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Netherlands: Pepco Group strong rebound in turnover thanks to growth strategy

Updated: Jul 19, 2021

Discount Retail Chain Pepco Group (owned by Steinhoff International and listed WSE: PCO) sums up the third financial quarter ended June 30, 2021. In the period of 9 months from October 2020, 342 new stores were opened, including 224 under the Pepco brand and 118 Poundland / Dealz. "While the situation of consumers is likely to remain uncertain for some time, which poses challenges, we are convinced of the strength of our offering to customers and the long-term growth potential of our business," comments Andy Bond, CEO of Pepco Group. The PEPCO Group continued to expand its network and, as planned, plans to open 330 stores throughout the financial year.

Pepco Group's commercial environment and results The third quarter of the previous financial year was the most difficult quarter due to trade disruptions resulting from the pandemic. The company then lost a total of 6,895 (18.4%) trading weeks versus 3,222 (7.5%) in the current quarter. This year's results were positively influenced by the reduced number of store closings in connection with Covid, all stores were open in the last week of the quarter. We made significant progress in the third quarter of the year. Sales of all three of our brands proved resilient as PEPCO, Poundland and Dealz customers returned to stores as soon as the restrictions related to the Covid epidemic were loosened. We continued to invest in the further development of our business, opening 117 new stores in three months and 342 from the beginning of the year. We have signed a contract to take over 29 stores in Austria.

The Group also modernized 260 PEPCO stores and, after the acquisition of Fultons Foods in autumn 2020, we introduced a full range of chilled and frozen products to 42 Poundland stores, comments Andy Bond, CEO of Pepco Group. Global supply chains continue to be influenced by both limited availability of raw materials and pressure on production costs, exacerbated by shortages in the availability of containers, which also have the potential to lead to significant cost inflation starting in fall / winter 2021. direct relations of our PGS company with suppliers and manufacturers in the Far East, we are able to constantly monitor and act quickly to ensure the best prices in all our markets.

"While the consumer situation is likely to remain uncertain for some time, which poses challenges, we are convinced of the strength of our customer offering and the long-term growth potential of our business," emphasizes Andy Bond. Revenues of the Pepco Group Trade restrictions were gradually eased over the reporting period 1,075 (33%) stores in 11 regions were closed at the beginning of the quarter, followed by full opening by June 27, with a related rebound in sales. The pandemic also hit the same period last year then Pepco lost a total of 6,895 (18.4%) trading weeks compared to 3,222 (7.5%) weeks lost in the current reporting quarter. In this context, the LFL result should be considered, which increased by 29.3% (6.8% YTD) during the discussed quarter, with the LFL result for open stores being a more reliable indicator of how it was 14.8% (9.6% YTD).

Strategic activities focused on increasing the number of stores while strengthening the offer for customers in all brands. In the third quarter, PEPCO expanded its network by 95 new stores, opening them on all 14 current markets. It also entered Spain, its second market in Western Europe. The program of rebuilding the existing stores was continued, with 8 of them enlarged and / or relocated. The past quarter was also a continuation of the development of the Dealz format in Poland and Spain.

Since the beginning of the year, 51 stores have been opened, and 24 of them have been opened during the quarter. In the analyzed quarter, Pepco supplied 302 existing stores (627 YTD) of PEPCO and Poundland. The PEPCO brand has modernized the appearance of the stores, in particular the interior design, while changing the proportions of the area intended for the general assortment. Poundland is now refreshing 171 stores across its chain and expanding its target market with a new range of chilled and frozen products made possible by the acquisition of Fultons Frozen Foods, a market-leading regional operator with 82 stores at the time of the acquisition.

Seeing significant opportunities for the development of operations in all markets of the company, since the beginning of the year PEPCO has increased the number of its stores by 224, which is an increase of 15.5% compared to the previous year. During the quarter, 95 new stores were opened in all 14 regions, including the first stores in Spain. In addition, PEPCO continued the expansion or moved another 8 stores (39 YTD), and in line with the assumptions, it plans to open 330 stores throughout the financial year.

