B&M European Value Retail S.A. Stock

Good morning, everyone, and welcome to this presentation of B&M's FY '27 Interim Results. My name is Andrew Orchard, Head of Investor Relations. Presenting today are Tjeerd Jegen, our Chief Executive Officer; and Pete Waterhouse, our Interim Chief Financial Officer.

We'll start with some prepared remarks alongside the presentation before opening the floor up to Q&A. For those joining online via the webcast, please insert your questions using the chat function, and I will relay those to the room.

With that, Tjeerd.

Getting already sorted. So thank you, Andrew, and welcome, everyone, to today's presentation, both here in the room and joining us online. It's 12 months now since I set out the first of our 3-phase plan to strengthen the foundation of B&M. And at that point, our immediate priority was restoring sustainable like-for-likes in the U.K.

And today, I'm pleased to announce that the actions we've taken on the Phase 1 of this plan, Back to B&M Basics, are starting to deliver. And the return to positive U.K. like-for-likes in the second quarter reported this morning is an encouraging milestone and gives confidence for us that the first phase of our strategy is working.

At the same time, we're making good progress with Phase 2. We're testing how we can use better customer insights, more tailored ranges and improved formats to raise the productivity of our existing estate. And particularly, the early results from our store Wigan 2.0 are encouraging.

In terms of today's presentation, I'll begin with a short overview of the progress we have made during the first half before handing over to Pete who will take you through our financial performance and the outlook of the year. I'll then provide an update on our strategy with a particular focus on Phase 2 and the promising opportunity we see to improve the productivity of our U.K. estate as well as the continued progress -- good progress we're making in France and at Heron. And like usual, then happy to take your questions.

Summarizing the last 6 months, I would say it's good progress and my observations would be as follows. First of all, I think the actions of the first phase of our strategy are starting to deliver. B&M U.K. delivered a growth of 3.2% in the second quarter, quite a good number compared to previous last couple of years. General Merchandise led the performance, but also an improvement in FMCG across the quarter, ending Q2 flat and then FMCG is currently in growth in Q3.

Secondly, I think the category margin rebuild, as we communicated at the FY '26 results, continues. It's driven by a recovery in General Merchandise category margins. We see a favorable mix, and we also have seen really good work in stores leading to an improved shrinkage number supporting gross margins. And we expect this trend of year-on-year category margin growth to continue during the second half.

Third, we're making good progress with Phase 2. We're testing new format strategies across a range of stores, and we are preparing for broader deployment. And the goal here is very simple. We target store investments to produce stronger sales outcomes, but within our very well-known disciplined capital investment model.

And then fourth, over the channel, France continues to perform very strongly and is taking share in a market where we're achieving critical mass and breakthrough customer awareness. Heron has delivered a second quarter of positive like-for-likes, demonstrating the relevance of its everyday low-price offer as household budgets remain under pressure.

And fifth, these achievements are rooted in a solid financial foundation. Leverage is very close to midpoint of our target range of 1 to 1.5x compared to 1.6x at the same point last year and clearly helped by a strong free cash flow.

And finally, our achievements to date give us confidence that the group can deliver adjusted EBITDA pre-IFRS 16 in the range of GBP 450 million to GBP 500 million and adjusted PBT in the range of GBP 280 million to GBP 330 million, which was introduced today as our financial guidance for FY '27.

And I would like now to hand over for the financial review to Pete. Thank you very much. I'll come back later.

Thanks for the introduction, Tjeerd. Good morning, everyone. I'm glad to be here in front of you today to deliver what I believe is a robust and promising set of results for our first half of FY '27. As I go through the presentation, there will be 3 or 4 things I'd like to focus on: our successful restoration of positive like-for-like sales and gross margin through our Back to B&M basic strategy, strong stable cash flows that will support our investment choices in the second half, and finally, continued outperformance in France.

Let's turn to our key financial indicators. I'll start by calling out positive like-for-like growth in each of our 3 businesses. B&M U.K. came despite our weather-affected spring with a strong run rate like-for-like through the summer of 3.2%. Gross margin was up, whilst EBITDA margin held steady with the margin upside offset by some cost pressures.

We've guided to full year figures of between GBP 450 million and GBP 500 million adjusted EBITDA. This translates to a range of GBP 280 million to GBP 330 million for our post-IFRS 16 measure of adjusted profit before tax.

Cash flow remains strong. This included working capital benefits that were experienced earlier than we anticipated and CapEx phasing, which has shifted towards the second half compared to our usual pattern. Leverage at 1.3x demonstrates a significant improvement over our prior year position. And with the golden quarter cash flows to come too, this demonstrates that we have the ammunition to support our second half investment choices. I'll now go into more detail.

Sales were good. All 3 businesses delivered like-for-like growth in the year with France the star of the estate. They experienced nearly 6% growth, contributing GBP 39 million in additional sales year-on-year. Heron demonstrated strong recovery too. Their 2.9% outturn was delivered consistently in each period of the half.

With B&M U.K., it was a game of 2 halves or maybe I should say 2 quarters. The chart on the bottom right shows the impact of the seasonally affected first quarter and then our return to positive like-for-likes in the second. And that is demonstrated by these charts.

Concentrating on the B&M U.K. side, we can see an upward trend that extends back 2 years, which is only interrupted by our 2 weather-affected Q1s, a glorious early spring in FY '26 and a delayed wait for the sun in FY '27. On the right, France continues to impress. Their quarter 2 performance came despite a strong comparative and have now experienced 23 consecutive quarters of growth. That's an excellent return. Part of the story has been our repair of our General Merchandise gross margin.

Our 94 bp overall B&M U.K. trading gross margin improvement has included success with our bought-in margin rate and a significant contribution as a result of our management of stock loss. We don't expect that to reverse. While stock loss continues to rise across the retail industry, we've worked hard on our internal processes and particularly early identification with these benefits directly impacting our gross margin outturn.

Gross margin benefits in our GM category were offset by a year-on-year reduction in FMCG. Here, our competitive pricing strategy involved investing in our key value items towards the end of the first half last year. So our FMCG category margin has been lower year-on-year due to not having annualized this impact until late in the half.

The quarter 2 position is where we see our run rate, although this will continue to be managed with the primary focus of maintaining our competitive position. This investment is more than offset by the repair of our General Merchandise rate, which has shown consistent uplift since the second quarter of last year.

Back to B&M Basics initiatives are driving success here, including a focus on bolting margins and enhanced analysis of our ranges and mix. The shrinkage benefits previously mentioned are not included in these charts that demonstrates the core and continuing category margin improvements we have achieved in this area.

How does this translate to profitability? Overall, the sales line has dropped through to our EBITDA with our margin improvements offsetting cost pressures to land at a similar level of profitability year-on-year in B&M U.K. These cost pressures reflect the estate growth, our continued investment in our supply chain and wage increases. These wage increases were driven by the 4.1% increase in the National Minimum Wage, whilst the growth of the estate includes annualizing last year's new store opening program.

On supply chain, we have 2 new DCs, which are fully operational. As they are at an early stage of their life cycle, these are not yet operating at the most efficient operational levels either individually or as part of the overall DC estate. These cost pressures will continue into half 2, and we are actively working on short, medium and long-term mitigation plans, a project which has a high internal profile.

Costs have been less of a factor at B&M France and Heron, where for both increased sales have led to an increased EBITDA margin. It's particularly notable that France now leads the company in terms of their level of profitability.

On to cash. We continue to be cash generative. Whilst we're pleased with our level of cash generation in the half, it comes with a slight health warning with respect to the second half. Firstly, our working capital benefits realized through Back to B&M Basics initiatives such as stock cover reduction have come earlier than we expected, including at the back end of last year. We now expect our working capital position to stabilize.

Secondly, our capital expenditure has been relatively low in the first half due to a lack of new openings and the test and learn phase in respect to investments in our existing estate. We expect investment in both areas to accelerate in the second half and the calls on cash will therefore increase.

Despite this, due to our usual golden quarter returns, we do expect to continue to delever in the second half of the year. That and the cash we have built up in the first half will give us a full range of options when we discuss our plans for investments in future years and any other potential uses of cash in January.

In reflection, a promising half. Like-for-like growth and margin have both been restored through our Back to B&M Basic strategy, with growth in all 3 businesses, including a positive 3.2% in the second quarter for B&M U.K. EBITDA margin is stable with cost pressures mitigating margin gains. Our full year guidance as a result is a range of GBP 450 million to GBP 500 million EBITDA. That compares to last year's outturn of GBP 459 million.

France continues to outperform with excellent execution of the B&M model. The EBITDA improvement now has a significant impact on the group's overall results. Cash generation was strong with a full range of options expected to be available following the Golden Quarter, even with the phasing of our CapEx weighted to the second half.

Finally, we are declaring an interim dividend of 3.6p per share. That's a slight increase on last year's, and it remains within our 40% to 50% range on a full year basis.

I'd like now to hand over to Tjeerd, who will speak more to our strategy.

Thank you very much, Pete. Thank you. So let me return to our strategy and a reminder of the journey we embarked on in October last year. At the time, we saw a 3-phase opportunity to first restore like-for-like growth to B&M U.K. before deepening the growth foundations of our business and over time, reviewing strategic choices to accelerate growth in the future.

Let us focus on Phase 1, Back to B&M Basics. It is now starting to deliver. All 4 workflows in price, availability, promo, SKU, count reduction are now in place, and we're seeing the benefits of those initiatives clearly in the U.K. like-for-likes. And our focus now is on Phase 2, where we see an opportunity to transform the B&M customer journey and boost the productivity of our U.K. estate with updated store formats.

And the opportunity is significant because we have a large and well-located U.K. store base. But historically, we've applied a broadly uniform model across all these stores, even though they were different sizes, different locations and different customer missions. But we now have better data, clearer customer insights and a very disciplined test and learn model to flex our stores to different customer missions as well as develop an entirely new store concept, which is already showing promising early results.

Phase 3, which is not the focus for today, is capturing our medium-term growth opportunity and it includes accelerating growth in France, investigating opportunities to e-commerce, loyalty and private label. And we will approach this opportunity over time with the same discipline, a clear customer rationale, control testing and evidence of attractive returns before wider deployment.

But let's go back to the present. Slide 15 summarizes our goals on a Back to B&M Basics. And it's a review of what we have delivered and the KPIs we're now monitoring to sustain progress. The first workflow, price. We have restored a much sharper discipline. We track key value items in the overall basket every week forensically with a very clear focus on remaining competitive against our closest competitor.

And that enables us, in turn, to maintain a meaningful price advantage versus the major supermarkets. 90% of our key value items or KPIs are priced at or below discount and grocery peers. And our total basket remains 15% cheaper than the supermarkets after their loyalty scheme discount mechanism.

Importantly, price perception amongst our customer base is also now improving. We track a variation of brand association measures and the strongest growth we saw was the value measure. It's up 9 percentage points year-on-year, and it's the highest increase of all brand association measures we use. So price index stronger, price perception is stronger.

On promotions, we've doubled the front-of-store space available in more than 600 stores and using that space much more dynamically all year round for seasonal events and customer moments, and we now call them Big Brands, Big Savings for the best deals, and we call them Seasonal Favorites for the best of the season.

On range, we've completed our FMCG SKU rationalization in full. The final 2 seasonal categories went live in October and the reduction in live FMCG SKUs is about 20%, making our stores easier to shop and enabling us to communicate on shelf value much better.

And availability, the introduction of new store workflows, we've given our stores the tools with automated store-specific alerts have really improved the availability of our key items from 86% to around 95%. But we're also deploying new end-to-end initiatives in order to improve overall availability across our FMCG ranges.

And we try to test and analyze the results of our actions. And taken together, these measures have created a simpler and more disciplined retail model. And we've seen and we've measured pre-post a combined sales uplift of about 5% across the FMCG categories where we've completed both range rationalization alongside availability. So those 2 combined have delivered a 5% uplift in sales in those categories which we have completed.

And moving to like-for-like review. The impact of our actions are visible in the like-for-like momentum we're seeing in B&M U.K. It's back in growth alongside France and Heron. It's also pleasing to see that the like-for-like numbers improved each year for all 3 businesses once the impact of weather is taken into consideration.

The 3.2% of B&M U.K. was led by General Merchandise. Seasonal categories did really well in the quarter, but also very important category like home, core home performed strongly. And FMCG like-for-likes, they improved significantly across the quarter and finished the quarter flat, but the improvement has continued into this quarter where we've seen FMCG and General Merchandise positive like-for-like growth.

In France, Q2 like-for-like growth of 6.5%, and that was basically on the back of a very strong comp in the year before of 9.4%, so 2-year like-for-like very strong. It's driven by transaction volumes, so new customers and customers shopping more frequently, and deeper customer awareness leading to sizable market share gains.

And just to put the French performance into group perspective, B&M France contributed in the half GBP 7 million of the GBP 12 million group adjusted EBITDA growth in H1. So that's 50% of total growth from a business that's only 1/7 of the size of B&M U.K. in revenue terms, but growing fast.

Heron delivered Q2 like-for-likes of 3.1%, the second positive quarter, and like-for-like growth in Heron Foods has also continued into Q3. As you might know, Heron operates in some of the most economically challenged urban neighborhoods in the U.K., and our performance demonstrates the relevancy of our everyday low-price customer offers as cost of living pressures continue to grow.

So let's now talk about Phase 2. That's the core focus of this slide. It's all about property, and it moves beyond the single retail format we used to use across the different sizes and locations to deliver a layout and a store experience matched to the customer mission.

And back in June, we shared the 6 customer clusters, which we're now using as a base to relay stores to match those customer missions in those clusters and it involves flexing category space, flexing category range to each cluster profile by making layout changes within the existing store space.

And we're trialing these relays alongside refits. And in those refits, we combine range optimization with really targeted investments to improve the in-store experience. And we're testing different levels of refits because we really want to understand which elements produce the stronger sales outcomes.

And we've brought relays and refits altogether in our Wigan store, and we call that store our B&M 2.0. And we relaunched that store at the end of August. And this is basically our most comprehensive intervention and it's a complete rethink of the layout and design concept that together define the B&M store of the future.

We launched 6 relay trials and 10 refit trials in H1 alongside Wigan 2.0. And so far in this quarter, we have added 11 more relays and 3 more refits, and those refits are modeled on the Wigan layout.

Across all 3 approaches, the discipline is the same. We test, we measure, we learn before we deploy broader. And the goal is very simple. It's sustainable improvement in like-for-like sales, sales density, but ultimately supported by a positive margin impact. And they are already evident in Wigan.

And Wigan, we could say, is our store of the future. And it began with, as it should begin with, customer feedback because our goal was to solve for the customer pain points or customer friction points and to remove them from their shopping experience while creating a much better store experience for them to enjoy.

And our customers told us consistently, they wanted to be easier to find products in B&M, that some parts of the store were very cluttered, that price and product signage wasn't always clear that queues and congestions at weekends could be reduced, especially at the checkout.

And we used this feedback to identify several practical opportunities: better product signpost, better product visibility, warmer and brighter lighting, stronger point-of-sale value communication, much more prominence of seasonal ranges. We believe seasonal is a core strength and a core differentiator for B&M, and we brought seasonal all the way in the first quarter of the shopping trip. And it's a much more fluid journey through aisles and through the checkout with more space for customers.

And the result is a materially different customer journey. We introduced a landing zone at the entrance, so people stop and they start to browse. We have a very clear sense of arrival and a very strong platform to showcase seasonal and event led merchandising. And now finally, you know what time of year it is when you walk into a B&M.

We created new merchandising spaces and a much more intuitive flow that plays to our strength in General Merchandise and seasonal. We improved the aesthetics, as you would expect, with brighter and warmer lighting and restore also air conditioning, new flooring, stronger power, very clear messaging on value.

And then the checkout for the first time ever, and I know we're late, but better late than never, we introduced self-service tills. And there, for the first time in B&M, 60% of customers overnight in Wigan are using the self-checkouts, which, of course, helps reduce queues, but also make sure we still have manned checkouts to support customers who would like to still use manned checkouts.

But we've also made changes for our colleagues because refreshing a store is refreshing the store, but also helping the teams. And we've looked at technology, simpler processes and better colleague space can make the store easier and more enjoyable to operate. So we got clean robots and headsets for teams to work in a much easier way together.

And we actually have a video, which I would like to share with you, and I'll do the live voice of for the people who haven't been there. It's a fly through. I'm not sure how often this happens in such an update, but it's a first for us. So could you switch on the video, please?

So this is a Sainsbury parking where we are located. You enter into Wigan, you see a trolley with baby seats. That's helpful for customers with young kids. This is the landing zone where you can clearly see on the left side, Big Brands, Big Savings. It's very obvious what the best deals are. And at the back end of Big Brands, Big Savings, you see seasonal favorites, so you know what time of year it is.

The first category you're faced with is health and beauty, but with 3 different aisles to get into. Health and beauty, you can see it's low fixturing. So it's easy to see through. These are islands, so you can browse and you can really shop so we created a health and beauty shop-in-shop.

The first category you see on the left is seasonal. There's a very dominant power aisle. Seasonal on the left side moves into toys moves into pet food moves into DIY. On the right side, it is food. We're going at speed to save some time.

At the very end, you see the garden center. You can't miss it now. But in the previous layout of Wigan, many customers didn't realize we had a garden center. The garden center is very much cleaned up. We have a very clear sign posting. It's very easy to shop, very easy to navigate. And obviously, we opened the store at the very end of this garden season. So we're looking forward to a great garden season next year when all of the great plants come into that store.

Then from the garden season, you go back into the store on your left side is furniture -- bear with me. And on the right side is electrical. Furniture, we have an extra installation of trolleys for great furniture products. We got inspiration on your left side from furniture. On the right side, it's home. Cleaning, a core element of our proposition, is very at the very end. And in the first tills, you see our self-checkouts. So that's why 60% is the dominant flow.

And at the very end of the store before you leave the till, there are the 6 upright freezers under the sign of pay here, and those 6 upright freezers are nice pickup lines for customers to leave with some food in their baskets when they go home because 75% of frozen food in the U.K. is consumed on the day.

Good, that's Wigan. I would like to invite you to visit the store. Customer feedback is very strong and sales numbers are promising.

So let's talk a bit about the results here. Very encouraging. We see a very strong uplift in like-for-like sales. And the good thing is like-for-like sales is predominantly driven by higher transaction volumes. We're attracting new customers. We're attracting customers that actually shop more often.

We've also seen a basket growth, obviously. And you could imagine, if you look at the new flow, health and beauty, seasonal, non-foods, all of the higher-margin categories are first in flow. So you can imagine that the mix impact is even stronger than the actual top line results.

That's why cash margin is growing ahead of sales. And we believe as a consequence, if you would extrapolate this, and obviously, we have to test and learn and we have to get more data points, but it could be a very meaningful value to unlock from the existing estate because those categories are the dominant customer missions for B&M.

But the customer response from me is really the highlight, which is very important. Customers give us feedback. They think it's a fresher store, a brighter store, a more modern environment. They love the checkouts, the self-checkout tills. They find it an easier store to find the products and they actually say the store is probably enlarged, but it's not. It's the illusion and the optics of taking density out.

We've also had recognition from our professional peers. So the Institute of Grocery Distribution, IGD, made us a Global Store of the Month in the month of November, and they cited it's an example of excellence, not my words, in retail execution, and we believe it's the first for value retail in the U.K.

Test and learn is really our approach here. We're happy with Wigan, but we want actually more installments of that. We're tracking performance every single day against comparable control stores, and we keep using customer feedback to track and refine the concept.

And the next step is really taking Wigan across the U.K. So in this quarter, we have updated 3 more stores with Wigan style refits, that's what we call it. And this will help us really understand the -- which features work and how we can calibrate the investment level going forward to produce the best sales outcomes.

So the work is shaping ultimately how we will allocate over time our capital across our U.K. estate. And leveraging what we've learned so far, we plan to do another 10 refits in Q4, all modeled on Wigan across the U.K., larger stores. And these refits will continue to test which improvements generate the best sales and margin outcomes in order for us to drive our CapEx most effectively.

And we're balancing these investments with this year a slower pace of new store rollout. And we now expect for new store openings this year 15 to 20 gross new stores in the U.K. in FY '27. Our guidance was 25 to 35, but we will go back to the 25, 35 rhythm in FY '28, assessing attractive leases as they come to market. This doesn't stop and doesn't take away from our belief that over time, there is a white space opportunity in this country for about 1,200 stores of B&M U.K.

And moving over to France. We're much early in our development and the returns of scale are becoming apparent. We expect 15 to 20 stores in FY '27, and they will operate the same scrutiny to lease opportunities should they arise. 15 to 20 is a departure from about 12 stores we normally would open in France.

So then moving on to France. It continues to be a very important multiyear growth opportunity for B&M. Total revenue growth of 13.7% in H1, like-for-likes of 5.9%. As said before, Q2, 6.5% on the back of a very tough comp year prior. But the offer is built on the same fundamentals as with B&M U.K. It's newness, it's amazing value, it's broad choice and a very, very strong home category.

And we believe that part of the reason why like-for-likes are so strong is that we really have reached another critical level of awareness in France because the sales is really driven by transaction volumes. It's customers discovering B&M France, liking B&M France and coming back.

