B&M European Value Retail plc ($BME)

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

Yes. Thank you very much, Andrew. Let's see if this works. Yes, it works. So yes, welcome to everyone to this presentation in the room and online. Before I'm going to hand over to Pete for the financial review of FY '26, I would like to share the key highlights of the year set out on Slide #3 behind me. So first of all, I'm pleased to announce profit came in at our midpoint of current guidance, adjusted EBITDA of EUR 459 million. I'm also pleased that on the back of good working capital management, leverage came back within our range at 1.4. And I think that's a good foundation for driving future growth and over time, shareholder returns. Secondly, we're progressing at pace with back to B&M basics. Our actions are well advanced and the early indicators are encouraging, but much more to cover later. We've also started the Phase 2 of our plan, where a lot of initiatives already underway. And if you put it in perspective, Phase 2 is all about balancing new space with investing in existing estate. And finally, I'm really pleased with the performance of our French business, so B&M France, growing like-for-likes, attracting more customers and gaining share in a competitive market. But much more on all of this later. And before that, I would like to hand over to Pete to take us through the financial review of FY '26. Pete, the floor is yours. remember to the clicker.

Thanks for the introduction, Tjeerd. Good morning, everyone. For those of you who have been with us a while, you may recall that I presented once before for B&M, although that was some time ago, not very easy to speak on the mics just yet. I'm pleased to be back with you today to take you through the group's financial performance in FY '26. As I go through it, there's 3 or 4 things I'd like to focus on as we go through the financial information. The first is it's been a tough year in relation to profitability with margin cost line pressures. However, we've had robust cash flow, healthy leverage, and that drives investment flexibility for the future. Finally, I'll touch on the continued strong performance of France. Let's look at our key financial indicators. As Tjeerd just highlighted, FY '26 represented a difficult year for the group. Profit was around the midpoint of our current guidance and leverage ended the year in our 1 to 1.5x range. Our key indicators include revenue growth of 3.6%, driven by our store expansion program with flat like-for-like sales in B&M U.K. Our profits were down. This was a result of trading margin and cost inflation impacts. Our outturn was an adjusted EBITDA of GBP 459 million and profit before tax of GBP 284 million. Whilst at the midpoint of our current guidance, these are significantly down on last year. Despite this, we've had strong cash generation with post-tax free cash flow of GBP 321 million, which is GBP 10 million better than last year. And leverage is also back in our target range. This demonstrates that we have the financial flexibility to make the investment choices that we need to make over the coming year. I'll now go into more detail. Our 3.6% revenue growth was driven by our new store opening program in the U.K. where like-for-like sales were flat. And they also incorporated another strong performance from B&M France with 13.4% overall sales growth, delivering an extra GBP 73 million in group revenue. The chart on the top right illustrates the B&M U.K. estate program, which includes disciplined relocations and closures with older, lower contribution stores often replaced by larger, more productive stores within the same catchments. Like-for-like sales were flat. That's a significant step-up from the prior year result of negative 3.1%. Quarter-by-quarter, B&M has shown an improving like-for-like trajectory, except for the impact of the unusually warm and dry spring weather in quarter 1 last year. This directional improvement resulted in a positive 0.1% like-for-like in quarter 4. France continues to be positive in each quarter. I'll call out their exceptional second quarter this year that benefited from annualizing the impact of introducing the new warehouse management system in FY '25. That's an investment which keeps them set up for success into the future. It's also worth highlighting that France's positive delivery covers both FMCG and general merchandise categories. Our year was underpinned by 2 key cost elements, trading margin pressures and cost inflation. In general margin, this includes both bought-in margins and clearance activity with pressures in both areas easing in FY '27. We expect recovery here. FMCG margin is a result of our deliberate price investment strategy to sharpen our value proposition on key value lines. This is as we communicated in January at our quarter 3 trading update. This strategy strengthens our competitive position in the market as we move forward. Here, we can see the margin impact of the FMCG price investment and clearance activity that has taken place. We'll begin to annualize that investment from August. General merchandise showed encouraging signs of improvement in the second half, but we expect to build upon in FY '27 as we restore our trading margin further. The other key cost element is our increased operating costs. A bridge is provided here. Key points of reference are the impact from statutory changes, national insurance, national minimum wage and the new extended producer responsibility tax. That represented overall GBP 66 million headwind that was not sufficiently mitigated in FY '26. Looking ahead, though, these pressures are materially reduced in FY '27. And through the back to B&M Basics program, we are taking targeted action to improve our cost control. More specifically, statutory pressures are easing in FY '27. And whilst the Middle East conflict poses cost challenges around fuel, energy and freight, these are not on the same scale as the headwinds that we faced in FY '26. Nevertheless, initiatives are alive in the business to address these cost pressures and enable ensure that the operating costs are kept under tight control going forward. The result of our challenging year is lower profit delivery. This was signposted during the year with our final outturn around the center of our most recently issued guidance in January. I'd also call out France's strong performance on this slide, with profitability growth from GBP 48 million to GBP 53 million. That's an increase of 11.8%. Whilst their profit margin dropped slightly, this is due to the planned investment made in their distribution center infrastructure, and that sets them up well to continue their overall growth into the future. France is a business that continues to impress. Lower profits did not mean lower cash, however. Our working capital discipline, a feature of our Back to B&M Basics program, enabled us to deliver strong free cash flow, reduce net debt and finished the year with leverage back inside our 1 to 1.5x range. We do expect leverage to spike at the start of the golden quarter due to our usual seasonal trends. But over the full year, we expect to at least maintain working capital at this reduced level, and we are targeting further improvements in FY '27. Our maintenance CapEx remains low at 1.1% of revenue. More than half of our overall FY '26 CapEx represented new stores or DC infrastructure expansion. That included distribution center improvements at Elsmirport and Rugby, representing improvements to our supply chain network, and that will drive future benefits. Our cash generation and leverage profile gives us the ammunition to make capital investment choices, including disciplined investment in our existing estate as part of our strategic plan. Tjeerd will cover that more in his section. Our strong cash generation gives us clear capital allocation options. Our disciplined approach ensures that we prioritize investment back into the business whilst paying our regular ordinary dividends back to our shareholders. Where appropriate, our robust cash flows leaves space for opportunistic M&A, although this is not a priority at the moment, or additional capital returns with share buybacks now unlocked following the completion of our redomicile process. Consistent with our usual seasonal cash profile, any decision regarding additional returns is likely to take place immediately following our golden quarter in January 2027. In reflection, a difficult year driven by margin and cost challenges, areas we've identified clearly and which we are addressing with early evidence of progress. Importantly, cash flow remains strong and leverage within our targeted range. That allows the necessary investment choices to be made to support the business strategy whilst maintaining our financial discipline. France, meanwhile, remains standout in performance terms, demonstrating how consistently strong execution of the B&M model and drive impressive performance and growth potential for the future. Finally, we're proposing to pay a final dividend of 6.1p per share, giving total ordinary dividend of 9.6p per share for the year. This is in line with our 40% to 50% range specified in our capital allocation policy, and it's also in line with consensus. I'll now pass over to Tjeerd. He will take you through our strategic approach for FY '27 and beyond.

