Final Results

3rd July 2014

Full Year Results for the year ended 30 March 2014

DELIVERED EXPECTATIONS AND A GOOD START TO THE NEW FINANCIAL YEAR

Financial Highlights

Underlying Results

· Total sales +13.3% to £997.8 million (2013: £880.5 million)

· Like-for-like sales +1.9% (2013: -1.7%)

· Underlying pre-tax profits + 23.5% to £36.8 million (2013: £29.8 million)

· Underlying post-tax profits +25.1% to £27.3 million (2013: £21.8 million)

· Underlying adjusted EPS + 25.1 % to 10.90p (2013: 8.71p)

Statutory Results

· Pre-tax profits -18.9% to £21.5 million (2013: £26.5 million)*

· Net cash from operating activities before IPO costs +59.0% to £53.1 million (2013: £33.4 million)

· Net debt of £4.7 million (2013: £9.2 million)

Operational Highlights

· 70 net new stores, growing the estate by 15.3% to 528 stores (2013: 458)

· Announced Spanish trial of Dealz with a plan to open an initial 10 stores over 2 year period. First store in Spain opened yesterday

· New 350,000 square foot warehouse in Harlow will open in late August

· Nearly five million customers served each week, including over 200,000 in Ireland

· Clear evidence of universal appeal of the Poundland and Dealz brands with over 22% of customers now from the AB demographic

· Awarded Grocer Variety Discounter of the Year

*after IPO costs and other non-underlying charges

Andrew Higginson, Chairman of Poundland, said:

"These results show that we are continuing to build on our strong growth record, as set out at the time of the IPO. I expect that Poundland will continue to benefit from its strong trading platform, its universal appeal and the structural change in consumers' shopping behaviour."

Jim McCarthy, Chief Executive of Poundland, said:

"This was a transformational year for Poundland culminating in our successful IPO in March. I am pleased to report that in our maiden set of results we have delivered excellent growth in sales, as well as in underlying EBITDA and EPS, whilst generating strong cash flow. 

In addition to strong trading in the UK, the next leg of our international expansion is now underway with the opening yesterday of our first Spanish store in Torremolinos."

Results Presentation

A presentation for analysts and investors will be held today at 9am. Please use the following conference call details to listen to the presentation:

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FINANCIAL SUMMARY

Sales grew by 13.3% and, due to strong margin management and cost control, this translated into an 18.9% increase in underlying EBITDA and a 25.1% increase in underlying EPS, and we managed our cash well. Net debt almost halved, despite costs related to our successful stock market flotation and the redemption of preference shares (£20 million).

GUIDANCE FOR 2015

Store rollout:

UK & Ireland: We plan to open a net 60 stores.

Spain: The pilot plans 10 stores over two years.

Underlying costs: After the impact of the costs of being a listed company, we expect our EBITDA margin will be broadly flat.

Non-underlying charges: We will incur double running costs of between £1.0 million and £1.5 million associated with our new distribution centre at Harlow. We will also incur pilot store costs in Spain of between £1.25 million and £1.75 million.

Capital investment: We will spend around £20.0 million, depending on the pace and cost of the pilot in Spain.

CHIEF EXECUTIVE'S REVIEW

Overview

I am pleased to report another record year for Poundland with significant sales and profit growth together with a strong new store opening programme.

We have continued to expand our presence in the UK and Republic of Ireland with the opening of 70 net new stores, taking our overall estate to 528 stores, with total trading space expanding by 18.9%. We intend to further strengthen our market presence with additional openings during the coming year.

Our entry into Ireland under the Dealz brand demonstrates that we are not only capable of generating attractive financial returns but also of rapidly establishing a successful brand in a new geography. Consequently, as previously advised, Poundland has, following extensive market research, exported the Dealz format into Spain with a low cost, low risk entry. 

The continuing expansion of our retail estate within the United Kingdom, the Republic of Ireland and in Spain has led us to invest in a third, purpose built 350,000 sq.ft. distribution centre at Harlow, which will open later in the year, replacing the 200,000 sq.ft temporary facility at Hoddesdon. The adjacency of the new site enables us to transfer the majority of existing experienced colleagues to the new operation.

Outlook

Our strong sales and volume increases demonstrate the relevance of our proposition to consumers from all socio economic groups.

Manufacturers recognise the increased demand for value and are working hard to deliver products that meet these requirements. Many forward thinking suppliers are also changing their sales, account structures and supply chains to adapt to these changes. We will continue to work with our supplier partners to bring amazing value, brands, new products and innovation to our customers.

