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Earnings Transcript for BMRRY - Q4 Fiscal Year 2024

Alejandro Russo: Good morning, everyone. Thank you for coming. And good morning in U.S. I know you are early in different cities, East and West Coast. So thank you for joining us. We have a full lineup today. Mike, Gareth has presented in the past, Jon Parry, Anthony Giron in France. What I'm going to do today is keep it very short for myself. So you get to hear the team basically what the business -- how the business is set up for the year ahead and thereafter. And with a bit of luck on guidance, if we can keep it sharp, we can give a good half an hour for Q&A, so we can get into the detail. I take the RNAs as a given. So I will just make a couple of points on each slide. So you've seen the numbers. Looking back at FY '24, for me, there are two highlights in here. We're a financially conservative business. We are not a business that believes in high gearing. We're disciplined, conservative financial business and actually having a leverage ratio just under 1.2x for me is absolutely the right shape in the business. So I'm happy with that result. What's underneath that, if you look at the detail, broadly speaking, we have put £500 million year-on-year on net sales. And total stockholding has barely moved year-on-year. From memory, I think it's increased year-on-year £11 million, which is nothing. So we've put £0.5 billion of net revenues with broadly stockholding flat. And that's on the back of last financial year, where the stockholding was also flat pounds. What does that tell me as a CEO. The supply chain is incredibly robust and efficient. We don't have to take any unnecessary risks. The quality of those earnings given the quality of the stock is in excellent shape. Look forward, the quality of your stock is always your margin tomorrow. So that gives us a very good momentum heading into New Year with having razor sharp stock but the best availability the business has had on shelf since I've been in the business since 2020. Okay. Go back four years, we have delivered £1.8 billion check to shareholders cumulatively over four years, £1.8 billion. This is a disciplined business but it's all around sustainable profitable growth, which is cash generating back to the shareholders. So those are for me the two highlights of FY '24. You've seen this chart before. The blue line is interesting. But you've heard me before, I'm not in the business of driving market share. I'm in the business of driving sales growth, which are profitable and sustainable. So I always look at the orange line. Pre-pandemic £342 million EBITDA, last financial year, £629 million. And what the team is set up to do in the years ahead is to maintain that level of profitability sustainably year after year. Not too quickly, not too slow, sustainably. And that profitability, which is best-in-class, certainly in the U.K. and in Europe outside of apparel gives me the confidence that the business is actually maintaining a high degree of operational and commercial discipline. When I look at that chart, actually, I never look at the history. I visualize that chart 10 year from now in my head. And that's actually how the business thinks about it. So when I look in 10 years from now, yes, the blue line will have its upward trajectory, but what matters to me is a consistency of the orange line, okay? And that's an important point that will continue to come repeatedly, which is around the discipline of how we grow and what underpins that profitable growth. Quite boring slide. You've seen it before. Three planks, B&M U.K., Heron, France, the three business is doing well. We're going to keep driving the existing asset base profitably with high discipline, serving customers in the way we do, EDLP, EDLC, and we are going to grow space confidently but with discipline. Not too slow, not too fast. I'll come back to some of the lead. Mike, all yours.
