B&M European Value Retail plc (BME) Earnings Call Transcript & Summary

Hello, and welcome to the B&M Retail preliminary results. I will shortly be handing you over to Simon Arora, CEO; and Paul McDonald, CFO, who will be taking you through today's presentation. [Operator Instructions] So now over to Simon Arora.

Good morning, everyone, and I hope you're all well and safe. Thank you for joining us this morning for our prelims presentation in relation to the financial year ended 28th of March 2020. And as usual, I'll perhaps say a few words drawing out some of the highlights that you see on Slide 2 of our presentation before passing to my colleague, Paul, to run you through the financial aspects of the results today. So as you see, we had a solid year last year in terms of revenues. Our U.K. like-for-likes were plus 3.3%, boosted by the late surge towards the end of the financial year, as British shoppers stockpiled groceries, and that led to a plus 6.6% like-for-like for Q4. On our new store opening program, we had a good year. We opened 51 new stores, but that nets down to 36 stores when you deduct 7 closures and 8 stores that were closed in order to be relocated. I draw your attention to Paul's slide later in the deck, where you see that the delta between the gross new openings and the net number achieved from an EBITDA perspective is actually flat or, in fact, small positive. So we continue to close these stores that are 10 to 15 years old, where the physical store is not of a standard that we would open today. Turning to Heron. They opened 18 new stores and that netted down to 12. Moving to France. In terms of our new store opening program, we opened 5 stores over the course of the financial year, and we converted 13 existing Babou stores to the B&M banner. So that meant that at the year-end, we had 19 stores trading as B&M, as we had 1 store opened in the previous financial year. Coming back to the U.K. The results that you see today led to an adjusted EBITDA growth of plus 8.7%. And at a group level, that was plus 7%. You'll recall that the year saw the completion of the development of our 1 million square foot distribution center in Bedford, and that led to a GBP 49 million exceptional gain following the sale and leaseback of the assets. Our cash flows are very positive. Our net cash flow over the year was GBP 532 million, and our net debt-to-EBITDA ratio dropped to 1.02x. As a result of this strong performance, we're declaring a full year ordinary dividend of 8.1p. And of course, I know that everyone's focus today will be on the current trading since the year-end, given the events of COVID-19 and the pandemic, and I assure you that as we come back to talking about the business strategically, I'll be giving you a lot more information and color on that. But in the meantime, I'll pass to Paul just to run through some of the detailed numbers for the financial year just gone.

Okay. Thanks, Simon, and good morning, everyone. Just moving on to the summary profit and loss account, a couple of kind of housekeeping points. Remember, this is our first full year of having adopted IFRS 16. And so the numbers have been presented pre- and post-IFRS 16. And there's a reconciliation at the back of the deck, should you want to see the actual individual movements. The other couple of points to mention, this is also following the disposal of Jawoll in March 2020. This is for continuing operations only. So the numbers for both FY '19 and FY '20 are just basically for B&M, Heron and the Babou fascias and exclude the performance of Jawoll in FY 2020. One other thing just to refer to -- in terms of adjusting items of the figure on there of GBP 40.6 million. GBP 49 million of which relates to the gain on Bedford. And equally, there's another GBP 9.3 million relating to losses arising from -- resulting from COVID-19, which includes the 2.5-week period they were closed at the back end of March 2020 and additionally -- and additional stock provision relating to the likely cost of clearing spring/summer clothing products that we haven't been able to sell during that closure period. Moving on to kind of Group revenues. Yet again, apologies for a very similar format of slides previously. Overall revenues up 16.5%, with the B&M facia plus 12.6%. The normal -- in terms of normal building blocks, the annualization of the FY '19 stores and then also the 51 gross new store openings that we had opened in FY '20. A couple of points of detail around that. We had basically -- approximately 60% of the revenue -- we've achieved 60% of the revenues in FY '20. And therefore, there's another 40% of revenues to come through in FY '21. The average store sales per store were around GBP 5.7 million, although this year's new openings are going to be slightly small than that in terms of store size, probably around about GBP 5 million. Obviously, we've then got the LFL growth of just over 3%. And if you remember, we've got this associate business in the Republic of Ireland, of which we achieved a further GBP 16 million increase in wholesale revenues. Heron's growth is just over 10%, yet again from yet nice positive LFL growth, which has been really pleasing, given that over the last 2, 3 years, they've actually shown some strong LFL growth. So it's great to see some additional LFL growth out of the business, and then, obviously, the benefit from the new store opening program from Heron. And then equally from Babou, you've got GBP 154 million of additional revenues, although clearly, that was -- basically, this was our first full year of ownership. In terms of the EBITDA bridge, yet again, same building blocks. I think probably FY '20 new stores were kind of extremely pleasing in terms of their performance in the year. We seem to have got another good tranche of new stores. As Simon alluded to earlier, there's a small increase in kind of EBITDA from the net relocations sort of closed. So that's actually -- so that number of 0.3 includes both the 15 closures, plus the 8 relocations in terms of the openings. We've had some additional growth in the LFL stores of GBP 7 million. And then in relation to, obviously, netted back in B&M by some additional kind of central costs, including additional kind of fixed costs associated with the Bedford warehouse and investments in kind of buying an IT head office. Moving on to Heron. We've seen -- overall EBITDA growth in Heron was a very strong 28%. And therefore, we have seen an improvement in performance of GBP 5.6 million in the year. And just to -- and moving on to Babou. Don't forget, the GBP 8.6 million is a delta compared to last year. The underlying performance of Babou in the year was kind of minus GBP 3 million. And probably the final point on this slide. I'd like to refer to the B&M facia margin was 10.2%, which is very much in line with the kind of 5-year average for B&M. Moving on to a bit more color around the LFL sales. As kind of Simon referred to earlier, we had a very strong kind of Q4, which was predominantly bound up with the stockpiling that took place in March. If you exclude those 2 weeks, the LFL for the year was around 1.7%. So it just shows that actually the strength of the demand for kind of B&M in those weeks just ahead of lockdown. The other kind of probably encouraging thing to mention in terms of the overall LFL performance, around about 1/3 of it was actually customers. So it was a combination of -- a similar combination of what we had over the last few days and both in terms of customer growth and ATV growth. Moving on to gross margin on Slide 8. Overall, group margin was 40 basis points down. In terms of the B&M fascia margin, we have the headwind of both the change in the mix, particularly impacted by that March when the consumer was buying grocery and FMCG products, which are, as you know, a kind of -- a low-margin range. And equally, there's been like -- there's about 13 basis points impact of the increase in kind of wholesale margin from the revenue from that sense. Slightly higher increase in margins to Heron and then equally in terms of Babou, they traded just slightly under 40%, just reflecting the ongoing changes in the kind of product offer and mix. Moving on to costs. Overall cost for the group in terms of B&M, B&M's operating costs were 30 basis points lower than last year. We've largely managed to mitigate the headwind of the minimum wage. We have seen some improvements in transport efficiencies and equally some operating leverage on our store costs. Yet again, in terms of -- Heron, yet again -- since the 90 basis points reduction in operating costs, and yet again, the benefit -- the business benefits in both the operating leverage and the efficiencies -- and some of the efficiencies, particularly around the warehouse operation. Babou is reflecting the full year impact of ownership, but in terms of probably other kind of points of detail around -- in terms of modeling for FY '21, depreciation as a percentage of our revenues will be around 1.5%. In terms of our group cash -- interest expense, we expect interest this year to be around about GBP 23 million. And just -- probably just important to note that, I'd say, the impact of the IFRS 16 right-of-use assets has added to the overall interest charge in the P&L of GBP 57 million. If I move on to -- on the cash flow. As Simon kind of referred to earlier, our net debt-to-EBITDA had reduced to just -- to 1x, probably a slightly unusual feature for B&M is that we've actually -- for a business which has a positive working capital position is actually we've had a working capital inflow of nearly GBP 100 million. I think just to put some color behind that; a, part of that was in the relation to selling a lot of grocery products in March. And equally, following COVID-19 impact in China, there was certainly some delay to importing stock and therefore -- and therefore, payment to that stock. Our overall stock levels were around about 11% lower than the previous year. Equally, in terms of thinking about FY '21, assuming that normalizes, et cetera, again, we'd expect our working capital as a percentage of revenues at March '21 to be around 9% of revenues. CapEx in the year was GBP 125 million, which included GBP 32 million on the final piece of the Bedford fit out. And in terms of FY '21, we'd expect CapEx to be in the range of GBP 65 million to GBP 70 million. I think -- and the other important point, clearly, is in terms of our leverage, it's kind of reduced to 1x. And equally, if I take account of the special dividend that was paid in April 2020, we -- our leverage would have increased on a pro forma basis to 1.4x, but equally, significantly below our leverage target of 2.25x. I'll pass over to Simon.