PEPCO, as a non-consumer goods retail chain, was most affected by the store closures due to Covid starting in March 2020, with almost 23% of trading weeks lost in the third quarter of last year. Closures at the beginning of the third quarter of this year were less severe and gradual re-openings contributed to a significant increase in LFL results, given the low base last year. Regarding LFL3 conditions, the PEPCO segment saw its LFL result increase by 9.6% YTD, which is generally in line with the historical LFL performance and expectations for the full year, confirming the credibility of forecasts for business development. In the new Western European markets, Italy and Spain, turnover remains high, with Spain outperforming our internal targets and Italy returning to the level of revenues before the lockdown restrictions were introduced in December 2020.

Poundland Group and Dealz Network As a consumer goods retailer, Poundland was able to trade throughout the Covid crisis, although it experienced much less customer influx during periods of greatest constraint. As in the case of PEPCO, the third quarter of the last financial year suffered the most, when in April 2020 the most, 142 stores, was closed. Good LFL results this year with an increase of 21.1% should be considered precisely in the context of the restrictions that took place in the same period of the previous year, but the LFL result at the level of 5.2% YTD clearly shows the strengthening of the offer for customers.

Poundland's revenue was supported by the strong performance of the recently expanded apparel and household goods categories and the launch of a new frozen and refrigerated range to 42 stores during the quarter (91 YTD). The product mix continued to expand to include both over and under £ 1, with multi-priced products across all FMCG and general purpose categories leading to a 23% increase in revenue (16% in fiscal 2020). In addition to commercial activities, Poundland also launched a charity foundation. She received the Retail Systems' Partnerships for Good award in 2021 for collaborating with Pennies in collecting donations.

The Dealz division continues to develop well, customers liked its offer, and the economics of the business model allowed for the acceleration of the program of opening new stores. During the quarter, 24 Dealz stores were opened, which increased their number by 53% compared to the end of the year, to a total of 147. Our intention remains to open up to 70 new stores throughout the financial year. The Group continues to generate high cash flow and implements all its development investments. End of period cash balance of EUR 448 million (EUR 461 million in fiscal 2020) and net debt key suppliers that enabled the Group's working capital cycle to improve The lower year-on-year cash position is due to the excess cash being used to repay debt as part of refinancing related to the public offering of shares in May 2021.

Pepco Group owns 3.4 thousand stores in 16 countries Pepco Group has been operating since 2015 and currently has about 3,400 stores in 16 countries, including Poland and other countries in Central and Eastern Europe, Great Britain, the Republic of Ireland and Spain. The Group, which employs about 35,000 people, consists of two independent retail chains - pan-European PEPCO and Poundland operating in Great Britain, which is also present outside this country under the Dealz brand. The Pepco Group also includes PGS, a company that supplies the Group's stores with goods. Pepco Group N.V. in May 2021, they debuted on the Warsaw Stock Exchange.

The first 14 PEPCO stores in Poland were opened in 2004. Currently, the PEPCO network serves over 20 million customers a month, offering clothes for the whole family, household goods and toys at the lowest prices. The company, based in Poznań, employs approx. 17,000 people in 14 European countries, with the strongest presence in Poland, Romania, Hungary and the Czech Republic.

In the third quarter, PEPCO expanded its network by 95 new stores, opening them on all 14 current markets. PEPCO is considered to be one of the strongest brands in Poland and one of the most dynamic companies. He regularly wins Forbes Diamonds for one of the fastest growing companies in the country, and as one of the strongest brands in Poland - the Superbrands award.

Poundland / Dealz Since the launch of the first store in 1990 in Burton-upon-Trent, the Poundland chain has launched 917 stores in the UK and Republic of Ireland, offering the best brands of products and excellent quality private labels that deliver exceptional value to customers every day. In 2019, the chain was awarded in 2019 by the industry magazine Retail Week, it currently employs 18,000 people, serving 7 million customers throughout the UK each week. Poundland offers thousands of high-quality products from over 1,000 recognizable brands in 17 categories, such as food and drink, health and beauty, art. home furnishing, garden, do it yourself, art for animals, mat. office supplies, books, DVDs and toys. About 9 out of 10 items in the Poundland store are priced at £ 1, and in the last 12 months the chain has launched new ranges of products ranging from £ 50 to £ 10 that share the same philosophy of simplicity and incredible value.

Poundland also operates internationally through the Dealz brand with a chain of stores developed in Poland and Spain. In the UK, Poundland has also launched its PEP & CO fashion brand to around 300 larger locations. PEP & CO offers customers a full range of women's, men's and children's fashion and brings a new style to Poundland, combining this with simple, low prices on family clothing that are hard to find in other chain stores.

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