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

Good morning, everyone, and thank you for joining us today. I'm pleased to talk us through the half year results for the 6-month period up to the 26th of September 2020. So as you see on the Slide 2, our highlights. We had a very strong half year, with group revenues increasing by 25%. Our U.K. like-for-like revenues were very healthy indeed at 23%. And you can see there that that strong performance was across both quarters. In terms of our all important store opening program, of course that was impacted by the lockdown and the initial impact of the pandemic. And you see that we only opened 9 stores, but we did close 8 stores. We'll come back to that later because actually those closures make good financial sense. At Heron, they were similarly impacted. They opened 7 stores. And in France, we opened a net 2 stores, but the more important dynamic in our French business is that we now have 37 stores trading under the B&M banner. As a result of the strong trading, our group EBITDA almost doubled to GBP 295 million. And you see there that the core B&M business absolutely did double its EBITDA to GBP 274 million. As a consequence, our EPS is now 20.1p, a 128% increase on the prior year. You then see that these profits have been leading to strong cash -- positive cash flows and we ended the half year with our pre-IFRS 16 leverage, down at only 0.7x. As a consequence, we propose an interim dividend today at 4.3p and in line with our capital allocation policy, a further special dividend of 25p. I'll turn now to Paul, who will run you through the numbers in more detail.

