Pepco Group Reports 9% Revenue Rise In Half-Year Results

Continued strong strategic and profit progress, with resilient peak trading performance across all retail brands

The fast-growing pan-European variety discount retailer, Pepco Group, owner of the PEPCO and Dealz brands in Europe and Poundland in the United Kingdom (UK), today reports interim financial results for the first half ending 31st March 2021.

Financial Summary 

Financial Highlights

·       Positive trading performance despite a challenging trading environment affected by Covid:  

o   Constant currency total revenue growth of +9.0% underpinned by continued store openings across all retail brands and territories.

o   Trading Stores3 Like-for-Like (‘LFL’) growth of 5.0%, consistent with the past three years’ performance pre-Covid.

o   Group LFL -2.1% reflecting c.15% of trading weeks lost due to Covid-related store closures across the Group.

·       Gross margin accretion of over 100 basis points (bps) achieved through ongoing sourcing benefits and a short-term Covid benefit from increased general merchandise revenue.

·       Underlying EBITDA increased by 16.8% to €324m, driven by continued revenue growth, gross margin expansion and effective cost management.

·       Net debt (excluding IFRS 16 liabilities) €189m lower year-on-year, reflecting continued underlying business growth and revised trading arrangements with key product suppliers that enhanced the Group’s working capital cycle. 

Strategic Progress

·       Store expansion programme continued with 225 net additions in the half and 402 versus the end of March 2020, representing 14.1% growth year-on-year.

o   129 net new PEPCO stores in the half including strategic openings in Western Europe (Italy – 20 stores) and outside EU (Serbia – 5 stores).

o   27 new Dealz stores in the half with the roll out continuing in Spain and Poland.

o   The increase in the scale of the Poundland store portfolio primarily reflects c. 80 Fultons Frozen Foods stores acquired in the half year, as part of a transaction designed to materially enhance the Group’s capability and scale in this key target growth category of frozen food.

·       Successful preparation and initial trading for PEPCO in Spain as the brand’s second Western European market.

·       326 store refits completed to further enhance the customer proposition and increase revenue, comprising:

o   276 PEPCO refits; and

o   50 Poundland refits including the implementation of frozen food.

·       We continue to drive operating efficiencies to expand operating margins within the FMCG-led price-anchored segment.  This includes:

o   Continued reduction in the absolute levels of store rent where 44 leases were renegotiated in the period; and

o   The closure of one of Poundland’s four regional distribution centres.    

·       The implementation of Oracle as our new ERP solution continues across the Group with the scale and pace of the programme under constant review to ensure that implementation risk, particularly in light of Covid, is appropriately managed.    

·       Refinancing of €550m term debt and €190m RCF completed as part of the IPO, formalising those banking relationships core to delivering our planned growth across Europe while also reducing future debt service costs by over 500bps versus the existing debt structure.

·       The Group successfully listed on the Warsaw Stock Exchange on 26th May 2021, enhancing governance with the appointment of an Independent Chairman and four additional Independent Non-Executive Directors.

Outlook

All stores are now trading although some restrictions remain, placing limitations on customer footfall.

Looking forward, despite the short-term challenges that renewed cost inflation will likely bring, underlying trading remains in line with full-year guidance provided at the point of IPO. We therefore remain confident, based on our market leading customer propositions within the attractive discount retail sector, in the continued delivery of long-term growth in line with our existing financial guidance.  

Commenting on the results, Andy Bond, CEO Pepco Group, said:

“We anticipate that the environment in which we operate will remain changeable and challenging in the short term but over time as consumer behaviour returns to more normal patterns, as any Covid related restrictions that impact our customers confidence to shop are further relaxed.

However, as these results show, we have a clear and winning customer offer, a long-term growth strategy delivering stores in existing and exciting new markets, as well as a number of key initiatives to drive our sales and margin.  As such, we remain confident about our prospects for continued profitable growth in the balance of the financial year and beyond.”

Source : Pepco Group

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