And at the end of Q2, B&M held 9.4% share of the French discount market, excluding Temu, which is an increase of 140 bps year-on-year. And its EBITDA margin rate is now even a bit higher than the U.K. at 7.9%, demonstrating operating leverage that comes from achieving greater scale. We now have 156 stores in France, plan to open 15 to 20 and the market in our perspective, could see more consolidation over time, providing opportunities for B&M.

So Heron Foods, delivering another positive quarter. Q2 like-for-like sales 3.1%. Total H1 growth 2.9%, second consecutive positive quarter. You are aware, of course, Heron serves communities that are under acute financial pressure, but we demonstrate the relevance of our low-price convenience offer.

We're continuing to evolve. That's the word we use. We're evolving Heron's offer, and we're trying to implement more convenience categories to deepen and further strengthen the offer of Heron and its value proposition.

We've made a change at the leadership of Heron, and that's very important for the next stage. Tony Dobbs has decided to step away from executive life, and I would like to thank Tony Dobbs for his 35 years of service with Heron. And on the back of Tony's departure, we have searched in the market and found Michael Fletcher as his successor. Michael has worked for a number of blue-chip retailers with very deep knowledge of the convenience market, started career at Tesco, worked for Co-op and Spar, and the last 10 years more so, he only worked in convenience. And Michael, together with the talented Heron team, will take the business further and continue to evolve its business.

Yes. And then something which I'm quite passionate about personally, which probably normally doesn't feature in these type of updates, but I think it's really important that culture and values are critical for sustained success. And I'm a big believer of a quote attributed to Peter Drucker, who actually says, culture eats strategy for breakfast, which means strategy can only become performance when people see -- have a joint set of values and see culture as a North Star.

And that's why we started with getting extensive internal consultation. We asked colleagues what they think where the business is at today and where it should be in the future. And based on a lot of iterations, we developed something which we call the B&M DNA. It's a set of 5 core behaviors linked to our core purpose, our ambition, our customer proposition and it's really built on the feedback from colleagues what makes B&M B&M.

Customer value, as you could expect, is at its heart, and it's an important foundation for execution. We launched at the Golden Quarter conference this year across the U.K., and we're now cascading across the teams and the 5 values are already driving very valuable conversations, how to work together every day. And it really provides a joint set of values and a very clear North Star for all of us. And it's -- I would say, it has had a good start in the business.

So before I conclude, I would like to remind you how operational progress translates into value creation. That's, of course, our growth algorithm. It's underpinned by clear organic growth, restoration of like-for-likes, obviously, through Back to B&M basics, space impact of new space growth in B&M U.K. and France.

But we also now added additional mix and cash margin benefits from boosting the productivity of our estate under Phase 2 formats. We're improving our profitability by restoring trading margin and supporting a return to low double-digit EBITDA margins of B&M U.K. in the medium term. And just to remind you, as an outcome, not a financial input. And in the meantime, our business is strongly cash generative, which is strengthening our value financial position through better leverage outcomes. And together, we believe they support the delivery of an attractive total shareholder return over the long term.

So I would like to conclude now. So first of all, B&M U.K., a positive like-for-like growth in Q2. Category margin rebuild continues, which means supporting a recovery and profitability but based on a solid financial foundation.

Current trading, we've made a positive start to Golden Quarter trading across all businesses. U.K. like-for-like growth now in FMCG and General Merchandise and broadly current trading in the U.K. in line with the Q2 numbers. Back to B&M Basics is starting to deliver and Phase 2 is underway with what I believe promising opportunities to raise the productivity of our estate through tailored ranges, relays and refits, and the early results, as shared before, are encouraging.

And France continues to perform strongly with robust like-for-likes, market share gain and demonstrating operating leverage as this business achieves critical scale. Heron, sustaining positive like-for-like for the second quarter and also in Q3, and well positioned to serve customers seeking everyday value and convenience, and evolving its offer. And we've also introduced today for the first time this year, what we normally do in November, our financial guidance based on our performance to date, current trading, which is captured also on the slide.

And with that, I would like now to hand over to Q&A. Thank you very much.

Thank you, Gerardus. Thank you, Pete. So delighted to take some questions. We have a microphone in the room as well, which we can bring to you. Right, why don't we start with Laure from BNP.

I've got 2 questions actually. The first is on the General Merchandise margin. It's been -- I think it's notably higher than it has been in the past per your slide. Can you just give us some reassurance about that and how you're ensuring customer value?

The basic drivers of the GM improvement are actually more rooted in improving mix, driving different types of categories and actually also making sure we have a cleaner and healthier range, so higher full price sell-through than it is with price.

So let me unpick this. So we've seen over the half that higher-margin GM categories have done relatively well. So that's helped mix. We've introduced, especially in our seasonal categories, items with a higher margin but also a higher price point than we traditionally would have. So we've got items of GBP 30, GBP 40, GBP 50, amazing value compared to like a Dunham on John Lewis, but at great margins.

And we've also seen, thanks to the increase of space at the front-of-store, our full price sell-through has been much stronger. So our clearance have been significantly more efficient because historically, we would clear our seasonal ranges within aisle. And that's quite hard if the season is over. But if you clear at front-of-store, you actually get 100% of your customers faced with those items. So we've got a much higher full price sell-through. And the combination of those 2 elements have led to an improvement in GM.

It's also fair to say the strategy that was in place before I joined was very much focused on the good items in our range. And clearly, good in GM means the lowest margin rate. We're also introducing better and best ranges because we believe for every customer, we'd like to have an offer, and that also drives and helps margin improvement.

And just if I may, a second one, maybe for Pete. You talked about cost initiatives getting some high profile internally. Maybe if you could just lift the lid on that, what you mean by the opportunities to control costs in H2.

Yes. So internally, we call it our cost-out program, and we have focus over all 3 of our main operational areas. So we buy for less, we move for less and we operate for less. And there are some areas which are short term in nature, but some also which are medium and some which are long term. And short-term initiatives are all in flight, and they're all expected to deliver in half 2 in case of items such as on wages, on operational efficiencies and process improvements and in scaling our DCs, which will take place over half 2, but also the outer years as we progress through.

I would say it's still very early days. So it's something we're shaping. It's all about in this space, initiatives that don't require a technology investment. So, for example, we're grouping promotional products in the DC together. So when the store receives the pallet, in the past you would have to find in every single pallet the promotional items. There was quite a lot of labor wasted in store. We're now picking those promotional pallets separately in the DC. That's a slight cost uplift in the DC, but end-to-end with big saving, those initiatives we're now implementing. Obviously, if self-checkout works and we're happy with self-checkout over the business, that could be an opportunity as well. But it's early days.

Richard, should we take your question? Richard from RBC.

It's Richard Chamberlain, obviously. So 2 from me, please. So I wondered if you can just talk to developing this sort of Wigan store, new store relay and refit. Which elements are you most pleased with? And I guess, which can be sort of scaled fairly straightforward across the estate? The first one.

And then the second one, can you give us an update on Far East logistics and transportation, I guess, setup and how you're thinking about that? Are there any sort of scope for cost efficiencies there?

Yes. So relay refits, if you look at Wigan, the #1 positive from a layout perspective from customers is the landing zone. And I think you've all probably been to a B&M store and as you enter into the store, you can probably 3 yards to move and somebody already in your back and then there's tin soup and then you have to run and then you're forced in an aisle for quite a long time. That doesn't happen at Wigan. In Wigan, you get space, you land, you take a breather, you can look. So that's #1. And we would like to implement this in most of our stores.

The other element of Wigan is actually flow. So tin soup is our hallmark category in all of our stores when you walk in. That's relevant for 6 months of the year, but the other 6 not. And actually buying food is a chore. Buying health and beauty is indulgence and health and beauty is 12 months of the year relevant. So I think the other one is reflowing our stores.

And as I said when I did my voiceover of the video, I strongly believe that our seasonal categories are a core strength of B&M because if you think in the physical retail space in the U.K., how many retailers at the value end have the breadth and depth of our seasonal offer, which is very hard to replicate online. And we've hidden it actually in the back of most of our stores. So I would say the relay and the reflow and landing zone, probably taking out the canopies, so I think good sidelines and then finalizing it with a good checkout service with self-checkouts and men checkouts are probably the most important element.

But that's exactly why we're doing all these trials. So that's why we're, I think, 3 more and 10 more. Every single of those stores, we've got different fit-outs. So we're testing to see what the impact is. And the relays are very low OpEx. It's a 3-week evening type of thing to relay a store. That's it. Very low CapEx. And if on the back of those relays, actually, we see good results, you can imagine it's quite a good payback and a minimal investment. So we're trying a whole set of initiatives. And we're applying the same mindset as we did with branch rationalization with the 7 subcats where we trialed and learn. We're doing the same thing here.

On Asia, we are using many, many ports in Asia; I can tell you, over 20. So I think there's consolidation opportunities to work in a more efficient way. We have a dedicated partnership with one of the largest shipping companies in the world. And on the back of this dedicated partnership, we've got a dedicated team working with us and analyzing all the opportunities and bringing stock in, in a more efficient way, taking days out of the shipping, let's say, time it takes. And of course, taking days out helps working capital release. And we're looking carefully at also consolidating containers at a point of departure, which means you can actually fill your containers in a smarter way.

So that's the focus we're working on. So we believe there's opportunities. Clearly, we've had the surcharge at the moment because of the higher oil prices. But by and large, we're very pleased with our partnership, and we still see good opportunities to work in a more efficient way.

Let's take the next question from Vandita, Vandita from Citi.

I've got 2, please. One is just on the gross margin. So when you're thinking about the medium-term mid-teens margin, do you have more to go on gross margin? Or is that all going to come from operating leverage in your view? And just if you can also help us think about gross margin drivers for the second half.

And then the next one is on the store opening. So is part of the reason you've held back on the U.K. because you see the potential for more distressed opportunities coming up? And also, is it because you just want to give yourself more time to test and learn from the other relays and refits?

Yes. So I'll take both, Peter, if you're okay. So on margin, there's a bit of a different focus operationally versus how we report. So what Pete showed was category margin. That's basically the all-in margin, the impact of promotions and the sell-through element. Trading margin consists of supplier income, it consists of shrink results, it consists of FX. So our core focus is really the category margin.

On category margin, we will annualize FMCG about now, which -- the investment in FMCG. So that means the overall category margin in total will get another boost. And we do believe there's opportunities to gradually improve General Merchandise margin rate. We think it's mainly because of mix and better category planning, that's an opportunity. But I strongly believe in a gradual build. So it's really in the -- let's say, in the low double-digit bps type of improvement. But if it's year-on-year, it's a good improvement. And let's go back to your more strategic question.

Our exit EBITDA margin rate last year was 8.6%. We've guided to an outcome of midterm over the next number of years of low double digit. So 140 bps, basically, we're short of getting that objective. I believe, and again, if you look at the P&L, I think we've got some exciting opportunities for new space and like-for-like. I think mix plays an important element. And what I said, if the early signs of Wigan and improving the estate, if we can replicate that, then actually mix improves even further and then the mix will also help category margin rate improve. And we're in the very early stages of mitigating costs. So the building blocks, we need to deliver 140 bps improvement, and I strongly believe we have all the ammunition to get there over time.

I think the lower rate of openings this year, it is more a reflection of that for this year, in terms of supply, in terms of offer of locations, we didn't see sufficient opportunities hitting our -- meeting our thresholds, our investment thresholds. Distressed opportunities, you can't plan for these, but we'll see them when they would been offered to us and when we can go after them.

At this moment in time, normally, that pipeline is filled of 18 to 24 months before opening. So we can clearly see now the openings for next financial year. So that's why very confidently, we can talk about going back to a 25 to 35 number for next year because we've secured the vast majority of those already, and they're in preparation.

There is a benefit. Ultimately, it wasn't by design, wasn't, let's say, a master plan, but there is a benefit of having a smaller amount of new stores this year because if we would decide to apply the Wigan concept to all of our stores going forward, and this is probably the year you would like to have a lower number because beyond this year, all new stores will most likely be Wigan. So there's a benefit of having a lower amount. But we'll go back to a normal gross opening number as of next year.

We'll go online for question. A question here from Ben Hunt from Liberum. One for you, I think, Tjeerd. Ben is asking what's driving the 5% uplift from range rationalization and availability? And specifically, is it about basket size? Or does it also reflect frequency of purchase and/or new customers?

Yes. A good question. So I think we shared when we launched this that historically with other retailers, you would normally see a 4% availability improvement translate into a 1% sales improvement. So the 9% availability improvement, we believe and we estimate that it's about 2%, 2.5% sales improvement. We've seen in our trials that we saw a 2% to 3% sales improvement. And the pleasing thing is we're also now seeing that improvement across the estate. So that's the way you should look at the breakdown of the 5%. So probably 2% to 3% is both drivers.

It's very hard to connect transactions to individual SKUs. What I could share, though, if you look at the shape of Q2, the vast majority is transaction driven and a smaller amount is basket driven. So we've seen customers buy more often, and we've seen customers -- a large amount of customers come to B&M. And it makes sense because if you think about the cross-shop, 60% of our customers also shop at the other similar value retailer in the U.K. We were significantly uncompetitive against them price-wise for a long time. We fixed that. So it's pretty obvious that customers are now actually transacting more because they see the value of B&M.

Next question from Richard, Bernstein.

Richard Trainor from Bernstein. Two questions, please. One on culture, the other on consumers. So it's very interesting to see the new cultural DNA. How would you characterize the culture that B&M is coming from and where you hope it to come to? And then secondly, on consumers and the health of consumers, very, very strong results, particularly in France. Do you think B&M is benefiting from pressure on the French consumer? Or is the French consumer in ruder health than people assume?

Yes, I'll talk both of them. So in terms of culture, and I think if you would summarize and if you listen to colleagues, I think they would say frugality is a very strong element of our culture. That's why we have behaved like a founder, behaved like an owner in our value. It's actually treating every pound like it's your own. I think simplicity, agility is typical B&M. B&M speed is the word we use. We retain that. But we also added a couple of values that we believe opportunity for all is very founded in B&M. It's probably not very well known, but we offer over 3,000 people who have long-term unemployment work experience opportunities at B&M. We're the largest work experience provider in the U.K. with a significant difference with any other employer. And 2/3 of the people on the work experience actually have a contract with B&M and 95% of people in a new store at various locations are job center clients having their job with B&M. So I think opportunity for us is something we live every day.

I would say one team is probably a value that needs to be developed. It is still very much influenced by founders and founders normally have a very strong siloed way of working. They like to be the spider in the web. I think from a corporate way of managing a business, you probably want people to work as a team across departments. So that's something we're encouraging more and more. And using customer insights to make decisions probably wasn't very pronounced. So that's something we're focusing on. So probably those 2 values are the ones we want to see more of.

Moving to France. I'm delighted with their performance. They're doing a great job. And if I would unpick the performance of France, which is clearly very strong, I think we have the team in France, credit again. They have developed a value proposition that has moved on from the dominant discount retailer that we all know. I think that retailer taught the French customer you don't have to pay more for nonfoods and they get access to amazing value. We have replicated that amazing value in our stores. So 400 key lines in our store are identity priced to that at other retailer. And we've added a nicer shopping environment. They are a bit nicer our stores, and they are 3x larger. So we offer a much larger, broader range.

And the French team has really developed a very solid good, better, best architecture. For example, in bed linen, they have a polyester 100% entry price compared with the other guys, a polycotton mix and then a premium offer compared to Maisons du Monde but for our pricing. And there is a tailwind. I can't deny that some of our peers have a more complicated situation at the moment. And the good thing is -- and obviously, I think there's always a bit of criticism, the EU is very slow, but the EU has implemented a level playing field for the overseas platforms ahead of the U.K. doing that.

And we're delighted with the level playing field that now Temu and Shein are facing in terms of protecting customers, creating a situation where people who pay taxes in the country compete, let's say, in a more better way with the other people. So I would say those are the key drivers. It's very difficult to pinpoint what is, let's say, driving which element. I strongly believe the value proposition is the core driver. And clearly, when you're a bit negative about your personal outlook in terms of finances or employment, you probably shop more often at a discount than you would shop at a premium retailer. That's obvious.

Jonathan Pritchard from Peel Hunt.

Jonathan Pritchard from Peel Hunt. Yes, the first one is sort of half answer. Just on that point on French awareness. Is it -- just opening these stores, which act as sort of billboards. Is it -- or is it something different? Is it word of mouth? Is it advertising? Is it social media? What have you done to boost that awareness? I was interested in your response to Richard's question about what has traveled from Wigan to the new refits. I know you mentioned frozen food in passing, but you didn't mention it then. So what are the initial feelings towards frozen food as to Wigan?

Yes. So the French team actually operate with a very similar marketing budget as B&M U.K. being very limited. So it's not marketing. We're not spending much money there. But social media is a big driver. We use social media a lot, and many of our products go viral quite often. We bring a lot of newness, and we used to -- we are working with local influencers across France.

It's really word of mouth ultimately driving B&M's awareness, clearly helped by social media. But if you see a nice movie on TikTok and you're in a city where there's no B&M, it's irrelevant. But suddenly, if you've seen that B&M store, you've seen something on TikTok, that's probably triggering a visit. So I think the impact of the social media that we're doing actually is now driving awareness. And the vast majority of our like-for-like growth in France is transaction driven. So it's really customers that haven't shopped before are now shopping at B&M.

And in terms of your other question, frozen food specifically or elements in general on Wigan, what was the...

Frozen food.

Yes. So I know, of course, in the past, there was a trial many, many years ago, but it was actually in a very different way. I think it was quite a large part of the store with chest freezers. We have a very succinct offer. It's 6 upright doors at the very end of the store. It's a test. It's a trial. Again, we know from Heron Foods that 3/4 of frozen food is consumed on the same day. It's a much easier category to manage than fresh foods. Shelf life is much longer. The supply chain is much easier. It's more like, let's say, ambient grocery in a way, how to manage, how to handle. And the great thing of frozen foods, we can actually offer amazing value like we do in our ambient categories.

First signs are positive. We're learning. It might not be that we will put frozen food everywhere across the country. But I think in some of the locations where we started, we see promising results. It is just supporting the complete offer that we stand for. It's the broad choice element of B&M. Clearly, we can't win in frozen food. We're very much aware. But having customers buying, picking up the old item of frozen food just strengthens the overall basket and relevancy. We can win in GM. We can defend in foods and frozen food fits with that model.

David Hughes from Shore Capital. A couple of questions from me, please. Firstly, on the price position, it feels like you've got that to the place that you want it to be. With the expectation of more food inflation coming through next year, would the view be that you'll also be passing on those higher costs to customers in order to protect the margin?

And then secondly, just in terms of the longer term strategy, obviously, when you laid out Back to Basics, there were some aspirational things in the long term around introducing your own label or perhaps a loyalty scheme. I know that we're only just getting into Phase 2 now, but just wondering what your thoughts were on them and what kind of potential time frames we could be looking at.

Yes. A really good question. So I would say on price, it's actually quite simple. Leading is a price index to a competitor, not leading is margin. So we cannot break the contract with our customers. Our pricing can never be more expensive than the #1 competitor that we are faced with. And it's irrelevant what the margin impact is because we need to protect our competitive position. That's the essence of B&M, and it's the job of the buyers to work harder in making sure that being price competitive is still a profitable outcome. We've made significant investments. We've seen great improvements in our value perception, and we do not want to lose that ever again. So I think that that's a contract with our customers.

And on the long-term plans, clearly we only showed it for reference. And I strongly believe in sequencing things and not distracting teams with too many priorities. Our focus on Back to B&M Basics was single-mindedly on like-for-likes on the current estate, current operation. We're now moving into a second phase where we probably come a bit more sophisticated retailers where we're starting to tailor, using data and trial testing and learning. I don't want to confuse things as starting on other things. So it's really for at a later stage.

It's good because I think there are solid opportunities that can enhance over time our growth, our relationship with our customer, potentially also even margin enhancement, but let's sequence things properly.

Let's take the next question from Matt from Barclays.

First one on shrinkage, obviously quite an important driver of margin in the first half. Can you just bring that to life a bit for us of what you've actually done, what actions have you taken and how sustainable can they be?

And the second one, so France, accelerating France is in Phase 3, Phase 2 is quite U.K. focused. I understand the sequencing point. But what is the kind of constraint there? I know you pointed to a bit of a tick up, but it feels like with that momentum, it could go a bit faster.

Yes. So on shrinkage, I think just really good work from the store teams. So shrinkage, ultimately, the driver here is the unknown element of shrink, so the fact ultimately. We have focused a lot on making sure that every single stock record that is in accurate is being corrected. So we're adjusting our stocks real time. So we can immediately take action when we see that things are not going in the right direction. And we have an early warning, and we're very focused on this.

It helps enormously if you run your business on less stock. Because less stock means less opportunity for shrink. It's very simple. And actually, less stock means, so a year ago when I joined or let's say, 1.5 years ago I joined, but a year ago going into Golden Quarter. And when a year ago, I would walk in -- this time of year, walk into a store warehouse, it was so full that most stock actually wasn't able to hold in the warehouse. I mean you can sometimes stock outside. In such a situation, you cannot manage your stock. You can't manage your stock records. You can't manage your flows.

