the commercial and
companies register and on the accounting records and annual accounts
of undertakings, as amended, is consistent with the consolidated financial
statements and has been prepared in accordance with applicable legal
requirements.
We confirm that the audit opinion is consistent with the additional report to
the audit committee or equivalent.
We confirm that the prohibited non-audit services referred to in the EU
Regulation No 537/2014, on the audit profession were not provided and
that we remain independent of the Group in conducting the audit.
Other matter
The Corporate Governance Statement includes information required
by Article 68ter paragraph (1) points a), b), e), f) and g) of the law of 19
December 2002 on the commercial and companies register and on the
accounting records and annual accounts of undertakings, as amended.
Luxembourg, 29 May 2018
KPMG Luxembourg
Société coopérative
Cabinet de révision agréé
Thierry Ravasio
SRCGFSFinancial Statements 74
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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
Gain on revaluation of financial instrument
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)
53 weeks
ended
31 March
2018
£’000
52 weeks
ended
25 March
2017
£'000
Note
2, 4
3,029,802
2,430,660
(2,000,927)
(1,586,324)
1,028,875
844,336
(789,072)
(639,833)
5
13
3
6
6
6, 20
11
2
11
29
12
12
239,803
204,503
1,711
1,005
241,514
205,508
(23,948)
182
11,568
(24,110)
241
1,279
229,316
182,918
(43,511)
(38,885)
185,805
(78)
185,883
144,033
1,107
142,926
205
(15,659)
21
2,470
172,842
119
172,723
7,479
(1,667)
16
324
150,185
2,082
148,103
18.6
18.6
14.3
14.3
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
75
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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
Interest bearing loans and borrowings
Overdrafts
Trade and other payables
Finance lease liabilities
Other financial liabilities
Income tax payable
Provisions
Total liabilities
Total equity and liabilities
Note
14
14
15
13
17
11
18
16
17
20
23
21
25
20
19
11
22
21
18
19
25
20
22
31 March
2018
£’000
25 March
2017
£’000
929,718
120,962
308,653
5,140
3,187
5,654
841,691
103,693
165,748
5,669
2,413
824
1,373,314
1,120,038
90,816
558,690
34,042
–
683,548
155,551
462,119
35,398
410
653,478
2,056,862
1,773,516
(100,056)
(2,474,249)
1,979,131
(327,073)
(10,000)
13,855
14,532
(7,833)
(13,692)
(100,000)
(2,472,482)
1,979,131
(204,077)
(10,000)
13,855
1,350
(7,825)
(13,573)
(925,385)
(813,621)
(558,426)
(7,306)
(19,209)
(87,130)
(24,495)
(379)
(696,945)
(47,212)
(6,112)
(336,072)
(1,870)
(16,666)
(19,677)
(6,923)
(434,532)
(543,725)
(6,469)
(17,886)
(76,961)
(18,845)
(922)
(664,808)
–
–
(267,815)
(994)
(2,070)
(19,339)
(4,869)
(295,087)
(1,131,477)
(959,895)
(2,056,862)
(1,773,516)
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 29 May 2018 and signed on their behalf by:
Simon Arora
Chief Executive Officer
SRCGFSFinancial Statements 76
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 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)
142,901
–
(1,350)
(1,350)
–
–
–
–
–
–
614 (1,979,131)
1,273
(13,855)
11,883 814,350
9,386
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,552
6,552
–
–
–
–
–
–
–
–
–
–
–
(392)
–
(151,000)
(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
Dividend payments to owners
Effect of share options
Total transactions with owners
Profit for the period
Other comprehensive income
Total comprehensive income for
the period
–
56
56
–
–
–
–
1,767
(63,013)
112
1,767
(62,901)
–
–
–
–
–
–
185,883
14
–
(13,182)
185,897
(13,182)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
8
–
–
–
–
–
–
–
–
–
(63,013)
1,935
(61,078)
(78)
197
185,805
(12,963)
119 172,842
Balance at 31 March 2018
100,056 2,474,249 327,073
(14,532)
10,000 (1,979,131)
7,833
(13,855)
13,692 925,385
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
77
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Consolidated statement of cash flows
Period ended
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Business acquisitions net of cash acquired
Sale of shares in Home Focus Group
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
Net receipt of Group revolving bank loans
Net repayment of Heron revolving bank loans
Finance costs paid
Receipt from exercise of employee share options
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
Overdrafts
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
Note
24
15
14
7
13
13
21
21
29
32
18
53 weeks
ended
31 March
2018
£’000
241,993
(43,996)
197,997
(111,268)
(3,362)
(106,436)
310
554
182
1,149
(218,871)
–
–
45,000
(9,790)
(20,192)
1,320
(1,647)
–
(63,013)
(1,651)
(49,973)
(70,847)
155,551
84,704
90,816
(6,112)
84,704
52 weeks
ended
25 March
2017
£'000
210,873
(31,759)
179,114
(49,160)
(2,796)
(2,374)
–
1,542
137
–
(52,651)
(140,000)
250,000
–
–
(14,983)
–
(5,208)
(175)
(151,000)
(694)
(62,060)
64,403
91,148
155,551
155,551
_
155,551
SRCGFSFinancial Statements 78
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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.
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 53 week period from 26 March 2017 to 31 March 2018. This is a different period to the parent company
stand alone accounts (from 1 April 2017 to 31 March 2018), 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 rephase 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 26 March 2017 to 31 March 2018. Acquisitions of subsidiaries are dealt with by
the acquisition method of accounting. The results of companies acquired are included in the consolidated statement of comprehensive income from the
acquisition date.
During the year, on 2 August 2017, the Group acquired Heron Food Group Limited (“Heron”), a convenience retailer incorporated in the UK. Heron has been
consolidated in the Group accounts from this date. For more details see note 7.
During the year the Group has incorporated two new entities, Retail Industry Apprenticeships Limited (incorporated in the UK) and Bedford DC Investments
Limited (incorporated in Jersey). Both have been consolidated from their incorporation date. See note 26 for a full list of the constituent Group entities.
A Group company, Meltore Limited, was disposed of during the prior 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.
Going concern
After consideration of forecasts and budgets covering the next 12 month period, the directors have determined that it is appropriate to continue to use the
going concern basis for production of these consolidated financial statements.
Note also that viability and going concern statements have been made in the ‘Principal risks and uncertainties’ section of this annual report.
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Revenue
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. Transport and warehouse costs are included in this caption.
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.
Unless specifically time limited, brands are considered to have an indefinite life on the basis that they form part of the cash generating units within the
Group which will continue in operation indefinitely, with no foreseeable limit to the period over which they are expected to generate net cash inflows.
Where a brand is time limited, it is amortised over the period specified in the corresponding agreement.
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.
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Notes to the consolidated financial statements continued
1 General information and basis of preparation continued
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:
Life of lease (max 50 years)
Leasehold buildings
2-4% straight line
Freehold buildings
10% – 25% straight line
Plant, fixtures and equipment
12.5% – 33% straight line
Motor vehicles
–
–
–
–
Residual values and useful lives are reviewed annually and adjusted prospectively, if appropriate.
There has been a minor change to the policy since the prior year regarding the rates for motor vehicles. This is due to the newly acquired company, Heron,
who operate with a different fleet profile to the existing members of the Group. This therefore has no effect on the motor vehicles included in property, plant
and equipment at the prior year end.
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.
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 CGU’s to which
the individual assets are allocated. These budgets and forecast calculations cover a period of five years. For longer periods, a long-term growth rate is
calculated and applied to project future cash flows after the fifth year.
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.
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Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The
arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a
right to use the asset or assets even if that right is not explicitly specified in an arrangement.
The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership
of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset, or, if lower, the present
value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance
leasing liability.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged in the income statement
over the period of the lease.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end
of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
All other leases are regarded as operating leases and the payments made under them are charged to the statement of comprehensive income on a
straight line basis over the lease term.
Lease premiums and incentives
Lease premiums and lease incentives (as reverse lease premiums) are required to be spread over the term of the lease (as an element of the rent charge),
with the resulting balance on the statement of financial position recorded in receivables or payables as appropriate.
Favourable and unfavourable leases
Upon acquisition of a subsidiary a fair value review is performed to determine if certain leases held are favourable or unfavourable to the business when
compared to an estimate of the underlying market rate. To the extent that a lease is determined to be favourable or unfavourable a balance is recognised
in receivables or payables and then released over the remaining lease term as part of the rent charge for that lease.
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.
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. We do not include
transport and distribution costs in our valuation of inventory.
Share options
The Group operates share option schemes, with the first such scheme commencing in August 2014.
The schemes have been accounted for under the provisions of IFRS 2, and accordingly have been fair valued on their inception date using appropriate
methodology (the Black Scholes and Monte Carlo models).
A cost is recorded through the income statement in respect of the number of options outstanding and the fair value of those options. A corresponding
credit is made to the retained earnings reserve and the effect of this can be seen in the statement of changes in equity. See note 10 for more details.
Taxation
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the
countries where the Group operates and generates taxable income. Tax is recognised in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, 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.
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Notes to the consolidated financial statements continued
1 General information and basis of preparation continued
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that
it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and
unused tax losses can be utilised, except:
• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that
•
is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax
assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be
available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date
and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled,
based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Financial instruments
The Group uses derivative financial instruments such as forward currency contracts, fuel swaps and interest rate swaps to reduce its foreign currency risk,
commodity price risk and interest rate risk. Derivative financial instruments are recognised at fair value. The fair value is derived using an internal model
and supported by valuations by third party financial institutions.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable
forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective
portion of the hedge is recognised immediately in the income statement. Effectiveness of the derivatives subject to hedge accounting is assessed at
inception of the derivative, when the derivative matures and at each reporting period end date between.
Where a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset, such as an item of inventory, we remove the
associated gains and losses recognised in other comprehensive income and include them in the initial cost of that asset.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy
when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is
recognised in the income statement immediately.
Financial assets
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.
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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.
Other financial liabilities
After initial recognition, interest bearing loans and borrowings, trade and other payables and other liabilities are subsequently measured at amortised
cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as
through the effective interest rate method (EIR) amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included in finance costs.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to mark-to-market valuations
obtained from the relevant bank (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, less bank overdrafts.
Equity
Equity comprises the following:
•
•
•
"Share capital" represents the nominal value of equity shares;
"Share premium" represents the excess of the consideration made for the shares, over and above the nominal valuation of those shares;
“Legal reserve” representing the statutory reserve required by Luxembourg law as an apportionment of profit within each Luxembourg company (up to
10% of the standalone share capital);
“Hedging reserve” representing the fair value of the derivatives held by the Group at the period end that are accounted for under hedge accounting
and that represent effective hedges;
"Merger reserve" representing the reserve created during the reorganisation of the Group in 2014;
"Retained earnings reserve" represents retained profits;
"Put/call option reserve" representing the initial valuation of the put/call option held by the Group over the non-controlling interest of J.A. Woll Handels
GmbH (Jawoll);
"Foreign exchange reserve'' represents the cumulative differences arising in retranslation of the subsidiaries results;
"Non-controlling interest" representing the portion of the equity which belongs to the non-controlling interest in the Group’s subsidiaries.
