group
Pepco Group N.V.
Annual Report and Consolidated Financial Statements 2023
Building a
foundation for
profitable growth
especially families on a budget – everything they need to replenish
and enhance their home across key apparel, general merchandise
and FMCG categories.
Introduction
Financial statements
Other information
1
Highlights
87 Consolidated income statement
145 Articles of Association provisions
governing the distribution of profit
2
At a glance
88 Consolidated statement of other
comprehensive income
146 List of branches
89 Consolidated statement of
147 Statutory list of all subsidiaries and
Strategic report
financial position
affiliated companies
4
Executive Chair’s statement
90 Consolidated statement of
149 Glossary of terms
6
Q&A with Executive Chair
changes in equity
151 Shareholder information
8
Business model
92 Consolidated statement of
10 Our strategy
cash flows
14 Key performance indicators
93 Notes to the financial statements
16 Sustainability
128 Separate income statement
38 Risk management
129 Separate statement of
45 Going concern
financial position
46 Financial review
130 Separate statement of changes
in equity
Governance
131 Separate statement of cash flows
58 Introduction to governance
132 Notes to the separate
financial statements
60 Board of Directors
139 Independent auditor’s report
62 Corporate governance statement
68 Audit Committee report
72 Nomination Committee report
74 Remuneration Committee report
77 Remuneration report
82 Deviation from the Dutch
Corporate Governance Code
and Warsaw Code
84 Directors’ report
> For more on Pepco Group, visit our website:
www.pepcogroup.eu
Highlights
Stores1
Revenue
Like-for-like sales
4,629
€5,649m 6.0%
FY23
4,629
+17%
FY23 +17%
5,649
FY23
6.0
+0.8pp
FY22
3,961 +13%
FY22
4,823 +17%
FY22
5.2
-1.3pp
Underlying (IFRS16) EBITDA2
Underlying (pre-IFRS16) EBITDA3
Underlying PBT4
€753m €396m €202m
FY23
753
+3%
FY23
396
-10%
FY23
202
-33%
FY22
731
+13%
FY22
439
+10%
FY22
300
+23%
Net debt5
ROIC6
Earnings per share7
€411m
17.0%
17.8 cents (€)
FY23
411
+€136m
FY23
17.0
-8.0pps
FY23 17.8 -12.4 cents
FY22
275
+€167m
FY22
25.0
-0.5pps
FY22
30.2
+7.4 cents
1
Alternative Performance Measure (APM), defined as the number of stores in the estate as at the period end.
2
APM, defined as profit on ordinary activities before depreciation, amortisation, rent, net finance costs and
taxation. A reconciliation of underlying EBITDA to statutory measures is presented on note 27 in the financial
statements.
3
APM, defined as profit on ordinary activities before depreciation, amortisation, net finance costs and
taxation.
4
APM, defined as profit on ordinary activities before tax. A reconciliation of underlying PBT to statutory
measures is presented on note 27 in the financial statements.
5
APM, defined as the Group’s pre-IFRS 16, long-term borrowings, net of cash and bank balances as at
30 September 2023.
6
APM, defined as NOPAT/IC, where IC (invested capital) = PP&E + intangibles (excl. goodwill) + NWC (current
assets – current liabilities excluding IFRS 16 lease liabilities) and NOPAT = net underlying operating profit
after tax.
7
EPS, defined as basic earnings per share from continuing operations.
> See note 27 for definitions of APMs
1
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
At a glance
A leader in
value retailing
We are a large-scale variety discount retailer operating across Europe. Through our retail
brands – Pepco, Poundland and Dealz – we are proud to trade from over 4,600 stores in 21
countries across Europe, serving 57 million shoppers each month.
Our locations
36
60
39
80
71*
7*
1,256
706
283
52
287
146
73
246
445
39
121
9
124
157
151
14
205
22
*
Dealz and Pepco stores in Ireland are reported under the
Pepco
Poundland
Dealz
Poundland segment
Stores
Countries
Employees
Customers (per month)
4,629 21
47,487 57m
2
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Our businesses
Pepco
Poundland
Dealz
PGS
Pepco operates over 3,500
Since opening its first store
Dealz has been present on
PGS provides direct product
stores in 19 countries, and is
in Burton-upon-Trent in 1990,
the Polish market since 2018,
sourcing, product development
widely recognised as one of
Poundland has built a network
operating 283 locations in 203
and technical services to our
Poland’s strongest retail brands. of over 800 stores in the UK and towns and cities across Poland.
Pepco, Poundland and Dealz
Pepco serves over 30 million
the Republic of Ireland (where
Dealz offers a variety of over
brands. PGS is a real point of
customers a month, offering
it operates under the Dealz
3,000 FMCG products in 15
difference as we bring value to
clothing for the whole family,
and Pepco formats). Poundland categories at the lowest prices.
customers using our vertically
and household goods at the
offers great quality own-brand
integrated supply operation.
lowest prices.
and third-party products
that provide customers with
amazing value every day.
Stores
Stores
Stores
Sourcing countries
3,523 823 283 9
Our core markets
Why invest?
Long-term retail outlook in CEE favourable
Unique proposition
Pepco Group has had to contend with high double-digit
Pepco Group has a unique differentiated clothing and
levels of inflation in its core Central and Eastern Europe
general merchandise offering supported by exclusive in-
(CEE) markets during 2023, which has suppressed consumer
house sourcing office, PGS, which drives efficiencies and
demand for our clothing and general merchandise products,
speed to market.
with a focus on essentials instead. There are tentative signs
of recovery as real wage growth started to return to positive
Growing market
territory at the end of 2023. Over the long term, the market
Pepco Group is positioned in the most attractive segment
dynamics across CEE remain structurally favourable with
of the sector – discount retail – offering quality clothing,
an expectation of growth in GDP, disposable income and
general merchandise and FMCG products at low prices. The
growth in offline retail sales.
Group is one of the fastest growing pan-European retailers,
opening 668 net new stores in FY23.
Sustained market share
Strong brand equity
Pepco Group has sustained its market share in its core CEE
markets over the last five years, despite a huge increase
Pepco Group has strong brand equity and leading market
in competition during the same period. This has been
share in its core markets, with ‘Pepco’ being a leading retail
validated by our customers who recognise Pepco’s leading
brand in Poland, and ‘Poundland’ having a strong brand
position leading to superior NPS compared to our peers.
presence in the UK. The Group will continue to leverage this
position as we expand our offering in existing markets. Our
proven profitable store model gives us confidence in the
Price leadership focus
opportunity to continue building Europe’s leading variety
Maintaining price leadership across our brands is a core
discount retailer.
part of our brand values in order to provide a compelling
value proposition for our customers and grow market
Robust financials
share. Pepco has retained clear entry price leadership, with
clothing 30% on average cheaper than its competitors, and
The Group has funded all of its growth over recent years
general merchandise 50% cheaper.
from operating cash flow, without the need to raise external
debt or equity capital. The Group maintains a strong
balance sheet with access to over €400 million in liquidity
(from cash and credit facilities).
3
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Executive Chair’s statement
Measured and
focused growth
Introduction
Our 2023 financial year can be characterised by a contrast of highs
and lows. The business delivered a record financial performance,
with our highest ever revenue and EBITDA outturn, alongside opening
a record number of 668 net new stores across Europe. The ability of
the team to ramp up to roll out over 340 stores in the fourth quarter
alone highlights the capability and execution that our business has
to open stores at scale and simultaneously across geographies.
However, our financial performance did not meet the targets
we set ourselves at the start of the year. The Group faced an
increasingly challenging consumer and macro-economic backdrop
in the second half of the year with high inflation and interest rates
across our core markets. Sales did not match the performance we
enjoyed in the first half of the year, leading to a build-up of stock
levels and higher costs that impacted profitability. Performance
worsened further in the fourth quarter on the back of unseasonably
warm weather in August and September, negatively impacting the
launch of our Autumn and Winter ranges, resulting in unexpected
negative like-for-like sales performance and a significant profit
miss. While we recognise these failings and are acting quickly
to address them, the underlying strength of our business model
remains intact and we will see improvements during 2024.
> See our business model on page 8
Trevor Masters stood down from his role as CEO with immediate
effect in September 2023, alongside the announcement of a
Andy Bond
weaker profit outturn for the year, and at the request of the Board I
Executive Chair
stepped into the role of Executive Chair, to manage the Group until
a successor is selected. Since taking on this new role, I have taken
decisive steps to reorientate the Group management structure and
establish a new Group Executive Committee to focus on the delivery
of key strategic initiatives and address costs in the near term. I am
excited to be once again taking an active role in leading the Group,
providing continuity for a business that I have enjoyed being involved
with since 2012. Along with the Board, I would like to thank Trevor
for his leadership during his time at Pepco Group.
We have a clear, compelling and
Key priorities
exciting future, but we need to do
I outlined my key priorities at our recent Capital Markets Day that took
less to achieve more, re-earning the
place in Warsaw in October 2023. These measures include refocusing
right to grow in a targeted way and
on customers in our core Central and Eastern Europe (CEE) business
and implementing a more targeted growth plan in markets where
transition into a single business.”
we have a presence. This includes a renewed commitment to the UK
as the Group’s largest market with an ambition to make it the most
profitable market over time and accelerating the transition into a
single business. In taking these actions, we aim to improve profitability
in our core business, while enhancing cash generation with the
delivery of more measured growth – doing less, to achieve more.
4
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Crucially, our core strategy of optimising and expanding our
believe we have made progress in this regard during 2023 in a
store network, enhancing the customer offer, driving cost and
number of ways, including establishing a Group ESG Executive
operational efficiency, and investing in infrastructure and people
Committee – see further details on page 21.
to support targeted growth remains intact. Pepco Group will
> Read more in our sustainability section on pages 16 to 37
remain a growth company, given the opportunity we can clearly
see for our offer with customers. However, we will spend 2024
People
addressing the areas where we have misfired, retuning the core
I would like to recognise all my colleagues and our suppliers across
profit engine of the Group in CEE, accelerating the delivery of a
the business and thank them for their hard work, commitment and
single leadership team and operating platform and refocusing
support over the year. Our people are fundamental to the Group’s
store expansion to be more targeted in order to achieve our
success – our strategy is predicated on a strong focus of employee
expected returns.
retention, development and engagement. It is their relentless focus
> Read more in our strategy section on pages 10 to 13
and their dedication to serving our customers that have enabled
us to build the strong foundations we have in place today.
The Group maintains a robust balance sheet with resilient
We remain focused on offering families on a budget great range,
operating cash flows, and access to over €400 million in liquidity
value and convenience; this is underpinned by the core values we
(from cash and credit facilities). As a reminder, the Group has
share across our retail formats. This includes putting our customers
largely funded all of its growth over recent years from operating
first, respecting all colleagues, working as a team to deliver great
cash flow, without the need to raise external debt or equity capital.
service and providing an environment for colleagues to thrive and
This strong financial foundation, alongside strong brand equity
to be the best version of themselves.
and leading market share in our core CEE markets, with a proven
profitable store model, gives us confidence in the opportunity to
In addition to the departure of the CEO as highlighted earlier,
continue building Europe’s leading variety discount retailer.
there have been a number of other management changes during
the year. Barry Williams, the Managing Director of Poundland,
FY23 performance
replaced Anand Patel, who stepped down in September 2023,
as the Managing Director of Pepco. Austin Cooke, the previous
The Group delivered record revenues during the year, increasing
Chief Operating Officer (COO) of Poundland, assumed the role of
by 18% on a constant-currency basis. Like-for-like revenues
Managing Director of Poundland.
grew 6% across the year, reflecting an enhanced customer offer
despite facing a challenging market backdrop. This highlights
We welcomed Neil Galloway into the role of Group CFO in April
the importance, more than ever, of maintaining price leadership
2023. Neil joined from IWG plc, the leading global provider of
and offering the best possible value for money to our customers,
flexible workspace in 120 countries, where he was Executive Vice-
helping us to sustain our market share advantage.