If you walk into a B&M store warehouse now, it's an organized warehouse. The team have focused enormously on this. We call it the retail footprint. We've worked hard on reducing stock levels. So less stock, a better process, better visibility ultimately leads to less shrinkage. And what we hear is that many of our peers are faced with higher shrinkage. We've managed to actually reduce shrinkage, which we're very happy with.

Yes, accelerating France, I would love to bring that element of Phase 3 forward. And there's a structural, let's say, limitation, unfortunately. You might know the French legislation on retail space is prohibiting greenfields expansion. So the French model basically says retailers, you have to use the existing space, but we don't want more retail expansion, which means it's harder work for us to find the right units, and you have to be patient for other people to vacate.

And the other element is we tend to have a larger store size than most French retailers in our industry. And I referenced the fact that we are 2 to 3x larger than the other discount retailer in France. That actually also means there's less opportunity, less boxes. And that said, we are about 160 shops now. There's 800 in the U.K. I think we can still see a meaningful multiple of the 160 in France before we reach that full penetration saturation, but it will take more time. We haven't seen distressed opportunities yet in France. You can't plan these. They might come. And obviously, when they would come, we will not hesitate to convert those into new B&M France stores if the model works.

Well, thank you. And I think with that, we are out of time. So I'd like to thank Gerardus and Pete for presenting today. Thank all of you for attending here in the room and also online. And we look forward to seeing you in January with our Q3.

And we look forward to seeing you in our stores buying our Christmas range.

That's really what the punch line was going to be, happy shopping. And -- but that's a great double lag. But thank you, everyone, and thank you for attending.

Good. Well, good morning, everyone, and welcome to this presentation of B&M European Value Retail's 2026 Financial Year Preliminary Results. My name is Andrew Orchard, Head of Investor Relations. And joining us today to present the results are Tjeerd Jegen, our Chief Executive Officer; and Pete Waterhouse, our Interim Chief Financial Officer. So we'll start as usual with some prepared remarks, and then we'll devote some time at the end of the meeting to your questions. We'll take those both from you assembled in the room also joining the webcast putatunction method. And with that, let me hand over to Tjeerd.

Yes. Thank you very much, Andrew. Let's see if this works. Yes, it works. So yes, welcome to everyone to this presentation in the room and online. Before I'm going to hand over to Pete for the financial review of FY '26, I would like to share the key highlights of the year set out on Slide #3 behind me. So first of all, I'm pleased to announce profit came in at our midpoint of current guidance, adjusted EBITDA of EUR 459 million. I'm also pleased that on the back of good working capital management, leverage came back within our range at 1.4.

And I think that's a good foundation for driving future growth and over time, shareholder returns. Secondly, we're progressing at pace with back to B&M basics. Our actions are well advanced and the early indicators are encouraging, but much more to cover later. We've also started the Phase 2 of our plan, where a lot of initiatives already underway. And if you put it in perspective, Phase 2 is all about balancing new space with investing in existing estate.

And finally, I'm really pleased with the performance of our French business, so B&M France, growing like-for-likes, attracting more customers and gaining share in a competitive market. But much more on all of this later. And before that, I would like to hand over to Pete to take us through the financial review of FY '26. Pete, the floor is yours. remember to the clicker.

Thanks for the introduction, Tjeerd. Good morning, everyone. For those of you who have been with us a while, you may recall that I presented once before for B&M, although that was some time ago, not very easy to speak on the mics just yet. I'm pleased to be back with you today to take you through the group's financial performance in FY '26. As I go through it, there's 3 or 4 things I'd like to focus on as we go through the financial information.

The first is it's been a tough year in relation to profitability with margin cost line pressures. However, we've had robust cash flow, healthy leverage, and that drives investment flexibility for the future. Finally, I'll touch on the continued strong performance of France. Let's look at our key financial indicators. As Tjeerd just highlighted, FY '26 represented a difficult year for the group. Profit was around the midpoint of our current guidance and leverage ended the year in our 1 to 1.5x range.

Our key indicators include revenue growth of 3.6%, driven by our store expansion program with flat like-for-like sales in B&M U.K. Our profits were down. This was a result of trading margin and cost inflation impacts. Our outturn was an adjusted EBITDA of GBP 459 million and profit before tax of GBP 284 million. Whilst at the midpoint of our current guidance, these are significantly down on last year. Despite this, we've had strong cash generation with post-tax free cash flow of GBP 321 million, which is GBP 10 million better than last year.

And leverage is also back in our target range. This demonstrates that we have the financial flexibility to make the investment choices that we need to make over the coming year. I'll now go into more detail. Our 3.6% revenue growth was driven by our new store opening program in the U.K. where like-for-like sales were flat. And they also incorporated another strong performance from B&M France with 13.4% overall sales growth, delivering an extra GBP 73 million in group revenue.

The chart on the top right illustrates the B&M U.K. estate program, which includes disciplined relocations and closures with older, lower contribution stores often replaced by larger, more productive stores within the same catchments. Like-for-like sales were flat. That's a significant step-up from the prior year result of negative 3.1%.

Quarter-by-quarter, B&M has shown an improving like-for-like trajectory, except for the impact of the unusually warm and dry spring weather in quarter 1 last year. This directional improvement resulted in a positive 0.1% like-for-like in quarter 4. France continues to be positive in each quarter. I'll call out their exceptional second quarter this year that benefited from annualizing the impact of introducing the new warehouse management system in FY '25. That's an investment which keeps them set up for success into the future.

It's also worth highlighting that France's positive delivery covers both FMCG and general merchandise categories. Our year was underpinned by 2 key cost elements, trading margin pressures and cost inflation. In general margin, this includes both bought-in margins and clearance activity with pressures in both areas easing in FY '27. We expect recovery here. FMCG margin is a result of our deliberate price investment strategy to sharpen our value proposition on key value lines. This is as we communicated in January at our quarter 3 trading update. This strategy strengthens our competitive position in the market as we move forward.

Here, we can see the margin impact of the FMCG price investment and clearance activity that has taken place. We'll begin to annualize that investment from August. General merchandise showed encouraging signs of improvement in the second half, but we expect to build upon in FY '27 as we restore our trading margin further. The other key cost element is our increased operating costs. A bridge is provided here. Key points of reference are the impact from statutory changes, national insurance, national minimum wage and the new extended producer responsibility tax. That represented overall GBP 66 million headwind that was not sufficiently mitigated in FY '26.

Looking ahead, though, these pressures are materially reduced in FY '27. And through the back to B&M Basics program, we are taking targeted action to improve our cost control. More specifically, statutory pressures are easing in FY '27. And whilst the Middle East conflict poses cost challenges around fuel, energy and freight, these are not on the same scale as the headwinds that we faced in FY '26. Nevertheless, initiatives are alive in the business to address these cost pressures and enable ensure that the operating costs are kept under tight control going forward.

The result of our challenging year is lower profit delivery. This was signposted during the year with our final outturn around the center of our most recently issued guidance in January. I'd also call out France's strong performance on this slide, with profitability growth from GBP 48 million to GBP 53 million. That's an increase of 11.8%. Whilst their profit margin dropped slightly, this is due to the planned investment made in their distribution center infrastructure, and that sets them up well to continue their overall growth into the future.

France is a business that continues to impress. Lower profits did not mean lower cash, however. Our working capital discipline, a feature of our Back to B&M Basics program, enabled us to deliver strong free cash flow, reduce net debt and finished the year with leverage back inside our 1 to 1.5x range. We do expect leverage to spike at the start of the golden quarter due to our usual seasonal trends. But over the full year, we expect to at least maintain working capital at this reduced level, and we are targeting further improvements in FY '27.

Our maintenance CapEx remains low at 1.1% of revenue. More than half of our overall FY '26 CapEx represented new stores or DC infrastructure expansion. That included distribution center improvements at Elsmirport and Rugby, representing improvements to our supply chain network, and that will drive future benefits. Our cash generation and leverage profile gives us the ammunition to make capital investment choices, including disciplined investment in our existing estate as part of our strategic plan. Tjeerd will cover that more in his section. Our strong cash generation gives us clear capital allocation options.

Our disciplined approach ensures that we prioritize investment back into the business whilst paying our regular ordinary dividends back to our shareholders. Where appropriate, our robust cash flows leaves space for opportunistic M&A, although this is not a priority at the moment, or additional capital returns with share buybacks now unlocked following the completion of our redomicile process. Consistent with our usual seasonal cash profile, any decision regarding additional returns is likely to take place immediately following our golden quarter in January 2027.

In reflection, a difficult year driven by margin and cost challenges, areas we've identified clearly and which we are addressing with early evidence of progress. Importantly, cash flow remains strong and leverage within our targeted range. That allows the necessary investment choices to be made to support the business strategy whilst maintaining our financial discipline. France, meanwhile, remains standout in performance terms, demonstrating how consistently strong execution of the B&M model and drive impressive performance and growth potential for the future.

Finally, we're proposing to pay a final dividend of 6.1p per share, giving total ordinary dividend of 9.6p per share for the year. This is in line with our 40% to 50% range specified in our capital allocation policy, and it's also in line with consensus. I'll now pass over to Tjeerd. He will take you through our strategic approach for FY '27 and beyond.

Thanks very much, Pete. And let's move on to the next slide, which is Slide 18. And as a reminder, we're executing our plan at pace. And the chart on the top right, you can actually see the 3 phases. So Phase 1 is Back to B&M Basics. We're in full flight of rollout and execution. Phase 2 is deepening our foundations, and I'm pleased to say that we've already started on Phase 2 and Phase 3 is accelerating growth.

The focus today is really giving you an update on Back to B&M Basics, but also already give you a few for Phase 2. On Back to B&M Basics, I would say we're well advanced. Last week, we actually began the FMCG range rationalization rollout. And there's many moving parts, but I can say here, the early indicators are really encouraging, and I'll provide more detail in the next slides. And turning to Phase 2, we've really made good progress against our operating model. We've worked on format optimization. That work is now complete, and we're using data-driven insight to trial and refine store format.

And we're applying the same test and learn discipline that we've used in range rationalization also for our formats to validate outcomes before committing to rollout. And again, if you put it in perspective, we're adopting, I think, a bit more balanced approach. We're still investing in new stores, but we're also enhancing our existing estate in order to drive sales growth. And in addition to what Peter already said, France continues to perform strongly, more customers served, good value proposition, gaining market share and having solid like-for-like sales growth. And then I'm really pleased with the Q4 focus on inventory reduction, clearance discipline, mainly in the month of January.

We really saw stock levels drop and stock quality improve, a stronger cash position, much easier for people in store to execute, but also much easier for the colleagues in the distribution center. And as a consequence, net debt reduced and leverage back in target range, which is a good platform for future growth. Moving on to the next slide. I would like to give you more color on the 4 work streams. And I'll start with the first one, which is price. I think what's really good to see is that we've become very disciplined and very consistent in the application of our price policy.

I think we were very clear. We already had a good index. but we now also have a very disciplined execution of a line-by-line comparison. And against our closest competitor in the U.K., we remain highly competitive. And you can see the development over time. 96% of our lines benchmarked, we were either same or lower price compared to our key competitor. And the same number versus key competition in supermarkets, we were 90% equal or lower and average discount is 15%. And you could ask, so why is there a 10% or a 4% discrepancy? That's mainly driven by promotions and they're temporary and not at all structural.

We've also focused very much on seasonal competitiveness. So we were very strong with Christmas, but also Easter to make sure that we provide great value for customers. The next phase after having achieved an index is price perception. And that's the focus for this summer in conjunction with more focused ranges, we will focus hard on building an even better price perception. Beyond promotions, we are now much more focused on customer moments, so really training the season, using front of store space in a much stronger way. We've really seen over Christmas, Valentine's Easter garden that really helps us. So we've made a decision to double the front of store space in hundreds of our stores over summer, which we think will drive more engagement.

And the first results have been really positive of having a much more customer-focused range in the front of the store. So the next 4 work streams on Slide 20. With range, -- we initially started with 3 range pilots. We've added 4 later in the year. And in total, we have trialed 6 months of 7 pilot categories. And 6 of the 7 categories, we've been able to conclude with a positive sales outcome, so lower SKU count, higher sales. And we feel very confident now we can roll out and we've started to roll out last week of the SKU reduction across the year.

We -- our first focus is the more normalized categories that have no longer a seasonal impact that will be concluded in August. And then September, October, there's 2 categories that have a very strong seasonal character, and we will conclude those by the end of the year. And for customers, this actually means a meaningful reduction of items on shelf, 20% to 25%, much simpler and easier to shop. but also true benefit for colleagues in store and supply chain with having much less complexity to manage our products across the estate.

Availability, I think this was the most embarrassing update I gave you when we shared these numbers. So we've worked hard on making sure customers could find these items on shelf whenever they came to our stores. And in the top 250 best-selling SKUs, we've rolled out nationally a different way of working. And I'm pleased to say that we have moved from like an 86% availability to about 95% last week, and we aim to go beyond that number later in the year. That's on the top 250 best-selling items.

We are extending our support to stores of focusing on better availability across the estate, and we're doing it in a focused way with a store availability alert where on store-specific measure, the top 30 items that are having a stock record in store but no sales are being alerted to the store team so they can have a very targeted focus on improving availability. But also we take an end-to-end approach. We just do not only focus on the store. We look at supplier performance, distribution center stock levels, in-store execution. So it's an end-to-end focus on availability.

But in summary, I would say B to B and Basics is progressing really well. We've completed delivery in 3 work streams and the fourth one is now in full rollout. And then moving on to Phase 2, Slide 21 behind me here. So even though we didn't fully conclude Phase 1, we've actually started and made progress already in Phase 2. And we outlined in November that we are starting to use customer insights, customer data to flex and evolve our store formats. And I think at that stage, probably it was still a bit more, let's say, hypothetical. We've made it really tangible now. And we are really focusing on making sure that we optimize the range for customers in the locations where they shop.

But it's really hard to tailor to 800 different locations. So we've grouped them in 6 clusters. And these 6 clusters have a very similar homogeneous customer mission, very similar frequency type of shop, similar environment. And interestingly, only 2 of the 6 are more traditional the B&M stores that we would be focusing on and 4 clusters actually are quite new for us and have evolved from the start of the B&M model, which means we've got an opportunity to serve those customers much better to optimize range and the proposition at cluster level. And that's exactly what we're doing.

So similar to the range rationalization, we're trialing stuff. So we're now investing in the estate, and we really want to invest in the estate to maximize the match between range in that store and the customer mission. And there's 3 work streams in play here to make sure we take the right decision later in the year. First of all, it is relaying space. So this is really about optimizing offer, optimizing range for that customer mission, that cluster in the existing store space.

No investments in the store fabric and there are 6 stores currently in flight where we are trialing and see if there's a sales uplift, which we expect on the back of this work and also taking the learnings, what happens with tweaking various category ranges changes per format. The second one is probably a more conventional way of looking at investing in your estate that we call it refits. The same work. So we're optimizing range. And in addition, we're targeting some improvements in the store in layout, in lighting and flooring, customer areas, but also in colleague areas. And we have now 10 stores have been refreshed across the country from the north to the south.

And that's also now a focus area for us to see if we can drive benefits in terms of sales. And then finally, the third one is a bit more far out. We call this B&M 2.0. It's a completely new store concept, actually very much inspired by a French store concept, more engaging, more intuitive, easier to shop. We used a lot of customer and colleague feedback to improve that store concept. And the first store of that generation will open at the end of Q2 this year. And the goal of all of these 3 work streams are very similar. It's ultimately driving like-for-like sales. It's improving sales densities and as a consequence, of course, margin expansion.

But the good thing also, given our leverage, given our net debt, we can self-fund this through cost and working capital efficiencies. And also, I think the rollout of new space is now a bit more balanced. So we target 25 to 35 new gross B&M U.K. stores in '27, which is in line with our organic growth rate. And if the trials are successful, we will then also supplement that with investments in existing estate. So moving to France, Slide 23. Well-performing business, positive like-for-like sales last year, every single quarter. We've become a bit more mature business. So we're now subscribing to market share data, and we also see that we're gaining share in the market. Top line is growing, of course, strongly also on the back of openings. And talking about openings, we have achieved 150th store in the country. So we're coming a sizable business.

And talking about sizable businesses, the French market in terms of inhabitants total, let's say, size of market is not dissimilar to the U.K. So obviously, with 150 stores, there's a good runway for expansion in that country. And in terms of current trading, we saw a good start to the first quarter of the financial year with both higher footfall and continued market share gains. So good start in France in FY '27. And then Heron Foods. Yes, in January, we announced that we would do a -- conduct a strategic review of its customer proposition. And we've taken the learnings and the outcomes of that.

And the conclusion is we actually see significant opportunities to improve its customer proposition. And if you would scan the U.K. convenience retail market, you would be able to see and observe that many elements that are now quite mainstream in convenience stores, we haven't captured yet. So a stronger food for now offer like coffee on the go and better meal deal, but also elements that in forecourt and convenience stores across the country are quite normal are not, let's say, part of our offering yet. So we will incorporate these over time. The team has been focused very much on winning clearance parcels, and they've done a good job because actually, we see a good start to the year, positive like-for-likes also for Heron.

And we will also continue to invest in team and talent in Heron to support future growth. So then putting things in a bit more strategic perspective, back to our business model, but now, let's say, aligning business model with our plans. And I think this slide really illustrates how we are aligning execution of our priorities with the strength of our business model. And it starts with driving top line growth through back to B&M Basics. Pete already alluded to it, we are rebuilding gross margins, especially in nonfood this year. We are embarking on a much more measured and a much more disciplined focused approach on cost control.

And of course, that's being helped by simplification and range. And also we would like to invest more in supporting our teams with more digital tools. And I think continuing a selective and effective growth in space is ultimately creating this virtuous cycle supporting margin improvement and cash generation and cash generation, even to outperform last year, the year before actually on a lower profitability level. So I think we've all demonstrated our ability to do so. So just a reminder why we are here for shareholders. So this is the -- our shareholder return algorithm. Ultimately, we are growth focused. It starts with restoring like-for-likes.

Back to B&M Basics is the main driver. It's supplemented by new store growth in U.K. and France. And also, we would like, as we shared today, supplement new store growth, new space growth with investing in core estate and to boost customer engagement and sales. It's all about restoring trading margin, focusing on cost out. And in order ultimately to go back to a low double-digit EBITDA margin for B&M U.K. in the medium term as an outcome, not as a financial input. As you know, our business is very strong in terms of cash generation, and we believe together, this is an attractive total shareholder return. And then finalizing my update.

To conclude, we update we're really executing B&M Back to Basics at good pace. And I believe we're making the right progress. Our trading margins are improving, supporting the model. But at the same time, our pricing has never been as competitive as it is today. Our leverage is back within target range. And we're taking, in my view, a much more balanced approach to investments in new space. And in terms of current trading, D&M U.K., we've seen a bit of a slower start to seasonal trading. I think most of you know that we have close to 300 garden centers.

So this quarter is quite, let's say, weather and external impact dependent. So especially April last year was phenomenal. We had double-digit like-for-like growth. It's a difficult month to cycle this year. We've seen improvements in recent weeks, as you could have seen outside, the weather has turned positively. So we've also seen a recovery in our seasonal categories. France and Heron, they both started the year very positively. And while attention may soon turn to the World Cup, I think there's still plenty to play for this season, both on the pitch and in our stores. And with that, I would like to hand over to questions. Thank you very much.

Thank you, Tjeerd. Thank you, Pete. So yes, let's turn the floor over to your questions. Jonathan, why don't we start with you? We'll bring the mic around to you.

Jonathan Pritchard from Peel Hunt. Just on perception, sort of an A and B really. Firstly, obviously, better to be -- your perception follows reality, so better to have the reality in the right place. But what's the next step in terms of getting that price perception shifted? Because I think you mentioned that how do you actually do that? Obviously, as I say, the reality is a good place to shift the perception. Just back on current trading. A tricky April, a better May.

Have you actually ended up pretty much where you thought you would be if those 2 sort of played draw touch behind where you thought you'd be? And then obviously, a much more data approach being used on existing space. Have you started to apply that to new space now? And is that educating new store opening decisions?

Yes. Good questions. So 3 questions. So first of all, on price perception, it doesn't really help drive price perception that your best-selling item and the item that we invest most in price is on one facing. So naturally, when we have pruned our ranges and the key items have got space to breathe, this will give a natural boost to the way customers evaluate their pricing. That said, if you walk into our stores today, especially on, let's say, end caps or let's say, feature ends, I think we're not strong enough in terms of price messaging.

So we're embarking on a much stronger, let's say, price communication, in-store price communication focus over summer. And basically, we've waited until the range rationalization was completed, and that's the natural next phase. But I'm 100% with you. The index is just a starting point. It's driving perception is ultimately the true success here. So it is current trading in line with our expectations. We never expected April to be positive this year because last year was just exceptional. And we would look at the season in totality and the season is not over yet. So there's still a lot to play for.

And obviously, the last couple of weeks, we were probably better than our expectations. But overall, we haven't concluded the season. And in July, I'm delighted to share with you the Q1 results. And then finally, a good point. We are indeed using a much more rigorous approach in terms of analyzing the opportunity for a new store. It is quality over quantity. It is very much the focus. We want to make sure we have very good paybacks, good accretive store contribution margins. And indeed, we are also applying the learnings from the existing estate to optimizing the best possible location for a new site. But in a way that we want to invest prudently and ultimately have the right return for shareholders. So that's also what we're doing there.

