B&M European Value Retail SA

LSE:BME

Earnings Call Transcript 2020-Q1

[Operator]

Hello, and welcome to the B&M Q1 Report Update Call. [Operator Instructions] And just to remind you, this conference call is being recorded.Today, I am pleased to present CEO, Simon Arora; and CFO, Paul McDonald. I will now hand you over to Simon Arora. Please begin.

[Sundeep Arora, CEO & Executive Director]

Thank you, and good morning, everyone. Thank you all for joining this morning's quarter 1 conference call. I have Paul McDonald, our CFO, with me, and we will adopt our usual approach today. I'll make some brief opening comments on the performance of the business, if I may, and then, of course, we'll be happy to take your questions. As you will have seen from the RNS released early this morning, overall, B&M has made a solid start to the financial year. We are very pleased with the trading momentum in both the B&M and Heron fascias in the first quarter. The fact that our core B&M fascia grew almost 4% like-for-like is a very strong performance in the context of weather that has been rather mixed compared to the corresponding first quarter last year. It's now been 6 months of this calendar year that our B&M LFLs have averaged around 4% to 5% level, which we're obviously delighted by, and I should congratulate all the team in all our stores for that performance. We did benefit from the timing of Easter but only to the tune of 1 percentage point within that LFL performance.Driving the performance over the quarter had been the strength of seasonal ranges, very good growth in our homeware category and further multiyear growth now in grocery and FMCG. These areas have compensated for the effects of the tougher comparisons we faced in areas like alcohol and soft drinks, which last year benefited from the long spell of good weather and, of course, the World Cup. So overall, a very solid outcome for the B&M fascias. I'm pleased to confirm that, that pleasing positive LFL growth in our core B&M fascia of 2001 -- 2019's quarter 1 has continued into the first 3 weeks of this current quarter.We're also delighted with the performance of the current vintage of new stores that we have opened over the last quarter and are experiencing their first full years of trading. They are performing consistently well, and the future pipeline of new stores remains promising in a property market that is providing a plentiful supply of attractive new opportunities. Elsewhere, as we described in our prelim results in May of this year, we're working hard to replicate B&M success in both our German and French retail businesses. This is a key focus for the team. As we confirmed in our full year prelims, in our German business, logistics and distribution costs are higher than we would like. As previously guided, these costs are not expected to come down to acceptable levels until the second half of this financial year. Turning to France, the implementation of our change program in Babou is generally going well according to plan. The planned reduction in reliance on clothing is well underway. New B&M-sourced products have been launched on a weekly basis over the quarter that we are reporting on and will continue to do so over the current quarter.We expect to see the progress of product and sourcing changes to be well advanced by the time we're in the autumn/winter selling season of this year. And so on that basis, the appropriate time to give you substantive and detailed commentary on the customer reaction to those B&M-sourced products will, of course, be at our half year results announcement later this year. That concludes my opening comments. So operator, perhaps you'd be kind enough to forward any questions. Thank you.

[Operator]

[Operator Instructions] And our first question comes from the line of Richard Chamberlain from RBC.

[Richard B. Chamberlain, Managing Director of Consumer Retail]

Three points from me, please, 3 questions. First of all, could you just comment on your inventory availability for the second quarter? Obviously, last year, you had some stock out, I think, at this time of seasonal lines. How is your inventory availability or inventory position looking at the moment?

[Sundeep Arora, CEO & Executive Director]

So we're actually very pleased with the inventory availability and the stock levels we're holding as we approach the end of the spring/summer season. We retailers are always a little bit out of step with the people looking out the window because we're now thinking about autumn/winter launches, a focus for us. The key season is coming to an end. But generally, we're very pleased with the inventory levels in our core B&M fascia. We've had a -- let me put this way, the stock is as clean as it's ever been. So Goldilocks, just about right.

[Richard B. Chamberlain, Managing Director of Consumer Retail]

Okay. Good to know. And just a couple on Jawoll, if that's all right. Can you just give us an update on the store plans for the rest of this year, where you expect to be in terms of number of stores? And then also, I guess you're probably having to spend a bit more time on Jawoll and international now as opposed to the U.K. So maybe you could just reassure us that you think you've got enough management resource still focused on the U.K. business to continue its momentum.

[Paul Andrew McDonald, CFO & Executive Director]

Richard, yes, in terms of new stores for this year for Jawoll, Richard, we're planning on opening 5 in the year, probably a little bit back-end loaded there, actually, but equally. So in terms of the year, we probably should end the year with 100 stores in Babou -- sorry, Jawoll, sorry.

