Annual Financial Report and Notice of AGM

RNS Number : 5404P

B&M European Value Retail S.A.

21 June 2022

 

21 June 202 2

B&M European Value Retail S.A.

Annual Report & Accounts 202 2 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 released today the Company's Annual Report and Accounts for the financial year ended March 202 2 and posted to shareholders the convening Notice to its Annual General Meeting.

The Annual General Meeting of the Company will be held at the Sofitel Grand-Ducal, 3 5, Rue du Laboratoire , L- 1911 Luxembourg, Grand-Duchy of Luxembourg on Thursday 2 8 July 202 2 at 12:00 noon (CET).

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 ; c opies of them are also available on the Company's website in the investors section on the following page :   www.bandmretail.com/investors/agm.aspx .

• A nnual Report and & Accounts 202 2 ;

• Notice of 2022 Annual General Meeting; and

• Form of Proxy for the Annual General Meeting.

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 information in the Appendix to this announcement below is extracted from the Annual Report & Accounts 202 2 and should be read in conjunction with the Company's P reliminary results announcement for the year ended 2 6 March 202 2 which was issued on 31 May 202 2 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 the Appendix 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 202 2 in its entirety. Page references in the Appendix below are page numbers of the Company's Annual Report & Accounts 202 2 . 

Enquiries

B&M European Value Retail S.A.

For further information please contact [phone]

Simon Arora, Chief Executive

Alex Russo, Chief Financial Officer

[e-mail]

Media

For media please contact [phone]

Sam Cartwright, Maitland

[e-mail]

APPENDIX

The principal risks and uncertainties relating to the Company are as set out in pages 2 6 to 3 4 inclusive of the Annual Report & Accounts 202 2 .

The following is extracted in full and unedited text from the "Principal risks and uncertainties" section of the Annual Report & Accounts 202 2 and is repeated here solely for the purpose of complying with DTR 6.3.5R.

PRINCIPAL RISKS AND UNCERTAINTIE S

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 the risk management of the Group.

The Group's Internal Audit function assesses the ongoing 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.

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 continues to remain a principal risk but its overall impact to B&M has reduced with the lifting of government restrictions and widespread vaccination programmes in the UK and France. Economic environment risks have been impacted by a cost of living crisis; supply chain risk affected by supply disruption in Asia; and commodity price increases due to inflationary pressure. This means that some of these risks have increased in likelihood and/or impact. The global increase in malware and ransomware means that the likelihood of cyber security risks has increased. Other principal risks have either reduced or remained stable.

None of the principal risks included in the 2020/21 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 these 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 to those risks.

The risks set out in the table are not exhaustive but represent the main risks to the Group in relation to the period under review.

Climate change

Climate change was considered at the Group's annual strategy day in March 2022. It was determined, at that time, that climate change does not represent a principal risk given the detailed risk assessment performed by management this year and how the outcome of that assessment compares to the principal risks already identified. However, this assessment will be reviewed at least annually by management and the Board.

We have embedded a climate change perspective into the ongoing assessment of our internal corporate risk register and will continue to review our risk management process. Our climate risk impact framework will be continuously updated and monitored, with full reviews occurring on an ongoing basis, facilitated by the Group Internal Audit function.

