REG - B&M European - Annual Financial Report
21 June 2021
B&M European Value Retail S.A.
(the "Company")
Annual Report & Accounts 2021 and Notice of Annual General Meeting
B&M European Value Retail S.A. (the "Company"), the UK's leading variety goods value retailer, announces that it has posted to shareholders today the Company's Annual Report and Financial Statements for the year ended March 2021 and the Notice of Annual General Meeting of the Company. The Annual General Meeting will be held at 5, Rue Goethe, L-1637 Luxembourg, Grand-Duchy of Luxembourg on Thursday 29 July 2021 at 12:00 noon (CEST).
In accordance with Listing Rule 9.6.1R, copies of the following documents have been submitted to the National Storage Mechanism and will be available shortly for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and copies of them are also available on the Company's website in the investors section on the following page www.bandmretail.com/investors/agm.aspx
• Annual Report and & Accounts 2021;
• Notice of Annual General Meeting 2021;
• Proxy Form; and
• Electronic Communications Letter.
In accordance with Disclosure and Transparency Rule 6.3.5R (DTR 6.3.5R) and the requirements which it imposes on how to make public annual financial reports, the following information in Appendix 1 to this announcement is extracted from the Annual Report & Accounts 2021 and should be read in conjunction with the Company's preliminary results announcement for the year ended 27 March 2021 which was issued on 3 June 2021 and contained the Company's preliminary consolidated financial statements, information on important events that have occurred during the financial year and their impact on the financial statements, details of related party transactions and the statement of directors' responsibilities. That information (a copy of which is available on the Company's website at www.bandmretail.com) together with the information set out in Appendix 1 below, constitutes the material required by DTR 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service. This announcement is not a substitute for reading the Annual Report & Accounts 2021 in its entirety. Page references in the text below refer to page numbers in the Annual Report & Accounts 2021.
Enquiries
B&M European Value Retail S.A.
For further information please contact +44 (0) 151 728 5400
Simon Arora, Chief Executive
Alex Russo, Chief Financial Officer
investor.relations@bandmretail.com
Media
For media please contact +44 (0) 207 379 5151
Sam Cartwright, Maitland
bmstores-maitland@maitland.co.uk
APPENDIX 1
The principal risks and uncertainties relating to the Company are as set out in pages 24 to 31 inclusive of the "Principal risks and uncertainties" section of the Annual Report & Accounts 2021.
The following is extracted in full and unedited text from the Annual Report & Accounts 2021 and is repeated here solely for the purpose of complying with DTR 6.3.5R.
PRINCIPAL RISKS AND UNCERTAINTIES
The following principal risks and uncertainties could have an impact on our business model and strategy. Mitigating steps aimed at managing and reducing those impacts are being employed by the Group as summarised below.
The Group's risks and mitigations are reviewed as part of the oversight of the system of internal controls by the Audit & Risk Committee. They are reported on to the Board, which takes overall responsibility for risk management of the Group.
The Group's Internal Audit function assesses the on-going business risks of the Group. It reports on the effectiveness of internal control procedures to the Audit & Risk Committee. In assessing risk it considers the Group's risk mitigating actions and provides recommendations to management to improve business processes and limit their exposure to risk.
The Group's approach to reviewing risk appetite is part of an annual risk management cycle, which is used to drive and inform actions in relation to the principal risks identified by the Board. As part of that process the Group's appetite for risk is defined with reference to the expectations of the Board for both commercial opportunity and internal control. It is then used for setting the Group's internal audit plan each year.
Category of risk
Strategic
Financial
Operational
Compliance
Tolerance
Medium
Low to medium
Low
Extremely low
Risk management evaluation
The Group's executive management are responsible for identifying and evaluating new and emerging risks and mitigating actions.
The Audit & Risk Committee, together with the support of the Group's Internal Audit department and the Group's General Counsel, is responsible for monitoring risks and mitigating actions and reporting any matters of concern to the Board.
The Board is responsible for overseeing risk management of the Group. It considers the recommendations made by the Audit & Risk Committee and determines the framework of the type of controls and mitigating steps which are to be implemented. That evaluation of risk and controls is carried out in the context of how those risks could impact the overall objectives of the Group.
The implementation of processes and controls in relation to the management of risk is delegated by the Board to the executive and operational senior management of the UK and French businesses.
Group Internal Audit reports to the Audit & Risk Committee at each of its meetings during the year on the progress of management's implementation of recommended actions to mitigate risks.
Principal risks
Covid-19 was added by the Board originally as a new principal risk in 2019/20 and it continues to remain a principal risk but the overall impact of it to B&M as a retailer of essential goods has reduced. The UK's exit from the EU and credit risk and liquidity are no longer principal risks of the Group. Otherwise none of the other principal risks included in the 2019/20 financial year have been removed and no new ones have been added.