Thanks very much, Pete. And let's move on to the next slide, which is Slide 18. And as a reminder, we're executing our plan at pace. And the chart on the top right, you can actually see the 3 phases. So Phase 1 is Back to B&M Basics. We're in full flight of rollout and execution. Phase 2 is deepening our foundations, and I'm pleased to say that we've already started on Phase 2 and Phase 3 is accelerating growth. The focus today is really giving you an update on Back to B&M Basics, but also already give you a few for Phase 2. On Back to B&M Basics, I would say we're well advanced. Last week, we actually began the FMCG range rationalization rollout. And there's many moving parts, but I can say here, the early indicators are really encouraging, and I'll provide more detail in the next slides. And turning to Phase 2, we've really made good progress against our operating model. We've worked on format optimization. That work is now complete, and we're using data-driven insight to trial and refine store format. And we're applying the same test and learn discipline that we've used in range rationalization also for our formats to validate outcomes before committing to rollout. And again, if you put it in perspective, we're adopting, I think, a bit more balanced approach. We're still investing in new stores, but we're also enhancing our existing estate in order to drive sales growth. And in addition to what Peter already said, France continues to perform strongly, more customers served, good value proposition, gaining market share and having solid like-for-like sales growth. And then I'm really pleased with the Q4 focus on inventory reduction, clearance discipline, mainly in the month of January. We really saw stock levels drop and stock quality improve, a stronger cash position, much easier for people in store to execute, but also much easier for the colleagues in the distribution center. And as a consequence, net debt reduced and leverage back in target range, which is a good platform for future growth. Moving on to the next slide. I would like to give you more color on the 4 work streams. And I'll start with the first one, which is price. I think what's really good to see is that we've become very disciplined and very consistent in the application of our price policy. I think we were very clear. We already had a good index. but we now also have a very disciplined execution of a line-by-line comparison. And against our closest competitor in the U.K., we remain highly competitive. And you can see the development over time. 96% of our lines benchmarked, we were either same or lower price compared to our key competitor. And the same number versus key competition in supermarkets, we were 90% equal or lower and average discount is 15%. And you could ask, so why is there a 10% or a 4% discrepancy? That's mainly driven by promotions and they're temporary and not at all structural. We've also focused very much on seasonal competitiveness. So we were very strong with Christmas, but also Easter to make sure that we provide great value for customers. The next phase after having achieved an index is price perception. And that's the focus for this summer in conjunction with more focused ranges, we will focus hard on building an even better price perception. Beyond promotions, we are now much more focused on customer moments, so really training the season, using front of store space in a much stronger way. We've really seen over Christmas, Valentine's Easter garden that really helps us. So we've made a decision to double the front of store space in hundreds of our stores over summer, which we think will drive more engagement. And the first results have been really positive of having a much more customer-focused range in the front of the store. So the next 4 work streams on Slide 20. With range, -- we initially started with 3 range pilots. We've added 4 later in the year. And in total, we have trialed 6 months of 7 pilot categories. And 6 of the 7 categories, we've been able to conclude with a positive sales outcome, so lower SKU count, higher sales. And we feel very confident now we can roll out and we've started to roll out last week of the SKU reduction across the year. We -- our first focus is the more normalized categories that have no longer a seasonal impact that will be concluded in August. And then September, October, there's 2 categories that have a very strong seasonal character, and we will conclude those by the end of the year. And for customers, this actually means a meaningful reduction of items on shelf, 20% to 25%, much simpler and easier to shop. but also true benefit for colleagues in store and supply chain with having much less complexity to manage our products across the estate. Availability, I think this was the most embarrassing update I gave you when we shared these numbers. So we've worked hard on making sure customers could find these items on shelf whenever they came to our stores. And in the top 250 best-selling SKUs, we've rolled out nationally a different way of working. And I'm pleased to say that we have moved from like an 86% availability to about 95% last week, and we aim to go beyond that number later in the year. That's on the top 250 best-selling items. We are extending our support to stores of focusing on better availability across the estate, and we're doing it in a focused way with a store availability alert where on store-specific measure, the top 30 items that are having a stock record in store but no sales are being alerted to the store team so they can have a very targeted focus on improving availability. But also we take an end-to-end approach. We just do not only focus on the store. We look at supplier performance, distribution center stock levels, in-store execution. So it's an end-to-end focus on availability. But in summary, I would say B to B and Basics is progressing really well. We've completed delivery in 3 work streams and the fourth one is now in full rollout. And then moving on to Phase 2, Slide 21 behind me here. So even though we didn't fully conclude Phase 1, we've actually started and made progress already in Phase 2. And we outlined in November that we are starting to use customer insights, customer data to flex and evolve our store formats. And I think at that stage, probably it was still a bit more, let's say, hypothetical. We've made it really tangible now. And we are really focusing on making sure that we optimize the range for customers in the locations where they shop. But it's really hard to tailor to 800 different locations. So we've grouped them in 6 clusters. And these 6 clusters have a very similar homogeneous customer mission, very similar frequency type of shop, similar environment. And interestingly, only 2 of the 6 are more traditional the B&M stores that we would be focusing on and 4 clusters actually are quite new for us and have evolved from the start of the B&M model, which means we've got an opportunity to serve those customers much better to optimize range and the proposition at cluster level. And that's exactly what we're doing. So similar to