President. Neil is an experienced public company CFO who has
The trading environment deteriorated significantly in the last
worked in senior finance and commercial roles at multinationals
quarter across Pepco’s markets, notably in CEE, with weaker
over the last 15 years, including in cross-border retail. Neil has
consumer demand for our key clothing and general merchandise
already made a strong contribution to the Group as we set out to
categories, a lower than forecast gross margin and higher costs,
improve processes and adopt best practices, along with helping
resulting in a reduced level of profitability in our core markets. The
to drive an acceleration towards a single business.
underperformance in Pepco was partly offset by stronger than
Finally, I would like to thank my predecessor Richard Burrows from
expected performance from Poundland, largely driven by the
whom I took over as Chair in February 2023. Richard helped guide
strength of its FMCG offer, as consumers prioritised spending on
the business from IPO through a period of significant change,
this category over clothing and general merchandise. Despite the
giving the business the solid foundation in order to successfully
weaker second half of the year, the business delivered our highest
grow. I appreciated the wisdom of his advice as he led the Board
ever EBITDA outturn of €753m.
and wish him well for the future.
Notwithstanding the more challenging trading environment, in
June 2023, we successfully executed the refinancing of a €300 million
Current trading and outlook
Term Loan A (due in 2024), with the issue of an inaugural five-year
The Group saw like-for-like revenues decline by 3.1% in the eight
€375 million high-yield bond (due in 2028), which was heavily
weeks to 26 November 2023, against a strong trading period in
oversubscribed by a blue-chip investor base. Alongside this,
the prior year, although we are seeing sequential improvements
we increased the size of our RCF (revolving credit facility) by
week-on-week. While we expect challenging trading conditions
€200 million to €390 million, which was supported by increased
to continue in the near term, we are cautiously optimistic as we
commitments from our bank group. This has further strengthened
enter 2024. We are increasingly confident of the gross margin
our balance sheet to support future growth opportunities and
opportunity in FY24, evidenced by a 100 basis point improvement
reflects the strong support we have from the investor community.
seen year-to-date versus the quarterly exit rate achieved at the
end of FY23.
ESG
We have an attractive and unique product offer that resonates
We are committed to maintaining high standards of ethics,
strongly with our core customer, supported by passionate
integrity, environmental impact, colleague development, supplier
colleagues and price leadership that enables us to maintain
support and enhancement of the communities across our supply
and grow market share through the structural advantages of our
chain. We continue to develop our ESG strategy, which is founded
discount proposition.
upon and increasingly integrated with the Group’s business
strategy. We have been working in 2023 to build on this framework
The business has a significant white space opportunity to grow in
and enhance our disclosure – see our ESG report on pages 16 to 37.
our existing core markets, with over 400 net new store openings
planned for FY24 – comfortably remaining one of the fastest
Our focus will continue to be on providing value to our customers,
growing retailers in Europe. We will leverage these opportunities in
driving sustainability into every price point and product offering.
a more targeted and measured way, with an enhanced emphasis
We believe in the democratisation of sustainability, ensuring fair
on capital, returns and free cash flow. We are confident we have
working conditions and being a good citizen – so everyone can
the right strategy and leadership team to grow the business in line
participate in protecting the planet, no matter the size of their
with our ambitious targets over the medium term.
budget. I am pleased to note that we have continued to embed
our ESG strategy within our overall Pepco Group strategy and
Andy Bond
Executive Chair
5
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Q&A with Executive Chair
Q&A with
Andy Bond
What is your history with Pepco Group?
I have been involved with the business for many years. Initially I
acted as an advisor to the legacy Pepkor South Africa group in
2012, before jointly setting up Pepkor Europe as a founder-investor
in 2015 and assuming the role of Chief Executive. In September
2019, the business rebranded from Pepkor Europe to Pepco Group,
and I led the business through its public listing on the Warsaw
Stock Exchange in May 2021. I stepped down as CEO of Pepco
Group in March 2022 due to health reasons, before returning as
Chair in February 2023 after making a full recovery.
My continued enthusiasm for the business stems from the
fact that I continue to believe we have a unique retail format
backed by a strong in-house sourcing arm - PGS - enabling
Pepco Group to offer exclusive products that cannot be found
anywhere else. We offer amazing value to our customers across a
variety of categories, providing great quality products that save
money for our customers, serviced by our wonderful colleagues.
There remains significant opportunity, both in market share
and operating efficiency, to drive returns for all stakeholders
going forward.
I have many years of experience in the discount retail sector.
Previously, I spent 16 years at Walmart, with several roles including
Managing Director of George Clothing, Chief Operating Officer
and then Chief Executive Officer of Asda between 2005 and 2010. I
then took the role of Chair of Asda from 2010 for a year.
The Group has a market-leading customer
proposition, a strong balance sheet, and
resilient operating cash flow to continue
success across Europe.”
6
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Are you interested in taking the
How do you plan to combat
CEO role permanently?
increased competition?
I have sat in the CEO role at Pepco Group previously and
Our virtuous circle of “sell for less, buy for less and operate for
unfortunately had to leave the Group due to health issues.
less” becomes even more important when our customers need
Whilst I am committed to the long-term future of the Group in
it most. Through the economies of scale we continue to achieve
the role of Chair, I have no intention of continuing as CEO again
with suppliers as a result of our size and our vertically integrated
on a full-time basis. However, it is of paramount importance that
sourcing model PGS, we can benefit the Group and, more
we find a successor with the right credentials and cultural fit to
importantly, our customers, by offering lower prices.
take this business to the next stage of its growth. This is unlikely
We also invest in the stores to make them clean, bright, tidy and
to be a quick search and I have given my commitment to the
nice to shop in. Finally, we have well-trained staff who provide
Board that I will lead the business for as long as it takes to find
quality customer service. This is the formula for success: low prices,
the right candidate.
good quality products, served by people who love what they do.
What were the biggest challenges
We pay our people well and they enjoy working with us. As a result,
they serve the customers well.
faced in 2023?
Will you look at taking your Pepco
Notwithstanding a tough consumer environment in our core
business online to achieve growth in
CEE markets, we tried to do too much too quickly, while juggling
too many non-core projects. We simply lost focus. Our growth
a competitive market?
plan was too ambitious, overstretching our colleague and
systems capability. Coupled with this was ill-discipline around
We are already developing the online channel in our Poundland
project management and slower than required progress in our
business, which is growing quickly from a small base (covered on
transformation plans towards one business.
page 12). For our Pepco business, we are currently firmly focused on
our retail stores. We are of the view that in the near term we will get
We are addressing these issues with a focus on rebuilding the
much better results by investing that money in our product offering
health of the core business and growing our gross margin and the
and in keeping prices low. However, we will increasingly invest in a
core profit contribution from our stores, backed by better decision
wider digital engagement with our customers.
making through the use of data analytics.
We believe we are well positioned for growth with our sustained
What changes are being made
focus on price leadership, in-house direct sourcing model through
PGS, profitable and scalable store model, and strength of our
to the Company strategy to put it
brand equity in core markets.
back on track?
My immediate focus is on rebuilding the profitability of Pepco’s
Andy Bond
core business in CEE and accelerating the transformation to a
Executive Chair
single business and customer offer. We also need to adopt a more
disciplined approach to growth and investment capex across the
Group to deliver stronger cash generation.
We will open fewer stores – targeting 400 net new stores across
the Group in FY24 – while also placing the ‘New Look’ refit
programme in CEE under review (see further detail on page
12). New store growth will be targeted in our existing countries,
including growing scale in key Western European markets such as
Italy and Spain. We are also committing to the UK as the Group’s
largest region by revenue, with an ambition to make it the most
profitable market over time.
1
See page 14 for APM definitions.
7
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Business model
Building Europe’s leading
discount variety retailer
Pepco Group offers price leadership and a differentiated product proposition.
This is facilitated by increasing economies of scale and Group-level buying,
made possible by our vertically integrated sourcing model. This is all
underpinned by our core strategy of optimising and expanding our store
network, enhancing the customer offer, driving cost and operational efficiency
and investing in infrastructure and people to support growth.
Our inputs
Our key retail brands
Differentiated products
We are proud of the brands we have built up as part of the Pepco
Group. As part of our growth strategy, we are transitioning at
Leveraging our scale and sourcing strategy, we offer a diverse
speed to one business, with a unified customer offer.
range of clothing, homeware-led general merchandise (GM)
and fast-moving consumer goods (FMCG), providing our core
shopper, a “family on a budget”, with their regular shopping needs.
Pepco
Understanding customer preferences and focusing on quality is key
Leading variety discount retailer in
to delivering customer satisfaction and growing market share.
Central and Eastern Europe expanding
into Western Europe
Local stores in convenient locations
–
Focus on price leadership with market leading entry prices
We own and operate a multi-format, Europe-wide variety discount
retail business, with 4,629 neighbourhood stores located across 21
–
Clothing for the whole family (with a particular strength in kids
countries. By focusing on standardisation and repeatability across
and babywear), home décor, toys and seasonal products
our store structures, we are able to expand our store footprint
–
3,523 stores across 19 countries, which includes 523 stores in
efficiently in line with our growth prospects.
Western Europe.
–
Integrated with PGS, our global sourcing office dealing with a
Infrastructure and distribution network
supply network of 375+ vendors utilising 700+ factories
Through our ability to share infrastructure across the Group,
we achieve significant support. We continue to invest in the
Poundland
development of high-quality, scalable infrastructure, including
information technology, automated warehouses and more efficient
Delivering amazing value in branded
and resilient multi-point distribution.
quality, everyday essentials
–
FMCG-led offering with a price architecture anchored around a
Direct sourcing operation
limited number of simple price points
PGS maximises buying scale and operating efficiencies, thereby
–
Growing product offering of clothing and general merchandise
lowering costs and improving margins. With the full product
including home, garden, food, toys, health, beauty, pets & more
development chain for clothing and merchandise managed within
the Group, the vertically integrated model also provides a high
–
823 stores across the UK and Ireland
degree of visibility and control over our supply chain as well as
flexibility in sourcing.
Dealz
Fast growing discount retailer
Our colleagues
–
Dealz offers unique international FMCG and general
Talent retention and development is central to the success of
merchandise products at the lowest prices with 3,000 products
our business, and we aim to maintain the right pipeline of skills
across 15 categories
within the Group to facilitate the long-term success of our growth
strategy. We maintain a strong commitment to ethical and
–
The best deals and brands are sourced from Poland, Europe
responsible business conduct, honesty and integrity, both within
and Asia, offering thousands of branded products for the
the Group and throughout our value chain.
whole family
–
283 Dealz stores in Poland
Natural resources
We aim to use natural resources responsibly, minimise waste and
increase our use of sustainable and recyclable packaging. We
continue to introduce sustainable and ethically produced products
in line with our ESG ambitions.