Next question, Warwick from BNP.

I've got 2 questions, please. One on FMCG, one on general merchandise. On FMCG, as you've rationalized the top-selling lines, are you seeing any better terms from your suppliers as you sort of trimmed the range? Or is that perhaps to come? And then secondly, on general merchandise, can you just talk about any changes you might be making to ranges under your new buying director?

Yes. So clearly, any discussion on terms is a commercial discussion between 2 parties that probably is not very helpful to share here in public. But obviously, if you would think about what's in it for our supply partners with less range comes ultimately more volume per item, so a much more efficient supply chain. And ultimately, when we have realized and analyzed very high substitution levels across brands, which we can actually demonstrate with consumer data, obviously, then the brand that wants to invest most in B&M probably will be able to work with us in a stronger way.

So I think that's what I would like to say. On general merchandise, actually, the insight for us is France. We've seen in the U.K., and I think we said it before, a very strong push about 18 months ago on mainly focusing our general merchandise ranges on entry, entry-level entry price reducing what I would say was already great value to even better value. The problem only is that it's very hard to compare prices in general merchandise. You don't really get credit from customers for doing that. And secondly, I'm not sure how many OR ing board covers you buy annually, but probably not much, not very frequent.

And we actually did decrease those items quite a bit. I think the insight for us is in our own company in a market where probably customer confidence is as depressed as the U.K. is -- we're gaining share. We're growing like-for-likes. And we've got a range which is much more good, better, best tiering. We have a great value item at the top, benchmark at a very strong French, say, retailer with great value at D&M. We've got a good mid-tier and got a good entry price, targeting another retailer that's quite well known in France, making sure we have great value at entry price.

And that strategy works really well in France because you tailor to customers that actually have a limited budget, so you're there for entry. But customers who have a bit more money to spend, but don't want to spend the same amount of cash at another retailer can find a similar item for a much better value at B&M. And I think that's the insight we're going to apply also at B&M U.K. So the journey for us in general merchandise in our core ranges is much more about good, better, best tiering, much more coordination of design and less of a focus of only playing in price entry.

Richard from RBC.

Yes, Richard Chamberlain from RBC. Three for me, if I may. First of all, just wondered if you're already seeing a sort of direct correlation between availability improvements and like-for-like. I think you called out 86% to 95% in the presentation. Is that already leading to some like-for-like benefit? Second one is we're starting to see some higher-priced items coming through in the store. I'm thinking things like garden furniture, sort of GBP 400 type garden furniture. they are.

But is that changing your thinking in terms of how you think about price architect scope for more of those items? And then the third one is just on capital allocation. I wonder if you can just give an update on what you're looking for in terms of optimal leverage and when we might or you could consider share buybacks, I guess.

So Peter, on my right side will answer the third question because he also a wrong player today. And then the first 2, I will take. So it's really hard to isolate the impact of availability with total store performance. But what we did see, so we are trialing now availability alerts because the problem is with the first batch of stores that we rolled out, we're nationwide now. So you can no longer have the control group measuring the isolated impact.

We did see with the availability alerts, the moment stores started adjusting and correcting stock records, we did see in those stores quite a decent uplift in sales on the items they corrected. So over time, it's natural that it ultimately will support driving like-for-like sales on the back of the ability. But of course, there's more elements to play. But we do see a correlation emerging. On the higher-priced items, it's exactly what I explained in our core ranges, so good, better, best. It's seasonal. We are able to actually move a bit faster because the buys are, I'd say, one-offs.

So you're able to change your range a bit easier than updating an existing structure. And we are -- I think we started already just before I came, we started indeed adding higher-priced items to the range, still great value, and we've seen good customer uplift. If anything, especially we had a GBP 40 large oversized mirror earlier in the year, and that sold tremendously well. So actually, we see better value items, but on the higher priced ones actually do really well at B&M. And I think on capital allocation, I good to give an update where our head is.

So I think the first question was where do we want leverage to be? So in terms of where we want leverage to be, our target range remains at 1 to 1.5x. We measure that on a full year basis. So we believe and accept that it will drift outside of that range, for instance, at the start of the golden quarter when we need to have higher stock levels. And then it will reduce as we go for the golden quarter and sell that stock.

That leads to a natural point in the year when we will usually make our capital return decisions or allocation decisions, which is always in January just after the golden quarter closes. That's traditionally when we've made this decision in the past. and our seasonal trends won't change. So we do expect to be in a position to make that decision in January 2027.

Let's take a question online before returning to the room. So one here from Wayne Brown at Liberum. In fact, 2, I think for you, Tjeerd, both on the store estate. First, given the confidence why no upward step change to the rate of openings this year in the U.K. And also, any view on net closures in the year ahead? And specifically, what's the hurdle rate in terms of triggering a decision to close a store?

Yes. So I think we were very transparent last update that the underlying growth rate of new space on organic pipeline is about 25 to 35 new sites. We have enjoyed the last 2 years distressed opportunities, mainly the Wilco estate and Homebase. That's why we were able to open over 40 shops a year. So the distressed opportunity pipeline, I would say, currently is drying up and many of the parking sites that have become available were not really fitting our requirements. So that's the natural evolution.

But I also would like to stress that it's quality over quantity. So we're not chasing a number here. We're going for really quality sites. And I would say, if you believe and I do believe there's upside in investing in our existing estate, then probably from a total capital perspective, having a bit of a slower pace of store openings, but using capital, as you would say, the new space to invest in existing space is probably not a bad idea if it drives good returns. I think on closures, we did have an elevated number of closures last year. Again, if the store doesn't work, it's better to close it.

And given the network that we have, in most cases, quite a big part of that sales will flow through the adjacent stores, and we can actually redeploy colleagues in the stores around us. We normally don't guide on store closures, but I expect the level to be probably similar level as last year. And in terms of our hurdle rate, we're looking at a vast range of metrics, but the most important one is store contribution. And if the store contribution drops below a minimum level, there's not a sufficient, in my view, economic reason for a store to actually stand on its own feet. And as a consequence, then if we don't believe there's opportunities to drive better performance, we then close the store.

Great. Let's take a question from Kate Calvert at Investec.

Just 2 questions for me. As you move into Phase 2 and invest in your store estate, what proportion of your portfolio do you think you will just relay versus refit? And I assume that B&M 2 comes in a couple of years' time. And my second question is just on the stock coming into the business now. Are you happy with the quality of that stock coming in? Or is there potential for more clearance in the first half?

So I'll cover the first one. So it's really about test and learn. I think ultimately, it's probably both. So relaying clearly doesn't require CapEx. And if it's demonstrating positive sales results, probably the opportunity is to go quite broad across the estate. But again, we need to test and learn. And the second one, the refit ultimately will come with an investment. Clearly, we can fund this ourselves.

We're self-funding in a way, but there's a capacity constraint that the store teams are able to and the store development teams are able to execute and there's also a focus element. So there's a natural ceiling to how many stores you could do in a year. Clearly, we've got our views, but let's first make sure that the results come through as we would like them to come through. We expect positive sales, good like-for-like growth on the back of this, and then we'll take the decision to roll out. But that's where currently our thinking is. In terms of stock quality and further clearance, you might give some perspective, Peter?

Yes. So Stock quality come into the business at the moment. We're happy with it. We believe that we'll be able to trade it and merchandise it as we need to. The clearance is really a legacy item, which we've had to address the stock that we've got in the business in the -- sort of in the stores of the business that we need to get out on the floor and make space within the business to bring in the new lines. And essentially, a lot of that clearance activity has taken place, and we don't expect to have a material issue with the stock coming in going forward because we will be operating in clearing as-you-go type regime over the new stock that comes in, which will leave our stock in a high-quality position overall.

Let's stay in the room. Should we go to Ben Hunt just there on the right...

If it's okay, do you mind sort of dwell in the past a bit on specifically Q4 because I'm a little bit confused in the sense that December was a strong underlying like-for-like number plus 3%. And I think the narrative back then was that there hadn't really been a boost to the top line from clearance at that point. Then we came into Q4, and it seemed like it's been a flatter profile. I think it started well, but clearly, there was a lot of clearance in there.

What's happened here? Has the clearance benefited the top line at all in that period? Or was it the case that actually the existing or the underlying performance weakened across that specific period? And then the second question is, I think you mentioned back in Q3 that some of the supermarkets have stepped up the promotional activity, particularly Tesco and loyalty. There's a nod to sort of potentially improving the trading margin in general merchandise and not -- do you feel that you're at the end of the journey in terms of price investment for FMCG? Or do you still feel there's still quite a bit more to do there potentially?

Yes. Good question. Thank you. So I think the 3% like-for-like in December was actually really showcasing the strength of B&M's seasonal offering, but wasn't reflecting the outcomes of our plan, Back to B&M Basics. So I wasn't surprised that after the seasonal peak of Christmas, where we did phenomenally well, we went back to a more normal trading -- normalized trading pattern. We did see in January indeed positive like-for-likes, partially clearance, but partially just the momentum going out of Christmas. February was probably flattish.

And in March, we had the benefit of Easter a bit earlier. So FMCG was strong in March. Unfortunately, March last year, actually, the garden season started quite early. So we saw already in March a double-digit negative sales number on garden and seasonal. So I would say that's the composition of the quarter. We're still pleased with a slightly positive like-for-like number. I wasn't expecting the 3% in December to continue throughout the year because ultimately, the hard yards were not done yet. So we still have to work hard in making sure that all of the elements of driving like-for-likes are fully implemented.

And it does -- it was pleasing to see. It showcases the strength of B&M in the seasonal period, but we also have to be strong outside of seasonal periods, and that's what we're working on. In terms of pricing, the reset or the delta that we did was really large in August to September. We've been very competitive ever since -- every single week, I can see the impact on our margins. It's quite stable. I think at the moment, our FMCG margin rate is the lowest in 7, 8 years, I guess...

As long as I remember.

Yes. So it was a meaningful investment. But if you would look at our margins in September, it's actually more or less at a similar level. And it's very interesting to see because I know in quite some detail how the bigger supermarkets are operating in the U.K. and the pattern is not always very consistent, but our index is very consistent, which is 15% cheaper than all 3 of them versus their offerings. Yes, so that's where we are. But I don't foresee at this stage further investments in FMCG pricing.

And if I may, just one more. Heron, obviously, quite a drop off in profitability there. Obviously, you're sticking with it. I mean, do you feel there's some low-hanging fruit that's going to get you back quite quickly in short order? Or is it going to be a drain?

No. So I would say it's interesting. So the 3% or 2.9% EBITDA margin we reported last year actually is not dissimilar to what probably the industry normally has in terms of convenience in the U.K. So probably we were outperforming the industry quite a bit in the past, but 3% is not, I would say, a business that's failing. It's probably a good metric for most convenience retailers. We're not happy with it. So we would like to see improvements.

And I think I already outlined that if you would walk the convenience space in the U.K., you would walk -- you look at more entrepreneurial convenience operators, there we have a much broader playbook of offerings for customers that we haven't really utilized. which we are going to implement. And in addition, what we didn't do well last year, which we're improving to do is be more assertive and aggressive on getting clearance parcels.

And as a consequence, we stepped up our game quite a bit this year, and that's why trading is positive from a clearance perspective, but also from an underlying perspective. But more opportunities to go for. And indeed, we believe it's better to have Heron as part of B&M because we believe there's good upside for the future in improving the business.

Thank you, Tjeerd. Let's go back online. We have a question here from Vita Sod at Citi. And I think this is one for you, Tjeerd. It's with regards to cost initiatives in the year ahead. Given our confidence that we can offset energy-related costs, could you give some examples of those initiatives? And how lean do you see the cost base this year compared with previous years?

Yes. That's a good point. So on the Iran conflict, clearly, nobody has a crystal ball. So I can only comment to what we've seen to date. And we've extrapolated to date cost levels to the remainder of the year to make an assessment of the impact on our business. That's how we went about doing it. I would like to unpick it in 3 elements. So first of all, it's electricity costs, energy costs in our stores. The second one is diesel for our trucks and the third one is then freight cost for our products coming out of Asia. We actually have invested quite a bit in new stores, equipping them with building energy management system or DEMS.

And as a consequence, even though we've opened 100 more stores in the last 4 years, our energy consumption total company hasn't gone up. So we are still at the same level of total energy usage as 4 years ago. By chance, 2 weeks before the conflict started in February, we took a decision to now implement the system across the whole of the estate, also the older stores. So we actually feel quite good about being able to mitigate the rising energy cost in stores by having a lot of energy saving measures. So the residual impact actually will be limited, at least on today's pricing.

On diesel, so we update our fleet quite a bit. We've got our own trucks, and we see diesel costs, of course, rising, but it's actually not a very material number. So also that one we believe we can absorb and we implemented a route scheduling system last year. So we're much more efficient in our delivery schedules to stores. And on shipping, we have a dedicated partnership with a very large shipping line. We believe we've got great value out of the cost of freight. We locked in a contract for the next 12 months. We do have a surcharge.

But if you would look at the total number of the surcharge and the overall freight cost, it's actually not very high. So overall, to date, we believe all 3 elements, components of the around conflict in terms of cost increases on our business, we can absorb and we don't have to pass on to customers with higher pricing and it doesn't have, in our view, a material impact on our bottom line. I think overall cost for the year, obviously, last year, there was a quite a significant statutory cost increase with, as Pete said, minimum wage, national insurance and the EPR, the packaging. That growth rate of cost will slow down this year.

There will still be a growing cost element, but not at the same rate as last year. And we just shared that we are approaching this year with a much more cost-out focus. It's early days, so I wouldn't want to commit to any numbers. But obviously, we are going to work hard to simplify our business, take cost out so we can keep prices low for customers. But directly linked to the Iran conflict, we don't see an impact, let's say, a large impact on our business.

I think that's Andy Wade from Jefferies of the Bank. Let's take your question, Andy.

Three actually from me. First one, digging a bit more into what Ben was asking around the clearance side of things. So FY '27 benefit to working capital from -- was GBP 90 million. And you talked about that being almost all sort of stock benefit. And actually, you'd expect it to be more than that coming out from clearance because you would have expected to be growing the stock base given the bigger store count and you probably didn't sell it at postal NRV.

So we're probably talking GBP 100 million, GBP 150 million revenue benefit in H2. I mean maybe my math is all out there, but that looks like sort of 5% boost to revenue in the second half. Is that GBP 100 million on GBP 2.3 billion of U.K. revenue in H2.

I think part of the equation there is that some of that working capital benefit was unwinding our general stock position in prior years. So all of that -- so whereas clearance is a part of that working capital benefit, there are other working capital benefits we've got flowing through that line. So it's not just the clearance impact.

So how much of that GBP 90 million is down to just clearance activity. Remember, it's more than GBP 90 million as well because it would have been growing otherwise.

It's a difficult number to take out of our accounts, the exact amount that relates to the clearance.

But even if we said EUR 50 million, right, and you're selling at more than cost or NRV, you're talking about 2%, 3%, 4% benefit to sales.

It's a much smaller number. So I think this business was traditionally run on, in my view, quite high stock levels with significant cover. I think we should be able and we've demonstrated to run this business on lower stock levels. And that's the majority of the working capital release. So the smaller part is the clearance impact, but being more efficient with stock is the larger part.

Okay. All right. Second one, you talked about a couple of times you mentioned about gaining share. Just interested as to what benchmark are you using that because obviously, supermarkets I&S nonfood and...

France. It's a pen company. I think it's called Circana. And we're also subscriber, of course, to the U.K. so World Pen, for example. And the D&M U.K., we have hold our market share in the market. We've held it at similar levels. But in France, we're growing.

Which category would that be in the U.K.? Is that discounted specifically? Or is that?

It's depend on the data. Yes. So that's within total food and nonfood universe.

Yes. All right. Okay. And then the final one, pretty encouraging impact from those range rationalization pieces you talked to there, 20% less SKUs, 3% to 4% like-for-like uplift. I think what we sort of hoped would happen. Just interested as to whether those 2 categories are outliers. I don't know the best...

No, no. Good questions. So 6 categories were positive and on average between 1% and 3% more or less. So the ones we show were probably representative. The seventh was negative. And of course, your question is going to be why...

Why didn't -- you said before...

So the seventh was a very high churn category. And what we've learned -- and it's very interesting. So if you trial a lot, you can actually see a lot and learn a lot. So the 6 categories that were positive were probably more predictable routine categories with a more static range. The seventh was actually crisps and snacks where we had negative sales. And the main learning is that we just overtrade and we use secondary tertiary space in the store to merchandise crisps and snacks across the shop because it's an impulse product.

We have a lot of when it's gone, it's gone products in our stores. And if you then have a test and learn laboratory trial setting, you actually limit the stores to trade because you want to measure properly. So we actually measured store not merchandising Christmas snacks across the state, but just in its home day, obviously, then you got a negative outcome. So we've learned that, that's a very high, let's say, churn category where you need to merchandise much, much harder. But the numbers we quoted on the presentation are representative of the 7 categories.

And it's from a similar sort of space or maybe less...

Yes. So from a space perspective, we outlined that we're going to increase the front of store space in about 300 stores, double the managed special area. And that's basically because we don't need as much space anymore for food because we've got condensed, let's say, ranges.

Let's stay in the room. Richard from Bernstein.

Richard Trainor from Bernstein. Three quick ones for me. The U.K. consumer may be coming under more pressure. How do you expect that to impact B&M's customers and their behavior? Secondly, a bit of a counterpoint there. In France, we hear elsewhere that the consumer there is under even more pressure and yet it's a bright spark for B&M. What is B&M getting right in France? And then finally, have you considered a larger role for private label in food and FMCG categories?

Good questions. I think U.K. consumer, I think it's a bit hard to read at the moment, given the very strong influence of seasonal categories in our -- if you would annualize categories that are not very seasonal, we actually do see good momentum in some categories, actually categories where you would expect customers to be more, let's say, disciplined in their spend. Actually, we do quite well. So one of the biggest surprises to me this year is that we see very strong sales of home decoration categories that are, let's say, capsules that we drop.

So for example, we dropped Island Live, so to decorate your house in like a Sicilian, Sardinian type of style. We've dropped harvest last year, Halloween, ranges, but also decorating for your house. And the trend we are seeing is that customers are treating their home like fashion. So they're buying on Vinted, their own clothes, but they're decorating their house with the season. So you see -- and it's interesting because you would expect if you're tight in cash, that's not the area you would spend money on. So actually, we see in our numbers so far, no indication that customers are making different decisions.

Actually, we could actually see the normal behavior in a more, say, depressed consumer confidence climate that people go to value retail for either necessity or because they like to save money and spend it somewhere else. I think in France, I think, a, we didn't have execution issues. So the French team has been consistently implementing its strategy without any hiccups like the ones we've had in the U.K. So I think that's one. I think two, I think we have -- we are faced in France with a very different competitive pressure. I think we all know the competitor that's so strong in France.

And I think we have been able to play to our strength and not to their strength. So what we did is we took about 400 lines across our store that we replicated one-to-one with the pricing of that competitor, which meant that for customers, you could always see that the price of that item similar to the level they would be used to in the other store. And then we've used the space increment that we have because our stores are about 2.5x larger than that retailer to actually showcase much more breadth and depth of range in the good, better, best ranging in I would say, probably a bit of a nicer shopping environment. But you still get value, you get more choice, shopping environment is a bit nicer.

And we've aligned our promotional sequencing in such a way that every single week when you walk into a B&M France store, there's something new for customers, very similar to what the other retailer is doing. So we've replicated there. let's say, elements as a defense, and we've added, let's say, the strength of B&M France to it, and we didn't have any execution issues. And then finally, yes, private label is indeed on our road map. It's the third phase. I've made a comment before that Aldi and Little have shifted the value expectations in some categories quite significantly when the branded suppliers were not, in my view, having great value for customers.

And it's something, of course, we look into. And if you would think about our business, 90% of our nonfood or general merchandise is private brand with a lot of licensed products, but we actually source the item and we have a deal with the license owner. So the capability to actually start doing the same thing in food and near food is not very complicated for us to start working on. But the focus now is really finishing back to B&M Basics working on the estate, and this is a Phase III opportunity. But it's very much on our road map to look into.

We have time for 2 more questions. Matt, I know you have one. I'm just going to take one online first. And we've got a couple of questions on noncash impairments. Could you comment on that? And specifically, is it tied to any actions on the back to B&M Basics? And therefore, should we expect that kind of impairment to continue in terms of magnitude and regularity? Probably one for you, Peter.

Yes, I'll take this one. So I'll take the second part first, if that's all right. So it's not related to the B&M Basics program. So this is a -- it's a technical calculation we have to carry out each year to analyze the assets at our stores. And effectively, it is driven by the profitability of the stores. So it is natural that when profitability falls, more of our stores are dragged into the impairment calculation. And in a normal year, as our profitability was growing, we would be impairing a run rate of between GBP 3 million and GBP 5 million per annum.

