B&M Regulatory News (BME)

13 November 2018

B&M European Value Retail S.A.

Interim Results Announcement

Solid first half and start to H2

B&M European Value Retail S.A. ("the Group"), the UK's leading variety goods value retailer, today announces its interim results for the 26 weeks to 29 September 2018.

HIGHLIGHTS

· Group revenues increased by +16.1% to £1,563.0m, +16.0% at constant currency1

· B&M2 UK revenues were up +7.1%, which includes like-for-like revenues3 of +0.9% on an underlying basis4 excluding the non-comparable Easter trading week which fell in week 53 of FY18. Like-for-like revenues were flat if no adjustment is made for the non-comparable Easter trading week

· At the start of Q3 like-for-like sales growth so far in B&M fascia stores in the UK has been similar to H1, and the business is well placed for the "golden quarter" trading

· Group adjusted EBITDA5 increased by 13.5% to £131.8m (FY18: £116.1m) and the B&M UK adjusted EBITDA5 increased by +12.1%

· Profit before tax increased by 32.5% to £115.0m (FY18: £86.8m)

· Earnings per share 9.3p, an increase of 36.8% (FY18: 6.8p). Adjusted Diluted earnings per share5 8.0p, up 14.3% (FY18: 7.0p)

· Cash flow from operations £67.0m (FY18: £44.2m), reflecting EBITDA5 growth and working capital discipline

· Interim dividend6 increased by 12.5% to 2.7p per share (FY18: 2.4p per share) to be paid on 21 December 2018

· 22 gross new B&M UK store openings of which 5 are relocations (net 15 after 2 closures) and on track to open at least 58 gross new B&M stores this financial year

· German business, Jawoll, opened 2 new stores in the period, and on track to open 10 new stores this financial year

· Jawoll's revenue growth was +4.1%, although margin was impacted as expected by clearance activity on old stock lines as Jawoll introduces more B&M sourced products  

· Heron Foods has continued to trade well and opened 9 gross new stores, net 4 and on track to open at least 20 gross new stores this financial year

· Babou, a value retailer in France, acquired in October 2018 with 95 stores, providing a platform for future growth in a large and attractive market

Simon Arora, Chief Executive, said, 

"B&M has delivered a good first half performance. The core B&M fascia stores made good progress and we have made a solid start in the second half of the financial year. Heron Foods has grown strongly in the UK, and in Jawoll the new management team is now utilising the B&M supply chain, with clear early signs that customers are responding positively to the new products.

I'm delighted that having completed our recent purchase of Babou in France, we are now positioned to expand B&M's disruptive, value-led model in Europe's three largest consumer markets.

With the core B&M UK business having had a record half year performance, we are well placed to prosper in a difficult and uncertain retail environment."

Financial Results (unaudited)

1 Constant currency comparison involves restating the prior year Euro revenues using the same exchange rate as used to translate the current year Euro revenues.

2 References in this announcement to the B&M business, includes the B&M fascia stores in the UK except for the 'B&M Express' fascia stores. References in this announcement to the Heron Foods business, includes both the Heron Foods fascia and B&M Express fascia convenience stores in the UK.

3 Like-for-like revenues relates to the B&M estate only and includes each store's revenue for that part of the current period that falls at least 14 months after it opened; compared with its revenue for the corresponding part of the previous period. This 14 month approach has been taken as it excludes the two month halo period which new stores experience following opening.

4 The underlying like-for-like calculation excludes the Good Friday Easter week's trading from the previous financial year, as there was no Good Friday Easter week in the current financial year.

5 The Directors consider adjusted figures to be more reflective of the underlying business performance of the Group and believe that this measure provides additional useful information for investors on the Group's performance. Further details can be found in notes 3 and 5.

6 Dividends are stated as gross amounts before deduction of Luxembourg withholding tax which is currently 15%.

7 The H1 FY 2019 figures represent the 26 week performance to 29 September 2018 and the H1 FY2018 figures represent the 26 week performance to 23 September 2017.