8
PEPCO Group N.V. Annual Report and Consolidated Financial Statements 2023
Our proposition
Our outputs
Creating value for
our stakeholders
Shareholders
Record growth in revenues
+17.1%
in FY23
Customers
>57m
customer transactions per month across 21 countries
Colleagues
>4,350
colleague promotions across the Group during FY23; Pepco
was again recognised as one of Poland’s best employers in
2023 according to Forbes
o
Society
Supporting charitable activities across the Group, including
the Poundland Foundation
Supply chain
€1.4bn
Sell for less
Buy for less
Operate
for less
of shipment value in FY23
Price leadership
€1.4bn sourcing
Standardised
Governments
scale
store format
Low-risk inventory
Significant economic contribution to our operating countries
Seasonal
Volume leverage
through our role as both taxpayer and tax collector,
Simple price
buying model
on operating costs
including payroll-related taxes remitted in employing
architecture
>47,000 colleagues across the Group
Direct to suppliers
Discount mindset
Optimised
markdown
Consolidated
management
volume
9
PEPCO Group N.V. Annual Report and Consolidated Financial Statements 2023
Our strategy
Delivering our strategy
Our core strategy is outlined by the key pillars below:
Optimising and expanding
Enhancing the
our store network
customer offer
Investing in
infrastructure
Driving cost and
and people to
operational efficiency
support growth
> This strategy informs our ESG strategy, which can be found on page 16
I am confident we have the
right strategy and leadership
team to grow the business in
line with our ambitious targets
over the medium term.”
Andy Bond
Executive Chair
10
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Optimising and expanding our store network
Net new store openings
During FY23, we opened in two new regions in Western Europe
668
during the year – Greece and Portugal. Having launched our
first stores in Greece in October 2022, we currently operate
22 stores in the region with a positive customer reception and
performance to date. In May 2023, following the successful roll
out in Spain, Pepco launched its first stores in Portugal, where we
The Group delivered a record 668 net new
currently have 14 stores and plan to add sites selectively over the
store openings in 2023 (826 store openings and
coming year.
158 store closures). It is clear that this pace of
Overall, our Western European presence currently spans Spain,
growth stretched the business and consequently,
Italy, Austria, Germany, Greece, and Portugal. Going forward, the
majority of new Pepco stores in Western Europe will combine the
going forward, we will adopt a more measured
best of the Group’s clothing, GM and FMCG ranges.
approach to growth, with new store openings
Poundland
focused on our existing markets and an enhanced
We see strong potential for the UK discount space over the
emphasis on capital returns and free cash flow.
coming years, as one of the largest markets in Europe, which
We plan to open at least 400 net new stores
is forecast to grow quicker than Germany and France.1 To take
across the Group in FY24.
advantage of this, we will ensure that Poundland can leverage
this growth by adapting our product ranges to utilise Pepco’s
Using our proven, profitable and scalable model, we will look
strength in clothing and GM over FY24. We will also accelerate
to strengthen the Group’s store profitability and customer
the opening of new stores and selective refreshing of our existing
positioning in key regions, with a particular focus on our core
estate for a better customer experience.
Central and Eastern European (CEE) business, as well as growing
Poundland opened 53 stores during FY23, while closing
scale in Italy and Spain, our largest markets in Western Europe.
51 underperforming stores as part of its long-term estate
We have also committed firmly to the UK as the Group’s largest
management plan. In September 2023, Poundland agreed to
market by revenue, with an ambition for it to become the most
take over up to 71 Wilko store leases in the UK. By mid-December
profitable country over the medium term.
2023, 64 former Wilko stores had already been reopened as
Poundland stores, with 10 stores opening in the FY23 financial
Pepco
year and the balance at the start of FY24. The stores will trade
The Group opened 556 net new Pepco stores during the 2023
through the important Christmas period of 2023, carrying the
financial year. This includes 294 net new stores in CEE and 262 net
new range of Pepco clothing, alongside the extensive FMCG and
new stores in Western Europe, our fastest growing region.
general merchandise ranges that Poundland is known for.
There remains a significant white space opportunity in our core
We will selectively continue our store development programme,
CEE markets, where we have strong brand equity, particularly
where we can deliver target returns on investment. This includes
outside Poland, where we had 1,256 stores in operation at
upgrading both external and internal signage, improving lighting,
the period end. We launched the Pepco brand in Bosnia and
fitting new flooring and enhancing colleague areas. We will also
Herzegovina in September 2023, with nine stores operating at the
look to deliver incremental store space growth which allows us to
period end and a strong entry into the region. In March, Pepco
extend our ranges and drive existing store profitability.
opened its 100th store in Serbia, where the brand continues to
1
Source: Globaldata Five-Year Retail Market Forecast – August 2023.
strengthen its presence and further capitalises on the strong
demand for its products in the country.
Dealz
Western Europe remains an important area of growth for Pepco,
Following a strategic review of our operating brands, Dealz will
with new store openings in the region approaching half of the
now focus on developing its business in Poland over the next 12
total opened across the year. Italy and Spain are our largest and
months, with further expansion into Central and Eastern Europe
fastest-growing Western Europe territories, and we will focus
contingent on delivering the appropriate level of profitability
new openings in these countries in FY24 building order to create
and returns.
greater scale efficiencies through network density. We had 205
stores in Spain at year end and 157 in Italy. Revenue performance
Our Dealz stores complement the Pepco business in Poland,
across the estate generally remains strong, particularly in
offering unique international FMCG brands and general
our larger Pepco ‘Plus’ stores in Spain, which include FMCG
merchandise with 3,000 products across 15 sub categories.
categories, while we have work to do to improve the store
Brand awareness is growing quickly for our key target customers
contribution margins and investment returns. This will be a focus
aged between 19 to 45 years old, with over 750,000 customers
area in 2024.
shopping at Dealz every week.
Dealz Poland opened 115 net new stores during the period,
reaching a landmark of 283 stores at the year end, with an
expectation of reaching 300 stores by the end of the 2023
calendar year. The vision for Dealz is to become the largest value
discounter in Poland, with a potential to operate 1,000 stores
in Poland.
11
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Our strategy continued
Enhancing the customer offer
Pepco ‘Plus’ stores
Pepco ‘Plus’ (Western Europe)
53
Our Pepco ‘Plus’ format of stores that offer three categories
(FMCG in addition to clothing and GM) continues to deliver
the strongest revenue results of all store formats in the Group,
alongside Poundland. Following the conversion of all Dealz stores
in Spain to the Pepco format, the Group currently operates 53
The Group’s ambition remains to be Europe’s
Pepco ‘Plus’ stores, mostly located in Spain. Like-for-like (LFL)
revenues for our Pepco ‘Plus’ stores during the year were up 5.7%
leading variety discount retailer. It will achieve
compared to the same period last year.
this by offering quality clothing, general
merchandise and FMCG products at the best
Poundland development
prices, with stores conveniently located close to
As part of our drive to leverage the Group’s scale and become
a better business, Poundland is now sourcing its clothing and
our customers, whether that it is in high streets,
GM offerings from Pepco to bring new, exciting ranges into the
retail parks or shopping malls. Maintaining our
UK market. The first Pepco-branded clothing items in Poundland
price leadership is critical in order to provide a
were introduced in September 2023, helping to drive increased
brand awareness and enhanced purchasing terms with suppliers,
compelling value proposition for our customers
and to leverage the Group’s fully integrated end-to-end sourcing
and grow market share.
entity, PGS.
The initial customer reaction from the new Pepco clothing
As part of our focus on providing value to our customers, we want
ranges has driven higher net promoter scores (NPS) and positive
to address the myth that price is a barrier to sustainable and
feedback. The Poundland business will start to receive Pepco
ethically produced products. One of the most impactful ways
general merchandise starting in early 2024, bringing a better
we can positively contribute to our customers and communities
product offer to customers.
is through offering a larger range of affordable and sustainable
products available in our stores.
Poundland has also continued to explore the potential for its
digital business. The online business has grown rapidly following
> Read more about our sustainable products on page 29
the 2022 acquisition of Poundshop.com, with orders more than
doubling under Poundland ownership. The operation has used
Store refits and renewals
a picking and fulfilment operations centre in Wednesbury,
At the start of 2023, we commenced our Pepco “New Look”
West Midlands, and is well progressed in the transition of
programme, where we were initially targeting to re-fit all 2,500
operations to a digital distribution hub at Darton, which gives
Pepco stores in CEE by the end of 2025. Initial trading in refitted
the business extra capacity to expand its online operations at
stores had been promising with early LFL performance up over
pace. The business recently combined Poundshop.com with
10% against a control group of stores. However, as a result of
its principal Poundland.co.uk website as the natural next step
a weaker macro and consumer environment in our core CEE
in order to allow customers to shop an expanded Poundland
markets, the programme has increasingly not been delivering
range online for delivery to their homes. It is clear customers are
the required level of incremental sales and returns to justify the
using the online channel for a different shopping mission with a
capital spend. As a result, the programme is currently under
significantly higher average basket online versus in store.
review while we evaluate the direction of the programme and
understand the reasons impacting better performance.
During FY23, we completed 715 conversions across Poland,
Czechia, Romania, Slovakia and Hungary. As part of our
commitments to our landlords, we expect a further 219
conversions to take place in the above regions during the first
quarter of FY24. Future conversions will be determined on a case-
by-case basis. To date, the LFL revenue growth performance of
the stores converted so far is running at around three percentage
points higher than the control group, with an increase in both
volume of transactions and average basket size.
12
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Driving cost and
Investing in infrastructure
operational efficiency
and people to support growth
Operating costs (IFRS 16, excl. rent) as % of sales
Internal employee promotions
26.8%
>4,350
Transitioning at speed to one business, with
To enable us to meet our strategic objectives,
a unified customer offer and a single sourcing
we have clear plans to develop high-quality,
strategy through PGS, will be central to the
enterprise-grade, scalable infrastructure.
Group’s ability to drive cost and operational
We also continue to invest in technology, both in new stores
efficiency over the next 12 months, particularly in
and in our refits, to make our customers and colleagues lives
easier. Initiatives include the installation of self-scan tills, and
light of elevated inflationary pressures.
the implementation of modern retail point-of-sale systems
which improves the speed and quality of service to our
The business will continue to further leverage PGS – which
customers and simplifies the work for our colleagues.
we consider a key competitive advantage for the Group – as
very few discount retailers have an integrated sourcing entity,
The roll out of a modern Oracle ERP (enterprise resource
instead relying on third-party agents. In addition, we are
planning) IT platform across the Group is continuing; with
driving improvements in our cost of doing business; primarily
Poundland successfully launching new modules during summer
through a focus on labour and end-to-end supply chain
2023. The Oracle solution gives Poundland a single, modern
efficiencies.
inventory management and finance solution, while introducing
enhanced visibility and management of financial data, along
PGS was fully integrated into the Pepco business during the
with greater efficiency in managing accounts payable. Pepco
year, which will help maximise and align the buying cycle, as
is in the final stages of advanced planning and testing for an
well as help drive further operating efficiencies. In addition, PGS
opened a near-shore sourcing operation in Poland, thereby
expected go live on the Oracle platform during 2024. These
increasing our sourcing flexibility out of countries such as
investments are fundamental to the future successful growth
of the business, providing a robust system, while delivering
Turkey, Poland and Romania. We are also continuing to diversify
operating efficiencies.
our Asian capabilities in countries such as Cambodia, Pakistan,
and Indonesia.