Poundland remains fully committed to our single price point in the UK. We will continue to develop our multi-price Dealz format outside the UK.

Due to our strong pipeline of new stores we expect to deliver the unique Poundland retail proposition to circa three quarters of a million new customers each week by the end of the current financial year. We are planning to open at least 60 net new stores during the next financial year, including a number of new Dealz stores in Ireland and Spain. As a result, we estimate that we will create a net 1,000 jobs.

Our single price point continues to help consumers plan their household budgets with certainty and confidence. Our programme of new store openings, international expansion and continuing productivity improvements are all key drivers of growth.

We believe the shopping behaviours adopted during the last five or six years will continue as the economy and consumer confidence improve and that Poundland is well placed to benefit further from increased footfall and discretionary spending. I look forward to the future with confidence.

Colleagues

I am proud that our colleagues have once again demonstrated that they operate at the heart of their local communities. Macmillan Cancer Care has, for the fifth consecutive year, been voted by our colleagues as their chosen charity. This partnership has worked well and has provided an easy way for our customers and colleagues to support Macmillan. Donations have now exceeded £1 million with money being raised through a number of different events, including the London Marathon, product sample sales and numerous themed fundraising events including dress down days and coffee mornings in Poundland stores, distribution centres and our customer support centre.

In our Republic of Ireland Dealz stores we support Make-A-Wish as our chosen charity. Make-A-Wish has one simple aim, to grant the wishes of children and young people living with life-threatening medical conditions.

Following Admission in March, Poundland has introduced three new employee share plans, the Poundland Performance Share Plan, the Poundland Restricted Share Plan and the Poundland Company Share Option Plan. We will also be introducing the Poundland Save As You Earn Plan for eligible colleagues later this year.

CHIEF FINANCIAL OFFICER'S REPORT

*Defined as Underlying EBITDA plus changes in working capital minus maintenance capex divided by Underlying EBITDA

We performed strongly across all of the Key Performance Indicators (KPIs) set out in our IPO prospectus, especially in the growth of our store estate and in our strong cash flow.

OTHER OPERATING METRICS

The IPO prospectus also identified a number of other key operating metrics and, as the table above shows, our performance was strong in the 2014 financial year.

REVENUE

Group revenue net of VAT was £997.8 million (2013: £880.5 million), which represents growth on the prior year of 13.3%. This improvement was driven by both the impact of a strong opening programme and a return to like-for-like sales growth. We grew like-for-like sales during the year by 1.9% (2013: -1.7%), which was driven by our continued focus on providing our customers with amazing value every day and a return to more normal competitor opening activity.

GROSS MARGIN

Gross profits increased by 13.9% to £368.5 million (2013: £323.5 million) and gross margins increased by 19 basis points to 36.93 % (2013: 36.74%). This increase was driven by a combination of our improved buying power and the greater mix within our store base of Dealz and retail parks. The number of Dealz and retail park stores increased by 35 to 85. These positive factors offset the negative impact of inflation and an increase within our sales mix of branded goods. Consumer price inflation during our financial year was 1.6% (2013: 2.8%; Source: ONS) and the proportion of branded goods within our sales mix increased by 30 basis points to 63.4% (2013: 63.1%).

OPERATING COSTS

Underlying operating costs

Underlying operating costs in the financial year increased by 13.3% to £328.5 million (2013: £290.0 million). This increase in the cost base in the period was primarily a result of the increase in the number of stores in the portfolio. Operating costs now account for 32.92% of sales (2013: 32.94%). The fact that this was flat year on year reflects continued investment in the business.

Stripping out depreciation and amortisation, costs as a proportion of sales fell by 5 basis points to 31.52% (2013: 31.57%).

EBITDA AND EBIT

We report non-underlying items in our income statement to show one-off items and to allow investors to better understand the underlying performance of the business. In relation to the 2014 financial year, these included costs in respect of our IPO (£10.0 million) and costs related to strategic initiatives in ecommerce and in international development (£1.3 million). In the previous financial year, we incurred costs related to strategic initiatives in ecommerce and in international development, costs resulting from the opening of a temporary distribution centre and costs relating to a new store format trial and brand amortisation. Underlying EBITDA grew by 18.9% to £54.0 million (2013: £45.5 million), driven by the strong trading margin performance of the Group.

