Delivering long-term profitable growth

B&M is set for many years of compounding earnings growth and cash returns for shareholders.

B&M is the UK’s leading discount variety value retailer, with 741 B&M stores in the UK, 124 B&M stores in France and 335 Heron Foods discount convenience stores in the UK. Each format has many years of growth ahead as the Group continues its profitable growth plans – with a relentless focus on price, relevant ranges and excellence in store operational standards. We are delivering positive gains to all our stakeholders.

B&M is committed to delivering long-term profitable growth through its four channels

B&M has many opportunities and many years of growth ahead as it broadens its appeal and expands its store numbers in the UK and France. In expanding its store numbers and increasing sales densities in existing stores, B&M expect to continue to deliver long-term profitable growth, generate cash and return excess cash to shareholders. B&M remains a rollout story, thereby confident to deliver compounding earnings growth and cash returns for shareholders.

There are four channels of growth:

1. Existing B&M UK stores: Like-for-like growth is highly profitable growth

Our existing stores offer considerable scope for improving sales densities. Each 1% LFL sales growth is equivalent to opening over seven new stores, but without any capex or increase in fixed costs. LFL1 growth therefore tends to be highly profitable growth, which helps fund low prices (to drive further LFL1 sales), creates new jobs and generates good returns to shareholders. There is nothing operationally to stop us growing our sales densities substantially over the long-term. This will be achieved by taking a bigger share of available expenditure in existing catchment areas as our relentless focus on price, value and retail standards bears results.

2. New B&M UK stores: An increased store target to not less than 1,200 B&M UK stores

We now expect to reach not less 1,200 B&M stores in the UK, which represents at least a 60% increase in store numbers compared to the year end. At our current pace of openings this represents over ten years of growth in store numbers. With new stores tending to be bigger than the existing average and with a higher proportion expected to have garden centres, the underlying growth in sales is expected to be greater than the 60% increase in store numbers.

New stores bring increases in volume and our plans to open 45 stores per annum over a three-year period will add 20% more volume to the Group. This brings benefits to buying, productivity gains and cash-generation. Payback on new stores tends to be less than a year, so the more stores we open the better the cash-generation. We will always open in a controlled, disciplined manner, and we will not put a strain on the operational and support functions of the business. The quality of our openings is paramount rather than opening a larger number of stores in any given year.

In conjunction with our new store openings, we will continue to refresh and update our existing store estate. Where the opportunity arises, we will replace older, legacy stores that are at the end of their lease with newer, larger stores, often with a small garden centre attached. This will result in square footage growth (a key driver of sales) outpacing growth in store numbers.

3. France will provide growth for many years to come

In terms of size and wealth, France has a similar population to the UK, where we target to have over 1,200 stores. The UK estate sets a relevant benchmark for the potential scale of the French estate over the long-term. As we gently increase our store opening programme, France will provide many years of profitable growth.

We have transformed France in recent years since acquisition and all stores operate under the B&M fascia. We continue to grow our FMCG ranges in France which helps drive sales densities and provides a “halo effect” for our General Merchandise offer. Pricing is highly competitive and profitability is good, with a strong underlying profit margin. We will continue to evolve the offer and expect sales densities and our EBITDA margin to improve over the long-term.

4. Heron offers growth and offers other benefits to the core business

Heron is our discount convenience store operation, based primarily in the North of England and the Midlands in neighbourhood locations. Average size of our stores stands at 3,000 sq. ft. which means the majority are classified as convenience stores and can trade for more than six hours on a Sunday. Over recent years, the offer has been refined to include more ambient and fresh products and this has resulted in a step change in total sales and sales by broad category. Space for the enhanced ranges was created by merchandising the traditional frozen food offer more intensely, which allowed us to remove freezers, reduce operating costs and reduce the capital cost of new stores. By merchandising more intensely, we were able to maintain frozen sales volumes while adding substantial sales in new areas.

Heron offers considerable long-term potential through the store roll out and we are currently opening around 20 stores per annum. The market leader in convenience stores in the UK has over 2,000 outlets. There is no reason why Heron with its discount offer cannot rollout across the UK and substantially increase its numbers over the long-term in the UK.