Within our distribution and supply chain, the Group continued
to deliver on process and technology efficiencies with
In addition to this, we have made good progress in our efforts
warehouse management system (WMS) blueprinting now
to be part of a responsible and efficient supply chain in FY23,
in place across all Pepco distribution centres, a second
with the introduction of environmental guidelines which have
automated sorter live in our largest DC in Gyal, Hungary, and
been added to the existing social and ethical expectations.
the commencement of an end-to-end supply chain review in
> See valued supply chain on page 31
Poundland. However, against these underlying improvements,
fuel and labour inflation and higher levels of stock impacted the
Labour efficiencies are a focus area in both Pepco and
overall cost of operating our supply chain which was the primary
Poundland, against a backdrop of a sustained high wage
driver of an increase in operating costs in the Pepco business.
inflation environment in Central Europe. The businesses have
We believe that the ability for colleagues to build rewarding
delivered a reduction in labour hours in stores through a
careers enhances both the service we provide to our customers
combination of investment in technology such as self-service
and our employment brand. We continue to invest in the
tills and enablement of more management activity on the
capability of our people both in terms of developing our
shop floor, as well as changes in processes to reduce the
existing colleagues, and attracting new, high-calibre recruits
stock handling.
into the business to continue to support and drive our growth
The Group’s work to offer a simpler business model continued
agenda. Reflecting our commitment to the development of our
with the most meaningful change during the period within Spain
colleagues, 81% of our store managers across the Group were
where we amalgamated two businesses (Dealz and Pepco) into
internally promoted and we promoted over 4,350 colleagues
one (Pepco). The integration creates a simpler operating model,
during FY23, which we believe demonstrates our strong
with one brand, one range and one team. All Dealz stores in
commitment to internal development especially against the
Spain have now been converted to Pepco stores, with a general
challenging backdrop the past year.
focus on opening larger stores that incorporate an FMCG offer
> See employee section in ESG for further details on page 34
alongside clothing and general merchandise.
13
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Key performance indicators
Monitoring performance
across the Group
The following key performance indicators (KPIs) include Alternative Performance Measures (APMs).
The Directors use APMs1 as they believe these measures provide additional useful information on the
Group’s performance.
> The Group has clear environmental and
social KPIs and targets which are shown
on page 17
Store growth
Total Space
Revenue growth
Number of net new stores 2,3
Retail trading space (‘000)
Total and like-for-like sales growth (%)
FY23
17
FY23
+668 +17%
FY23
2,146 +19%
FY22
17
FY22
+516 +13%
FY22
1,799
FY23 LFL
6.0
FY22 LFL
5.2
Achieving profitable growth drives our ability
Retail trading space of 2.1m square metres
Sales of €5.6bn represented an increase of 17%
to create value in the long term.
represents an increase of 19% year on year
year on year underpinned by store growth and
against the store growth of 17%, thereby
positive LFL sales growth.
As we commit to taking a more disciplined
accelerating revenues.
and targeted approach to growth in FY24, we
LFL revenue of +6.0% supported this growth,
nonetheless delivered a record increase of 668
with Poundland benefitting from FMCG
(17%) net new store openings in FY23, increasing
performance and Pepco supported by a strong
to 4,629 stores.
performance in H1.
Definition and relevance:
Definition and relevance:
Definition and relevance:
Net store numbers accounts for store closures
Trading space is defined as retail trading space
LFL revenue growth is defined as year-on-
during the year1.
including tills, excluding back-of-house and
year revenue growth for stores open beyond
changing rooms.
their trading anniversary and is reported on a
Disciplined and controlled store growth is
constant currency basis.
fundamental to our Group strategy.
Store space growth allows us to extend our
ranges and drive profitability.
LFL growth is fundamental to our Group strategy
in delivering operating leverage.
2
New store numbers exclude the retirement of
Dealz Spain banner and the 57 stores which have
been converted to Pepco across FY22 and FY23.
3
FY22 excludes the closure of 59 Fultons stores.
Link to strategy
Link to strategy
Link to strategy
1
APMs are not defined under IFRS and therefore may not be directly comparable with other companies’ APMs.
These measures are not intended to be a substitute for, or superior to, IFRS measurements. See note 27 for
definitions of APMs.
Link to strategy
Optimising and expanding
Enhancing the
Driving cost and
Investing in infrastructure
our store network
customer offer
operational efficiency
and people to support growth
> Read more in our strategy section on pages 10 to 13
14
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Profit
Stock
Underlying pre-IFRS 16 EBITDA (€m)
Underlying pre-IFRS 16 EBITDA Margin (%)
Stock holding (€m)
396 -10%
7.0
1,135
FY23
FY23
FY23
FY22
FY22
FY22
439 +10%
9.1
959
Underlying EBITDA of €396m represents
EBITDA margin is 2.1pp down year-on-year
Group stock holding has increased by 18%
a challenging year, and a decline of 10%
with slower than anticipated recovery on gross
against FY22 as a result of both the growth of
against FY22.
margin and operating cost headwinds.
the business (+19% space growth YoY) and the
sales headwinds across Q4. We see a significant
As a consequence of challenges on gross profit
opportunity to improve cash conversion cycle
margin and operating cost leverage, whilst we
through more effective stock management.
have added over €800m (+17%) to the top line
revenue in FY23 this has not flowed through to
pre-IFRS 16 EBITDA.
Definition and relevance:
Definition and relevance:
Definition and relevance:
Underlying profit before tax, net finance costs,
Underlying profit before tax, net finance costs,
Stock at cost post NRV (net realisable value)
depreciation and amortisation. Prepared on an
depreciation and amortisation, divided by sales
provisions.
pre-IFRS 16 basis.
excluding VAT. Prepared on an pre-IFRS 16 basis.
The cost of stock underpins the profitability of
Our vision to be Europe’s biggest and best
Growing our EBITDA margins is the key focus
sales and the linkage to sales expectations is key
discount variety business is underpinned by
within our P&L.
to ensuring optimal holding.
delivering profit growth. Pre-IFRS 16 EBITDA is the
Group’s leading metric on profitability.
Link to strategy
Cash generation
Underlying IFRS 16 EBITDA (€m)
Underlying IFRS 16 EBITDA margin (%)
Net Cash From Operations
(pre Capex)
FY23
753
FY23
13.3
FY23
266
FY22
FY22
FY22
731
15.2
72
Underlying increase of 3% driven by revenue
EBITDA margin is 1.8pp down year-on-year
The Group’s cash generation materially stepped
growth partially offset by margin and
with slower than anticipated recovery on
up reflecting solid EBITDA generation in
operating cost headwinds.
gross margin and operating cost headwinds.
conjunction with working capital unwind against
the prior year.
Definition and relevance:
Definition and relevance:
Underlying profit before tax, net finance costs,
Underlying profit before tax, net finance costs,
Definition and relevance:
depreciation and amortisation. Prepared on an
depreciation and amortisation, divided by sales
Cash generated from operations, after lease
IFRS 16 basis.
excluding VAT. Prepared on an IFRS 16 basis.
costs and working capital movements but pre-
capex, funding and investment.
IFRS 16 is the accounting requirement under
IFRS 16 is the accounting requirement under
which EBITDA is reported and a legacy approach
which EBITDA is reported and a legacy approach
Executing in a disciplined manner with a strong
that the Group historically led with.
that the Group historically led with.
emphasis on efficient working capital and returns
will deliver strong cash flows.
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Optimising and expanding
Enhancing the
Driving cost and
Investing in infrastructure
our store network
customer offer
operational efficiency
and people to support growth
> Read more in our strategy section on pages 10 to 13
15
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability
Our ESG strategy
The Group’s business strategy comprises the pillars: optimising and expanding our store network,
enhancing the customer offer, driving cost and operational efficiency and investing in infrastructure and
people to support growth. As shown below, these four pillars also form the foundation of our approach
to ESG. Our focus is on providing value to our customers, driving sustainability into every price point and
product offering. We believe in the democratisation of sustainability – so everyone can participate in
protecting the planet, ensuring fair working conditions and being a good citizen – no matter the size of
their budget.
Optimising and
Investing in
Resilient
expanding our
infrastructure
business
store network
and people to
support growth
Exceptional
Greener
employer
environment
Driving cost
Enhancing the
Strong
Valued
and operational
customer offer
society
supply
efficiency
chain
Better
products
Sustainability context
4,629
47,487
stores
colleagues
2,146,007
102,421
m2 store space
people supported through our charitable work
57m
100%
customer transactions a month
ethical supplier compliance audits completed in FY23
372,982
385
m2 warehouse space
suppliers, representing 743 factories
21
countries of retail operation
16
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Reporting approach
Regulatory context
The Group is subject to a number of non-financial disclosure requirements
We report on an annual basis and have continued to develop our approach
which incorporate ESG-related reporting, including:
to ESG reporting in FY23. This ESG report, which covers the 12 month
–
the European Union (EU) Non-Financial Reporting Directive (NFRD) – in
period from 1 October 2022 to 30 September 2023, has been prepared in
accordance with the NFRD, our Annual Report includes information
consideration of the GRI Standards, and draft CSRD ESRS standards were
on the performance, position and impact of our activity relating to
considered as part of the reporting process. As several EU regulations have
environmental, social and employee matters, respect for human rights,
only recently been finalised, we believe we have made a positive start to the
and anti-bribery and corruption matters. This includes:
process of complying.
–
a description of our business model – see page 8;
We welcome stakeholder feedback on our ESG reporting – please contact
investorrelations@pepcogroup.eu.
–
a description of the policies implemented in relation to those
matters, including due diligence processes implemented and the
Our ESG strategy is set at Group level and pulls together the ESG plans and
actions of our operating companies. We share best practice and leverage
outcomes of these policies. Our approach to environmental, social
and governance matters is explained in the following sub-section,
expertise through our internal working groups. For reporting purposes, data
“Our approach to ESG”, which includes an explanation of our ESG
and target setting approaches are harmonised. Governance is managed
through ensuring accountability and the effective operation of Committees
management structures, our engagement with stakeholders and our
strategy. Our approach to business ethics on pages 22-24 provides
at both operating company and Group levels.
an explanation of our approach to governance matters across the
We continue to further embed our ESG strategy within our overall Pepco
Group, while the following sections on environmental (page 25) and
Group strategy and believe we have made progress in this regard during
social (page 31) matters provide further information regarding the
FY23 in a number of ways, including establishing a Group ESG Executive
policies, practices and initiatives we have undertaken in each of
Committee. We recognise the importance of collaborating across the value
these areas;
chain and with other industries and NGOs to create a more sustainable future
–
the principal risks related to those matters – ESG-related risks
and a fair society. Therefore, Pepco Group has joined a number of external
are included as a risk category within our overall risk framework
organisations and sought accreditations which demonstrate our commitment
to ESG. We have noted these in the relevant areas throughout this report.
(see pages 38-44) for further explanation of our approach to risk
management and ESG risk description;
In this ESG section of the report, we describe how we have further developed
–
non-financial key performance indicators relevant to the particular
our governance processes and the progress we have made in completing a
double materiality assessment in FY23. These are key steps in showing how
business – our environmental and social goals and KPIs are
presented below in this section; and
we will meet future regulatory ESG requirements, allowing for our progress
against our key performance indicators and in preparing for future ESG
–
the EU Green Taxonomy Regulation – we report in line with the EU’s Green
disclosures and meeting stakeholder expectations. We are on a journey to
Taxonomy classification system for environmentally sustainable activities
becoming more mature in our ESG strategy and disclosures, aligning across
– see page 26.
the Group and building on the past achievements of Poundland and Pepco.
Goals and KPIs
Business, value chain and regulatory context
Whilst we track numerous KPIs across our operating companies, which also
With 4,629 stores in 21 countries across Europe and over 47,000 colleagues
have their own respective local priority areas and targets, we consider the
serving 57m shoppers each month, we are a large, growing business, which
external disclosure of Group-level KPIs and goals to be an integral part
brings employment opportunities and operational best practices to the
of communicating the progress and development of our ESG strategy
geographically, economically and culturally diverse markets in which we
to stakeholders. We have also shown how our goals link to the United
operate. We are acutely aware of the impact we have on the environment
Nations Sustainable Development Goals (SDGs).
and our communities and have a clear strategy described in this section to
address this.