The table above shows underlying EBIT and movement in underlying margins. Underlying EBIT is calculated after stripping out brand amortisation of £1.1 million (2013: £1.1 million) from depreciation and amortisation expenses, as we regard this charge as non-underlying. Underlying EBIT grew by 19.6% to £40.0 million. Group margins increased at both the underlying EBITDA and the underlying EBIT level, by 25 basis points to 5.41% in the case of the former (2013: 5.16%) and by 21 basis points to 4.01% in the case of the latter (2013: 3.80%).

NET FINANCE COSTS

In the 2014 financial year, the Group incurred a non-underlying charge of £2.9m, relating to the renegotiation of its debt facility, which included the write off of unamortised fees associated with the debt facility agreed in August 2010. Underlying net finance costs reduced by 11.7% (£0.4 million), at £3.2 million. This was a consequence of the Group's strong trading performance and high cash conversion rates.

STATUTORY PROFIT BEFORE TAX

Underlying profit before tax was £36.8 million, which represented an increase of 23.5% on last year (2013: £29.8 million). Statutory profit before tax fell by 18.9% to £21.5 million (2013: £26.5 million), due to an increase in net non-underlying charges, primarily costs associated with the Group's stock market flotation.

TAXATION

The underlying tax charge for the period was £9.6 million (2013: £8.0 million). The full year underlying effective tax rate was 26.0% (2013: 27.0%). There was a non-underlying adjustment to the tax charge in the 2013 financial year of £4.9 million, principally relating to a one-off corporation tax refund (£4.0 million).

STATUTORY PROFIT AFTER TAX

Underlying profit after tax was £27.3 million, which represented an increase of 25.1% on last year (2013: £21.8 million). Statutory profit after tax fell by 40.7% to £13.9 million (2013: £23.4 million), due to an increase in net non-underlying charges, primarily costs associated with the Group's stock market flotation.

ADJUSTED EARNINGS PER SHARE

Underlying basic and fully diluted earnings per share increased by 25.1% to 10.90p per share (2013: 8.71p per share). Non-underlying basic and diluted earnings per share fell by 40.7% to 5.54p per share (2013: 9.35p per share). The weighted average number of shares in issue during the period was 250m.

CAPITAL EXPENDITURE

During the 2014 financial year, we invested £17.6 million in capital expenditure, primarily related to the opening of new stores. We continued to roll out the Poundland format in the UK and the Dealz format in Ireland. We opened a total of 82 stores in the 2014 financial year, or 70 net of closures and resites.

We ended the year with 528 stores (2013: 458), including 495 Poundland stores in the UK and 33 Dealz stores, including 31 in Ireland and 2 in the Isle of Man and Orkney and have a long-term target of 1,000 stores in the UK and 70 in Ireland. We plan to open 60 net new stores a year in the UK and Ireland and our pipeline is strong for the current year.

We continue to invest in our infrastructure to support our planned growth and we will open our new purpose-built 350,000 square feet distribution centre in Harlow in August.

NET DEBT AND CASHFLOW

Net debt at the end of the year was £4.7 million (2013: £9.2 million). This is after paying £20m redeeming preference shares and the payment of £4.9 million in costs associated with our successful stock market flotation. We received no cash benefit from the IPO, as all proceeds went to selling shareholders. Operating cash flow of £58.6 million represented an increase of 57.2% on last year (2013: £37.3 million). This reflects Poundland's strong trading performance and our continued focus on day to day cash management.

Working capital was well managed, with a £15.8 million inflow in the year (2013: outflow of £5.8 million). Cash conversion during the year was strong at 123.7% (2013: 82.7%).

NEW DEBT FACILITY

On 17 March 2014, we entered into a new banking facility consisting of a revolving credit and a working capital facility of £55 million. We utilised £30 million of the revolving credit facility, together with cash generated from operating activities to repay our term debt.

DIVIDEND

We intend to adopt a dividend policy which reflects our long-term earnings and cash flow potential, targeting a level of annual dividend cover of 2.5 to 3.5 times based on earnings. We intend that the first dividend to be declared will be the interim dividend in respect of the first half of the 2015 financial year, payable in January 2015.

Consolidated Income Statement

For the period ended 30 March 2014

All activities were continuing throughout the current and preceding period

Non-underlying items include brand amortisation and non-recurring exceptional costs and income (see note 6)

Consolidated Statement of Other Comprehensive Income

For the period ended 30 March 2014

Consolidated Statement of Financial Position

at 30 March 2014

Consolidated Statement of Changes in Equity

for the period ended 31 March 2013

Consolidated Statement of Changes in Equity

for the period ended 30 March 2014

Consolidated Cash Flow Statement

for the period ended 30 March 2014

1 Basis of preparation and significant accounting policies

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The financial statements are prepared on the historical cost basis except where Adopted IFRSs require an alternative treatment. The principal variations relate to financial instruments.