•
•
•
•
•
•
Foreign currency translation
These consolidated financial statements are presented in pounds sterling.
The following Group companies have a functional currency of pounds sterling;
• B&M European Value Retail S.A.
• B&M European Value Retail 1 S.à r.l. (Lux Holdco)
• B&M European Value Retail Holdco 1 Ltd (UK Holdco 1)
• B&M European Value Retail Holdco 2 Ltd (UK Holdco 2)
• B&M European Value Retail Holdco 3 Ltd (UK Holdco 3)
• B&M European Value Retail Holdco 4 Ltd (UK Holdco 4)
• Bedford DC Investments Limited
• EV Retail Ltd
• B&M Retail Ltd
• Opus Homewares Ltd
• Retail Industry Apprenticeships Ltd
• Heron Food Group Ltd
• Heron Foods Ltd
• Cooltrader Ltd
• Heron Properties (Hull) Ltd
The following Group companies have a functional currency of the Euro;
• B&M European Value Retail 2 S.à r.l. (SBR Europe)
• B&M European Value Retail Germany GmbH (Germany Holdco)
• J.A. Woll Handels GmbH (Jawoll)
• Jawoll Vertriebs GmbH
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Notes to the consolidated financial statements continued
1 General information and basis of preparation 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.
Investments in Associates
Multi-lines International Company Ltd (Multi-lines), which is 50% owned by the Group, has been considered by management as a judgement 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 an uncertain 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 20).
A financial liability has been recognised carried at fair value 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.
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Standards and Interpretations applied and not yet applied by the Group
New standards and interpretations
At the date of authorisation of these Consolidated Financial Statements, the following standards and interpretations, relevant to the Group, which have not
been applied to these financial statements, were in issue, but not yet effective:
Title
Key Issues
Effective Date
Impact on B&M European Value Retail S.A.
IFRS 15 Revenue from
Contracts with Customers
IFRS 9 Financial Instruments
IFRS 16 Leases
The new standard is a single global revenue
standard that contains a single model that applies
to two approaches, being at point in time and
over time. For complex transactions with multiple
components, variable consideration or extended
periods, application of the standard can lead
to revenue being accelerated or deferred in
comparison to current IFRS.
IFRS 9 was introduced in 2014 as a complete
standard including the requirements previously
issued and the additional amendments to
introduce a new expected loss impairment model
and limited changes to the classification and
measurement requirements for financial assets.
IFRS 16 was issued in January 2016 and is effective
from 1 January 2019, eliminating the classification
of leases as operating leases or finance leases
and setting out a single lease accounting model.
Periods beginning after
1 January 2018, deferred
from 1 January 2017.
Management do not consider that this
standard will have a material impact on
the accounts.
Periods beginning after
1 January 2018.
Management do not consider that this
standard will have a material impact on
the accounts.
Periods beginning after
1 January 2019.
Significant impact on Statement of
Financial Position and Income Statement
presentation and measurement which
is currently under review, more detail
follows below.
At the date of the authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial
statements were in issue but are either not yet effective or have not been adopted by the EU:
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions.
• Amendments to IAS 7 Disclosure Initiative.
• Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses.
• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.
• Annual Improvements 2014–2016 Cycle.
Other than as mentioned in the above, the Group does not currently expect that adoption of the other standards and amendments listed will have a
significant effect on the consolidated results or financial position of the Group.
IFRS 16 Leases
IFRS 16 Leases will be applicable for periods starting after 1 January 2019 and will apply to the Group’s accounts commencing 31 March 2019. This standard
will significantly affect the presentation of the Group financial statements as we have over 900 active property leases (primarily related to the Group’s store
estate) as well as a smaller commitment for other operating leases.
The Group has considered the implications of IFRS 16 on the Group’s consolidated results and has developed a model to account for changes required to
be made by the new standard.
Whilst the detailed data has not been audited, the overall model has been reviewed by the Group auditors including the assumptions and the calculations
within the model.
At this stage, and subject to several factors, including the ongoing tax consultation with HMRC, the accounting definition of the retrospective application of
cash flows and auditor approval, we expect to use the modified retrospective approach. This will lead to a significant brought forward retained earnings
adjustment representing the recognition of a liability that exceeds the recognised asset.
Specifically;
Our Statement of Financial Position will include a liability equal to the present value of all future lease commitments and a corresponding right-of-
use asset. Due to discounting it is expected that the liability will be significantly in excess of the asset. Our current gross operating lease commitment
is £1,257.8m, £1,239.1m of which is in relation to property leases (see note 25). Our net deferred property liability (currently £98.8m) would also be
derecognised.
Our Statement of Comprehensive Income will have a significantly reduced rental charge, but increased amortisation and interest charge related to the
unwinding of the lease liability. Overall the amortisation and interest increase is expected to exceed the reduction in rent in the first years of application.
Our current rental charge is £150.5m, £140.9m of which relates to property leases (see note 25).
There will also be subsequent knock-on effects to the presentation of the Statement of Cash Flows.
SRCGFSFinancial Statements 86
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 three reportable segments, being the UK B&M segment, the UK Heron segment and the German
retail segment. The UK Heron segment has been active since the acquisition of Heron Food Group in August 2017, the UK B&M segment was previously
reported as the UK Retail segment.
Items that fall into the corporate category include those related to the Luxembourg or associate entities, Group financing, corporate transactions, any tax
adjustments and items we consider to be adjusting (see note 3).
The 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 €1.1336/£ during the year, with the year end rate being €1.1410/£ (2017: €1.1915/£ and €1.1559/£, respectively).
53 week period to 31 March 2018
Revenue
EBITDA (note 3)
Depreciation and amortisation
Net finance income/(costs)
Income tax expense
Segment profit/(loss)
Total assets
Total liabilities
Capital expenditure (including intangible)
52 week period to 25 March 2017
Revenue
EBITDA (note 3)
Depreciation and amortisation
Net finance income/(costs)
Income tax expense
Segment profit/(loss)
Total assets
Total liabilities
Capital expenditure (including intangible)
UK
B&M
£’000
2,619,488
266,269
(26,485)
109
(45,580)
194,313
1,718,328
(361,834)
(45,986)
UK
B&M
£’000
2,252,265
223,722
(22,277)
107
(40,310)
161,241
1,640,398
(325,372)
(44,492)
UK
Heron
£’000
210,008
11,746
(6,001)
(481)
(1,000)
4,264
204,162
(56,909)
(8,610)
UK
Heron
£’000
–
–
–
–
–
–
–
–
–
Germany
retail
£’000
200,306
5,621
(4,392)
(370)
(258)
601
127,078
(27,287)
(4,987)
Germany
retail
£’000
178,395
11,677
(3,734)
(280)
(2,406)
5,257
126,040
(27,399)
(7,464)
Corporate
£’000
–
(5,240)
(4)
(11,456)
3,327
(13,373)
7,294
(685,447)
(55,047)
Corporate
£’000
–
(3,876)
(4)
(22,417)
3,831
(22,465)
7,078
(607,124)
–
Total
£’000
3,029,802
278,396
(36,882)
(12,198)
(43,511)
185,805
2,056,862
(1,131,477)
(114,630)
Total
£’000
2,430,660
231,523
(26,015)
(22,590)
(38,885)
144,033
1,773,516
(959,895)
(51,956)
87
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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.
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 expenses
Remove costs associated with the acquisition of Heron
Adjusted EBITDA
Depreciation and amortisation
Net adjusted finance costs (see note 6)
Adjusted profit before tax
Adjusted tax
Adjusted profit for the period
Attributable to non-controlling interests
Attributable to owners of the parent
53 weeks ended
31 March
2018
£’000
52 weeks ended
25 March
2017
£’000
241,514
36,882
278,396
(509)
4,334
1,049
283,270
(36,882)
(21,596)
224,792
(44,437)
180,355
(78)
180,433
205,508
26,015
231,523
1,479
1,890
–
234,892
(26,015)
(18,726)
190,151
(40,273)
149,878
1,095
148,783
The adjusting items are the effects of derivatives, one off refinancing fees and the effects of revaluing or unwinding balances related to the acquisition of
subsidiaries, such as the call/put option held over the non-controlling interest of our German operation. Significant project costs may also be included
if incurred, as they have been this year in relation to the acquisition of Heron (see note 7). Adjusted tax represents the tax charge per the statement of
comprehensive income as adjusted only for the effects of the other adjusting items detailed above.
The segmental split in EBITDA and Adjusted EBITDA reconciles as follows;
53 week period to 31 March 2018
Profit before interest and tax
Add back depreciation and amortisation
EBITDA
Reverse the effects of derivatives
Reverse fees expensed on acquisition
Adjusted EBITDA
52 week period to 25 March 2017
Profit before interest and tax
Add back depreciation and amortisation
EBITDA
Reverse the effects of derivatives
Adjusted EBITDA
UK
B&M
£’000
239,784
26,485
266,269
–
–
266,269
UK
B&M
£’000
201,445
22,277
223,722
–
223,722
UK
Heron
£’000
5,745
6,001
11,746
–
–
11,746
UK
Heron
£’000
–
–
–
–
–
Germany
retail
£’000
1,229
4,392
5,621
–
–
5,621
Germany
retail
£’000
7,943
3,734
11,677
–
11,677
Corporate
£’000
(5,244)
4
(5,240)
3,825
1,049
(366)
Corporate
£’000
(3,880)
4
(3,876)
3,369
(507)
Total
£’000
241,514
36,882
278,396
3,825
1,049
283,270
Total
£’000
205,508
26,015
231,523
3,369
234,892
Adjusted EBITDA and related measures are not measures of performance or liquidity under IFRS and should not be considered in isolation or as a substitute
for measures of profit, or as an indicator of the Group’s operating performance or cash flows from operating activities as determined in accordance with IFRS.
4 Reconciliation of the 52-week results from the 53-week adjusted results
In the commentary accompanying these accounts management consider that presenting an adjusted 52-week result is helpful to the users of this annual
report in order to directly compare like for like periods.
Therefore we present a reconciliation to an adjusted 52-week statement of comprehensive income derived from the adjusted 53-week statement of
comprehensive income by removing the final week of the financial year.
The sales and gross margin were directly taken from the specific week 53 figures and other costs were apportioned accordingly by considering the final
accounting month of the year.
SRCGFSFinancial Statements 88
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
4 Reconciliation of the 52-week results from the 53-week adjusted results continued
The adjusting items are those detailed in note 3.