the range rationalization, we're trialing stuff. So we're now investing in the estate, and we really want to invest in the estate to maximize the match between range in that store and the customer mission. And there's 3 work streams in play here to make sure we take the right decision later in the year. First of all, it is relaying space. So this is really about optimizing offer, optimizing range for that customer mission, that cluster in the existing store space. No investments in the store fabric and there are 6 stores currently in flight where we are trialing and see if there's a sales uplift, which we expect on the back of this work and also taking the learnings, what happens with tweaking various category ranges changes per format. The second one is probably a more conventional way of looking at investing in your estate that we call it refits. The same work. So we're optimizing range. And in addition, we're targeting some improvements in the store in layout, in lighting and flooring, customer areas, but also in colleague areas. And we have now 10 stores have been refreshed across the country from the north to the south. And that's also now a focus area for us to see if we can drive benefits in terms of sales. And then finally, the third one is a bit more far out. We call this B&M 2.0. It's a completely new store concept, actually very much inspired by a French store concept, more engaging, more intuitive, easier to shop. We used a lot of customer and colleague feedback to improve that store concept. And the first store of that generation will open at the end of Q2 this year. And the goal of all of these 3 work streams are very similar. It's ultimately driving like-for-like sales. It's improving sales densities and as a consequence, of course, margin expansion. But the good thing also, given our leverage, given our net debt, we can self-fund this through cost and working capital efficiencies. And also, I think the rollout of new space is now a bit more balanced. So we target 25 to 35 new gross B&M U.K. stores in '27, which is in line with our organic growth rate. And if the trials are successful, we will then also supplement that with investments in existing estate. So moving to France, Slide 23. Well-performing business, positive like-for-like sales last year, every single quarter. We've become a bit more mature business. So we're now subscribing to market share data, and we also see that we're gaining share in the market. Top line is growing, of course, strongly also on the back of openings. And talking about openings, we have achieved 150th store in the country. So we're coming a sizable business. And talking about sizable businesses, the French market in terms of inhabitants total, let's say, size of market is not dissimilar to the U.K. So obviously, with 150 stores, there's a good runway for expansion in that country. And in terms of current trading, we saw a good start to the first quarter of the financial year with both higher footfall and continued market share gains. So good start in France in FY '27. And then Heron Foods. Yes, in January, we announced that we would do a -- conduct a strategic review of its customer proposition. And we've taken the learnings and the outcomes of that. And the conclusion is we actually see significant opportunities to improve its customer proposition. And if you would scan the U.K. convenience retail market, you would be able to see and observe that many elements that are now quite mainstream in convenience stores, we haven't captured yet. So a stronger food for now offer like coffee on the go and better meal deal, but also elements that in forecourt and convenience stores across the country are quite normal are not, let's say, part of our offering yet. So we will incorporate these over time. The team has been focused very much on winning clearance parcels, and they've done a good job because actually, we see a good start to the year, positive like-for-likes also for Heron. And we will also continue to invest in team and talent in Heron to support future growth. So then putting things in a bit more strategic perspective, back to our business model, but now, let's say, aligning business model with our plans. And I think this slide really illustrates how we are aligning execution of our priorities with the strength of our business model. And it starts with driving top line growth through back to B&M Basics. Pete already alluded to it, we are rebuilding gross margins, especially in nonfood this year. We are embarking on a much more measured and a much more disciplined focused approach on cost control. And of course, that's being helped by simplification and range. And also we would like to invest more in supporting our teams with more digital tools. And I think continuing a selective and effective growth in space is ultimately creating this virtuous cycle supporting margin improvement and cash generation and cash generation, even to outperform last year, the year before actually on a lower profitability level. So I think we've all demonstrated our ability to do so. So just a reminder why we are here for shareholders. So this is the -- our shareholder return algorithm. Ultimately, we are growth focused. It starts with restoring like-for-likes. Back to B&M Basics is the main driver. It's supplemented by new store growth in U.K. and France. And also, we would like, as we shared today, supplement new store growth, new space growth with investing in core estate and to boost customer engagement and sales. It's all about restoring trading margin, focusing on cost out. And in order ultimately to go back to a low double-digit EBITDA margin for B&M U.K. in the medium term as an outcome, not as a financial input. As you know, our business is very strong in terms of cash generation, and we believe together, this is an attractive total shareholder return. And then finalizing my update. To conclude, we update we're really executing B&M Back to Basics at good pace. And I believe we're making the right progress. Our trading margins are improving, supporting the model. But at the same time, our pricing has never been as competitive as it is today. Our leverage is back within target range. And we're taking, in my view, a much more balanced approach to investments in new space. And in terms of current trading, D&M U.K., we've seen a bit of a slower start to seasonal trading. I think most of you know that we have close to 300 garden centers. So this quarter is quite, let's say, weather and external impact dependent. So especially April last year was phenomenal. We had double-digit like-for-like growth. It's a difficult month to cycle this year. We've seen improvements in recent weeks, as you could have seen outside, the weather has turned positively. So we've also seen a recovery in our seasonal categories. France and Heron, they both started the year very positively. And while attention may soon turn to the World Cup, I think there's still plenty to play for this season, both on the pitch and in our stores. And with that, I would like to hand over to questions. Thank you very much.

