Pepco N : Halfjaarlijkse financiële verslaggeving

6 June 2023

Pepco Group N.V.

Interim results for six months ended 31 March 2023

Strategic progress underpinning growth

Pepco Group, the fast-growingpan-European variety discount retailer, today reports interim results for the six- month period to 31 March 2023.1

KEY HIGHLIGHTS

• Strong trading momentum continued across all formats in H1

• 1. Like-for-like("LFL") sales +11.1%, Pepco +15.8% and Poundland Group +4.9%
• H1 financial performance ahead of last year on a constant currency basis
• 1. Revenue up 22.8% to €2.8bn and underlying EBITDA up 11.0% to €377m
• Total number of stores at end of H1 at 4,127, up 12% year-on-year ("YoY"), driven by growth of Pepco in Western Europe
• On track to open at least 550 net new stores during current financial year
• The Group remains confident on the EBITDA outlook for full year with no change to previous guidance

FINANCIAL PERFORMANCE
	Summary financials	H1 FY23	H1 FY22	Change %	Change %
				(constant	(actual
	EUR m			currency)2	currency)
	Revenue	2,839	2,372	+22.8%	+19.7%
	Like-for-like ("LFL") revenue growth3	11.1%	5.3%	N/A	N/A
	Gross profit	1,137	973	+20.1%	+16.9%
	Gross margin %	40.1%	41.0%	(0.9pp)	(0.9pp)
	Underlying EBITDA (IFRS 16) 4	377	347	+11.0%	+8.6%
	Underlying EBITDA (IAS 17)4	211	204	+5.1%	+3.4%
	Underlying PBT 5	134	144	(5.7%)	(6.9%)
	Reported PAT	81	95	(14.0%)	(14.7%)
	Basic EPS	14.0	16.5	(14.0%)	(15.2%)
	Net debt (IFRS 16)6	1,530	1,442	N/A	+6.1%
	Net financial debt (IAS 17)6	383	325	N/A	+17.8%

• H1 Group revenue of €2,839m, growing +22.8% YoY at constant currency
• LFL revenue growth of +11.1% during period (Q1 +13.0%, Q2 +8.5%)
• Gross margin of 40.1% in H1 represents an anticipated trough in margin performance, with recovery expected in H2 as cost input inflation eases
• Underlying EBITDA (IFRS 16) of €377m up 11.0% YoY at constant currency
• Underlying PBT of €134m down 5.7% YoY at constant currency, reflecting investment in stores, expansion and related supply chain costs, alongside higher inflation
• Net debt at end of H1 was €383m (IAS 17), representing 0.9x LTM EBITDA leverage

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Commenting on the results, Trevor Masters, CEO of Pepco Group, said:

"The Group continued to make strong progress against our strategic objectives over the half year, while delivering an increase in revenues and underlying EBITDA. We opened 166 net new stores in the period and are confident on meeting our target of at least 550 net new stores this financial year, as part of our targeted and profitable opening programme.

"Our growth strategy in Western Europe is progressing well, reflecting the strong appeal of the Pepco brand to customers across the whole continent. Italy, where we recently opened our 100th store, and Spain - which is benefiting from our combined clothing, general merchandise and FMCG offer - continue to be our largest and fastest-growing Western European territories. In May, we were delighted to launch the Pepco brand in Portugal.

"As we highlighted previously, inflation remains at elevated levels in Central Europe, against which trading in Pepco stores has remained challenging during the third quarter to date. Despite this, we have continued to do the right thing for customers on a budget by maintaining our price leadership and growing our market share, while focusing on the cost of doing business in these inflationary times.

"We remain well positioned and in the second half will see gross margins trending upwards, as we benefit from the tailwinds on certain input costs, including commodity and freight. We are focused on executing our strategy and remain on track to deliver full year EBITDA growth in line with previous guidance. I would like to recognise our colleagues and suppliers across the business and thank them for their hard work and commitment to serving our customers."

CONFERENCE CALL

Pepco Group will host a conference call for analysts and investors to discuss its H1 interim results on Tuesday 6 June 2023 at 8.30am BST (9.30am CEST). Investors and analysts who would like to participate in the Q&A session can dial in using the relevant number below and quote "Pepco Half Year Results".

Location	Phone Number
Poland	+48	22 397 9053
United Kingdom	+44	(0) 33 0551 0200 / [phone]
United States	[phone]

Alternatively, a live audio webcast of the call will be available via the following link:

https://brrmedia.news/PCO_HY23

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FORTHCOMING DATES

The Group intends to issue the following updates in the near future:

• Q3 FY23 trading update: 13 July 2023
• Q4 FY23 trading update: 12 October 2023
• Poland store visit and business modelling session: Autumn 2023

ENQUIRIES
Investors and analysts
Tej Randhawa, Investor Relations	[phone]
Joanna Kwak, Investor Relations	[phone]
Media
Rollo Head, FGS Global	[phone]
James Thompson, FGS Global	[phone]
Alex Lusty, FGS Global	[phone]

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BUSINESS REVIEW

We continue to make good progress against our four strategic priorities, strengthening our positioning in the European retail market:

• Bigger: Grow revenue, brand and market share
• Better: Enhance portfolio of stores, categories and ranges
• Cheaper: Drive cost efficiency
• Simpler: Simplify customer offering and drive operational simplicity

BIGGER: Grow revenue, brand and market share

Store openings

The Group delivered 166 net new store openings during the first half. The number of openings was lower than the same period last year (H1 FY22: 235 net new stores), reflecting different phasing, with the second half of 2023 set to see an acceleration of openings. The Group remains confident of opening at least 550 net new stores during the current financial year.

