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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Ladies and gentlemen, hello, and welcome to the B&M Retail Limited full year results. I will shortly be handing you over to Simon Arora, CEO; and Alex Russo, CFO, who will take you through today's presentation. [Operator Instructions] Just to remind you, this conference call is being recorded. For now, over to Simon Arora, CEO; and Alex Russo, CFO at B&M Retail Limited. Please begin your presentation.
Good morning, everyone, and thank you for joining us this morning to hear of the results for our FY '21 for the B&M European Value Retail Group. Just to set out a few highlights before I hand over to Alex, our CFO, these, you see, in front of you, the group delivered revenues of GBP 4.8 billion. Behind that headline, the highlights are that our Q4, within our core B&M U.K. business, showed the strongest LFLs of the year at 29%. We opened 43 new stores in the U.K. under the B&M banner, which was very pleasing given the disruption at the beginning of the financial year. And we closed 18 stores, and more about that later because actually those 18 closures are a good thing. Those are legacy stores that aren't profit-creating. In our Heron business, we opened 17 stores and closed 4. And in France, we opened 3 stores but the key message in France is that, as I speak to you today, 73 stores are now trading as B&M. Our group EBITDA increased significantly to GBP 626 million. That compares with the guidance we gave as late as the 4th of March of this year, of a range of between GBP 590 million and GBP 620 million. So a very pleasing results. We delivered earnings per share of 43p, over a doubling on the previous year. And as you see from the page, our leverage is now very comfortable at only 0.8x net debt-to-EBITDA given how cash-generative the year has been. Our ordinary dividend policy is to pay out 30% to 40% of net income, and we announced this morning that we are paying out our ordinary final dividend at the top end of that range, a final dividend of 13p which, of course, comes on top of the 45p of special dividends that have been paid over the last financial year. So Alex, would you like to run through the numbers for us, please?
Thank you, Simon, and good morning, everyone. So we go straight to Slide #4. You have FY '21, key headlines, and you have the prior year comparison in the second column. So I will just highlight 2 or 3 key numbers. So as Simon said, very strong revenue growth in the year. At a group level, we increased at 25.9%, which was a very strong performance across all phases. Adjusted EBITDA at GBP 626 million grew 83%, and that was, at a group level, driven by favorable gross margin, we'll expand in a bit more detail on the drivers of that performance and clearly, cost leverage and costs kept quite lean and well-controlled throughout the year. EBITDA margin as a consequence, increased from 9% to 13% given this trading environment. And you can see that statutory diluted EPS closed the year at 42.7p, which is a very strong increase of 119% versus prior year. We go to the next slide, which is #5. A couple of highlights for fascia. If we start with B&M first. Store growth has continued very strongly throughout the year, and it's very pleasing to note that performance of new store openings continue to be very strong. So we're pleased with that, and that momentum will continue ahead. Specifically for B&M, revenue increased by 29.9% with EBITDA at 84.7%. And you can see, again, through very strong gross margin performance and cost leverage that we had an EBITDA margin expansion in the year of 430 basis points. We specifically concentrate in Heron and Babou. Very strong actually performance in terms of new store openings in Heron. We're pleased with performance, and momentum continues. And France had a very pleasing performance for the year. The business exited with positive EBITDA just over GBP 11 million, and the business had a particularly strong Q3 and Q4 performance after the first main lockdown. worthwhile also noting that EBITDA margin in France expanded at 465 basis points. And I think it sets the business pretty well heading into FY '22. If we go to Slide #6. EBITDA at a group level increased almost GBP 1 billion in the year. And the way to think about this, LFL at B&M, very strong throughout the year at 23.8%, and that added an incremental sales for the year of GBP 700 million, or 70% of that revenue growth was singularly driven by the LFL performance of the B&M fascia throughout the year. B&M new stores also contributed GBP 219 million. And that's basically, not just the stores we've opened in the last 12 months, but prior year as well. And we're pleased to say that the momentum of this performance, every single store, continues to trade well. So that's encouraging for the year ahead. If we go straight into Page #7. Given the sales density momentum we have had in the last 12 months, you can see that EBITDA fascia margin increased from 10.2% to 14.5%. That's quite an exceptional level of performance for the year. As you will know that historically, the business would have basically traded closer to the 10%. Simon will expand a bit more a bit later on. LFL B&M contributed GBP 254 million of the EBITDA increase, whilst new space almost contributed GBP 50 million, actually GPB 49 million precisely in terms of that EBITDA growth at a group level. And it's also worthwhile pointing that the relocations that we have as some of these leases come to expire and many of these stores, when we do decide to close, are basically older formats, is that this process is actually profit-accretive. So it's consistent with what the business has been doing in the last few years. And we will continue to be very selective as some of these leases and all stores come to lease expire to make sure that we continue to refresh the store state and keep it in the right locations. Finally, in terms of Babou, I think the delta, worthwhile emphasizing is at GBP 14 million, increase