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Pepco Group – Interim Results for the First Half ending 31st March 2021

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

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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.



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.”


Business Review

This report is presented for Pepco Group Limited, a privately incorporated company in the United Kingdom, to 31st March 2021.

On and shortly before 26th May 2021 the individual operating companies within the Group were re-organised under a Dutch entity which was subsequently listed on the Warsaw stock exchange (Pepco Group N.V.). References to the listing, refinancing and other events therefore specifically refer to this newly listed entity.

The Group has 3 core strategic imperatives, all of which evidenced significant progress in the half, as follows:

i.            The continued expansion of the Group’s store footprint across the whole of Europe;

ii.            LFL revenue growth through the continual development of the Group’s customer proposition; and

iii.            Scale-led operating cost efficiencies


Store Expansion:

Despite the impact of significant Covid related restrictions, the Group continued to deliver new stores in all 16 territories in which it operates. A total of 225 new stores were opened in the first half year increasing the Group’s store portfolio by 402 versus last year, representing growth of 14.1% on the prior year.

Within this PEPCO opened 129 stores in the half and 299 versus the end of March last year, a 15.5% increase on the prior year, with openings in all its 13 trading territories. Whilst Covid-related trading restrictions impacted our recent territory openings in both Italy and Serbia, they each remained cumulatively ahead of internal targets. This performance provides confidence in their continued strong performance once Covid restrictions are lifted and the strategic opportunity each country represents. During the half year preparations for the entry of the PEPCO brand into Spain continued at pace with the first stores opening shortly after the half ended. Our confidence in the potential scale for the brand in Spain reflects both the historic performance of PEPCO branded apparel as a Store in Store concept in Dealz and the demographic similarity of Spain to other successful PEPCO territories.

In the Poundland Dealz segment, after extensive trial and iteration of the customer offer and business model, the roll out of the Dealz fascia in Spain and Poland continued with 14 and 13 stores opened, respectively. At the end of the period Dealz traded from 123 locations, an increase of 27 (28%) since the start of the financial year as we continue to ramp up our roll out plans.


Customer Proposition:

Our continued core proposition development and improvement, evidenced by the Trading Stores2 Like-for-Like of 5.0% across the half, clearly demonstrated both the continued strength of the proposition and the demand from customers for the products we offer in the context of significant consumer behavioural change.

The refreshment of our category mix to ensure it remains relevant for our customer is a constant element of our business model.  In the first half this included the introduction of a chilled and frozen offer to 50 stores within Poundland and Dealz, meaning that this new footfall driving offer is now present in 129 stores with an intention to extend this to 700 stores over the next two years.  Within PEPCO the phased introduction of complimentary, pick-up FMCG products such as nappies and baby wipes continues with strong initial results.

As part of our strategy to drive proposition enhancement we continued our store refit programmes. In the PEPCO segment we relocated 20 stores in the first half and invested in 276 existing stores to enhance the shopping experience and rebalance category space allocation to support sales growth.  As noted above, in the Poundland Dealz segment a further 50 stores were refitted in the half delivering an enhanced shopping environment and exciting new categories including frozen, extended chilled and homewares.


Operating Cost Efficiencies:

We continued to progress operating margin initiatives, through a combination of operating cost efficiency actions and store rent negotiations.

Within this the most material saving is the long-term programme of store rental negotiations in Poundland, where we renegotiated 44 stores in the half delivering an average reduction of over 50% versus the current rent.  We anticipate that these savings will continue with 211 store leases due to mature in the next two years, providing further opportunity for rental reduction.

Alongside this we continue to invest in initiatives to deliver long term efficiency savings. As a critical enabler to achieving this objective our ERP programme, through which our existing central systems will be replaced with Oracle as the Group’s core ERP application, continued at pace across the Group.  This includes the first Oracle finance implementation within Poundland / Dealz which will be live in early 2022 after the Group’s peak trading period.

The end-to-end supply chain project in PEPCO which has clearly identified a number of opportunities to improve inventory management and further expand operating margins is also progressing positively.


Financial Review

Trading Context

The entirety of H1 FY21 was adversely impacted by periodic store closures and reduced consumer footfall as a consequence of Covid related trading restrictions, particularly impacting our PEPCO brand as a retailer of “non-essential” goods.  As an illustration, in total c 10,700 trading weeks (c. 19% of the total) were impacted in PEPCO, including extended periods of store closure in Poland and Czechia. In contrast the Covid impact in H1 FY20 was concentrated in a shorter period (from early March in Europe and 23rd March in the UK) but as the first lockdown experienced by our customer the impact on our customer footfall was far more significant although stores remained open and able to trade.