Adjusted
Revenue
Cost of sales
Gross Profit
Administrative expenses
Profit before net finance costs and tax
Add back depreciation and amortisation
EBITDA
Depreciation and amortisation
Net finance costs
Profit before tax
Tax
Profit after tax
Attributable to non-controlling interests
Attributable to owners of the parent
53 weeks to
31 March 2018
£’000
3,029,802
(2,001,437)
1,028,365
(781,977)
246,388
36,882
283,270
(36,882)
(21,596)
224,792
(44,437)
180,355
(78)
180,433
Week 53
£’000
53,528
(35,366)
18,162
(14,668)
3,494
727
4,221
(727)
(246)
3,248
(633)
2,615
–
2,615
52 weeks to
24 March 2018
£’000
52 weeks to
25 March 2017
£’000
2,976,274
(1,966,071)
1,010,203
(767,309)
2,430,660
(1,584,845)
845,815
(636,938)
242,894
36,155
279,049
(36,155)
(21,350)
221,544
(43,804)
177,740
(78)
177,818
208,877
26,015
234,892
(26,015)
(18,726)
190,151
(40,273)
149,878
1,095
148,783
The 53rd week only materially affects the UK B&M segment. The Germany retail segment reports annual figures and the UK Heron segment reports on a
52 week basis and the results only include the post acquisition period from August 2017. Therefore we also present a reconciliation of the 52 week profit
and loss UK B&M segment figures as follows:
UK B&M segment
Revenue
EBITDA
Depreciation and amortisation
Net finance income/(costs)
Income tax expense
Segment profit
5 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
Other professional 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
Loss/(profit) on sale of property, plant and equipment
Loss/(gain) on foreign exchange
53 weeks to
31 March 2018
£’000
2,619,488
266,269
(26,485)
109
(45,580)
194,313
Week 53
£’000
53,528
4,221
(727)
2
(664)
2,832
52 weeks to
24 March 2018
£’000
52 weeks to
25 March 2017
£’000
2,565,960
262,048
(25,758)
107
(44,916)
191,481
2,252,265
223,722
(22,277)
107
(40,310)
161,242
53 weeks ended
31 March
2018
£’000
52 weeks ended
25 March
2017
£'000
354
–
78
21
330
–
88
–
2,030,958
1,595,471
34,234
997
1,652
149,469
4,956
277
2,201
24,305
916
794
126,798
6,285
(405)
(214)
89
B&M European Value Retail S.A.
Annual Report and Accounts 2018
6 Finance costs and finance income
Finance costs include all interest related income and expenses. The following amounts have been included in the statement of comprehensive income line
for each reporting period presented:
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 deferred acquisition costs for subsidiaries
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
53 weeks to
31 March
2018
£’000
52 weeks to
25 March
2017
£'000
(19,960)
(1,491)
(327)
(21,778)
–
(2,170)
(23,948)
53 weeks to
31 March
2018
£’000
182
182
–
11,568
11,750
53 weeks to
31 March
2018
£’000
(21,778)
182
(21,596)
(17,446)
(1,381)
(23)
(18,850)
(3,687)
(1,573)
(24,110)
52 weeks to
25 March
2017
£'000
124
124
117
1,279
1,520
52 weeks to
25 March
2017
£'000
(18,850)
124
(18,726)
7 Business combination
On 2 August 2017 the Group acquired Heron Food Group Limited (“Heron”), a discount convenience retailer incorporated in the UK.
The transaction has been accounted for via the acquisition method of accounting. The Group purchased 100% of the share capital, for a fair value of
£122.5m, which breaks down as follows:
Initial cash consideration
Fair value of deferred consideration
Total
£’000
112,123
10,422
122,545
The deferred consideration represents a cash amount of £12.8m payable in 2019 based upon certain conditions that management do not consider the
final amount to be reasonably sensitive to (see note 20). An exercise carried out by the business has fair valued this at the acquisition date at £10.4m and
this will be unwound through the P&L to the full value of £12.8m by August 2019.
SRCGFSFinancial Statements 90
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
7 Business combination continued
The fair values of the identifiable assets and liabilities of Heron on the date of the acquisition were:
Assets
Heron brand asset
Favourable lease contracts
Other intangible assets
Property, plant and equipment
Inventories
Receivables and other assets
Cash
Total assets
Liabilities
Unfavourable lease contracts
Creditors and accruals
Provisions
Corporation and deferred tax
Finance leases
Overdraft
Bank loans
Total liabilities
Net assets acquired
Fair value of consideration
Goodwill recognised on acquisition
£’000
14,178
1,385
1,305
67,299
13,835
8,081
8,315
114,398
(9,984)
(32,395)
(1,538)
(4,107)
(3,199)
(2,628)
(25,582)
(79,433)
34,965
122,545
87,580
None of the receivables recognised were considered irrecoverable at the acquisition date.
Fees of £1.0m were incurred during the acquisition all of which have been expensed through the P&L, and which are treated as adjusting for the purposes
of note 3.
The goodwill largely relates to the growth potential of the business, the current location of the stores and the existing workforce. None of the elements
which make up goodwill can, or are not material enough to be recognised as a separate intangible asset.
The effect the acquisition has had on the P&L can be seen in the segment note (note 2). Had the company been bought at the start of the year it would
have contributed an estimated extra £108.6m to revenue and £3.4m to operating profit under their local accounting policies (FRS 102 compliant).
The balance on the consolidated statement of cash flows reconciles as follows:
Initial cash consideration
Cash acquired
Overdraft acquired
Net cash for acquisitions
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
112,123
(8,315)
2,628
106,436
€’000
50
50
1,204
1,304
2,879
1,575
91
B&M European Value Retail S.A.
Annual Report and Accounts 2018
The purchase price paid net of the cash acquired was €2,829k 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.
8 Employee remuneration
Expense recognised for employee benefits is analysed below:
Period ended
Wages and salaries
Social security costs
Pensions – defined contribution plans
53 weeks to
31 March
2018
£’000
347,027
16,945
1,424
365,396
52 weeks to
25 March
2017
£'000
277,054
12,907
1,022
290,983
There are £221k of defined contribution pension liabilities owed by the Group at the period end (2017: £73k).
The Group has one employee who is a member of a defined benefit scheme (2017: one employee). The liability held on the balance sheet at the year end
was £250k (2017: £267k).
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
9 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
Pension
Amounts in respect of the highest paid director emoluments:
Short term employee benefits
Benefits accrued under the share option scheme
53 weeks to
31 March
2018
30,758
1,284
32,042
52 weeks to
25 March
2017
25,418
639
26,057
53 weeks to
31 March
2018
£’000
52 weeks to
25 March
2017
£'000
3,067
226
3,293
7,103
280
4
7,387
2,049
–
2,049
2,177
124
2,301
4,648
124
–
4,772
1,393
–
1,393
The emoluments disclosed above are of the directors and key management personnel who have served as a director within any of the Group companies.
10 Share options
As of 31 March 2018, the Group operates two share option schemes, both of which split down to various tranches. Details of these schemes follow.
1) The Company Share Option Plan (CSOP) scheme
The CSOP scheme was adopted by the Group as a Schedule 4 CSOP Scheme on 29 March 2014. No grant under this scheme can be made more than
10 years after this date.
SRCGFSFinancial Statements 92
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
10 Share options continued
Eligibility
Employees and executive directors of the Group are eligible for the CSOP and the awards are made at the discretion of the remuneration committee.
Limits & pricing
A fixed number of options offered to each participant, with the pricing set as the close price on the grant date. The options offered to each individual
cannot exceed a total value of £30,000 measured as the option price multiplied by the number of options awarded, with the whole scheme limited to 10%
of the share capital in issue.
Vesting & exercise
The awards vest on the third anniversary of grant, subject to the following condition:
In order for an option to be eligible for vesting, the underlying UK EBITDA in the last financial year that ended prior to the third anniversary of the grant
should not be less than 130% of the underlying UK EBITDA in the last financial year that ended before the grant was made.
Once vested the award can be exercised up until the tenth anniversary of the grant.
Tranches
To the end of March 2018 there have been four tranches of the CSOP, details are as follows:
Date of grant
Option price
Options granted
Fair value of each option at date of grant
Options outstanding at 26 March 2016
Granted
Forfeited
Exercised
Options outstanding at 25 March 2017
Granted
Forfeited
Exercised
Options outstanding at 31 March 2018
No options have lapsed in either period.
Tranche 1
Tranche 2
Tranche 3
Tranche 4
1 Aug 2014
271.5p
596,646
83p
11 Aug 2014
267.0p
104,860
81p
17 Dec 2015
286.0p
10,489
79p
19 Aug 2016
276.8p
21,676
50p
504,571
–
(44,196)
–
460,375
–
(22,098)
(427,228)
11,049
67,410
–
(7,490)
–
59,920
–
–
(59,920)
–
10,489
–
–
–
10,489
–
–
–
10,489
–
21,676
–
–
21,676
–
–
–
21,676
2) Long-Term Incentive Plan (LTIP) Awards
The LTIP was adopted by the board on 29 May 2014. No grant under this scheme can be made more than 10 years after this date.
Eligibility
Employees and executive directors of the Group are eligible for the LTIP and the awards are made at the discretion of the remuneration committee.
Limits & pricing
A fixed number of options offered to each participant, with the pricing set at £nil. The options offered to each individual cannot exceed a total value of
100% (200% under exceptional circumstances) of the participants base salary where the value is measured as the market value of the shares on grant
multiplied by the number of options awarded, with the whole scheme limited to 10% of the share capital in issue.
Vesting & exercise
The share options vest on the third anniversary of the grant date, subject to a set of conditions as follows:
LTIP 2014:
• The Total Shareholders Return (TSR) must exceed 15%, where the TSR is a measure of the change in share price and dividends paid in the vesting period.
• The underlying UK EBITDA in the Financial Year ended March 2017 is at least 130% greater than the underlying UK EBITDA in the Financial Year ended
March 2014.
LTIP 2015, 2016, 2017A:
• 50% of the awards are subject to a TSR performance condition, where the Group’s TSR over the vesting period is compared with a comparator group.
The awards vest on a sliding scale where the full 50% is awarded if the Group falls in the upper quartile, 12.5% vests if the Group falls exactly at the
median, and 0% below that.
• 50% of the awards are subject to an EPS performance target. The awards vest on a sliding scale based upon the Earnings per share as follows:
Award
LTIP 2015
LTIP 2016
LTIP 2017A
EPS as at
50% paid at
12.5% paid at
March-18
March-19
March-20
19.0p
22.5p
24.0p
15.0p
17.5p
19.0p
93
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Below the 12.5% boundary, no options vest.
LTIP 2017/B1, 2017/B2, 2018/B1:
• Group EBITDA must be positive in each year of the LTIP.
• The awards also have an employee performance condition attached.
Vested awards can be exercised up to the tenth anniversary of grant.
Tranches
To the end of March 2018 there have been seven awards of the LTIP, with the details as follows.
Note that the LTIP 2015, LTIP 2016 and LTIP 2017A have been split into the element subject to the TSR (50%) and the element subject to the EPS (50%) since
these were valued separately.
Date of grant
Nil price options granted
Fair value of each option at date of grant
Options outstanding at 26 March 2016
Granted
Forfeited
Exercised
Options outstanding at 25 March 2017
Granted
Forfeited
Exercised
Options outstanding at 31 March 2018
Core valuation assumptions
Risk free rate
Expected life (years)
Volatility
Dividend yield
Date of grant
Nil price options granted
Fair value of each option at date of grant
Options outstanding at 25 March 2017
Granted
Forfeited
Exercised
Options outstanding at 31 March 2018
Core valuation assumptions
Risk free rate
Expected life (years)
Volatility
Dividend yield
No options have lapsed in either period.