Mike Schmidt: Thanks, Alex. Good morning, everybody. So before I step into the numbers, it's worth reiterating what we see as being absolutely critical in the business from a financial perspective. Four areas
Alejandro Russo: Either is that Mike makes it sound it's easy. It's not easy, guys. There's a lot of hard work in there. I'll be very sharp in here before I hand it over to Gareth. Very pleased with Wilko opening program. I don't have the exact number, but if you assume Q4 last year and Q1 this year with another four weeks to go. 52, 53 openings, guys. Okay, we've open 52 shops or so, we have opened in excess of 50 shops over two quarters. High-quality, accretive, higher availability, excellent teams, that's not easy, yes. So as a testament of the work that Ian Pratt, Property Director, who's sitting at the back. You will hear more from me in November and the retail team have done, that's a hell of a momentum the business had in the opening program. And we haven't compromised a single site. You know we went for 51 shops at Wilko, not 70, not 100, every single lease we negotiated and opening actually in good shape. Plan is well underpinned. Front end, nothing else to say. Heron, on the left-hand side is the next Wilko, Monks Cross on the right-hand side. Standard, there is no difference, they are great shops. Don't make assumptions one is bigger, one is lower. They're absolutely indistinguishable. They're high-quality assets. They are highly accretive businesses, and they are all performing well. A couple of messages before getting into the operations. If I look at the last 12 months, what is the best customer impact positively we've had in the business, availability on shelf has been second to none. I have worked, guys, at least to 200 to 250 competitors over the last 12 months myself when I see our shops. We don't do gaps on shops. It's all around having high availability, 10,000 SKUs, FMCG and general merch 24/7 365. Gareth and I and Jon in supply chain obsess about it. That is the number one element that underpins the offer to our customer. EDLPs are given. We don't do gimmicks. EDLC is a given. This is actually how we serve customers, come in, and we're going to please you all with full shelves. On the right-hand side, we've dialed the price point aggressively on general merchandise performing very well. Simply is performing very nicely across several of the categories. And what I'm going to say is that over the next few weeks, we're going to dial up our posture of aggressiveness on general merchandise to continue to take market share. Posture of aggressiveness means the right stock, the right price point, no margin dilution because we are buying well, but the posture of the business is going to be even more aggressive and confident on the general merchandise because we are taking share in this business and in volume. Prices have come down. They are very aggressive, and they will continue to come down, as we continue to pass the right savings in the right SKU in the right sub-category. So when we take stock in November, remember what I'm saying, our posture in general merchandise is going to be even more aggressive to build on the volume we have delivered positive in FY '24. Supply chain, you heard me the story. Availability is rock solid. It's what we call the triangle, is buying, it's shops, it's logistics, and we continue to hammer that every single day in every shop. Gareth, I'm going to pass it to you, short term operations. Why don't you tell the guys when you joined the business, how many shops did B&M have.
Gareth Bilton: Seven.
Alejandro Russo: 43 shops in his tenure.
Gareth Bilton: I've talked you through the retail approach before. So rather than talking through the slides, I thought I'd just talk around the way we do it rather than what's on the slide. So the first thing to point out is my team has a relentless focus on customer standards and on retail standards. And the way we get about it is very simple. It's high visibility from the senior retail team, and it sounds really obvious. But as a senior retail team, we spend our life in shops. We don't spend our life in strategy meetings, taking time out. We spend our life in shops to see what the customer sees. That is really important. So our store managers see us in the trenches working with them. We also give our store managers license to trade and what that means as an output of that, is we sweat our space really hard, we trade every part of the floor, and we let them trade through as hard as they can and we get the best return possible from our stores. And to do that, we have to keep it simple. Alex mentioned it before, we absolutely focus on the core part of the business. That's our obsessiveness around driving sales and keeping consistent standards. The retail distribution buying collaboration triangle Alex referred to and Jon will refer to is key to making sure that our focus on core and availability so that we keep our shelves or we keep our lives simple is absolutely fundamental to the DNA, the way we run the business. And then to finish up, I think there's three things that I would want to leave you with from the retail team outlook. Firstly is, despite the fact that we've raised our expectations hugely from what our store has delivered over the past two months, we have a really healthy culture. And no one should be under any illusion, running the shop well is hard work. It's 24/7, it's 365, and you have to be absolutely obsessive about everything that everybody does. Despite our rate expectations, an interesting number is our retail labor turnover is 600 bps better now than it was two years ago because people generally take more pride when they shop in the environment that they operate in. The other point I'll leave you with is consistency. Consistency across the shop and consistency across the state, whether you're in Pendant, whether you're in Wick. And the reason we get that is because our store managers and our stores seem through for the right reason and deliver for the customer. They work hard for each other. They work hard for the customer. And interestingly, I give an update to my colleagues at senior level two or three times a week. And the only update I ever give on what is the customer lens, what does the customer see? And what are the two or three loose-ends that we all need to tighten up to make sure that customer journey is where we want it to be. And then lastly, I just wanted to talk about the continuous sustainable improvement that we've made. The first time I spoke to you two years ago, I think I stood here and I talked about seven out of 10. Very quickly, we moved to 7.5 out of 10. And now the benchmark is 8 out of 10 and nothing less is acceptable. So they are the key pillars that we've pinned our delivery on and our obsession of our standards. And I'll be around if you want to talk to me after. We hand it over to Jon.