And when we step back in profit this year, that means that we've got a bit of a catch-up going on, and that's what's driven the GBP 35 million of impairment. Now you can't impair the same asset twice. So we don't expect those sort of levels of impairment to continue. So as profitability grows going forward, we should revert back to our usual run rate level of about GBP 3 million to GBP 5 million per annum.

Very clear. And Matt, thank you for your patience. Let's finish with your question, Matt.

Matt Clements from Barclays. Two questions, if I can. One, B&M U.K. implications of the Employment Rights Act over the next 2 years, how that changes your management labor force? And the second one on Heron, going back to the earlier question. It felt like a kind of existential observation you made last year about the kind of clearance model and reduced surplus levels in the industry. What's been the key change since that observation?

So on the Employment Rights Act, I think the consultation started this week on the next phase of the rights. We, as B&M, but also as a member of the BRC are very clear. We would like to keep flexibility and the agility with employment in our stores. We always do the right thing for our people. But employing people should be an opportunity for both employee and employer and shouldn't be a liability. So we are very clear with government that we would like to see the employment Rights Act finally drafted and implemented in a way that doesn't stop labor growth in retail.

And if anything, most people in my company and including myself, started their careers at entry-level roles in retail and then you can actually grow your career quite strongly. I think it will be a tragic mistake if the employment Act would lead to retailers being much more stringent and much more hesitant in employing and new people on the back of it. So -- and again, we are, as members of the BRC, trying to influence government to do the right thing this time. And obviously, clearly, if the legislation would come out, it's effective life, it will be level playing field for retailers, and we have just to accept and work with it.

But at the moment, we try to influence that it's a pro business and ultimately pro employment. On Heron Foods, we actually said in January, we were going to do a strategic customer review. We did say that clearance was challenging for us. But the good thing is, as I outlined today, we actually see quite some opportunities in terms of customer offering that we don't have a part of the playbook of Heron Foods.

So food to go lottery, coffee, sandwiches, much better meal deal, but there's quite some more elements, but that's probably commercially sensitive. So we feel actually that further investing in the offering of Heron Foods is the best use of the investment in Heron. And we will make sure that the right capability of people are working there and supporting the Heron Foods business, but we feel that there's opportunity still to go for at Heron Foods.

Thank you, Tjeerd. Thank you, Pete. Thank you for those of you attending and your questions and for those of your questions online. We look forward to returning mid-July with our Q1 trading statement, the date for which we will confirm shortly. That concludes the meeting. Thank you.

Good morning, and welcome to B&M European Retail's (sic) [ B&M European Value Retail's ] Q3 2026 Trading Update Call.

[Operator Instructions] I will now hand over to management to introduce the call. Please go ahead.

Good morning, everyone, and thanks very much for joining this call to discuss our third quarter FY '26 trading statement, which we released earlier this morning. My name is Tjeerd Jegen, CEO, and I'm in a room here with Helen Cowing, our Interim CFO; and Andrew Orchard, our Head of Investor Relations.

And on the back of this trading update and the guidance change that we communicated today, we wanted to hold this call to give you some context and also offer opportunity for questions. So before we go into questions, I would like to start with some prepared remarks and I would like to start with some background.

On the date of the announcement, so we would normally announce our Q3 numbers a bit earlier. This time was a bit later because we want to take sufficient time to both prepare our trading results properly and diligently, but also spend sufficient time to undertake a thorough evaluation of the outlook for our business.

I would like to cover four elements today. First of all, I would like to give some color to our third quarter results. I would like to take you through our thinking of guidance for FY '26, and progress made, which I think is the most important part of today with the Back to B&M Basics and then updates on the review of the freight issue and the review that was done by EY, which has reported -- has been finalized, and we're getting on with the implementations of their recommendations.

So starting with the third quarter results. I think we indicated that in our release in November, but we had a slow start in the beginning of the Golden Quarter, negative low single-digit like-for-like numbers. And I think that was linked to quite high levels of uncertainty with customers.

December was a turning point, and we saw a particularly good sell-through of seasonal. Not only seasonal sold well, but overall like-for-likes amounted for the month of December to 3% for B&M UK. And interesting also, I think, positive for us was the performance between general merchandise and FMCG was more or less equal. And the positive like-for-like sales momentum has continued into this month of January.

Elsewhere in the group, France delivered positive like-for-like growth, be it a bit lower than before. In a competitive market, they had to comp strong like-for-like year prior. But with new store openings, they still delivered, in my view, a solid year-on-year growth of 8.5%. Heron's performance was below expectations and also the underlying profitability was not where it needed to be.

Let's move to our guidance for FY '26. If you would combine the actual results for Q3 year-to-date, combined with the outlook for Q4, then we had made a decision to adjust and tighten our guidance range for FY '26 adjusted EBITDA. We've adjusted and tightened it downwards from the previously announced GBP 470 million to GBP 520 million to the new range of GBP 440 million to GBP 475 million. So that's basically our new guidance range for the remainder of this financial year.

There are three key drivers for the downgrade, and I would like to give also some color to why we believe we needed to do this. First of all, we have continued the investment in our FMCG pricing. I think we were very clear that as of August, we've made changes to the way we implement our pricing policies and strategies.

And we've made already in August adjustments to a number of key KPIs, or key value items. And since then, we have continued to invest in price. And clearly, we want to make sure that we are there for our customers, that our customers will always find prices in line with our price policy, i.e. being significantly cheaper than the big grocers and we continue to do so also, of course, in the Growing Quarter.

And second one is part of basically back to basics. And it's an investment in strategic clearance and cleaning and adjusting our stocks. I think you all know that we spoke about our range rationalization program. We really would like to focus our ranges. But to do so, clearly, we need to part ways with quite a bit of range. So we are preparing our stores for the rollout of this range rationalization.

And on the back of this, we're increasing our clearance efforts significantly in the second half of this financial year, and especially in Q4. We've got a very strong focus now at the moment if you go into our stores on clearing seasonal and discontinued lines. Obviously, January is a really good month for this.

And in addition to this, on the back of the availability trials we're currently running, we're also finding opportunities to adjust and clean our stock to make sure that we achieve the correct base in the right lines to drive the availability improvements we want to bring about. So that's the second driver of the downgrade.

And the third one is the underperformance at Heron Foods. And just to be -- to frame your mind, so the business of Heron Foods was built on a clearance model, combined with a convenience offer. And at the moment, this is a challenged business model, and in this financial year, has resulted in relatively for that business, a significant EBITDA underperformance versus our expectations in the October outlook. We're conducting a review of the customer proposition, and we'll continue to assess this business going forward.

I think it's important to point out that two of the three drivers I've outlined are linked to back to basics and that they are investment decisions we have taken based on the insights and the long-term health of the company. And we could have chosen also not to make those investments now, but I firmly believe that this is the right approach as we prepare the foundations for a return to sustainable like-for-like growth of B&M UK and return to sustainable like-for-like growth is our #1 priority.

I also would like to emphasize that the lower profit guidance for this year doesn't change our view that with sustainable like-for-like growth returning to B&M UK, we continue to believe B&M UK can return in the medium term through a low double-digit EBITDA margin business once we have reestablished sustainable like-for-like growth.

But we've always said, restoring like-for-like outcome would likely take between 12 to 18 months, and there's no change to our view. And also, I think it's important to note, margin is an outcome, not a financial input in how we manage the business.

So let's move on. I would like to give you an update on Back to B&M Basics because that ultimately is the key to unlocking the recovery of U.K. like-for-like growth. We're now moving from trial phase to rollout phase in both the range or that we call this SKU rationalization and availability work streams we outlined back in October.

On availability, we scaled up now to over 150 stores in the month of December and about 150 items, we are having a very different process across those stores, where we see good sales growth on the items where we've given a greater focus and a different way of managing the availability.

And we would like now to roll this out across the nation later this month and early next month and then we'll cover 250 of our best-selling lines. And we believe that will really help those lines and ultimately, of course, also the broader categories and will lead, in our view, to support increasing sales.

So that's the availability trial. So we scaled up even in this Growing Quarter to now 150 stores, and we're ready to roll out the focus on 250 best-selling lines to all of our stores in the next weeks.

The next one, which is also very important and part of Back to B&M basics is range rationalization. And you might recall there were three FMCG category pilots we started in the third quarter. We've got really good insights in the performance of those pilots.

We are now adding four categories to this trial later this month. And that means in February, we'll have about seven categories with a reduced range live in our estate. And the objective is to reduce range by about 25%, but ultimately deliver a sales uplift and simplification of the business.

So once the results of the pilots are in, we will then start to push the button of the rollout through all categories, which means more focused ranges, and that will start in the first quarter of the new financial year.

And then promotions, also an important part of Back to B&M Basics. In November, we have taken a new approach. We communicated that our especially front of store manager special area, where we're taking a more flexible approach trading at the moment. At the back end of the quarter, we decided to dedicate this fully to Christmas ranges.

And we've really seen that this has helped significantly the sell-through of these categories, but also which I think is quite important to really establish B&M as a destination store for the Christmas season. And I think we did trading of the front of store harder than we did in the past. In my view, has really helped drive the decent like-for-likes we saw in December.

But then apart from trading, EY has completed their review, the review we announced in October of the freight issue that we encountered. And to recall, EY was commissioned by the Board to examine the issue from an accounting and an IT perspective. And we're now implementing the report's recommendations on specific IT and financial operational processes raised in this report. The full year impact financial -- the full year financial impact of the issue remains unchanged and is in line with our announcement in October.

So rounding up this update, I would like to summarize that from a trading standpoint, I think we delivered our Golden Quarter with a soft start, but a solid finish and early trading in Q4 shows positive like-for-like sales at B&M UK. We've identified opportunities to deepen investments in range reduction and availability on the Back to B&M Basics. And in combination with underperformance at Heron, we've adjusted our guidance range for FY '26 to GBP 440 million to GBP 475 million from the previous range of GBP 470 million to GBP 520 million.

We're continuing to make good progress with Back to B&M Basics. And very excitingly, in Q4, we'll see the rollout of the new availability working practices for our bestsellers across the nation, and we're putting in place the foundations for the rollout of the FMCG range rationalizations ready to kick off in the new financial year. And finally, EY has delivered its review, and we're implementing their recommendations.

But before I open to questions, I would like to emphasize that, that's a major business reset, and I think that's how you can call Back to B&M Basics. Like the one we're bringing about inevitably bring with them choices, many of which provide opportunities for securing the outcomes you're aiming to achieve. And B&M Basics is no different.

And we're approaching every one of those choices with the mindset of owners of a business we all feel very passionate about, and which we believe has a bright future. And I firmly believe making investments in these opportunities now is the right thing to do and will help us achieve our goal of returning like-for-like growth back to the U.K. within the time frame we've outlined.

And with this, I would like to open the floor to questions.

[Operator Instructions] And the first question come from the line of Warwick Okines from BNP Paribas.

Two questions, please. Firstly, could you just comment on Q4. You're planning to accelerate clearance in the quarter. What do you think this will add to, to like-for-like growth? And maybe as part of that, was Q3 sort of boosted by extraordinary clearance?

And then my second question is whether you could just comment on in a bit more precision the sort of uplift in sales that you're seeing for the availability trials that you've been conducting so far?

Yes. Very good. So basically, if you focus on Q4, we actually have a significant focus and strategic focus on clearance in January on the back of seasonal ranges that we would like to clear and January is, of course, is the obvious month to sell your seasonal autumn/winter ranges, but also to start selling all of the discontinued lines that we have accumulated in our store warehouses and especially when they are seasonal, that's the right moment to sell.

And at the back end of Q4, so somewhere in March, we will then start having a very strong focus on starting to sell in a clearance way, all of the ranges we already have decided no longer to need in our, say, range rationalization program, which will start rolling out, let's say, in the first quarter of financial year.

So basically, it's more or less a strong focus throughout the quarter, the beginning of the quarter, very much linked to clearing seasonal and discontinued lines that we took from our store warehouses and the back end of Q4 is really starting to clear all of the ranges that we no longer need on the result of the review of the range rationalization.

And to put it in perspective, in Q3, obviously, you've got a normal, let's say, clearance -- ongoing clearance that we have, but I can tell you, I think the contribution of clearance to the like-for-likes in Q3 were probably very small.

It was really -- the sales really was driven by many, many different categories and actually equally in FMCG and brown box and very much the season categories, of which majority of them, we were selling full price. So that's basically Q4, Q3 clearance in terms of uplift of the availability trial.

So I think it's important to note that we decided to even though normally you would not want to change things from an operational perspective throughout December, we did decide to scale up from the 11 trial stores to 153 stores in December because we really saw good encouraging results coming out of the first 11 stores.

And we've seen also now in that 153 stores that the 250 best-selling lines that we have given significant focus, that receive more space on shelf, we have a very diligent and stringent focus on stock record accuracy. We leave the gaps when the supplier hasn't delivered the product to our DC, which is new for the company. We're looking at shelf capacity enhancement. We've actually seen that in those stores, 153 stores, those items actually have seen double-digit sales increases.

Obviously, some of it is, let's say, sales that probably will be driven in other brands, if we wouldn't have done so. So it's not completely, let's say, accretive sales number. But it's very encouraging to see that the customers are, let's say, buying significantly more of it.

And ultimately, what it actually does, it establishes B&M as a more reliable place, a more reliable store where you can buy the items you buy most, and you know they're always there. And in the past, we were not always, let's say, best positioned in terms of availability.

And the good thing is, on the back of the 153 stores where we now have rolled out the availability trial, which we're very confident to successfully roll out at the end of January, early Feb to all of our 791 stores in the U.K. This is just a start. So it's 250 lines. There's thousands of lines in FMCG. So clearly, the next step will be to enlarge the scope of products we have the different focus on, but I would say, so far, good progress in this area.

And the next questions come from the line of Jonathan Pritchard from Peel Hunt.

Two or three, if I may. Two or three. Just the continued better performance in FMCG, obviously, clearance is very strong in January, but how has FMCG continued to be a bit better in January? And has the pricing investment actually ushered in a change in pricing perception where FMCG is concerned?

And then a couple of other quickly. Just on Heron, just give us a bit of level of granularity on the profitability issues. Is it purely operational gearing, the like-for-like was worse than you expected? Or is there something more structural there?

And continuing to use the word sort of structural, would it be fair just to say that on the margin investments in B&M, the price investment is slightly more structural, but it's more one-off when it comes to the clearance side? I think I might be stepping obviously a little bit there but just to confirm that one.

Yes, very good. So three very good questions. So I'll start with the first one. So clearance, I would say, at this stage, has a smaller impact on FMCG. But we do clear some FMCG in January, but the larger impact of clearance in FMCG will come in March. If you would look at the -- we signaled that we had an elevated FMCG price investment, and it's mainly to do with the fact that we had a -- we follow, of course, price in the market.

And we've seen in December, there was quite a significant enhancement of competitive activity on seasonal fruit lines, and we just participated in that fight. And we wanted to give our customers best prices, while the rest of the market was offering also great value. So we saw elevated, let's say, pricing impact in December on the back of, let's say, a seasonal fight on, let's say, Quality Street tins and the like.

So we've continued to invest. Price perception ultimately builds up over time. Anecdotally, I hear that especially stores where we face our most important domestic competitor, with a concept, which is quite similar to ours, that customers are, let's say, acknowledging the fact that we have better prices, and we see some of the FMCG sales in those stores trending upwards. But I would say it's a slow burn. So I wouldn't say it is all linked to the fact that we decided to be more competitive in December.

And on Heron, I think you know that Heron actually is built -- originally built on a clearance model. So a significant part of its sales historically has been the ability to acquire stock lots of food suppliers, perishable and nonperishable with short shelf life, where the producer had issues with forecasting their demand properly and they had overstocks they couldn't sell it with their regular customers.

And then we had the opportunity within 24 hours to acquire significant stock lots at great discounts for us, but also at great discount ultimately for our customer.

And the interesting element of the clearance model was, it wasn't just a great deal for the consumer. Also, it was accretive to our let's say, gross profit margins on the back of this clearance model. Many of our suppliers in the U.K. but globally have invested in better forecasting tools so that, that clearance model, supply of clearance products, unfortunately, is reducing. So we don't have access to the same levels and quantities of clearance that we saw historically.

So we've become more or less now a convenient discount store, low prices, convenience means a higher cost to run a shop without the clearance element helping our profitability. That has been actually the main and most important driver of reducing profitability in Heron. And obviously, it's something we're very unhappy with. We are doing a proper review of the customer proposition. And of course, we continue to assess the asset.

Then final question, price investment being structural, your words and clearance being more one-off. I would -- so I would look at pricing also a bit more in a dynamic way. Obviously, we've taken the decision in August to reduce pricing or let's say, be more competitive in FMCG with the consequence that we reduce prices because we needed to because we were, in my view, not best placed competitively.

That has led indeed to an investment in gross profit margins in FMCG. And I don't expect competitiveness in FMCG in the U.K. will weaken or soften. So this might be a prolonged investment, yes, but it's the right thing to do for the business.

But I also would like to share that I think I've already, let's say, shared a few previously, but I would like then to repeat today. I believe that 18 months ago, 12 months ago, the decision was taken at B&M to reduce pricing and reduce margin rate in our nonfood ranges, our brown box ranges. I think that was not a strategic decision that was taken in the right direction.

I believe that ultimately, because we develop all our range ourselves, we've got unique price points, we've got a great sourcing platform in Asia, in my view, there's an opportunity for us to improve our margin rates in brown box and nonfood, which means we could actually absorb over time, in my view, the investments we're now making in FMCG.

Unfortunately, as you know, most of our brown box is prepriced and most of the brown box is seasonal. So it will take several buying seasons to fix this, but that's the way I would ask you to look at pricing more strategically and long term at B&M. So don't assume that our pricing now is permanently depressed on the back of our investments in FMCG. It will take probably 12 months, 18 months in brown box to get to a more solid healthy margin rate, given the nature of buys. But I think dynamically, we are still aiming to improve our rates in brown box.

And in clearance, yes, 100%, especially the way we are now clearing, if you would walk into our stores, you would see we're using Managers Specials stage for clearance. We've got to reduce the clear area. There's a very strong focus. Every single store has scanned every single item in the warehouse to make sure that everything discontinued is out for sale for customers, we are applying significant, let's say, price reductions to really clean our warehouses.

That is, I would say, you could argue in the end, a one-off because we're not intending to do a strategic program like we do now every year. And this is really then the foundation for clean ranges, easier to execute in our supply chain, easier to execute in our stores and easier to shop for customers.

And our next questions come from the line of Richard Chamberlain from RBC.

A couple for me, please. In terms of the SKU rationalization, Tjeerd, how -- can you just talk about how you're sort of intending to manage that and sort of edit the range but not reduce perceived choice for customers? I guess there's a sort of balancing act there.

And then the second one, I guess, looking ahead to this spring, post the heavier period for clearance. What sort of changes will customers be noticing now in stores across the estate in terms of more compelling price messaging, better availability, better price communication, all of those sort of execution or operational improvement? So I was wondering if you can sort of talk to any obvious changes that B&M customers will start to notice as from this spring?

So the first one, so there's three categories in about 23 stores where we have -- just before we did the H1 announcement, went live with about a 35% reduced SKU count in pasta and rice, in crisps and snacks and in wine. We've learned a lot there. And indeed, the goal is significantly reduced SKU count, but ultimately more sales because I strongly believe that we've become very blurred with our offer.

And indeed, the way to do so is take out redundant choice, not unique choice. So customer offer actually is still providing all of the needs, but in a much simpler way to shop for customers. And just -- and ultimately being a true discounter because complexity comes with cost and cost is something we don't want to have.

We're adding four new categories to this mix at the end of the month. So end of January, early February, we've seven categories. We've learned a lot. I can tell you in those first three categories, and the aim is that starting in April, we will then roll out, let's say, about 200 subcategories across the estate, where we aim to be done somewhere in mid-summer. And then we have some seasonal categories in autumn, which we'll then update. So by the end of the current year, basically, we're done with this part of the program.

And yes, we're -- I think I'm pleased we did the trial, we learned a lot, and we're making good progress also with the next four. And we've used -- just to be clear, we've used transaction data in combination with payment card identifiers, so either debit or credit, so we could actually track customer behavior, and we would know if customers would be very loyal to a certain item or customers would basically have very low loyalty. And those indicators we have used to reduce range or to clients in our range.

And in terms of what our customers are going to see in our stores, now in the end, this is not a sprint, but it will take time to build. What we are doing, though, so the availability trial, which will go into full rollout this spring, will become visible in our stores.

So the 250 best-selling items you will notice the customer, they will have sufficiency -- they have significantly more space and they have sufficient shelf capacity. They will also be marked with different shelf communication, different color coding of price tags, but also more shelf talkers because those 250 items are not just our best-selling items, they're also the items where we are sharpest on price. So that will help us building the very strong price message on those items.

We've also started a, let's say, on our socials and a bit on paid advertising, our everyday value campaign. So really showcasing every single day, you can buy great value at B&M. And of course, obviously, the most important one is, as of this month, we're launching all of our new spring/summer ranges that are not flowing into our stores.

And I can tell you that there will be, in my view, quite strong perception this year because I think, historically, we had to cut in those lines, not on the back of a very strong clearance program. This time, stores are clean, warehouses are clean. So I expect really the spring/summer ranges to shine.