in EBITDA for the full year, and that is despite the business having been at almost 10 weeks of highly disruptive trading through the consecutive lockdowns that the business has had in the year. The second half, in particular, in France was very, very strong. And I think we are very pleased, it's been an exceptional performance of that team in very, very difficult circumstances. If we go to Page #8, briefly, Simon has already highlighted, we had a very strong exit in Q4 with LFL at 29%. And it's important to note that this was broad-based. Non-grocery performed very, very strongly, March was particularly strong, and grocery also had a very strong level of consistent performance. We're also pleased to see that geographically, whether it's north, some of the Heartland stores or even in the South, each store geographically has had a very strong performance in the year, and it's been fairly broad-based. If we go to Page #9, briefly. At a group level, you can see that gross margin increased 292 basis points for the year at 36.7%, and that was largely driven by B&M with also France improving as the ranges and the common buying start feeding through into the business. Strong sell-through has been very, very marked. I mean, we virtually see no markdown through the exceptional circumstances. We've had a little bit of clearly, benefit of non-grocery mix that had been fairly consistent, but Q4 has been particularly strong. As Simon says, that explains why we've exited at the top end of the range. And it's important to note that we have maintained a very sharp pricing across all our phases, categories to ensure that we remain very competitive heading into FY '22. If we go briefly to Page #10. I think the key number to highlight is at the bottom, highlighted in orange, you can see that group operating costs actually decreased 115 basis points at group level at 23.7%. And it's useful to remind ourselves that, that is after us having voluntarily committed to waive the business rates which at, a total group level, including B&M and Heron, is almost GBP 80 million. France also had a very strong performance in difficult circumstances, and the team has managed the cost base as they have continued to reformat in a very disciplined way. If we go to Slide #11. I mean, you already know that we had a very successful early summer. Refinanced the business, has the right level of maturity in terms of debt, and the level of adjusted net interest was actually quite pleasing at GBP 23.8 million, which was a marginal decrease in the year. If we expand on Page #12. You can see on the left-hand side, operational cash flow exited the year very strongly at GBP 668 million. You can see a positive working capital inflow. That's the second consecutive year, and that clearly come through very elevated sales as we have exited Q4. Net debt at GBP 519 million, closed at the bottom end of our leverage range, 0.8x. And we are comfortable within our stated ceiling parameter of 2.25x. To close on Slide 13, I think it's worthwhile reminding all, and our results, that the business has a very strong track record of performance. The business continues to be very disciplined in terms of site selection, CapEx, and cash control. And that puts us in a very, very strong position heading into FY '22 to make sure that the business consolidates what has been a very exceptional year in terms of trading and deliver the long-term strategy. So I'll hand it over to Simon now.
Thank you, Alex. And if you just turn to my pages, I'll take you to Page 15, if I may. So I'm keen that we spend our time this morning as much as possible on Q&A rather than me, laboriously making every point on every page. So you'll forgive me, please, if I breathe through some of them, but invite you to read them at your leisure after our call. But I would like to just reflect on the year just gone and how we, as a business, reacted to this pandemic and how we tried to do the right thing by all of our stakeholders. And if you look on this page, you'll see the 6 different stakeholders that we have in mind: Customers, colleagues, the communities in which we trade, our suppliers, the U.K. treasury, of course, and then shareholders. And the highlights for me are, in terms of our store colleagues, who absolutely were at the front line over the course of those 12 months, we rewarded them through additional weeks pay, a 10% premium at the beginning of the crisis. And then, in terms of the communities in which we trade, really important to reflect on the fact that in an industry that's been so badly damaged by pandemic, an industry that saw 67,000 job losses over the 12-month period actually, we, here, at B&M, have created over 7,200 new jobs in that period. And in terms of the wider community in which we trade, interesting to note that NHS workers took advantage of just almost GBP 5 million worth of discounts that we extended to them over the course of the various lockdowns. And then finally, as Alex mentioned, in terms of the U.K. Government, we have waived the business rates relief, GBP 80 million, and we've repaid in full the small amount of furlough money that we took at the very beginning of the crisis. So let's now turn to how trade evolved over the 12 months. If you look at Page 16, you'll see that it was an interesting picture in terms of the dynamic between average spend and transaction numbers. So average transaction numbers, as you were -- as you would expect, were badly impacted by lockdown. But it's worth reflecting that those transaction numbers there obviously, are the net impact of existing customers but also new customers that have discovered B&M for the first time over the course of the year. And so, as a consequence, the impact was not, on a net basis, quite as marked as otherwise had been the case if we haven't won new customers over that period. If you then turn to the question of what categories drove strong performance over the year, what we show you here is the 15 or so different categories that we characterize our product range by -- in our business. And the blue bars are non-grocery and the orange bars are grocery. You'll see that pretty much every category delivered strong like-for-like growth, even the ones at the bottom of that chart which are sort of core mature grocery categories. The majority of them were delivering 9%, 10% up to 15% like-for-like growth. But it's fair to say that the supersized like-for-like growth at the top of the chart where we saw north of 60% like-for-like growth, those were the categories that I'm sure you can guess were things like gardening, furniture and DIY. We talked the last time we spoke to you about the new customers that we believe discovered B&M for the first time or came back to B&M after a long absence last summer. You'll recall that last summer, we concluded that 23% of the customers that shop with us in June of 2020 had not shopped with us in the previous 5 months. We've gone back to the provider of that data, Barclaycard, who process our card payments and have inquired what happened to those 23% of shoppers that were new to B&M in June 2020. Did they come back to us in the subsequent 9 months? And I'm pleased to update you all that the large majority of those, 71% of those shoppers, did come back, they clearly liked what they saw. And in fact, of those shoppers that came back, the average transaction frequency over that period is over 4x. So how have we done this? That obviously is the next question. And I'd like to just dwell on a couple of product areas where we think we're executing well and creating reasons for those shoppers to come back. The first area is homewares, which is a large part of our business now. The summary here is that we've made a virtue out of necessity. What I mean by that is that we, as a business, through investment in our buying teams, have been a lot more self-reliant on product development, design, packaging, and in-store execution. Historically, if you go back 4 or 5 years, we have been much more reliant on our supplier base, we have been reliant on our buyers visiting factories all around the world, buying product off the shelf and putting it into B&M, whereas now, because foreign travel hasn't been on the agenda, we've had to create our own ranges using our own designs. So if you go into our stores, you will, in fact, see in our homeware department, whether it's Urban Jungle, or whether it's Boho Desert, you can shop the look. You can buy housewares that are absolutely on trend and are on our shelves at the same time as mid-market or indeed aspirational homeware retailers. And that's really worked for us. It's driven some supersized like-for-like sales growth in those categories. The other part of our business I'd like to reflect upon is our seasonal categories. And by that, of course, I mean gardening in the spring/summer and then in the winter, Christmas decorations, Halloween, and to an extent, toys. Now seasonal is something that we've always seen as being a particular strength but frankly, in the last 12 months, it's really come to the 4. We are fundamentally disruptive in those product categories. Our gardening range is only on sale in the peak summer months when they -- availability of that stock is needed. You come into our stores in the winter and inside the building, there is practically nothing available for the garden, which is a very different proposition and obviously, cost base relative to a garden center category specialist. But even though we've got lower costs and we're only in the market for the key 6 months, we've got the brand that customers want, whether that's hoselock hermes, watering hoses, whether it's Miracle Growth for your lawn, or whether it's Westland's Compost. We've got the leading brands. We've got the best prices, and we've got the products that customers want. So the year saw great success in the spring/summer 2020 season. And as you've heard already today, that success looks like it's been repeated in the spring/summer 2021 season. We've always been a victim of our own success of gardening and that the outperformance that you have heard of this morning in terms of our full year results, relative to guidance that we gave only 3 weeks before the year-end, that outperformance was a function of, frankly, fantastic fortnight at the end of the financial year. We took more money in those weeks than we've ever taken as a business, even in Christmas weeks. So in a sense, what we're asking you to reflect upon is that's not normal. What was happening at that moment in time is that because of the lockdown restrictions in the U.K., if you wanted to socialize, you had to do so in your garden. You couldn't go to the pub or you couldn't go to pub, you weren't allowed to socialize in your living room. And so, the country went out and bought gazebos, fire pits, brassieres, and patio sets. And they bought them early, a, because they wanted them early because they wanted to socialize and enjoy the good weather that existed at the end of March. But also, secondly, for many of them, they resign themselves to probably staycationing this year and therefore, wanted to have their homes fitted out accordingly. So what I suppose we're asking to think about is that some of that outperformance in our EBITDA, our EBITDA of GBP 626 million versus the guidance, which had a midpoint of GBP 605 million, so that's a GBP 21 million outperformance versus the guidance 3 weeks earlier, some of that is money that we would normally have expected to take and make profits in the subsequent financial year, i.e., the whole of the 4-, 5-month season, it just got -- it just took place very early indeed. That's not a bad thing. The money is in the bank, the product is sold, it bodes well, but it's just a financial accounting wrinkle that I'd actually to reflect upon. Let's now turn to our store rollout. We opened 43 new stores, which I'm really pleased with, given that certainly after the first quarter and the initial impact of the first lockdown, we were well behind track but we sort of caught up. Our U.K. store target remains 