REG - B&M European - Preliminary Results <Origin Href="QuoteRef">BMEB.L</Origin> - Part 3
25/05/2017 07:06
- Part 3: For the preceding part double click ID:nRSY1698Gb
the
parent by the weighted average number of ordinary shares outstanding during each year plus the weighted average number of
ordinary shares that would be issued on conversion of any dilutive potential ordinary shares into ordinary shares.
Adjusted basic and diluted earnings per share are calculated in the same way as above, except using adjusted profit
attributable to ordinary equity holders of the parent, as defined in note 3.
There are share option schemes in place which has a dilutive effect on both periods presented.
The following reflects the income and share data used in the earnings per share computations:
Period ended 25 March 2017 26 March2016
£'000 £'000
Profit for the period attributable to owners of the parent 142,926 124,536
Adjusted profit for the period attributable to owners of the parent 148,783 122,120
Thousands Thousands
Weighted average number of ordinary shares for basic earnings per share 1,000,000 1,000,000
Effect of dilution:
Employee share options 148 475
Weighted average number of ordinary shares adjusted for the effect of dilution 1,000,148 1,000,475
Pence Pence
Basic earnings per share 14.3 12.5
Diluted earnings per share 14.3 12.4
Adjusted basic earnings per share 14.9 12.2
Adjusted diluted earnings per share 14.9 12.2
10 Investments in associates
Period ended 25 March 2017 26 March 2016
£'000 £'000
Cost and net book value
Carrying value at the start of the period 3,995 3,822
Dividends received - (1,295)
Share of profits in associates since the prior year valuation exercise 1,005 1,166
Effect of foreign exchange on translation 669 302
Carrying value at the end of the period 5,669 3,995
The Group has a 50% interest in Multi-lines International Company Ltd, a company incorporated in Hong Kong. The principal
activity of the company is the purchase and sale of goods. The Group also holds 40% of the ordinary share capital of Home
Focus Group Ltd, a company incorporated in Republic of Ireland and whose principal activity is retail sales.
Neither entity has discontinued operations or other comprehensive income, except that on consolidation both entities have a
foreign exchange translation difference.
Period ended 25 March 2017 26 March 2016
£'000 £'000
Multi-lines
Non-current assets 1,409 1,118
Current assets 36,109 24,621
Non-current liabilities - -
Current liabilities (26,010) (18,603)
Net assets 11,508 7,136
Revenue 128,976 109,111
Profit 2,767 2,682
Home Focus Group
Non-current assets 617 290
Current assets 6,052 4,980
Non-current liabilities (130) -
Current liabilities (4,387) (3,322)
Net assets 2,152 1,948
Revenue 16,910 12,680
Profit 18 15
The figures for Multi-lines show 12 months to December 2016 (2016: 12 months to December 2015), being the period used in
the valuation of the associate.
11 Intangible assets
Goodwill Software Brands Other Total
£'000 £'000 £'000 £'000 £'000
Cost or valuation
At 28 March 2015 835,258 1,372 98,053 1,263 935,946
Additions - 1,801 - - 1,801
Disposals - (76) - - (76)
Effect of retranslation 2,192 26 343 100 2,661
At 26 March 2016 837,450 3,123 98,396 1,363 940,332
Additions due to purchase of Knüller 1,322 - - - 1,322
Additions - 1,596 1,200 - 2,796
Disposals - (132) - - (132)
Effect of retranslation 2,919 33 451 131 3,534
At 25 March 2017 841,691 4,620 100,047 1,494 947,852
Accumulated amortisation / impairment
At 28 March 2015 - 586 - 407 993
Charge for the year - 416 - 284 700
Disposals - (54) - - (54)
Effect of retranslation - 15 - 54 69
At 26 March 2016 - 963 - 745 1,708
Charge for the year - 574 - 220 794
Disposals - (132) - - (132)
Effect of retranslation - 20 - 78 98
At 25 March 2017 - 1,425 - 1,043 2,468
Net book value at 25 March 2017 841,691 3,195 100,047 451 945,384
Net book value at 26 March 2016 837,450 2,160 98,396 618 938,624
Impairment review of intangible assets held with indefinite life
Impairment test of intangible assets held in the UK segment
The Group holds a goodwill asset of £807.5m (2016: £807.5m) and brand assets of £94.9m (2016: £93.7m), that relate to the
UK Retail Segment. The goodwill and £93.7m of the brand asset figure (the "B&M" brand) relates to the acquisition of the UK
segment by the Group in 2013.