Jon Parry: Thanks, Gareth. Morning all. Short and sharp from me today because we're looking forward to welcoming a number of you to our Bedford DC on Monday coming. So just in terms of a reminder, overview our core purpose in the B&M supply chain is all about serving our customers better than anyone else. And what that really means is the continued improvement and alignment with buying and retail, referenced a couple of times already in terms of what we call the triangle, why? Absolutely the purpose is to drive world-class on-shelf availability. And we've been focusing on in the supply chain, real, efficient and disciplined capacity for our buyers to grow their departments, of course, and categories. And importantly, to support what Alex was talking about earlier on, the ongoing and future rollout of the new store program, let alone the core stores that we've got to continue driving like-for-like growth. And what that is driving in the supply chain is record volumes. So we are now delivering record volumes year-on-year as a result of all of the above. From a stability point of view, our approach is all based on the brilliant basics operating process program. And that is about standardizing all operational processes and executing them brilliantly always. So what is it doing, record volumes, record throughput with a more efficient DC and transport set of operations than they've ever been. The way we measure that is through our 5C program. And we are going to highlight today some of the solid progress that we're making. I'll just start with compliance. We always start, first and foremost, with compliance is the most important thing that we do. There's a real step on in working practices year-on-year, and we're seeing a significant reduction in serious incidents and riddles. In fact, 50% or better across the network, which is really encouraging. From a customer point of view, it's that increased stock accuracy through the network, and of course, driving improvements in delivery performance in on time for stores, on time in full. And again, what's that doing? Well, of course, it's driving improvement in on-shelf availability throughout the supply chain, which is encouraging. There's been quite a lot of reference today in terms of cost. Of course, real lifeblood of a supply chain and the logistics network really important to us. And through our -- we operate the less program, we're really driving down EDLC, that everyday low cost, which is allowing the business to reinvest in everyday low price and get that flywheel turning in the right direction. It's allowed us to lower our percent of sales year-on-year, and this enabled us to mitigate those inflationary headwinds that Mike talked about earlier on. And we're doing that through real improved productivity in every site in every transport operation. From a capacity point of view, some highlights here. We've got improved network modeling now. That's really optimizing and ensuring that we're serving the right stores from the right DCs and it absolutely enabled us to exit one of the legacy DCs whilst recording higher throughput and volume. And then sort of the final seat in terms of a thread that goes through things, how we do things. We've got to establish now a real clear productivity and service culture with the colleagues on the ground, driving down labor turnover absenteeism year-on-year by over 25%, which we're really encouraged by. So in summary, we're making good disciplined progress in the supply chain and the logistics network. It's really enabling us to support the growth of the business, the new store program and also obviously, the categories and departments. And we're doing that with real improved volume throughput through absolutely more efficient transport and DC operations. Thanks for listening. I'm looking forward to seeing a number of you in Bedford on Monday.
Anthony Giron: Good morning all. So an overview of where we stand in France. So first of all, this slide describes the growth of the last few years. And you can see on the graph that the growth is very much based on the growth of FMCG with core being home products. So home products are very much based on the success of the formula from the U.K. and the success of the product selection that we enjoy from the U.K. teams with, of course, an adaptation for the French market. And our focus is clearly to keep growing in FMCG and become in FMCG, a destination and not only being a destination for home products as it is today. I remind you, we've been voted for the third time in a row -- third year in a row, the best chain in France for home decoration. So this is a very good recognition from customers that the home is really strong. But we want to become as well a destination for FMCG. So this is core in our proposition strategy. Second point is, of course, a very strong focus, a very, very strong focus on retail standards. And here, basically, the majority of our work like Gareth just said before, is around people. So people management, of course, but also training in order to achieve the best-in-class position in the French market in terms of customer experience, product availability and merchandise, best-in-class merchandising and pricing message in the store. And that is very key for us because we're coming from a state originally where the stores were not to the best level we could. And we continually manage that with having insight what the U.K. manages to do on the retail operation side. So this is, for us, a key focus, categories and store standards. In terms of expansion, new stores, so we're very pleased with the openings we had in last financial year -- last financial year, excuse me. We opened 11 stores in France, very good stores. Very pleased about them, six of them are in the Paris region. Also, we started to decrease our average space towards 2,000 square meters, okay. And then the focus now is really on expanding the network on a very performing formula on lower square meters. So this year, we will try more stores in the range of 1,500 square meters to 2,000 square meters with the intent of increasing the sales density and the most -- a better operating model with more efficient stock turn in turn. So that's it for France. I leave the floor to you, Alex.