Assessment of risks
An assessment is made by the Board of the likelihood or probability of a risk occurring and the impact of the risk after taking account of mitigating factors and controls. The assessment of that is set out in the heat map opposite.
The heat map indicates the Board's view of the likely degree of impact of each risk after taking into account the risk mitigations referred to in the principal risks table below.
Principal risks table
The table below describes (i) the main risk exposures identified by the Board in relation to our Group businesses, (ii) the mitigating factors which relate to how the Group manages each of the risk exposures, and (iii) the linkage between the business strategy and the relevant risk exposures. The group also summarises (where relevant) key actions arising in the year in relation to how the Group has addressed certain aspects of those risks. The Group has also indicated where there were any changes in the profile of any of the risks, which reflects the Board's view of the current trend in relation those risks.
The risks set out in the table are not an exhaustive list. They represent the main risks to the Group in relation to the period under review and also currently, in the opinion of the Board.
Link to strategy key
A Delivering great value to our customers
B Investing in new stores
C Developing our international business
D Investing in people and infrastructure
Risk change key
Ý Increased risk
- No change
Þ Decreased risk
1 Covid-19
Description & potential impact
Prolonged social restrictions due to the coronavirus or any reoccurrence of it in the UK, France or China could impact consumer demand, supply chains, the ability of colleagues to work and our stores continuing to operate at expected levels of profitability. It could also affect the timing of new store openings in relation to completion of works by contractors.
Strategic Priority Change
A B C D Þ
Risk Mitigations
● The categories of goods which the B&M UK and Heron Foods businesses sell are essential goods within the UK Government guidelines.
● Implementation of social distancing steps in accordance with UK Government guidance and other measures for colleagues and customers at stores and in our supply chain.
● Maintaining sufficient liquidity for our on-going operations.
● Maintaining (i) flexibility in our distribution network and with suppliers to cope with additional demand in relation to FMCG items, and (ii) controls of orders of lines where demand has slowed to protect against over-stocking in certain categories.
Key Actions in 2020/21
● From the early stages of the coronavirus restrictions taking effect in China, contingency plans were put in place by the B&M UK business in FY20 and which continued in FY21 in order to protect our supply chain (as referred to below under the key actions in relation to Supply Chain risk) which protected the business from any material disruption to supplies, costs or prices, with those risks having been managed and offset by stock cover held in our UK Distribution Centres of c.12 weeks cover for general merchandise goods.
● From the early stages of the coronavirus restrictions taking effect in the UK in the FY20 and FY21, the B&M UK business also increased the volume of orders of Grocery and FMCG goods to keep pace with increased demand for those items during peak periods. The UK business reacted quickly by re-deploying colleagues in our Distribution Centres to prioritise the picking of those goods to replenish stores as quickly as possible to meet customer requirements.
● Measures were initially taken to temporarily close 49 B&M UK smaller format town centre or precinct location stores for a period of 4 weeks only before they were re-opened as there was no negative overall impact on trading across the B&M UK business.
● Our French business was required to close all its stores for period from 15 March 2020 to 11 May 2020 under the French Government lockdown restrictions. There have also been other periods where the stores have been restricted to selling only limited categories of goods. In November 2020 Babou implemented a click and collect service from stores to enable customers to continue to access goods by pre-ordering them on-line.
● The Group introduced flexible working arrangements in its businesses during the year to support colleagues in relation to working hours and homeworking arrangements.
2 Supply chain
Description & potential impact
Imported goods from China represent a significant proportion of the Group's general merchandise products. Lead time delays in the supply chain could result in lower sales and potential loss of margin through higher markdowns. Disruption to the supply chain arising from civil unrest, natural disasters, diseases and pandemics, ethical trading issues or quality standards failures could impact our trading performance and brand reputation.
Strategic Priority Change
A Þ
Risk Mitigations
● The Group has an experienced sourcing team which is responsible for maintaining an efficient and effective supply chain.
● A range of alternative supply sources are maintained across the product categories and we are not over-reliant on any one single supplier.
● The Group has anti-bribery & corruption and modern slavery & human trafficking policies in place in relation to its supply chain.
● A combination of individual buyers and sourcing agent employees conduct supplier factory visits.
Key Actions in 2020/21
● As referred to above in relation to the Covid-19 risk above, when the coronavirus impacted factories and ports in China contingency plans were put in place initially to source supplies of products from other countries and regions were that to have become necessary. As we had a stock cover in the B&M UK business of c.10 weeks on general merchandise imported goods, there was a very limited impact arising and limited recourse only was made to our contingency plans.