Okay. Thanks, Simon, and good morning, everybody. Just on the summary profit and loss accounts. Yes, I think the key things to run you through is the adjusted EBITDA growth of 95% and the adjusted PBT growth of 128%. A couple of points of detail here. These numbers are presented pre-IFRS 16. But equally, there is a reconciliation at the back of the pack, which takes you to the post-IFRS 16 numbers as well. And a further point of clarification is the FY '20 numbers have been restated following the disposal of Jawoll in March 2020. Moving on to the revenue bridge. Yes, as Simon described earlier, yes, we have seen strong revenue growth across the group of 25%. And in terms of the waterfall, the key blocks are the LFL growth in B&M of GBP 312 million from the 23% like-for-like. And equally, in terms of the new store program, we've generated a net GBP 108 million of revenues, although I think one of the contrasts to kind of prior year is obviously the lower impact of the FY '21 new store opening program as a result of the delays that Simon mentioned earlier. And as another point of detail, in terms of the opening program for FY '21, we're probably going to get approximately 30% of the revenues in FY '21, the balance of that 70% going -- falling in FY '22. We generated a further GBP 9 million of sales from -- in terms of wholesale, which is continuing to perform well. And then in relation to Heron, nearly 15% growth with a nice positive LFL growth and then the benefits of the new store program coming through as well. The last column on the waterfall is in relation to Babou, where we saw Babou generated sales of GBP 141 million in the half, although compared to last year, that was GBP 4 million lower. But clearly, the point of detail around is that we actually lost GBP 33 million of revenue as a result of the closures in the first 6 months of the year -- first 6 weeks of the year, which as I say, you can see it was -- we had a good performance in the balance of the 20 weeks of the half. In terms of EBITDA, yet again a similar story. The key building blocks around this are the LFL growth in the B&M business of GBP 121 million, which is bound up in the strong LFL sales that I previously described and also the -- also a strong margin performance. We see a -- yes, a significant amount of fixed operating leverage across kind of rent and also our head office costs. And within that, there's a GBP 35 million rate -- business rate benefit versus last year, which is largely being offset by COVID-related costs. Yes. Similar to the waterfall on revenues, obviously the FY '20 new stores have continued to perform very well. And obviously, we have the much lower level of contribution from the FY '21 new stores. Just kind of another point of detail in terms of the kind of relocated, we touched on them earlier. We relocated 8 stores in FY '20 and a further 3 stores in FY '21. And you can see actually, the -- actually that program is certainly becoming EBITDA accretive over this period of GBP 5 million. In B&M as well, there's a further GBP 6 million of additional central cost, which largely relate to the rents and business rates benefit. Yet again, the performance of Heron has been very positive, generating some more EBITDA growth. And I think it's just reflecting on the performance of Babou. Babou generated EBITDA of GBP 2.7 million in the half, which was compared to GBP 1.7 million last year. So that was an increase of GBP 1 million. But if you break that down to the period in which they were closed for the 6 weeks, they lost GBP 6 million. And then actually just to demonstrate the positive performance in Babou in the last 20 weeks of the half, we saw a GBP 7 million increase versus last year. So a very strong bounce back in performance at Babou. Just a little bit more detail on the LFL sales. As you can see the -- as Simon has described earlier, yes, very strong in both quarter 1 and quarter 2. And equally, that was really bound up in a significant increase in the average transaction value despite the offsets of the reduction in transaction volumes. As kind of further point of detail around this, our out-of-town locations in particular have performed very well. The consumer has certainly felt probably more comfortable going to those kind of out-of-town locations, but equally even the town center performances -- town center stores have performed very well. And as we stand today, around about 80% of what we sell is actually coming from those out-of-town locations. An equally -- we'll come through it little bit later in a bit more detail. But actually, the LFL performance was broad-based across both the -- all grocery and the non-grocery categories. And equally, if we look across the whole of the U.K., actually they were all delivering relatively similar levels of performance despite different levels of kind of restrictions around the country at different points in time. If I can move on to kind of gross margin, I described that obviously the group has had a strong gross margin performance in the half. B&M's fascia margin grew by 176 basis points, which I think over the last few years, we have seen a kind of mix shift towards grocery and away from general merchandise. But fairly in the half, we started to see that reverse, which has been beneficial. And equally, the high rate of sell-through that we saw around early on in the half has been very beneficial. We didn't have many markdowns to do when we got to the sale period. And a little further point of detail, the gross margin on our grocery has remained very stable. And our kind of price position remains very similar to where it has been. Gross margin at Heron, broadly flat and a slightly higher margin at Babou, despite the fact they were closed for 6 weeks in terms of lockdown. Moving on to costs. Some of the kind of key moving parts here. The B&M fascia kind of has seen cost as a percentage of revenues go down by 338 basis points. I described earlier, we have had some benefits on the business rates last year, which has been largely offset by the cost of social distancing. And yet again, we have the operational leverage benefits on the fixed cost base. In terms of probably our other color points to note around our transport and distribution costs, we've seen some inefficiencies around Bedford. Now that's been kind of fully opened, but equally, that's being offset by some improvements in our transport costs. Heron, as a result of their kind of strong sales performance, has delivered some operating leverage as well although Babou is slightly higher than last year, obviously impacted by the fixed cost they incurred in the lockdown period and the loss of that GBP 33 million of revenue. I think moving on to kind of interest costs. Interest costs were broadly in line with last year. We did have a GBP 4.5 million write off, which related to the -- if you remember, we refinanced in July 2020 and there was some unamortized fees on the previous refinancing, plus there was a one-off payments of coupon on the old bond before we refinanced. So in terms of our facilities now, we've increased both the maturity on our bank debt, on our revolving credit facility to April 25. There was -- we issued a high yield bond, which additionally matures in July 2025. So in terms of our debt maturities, they've been nicely pushed out for another -- yes, nearly 5 years. In terms of ongoing interest charges, yes, amortization will now be around GBP 2 million per year and the ongoing cash interest will be GBP 22 million. If you move on to cash flows, yet again -- obviously, this cash flow has happened very stronger in the half, with growing from both the growth in the adjusted EBITDA. And equally, the benefits we've seen and kind of type controlling kind of working capital management. Equally, CapEx is significantly lower than last year. Obviously, the new store program, the lower new store program being a key feature. And equally, within last year's half 1 numbers, we also had a significant amount of expenditure around the opening of the Bedford facility. So overall, we see operating cash flow grow from GBP 14 million last year to GBP 291 million this year. And equally, our leverage is now down at 0.7x on a pre-IFRS 16 basis. As Simon referred to the EUR 250 million special dividend earlier, and if you -- I did a pro forma adjustment for that assuming that has happened at the end of H1, leverage would have increased to 1.2x, which kind of remains significantly below our ceiling of 2.25x net debt to EBITDA.