[Sundeep Arora, CEO & Executive Director]

And Richard, in terms of your question on management bandwidth, I have the benefit of a very settled and experienced team that run the detail of the U.K. business. The people who open our stores have been doing so for 10 years. My senior colleagues who run the stores and their buying decisions and the warehousing and logistics role are very experienced and long serving. So we're not concerned that the U.K. business is at any risk from our European expansion program.

[Operator]

Our next question comes from the line of Jonathan Pritchard from Peel Hunt.

[Jonathan Pritchard, Retail Analyst]

Just 3, if I may. The new store performance, very pleasing. Is that because you're able to get more of what you probably describe as perfect stores, the perfect position on the ring, wear the perfect size, the perfect geography because the property market has been with you? Or what's behind that particularly special vintage of the latest crop?And secondly, just a little bit more granularity on the drivers of the homewares' performance. And any update in terms of sale and leaseback of Bedford and perhaps your thinking on a special dividend as a consequence of that?

[Sundeep Arora, CEO & Executive Director]

Jonathan, to your first question around the current new store program, I think what's different about it relative to the position a few years ago is that a great proportion of those stores are new-build stores specifically built for us and, therefore, the ideal size available with parking and quite often now with a garden center compound attached to allow us to take advantage of the opportunities in that particular submarket. But the broader picture, of course, is that it is a biased market in terms of retail space. There are only a handful of U.K. retailers opening new stores at the moment, and we're one of the most active. And other more established or legacy retailers are actually vacating space rather than expanding.

[Jonathan Pritchard, Retail Analyst]

Just to butt in, sorry, apologies. What percentage of new stores are tending to be new build? Is it sort of 1/3 or 1/2? Where are we?

[Sundeep Arora, CEO & Executive Director]

It's somewhere between -- it's about 1/3. But the comment around it being a biased market and limited competition for sites means that even the ones that are existing buildings, we can be a bit more discerning and specific about keeping certain size and location quality premises.Turning to your question, Jonathan, on homewares. The category had a reboot, which started at store level being implemented around the February-March period. It's now had pretty much its first full season, the spring/summer season. And I'd say that it was probably a bit more fashion forward, a bit more on trend and more coordinated across the different subcategories of soft furnishings and hard goods. And the team just worked very hard to make sure that we offer great value for money rather than just low prices. And by that, I'm referring to the product being of equivalent quality and fashionability as the mid-market department stores.Turning to your final question around the Bedford facility, it's all very exciting at the moment. It's 1 million square feet, as you know. We're currently fitting out with pilot backing, et cetera. The builders vacate site in the next couple of weeks. So, so far, all is going well. We haven't made a firm decision on the exact timing of the sale and leaseback. But what I can say is that the sales particulars for that transaction are ready to go as soon as we press the button. So watch this space, but it's all going to crack as we speak.

[Operator]

Our next question comes from the line of James Anstead from Barclays.

[James Robert Anstead, Director]

Two things I'll ask a question, if that's okay, and I hate to focus on wholesale because I know it's a tiny part of the business. I just wanted to be 100% sure that those sales are basically benefiting your total growth number but not coming through like-for-like, just to be clear on that. And also, I think you mentioned that wholesale revenues were GBP 12 million last year, and they now obviously jumped to GBP 6 million in the first quarter alone. So is multiplying that GBP 6 million number by 4 a sensible way of thinking what that does to this year's figure overall?And then just as a supplementary, in terms of the frozen foods progress, I know it's kind of slightly on hold given the capacity constraints. But any kind of color you can add in terms of how that trial is going?

[Paul Andrew McDonald, CFO & Executive Director]

Yes. I mean in terms of the wholesale question, yes, there's GBP 5.6 million of sales in the first quarter, as you described. That is not included in the outcome number at all. That is just entirely treated. I think it was almost like new stores or once they're better, they're praised equally. In terms of multiplying that for the full year, 4 times GBP 5.6 million is a good figure for the year. And if you remember, this is all outer markets as well. Actually, this is stock which is being sold into the Republic of Ireland as well, so it isn't where we currently trade. So it won't have any impact upon the kind of core U.K. business as well.

[Sundeep Arora, CEO & Executive Director]

James, just one on your second question, if you will, please?

[James Robert Anstead, Director]

It was just around the frozen trial. I know that you're slightly constrained given the distribution facility coming onstream. But any color you can add in terms of how things have sort of moved over the last 3 months or so.

