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Annual Financial Report

18 Jun 2019 08:30

RNS Number : 5300C
B&M European Value Retail S.A.
18 June 2019
 

 

 

 

18 June 2019

 

B&M European Value Retail S.A.

 

Annual Report & Accounts 2019 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:

 

1. the Company's Annual Report and Financial Statements for the year ended 30 March 2019 ("Annual Report & Accounts 2019"); and

 

2. the Notice of Annual General Meeting of the Company ("AGM").

 

Copies of the Annual Report & Accounts 2019 and the Notice of AGM will shortly be available for inspection at www.morningstar.co.uk/uk/nsm , and copies of them are also available on the investors section of the Company's website at www.bandmretail.com/investors/agm.aspx

 

The AGM will be held at the Sofitel Luxembourg Europe, 4, Rue du Fort Niedergrünewald, L-2226 Luxembourg, Grand-Duchy of Luxembourg on Friday 26 July 2019 at 12:00 noon (CET).

 

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 2019 and should be read in conjunction with the Company's preliminary results announcement for the year ended 30 March 2019 which was issued on 23 May 2019 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 2019 in its entirety.

 

Enquiries

 

B&M European Value Retail S.A.

For further information please contact +44 (0) 151 728 5400

Simon Arora, Chief Executive

Paul McDonald, Chief Financial Officer

investor.relations@bandmretail.com

 

 

 

 

Media

For media please contact +44 (0) 207 379 5151

Maitland

Daniel Yea

bmstores-maitland@maitland.co.uk

 

 

 

APPENDIX 1

 

The principal risks and uncertainties relating to the Company are as set out in pages 26 to 30 inclusive of the "Principal risks and uncertainties" section of the Annual Report & Accounts 2019.

 

The following is extracted in full and unedited text from the Annual Report & Accounts 2019 and is repeated here solely for the purpose of complying with DTR 6.3.5R.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

Risks management approach

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.

 

Risks and mitigation are reviewed as part of the oversight by the Audit & Risk Committee of the system of internal controls and reported on to the Board which takes overall responsibility for risk management.

 

The Internal Audit function of the Group reports on the effectiveness of internal control procedures to the Audit & Risk Committee as part of annual internal audit plan, taking into account current business risks.

 

The Group's framework for managing its consideration of risk appetite forms part of the annual risk management cycle and is used to drive and inform actions undertaken in response to the principal risks identified by the Board. Within this framework, the Group's appetite for risk is defined with reference to the expectations of the Board for both commercial opportunity and internal control and it is used to inform the Group's annual internal audit plan.

 

Category of risk

Strategic

Financial

Operational

Compliance

 

Tolerance

Medium

Low to medium

Low

Extremely low

Risk management framework

The responsibility for identifying and evaluating new and emerging risks and mitigating actions lies with management. The Audit & Risk Committee, with the support of the Internal Audit department and the Group's General Counsel, is responsible for monitoring risks and mitigating actions and for reporting matters of concern to the Board.

 

The Board oversees the risk management of the Group. It evaluates the recommendations made by the Audit & Risk Committee and determines the framework of the type of controls and mitigating steps required to be implemented, in the context of how those risks could impact the overall objectives of the business and risk appetite.

 

The responsibility for 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 German businesses.

 

The Internal Audit department reports on the progress of implementation by management of recommendations made to them, to the Audit & Risk Committee at each meeting during the year, being a continuous cycle of review.

 

Risk Summary

There were no changes in B&M's principal risks during 2018/19. There are no new principal risks to note, and no existing principal risks have been removed. Movements in B&M's existing principal risks are detailed in the Principal Risks table opposite.

 

 

Risk change key

 

 

 

 

 

Increased risk

 

____

 

 

No change

 

 

 

Decreased risk

 

 

 

 

Risk Type

 

 

 

Risk No

Description & potential impact

 

 

Risk mitigations

 

 

 

Change

 

Competition

 

1

 

 

 

 

 

 

 

 

 

The Group operates in highly competitive retail markets in the UK, Germany and France and this could materially impact the Group's profitability, share price and limit growth opportunities.