Having established a set of Group-wide environmental and social goals,
with corresponding KPIs in FY22, we have further expanded and developed
Stretching beyond Europe, our value chain encompasses products that are
these in FY23. As noted in our previous report, there are certain areas where
sourced from a wide variety of domestic and international suppliers and
we believe data-based KPI reporting is inapplicable. Governance and
includes our vertically integrated sourcing operation, PGS, which works with
ethics are areas we believe to be best suited to qualitative discussion for
over 385 suppliers, representing over 743 factories in Asia. For further detail
demonstrating our focus on these vital areas of business and these are
on our supply chain, see page 31. Our business model on page 10 includes
therefore not included below.
additional information on the commercial and operational benefits of our
direct sourcing model.
Our goals
Link to SDGs KPIs
FY23 performance
FY22 performance
Reduce the carbon intensity
Scope 1 and 2 emission
Absolute: 101,674 tCO2e
–
Absolute: 106,214 tCO2e +7.2% YoY
of our operations
(-4.3%) YoY
–
Intensity: 22.0 tCO2e/€m turnover
Intensity: 18.0 tCO2e/€m turnover
-1.9 tCO2e/€m (-7.8%) YoY
-4.0 tCO2e/€m (-18.3%)YoY
Increase
% of packaging that is recyclable
We have upgraded our packaging
recyclable packaging
policies and guidance. A KPI
will be established for reporting
purposes in FY24
Reduce waste to landfill
% of waste diverted from landfill
Less than 1% of operational
Less than 1% of operational
waste was sent to landfill in
waste was sent to landfill in
Poundland in FY23
Poundland in FY22
Grow the range of
% of sustainable products offered 21% cotton fibres in clothing is
affordable, sustainable
BCI assured1
product options
Perform annual audit of
% of factories audited against our 100% ethical audits completed
100%
our factories
audit plan2
Engaged all colleagues
% of colleagues surveyed
78% response rate with 73% agreeing 79% participation score
regularly for feedback
with the statement – ‘I am aware
of what initiatives we are doing
to be more sustainable and help
the environment’3
1
To be confirmed by the Better Cotton Initiative audit in January 2024. FY23 estimate includes both Pepco and Poundland sourced fibres. In FY22 we disclosed Poundland
sourced fibres only.
2
Our factory audit KPI is defined as the percentage of social and ethical audits completed by our Group Sourcing Compliance team against the annual audit plan.
3
For Poundland only in FY23. Pepco carries out employee surveys every 2 years. FY22 data covers all Poundland and Pepco employees.
17
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Our approach to ESG
Overview
Materiality review
At Pepco Group, we aim to democratise sustainability for our
We conducted our first double materiality assessment in
customers by offering affordable choice and demonstrating
FY23 to determine the most material environmental, social,
that price is not a barrier to sustainable and ethically produced
governance and human rights topics for the Group. This is a key
products. Driving efficiency improvements throughout the business
foundational step for reporting under both GRI Standards and
is an integral element of the Group’s strategy and we believe
the EU’s Corporate Sustainability Reporting Directive (CSRD).
there is an important link between increasing cost efficiencies and
Undertaking a materiality assessment helps us to identify and gain
enhancing the long-term sustainability of our operations. As a
insight into the issues that matter the most to our key stakeholder
large employer with over 47,000 employees, we bring employment
groups. It enables us to assess which issues will have the greatest
and training opportunities to thousands of individuals in multiple
impact on our business and also supports us in identifying areas
countries. As a retailer with 57m customer transactions per month
of emerging importance.
we develop engagement possibilities with a diverse range of
The materiality assessment approach considers the impact of
communities and individuals across the world.
topics both outwardly on the economy, environment and society
An example of this is our September 2023 UK store campaign
and inwardly on the Group (i.e. how sustainability issues might
together with the Energy Saving Trust and Smart Energy GB. It is
create financial risks for the Group or affect its ability to create
designed to help our customers consider how they could reduce
value over the long term).
energy consumption and save money by thinking smartly about
The three main steps of the materiality assessment undertaken
what products they buy and how they use them.
were as follows:
We apply a holistic approach in our assessment of risk and in
1. Identify issues: with internal and external experts; taking into
the development of our ESG strategy, adapting our approach
account international standards and frameworks, regulations,
in response to the evolving regulatory landscape. In FY23, we
global risks, sectoral issues and trends and peer analysis – we
continued to strengthen our ESG governance frameworks. The
identified a long list of potentially material issues, which were
Group now has an ESG Executive Committee which includes all
then refined to 19 topics for materiality review.
the key decision makers across the various parts of the business,
from Group management to operating company leadership and
2. Assess and analyse: using a double materiality lens, we
into the relevant functions such as procurement and operations.
carried out a detailed review of the topics; quantifying
Our governance and decision-making forums related to ESG are
and assessing their actual or potential impact against the
further described below.
criteria of:
We are mindful of stakeholder expectations for us to operate in a
a. impact materiality (at a Company or value chain
sustainable and responsible manner and regularly engage with
level); and
our stakeholders to better understand their views.
b. financial materiality.
3. Stakeholder engagement: input and views were gathered
from a range of internal and external stakeholders across
the value chain (including colleagues, investors and capital
providers, customers and suppliers) to understand the Group’s
impacts and gain feedback on material topics as well as the
Group’s ESG management approach.
The outcome of this work has resulted in a ‘short list’ of eight
priority material topics which have been approved by the Board
through the Audit Committee.
Our material topics map to our existing ESG Strategic Framework
and will inform reporting and strategic focus.
UK store campaign to raise awareness around
energy consumption reduction and saving money
amongst our customers.
18
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Our intention is to revisit material topics on an annual basis, with full reassessment every two years. The materiality assessment is part of
demonstrating our strengthening commitment and governance maturity and will be used to inform and develop our ESG strategy.
Stakeholder engagement
Stakeholder engagement is fundamental in guiding our overall strategy and approach to ESG topics. We have identified the following key
stakeholder groups and aim to engage with them on a regular basis and to ensure open and transparent lines of communication. We work
with these key stakeholders at both Group and operating company level to develop our ESG approach and have included some examples
of engagement below.
Engagement in FY23
Impact on our strategy and decision making
Customers
Engaged as part of the materiality assessment.
Priority topics are mapped to our ESG strategy and will
drive future strategic decisions and value.
Colleagues
Training opportunities, Pepco diversity and
Priority topics are mapped to our ESG strategy and will
inclusion policy.
drive future strategic decisions and value.
Annual employee survey includes ESG questions.
Colleague input is considered in our choice of charitable
donation recipients.
Engaged as part of the materiality assessment.
Suppliers
Issued Environmental Compliance Guidelines and held To end FY23, 121 suppliers acknowledged the guidelines
a Supplier Info Day for 25 key suppliers.
which is a key step in further developing a responsible
and valued supply chain.
Communities
The Poundland Foundation published its first
These actions are an important part of showing our
annual report.
value to our customers and communities and of being an
exceptional employer. We will continue to consolidate
Pepco Poland has joined the working group of the
and highlight these actions.
Polish Government’s Responsible Business Forum to
develop a ‘Children’s Charter’.
Investors
Engaged as part of the materiality assessment.
Priority topics are mapped to our ESG strategy and will
drive future strategic decisions and value.
Material topics
A topic is considered by the Group to be material if it has a significant impact on the economy, environment and society and/or has the
ability to affect the Group’s ability to create long-term value for stakeholders.
Across our various stakeholder groups there was significant consistency in responses and priority allocated to the top material topics.
Value for our customers and human rights/ethics topics were either first or second for all stakeholder groups. This indicates that we
must continue to focus our efforts on leading value retail in demonstrating that sustainability is both achievable and good for business.
Internal stakeholders ranked climate and emissions higher than external stakeholders, reflecting perhaps a greater awareness within the
business of climate impacts and our opportunity to address them e.g. through energy or logistics efficiency programmes. Biodiversity and
water topics ranked low for almost all stakeholders, however this does not mean that we will ignore these topics – instead we will look to
address them through operational efficiency programmes, supplier environmental engagement or our participation in industry initiatives
such as Better Cotton Initiative or the Zero Discharge Hazardous Chemicals (ZDHC) programme. Whilst the Group has always adopted
comprehensive data and cyber security policies and frameworks, data protection and privacy was identified as a new material topic this
year and will therefore have increased emphasis from a reporting perspective.
Material topic
Impact
Financial materiality
1. Serving our
Providing our customers with low cost, high value
Our success in offering value to families on a budget
customers
products is central to our business model, allowing us
is fundamental to our ability to attract and retain
to democratise value and support them in meeting
customers, enabling long-term sales growth.
and communities
the challenges of the current cost of living crisis,
The Group’s contributions to local economies and
contributing to the raising of living standards in society.
Link to ESG strategy:
communities influences our reputation with stakeholders
Strong society
The Group provides employment, investment,
and our ‘licence to operate’.
community support and charitable donations in the
regions in which we operate, thereby supporting local
economies and the livelihoods of local people.
2. Business ethics
Taking a strong stance on business ethics and
Strong business ethics and approach to human rights,
and human rights
human rights is fundamental in providing responsible
with the appropriate accompanying policies can help
employment and ethical working conditions for,
to facilitate effective decision making, strong employee
and protecting the wellbeing and livelihoods of, our
performance and retention and attraction of investment,
Link to ESG strategy:
employees and those throughout our supply chain.
as well as reducing exposure to reputational, regulatory
Resilient business
and financial risks and fines.
The right to decent work and to make a living allows
people and communities to flourish, supports economic
prosperity and wellbeing.
19
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Materiality review continued
Material topics continued
Material topic
Impact
Financial materiality
3. Responsible
Ensuring responsible sourcing policies and practices
We believe that ethical and sustainable supply
throughout its supply chain supports the Group
chain practices can lead to improved operational
supply chain
in procuring products and services in an ethical,
performance, as well as protecting the Group’s
sustainable and socially conscious way, bringing
reputation and supporting the business as an attractive
Link to ESG strategy:
positive impacts to the people and economies in
investment proposition.
Valued supply chain
which it operates, as well as minimising any negative
Responsible sourcing failures have the potential to
environmental impacts.
expose the Group to reputational and regulatory risk,
with financial consequences.
4. Employment
Pepco Group employs c. 47,000 people in its direct
We believe that responsible employment practices,
operations and indirectly supports the employment of
with high levels of employee engagement, can lead to
many others through its supply chain.
improved efficiency and productivity, as well as talent
Link to ESG strategy:
attraction and retention, supporting and driving overall
Exceptional
Providing fairly paid employment opportunities with
business success and long-term value.
employer
good workplace standards provides income and
opportunities to workers in the communities in which
the Group operates, in turn providing a multiplier effect
into local economies, thereby contributing to socio-
economic development. This is specifically important
given the geographically, socially and economically
diverse contexts in which we operate.
5. Waste
Our activity generates waste through both products
Failure to adopt responsible business practices and
and product packaging, in our supply chain, in store,
meet increasingly stringent regulations and accepted
distribution and head office operations and tertiary
practices could result in financial fines and damage
waste in customer households. A responsible approach to reputation.
to the disposal of waste is vital in avoiding negative
Link to ESG strategy:
impacts on the environment, which in turn affects
Greener environment
people and economies.
6. Corporate
Strong corporate governance is based on
Good corporate governance helps the business to
accountability. We believe that positive impacts are
operate more efficiently as a result of effective decision
Governance
more likely when a company places accountability
making and appropriate risk and controls environment.
(incl. our
to stakeholders at the heart of its decision-making
This improves business performance, promotes long-term
approach to tax)
processes and business practices.
viability and reduces the risk of exposure to reputational
risks and fines.