8 For the prior period in FY 2018, Heron Foods was only part of the Group for 8 weeks out of the whole 26 week period. Total Group revenues in the 26 week period to 29 September 2018 excluding Heron Foods were £1,387.9m, being an increase of 6.9% compared with the 26 week period to 23 September 2017. The operating costs of the Group for Heron Foods in the 26 week period to 29 September 2018 were £45.4m excluding depreciation.

9 Net capital expenditure includes the purchase of property, plant and equipment, intangible assets and proceeds of sale of any of those items.

10 Net debt was £588.4m at the period end. This can be reconciled as £637.6m of gross debt (note 10) and £8.4m of finance leases, £6.9m of overdraft netted against £64.5m of cash.

Analyst Meeting & Webcast

An Analyst Meeting in relation to the Interim Results will be held today at 8.30 am (UK) by invitation only at:

Bank of America Merrill Lynch2 King Edward StreetLondon

EC1A 1HQ

The meeting can be accessed live via a dial-in facility on:

UK & International: +44 (0) 330 336 9105

US: +1 323 794 2093

Participant Pin Code: 3218596

A simultaneous audio webcast and presentation slides will be available via the B&M corporate website at www.bandmretail.com

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

Steve Webb, Investor Relations Director

Investor.relations@bandmretail.com

Media

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

Maitland

Daniel Yea

bmstores-maitland@maitland.co.uk

This announcement contains statements which are or may be deemed to be 'forward-looking statements'. Forward-looking statements involve risks and uncertainties because they relate to events and depend on events or circumstances that may or may not occur in the future. All forward-looking statements in this announcement reflect the Company's present view with respect to future events as at the date of this announcement. Forward-looking statements are not guarantees of future performance and actual results in future periods may and often do differ materially from those expressed in forward-looking statements. Except where required by law or the Listing Rules of the UK Listing Authority, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect any events or circumstances arising after the date of this announcement.

Notes to editors

B&M European Value Retail S.A. is a variety retailer with 598 stores in the UK operating under the "B&M" brand, 274 stores under the "Heron Foods" and "B&M Express" brands, 90 stores in Germany primarily operating under the "Jawoll" brand, and 95 stores in France operating under the "Babou" brand as at 3 November 2018. It was admitted to the FTSE 250 index in June 2015.

The B&M Group was founded in 1978 and listed on the London Stock Exchange in June 2014. For more information please visit www.bmstores.co.uk

OVERVIEW

The business has made solid progress, both financially and strategically, in the first half of the year. B&M and Heron Foods have carried on rolling out new stores and built a strong future new store pipeline, whilst delivering solid progress in revenues and profits. Work on our large new distribution centre in Bedford is also on track. In Germany the early work by the new management team on improving the Jawoll product offer, aligning it more closely with B&M's, has been received well by customers. We have also taken an important step into another major European market with the acquisition of the Babou chain of 95 stores in France last month.

Financial Performance

Group revenues for the 26 weeks ended 29 September 2018 grew by +16.1% to £1,563.0m and by +16.0% on a constant currency basis1.

B&M UK

In the B&M store estate in the UK, revenues grew by +7.1% to £1,276.7m, (FY18 H1: £1,192.0m) with that growth being driven by the continued successful execution of our new store opening programme, with 15 net new stores opened in the first half of the financial year and the annualisation of the net 39 new stores opened in FY2018.

Like-for-like ("LFL") sales in the first half of the year were +0.9% on an underlying basis4, excluding the non-comparable Easter week in the prior year. They were flat if no adjustment is made for the non-comparable Easter trading week. The underlying LFL performance of +3.6% in the first quarter was pleasing, but we saw a slowdown in July and August LFL having sold through much of our Gardening and Outdoor product categories earlier than we normally would. Our August end of season sale was much less significant than last year due to limited Gardening and Outdoor product left in stores. LFL sales returned to growth in September as the new Autumn/Winter product ranges were delivered into stores.

There were a total of 22 new store openings and 7 store closures in the first half of FY19. The 7 store closures included 5 relocations as we have continued to take advantage of opportunities presented by the current retail property market to relocate stores to larger and more modern premises, with higher levels of store contribution. As previously indicated, the new store opening programme is weighted to the second half of FY19 and we expect to open at least 58 gross new stores of which 5 will be relocations in the full year. The UK new store performance and returns continue to remain attractive.