Very good. Thank you, Paul. So if we turn the slide, please, to Slide 13. Before we get into the real detail of the events of the last few weeks and COVID-19, I thought it would be useful just to pause and take a step back and reflect more strategically or more long-term in terms of the appeal of discount retail and specifically, the factors that drive shoppers into B&M. So this was a survey that was conducted in September 2019. And the 3 key messages here are the ones that are outlined in yellow across the top. Firstly, very few respondents took the view that there was no price differential. So in other words, 85% of respondents do believe that there is a price differential between the discount stores like ourselves and the mainstream supermarkets. So that's very encouraging. The next observation is that almost half of the respondents are saying that they're using discount stores more often. You heard earlier about how our full year like-for-likes were driven by not just an increase in average spend, but also an increase in customer numbers. The third and final observation is that shoppers remain promiscuous in where they buy their goods. There isn't the loyalty to a single brand or a single fascia that used to characterize shopping, shall we say, 5, 10 years ago, and with almost half of the respondents saying that they are shopping in a wider range of stores, that actually plays to our strength because we believe that across a broad spectrum of categories, we're the ones that offer the best value. And as we think about that backdrop and then look forward into the environment over the next 12 months, where if most commentators are correct, we're going into a recession and a great deal of consumer uncertainty, that actually should be supportive of the B&M model. These themes about using discount stores more often, the theme around shopping around and the theme around completely understanding that discount retailers really do deliver better prices would all be supportive of an increase in footfall, should we find ourselves in an environment where there is much higher unemployment. I think the final observation though is this, which is that, yes, whilst that will be a positive, this trend has been going on for a few years. So it's not as if there are large sways of the population that don't currently consider going to B&M. We are becoming a relatively mature business. And so whilst we see it being supportive, it may not lead to a rise in that larger number of absolute new shoppers. I think what I'm saying is that a lot of people already know and love B&M. If we turn the slide to Page 14, this just -- as we quite often do in our business, we're very aware of the outside environment. We just remind ourselves how our revenue growth compared to other retailers. The obvious name missing on this chart is Lidl. You'll know that they don't publish U.K. numbers separately from their home market. And so we don't have those numbers. But a safe assumption, I think, would be that they would be similar to the Aldi numbers that we do have. And I say this half in jest, but if you imagine the little bar chart being on the chart and look at the 4 names on the right there, you can categorize them as being all discounters, Home Bargains, B&M, Aldi, Lidl. They're all discounters, they're the ones driving growth. And in our business, we amusingly refer to ourselves as the Germans and the Liverpudlians. So in terms of market share, we're in a good place and have continued to deliver gains. If we turn to Slide 15, we give you an insight into what's driven our like-for-like performance in our core U.K. B&M facia. Obviously, this is anonymized for commercial confidentiality reasons, but the shape of these bar charts tell you a few different things. First of all, the majority of our departments delivered a positive performance. So our performance overall was reasonably broad-based. Yes, we do have a handful of departments that are negative like-for-like. And if you cast your mind back to our Q3 trading update, we'd already flagged that toys, in particular, and to a more modest extent, Christmas decorations, had a disappointing season last Christmas for all sorts of reasons. One of the watchouts as we look forward to this coming autumn/winter is, again, the toy category have to flag, but this year hasn't seen any major blockbuster movies or franchises that will drive new toy sales. So we've planned our business accordingly. The final footnote here really is that the one department that was materially down is clothing, and that's simply a function of the fact that, a, we don't want to have much clothing exposure in our business. And so we deliberately cut back the amount of space we gave to that category. Let's turn the page to Slide 16 where I can update you on our new store program. So you'll see that over the course of the year that we're reporting on, we opened 51 new stores, 12 of those were in the south because we still have plenty of infill opportunities that are easier to service and very accessible, and we should go forward as they come up. I really need to emphasize the second point, which is that we are really pleased with the FY '20 crop of new stores. The returns from those stores exceeded our internal expectations. And so it's absolutely right that we continue to open stores. However, one of the impacts of COVID-19 is that, frankly, it's not this year's new store opening program is fixed. We're approaching the end of Q1. And so far, we haven't opened a new store. That's the first time that's happened in the 15 years that I've been running this business. During the lockdown, pretty much all our shop fitting had to come to a halt. And more importantly, the upstream construction work by property developers or landlords also came down -- came to a halt. But it's wider than that, whether it's planning applications, whether it's the work on appraisals for new schemes, there has been a knock-on impact throughout the chain of events that need to happen before we get the keys to a store. So what that's going to mean is that for this year, we only expect to open 30 net new stores due to that COVID-19 disruption. Those stores will be back-end loaded and frankly, we don't like opening new stores between October and December because of the disruption that causes to our store teams and our business generally in our golden quarter. So again, when you model our business this financial year, please do be very mindful that the 30 openings we will do this year are very, very much back-end loaded. I suspect the busiest quarter will be the Q4 quarter, actually next calendar year. We should also mention that some of these impacts -- temporary impacts from COVID-19 to the property industry and development potentially have an impact on our pipeline for FY '22. We're in a situation where the property sector is effectively sitting on its hands and dealing with much more immediate short-term priorities rather than deploying capital on new schemes. Moving on to the right-hand side of the slide, I do want to reiterate, though, that these disruptions from COVID-19 are short-term in nature, and we remain entirely focused on achieving our 950 store target for the B&M fascia at the minimum in the medium term. I think if nothing else, our trading over the last 8 to 10 weeks has proved one thing. It's proved that our B&M stores are remarkably popular and extremely successful, even in an environment where online is surging or where the other neighboring category specialist retailers on our park or retailers that we previously saw as being anchor retailers such as Currys or B&Q, and we can trade our socks off even when they're closed. So I think that really speaks to the appeal of the B&M model and the fact that we are becoming increasingly a destination in our own right in the out of town context. Let's turn to Slide 17, and I'll update you on Heron. As Paul indicated, Heron had a very good year. It performed above our own internal expectations. The business has been growing really well. I'm delighted with the teamwork being put into play between the buying function of Heron and the buying function within the B&M fascia. It enjoyed a very positive like-for-like performance over FY '20. Actually, it did marginally better than the 3.3% that you saw for the B&M fascia. And again, the overall year performance was boosted by the stockpiling in March 2020. The business ended with 293 stores. We believe, of course, that the long-term opportunity for this discount retail convenience model is a multiple size larger than that. But it will be a hard ground of steady -- slow and steady growth rather than looking for transformational growth in a short period. This will mean 15 net new stores in this current financial year. And again, back-end loaded because just like at B&M, pretty much it was a down-tools situation for 8 weeks of the new financial year. As you model our new stores inherent, we give you here some numbers that we use ourselves, which is a full year annual revenue of GBP 1.2 million and an average store contribution of GBP 200,000 again for the full year. Let's turn the page to Slide 18, which is a -- hopefully, a final update for you on the 1 million square foot facility that is now operational in Bedford. You see here on Slide 18 that the total cost of the facility over a 3-year period was GBP 104 million. And on completing the sale and leaseback, that released to the company and therefore its shareholders GBP 149 million of capital, and that figure was net of the U.K. corporation tax on that development gain. Shareholders received the proceeds of that transaction in April 2020. And the current situation on the ground is that approximately 1/3 of our U.K. stores are now being served from Bedford. So that's a real positive. Those shareholders who've been watching our business for the last 6 years will be aware that we have previously had trading disruption from the commissioning of these large mega sheds. And I'm delighted that, as you can see from our numbers, that whilst, yes, we've had some very significant additional OpEx costs, some dual running costs as we've commissioned this capacity. We've not incurred any impacts at the frontline at store level. And there hasn't been any impact on our like-for-like performance for the stores being serviced