2014
2015-TSR
2015-EPS
2016-TSR
2016-EPS
1 Aug 2014
200,000
134p
5 Aug 2015
40,616
210p
5 Aug 2015
40,616
341p
18 Aug 2016
122,385.5
164p
18 Aug 2016
122,385.5
254p
112,963
–
(38,889)
–
74,074
–
–
(74,074)
–
1.39%
3
25%
0%
40,616
–
–
–
40,616
–
–
–
40,616
0.92%
5
24%
0.95%
40,616
–
–
–
40,616
–
–
–
40,616
0.92%
5
24%
0.95%
–
122,385.5
–
–
122,385.5
–
–
–
122,385.5
–
122,385.5
–
–
122,385.5
–
–
–
122,385.5
0.09%
5
26%
1.73%
0.09%
5
26%
1.73%
2017A-TSR
2017A-EPS
2017/B1
2017/B2
2018/B1
7 Aug 2017
40,610
272p
7 Aug 2017
40,610
351p
7 Aug 2017
287,963
361p
14 Aug 2017
101,654
360p
23 Jan 2018
19,264
400p
–
40,610
–
–
40,610
0.52%
5
32%
1.4%
–
40,610
–
–
40,610
0.52%
5
32%
1.4%
–
287,963
(16,072)
–
271,891
0.25%
3
32%
1.4%
–
101,654
–
–
101,654
0.25%
3
32%
1.4%
–
19,264
–
–
19,264
0.25%
3
32%
1.4%
A total of 561,222 options have been exercised in the year, a further 11,049 options have vested and are eligible to be exercised. (2017: both nil). The
options have been satisfied by the issue of new share capital.
In the year, £615k has been charged to profit & loss in respect to the share option schemes (2017: £254k). At the end of the year the outstanding share
options were valued at £788k (2017: £675k).
SRCGFSFinancial Statements 94
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
11 Taxation
The relationship between the expected tax expense based on the standard rate of corporation tax in the UK of 19% (2017: 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 recorded in profit and loss
Current tax credit in other comprehensive income
Deferred tax (credit)/expense in other comprehensive income
Total tax (credit)/expense recorded in other comprehensive income
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
53 weeks to
31 March
2018
£’000
44,039
(528)
43,511
(54)
(2,416)
(2,470)
52 weeks to
25 March
2017
£'000
40,186
(1,301)
38,885
–
(324)
(324)
229,316
182,918
43,570
36,584
2,440
(2,709)
790
55
(485)
(150)
43,511
31 March
2018
£’000
(4,671)
(18,339)
5,030
(1,035)
11
206
(450)
407
–
(18,841)
5,654
(24,495)
53 weeks to
31 March
2018
£’000
129
107
2,278
(75)
108
21
376
2,944
528
2,416
2,615
(734)
985
(1,027)
382
80
38,885
25 March
2017
£'000
(819)
(17,473)
607
(82)
85
98
(471)
34
–
(18,021)
824
(18,845)
52 weeks to
25 March
2017
£'000
(267)
802
1,054
3
58
(68)
43
1,625
1,301
324
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.
95
B&M European Value Retail S.A.
Annual Report and Accounts 2018
12 Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit or loss for the financial period attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding at each period end.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during each year plus the weighted average number of ordinary shares that would be issued on conversion of
any dilutive potential ordinary shares into ordinary shares.
Adjusted (and adjusted 52 week) basic and diluted earnings per share are calculated in the same way as above, except using adjusted\adjusted 52-
week profit attributable to ordinary equity holders of the parent, as defined in notes 3 and 4.
There are share option schemes in place (see note 10) which have a dilutive effect on both periods presented.
The following reflects the income and share data used in the earnings per share computations:
Period ended
Profit for the period attributable to owners of the parent
Adjusted profit for the period attributable to owners of the parent
Adjusted 52 week 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
Adjusted 52 week basic earnings per share
Adjusted 52 week basic earnings per share
13 Investments in associates
Period ended
Net book value
Carrying value at the start of the period
Dividends received
Share of profits in associates since the prior year valuation exercise
Impairment of holding in Home Focus Group
Sale of 20% holding in Home Focus Group
Effect of foreign exchange on translation
Carrying value at the end of the period
31 March
2018
£’000
185,833
180,433
177,818
25 March
2017
£'000
142,926
148,783
148,783
Thousands
Thousands
1,000,353
1,000,000
298
148
1,000,651
1,000,148
Pence
18.6
18.6
18.0
18.0
17.8
17.8
31 March
2018
£’000
5,669
(1,149)
1,919
(208)
(310)
(781)
5,140
Pence
14.3
14.3
14.9
14.9
14.9
14.9
25 March
2017
£'000
3,995
–
1,005
–
–
669
5,669
The Group has a 50% (2017: 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 20% (2017: 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.
SRCGFSFinancial Statements 96
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
13 Investments in associates continued
During the year the Group sold 20% of the holding in Home Focus Group for €350k. The remaining 20% holding is also subject to a contract of sale in
December 2020 for the same amount, therefore the remaining stake was revalued to €350k with a resulting impairment which has been recognised in
profit and loss. Home Focus is considered immaterial for further disclosure.
Period ended
Multi-lines
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenue
Profit
31 March
2018
£’000
1,106
36,004
–
(25,555)
11,555
169,244
3,805
25 March
2017
£'000
1,409
36,109
–
(26,010)
11,508
128,976
2,767
The figures for Multi-lines show 12 months to December 2017 (2017: 12 months to December 2016), being the period used in the valuation of the associate.
14 Intangible assets
Cost or valuation
At 27 March 2016
Additions due to purchase of Knüller
Additions
Disposals
Effect of retranslation
At 25 March 2017
Additions due to purchase of Heron
Additions
Disposals
Effect of retranslation
At 31 March 2018
Accumulated amortisation/impairment
At 27 March 2016
Charge for the year
Disposals
Effect of retranslation
At 25 March 2017
Charge for the year
Disposals
Effect of retranslation
At 31 March 2018
Net book value at 31 March 2018
Net book value at 25 March 2017
Impairment review of intangible assets held with indefinite life
The Group holds the following assets with indefinite life:
Segment
UK B&M
UK Heron
Germany retail
Goodwill
£'000
837,450
1,322
–
–
2,919
841,691
87,580
–
–
447
929,718
–
–
–
–
–
–
–
–
–
929,718
841,691
Software
£'000
3,123
–
1,596
(132)
33
4,620
1,305
1,612
(289)
3
7,251
963
574
(132)
20
1,425
1,436
(289)
3
2,575
4,676
3,195
31 March
2018
Goodwill
£’000
807,496
87,533
34,642
Brands
£'000
98,396
–
1,200
–
451
100,047
14,178
1,750
–
68
116,043
–
–
–
–
–
13
–
–
13
116,030
100,047
31 March
2018
Brand
£’000
95,650
14,178
5,215
Other
£’000
1,363
–
–
–
131
1,494
–
–
–
20
1,514
745
220
–
78
1,043
203
–
12
1,258
256
451
Total
£'000
940,332
1,322
2,796
(132)
3,534
947,852
103,063
3,362
(289)
538
1,054,526
1,708
794
(132)
98
2,468
1,652
(289)
15
3,846
1,050,680
945,384
25 March
2017
Goodwill
£'000
807,496
–
34,195
25 March
2017
Brand
£’000
94,900
–
5,147
97
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Not all items in the brand classification have indefinite life as some are time limited. The brand intangible assets that have been identified as having
indefinite life are designated as such as management believe that these assets will hold their value for an indefinite period of time.
In each case the goodwill and brand assets have been allocated to one group of CGUs, being the store estate within the specific segment to which those
assets relate. The UK Heron assets are a new addition in the year (2017: Germany acquired assets of a small chain of stores, increasing their goodwill
balance) see note 7 for more details.
The Group performs impairment tests at each period end. The impairment test involves assessing the net present value (NPV) of the expected cash flows in
relation to the stores within each CGU according to a number of assumptions to calculate the value in use (VIU) for the group of CGUs.
The German balances are held in Euros, the underlying balances being €39.5m for Goodwill and €6.0m for the brands (2017: same). Since the cashflows
that support the carrying values are also primarily in Euros, the impairment test for the German retail segment has been carried out in that currency.
In each case, 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, calculated via an internal model.
(ii) The inflation rate for expenses, which has been based upon the consumer price index for the relevant country.
(iii) The like for like sales growth, a prudent estimate made by management.
The values for the assumptions were:
As at
Discount rate (B&M)
Discount rate (Heron)
Discount rate (Germany)
Inflation rate for expenses (UK)
Inflation rate for expenses (Germany)
Like for like sales growth (B&M)
Like for like sales growth (Heron)
Like for like sales growth (Germany)
31 March
2018
10.7%
11.5%
13.2%
3.6%
1.7%
2.0%
3.0%
2.0%
25 March
2017
8.0%
N/A
8.0%
2.3%
1.6%
3.0%
N/A
2.5%
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 the Group would first be required to recognise an impairment at (all other
assumptions being held equal);
Discount rate
Inflation rate for expenses
Like for like sales
UK B&M
UK Heron
Germany
31 March
2018
46.1%
17.6%
(6.8)%
25 March
2017
45.6%
19.8%
(8.5)%
31 March
2018
34.5%
14.1%
(4.3)%
25 March
2017
N/A
N/A
N/A
31 March
2018
88.8%
18.8%
(9.5)%
25 March
2017
>100%
22.8%
(11.9)%
SRCGFSFinancial Statements 98
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
15 Property, plant & equipment
Cost or valuation
At 27 March 2016
Acquisition of Knüller
Additions
Remeasurement of finance leases
Disposals
Effect of retranslation
At 25 March 2017
Acquisition of Heron
Additions
Disposals
Effect of retranslation
At 31 March 2018
Accumulated depreciation
At 27 March 2016
Charge for the period
Disposals
Effect of retranslation
At 25 March 2017
Charge for the period
Disposals
Effect of retranslation
At 31 March 2018
Net book value at 31 March 2018
Net book value at 25 March 2017
Land and
buildings
£'000
34,750
–
7,971
2,539
(847)
1,837
46,250
31,388
58,097
(506)
306
Motor
vehicles
£'000
3,525
–
681
–
(758)
37
3,485
5,787
4,493
(1,313)
5
Plant,
fixtures and
equipment
£'000
142,982
42
40,508
–
(547)
925
183,910
30,124
48,678
(4,180)
164
135,535
12,457
258,696
8,523
3,941
(26)
247
12,685
4,607
(181)
41
17,152
118,383
33,565
1,550
694
(457)
9
1,796
1,559
(1,106)
2
2,251
10,206
1,689
33,134
20,586
(531)
227
53,416
29,065
(3,880)
31
78,632
180,064
130,494
Total
£'000
181,257
42
49,160
2,539
(2,152)
2,799
233,645
67,299
111,268
(5,999)
475
406,688
43,207
25,221
(1,014)
483
67,897
35,231
(5,167)
74
98,035
308,653
165,748
The carrying value of assets held under finance lease and hire purchase contracts at 31 March 2018 was £7.5m (2017: £6.7m) and total depreciation
charged on these assets during the period was £1.0m (2017: £0.9m). 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 31 March 2018, fixed and floating charges were held over £99.6m of the net book value of
land and buildings, £9.7m of the net book value of motor vehicles and £167.5m of the net book value of the plant, fixtures and equipment. (2017: £13.8m,
£1.4m, £119.7m respectively).