The brand intangible assets have been identified as having indefinite life, as management believe that these assets will
hold their value for an indefinite period of time.
The goodwill and brand assets had previously been allocated to two groups of cash generating units (CGUs), being the two
fascias that the Group operates within its UK retail segment (Bargain stores and Home stores), however because these groups
of CGUs;
i) are not separately operated, managed or regularly reviewed;
ii) carry the same products and utilise the same supply chain;
iii) utilise the same support functions within the business;
iv) carry the same branding;
v) do not form separate operating segments;
the Group no longer considers that this approach is appropriate. Therefore the goodwill and brand assets have been
allocated to one group of CGUs, being the store estate within the B&M business.
The Group performs impairment tests at each period end. The impairment test involves assessing the net present value (NPV)
of the expected cash flows in relation to the stores within each CGU according to a number of assumptions (more detail on
which follows below) to calculate the value in use (VIU) for the group of CGUs. The results of the impairment tests
identified that the VIU was significantly in excess of the carrying value of assets within the group of CGUs at the period
end dates. No indicators of impairment were noted.
The key assumptions used were
(i) The Group's discount rate, sourced from a review of the market.
(ii) The inflation rate for expenses, which has been based upon the consumer price index for the UK.
(iii) The like for like sales growth, a prudent estimate made by management.
The values for the assumptions were:
As at 25 March2017 26 March 2016
Discount rate 8.0% 9.2%
Inflation rate for expenses 2.3% 0.5%
Like for like sales growth 3.0% 2.0%
These assumptions are held for five years in the forecast and then a perpetuity is performed over the year five figures,
effectively assuming no further like for like growth, or inflation after that point.
In order to demonstrate the sensitivity of the assumptions, it was calculated that the Group would first be required to
recognised an impairment if (all other assumptions being held equal);
(i) The Group's discount rate was 45.6% (2016: 24.7%).
(ii) The inflation rate for expenses was 19.8% (2016: 36.9%).
(iii) The like for like sales suffered a contraction of 8.5% (2016: 11.0%) per annum.
The prior year sensitivities above have been restated for the change in approach in grouping the CGUs. Under the previously
used grouping the sensitivities would have been that the Group would first be required to recognise an impairment if (all
other assumptions being held equal);
(i) The Group's discount rate was 40.4% (2016: 23.8%).
(ii) The inflation rate for expenses was 17.5% (2016: 33.1%).
(iii) The like for like sales suffered a contraction of 7.0% (2016: 9.8%) per annum.
Impairment test of intangible assets held in the German segment
The Group holds a goodwill asset of E39.5m (2016: E38.0m) and brand assets of E6.0m (2016: E6.0m) that relate to the German
Retail Segment. E38.0m of the goodwill and the entire brand asset figure relates to the acquisition of the German segment
by the Group in 2014.
The addition this year to goodwill is in relation to the Knüller acquisition - see note 27 for more details. The Knüller
stores were immediately rebranded as Jawoll stores and as such, the goodwill addition has been made to that fascia.
Further, the Hafu stores are in the process of being rebranded as Jawoll stores with the process materially complete by the
year end. The back office systems, product offering, management reporting and supply chains of the relevant stores have all
been fully integrated into the Jawoll systems. Therefore we consider that the German retail segment now contains one group
of CGUs and will proceed accordingly.
Currently the goodwill is valued at £34.2m (2016: £30.0m) and the brands at £5.1m (2016: £4.7m) on the Group's statement of
financial position, however as the functional currency of Jawoll is the Euro, all impairment calculations have been
calculated in Euros and therefore it is that currency that is referred to in the following disclosure.
The brand intangible assets have been identified as having indefinite life, as management believe that these assets will
hold their value for an indefinite period of time.