Gross margins improved by 53bps relative to last year in the period, with the margin benefitting from reduced levels of clearance activity on Gardening and Outdoor products as a result of the strong sell through in the first quarter following the hot summer that the UK enjoyed. We are however still continuing to see a shift in the sales mix towards the lower margin grocery and FMCG products as the consumer continues to seek value. We expect that this will remain a factor in the second half of the year, as will achieving a satisfactory sell-through of seasonal Winter products.

Operating costs excluding depreciation and amortisation increased by 7.6% to £316.1m, (FY18: £293.8m) and costs as a percentage of revenues increased by 11bps to 24.8%, and we continue to pro-actively manage our cost base. We have seen some operating leverage in the store cost base with the impact of the National Living Wage having been mitigated by productivity improvements. However, our transport and distribution costs as a percentage of sales have worsened by 25bps as a result of inflationary cost increases in both fuel and staff expenses.

In the B&M business2, the adjusted EBITDA5 increased by 12.1% to £120.8m (FY18: £107.8m) and the adjusted EBITDA5 margin increased by 42bps to 9.5%.

Jawoll

In our German business Jawoll, revenues grew to £111.2m, which was a +4.1% increase over the £106.8m achieved in FY18 (+3.5% in local currency). The increase in sales has been driven by a modest improvement in the like-for-like sales performance and the annualisation of the FY18 new store openings. While awaiting the benefit of greater sourcing from the B&M supply chain, we have only opened 2 new stores in FY19 and both were towards the end of the period.

The first half of the year has been a period of change at Jawoll with the new management team accelerating the changes in the product offer to products sourced from the B&M supply chain on general merchandise lines whilst also clearing old slow-moving stocks to allow the new products to be displayed in store.

The gross margin percentage at Jawoll was impacted by the clearance activity and was 292bps lower than last year at 33.8%, in line with planned levels. The clearance activity has been successful and although there is still some further stock to clear, we would expect to see some margin progression during the second half of the year as the increased mix of B&M sourced products has a positive impact on performance.

The move to increased direct sourcing in Germany has also led to some short term increases in warehousing costs and this, combined with the clearance activity, has resulted in a decrease in the adjusted EBITDA5 of 80.8% to £1.1m (FY18: £5.9m).

Heron Foods

Our discount convenience chain, Heron Foods2, generated revenues of £175.1m, compared to the £47.5m achieved in the two months of ownership in FY188. The business continues to perform well and has maintained good like-for-like sales momentum, with the ambient food ranges in particular performing strongly. There have been 4 new store openings this year, increasing the number of stores to 269 at the end of the first half and we expect to have opened at least 20 stores in the full year.

The adjusted EBITDA5 was £9.9m, which compares to the £2.4m in the part period of ownership in FY18 and the EBITDA margin improved by 59bps to 5.6%.

Group

The operating costs of the Group in the first half of FY19, excluding depreciation and amortisation, grew by 17.1% to £397.9m, including new store pre-opening costs. Depreciation and amortisation expenses grew by 36.9% to £21.8m, reflecting the investment in new stores and the additional depreciation on the non-comparable period relating to Heron Foods.

Overall Group adjusted EBITDA5 increased by 13.5% to £131.8m. In the B&M business, the adjusted EBITDA5 increased by 12.1% to £120.8m (FY18: £107.8m). In Germany the adjusted EBITDA decreased by 80.8% to £1.1m and an additional adjusted EBITDA5 of £7.5m was contributed by Heron Foods.

The net interest charges were £11.2m, which compares to £10.5m in the same period in FY18, reflecting the increase in UK LIBOR rates on the Group's loan and revolving credit facilities as well as the additional interest charge on the loan facilities that remained in place following the acquisition of Heron Foods in August 2017.

The Group's net capital expenditure was £40.3m9 which was principally driven by the Group's new store opening programme, having opened 28 stores, including relocations across the Group. An additional £8.1m has been incurred on freehold store properties in order to secure specific sites, with the intention of entering into sale and lease backs of these properties in early 2019 in keeping with the Group's capital light property strategy. A further £1.7m has been incurred on the new Southern warehouse as building works on the site have now commenced.