A significant addition was made to the land & buildings category in relation to the southern warehouse. At the year end the balance in relation to this
stood at £55.0m (2017: £nil). The warehouse is undergoing a building phase and has not yet been brought into use and is therefore not yet depreciated.
The intention is that the asset will undergo a sale & leaseback process near to or at completion. A further £0.5m of assets in the Land & Buildings category
relates to other assets under construction (2017: £nil).
Included within land and buildings is land with a cost of £62.6m (2017: £2.3m) which is not depreciated.
16 Inventories
As at
Goods for resale
31 March
2018
£'000
558,690
25 March
2017
£’000
462,119
Included in the amount above was a net charge of £1.3m related to inventory provisions (2017: £3.5m net charge). In the period to 31 March 2018 £2,031m
(2017: £1,595m) was recognised as an expense for inventories.
99
B&M European Value Retail S.A.
Annual Report and Accounts 2018
17 Trade and other receivables
Non-current
Lease premiums
Favourable leases
Current
Trade receivables
Deposits on account
Provision for impairment
Net trade receivables to non-related parties
Prepayments
Related party receivables
Lease premiums
Favourable leases
Other receivables
31 March
2018
£’000
2,150
1,037
3,187
3,221
1,575
(160)
4,636
27,165
410
324
183
1,324
34,042
25 March
2017
£’000
2,413
–
2,413
3,447
6,451
(18)
9,880
23,525
1,335
567
–
91
35,398
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
31 March
2018
£’000
(18)
(145)
3
(160)
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 2018 or March 2017 and as such there is no specific concentration of credit risk.
The following table sets out a maturity analysis of trade receivables, including those which are past due but not impaired:
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
18 Cash and cash equivalents
As at
Cash at bank and in hand
Overdrafts
Cash and cash equivalents
As at 31 March 2018 the Group had available £89.0m of undrawn committed borrowing facilities (2017: £128.7m).
31 March
2018
£’000
2,086
651
230
254
3,221
31 March
2018
£’000
90,816
(6,112)
84,704
25 March
2017
£’000
(51)
(17)
50
(18)
25 March
2017
£’000
2,873
452
93
29
3,447
25 March
2017
£'000
155,551
–
155,551
SRCGFSFinancial Statements 100
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
19 Trade and other payables
As at
Non-current
Accruals
Reverse lease premium
Unfavourable leases
Current
Trade payables
Other tax and social security payments
Accruals and deferred income
Reverse lease premium
Unfavourable leases
Related party trade payables
Other payables
31 March
2018
£’000
250
78,859
8,021
87,130
264,224
7,845
28,251
14,446
1,165
12,345
7,796
336,072
25 March
2017
£’000
897
76,064
–
76,961
199,901
1,869
39,832
10,791
–
6,472
8,950
267,815
Trade payables are generally on 30 day terms and are not interest bearing. The carrying value of trade payables approximates to their fair value. For
further details on the related party trade payables, see note 28.
20 Other financial assets and liabilities
Other financial assets
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
31 March
2018
£’000
25 March
2017
£'000
–
–
–
–
–
61
232
117
410
410
Financial assets through profit or loss reflect the fair value of those derivatives that are not designated as hedge relationships but are nevertheless
intended to reduce the level of risk for expected sales and purchases.
Other financial liabilities
As at
Non-current financial liabilities at fair value through profit and loss:
Put/call options over the non-controlling interest of Jawoll
Deferred consideration in relation to the purchase of Heron
Total non-current other financial liabilities
Current financial liabilities at fair value through profit and loss:
Foreign exchange forward contracts
Current financial liabilities at fair value through other comprehensive income:
Foreign exchange forward contracts
Total current other financial liabilities
Total other financial liabilities
31 March
2018
£’000
8,076
11,133
19,209
25 March
2017
£'000
17,886
–
17,886
923
287
15,743
16,666
35,875
1,783
2,070
19,956
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 deferred consideration relates to the acquisition of Heron. The valuation at year end reflects management’s expectation that the full amount of £12.8m
will be payable in 2019. The carrying value has been discounted to present value.
101
B&M European Value Retail S.A.
Annual Report and Accounts 2018
The other financial liabilities through profit or loss reflect the fair value of those foreign exchange forward contracts that are not designated as hedge
relationships but are nevertheless intended to reduce the level of risk for expected sales and purchases.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
• Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
As at the reporting dates, the Group held the following financial instruments carried at fair value on the balance sheet:
31 March 2018
Foreign exchange contracts
Put/call options on Jawoll non-controlling interest
Deferred consideration in relation to Heron
25 March 2017
Foreign exchange contracts
Fuel swap contract
Put/call options on Jawoll non-controlling interest
Total
£’000
Level 1
£’000
Level 2
£’000
(16,666)
(8,076)
(11,133)
(1,892)
232
(17,886)
–
–
–
–
–
–
(16,666)
–
–
(1,892)
232
–
Level 3
£’000
–
(8,076)
(11,133)
–
–
(17,886)
The put/call option and deferred consideration were valued with reference to the sale and purchase agreements underpinning the relevant acquisition.
The key variable in determining the fair value of these balances is the forecast EBITDA, respectively of Jawoll and Heron, as prepared by management.
The movement in the valuation of the call/put option reconciles as follows:
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
53 weeks to
31 March
2018
£’000
17,886
1,459
(11,568)
299
8,076
52 weeks to
25 March
2017
£'000
16,041
1,573
(1,279)
1,551
17,886
As the valuation is a multiple of German EBITDA, it is sensitive to the movement in the projection of this value and 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
The movement in the valuation of deferred consideration reconciles as follows:
Period ended
Opening value
Recognised on acquisition of Heron
Unwinding of the deferred consideration balance
Closing value
Change in discount
rate
+50bps
-50bps
31 March
2018
£’000
61
(62)
53 weeks to
31 March
2018
£’000
–
10,422
711
11,133
25 March
2017
£’000
160
(162)
52 weeks to
25 March
2017
£'000
–
–
–
–
SRCGFSFinancial Statements 102
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
20 Other financial assets and liabilities continued
The balance is not considered sensitive to the main valuation input of Heron’s EBITDA, since a 5% increase or decrease in management’s estimate would not
change the value recognised. The discount rate used is that considered to be fair at the acquisition date. If it were it to move by 0.5% the effects would be:
As at
Effect on profit before tax
Change in discount
rate
+50bps
-50bps
31 March
2018
£’000
78
(65)
25 March
2017
£’000
–
–
The other instruments have been valued by the issuing bank, using a mark to market method. The bank has used various inputs to compute the valuations
and these include inter alia the relevant maturity date and strike rates, the current exchange rate, fuel prices and LIBOR levels.
21 Financial liabilities – borrowings
As at
Current
Revolving facility bank loan
Heron loan facilities – Melton
Heron loan facilities – Offset
Heron loan facilities – Term
Non-current
High yield bond notes
Term facility bank loans
Heron loan facilities – Melton
Heron loan facilities – Offset
Heron loan facilities – Term
31 March
2018
£’000
45,000
807
605
800
47,212
247,558
297,288
5,243
3,967
4,370
558,426
25 March
2017
£'000
–
–
–
–
–
246,815
296,910
–
–
–
543,725
The Group refinanced during the prior 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 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 Heron loan facilities were brought into the Group as part of the acquired balance sheet on 2 August 2017. All are held with Handelsbanken and are
carried at their gross cash amount. Further details are in the maturity table below.
The maturities of the loan facilities and finance leases (also see note 25) are as follows.
Finance leases
Revolving Facility loan
Term facility bank loan A
Term facility bank loan A
High yield bond notes
Heron loan facilities – Melton
Heron loan facilities – Offset
Heron loan facilities – Term
Interest rate
%
1.2-7.0%
2.00% + LIBOR
2.25% + LIBOR
2.00% + LIBOR
4.125%
2.25% + LIBOR
2.45% + LIBOR
2.50% + LIBOR
Maturity
2018-37
Apr-18
Jul-21
Jul-21
Feb-22
Jul-25
Sep-22
Dec-21
31 March
2018
£’000
9,176
45,000
–
300,000
250,000
6,050
4,572
5,170
619,968
25 March
2017
£’000
7,463
–
300,000
–
250,000
–
–
–
557,463
Term loan A and the high yield bond notes have carrying values which include transaction fees allocated on inception.
103
B&M European Value Retail S.A.
Annual Report and Accounts 2018
22 Provisions
At 27 March 2016
Provided in the period
Utilised during the period
Released during the period
Effect of retranslation
At 25 March 2017
Brought in on acquisition of Heron
Provided in the period
Utilised during the period
Released during the period
Effect of retranslation
At 31 March 2018
Current liabilities 2018
Non-current liabilities 2018
Current liabilities 2017
Non-current liabilities 2017
Property
provisions
£’000
2,602
1,367
(374)
(1,855)
16
1,756
1,538
1,280
(1,198)
(538)
3
2,841
2,462
379
834
922
Other
£’000
4,214
2,770
(1,857)
(1,092)
–
4,035
–
2,264
(1,807)
(31)
–
4,461
4,461
–
4,035
–
Total
£’000
6,816
4,137
(2,231)
(2,947)
16
5,791
1,538
3,544
(3,005)
(569)
3
7,302
6,923
379
4,869
922
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 £8.4k per claim (£8.3k in 2017).
23 Share capital
As at
Allotted, called up and fully paid
B&M European Value Retail S.A.
1,000,561,222 ordinary shares of 10p each (2017: 1,000,000,000)
31 March
2018
£’000
25 March
2017
£'000
100,056
100,056
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 2,971,661,000 (2017: 2,972,222,222) ordinary shares.
B&M European Value Retail S.A. has released 561,222 shares during the period in relation to exercised employee and director share options, see note 10.
SRCGFSFinancial Statements 104
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
24 Cash generated from operations
Period ended
Profit before tax
Adjustments for:
Net interest expense
Depreciation
Amortisation of intangible assets
Profit on remeasurement of finance leases
Loss/(profit) 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 resulting from fair value of financial derivatives
53 weeks
ended
31 March
2018
£'000
229,316
12,198
35,231
1,652
–
277
615
(79,099)
(1,168)
39,377
1,511
(1,711)
(31)
3,825
52 weeks
ended
25 March
2017
£'000
182,918
22,590
25,221
794
(317)
(405)
254
(99,662)
(6,666)
84,575
(1,042)
(1,005)
249
3,369
Cash generated from operations
241,993
210,873
25 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 (2017: >95%) The leases are separately negotiated and no subgroup is considered to be individually significant nor to contain
individually significant terms. The Group was not subject to non-trivial contingent rent agreements at the year end date. The following table sets out the
total future minimum lease payments under non-cancellable operating leases, taking account of lease premiums.