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

Jonathan Pritchard from Peel Hunt. Just on perception, sort of an A and B really. Firstly, obviously, better to be -- your perception follows reality, so better to have the reality in the right place. But what's the next step in terms of getting that price perception shifted? Because I think you mentioned that how do you actually do that? Obviously, as I say, the reality is a good place to shift the perception. Just back on current trading. A tricky April, a better May. Have you actually ended up pretty much where you thought you would be if those 2 sort of played draw touch behind where you thought you'd be? And then obviously, a much more data approach being used on existing space. Have you started to apply that to new space now? And is that educating new store opening decisions?

Yes. Good questions. So 3 questions. So first of all, on price perception, it doesn't really help drive price perception that your best-selling item and the item that we invest most in price is on one facing. So naturally, when we have pruned our ranges and the key items have got space to breathe, this will give a natural boost to the way customers evaluate their pricing. That said, if you walk into our stores today, especially on, let's say, end caps or let's say, feature ends, I think we're not strong enough in terms of price messaging. So we're embarking on a much stronger, let's say, price communication, in-store price communication focus over summer. And basically, we've waited until the range rationalization was completed, and that's the natural next phase. But I'm 100% with you. The index is just a starting point. It's driving perception is ultimately the true success here. So it is current trading in line with our expectations. We never expected April to be positive this year because last year was just exceptional. And we would look at the season in totality and the season is not over yet. So there's still a lot to play for. And obviously, the last couple of weeks, we were probably better than our expectations. But overall, we haven't concluded the season. And in July, I'm delighted to share with you the Q1 results. And then finally, a good point. We are indeed using a much more rigorous approach in terms of analyzing the opportunity for a new store. It is quality over quantity. It is very much the focus. We want to make sure we have very good paybacks, good accretive store contribution margins. And indeed, we are also applying the learnings from the existing estate to optimizing the best possible location for a new site. But in a way that we want to invest prudently and ultimately have the right return for shareholders. So that's also what we're doing there.