950 stores. As you see, we opened stores all across the country but there remains a large amount of white space as you see on the right-hand side of the page. Let me also talk about how the new stores have been performing. So on the left-hand side of this page, the first bar are our 681 stores in total, the company average 4-wall store contribution, i.e., the store EBITDA margin before central and distribution costs. So the company average was 20.9, and I'm pleased to share with you that the stores that we opened in FY '20 are ahead of the company average. And indeed, the stores that we opened last financial year are even better still. So what we're saying to you is that our new store opening program is absolutely not dilutive of earnings, and in fact, our new stores are better than the company average. So we are very confident in our long runway of growth in the U.K., and in fact, our store target of 950 stores is looking increasingly conservative. And the reason I say that is because if you look at the next page, you'll see that B&M appeals to everyone. It doesn't just appeal to those people who need to save money. It appeals to the shoppers who enjoy saving money and enjoy the product that we sell because what we have here is a store up opened October of last year. It's a large store, and it is in the southern part of the country in the home counties. Now this particular store is in a location where the unemployment rate is almost 1/3 of that of the national average. It's in a catchment where the housing is not, to a large degree, social housing. This is an affluent area. And despite that affluence in the immediate catchment, this store will make almost GBP 2 million a year of store contribution. In fact, as a percentage, its store contribution is higher than the company average. So how do we do it? As you've heard me say previously, whilst we don't transact online, we are active on social media, and we do see digital marketing as instrumental in our success. What you see here is more of the same. Even through the challenges of working from home and working remotely, our social media team continue to build our social media following, and they do so with a tone of voice and an attitude that creates engagement around humor and not taking oneself too seriously. Let's now turn to Heron Foods. So Heron Foods is our convenience discount food chain. We acquired it almost 4 years ago now at GBP 152 million. I'm really pleased with that acquisition. Last year, it delivered GBP 24.6 million, similar now to the previous year. So you will conclude, hopefully, that we bought it at a sensible price at something like 6x EBITDA. And for a business that is as stable as it is, that represents good value. The business opened 13 net new stores, less than we would have liked, but it was particularly hit hard by the disruption in the first quarter and had a bit of a challenge catching up. Let's now turn to France. The key message on this page actually is the map because that map represents our store locator page on their website. And as you will see, the flags are mostly B&M. So the key message now is that out of the 104 stores, as I speak to you today, 73 of them are now trading as B&M. And I ask you to understand that that, if nothing else, is a expression of confidence in the future success of the format in that market. I really need to congratulate the management team in France. They've been pretty much closed for 10 weeks out of 52 and despite that, they delivered an GBP 11 million profit EBITDA. And as I look ahead, I am entirely confident that subject to further lockdowns not taking place, we have on our hands a real success in France. Again, in terms of our ability to execute acquisitions, well, I think this is a thumbs up because, of course, we only paid GBP 80 million enterprise value for that business. So what happens when we take Babou as it was and convert it to B&M? The left-hand side of the page shows you the previous store layout. It's what's called a racetrack. And I have to confess, at times, it comes across as rather disorganized and not easy to shop. Whereas, once they've been converted, the store is set out like the stores in the U.K. in conventional parallel supermarket aisles, which makes the store easier to shop and indeed easier to operate. Let me now turn to our capital structure and balance sheet. So this is a page that you'll have seen pretty much every year since we IPO-ed 6, 7 years ago. The way we think about our capital is that our priority, quite rightly, is our organic growth. Our core business, our new stores program in our core U.K. B&M business has a phenomenal new store payback. The CapEx on our new stores comes back within 9 months. You've seen how profitable and how immediately mature those stores are. And so, it's quite right that over the year just gone, our priority was the GBP 43 million CapEx in 65 new stores across the group. Our next priority is the ordinary dividend. And as you heard this morning, we're paying out at the upper end of our 30% to 40% range. We then think about M&A, and I can confirm that as I talk to you today, we are not evaluating any further acquisition opportunities. And at the moment, we're entirely focused on delivering our organic growth plans in the U.K. and France this coming financial year. Absent M&A opportunity, we do take a view that there is no benefit in holding on to cash unnecessarily and as a consequence, over the last 12 months, we've paid out special dividends of 45p per share, some GBP 450 million. And then, as we look forward, I suppose the thing to say is that we recognize that our leverage is currently a very modest 0.8x, we have published that our ceiling for leverage is 2.25x, and of course, further returns of cash will be on the agenda as we get through the financial year and as there's greater visibility on some of the uncertainties ahead. I'd like to now talk about ESG because it is something that is at the heart of how we run the business. In the interest of brevity, what I'd like to sort