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
31 March
2018
£'000
154,508
554,293
548,974
25 March
2017
£'000
133,696
484,814
494,478
1,257,775
1,112,988
31 March
2018
£'000
150,512
(1,043)
149,469
25 March
2017
£'000
127,369
(571)
126,798
Finance leases
All of the Group’s finance leases related to buildings used in the operation of the German and UK Heron businesses. 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
31 March 2018
25 March 2017
Minimum
payments
£'000
2,121
6,507
1,260
9,888
PV of minimum
payments
£'000
Minimum
payments
£'000
PV of minimum
payments
£'000
1,870
6,047
1,259
9,176
1,227
4,791
2,295
8,313
994
4,227
2,242
7,463
Capital commitments
There were £44.1m of contractual capital commitments not provided within the Group financial statements as at 31 March 2018 (2017: £3.5m). This figure
includes an estimated £40.7m in relation to the build and fit out of the southern warehouse which, whilst the majority is not yet committed, is considered
very likely to be incurred. The southern warehouse is expected to undergo a sale & leaseback around the date of completion.
105
B&M European Value Retail S.A.
Annual Report and Accounts 2018
26 Group information and ultimate parent undertaking
The financial results of the Group include the following entities.
Company name
B&M European Value Retail S.A.
B&M European Value Retail 1 S.àr.l.
Bedford DC Investment Ltd
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
B&M European Value Retail 2 S.àr.l.
EV Retail Limited
B&M Retail Limited
Opus Homewares Limited
Retail Industry Apprenticeships Ltd
Heron Food Group Ltd
Heron Foods Ltd
Cooltrader Ltd
Heron Properties (Hull) Ltd
B&M European Value Retail Germany GmbH
J.A. Woll Handels GmbH
Jawoll Vertriebs GmbH I
Country
Date of incorporation
Percent held
within the Group
Luxembourg
Luxembourg
Jersey
UK
UK
UK
UK
Luxembourg
UK
UK
UK
UK
UK
UK
UK
UK
Germany
Germany
Germany
May 2014
November 2012
June 2017
December 2012
December 2012
November 2012
November 2012
September 2012
September 1996
March 1978
April 2003
June 2017
August 2002
October 1978
September 2012
February 2003
November 2013
November 1987
September 2007
Parent
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
80%
Principal activity
Holding company
Holding company
Property development
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
General retail
Dormant
Employment services
Holding company
Convenience retail
Dormant
Dormant
Holding company
General retail
General retail
Changes during the year
The Group acquired four businesses comprising the Heron Food Group as detailed in note 7. Retail Industry Apprenticeships Ltd and Bedford DC
Investment Ltd were incorporated and are fully owned by the Group. BestFlora was fully incorporated into the other Germany entities and disposed of. Also
see the associates section below.
Changes during the prior 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.
Associates
The Group has a 50% interest in Multi-lines International Company Limited, a company incorporated in Hong Kong and a 20% (40% prior to December
2017) 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, see note 13.
Ultimate parent undertaking
The directors of the Group consider the parent and the ultimate controlling related party of this Group to be B&M European Value Retail SA, registered
in Luxembourg.
27 Financial risk management
The Group uses various financial instruments, including bank loans, related party loans, finance company loans, cash, equity investment, derivatives and
various items, such as trade receivables and trade payables that arise directly from its operations.
The main risks arising from the Group's financial instruments are market risk, currency risk, cash flow interest rate risk, credit risk and liquidity risk. The
directors review and agree policies for managing each of these risks and they are summarised below.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below. In order to
manage the Group's exposure to those risks, in particular the Group's exposure to currency risk, the Group enters into forward foreign currency contracts.
No transactions in derivatives are undertaken of a speculative nature.
Market risk
Market risk encompasses three types of risk, being currency risk, fair value interest rate risk and commodity price risk. Commodity price risk is not
considered material to the business as the Group is able to pass on pricing changes to its customers.
Despite the impact of price risk not being considered material, the Group has previously engaged in swap contracts over the cost of fuel in order to
minimise the impact of any volatility.
The sensitivity to these contracts for a reasonable change in the year end fuel price is as follows
As at
Effect on profit before tax
Change in
fuel price
+5%
-5%
31 March
2018
£'000
–
–
25 March
2017
£'000
159
(151)
SRCGFSFinancial Statements 106
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
27 Financial risk management continued
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 (net of tax) is largely due to changes in the fair value of our foreign exchange
derivatives and revaluation of creditors and deposits held on account with our US Dollar suppliers.
As at
Effect on profit before tax
Effect on other comprehensive income
Change in
USD rate
+2.5%
-2.5%
+2.5%
-2.5%
31 March
2018
£'000
(588)
618
(10,150)
10,671
25 March
2017
£'000
(885)
931
(9,403)
7,919
The following table demonstrates the sensitivity (net of tax) to a reasonably possible change in the Euro period end exchange rates with all other variables
held constant. The effect on other comprehensive income is due to the foreign exchange reserve on retranslation of the Group’s subsidiaries that have the
Euro as a functional currency.
As at
Effect on profit before tax
Effect on other comprehensive income
Change in
Euro rate
+2.5%
-2.5%
+2.5%
-2.5%
31 March
2018
£'000
18
(19)
(2,012)
2,115
25 March
2017
£'000
(4)
9
(1,997)
2,101
These calculations have been performed by taking the year end translation rate used on the accounts and applying the change noted above. The balance
sheet valuations are then directly calculated. The valuation of the foreign exchange derivatives are projected based upon the spot rate changing and all
other variables being held equal.
Interest rate risk
Interest rate risk is the risk of variability of the Group cash flows due to changes in the interest rate. The Group is exposed to changes in interest rates as
the Group's bank borrowings are subject to a floating rate based on LIBOR.
The Group's interest rate risk arises mainly from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate
risk. The Group's exposure to interest rate fluctuations is not considered to be material, however the Group has in the past used interest rate swaps to
minimise the impact.
If LIBOR interest rates had been 50 basis points higher/lower throughout the year with all other variables held constant, the effect upon calculated pre-tax
profit for the year would have been:
As at
Effect on profit before tax
Basis point
increase/decrease
+50
-50
31 March
2018
£'000
(1,716)
1,716
25 March
2017
£'000
(1,891)
1,891
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.
107
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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-1 short term (standard & poor), (2017: A, A-2 respectively). The principal credit risk arises therefore from the Group's trade receivables.
Credit risk is further limited by the fact that the vast majority of sales transactions are made through the store registers, direct from the customer at the point
of purchase, leading to a low trade receivables balance.
In order to manage credit risk, the directors set limits for customers based on a combination of payment history and third party credit references. Credit
limits are reviewed by the credit controller on a regular basis in conjunction with debt ageing and collection history. Provisions against bad debts are
made where appropriate.
Liquidity risk
Any impact on available cash and therefore the liquidity of the Group could have a material effect on the business as a result.
The Group's borrowings are subject to quarterly banking covenants against which the Group has had significant headroom to date with no anticipated
issues based upon forecasts made. Short term flexibility is achieved via the Group's rolling credit facility. The following table shows the liquidity risk maturity of
financial liabilities grouping based on their remaining period at the balance sheet date. The amounts disclosed are the contractual undiscounted cash flows:
31 March 2018
Interest bearing loans
Forward foreign exchange contracts
Trade payables
Call/put option (Jawoll)
Deferred consideration (Heron)
25 March 2017
Interest bearing loans
Forward foreign exchange contracts
Trade payables
Call/put option (Jawoll)
Within
1 year
£'000
Between
1 and 2 years
£'000
Between
2 and 5 years
£'000
More than
5 years
£'000
66,273
16,666
276,570
–
–
19,433
2,070
206,373
–
21,109
–
–
9,637
12,800
19,433
–
–
20,862
587,778
–
–
–
–
603,738
–
–
–
2,099
–
–
–
–
–
–
–
–
Total
£'000
677,259
16,666
276,570
9,637
12,800
642,603
2,070
206,373
20,862
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
Put/call options over the non-controlling interest of Jawoll
Deferred consideration in relation to the purchase of Heron
Fair value through other comprehensive income
Forward foreign exchange contracts
Amortised cost
Overdraft
Interest-bearing loans and borrowings
Trade payables
Other payables
31 March
2018
£'000
25 March
2017
£'000
–
–
–
90,816
5,046
1,324
923
8,076
11,133
15,743
6,112
603,426
276,569
7,796
61
232
117
155,551
11,215
91
287
17,886
–
1,783
–
543,725
206,373
8,950
SRCGFSFinancial Statements 108
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
28 Related party transactions
The Group has transacted with the following related parties over the periods:
Multi-lines International Company Limited, a supplier, and Home Focus Group, 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).
David Heuck, a director of Heron is the landlord of a property occupied by the Group (Comprising the Heron related parties).
Jawoll Immobilien GmbH, Stern Grundstück Entwicklungs GmbH, DS Grundstücks GmbH and Silke Stern are all landlords of properties occupied by the
Group and are related by virtue of connection to a shareholder of J.A.Woll-Handels GmbH (together, the German related parties). 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
David Heuck
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
31 March
2018
£'000
2,408
2,408
25 March
2017
£'000
2,503
2,503
146,360
121,351
151
28
794
550
194
2,976
157
620
675
12,666
165,171
154
–
759
524
192
2,811
148
591
42
10,250
136,822
Included in the current year figures above are 6 leases of new stores and 2 renewals of existing stores, entered into by Group companies during the
current period with the Arora related parties (2017: 6 new, or extensions to existing, leases and no renewals). The total expense on these leases in the
period was £1,778k (2017: £763k). There were also 4 conditionally exchanged leases with Arora related parties in the current period with long stop
completion dates (2017: 2), and no expense is incurred under them until they are completed.
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
Total related party trade receivables
Trade payables to associates of the Group
Multi-lines International Company Ltd
Trade payables to companies owned by key management personnel
Rani Investments
Ropley Properties Ltd
TJL UK Ltd
Triple Jersey Ltd
Total related party trade payables
31 March
2018
£'000
25 March
2017
£'000
316
94
410
9,680
40
643
3
1,979
12,345
706
629
1,335
3,385
–
850
85
2,152
6,472
109
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 31 March 2018 (2017: no impairment).
This assessment is undertaken each year through examining the financial position of the related party and the market in which the related party operates.
The future operating lease commitments on the Arora related party properties are;
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 party properties 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 Heron related party properties are;
As at
Not later than one year
Later than one year and not later than five years
Later than five years
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
31 March
2018
£'000
16,308
65,565
85,934
25 March
2017
£'000
14,544
57,704
76,341
167,807
148,589
31 March
2018
£'000
877
2,438
–
3,315
31 March
2018
£'000
43
170
397
610
31 March
2018
£'000
2,084
1,020
497
2,213
5,814
2,262
1,170
577
2,410
6,419
25 March
2017
£'000
578
561
–
1,139
25 March
2017
£'000
–
–
–
–
25 March
2017
£'000
2,386
1,161
632
2,520
6,699
2,531
1,332
733
2,707
7,303
All related party finance leases are on properties occupied by the German business. During the prior year six of these properties were extended, resulting
in a profit of £317k on remeasurement.