The Group performs impairment tests at each period end. The impairment test involves assessing the net present value (NPV)
of the expected cash flows in relation to the stores within each CGU according to a number of assumptions (more detail on
which is set out below) to calculate the value in use (VIU) for the group of CGUs. The results of the impairment tests
identified that the VIU was significantly in excess of the carrying value of assets within the group of CGUs at the period
end dates. No indicators of impairment were noted.
The key assumptions used were
(i) The Group's discount rate, is as per above.
(ii) The inflation rate for expenses, which has been based upon the consumer price index for Germany.
(iii) The like for like sales growth, a prudent estimate made by management.
The values for the assumptions used were:
As at 25 March2017 26 March 2016
Discount rate 8.0% 9.2%
Inflation rate for expenses 1.6% 0.3%
Like for like sales growth 2.5% 1.5%
These assumptions are held for five years in the forecast and then a perpetuity is performed over the year five figures,
effectively assuming no further like for like growth, or inflation after that point.
In order to demonstrate the sensitivity of the assumptions, it was calculated that an impairment would first require
impairment if (all other assumptions being held equal);
(i) The Group's discount rate would need to be in excess of 100% (2016: 86.8%).
(ii) The inflation rate for expenses was 22.8% (2016: 21.2%).
(iii) The like for like sales suffered a contraction of 11.9% (2016: 12.4%) per annum.
The prior year sensitivities above have been restated for the change in approach in grouping the CGU's. Under the
previously used grouping the sensitivities would have been that the Group would first be required to recognise an
impairment if (all other assumptions being held equal);
(i) The Group's discount rate was 98.3% (2016: 85.3%).
(ii) The inflation rate for expenses was 21.4% (2016: 19.8%).
(iii) The like for like sales suffered a contraction of 11.4% (2016: 12.3%) per annum.
12 Property, plant & equipment
Land and buildings Motor vehicles Plant, fixtures and equipment Total
£'000 £'000 £'000 £'000
Cost or valuation
28 March 2015 27,214 3,223 95,445 125,882
Additions 6,493 1,129 47,290 54,912
Disposals (270) (855) (326) (1,451)
Effect of retranslation 1,313 28 573 1,914
26 March 2016 34,750 3,525 142,982 181,257
Acquisition of Knüller - - 42 42
Additions 7,971 681 40,508 49,160
Remeasurement of finance leases (see note 25) 2,539 - - 2,539
Disposals (847) (758) (547) (2,152)
Effect of retranslation 1,837 37 925 2,799
25 March 2017 46,250 3,485 183,910 233,645
Accumulated depreciation
At 28 March 2015 4,932 1,377 17,750 24,059
Charge for the period 3,435 732 15,559 19,726
Disposals - (565) (316) (881)
Effect of retranslation 156 6 141 303
At 26 March 2016 8,523 1,550 33,134 43,207
Charge for the period 3,941 694 20,586 25,221
Disposals (26) (457) (531) (1,014)
Effect of retranslation 247 9 227 483
At 25 March 2017 12,685 1,796 53,416 67,897
Net book value at 25 March 2017 33,565 1,689 130,494 165,748
Net book value at 28 March 2016 26,227 1,975 109,848 138,050
The carrying value of assets held under finance lease and hire purchase contracts at 25 March 2017 was £6.7m (2016: £4.6m)
and total depreciation charged on these assets during the period was £0.9m (2016: £0.8m). The assets held under hire
purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.
Under the terms of the loan and notes facilities in place at 25 March 2017, fixed and floating charges were held over
£13.8m of the net book value of land and buildings, £1.4m of the net book value of motor vehicles and £119.7m of the net
book value of the plant, fixtures and equipment.
Under the terms of the loan facilities in place at 26 March 2016, fixed and floating charges were held over £10.4m of the
net book value of land and buildings, £1.7m of the net book value of motor vehicles and £104.0m of the net book value of
plant, fixtures and equipment.
Included within land and buildings is land with a cost of £2.3m (2016: £2.1m) which is not depreciated.