Very good. Thank you, Paul. So if we could go to my section, I'm on Slide 13. Apologies for this slide. It is rather wordy, but it sort of tries to summarize everything around the pandemic over the 6-months period we're reporting on. So hopefully, it goes without saying we were classified by the U.K. government as an essential retailer due to the important part that we play in the supply chain -- important role we play in the supply chain around grocery, cleaning goods, FMCG and DIY. Credit to the teams. We were really quick to implement the new normal around social distancing. I'm really proud of the way that our store colleagues delivered on that dimension. Our trading teams made sure that we had stock to sell and had well-stocked shelves throughout the period. And obviously, we took advantage of the exceptionally strong weather over the summer to make sure that we maximize the opportunity. We are mindful of our broader responsibilities in terms of all stakeholders. In the early part of the pandemic, we had an immediate donation to food banks. We offered staff discount to NHS colleagues, and we increased pay for our store colleagues. As a further point of detail, in the context of these strong trading results, we have now repaid the small modest amount of money that we received from the government under the furlough scheme. And we are also very proud of the fact that in a sector that's suffering so many challenges, we've actually created 1,800 jobs over the 6-month period. Looking forward, yes, there are lots of uncertainties, but we are keen to play our role in making sure that households pantries are full, and they have access to the all-important groceries. As we look at France, only half of our stores are open because our French business is different to our U.K. business and that food is practically nonexistent in our French business. The essential bids that they have are largely limited to cleaning goods and toiletries. We're mindful that over the remainder of the golden quarter, there will be a number of factors pushing and pulling in terms of the macro. There is clearly a lack of consumer confidence and people are worried about a coming recession. On the other hand, given the fact that disposable incomes can't be spent on other areas that does allow for the opportunity for us to benefit from further spending on cocooning, in other words, improving your homes given that you're spending so much more time in them. As we look further out to FY '22, again uncertainties persist. We recognize that some of the strong performance over the last 6 months are one-offs, but there are, however, underlying benefits that will support us next year. Part of that could be the fact that so many new shoppers have discovered B&M over the last 6 months. And it's on that point that I'd like to spend a few minutes. So if we turn the page to Slide 14. I'd like to address the question of who is the B&M customer. This slide sets out 10 different demographic types. This is Barclaycard's way of looking at their customer universe. And I'd like to pick out 2 particular types of customers that are relevant to B&M, particularly relevant to B&M. One is what's called family backbone, i.e., those between 25 and 49 that have children. The other one is a slightly older demographic, not with children potentially, but again, low to mid income household incomes. If you turn the page, you actually see a snapshot of who the B&M customer is by each of those 10 different demographics relative to the national averages. The first message is that we're in all the demographics. B&M appeals to every spectrum of society. Clearly, we under index with a door on the top there, but they are a relatively small part of population. We over index in the large groups of people that form those 2 types that I mentioned earlier; families with children or older families where the income is low to middle. The other astonishing factor that came out of the Barclaycard analysis is that when we looked at the shoppers in June 2020, we found that almost a quarter, 23% of those shoppers who came to us in June have not been into a B&M previously that year. So that is a large universe of shoppers who have discovered B&M for the first time or are rediscovering B&M over the course of the summer. The opportunity for us, of course, is to retain those customers. And I suppose the key fact for us is that those additional shoppers are broadly spread. Like the U.K. population, most of them are those ones that we've highlighted here. So it's not as if these new shoppers are, shall we say, John Lewis shoppers that after the pandemic will go back to John Lewis shopping habits. It's actually broad sections of society that for whatever reason just weren't using B&M before but have now discovered us. We suspect part of that is, of course, our discount and value proposition because shop is unmindful that you can save money if you go to B&M. Turning the page. We give you an insight into the trends that have been driving that very strong like-for-like performance over the half. You'll see that it's been driven by a highly elevated average basket sizes, and there's been a slow recovery in customer numbers over the 6 months period. We now turn to which categories have been driving the like-for-like performance. As Paul mentioned earlier, it's been really broad-based. You see here on the slide, 15 different product categories that we use internally. And you'll see that the strong performance has been driven not just by non-grocery but also grocery. What I can share with you is that some of the best of departments are those that relate to DIY, furniture and home because of that cocooning that I mentioned earlier. But as you can see, a very broad-based market beating like-for-like performance because even food performed materially above the LFLs that you see reported from the large 4 supermarkets. So I'm really delighted with the excellent work that the trading teams and the store teams have delivered in generating this like-for-like performance. Turning now to Slide 18. The gross margin, we give you a multi-year view. I think one of the remarkable features of this business is it's remarkably stable gross margin, but I would shout out that in the last 6 months, we have been helped by some one-off factors around the strong good sales in the outdoor leisure and garden category, and the fact that we sold out of so much of that product before we got to our end of season sale. I turn now to Slide 19 and you'll see here the stores that we opened. Clearly, this part of our business was severely impacted by the pandemic and we opened a lot less stores than we usually do. However, on the right-hand side of the slide, you do see just the scale of the opportunity for us to continue to open more stores. Large parts of the country simply don't have the penetration of B&M stores that we think is appropriate and possible. Our U.K. store target remains at least 950 stores and that number, yes, it does increasingly look like a conservative number as we look at our new store performance. The next slide demonstrates this. We are really pleased with how the new stores are performing. What we show here is the cohort of the previous year's openings. We call it the cluster of FY '20. We opened 51 new stores that year. What you see is that their store contribution as a percentage of sales was actually stronger than the company average, notwithstanding that stores in that company average are up to 15 years old. So our stores have this remarkable characteristic