The cash flow from operations was £67.0m, which was an increase of 51.5% from the comparable period last year, with the Group benefitting from the improvement in the EBITDA performance and tight working capital disciplines.

The business continues to de-lever and net debt10 to adjusted annualised EBITDA was 2.0 times at the end of September 2018, which compares to 2.2 times at the end of September 2017, (this included a pro forma adjustment following the Heron Foods acquisition). This de-leveraging profile is despite the £64.8m that has been incurred on freehold stores and the expenditure on the Southern Distribution Centre land and buildings in the last 12 months.

The Group acquired Paminvest SAS in October 2018, which trades under the name of Babou Stores and operates in France, together with its third party distribution services provider, for a combined acquisition price of €94.1m and with an EBITDA of €24.7m for the year ending January 2018. The acquisition was financed by an additional loan facility secured by the Group with an additional annual interest charge of £1.5m. We would expect that the Group would continue to remain below its 2.25 times net debt to adjusted annualised EBITDA leverage target.

Dividend

An interim dividend of 2.7p per Ordinary Share will be paid on 21 December 2018 to shareholders on the register at 23 November 2018 which is an increase of 12.5% on the prior year (FY18: 2.4p). The dividend payment will be subject to a Luxembourg withholding tax of 15%.

Shareholders and Depository Interest holders can obtain further information on the methods of receiving their dividends on our website www.bandmretail.com or by visiting the website of our Registrar, Capita Asset Services at www.capitashareportal.com

Strategic Development

We are excited about the opportunities for B&M to be one of the winners in the structural shift towards value retail which we also see taking place across Europe. Successful, profitable general merchandise discount formats are emerging in major markets as economic pressures and profound changes in retailing provide fertile conditions in which they can grow. In the UK we are already one of the leading value retailers. We now also have a strengthening platform in Germany, as we apply more fully the B&M sourced general merchandise to our Jawoll business there. The recent acquisition of Babou in France provides us with a solid base from which to build out a strong position in another large European consumer market, whilst allowing buying synergies between our German and French retail operations.

1. Deliver great value to our shoppers

B&M's unique sourcing model and low operating costs are vital elements of our competitiveness. We can offer great value to our customers week-in, week-out because of our disciplined approach to keeping our running costs low, buying in large volumes direct from factories and stocking only a limited assortment of the best-selling products at any one time. The B&M model is a profitable one only because of the rigour we apply to keeping costs and therefore prices down. Over the last two years we have worked hard to minimise the impact on our customers of the return of inflation to UK retailing, and they have rewarded us by returning regularly to our stores at a time when many other retailers are experiencing sharp reductions in footfall.

2. Investing in new stores

Whilst our UK store network continues to expand both in our heartland areas and in towns and cities where we are not represented, there remain many areas where we see profitable opportunities for future expansion ahead of us into the long term. Whether we open for the first time in a town or in an area where we are well-established, the customer response remains the same; they will visit and buy regularly from us. That is why our model is profitable and high-returning, and it is also why we see the potential for at least 950 B&M stores (excluding Heron Foods and B&M Express) across the UK from our current base of 591.

We are expanding at a rapid but controlled pace, focused on maintaining the high quality of our stores and sites, which has underpinned our success to date. We opened 22 new stores in the first half of the financial year and the customer response to those stores has been pleasing. This year's new store programme was planned to be more heavily weighted towards the second half of the financial year because of the growing proportion of purpose-built units and we are on track to exceed our initial forecast of 50 new stores (before relocations and closures). We now expect to open at least 58 new stores, offset by the 5 relocations (typically where a lease expiry means we can move to a larger, more profitable unit nearby) and the 2 closures already completed in the first half of the year. Our forward pipeline of new stores also remains strong. 

It is now a little over a year since we acquired Heron Foods, which is a complementary brand and format to B&M, because it operates in neighbourhood locations with small catchment sizes and customers who typically walk less than a mile to a store. Heron Foods has continued to perform well and it has fully confirmed our confidence in its ability to expand as it broadens its geographic footprint, as well as providing the infrastructure for B&M stores to broaden its offer successfully into the frozen and chilled food categories. Heron Foods opened 4 new stores in the first half of the financial year and is on track to open a total of 20 in the year as a whole.