Next question, Warwick from BNP.

I've got 2 questions, please. One on FMCG, one on general merchandise. On FMCG, as you've rationalized the top-selling lines, are you seeing any better terms from your suppliers as you sort of trimmed the range? Or is that perhaps to come? And then secondly, on general merchandise, can you just talk about any changes you might be making to ranges under your new buying director?

Yes. So clearly, any discussion on terms is a commercial discussion between 2 parties that probably is not very helpful to share here in public. But obviously, if you would think about what's in it for our supply partners with less range comes ultimately more volume per item, so a much more efficient supply chain. And ultimately, when we have realized and analyzed very high substitution levels across brands, which we can actually demonstrate with consumer data, obviously, then the brand that wants to invest most in B&M probably will be able to work with us in a stronger way. So I think that's what I would like to say. On general merchandise, actually, the insight for us is France. We've seen in the U.K., and I think we said it before, a very strong push about 18 months ago on mainly focusing our general merchandise ranges on entry, entry-level entry price reducing what I would say was already great value to even better value. The problem only is that it's very hard to compare prices in general merchandise. You don't really get credit from customers for doing that. And secondly, I'm not sure how many OR ing board covers you buy annually, but probably not much, not very frequent. And we actually did decrease those items quite a bit. I think the insight for us is in our own company in a market where probably customer confidence is as depressed as the U.K. is -- we're gaining share. We're growing like-for-likes. And we've got a range which is much more good, better, best tiering. We have a great value item at the top, benchmark at a very strong French, say, retailer with great value at D&M. We've got a good mid-tier and got a good entry price, targeting another retailer that's quite well known in France, making sure we have great value at entry price. And that strategy works really well in France because you tailor to customers that actually have a limited budget, so you're there for entry. But customers who have a bit more money to spend, but don't want to spend the same amount of cash at another retailer can find a similar item for a much better value at B&M. And I think that's the insight we're going to apply also at B&M U.K. So the journey for us in general merchandise in our core ranges is much more about good, better, best tiering, much more coordination of design and less of a focus of only playing in price entry.

Richard from RBC.

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

So Peter, on my right side will answer the third question because he also a wrong player today. And then the first 2, I will take. So it's really hard to isolate the impact of availability with total store performance. But what we did see, so we are trialing now availability alerts because the problem is with the first batch of stores that we rolled out, we're nationwide now. So you can no longer have the control group measuring the isolated impact. We did see with the availability alerts, the moment stores started adjusting and correcting stock records, we did see in those stores quite a decent uplift in sales on the items they corrected. So over time, it's natural that it ultimately will support driving like-for-like sales on the back of the ability. But of course, there's more elements to play. But we do see a correlation emerging. On the higher-priced items, it's exactly what I explained in our core ranges, so good, better, best. It's seasonal. We are able to actually move a bit faster because the buys are, I'd say, one-offs. So you're able to change your range a bit easier than updating an existing structure. And we are -- I think we started already just before I came, we started indeed adding higher-priced items to the range, still great value, and we've seen good customer uplift. If anything, especially we had a GBP 40 large oversized mirror earlier in the year, and that sold tremendously well. So actually, we see better value items, but on the higher priced ones actually do really well at B&M. And I think on capital allocation, I good to give an update where our head is.

So I think the first question was where do we want leverage to be? So in terms of where we want leverage to be, our target range remains at 1 to 1.5x. We measure that on a full year basis. So we believe and accept that it will drift outside of that range, for instance, at the start of the golden quarter when we need to have higher stock levels. And then it will reduce as we go for the golden quarter and sell that stock. That leads to a natural point in the year when we will usually make our capital return decisions or allocation decisions, which is always in January just after the golden quarter closes. That's traditionally when we've made this decision in the past. and our seasonal trends won't change. So we do expect to be in a position to make that decision in January 2027.

Let's take a question online before returning to the room. So one here from Wayne Brown at Liberum. In fact, 2, I think for you, Tjeerd, both on the store estate. First, given the confidence why no upward step change to the rate of openings this year in the U.K. And also, any view on net closures in the year ahead? And specifically, what's the hurdle rate in terms of triggering a decision to close a store?