So I would say those are the changes customers will see spring/summer and then over the summer period, then we'll see the full implementation of the range rationalization, so on more focused ranges.

And the next questions come from the line of Karine Elias from Barclays.

I had two, please. Actually, you've mentioned the end of the review. Just wondering is there any particular implications that we should think about in terms of CapEx that you can share? Or anything on the interim financials' impact that we should be aware of?

And then secondly, obviously, it's great to see the like-for-likes turning positive and obviously the availability improves. But just thinking about clearly, what sort of level of leverage are you comfortable with? And how should we think about the passive earnings and leverage in particular?

Yes. Great. So on the EY review, clearly, we've commissioned them to focus on the accounting controls and the IT change, and they come back with a significant number of recommendations, a good number of recommendations rather. And there were four areas where basically the recommendations were focused on.

It was -- area one was formalizing and documenting policies and procedures to a larger extent than we've done historically at B&M. Standardizing our IT change. We had a really solid IT change process for projects but less, let's say, a standardized approach for business as usual changes.

A stronger cross-functional business partnering. Unfortunately, I think it occurs with many companies, but also B&M is quite siloed and something we would like to break down. But we can't do this overnight, but having a stronger cross-functional business partnering would have helped here, and we are doing that now significantly better and then improving segregation of duties. Those are the four, say, main improvement themes.

And as you can hear, it's not -- it doesn't require a significant CapEx investment. It doesn't require adding significant amounts of people to our business. It is more formalizing and changing the way we work and being more intelligent in terms of how we operate. So that's on the EY.

And I would say, a significant amount of recommendations have already been implemented. And we are concluding all of that and some other recommendations in the remainder of the months ahead. And so on like-for-like turning positive, I would like to just put it in perspective. I think it's important to note how pleasing it is that December and also going into January, we saw positive like-for-likes.

In my view, and I'll be very clear, the real hard yards and the real customer impact from Back to B&M Basics isn't yet visible in our stores. And we've always said sustainable like-for-like growth requires 12 to 18 months. So I'll just make sure that everybody realized that.

In terms of leverage, I think we updated our capital allocation policy in November, and we feel really still comfortable with that. And we basically said that we would like to stay within 1 to 1.5x leverage. We were 1.6x on the half. Clearly, you can't always plan leverage to the final detail, but we aim to remain within this range, and there's no change in this policy.

The next questions come from the line of Ben Hunt from Panmure Liberum.

I just wondered if you could provide us with an update with the actual sort of price competitiveness. Around the time of the strategy, I think you said that you're going to reduce lines on an average of about 2% on 35% of KPIs. Where is that now trending today following the -- what looks like further price investment in FMCG? That's question number one.

Yes, so I would say pricing is cumulative and continuous. Clearly, we've made a step in August, and we've continued in every single week we track about 400 lines and we compare ourselves line by line and so higher, equal, lower with the four grocers, and we see consistently that our, let's say, target price index of 15% cheaper after Rollback, after Nectar, after Clubcard, we're achieving to the largest extent, and we're achieving that is mainly because there was a new set of Rollback, Nectar, discounts, Clubcard discounts where we're adjusting.

What we did see though in December, we've added -- and which is the right thing to do, we added the core seasonal ranges to this price basket, that price basket is dynamic, it's not static. So you always look at if you've got the right range covered in your basket. And we've added in this basket all of the seasonal sweet, let's say, items. I mentioned Quality Street tins, but there's all the roses as well, but there's a significant, I'd say, amount of seasonal products.

And we've seen that those items were used by the four main grocers and to an extent also by the German discounters as a price fight where we decided to also reflect a more compelling pricing in our ranges. And that focus on price and that fight has, of course, been concluded with the start of the new year because those ranges are no longer relevant for customers. So we've seen in January, a bit more easing of that price investment to levels where we were before December.

So then I'm not disclosing today the cumulative investment. It's the right thing to do for the business. We feel good about the investments we've made, and we'll continue to do so. And I think in the end, strategically, we have an opportunity uniquely so with our nonfood ranges to make sure that we compensate investments in FMCG over time with better rates in brown box, and that's the aim and the focus of our buying teams.

Okay. Great. And then secondly, I'm a little bit confused on the performance of the general merchandise gross margin. I think the previous management has indicated that by the second half of this year, financial year, the ASP cuts that they have made would have annualized and therefore, the gross margin would have started to trend upward. And yet that doesn't seem to be following your narrative of the big box or the brown box rather rate cuts. So if you could just clarify what's happening on that.

Yes, yes. So I think it's important to note that, clearly, margin rate is always, let's say, a combination of your underlying, let's say, buys that you make in the Far East, so let's say, full price margin rate. Second element is then your clearance, the clearance, let's say, reductions, which reduces that rate, and the third element in promotions that are basically, let's say, conscious decision to reduce prices to clear few more stock.

And then there's a fourth element, which is then basically shrinkage or stock losses. And that combination will lead to a gross profit number. We've seen indeed that underlying the brown box margin rate is slowly, slowly improving. That said, the real improvements are still to come.

And obviously, we are trying to look at all opportunities to improve gross profit rate, but you can imagine that when we are taking a strategic decision to focus on reducing discontinued lines and seasonal lines, that the element of clearance in the margin rate of brown box is diluting its rate and not accretive. But it's underlying the margin brown box rate is indeed step by step improving.

Great. That's brilliant. Just one final one. There's not much commentary on store openings or prospects of -- anything you can add on that?

Yes, there's no change. That's why we didn't feel the need to disclose or we should talk about it. So we're still on track to open between 40 and 45 gross new stores this year. So it's still very much in the pipeline.

And the next questions comes from the line of Adam Cochrane from Deutsche Bank.

A couple of questions, if I can. Previously, when you outlined the EBITDA guidance, you said that the main difference between the upper and the lower end is going to be like-for-like sales performance. I can understand that Heron has changed, and I can maybe understand that you're doing a bit more price investment.

But in terms of the impact of clearance on the margin, you knew that you're going to reduce the SKU count. When did you think that, that clearance impact was going to hit the profitability? Or is the clearance just costing you more than you thought it was going to do when you gave the guidance previously?

And then on that tone, you talked about the clearance accelerating in March. Will all of it be done in this fiscal year or as we look into April of the next fiscal year, will there still be some of the clearance ongoing then? Or would you expect the majority of it to be done in this -- in Q4 in March?

And then sort of finally, my question is you're doing so many things at the same time with regards availability, SKU count, pricing. How are you able to really work out which of these initiatives is delivering the sales uplift that you're seeing? And so where do you spend more time and effort on which of the areas are having the biggest benefit?

Yes. Good question. So I think from a guidance perspective, clearly, like-for-like sales are still a very sizable impact and will have sizable impact on the outcome and the outturn of the results for the financial year. So there's no change in that understanding. And you could say with a minus 0.6% like-for-like for the quarter, we probably came out slightly below the midpoint of what we initially said.

But it's fair to say that and it's progressive insight, I think the quality of our stock and especially the amount of items that need to be discontinued was significantly larger than we anticipated. So that's why we took the decision to make those clearance investments, and they were clearly not as planned in the outlook and do not underestimate, even though it's a smaller business, Heron Foods, especially in the final quarter, had quite a sizable impact on the business.

And in the end, these are the right things to do for this company. There's only one month of January for 12 months. This is the month to clear autumn/winter stock. This is the month to clear discontinued lines that are seasonal. You could, of course, decide to keep it in your warehouse, wait for another year and then potentially bring up margin rate.

But that's not what I would like to do. I see this business, and I would like to act this business in its best interest and its best interest is to act as an owner and to make sure we do the right things long term. So that's why we decided to make those investments in conjunction with the Heron underperformance.

And you're right, we're looking at many elements of the customer proposition on your second question. But I wouldn't say we're doing many things at the same time. It's four key work streams, of which two we are trying properly in a let's say, isolated group of stores. And two, we've implemented because we felt they were the right things to do.

Pricing promotions, I would say, has been now implemented, and we're continuing to improve and strengthen, but on availability and on range rationalization, we are not, let's say, executing things without proper planning. We can actually measure the impact quite a bit of both availability and the range rationalization trials.

So just to be very clear, we are aiming to reduce range between 25% and 35% and still see a low single-digit sales uplift coming out of those range rationalization trials. And with the availability trials we've seen on those 250 lines, a double-digit sales uplift in those lines. So we will be able to actually track the contribution of those projects to our overall sales development over time. That's the way we work.

And I think this whole test and learn approach, it's quite new to be in them, but it's a way, in my view, to run this business in a better way. We've got 791 stores, soon 800 stores. So we've got 791 opportunities to learn and improve and get the estate in better shape, yes.

I'm more thinking about cutting price on certain lines and then you are changing the SKU cap, it was all how you -- I get your point about just doing the two trials in different stores. But I assume the pricing element is done across all of your store estate.

Yes, yes, it is. And we're not cutting prices for the sake of cutting prices. We're cutting prices to make sure we keep a 15% distance to the four grocers. We're making sure that we are never more expensive then the operator in this market who is more similar to us. And that is an ongoing commitment to our customers.

And if the market heats up and people become more competitive and invest more in price, we will invest more in price. And if the market is less competitive, happy days for our margin rate, but we will always do the right thing for pricing for our customers because we're a discount operator and at the premise, the essential premise to our customers is it's always great value at B&M.

And just on the first question about the clearance that you're doing in March, do you expect that all to be completed in March? Or will any carryover?

Yes, it's good question. So I would say if you look at the quarter, the start of this quarter is very much influenced by clearance of seasonal and discontinued lines out of our warehouses that we have built up over time. March is the start of clearance of the range rationalization. There will be an element of clearance of the range rationalization also going into a new financial year because the implementation of the rollout will take several months going into summer.

And the next questions come from the line of David Hughes from Shore Capital.

I just wanted to dig into kind of stock levels and working capital. So first of all, with this additional clearance that you're doing and kind of the ongoing program of SKU count, are you expecting to see any benefit from the working capital and stock levels of that and any improvement in inventory hold?

And then similarly on stock levels, I just wanted some clarity on a comment in the trading statement. You say that early results from the trials are helping improve the quality of your stock records. What kind of -- what do you mean by that? And what were the kind of challenges that you had with the stock records beforehand?

Yes, and that's a good question, David. So first of all, with less SKUs, you could say there will be less stock needed in the business, but you could also say we also want to make sure we have stock available for customers. So I think on balance, I'm not so sure it will be, let's say, a significant reduction in working capital. I think that, that said, I think it's something we need to look into as a business in terms of how we can improve and how we can work in a more efficient way, but the focus is now on range, on price, promo and availability.

In terms of the stock records, yes, it's mainly linked to a different way of working. So in the past, we had the tendency, especially in the food areas, whenever there was a gap to phase over the gap, remove the price ticket. And ultimately, that led to the significantly below market standard availability.

Any retailer would investigate when a shelf is empty, why. And the first point of call is to get your stock record in your system, count the stock of that item in your store, and if there's a discrepancy, you adjust the stock record. That discipline wasn't always there because actually, people really don't focus that much on interrogating gaps because gaps were phased over.

We are now, I think, a very disciplined process of every single store on those 250 lines checking every gap. And as a consequence, it leads to more frequent adjustments of stock records because the accuracy of stock records is driver of availability. That's the only thing we wanted to share, which, I could tell you, in my career in retail, that's retail basics. But unfortunately, it's something we haven't done disciplined in B&M.

This concludes the question-and-answer session. I will now hand back to management for closing remarks.

Yes. Thanks very much for your time, and thanks very much for your attention. And I think this concludes -- we concluded the Golden Quarter, I would say, with solid like-for-likes, but there's much more to go after, and that's the journey that we're on. Thank you very much.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.

Good morning, everybody, here in the room and also for the people who are dialing in on the webcast, and welcome to our -- to my first scheduled announcement today for our H1 results. So my name is Tjeerd, and I'm the CEO of B&M since June, and I'm here with our CFO, Mike Schmidt. And today, we'd like to give you an update on our H1 results, also the actions we're taking and of course, our ambitions for the future. So giving you an outline for today. So a couple of areas.

First of all, I'm doing introduction now, obviously, but Mike is then going over the financials, both the headline and also statutory measures. I will give an update on B&M back to B&M Basics that we launched October 7 and delighted to give you also an update on progress we're making there and then the broader plan. And in the end, confirming capital allocation framework and value creation. And of course, at the end, there's a chance for answering questions in the room and online. So reflections on my first half. So clearly, let me be very clear, it fell short of our expectations. And if you look at the half, U.K. like-for-like sales, of course, was soft, was flat. And then combined with a year-on-year gross margin decline, obviously, we didn't have a chance to offset the cost that came through in our business. And unfortunately, that, of course, affected our profitability.

I'm not happy with the outcome. And of course, that's why we launched back to B&M Basics because that's ultimately the key driver of bringing our like-for-likes back on track. We are seeing already the first implementations of back to B&M Basics, and I'll give more color on the 4 work streams shortly. general manage your expectations, the full impact of Back to B&M Basics will take about 12 to 18 months to come to fruition. And then the focus is really about getting the U.K. like-for-likes back on track.

I think we shouldn't lose sight of the fact that we're still a growing business, and we reported 4% sales growth today, opening stores both in U.K. and France, and I'll give also more color on the U.K. network and our ambitions there. A good quarter for France and a good half of France in a very competitive market and of course, competing very strongly there. The value proposition for B&M is strong and powerful. And I think getting into a more uncertain economic climate, my experience is that discount is a sector to be in, that that's where the growth opportunity is.

And finally, we are a cash-generative business. We've always been very disciplined in capital allocation, supporting very strong returns. And of course, that's still core in our model, and we're not walking away from that at all. Focusing on the team now because ultimately, with a new plan and a plan that needs execution, we need best team to support that and lead that. We're making 3 announcements today in terms of people appointments. I think the first one is a very important one for me because it is strengthening the buying and merchandising team. So we've been able to secure and hire Simon Hathway as our Group Trading Director.

He shortly also worked for Action, but he started career at Sainsbury's, worked with A.S. Watson and also at Wilco. And I can't wait to see his input and impact in the business, especially on our value for customers and our pricing and our products. We've announced, of course, effectively, Mike announced on the 20th of October, his intention to resign from B&M. And obviously, that leaves us with the vacancy, and we've been able to secure a new CFO starting an interim capacity, Helen Cowing, and she has worked in various industries, consumer services, FMCG, but also retail. She starts next Monday, and then there will be a handoff period with Mike, and then Mike will officially step down on the 1st of December, and Helen will then be appointed to the Board of B&M.

And then finally, this is not a new hire. This is a person who's been with us for the last 3 years, John Perry, very strong retail background. He currently runs our distribution center, so Director of Supply Chain. But in his career, he probably worked as much in stores as he's worked in running supply chain. And I've decided to bring both supply chain teams and the retail teams under one leader, which is John, which basically creates for me, a very solid compact management team of 4, which will be the driving engine of the business. So CEO, CFO, Training Director and Retail and Supply Chain.

And of course, on the back of the announcements, Gareth Bilton, Mike and James are leaving. And of course, we're thanking them for their commitment and wishing them well for their future. So an update then and of course, focusing on the announcement on the 20th October and then after that, of course, I'll hand over to Mike. But first of all, I would like to focus on the forecasting error, the accounting error that we disclosed last month. Just to remind all in the room and also on the webcast, the 20th of October, we made an announcement that we had a systems issue. The flow-on effect was that we incorrectly didn't recognize freight costs in our accounts. And that, of course, had a quite sizable impact on the outlook. And as a consequence, the outlook we initially gave on the 7th of October, we had to restate on the 20th of October, and we provided new guidance for the year.

This is, of course, a very disappointing event and clearly not something that's happened at B&M before. We take this very seriously. So we commissioned EY to do a review of this matter. EY has started, it's underway. The outcome is expected and the results will come out in the upcoming weeks. And then we plan to share an update of this at our scheduled Q3 results announcement, which is in January. And then in a way, linked to this, we're still very committed and it's a strong priority for us to migrate from Luxembourg to Jersey. Obviously, it will provide us more flexibility and more options for returning excess capital to shareholders. We though have decided in the light of making sure we follow all the recommendations of the third-party review, but also full oversight of the new CFO that it was more prudent to move the actual redomicile into the new calendar year. We're confident we'll complete the new calendar year and obviously, subject to excess capital being available and subject to shareholder approvals that will enable us to basically commence with share buybacks over time. So with that, I would like now to hand over to Mike, and I will then return shortly with a strategic update. Thank you very much.

Thank you, Tjeerd, and good morning, everyone. So let me take you through the financial performance for the first half. Group revenue rose by 4% to GBP 2.75 billion, driven by new store openings and good like-for-like trading in France. However, our profit performance did see adjusted EBITDA declined significantly to GBP 191 million for the half from GBP 274 million in the prior year. This was due to the limited like-for-like sales growth in the U.K., gross margin pressures, but also the cost inflation that was very much as we expected entering the year, which arose principally from increased government taxation and minimum wage increases.

Our cash conversion in the half has been strong, and our leverage ratio ended at 1.6x pre-IFRS 16 EBITDA, which is slightly above our target range of 1 to 1.5x due to the lower profits, but it is within seasonal tolerances, particularly as we stock up during the first half on our ranges for the important golden quarter trading period. So looking at group revenue progression in more detail. As mentioned, the main contributors here were the continued expansion of our store estate and also a strong performance from B&M France.

We opened 31 new stores across the group during the half on a gross basis, which is 15 net new stores. As you can see on the bottom right-hand chart, for B&M U.K., we opened 23 gross new stores and 9 net after relocations and closures. So that puts us on track in the U.K. in B&M U.K. to open between 40 to 45 new U.K. stores on a gross basis in the 2026 financial year, more on which Gerard will come on to later. In the U.K., our like-for-like sales were broadly flat, up 10 bps or so year-on-year with a positive performance in general merchandise that was offset by a decline in FMCG.

Within the half, the timing of Easter and early good weather boosted our outdoor ranges in April. We then saw weaker sales in May as that trend reversed, following which we saw a progressive moderation in our like-for-like sales declines in June and each period following during the second quarter. That was helped by a return towards higher average value products in general merchandise and some out bridge selling price inflation in FMCG. B&M France delivered double-digit revenue growth from new stores and good like-for-like sales growth in a competitive and challenging marketplace. We did see a noticeable step-up from the first quarter into the second quarter, and I think that particularly reflected good underlying trading, but also a base effect of Q2 last year, where we did see some limited disruption while we implemented our new warehouse management system.

Turning to gross profit and margin of B&M U.K., which is important to note as part of our overall profit drivers. Gross profit of GBP 794 million of B&M U.K. is down slightly from the prior year, which reflects the limited revenue growth rate we saw and also the 3 negative factors affecting the U.K. trading gross margin percentages shown on the slide. So firstly, in terms of the impacts we saw, we saw lower bought-in margins in general merchandise, discussed this previously as we implemented lower price points. Secondly, we did see the price investment that we made in the latter part of the first half in our key FMCG lines taking effect. And finally, to a more limited extent, there was an increase in markdowns late in the first half as we started to reduce range counts as part of our back to B&M basics [indiscernible]. We did benefit overall from a positive mix effect towards our higher-margin general merchandise categories, but this tailwind was actually less prominent than we saw exiting the second half last year.

So net new stores and the small contribution from B&M like-for-like growth roughly offset the gross profit impact of that overall margin decline. Taking a closer look at costs of B&M U.K. during the half. Firstly, of course, there are the costs and preopening costs of new stores. These are as we expected. I should note head on that it isn't correct to simply compare the gross profit of the new stores that have opened to the new store operating and preopening costs -- very much as usual, there are moving parts from year-on-year phasing in different store types and sizes. And as Chard will come on to say, the new stores that we have opened continue to perform as very much as we would expect and are delivering payback on average in about a year.

As we previously communicated with our full year results back in June, we do face higher staff costs this financial year as a result of the statutory rise in national minimum wage and higher national insurance charges. So together, these -- these incremental costs amounted to GBP 30 million for the group as a whole, including Heron. And within B&M U.K., the total staff cost increases, including those statutory pressures were held down to GBP 24 million, which reflects ongoing mitigating actions being taken to offset the statutory pressures and also our routine annual pay increases.

The new extended producer responsibility tax added a further GBP 14 million of costs in the half. And it's important to recognize that GBP 14 million reflects the full annual cost, and that needs to be expensed in the first half due to the accounting standards approach. Other costs here include investment in our distribution center infrastructure, IT, new store openings and general cost inflation across our operations, net of mitigations. Actually, when you look at the other bar relative to the size of our infrastructure, you can see that in our business overall, other than through taxation of employment packaging and minimum wages, there's very minimal levels of inflation feeding through.

So bringing all of these elements together, the profit outturn for B&M U.K. reflects the impact of the revenue growth from new stores and like-for-like sales. providing an offset for lower gross margin rates, but not for the higher statutory staff and other costs despite the work on mitigations. This is reflected in the adjusted EBITDA margin outturn for the half of B&M U.K. of 7.7% versus 11.3% in the first half last year. I flag here that the EPR charge of GBP 14 million will not repeat in the second half, as I said before.