 

 

• Continuous monitoring of competitor pricing and product offering.

 

• Development of new product ranges within the product categories to identify new market opportunities to target new customers.

 

____

 

Economic environment

 

2

 

A reduction in consumer confidence could impact

upon customer spending and subsequently revenue and profitability, as a result of the prevailing macro-economic conditions in the markets in which we operate.

 

 

• 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 the economic conditions.

 

____

 

 

Regulation and compliance

 

3

 

 

 

 

 

The Group is exposed to regulatory and

legislative requirements, including those relating to the importation of goods, the Bribery Act,

Modern Slavery Act, tax evasion, health &

safety, employment law, General Data Protection Regulation ("GDPR"), the environment and the Listing Rules. The impact of failure to comply with regulations could lead to financial penalties and reputational damage.

 

This risk has increased due to the General Data

Protection Regulation ("GDPR") which will apply in the EU from 25 May 2018. This regulation gives rise to increased data protection compliance requirements backed by potential heavy financial penalties for compliance failures.

 

 

• We have a number of policies and codes across the business, including a code of conduct that incorporates an anti-bribery & corruption policy, outlining the mandatory requirements within the business. These are communicated to the staff via an employee handbook which is made available to anyone joining the company.

 

• Operational 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 any new legislation.

 

• We have an internal audit function, and a whistle blowing procedure and policy which allows colleagues to confidentially report any concerns or inappropriate behaviour within the business.

 

• The Company has a Group-wide GDPR policy. As a result of the legal requirements of GDPR a number of key changes were implemented by the Group previously. They include changes in our privacy policies, a new process in relation to data subject rights requests, issuing privacy notices to all colleagues, updating the privacy notices for users of our websites and sending new consent requests to all pre-existing subscribers to our on-line mailing list.

 

____

 

 

 

 

Warehouse

Infrastructure

 

 

 

 

 

4

 

The Group could suffer the loss of one of its warehousing facilities which would impact short/medium term trading and could materially impact the profitability of the business. Failure to maintain and invest in the warehousing and transport infrastructure as the business continues to grow the store portfolio.

 

 

 

• Forward plans are in place for additional warehousing capacity to support the new store opening programme. The Group in the UK has six separate warehousing locations and conducts disaster recovery planning. An additional warehouse is being built which will support expansion in the South of England. The warehouse is expected to be operational in January 2020.

 

• The Group maintains adequate business interruption and increased cost of working insurance in the event of such a loss.

 

____

 

 

International expansion

 

 

 

 

5

 

The ability to develop into new territories is important to the Group's future growth plans. Expanding into new markets creates additional challenges and risks which could impact upon overall Group performance, growth and

profitability.

 

 

• Significant international experience on the main Board. The senior leadership teams in Germany and France.

 

• Clear focus on markets in which we operate to ensure they are appropriate for value retailing and the product ranges are developed and selected by local buying teams along with access to the Group's supply chains.

 

• Continuing to invest in both the infrastructure and technology of our international subsidiaries.

 

• Monitoring and investigating potential new opportunities for growth in strategically identified locations.

 

 

____

 

IT systems, cyber security and business continuity

 

6

 

The Group is reliant upon key IT systems, and disruption to these would adversely affect

businesses operations including in warehouses

and in stores. The potential impact of data protection failure is that it may lead to a potential prosecution and reputational damage

to the brand. This risk also encompasses the

IT Security risk of failing to protect the Group's systems and data from viruses, cyber threats and sabotage.

 

 

 

• All critical business systems have third party maintenance contracts in place and are industry standard.

 

• We utilise the services of a third party IT consultancy support to ensure that any investments made in technology are fit for purpose; IT investments/budgets are approved at Board level.

 

• We have a disaster recovery strategy.

 

• We have an on-going PCI 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.