In Germany, Jawoll opened just 2 new stores. Given the need for the new management team to focus on the priority of improving the product range, the new store programme has temporarily been slowed down. As the proportion of the range direct-sourced through the B&M supply chain rises, as planned, in the months ahead and as old inventory is cleared from stores and the distribution centre, a modest programme of new store openings will resume. A further 8 new stores are planned in the remainder of the year. Also a strong pipeline of new sites has been secured and the new stores programme can be accelerated from next year when the changes to the ranges are nearing completion.

3. Develop our international business

We have made important progress with our ambition to develop a substantial international business. In Germany, the new management team under Christian Müller has now been in place for several months and they have made significant progress in improving the Jawoll product offer. Inevitably, the need to discontinue slow selling old stock in the business has disrupted trade in the short term. This has reduced profitability in the first half of the financial year, but the early signs are that customers are buying the new products. As the weighting of the new ranges in the mix grows quickly in the months ahead, our confidence is growing that the reshaped offer will resonate well with German consumers.

The acquisition of the 95-strong Babou store chain in France last month gives us a platform to build a business in a third large European consumer market, in which a number of privately-owned but profitable and growing general merchandise discount participants are already doing well. Importantly, we are applying the lessons learned in Germany from the start by having recruited an experienced new CEO, Cedric Mahieu, who has been working already with the B&M team for several months developing a full understanding of our model as well as preparing a comprehensive integration plan for the acquired business. The store base and infrastructure of Babou fits well with our requirements and although some changes will be made to the offer for customers as we apply the B&M approach, the costs associated with these changes have been built into our plans from the outset.

4. Investment in our people and infrastructure

We are now well into the construction phase of the c.1 million square feet Southern Distribution Centre in Bedford which we have invested in to ensure we have sufficient long-term supply chain capacity ahead of us for. The works on new additional facility are on track for opening in May 2019.

We are investing in a digital technology work management system, which will be trialled in our B&M stores initially in the New Year. This enable store managers to plan work schedules for colleagues more efficiently using digital technologies and apps. It is expected to bring productivity gains in FY2020.

We have continued to invest in senior management positions across our business as it continues to grow, with senior Retail Operations and Buying team appointments in B&M in the UK. We have recruited a new CEO for the French business and have a number of senior recruitments taking place in its management teams currently.

Outlook

Trading conditions across the retail sector remain challenging, driven by a combination of sluggish economic growth in our core UK market, profound structural change in the retail industry and the uncertainty around Brexit. In that context though, B&M remains a clear winner and is well-positioned to extend its strong 13 year track record of profitable growth as consumers seek out value.

Much remains to be done in our German business before we can realise the significant potential we see in the German market with Jawoll. We see promising signs that the new management team are making the necessary changes to the product offering successfully. The second half of this financial year will give us an accurate basis to gauge Jawoll's progress, but the early indications, in particular the performance of new B&M-sourced ranges, are encouraging.

I am delighted that after a lengthy period of study, dialogue and negotiation, we have been able to establish a good foothold in a new, large market for the Group with the acquisition of Babou. France offers exciting potential for growth with a profitable existing value retail sector performing well, in which we expect to develop in the years ahead. Babou is a good platform from which B&M can participate in that growth and can pursue further its international ambitions.

In recent months we have met the challenge of trading against last year's exceptionally strong performance, and the effects of a long warm summer which has partly disrupted the normal pattern of trade. While the important Christmas trading period lies ahead, we are well placed to prosper in a difficult and uncertain retail environment.

Principal Risks and Uncertainties

There are a number of risks and uncertainties which could have a material negative impact on the Group's performance over the remainder of the current financial year. These could cause our actual results to materially differ from historical or expected results. The Board does not believe that these risks and uncertainties are materially different to those published in the annual report for the year ended 31 March 2018.