by Bedford. So that's a real positive. But as a watchout in terms of the remainder of this financial year, I can't emphasize enough that trying to reach normal levels of efficiency and productivity in a brand-new depot with 1,000 colleagues in an environment where you've got social distancing and a whole host of restrictions that stop you from trading as normal or operating as normal rather in a DC, those additional OpEx costs will continue through the remainder of the year. Moving away from distribution and discussing more broadly how COVID-19 is impacting the business today. Let's turn to Slide 19. So in Slide 19, we sort of give you a summary of what's been happening since the pandemic arrived on our shores. So we're an essential retailer. Most of what we sell falls within cleaning, toiletries, food, drinks, DIY, hardware. And as a consequence, we were asked by government to remain open. The teams performed remarkably well, operated at speed and taking the lead from the supermarkets, we introduced social distance and guidelines at all our stores. And whether that was the masks, the gloves, the hand sanitizer and the protective checkout screens and then managing the occupancy at any one time by customers, we're absolutely treating that as a number one priority in the business. Another feature of our business is that the management team and our buyers here, we've been trading in China for 30 years, and that had 2 distinct benefits. It allowed us to access PPE for our colleagues without putting any strain or any impact on the NHS supply chains because we leveraged our own relationships with suppliers in Asia that had access to that product. There is another point, though, that comes from that 30-year trading relationship with China. Early in the new year, all the conversation was around supply side disruption to our product ranges and our trading. There was a widespread concern that the lockdown in China would have an impact on trading for its customers like B&M in the U.K. And I'm really pleased to report that we've navigated that challenge really well, and we thank our suppliers for working really closely with us to make sure that, frankly, we were the top of the queue as and when those factories reopened. The other aspect of our business model does put us in really good stead in terms of the first 8 to 10 weeks of trading since our year-end is that we do hold strong stockholdings, good buffers of stock here in our U.K. system, both in distribution and stores, and that clearly helped compared to a just-in-time model as you think about the events over the last few months. Another element to our business that probably is worth pointing out is that majority of our sales are out of town. And in an environment where shoppers are very concerned about taking public transport or, frankly, are just refraining from going into city centers or town centers, our locations are proved to be appealing and convenient. As a point of detail, we did, for a very limited period of 3 weeks, closed about 49 stores, but all those stores are now reopened and the closures were very specific to those locations. For example, they were in shopping malls where, frankly, there was nobody else open. We have also placed our -- played our role as a member of the community in which we trade. During the peak of the crisis, we absolutely felt it was right to recognize the additional responsibilities and workload of our colleagues in a fast-moving situation. And so we increased the pay for all our store colleagues and all our distribution colleagues to 110% of the normal levels. We made a very quick and efficient GBP 1 million cash donation to over 600 local food banks at grassroot level. And we also extended our recognition of the great work that our NHS workers are doing for the country by extending a staff discount to all those workers throughout the peak of the crisis. And that staff discount for NHS workers was in place for a full 2 months. However, there is one more observation I'd make, which is that, in every year, our retail business of stores has the headwind of a significantly above-inflation increase in the minimum wage. In a normal year, we would look to offset much of that increase through ongoing productivity gains and the implementation of new technologies. You'll hopefully sympathize that this year, whilst our colleagues at store level and in distribution are dealing with all these challenges, it would be simply impractical or even inappropriate to ask them to also be thinking about changing the way they work for efficiency gains as opposed to being focused as they currently are on the ongoing safety of themselves and our shoppers. So that will have an impact in terms of the full year store wage and distribution wages as a percentage of sales. If we turn to Slide 20, quite a detailed slide this in terms of lots of different things going on, but it is one that's useful to spend a few moments on, if I may. So what we've tried to do here is to capture for you all the different moving parts behind the impacts of COVID-19 on where our U.K. B&M fascia EBITDA, i.e., our core business, where that might land. The key message is that this is a year where there is just so much more uncertainty relative to this time in a normal year. So let's just talk about what we've seen so far, which is the box on the left. You've seen that we've traded a remarkably strong plus 22% in first 8 weeks of the year. But what actually is behind that headline is that our footfall went dramatically down by 29% and had to be compensated by a very significant 72% increase in average transaction value. A 72% increase in average transaction value clearly is very remarkable and certainly isn't sustainable. If you look at the little text box, we give you the reasons we think that average value of a basket increased so significantly. First of all, shoppers were able to buy high-ticket garden furniture and embarked upon high-value DIY projects; a, because of lockdown, i.e., people are at home; and b, because the one positive of this lockdown period is that the British weather has been glorious. I should remind you all that the May weather, in fact, was the hottest since records began in the early 1920s. So again, really not sure that those factors are sustainable going forward. And especially as we think about the second half, what I can tell you is that certainly, we don't have garden furniture to sell. And secondly, it's not normal customer behavior to embark on extensive DIY projects in the golden quarter. DIY is not an important part of our mix at that time of year. The second box just reminds you what we've already said around the new store program. Our medium- to long-term target remains unchanged, but the simple fact of life is that this year, the new stores that we would have budgeted originally just aren't going to happen. We then now turn to the real uncertainties, all the different factors that are at play in terms of the remaining 10 months of the year. Yes, one thing that we know is that we have rate relief, but I really need to be at pains to explain that, that could well be fully upset by the increased cost of working under the restrictions of COVID-19. Let me just ask you to take -- if you have the time, in your own time, if you take a calculator and assume that at every one of our stores, there are 3 people, full-time employed, dealing with COVID-19 issues, and then you multiply those hours by the number of trading hours in a week by 52 weeks. If the restrictions are in place for the full year that equates to the business rates relief, you actually get to a very large number that actually almost fully upsets the benefit of the rates relief, especially when you also throw in the additional cost and distribution and transport. When I say 3 people working in a store on COVID issues, actually, that's pretty realistic number. If you go to some of our stores today or most of our stores today, you'll see a store colleague on the front door marshaling customers in, 1 in 1 out. You'll typically see 1 or even 2 colleagues around the checkouts and the baskets and the shopping trolleys and marshaling customers whilst they're in the store, and of course, we have, across our estate, an enhanced cleaning regime, which could easily equate to the equivalent of the full-time equivalent for all our trading hours. The next headwind that we potentially face is the impact of those social distancing measures, not on our operating costs but on autumn/winter footfall. The one saving grace of requiring shoppers to queue outside while we carefully manage our capacity inside our stores, the one saving grace this last 10 weeks has been the weather has been so fantastic. We just don't know what the willingness of shoppers to queue outside our stores in autumn/winter weather is going to be. Just to give you an illustration of that, we're currently trading and serving about 3.5 million shoppers per week. So we're doing about 3.5 million transactions per week in the current weather and yet still shoppers have to wait outside before they can enter the store. If you look at last year and the peak week before Christmas, we served almost 7 million shoppers, twice as many shoppers. Now heaven forbid in the peak weeks before Christmas, we're still required to deliver 2-meter social distancing, the implication of that is very much longer queues outside as a huge uncertainty as to whether that's practical or whether consumers will be willing to do it. That said, there is a positive offset, which is, if the economy is as bad towards the back end of this year as economists are predicting, if we have a significant rise in unemployment, and people are really watching their pennies, there should be a positive tailwind of more people coming to discount and trading down from what you might call as the mid-market retailer. So lots of uncertainties, and we ask you to reflect on those as you think about the year ahead. If we turn to Page 21, we give you some of the numbers that I've just mentioned in the previous narrative. So on Page 21, you have the hard numbers in terms of the like-for-like -- sorry, just turn to page -- one page, too many. If you could apologize. Page 21, I should give you an update on the French business. And then I'll come back to add some more detailed numbers as