[Sundeep Arora, CEO & Executive Director]

They haven't because we're not really been thinking about it. When we announced our prelims a couple of months ago, I think we shared that the time to make that analysis internally was in January once we have the Bedford capacity for further rollout. And we'll simply allow the maths of the performance of the different departments across the B&M fascia to dictate our decision. So it will be the financial performance of each category, be that DIY, homewares and/or furniture versus frozen foods. And we'll make the decision based on sales per square foot.

[Operator]

Our next question comes from the line of Warwick Okines from Exane.

[Alexander Richard Edward Okines, Research Analyst]

I've got a couple of questions about Jawoll, please. Simon, in your prepared remarks, you talked about getting the logistics costs down to more acceptable levels in the second half of the year. Could I just clarify what that means? Because you incurred GBP 6 million of extra costs in H2 last year, and I assume you'll incur a similar sort of GBP 6 million in the first half this year. But does that mean you're not expecting any increase -- further increase of cost in the second half? Or actually, do you think some of that GBP 6 million from last year will drift away? That's my first question.And then secondly, on the performance of Jawoll in the quarter, it's helpful to have the like-for-like commentary that you put in the statement. Could you just confirm that the performance between categories is still as marked as it was before between the new B&M ranges and some of the categories that perhaps are a little bit less new?

[Sundeep Arora, CEO & Executive Director]

Warwick, thanks for those questions. So in terms of the Jawoll business warehouse and logistics costs, you accurately point out that the overspend on warehouse and logistics came in the -- in fact, it came the last quarter of last financial year. And the figure you gave is the right one. So we see -- yes, we agree, we see that level of overspend continuing over the course of the first half of this financial year, but not being a feature of the business's P&L in the second half of this financial year. And the reason for that is that one of the drivers of the cost being so high was having to go into the market to multiple different 3PL providers and actually paying the asking price. Whereas now that we've got a better handle on the product flows and we don't have to repeat the experience of so many new products arriving all at once and we're able to get closer to the B&M model of new products arriving weekly rather than all being launched in the same quarter, we're able to avoid having to spend so much money with those third-party 3PL providers.Turning to your second question around category performance. Yes, it's still absolutely the case that departments such as clothing, which we don't want to have remaining a key part of the mix going forward, continue to be significantly negative like-for-like. But other departments that we have real strength in and real buying power on, such as electrical or, should we say, homewares and gardening, are performing well.

[Alexander Richard Edward Okines, Research Analyst]

And sorry, just to come back on your first comment, I want to make sure we're totally clear on this. When you say you don't think those costs will be a feature in the second half, those GBP 6 million from last year may actually drop out. I'm just clearing that because I thought that you were expecting 3PL costs to remain for a couple of years, potentially.

[Sundeep Arora, CEO & Executive Director]

They'll remain for a couple of years, but they'll be a lot more affordable because planned 2-, 3-year contracts are a lot more affordable than going in a market on a sort of distressed basis. So I think what we're saying is that the 3PL costs going forward will be a much smaller number than the sort of GBP 6 million that you mentioned. And when you get down to the sort of numbers I'm talking about, I'm not sure it will be particularly material in the context of the group.

[Operator]

Our next question comes from the line of Steve Farrell from The Grocer.

[Steve Farrell]

I'm not entirely sure if the intention of this call was media, so I apologies if I'm gatecrashing. It just said in the update a conference call, not an analyst call. But I'll ask a couple of questions, if I may. What's the plan for the B&M Express fascia? Will that be used in place of the Heron Foods fascia for expansion into new areas?

[Sundeep Arora, CEO & Executive Director]

Steve, smiles are around at the center of the conference call. Yes, it is an investor and analyst call. But given you've asked a question, I'll be polite enough to answer it. So B&M Express is a convenience store format, about 2,500 square feet where we sell purely our grocery offer, and grocery being our food, soft drinks, toiletries and cleaning goods, et cetera. The reason for it is that B&M enjoys something like 4 million to 5 million shopper visits per week across the U.K. and is a much larger business than the Heron business.And as a consequence, in those parts of the country where Heron is not known, it makes more sense to badge those stores as B&M Express from a brand recognition and brand awareness perspective because we believe that when a shopper sees B&M Express in that part of the country where they're not familiar with Heron, they'll know what they're going to get, which is great value groceries, big brands at great savings. So that's the thinking behind it.