of point out is that for us, in our business, our customers are at the heart of what we do. There's a reason why the customer column is at the center of the page. We absolutely think that we should take pride, and we do take pride, in the fact that day in, day out, what we do is allow families on stretched budgets to fill their ladder, to buy their cleaning goods, to replenish their toiletries, or indeed to buy themselves some replacement housewares, or a toy for a child's birthday party at a highly affordable price. If you then, turn the page -- to some of the specific numbers for last year on the ESG agenda. I won't repeat all of them on the page, but just a couple of specifics that I think are worth calling out. Firstly, we treat our suppliers well. You saw in the numbers that we had a large working capital inflow because of those record sales at the end of the financial year. But I could confirm that we pay our suppliers quickly and indeed at the year-end and under the course of the year, less than 26 days is the number of U.K. trade creditor days. And then, turning to the environment, we're very proud of the fact that we recycle all our packaging. And indeed, through the investment we made in our new DC 2 years ago, over the course of the 12 months, we drove 2.7 million less miles as we serviced our stores with products from our distribution network. Turning now to current trading and the outlook. So you've seen that over the first 9 weeks of the new financial year, like-for-likes have been minus 1%. Really important to explain to you that within that number is the continued pull forward of sales that we'd normally expect to see over a longer duration in the summer. In other words, what I'm saying is that the exceptional level of sales we saw at the end of March continued for a couple of weeks into April, particularly around the Easter period. And so, I would -- going to be blunt, I would ask you not to model flat or minus 1% like-for-likes for the remainder of the year. That would not be realistic. We are up against a full year like-for-like of almost 25% -- sorry, 24%. And it's going to be volatile. The reality, of course, though, is that we update you regularly. We're only a few weeks away from our Q1 update. And then, obviously, you've got the half year after that. Turning to the new store program. That's in good shape. Please expect something like 45 new B&Ms and 15 new Heron stores in the U.K. And in France, we are focused on getting the entire state over to the B&M format by the end of this calendar year. We're not giving guidance for the coming financial year. We think it's too early to do so, but we will do so when it's appropriate. But what I'd emphasize is that we're really focused, the whole team is very focused, on delivering a healthy -- a very healthy 2-year like-for-like versus the FY '20, and I think we're not alone in that. As I look at some of our peers who've been reporting recently, I think one should be paying just as much attention to the 2-year stack on the other LFL as the 1-year simple number. I would also ask you to reflect on some of the narrative we've been giving around very high sell-through on seasonal goods. There was practically no markdown last financial year. That's not realistic. The real world on a year-in, year-out basis doesn't work like that. So there will be some normalization of gross margin. However, that said, we are very focused on holding on to new customers, we're focused on keeping our costs tightly under control and so, we are hoping, in fact, we're expecting to deliver an EBITDA margin that's above the historic norms and somewhere between those and the exceptional 13% we achieved in the year just gone. So to summarize before we go to questions, important messages are we think we've been a good corporate citizen. We've acted in the interest of all our stakeholders. And I credit the teams for acting quickly and executing well in extremely challenging circumstances. Hopefully, it goes without saying that our business model has proved extremely resilient through these unprecedented times. And just as importantly, our proposition has been highly relevant to shoppers, both in the U.K. and indeed France. Our long-term strategy remains unchanged. This is a growth story of rolling out new stores to meet the customer demand that unequivocally is out there, and we expect to keep opening more B&Ms, more Heron Foods and refining our proposition in France in order to make sure that we can repeat the success in France that we've had here in the U.K. So with that, let's go to some questions. We have about 25 minutes. So if we could keep them relatively substance, that would be appreciated. Thank you.
[Operator Instructions] The first question is from Jonathan Pritchard from Peel Hunt.
Taking into account what you said about pull forward and volatility, et cetera. Just one question for me, what would you class as a good like-for-like performance for FY '22?
So we work day in, day out to deliver a good performance but what I don't know is what the external circumstance is going to be. Every morning, the entire team is focused on what the LFL was yesterday and what we do today to make tomorrow's better. So we're not giving guidance on that number just because there are so many uncertainties, whether that's further restrictions, or what the consumer -- et cetera, et cetera. But watch this space. I'm entirely confident that on a 2-year stack, it's going to be very healthy.
The next question is from Richard Chamberlain from RBC.
A couple from me, please. What are you seeing, Simon, in terms of sort of food inflation and expecting there, I guess, given potentially higher raw material and transport costs that are likely to be coming through? And I guess, second question, can you just touch on the reasons why Heron Foods was a little bit soft in terms of EBITDA. I think it came -- it fell back a little bit last year. Was that sort of labor costs a little bit softer into the year? So yes, so food inflation costs and Heron, please.
