Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy 1 - - PowerPoint PPT Presentation

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Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy Agenda

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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%

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Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy Agenda

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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

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99p Stores: Timeline of events

August 2014

Due diligence began CMA announced Phase 1 findings: 101 remedies Phase 2 review commenced

February 2015 April 2015 May 2015 September 2015 October 2015

Acquisition announced and CMA process began No information exchange September 28, 2015: Acquisition completed Conversion programme to Poundland began Signed SPA – legally binding document September 18, 2015: Full clearance given

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Strong position inside the M25

Poundland 99p Stores

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

Poundland 99p FB Dealz Total M25 74 53 3 130 SE/SW 139 87 11 240 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

Regional mix of combined portfolio

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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

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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

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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

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New Addington

Before… …. After!

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Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy Agenda

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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

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Gross margin and overhead trends

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

36.4 36.5 36.3 H1 2013 H1 2014 H1 2015

Gross margin (%)

34.0 34.0 34.6 H1 2013 H1 2014 H1 2015

Overhead to sales (%)

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Underlying profit movement (£m)

8.9

• 2.3

9.3

• 1.1
• 0.7
• 1.9

12.6 2.7

FY15 H1 Profit Pre-opening PLC costs FX FY15 H1 Profit Base Trading (inc LFL) New space FY16 H1 PTP

Adjustments to base Underlying trading performance

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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)

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Capital investment

57 stores opened (LY 34) Accelerated investment in future productivity measures (an additional £2.0 million) to

• ffset the National Living Wage

Investment in Spain, with the opening of four stores

Capital investment (£m) H1 2016 H1 2015 New stores 10.4 5.9 Existing stores 2.7 1.7 Other 2.2 1.8 Spain 1.2 0.5 Total 16.5 9.9 % of sales 3.0 1.9

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The impact of the National Living Wage

Incremental £4.0 - £5.3 million p.a (core Poundland) Significant productivity opportunities to fully mitigate Hybrid self scanners Shelf ready packaging LED lighting Impact of 99p Stores

4.3 4.4 4.9 5.3 FY 2017 FY 2018 FY 2019 FY 2020

Impact of National Living Wage (£m)

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Euro sourcing strategy

Long term strategy Flexible global sourcing Fully cover € transactional risk from FY 2018

18.0 21.0 43.0 FY 2014 FY 2015 FY 2016

Euro sourcing

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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

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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

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Highlights Jim McCarthy 99p Stores’ integration plans Jim McCarthy Financial Highlights Nick Hateley H1 2016 Overview Jim McCarthy Agenda

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H1 2016 Overview

UK new store growth beat forecast Ireland rollout accelerated Spanish trial making excellent progress Transactional website launched

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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

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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

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Spain: Nine stores opened

Tenth store and fourth store format

• pens soon (shopping centre)

Continued investment in range and customer proposition

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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

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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

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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

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Summary

99p Stores acquisition transformational, five years growth; 40% more stores in one move Significant incremental EBITDA of at least £25 million already identified 52 net new stores opened in the UK & Ireland We have increased our store target in the UK & Ireland to 1,400 stores Our roll out in Ireland is accelerating and store target is now 100 stores We are pleased with our progress in Spain Tenth store opens in November; decision on roll out to be announced June 2016 As expected, and in line with consensus, first half profit was down Q3 has been volatile. The quarter’s performance therefore depends upon the last six weeks’ trading towards Christmas. Pleased to announce a 10% increase in the interim dividend

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APPENDIX: Exciting Christmas products

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APPENDIX: 99p Stores P&L FY2013-2015 (£m)

FY 2013 FY 2014 FY 2015 Net sales 341.5 370.4 361.3 EBITDA 4.9 6.1 1.3 EBITDA margin (%) 1.4 1.6 0.4 Depreciation 5.1 5.7 6.3 EBIT (0.2) 0.4 (5.0) EBIT margin (%) (0.0) 0.1 (1.4)

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APPENDIX: Financial calendar

Q3 sales update 7 January 2016 Pre-close 14 April 2016