As at 25 March2017 26 March 2016
£'000 £'000
The net book value of land and buildings comprises:
Freehold land and buildings 16,141 12,501
Short leasehold improvements 17,424 13,726
33,565 26,227
13 Inventories
As at 25 March 2017 26 March2016
£'000 £'000
Goods for resale 462,119 356,312
Included in the amount above was a net charge of £3.5m related to inventory provisions (2016: £0.1m net gain). In the
period to 25 March 2017 £1,595m (2016: £1,349m) was recognised as an expense for inventories.
14 Trade and other receivables
25 March2017 26 March2016
£'000 £'000
Non-current
Lease premiums 2,413 2,771
2,413 2,771
Current
Trade receivables 3,447 4,172
Deposits on account 6,451 2,855
Provision for impairment (18) (51)
Net trade receivables to non-related parties 9,880 6,976
Prepayments 23,525 20,056
Related party receivables 1,335 799
Lease premiums 567 586
Other receivables 91 344
35,398 28,761
Trade receivables are stated initially at their fair value and then at amortised cost as reduced by appropriate allowances
for estimated irrecoverable amounts. The carrying amount is determined by the directors to be a reasonable approximation of
fair value.
The following table sets out an analysis of provisions for impairment of trade and other receivables:
Period ended 25 March2017 26 March2016
£'000 £'000
Provision for impairment at the start of the period (51) (9)
Impairment during the period (17) (48)
Utilised/released during the period 50 6
Balance at the period end (18) (51)
Trade receivables are non-interest bearing and are generally on terms of 30 days or less.
There were no significant balances within debtors at either March 2017 or March 2016 and as such there is no specific
concentration of credit risk.
The following table sets out a maturity analysis of all trade and other receivables, including those which are past due but
not impaired:
As at 25 March2017 26 March2016
£'000 £'000
Neither past due nor impaired 34,119 26,166
Past due less than one month 806 49
Past due between one and three months 372 1,225
Past due for longer than three months 101 1,321
Balance at the period end 35,398 28,761
15 Cash and cash equivalents
As at 25 March2017 26 March 2016
£'000 £'000
Cash at bank and in hand 155,551 91,148
As at 25 March 2017 the Group had available £128.7m of undrawn committed borrowing facilities (2016: £134.2m).
16 Trade and other payables
As at 25 March2017 26 March2016
£'000 £'000
Non-current
Accruals 897 1,012
Reverse lease premium 76,064 65,532
76,961 66,544
Current
Trade payables 199,901 139,396
Other tax and social security payments 1,869 6,924
Accruals and deferred income 39,832 24,711
Reverse lease premium 10,791 8,718
Related party trade payables 6,472 2,181
Other payables 8,950 7,813
267,815 189,743
Trade payables are generally on 30 day terms and are not interest bearing. The carrying value of trade payables
approximates to their fair value. For further details on the related party trade payables, see note 25.
17 Other financial assets and liabilities
Other financial assets
As at 25 March2017 26 March 2016
£'000 £'000
Current financial assets at fair value through profit and loss:
Foreign exchange forward contracts 61 4,769
Fuel swap contracts 232 -
Current financial assets at fair value through other comprehensive income:
Foreign exchange forward contracts 117 -
Total current other financial assets 410 4,769
Total other financial assets 410 4,769
Financial assets through profit or loss reflect the fair value of those derivatives that are not designated as hedge
relationships but are nevertheless intended to reduce the level of risk for expected sales and purchases.
Other financial liabilities
As at 25 March2017 26 March 2016
£'000 £'000
Non-current financial liabilities at fair value through profit and loss:
Put/call options over the non-controlling interest of Jawoll 17,886 16,041
Total non-current other financial liabilities 17,886 16,041
Current financial liabilities at fair value through profit and loss:
Foreign exchange forward contracts 287 307
Fuel swap contracts - 63
Interest rate swaps - 117
Current financial liabilities at fair value through other comprehensive income:
Foreign exchange forward contracts 1,783 -
Total current other financial liabilities 2,070 487
Total other financial liabilities 19,956 16,528
The put/call options over the non-controlling interest in Jawoll arose as part of the acquisition of the entity. The
valuation at year end reflects management's latest projections for the final amount to be exchanged at the year end foreign
exchange rate. The option matures in 2019 and the carrying value has been discounted to present value.
