Pepco Group Strategic Framework

Entering FY25, we operated three brands: Pepco, Poundland and Dealz. Pepco specialises in clothing and general merchandise (GM), while Poundland and Dealz are fast-moving consumer goods (FMCG) led. In our recent past, and under previous leadership, the Group sought to integrate the operations of Pepco, Poundland and Dealz, with the aim of creating a unified customer offer and a single sourcing strategy. The expectation was that this would bring both scale and efficiency benefits. However, it became clear this was not the case and integrating our brands wasn’t delivering for customers or shareholders.

The FMCG-led businesses were hindering the Group’s financial performance, with lower revenue growth, lower gross margins, higher costs to operate and, consequently, lower profitability. Following a strategic review in early FY25, we determined that it was in the best interests of each brand, the Group, our customers and our shareholders to separate the three brands and streamline the Group by exiting FMCG, through the divestment of Poundland and Dealz, and move forward with Pepco as our sole brand. We acted quickly, securing the sale of Poundland just a few months later in June 2025, taking the Group a significant step closer to its goal of exiting FMCG.

Pepco is clearly the core growth engine of the Group, generating strong LFL performance at consistently high margins. In FY24, pre-IFRS 16 Group EBITDA (excluding corporate costs) was split 99% Pepco, 3% Poundland and -2% Dealz, demonstrating the dominant value Pepco contributes to Group performance. Pepco has a clear and unique proposition as a price-leading discount retailer and over 90% brand recognition, making it the obvious focal point for the Group. Progressing with one, unified brand ensures the Group is more focused, agile and dynamic, supporting faster and more profitable growth.

When we think about enhancing our customer proposition, step one is to home in on what makes Pepco unique and compelling for customers and that is providing quality products at market-leading prices. Step two is to digitise our proposition, using technology to improve our customer experience, as well as offering more to our customers by enhancing our data capabilities.

In FY25, we held consistent focus on maintaining our market-leading pricing strategy, while also turning our attention to improving our product availability and quality, ensuring the products customers want and need are always available in the sizes they are looking for and at the quality they expect. This is integral to our success, which means supply chain logistics and careful stock control are essential. We also optimised our store layouts and product SKUs to deliver a more seamless customer journey in store, as well as increasing our marketing efforts to drive repeat visits and new customer growth.

For example, in July 2025, we launched a pilot of our new “Coupon at Till” programme across 20 stores in Poland. Under our initial pilot, customers received a coupon after their purchase based on their basket size. Following initial strong results, with redemption rates and sales uplifts beyond our target plan, the pilot was then extended to 350 Polish stores by the end of September and across all stores in Poland by the end of November. It is still early, but this strong initial momentum is encouraging. We also significantly expanded our efforts on digital this year, an area that the Company had historically under-invested in but has the potential to be transformational for our business. Pepco has always been a solely bricks and mortar retailer with a limited online presence. It will therefore take time to implement as we are building from the ground up, but the opportunity ahead of us is significant and we have a clear roadmap in place.

For customers, a key development will be the launch of our mobile app in 2026 and its accompanying digital loyalty scheme. The traction we have built with “Coupon at Till” not only delivers a near-term sales benefit, it will make it easier to encourage those same customers to join our digital loyalty scheme when it launches. With customers increasingly primed to review their paper coupons post-purchase, we can use this habit to provide them with QR codes that link to our app download to support new member growth.

Digitising our proposition will allow us to draw in more customers, increase the frequency of their visits and encourage them to spend more with us through greater use of technology and data. It will enable us to leverage our unique insights as we accumulate more and more personalised, attributable purchase data, which we will use to better understand our customers and their individual spending behaviour.

Central Eastern Europe (CEE) is the heartland of the Group, with 85% of Pepco stores based there and near 100% brand awareness in the region. In recent years, our performance was impacted as we scaled too quickly, lost focus on operational discipline and allowed our market-leading pricing to erode. However, the market remains attractive and continues to offer strong opportunities. Our established regional presence gives us a robust platform with multiple levers available for us to drive growth and gain market share.

Our Pepco CEE business remains the key engine driver for the Group, delivering the highest returns across the estate. We operate in 13 CEE countries, with our largest store presence in Poland. Pepco opened 234 net new stores during the period, with 85% opened in the CEE region and the balance in Western European countries. We opened 58 net new stores in Poland, totalling 1,397 stores at the year end. Outside of Poland, the majority of new openings in the CEE region took place in Bosnia, Romania, Serbia and Bulgaria.

A key priority in FY25 was not just to restore LFL growth in CEE as a whole but also in Poland specifically. To achieve this, we focused on restoring our market-leading price proposition to ensure customers find the great value prices they expect when they visit our stores. We also improved our supply chain and restocking strategy to ensure reliable product and size availability and we turned our attention to the weakest 20% of stores in Poland which were dragging country LFL performance.

Our strong portfolio of >3,400 Pepco stores in CEE is strategically located in close proximity to our customers, maximising convenience.
This, combined with a renewed focus on price leadership and product quality, creates a compelling proposition that underpins both revenue and market share growth.

Our strategic efforts restored LFL growth in Poland in Q3 and Q4, up 2.4% in H2 FY25, with CEE returning to LFL growth in Q1 and continuing for the entirety of FY25, up 1.9% for the FY. However, there remains significant opportunity to further grow our LFL and topline performance. While our stores are already a compelling destination for great-value kidswear, we can drive additional growth by attracting new customers, increasing basket size and encouraging more frequent visits through effective cross-selling across clothing and general merchandise categories.