Alejandro Russo: Thanks, Anthony. By the way, Anthony's comment on store size is just consistent with the U.K. I think it's part of the learning and optimization, which is good to accelerate sites as well, which is good. A couple of messages and then we go into Q&A. High quality of earnings FY '24, we haven't cut any corners. Store standards where they need to be, pricing where it needs to be, cost tight, cash discipline. We don't cut any corners. We don't have empty shelves. We don't inflate LFLs through pricing, quality of earnings that translates into cash. That's kind of point number one. EDLP, EDLC, that's the bedrock of the business. Discipline. We'll continue to operate the business, 24/7 365, three businesses, B&M U.K. France and Heron with discipline. This is a small, very high-quality team. We will all work together on a daily basis. The cross-fertilization of the senior team is daily. We are a non-bureaucratic business. I don't know why they're wearing a suit, but they normally don't wear a suit in the office, which is important. We're not a corporate machine. We connect with our stores one-to-one, and the business actually will continue to do what it does. When we get to half one, Mike we'll do exactly what we did last year when we issue half one results. We have one season behind us, spring, summer. We'll give you a very narrow range for the full year like we did in November. It's business as usual. Q&A.
Q - Jonathan Pritchard: Jonathan Pritchard at Peel Hunt. Heron is something you haven't talked about this one. Could you just tell us a little bit about the evolution of the range? I think that's been moving away from sort of traditional 3s and 7s a little bit.
Alejandro Russo: So I'm struggling to -- if you could speak a bit...
Jonathan Pritchard: Just Heron really, the evolution of the product range, just on that. Then on Wilko, you've had a little bit of a pause perhaps in non-Wilko openings. That's not a criticism, it's just how it is, but do you think you can get your mojo back from that perspective to keep going with the opening program now when the Wilkos are all done? And carrying on from that, you've talked about very high, even higher than normal sales entities at Wilko. Is that quirk of taking on that Wilko space. Or would you expect that the class of H2 '25 and FY '26, you'll also be able to say the same about very high sales densities in this space, where you revert back to non-Wilko?
Alejandro Russo: Thank you, Jonathan. Question one, Heron, the three chambers as we called it, ambient, frozen and chilled performing well. Heron has a very strong Managing Director under Tony Dobbs, he's been 25 years in the business. Heron now -- Tony, Heron reports to Jon. I made that change one year ago. Jon and Tony worked very closely together. I think the business is trading well. Its EBITDA margin is world class. I think Heron is the closest equivalent you have to a grocer in terms of our portfolio. Ambient performing very well. The price point is good. We trade clearings very aggressively. I think the business is nicely set up. I will make sure that we give you an update in November. But the reason why I haven't had an update for the last year is because actually it's going well. There is not much to say. Let's keep the business delivering 20-store per annums, world-class EBITDA margin, very good operator on Tony. Your second question, we have a good opening program in the current year. I've said publicly, not less than 45. It's well underpinned. We've opened more than 50 shops in 26 weeks. The business will continue that discipline in openings. I think the important point I would make is that I haven't opened a single suboptimal shop, none. And of the ones that we have opened Gareth has said it, I'm very comfortable with the performance of those shops. We take one year at a time. You know that my commitment, I said it two years ago, was to rebuild the run rate to 45 openings. We've already done that. We keep cracking on. But opening 50 shops in 26 weeks, guys, it's not easy. So my responsibility is to make sure that we open the high -- each store high quality and never compromise the culture. So the pipeline is very strong. Ian Pratt is sitting in the corner. He will give us an update in November. How many years in the business, Ian, 10 years. This -- Ian symbolizes EDLC in property, knows the market inside out. It's the same property team. I sit with these guys every week. We have a good pipeline coming in. Okay. Next question.
Jon Parry: If people can introduce themselves as well, and we are taking questions online as well.
Alejandro Russo: And if I can -- it would be easy to just ask one or two questions, guys. So we give the chance to the floor our words. I don't know where this history of three questions come. But full year results presentation, nothing personal, Jonathan. Go ahead.
Richard Chamberlain: It's Richard Chamberlain from RBC. Just to ask a follow-up then on Wilko. What have you guys sort of learned from the opening program there that maybe be applied to the rest of the year state? Is there anything to say there in terms of...
Alejandro Russo: I'll answer before you confuse me with the second question. Paint, DIY, booming, absolutely booming on volumes, we retrofit that to the core chain. Second learning, one learning, Gareth?
