Agenda Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy 1
Highlights 99p Stores Transformational deal; five years of UK growth in one go Increases our store estate by 40% UK 52 net new stores opened Store growth accelerated; store target increased from 1,000 to 1,300 stores International 50 stores in Ireland: roll out accelerated and store target increased from 70 to 100 stores Spain: trial is on track, model and new offer being refined to meet requirements of local market Group As expected, pretax profit fell, in line with consensus Interim dividend increased by 10% 2
Agenda Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy 3
Acquisition of 99p Stores: a transformational asset deal We have acquired five years’ worth of organic growth in the UK in one go Adds 40% to our store base Significantly enhances portfolio, especially in under-represented South We have acquired 252 shops Use the acquired Family Bargains format to trial a new multi-price format: live from April 2016 Incremental EBITDA of at least £25 million trading the stores as Poundland scale benefits of the Group 4
99p Stores: Timeline of events CMA announced Conversion Due diligence began Phase 1 findings: 101 programme to remedies Poundland began August February April May September October 2014 2015 2015 2015 2015 2015 Signed SPA – legally Phase 2 review September 18, 2015: binding document commenced Full clearance given Acquisition September 28, 2015: announced and CMA Acquisition completed process began No information exchange 5
Strong position inside the M25 Regional mix of combined portfolio Poundland 99p FB Dealz Total M25 74 53 3 130 Poundland SE/SW 139 87 11 240 99p Stores South 213 140 14 367 % of portfolio 37 62 52 42 Midlands 103 46 6 155 North 135 26 6 167 N Ireland 30 30 Ireland 2 44 46 Scotland 59 3 62 Wales 33 8 1 42 Total 573 225 27 44 869 We now have 130 stores inside the M25 More stores than all the other VGM players combined 62% of 99p Stores’ portfolio is south of Midlands 6
Moving at pace to deliver incremental EBITDA 99p Stores’ sales have suffered during the lengthy purchase process Credit insurance withdrawn Resulting in low levels of stock and product availability in stores This poor retail offer has led to falling sales and cash pressures Therefore, we have accelerated the conversion process Now planning that the vast majority of stores will trade as Poundland by the end of April 2016 EBITDA losses in H2 at 99p stores will be around £6 million to £8 million 7
At least £25 million EBITDA already identified We have already identified incremental EBITDA of at least £25 million by FY 2018 We expect the EBITDA opportunities to come from Sales improvement - Improved product, range and space - Value advantage in GM - Stock availability Economies of scale - Purchasing - Operational leverage Early conversions are showing encouraging sales uplifts We expect strong incremental EBITDA to be generated from Q2 FY 2017 8
Conversion costs There will be one off conversion costs associated with this project Capital expenditure of store conversion Revenue costs, which include Conversion team Rebranding Trading losses Head office closure costs 9
New Addington Before… …. After! 10
Agenda Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy 11
Financial Highlights H1 2016 H1 2015 Change (%) Sales (£m) 554.7 528.2 5.0 Like-for-like sales growth (%) (2.8) 4.7 Gross margin (%) 36.3 36.5 Down 11 bp Underlying EBITDA (£m) 16.8 20.7 (18.5) Underlying EBITDA margin (%) 3.0 3.9 Down 87 bp Underlying EBIT (£m) 9.5 12.9 (26.4) Underlying EBIT margin (%) 1.72 2.45 Down 73 bp Underlying interest (£m) (0.3) (0.4) Underlying pre-tax profit (£m) 9.3 12.6 (26.3) Underlying EPS (p) 2.85 3.84 (25.8) DPS (p) 1.65 1.5 10.0 Underlying net funds / (debt) (£m)* 17.0 (4.4) * Adjusted to exclude proceeds from equity placing on 24 September 12
Gross margin and overhead trends Gross margin (%) Overhead to sales (%) 36.5 36.4 36.3 34.6 34.0 34.0 H1 2013 H1 2014 H1 2015 H1 2013 H1 2014 H1 2015 Gross margin continues to be stable, despite adverse FX movement Pre-opening costs £1.1 million higher, due to 57 stores opened (LY: 35) 30 stores opened in September, so sales didn’t benefit Absorbed an extra £0.7 million in PLC costs Continued close cost control 13