To achieve this, we are focusing on design, quality, availability, and freshness to ensure our products consistently meet customer expectations. Strengthening our adultwear offer represents a straightforward opportunity to enhance the overall customer experience, add convenience and drive further growth. We have made encouraging early progress this year but the full impact of these initiatives is expected to be realised next year.

We see substantial potential for further store expansion as we advance our new store opening programme across both established and emerging markets. We believe there is capacity for a minimum of c.850 additional Pepco stores across the CEE markets. Our approach remains measured and disciplined, guided by a calibrated rollout plan that prioritises established markets such as Poland. The new stores opened there in FY25 have seen strong footfall and attractive returns on capital, performing in line with our minimum 30% IRR threshold. Over time, we will extend this growth into newer markets such as North Macedonia, capturing additional opportunities across the region. With our renewed focus on operational leverage and our refocused strategy, we are well placed to execute our expansion plans.

Finally, we are actively improving our existing store portfolio. Refits, relocations, enlargements and closures began in FY25 and will continue into FY26, optimising our network to deliver the best customer experience and enhanced operational efficiency.

With a renewed focus on operational leverage and a sharpened strategic direction, we are well positioned to execute our expansion plans. By driving thoughtful growth in the CEE region — a market we know well — we have strengthened our confidence in delivering consistent, profitable growth with attractive returns.

Western Europe, in particular Spain, Portugal and Italy, presents an exciting opportunity for the Pepco brand. The clothing and homeware discounter market is forecast to grow between a 1.5% and a 3.5% CAGR across Spain, Portugal and Italy from 2024 to 2029, driven by supportive dynamics including growing populations (bolstered by high levels of immigration), as well as increasing spend on kidswear per household. There is also limited competition for Pepco’s customer proposition across Western Europe, which provides a significant opportunity for our brand and a large whitespace opportunity for expansion.

During our initial Western European rollout, we made some missteps which hindered our success. Fundamentally, we didn’t appropriately consider the varying dynamics between WE and CEE customers. To ensure our future success, we now have a new approach, a more measured expansion plan and a revitalised team with the experience and expertise required to deliver. Under new regional management, the business has shown a marked turnaround, with double-digit LFL growth in Iberia and Italy and enhanced store profitability.

During the year, we opened 34 net new Pepco stores in Western Europe. Pepco operated 583 stores across Western Europe at the end of FY25, generating revenue of €695 million (15% of Group sales). The opening of a new distribution centre (“DC”) in Madrid, Spain in September 2024 marked an important step in realising an appropriate economic model for our Iberian operations. Previously goods were travelling over 3,000km from our DC in Hungary. The new DC therefore structurally reduced high transport and distribution costs, while also reducing lead times, improving availability in stores.

A key step in FY25 was our FMCG exit, realised through the reformatting of our “Pepco Plus” stores (see case study overleaf). Then, as with all Pepco stores, we focused on putting the customer experience first. This includes focusing on our market-leading price proposition and standardising our store formats, so customers know what to expect when they visit our stores. This will help build brand awareness and customer confidence as we work to grow our brand towards the level of recognition and satisfaction already established in CEE, delivering LFL improvements as we do so. In FY25, we delivered strong LFL growth of 6.8% including FMCG and 14.1% excluding FMCG.

In FY25, brand awareness increased 600bps in Spain to 59% and 600 bps in Italy to 38%. We are also focused on our operating model, turning attention to our distribution and supply chain to ensure stock availability and enhance efficiency as we progress with our controlled store expansion plan.

Investing in and implementing a modern operating platform is pivotal for our long-term success and underpins all our strategic pillars. Our model centres on planning, buying, transporting and selling products efficiently. However, our operations have been affected by a period of significant underinvestment in certain core operating platforms. As a result, our processes are unstandardised and often manual, which can creates inefficiencies.

Our initial focus centres on upgrading two key areas: our supply chain and our digital customer experience. This will allow us to operate more efficiently, a key enabler in maintaining our market-leading price proposition and driving free cash flow generation.

We already have an integrated supply chain through Pepco Global Sourcing (PGS), our product sourcing, development and technical services business. This is a real differentiator which allows us to offer greater value to our customers. However, we are also working to upskill our overall distribution network through partnerships that will enable us to operate more quickly, flexibly and efficiently. We are focused on implementing a two-speed supply chain with two new de-consolidation centres expected to open by FY28, alongside new distribution centres (DCs) to reduce lead times and improve inventory allocation. We will also deploy new IT systems that will allow for better planning and steering accuracy and increased automation, enhancing operational efficiency.

In addition, we will implement a new ERP system, integrated supply planning and a global POS technology platform, as well as enhanced data management and digital tools that will enable significant improvements in our customer engagement initiatives.

Upgrading our core platform goes beyond new technologies. It is equally important to align our organisation and empower our people to unlock its full potential. By aligning roles, processes and skills, we ensure that teams can fully leverage the capabilities to drive efficiency, collaboration and innovation. This people-focused approach transforms the use of these new technologies into a true enabler of business outcomes, allowing us to deliver greater value to our customers. Our investment in both technology and organisation design underscores our commitment to sustainable growth and operational excellence.