So looking ahead, I'd emphasize that we continue to see like-for-like sales as the primary determinant of margin outcome. Important to recognize that point. The margin is the outcome. It's not the threshold that we work to as a business. That being said, the actions that we're taking under our back to B&M basics plan are focused on restoring sustainable U.K. like-for-like growth, and we expect those actions will enable our U.K. EBITDA margin to recover and stabilize at low double-digit levels in the medium term. So looking at the group overall, the decline in group adjusted EBITDA, as we've discussed, is largely as a result of the disappointing performance in B&M U.K.

France's operational performance was pleasing, growing both from new stores and like-for-likes with a small decline in margin rate overall relative to prior years, reflecting the larger infrastructure in place for its future growth. Heron shows a similar trend to B&M U.K. with the operating leverage effect of like-for-like performance and cost inflation pressuring its margin. Despite the pressure on profits, we did generate healthy free cash flow of GBP 51 million during the period. This was achieved through disciplined working capital management as always, and is despite having invested GBP 74 million in CapEx in the half, including investing for growth with GBP 32 million spent on new store openings and GBP 13 million on infrastructure, having, in addition, also incurred GBP 7 million on one-off bid out for Elsan Airport.

We also did spend GBP 22 million within that number on maintenance, which is very much in line with the prior year. So let me sum up before handing back to Tjeerd. Overall, we've seen a challenging half with low like-for-like growth in B&M U.K. and the decline in the gross margin rates and also managing the sizable cost inflation from statutory changes to minimum wage, national insurance and EPR taxation. However, France and new U.K. stores continue to perform well, and our cash conversion remains a core strength of our business. The back to B&M basics plan is underway, and we remain focused on restoring sustainable like-for-like growth in B&M U.K. We have prudent leverage and a strong liquidity position and long-dated maturities across our credit instruments, the first refinancing of which does not fall due until the end of 2028. And so we entered the second half with our gross margin trajectory showing some signs of improvement. Trading in the early third quarter has been at the lower end of our like-for-like sales guidance range of low single-digit negative to low single-digit positive percentage for the second half. And with the majority of our critical golden quarter still ahead of us, we are reiterating our adjusted EBITDA guidance of between GBP 470 million to GBP 520 million for the financial year.

So with that, let me hand back to Tjeerd.

Thanks, Mike. So let's move to the strategic priorities and the progress we're making and mainly focusing on the execution. So let's go back to October, I think October 7, we shared this. And my first task after becoming CEO in June was focusing on diagnostic of the business. So where was execution good and where was execution not in a great place. And we basically focused on 4 areas. So sharpening prices, promotions, ranges and improving on-shelf availability. And if you would bring that actually back into a framework, we call this back to B&M basics. And it's very much focusing on getting back to the original value proposition of B&M that made us successful in the past and making sure we were able to grow. It is action focused and actually, some of it is already underway, and I'll give some more color later. It's not just about doing the basics better. It's also going back to growth in the longer term.

There's a second and a third phase that basically is about deepening our foundations more data, more customer insights and then also looking at a faster growth path once we have restored like-for-likes in the U.K. But the U.K. and its value proposition and its like-for-likes is now our focus, next 12 to 18 months. And again, as Michael alluded to, with returning positive like-for-likes in the U.K., we also believe that the U.K. EBITDA margin as an outcome should go back to low double-digit levels in the medium term.

So just to put things in perspective in our earnings flywheel. We also I think we shared this on the 7th of October, just to give some more, let's say, background to this. Fundamentally, I think it's a really strong business. And the teams that we have and also the strengthening of that the announcement today in combination with a compelling brand, a local store model really allows for great outcomes. And again, serving 5 million -- more than 5 million customers visits a week, I think, is testament to this. Our direct sourcing setup with multilines in the Far East and very cost-efficient operations allows us to really offer great value every day for customers. And in principle, the targeted FMCG offer that needs a bit of sharpening and the broad GM range really helps us to deliver great value for customers.

The skilled footprint, of course, rationalizing costs and growing in the U.K. and France. But also, I think today, you'll hear that we are confirming again the growth potential we see in the U.K. We strongly believe we can continue to recover and grow. And then there's an underpin of a very financial disciplined approach to space. And I think today also given you some insight in the quality of the estate with not only fast paybacks, but also a very healthy estate across the board.

This hasn't changed fundamentally in terms of its structure. What has changed though is the execution where we've drifted, and that's exactly what we're addressing with the back to B&M basics. So -- and that ultimately is what I like to share with you after this. So back to B&M Basics is the first phase, 12 to 18 months, price, product range availability. Second phase is deepening our foundations is using customer insights at B&M U.K., we kept things really simple and lean, but I think there's also a chance for us to use analytics a bit more than we could. And that's what we're doing.

And I'll give you a bit of a flavor of how we're using insights to improve our store locations and the offer to our customers. And then finally, we will also address and come to, let's say, a decision on e-commerce, loyalty and private label. And that, of course, is the next phase of our plan. But let's bring it back to the basics, back to B&M basics. Just want to refresh your memory. So on price, we've always communicated 15% cheaper, 15% better value than main supermarkets on a total basket level. What has changed since August, September time is that we basically are now reviewing not just on a total basket, but also on a line-by-line basis.

Pricing is an ever-going and always ongoing and always-on process. But I can tell you, since we've started 35% of the key items that matter most to customers, we've changed and reduced prices. We have a ratio that we're looking very carefully, hell ratio higher, equal lower versus our main competitors, and we use a lot of internal KPIs to monitor this. We are going to also look carefully at other peers. So currently, we're focusing on the big supermarkets and the operator closest to us in this market, but we're also looking at the discount supermarkets and other discount operators just to make sure we are -- we've got the best pricing in the market for our customers. And over time, we'll also add general merchandise ranges to our FMCG.

So really making sure we provide great value all across the store. In terms of promo, so we had always manager specials. The inception of manager specials from the Black Bu days was a great item, which was bought for a short period was decided by the manager to put on display. That became a bit static, and we're bringing back the more dynamic customer relevant merchandising of promos. We've already started addressing this from October. So -- and actually already during the summer, we brought back-to-school to the front, Halloween and now Christmas. We are going to also use analytics and promotional review tools to really find out what promotions and which items really grow the category and really impact and increase basket penetration. So to really basically have an ongoing improvement in our promotions, but that's already starting and on the way.

Moving on to range. I think we shared that we had quite a significant increase in our range. And if you think about discount, it's all about discount in price, time and complexity, and we haven't really made shopping easy at B&M. But the flip side of having a larger range is that it's more costful and more difficult to operate in terms of stores and DCs. And ultimately, with a larger range, you can't really get your economies of buying, economies of sourcing, so you lose out on value.

So we have started now with testing an added range in 3 categories. So we have 3 categories live in 22 stores where we've reduced the range about 35% in wine, in snacks and crisps and in rice and pasta. We're testing the method that we have used to apply the range reductions. We're testing the method for stores to remove those lines, and then we're now assessing how they're performing. And we will use those insights to inform us how to then proceed for the next phase. And mind you, just in FMCG, there are 200 subcategories. So 3 is just a start.

Then moving on availability. So we've never really had a clear read of availability because we don't have an online channel. If you're an online retailer and you do store-based picking, you've got a very clear customer availability measure. We don't do gap scans. So we didn't really have a good insight. We actually, through analyzing items in stock, but no sales, we came to an 86% availability for B&M, which is far below best practice on those lines. We put in place now in 11 stores a trial to merchandise the best-selling FMCG items, about 240 lines in a different way. with the aim to actually roll this out to all stores and then over time, with the aim to roll it out to all ranges in FMCG.

And we're also trying to see if we can actually skip a number of generations of gap management or availability management. So we're not going to do the classical gap scanning that every retailer in this country is doing. We're moving straight to an AI tool, which alerts the store manager where in the store of the thousands of lines we sell, there will be a gap which he needs to correct the stock record. So availability can straightaway improve without having to spend a lot of time in non-value-add work. So moving on to the next slide. We're also deepening our foundations, and that's the next phase. And that's ultimately using customer insights for making better and informed decisions. And this is Phase 2.

And in Phase 2, it's all about insights. It's looking at formats. So basically the stores. It's looking at locations, -- it's looking at simplifying ways of working for stores. And then finally, over time, we also would like to update our store concept and reflecting an improved and a better B&M store for customers. And we've already started, let's say, laying the foundation for Phase 2. So what we've done, we've analyzed transaction data from every single store in the U.K. We've taken external data like local competition, demographic income levels. And then we came actually to the conclusion that there are 6 groups of stores with very similar patterns that actually you could cluster in 6 different ways. And -- the upside here is you could actually then start ranging those stores in a different way.

You could have different marketing programs for those stores. And actually also for your location strategy, you could straight away bring the best possible range to that local location. Historically, we've not really tailored. Historically, we've always kept range based on size and space and never tailored to the local customer. But if you look at the data, customers shop very, very different across the 6 clusters. This is the next phase. So we will use the insights to start piloting adapted ranges, different layouts, different FMCG, GM space allocation, different range of locations across the 6 clusters. My experience in other retailers is that normally gives you a good sales uplift, which then gives a nice perspective for over time, updating the estate and becoming more tailored and relevant for local customers.

Talking about the estate, a very strong U.K. brand presence. So we closed the H1 with 786 sites across the U.K. We're also now providing some insight and actually how those stores are performing. I must say the screen, I'm not sure if you can see the Xs, but the 4 dots on the bottom basically have a negative contribution and every other dot above is positive, which means 99.5% of all stores in B&M U.K. have a positive contribution.

I can tell you, I've not worked for any retailer with that health of an estate, which I think is reflecting, I think, the great work which has been done in the past on being really, really strict with capital allocation and really only opening stores where you can. If you would now look at the opportunity going forward and if you would look at some more insights, in our state. We actually are confirming today because we have -- I've had a question quite a few times since I started, confirming the 1,200 opportunity across the U.K.

So we use a third-party location analytics company, and we've asked them to do a complete review of our estate. They've also now been able to actually add credit card and debit card data to their analytics, which means we can actually see where customers live in certain catchments. We've updated the model with the stores we've opened in the last 2 years, and we actually came with an opportunity for about 1,200 stores again over time. We're also going to use the updated model with better insights to even make better decisions going forward.

But that said, if you look at the latest openings, payback is still on average 12 months, which I think is very, very solid. And new stores are opened with accretive contribution margins, and they are accretive to company margins. So opening stores in the U.K., there's still a very good growth pipeline. And also, we see good, let's say, accretion of company margins with that. We're also breaking down the actual number because we have had 45 store openings last year, more or less. We're guiding to 40 to 45 store openings this year, and we're on track to deliver between 40 and 45. But I think it's important to note that underlying this number basically consists of an organic site acquisition pipeline of about 25 to 35 stores, so basically being a very considered approach with landlords, with shopping center owners, with developers to build a pipeline of stores, which normally takes multiple years to open.

But then every single year, we've also seen or at least in recent years, we've seen distressed opportunities being offered to us, which, of course, we have seized when they made sense economically and financially. And the combination of the 2 is the 40 to 45 stores, but underlying is 25 to 35 organic and then 10 to 15 opportunities. And clearly, you can't plan for opportunistic sites being offered to us. But clearly, that's been part of the pipeline.

Then moving on to value creation. How can we actually create shareholder value. Ultimately, our value creation is designed to support shareholder returns. And clearly, standing here, I can honestly say that, of course, performance hasn't been where we want to be and the actual result of this is not where it needs to be. But if you would stand back, I think we still have significant opportunity to grow in both the U.K. and France with healthy margins.

We believe that with returning of like-for-like -- sustainable like-for-likes back to the U.K., we can bring our EBITDA margin in the U.K. back to low double-digit margins as an outcome. And if you could combine that with the compelling space growth and the very efficient way of using capital, so the very solid return on capital employed, we believe over time, we were able to return excess cash back to shareholders. There's a sequence here, which is basically our capital allocation principle, which I would like to provide more color on the next slide.

So we are basically confirming our capital allocation framework going forward. I think the starting point is our leverage. So I think that's important to note. So we really believe the fundamental of this business is a pre-IFRS 16 lease leverage of 1 to 1.5 which we believe is a prudent number to have. There's also, of course, seasonal swings. Currently, in the half, we finished at 1.6, but that's well within the tolerance of a seasonal swing, but the focus is 1 to 1.5. And then if you would prioritize and rank the 4 drivers of capital allocation, I think the first one and will always remain is investing in our business. So making sure we have a good pipeline of stores coming through and maintaining those stores in good shape.

Second one is the dividend payout between 40% and 50%. And that's also what we have confirmed with the interim dividend payout. Obviously, M&A is on this chart, but to be very clear that it's not actively -- we're not actively looking at M&A opportunities. But clearly, when something would arise, we would, of course, seriously look at it. But right now, this is not our focus. And then, of course, when we have excess capital, we can return this to shareholders.

In the past, we had only one tool, as you know very well, so special dividends. And we aim to conclude our redomicile to Jersey, which will give us the chance subject to shareholder approval to start buybacks. And the Board has decided that actually the current preferred option in the event there's excess capital available and the shareholder approval is basically going to the share buybacks. So then concluding and summarizing, I think we're responding to a half that was falling short of our expectations. We have launched back to [indiscernible] Basics. Some of it is already underway and new pricing promo. Some of it is now being tested, which means in products and availability.

To lead the plan, the execution of the plan, we're strengthening the team. So 3 strong announcements today in terms of appointments, 2 external hires and 1 promotion from within. We're already starting to work on Phase 2, mainly on the 4 month piece. We're using customer insights to improve our offer to local customers. And I'm confident that will give us even better customer response to our offer in the local markets. And I think we could be -- even though the results are falling short of our expectations, I think the perspective is still one of optimism.

We have a very healthy estate, and we have a significant white space opportunity. We're confirming here today. So we can still grow the store count with about 50% in the U.K. through 1,200 stores. And also, we see in a market that is also highly competitive, our French business doing well with also plenty of opportunities to grow in that market. So with that, I would like to conclude and hand over the floor here to questions, but also mindful of people on the webcast. And I think, Andrew, James, you're also making sure that people who are not in the room, but still have listened are able to ask their questions. So happy to move over to Q&A. Thank you very much.

Fintan Ryan here from Goodbody. Two questions from me, please. Firstly, on the longer term, you reiterated the 1,200 store count for the U.K. Is it fair to say that maybe the pace of achieving that target is going to be slightly slower in the next sort of 2, 3 years while you're implementing back to B&M basics plan? And related to that, is there -- is it fair to say as well as you sort of invest behind greater data analytics capabilities and maybe you need to refresh the stores, actually CapEx might pick up from current levels? And like what do you see as sort of the medium-term CapEx for the business?

And then just finally, I know it's very short term, but could you give a sense of color of what are the moving parts around the sort of Q3 trading to date, GM versus FMCG and just sort of what your hopes for Christmas execution?

Yes. So first question. So clearly, we normally don't guide multiyear store expansion targets. I think we historically guided within a year. And I think the exceptional guidance we gave 2 years ago on the 40 to 45 is on the back of significant amount of stores we were able to take over from a Wilco, state. So I think we've been very transparent today of confirming 40 to 45. I think we've also been very transparent to show the breakdown of our store expansion. Clearly, I can't predict distressed opportunities. But I think the breakdown is what we show today is what you should expect from us.

We will seize every single opportunity that's offered to us, and we'll keep working on a good organic pipeline. I think in terms of capital expenditure on refreshing the estate, clearly, our growth of D&M has been done predominantly in the last 10 years. So many of our stores are in good shape and actual cost of fit-out is pretty low. So if you would be sitting here -- if I would be sitting here in the Chair of Supermarket, Chief Exec, refreshing supermarkets is very expensive. Our stores have very low fit-out cost. Clearly, if you would update stores with an improved roof, so you can spray paint it. If you would remove some of the tiles of our vinyl floors. If you would improve the speaker system, you bring some more technology to our checkouts.

In some stores where it's really warm, you put air conditioning in, you still talk about a relatively low expense for a store, but a great improvement for customers. I think every single pound we invest in our business goes through a rigorous investment proposal. If these trials will turn out to be very helpful and the returns are there, clearly, we'll then, of course, not hesitate to invest. But for now, we're just trialing and learning. In terms of Golden quarter trading, we still have the vast majority of the quarter ahead of us. I think we just thought it was helpful to be transparent. We've guided to a low single digit at the bottom of the range and high single digit -- sorry, positive low single digit, the high end of the range and negative low single digit low end of the range. And we're just sharing today that we started at the low end of guidance in terms of like-for-like.

The only thing we can say, and I think we're not the only one saying this, uncertainty doesn't really help in terms of consumer confidence and more certainty would be helpful. That said, we need to fix our own opportunities and trade harder. But again, we started -- we only have had a very small portion of the golden quarter. That trading was at the lower end of our expectations. There's still a significant time ahead of us. I think our Cram Christmas ranges are good. I wasn't here last year, but I've asked many, many of our store colleagues how they look at our Christmas ranges. And I get consistent feedback that the Christmas ranges this year are really strong. And early trading of Christmas ranges, I'm talking Christmas category has been very solid. So it's a good perspective. That said, we started [indiscernible] quarter slow.

Ben Hunt from Panmure Liberum. Just on the range rationalization, it seems to me to be a sort of bit of a juggling act. And just sort of wondering what sort of drag should we expect from the potential for smaller baskets? And obviously, as you clear out those ranges, there's going to be an element of dilution -- how old is your stock now? How confident you are and how clean is really?

Yes. So I'll talk about the commercial implication. -- you might talk about the age of stock. So the reason we're doing the 3 trials is actually making sure that when we remove products, it doesn't lead to lower sales. Actually, the aim is to increase sales. And that's what I've seen consistently with other retailers where I work. The moment you bring clarity on shelf, you make it easier to shop and you actually bring out the best-selling lines and you give them the right space, you restore value credentials, you restore value perception, but also practically, you give more space to the best sellers. So let me give you an example.

Our coffee range, I think we have got more coffee SKUs than Tesco has at the moment, which is interesting. But our best-selling range selling in the store, I was in 38 items per week store had only 2 facings -- so we can't even cover the best-selling lines. So the target of those trials is actually doing more sales, otherwise, we wouldn't do it. And then having the flow-on effect of much simpler execution and the DCs, much simpler execution in our stores. And the other benefit that comes with a tighter range is that you actually have the flexibility then to go for shortcut of products, parallel products, traded products. So when it's gone, it's gone because you've got the capacity to do those things. There was, I think, a stronghold of B&M, and we can bring that back. So in terms of age of stock.

Yes. Look, I think if you look at the stock picture overall, you can see it's very consistent relative to sales year-on-year. We provide for stock where it's not moving or it's it's being sold at lower prices and that provisioning policy has remained wholly consistent. Ultimately, the point about our stock model is that it's all designed around rapid turn of stock, and that's consistently what we see. I think what we're talking about here is a reduction in the number of ranges that we have. I think to the extent that we pursue that, we choose to do that, we're talking about that, that's because there's a perceived financial benefit of doing that overall. And I think that will be just part of the consideration as part of the picture as the full year develops.

Yes. And it's ultimately restoring the discipline we used to have is one in, one out. So I think we're going there.

Okay. And just maybe one more, if I can. You talked about maybe flexing format stores and space allocation. How should we think about the continued rollout in the U.K.? Will there be changes in the size of the stores going forward or in the locations or...

I think it's fair to say that our bread and butter is a 25,000 square feet retail park out of town store with a 6,000 to 8,000 square feet garden center. I think then we are at our best. And we are at our best because we can offer the breadth of GM, we can offer the breadth of FMCG and we cater to a quite homogeneous customer mission. I think where there's opportunities in town center stores. Our format is not really yet optimized for that because the customer mission is very different. So I think what I'm trying to share on the format work we're now doing, the emerging insights are that we should really have a bit of a different offering in town center stores.

It actually doesn't change our expansion target, doesn't change our expansion, let's say, goals because ultimately, we've seen both town center stores and out of town stores performing well with very good margins. It just means that we will be operating those stores, I think, with better results if we are tailoring more to the customer.

Andy Wade at Jefferies. First one, you obviously disclosed them current trading around running towards the lower end of your range and FMCG underperforming that. Just interested as to what impact do you think the pricing changes that you've had so far are having? Is it having the impact you hoped it would have? Is it going to take longer to come through because it needs repeat shops? First a bit of color on that.

Yes. It's very difficult to actually share it. I see that my experience normally takes about 6 months for customers to really notice a change in price. We have mainly addressed not so much a total basket because the total basket, we were about 15% cheaper than the 4 main grocers. We've mainly addressed anomalies, so where lines were completely not in line with our policy on a line-by-line basis. I think we've shared in the last update that the actual financial impact for the investment we had to make was actually not very significant, but it's mainly making sure we're really competitive on those lines. My experience again is price perception, value perception builds over time. And to the extent that we have changed our prices, I wouldn't expect that actually that has now, say, a deflationary impact in our overall sales.

You mentioned price perception, it takes a while to improve/recover. Why then -- certainly, the team, Mike and the rest of the team have talked to over an extended period, price perception not having really declined. Why how do we square the circle there? If it hasn't declined and like-for-likes have been negative, why is...

