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Pepco Group – Interim Results for the First Half ending 31st March 2022

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 interim financial results for the first half ending 31st March 20221.in.png


Half-Year Highlights

· Revenue for the six months ending 31st March 2022 of €2,372m up 17.2% year on year (“YoY”) on a constant currency basis, +18.9% on an actual basis.

· Like-for-like (“LFL”)5 sales growth was strong at 5.3%, supported by a Q2 LFL of 12.1%.

· Underlying EBITDA on an IFRS16 basis of €347m up 7.3% YoY.

· Underlying PBT of €144m up 28.5% YoY.

· Underlying EPS 20.2 cents up 25.5% YoY.

· Closing net debt6 on 31st March of €1,442m (IFRS16), €171m higher YoY primarily driven by growth in store footprint.

· Record H1 new store openings with 235 net new stores opened (excluding closure of 43 Fultons stores).

· Further renewals of 586 stores supporting LFL growth of 5.3%.

· Subsequent to the period end, Trevor Masters was appointed as CEO and Mat Ankers was appointed as Interim Group CFO.

· The Group remains on track to meet guidance for the full year in the absence of any further significant deterioration in the macro environment.


Outlook and Current Trading

Since the easing of Covid restrictions across all our key operating territories, the Group’s strong performance led by PEPCO has continued into Q3, supported by a positive Easter performance, effective promotional campaigns and customers returning to stores.  This improvement has taken the Group’s same store performance above pre-Covid trading levels, when comparing same store sales performance with that for the equivalent period in FY19.  Tracking performance for a cohort of stores at PEPCO in an eight-week period post-Covid shows average weekly sales at PEPCO are up by 13.7% on pre-Covid levels. Over the same period, Poundland average weekly sales are up by 4.3%.

Whilst the absolute levels of inflationary pressure are greater in Central and Eastern European markets, the degree of wage inflation is substantially offsetting this in the short term. In Western European markets the acute spike in inflation in a stagnant wage growth environment has quickly resulted in absolute lower spending by consumers.

Specifically in the UK, the cost-of-living crisis has impacted customers’ disposable income as they scale back even on essential purchases in the short term.  Our continued focus on reducing the costs of doing business means that we are able to offset some of our input inflation, allowing us to protect prices for all of our cost-conscious customers whilst also absorbing some of the input inflation ourselves as evidenced by the decline in our gross margins.

The invasion of Ukraine, a country which borders three of our largest operating territories, continues to create volatility, albeit with some trading upside driven by the influx of people to core PEPCO markets.  However, this is offset to some extent by the invasion exacerbating existing supply chain disruption and inflationary headwinds.

Despite the volatile trading environment, we provide a market leading proposition in a growing sector of the retail market and the Group remains on track to meet guidance for the full year in the absence of any further significant deterioration in the macro environment.


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

“We are proud of the Group’s performance in the first half of this year and the strategic progress made across the business. Despite a challenging macro environment, we accelerated our strategy, including our store opening programme, which remains the key driver of value creation for the business.  As pandemic restrictions progressively eased, it was also encouraging to see the strong return of customers and the continuation of this into Q3 resulted in the Group’s like-for-like sales rising above pre-Covid levels for the comparable period three years ago.”

“We have emerged a stronger, more resilient operator from this unprecedented recent period by being a bigger Group through accelerating our store openings, a better retailer through store and proposition renewal, and a simpler business through scale-led cost reductions.”

“We have maintained our market leading position on prices and through our continued focus on reducing the cost of doing business, we have been able to shield customers from price rises on some of our products at a time of significant inflationary pressure on household budgets.”

“I would like to take this opportunity to thank each and every one of our colleagues across the Pepco Group for their hard work and commitment to serving our customers.”


Business Review

Our core strategic imperatives all evidenced significant progress in the first half, as follows:

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

· The ongoing development of the Group’s customer proposition driving LFL revenue growth;

· Scale-led operating cost efficiencies;

· Enabling our growth through investing in high quality infrastructure and our colleagues.


Expansion of the Group’s store footprint

Significant new store expansion continued across all trading brands in the first six months of FY22.  Openings were ahead of guidance with 235 net new stores opened in the half year, excluding the impact of 43 loss-making Fultons stores closed following the acquisition of Fultons by Poundland in FY21.  We are upgrading our target to open around 450 net new stores for the Group for the full year.

In PEPCO, we had a record 202 net new store openings in the first half, including 84 in the Western European markets of Austria, Italy and Spain, where initial performance remains strong.