Gareth Bilton: Those units were always fundamentally good, traded in the right way.
Alejandro Russo: So the answer is yes, we retrofit without disclosing competitive info. I think we're getting better at tweaking and optimizing the slightest specific range grading relative to the local competition. But if I were to highlight, DIY, paint, stationery, booming. We're taking share in volume and space.
Richard Chamberlain: And on the French business, how are the -- can you give an update on how the sort of ranges are evolving for particular FMCG and how much sort of weight that's going to be.
Alejandro Russo: Complicated question. How many SKUs do you have? And how much -- FMCG, how many you're going to increase here. So we now have 2,400 SKUs, and we will rapidly reach 3,000 SKUs -- so with gradual, Richard, steady on the view you follow this and you've heard me before. At least 3/4 of the LFL in France, is LFL transaction numbers, customer count. So it's actually working the way it should. It could fall through the shop, and that helps with the conversions of the densities.
James Anstead: So James. Two questions. So first one, I appreciate that you're giving a current trading update today. I appreciate that B&M's long-term story and the weather, its nature is quite volatile, but I also...
Alejandro Russo: I'll answer the question straightaway because I know what you're going to ask. So how tough has spring, summer been? Well, it's not been very sunny. We haven't had any heatwave. But without getting into Q1, what I can tell you is that we place the right buy, and we are not exposed on stock. I'm not going to say anything else. You can read whatever you choose to in between the lines. It's been profitable so far.
James Anstead: Okay. And the second question I think it's the first time you've been as specific as saying French margins should be over 10%. I just wonder, is that feasible for this year? Or is that more of a long term?
Alejandro Russo: No, I think it's a medium term. I was talking to -- I was talking to Warwick yesterday. Michael, I could turn around to Anthony and say deliver 10.5 tomorrow, it will screw up the business. I'll be greedy. The guys will get to the right level, but it's all around the speed in which we bed in the culture. 100% I'm not greedy. I'm consistent. Greed kills. Warwick?
Warwick Okines: Warwick Okines, BNP Paribas Exane. Two questions then. The first is, could you give us a little bit more color about where you're dialing up the price intensity in general merchandise, any particular categories or sort of thought process behind that?
Alejandro Russo: Yes. So I'll be careful how I -- because I don't want to get into a quarterly piece. So it's more strategic. I think it's a good question, Warwick. The simply range -- and you can see in many homes of categories have worked exceptionally well. So it reinforces at the entry level, a very sharp price point. It's all around the dollar, pound where we trade, okay. The volumes we have seen over the last year, 1.5 years simply have been exceptional. It does what gives Jon Parry the confidence to say, I don't know if you heard that. And I think it's not a disclosure he said, our cost to share last year on logistics was, did you say low on? Okay. So what this guy has said is that the cost to serve sales percentage on logistics was lower year-on-year. That is despite an increase on minimum wage, you cannot do that without volume. So where we're going to do, whether it's paint as an example, where it's stationary, where it's home. I think we're going -- I think the phrase I'm using work, I am dialing up the posture into next financial year to make it very uncomfortable to the competition. The buying process has been very slick from China. The volumes are there, and we're going to continue to give customers every reason to come and basically shop that volume. Look, the consumer in the U.K. and Europe is under pressure. It's been under pressure since 2007. I've said this before. It is our responsibility that we negotiate hard, maintain the dollar price point low at that posture which is consistent with our margin structure, all while dialing that entry price point to create that virtuous circle, yes? More to come. You might find it in shops in two or three months, but it's going to look fantastic. And that is really going to come to life, I would say, Q2 yes. So the plan on Q2 is actually quite robust and aggressive, yes. I'm ducking the question, but hopefully, just give you enough color.
Warwick Okines: Yes. And second question is on the Wilko store state. I think the rollout has been better than your expectations. Does that change any opportunity for further store acquisitions from where previously Wilko stores that have gone back to Landlord's, are there sort of any marginal ones where you could pick up now the performance to be better than the existing states.
Alejandro Russo: Could be. I think it was a very good deal. Gareth, I am happy with all of the sites. The Property Director keeps chipping at them. I think we made the right decision to go for 51, but there will always going to be a few more that come our way, yes. But it's all around the pipeline and building that partner. So the answer is yes, but it one by one work.
Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Just one follow-up to Warwick's question and then a second one, please. The first follow-up is, to what extent, I think you were implying, but just wanted to understand a bit better the dialing up on posture. To what extent this is driven by lower falling aggregate pricing in China -- factory get prices from China? Or is your sourcing getting even better going in? And is that something you continue to see into next year? Currently, that's what you're seeing.
Alejandro Russo: This year is good. I think I was in a conference, we think it was in January. And I said publicly, we have good sourcing momentum, and that gives the business options. It's all around driving volume. It's all around firing the low price point, pound dollar, and it's all around consistent at B&M U.K. with 12% to 13% EBITDA margin.
Sreedhar Mahamkali: Is it specific to you, what you see like excess capacity...
Alejandro Russo: I'm not going to answer that. That -- I think you have to ask the competition. But what I'm saying is we're in good.
Sreedhar Mahamkali: Got it. Okay. The second one, I think last year, you've talked about benefiting the grocery side from trading down in terms of transactions. It was quite a number of comments you made. Is that something you see continuing this year as these in place.
Alejandro Russo: I'm not going to comment about this year. Let's see how the half trades. What I can elaborate is we will continue to keep that price point very sharp all around the customer experience and what we mean by standards internally, which is a triangle. And I think the judge on all of this, as always, when I look at the competition, I don't look at the like-for-like. The like-for-like doesn't tell me anything. I look at the bottom line. If a business has volume, there is bottom line. If there is no volume, there is no bottom line. So just -- and it may be helpful, which I'm explaining if you use logistics as an example, I had this conversation with U.S. businesses in the past. Bring to life why a logistics operation cannot be efficient without volume.
Jon Parry: Well, I mean, quite simply put, more volume, better hit rate, what do you mean by a better hit rate, the more we go to a pick base, we'll be picking two cases, not one. Ultimately, what does that mean? That means your productivity improves. And the cycle is virtuous. So ultimately, volume wins on all costs, it improves productivity, it drives cost down, makes it more efficient.
Alejandro Russo: Volume is the life blood in retail. LFLs are meaningless unless you look at units. We run this business on units, not on value. That's why he's able to leverage the cost and that's actually why the business maintains its level of profitability. It's all around volume and units, casing throughput per day per peak phase.
Ben Hunt: Ben Hunt from Investec. More a question about the second half gross margin which you were talking about it earlier before the presentation, but -- could you give a bit more color on the levers or the dynamics of what's been going on. You had some tailwinds obviously the rate in FX. How much was that contributing in the second half? And given that it was a flat performance, what was working out in the way because I mean the stock terms improved hugely, the throughput improved hugely. So why aren't we seeing I don't know, perhaps more on the gross margin side.
Alejandro Russo: Why should we -- it's a strategic question.
Ben Hunt: That's my question.
Alejandro Russo: And the answer to that, you can elaborate, Mike, is it's relative to the prior year comparative. So there is some of that. And we set up the prices and the tone on how we traded at the right level in EDLP. Now look, the team on a weekly, monthly corporate basis, we always will be making operational, commercial trade-offs at full department level. But fundamentally, this is a 12% to 13% EBITDA margin. The cost line will be kept tight. Pricing is unnegotiable. It's part of the booming bids, Mike, anything you want to add on?
Mike Schmidt: No. I think I sort of commented on it as part of this part of the presentation. But for us, the gross margin improvement has been achieved without changing the customer value proposition. If anything, customers are getting better value because they are seeing those savings coming through in the numbers. And so we have consciously chosen to drive volumes, not to drive inflation within those numbers. In the first half, you look at was sort of a stronger step up because of the prior year base and the fact that we were able to deliver that very clean stock sell-through that you saw coming through in our stock numbers across the first half.
Simon Buckley: Thank you. We'll take some questions online now. Alex, what role has marketing played in driving B&M's growth over the last year? And what are your marketing plans for the year ahead?
Alejandro Russo: We don't spend money. We are very aggressive on social, which is free. It's all around trend. Gareth and the team in retail have a very firm plan on social media, but we don't spend money on marketing. We create content and facilitate content for lower influencers customer that creates some momentum. We are an EDLP business. The choice for me is simple. It's a pound that goes into a marketing campaign or it's a pound that goes into pricing, I put it into pricing. It's a point of belief. Marketing might work for other companies. I stick to EDLP.
Simon Buckley: Okay. Do you have any plans to return to the debt capital markets near term?