Pepco Group continued to trade resiliently and make strong strategic and financial progress in the first half, despite the impact of significant Covid related lockdown restrictions on store openings and consumer behaviour with revenue on a constant currency basis increasing 9.0% driven by continued store roll out.


Trading Stores3 LFL Revenue

Trading stores, defined as stores that were open for the full duration of any week, performed positively in the half delivering LFL growth of 5.0% (0.7% in H1 FY19).  As Covid related restrictions weren’t implemented until mid-March 2020 the trading impact from Covid was significantly lower in the first half of FY20, with only 2% of trading store weeks lost versus c. 15% of trading weeks in the 6-month period to end March 2021.

As a non-essential retailer with operations centred in Continental Europe, PEPCO was most impacted by Covid related closures with c. 19% of trading weeks across the half lost due to enforced closures, primarily in November and late December and again across February and March.  Notably full country closure impacted Czechia, Croatia, Slovenia, Lithuania and Latvia alongside significant store asset type closures, such as indoor shopping mall stores in Poland across December and January. Stores not impacted by Covid closures traded strongly, delivering LFL growth of 8.8% consistent with that delivered in the first quarter of FY20, prior to any Covid related impact, underpinned by the continued investment to strengthen the customer offer discussed above.

As an essential retailer, Poundland / Dealz was able to trade throughout the period, despite the announcement of a UK wide lockdown in early January. However, each brand experienced significantly reduced footfall as our customers sought to both consolidate their shopping activity and avoid shopping locations such as covered shopping centres or busy high street locations, where they perceive that the risk to social distancing is at its maximum. Poundland was disproportionately impacted by this customer behaviour as the majority of stores are located in such locations.

In the context of a volatile trading environment, trading store LFL growth of 1.4% is considered likely to have resulted in market share gains in the UK, providing further evidence of the successful change programme the Poundland brand is undertaking.


All Store Revenue Performance

The Group delivered total H1 revenue growth on a constant currency basis of 9.0% and 4.4% on a reported basis (H1 FY21 €1,995m versus H1 FY20 €1,911m) including a LFL revenue decline of 2.1% primarily driven by 15% of trading weeks lost to Covid-19 related store closures (versus 2% in the prior year). The relative strength of revenue performance was driven primarily by continued strong underlying growth in PEPCO as customers clearly demonstrated their willingness to wait for a short period of closure to access the choice and value delivered by PEPCO, leading to extremely strong footfall and sales on re-opening.

Revenue momentum continues to build in Poundland / Dealz based on the ongoing enhancement of the customer proposition including the completion of a further 50 Chilled & Frozen store conversions during the half year.

Trading in the first quarter and January and February annualised a pre Covid-19 impacted period with limited trading restrictions in the previous financial year. During January and February 2021, on average, 20% of Group stores were closed which impacted revenue performance with year-on-year declines across these two months averaging approximately 6%, with all store LFL revenue totalling -12% but with trading store LFL growth of 4%.

Trading in March 2021 annualised the initial and most severe restrictions introduced in mid-March 2020 in Central Europe, such that all store LFL Revenue growth in PEPCO during March 2021 totalled over 60%. In the UK, the restrictions were introduced from 23rd March 2020 following a short period of stockpiling by consumers. Balancing these factors March year on year sales increased at Group level by approximately 35%.


Gross Margin

Across the first half, gross margin increased by over 100 bps (H1 FY21 42.4% versus H1 FY20 41.4%) driven through a combination of ongoing sourcing benefits, a short-term Covid benefit of an enhanced general merchandise mix and lower levels of mark down versus those anticipated in the initial weeks of Covid impacted trading in 2020.

Within PEPCO, gross margin improved by 115 bps through higher general merchandise sales reflecting the benefits of the strategic space initiatives and reduced markdowns. Process and systems enhancements in PEPCO have enabled a significantly more focused, targeted and tailored approach to the discounting of poor-performing ranges which, as an example, is now undertaken on a country-by-country basis rather than by applying the same discount to the product across all territories.

The Poundland Dealz business also expanded its gross margin year on year by c.60 bps through a combination of continued buying benefits plus the margin mix benefit of general merchandise sales growth.  Gross margin also benefited from consumers ‘stocking up’ demand for lower margin FMCG products in the prior year and ongoing initiatives to expand the higher margin general merchandise footprint and lower mark down rates through operational initiatives to improve inventory allocation in line with rates of sale.


Operating Costs

Underlying operating costs of €686.0m increased by 4% year on year (+€26.4m) reflecting a revenue increase of 4.4% and the expansion of the Group’s store footprint by 14.1%. Accordingly, cost ratios have remained broadly consistent year-on-year at 34.4% (34.5%) of revenue.