Yes. So I think we were very transparent last update that the underlying growth rate of new space on organic pipeline is about 25 to 35 new sites. We have enjoyed the last 2 years distressed opportunities, mainly the Wilco estate and Homebase. That's why we were able to open over 40 shops a year. So the distressed opportunity pipeline, I would say, currently is drying up and many of the parking sites that have become available were not really fitting our requirements. So that's the natural evolution. But I also would like to stress that it's quality over quantity. So we're not chasing a number here. We're going for really quality sites. And I would say, if you believe and I do believe there's upside in investing in our existing estate, then probably from a total capital perspective, having a bit of a slower pace of store openings, but using capital, as you would say, the new space to invest in existing space is probably not a bad idea if it drives good returns. I think on closures, we did have an elevated number of closures last year. Again, if the store doesn't work, it's better to close it. And given the network that we have, in most cases, quite a big part of that sales will flow through the adjacent stores, and we can actually redeploy colleagues in the stores around us. We normally don't guide on store closures, but I expect the level to be probably similar level as last year. And in terms of our hurdle rate, we're looking at a vast range of metrics, but the most important one is store contribution. And if the store contribution drops below a minimum level, there's not a sufficient, in my view, economic reason for a store to actually stand on its own feet. And as a consequence, then if we don't believe there's opportunities to drive better performance, we then close the store.

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

Just 2 questions for me. As you move into Phase 2 and invest in your store estate, what proportion of your portfolio do you think you will just relay versus refit? And I assume that B&M 2 comes in a couple of years' time. And my second question is just on the stock coming into the business now. Are you happy with the quality of that stock coming in? Or is there potential for more clearance in the first half?

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

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

Let's stay in the room. Should we go to Ben Hunt just there on the right...

If it's okay, do you mind sort of dwell in the past a bit on specifically Q4 because I'm a little bit confused in the sense that December was a strong underlying like-for-like number plus 3%. And I think the narrative back then was that there hadn't really been a boost to the top line from clearance at that point. Then we came into Q4, and it seemed like it's been a flatter profile. I think it started well, but clearly, there was a lot of clearance in there. What's happened here? Has the clearance benefited the top line at all in that period? Or was it the case that actually the existing or the underlying performance weakened across that specific period? And then the second question is, I think you mentioned back in Q3 that some of the supermarkets have stepped up the promotional activity, particularly Tesco and loyalty. There's a nod to sort of potentially improving the trading margin in general merchandise and not -- do you feel that you're at the end of the journey in terms of price investment for FMCG? Or do you still feel there's still quite a bit more to do there potentially?

Yes. Good question. Thank you. So I think the 3% like-for-like in December was actually really showcasing the strength of B&M's seasonal offering, but wasn't reflecting the outcomes of our plan, Back to B&M Basics. So I wasn't surprised that after the seasonal peak of Christmas, where we did phenomenally well, we went back to a more normal trading -- normalized trading pattern. We did see in January indeed positive like-for-likes, partially clearance, but partially just the momentum going out of Christmas. February was probably flattish. And in March, we had the benefit of Easter a bit earlier. So FMCG was strong in March. Unfortunately, March last year, actually, the garden season started quite early. So we saw already in March a double-digit negative sales number on garden and seasonal. So I would say that's the composition of the quarter. We're still pleased with a slightly positive like-for-like number. I wasn't expecting the 3% in December to continue throughout the year because ultimately, the hard yards were not done yet. So we still have to work hard in making sure that all of the elements of driving like-for-likes are fully implemented. And it does -- it was pleasing to see. It showcases the strength of B&M in the seasonal period, but we also have to be strong outside of seasonal periods, and that's what we're working on. In terms of pricing, the reset or the delta that we did was really large in August to September. We've been very competitive ever since -- every single week, I can see the impact on our margins. It's quite stable. I think at the moment, our FMCG margin rate is the lowest in 7, 8 years, I guess...

As long as I remember.

Yes. So it was a meaningful investment. But if you would look at our margins in September, it's actually more or less at a similar level. And it's very interesting to see because I know in quite some detail how the bigger supermarkets are operating in the U.K. and the pattern is not always very consistent, but our index is very consistent, which is 15% cheaper than all 3 of them versus their offerings. Yes, so that's where we are. But I don't foresee at this stage further investments in FMCG pricing.