referenced on the following page. So in France, we had 101 stores under the B&M and Babou banner at the year-end. So 19 were B&M and the remainder were Babou. We've been making a great deal of progress in the business over the entirety of the financial year in switching the supply chain from their previous suppliers to the B&M supply chain in Asia, and that's worked really well. I can tell you that the products that are coming in from the B&M supply chain are actually some of their best-selling products today. Alongside that, we've been reducing the exposure to clothing, which has been a difficult market in France for many years and particularly for Babou over the last 5 years. In order to replicate an element of the B&M U.K. model, we've also been introducing a modest amount of toiletries, cleaning and ambient grocery to drive the average spend and hopefully also to improve the frequency of customer visit. A positive of the year under review is that the supply chain within Babou, and in particular, its distribution and transport function successfully navigated the peak stock intake in autumn, and has now got used to managing large volumes of containerized products coming in from Asia. I didn't want to dwell too much on Germany on this call, but I'm happy to acknowledge that one of the key lessons in terms of how we intend to build up Babou business is to ensure that we don't repeat some of the operational mistakes and difficulties we had in Germany. And in particular, this was an important element of that. You all know that we were forced to close in France. That's because the food and FMCG is a very much smaller proportion of the offer. And we closed from the 15th of March for an 8-week period. Of course, that's delayed and now impacted the ongoing development of the B&M fascia. And that impact is not just in terms of rebranding stores and relaying them out in our layout, but it's also the ongoing development of our product range because, for 8 weeks, the whole of the French retail industry and its suppliers effectively went into hibernation. What we have been doing, however, is strengthening our management team. We absolutely acknowledge that one of the challenges in Germany was that we didn't have enough strength in that management team. And I'm pleased to update you that during the financial year, we appointed a new Distribution Director. And since the new financial year, very recently, when the business reopened, the senior team is now led by Anthony Giron as President, and Anthony has a good track record of doing what we want to do in France. He previously led the opening of the first HEMA retail branch in France and grew that network to the profitable business that it is today in France. So if we now turn the page to Slide 23 -- sorry, sorry, sorry. Page numbers are messed up today. If you now turn the page to the trading since year-end. The numbers that I was about to give you earlier on. So you've seen the first bullet point previously, the plus 22% U.K. like-for-like, but pointing out that most of that is gardening and DIY and the business performance outside of those 2 categories was a more modest plus 10%. You see there our customer count going down dramatically over that period. But if you put that into context, I think it also points to the fact that we are genuinely a destination because general traffic to U.K. retail parks was much worse. You see there the average transaction value of plus 72% boosted by the big-ticket items. We do think that the fact that we had availability in those categories when others were closed or online perhaps doesn't trade successfully, we've probably won new customers through that process, and they've seen that are great prices in those categories. And strategically, that's a positive for the long term. We see this category of DIY and seasonal gardening as being one that is a real opportunity over the years ahead. Turning to Heron Foods. That also has been trading very strongly indeed since the year-end. And that's simply the nationwide popularity of going to your local convenience store during the lockdown rather than going through the inconvenience of a large weekly shop elsewhere where the queues might be quite significant. To complete the piece on Babou, that has bounced back strongly since it reopened. It's very early days. So I don't want to draw too many conclusions. But whether it's pent-up demand or whether it's the fact that fundamentally we do have a sound proposition, we've been pleased by the initial trading since we reopened. There is some ongoing disruption. Paul mentioned that, within our clothing department, we now have some excess spring/summer inventory product that we weren't able to sell over the 8 weeks, and we've made a suitable provision for that in the exceptionals for the previous year. We also have ahead of us, for the next few weeks, a little bit of supply chain disruption on general merchandise coming from China, and that relates to the fact that during lockdown in France and whilst we were waiting for a date for reopening, our suppliers rightly stopped shipping until they were given the green light, and we're working through those consequences right now. So if we now turn the page to -- at a group level, our capital structure, you'll see that the business has continued to generate cash. And we ended the financial year at what for us is a very low net debt-to-EBITDA ratio. As we think about the future, much is unchanged. It pretty much is as it was, which is, as our capital is allocated, the priority is our continued U.K. store rollout and also in Babou, both in terms of modest number of new store openings and also investing in the infrastructure and indeed the rebrandings. We then prioritize the payment of our ordinary dividend at the top end of the range. And then we would think about any M&A opportunity. I can clarify that as we sit here today, we are not currently looking at any M&A opportunity at all. We believe that there's enough opportunity organically within the 2 large markets that we operate in, the U.K. and France. Absent our capital being used for those 3 elements, our normal course is to return surplus cash to shareholders, albeit hopefully, you'll agree that to do so this summer, given all the uncertainties I've talked about over the last 10 minutes, will just not be appropriate. If you then turn the page to the outlook. I suppose I summarized many of the things that we've already said. Our variety retailing model is just really well positioned than most of the retailers. We sell everyday essentials. We've got a modern well-invested infrastructure with discounters. And our stores are located in convenient locations. They're located in the suburbs, they've got car parks and they're not reliant upon shopping malls or city centers. We spelt out that, just like the supermarkets, the benefits of the business rates holiday could well be fully offset by the operating costs of COVID-19 restrictions. But much of that will depend on the progression of the virus over the months to come and the nature and duration of those social distancing requirements. One of our messages today is that the fantastic like-for-likes we've experienced over the last 8 weeks are very much focused on gardening and DIY, much of which is a pull-forward from later than summer. As you think about our like-for-likes in the first half, we would ask you to think about them in aggregate rather than being too focused on Q1 versus Q2, given that, frankly, as we sit here today, we have very little garden furniture left. And so we're going into high summer without barbecues, without camping, without patio sets because we sold them already. And in fact, even in other categories such as home, our stock levels are much lower than normal because as customers have been coming in over the last few weeks, they've been buying across the board. The next bullet point reminds you what we've been saying in terms of the new store pipeline, and hopefully, that message is loud and clear, whilst also emphasizing that we are absolutely wedded to at least 950 U.K. stores in the U.K. because everything we've seen through this crisis just reiterates that our stores are appealing, popular and make -- can make great returns. The next bullet point reminds you the discussion I had around footfall. Difficult to know how that's going to be in the winter months. Knowing what the social distancing requirements are going to be in the winter months, really difficult to know whether it's going to be possible to serve, specifically for B&M, 7 million people a week. That's a big challenge if the requirements are as they are today. That said, with -- after all those factors and all those uncertainties, we're confident that we're in a strong position to continue to grow profitably, we're in a position to grow profits when actually -- both here in the U.K., where actually for our peers, many other retailers, this is a year of retrenchment or going into reverse. So to summarize before we go to questions and here I'm on this final slide. B&M has proved to be extremely resilient. We've had a really good start for the year. And this is despite the surge of online and despite the loss of the benefits of the footfall of neighboring occupiers. Yes, there are lots of uncertainties ahead. But it's all about social distancing, and that is a rapidly changing picture. And I'm not here to speculate on how that might change. I really want to acknowledge just how well our store teams and our support center teams have adapted to the crisis and how they've done so at speed. From that weekend when the lockdown was announced and every week since, everyone has done a tremendous job in delivering the value that B&M does and supporting the communities in which we trade. And I think the final message is this one, which is that our strategy is actually fundamentally unchanged. Everything we've seen, everything you've heard points to we continued growth in the U.K., continued market share growth, continued new store openings, and absolutely validates the desire to develop that proposition in France. So we see ourselves at B&M as absolutely remaining long-term winners and not losers in a retail industry that's undergoing so much change. So that's probably all I have to say. Shall we go to some questions? Thank you.