3 Competition
Description & potential impact
The Group operates in highly competitive retail markets in the UK and France which could materially impact the Group's profitability, share price and limit growth opportunities.
Strategic Priority Change
A C D -
Risk Mitigations
● Continuous monitoring of competitor pricing and product offering.
● Development of new product ranges within the product categories to identify new market opportunities and target new customers.
Key Actions in 2020/21
● The Group has continued to maintain its strict SKU count discipline within product ranges, which enables it to react quickly to ever changing consumer tastes, trends and buying habits.
● The Group commissioned a customer insight survey to measure our strengths and weaknesses against our competitors, to provide management with indicators of where the Group can improve our competitive edge relative to our peer group and other discount retailers. It is our intention to repeat that exercise or conduct similar testing each year so the Group can track progress against each of the indicators and outputs from those surveys.
● As an essential retailer, the business has continued to operate throughout the pandemic and prioritise the stocking and replenishment of goods at stores which have been in the highest demand at peak times during spikes in the pandemic to ensure that we have kept customers supplied with goods they most want. We have ensured that our stock picking at warehouses and stock ordering from suppliers was carefully planned to facilitate this through our supply chain throughout the year.
4 Economic environment
Description & potential impact
A reduction in consumer confidence could impact upon customer spending and subsequently revenue and profitability, as a result of the prevailing macroeconomic conditions in the markets in which we operate.
Strategic Priority Change
A B C D -
Risk Mitigations
● We offer a range of products and price points for consumers which allows them to trade up and down.
● We maintain a low cost business model that allows us to maintain our selling prices as low as possible.
● We have an effective forecasting process that enables actions to be undertaken reflecting economic conditions.
Key Actions in 2020/21
● In light of the initial uncertainty in relation to consumer confidence following Brexit and the impacts of the pandemic, the Group has continued to ensure that we remain focused on only stocking the top best-selling lines across our ranges. We have continued to work hard to ensure our stores have all of our top 100 best-selling products ready on the shelves on a daily basis.
5 Regulation and compliance
Description & potential impact
The Group is subject to a range of regulatory and legislative requirements, including those relating to the importation of goods, anti-bribery and corruption, anti-modern slavery, anti-tax avoidance & evasion, health & safety, employment law, general data protection regulation ("GDPR"), control of pollution and contamination to the environment, the Listing Rules, Transparency laws and regulations and the Groceries Supply Code of Practice (the "Groceries Code"). The impact of failure to comply with laws and regulations could lead to financial penalties and significant reputational damage.
Strategic Priority Change
C D -
Risk Mitigations
● The Group has a number of policies and codes, including a code of conduct which incorporates an anti-bribery & corruption policy, which outlines the mandatory requirements we apply to our business. Our codes and policies are communicated to staff along with our employee handbook which is made available to everyone joining the business.
● Management are responsible for liaising with the Group's General Counsel (and external advisors where required) to ensure that we identify and manage compliance with all applicable new legislation and regulations which apply to us in Luxembourg, the UK and France. Changes in legal and regulatory matters (including those arising from Brexit) are monitored closely on a regular basis by the Group's General Counsel, who provides reports on new regulatory developments directly to the Board as well as its Committees and Executive Management. The Internal Audit function of the Group includes assurance testing and auditing of the Group's implementation of new areas of regulatory compliance.
● We have a whistle-blowing procedure and policy which allows colleagues to confidentially report any concerns or inappropriate behaviour within our business.
● In relation to anti-modern slavery and other standards relating to human rights within our supply chain, the Buying teams are charged with ensuring that every supplier is required to adhere to our Workplace Policy standards.
● The Company has a Group-wide GDPR policy. Our privacy policies, processes in relation to data subject rights requests, privacy notices given to all our colleagues, and privacy notices for users of our websites and subscribers to our on-line mailing lists are reviewed to ensure they are GDPR compliant.
● Our Groceries Code compliance programme includes guidance and training for colleagues, monitoring of compliance, reporting of potential non-compliance issues, dispute resolution procedures and a Code Compliance Officer who oversees compliance and the resolution of code related issues with suppliers in the event of escalation being necessary or required by a supplier. Oversight of our compliance with the Grocery Code is carried out by management and reviewed by the Audit & Risk Committee as a standing agenda item at each of the meetings of that committee throughout each year.
Key Actions in 2020/21
● The B&M UK business has created and launched an e-learning portal for GDPR training for colleagues to make it easier refresh their training during each year. It is intended to roll-out the e-learning platform to other areas of mandatory training over time once colleagues are familiar with using the portal. This will reduce the amount of paper based process required and created a more flexible way for colleagues to carry out some of their training needs.