Both good questions. So food inflation is about to come through. We've not actually had it in terms of our selling prices yet. But in all the conversations we're having with suppliers, it's around the corner. But for me, that's not necessarily a bad thing. A little bit of inflation is actually good for retailers. And certainly, in an environment where prices are going up, that's when the discount retailer comes to the fore in terms of the shoppers' front of mind. The other thing, of course, to reflect upon is that our EBITDA margins are so much healthier than the rest of the industry. If you look at our EBITDA margins relative to the big 4, or indeed the discounters such as Aldi and Lidl, ours are a multiple larger. And so, I would conclude that the market will pass on food cost increases, and won't be able to absorb them. And so, we will be able to follow whilst we'll be able to maintain our price advantage. Turning to your question on Heron. It's down to the nature of their estates. And you're right, it's down to labor costs. So Heron's neighborhood stores in residential areas, traded really well through the lockdowns. And as a consequence of that strong positive like-for-likes in those stores, you have to put on extra labor to meet the demand. However, they do have about 1/4 to 1/3 of their stores in town centers or shopping malls. And in the lockdowns, those stores saw a very dramatic decline in turnover but we decided not to shed labor. We didn't think it was the right thing to do in the context of the financial performance and circumstances of the group. It would have been the wrong thing to do to make people redundant in those stores because of those short-term lockdowns. And so, as a consequence, yes, there was a slight overspend. And as a point of detail, we are one group. In the way that we paid all our store colleagues in B&M in extra weeks' wages, we did exactly the same thing in Heron even though as a business, they had a slightly more mixed performance because of the nature of their store locations. I hope that answered your question.
It does. Can I just -- did you say also, Simon, that in an environment of higher costs and inflation, are you likely to be a little bit more active in terms of sort of switching between products and so on. I mean, is that a relative advantage for B&M? Or should we expect that to be fairly consistent?
No, it's an astute observation because one of the advantages of being a limited assortment discounter is that unlike a full-service supermarket, we don't have to stock any one thing. So if there's a particular product that we feel, because of a price increase, isn't going to be a good seller for us or we aren't going to be able to demonstrate our value credentials versus the rest of the market, we can delist it. And our shoppers don't mind because they don't expect us to stock everything. So yes, we are structurally advantaged versus the competition in periods of cost price inflation.
The next question is from Simon Bowler from Numis.
Two for myself, it's okay -- if it's okay. First of all, this time, 12 months ago, we were talking about kind of incremental COVID costs that the business was absorbing and may continue to do so. I guess, just reflecting back on that, have you got a rough end of what quantum of costs were being incurred during fiscal '21? And then, the second question, kind of changing tack is with regards to France, I understand that we're not at the kind of stage of rollout yet because we're still refining the proposition. But if we were to get to that kind of rollout stage, then is there any impact from kind of the mandated manager model in terms of your flexibility or EBITDA growth?
So in terms of the incremental COVID costs that we were talking about this time last year, of course, we hadn't foreseen that the full year would have been a 24% like-for-like. So in a sense, it disappears as a problem because of the share opposing effect of operating leverage on your fixed cost base. So I think what I'm saying about that is you don't need to worry or model it. Think about our operating cost as a percentage. And yes, obviously, if we give up some of the sales that we achieved last year is you'll get some deleveraging but it's not a large number for you to model. And in terms of the French question and mandated managers, Alex, why don't you take that?
Yes. Look, think of it -- the priority of the team over the next 2 to 3 quarters is to complete the formal reconversion. And I think the momentum is very, very much in place with the team. I think once we start heading into FY '23, I think in terms of growth, I think the business can start accelerating some of that organic expansion. I think we'll do it in a very measured but confident way. And in terms of mandate managers, I think, look, it's heading towards a more balanced mix, less reliant on the current model. I think if you fast forward 2 or 3 years, I think you will see a mix, which is more balanced towards maybe 50-50. I think it's sometimes [indiscernible] specific, but you can work on the assumption that we will be less reliant on the current model, and we will be a bit more balanced between current team members. Is that good for summary?
The next question is from Simon Irwin from Credit Suisse.
Two quick ones for you. You reported -- hired a Digital Director from one of your competitors. Does this imply that you're looking at the potential for transactional online? And secondly, can you just talk a bit about food. I mean, when you're talking about range development and opportunities, it's really always in nonfood. But particularly given Alex's background and -- are you seeing opportunities within food as well on an incremental basis?
