Pepco: Continued Strong Strategic Progress Drives Profitable Growth

The fast-growing pan-European variety discount retailer, Pepco Group, owner of the Pepco and Dealz brands in Europe and Poundland in the UK, today reports preliminary unaudited financial results for the year ending 30th September 2022.

Full Year Highlights

• Revenue for the year ending 30th September 2022 of €4,823m up 17.4% year on year (“YoY”) on a constant currency basis, +17.0% on an actual basis.
  
  
• Like-for-like (“LFL”) sales growth was +5.2% on a constant currency basis.
  
  
• Underlying EBITDA on an IFRS16 basis of €731m, being at the upper end of our €720m - €735m guidance, up 14.3% on a constant currency basis and +13.0% YoY on an actual basis.

• Underlying PBT of €300m up 25.8% on a constant currency basis and +23.2% YoY on an actual basis
  
  
• Underlying EPS of €0.42 up 21.3% on a constant currency basis and +19.3% YoY on an actual basis.
  
  
• Closing net debt on 30th September of €1,404m (IFRS16), €202m higher YoY primarily driven by growth in store footprint and planned increase in inventory.
  
  
• Record new store openings with 516 net new stores opened (excluding closure of 59 Fultons stores) and renewals of 727 stores.
  
  
• Subsequent to the year end, Neil Galloway was nominated as CFO and Andy Bond was nominated as non-executive Chair.

• The Group remains on track to meet guidance for FY23 of delivering EBITDA growth in the mid-teens assuming constant FX rates and in the absence of any further significant deterioration in the macro environment.

Current Trading

Macro-economic conditions continue to be challenging, driven by inflationary pressures, but the Group continues to outperform the wider market.  We are driven by maintaining and improving our price leadership position through which we can grow our market share. We are also focused on maintaining and growing our relevance with both our existing customers and new customers, which is testament to the power of our brands across the Group. As a result of our efforts, we have seen a strong start to the year.

Inflation rates continue to rise in many of our key markets albeit there are early signs of this peaking. Price rises in clothing and general merchandise (GM) remain well below headline rates of inflation. During this period of volatility, our virtuous circle of “sell for less, buy for less and operate for less” becomes even more important when our customers need it most. The economies of scale we continue to achieve with suppliers as a result of our size and our vertically integrated sourcing model benefit the Group and, more importantly, our customers, through lower prices. 

Furthermore, as a result of the successful implementation of our strategy, our operations are becoming more efficient and more effective. Supply side conditions in retail have been more positive recently; the price of both cotton and oil has fluctuated but remains below recent peaks and there has also been some continued easing of freight costs.  However, macro-economic volatility is unlikely to abate in the near term as geo-political events continue. 

Outlook 

Despite the challenging macro-economic conditions, we are confident in our ability to continue to grow our market share and brand presence across Europe. We maintain our guidance for FY23 of delivering EBITDA growth in the mid-teens assuming constant FX rates and in the absence of any further significant deterioration in the macro-economic environment. We anticipate revenue growth to continue in the mid to high teens, driven by a combination of our accelerated store roll-out and like-for-like growth tick-up of the existing estate, supported by the store enhancement programme.  Over the longer term, we are accelerating our strategy and as a result we will deliver €1bn EBITDA on an IAS 17 basis in less than five years’ time, which is ahead of our target outlined at the time of our IPO in May 2021.  

We are committed to accelerating our profitable store roll-out programme which, combined with our increased focus in Western Europe and our extensive refit programme in Central and Eastern Europe, means that our annual capex spend will rise from historical levels to between €350m and €400m over the next couple of years.  This investment will be funded by continued self-help improvements in operational cash flow driven by management action and the strong cash profitability of our existing estate. The timing of the implementation of a progressive dividend policy remains under review by the Board as growth opportunities for capital are fully explored.  

Commenting on the results, Trevor Masters, CEO Pepco Group, said:

“Despite industry-wide short-term challenges, Pepco Group delivered another year of good progress and resilient trading performance, driven by our successful and proven strategy. We accelerated our profitable store expansion programme – our biggest source of value creation – and store refit strategy, helping to enhance our LFL performance.  We also lowered our cost structure and improved back-office processes to be significantly cheaper and more efficient, helping us grow sales and deliver on EBITDA and cash generation.  

“The expertise and dedication of our colleagues are central to the success of our strategy to be bigger, better, cheaper and simpler. We remain committed to growing and supporting our people.  I would like to take this opportunity to thank all our colleagues for their hard work in meeting our strategic priorities, while continuing to fulfil our purpose in offering families on a budget great range, value and convenience.  

“Historically, we have been focused on maximising the returns at each of our operating companies to grow and serve our customers. As we turn to the next chapter of Pepco Group’s growth story, we are increasingly focused on leveraging the scale and diversity of the great business we have built in order to unlock the potential of the Group as a whole, by combining the impressive strengths and capabilities of each of the brands we operate.  We have made significant progress, and I look forward to pushing forward with our ambitious plans and capitalising on the attractive market opportunities ahead.”  

Source : Pepco

Image : nrqemi / Shutterstock.com (1223281819)

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