Monthly Update: October News Compilation

B&M - Auto Partner - Macfarlane - WE.connect

🛒 B&M European Value Retail: H1 FY26 Update, CFO Dismissal Following Accounting Error, and ‘Back to Basics’ Relaunch

B&M announced its trading and operational update for the first half of fiscal year 2026 (FY26). The report included full-year guidance implying a reduction in adjusted EBITDA compared to the previous year. However, the guidance was revised two weeks later due to an accounting error. During the consolidation process, the company discovered that it had failed to account for £7 million in overseas freight costs that were not properly recognized as part of the cost of goods sold in the H1 results. According to the company, this error occurred due to an operating system update earlier this year.

The failure to account for freight costs caused the EBITDA guidance to decline from £510 million to £560 million to a range of £470 million to £520 million — a considerable drop. As a result of this error, Mike Schmidt, the CFO, will leave the company.

Segment Performance and Group Results

While the group delivered an increase in top-line figures, profitability suffered a significant hit:

B&M UK: The segment saw revenues grow by 3.5%. However, Like-for-Like sales were notably weak, posting a mere +0.1% for the half-year, which deteriorated to

-1.1% in the second quarter (Q2). General Merchandise performed well, but Fast-Moving Consumer Goods LFL sales were negative. B&M opened 23 new stores, most of which were relocated due to expired leases. There were 9 new net stores. The company expects to reach its target of 45 new stores by the end of the year.

B&M France: France delivered strong results. Revenues grew by 13.4%, and LFL sales were up 5.2%, accelerating impressively to 19.3% in Q2. France opened 5 gross new stores (3 net new stores).

Heron Foods saw revenues decrease by a 0.9%, opening 3 gross and 1 net store.

Group revenues totaled £2.749 Billion (+4%) but Adjusted EBITDA fell sharply by 30% to £191 Million. This is due to the company’s operational leverage

CEO Tjeerd Jegen acknowledged the poor execution and promised immediate measures focusing on returning UK LFL sales to growth.

Back to B&M Basics

During his first months, Jegen conducted a “Review of Diagnostics” to identify shortcomings in execution and develop a plan to restore the business’s full potential. The first phase of the plan focuses on returning to the core principles that made B&M successful, but which were lost in recent years under previous leadership.

Pricing: While B&M’s overall shopping basket remained cheaper, the company had become less competitive on certain Key Value Items (KVIs) compared to close rivals, damaging the crucial perception of value.

· Action: Price cuts have been implemented on 35% of key items. Management aims to fully restore the “Big Brands, Big Savings” promise, targeting prices 15% cheaper than general supermarkets. Since August, B&M is no longer priced higher on any product line.

Promotions: The decision-making process has become overly centralized.

• Action: Management will re-introduce more autonomy for local store managers to select the best promotions tailored to their specific markets.

Range (SKU Discipline): The value proposition relies on a controlled number of SKUs, enabling high buying volume, superior pricing, and a simplified customer experience. This discipline was lost.

• Action: The company will reduce the number of SKUs, focusing on leading brands within the FMCG category. This is expected to improve pricing, simplify the shopping experience, and reduce operational costs across stores and distribution centers.

Availability: Shelf availability for the best-selling FMCG lines was approximately 86%, well below the industry standard of 98%.

• Action: Management believes that improving this availability alone could drive a potential 4% increase in sales.

Conclusion

I am supportive of the strategic plan to return to the fundamentals that originally made B&M a successful value retailer. It is evident that the focus was lost under the prior CEO.

The company’s underperformance is clearly a mix of poor internal execution compounded by a persistently weak environment for the UK retail sector. Weak consumer confidence is affecting not only B&M but also retail sector in general.

Back to Basics: Management has stated that the full impact of these fixes will take 12 to 18 months to materialize, so we must be patient.

B&M remains one of my largest portfolio positions.

📰 WE. CONNECT H1 2025: M&A Drives Topline Growth, Margins Dip

WE. CONNECT has released its results for the first six months of the year, highlighting strong growth driven by M&A activity.

Income Statement Analysis

Revenue: Total revenue reached €174.9 million, marking a substantial increase of 45.4%. This surge is primarily due to the consolidation of MCA Technology. Organically, however, revenues remained stable.

Margins: Both gross margin and EBITDA margin saw a slight contraction.

Gross Margin dropped to 11.0% from 12.3% in H1 2024. The company attributes this decline largely to the integration of MCA Technology.

EBITDA Margin also decreased to 3.6% compared to 5.1% in the prior year period. This reduction is mostly a flow-through effect from the lower gross margin.

Operating profit and net profit are full of non-cash items, so they are not particularly relevant.

Balance Sheet & Cash Flow

• As of December 31, 2024, WE.CONNECT held a net cash position of €12.7 million. Currently, the company has shifted to a net debt position of €7.2 million.

