Pepco Group – Full Year Results Announcement
Continued strategic progress & Covid resilient 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 filed, with Companies House, its annual Statutory Accounts for the 52 weeks ending 30 September 2020[1].
Strategic Progress
327[9] (+12%) net new stores opened, closing the year with 3,021[2] stores in 15 countries.
Successfully opened the first multi-price (PEPCO) stores in the strategically important markets of Italy and Serbia the first Western European and non-EU country respectively*.
Accelerated roll-out of the price-anchored (Poundland & Dealz) brand opening 43 stores in Poland & Spain.
Proposition development continued, including further extension of multi-price to all remaining categories in Poundland / Dealz. Acquisition of Fultons Frozen Foods completed in October to further support roll-out of chilled and frozen proposition in the UK.
Commenced a store refresh programme in PEPCO and Poundland. Initial 84 and 52 stores, converted respectively with further 700 store targeted in FY21.
Preparations commenced for further western European expansion for PEPCO to Spain in second half of the current financial year, following detailed research on the market opportunity.
Strengthened balance sheet through pro-active and permanent improvements to working capital.
Financial highlights
Sales increase of 3.0% to €3.5bn despite significant Covid impact, primarily in Q3 LFL. More than offset by resilient LFL[8] performance outside of these periods and store openings, a trend which we continued into Q1 F21 as reported on the 27th January[3]
Underlying EBITDA[4] €229m (FY19: €331m). Reduction primarily related to temporary Covid-related store closures, particularly in Central Europe, from April to June 2020. In the five months to the end of February[5], pre the impact of Covid-19, underlying EBITDA grew strongly (+18% year on year)
Cash generated by operations[6] of €405m (FY19: €236m) driven by new store-led sales growth and effective working capital management as part of our response to Covid-19. Year-end net debt[7] of €328m (FY19: €461m).
Outlook
Whilst the near-term consumer environment is likely to continue to be impacted by Covid related shopping restrictions, we remain confident about our long-term growth strategy.
Consistent with FY20 investment to support future growth will continues with 400 stores planned to open in the current financial year and initial implementation of group-wide Oracle ERP system.
Commenting on the results, Andy Bond, CEO of Pepco Group, said:
“We again made good progress in the last year delivering the convenience and market leading value that our customers are seeking and advancing our pan-European growth strategy, despite a turbulent trading environment. Our robust profit and cash performance clearly demonstrates the strength of each of our retail brands and customer offers together with our resilience to short-term Covid disruption.
"With a strengthened proposition and more customers than ever across Europe being attracted to the discount sector we believe that our future growth opportunity is now greater than a year ago. We now view our addressable market as being the entirety of Europe and having entered Italy and Serbia ? our first Western European market and non-EU country respectively ? we will also launch PEPCO in Spain in later in 2021, having identified a significant opportunity there after extensive due diligence.
“We anticipate that the consumer backdrop will remain challenging in the short-term. However, with our strong financial base and established growth strategy within a structurally advantaged discount retail segment, we remain confident about our long-term prospects for continued growth across Europe.”
FY20: Covid-19 Impact context
While, consistent with other retailers, initially managed during February as a potential supply issue, Covid-19 impacted consumer demand for all retail brands within the Group with governmental restrictions being introduced across CEE from mid-March, Spain from 15 March, the UK from 23 March and Ireland from 27 March 2020.
As it did not qualify as a retailer of essential products, PEPCO was our most impacted brand. In the closing week of the quarter to the end of March, PEPCO traded from 856 (44%) of its 1,930-store footprint with the entire portfolio closed in seven countries including Czechia, Slovakia and Romania. Trading in Poland was limited to stores outside of shopping malls while stores in Hungary were only permitted to trade between 9 am and 3 pm each day.
These restrictions, combined with the need for social distancing across all markets and the reluctance of some customers to venture out of their homes, meant PEPCO traded for a four-week period immediately post lockdown at c. 15% of its expected sales levels.
Poundland qualifies as a retailer of essential products and consequently experienced an initial benefit from customer stockpiling of cleaning, healthcare and food products. However, the Covid-19 lockdown led to the voluntary temporary closure of 130 stores in March 2020. The remaining c. 700 stores traded through significantly reduced visitor numbers, particularly in shopping centres and high street locations, at c. 60% of expected sales levels for a period of four weeks.