Underlying profit movement (£m) Adjustments to base Underlying trading performance 12.6 -1.1 -0.7 -1.9 9.3 2.7 8.9 -2.3 FY15 H1 Profit Pre-opening PLC costs FX FY15 H1 Profit Base Trading (inc LFL) New space FY16 H1 PTP 14
Profit before tax H1 2016 H1 2015 Growth (%) Reported profit before tax (£m) 5.3 9.3 (43.5) Adjustments: Brand amortisation (£m) 0.6 0.6 IPO costs (£m) 0.2 Harlow (£m) 1.2 Costs of 99p Stores acquisition (£m) 1.9 Spain (£m) 1.7 1.1 Net financing expense (£m) (0.1) 0.2 Underlying profit before tax (£m) 9.3 12.6 (26.3) 15
Capital investment 57 stores opened (LY 34) Capital investment (£m) H1 2016 H1 2015 Accelerated investment in future productivity New stores 10.4 5.9 measures (an additional £2.0 million) to offset the National Living Wage Existing stores 2.7 1.7 Investment in Spain, with the opening of four stores Other 2.2 1.8 Spain 1.2 0.5 Total 16.5 9.9 % of sales 3.0 1.9 16
The impact of the National Living Wage Incremental £4.0 - £5.3 million p.a (core Poundland) Impact of National Living Wage (£m) 5.3 4.9 Significant productivity opportunities to fully mitigate 4.3 4.4 Hybrid self scanners Shelf ready packaging FY 2017 FY 2018 FY 2019 FY 2020 LED lighting Impact of 99p Stores 17
Euro sourcing strategy Euro sourcing Long term strategy 43.0 Flexible global sourcing Fully cover € transactional risk from FY 2018 21.0 18.0 FY 2014 FY 2015 FY 2016 18
Outlook and guidance for core FY2016 Sales Softer H2 comparables, but challenging trading conditions Trading so far in Q3 has been volatile, which makes the next six weeks trading very important 70 net new stores in UK & Ireland; 10 store target achieved in two year Spanish trial € exchange rate At current exchange rates we guide to an EBITDA risk of £(4) million to £(5) million Exceptional charges Trial store costs in Spain similar to last year, at circa £2.5 million to £3.0 million Capital investment Will be circa £25.0 million on the core business and Spain (excluding 99p Stores) 10 more stores than last year Accelerated investment in productivity drivers 19
Outlook and guidance for 99p Stores acquisition FY 2016 FY 2017 Total Acquisition cost (£m) 55.0 Capital expenditure (£m) 12.0 2.0 14.0 Total cash cost (£m) 69.0 Incremental EBITDA (£m) > 25.0 ROCE (%) > 36.0 Payback Three years Non-underlying integration P&L costs £m) 11.0 14.0 25.0 All in cost (£m) 94.0 ROCE (%) > 27.0 Payback Four years Year earn above our cost of capital In FY 2017 20
Agenda Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy 21
H1 2016 Overview UK new store growth beat forecast Ireland rollout accelerated Spanish trial making excellent progress Transactional website launched 22
UK new store growth in H1 2016 99p Stores adds 40% to our UK store base Two thirds of their stores are South of Midlands 44 net new stores in UK taking total to 591 stores 30 new stores in September: a record 107 retail park stores in UK Increasing overall UK store target to 1,300 23
Ireland roll out accelerated 7 net new stores in Ireland, total 48 stores Dealz brand is now four years old Accelerating rollout to 20 stores next year Increased our store target from 70 to 100 stores 24
Spain: Nine stores opened Tenth store and fourth store format opens soon (shopping centre) Continued investment in range and customer proposition 25
Spain: Progress in H1 2016 Good progress being made Range development continues: 400 additional local products Learnings from trial used to refine offer and operating model LFL growth at Torremolinos is strong We will update the market in June at preliminary results 26
Spain: Model store development Latest model store concept implemented in two stores Focus to drive sales through the development of a store proposition that is more aligned to the Spanish sourced product In model stores, locally sourced product is 30% of sales Initial trading encouraging Reducing complexities and in-store costs 27
Transactional website We launched our online trial in September Special features include the Shuffle button Offering 2,000 SKUs Free delivery at £50 Two-thirds of orders are over £20 Over 20% of orders are £50 or higher 91% would recommend Poundland.co.uk to family & friends We will continue to trial through FY 2017 28
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