of opening immediately on day 1 as highly profitable. We don't need a maturity curve and effectively the CapEx cost of opening them comes back to us within 8, 9 months. To complete the picture in terms of new store program, looking ahead, we will be trying to catch up some of that lost opportunity over the second half of the financial year. You'll see here on the slide that we expect to open some stores this quarter, but there's a store opened this morning, in fact. And we have a further sort of frenetic activity in Q4 to get more stores opened. In fact, that quarter could be one of the highest ever quarters for our new store openings and we're getting a lot of keys given to us on the 2nd of January that we will try to get opened by the 30th of March. It's important to note, as you model the business and the new store program, the benefit of those new stores really will be felt next year and not this year because the openings are so back-end loaded. In this quarter, we're opening all the way through to the 7th of December. And so clearly, those stores are opened towards the end of the quarter really won't be doing a material contribution this quarter. And likewise, in our final quarter, the shop fitting and training and stocking process means that the actual number of trading days will be, in many cases, less than 30 days. Looking beyond that, FY '22, please to report and share with you that the pipeline is looking healthy. And in fact, we already have 25 new stores in legal stages. Turning away from our store opening program, I'd like to touch upon our social media activity. I'm really delighted with the work that the team do on this front because if you look at the numbers, you'll just see that we continue to improve our penetration. And relative to some of our competitors, we just seem to engage that much more with our shoppers through Instagram, Facebook and other social media initiatives. Put simply, our customers love us. Let's now turn to Heron Foods. You'll recall that we bought this business in August 2017 at an enterprise value of a GBP 152 million. Looking at the last 12 months EBITDA, we clearly bought it very well. The last 12 months EBITDA of GBP 31 million represents a EV to EBITDA ratio of less than 5. I'm pleased with the performance of the Heron Food business over the 6-months period. They generated a positive like-for-like despite the fact that like ourselves, number of customer visits were down year-on-year as people limited the number of times they went out of their homes. In terms of its continued growth, we're on track for 20 new stores next year -- sorry, this financial year, 20 new stores for FY '21 current financial year. But again, back-end weighted towards the end of the year because of the disruption in the first 6 months. I'd like to credit the team at Heron, who are delivering consistent performance week in week out. Really, really pleased with how that business is performing. Now to update you on Babou. So I mentioned earlier that one important developments over the 6 months is the rebranding of Babou into B&M in France. We have now done 37 of those stores out of the total of 103. Paul mentioned that the business to its credit delivered a positive EBITDA despite the loss of GBP 5.7 million over the first 6 weeks when all the stores were closed. Another development in the business is that we are migrating the product offer away from clothing. When we bought the business, clothing was as much as 40% of the offer. That journey is ongoing and clothing and footwear is currently only about 20% of sales, which we think is the right strategic thing to do in that business so that we can leverage our competitive advantage on other categories such as home, toys, DIY and furniture et cetera. We are really pleased with how products that were sourced through the B&M supply chain in Asia actually sold over the half, notwithstanding the initial 6 week force closure part of the business. As I speak to you today, unfortunately, half the stores are currently closed because of the second lockdown in France. And it's important to emphasize that the French do their lockdown slightly differently. We're only allowed to sell effectively toiletries and cleaning goods in France. And so you should expect that as you model the French's business's performance in the second half, there's likely to be another GBP 5 million loss in respect of a November 2020 lockdown. Turning now to the capital structure slide that you've seen us represent 70x and consistently. I think consistency is the keyword here. We are being prudent. We're taking cautious approach to our financial planning, but the reality is the business has generated a lot of cash. And as mentioned earlier, our net debt-to-EBITDA ratio was only 0.7x versus a publicly stated ceiling of 2.25x. So as a consequence, we have declared the special dividend. And those of you in the room who will be doing the maths will be asking the question, why is that number not larger? I guess it's just a recognition that we do live in uncertain times as we continue to face the current uncertainties over the next 6 months, it's prudent to do so. How the fact remains that we are a capital-light model, and we do look to return cash to shareholders rather than allowing cash to accumulate on our balance sheet. And so as we look forward, we would like to think that those returns to shareholders will be very healthy indeed. So what can we say about current trading and the Q3 period so far? So the good news is that LFLs remain very strong. Over the 6 weeks since the half year end, they've been at a similar level to the LFL over the first half. So actually a step-up on Q2. As we look ahead, I mentioned earlier, we are getting back on track in terms of new store pipeline, but it will be back-end weighted. I think in terms of our core U.K. business, the fact that we sell so much grocery, FMCG and the fact that we are largely out of town means that we are providing shoppers with what they want in this difficult period. France is impacted. And as I mentioned earlier, please model a EUR 5 million loss for November 2020 because of the current circumstances. We don't give guidance for the year precisely because of all those uncertainties that exist. So just to summarize before we go to questions, it's been a really challenging 6 months. Our priority has been the safety of all our colleagues, some 33,000 colleagues in the U.K. and indeed our customers. We've adapted well. We've adapted at speed and indeed in our sector that's struggling so much, we are very proud that we've created 1,800 new jobs. The business has proved remarkably resilient despite all the challenges that's been thrown at it over that 6-months period, and yet we remain highly profitable and highly cash generative. In these uncertain times, offering great value for money is hugely important and is clearly appealing to a broad swept section of U.K. society. We think there's a huge opportunity ahead of us to retain the loyalty of those new shoppers who have discovered B&M for the first time over the last 6 months. We have a long growth runway in terms of our store opening program, and we see lots of opportunity to increase market share in all the categories that we're in. Our long-term strategy, despite the challenges in the last 6 months is unchanged. We see a lot of profitable growth ahead of us, and we really are excited by the opportunity in France once we get past the current media disruption that exists. So thank you. Let's go to the questions, please.