The Group disposed of part of the holding in Home Focus Group during the year, and received dividends from Multi-Lines International Company Limited.
See note 13 for further information on the Group’s associates.
For further details on the transactions with key management personnel, see note 9 and the remuneration report.
SRCGFSFinancial Statements 110
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the consolidated financial statements continued
29 Non-controlling interest
Non-controlling interest balances are valued on acquisition as a proportion of the fair value of net assets to which the non-controlling interest relates. Post
acquisition the non-controlling interest is valued as the original value plus/minus the comprehensive income/loss owed to the non-controlling interest and
minus any dividend paid to the non-controlling interest.
There exists a non-controlling interest in Jawoll, an 80% subsidiary of B&M European Value Retail Germany GmbH, which was created on purchase of that
company in April 2014. The percentage has not changed over the period of ownership.
In the 53 weeks to 31 March 2018, £119k has been accrued to the non-controlling interest in Jawoll (52 weeks 2017: £2,082k), and no dividends have been
paid (2017: 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
Period ended
31 March
2018
£'000
200,306
5,621
859
4,240
31 March
2018
£'000
38,756
54,961
(7,357)
(20,310)
66,050
Period 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)
65,122
There previously existed an additional non-controlling interest in BestFlora GmbH, which was a 75% subsidiary of Jawoll at the start of the prior 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 prior year £nil was accrued to this non-controlling interest and £nil was paid out in dividends.
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.
30 Capital management
For the purpose of the Group's capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the
parent. The primary objective of the Group's capital management is to maximise the shareholder value.
In order to achieve this overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached
to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the
bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in
the current or prior period.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
The Group uses the following definition of net debt:
External interest bearing loans and borrowings less cash and short-term deposits.
The interest bearing loans figure used is the gross amount of cash borrowed at that time, as opposed to the carrying value under the amortised cost
method, and includes finance leases.
As at
Interest bearing loans and borrowings
Less: Cash and short term deposits – overdrafts
Net debt
31 March
2018
£'000
619,968
(84,704)
535,264
25 March
2017
£'000
557,463
(155,551)
401,912
111
B&M European Value Retail S.A.
Annual Report and Accounts 2018
31 Post balance sheet events
There have been no material events between the balance sheet date and the date of issue of these accounts.
32 Dividends
An interim dividend of 2.4 pence per share (£24.0m) was paid in December 2017.
A final dividend of 4.8 pence per share (£48.0m), giving a full year dividend of 7.2 pence per share (£72.0m), is proposed.
Relating to the prior year:
A special dividend of 10.0 pence per share (£100.0m) was paid in July 2016.
An interim dividend of 1.9 pence per share (£19.0m) was paid in December 2016.
A final dividend of 3.9 pence per share (£39.0m), giving a full year (non-special) dividend of 5.8 pence per share (£58.0m), was paid in August 2017.
33 Contingent liabilities and guarantees
As at 31 March 2018 and 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 £345.0m for the loans (2017: £300m), 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 31 March 2018, Heron Food Group Limited and Heron Foods Ltd are guarantors to the loans which are formally held within Heron Foods Ltd. The
amount outstanding at the year end was £15.8m, with the balance held in Heron Foods Ltd.
SRCGFSFinancial Statements 112
B&M European Value Retail S.A.
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Annual Report and Accounts 2018
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 audit of the annual accounts
Opinion
We have audited the annual accounts of B&M European Value Retail S.A.
(the “Company”), which comprise the balance sheet as at 31 March 2018,
and the profit and loss account for the year then ended, and the notes
to the annual accounts, including a summary of significant accounting
policies.
In our opinion, the accompanying annual accounts give a true and fair
view of the financial position of the Company as at 31 March 2018, and
of the results of its operations for the year then ended in accordance with
Luxembourg legal and regulatory requirements relating to the preparation
and presentation of the annual accounts.
Basis for Opinion
We conducted our audit in accordance with the EU Regulation N°
537/2014, the Law of 23 July 2016 on the audit profession (“Law of 23 July
2016”) and with International Standards on Auditing (“ISAs”) as adopted
for Luxembourg by the “Commission de Surveillance du Secteur Financier”
(“CSSF”). Our responsibilities under those Regulation, Law and standards
are further described in the Responsibilities of the Réviseur d’Entreprises
agréé for the audit of the annual accounts section of our report. We are
also independent of the Company in accordance with the International
Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (“IESBA Code”) as adopted for Luxembourg by the CSSF
together with the ethical requirements that are relevant to our audit of the
annual accounts, and have fulfilled our other ethical responsibilities under
those ethical requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the annual accounts of the current
period. These matters were addressed in the context of the audit of the
annual accounts as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
We have determined that there are no key audit matters to communicate
in our report.
Other information
The Board of Directors is responsible for the other information. The other
information comprises the information stated in the annual report including
the management 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 the other information
and we do not express any form of assurance conclusion thereon.
In connection with our audit of the annual accounts, our responsibility is
to read the 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.
Responsibilities of the Board of Directors for the
annual accounts
The Board of Directors is responsible for the preparation and fair
presentation of the annual accounts in accordance with Luxembourg legal
and regulatory requirements relating to the preparation and presentation
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.
In preparing the annual accounts, the Board of Directors is responsible
for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Board of Directors either
intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for assessing the
Company’s financial reporting process.
Responsibilities of the Réviseur d’Entreprises agréé for the
audit of the annual accounts
The objectives of our audit are to obtain reasonable assurance about
whether the annual accounts as a whole are free from material
misstatement, whether due to fraud or error, and to issue a report of
“Réviseur d’Entreprises agréé” that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the EU Regulation N° 537/2014, the
Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF
will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these annual accounts.
As part of an audit in accordance with the EU Regulation N° 537/2014, the
Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF,
we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
•
identify and assess the risks of material misstatement of the annual
accounts, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control;
• obtain an understanding of internal control relevant to the audit 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 Company’s internal control;
• evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made
by the Board of Directors;
• conclude on the appropriateness of Board of Directors’ use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our report of “Réviseur
d’Entreprises agréé” to the related disclosures in the annual accounts
or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date
of our report of “Réviseur d’Entreprises agréé”. However, future events
or conditions may cause the Company to cease to continue as a going
concern;
113
B&M European Value Retail S.A.
Annual Report and Accounts 2018
• evaluate the overall presentation, structure and content of the annual
accounts, including the disclosures, and whether the annual accounts
represent the underlying transactions and events in a manner that
achieves fair presentation.
We communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with governance,
we determine those matters that were of most significance in the audit of
the annual accounts of the current period and are therefore the key audit
matters. We describe these matters in our report unless law or regulation
precludes public disclosure about the matter.
Report on other legal and regulatory requirements
We have been appointed as “Réviseur d’Entreprises agréé” by the
General Meeting of the Shareholders on 28 July 2017 and the duration
of our uninterrupted engagement, including previous renewals and
reappointments, is 2 years.
The management report on pages 65 to 69 of the Annual Report
is consistent with the annual accounts and has been prepared in
accordance with applicable legal requirements.
The accompanying Corporate Governance Statement is presented on
pages 40 to 47 of the Annual Report. The information required by Article
68ter paragraph (1) letters c) and d) of the law of 19 December 2002 on
the commercial and companies register and on the accounting records
and annual accounts of undertakings, as amended, is consistent with the
annual accounts and has been prepared in accordance with applicable
legal requirements.
We confirm that the audit opinion is consistent with the additional report to
the audit committee or equivalent.
We confirm that the prohibited non-audit services referred to in the EU
Regulation No 537/2014, on the audit profession were not provided and
that we remain independent of the Company in conducting the audit.
Other matter
The Corporate Governance Statement includes information required
by Article 68ter paragraph (1) points a), b), e), f) and g) of the law of 19
December 2002 on the commercial and companies register and on the
accounting records and annual accounts of undertakings, as amended.
Luxembourg, 29 May 2018
KPMG Luxembourg
Société coopérative
Cabinet de révision agréé
Thierry Ravasio
SRCGFSFinancial Statements 114
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Company balance sheet
As at 31 March, 2018
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
Profit or loss brought forward
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
The accompanying notes form an integral part of these annual accounts.
Notes
31 March 2018
GBP
31 March 2017
GBP
8,262
11,802
2,624,999,999
2,624,999,999
2,625,008,261
2,625,011,801
302,080,659
287,935,431
199,330
149,712
302,279,989
288,085,143
42,647
41,124
2,927,330,897
2,913,138,068
31 March 2018
GBP
31 March 2017
GBP
100,056,122
2,473,745,635
100,000,000
2,472,481,847
10,000,000
10,000,000
76,538,619
37,913,334
(24,013,293)
95,913,332
(19,000,000)
2,674,240,417
2,659,395,179
3
4
5
6
7
1,718,750
250,000,000
1,718,750
250,000,000
251,718,750
251,718,750
120,869
1,378,608
1,163,957
17,860
25,929
–
60,975
605,815
–
21,856
1,371,730
2,024,139
2,927,330,897
2,913,138,068
115
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Company profit and loss account
for the financial year ended 31 March 2018
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
The accompanying notes form an integral part of these annual accounts.
Notes
31 March 2018
GBP
31 March 2017
GBP
8
9
10
11
12
13
14
14
(1,001,579)
(4,593,284)
(226,304)
(147,677)
(16,769)
(9,810)
(3,541)
(551,327)
(13,250)
(8,782)
(3,540)
(245,878)
78,000,000
99,750,000
10,829,043
33,106
2,760,408
279,605
(10,382,568)
(7,305)
76,662,946
(124,327)
(1,771,775)
–
96,005,827
(92,495)
76,538,619
95,913,332
SRCGFSFinancial Statements 116
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the annual accounts
for the financial year ended 31 March 2018
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 10 August 1915 on commercial companies, as amended. It is intended
to hold an EGM on 30 July 2018 to update the "Articles of Association" (the "Articles") further to the changes brought to the law of 10 August 1915 on
commercial companies by the law of 10 August 2016 on the modernisation on the law of commercial companies.
The registered office of the Company is established in Luxembourg City and is registered with the Luxembourg Trade and Companies register in
Luxembourg under number B 187 275.
The financial year starts on 1 April 2017 and ends on 31 March 2018.
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.
On 13 November 2017, the Board acknowledged the resignation of Sir Terry Leahy who had notified his retirement effective as from 01 March 2018 to the
Company. Peter Bamford was then co-opted by the Board of Directors as Independent Non-Executive Director of the Company and Chairman of the Board
of Directors with effect as from 01 March 2018. David Novak resigned as Non-Executive Director of the Company with immediate effect on 18 January 2018.
The Company is registered with the Luxembourg Stock Exchange and as such subject to the supervision of the CSSF (Commission de Surveillance du
Secteur Financier) and its shares are listed on the premium listing segment of the London Stock Exchange under the 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 19 December 2002, as subsequently amended (the "Law"),
determined and applied by the directors of the Company (the "Board of Directors").
These 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.
Significant accounting policies and valuation methods
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.
Financial assets
Shares in affiliated undertaking 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.
117
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 Pounds sterling (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.