[Operator Instructions] So the first question is from Simon Bowler.

Three bits, if it would be okay. Firstly, can you just kind of talk a little bit around kind of different category trends in recent trading outside of DIY and gardening? And secondly, can you give any sense of trying to think about what your ATV may have looked like if you exclude your kind of gardening and DIY, just given some of your comments around the kind of high-value sales that you've been making in that area? And then kind of finally, can you talk about kind of your appetite for any potential kind of bulk property deals that may or may not come up as part of the current environment?

Certainly, good morning, Simon. So in terms of outside gardening and DIY, I'd say that the recent very strong trading has been very broad-based. Practically every category is up. I can't think of a category that's not up, and certainly in grocery as well because, again, the strong weather and the fact that people at home means that they're having 3 meals at home a day rather than 1 of those meals being in a work canteen or in a cafe or out and about from a takeaway. And secondly, obviously, soft drinks and alcoholic drinks have been selling very strongly through the strong weather. In terms of your question of the ATV outside of the big ticket, DIY projects and furniture, I don't have that number. But I think you can generalize that certainly on the grocery department, people are becoming -- coming to our stores less often, but when they do come, they buy more. So they've been buying more volume certainly on grocery because they're not perhaps coming every week or twice a week, they're coming less frequently. In terms of the property side of things, it's a really interesting question because, you're right, everything one is reading in the papers is that other retail chains need to or want to downsize their store estates. But in terms of our store opening program, our average store size is 20,000 square feet, ideally out of town with some free car parking and ideally a garden center attached. As you think about all the retail casualties and the closures, the stores that those retailers occupy don't fit the description I've just given you. So there isn't any immediate positive impact from the external environment in terms of store closures, but obviously, that may change over the years to come. Next question please? Thank you.