[Operator Instructions] Our first question is over to the line of Jonathan Pritchard at Peel Hunt.

So one on each part of the business, please. In core B&M, Christmas stock as a topic. Clearly, you've had a great start to Q3 and some of that will be sort of bring forward a little bit of Christmas presents. Are you a little nervous already that if things come in like this, you could be in a sort of similar position where you run out of some key lines and now you're sort of peddling quickly to ensure that, that doesn't happen? Is there a number you could give us in France on B&M rebadges and the like-for-like uplift you get there? And then lastly on Heron, that sort of yellow area, the sort of key area that you're strong with Heron. Are you opening stores outside that area? And are you still using B&M Express as a fascia?

Thank you. Good morning, Jonathan. Good questions. So you're quite right. There's a limited amount of Christmas stock that we have. And once it's sold, it's sold. The consumer has been behaving rather interestingly. They've been buying Christmas decorations very, very early in the season. In fact, we saw Christmas decorations selling as early as October. But we mustn't overstate the case. Christmas decorations are probably only about 5% to 10% of sales in December. And so whilst we will run out, the strong performance in other parts of the business should compensate. But you are right to point it out. In terms of the uplift in France, when we convert from a Babou to a B&M, yes, there is a positive uplift. We've chosen not to share those numbers as yet, Jonathan, because you'll appreciate that the 6-month period has been so volatile in France with lockdowns and openings and pent-up demand when we do reopen, that it would be premature to do so. But certainly, once things have settled down and we've got beyond this period of disruption, we will share those numbers with you. And then finally, on your question around Heron, the reality is that when you're doing convenience retailing, it makes sense to grow organically, geographically rather than sending lorries with frozen and chilled chambers long distances rather on sort of milk grounds, where you're serving 3 to 4 stores on each lorry on a milk ground because these convenience stores, please, they don't take full lorries of product delays that our B&M stores do. So yes, you will see it continue to grow organically, should we say, moss like rather than planting flags all around the U.K. And at the moment, we typically retain the Heron brand because we've discovered or we feel that if we move too much towards the B&M Express fascia, what actually happens is that the customer sometimes is disappointed that they can't get something that they've seen on the B&M website. So we've decided that for the time being, it makes sense to retain the 2 separate identities.

We now go to the line of Simon Bowler at Numis.