I think it's fair to say that I think we haven't really applied as a company, customer insights to the best possible way. I think there's various pieces of research that indicate that our overall value perception is still solid. But if you would zoom into FMCG, I think that's where we have slipped. And actually, you don't need a lot of research. I think our store teams recognize that we were not sharp enough on certain items. So I think it is very obvious to me that if you are -- when your closest competitor and your target is to be the same price and in food, your 65% of the lines are more expensive, even if it's only 2 or 5p, that builds up over time in terms of negative customer perception. And that's what we have addressed.

Okay. And then finally, just looking at the 4 elements you sort of talked about price, as you just said, it is pennies in some cases, you're investing range where you're slimming it. I appreciate your examples there where it can increase sales, but as often range increases as a driver of -- can be a driver of revenue.

Not In a discount environment. And then availability, which had increased at times. I'm sort of interested as to what drives your confidence that those measures are going to get you from a sort of minus 3% run rate to a plus 3 run rate. It seems like an awful big swing.

I think the run rate in the half was flat. Clearly, softer trading...

Longer term and current.

No, it's a good point. I think retail is about the total proposition. And there is not really one silver bullet because if it was one silver bullet, it would be very easy to run shops. I think it's investing in price. And again, as I said before, price is ongoing. So every single week, every single day, we check our prices and we correct and we adjust. On range, that's the biggest, let's say, that will have the biggest impact over time because I can tell you, if you've got a really sharp range, it's really clear to shop, value is really clear. We're able to merchandise your best lines in a confident way. You don't need one item extra from the basket to have a significant increase of sales.

I think our promotions were enormously static and actually the first 6 days of all our stores didn't really drive incremental traffic. So we're addressing that and getting better at it. And availability, if on your best-selling fast-moving consumer goods lines, the lines that actually customers buy most, you have such an enormous gap in products available. The combination of the 4 is my strong conviction we will bring them like positive like-for-likes back. And you only need to say if every single customer pick up extra line, you already smashed that target massively. Clearly, it's very easy to say. But it's a combination of the 4.

If you would stand back, if we would be looking -- if I would be looking at a business that had a massive transaction decline, we would have a very different problem. It is a basket decline. So our transactions have more or less held up. It's the basket where we've lost it, which means customers are still shopping with us. Customers are still coming back to B&M. They're just not buying the same level they did in the past.

Jonathan Pritchard, Peel Hunt. Just labor the point on reduction. I mean, to be honest, I was stuck myself when I saw that 13,000 was the starting point to get to 16,500 was way above what I thought it was. But have you got a number in mind for the ideal number of ranges in there? I know you're doing a lot of data analytics at the moment. And then just on the point on perception, I mean how do you speed that up? How are you intending to communicate what you're doing? And I mean that in store, but also out of store and marketing, et cetera?

Yes. So in terms of range count, I think I quoted a number of 35% reduction in the 3 pilots. I think that's a good starting point. which basically will bring us back to the level where we were about 2, 2.5 years ago. I think it actually goes hand in not just with active line reduction, but it's also a more disciplined end-of-season clearance, which we're strengthening as we speak that will ultimately help reducing range also on our shop floor, which I think is the right thing to do. In terms of your other question, so on...

Communication [indiscernible].

So in terms of communication, so there's obvious ways how to communicate value to customers. And I think we have a chance to actually do one very simple thing in a much better way. If you would walk into a B&M and if you would look at a shelf edge label, which is a bit larger, so we call it a price marker, we would never ever communicate the recommended retail price from manufacturer, we never communicate value. That's a fundamental way to communicate value to customers. Nobody knows if Kellog's 219 with us or somewhere else. That is something we're going to implement, obviously as well.

We have always run a very lean model in terms of marketing and advertising, which I think is really solid. We have a very large social media fan base, which we're leveraging. I think the moment we have our range reduced, we will then strengthen our communication on the lines that matter most. We'll communicate much more the actual value, the saving that customers are making. That's really the way to drive value perception. I think we've been very restrained in doing so.

It's Richard Chamberlain, RBC. Just a question on, I guess, on-shelf availability and labor hours. because my impression was under the -- in recent years that there seems to have been a big drive to optimize on-shelf availability. So I'm surprised it's so low on your analysis. But I wondered if there's an opportunity actually to reduce labor hours because it feels like maybe availability in stock would still be pretty good, but maybe the shelves don't need to be 100% stocked all the time. So I'm just wondering what your thoughts are on that or actually whether they need to go up to get that availability metric better.

There's a couple of elements in there, which I think is good to reflect on. So I think we've always had good stock levels. So if you look at our stock levels in terms of days stock on hand and working capital, I think we have significant stock in our business. But as always, with retail, you probably don't have the right stock in your stores. And I think the process that was executed until, let's say, summer this year is a very, very strong focus on making sure that every single shelf is properly phased up which means no gaps. So it looks pretty. But if I now go one level deeper, what actually happens is an item runs out, there's no stock in the backroom. There's a shelf-edge label with price on it. Then you phase over the adjacent item.

But clearly, shelfish label and item don't match. So people move to shelf label and throw it in the bin. And then there's a stock record issue with that item, so the item actually is 0 stock or there's in a system stock, but actually there's no stock in the store, it will not trigger a delivery from a DC. So the item will be lost and will not come back in our range. That's a consequence of phasing out and making shelves look pretty. And that's the reason why availability of the right lines is relatively low at B&M. So the way to do this, of course, is, a, make sure your stock records are accurate; b, when there's a gap, leave the gap, it is what it is, and then make sure that the product comes back.

In terms of hours in stores, if you would look at the complexity that comes with increasing stock count, SKU count from 13,000 to 16,500 and if you would multiply that with the amount of products that you need to order that you have to get in your warehouse that you have to replenish on shelf, the amount of pick locations you have in the DC, I think there will be a flow-through effect from simplifying range into also simplifying store operations. And that's why in the second phase of our plan, simplifying store operations is very much in scope with the aim indeed to reduce hours of non-value-add work but to reinvest them in areas which matter most, which is customer service, which is checkouts to make sure customers could go through the deal as soon as they can, making sure our prices are correct, there's price integrity. So I think there's areas in B&M we can reinvest those [indiscernible].

Okay. Great. And then on the, I suppose, point about sort of making the stores more appealing to customers to come in and maybe improve their basket sizes again. What are going to be the key drivers of that? I mean you talked about price cuts. I think we were talking about just under 2% before. But presumably, that's an average. I'm presuming that's going to be much more in certain areas to have that impact on customer perception. It's going to be that along with promo signage, all of that stuff -- it's actually going to make people feel there is slightly more appealing want to spend more.

Yes. So I think there's -- my experience is that there's always 3 areas if you want to improve the performance in the store and if you invest money in it. So you refresh the store, so you invest in fixturing and you make sure that the walls are painted and the ceiling is great and the floor is great and you got a system that works and checkouts work. But then you need to offer range because just updating a store and you don't change the range, you don't get a better outcome. That's why in tandem, we're actually doing the work on clustering because that means you bring new categories to the store that customers haven't seen before, and that drives incremental sales. And the third one is then you also invest in training for your store. So you give them tools and technology to make their work do better. And if you do all 3, you get the best possible outcome of a refresh. And that's why we're building the plan as we're building it. So it's you have to improve ranges or change ranges. You have to invest in store, let's say, hardware and then you have to make sure your team is better equipped.

Kate Calvert from Investec. Just 2 questions from me. As you start to tailor your formats more to the sort of 6 clusters, how do you see the space allocation changing between GM and FMCG?

Yes. We're very early days with that piece of work. But what you see is the 2 of the 6 are town center clusters. And there, we see a significant share of FMCG, which is not really reflected in our layouts. But also in some of the other clusters, we see certain customer groups not being served properly. So there's by cluster, very different space layout and range layouts. And that's what we're going to test in the new year.

Okay. And my second question is just obviously, in your short-term strategy, it's very focused on what the customer sees. And you have mentioned there's an opportunity in the operations. Are you happy with the way the supply chain works. So therefore, the operational bit is really about the full labor hours?

It's a good question. So I think if you look at the way B&M supply chain is designed, it's very cost efficient. So we're picking in a very optimal way for the DC, and we're having a very high fill of our trucks. If you look at the amount of deliveries per week, I think it's super efficient. So I think we've really optimized our current supply chain. We're now commissioning Elsman port, which basically centralizes the inflow of all of the Far East general merchandise containers to centralize in one way because depeelletizing a container with Far East products is a very different skill set from changing, I say, unloading a pellet of FMCG product from British supplier. So we are concentrating that will actually give us more flexibility to better allocate stock, but also lower cost of the pelletizing that general merchandise product.

The reason John Perry takes over both is I think there's a chance to actually improve the focus on helping stores better in our logistics. So to give you an example, currently, we pick in the best possible way for the DC and our pellets come mixed. But that means at the store, it could be that in a pellet, there's items on the beginning of the store in the back end of the store. And then at store level, you need to start dividing the pellets and need to regroup them. Most retailers would have already picked the pellet in line with the layout of the store. I think that's an opportunity for B&M to do so that you're helping the stores in a better way. But if you look at stand-alone, I think our supply chain network is very efficient and very cost effective.

A number of questions online, and thank you for those. Two first from Wayne Brown at Liberum, both on Phase II objectives, one on private label, one on loyalty. For Tjeerd, in terms of private label, what's your thinking there in terms of the value proposition? And why is that a Phase II consideration not earlier given the current focus on the value proposition? Secondly, on loyalty, any early thoughts in terms of what B&M may be trying to achieve there in the context of thinking around customer segmentation and gathering data?

Yes. I think private label is basically a catchall for an entry price point for customers to find great value. If you would go back to the beginning of B&M, the origin of B&M, it was big brands, big savings, but there was no Aldi, there was no little. So ultimately, people are used to buying the big brands, and there were some private label opportunities. I think the 2 German discounters have completely reset value expectations in certain categories and certain categories are just dominated by their price points. Take an example of Kellogg's Corn Flakes, where the 450,000 Kelloggs packet is 219 at us, B&M and then everybody sells an 85 to 89p Aldi fighter in their stores. So even if we would reduce the cornflakes product to 175, we would still be double the price of the [indiscernible] product.

So I think over time, I think there's an opportunity for us to look also at entry price. It doesn't necessarily need to be private label. It could also be a secondary or tertiary brand. It's more about the architecture of our range that we are basically providing choice for customers. That's what we're looking into. In terms of loyalty, most retailers, I think every single retailer I worked before B&M had a loyalty offering, either a classic point system or a more gamified system with vouchers and spend stretches. I think ultimately, it's what you do with the data and what you do with optimizing that relationship with your customer. I think there's become an expectation, I think, with most customers now that there's an offering, and that's why we're seriously looking into it.

But you can do it in much smarter ways much more cost-efficient ways than the old days of [indiscernible] point with points on the balance sheet and all that nice complexity that we used to have that's no longer needed. So you can actually do it in a much smarter way where you help suppliers and help their sales marketing funds to reach our consumers and actually combine their investment in brands with our reach out to customers in, let's say, a more exciting way and then a loyalty scheme would make sense. But again, we're looking into it. It's no decision, but I think customers would expect probably over time, B&M also to have such an offering. So that's why it's on our road map to make a decision on that.

Just one other question online around cost and number, but let me summarize 2 for Mike. Firstly, how is the company mitigating those increases in statutory costs and other costs that you've indicated today? And secondly, other retailers are facing the same and taking decision to pass those costs on. What's your approach?

Yes. So I think the culture of B&M is about cost efficiency and about seeking to mitigate where possible. And ultimately, it's about finding ways in stores to reduce the number of hours being spent to carry out each of the tasks. I think Chur has talked about some of the things we can explore in looking at the supply chain and retail operations integration. But actually, the actions that we're seeing come through in the first half are the ones that we planned in probably sort of 6, 12 months ago as well in anticipation of these costs coming through. So they would be things like improving the design of shelf-ready packaging, thinking about the ranges that we have and how we display the ranges in stores, thinking about the commercial churn and the in-store activities and making sure that's all as efficient as possible.

And I think all of those changes do add up to a large amount. And I think touched on the fact that there'll be more opportunities in mind as we look about integration between retail and supply chain. In terms of passing cost increases on to customers, ultimately, I think the message that I think we've been delivering as a business is that we recognize price is absolutely paramount for customers, and we're going to make sure that our price position is at the right point for customers, and that's what we've been doing over the first 6 months of the year. And clearly, we do watch and we do track with data with insight as to where those price points are at any moment in time, and it's a daily, weekly, monthly process.

David Hughes from Shore Capital. A couple from me. Firstly, on the store rollout plan, obviously, the net new stores was kind of a fair bit lower than the gross stores. How would you expect that to play out in the second half? And what's driving that? Is it store closures? Or is it the case that it's relocations with the new stores? And then secondly, on Heron Foods, I was wondering if you could give a bit more color on the strategy there because obviously, it's slightly different from the rest of the business.

Yes. So -- as you look at the first half, I think what we saw in B&M U.K. was 14 reductions, which when you've broken down the 7 closures, 7 relocations. So the 7 relocations we sort of touched on before is a new store, potentially sort of better location, larger store, better customer proposition coming through that we think looks attractive financially. And so that was driving part of that net number. And sort of 7 closures, which is all about the discipline about where we've got our capital employed in the business. I think the -- as we look at the second half, we anticipate that there will be fewer relocations and closures based on what we can see today. And I think that does factor into our thinking. Fundamentally, we're not seeing any changes in the underlying trends, but these short-term periods can always be, to a degree, lumpy as you see batches of trends coming through.

And I think the key point that we talk about is look at the health of the existing estate, 99% of stores plus delivering positive contribution margins. And it is by having that discipline about the relocation program and about the closure program means that we've got both that health of the estate, but also that very attractive runway to get up to 1,200 stores in the U.K.

And then on Heron, so clearly, the performance wasn't where it needs to be. They've actually launched a very similar plan to B&M U.K. They probably were a bit ahead of B&M U.K. So they actually have started to review their categories as well. So they've done -- they're applying a very rigorous process of reviewing category, looking where the range gaps are and then basically updating the range, and they've done this now for a number of core categories. chilled, sweets, health and beauty, soft drinks. And actually, we've seen every category they've touched, we saw the core performance improve.

They have also started to apply the same pricing insight has been in the U.K. with the line pricing, and they have launched an updated pricing for their business. The reason I'm saying they're a bit ahead of us because that business is a bit smaller and they could easier, I think, get to a state where they actually feel that they've got sufficient ranges improved and also their prices adapted. So they've combined it with an in-store campaign on communicating better value.

And the other element that Heron used to be very strong at was the -- when it's gone, it's gone. So it's basically mainly in fresh fruit and frozen. They've lost a bit that strength and they're now bringing it back. They're dedicated to buyers and the team who are full time working on getting the best deals for Heron -- that's working well. So I would say it's early days, but I think the Heron team are doing all the right things, and we see some initial green shoots, but it's still early days.

Warwick Okines from BNP Paribas. Two questions, please. The first is that you talked to the point that the transactions are not a problem. It's the average basket size and that people are putting fewer items in the basket. Is that much more skewed towards FMCG? Or have you also lost items per basket in Gen merch?

It's mainly an ASP actually. So it's predominantly an ASP underperformance in in GM, where basically still from a volume perspective, it's okay. But from an ASP perspective, you would like to see it in a different way. And it's a slight indeed volume development in FMCG. So it's a combination of the two.

Got it. And secondly, on gross margins, the first half trading gross margin was down quite sharply. Can you talk about the puts and takes for the second half and where that should be landing for H2?

Yes. I mean I think the. You need to look across both sides of the business in B&M U.K. So if we look at general merchandise, I think firstly, we've seen the general -- we've seen the gross margins lower for a period of time. And clearly, we're starting to comp against those as we go through the second half of this year. And we've also taken actions to make sure we've got our margins in the right place.

On the FMCG side, we talked about the fact that in the latter part of the first half, we took price action on the KBI lines. And so of course, that is going to feed through into the second half of the year. Ultimately, what also affects the overall picture is the mix between the 2 sides of the business as well. And so I think it will be important to see and understand how that trend develops across the balance of the year before we sort of guide on margins. And as you know, Warwick, we don't typically guide on overall margins, but I think the final thing I'd say, in terms of the overall trends, I think we do see some tailwinds from favorable FX rates. I think if anything, freight rates are moving slightly in the business' favor. It's small, but it's all beneficial. And FX in the first half of the year, as we touched on before, was a drag that we know mathematically will reverse in the early part of the second half as well. So I think there's a few tailwinds coming through. But again, there is that annualization on FMCG that does provide a degree of the balance to that picture.

If I may add some color. So if you would look at margins, the way we report margin, of course, is one number. Actually, there's 3 elements underlying, and I think all 3 are important to call out because that's really our focus. One is the bot in margin or full price margin which basically is the number that our buyers negotiate with our suppliers and that actually is a starting point of our way of working. Then there's 2 discretionary elements, which are promotions where you basically offer more value for customers, a 2, 4, 3, 4. Clearly, you've got discretion to amplify that or to reduce that. And the third element is in clearance. So how much -- how effective were you in buying -- setting your range plan, committing to volumes, what was your sell-through? And clearly, if you do a good job, the clearance element is a small number. And if you've done a good job, it's a bigger number.

And it's -- I believe we can actually improve in all 3 elements because I think there's opportunities to be more efficient in all 3. So I think it's -- margin management is probably a bit more comprehensive than going forward than the way it was managed in the past.

[indiscernible] from Citi. I had one more question on the SKU range. So if I remember correctly, before you said like some time ago, you said that because people have been buying sort of the cheaper product, you wanted to introduce a sort of good, better, best optionality in the range. Is that what led to the inflation in SKUs? Or is it something completely different?

I think what you're referring to, but I wasn't there, but I think that was the general merchandise home ranges mainly where we introduced the Simply range, which was the lower price point, but it's mainly in general merchandise. That was indeed in addition to the existing range. If you look at the performance of general merchandise, actually, that's still performing solidly. The range proliferation and the undermining of our value is mainly in FMCG, where the issue is. I think that said, I think if you look at our general merchandise ranges, I think there's an opportunity to really implement good, better, best across the estate. I think we're quite good and good, quite good and better. But I think if you look at the tiering, I think there's chances to do also in GM, a more solid job there. That's why we have actually said that the implementation of the range improvements is not just 12 months, it's 18 months because it takes about 18 months to do all the buying cycles in general merchandise, including all the seasonal ones. But that's also in scope.

And just one more. So when you talk about customer insights, -- what kind of insights do you have at the moment? Because presumably, it will take some time to build up the database. Do you know how far people are traveling in from, what ages they are, et cetera?

Yes. So we are using -- and please feel free to add to Mike. We're using a third-party data provider who specialized in real estate and location strategies. They have a large database of customer demographics in terms of age, background, type of role, income. And clearly, we also have all the information on the local competition that basically is informing us to where opportunities are. I think what we've added now with the latest update of our third-party data is the banking data of those customers because you would normally traditionally, if you would plan a store, you would more or less have just a simple mathematical range in terms of driving time from stores.

But actually, when there's a motorway or a channel or a railroad track, the actual catchment is very different. And with those credit card data with hotspots, you can actually zone in on where the true catchment is. And it actually informs you that there might be a store location available, which on the net appears to be quite close to the other store, but effectively, there's a completely separate catchment. And I think that's what we actually shared today. That extra level of insight, we're now applying to new store locations.

I think what I'd just build on what's point, I mean I think it's not just about the data that you have within the business. It's also about what you're doing to tailor your response to the data that you have ultimately. And so if you looked at the way that we would normally operate, it's sort of be a single format across the estate. We'd be looking at a sort of a buyer-led range proposition based on what they saw selling rather than tailoring it to customer groups and so on. And I think really what we're talking about here today is the Back to Basics plan having a degree more tailoring for customer groups based on the insight being provided. And there is good data out there already within the business, as [indiscernible] said, on the real estate side. Also, we do have credit card data. We do have detailed transaction data within our own systems that we keep. And ultimately, you are able to sort of see quite detailed insight based on the questions you want to ask and the decisions you want to make based on that data. So there is plenty to be done.

It's a good point, actually. So if you do a range rationalization program like we are doing, one of the key risks that you face is you take out a wrong item where customers are quite loyal to. If you don't have a loyalty card, you actually can't see how customers actually shop. Ultimately, what you're able to do is you don't know who the customer is, but you could link the credit or debit cards to the basket. And if you assume people are using that card consistently, which most people do, you still see a pattern. And then you can see in the basket over time, if they've actually shopped multiple brands of the same category. So you can actually see there's a high level of substitution available. And that insight we're now using to design the best range.

So even in the absence of a loyalty scheme, you can actually get good meaningful customer insights, and we're now actually applying it for selecting the items that will actually leave our range. I think we've already spent quite a while together, and I think we're very, very light amount of questions. So looking at the hours, I would like to propose to conclude.

Again, this was my first scheduled announcement at B&M, and I do hope that it mainly remains a scheduled announcement. But clearly, I have a crystal ball. We are getting back on track at B&M. Golden quarter is still there out for us. And I would like to ask all of you as clearly followers of B&M, please also visit our stores and look at our beautiful Christmas ranges. And if you still have some money left after the budget announcement, please spend some at B&M.

Thank you very much.