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

No. So I would say it's interesting. So the 3% or 2.9% EBITDA margin we reported last year actually is not dissimilar to what probably the industry normally has in terms of convenience in the U.K. So probably we were outperforming the industry quite a bit in the past, but 3% is not, I would say, a business that's failing. It's probably a good metric for most convenience retailers. We're not happy with it. So we would like to see improvements. And I think I already outlined that if you would walk the convenience space in the U.K., you would walk -- you look at more entrepreneurial convenience operators, there we have a much broader playbook of offerings for customers that we haven't really utilized. which we are going to implement. And in addition, what we didn't do well last year, which we're improving to do is be more assertive and aggressive on getting clearance parcels. And as a consequence, we stepped up our game quite a bit this year, and that's why trading is positive from a clearance perspective, but also from an underlying perspective. But more opportunities to go for. And indeed, we believe it's better to have Heron as part of B&M because we believe there's good upside for the future in improving the business.

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

Yes. That's a good point. So on the Iran conflict, clearly, nobody has a crystal ball. So I can only comment to what we've seen to date. And we've extrapolated to date cost levels to the remainder of the year to make an assessment of the impact on our business. That's how we went about doing it. I would like to unpick it in 3 elements. So first of all, it's electricity costs, energy costs in our stores. The second one is diesel for our trucks and the third one is then freight cost for our products coming out of Asia. We actually have invested quite a bit in new stores, equipping them with building energy management system or DEMS. And as a consequence, even though we've opened 100 more stores in the last 4 years, our energy consumption total company hasn't gone up. So we are still at the same level of total energy usage as 4 years ago. By chance, 2 weeks before the conflict started in February, we took a decision to now implement the system across the whole of the estate, also the older stores. So we actually feel quite good about being able to mitigate the rising energy cost in stores by having a lot of energy saving measures. So the residual impact actually will be limited, at least on today's pricing. On diesel, so we update our fleet quite a bit. We've got our own trucks, and we see diesel costs, of course, rising, but it's actually not a very material number. So also that one we believe we can absorb and we implemented a route scheduling system last year. So we're much more efficient in our delivery schedules to stores. And on shipping, we have a dedicated partnership with a very large shipping line. We believe we've got great value out of the cost of freight. We locked in a contract for the next 12 months. We do have a surcharge. But if you would look at the total number of the surcharge and the overall freight cost, it's actually not very high. So overall, to date, we believe all 3 elements, components of the around conflict in terms of cost increases on our business, we can absorb and we don't have to pass on to customers with higher pricing and it doesn't have, in our view, a material impact on our bottom line. I think overall cost for the year, obviously, last year, there was a quite a significant statutory cost increase with, as Pete said, minimum wage, national insurance and the EPR, the packaging. That growth rate of cost will slow down this year. There will still be a growing cost element, but not at the same rate as last year. And we just shared that we are approaching this year with a much more cost-out focus. It's early days, so I wouldn't want to commit to any numbers. But obviously, we are going to work hard to simplify our business, take cost out so we can keep prices low for customers. But directly linked to the Iran conflict, we don't see an impact, let's say, a large impact on our business.

I think that's Andy Wade from Jefferies of the Bank. Let's take your question, Andy.

Three actually from me. First one, digging a bit more into what Ben was asking around the clearance side of things. So FY '27 benefit to working capital from -- was GBP 90 million. And you talked about that being almost all sort of stock benefit. And actually, you'd expect it to be more than that coming out from clearance because you would have expected to be growing the stock base given the bigger store count and you probably didn't sell it at postal NRV. So we're probably talking GBP 100 million, GBP 150 million revenue benefit in H2. I mean maybe my math is all out there, but that looks like sort of 5% boost to revenue in the second half. Is that GBP 100 million on GBP 2.3 billion of U.K. revenue in H2.

I think part of the equation there is that some of that working capital benefit was unwinding our general stock position in prior years. So all of that -- so whereas clearance is a part of that working capital benefit, there are other working capital benefits we've got flowing through that line. So it's not just the clearance impact.

So how much of that GBP 90 million is down to just clearance activity. Remember, it's more than GBP 90 million as well because it would have been growing otherwise.

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

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

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

Okay. All right. Second one, you talked about a couple of times you mentioned about gaining share. Just interested as to what benchmark are you using that because obviously, supermarkets I&S nonfood and...

France. It's a pen company. I think it's called Circana. And we're also subscriber, of course, to the U.K. so World Pen, for example. And the D&M U.K., we have hold our market share in the market. We've held it at similar levels. But in France, we're growing.

Which category would that be in the U.K.? Is that discounted specifically? Or is that?

It's depend on the data. Yes. So that's within total food and nonfood universe.

Yes. All right. Okay. And then the final one, pretty encouraging impact from those range rationalization pieces you talked to there, 20% less SKUs, 3% to 4% like-for-like uplift. I think what we sort of hoped would happen. Just interested as to whether those 2 categories are outliers. I don't know the best...

No, no. Good questions. So 6 categories were positive and on average between 1% and 3% more or less. So the ones we show were probably representative. The seventh was negative. And of course, your question is going to be why...

Why didn't -- you said before...

