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Discount retail giant Pepco slumped to a loss of more than £450m after weak performance from Poundland in the UK, it has been revealed.
The European group has posted a pre-tax loss of €554m (£458.7m) for the 12 months to 30 September, 2024, after having made a profit of €159m (£131.6m) in the prior year.
The loss comes as Pepco Group booked a non-cash impairment charge of €775m (£641.8m) for Poundland following a significant fall in performance.
The UK brand’s like-for-like sales dropped by 3.6 per cent in the 12 months while its profit outlook weakened as competition and costs rise.
Despite the loss, Pepco reported a revenue of €6.16bn for the year, up from €5.59bn.
The group ended the period with 4,948 shops, including 836 Poundland stores.
Poundland owner has ‘renewed confidence in future’
Non-executive chairman Andy Bond said: “I am proud of the progress we have made over the last 12 months.
“We grew underlying EBITDA by a quarter to €944m across the group, ahead of expectations, with a strong recovery in gross margin of almost 400 basis points, driven by the performance of our core Pepco brand.
“We started the year with a number of objectives which included rebuilding Pepco’s profitability in its core Central and Eastern European (CEE) market, gross margin recovery, adopting a more disciplined approach to investment with more targeted growth, reviewing underperforming areas of the business and delivering stronger cash generation.
“We have delivered on these objectives, but there remains more to achieve.
“As a result of renewed confidence in our future, we are announcing an inaugural full year dividend for the Group.
“I am pleased to have handed the reins of the business over to our new CEO, Stephan Borchert, effective 1 October, 2024.
“Stephan brings a wealth of experience in retail businesses internationally alongside a strong track record of delivering results, and I look forward to working with him as he leads this business to future success.”
‘An encouraging start’ to new financial year
Despite the pre-tax loss, Pepco Group pointed to its record underlying EBITDA (earnings before interest, taxes, depreciation and amortisation) for the year which rose by 25.2 per cent to €944m.
It also announced an inaugural full-year dividend “reflecting the group’s free cash generation, strong balance sheet and increasing confidence in its outlook”.
Chief executive Stephan Borchert added: “Pepco Group has very attractive, market-leading retail businesses, providing great product range, value and convenience to over 60m customers each month across Europe.
“Within the group, I see the Pepco concept itself as our key engine for future strategic and financial growth, particularly in Pepco’s CEE heartland.
“Pepco generates the vast majority of the group’s earnings and our highest returns on capital – we plan to further build on that strong base.
“In the year ahead, our core focus at Pepco will be to deliver improved like-for-like revenues.
“Pepco’s like-for-like performance has been positive since the start of September – an encouraging start.
“At Poundland, recent performance has been very challenging, impacted by declines in clothing and general merchandise following the transition to Pepco-sourced product ranges at the start of the year.
“We are taking swift action to get Poundland performance back on track, focusing on a return to Poundland’s strengths.
“We will also closely evaluate Poundland’s overall competitive positioning and requirements for future success as an FMCG-led format.
“We will provide further updates on Poundland during the first half of 2025.
“I am excited to join Pepco Group at this important stage in its evolution toward a company focused on targeted new-store expansion, higher capital returns, and growing earnings and free cash flow.
“We plan to deliver further strategic and financial progress during FY25, as I will describe in more detail at our Capital Markets Day in March 2025.”