In Italy, PEPCO’s first Western European territory, we almost doubled our store footprint from 25 stores at the end of FY21 to 49 stores at the end of the first half.  Italy is PEPCO’s most mature territory in Western Europe, having opened there in September 2020, and whilst transactions are in line with the rest of the Group at 3,000 per week, the average basket is significantly higher (up to 85% more) than in CEE.  This gives us confidence that our Western European operation has the potential to exceed our initial investment targets.

In Spain, where we opened our first PEPCO store in April 2021, performance is ahead of budget. We now have a total of 40 stores, having opened another 27 stores in the first six months of FY22. In Austria, where we opened in September 2021, we have 36 stores. Outside of the EU, our stores in Serbia continue to trade particularly well.

Subsequent to the end of the period, at the end of April, we opened our first store in Germany, in greater Berlin.  Initial trading has been positive and we will continue to open stores in Germany cautiously over the balance of the year.  The entry into Germany, Spain and Italy more than trebles our addressable market.

In the Poundland Group, we opened 33 net new stores, representing an increase of 6.7% YoY.  This included opening 26 new Dealz stores, the majority of which were in CEE, specifically Poland.

In addition, we have also been trialling a franchise operation where we sell PEPCO clothing and general merchandise in a store-in-store format. We believe that this is an effective way of entering markets that offer relatively low scale or absolute profit opportunities. Initial trading has been positive with plans to open up to 25 store locations over the course of this financial year as part of the trial.

Development of the Customer Proposition

We continue to adapt to the growing expectations of our current, loyal customer base as well as looking to attract new, value-led customers.  To this end, we have continued to renew stores across the estate and have now completed this in 1,900 of our stores, of which 1,635 were PEPCO and 265 were Poundland. In the first six months to 31 March 2022, we completed 586 store renewals, of which 534 were PEPCO and 52 were Poundland. We upgraded stores’ layout driving LFL sales growth and positive customer perception.  We have also extended the product offering across our estate in PEPCO such that 70% of the stores now have the full clothing and GM range.

In addition to our existing renewal programme, we have conducted trials of a new store proposition in Wroclaw where we have re-fitted 16 stores in the city. By reducing the size of the stock room in each store, we have expanded the sales area by an average of 12% across the 16 stores in the trial. This has enabled us to extend the selling space and present our full product range in both GM and clothing including our recently launched ‘best’ range which offers unparalleled value for money to our customers. Alongside this space enhancement we have introduced new branding and improved the layout of the stores as well as the in-store communication. The newly re-fitted stores re-opened on 1st March and since then we have been monitoring their performance versus a control group. Whilst these early results are encouraging, before making a final decision on rollout we will seek further learnings through a broader set of stores.

At Poundland, we have introduced our chilled and frozen food offer to 265 stores, with a similar number of stores where this initiative is yet to be implemented.  We are refreshing the Poundland estate with chilled and frozen food at the heart of our extended offering which as a high purchase frequency category is driving customers into our stores and increasing basket sizes. We have also opened two larger stores with a fuller range in Nottingham and Teesside.

Operating cost efficiencies

Across the Group, we continue to progressively introduce labour efficiencies, as well as driving supply chain savings.  In PEPCO by improving the efficiency of our stock planning we have been able to reduce the amount of stock held across the business, significantly reducing the double handling of stock which provides us with savings across our supply chain. Our expertise in Supply Chain Finance was recently recognised by being awarded the Adam Smith Award for Best SCF solution by Treasury Today.

DC picking operations have improved in efficiency by increasing throughput per hour by +16%, store processes have also been improved, driving a saving equivalent to one FTE per store, and markdown has been reduced through more effective stock allocation.

In Poundland, continuous labour-saving initiatives have kept labour costs level year-on-year, despite increases in the national living wage. As part of our continued focus on leases, Poundland re-negotiated 43 store leases, reducing passing rent by an average of 37%, keeping the business on track to exceed the €20m of annual savings within 3 years committed at the IPO.

Ongoing investment in infrastructure

We are continuing with our ERP implementation programme across the Group and continued our Warehouse Management System rollout in the PEPCO business that will see all DCs operating on Tier 1 systems and processes which underpin operating efficiency gains.

In our new stores in Western Europe, we are installing self-scan tills using our EPOS software from Oracle.  This enables faster throughput of our customers through the check-out process, thus enhancing customer satisfaction as well as improving efficiency.

We were delighted that our commitment to our colleagues was evidenced by the fact that we were voted the second-best employer in Poland in the Forbes ranking, improving our rating by two places.  The ranking was based on an independent and anonymous survey conducted among employees.