Link to ESG strategy:
Resilient business
7. Data protection
While the Group does not hold significant amounts of
By taking a robust and responsible approach to data
and privacy
customer data, a data leak or privacy incident could
protection and privacy, the Group looks to comply with
negatively impact the Group’s customers, as well as
the applicable regulations and avoid any reputational
having the potential to contribute to wider public
risks and fines.
Link to ESG strategy:
distrust in business.
Resilient business
8. Climate
The Group’s activities generate greenhouse gas
We recognise we have a key role to play, helping lead the
and emissions
emissions through both its own operations and in its
value retail sector in the transition to a low-carbon economy.
supply chain. The impact of climate change has far-
While any significant financial risks from climate
reaching and potentially catastrophic consequences
change are yet to be felt day-to-day, versus some of
for the natural environment, human populations and
the other risks we monitor, we recognise the need to
economies across the world.
Link to ESG strategy:
start building a more environmentally resilient business.
Greener environment
We will continue to build capability and enhance our
and better products
governance and strategic priorities as we progress.
20
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
ESG management
Pepco Group
The Committee reviews ESG strategies, goals and targets and
NV Board
monitors progress quarterly, advising the Board as appropriate
Audit Committee
The ESG ExCo meets monthly to determine and align strategy,
ESG ExCo
reviewing progress and next steps for ESG across Pepco Group
and its companies and functions
Group-wide ESG
Coordination and reporting of ESG work across the Group
Internal Strategy Group
Implement ESG action plans and roadmaps at operating
OpCo Sustainability Committee
company level, report on progress against agreed KPIs
The Group CFO is responsible for setting the Group’s ESG
Poundland: The Poundland Sustainability Committee has been
Strategic Framework and has overall responsibility for execution.
in place for a number of years and is chaired by Poundland’s
The Group CFO is supported by senior management teams in
Managing Director. It is comprised of a team of cross-department
the Group’s operating companies, which are responsible for
colleagues tasked with executing environmental strategy in
day-to-day operational decision making with regards to ESG
the Poundland business. Execution of sustainability initiatives is
strategy execution, as well as the Group’s Head of ESG. Updates
managed by the Director of Property Services & Sustainability,
on ESG progress are made for approval and review to the Audit
who is supported by a dedicated Sustainability Manager.
Committee of the Group Board each quarter.
The sustainability managers within the operating companies
Demonstrating our commitment to driving development of our
provide regular ESG updates for employees through internal
ESG approach, in FY23 we have established an ESG Executive
communication channels such as newsletters, posters and
Committee; the purpose of which is to determine, align and review
Company meetings.
progress and next steps for ESG across Pepco Group and its
Group-wide ESG Internal Strategy Group (ISG) is made up of
companies and functions. It is chaired by the Group CFO and its
representatives from the Group’s operating companies and
objectives are to:
Group-level ESG team. The ISG meets regularly, providing a
–
create alignment and drive progress across the Group when it
forum for cross-group decision making, information sharing and
comes to ESG priorities, KPIs, goals, policies, resourcing, data
discussion to drive forward our ESG strategy.
systems and transparency/assurance;
In PGS, the Group’s in-house sourcing business, we have
–
review progress across Group and operating
predominantly Asia-based expert teams covering both ethical
company KPIs/goals;
and environmental supplier engagement and controls. We
have expanded these teams in FY23 to further manage risks
–
manage ESG risks and agree/implement mitigation
from supplier activities in our material environmental and social
actions; and
aspects, see more on pages 38-44.
–
develop strategy and decisions to bring to the Group
ESG risks are managed through the Group’s risk register which is
Executive Committee and the Board as appropriate.
reviewed by the Group’s Audit Committee, further details can be
The terms of reference and standing agenda of this Committee
found in the risk management section of this report.
cover all the priority material topics as identified in the recent
> Read more in our risk management section on pages 38-44
materiality assessment.
Each of the Group’s operating companies also has ESG
management and decision-making structures, including
dedicated sustainability personnel:
Pepco: Pepco’s ESG strategy is managed by a dedicated
Sustainability Manager, who provides regular ESG updates to the
Pepco management team. Reflecting the increasing momentum
of ESG strategy and initiatives within Pepco, a Sustainability
Committee was established in FY23, with its primary goal being
to develop Pepco’s decarbonisation strategy. The Committee
is composed of senior business leaders across departments
including operations, buying and commercial.
21
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Resilient business
With a strong commitment to ethical and responsible business conduct, honesty
and integrity, both within the Group and throughout our value chain, Pepco
maintains high standards of corporate governance underpinned by clear policies
which set a culture of responsible and resilient business for all our operating
companies, colleagues and suppliers.
Business ethics and human rights
Our priority areas
As described at the start of this section, Pepco Group is a
multinational group operating across a wide range of geographies
Resilient business
R
and jurisdictions. Strong business ethics and accompanying
policies help to encourage responsible practices, protect human
rights across the Group and its value chain and maintain our
reputation with our stakeholders. We are aware of the potential
impact on the wellbeing and livelihoods of our employees as well
as the people within our supply chain that any breach of ethical
standards could have.
Material topics
Business ethics and human rights; corporate governance,
Our approach
data protection and privacy
Pepco Group is committed to ethical conduct, honesty and
integrity. The Audit Committee exercises oversight over the
Policies
Group’s approach to ethical and responsible business practices
–
Anti-Bribery and Corruption Policy
and reports to the Board on topics as appropriate. The Group is
–
Speak Out Policy
committed to embedding ethical practices across its businesses.
–
Supplier Code of Conduct
We have made several key improvements in our processes and
procedures in FY23:
–
Modern Slavery Statement
–
We understand that the ongoing evolution in legislation,
–
Tax Strategy and Corporate Criminal Offence Policy
regulatory guidelines and standards mean our compliance
function has to continuously evolve to keep pace. In focusing
Associations and accreditations
our efforts on our core operations and territories we have
–
Ethical Trading Initiative aligned
developed our central compliance programme and its
associated monitoring metrics. Monitoring performance and
–
SEDEX: global data platform for supply chain assessment
outputs not only allows us to observe the effectiveness of
–
Better Cotton Initiative
our overall programme but enables us to set the tone for the
behaviour we expect from our colleagues and partners; an
–
Sustainalytics Low Risk Rating
essential part of allowing the Group to grow in the right way.
SDGs
–
We embrace the development and advancements in
technology to support our ongoing objective to continually
evolve our compliance programme, as such, we have
introduced a third-party onboarding risk management
solution. This allows us to access an ever changing and
increasing range of global compliance data, enabling us
to make crucial, data-driven decisions on whom we form
business partnerships with. This tool allows us to screen for
sanctions, politically exposed persons, violations of fraud and
modern slavery, and identify controlling ownership of entities
or any adverse media associated with the subject entity, in
turn affording us an improved understanding of any exposure
the Group may be subject to.
22
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Anti-bribery and corruption
We continue to review and improve our whistleblowing procedures
as they naturally embed over time. Our training programme on this
Pepco Group has an Anti-Bribery and Corruption Policy which sets
subject will be further expanded in the coming months, providing
out the standards of conduct which we expect of our workforce
and our business partners. The policy includes our procedure
colleagues with an increased knowledge and confidence,
regarding hospitality and the giving and receiving of gifts and
enabling them to recognise and speak up about misconduct.
political donations, and the mechanisms through which our
Corporate governance
workforce can report concerns relating to misconduct, including
confidential reporting. We will consider taking disciplinary action
Strong corporate governance, business resilience, transparency
up to and including dismissal against anyone who fails to comply
and accountability are essential in the effective management
with the standards of behaviour set out in our Anti-Bribery and
of our business, promoting long-term sustainability and value
Corruption Policy.
creation. Governance frameworks are required to ensure the
effectiveness of the Board and to protect the interests of our
To reinforce the policy and further enhance our overall programme
shareholders and other stakeholders, also helping to build trust,
we have engaged a solution provider and we are currently
without which we would not be able to operate.
developing a centralised compliance training platform. This will
enable us to train our colleagues on a variety of compliance topics
Our approach to corporate governance
such as anti-bribery and corruption, anti-money laundering and
modern slavery and human rights at a level appropriately tailored
Pepco Group is committed to high standards of corporate
for colleagues and their role within the business. In addition,
governance, transparency and accountability. The Group
we will be able to monitor the effectiveness of learning though
has clear corporate governance policies which set a culture
qualitative and quantitative measures, and report on those topics
of responsible business for all our operating companies and
when required.
our colleagues, customers and suppliers. Key elements of the
Group’s strategy drive towards a resilient business; our materiality
There were no confirmed cases of bribery and corruption in FY23.
assessment completed this year also highlights the importance of
corporate governance and business ethics to our key stakeholders.
Human rights
We aim to build and maintain business resilience by embracing
We recognise that whilst our business activities can contribute
technology to improve infrastructure and operational performance,
positively to the lives and livelihoods of our stakeholders, there is
taking a responsible approach to data protection and privacy,
the potential for impacts on human rights and therefore we have
and by implementing robust and responsible data protection and
a zero-tolerance approach toward any infringements or violations
privacy measures to meet regulations and protect customer and
of human rights in our business or identified in our supply chain. All
supplier confidentiality and security of personal information.
forms of modern slavery, including child labour, forced labour and
human trafficking, are strictly forbidden by our Code of Conduct.
Our approach to tax
We have an Ethical Trading Code of Conduct for suppliers and
We understand that the taxes we pay to governments in the
compliance with this Code of Conduct is a key condition of
countries in which we operate are central to fiscal policy and
doing business with us. The Code is closely based on the Core
macroeconomic stability, being an important source of revenue
Conventions and the Fundamental Principles and Rights at Work
in providing a stable infrastructure, social fabric, and economic
of the International Labour Organization (ILO), a UN agency. We
environment for citizens of those countries who are also our
arrange regular training and meetings with our suppliers and
colleagues and customers.
employees to make sure they understand our Code of Conduct
and that they respect it.
We are committed to conducting our business in an honest and
ethical manner, and our core tax principle is to manage our tax
During our audit process, we rigorously check potential human
affairs responsibly, which means ensuring that we pay the right
rights and modern slavery risk indicators such as restriction
and fair amount of tax at the right time in the countries in which
on freedom of movement, forced labour, young/child labour,
we operate, in compliance with local and international law. We
employment fee (if any being charged), unauthorised deduction
believe this sits comfortably alongside our business purpose
from workers’ wages, no procedure to raise grievance for human
to deliver growth and long-term value for our stakeholders
right violation, withholding workers payment and any form of
whilst also maintaining high standards of ethics, honesty and
discrimination by employer.
integrity, managing our impact on the environment, developing
There were no confirmed incidents regarding human rights
our colleagues, and enhancing the communities across our
impacts in FY23.
supply chain.
Our Board-approved tax strategy is reviewed and re-published
Grievance mechanisms and remediation
annually and, whilst a requirement under UK law, is intended to
Pepco Group has a Speak Out Policy and provides colleagues
summarise our overall tax strategy as a Group. Our tax strategy
across the Group various mechanisms by which to report
can be found on our website under “Our approach to tax”:
inappropriate conduct, including an external independent
www.pepcogroup.eu/about/how-we-operate/.
reporting facility for whistleblowing. The Group selected
SafeCall, a provider with significant experience in this space,
which offers a safe and confidential reporting environment
and multiple reporting channels. Underpinned by the ability to
provide their service in a wide range of languages, this allows the
reporter to explain their concerns in the dialect they are most
comfortable with, resulting in higher quality reports which facilitate
the investigation and resolution.