The next question is from Andrew Porteous from HSBC.

Well done on the great trading. It has clearly been an exceptional period. A few questions, if I may. First of all, just thinking about having sold through a lot of that product in store, are there other things that you can do to just trade with less stock? Or are there other things you can do in-store to sort of keep the sort of excitement in-store generally? And then on peak trading, I know it's sort of coming up in the time where you need to be ordering stock ahead of peak. How are you sort of thinking about trading into that area? I mean, is it sort of a self-fulfilling case where you sort of order a bit less and therefore, peak ends up being a bit lower than last year? Or are we feeling quite confident about that? And then lastly, sort of one around just your comments on social distancing. If you can get fewer people into store but the demand is there, does that maybe alter your thinking around some sort of click and collect platform, if you can make sort of your website a bit more transactional or no change there?

Certainly. So in terms of the remainder of the summer, we're just not a business that sits on its hands and says, "Oh, it's sold out. We've got a great just Q1, let's take it ease in Q2." That's not the culture of this business. And I call our buying department the best room of traders in the U.K. So they are trading. They're looking for pockets of stock, new lines, domestically produced product that can fill some gaps. And we're creating some events and some additional promotional activity. And that's all work in progress. So we will do the best we can. In terms of the peak trading stock levels, actually the way that -- for example, Christmas decorations and automated toys work is that you place those orders in January of the calendar year of the season. So actually, we had placed our orders for Christmas decorations and toys in January before the real sort of significance of COVID-19 had been understood. And so I suppose what that's saying to you is that the stock levels we've ordered are the levels we would have ordered in a normal year. So yes, if one is a pessimist, you'd say that's going to be a -- that's going to create a slight overhang in terms of inventory. But if you're an optimist, you'd say no one ever cancels Christmas, and so it will sell-through, albeit you might have a very different picture of footfall versus average transaction value, which you yourself have alluded to. In terms of click and collect, half of what we sell is an impulse buy. It's a browsed purchase in our stores. And certainly, for categories like Christmas decorations, it just doesn't work as well, click and collect. They need to see the Christmas decoration aisle and put the lights with the tinsel, with the baubles, et cetera. So we're not currently proposing to bring that in for reasons like that. And actually, the constraints around customer numbers is the number of people in the store at any one time. And clearly, you can't do a click and collect out on the pavement in the winter. So it wouldn't actually get rid of that problem because you'd still have the shopper in the building. And if you had a 10-person queue at click and collect with 2-meter gaps between them, you've effectively made the whole of the aisle that they're queuing down inaccessible for other shoppers. So it isn't the magic bullet that you think it'd be. Thank you for the questions, though. So shall we move on to the next question?

