Pepco Group to spin off Poundland, focus on Pepco brand

To pivot away from its FMCG-reliant segments, Pepco Group intends to actively evaluate all strategic options for separating Poundland from the Group during FY25, including a potential sale, while concurrently managing Dealz Poland to optimize its value in the medium term.

This strategic shift is motivated by the financial drag exerted by the FMCG-centric businesses, characterised by diminished revenue growth, compressed gross margins, elevated operational costs, and consequently, reduced profitability and returns on invested capital compared to Pepco.

On top of these challenges, Poundland operates within an increasingly demanding UK retail environment, further aggravated by the UK government's additional tax changes announced in the budget, which will exert additional pressure on Poundland's cost structure from April 2025 onwards.

At a Capital Markets Day investor presentation in London, chief executive officer Stephan Borchert will articulate the Group's strategic vision, which centres on the Pepco brand as the singular future format and primary driver of the company's earnings. Borchert emphasised the company's decisive strategic actions to concentrate on the Pepco brand as its sole future format, aiming to create a streamlined business focused on higher-margin clothing and general merchandise.

He stated, “The board and I are actively exploring separation options for Poundland, including a potential sale, from the Group, with consideration also given to the separation of the well-performing Dealz Poland over the medium term.”

The company believes that a simplified structure will enhance shareholder value by leveraging Pepco's price leadership, higher-margin clothing/GM offerings, and untapped growth opportunities in Central, Eastern, and Western Europe. As part of this revamped strategy, Borchert will assume direct operational responsibility for Pepco, while Barry Williams will be permanently appointed Managing Director of Poundland.

Furthermore, to prioritise the robust returns and enhanced margins generated by the standard Pepco format, the Group will discontinue the Pepco ‘Plus’ format in Iberia (Spain and Portugal). The Group also announced a strategic review of the Pepco Germany business, which is experiencing exceptionally low revenue densities and the highest operating costs within the company.

In the second financial quarter to date, Group like-for-like sales have increased by 1.5 percent in the eight weeks leading up to March 2, 2025, with strong performance from Pepco and Dealz offsetting ongoing challenges at Poundland. The Group anticipates that the Pepco business will achieve FY25 underlying EBITDA growth in the high single digits, while Poundland is projected to deliver underlying EBITDA between 50 million and 70 million euros during the current financial year.