● Our Groceries Code Compliance Officer and Internal Audit team have actively engaged during the year with the Groceries Code Adjudicator ("GCA") in conference call discussions during the year. This has helped to develop a close and constructive working relationship and dialogue with the GCA as the oversight body in relation to compliance with the Groceries Code, in relation to our action plans and follow-up work during the year.
● In relation to the environment, emissions and sustainability our UK business has continued to invest in initiatives to reduce its carbon footprint with: (i) continuing to invest in our c.234 Heavy Goods Vehicles which are all Euro VI emissions standard engine trucks, being the highest standard of fuel efficient engines for managing levels of emissions, and (ii) the addition of our Bedford distribution centre in the later part of FY20 for deliveries in the South of the UK, has begun to lead to significant reductions in miles travelled for deliveries to our stores in the South of England.
6 International expansion
Description & potential impact
Developing our businesses in our new market territories is important to the Group's strategic plans. Expanding into new markets creates additional challenges and risks which could impact the overall performance of the Group, its growth and profitability.
Strategic Priority Change
C Þ
Risk Mitigations
● The Group has significant international retail experience on our main Board.
● The Group will continue to support the development of the experienced senior leadership teams in France in key operational areas.
● The Group assesses markets in which the business operates in or expand into, to ensure they are appropriate for value retailing and that product ranges are developed and selected by local buying teams along with access to leverage from the Group's supply chain.
● Continuing to invest in both the infrastructure and technology of our French business.
Key Actions in 2020/21
● We continued to strengthen the senior management team of our French business, Babou, during the year and appointed a new CEO in May 2021. This has enabled us to restructure the senior leadership team to focus those resources on the key operational functions of the business. In particular this has allowed the Trading Director of Babou to devote his time exclusively on leading the buying operations of the business going forward, with other areas which had previously been covered by him being transferred to the CEO of that business.
● The Group is monitoring the Babou stores which have been converted B&M fascia and format to track their performance and make any necessary adjustments to product ranges as we evolve and refine the ranges in response to the demand and tastes of French customers.
● Babou has implemented a new click and collect service in FY21 across the majority of its stores. This has been particularly helpful for customers during the pandemic in relation to remote shopping.
7 Warehouse infrastructure
Description & potential impact
The loss of one of our distribution centres or failure to maintain and invest in our warehousing and transport infrastructure as the business continues to grow its store portfolio, could materially impact short/medium term trading and the profitability of the business.
Strategic Priority Change
B D -
Risk Mitigations
● Forward plans have been implemented for additional warehousing capacity to support our new store opening programme. The Group in the UK has six separate distribution centres (having added Fort this year and closed an older distribution centre in Blackpool). The additional distribution centre in Fort, which serves as a hub to support our expansion in the South of England, is now in full operation.
● The Group maintains adequate business interruption and increased cost of working insurance in the event of a loss of a distribution centre(s).
Key Actions in 2020/21
● The JDA Warehouse Management System is now live and rolled-out within all our main UK Distribution Centres and an upgrade to the existing generation of the software is due to be implemented in FY22.
● The vast majority of product SKU's now have a dual locations with our UK Distribution Centre estate, so in the short term if a Distribution Centre was out of operation our stores can continue to be serviced with the full range of product SKU's by the rest of the Distribution Centres without significant replenishment delays.
● B&M's UK business have access to container storage yards in the north and the South of England, allowing greater flexibility for re-routing stock to other Distribution Centres at short notice if a Distribution Centre was carrying a surplus or was out of operation.
8 IT systems, cyber security and business continuity
Description & potential impact
The Group is reliant upon key IT systems, and disruption to those would adversely affect business operations including those at the distribution centres and stores. The potential impact of a failure to protect and maintain our data and systems could lead to significant business disruption, potential prosecution and also reputational damage. This also applies to any failure to protect the Group's IT systems and data from viruses, cyber invasive threats, corruption or sabotage.
Strategic Priority Change
D -
Risk Mitigations
● All critical business systems have third party maintenance contracts in place and those systems are industry standard retail business systems.
● IT investments and budgets are reviewed and approved at Board level.
● The Group has a disaster recovery strategy and plan in place for all of our key systems.
● The Group has an on-going Payment Card Industry compliance strategy.
● IT security is monitored at Board level and includes penetration testing and up-to-date security software.
● Significant decisions for the business are made by the Group or operational boards with segregation of duties enforced on key business processes, such as the payables process, and a robust IT control environment is in place.