The next question is from Richard Chamberlain.

So 3 for me, please. A question on customer mix, Simon. Do you have any insights or data or even anecdotal about whether B&M has seen a lot of new customers in the most recent trading period? That's the first one. The second one is, I think in the results release, you say that the 950 store target in the U.K. looks increasingly conservative. And I wondered if you're referring to there about benchmarking versus the competition? Or is it the sort of demographic appeal of B&M broadening over time? And then finally, any sort of incremental thoughts about expanding more in frozen? I guess that's a pretty -- it sounds like a very strong category right now in the general market.

Thanks for your questions, Richard. Good morning. So we don't have hard data on customer mix, but obviously, there's a constant dialogue all the way down from deputy store manager and store manager through area managers, weekly trading calls and so we get intel from what's happening at the front line. And absolutely, every store manager is saying they're seeing new faces, they're seeing new shoppers. They're getting positive complements on the value, the prices, particularly in that gardening segment. So yes, it was a very unusual situation. The garden centers were closed. We were allowed to remain open. And actually, the same thing happened at supermarkets. I could see that supermarkets were selling a lot of wedding plants through that period. So we do absolutely think that, that's a positive in terms of the long-term breadth of our customer base. We're saying that we're very happy with the 950 store target being conservative, primarily because of the demographic issue. When that piece of work is done -- when the piece of work was done by OC&C, it was all around needing a significant proportion of the demographic around a given catchment to be working class. And we're seeing very strong trading performance in middle class catchments where frankly, gardening, home adornment is very attractive, and where people enjoy a bargain rather than needing a bargain. Paul, would you like to take up the comment about frozen?

Yes, sure. In terms of frozen, Richard, I think we've always said, really, will be very much given by the math on this one, really, it's all about maximizing kind of gross profit per square footings per bay in the store, actually. So one of the things we -- I think one of the things we've seen probably over the last sort of 6 or 7 weeks particularly is the fact that areas that have been slightly expanded in-store like DIY, et cetera, have performed really, really well. And clearly, those -- that's kind of far more profitable and expanding kind of frozen, which comes with additional capital costs in terms of fees, et cetera, plus the additional OpEx cost. So the fact that we -- at the moment, we've expanded space on areas like DIY and areas like homewares as well. It just feels like a more kind of profitable route going forward.

Next question, please?

From Warwick Okines.

Yes. I've got 3 questions on how COVID might affect your slightly longer-term thinking. Firstly, do you think that the social distancing costs will prove to be higher in your smaller high street stores? And might that haste in your pace of closing some of those stores? Secondly, does it bring forward any thoughts about self-scan checkouts in stores? And thirdly, in Babou, I know you've been reticent to increase the grocery mix too fast because of the profitability per square foot comment that you've talked about. But does COVID suggest to you that you need to rethink that, maybe increase your grocery mix rather than your original plan?

Good questions, Warwick, and good morning to you. So we were closing our smaller stores in secondary town centers or in secondary shopping malls anyway previous to COVID-19 impacting because we just can't play to our strengths in those size stores. Our home department, our DIY department, indoor furniture, you just physically can't get the product out. So I think that's going to continue, but not necessarily accelerated by COVID-19. But COVID-19 does not change that thinking. Self-scan checkouts, yes, it's always on the agenda. But I mean even if you look at those retailers that do have a self-scan, they've also got queues outside the door. So again, I'm not sure it's a silver bullet. And they actually are very space-hungry, particularly if you need a 2-meter gap between shoppers waiting for that large bank of checkouts. In terms of the French business, we don't think it's appropriate or wise to dramatically change the model there, which we expect to be operating for decades to come, just off the back of this 1 year exceptional circumstance of COVID-19. We don't have anything like the scale in grocery in France that we have in the U.K. It's a much smaller business, and therefore, our appetite to try and compete on cereals, rice, pasta, soups, et cetera, is extremely limited, practically nil. For us, the opportunity there is more around toiletries and cleaning, which are a more natural ancillary sale to, for example, household goods, housewares, bathroom equipment, bathroom furniture, et cetera. So yes, that's the way we think about those things. We'll move to the next question, if you may. I try and ask that we have just 1 or 2 per questioner because, unfortunately, I run on a bit and I'm mindful that we should probably only take another 10 to 15 minutes of your time at the most.

The next question is from Jonathan Pritchard.

2 on rebadging actually. Is the rebadging of Babou another lesson from Germany in that you didn't do it there, work on the end, and you're doing it here. What does Babou mean to the average Frenchman? And have you had any resistance to that badge change? And I think I ask this every 6 months, but just give us an update on B&M Express?

Sure. Good morning to you. So you're right. We have come to the view that the best way to communicate to shoppers that what's inside the store is different to what they knew previously. And by that, I mean, half the sales floor being clothing and fashion and the other half being more characterized by higher-priced locally sourced product rather than our disruptive supply chain directly sourced from factories in Asia. The best way to communicate that change to the shopper is to change the name of the store because they will then come in out of curiosity. And so that's absolutely part of our thinking. And as I mentioned earlier, we're encouraged by the early response, but it is very, very early, and we need that to settle down. In terms of your second question around B&M Express, no real change. What's really driving our astonishingly strong performance this last 8 to 10 weeks has been a large out of town stores, and that's the type of format that we're putting our efforts towards. I think one of the things I'd say whilst reflecting on your questions and the previous ones is that, a word I've used a lot over this call is uncertainties. I just want to reassure you that when we do our Q1 call in just a few weeks' time, we will have more answers for you in terms of how we see the year pan out. And maybe by then, all of us will have greater visibility on exactly what are the social distancing requirements over the months to come. Let's move to the next question, shall we?

The next question is from Simon Irwin.