[Steve Farrell]

Right. That's really interesting. One more or should I leave it there?

[Sundeep Arora, CEO & Executive Director]

We should probably leave that because I probably do have analysts and investors who got questions. Thank you.

[Operator]

Our next question comes from the line of Kiranjot Grewal from Bank of America Merrill Lynch.

[Kiranjot Kaur Grewal, Associate and Analyst]

It's Kiranjot. I just had a couple of questions. Firstly, I think we had a bit of caution around the U.K. gross margin growing into first half this year just because we were cycling with good gardening performance last year. Given that homewares have done well, can we assume that risk has now been mitigated?Secondly, are you seeing any impact from -- or any changes in consumer buying at the moment just from Brexit, whether they're changing their buying habits?And then thirdly, we've heard some of the food retailers increasing pricing in recent weeks. Are you having any sort of similar pressures on the inflationary side with food?

[Paul Andrew McDonald, CFO & Executive Director]

In terms of margin, yes, I mean, as good as last year, really. I mean, obviously, a little bit a week ago, I think sales being offset by the strength of the kind of homewares that we kind of flagged through. So a little bit of change in the mix there, but I'd say margins are kind of in line with last year.

[Sundeep Arora, CEO & Executive Director]

In terms of your question around consumers and Brexit, we're not seeing any impact at the moment. I mentioned in my prepared remarks that certainly, over the last 3 weeks, in terms of current trading in the second quarter, we're just as pleased with our like-for-likes as we have been in the first quarter. What I would say to you is that our strong like-for-like performance is driven both by a number of transactions and also average spend, which is a nice balance to have. One could speculate that Brexit uncertainty is driving and helping the increase in number of transactions as shoppers look out for discount rather than paying normal mid-market full prices. But we're not seeing anything particularly stark at the moment.And then finally, on pricing, I think the key message from our perspective is that we're quietly confident that we're able to maintain the pricing gap between ourselves and the mainstream. And that's been the case now for a full 5 years of being a listed business.

[Operator]

Our next question comes from the line of Simon Irwin from Crédit Suisse.

[Simon William George Irwin, Director]

Just a couple around the European businesses. Just on Jawoll, you've closed the store in the first quarter this year, which we weren't expecting. Is there anything behind that? And I'm just trying to get my head around the overall kind of underlying performance of the business. You've got almost 10% more stores year-on-year, and I assume that the FX is kind of broadly neutral on translation in the quarter. So it doesn't sound like they're kind of small negative LFL, or have I misread something?

[Sundeep Arora, CEO & Executive Director]

Simon, so in terms of your 2 questions, the store that was closed was a legacy very small store, so nothing strategic to be read into that, just very site specific. And then in terms of your further question on the number of stores year-on-year, bear in mind that we've been trialing these much smaller stores of around 800 square meters as opposed to an average nearer 2,000 square meters. And so the change in store numbers is not reflective of the internal budgets or the sales of the stores.So I think we just take you back to the prepared statement, which says there was a small -- very small modest negative like-for-like over the quarter. That was mostly driven by a very challenging comparison in April because April last year was just a strong -- very, very strong month, and that wasn't able to be replicated this year largely due to weather.

[Simon William George Irwin, Director]

Okay. And just on Babou, you're not talking about the performance of the new ranges, so maybe you can talk about performance of old ranges. How's the clearance going, particularly given the kind of relative constraints around clearance in France generally? Are you finding that product kind of shifts when you put it on sale?

[Sundeep Arora, CEO & Executive Director]

You make an interesting insight. You're right, in France, there are only a couple of sale periods that you're allowed to clear product below its cost. And so if you want to buy some clothing at great pricing, you get yourself into a Babou store between now and the 6th of August. Yes, of course, product is shifting, and it's always difficult to predict just how much discount you have to give to the shopper to move that product off the shelves.I think the thing I should and can say is that we're very clear as a business that time is money. And the quicker we move that product out of the business in order to get to a position where we have got the stores looking, feeling and stocked as we want them to, that is a small price to pay in terms of the context of the group more broadly. We are a business that, I think, consensus is around GBP 340 million, GBP 345 million EBITDA this year. We're in the fortunate position of being able to afford a little bit of P&L paying around clearing out old clothing ranges in order to make room for B&M-sourced product from Asia.

[Simon William George Irwin, Director]

Okay. And just one quick follow-up. Obviously, potential Brexit at the end of October, which I guess timing-wise is pretty awful for you. At what stage do you need to kind of get plans up and running and say, well, we are going to bring in additional stock or whatever? And do you have kind of locations where you think you can keep it?