23
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Corporate governance continued
Data protection and privacy
Without core online operations, Pepco Group does not hold
Our approach to tax continued
significant amounts of customer data. Nonetheless, strong data
Ultimate responsibility for tax governance and management of
controls, which involve handling customer data with care and
tax risk sits with the Board and the CFO, supported by the Director
respect, are essential in protecting the information we do hold.
of Treasury, Tax and Risk and the Head of Group Tax, who engage
with the Group Audit Committee. Day-to-day management of
Implementing robust and responsible data protection and
tax risk for our operating companies is delegated to the relevant
privacy measures are essential to ensure that Pepco Group meets
CFO or Finance Director. Regular communication channels ensure
regulations and protects customer and supplier confidentiality
that the Group maintains oversight of key tax matters, and advice
and security of personal information. We demonstrate
is sought from leading external professional advisors where
commitment to our customers by prioritising data protection.
considered appropriate (for example, where there is an element
of uncertainty) given the complex and dynamic nature of tax law
Our approach
and practice.
The Group’s operating companies have comprehensive data and
cyber security policies in place, with dedicated cyber security
We operate a system of tax risk assessment and controls as a
specialists and Data Protection Officers, to protect data and
component of the overall internal control framework applicable
information infrastructure. The Group is subject to significant data
to our financial reporting system. We seek to reduce the level
protection regulation (e.g. GDPR) and any breaches could result in
of tax risk arising from our operations as far as is reasonably
significant customer reputational damage and fines/penalties as
practicable by ensuring that reasonable care is applied in relation
well as costs to rectify mistakes.
to all processes which could materially affect compliance with
our tax obligations. Known risks are monitored for business and
The Group is committed to having the right technical and
legislative changes which may impact them and changes to
operational controls in place and developing those further to
processes or controls are made when required. As a multinational
ensure the security of the data we manage. This commitment
group operating in an increasingly complex and developing tax
is demonstrated by the various data protection committees
environment, some risk is unavoidable. Nevertheless, the level
and teams across the Group. Risk management controls are
of risk which we are prepared to accept is consistent with our
operational such as data protection impact assessments, a
objective of achieving certainty with regard to our tax affairs.
statutory requirement when embarking on projects involving the
When entering into commercial transactions we seek to utilise
processing of personal data. Processes in respect of individual
available tax incentives, reliefs, and exemptions in line with, and
rights are also active. As we move towards a more centralised
in the spirit of, applicable tax law and prevailing practice. We
way of working in the coming months, we look to open lines of
observe guidelines published by the Organisation for Economic
communication between the operating companies, further align
Co-operation and Development (OECD) and endeavour to
teams, functional accountability, policies and frameworks and
conduct intercompany transactions on an arm’s length basis.
improve our overall efficiency.
We do not undertake tax planning unrelated to commercial or
No filings which meet the Supervisory Authorities’ threshold for
strategic transactions, nor do we undertake tax planning that is
severe breaches have been submitted in FY23.
contrived or artificial.
We seek to foster positive relationships with tax authorities and
to undertake all dealings with tax authorities in a professional,
courteous, and timely manner. We aim to be clear and proactive in
our interactions with tax authorities.
Alongside our Corporate Criminal Offence Policy, our Speak Out
Policy and whistleblowing hotline are available in the event that
concerns are raised about our business conduct and integrity in
relation to tax matters. No specific concerns were raised in this
respect through these channels in FY23. We do not currently report
on assurance metrics specifically related to tax matters however
this is an area that we will consider for future development.
Further description of the risk and its potential impact as well as
the steps we take to mitigate the risk are set out in the Risk and
Governance section of this report.
24
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Environment
Working across the Group and with our partners and stakeholders
to drive efficiencies and minimise the environmental impacts of our
business, our value chain and our products.
Greener environment
Our priority areas
We recognise that the actual and potential environmental impacts
Greener environment
of our operations, both as a Group and throughout our supply
Better products
chain, are wide-reaching. These include energy and resource use,
G
carbon emissions, water use, waste generation and biodiversity.
However, as a result of our materiality assessment, we have
prioritised the most material for the purposes of our reporting and
B
therefore focus on climate and emissions and waste.
Material topics
Our overarching intention is to minimise our negative
environmental impacts and improve efficiency wherever possible
Climate and emissions; waste
to reduce the intensity of our impacts.
Priority areas
The Group’s principal source of water usage is embedded water
–
Reduce the carbon intensity of our operations
in our products, rather than water used in our store or distribution
operations – therefore, whilst it is not included as a material topic,
–
Increase recyclable packaging
we have included an overview of our approach below.
–
Reduce waste to landfill
One way we can influence the environmental impacts throughout
our value chain is through supplier training – see the supply chain
–
Grow the range of affordable products that contribute
to a sustainable lifestyle
section below for more detail.
Data collection is a vital element of our environmental strategies,
FY23 KPIs
enabling us to monitor progress and drive performance
–
Scope 1 and 2 emissions (absolute and intensity)
improvements. In the coming year we will continue our focus on
developing our data collection processes and systems.
–
% recyclable packaging
–
% waste diverted from landfill
Climate and emissions
The Group’s activity generates greenhouse gas emissions
–
% sustainable products offered
through operations (stores, warehousing and shipping), products
and product packaging. We are committed to minimising
Policies
the environmental impact involved in the manufacturing,
–
Poundland waste food policy
transportation, storage and consumption of the products we sell.
–
Responsible packaging policy and packaging handbook
The main direct sources of emissions within our value chain are
(including On-Pack Recycling Labelling (OPRL) guidance)
electricity in our stores, warehouses and distribution centres (DCs)
–
Sustainable Travel Policy
and fuels used in the transportation of goods.
–
Airfreight Policy
By taking a responsible and appropriate approach to
environmental management both within the Group and working
Associations and accreditations
with our partners and stakeholders, we can reduce environmental
risks and negative impacts.
–
Responsible Business Forum Poland
The impact of climate change has wide-reaching and potentially
–
Poland Plastic Pact (Ellen MacArthur Foundation)
catastrophic consequences for the natural environment, human
–
Forestry Stewardship Council (FSC)
populations, and economies across the world. Pepco Group
is committed to managing the impact of carbon emissions
–
PEFC – Programme for the Endorsement of
generated as a result of our direct activities (scope 1 and 2
Forest Certification
emissions) and working with our supply chain on scope 3 emissions.
–
Oeko-tex® Standard 100 – certification for textile product
We have a role in decarbonisation through being more efficient
safety including organic cotton
with our use of energy, switching to renewable forms of energy and
reducing waste throughout our product lifetimes. We can influence
SDGs
our suppliers to reduce their carbon footprints and engage with
our customers to help them participate in a lower carbon world.
25
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Greener environment continued
Energy usage and carbon emissions data
In FY23 we have further developed our approach to carbon
Climate and emissions continued
reporting by standardising our data templates and improving
our data collection processes. We have also brought in external
The energy management strategies in place at our retail operating
advice to ensure consistency of approach and methodology
companies increase the efficiency and sustainability of energy
between our operating companies. This is in preparation of data in
supply in our stores and distribution centres, thereby reducing
the carbon intensity of our operations. Through the Sustainability
consideration of the GHG protocol, collation of data at Group level
and Energy Committees within our operating companies, energy
and setting consistent goals across the Group.
efficiency projects are identified, implemented and monitored.
FY23
FY22
YoY
The Committees meet regularly to review progress and report
to management on achievements. As one of our top materiality
Absolute
101,674 tCO2e
106,214 tCO2e
-4.3%
issues, we will step up our focus on addressing climate risks and
1,032 TJ energy
carbon emissions in FY24.
consumption
Given the nature of embedded water usage, our primary approach to
Intensity
18.0 tCO2e/€m
22.0 tCO2e/€m
-18.3%
understanding, monitoring and improving water usage will be through
turnover
turnover
our supplier environmental guidelines and audit programme and by
collaborating on industry initiatives such as Better Cotton and ZDHC.
-4.0 tCO2e/€m
Actions taken to manage climate and carbon emissions are
We have seen a significant improvement in both absolute terms
as follows. Many of these environmental initiatives are equally
and the intensity of carbon emissions. This is due to moving our UK
impactful at Group strategy level in our efforts to optimise our
operations onto renewable energy for the majority of those sites.
store network and drive cost and operational efficiency.
We will work in FY24 to transition more of our sites across Europe to
Energy efficient stores and DCs
renewable power.
Poundland has upgraded its whole refrigeration fleet with doors,
In FY24, we will extend our emissions reporting to scope 3 for
increasing energy efficiency by 80%. We are also using messaging
the whole Group and use the information to build a low-carbon
on the fridge doors to communicate to our customers about
strategy and Group-wide carbon emission goals and KPIs. In
energy savings. Almost all of our stores are now using energy
line with many companies, we expect the majority of our carbon
efficient LED lighting and all our new stores install LED lighting. In
emissions to reside in products, their packaging and transport to
FY24, solar panels will be installed at two of our UK DCs.
our stores and DCs. We will develop a net zero strategy covering
scopes 1, 2 and 3 with an associated decarbonisation roadmap.
Sustainable energy
The strategy and goals will be reviewed and agreed at the ESG
Poundland sources 100% renewable electricity. The Pepco Energy
Executive Committee and progress against the goals will be
Committee is developing renewable energy sourcing strategies
reported to the Executive Committee and the Board quarterly.
across all 21 European markets. This is quite challenging as there is
Projects contributing to the reduction of scope 1, 2 and 3 carbon
often a lack of renewable energy availability in some markets.
emissions will be managed through the Sustainability and Energy
Efficient logistics: DC to store, employee commuting and
Committees at the operating company level.
fuel sourcing
As part of our commitment to driving progress across our ESG
We have banned the use of airfreight for own-brand product
initiatives and improving transparency and disclosure on an annual
shipping and are enforcing this through our Airfreight Policy.
basis, we have continued reporting according to the EU Taxonomy
Poundland now only provides electric vehicles in the employee
and commenced reporting in line with the recommendations of the
company fleet. In the UK, we have invested in gas-powered tractor
Task Force on Climate-related Financial Disclosures (TCFD) in FY23.
units and long-semi and double-deck trailers; these are higher
capacity which enables us to deliver more and reduces miles
EU Taxonomy is a cornerstone of the EU’s sustainable finance
driven. In the next year, we will further investigate alternative,
framework and an important market transparency tool. It helps
lower-carbon fuels for our logistics operations and continue to
direct investments to the economic activities most needed for
work on logistics planning efficiencies to reduce road miles and
the transition to a low-carbon economy, in line with the European
transport-related carbon emissions. In Pepco, about 750 shops are
Green Deal objectives. The Taxonomy is a classification system
serviced directly by DCs, which additionally lowers costs of trans-
that defines criteria for economic activities that are aligned with a
shipment and number of kilometres driven.
net zero trajectory by 2050 and the broader environmental goals
other than climate. It is a key part of the EU Corporate Sustainable
Reporting Directive (CSRD).
In-store refrigeration
Waste management
In-store refrigeration accounts for 5% of Poundland scope 1 and 2
Poundland has achieved its zero waste to landfill goal two years earlier
carbon emissions. In FY23, we invested in doors for all our in-store
than planned, this was achieved through initiatives including launching
refrigeration. This has increased energy efficiency on average, per
a waste management guide, and clear in-store signage to enable store
store by 80%. We have also added stickers to the doors – using this
colleagues to better segregate waste. A revised food markdown policy
as a way to engage our customers in our sustainability strategy.
was implemented, and a new unsold food policy introduced which is
offered to colleagues at the end of the day.