There was some interesting kind of data and thoughts around kind of new customers in the business. And I was just wondering if you had data around which categories those new customers are shopping and anything around how they're shopping, their average basket sizes versus other customers or anything of value? And secondly, then on the gross margin piece, there's obviously been a number of factors that supported strength in the first half. But just conceptually, if some of the strength that you've seen in your non-grocery channels, which is more gross margin rich was to be retained, then could we expect the higher gross margin for the business going forward? Or do you think that you'd look to kind of redeploy some of that into investing into price and growing the competitive advantage?

Good morning, Simon. So in terms of the data, I think all we can share without sort of getting into a commercially confidential information that our fellow retailers would love to have is that both existing and new shoppers are broadening what they buy from us. If you think back to the slide that showed the 15 different product categories, you'll see that the strong performance is grocery. It's non-grocery. It's toys. It's electrical. It's home. It's just across the store. I think the fact that people have been spending so much more money on their home has been one particular standout. I can share that DIY has been particularly strong. And we certainly think that, that's being helped by those new shoppers who have started to associate DIY needs with B&M as opposed to the conventional category specialists. In terms of the gross margin, Paul, do you want to pick that one up?

Yes, yes. Yes, certainly, Simon. I think the key thing Simon here is just around kind of product mix. I mean, fundamentally, we benefited this half on the strength of areas like gardening and DIY and home wares, potentially, some of that's kind of coming from kind of new customers. I mean, I think as we move into next year, whether retailor gross margin will ultimately depends on the consumer and what they actually buy into. And the stores are laid out relatively similarly across the estate in terms of space allocation. But really, I mean, the key determiner is ultimately what the consumer actually buys into, so we don't ultimately control the mix.

The next question is over to the line of Simon Irwin at Credit Suisse.

Can I just ask the first question about Babou? Given the mandated manager model, where I understand they kind of bear a lot of the cost of staff et cetera. How have they done out of the first half? Have you had any problems with financially for any of these mandated managers? Secondly, can you just give us a sense of where you think you've taken share in -- and from which peers? And thirdly, just in terms of trading, presumably, you saw a kind of decent uplift in the week before the U.K. lockdown. Maybe if you could just give us a bit of color around that?

Certainly, good morning, Simon. So I think what I'd say to you about the French business and the mandated managers is the acid test is the answer to the following question. How many of them want to be branded as B&M as opposed to Babou? And I can share with you that when I asked that question because we were thinking about the order of stores and which ones to rebrand, they all put their hand up. They all want to move to the B&M model. So they're really pleased with the products that are coming through. They can see the success and popularity of those products from the B&M supply chain. They can see the benefit of reformatting the store internally to the B&M supermarket aisle format rather than the just sort of the racetrack format that they currently have. So they are in a good place. We are in a good place with the mandated managers. In terms of where we're taking market share from, I think we're taking a little bit from lots of different retailers. The reality is that over the half, our U.K. business grew by 25%. I was talking to some journalists this morning, and in one of them remarked, quietly you're growing as fast as the online retailers. This is just remarkable. It is remarkable, and it's true. We're growing as fast as the online retailers. And I think what that speaks to is that there is a clear structural shift not just to online, but also to value for money to discount. And clearly, we're one of the prime beneficiaries of that structural shift, and we certainly see that shift continuing. And your final question?

Yes, just on the free lockdown sales. Yes, I mean that we're pretty lock down kind of across the rest of U.K., Sam, we did see a bit of a kind of accelerated demand up to that point, but very quickly, we reverted back to this kind of Q2 trend that we've seen afterwards actually so -- yes, I'd say a little bit of additional demand, but -- yes, nothing integrated overall in grand scheme of things it's going to materially change the numbers.

As you think about the second lockdown -- sorry, as you think about the second lockdown in this current quarter, there was a few days, 3, 4 days of elevated buying as people rushed out. But we're seeing remarkably stable performance. So we're very happy with the quarter is currently trading.

The next question is over to the line of Edward Okines at BNP Paribas.

I've got some questions about ranges.

Edward, can you just get a bit close to the phone or sound the volume up? We got difficulty hearing you.

Hopefully, that's better. I've got a couple of questions on products, please. And firstly, specifically on toys in the golden quarter. The market had some problems last year and I know you placed your orders back in January '20. Just how are you thinking about that category? Have you actually adjusted your orders down a little bit during this year? And how will you trade that category differently this quarter compared to the last year? And then my second question is around more broadly, what categories have you got plans to as a range review in 2020-2021? And in particular, has any of that range review process been slowed down lockdown by COVID?