[Sundeep Arora, CEO & Executive Director]

So I think there are a couple of things to say around that. Firstly, we've been obviously doing some planning and thinking around the possibility of a hard Brexit for many months now. The key thing that helps us really and makes us rather different to some of the other U.K. retailers that you might follow is that the vast majority of the goods that we make most of our profit on come from Asia and not from Europe. We actually have very, very limited imports from Europe. And of course, all that product from Asia comes into the U.K. business via Liverpool Port, which again is not particularly exposed to potential disruption as much as the Channel Ports would be.And as a point of further detail, our own distribution centers here in the Northwest are bonded warehouses. So the customs point is actually when the product leaves our warehouse rather than when it hits the U.K. port. So our products go through what's called a green lane, which is effectively not needing a customs check, that takes place as it leaves our depots, not when it arrives at Liverpool docks. So operationally, we're not as exposed as others. And in terms of that part of our FMCG offer that might have some ingredients, components or finished goods coming in from Europe, we clearly have been having detailed dialogues with our U.K. suppliers to make sure that supplies aren't disrupted.

[Operator]

Our next question comes from the line of Sreedhar Mahamkali from Macquarie.

[Sreedhar Mahamkali, Analyst]

Three questions for me as well, please. Firstly, on Babou, I think, Simon, you were talking about potentially some additional 3PL costs involved here as well as you look forward. But can you give us an update on where you are in terms of your thinking there, please? That's the first one. Second one, in terms of Jawoll, you talked about turning positive like-for-like. Again, is that purely limited to categories benefiting from hot weather as you seem to have implied in the release? Or is there anything else changing that you can actually point to a fundamentally improving trend?And cheeky little one in terms of current trading, I know it's only about a month since you've adjusted the period there since you've reported, but any thoughts on where you are in terms of current trading, please?

[Sundeep Arora, CEO & Executive Director]

Certainly. So in terms of our Babou fascia, hopefully self-evident that as a business, we learn from experiences elsewhere in the group. And so some of the issues that we experienced in Germany, we were able to forward manage and make sure they didn't apply to our French business as they also went through this change program around products coming in from Asia rather than local importers. And yes, we do have some 3PL support, but it's somewhat limited. We've smoothed out the intake of new products arriving. And it's a lot more affordable, in other words, at a cost that really is material to outside investors.Turning to your second question around Jawoll. Yes, we do expect positive like-for-likes for the remainder of the year, but we expect that to be broad-based. It's not reliant upon gardening. In fact, the key gardening season has now passed, so it's really all about toys, Christmas decorations, housewares, DIY, et cetera.And then finally, on your point on the current trading, I can only refer you to my comments at the beginning of this conference call. Our core U.K. business has experienced positive like-for-likes as good as those experienced in the first quarter. So we're very pleased with how the core U.K. business is trading over the last 3 weeks of this current second quarter. Operator, remindful that we're coming up to 0.5 hour. Perhaps just another couple of minutes if there are any questions. Thank you.

[Operator]

Our next question comes from the line of Ben Hunt from Investec.

[Benedict Anthony John Hernaman Hunt, Research Analyst]

Most of my questions had been answered. Maybe, Paul, if you could just tell us where you're now hedged at for this financial year. I think you said that you bought most of your currency ahead of prelims or a lot of it. And then maybe looking into the following years, where you hedge that growth coming in, where you're probably fully hedged in.

[Paul Andrew McDonald, CFO & Executive Director]

Yes, I mean we probably have the prelims. We're kind of fully hedged to the end of kind of March 2020 rates, which are your -- a little bit north of kind of $1.30. So in terms of FX impact this year, it's going to be relatively consistent with what we saw in FY '19. I mean, clearly, currency has moved down a bit to -- compared to the, obviously, around the kind of mid-1.20. I will refer you back almost to the kind of post-Brexit kind of vote in the first place where, clearly, we have currency drop of 1.50 to 1.20, and actually made very little impact to kind of B&M's margins just because actually, there's lots of things you can do with the product in terms of reengineering it actually. So I mean maybe it's a small impact in FY '21, but I wouldn't expect it to be particularly impactful on margins overall.

[Sundeep Arora, CEO & Executive Director]

Ben, I think the key input from my perspective is that it's a level-playing field. All of our competitors for our sort of products are typically buying the goods in the same parts of the world, i.e., China and Asia. And so if there are cost pressures because of FX, they apply to all of the competitive data set, including ourselves, and so one is able to pass it on.