Key Actions in 2020/21
● The Group completed the roll-out of its card payment encryption system with Worldpay across all the B&M UK fascia stores by the end of June 2020. This enhances the IT cyber security and PCI controls in relation to processing card transactions. The roll-out has been extended across the Heron Foods stores in FY21 also.
● The B&M fascia business has also implemented a Cloud Security Platform and Advanced Malware Protection to improve email and web cyber security.
● A phased programme of improvements and upgrades to IT systems and infrastructure over the next 3 years from FY22 has been approved by the Board with the Group's IT Director to bring enhancements to our core systems as we continue to grow at a significant rate.
9 Commodity prices/cost inflation
Description & potential impact
Escalation of costs within the supply chain arising from factors such as increases in raw material and wage costs. Additionally, increased fuel and energy costs could impact upon distribution, logistics and store overheads.
Strategic Priority Change
A Ý
Risk Mitigations
● Freight rates, energy and currency are forward purchased to mitigate against volatility and to allow the business to plan and maintain margins.
● Wage increases are offset where possible by productivity improvements.
● Forecasts and projections produced by the business include the expected impact of the national living wage and therefore the Board's strategic planning takes account of that.
Key Actions in 2020/21
● The Group has freight rate agreements in place with freight forwarders for 2021 with set prices for several months ahead.
● Energy purchases have also been agreed through an energy broker until September 2022.
● The business has created an Energy Manager position who is responsible for driving energy improvements and efficiencies in the B&M UK business store estate. The Energy Manager has trialled a Building Energy Management System to control energy consumption at stores more effectively, which we are now looking to extend to new store openings in FY22.
10 Key management reliance
Description & potential impact
The Group is reliant on the high quality and ethos of the executive team as well as strong management and operational teams. There is a risk that a lack of succession planning for senior colleagues could impact on the performance overall of the business.
Strategic Priority Change
D -
Risk Mitigations
● Key senior and operational management are appropriately incentivised through bonus and share option arrangements to retain talent.
● The composition of the executive team is kept under constant review to ensure that it has the necessary resources and skills to deliver the Group's plans.
● The Nomination Committee develops succession plans for the Board of Directors and key senior operational management resourcing positions. It also reviews the wider senior management resourcing needs of the Group.
Key Actions in 2020/21
● The Group has continued to strengthen the senior management teams of its businesses. This has included (i) the appointment of an Group IT Director reporting directly to the CFO (ii) the appointment of a Head of Investor Relations reporting directly to the CFO (iii) the appointment of a Head of Internal Audit reporting directly to the Chair of the Audit Committee, (iv) the appointment of a new Group CFO following the retirement of the previous CFO early this year, (v) appointment of a Supply Chain Director in the B&M UK business following a retirement earlier this year, and (vi) the appointment of a new CEO in the French business strengthening the management team locally in that business.
11 Store expansion
Description & potential impact
The ability to identify suitably profitable new store locations is key to delivering our growth plans. Failure to identify suitable locations in areas targeted for new stores could impact upon store expansion plans and reduce the rate of growth in the business.
Strategic Priority Change
B -
Risk Mitigations
● Our CEO actively monitors the availability of retail space with the support of internal and external property acquisition consultants.
● The flexibility of the trading format allows us to take advantage of a range of store sizes and locations.
● Each new store opening is approved by the CEO ensuring that property risks are minimised and that lease lengths are appropriate.
● Where new locations may impact on existing locations, the cannibalisation effects are estimated and then monitored and measured to ensure that there is an overall benefit to the Group.
Key Actions in 2020/21
● The B&M UK business has continued to take steps where new store opening opportunities exist in current store locations, to replace older generation stores with better quality sites and premises. That mitigates the potential effects of cannibalisation and also improves the quality and performance of the estate in addition to new store openings in brand new locations for the business.
12 Stock management
Description & potential impact
Ineffective controls over the management of stock could impact on the achievement of our gross margin objectives. Lack of product availability or over-stocking could impact on working capital and cash flows.
Strategic Priority Change
A Þ
Risk Mitigations
● The Group has a highly disciplined limited SKU count throughout our product ranges and effective regular markdowns on slow moving product lines.
● Our non-seasonal initial stock orders do not exceed circa 14 weeks of forecast sales and action is undertaken after circa 4 weeks of trading to either repeat the order, refresh the product design or discontinue the product line.
● Consistent levels of stock cover by product category are maintained through regular reviews of open-to-buy process, supported by the disciplined SKU count.
Key Actions in 2020/21
● The Group has carried out a review of its stock cover requirements in advance of FY22 in light of the strong demand in FY21 to ensure that sufficient ordering is in place to build stock levels to the normal levels of cover previously.
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