Just to go back on operating on the social distancing, can you give us a sense of how much of the time when stores are open, people are currently queuing outside? And if the government goes from 2 square meters to -- say 2 meters to 1 meter and you can get effectively 4x more people in store, does that necessarily mean you could get 4x more people kind of through the checkouts and through the store? Or are there other constraints we should be thinking about? And just secondly, are there any product categories where you see opportunities through peer reduction?

Yes. In terms of the queues, I mean, basically, you can't see queues up to 0.5 hour any point in time, Simon, depending what time of day you go to a store. So it can't be a reasonable length of time. I suppose on the checkout point, yet again, you're not going to significantly get more people through that. You are going to still need to maintain distance behind. Whether it's a meter or 2 meter, you're still only get a similar amount of throughput through those tills, actually saying.

And I think what I'd say is that even if it goes from 2 meters to 1 meter, you'll still have the people in-store doing the work. So you'll still need someone on the front door, you'll still need a marshall at the checkout area and asking people to maintain those gaps, whether they're 1 meter or 2 meter and directing them to available tills, et cetera. And of course, whatever the meter requirement, it's completely right and proper that we have a much more significant constant cleaning regime rather than the more usual beginning of every morning only process that was a situation before COVID-19 struck. What was your second question? Sorry. You had a second question, I forgot.

Where you see opportunities in terms of product ranges generally going forward and particularly in anticipation of capacity loss from peers.

So one observation is in the electrical category. We do have a product range of small domestic appliances. And to the extent that the big players in that category learn from the experiences of the last few weeks and recognize that for the high-ticket electricals, they really don't need such a large store estate, and they should reduce that footprint. We think that would give us an opportunity in terms of the smaller priced, more impulse purchase products in that category such as a cable, an accessory for a phone or a kettle or a toaster. Should we move on to the next question?

Adam Cochrane.

Just 2 quick ones. In terms of the -- you talked about the potential for rain and the impact on the queue outside as you get colder periods in the autumn/winter. Given the weather has turned pretty much in the last couple of weeks, have you seen any change in the consumer behavior in preparedness to wait outside your stores just anecdotally in the last couple of weeks? And then secondly, when you look at the increased costs that you've seen so far, and has that being offset by the higher volumes that you're currently seeing. So the message going forward is that as volumes and average ticket size normalizes, that's why the rates benefit will be offset by the increased costs?

Yes. So in terms of the last 10 weeks, it's absolutely the case that if it's raining, we get less footfall. That's always been the case, though, but I suppose it becomes all the more relevant in terms of the current situation. And you'll be amused to hear that we have thousands of umbrellas being manufactured for us that we will be handing out to shoppers as they hopefully politely wait -- patiently wait, rather, outside our stores and no doubt that will be a colorful side because they will be in our bold orange and blue colors. So we just don't know. And of course, waiting for 0.5 hour when it's 5 degrees Celsius is a very different proposition to waiting when it's 15 degrees Celsius. And then in terms of your second part of your question, for us the social distancing cost of operating at store level and also in distribution are the real factor in terms of offset of business rates. So the business rates holiday is not so much about impact on footfall and average spend dynamic, it's more just the cost of meeting the guidelines at our stores. And I have probably not said enough about distribution, but all the measures that take place in-store are replicated in distribution. And so whether it's waiting for your voice headset, waiting for your mechanical handling equipment and making sure it's sanitized from the previous user, whether it's the spacings as you're going down a picking aisle, everything's had to change and everything's had to change to a more inefficient way of working. And even at a basic level, when you've got new colleagues, training them and getting them up the curve of productivity is just so much harder under the new regime. So it's a broad-based operating cost impact as these restrictions remain in force. And I think where that takes us is that we fully acknowledge that, as a result of this call, it wouldn't surprise us if the range of outcomes from the analyst community actually widens rather than narrows because you could be an optimist and say social distancing won't matter in a couple of months' time or you could be a pessimist and say, actually, winter is when all the scientists are warning about a second spike. And it's not just about the golden quarter, but you're going to have this drag on footfall all the way through to the end of winter, which, of course, in the U.K., can be all the way through to the end of March, i.e., our Q4 footfall. And again, in Q4, you're not going to get the benefit of people buying patio sets or barbecues, you're not going to have gardening picking up the slack. So we absolutely reiterate. And unfortunately, there's a lot of uncertainty out there, and we are just not in a position to give guidance. There is no guidance in this presentation or in our RNS announcement. Should we move to next question? Or are we done?

We've got 2 more, if you're happy to answer them.

Okay. Let's take them [indiscernible]. Thank you.

Geoff Ruddell.

Just one very quick one for me. The other 1 has been answered, which is, could you just give us some kind of breakdown on your selling space by being sort of in town and out of town, please?

I don't have that number, Geoff, but what I can tell you is that something like 75% of our sale at a minimum are out of town. And that number is inching upwards as we close the stores that no longer fit the bill. So I think 75% of sales are out of town.

The next question is from [ Demetris Demetriou ].

Just a quick one from my side. I just wanted to understand a bit the breakdown of your stake. So do you have a rough estimate of what the freehold number is? And if you have any plans to either change that percentage upwards or downwards?

It's a good question, and I'm pleased you raised it because at its heart, B&M is a very capital-light model. We don't own our stores. I think out of the 660 stores we have today, we might own 3 or 4. That's literally a negligible number. And our normal strategy would be to sell those stores if we have to buy them because the property only becomes available as a purchase rather than a rental deal. Our normal policy is to then sale and leaseback the store so that we remain capital-light. Reflecting on the fact that when we open a new store, the capital cost of doing so comes back to us in cash terms within 8 to 9 months. And so that's why this business is so cash positive, and it's why we find ourselves normally in a situation where we have surplus cash, where the debate is whether to return it to shareholders as a special dividend rather than having that cash tied up in real estate. So thank you for your question. Good. I think we're done. So from Paul and myself, thank you again for your time and your interest and continued support. And as everyone is saying nowadays, stay safe.

Yes. Stay safe. Cheers.

Thank you, everyone.

This now concludes today's call. Thank you all for joining. You may now disconnect your lines.