The other financial liabilities through profit or loss reflect the fair value of those foreign exchange forward contracts,
interest rate swaps and fuel swaps that are not designated as hedge relationships but are nevertheless intended to reduce
the level of risk for expected sales and purchases.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
· Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly.
· Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on
observable market data.
As at the reporting dates, the Group held the following financial instruments carried at fair value on the balance sheet:
Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
25 March 2017
Foreign exchange contracts (1,892) - (1,892) -
Fuel swap contract 232 - 232 -
Put/call options on Jawoll non-controlling interest (17,886) - - (17,886)
26 March 2016
Foreign exchange contracts 4,462 - 4,462 -
Interest rate swaps (117) - (117) -
Fuel swap contract (63) - (63) -
Put/call options on Jawoll non-controlling interest (16,041) - - (16,041)
The put/call option was valued with reference to the sale and purchase agreement underpinning the acquisition, and the key
variable in determining the fair value of the option, being the forecast EBITDA of Jawoll as prepared by management.
The movement in the valuation of the call/put option reconciles as follows:
Period ended 52 weeks to25 March2017 52 weeks to26 March 2016
£'000 £'000
Opening value 16,041 14,219
Unwinding of the call/put option valuation 1,573 723
Adjustment to the valuation of the call/put option (1,279) -
Effect of foreign exchange 1,551 1,099
Closing value 17,886 16,041
As the valuation is a multiple of German EBITDA, it is sensitive to the movement in the projection of this value, a 5%
movement in EBITDA would therefore effect a 5% change in the valuation.
The valuation is also sensitive to the Group discount rate. As an indication the sensitivities (all other inputs being held
equal) to a change in the year end discount rates are as follows:
As at Change in discount rate 25 March2017 26 March 2016
£'000 £'000
Effect on profit before tax +50bps 160 202
-50bps (162) (206)
The other instruments have been valued by the issuing bank, using a mark to market method. The bank has used various inputs
to compute the valuations and these include inter alia the relevant maturity date and strike rates, the current exchange
rate, fuel prices and LIBOR levels.
18 Financial liabilities - borrowings
As at 25 March2017 26 March 2016
£'000 £'000
Non-current
High yield bond notes 246,815 -
Term facility bank loans (new facilities) 296,910 -
Term facility bank loans (old facilities) - 435,142
543,725 435,142
The Group refinanced during the year, repaying the previous loan facilities, totalling £440.0m, and replacing them with a
new loan facility of £300.0m and high yield bond notes released by the parent entity of £250.0m. Details of maturities and
interest rates are included in the table below.
The new term facility bank loans and high yield bond notes are held at amortised cost and were initially capitalised in
February 2017 with £3.2m and £3.3m (respectively) of fees attributed to them.
The old term facility bank loans were held at amortised cost and were initially capitalised in June 2014 with £7.3m of fees
attributed to them. These facilities were refinanced in February 2017, at which point the remaining unamortised fees of
£3.7m were expensed to the income statement.
The maturities of the loan facilities and finance leases (see note 22) are as follows.
Interest rate Maturity 25 March2017 26 March2016
% £'000 £'000
Current interest bearing loans and borrowings
Finance leases 1.2-3.9% 2016-18 994 1,119
Non-current interest bearing loans and borrowings
UK Holdco term loan A (old facility) 2.75/3.25% + LIBOR 2019 - 300,000
UK Holdco term loan B (old facility) 3/3.5% + LIBOR 2020 - 140,000
UK Holdco term loan A (new facility) 2.25% + LIBOR 2021 300,000 -
High yield bond notes 4.125% 2022 250,000 -
Finance leases 1.2%-3.9% 2018-24 6,469 4,252
The information relating to the old facilities maturity was the contractual final maturity date. These facilities were
refinanced during the year with an actual maturity date of February 2017.
Term loans A and B, and the high yield bond notes have carrying values which include transaction fees allocated on
inception.