These risks comprise high levels of competition, the broader economic environment and market conditions, failure to comply with laws and regulations, failure to maintain and invest in key infrastructure, inherent risks in international expansion, disruption to key IT systems, cyber security and business continuity, credit risk and liquidity, fluctuations in commodity prices and cost inflation, disruption in supply chain, failure of stock management controls key management reliance, availability of suitable new stores, and regulatory, tax and customs effects generally on the UK's exit from the EU.

Whilst the uncertainties around Brexit are well documented elsewhere, we are relatively better placed than others as our supply chains do not materially depend on trade flows between the UK and continental Europe. We also have currency hedging policies in place to withstand short-term volatility in the value of Sterling against the US Dollar being the principal currency in which we procure goods from the Far East.  

Detailed explanations of these risks are set out on pages 26 to 29 of the Annual Report 2018 which is available at www.bandmretail.com

Simon Arora

Chief Executive

13 November 2018

Consolidated statement of Comprehensive Income

All operations are classified as continuing. The accompanying accounting policies and notes form an integral part of these financial statements.

Consolidated statement of Financial Position

The accompanying accounting policies and notes form an integral part of this financial information. The condensed financial statements were approved by the Board of Directors on 9 November 2018 and signed on their behalf by:

S. Arora, Chief Executive Officer.

Notes to the financial information

1 General information and basis of preparation

The results for the first half of the financial year have not been audited and are prepared on the basis of the accounting policies set out in the Group's last set of consolidated accounts released by the ultimate controlling party, B&M European Value Retail S.A. (the "company"), a company listed on the London Stock Exchange and incorporated in Luxembourg.

The financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (DTR) and with International Accounting Standard (IAS) 34 - "Interim Financial Reporting" as endorsed by the European Union.

The Group's trade is general retail, with trading taking place in the UK and Germany.

The principal accounting policies have remained unchanged from the prior financial information for the Group for the period to 31 March 2018, except that at the start of the financial year the Group adopted IFRS 15 ' Revenue from contracts with customers' and IFRS 9 'Financial Instruments', neither of which has had any impact on the comparative information.

The financial statements for B&M European Value Retail S.A. for the period to 31 March 2018 have been reported on by the Group auditor and delivered to the Luxembourg Registrar of Companies. The audit report was unqualified.

The financial information is presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

This consolidated financial information does not constitute statutory financial statements.

Basis of consolidation

This Group financial information consolidates the financial information of the company and its subsidiary undertakings together with the Group's share of the net assets and results of associated undertakings for the period from 1 April 2018 to 29 September 2018. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting. The results of companies acquired are included in the consolidated statement of comprehensive income from the acquisition date.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if and only if the Group has:

· Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

· Exposure, or rights, to variable returns from its involvement with the investee, and

· The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

· The contractual arrangement with the other vote holders of the investee

· Rights arising from other contractual arrangements

· The Group's voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary, excluding the situations as outlined in the basis of preparation.

Going concern

The directors report that, having reviewed current performance and forecasts, they are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Critical judgments and key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial information was prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use.

The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the performance of the CGU being tested.

The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, have been disclosed in the company's annual report.

Investments in Associates

Multi-lines International Company Ltd (Multi-lines), which is 50% owned by the Group, has been considered by management to be an associate rather than a subsidiary or a joint venture. Under IFRS 10 control is determined by:

· Power over the investee.

· Exposure, or rights, to variable returns from its involvement with the investee.

· The ability to use its power over the investee to affect the amount of the investor's returns.

Although 50% owned, B&M Group does not have voting rights or substantive rights. Therefore the level of power over the business is considered to be more in keeping with that of an associate than a joint-venture, and hence it has been treated as such within these consolidated financial statements.

Put/call options on Jawoll non-controlling interest

The purchase agreement for Jawoll in April 2014 included call and put options over the shares not purchased by the Group, representing 20% of Jawoll. The options are arranged such that it is considered likely that either the call or put option will be taken at the exercise date in 2019.

The exercise price of the options contain a variable element and as such the risk and rewards of the options are considered to remain with the non-controlling interest. The purchase of the non-controlling interest will be recognised upon exercise of one of the options.