• Pepco: Opened 221 new stores during the first half, including conversion of 31 Dealz stores in Spain, while closing 87 stores for a net 134 store increase. Performance across the estate remains strong, particularly in our larger Pepco stores in Spain, which include FMCG. This marked the first period where the number of net new store openings in Western Europe outweighed the number of openings in Central Europe. New country launches in H1 included Greece, where Pepco operated 10 stores at the end of the period
• Poundland Group: Poundland opened 24 stores in the first half, while closing 28 underperforming stores as part of its long-term estate plan. Dealz Poland opened 36 new stores during the period and had no closures, to reach a landmark of 200 stores.

Pepco in Western Europe

Our expansion in Western Europe is progressing well. Italy and Spain continue to be our largest and fastest-growing Western Europe territories, having delivered strong results over the last three years. We recently opened our 100th store in Italy, marking an important milestone for the Group and testament to the success of our profitable pan- European store expansion plans.

Western Europe is an increasingly important market for Pepco, with stores operating across Spain, Germany, Austria, Greece and Portugal. In April, Pepco opened its 100th store in Serbia, as the brand strengthens its presence and further capitalises on the strong demand for its products in the country. In May, Pepco launched its first stores in Portugal, following the successful rollout in Spain.

The expansion demonstrates that the whole of Europe is addressable to the Group. The majority of new Pepco stores in Western Europe will combine the best of the Group's clothing, GM and FMCG ranges. Elsewhere, the Group remains on track to launch the Pepco brand in Bosnia and Herzegovina later this year.

BETTER: Enhance portfolio of stores, categories and ranges

Store refits and renewals

During the period we kicked off our Pepco "New Look" programme, where we are targeting to re-fit all 2,500 Pepco stores in Central & Eastern Europe over the next two and a half years. The programme commenced in January 2023 and we completed 191 conversions during the first half across Poland, Slovakia and the Czech Republic. As with our store opening programme, we expect the number of conversions to accelerate as we move through the rest of the year. Initial performance from converted stores is encouraging with results in line with the trials that took place in Wroclaw and Warsaw last year. To date, the LFL revenue growth performance of the stores converted so far is running at around 10 percentage points higher than the control group, with an increase in both volume of transactions and average basket size.

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Pepco 'Plus' (Western Europe)

Our Pepco 'Plus' format of stores that offer three categories (FMCG in addition to clothing and GM) continues to deliver the strongest results of all store formats in the Group. The Group currently operates 40 Pepco 'Plus' stores, mostly located in Spain. This follows the conversion of all Dealz stores in Spain to the Pepco format. Like-for-like ("LFL") revenues for our Pepco 'Plus' stores in the first half were up by over 30% compared to the same period last year.

We are also conducting a trial of 6 Dealz conversions to Pepco 'Plus' in the Republic of Ireland, which are receiving a strong customer reception. We will provide an update on our plans for Republic of Ireland later in the year.

Poundland developments

As part of our drive to leverage the Group's scale and become a better business, Poundland will begin to source its clothing and GM offerings from Pepco. The first Pepco-branded clothing items in Poundland will be introduced from Autumn 2023, helping to drive increased brand awareness and enhanced purchasing terms with suppliers, and to leverage the Group's fully integrated end-to-end sourcing entity, PGS.

Poundland is on target to open and relocate 47 new stores during FY23 across a wide range of locations in UK high streets, shopping centres and retail parks.

CHEAPER: Drive cost efficiency

The Group's focus on cost efficiency has been redoubled over the period as inflationary pressures have remained elevated. The business has sought to further leverage the in-house direct sourcing arm PGS alongside driving improvements in cost of doing business primarily though a focus on labou r efficiencies and end-to-end supply chain efficiencies.

To simplify our operations, PGS was incorporated into the Pepco business during the period, which will help maximise and align the buying cycle, as well as help drive further operating efficiencies . In addition, PGS has opened, on schedule, a near-shore sourcing operation in Poland, which will increase our sourcing flexibility out of countries such as Turkey, Poland and Romania; as well as continuing to expand our Asian capabilities in countries such as Cambodia, Pakistan and Indonesia. PGS is a key competitive sourcing advantage for the Group.

Labour efficiencies continue to be delivered in both Pepco and Poundland, against a backdrop of what remains a high single-digit to low double-digit wage inflation environment in Central Europe. The businesses have again delivered a reduction in labour hours in stores through a combination of investment in technology such as self-service tills and enablement of more management activity on the shop floor, as well as changes in processes to reduce the stock handling.

Within our distribution and supply chain the Group continued to deliver on process and technology efficiencies with WMS blueprinting now in place across all Pepco distribution centres, a second automated sorter live in our largest DC in Gyal, Hungary and the commencement of an end -to-end supply chain review in Poundland. However, against these underlying improvements, fuel and labour inflation and higher levels of stock impacted the overall cost of operating our supply chain which was the primary driver of an increase in the period in operating cost to revenue in the Pepco business. As inflation reduces, we anticipate the cost of doing business will improve over time.

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