Of the €26m year-on-year increase, approximately two-thirds relates to the depreciation and amortisation associated with store expansion across the Group.  The remaining third is driven by operating costs associated with the Group’s increased scale partially offset by a reduction of costs in Poundland driven by Covid-19 UK government support primarily in the form of business rates relief.


Underlying EBITDA5

Group Underlying EBITDA grew by 16.8% to €46.7m versus H1 FY20 (H1 FY21 €324m vs H1 FY20 €277m), benefiting from continued store expansion, gross margin upside through better sourcing and a short-term mix benefit, alongside tightly managed operating costs coupled with UK government support.


Balance Sheet

Group capital expenditure was €78m (H1 FY20: €89m) primarily made up of store investment within PEPCO (€39m) and Poundland Dealz (€39m), infrastructure investment primarily in IT systems and the acquisition of Fultons Frozen Foods in October 2020. The acquisition of Fulton’s will significantly enhance Poundland’s capability in this frozen food category, enabling the scale roll out envisaged by management.


Cash and Net Debt

The Group continues to be strongly cash generative after maintaining all of its targeted growth investments.  Closing cash of €482m (H1 FY20: €292m) and net debt of €1,271m (H1 FY20: €1,357m) reflect continued underlying business growth and actions agreed with key suppliers that enhance the Group’s working capital cycle.

In May 2021, the Group refinanced its existing external debt facilities comprising a €475m term facility and €130m RCF and the Shareholder intragroup loan of €247m. The Group’s objectives were to ensure sufficient liquidity over a longer time period with new term loans backed up by a new RCF with a five-year maturity, to decrease the interest cost paid on the existing debt and to incorporate the existing lenders and treasury operation banks into an appropriate relationship bank group.

The refinance involved a group of 11 banks, all of whom are existing lenders or treasury operations banks, or IPO banks. Banks are classified into a Tier 1 and Tier 2 grouping determined by their final lending commitment and are a good representation of CEE, UK and international-focused banks.

The revised facilities comprise a 3-year €300m Term Loan A, 5-year €250m Term Loan B and 5-year €190m RCF at an initial interest rate of below 1.5%, significantly reducing the Group’s annual interest.

Reflecting the listed status of the Group there are only two financial covenants in the new facilities, and reduced representations:

·       Leverage Ratio < 2.8 times, acquisition spike to 3.05 times

·       Interest Cover < 3.5 times

The Directors believe that the refinancing was a strong outcome and sets up the foundation for the Group to continue its expected growth trajectory, ensuring that the group has sufficient liquidity to easily meet all its future financial obligations.


Explanatory Notes:

Basis of Preparation

Pepco Group Limited (‘the Company’) is a company domiciled in the United Kingdom. These consolidated condensed interim financial statements (‘interim financial statements’) as at and for the six months ended 31 March 2021 comprise the Company and its subsidiaries (together referred to as ‘the Group’).

On and shortly before 26th May 2021 the individual operating companies that underpin these group accounts were re-organised under a Dutch entity which was subsequently listed on the Warsaw Stock Exchange (Pepco Group N.V.). References to the listing, refinancing and other events specifically refer to this newly listed entity.

The interim financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on “Review of interim financial information” and do not include all of the information required for full annual financial statements.

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Group’s annual consolidated financial statements as at and for the year ended 30 September 2020. They do not include all the information required for a complete set of IFRS financial statements.


Reconciliation to IAS 17 Earnings

The financial statements are presented in line with current accounting standards including the application of IFRS 16 with respect to the treatment of operating leases.  The impact of IFRS16 on the Group’s key performance metrics is outlined in the table below:





1.         Note that the Group accounts are prepared for the six-month period ending 31st March 2021.  Within this the ‘PEPCO (Apparel-led multi-price)’ segment operates on a calendar month basis with the 6-month period ending on 31st March 2021, and the ‘Poundland Dealz (FMCG-led price-anchored)’ segment primarily operates on a trading week basis with the 26-week period ending on 28th March 2021.

2.         Revenues are unaudited with foreign currency revenues translated at the average rate for the month in which they are made.

3.         Stores designated as Trading Stores, traded for the full seven days within each individual accounting week irrespective of other restrictions including part week closure, limitations on customer numbers and reduced customer offer.

4.         LFL revenue growth is defined as year-on-year revenue growth for stores open beyond their trading anniversary.

5.         Underlying EBITDA is defined as profit on ordinary activities (excluding non-underlying items) net of depreciation, amortisation, finance costs and taxation.

6.         Underlying profit before tax excludes non-underlying items (see financial statements note 7 ‘Non-Underlying Items’ for more detail).


The Group will report its Q3 Trading Update for the period 1st April 2021 to 30th June 2021 on 15th July 2021.