19 Provisions
Property provisions Other £'000 Total
£'000 £'000
At 28 March 2015 3,155 4,105 7,260
Provided in the period 1,219 2,259 3,478
Utilised during the period (534) (1,745) (2,279)
Released during the period (1,250) (405) (1,655)
Effect of retranslation 12 - 12
At 26 March 2016 2,602 4,214 6,816
Provided in the period 1,367 2,770 4,137
Utilised during the period (374) (1,857) (2,231)
Released during the period (1,855) (1,092) (2,947)
Effect of retranslation 16 - 16
At 25 March 2017 1,756 4,035 5,791
Current liabilities 2017 834 4,035 4,869
Non-current liabilities 2017 922 - 922
Current liabilities 2016 555 4,214 4,769
Non-current liabilities 2016 2,047 - 2,047
The property provision relates to the expected future costs on specific leasehold properties. This is inclusive of onerous
leases and dilapidations on these properties. The timing in relation to utilisation is dependent upon the individual lease
terms.
The other provisions principally relate to disputes concerning insurance liability claims. A prudent amount has been set
aside for each claim as per legal advice received by the Group. These claims are individually non-significant and average
£8.3k per claim (£7.5k in 2016).
20 Share capital
As at 25 March 2017 26 March 2016
Allotted, called up and fully paid £'000 £'000
B&M European Value Retail S.A.
1,000,000,000 ordinary shares of 10p each 100,000 100,000
100,000 100,000
Ordinary shares
Each ordinary share ranks pari passu with each other ordinary share and each share carries one vote. The Group parent is
authorised to release up to a maximum of 2,972,222,222 ordinary shares.
21 Cash generated from operations
Period ended 52 weeks ended25 March2017 52 weeks ended 26 March 2016
£'000 £'000
Profit before tax 182,918 154,545
Adjustments for:
Net interest expense 22,590 21,113
Depreciation 25,221 19,726
Amortisation of intangible assets 794 700
Transaction fees through administrative expenses - 770
(Profit) / loss on remeasurement of finance leases (317) -
(Profit) / loss on disposal of property, plant and equipment (405) 52
Loss on share options 254 235
Change in inventories (99,662) (67,184)
Change in trade and other receivables (6,666) 7,855
Change in trade and other payables 84,575 37,153
Change in provisions (1,042) 312
Share of profit from associates (1,005) (1,166)
Non-cash foreign exchange effect from retranslation of subsidiary cashflows 249 400
Loss / (profit) resulting from fair value of financial derivatives 3,369 (3,577)
Cash generated from operations 210,873 170,934
22 Commitments
Operating leases
The vast majority of the Group's operating lease commitments relate to the property comprising its store network. At the
year-end over 95% of these leases expire in the next 15 years (2016: >90%) The leases are separately negotiated and no
subgroup is considered to be individually significant nor to contain individually significant terms. The Group was not
subject to contingent rent agreements at the year end date. The following table sets out the total future minimum lease
payments under non-cancellable operating leases, taking account of lease premiums.
As at 25 March2017 26 March 2016
£'000 £'000
Not later than one year 133,696 113,660
Later than one year and not later than five years 484,814 429,494
Later than five years 494,478 457,450
1,112,988 1,000,604
The lease and sublease payments recognised as an expense in the periods were as follows:
As at 25 March2017 26 March 2016
£'000 £'000
Lease payments 127,369 105,062
Sublease receipts (571) (441)
126,798 104,621
Finance leases
At both year ends, all of the Group's finance leases related to buildings used in the operation of the German business.
Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net
minimum lease payments are as follows:
As at 25 March 2017 26 March 2016
Minimum payments PV of minimum payments Minimum payments PV of minimum payments
£'000 £'000 £'000 £'000
Not later than one year 1,227 994 1,119 1,119
Later than one year and not later than five years 4,791 4,227 3,401 3,245
Later than five years 2,295 2,242 1,105 1,007
8,313 7,463 5,625 5,371
Capital commitments
There were £3.5m of contractual capital commitments not provided within the Group financial statements as at 25 March 2017
(2016: £3.8m).
23 Group information and ultimate parent undertaking
The financial results of the Group include the following entities.