[Benedict Anthony John Hernaman Hunt, Research Analyst]

Okay. Great. And then, finally, just a more general question. On Jawoll, how are you -- I mean I can see you can get your gross margins back to maybe prior levels with the sourcing that you're doing, but it still doesn't feel, even if you do that and you take out the extra costs you've had to do with 3PL, that you're ever really going to generate a return on that business in line with the B&M U.K. Perhaps you -- I mean do you have a sort of -- how do you envisage improving your returns in that business to get it back to a level in line with B&M U.K.? Would it be through getting better sales densities? Or it feels like you're going to have to take a lot more cost out, even add with the 3PL to achieve it. So a bit of a long run. But how do you sort of feel this is going to get to a good place really in the end?

[Sundeep Arora, CEO & Executive Director]

So I think the best way to answer that query and just to refer you to the sort of multi-year P&L of the Jawoll business prior to the change program. So for a 4-, 5-year period, the business was averaging about a 9% EBITDA margin. And certainly, the last 12 months have been painful from that P&L perspective as we move the business away from buying from local wholesalers through to buying from suppliers in the Far East. But strategically, that's the right thing to do if we are to make this business scalable in the way that B&M has scaled up over the last 15 years. So we remain confident that there is a large opportunity in Germany. And a lot of big P&L pain that we're going through is, in some ways, a deliberate decision strategically that was made many years ago to move the business more to a direct sourcing model than buying from local wholesalers.

[Benedict Anthony John Hernaman Hunt, Research Analyst]

Okay. And just a final quick one. What are you doing to the stores in Germany with the 800 square meter formats versus the 2,000s? Is there anything that you're taking out to fit the range in?

[Sundeep Arora, CEO & Executive Director]

Yes, it's typically concentrating on the smaller volume lines in terms of -- when I say volume, cubic meters, so the less bulky products. And then also, of course, just sticking to the bestsellers rather than the full range within each and every category. So it's effectively an additive range that fits the space available. Operator, if there are any other questions, we'll take one last question, but otherwise, happy to wrap it up there.

[Operator]

Our last question will be from Adam Cochrane from Citi.

[Adam Gareth Cochrane, Director]

A couple of quick ones. In terms of the gross margin, looking at Q1 versus Q2, this time last year, you had a great sell-through in Q1 and then we're quite tight on stock going into Q2. Does that make the sort of gross margin a little bit tougher as you look at Q2 rather than Q1 for this year? And how are you going to think about sort of managing that in the second quarter?And then secondly, you sort of gone back on your sort of value credentials, let's make sure people know how good a value we are. Can you just look at your U.K. like-for-like and give us an indication of how that splits up between increased customer visits and basket size, if that's okay?

[Sundeep Arora, CEO & Executive Director]

Adam, so in terms of the gross margin outlook for the second quarter, I'd refer you back to my comment that the stock levels are Goldilocks, which is not too hot, not too cold, but just about right. And so that's going to be hopefully supportive of delivering a gross margin that's as good as last year's. So I think the best way to summarize it is that we're not particularly concerned about gross margin. We feel we're in a good place to replicate last year's performance on gross margin.And then in terms of the composition of like-for-like, Paul, would you like to just wrap up on that?

[Paul Andrew McDonald, CFO & Executive Director]

Yes, sure. If it's up about 60%, it was actually increasing basket size with the -- of the 40%, obviously, in relation to kind of footfall. So yes, pleasing performance.

[Adam Gareth Cochrane, Director]

In terms of high basket size, you mentioned on frozen foods, there are new rollouts, et cetera. How has your frozen performance been in the stores where it's effectively annualized and have been there for a while now?

[Sundeep Arora, CEO & Executive Director]

Sure. Please recall that it's only 80 stores out of 600-and-something stores that have the frozen food. I think I'd say to you that it's stable, so performing well, performing okay. But the reality is that lots of other departments are also performing very well at the moment. So the decision as to the pace and extensive rollout that we make in January 2020 will be very much a mathematical one as opposed to any personal sort of dogma or prejudice in any particular one direction. So effectively, we're letting the customer decide. By making a decision based on sales per square foot and profit per square foot, we're basically allowing the customer decide how we dedicate our space. Thank you, everyone, for your questions, and look forward to speaking to you again in a few months' time. Thank you.

[Paul Andrew McDonald, CFO & Executive Director]

Bye.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.