 

____

 

Credit risk and liquidity

 

7

 

The Group's level of indebtedness and

exposure to interest rate and currency rate volatility could impact the business and its growth plans.

 

 

 

 

• A treasury policy is in place to govern foreign exchange, interest rate exposure and surplus cash.

 

• Regular weekly cash flow forecasts are produced and monitored.

 

• Forward looking cash flow forecasts and covenant testing forecasts are prepared to ensure sufficient liquidity and covenant headroom exists.

 

 

____

 

Commodity prices/cost inflation

 

8

 

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 and the store and warehouse overhead base.

 

 

 

• Freight rates, energy and currency are bought forward to mitigate volatility and 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 these effects.

 

 

____

 

European Union Exit

 

9

 

The UK's planned exit from the European Union has several potential impacts in the areas of economic & regulatory environment;

withholding tax paid on internal dividends;

import of goods due to currency exchange volatility and increased import duties; availability & cost of labour; and several potentially as yet unknown impacts.

 

This risk has increased due to (i) the approaching EU departure date and the potential short-term impacts resulting from

this on the business, and (ii) in relation to the continued uncertainty of whether the UK leaves the EU with a transitional deal or not.

 

 

• B&M believes the impact of the UK's decision to leave the EU on the underlying performance of the Group will be limited. During the period of consumer uncertainty and economic downturn in 2008 B&M's

business performed well.

 

• Short-term exchange rate volatility is mitigated by our currency forward position. Any continued volatility will affect the economic inflationary environment as a whole.

 

• B&M imports the majority of its general

merchandise stock into the Port of Liverpool, as opposed to Southern ports which could be more heavily impacted.

 

• The Board will continue to monitor developments and understand the interpretations with respect to potential risks, and then act accordingly.

 

• The Board and management will maintain

professional contacts in order to assist with this process.

 

 

 

 

 

Key management reliance

 

 

10

 

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 staff leavers will impact on organisational

performance and delivery.

 

This risk ranking has increased in risk number due to the decreasing significance to the

business of the risk relating to stock management.

 

 

• The key senior and operational management are appropriately incentivised through bonus and share arrangements such that talent is retained.

 

• The composition of the executive team is kept under constant review to ensure that it is appropriate to the delivery of the Group's plans.

 

• The Nomination Committee develops succession plans for the Board of Directors and key management positions. It also reviews the wider senior management needs of the Group with a view to ensuring the ability of the Group to compete effectively.

 

 

 

 

Supply chain

 

11

 

The lead times in the supply chain could lead to a greater risk in buying decisions and potential loss of margins through higher markdowns.

Disruption to the supply chain arising from civil unrest, natural disasters, ethical or quality

standards failure may impact upon brand reputation as there is a risk that consumers may be harmed.

 

The nature of the risk is significant as the

Group as a whole imports general

merchandise from the B&M Far East supply chain. It has decreased in ranking (but not significance) due to the Brexit and key management reliance risks having

increased in ranking.

 

 

 

• An experienced sourcing team 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 single supplier.

 

• A combination of individual buyers and supplier employees conduct factory visits.

 

 

 

 

Store expansion

 

12

 

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.

 

 

 

• 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 an overall benefit to the Group is realised.

 

____

 

Stock management

 

13

 

Ineffective controls over the management of stock could impact on the achievement of our gross margin objectives. Lack of product availability could impact on working capital and cashflows.

 

This risk ranking has decreased in risk number due to the lower likelihood of this risk occurring due to the effectiveness of the risk mitigations in place.

 

• Highly disciplined SKU count by season and effective and regular markdown action on slow moving product lines.

 

• Initial stock orders do not exceed c. 14 weeks of forecast sales and action is undertaken after c. 4 weeks of trading to either repeat the order, refresh the product design or delete the product line.

 

• Consistent levels of stock cover by product category are maintained through regular reviews of open to buy, supported by the disciplined SKU count.

 

 

 

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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