Thanks you for your questions. So I can share with you that toys have had a very, very strong bounce back after the disappointment of the previous year. That's been having pretty much throughout the current financial year. So we saw that immediately from the beginning of April onwards. And I think the reality is that people have a bit of more disposable money. They are spending it on their kids and toys, particularly in the difficult circumstances of kids not perhaps being able to go to school or not being able to go out and socialize as much as they normally would do. So quite rightly, the families are treating their kids to toys because it's a very affordable treat in the current difficult circumstances. In terms of stock availability, that's pretty good on toys. We saw the strong performance of the course of the summer. We reacted accordingly. And so we're in a good place in terms of stock availability for the golden quarter. Turning to your question around new categories. I would ask you not to expect any dramatic changes or developments next year. It's more about evolution rather than revolution. There are always pockets of new areas where we feel that there is opportunity for discounter. A good example of that is gaming. So within our electrical department, we now have the handsets, the headphones and the other accessories that gaming enthusiasts buy. You'll realize that's a high gross margin area for the specialists in that area, and therefore, opportunity for us. And the range that's are on sale selling really well. And that little subcategory is up at something like a 150% like-for-like. It's just flying. So evolution, not revolution. But yes, so we're in a good place on the stock and product development.

The next question is from the line of Adam Cochrane of Citi.

A couple of questions. Firstly, is the average transaction value -- you helpfully showed in the chart. Is it up anything other than mix? Is there any sort of higher price point by categories that you're seeing more with some of those new customers et cetera? Secondly, on the new property pipeline, is this having a lot with more landlord flexibility on rent as well as better availability? Are your properties still having to be built to order, like you're seeing before? And then within that, if there is more properties available, could you see your competitors -- your discount competitors accelerate their growth plans as well?

Thank you, Adam. First question. So in terms of the drivers behind the increase in our spend, I think the shift in mix is one of the drivers because clearly, housewares, DIY is typically a higher ticket product than a tube of toothpaste or a bottle of shampoo. So the appeal of the general merchandise is helping the average basket. And clearly, that's an opportunity for us to retain that market share in those categories, elevated basket persists over the years to come. And then on your question around the pipeline. The current pipeline is a combination of existing space and new build space. It's very much site specific. Quite often, what's happening is that on a retail park, a landlord might find itself with 2 vacant units next door to each other with 10,000 square foot each due to exits by category specialists, and therefore, by taking out the dividing wall, there's a 20,000 square foot store for B&M. But you're right, another part of the pipeline are sites where a little in Aldi, at B&M, at Home Bargains is being physically built for us. And then in terms of that question of acceleration, I'd just use the word stable. We're not seeing any behavior that's unusual amongst our peers. The reality is that the only people opening shops nowadays are discounters. It is Aldi, little Home Bargains, B&M, The Range, which is a privately owned business. And we really don't see that changing. So it's very type specific, but we just see a very stable marketplace in terms of the new store opportunities.

Our next question is over the line of Ben Hunt at Investec.

Just on -- firstly, the COVID related costs, which sort of similar run rate to the business rates, would you expect that sort of quite high number to moderate in the second half? Or should we continue a resumption of the same levels in H2?

Yes, Ben, and I'm happy to take that. No, I think in relation to that, I think inevitably, until a vaccine comes along, I think we are going to incur a similar level of cost around this. It's -- as we move kind of through December et cetera, I think it's likely you'll certainly have more queue, et cetera, and needs a key management and see if -- and clearly just maintain kind of safety protocols in stores anyway. So yes, I think actually ultimately till a vaccine comes along, I think that we're likely to see those cost limits at a similar level, similar rate.

All right. And then on the back-end loaded store opening. It's got a lot to do in Q3 and 4, particularly with the lockdown as we have in the moment. Is there a risk that might apply a break in terms of just doing the logistics of opening stores in the next financial year?

So I think the way to answer that question is, it may be that some of those openings that we expect in March 2021 possibly slip into April '21. But that's just around the sort of few weeks, 2 to 3 weeks here and there. So in terms of materiality to the group performance, probably not something to hugely worry about. But you're quite right. It is possible. I don't know, let's say, in December -- well, in December, we're not meeting much shop fitting for obvious reasons. But in January, if there is something that happens at the construction industry, there might be some further delays. But actually, government policy seems to be to try and retain industries like construction working, notwithstanding broader lockdowns.

Yes. And presumably, you're not going to have sort of stock availability issue in Q3 next year given the lead type? You start ordering probably before you start doing the planning for the new openings in '21?