So yes, you're right. We do have a new member of the team, who is our Digital Director. At this moment, we're thinking about the opportunity. We're exploring what we should and shouldn't be doing, which is why there is no slide on it in the presentation. It's much too early. I think the key message is that we're keeping all our options open, and we will look at the markets as soon as we've landed on what we want to do. Alex, do you want to talk about the food?
Yes. I'll take the second one. Look, my view is coming in, this is an incredible opportunity for the business. We know the market is very available for us. I think it's important also to remember that the 2 sides of the business are highly complementary with, I mean, non-grocery and grocery. I think price position has continued to stay very, very sharp. But we will keep it very focused and simple. And I think the advantage of the business has leverage over the last few years is in keeping the grocery side simple without complexity. I think that is where the opportunity comes for us. That's where the grocers have a level of complexity, which introduces all sorts of cost into the business. And as long as we can refresh the right level of SKU, keep it simple and keep very, very focused on a sharp price position. I think the market is fully taking.
Yes. And I think the other observation, of course, is that as you think about the LFLs you've seen across the big 4, I don't read any of them are double digit, whereas ours are. And so, as you think about our relationships with our suppliers, we're a rare beast in offering double-digit like-for-like growth, never mind our new store opening program. So I think strategically, well-positioned to continue to win in that space as well as our non-grocery space.
The next question is from Adam Cochrane from Deutsche Bank.
Two questions from me. On the bit around inflation, particularly on the nonfood side. We've heard about availability issues maybe within DIY, lumber, cement, price inflation, things. Is that going to impact either pricing or availability in that area? And then, sort of following on from that, would you expect the product mix to normalize. You talked about markdown normalizing, but should the product mix be expected to normalize in the year? And then, the second question is really around your new stores and the profitability. I think it's fascinating. Would you be able to explain what the moving parts are as to why the new stores are more profitable than old ones. Is it sales density, lower OpEx, as examples?
Great questions. So in terms of supply chain issues on pricing availability and availability, I would focus on 2 things, a, our buying power. As a group, we're a GBP 4.8 billion revenue business. And so, you can imagine, we're a very significant customer to some of our suppliers in Asia. And then, it also reflects the fact that we've been doing this for many years, in fact, decades. And so, those relationships are very long-standing and very deep. And so, in a sense, the proof of what I'm saying is the like-for-like performance that you've just seen. You don't get to deliver 24% like-for-like, unless you've got a very responsive supply chain and a supplier base that's working very closely with you to maximize the opportunity notwithstanding external constraints such as shipping capacity, or indeed, Suez Canal blockages. So we're well placed in terms of availability of product and pricing just because of the nature of those supplier relationships and the trading skills of our commercial teams. I'll answer that question on new stores, and I'll hand over to Alex, on the question of mix. So the reason why the new stores are so strong is it's the 10,000 hours Malcolm Gladwell thing. I don't you know if you're familiar with that concept, which is if you keep doing something again and again and again for years, week in, week out, you just get better and better at it. And whether it's the people who select those stores, it's the people who negotiate the rents, it's the teams to get them fitted out, it's the teams that execute the merchandising of the product in the stores, they've been doing it for 15 years. It's the same people week in, week out, opening a new store. So it's everything from site selection through to the opening day, how the store looks, we're just getting better and better. And I also think that as a brand, we're creating -- we're punching above our weight. Just look at those social media followers as an example of that. So we opened the doors of a new store in a town that we've not traded in before, and they come flocking in. Nothing else because nobody else is opening new stores.
And yes. look at -- a good comparison, think about a top second quartile store for us, let's say, 20,000, 22,000 square feet. I mean, we have a strong store performance of, call it, GBP 160,000 to GBP 180,000 a week, okay? You have a discounter like Aldi or Lidl, probably averaging just over GBP 200,000, maybe GBP 220,000 a week. What FY '21 has really proved is that the business operationally, can uplift the level of sales densities very easily within the store with significant headroom ahead of us. How the mix actually settles, it's very difficult to call it. But I think the important point for me is the business has operationally proved itself that you can fundamentally continue to grow both pound category elements in a very consistent manner. How the mix actually changes tunes on a quarterly basis, it's almost a secondary point. So I think we have significant headroom ahead of us. And operationally, the stores are not constrained. And I think that is the point I would like to reflect and carry forward.
Yes. And I think all I'd add on that because is we don't know. The last 12 months saw a huge increase in DIY spending. We don't know whether that will continue for the next 12 months or not. But we're certainly confident that our products are the right products, the right brands, great prices. We're confident that we can continue to win market share because if you look at our LFLs, they're outperforming the category specialists in that space. We look closely at that number. And so, if the demand is there, we'll serve it.
No need for us to pencil in any gross margin impact from a change in mix?