Alejandro Russo: Mike?
Mike Schmidt: So we -- if you look across our debt structure, the absolute majority of the debt structure is dated out sort of seven, eight years in maturity. So we've got a very, very sort of long-dated maturities in place, which we're very happy with, pleased about given the interest rate environment we're in. I think we've got a small stub of about £150 million of July 25 notes, which we will deal with at the right moment in time. In the meantime, though, they are very low cost and attractive source of financing, and we've got choices ultimately. We're a very strong business, very cash generative, very attractive to debt holders. And at the right moment in time, we will extend the maturity on that remaining stock.
Alejandro Russo: The best thing the business and Mike and the team did last year was to push out duration. Yes, it has an interest. Interest rate is marketed at what it is, but the fact that as a retailer, we have low gearing and long duration, that's absolutely critical. I don't buy short durations. I don't worry about interest rates in the short term. It's all around maturity, it was the best decision that we did.
Simon Buckley: Okay. How did category performance in financial '24 influenced the gross margin percentage and cash margin?
Alejandro Russo: The 2, as Mike said, the two sides of the business were in balance. General merchandise and FMCG were fairly consistent actually. And there is no mix attrition from either. So it's actually all-around performance that enabled this, we were remarkably consistent last year. And I think I said publicly a few weeks ago, months ago, even when we exited Q4, general merchandise was on positive LFL.
Simon Buckley: Could you please explain the drop in H2 gross margin?
Alejandro Russo: I think Mike has already answered that. Anything else you want to say?
Mike Schmidt: No. I mean I think building on your answer to the previous question, Alex, I think if you look year-on-year in terms of trajectory on gross margin, I think where we've seen the step on year-on-year has been more on the general merchandise side because of the cleanliness of the sell-through on the spring/summer season last year.
Alejandro Russo: And just a key point that you heard me before, what is the determinant between 12% and 13% EBITDA margin? Is it two system smart. We have two good systems, so obviously in good shape. We should do the top end. If we have two bad seasons, we are at the lower end. It's actually not down. That is the delta.
Simon Buckley: Are you seeing higher pressure on freight rates. Have you picked your freight rates for this year?
Alejandro Russo: We're in very good shape, that's all what I would say.
Simon Buckley: Let's go back to the room. Any questions?
Andy Wade: Andy Wade from Jefferies. Mike, when you were talking -- you had the slide up with the sort of drop-throughs, you said you're fairly agnostic where the like-for-likes come from stores or -- sorry, whether revenue growth comes from stores or from like-for-like. I think is that really genuinely how you feel about it? Because one of them is clearly going to be considerably higher margin than the other one. If I could offer you 20% like-for-like or 20% store...
Alejandro Russo: I'll answer that question. What Mike meant is in terms of the economics and the unit economics of the business, the business will always drive from a yearly basis positive LFL, always. I will make sure that, that space is accretive. But what underpins the P&L is not the value of the LFL, it's the unit sitting underneath the value. So we obsess about volume and units. A 3% positive LFL illustratively with volume decline is an infinitely inferior currency than a flat LFL that is driven by volume for the reasons we have discussed. I will never judge the business on an LFL basis. It's the units that underpin the LFL.
Mike Schmidt: And I'll build on Alex's point with one more element. I think the other important difference between new space growth versus like-for-like growth is that the new space growth is -- is an element that you absolutely can control, can target to be as absolutely the right piece of growth. And so I think critically, when you're looking at both categories of growth, they're both accretive to the overall profit margins for the business because of the volume effects we talk about. But then building on that, yes, of course, like-for-like margin is more accretive and like-for-like drop-throughs are more accretive, but the proportionate difference between the two is actually smaller than you will see in many businesses in the industry because we've got those high profit margins that are sustainable, that are structurally...
Alejandro Russo: And very low operational gearing.
Andy Wade: Understood. Albeit you have to invest capital to get them still very good.
Alejandro Russo: Correct.
Andy Wade: Of course. Okay. The second question. I appreciate it's going to sound like a slightly silly question given your focus on volumes and so on. But this year, we're going to be -- given the price investments you've talked on, are we going to be looking at a year where price is a drag on the reported like-for-like number?
Mike Schmidt: I think you saw in the call that we plan for positive LFL, we'll give you a full guidance. We're going to be very competitive, and the team has a very clear challenge on how they buy.