• Cash Flow Drain: The primary driver for the change in the net cash position was a negative Operating Cash Flow of €14.17 million. This was exacerbated by a substantial negative impact from Working Capital (WC) of €21.7 million. The increase in working capital is mainly due to a $4.2 million increase in inventory and a $14.7 million decrease in accounts payable.

• Seasonal Interpretation: In my view, this negative OCF is consistent with the business’s known seasonality. Demand typically peaks in the second half of the year due to christmas and the start of the new school year. Historical data confirms the company generally burns cash in H1 and generates it in H2.

• CAPEX: Capital expenditure was elevated at €4.3 million. Although this report provides minimal information, We.connect announced earlier that it would acquire new facilities, including a warehouse twice the size of the previous one. The goal is to consolidate We.connect’s stock with that of the acquired companies in the future.

Post-Result Events

• As discussed in a previous post (linked here for details: [https://10baggernewsletter.substack.com/p/monthly-update-41a]), WE.CONNECT recently completed the acquisition of Exertis France and Exertis Iberia for a nominal €1.

• This acquisition is transformative, expected to give WE.CONNECT pro-forma revenues of approximately €500 million post-consolidation.

Conclusion and Outlook

While M&A has successfully boosted the top line, organic growth has been stable. Looking ahead to the second half of the year, we anticipate some organic tailwinds. Despite persistent geopolitical and macroeconomic headwinds, the end-of-support for Windows 10 is expected to favorably impact sales, a trend already validated by several industry sources (Gartner, IDC, Omdia). This was a key driver we highlighted in our original thesis, along with the PC refresh cycle, which appears to be slightly delayed by macroeconomic uncertainty.

Due to the seasonal nature of the business, the half-yearly results do not tell us much except that, thanks to M&A, growth has been strong but margins have fallen slightly compared to the previous year. Although the company says that the acquisitions will generate significant synergies in the short term, it is likely that margins will take some time to recover. In any case, the decline has been small.

Based on the acquisition, the company is set to generate around €500 million in pro-forma revenues in 2025. Applying the current EBITDA margin suggests an estimated €18 million in EBITDA. Based on this estimate, WE.CONNECT is currently trading at an attractive EV / 2025 EBITDA multiple of 3.7x. This multiple is likely conservative, given that seasonality leads to cash generation in H2. Furthermore, if we attempt to calculate an adjusted net income (excluding non-cash items), we estimate the company could generate between €10 million and €11 million in adjusted profit, placing the valuation 5.5x to 6x P/E multiple for 2025 earnings.

🚀 Auto Partner Group: September 2025 Revenue Growth

The Management Board of Auto Partner S.A. reported its September 2025 estimated consolidated revenue figures, demonstrating continued growth:

• Monthly Growth (September 2025): Revenue reached PLN 389.7 million, marking a 10.77% increase compared to September 2024.

• Year-to-Date (YTD) Growth (January–September 2025): Cumulative revenue was estimated at PLN 3.35 billion, representing a 7.45% increase over the same nine-month period in 2024.

📉 Macfarlane Group Issues Second Profit Warning, Citing Tragic Incident and Weak Distribution

Macfarlane Group PLC has issued a significant trading update, reducing its full-year (FY) 2025 financial expectations. The downgrade is attributed to two major issues: a tragic fatal incident at its newly acquired Pitreavie subsidiary and slower-than-anticipated recovery in its core Distribution business.

Profit Downgrade

The company previously expected FY 2025 Adjusted Operating Profit to be approximately 10% below the 2024 result of £24.6 million (implying about £22.1 million). The Group now expects FY 2025 AOP to be 20% to 25% below that original market expectation. This places the new anticipated range between £16.6 million and £18.45 million.

Pitreavie Incident Impact:

1. A tragic accident resulting in the death of a worker occurred at the Pitreavie Packaging facility (acquired in January 2025). This has necessitated a temporary suspension of operations at one site for investigations

2. As a result, Pitreavie’s FY 2025 performance will be materially below previous management expectations. The company is actively working to mitigate customer impact by outsourcing production at cost in the short term.

Slower Distribution Recovery:

The anticipated second-half (H2) improvement in Distribution sales and gross margin has been slower than expected, reflecting continued challenging macroeconomic and market conditions.

Conclusion: Thesis Intact Despite Headwinds

This has clearly been a difficult year for many UK companies, which have been impacted by weak consumer confidence. While the tragic accident is deeply unfortunate, it is important to emphasize that it is not a long-term, structural issue . Despite this temporary operational setback, the long-term investment thesis remains intact: market consolidation by capitalizing on much smaller, weaker rivals. If Macfarlane is struggling with these headwinds, it stands to reason that these smaller companies are doing significantly worse. Meanwhile, Macfarlane is actively repurchasing shares.

Thanks for reading, see you next Friday with the monthly screener.