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

   Increased risk

  -    No change

     Decreased risk

1	Covid-19
Description & potential impact					Strategic Priority	Change
Prolonged social restrictions due to the coronavirus or any reoccurrence of government restrictions 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.					A B C D
Risk Mitigations			Key Actions in 2021/22
· The categories of goods which the B&M UK and Heron Foods businesses sell are essential goods within the UK Government guidelines. · Maintaining sufficient liquidity for our ongoing 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.			· The plans put in place by the B&M UK business in order to protect our supply chain (as referred to below under the key actions in relation to Supply Chain risk) have continued to protect the business from any material disruption to supplies, costs or prices, with those risks having been managed and offset by stock cover held in the UK of c.12 weeks cover for general merchandise goods. · Government policy in France in relation to Covid restrictions differed to the UK approach, and our French business remained responsive to the changing requirements during the early part of the financial year. · The Group's approach to flexible working arrangements supported colleagues in relation to working hours and homeworking arrangements throughout the year.
2	Supply chain
Description & potential impact					Strategic Priority	Change
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.					A
Risk Mitigations			Key Actions in 2021/22
· The Group has an experienced buying 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 where this is possible given local Covid restrictions.			· Stock cover in the B&M UK business of over 12 weeks on general merchandise imported goods ensures levels of inventory are adequate to meet periods of supplier delay. · Internal review of supplier social compliance process and appointment of Sustainability Manager to monitor transparency in the supply chain. · Working with suppliers and freight forwarders to forecast and remain vigilant in relation to challenges regarding the transportation of goods.
3	Competition
Description & potential impact					Strategic Priority	Change
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.					A C D
Risk Mitigations			Key Actions in 2021/22
· 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.			· 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. This allows the Group to track progress against each of the indicators and outputs from those surveys. · Around half of the Group's revenues in the period continues to come from food and FMCG goods. This has allowed the Group to remain insulated from any down turn in consumer spending and resilient against our competitors whilst continuing to meet our customers' needs.
4	Economic environment
Description & potential impact					Strategic Priority	Change
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.					A B C D
Risk Mitigations			Key Actions in 2021/22
· 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.			· 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 remained well stocked with the best-selling products on a daily basis. · Management has continued to proactively respond to changing sales patterns throughout the year noting that customers still make discretionary purchases albeit relatively low in value. The business was able to respond to this demand as very few products offered are high value items, with the majority being priced below £50.
5	Regulation and compliance
Description & potential impact					Strategic Priority	Change
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.					C D	-
Risk Mitigations			Key Actions in 2021/22
· 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 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 online 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.			· Mandatory training for all management and support centre colleagues using an e-learning portal has continued throughout the year. · Our Groceries Code Compliance Officer and Group Internal Audit team have actively engaged during the year with the Groceries Code Adjudicator ("GCA") in relation to our action plans and follow-up work during the year. · The Group has implemented reporting in line with the Task Force on Climate-related Financial Disclosures.
6	International expansion
Description & potential impact					Strategic Priority	Change
Developing our businesses in 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.					C
Risk Mitigations			Key Actions in 2021/22
· The Group has international retail experience on the 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 or might 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. · The Group continues to invest in both the infrastructure and technology of our French business.			· We continued to strengthen the senior leadership team in France with the new appointment of a Supply Chain Director (France) and secondment of management from the UK to transfer operational knowledge to colleagues in France. · We completed the fascia rebrand of all stores in France which has delivered a strong improvement in financial performance.
7	Warehouse infrastructure
Description & potential impact					Strategic Priority	Change
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.					B D	-
Risk Mitigations			Key Actions in 2021/22
· Forward plans have been implemented for additional warehousing capacity to support our new store opening programme. The Group in the UK has seven separate distribution centres, plus a further two in France. · The Group maintains adequate business interruption and increased cost of working insurance in the event of a loss of a distribution centre.			· We have commenced the roll out of the upgraded JDA Warehouse Management System. We plan to complete the remaining sites in FY23. · The vast majority of product SKU's now have dual locations within our UK Distribution Centre estate, so in the short term if a Distribution Centre was out of operation our stores could 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 has 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. · The Board annually reviews its short and medium term distribution infrastructure requirements.
8	IT systems, cyber security and business continuity
Description & potential impact					Strategic Priority	Change
The Group is reliant upon key IT systems, and disruption to such systems 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, reputational damage and in the case of a loss of personal data, potential prosecution. This also applies to any failure to protect the Group's IT systems and data from viruses, cyber invasive threats, corruption or sabotage.					D
Risk Mitigations			Key Actions in 2021/22
· 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 ongoing 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.			· IT cyber security and PCI controls in relation to processing card transactions are continually reviewed to ensure updates in line with payment card industry standards. · The B&M fascia business has implemented an Endpoint Security Platform and Advanced Malware Protection to improve cyber security. We continue to investigate ways to improve our cyber protection especially from ransomware using the Protect, Recover and Ensure Business Continuity model. · A 3 year phased programme of improvements and upgrades to IT systems and infrastructure commenced in FY22 with approval of the Board. This programme includes improvements to the Group Finance system, networks and segregation, data centre improvements and migration of email to the cloud.
9	Commodity prices/cost inflation
Description & potential impact					Strategic Priority	Change
Escalation of costs within the supply chain arising from factors such as increases in raw material and wage costs could adversely affect the profitability of the business. Additionally, increased fuel and energy costs could impact upon distribution, logistics and store overheads.					A
Risk Mitigations			Key Actions in 2021/22
· 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.			· The Group has freight rate agreements in place with freight forwarders with set prices at least 12 months ahead. · A Building Energy Management System controls energy consumption at stores more effectively and roll out of LED lighting across all stores is helping to mitigate rising energy costs.
10	Key management reliance
Description & potential impact					Strategic Priority	Change
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 the performance overall of the business.					D	-
Risk Mitigations			Key Actions in 2021/22
· 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 has developed succession plans for the Board of Directors and key senior operational management resourcing positions. It also reviewed the wider senior management resourcing needs of the Group.			· Succession planning has been regularly reviewed by the Nomination Committee throughout the year ensuring succession plans for key senior management through to executive positions. · The Group has continued to strengthen the senior management teams of its businesses. This has included (i) the appointment of a new General Counsel following the retirement of the previous General Counsel early this year, and (ii) the appointment of a new Supply Chain Director (France) to enhance the French Leadership team.
11	Store expansion
Description & potential impact					Strategic Priority	Change
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.					B	-
Risk Mitigations			Key Actions in 2021/22
· 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.			· The B&M UK business continues to take steps where new store opening opportunities exist in current store locations, to replace older generation stores with better quality sites and premises and via acquisition of adjacent space to expand stores and optimise performance.
12	Stock management
Description & potential impact					Strategic Priority	Change
Ineffective controls over the management of stock could impact the achievement of our gross margin objectives. Lack of product availability or over-stocking could impact working capital and cash flows.					A	-
Risk Mitigations			Key Actions in 2021/22
· 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 12 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 the open-to-buy process, supported by the disciplined SKU count.			· Despite the disruption to supply chains in the Far East and Asia the Group has aimed to maintain at least three months of stock cover throughout the year.

 

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