2. Basis of consolidation

On 17 March 2014, the Company obtained control of the entire share capital of Poundland Group Holdings Limited via a share for share exchange. There were no changes in rights or proportion of control exercised as a result of this transaction. Although the share for share exchange resulted in a change of legal ownership, in substance these financial statements reflect the continuation of the pre-existing group, headed by Poundland Group Holdings Limited. As a result, the comparatives presented in these financial statements are the consolidated results of Poundland Group Holdings Limited.

The prior period statement of financial position reflects the share capital structure of Poundland Group Holdings Limited. The current period statement of financial position presents the legal change in ownership of the Group, including the share capital of Poundland Group plc and the merger reserve arising as a result of the share for share exchange transaction.

3. Earnings per share

Poundland Group Holdings Limited had preference shares, the holders of which were entitled to a cumulative dividend at the discretion of the Directors. In accordance with IAS 33, for the comparative period, and for the current period to the date of the share restructure, the accrued preference share dividend has been deducted from profit for the period to compute the earnings attributable to ordinary shareholders. The conversion factor applied in the share for share reorganisation has been applied to calculate the number of ordinary shares of Poundland Group Holdings Limited used to compute the weighted average number of ordinary shares for the comparative period and for the current period to the date of the share restructure. In this way the impact of the preference shares has been excluded from both earnings and the weighted average number of shares.

As a precursor to the share for share exchange, the preference shares in Poundland Group Holdings Limited were converted to ordinary shares and any entitlement to a dividend on these shares was forfeited. For the periods reported, the Group has chosen to present an adjusted EPS calculation to aid comparability and to provide a consistent measure of performance, by excluding the impact of the preference shares from both earnings and the weighted average number of shares. For this adjusted measure, in both reported periods, the weighted average number of shares is based on the share capital structure of Poundland Group plc and assumes that this structure was in place from 2 April 2012 (i.e. the beginning of the prior period).

For both EPS measures (statutory and adjusted), the Group has also presented an alternative version with profit adjusted for non-underlying items.

Statutory earnings per share

Adjusted earnings per share

4 Reconciliation of adjusted profit measure (EBITDA)

The Directors consider EBITDA to be a more consistent measure of operating performance. Operating profit is adjusted to exclude the impact of finance costs, taxation, amortisation and depreciation.

Underlying EBITDA excludes the impact of those distribution costs and administrative expenses which do not contribute to current trading activities. The Directors consider that this measure more fairly reflects actual operating performance.

5 Revenue

6 Non-underlying items

In the period ended 30 March 2014, the Group incurred fees relating to its listing of £9,954,000. It has also incurred £2,981,000 relating to the renegotiation of its debt facility, which includes the write off of unamortised fees associated with the debt facility agreed in August 2010.

The Group incurred £1,277,000 of expenditure related to strategic initiatives (e-commerce and international expansion) (2013: £459,000).

In the period ended 31 March 2013, the Group incurred £1,424,000 of one-off costs relating to the opening of a new distribution facility in the South East of England and a further £435,000 relating to a new store format trial.

On the acquisition of Poundland Holdings Limited in June 2010, the Group recognised an intangible asset relating to the Poundland brand. This is being amortised over 20 years and the amortisation expense is presented as a non-underlying item (2014: £1,112,000, 2013: £1,112,000).

The ineffective portion of foreign exchange hedging contracts is recognised as a financial expense and disclosed as a non-underlying item (2014: £1,000 expense, 2013: £92,000 income).

The associated tax implications of the above items are presented as a non-underlying item and are summarised below.

Additionally, in the prior period, the Group received a one-off corporation tax refund of £3,950,000 in respect of prior years, which has been presented as a non-underlying item.

7 Financial income and expense

8 Taxation

Recognised in the income statement

The tax charge is reconciled with the standard rates of UK corporation tax as follows:

Recognised in other comprehensive income

Factors that may affect future current and total tax charges

Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Group's future current tax charge accordingly. The deferred tax asset at 30 March 2014 has been calculated based on the rate of 20% (31 March 2013 liability calculated at 21%) substantively enacted at the reporting date.

9. Other information

The financial information set out above does not constitute the Company's statutory accounts for the 52 weeks ended 30 March 2014 within the meaning of section 435 of the Companies Act 2006 ("The Act"). Statutory accounts for 2014 will be delivered to the Registrar of Companies in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2014.