Significant EBITDA growth driven by trading momentum in all territories
Pepkor Europe (“Pepkor” or “The Group”), the European discount retail group that operates the PEPCO and Dealz brands in Europe and Poundland in the UK, today reports its financial results for the half year ended 31st March 2019.
The Group continued to deliver strong total revenue growth, which increased by 13.3% in the first half, driven primarily by continued expansion of the PEPCO format in Central Europe. Taking into account the later Easter in 2019, revenue growth in each of the first and second quarters was broadly even.
PEPCO’s growth continues to be driven by expansion of its store estate and investment in the customer offer through improved product ranges. This growth has been achieved despite the disruption caused by the extension of Polish Sunday trading restrictions and any impact from the growth in the brands’ store footprint. Poundland delivered positive total sales growth and continues to outperform the wider UK high street. This is driven primarily by the competitive differentiation from the introduction of clothing ‘shop-in-shops’, now present in approximately 300 stores, and measured product range extension to support a broader range of price points.
EBITDA increased by 29.1% year on year, leading to a further expansion of EBITDA margin of 110bps. This ongoing efficiency provides the capacity to fund continued investment to maintain the Group’s market leading value position.
This increase, in both absolute and margin terms, reflects the combined benefit of ongoing gains from Pepkor Global Sourcing (“PGS”), our in-house sourcing operation, which benefits all of the Group’s trading brands, continued scale efficiencies in PEPCO and initial traction within Poundland to reduce store rents in line with prevailing market conditions and to return shrinkage to historic levels.
Store Expansion: At the half year Pepkor Europe traded from 2,473 stores, an increase of 11.9% year on year as its disciplined but confident roll-out plan continued. PEPCO expanded its store portfolio by 19.3% year-on-year opening 99 new stores in the half including its first two stores in Bulgaria’s second city, Plovdiv. Bulgaria represents PEPCO’s eleventh territory and the business remains on track to open 10 stores there by the end of the financial year.
Poundland continues to rationalise its store portfolio, balancing the exit from stores in weaker catchments with carefully selected new store opportunities in stronger locations. Poundland opened 20 new stores in the half year and relocated a further five stores to larger sites. These stores continue to deliver strong returns on invested capital.
Dealz: The Dealz businesses in Spain and Poland continue to develop positively and in line with their respective strategies. The proposition continues to strengthen in both markets, with a full apparel offer successfully added to six stores in Spain and a three-category offer (FMCG, general merchandise and apparel) now the preferred model for this territory. The Polish offer has benefitted from the introduction of key local brands that are now available because of the business’ growing scale. Store expansion continues in both markets with a total portfolio of 60 stores anticipated by the end of the financial year, representing a trebling of store numbers over a 12 month period.
As planned, Pepkor Europe completed the closure of its legacy French operation during the second quarter, allowing the Group to focus resources on the exciting growth opportunity in Spain and Poland.
Infrastructure: The development of the infrastructure necessary to support the Group’s future growth ambition continues. In May the Group selected Oracle as its enterprise system and began construction of a new distribution centre in Hungary to support PEPCO’s continued store expansion.
Commenting on the results, Andy Bond, CEO Pepkor Europe, said:
“These results are further evidence that Pepkor Europe is developing into a strong, geographically well-balanced pan European variety discount retailer. The foundation of the Group’s continuing strong performance remains our ability to provide exceptional value to our millions of customers every week within a core discount segment which is being accessed by an increasing number of consumers across Europe.
“As we continue to grow we are building a strong senior management team across Europe, and I am pleased to announce the appointment of Nick Wharton, a hugely experienced and respected retailer who has joined as our Group CFO to further strengthen our Board.
“Our trading progress has been matched by our strategic development. We continue to confidently expand PEPCO and our belief that the Dealz format in mainland Europe can provide an exciting additional source of growth is increasing. Quality, scaleable infrastructure across the Group is necessary to secure the growth opportunity available to us, and while such investment may slow our rate of earnings growth in the second half year, with a focused strategy in place a strong financial base and three trading brands all performing well, the opportunity for long-term growth across Europe is clear.”
Reported values represent the operating perimeter and accounting policies applied by Steinhoff International Holdings N.V. in determining their financial results and will therefore differ marginally from the results of the Pepkor Europe statutory entity.
Revenue and EBITDA are unaudited. Foreign currency revenues are translated at the average rate for the period in which they are made.
Pepkor Europe total revenue comprises revenue from PEPCO, Poundland Group (including Dealz) and Flash, a subsidiary of Pepkor Europe which provides local domestic and international mobile top-up, pre-paid mobile SIM cards, digital content vouchers and gift cards to consumers.
Trading results by quarter
– Revenues are unaudited with foreign currency revenues translated at the average rate for the period in which they are made.
– Year-on-year revenue growth is on a constant currency basis.