Pepco Group has announced a £675 million impairment charge on its UK subsidiary, Poundland, citing “a significant decline in performance in FY24 and a weaker outlook for profitability” due to heightened competition and rising costs.
The impairment is primarily a goodwill gesture based on Pepco’s original acquisition of Poundland and comes alongside a modest 3.6% rise in like-for-like sales for the year ending 30 September 2024. Despite this, overall revenue for Poundland increased by just 0.2% year-on-year, while EBITDA fell by 21.5% to £126.6 million (€153 million), according to Sky News.
The group reported a net loss of £548 million (€662 million) for the period, driven by the impairment, although underlying EBITDA across the group rose 25.2% year-on-year to £781 million (€944 million).
Poundland’s struggles were largely attributed to intensified competition, cost pressures, and issues within its clothing and general merchandise categories, following a transition to Pepco-sourced products earlier in the year.
Pepco stipulated that the chancellor’s 30 October budget would exacerbate challenges. The budget will raise employer national insurance contributions and the National Living Wage, increasing costs by an estimated £7 billion for the retail sector in 2025.
Group CEO Stephan Borchert said: “Recent performance at Poundland has been very challenging, impacted by declines in clothing and general merchandise after the transition to Pepco-sourced ranges at the start of the year.
“We are taking swift action to address these challenges, focusing on a return to Poundland’s strengths. Additionally, we will evaluate Poundland’s competitive positioning and future requirements as an FMCG-led format. Updates will follow in the first half of 2025.”
Despite Poundland’s difficulties, Pepco Group reported record revenue of £6.2 billion, a 10.2% increase year-on-year, supported by growth in other divisions, including Dealz. The Pepco division expanded its footprint in Central and Eastern Europe, opening 331 new stores during the year, compared to 13 new Poundland locations and 48 Dealz Poland stores.
The group also declared its first-ever dividend, reflecting confidence in its future outlook and cash generation potential, including share buybacks.
Non-Executive Chair Andy Bond said: “We began the year with key objectives, including rebuilding Pepco’s profitability in its core Central and Eastern European markets, recovering gross margins, taking a disciplined approach to investment, and reviewing underperforming areas. While we’ve made significant progress, there is more to achieve.”
Borchert concluded: “Pepco Group boasts market-leading retail businesses serving over 60 million customers each month across Europe. Pepco remains our key engine for strategic and financial growth, particularly in Central and Eastern Europe, where it delivers the highest returns on capital. Our focus in the coming year will be to strengthen like-for-like revenues, and Pepco’s positive performance since September is an encouraging sign.”