Izabel Dobreva: It's Izabel Dobreva from Morgan Stanley. I have a few questions. I wanted to go back -- only two. I want to go back to the point on turning up the [indiscernible] competitiveness in general merch. So just to clarify, why is now the right time? Is it because you're seeing more pressure from the competition? Or maybe you have some idiosyncratic...
Alejandro Russo: I sense the competition is very weak. I sense the competition is very weak. I'm not going to name any -- I'm talking about general merchandise. I sense the competition is weak, and I have sufficient volume momentum on the by process to dial it up. Don't read too much into it. I'm not talking about margins, I'm not talking about -- I'm just saying we're going to dial up the posture on general merchandise because I think it's going to be an opportunity. So go back three years. If you go back three years, the naysayers were saying, well, the margins of this business are going to collapse because actually, general merchandise is going to come off. It's the opposite. The general merchandise of our business is in very good health.
Izabel Dobreva: Okay. So you think now is the right time to attack before the volume...
Alejandro Russo: I'm not saying attack, those are your words. I'm just dialing the posture in Q2. That's all.
Izabel Dobreva Q - Izabel Dobreva: Okay. And then my second question is on -- it's in the topic of retail media. I want to recap -- on retail media. I want to get your thoughts on this.
Alejandro Russo: Sorry. I didn't -- media. Yes.
Izabel Dobreva: I wanted to get your thoughts on this, particularly as we think longer term, do you think this is something which could affect your relative price gaps?
Alejandro Russo: No. So a way -- a good question. So when we think about it, we obsess about the core business. Core business is EDLP, EDLC, discipline on how we grow, and we don't overlay bids. We don't play on online. We don't play on click and collect. If I flip the question on its head, the higher a competitor dials up the narrative from retail media, I suspect what it's telling me is that they are actually suffering from volumes. Their P&L structure is moving away from a shop. So for us, not interested.
Simon Buckley: Another online question, Alex. Congrats on the great results. Two questions. Firstly, you mentioned you're taking market share in the U.K. Do you have a measure of how much market share you are taking and who you are taking this from?
Alejandro Russo: Yes, but I'm not going to tell them, it will be inappropriate.
Simon Buckley: Secondly, for B&M U.K., what actions have you implemented to drive down the labor turnover through absenteeism so considerably year-on-year?
Alejandro Russo: Gareth, half a minute answer.
Gareth Bilton: It was two years, was the number, not 1. It's around engagement. It's around taking pride in the jobs that we deliver and clear career paths and succession. But you don't open 50 shops without a good career path succession and pipeline through. That will be the reason.
Alejandro Russo: What I would add to that is it actually comes down to the shop. If you guys walk through the competition, and you see some of the extremities we're seeing on poor retail standards, I need for you to decide who have them. Why would an hourly colleague want to work or take any pride in a shop that actually it starts from ours, it start from pride. I think it's a very human piece, which is everybody enjoys working in a good shop and I have said publicly several times. In my view, the only two retailers in the U.K. over the last two years that have consistently and relentlessly driving standard, only 2. It's B&M and Marks & Spencer, full stop. And I am on record on that.
Simon Buckley: So effectively, you're saying there's a second derivative of upgrading the store managers. It then feeds into.
Alejandro Russo: Of course, we probably have time for two more questions, in total.
Simon Buckley: Yes. Okay. I'll ask one more from here. Could you please speak about your existing store volume? What level is it relative to before the pandemic? And any updates on trading trends during '25? So the volumes compared to pre-pandemic, you can give some...
Alejandro Russo: Considerably high?
Simon Buckley: Considerably high.
Alejandro Russo: For sure. The best sign of the health of pre- and post-pandemic you've seen in the sales densities is accretion is actually the two sides of the business, general merch and FMCG. The two boats have been lifted consistently, which is for me, the health of the business. We probably have time for one more in the room.
Unidentified Analyst: Sorry, just one more. Probably a bit of an unfair question. But if we look at your peers across in Europe, they seem to be seeing pretty strong like-for-likes at the moment, double digits action group. Is there any structural reason as to why they're still seeing that momentum. Is this your opportunity in Europe? Or do you see there's a reason for it?
Alejandro Russo: And then for the U.S. Can you for me that before. I prefer to learn from Costco, Walmart and Home Depot. Good business, highly complementary. They have a different business model, good for them. Thank you, everybody, for coming. Thank you.