So the seventh was a very high churn category. And what we've learned -- and it's very interesting. So if you trial a lot, you can actually see a lot and learn a lot. So the 6 categories that were positive were probably more predictable routine categories with a more static range. The seventh was actually crisps and snacks where we had negative sales. And the main learning is that we just overtrade and we use secondary tertiary space in the store to merchandise crisps and snacks across the shop because it's an impulse product. We have a lot of when it's gone, it's gone products in our stores. And if you then have a test and learn laboratory trial setting, you actually limit the stores to trade because you want to measure properly. So we actually measured store not merchandising Christmas snacks across the state, but just in its home day, obviously, then you got a negative outcome. So we've learned that, that's a very high, let's say, churn category where you need to merchandise much, much harder. But the numbers we quoted on the presentation are representative of the 7 categories.

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

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

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

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

Good questions. I think U.K. consumer, I think it's a bit hard to read at the moment, given the very strong influence of seasonal categories in our -- if you would annualize categories that are not very seasonal, we actually do see good momentum in some categories, actually categories where you would expect customers to be more, let's say, disciplined in their spend. Actually, we do quite well. So one of the biggest surprises to me this year is that we see very strong sales of home decoration categories that are, let's say, capsules that we drop. So for example, we dropped Island Live, so to decorate your house in like a Sicilian, Sardinian type of style. We've dropped harvest last year, Halloween, ranges, but also decorating for your house. And the trend we are seeing is that customers are treating their home like fashion. So they're buying on Vinted, their own clothes, but they're decorating their house with the season. So you see -- and it's interesting because you would expect if you're tight in cash, that's not the area you would spend money on. So actually, we see in our numbers so far, no indication that customers are making different decisions. Actually, we could actually see the normal behavior in a more, say, depressed consumer confidence climate that people go to value retail for either necessity or because they like to save money and spend it somewhere else. I think in France, I think, a, we didn't have execution issues. So the French team has been consistently implementing its strategy without any hiccups like the ones we've had in the U.K. So I think that's one. I think two, I think we have -- we are faced in France with a very different competitive pressure. I think we all know the competitor that's so strong in France. And I think we have been able to play to our strength and not to their strength. So what we did is we took about 400 lines across our store that we replicated one-to-one with the pricing of that competitor, which meant that for customers, you could always see that the price of that item similar to the level they would be used to in the other store. And then we've used the space increment that we have because our stores are about 2.5x larger than that retailer to actually showcase much more breadth and depth of range in the good, better, best ranging in I would say, probably a bit of a nicer shopping environment. But you still get value, you get more choice, shopping environment is a bit nicer. And we've aligned our promotional sequencing in such a way that every single week when you walk into a B&M France store, there's something new for customers, very similar to what the other retailer is doing. So we've replicated there. let's say, elements as a defense, and we've added, let's say, the strength of B&M France to it, and we didn't have any execution issues. And then finally, yes, private label is indeed on our road map. It's the third phase. I've made a comment before that Aldi and Little have shifted the value expectations in some categories quite significantly when the branded suppliers were not, in my view, having great value for customers. And it's something, of course, we look into. And if you would think about our business, 90% of our nonfood or general merchandise is private brand with a lot of licensed products, but we actually source the item and we have a deal with the license owner. So the capability to actually start doing the same thing in food and near food is not very complicated for us to start working on. But the focus now is really finishing back to B&M Basics working on the estate, and this is a Phase III opportunity. But it's very much on our road map to look into.

We have time for 2 more questions. Matt, I know you have one. I'm just going to take one online first. And we've got a couple of questions on noncash impairments. Could you comment on that? And specifically, is it tied to any actions on the back to B&M Basics? And therefore, should we expect that kind of impairment to continue in terms of magnitude and regularity? Probably one for you, Peter.

Yes, I'll take this one. So I'll take the second part first, if that's all right. So it's not related to the B&M Basics program. So this is a -- it's a technical calculation we have to carry out each year to analyze the assets at our stores. And effectively, it is driven by the profitability of the stores. So it is natural that when profitability falls, more of our stores are dragged into the impairment calculation. And in a normal year, as our profitability was growing, we would be impairing a run rate of between GBP 3 million and GBP 5 million per annum. And when we step back in profit this year, that means that we've got a bit of a catch-up going on, and that's what's driven the GBP 35 million of impairment. Now you can't impair the same asset twice. So we don't expect those sort of levels of impairment to continue. So as profitability grows going forward, we should revert back to our usual run rate level of about GBP 3 million to GBP 5 million per annum.

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

Matt Clements from Barclays. Two questions, if I can. One, B&M U.K. implications of the Employment Rights Act over the next 2 years, how that changes your management labor force? And the second one on Heron, going back to the earlier question. It felt like a kind of existential observation you made last year about the kind of clearance model and reduced surplus levels in the industry. What's been the key change since that observation?

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

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