Company name Country Date of incorporation Percent held within the Group Principal activity
B&M European Value Retail 1 S.à.r.l. (Lux Holdco) Luxembourg November 2012 100% Holding company
B&M European Value Retail Holdco 1 Ltd (UK Holdco 1) UK December 2012 100% Holding company
B&M European Value Retail Holdco 2 Ltd (UK Holdco 2) UK December 2012 100% Holding company
B&M European Value Retail Holdco 3 Ltd (UK Holdco 3) UK November 2012 100% Holding company
B&M European Value Retail Holdco 4 Ltd (UK Holdco 4) UK November 2012 100% Holding company
B&M European Value Retail 2 S.à.r.l. (SBR Europe) Luxembourg September 2012 100% Holding company
EV Retail Limited UK September 1996 100% Holding company
B&M Retail Limited UK March 1978 100% General retailer
Opus Homewares Limited UK April 2003 100% Dormant
B&M European Value Retail Germany GmbH (Germany Holdco) Germany November 2013 100% Holding company
J.A. Woll Handels GmbH(Jawoll) Germany November 1987 80% General retailer
Jawoll Vertriebs GmbH I Germany September 2007 80% General retailer
BestFlora GmbH Germany July 2002 80% Supplier of items for retail
Changes during the year
Meltore Limited, previously a dormant 100% owned subsidiary of EV Retail Limited, has been disposed of and is no longer a
member of the Group. Jawoll acquired the non-controlling interest in BestFlora GmbH, and now owns 100% (previously 75%) of
that entity (the percent held within the group increased from 60% to 80%). Neither of these transactions has had nor will
have significant accounting effects for the Group.
German company restructuring (Prior year)
The German group was restructured during the prior year such that the former Group companies Jawoll Sonderposten GmbH,
Jawoll Sonderposten Vertriebs GmbH, Stern Sonderposten Vertriebs GmbH and Stern Handels GmbH were all fully integrated into
the remaining German Group companies, Jawoll and Jawoll Vertriebs GmbH I.
Associates
The Group has a 50% interest in Multi-lines International Company Limited, a company incorporated in Hong Kong and a 40%
interest in Home Focus Group Limited, a company incorporated in the Republic of Ireland following the acquisition of SBR
Europe on 6 March 2013. The share of profit/loss from the associates is included in the statement of comprehensive income.
Ultimate parent undertaking
The directors of the Group consider the parent and the ultimate controlling related party of this Group to be B&M European
Value Retail SA, registered in Luxembourg.
24 Financial risk management
The Group uses various financial instruments, including bank loans, related party loans, finance company loans, cash,
equity investment, derivatives and various items, such as trade receivables and trade payables that arise directly from its
operations.
The main risks arising from the Group's financial instruments are market risk, currency risk, cash flow interest rate risk,
credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are
summarised below.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more
detail below. In order to manage the Group's exposure to those risks, in particular the Group's exposure to currency risk,
the Group enters into forward foreign currency contracts. No transactions in derivatives are undertaken of a speculative
nature.
Market risk
Market risk encompasses three types of risk, being currency risk, fair value interest rate risk and commodity price risk.
Commodity price risk is not considered material to the business as the Group is able to pass on pricing changes to its
customers.
Despite the impact of price risk not being considered material, the Group engages in a swap contract over the cost of fuel
in order to minimise the impact of any volatility.
The sensitivity to these contracts for a reasonable change in the year end fuel price is as follows
As at Change in fuel price 25 March2017 26 March 2016
£'000 £'000
Effect on profit before tax +5% 159 64
-5% (151) (64)
This has been calculated by taking the spot price of fuel at the year end, applying the change indicated in the table, and
projecting this over the life of the contract assuming all other variables remain equal.
The Group's policies for managing fair value interest rate risk are considered along with those for managing cash flow
interest rate risk and are set out in the subsection entitled "interest rate risk" below.
Currency risk
The Group is exposed to translation and transaction foreign exchange risk arising from exchange rate fluctuation on its
purchases from overseas suppliers.
In relation to translation risk, this is not considered material to the business as amounts owed in foreign currency are
short term of up to 30 days and are of a relatively modest nature. Transaction exposures, including those associated with
forecast transactions, are hedged when known, principally using forward currency contracts.
All of the Group's sales are to customers in the UK and Germany and there is no currency exposure in this respect. A
proportion of the Group's purchases are priced in US Dollars and the Group generally uses forward currency contracts to
minimise the risk associated with that exposure.
Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in US Dollar period end exchange rates
with all other variables held constant.
The impact on the Group's profit before tax and other comprehensive income is largely due to changes in the fair value of
the FX options.
As at Change in USD rate 25 March2017 26 March 2016
£'000 £'000
Effect on profit before tax +2.5% (2,309) (1,797)
-2.5% 2,428 3,115
Effect on other comprehensive income +2.5% (9,403) -
-2.5% 7,919 -
The following table demonstrates the sensitivity to a reasonably possible change in the Euro period end exchange rates with
all other variables held constant. The effect on other comprehensive income is due to the foreign exchange reserve on
retranslation of the Group's subsidiaries that have the Euro as a functional currency.
As at Change in Euro rate 25 March2017 26 March 2016
£'000 £'000
Effect on profit before tax +2.5% (4) 2
-2.5% 9 (4)
Effect on other comprehensive income +2.5% (1,997) (1,712)
-2.5% 2,101 1,807
These calculations have been performed by taking the year end translation rate used on the accounts and applying the change
noted above. The balance sheet valuations are then directly calculated. The valuation of the foreign exchange derivatives
are projected based upon the spot rate changing and all other variables being held equal.
Interest rate risk
Interest rate risk is the risk of variability of the Group cash flows due to changes in the interest rate. The Group is
exposed to changes in interest rates as the Group's bank borrowings are subject to a floating rate based on LIBOR.
The Group's interest rate risk arises mainly from long-term borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. The Group's exposure to interest rate fluctuations is not considered to be material,
however the Group has in the past used interest rate swaps to minimise the impact.
At year end, if LIBOR interest rates had been 50 basis points higher/lower with all other variables held constant, the
effect upon calculated pre-tax profit for the year would have been:
As at Basis point increase / decrease 25 March2017 26 March 2016
£'000 £'000
Effect on profit before tax +50 (1,891) (499)
-50 1,891 499
This sensitivity has been calculated by changing the interest rate for each interest payment and accrual made by the Group
over the period, by the amount specified in the table above, and then calculating the difference that would have been
required.
It also includes the effect on the year end valuation of the interest rate swap contract, where the percentage change in
LIBOR indicated above has been applied to the year end spot rate and this has then been projected over the remaining life
of the contracts with the assumption that all other variables are held equal.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer
contract, leading to a financial loss. The Group's principal financial assets are cash and trade receivables. The credit
risk associated with cash is limited as the main counterparty is a UK clearing bank with a high credit rating (A- long term
and A-2 short term (standard & poor), (2016: A, A-1 respectively). The principal credit risk arises therefore from the
Group's trade receivables.
Credit risk is further limited by the fact that the vast majority of sales transactions are made through the store
registers, direct from the customer at the point of purchase, leading to a low trade receivables balance.
In order to manage credit risk, the directors set limits for customers based on a combination of payment history and third
party credit references. Credit limits are reviewed by the credit controller on a regular basis in conjunction with debt
ageing and collection history. Provisions against bad debts are made where appropriate.
Liquidity risk
Any impact on available cash and therefore the liquidity of the Group could have a material effect on the business as a
result.
The Group's borrowings are subject to quarterly banking covenants against which the Group has had significant headroom to
date with no anticipated issues based upon forecasts made. Short term flexibility is achieved via the Group's rolling
credit facility. The following table shows the liquidity risk maturity of financial liabilities grouping based on their
remaining period at the balance sheet date. The amounts disclosed are the contractual undiscounted cash flows:
Within 1 year Between 1 and 2 years Between 2 and 5 years More than 5 years Total
£'000 £'000 £'000 £'000 £'000
25 March 2017
Interest bearing loans 19,433 19,433 603,738 - 642,603
Forward foreign exchange contracts 2,070 - - - 2,070
Trade payables 206,373 - - - 206,373
26 March 2016
Interest bearing loans 15,044 15,044 464,069 - 494,157
Fuel swap contract 63 - - - 63
Interest swap contract 117 - - - 117
Forward foreign exchange contracts 307 - - - 307
Trade payables 141,577 - - - 141,577
Fair value
The fair value of the financial assets and liabilities of the group are not materially different from their carrying value.
Refer to the table below.
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