A financial liability has been recognised carried at amortised cost to represent the expected exercise price, with the corresponding debit entry to the put/call option reserve. Management have estimated the future measurement inputs in arriving at this value, using knowledge of current performance, expected growth and planned strategy. Any subsequent movements in the liability will be recognised in profit or loss.

Standards and interpretations applied and not yet applied by the Group

IFRS 9 'Financial instruments'

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after 1 January 2018 and simplifies the classification of financial assets for measurement purposes.

The Group has applied IFRS 9 from 1 April 2018. There is no impact on the income statement or balance sheet from the adoption of IFRS 9.

Accounting policy for Financial Instruments

IFRS 9 eliminates the previous IAS 39 category for financial assets of loans and receivables. Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost, fair value through profit or loss or fair value though other comprehensive income.

A financial asset is measured at amortised cost if it meets both of the following conditions: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Under IFRS 9 trade receivables, without a significant financing component, are classified and held at amortised cost, being initially measured at the transaction price and subsequently measured at amortised cost less any impairment loss.

IFRS 9 introduces an 'expected loss' model ('ECL') for recognising impairment of financial assets held at amortised cost. The Group has elected to measure loss allowances for trade receivables at an amount equal to lifetime ECLs. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group's historical experience and informed credit assessment and including forward-looking information. The Group performs the calculation of expected credit losses separately for each customer group.

The Group assesses whether a financial asset is in default on a case by case basis when it becomes probable that the customer is unlikely to pay its credit obligations.

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue and related interpretations.

The Group has applied IFRS 15 from 1 April 2018 using the cumulative effective method (without practical expedients), with the effect of initially applying this standard being recognised at the date of initial application (1 April 2018). Comparative information has therefore not been restated.

Under IAS 18 revenue was recognised either over time where there was continuing service provided to the customer or at the point in time when the risks and rewards of ownership transferred to the customer. Under IFRS 15 revenue is recognised when performance obligations are satisfied. For the Group the transfer of control under IFRS 15 and satisfaction of performance obligations remains consistent with the transfer of risks and rewards to the customer under IAS18. Consequently, there were no profit or loss impacting adjustments required on application of IFRS 15.

Accounting policy for Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recognised at the initial point of sale goods to the customers, when the risks and rewards of the ownership of the goods has passed to the buyer. Revenue is stated net of discounts, rebates, refunds and value-added tax.

Revenue principally represents the amounts receivable from customers for goods supplied. The vast majority of goods are supplied immediately at the point of sale in a retail store environment, and therefore performance obligations are considered to have been met at the point of sale.

IFRS 16 'Leases'

IFRS 16 Leases will be applicable for periods starting after 1 January 2019 and will apply to the Group's accounts commencing 31 March 2019. This standard will significantly affect the presentation of the Group financial statements as we have over 900 active property leases (primarily related to the Group's store estate) as well as a smaller commitment for other operating leases.

The Group has considered the implications of IFRS 16 on the Group's consolidated results and has developed a model to account for changes required to be made by the new standard.

Whilst the detailed data has not been audited, the overall model has been reviewed by the Group auditors including the assumptions and the calculations within the model.

At this stage, and subject to several factors, including the accounting definition of the retrospective application of cash flows, the impact of the Group's past restructuring, the finalisation of specific discount rates and auditor approval, we expect to use either the full retrospective or modified retrospective approach.

Both methods will lead to a significant brought forward retained earnings adjustment representing the recognition of a liability that exceeds the recognised asset.

Specifically;

Our Statement of Financial Position will include a liability equal to the present value of all future lease commitments and a corresponding right-of-use asset. Due to discounting it is expected that the liability will be significantly in excess of the asset. Our gross operating lease commitment as at March 2018 was £1,257.8m, £1,239.1m of which is in relation to property leases. Our net deferred property liability (£98.8m at March 2018) would also be derecognised.

Our Statement of Comprehensive Income will have a significantly reduced rental charge, but increased amortisation and interest charge related to the unwinding of the lease liability. Overall the amortisation and interest increase is expected to exceed the reduction in rent in the first years of application. Our rental charge for 2017/18 was £150.5m, £140.9m of which relates to property leases.