I think the key message this morning is the gross margin impact from normalizing levels of markdown is something you should model because that's something that you have to predict is normal. You are normally left over with some Christmas decorations on the 24th of December, and you're normally left over with some gardening product at the end of July. Indeed, in homewares, as you finish your spring/summer range, you've got some remnant stock that you clear out in readiness for your autumn/winter range, that activity has to return surely.
The next question is Warwick Okines from Exane BNP Paribas.
Two for me, please. Firstly, can you talk about which categories you're already seeing and benefiting from capacity withdrawal? And maybe just some general thoughts on the competitive environment at the moment, please? And then, secondly, could you give us any guidance or thoughts on working capital. Would you expect some unwinds during the year?
So certainly, on the first question, capacity withdrawal, I think the key category is home. And the reason I call that out is because don't forget that the department stores have significant home departments, whether that's the department stores that no longer sadly, are on the high street, or those department stores that have a stated intention to reduce their physical capacity, that's where we see the opportunity. And of course -- and I take more pressure on this, it's genuinely not something that is a positive. But a lot of independents probably aren't going to come out of this crisis in a good shape. So there may well be some capacity withdrawal around the independents who, in any case, we're struggling against the economies of scale and the buying power that retailers like ourselves enjoy. On the working capital, Alex, do you like to share some thoughts?
Yes, I think it would be sensible to assume a moderate level of unwind in FY '22. Clearly, stock levels were at the low end given Q4. And we are proactively also shipping a bit earlier, particularly ahead of autumn/winter, just proactively to make sure that we are well set up. So it wouldn't be a big number but it will be very difficult to assume a third consecutive year of an inflow.
Yes. I think -- Sorry, I just add point there because I talked to about suppliers and paying them early. That's one of the reasons why our supply chain has been so successful in navigating all the challenges that you've been reading about. We pay suppliers quickly. We're proud of the fact that we hold stock in the U.K. rather than operating on a just-in-time basis. And as a consequence, we were well-positioned to take advantage of the circumstances of the last 12 months.
Got it. And just on the shipping early to make sure that you've got as much availability as possible. Should we still assume that you're hedging on a kind of 9-month basis. So you should see some currency gains particularly in the second half of the year?
Yes, all consistent. So no change in policy and then in a fairly conservative way, it work.
The next question is from Andrew Porteous from HSBC.
Just a couple from me. Just coming back on the inflation point. I think a couple of your competitors have said around of the food inflation side that there's some there, but it's not really exceptional. Could you just put some context around what you're seeing there? And then, secondly, on inflation. Is your growth a strategic weapon here. I mean, should you be seeing less cost inflation than some of your competitors or being a better positioned to push back on cost inflation because you've seen so much better growth across the food and nonfood side of things? And then, the second question, just on the aspirational ranges. You talked a lot about homewares and the success you've had there. Do you see other areas of the offer where you can perhaps push aspirational ranges a little bit more as you trade into those sort of more affluent catchments?
Alex here. Look, my view is that where the big pounds are in the market, specifically the grocers, I suspect the inflation you're seeing on that side of the market is higher than what is acknowledged. You can see that on the bottom line. You have the tailwind headwind of online mix actually putting them on a lot of pressure. So I would go back to 2008, '09, and it wouldn't surprise me that they basically follow that same trend. I think we're in a very different position. I don't think we have the need. It's not consistent with our business model. And actually, if they do play that game, they've done it 10, 15 years ago, I think it plays to all our strength, and we will keep that gap very wide.
And all I'd add to that is what I said earlier, when prices are going up, that's when shoppers notice the price difference more. So we're not afraid of inflation. To your question on aspirational product ranges. Absolutely, yes. We absolutely see our point of difference to some of our competitors is the fact that we have the leading brand on the shelf. So if you look at our electrical appliances, they're all leading brand products. And we find little niches that we can be very successful in that a few years ago, we wouldn't have thought appropriate. A good example would be accessories for Nintendo and PlayStation. So we have those products, we buy them from the brand, and they're attractively priced. Similarly, if you look at our housewares, we have more Egyptian cotton bedding and towels than we would have historically had. And similarly, in DIY, it's the leading brand product at Stanley tools, for example, Johnson's Paints. So it's all about offering the customer big brands at big savings. And that's what's really driving the performance, not just in the working-class areas that we trade in, but importantly, also the middle-class areas that we trade in. But good question, Andrew. Great. I think we've just coming up to the...
[Operator Instructions]
Moderator, I think we've just taken the hour that we allotted ourselves. So I'm very happy to conclude there. Thank you all for your questions. They were insightful and to the point. So have a good day, everyone.
Thank you, everybody.
Thank you for joining the call. You may now disconnect your lines.