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.àr.l.
Net equity
as at
31 March 2018
GBP
Net result for the
financial year
ended
31 March 2018
GBP
Net book value
as at
31 March 2018
GBP
Percentage
of holding
100% 646,838,074
77,988,850 2,624,999,999
As 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.
In November 2017 an interim dividend of 23m GBP was distributed by B&M EVR 1 to the Company. In March 2018 an interim dividend of 55m GBP was
distributed by B&M EVR 1 to the Company.
SRCGFSFinancial Statements 118
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the annual accounts continued
for the financial year ended 31 March 2018
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.àr.l. ("B&M EVR 2")
B&M EVR 1 – Dividend receivable (Note 11)
Total
March 2018
GBP
March 2017
GBP
247,080,641
18
55,000,000
248,935,413
18
39,000,000
302,080,659
287,935,431
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 2018
GBP
March 2017
GBP
158,998
–
40,332
199,330
131,787
14,230
3,695
149,712
Note 6 – Capital and reserves
Subscribed capital and share premium account
As at 31 March 2018, the share capital is set at GBP 100,056,122 divided into 1,000,561,222 ordinary shares with a nominal value of GBP 0.10 each and the
un-issued but authorised share capital is set at GBP 297,166,100. The Company's share capital is represented by only one class of (ordinary) shares.
During the financial year under review, share options reported under the annual accounts as at 31 March 2017 as off balance sheet commitments have
been exercised and the Board of Directors acting on the basis of article 5.2 of the Articles and within the frame of the authorised share capital clause,
issued in aggregate, 561,222 new ordinary shares of 10 pence each in relation to share options exercised by employees and directors of the Group. The
Articles have been updated accordingly.
Movements for the period on the reserves and profit/loss captions are as follow:
As at the beginning of the financial year
Allocation of prior period's result
proceeds rec. from share options
Allocate interim dividends
Final dividend
Interim dividends
Profit for the financial year
Share premium
and similar
premiums
GBP
2,472,481,847
–
1,263,788
–
–
–
–
Legal
reserve
GBP
10,000,000
–
–
–
–
–
–
Profit or loss
brought forward
GBP
–
95,913,334
–
(19,000,000)
(39,000,000)
–
–
Profit for the
financial period
GBP
95,913,334
(95,913,334)
–
–
–
–
76,538,619
Interim
dividends
GBP
(19,000,000)
–
–
19,000,000
–
(24,013,293)
–
Total
GBP
2,559,395,181
–
1,263,788
–
(39,000,000)
(24,013,293)
76,538,619
As at the end of the financial year
2,473,745,635
10,000,000
37,913,334
76,538,619
(24,013,293) 2,574,184,295
On 13 November 2017 the Board of Directors unanimously approved the distribution of an interim dividend of 2.4p per ordinary share, being a total
aggregate distribution of GBP 24,013,292.54 paid by the company in December 2017.
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.
119
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 2018
GBP
March 2017
GBP
1,718,750
–
–
250,000,000
1,718,750
250,000,000
–
–
–
1,718,750
250,000,000
1,718,750
250,000,000
251,718,750
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.
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
62,475
58,394
120,869
1,163,957
2,541
4,220
19,168
–
60,975
86,904
After one
year
within five
GBP
After more than
five years
March 2018
GBP
March 2017
GBP
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
62,475
58,394
120,869
104,083
1,274,525
1,378,608
1,163,957
17,860
2,541
4,220
19,168
–
–
60,975
86,904
7,453
591,654
6,708
–
21,856
627,671
1,371,730
2,024,139
Note 7.1 – Suppliers-invoices not yet received balance during the financial year ended 31 March 2018 relates mostly to audit fees accrued.
SRCGFSFinancial Statements 120
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the annual accounts continued
for the financial year ended 31 March 2018
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
March 2018
GBP
(189,680)
27,952
213,826
71,356
235,631
82,172
87,719
95,855
49,310
14,536
312,902
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
1,001,579
4,593,284
Note 9 – Staff costs
As at 31 March 2018, the Company employed one part time employee and three full time employees. (2017: one part time and two full time).
Note 10 – Other operating expenses
Directors 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 dividends distributed 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
Other income
March 2018
GBP
296,356
254,472
499
551,327
March 2017
GBP
245,657
–
221
245,878
March 2018
GBP
March 2017
GBP
78,000,000
99,750,000
78,000,000
99,750,000
March 2018
GBP
March 2017
GBP
10,829,043
2,760,408
10,829,043
2,760,408
24,439
8,667
33,106
279,111
494
279,605
10,862,149
3,040,013
Note 12.1 – The Company and its affiliates have entered into a Management Services Agreement ("MSA 1"). 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. The German entities are not part of the MSA 1.
121
B&M European Value Retail S.A.
Annual Report and Accounts 2018
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 2018
GBP
March 2017
GBP
10,283,850
98,718
10,382,568
1,718,750
53,025
1,771,775
Note 14 – Taxation
The Company is subject to the general tax regulation applicable to all Luxembourg commercial companies.
Note 15 – Off balance sheet commitments and contingencies
As 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 the following 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).
5. The B&M European Value Retail S.A. Long Term Incentive Plan 2017, split into four; (i) LTIP 2017A (ii) LTIP 2017B1 (iii) LTIP 2017B2 (iv) LTIP2017B3
The LTIP 2014 and CSOP scheme starting 11/8/14 were fully exercised in the year and have therefore closed.
The CSOP scheme starting 1/8/2014 was fully exercised except for 11,049 options which are fully vested and eligible for exercise.
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 or based upon the consensus position of the B&M share price for the smaller awards.
Scheme
CSOP (1/8/14)
CSOP (11/8/14)
CSOP (17/12/15)
CSOP (19/8/16)
Date of
grant
1 Aug 2014
11 Aug 2014
17 Dec 2015
19 Aug 2016
Date of vesting
1 Aug 2017
11 Aug 2017
17 Dec 2018
19 Aug 2019
Exercise
price
271.5p
267.0p
286.0p
276.8p
Fair value of
option
GBP
Number of options
outstanding at
31 March 2017
Number of options
granted/(forfeited)
in the year
Number of
options exercised
in the year
Number of options
outstanding at
31 March 2018
0.83
0.81
0.79
0.50
460,375
59,920
10,489
21,676
(22,098)
0
0
0
(427,228)
(59,920)
0
0
11,049
0
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.
LTIP 2015, LTIP 2016 and LTIP 2017A 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.
Scheme/Tranche
LTIP 2014
LTIP 2015/EPS
LTIP 2015/TSR
LTIP 2016/EPS
LTIP 2016/TSR
LTIP 2017A/EPS
LTIP 2017A/TSR
LTIP 2017B1
LTIP 2017B2
LTIP 2017B3
Date of
grant
1 Aug 2014
5 Aug 2015
5 Aug 2015
18 Aug 2016
18 Aug 2016
7 Aug 2017
7 Aug 2017
7 Aug 2017
14 Aug 2017
23 Jan 2018
Date of vesting
1 Aug 2017
5 Aug 2018
5 Aug 2018
18 Aug 2019
18 Aug 2019
7 Aug 2020
7 Aug 2020
7 Aug 2020
14 Aug 2020
23 Jan 2021
Exercise
price
Fair value of
option
GBP
Number of options
outstanding at
31 March 2017
Number of options
granted/(forfeited)
in the year
Number of
options exercised
in the year
Number of options
outstanding at
31 March 2018
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
1.34
3.41
2.10
2.54
1.64
3.51
2.72
3.61
3.60
4.00
74,074
40,616
40,616
122,386
122,386
0
0
0
0
0
0
0
0
0
0
40,610
40,610
271,891
101,654
19,264
(74,074)
0
0
0
0
0
0
0
0
0
0
40,616
40,616
122,386
122,386
40,610
40,610
271,891
101,654
19,264
SRCGFSFinancial Statements 122
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes to the annual accounts continued
for the financial year ended 31 March 2018
Note 15 – Off balance sheet commitments and contingencies continued
Assumptions
The fair valuing exercise uses several assumptions, including those given in the table below.
Scheme/Tranche
CSOP (1/8/14)
CSOP (11/8/14)
CSOP (17/12/15)
CSOP (19/8/16)
LTIP 2014
LTIP 2015/EPS
LTIP 2015/TSR
LTIP 2016/EPS
LTIP 2016/TSR
LTIP 2017A/EPS
LTIP 2017A/TSR
LTIP 2017B1
LTIP 2017B2
LTIP 2017B3
Risk-free
rate
2.23%
2.23%
N/A
N/A
1.39%
0.92%
0.92%
0.09%
0.09%
0.52%
0.52%
0.25%
0.25%
0.25%
Expected life
(years)
Volatility
Dividend yield
Consensus
(pence)
6.5
6.5
3
3
3
5
5
5
5
5
5
3
3
3
N/A
N/A
N/A
N/A
25%
24%
24%
26%
26%
32%
32%
32%
32%
32%
0.0%
0.0%
N/A
N/A
0.0%
1.0%
1.0%
1.7%
1.7%
1.4%
1.4%
1.4%
1.4%
1.4%
N/A
N/A
362.1
326.8
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
In accordance with Luxembourg GAAP, as long as the option holders have not exercised their rights, the related amounts are reported as off balance
sheet commitments.
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, in relation of the issuance of the Bonds (Note 7).
Note 16 – Directors emoluments
Director fees payable to the Independent Non-Executive Directors of the Company are paid in GBP on a quarterly basis (by reference to the civil year) and
subject to withholding tax in Luxembourg at the rate of 20%. As at 01 April 2017, the quarterly amounts payable have been reviewed.
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 2018
GBP
297,500
297,500
March 2017
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 to 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 authoirised for issue on 29 May 2018 and signed on its behalf by:
Simon Arora
Chief Executive Officer
Paul McDonald
Chief Financial Officer
123
B&M European Value Retail S.A.
Annual Report and Accounts 2018
General information
Registered Office & Company Number
B&M European Value Retail S.A.
9, Allée Scheffer
L-2520 Luxembourg
Grand-Duchy of Luxembourg
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
R.C.S. Luxembourg: B 187275
Tel: +352 246 130 207
www.bandmretail.com
Share Registrar
(Shareholders)
Link Corporate Services S.A.
9, Allée Scheffer
L-2520 Luxembourg
Grand-Duchy of Luxembourg
Tel: +352 440 929
Email: enquiries@linkgroup.co.uk
www.linkassetservices.com
Depositary Interests Registrar
(Depositary Interest holders)
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey GY2 4LH
Channel Islands
Email: custodymgt@linkgroup.co.uk
Listing
Ordinary shares of B&M European Value Retail
S.A. are listed with a premium listing on the
London Stock Exchange.
SRCGFSFinancial Statements 124
B&M European Value Retail S.A.
Annual Report and Accounts 2018
Notes
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©2018. All rights reserved. B&M and
the B&M logo are registered
trademarks
B&M European Value Retail S.A.
9, Allée Scheffer
L-2520 Luxembourg
Grand-Duchy of Luxembourg
R.C.S. Luxembourg: B 187275
www.bandmretail.com