Whilst cash flows themselves are not affected, there will also be subsequent knock-on effects to the presentation of the Statement of Cash Flows.

2 Segmental information 

IFRS 8 ("Operating segments") requires the Group's segments to be identified on the basis of internal reports about the components of the Group that are regularly reviewed by the chief operating decision maker to assess performance and allocate resources across each reporting segment.

For management purposes, the Group is organised into three reportable segments, being the UK B&M segment, the UK Heron segment and the German retail segment. The UK Heron segment has been active since the acquisition of Heron Food Group in August 2017.

Items that fall into the corporate category include those related to the Luxembourg or associate entities, Group financing, corporate transactions, any tax adjustments and items we consider to be adjusting (see note 3).

The chief operating decision maker has been identified as the executive directors who monitor the operating results of the retail segments for the purpose of making decisions about resource allocation and performance assessment.

The average euro rate for translation purposes was €1.1310 during the period, with the period end rate being €1.1228 (March 2018: €1.1336/£ and €1.1410; September 2017: €1.1377/£ and €1.1332/£ respectively).

3 Reconciliation of non-IFRS measures from the statement of comprehensive income

EBITDA, adjusted EBITDA and Adjusted Profit are non-IFRS measures and therefore we provide a reconciliation to the statement of comprehensive income below.

The adjusting items are the effects of derivatives, one-off refinancing fees and the effects of revaluing or unwinding balances related to the acquisition of subsidiaries, such as the call/put option held over the non-controlling interest of our German operation. Significant project costs may also be included, if incurred, as they were in the prior year in relation to the purchase of Heron. Adjusted tax represents the tax charge per the statement of comprehensive income as adjusted only for the effects of the other adjusting items detailed above.

All adjusting items relate to the Corporate segment.

Adjusted EBITDA and related measures are not measures of performance or liquidity under IFRS and should not be considered in isolation or as a substitute for measures of profit, or as an indicator of the Group's operating performance or cash flows from operating activities as determined in accordance with IFRS.

4 Business combinations

In the prior year, on 2 August 2017, the Group acquired Heron Food Group Limited ("Heron"), a discount convenience retailer incorporated in the UK. The transaction was accounted for via the acquisition method of accounting. The Group purchased 100% of the share capital, for a fair value of £122.5m, which breaks down as follows:

The deferred consideration represents a cash amount of £12.8m payable in 2019 based upon certain conditions. An exercise carried out by the business has fair valued this at the acquisition date at £10.4m and this will be unwound through the P&L to the full value of £12.8m by August 2019.

The effect of the acquisition on the Group can be seen in the segment note (note 2). Further details, including the fair values of the identifiable assets and liabilities of Heron, have been disclosed in the Group's 2018 Annual Report.

5 Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the financial period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding at each period end.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of 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 on the same basis except using the adjusted profit or loss attributable to the equity holders of the parent, as defined in note 3.

There are share option schemes in place which have a dilutive effect on all periods presented.

The following reflects the income and share data used in the basic and diluted earnings per share computations: 

6 TaxationThe taxation charge for the interim period has been calculated on the basis of the corporation tax rate for the full year of 19% (UK) and 30% (Germany) and then adjusted for allowances and non-deductibles in line with the prior year.

7 Intangible assets

An impairment review was carried out over the Goodwill and Brand assets with indefinite life at 31 March 2018. Details of these reviews are included in the Group statutory accounts. A full review will also take place at the next year end date of 30 March 2019.

8 Property, plant and equipment

9 Share capital 

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 2,971,661,000 (2017: 2,972,222,222) ordinary shares.

The outstanding share options can be summarised as follows;

For the dilutive effect of these, see note 5.

10 Financial liabilities - borrowings

All borrowings are held in Sterling.

The term facility bank loans and high yield bonds 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 Heron loan facilities were brought into the Group as part of the acquired balance sheet on 2 August 2017. All are held with Handelsbanken and are carried at their gross cash amount. Further details are in the maturity table below.

The maturities of the above loan facilities are as follows:

11 Reconciliation of profit before tax to cash generated from operations

12 Financial instruments

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.