26
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Under the Taxonomy, economic activities that qualify as
to buildings) – installation of electric vehicle charging points at
environmentally sustainable are those that: (i) contribute
our Poundland head office and warehouse sites; and
substantially to any one of six environmental objectives using
–
7.5 Installation, maintenance and repair of instruments and
science-based criteria; (ii) cause no significant harm to any of
devices for measuring, regulation and controlling energy
the other environmental objectives; (iii) ensure compliance with
performance of buildings – installation of smart meters and
minimum social safeguards and (iv) meet the technical eligibility
other building and equipment management systems which
screening criteria that have been set by the Commission.
improve energy efficiency.
Companies must disclose specific KPIs – turnover, capital
The percentage of eligible capex is calculated by dividing the
expenditure (capex) and operating expenditure (opex) – which
Taxonomy eligible capex as described above, by total capex, as
indicate the portion of their economic activities which are
defined in International Financial Reporting Standards.
environmentally sustainable. In addition to these KPIs, this section
also sets out our methodology and approach and additional
A summary of the KPIs required to be reported under the Taxonomy
explanatory information.
is set out in the following tables.
For the period under review, economic activities which contribute
KPIs
to two of the six environmental objectives are in scope for
reporting: (i) climate change mitigation; and (ii) climate change
FY23
Share of eligible activities Share of non-eligible activities
adaptation. We will report against the other four environmental
Turnover
0%
100%
objectives where appropriate next year.
Capex
4%
96%
Opex
0%
100%
Approach
In order to present the required KPI disclosures we have assessed
our activities in terms of Taxonomy eligibility and Taxonomy
FY23
Share of aligned activities Share of non-aligned activities
alignment under the following methodology:
Turnover
0%
100%
Step 1: Identify activities eligible under the Taxonomy (Taxonomy
Capex
0%
100%
eligible activities) – as in the previous year, all activities listed in the
Opex
0%
100%
Taxonomy were analysed in terms of revenue, capex and opex.
Step 2: Identify activities that are eligible and aligned under the
Our contribution to environmentally
Taxonomy (Taxonomy aligned activities) – review eligible activities
sustainable activities
against the Taxonomy’s technical screen criteria, “do no harm
We have concluded that our main activities (retail of FMCG, GM
principle” and minimum guarantee requirements.
and apparel goods) are not in the activities listed in the Taxonomy,
Activities that have been identified as complying with the
and consequently our Taxonomy-eligible turnover and opex is
Taxonomy are aligned to one of the two environmental objectives
0% and Taxonomy-eligible capex is 4%. However, we believe
currently applicable: (i) climate change mitigation; or (ii) climate
our commitment to conducting business in an environmentally
change adaptation - ensuring no double counting between
sustainable way, as described in this section, enables the Group
objectives. With our current records and datasets, it has proven
to make a broader contribution to the EU’s environmentally
difficult to establish alignment with the technical criteria (i.e. we
sustainable objectives. It should be noted that the Taxonomy
have installed low-energy LED lighting in many stores in FY23
is subject to periodic revisions, which in the future may define a
however, our facilities records do not confirm if the bulbs meet
separate category and specific technical qualification criteria for
the exact energy-rating requirements stated in the technical
retail activities. For the time being, the Group has provided the
screening criteria). In FY24, we will ensure that future low-energy
appropriate disclosures in relation to its supporting activities that
installations (air-conditioning and LED lighting) state their energy
are included in the Taxonomy.
ratings in line with the screening criteria.
In order to ensure compliance with Taxonomy reporting
Eligible activities for climate change mitigation and climate
requirements in the future, we will continue to monitor updates to
change adaptation
the existing regulation and inclusion of new economic activities,
Following a review of activities listed in the Taxonomy, it was
as well as review economic activities listed for the remaining
concluded that the main revenue-generating activity of the Pepco
four objectives. The “Transition to a circular economy” objective
Group – retail of FMCG, GM, and apparel goods – is not included
is expected to be particularly relevant to the Group. To prepare
in the current regulation and therefore 0% eligible turnover is
for the inclusion of additional economic activities and reporting
reported.
against all six environmental objectives, we will continue to review
the way in which information is classified and organised in FY24
Capex spend on activities related to the purchase of output
by Group companies in our finance and IT systems. We will also
from Taxonomy eligible economic activities that support our core
identify opportunities for improvement in collecting and managing
activity was identified. It was determined that these activities
information to enable better reporting in the future.
should be allocated to the climate change mitigation objective,
as the contribution to climate change adaptation objective is of
lesser importance and the Taxonomy does not allow for double
counting.
This capex spend relates to the following categories:
–
7.3 Installation, maintenance and repair of energy efficiency
equipment – installation and replacement of energy efficient
air conditioning units in Poundland stores and installation of
energy efficient LED lighting in Pepco and Poundland stores;
–
7.4 Installation, maintenance and repair of charging stations
for electric vehicles in buildings (and parking spaces attached
27
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Greener environment continued
Task Force on Climate-related Financial Disclosures
We know climate change is a growing future risk to people, communities and businesses, but it also provides opportunities for new
products and services. We have provided climate-related financial disclosures in line with the UK Companies Act for Poundland; our UK
business. A summary against the 4 key sections, aligned to the 11 recommendations is below. As a business that is not listed in the UK, we
are reporting as a large company that exceeds the relevant disclosure threshold.
Governance
Poundland implemented a formal environmental sustainability strategy.
The strategy was formally approved by the Poundland Board and a management level Sustainability Committee
was created to oversee and drive progress. Next year, these processes will be further enhanced in alignment with
TCFD recommendations.
Strategy
In line with the recommendations of the TCFD, we undertook scenario analysis to identify a series of plausible
potential future climate-related pathways. In this, our first TCFD report, we have balanced being overly complex with
creating a tool that would be useful to our finance and risk teams. We followed three key steps in its development;
firstly, we identified three credible potential temperature pathways. Secondly, we applied a timescale that is
relevant to how we manage risk and strategy today and, thirdly, we reviewed the long list of transition and physical
risks and opportunities to identify those most material to us.
Risk management
Our current environmental sustainability strategy manages and mitigates any short-term climate-related risks. As
such, our overall analysis is that these risks are not yet business critical today, although require continued mitigating
actions as climate impacts become more material. This approach is intended to ensure that the business is well
prepared for key future risks in the medium to long term.
Key future risks are:
–
Increased pricing of greenhouse gas emissions
–
Mandates on regulation of existing products and services
–
Substitution of existing products and services with lower emissions options
–
Costs to transition to lower emissions technology
–
Changing customer behaviour
–
Increased cost of raw materials
–
Shifts in consumer preferences
In our full report we have indicated a timescale, potential risks and mitigating actions for each of the key areas. In
FY23, risk processes were centralised at Group level. We have a central risk register and process for all operating
companies, supported by the Risk and Audit team in each business unit. From FY24, it is intended to continue to
build on existing climate-related risks across all Group entities. The outcomes of our TCFD scenario planning, both
physical and transitional risks, will help to inform this process.
Metrics and
We established a set of Group-wide environmental and social goals, with corresponding KPIs in FY22, as seen at the
targets
front of this section. These built on the metrics already developed by Poundland in 2020. We report on an annual
basis and have continued to develop our approach to ESG reporting in FY23. We consider the external disclosure
of Group-level KPIs and goals to be an integral part of communicating the progress and development of our ESG
strategy to stakeholders.
Waste
The Group’s activity generates waste through both products and product packaging, in its supply chain, in store, distribution and head
office operations and tertiary waste in customer households.
Efficient and effective stock management is the most important tool the Group uses to minimise product waste in our stores and distribution lines
and reduce our impact on the environment while ensuring commercially efficient operations. We are also conscious of the fact that wasteful
packaging can contribute to pollution in a variety of ways and customers increasingly seek more sustainable packaging.
Avoiding or minimising waste is a key element of our approach to sustainability and is covered in the Better Products section.
Pepco Group takes a responsible approach to waste management. This involves working with our suppliers to minimise packaging waste,
reducing the use of plastic and reusing and recycling wherever possible – see ‘Product packaging’ below for further detail.
However, it is also important to note that packaging can play an important role in minimising waste – particularly related to food. We work
with our specialist waste management suppliers to ensure that waste is recycled correctly and, within our Poundland stores, we achieved
our zero waste to landfill goal two years early and have now set a goal to reduce all waste by 50% by 2024, from a baseline set in 2019.
28
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Responsible waste management
As our operating companies are present in different countries
with different national recycling infrastructure and capabilities,
we have several different recycling and waste management
programmes across the 21 markets.
In the UK, once again we hit our zero waste to landfill goal. In FY23,
21,327 tonnes of waste was generated, with 99.7% of this being
diverted from landfill and 55 tonnes directed to disposal.
Below we describe some of the activities we have undertaken to
reduce waste and increase recycling. In FY24, we intend to set a
Group-wide goal, sharing best practice and programmes across
all operating companies and countries.
In March and April 2023, we organised a second clothing collection
event in selected stores in Italy and Spain. This was the second
We want to increase the percentage of own-brand and
edition of the campaign “#Old clothes, New stories” held in
private label products that we offer to customers as a way to
collaboration with our social partner Humana People to People.
contribute to their sustainable lifestyles. We currently define this
In total, we collected 1,316 kg of used clothing in over a month, of
as products with reduced packaging, those made from recycled
which as much as 70% will be reused. Reuse and recycling can have
or environmentally-preferable materials, or products that are
many positive environmental impacts which include avoiding CO2
externally accredited. In FY24, we will further refine this definition
emissions, water consumption and use of pesticides and fertilisers.
within product categories.
Environmental training and awareness
In FY23, we initiated a major IT project to improve our ability to
–
“Every footprint is better than a carbon one” is a campaign
collect and control product attribute data from our suppliers; this
organised by Pepco Croatia, the aim of which was to educate
will enable us to closely monitor our progress and provides controls
customers and young people about the importance of caring
in our supply chain and procurement processes. We are committed
for the environment. The event included: interactive workshops
to working with partners across our supply chain to monitor and
for students conveying the importance of forests in our lives
improve environmentally responsible production methods.
and voluntary action of reforestation, in which 3,000 trees
were planted.
While the Group’s direct operations have limited impact on
global biodiversity and our own water use is not considered
–
“WE DO” was a one-day environmental clean-up campaign
to be specifically material, the impacts of the Group’s supply
organised by our colleagues from Pepco Lithuania. Its aim
chain and manufacturing of products carry greater potential
was to remove rubbish and waste from public areas on the
negative impacts. Biodiversity and water availability support
shoreline of a local lake in Vilnius. This initiative not only had a
life, our economies and enhance the wellbeing of human and
positive impact on the environment and the local community,
animal populations across the globe. We look to manage these
but also provided a great forum for team integration and
aspects through operational efficiency programmes, supplier
working together outside the Company.
environmental engagement or our participation in industry
–
At Poundland, we trained our store staff in optimising recycling
initiatives and accreditation processes.
practices, with new bins to separate waste streams and
In addition to our focus on environmental protection, Pepco Group
posters explaining what goes where. We have also updated
attaches the highest importance to the quality and safety of
our packaging handbook to make it more user-friendly and
our products. Our quality assurance processes ensure that our
trained 100% of our buyers in its use.
products comply with safety standards and current legislation.
Better products
Our suppliers receive clear instructions on legal requirements
and product specifications.
As part of our focus on providing value to our customers, we want
to address the myth that price is a barrier to sustainable and
In order to verify whether the suppliers comply with our
ethically produced products. One of the most impactful ways
recommendations, we run a multi-stage testing system. In addition
we can positively contribute to our customers and communities
to product testing performed by suppliers, we conduct our own
tests in external laboratories in Asia and Europe to check whether
is through offering a larger range of affordable and sustainable
the supplier complies with all these standards and work with
products available in our stores.
independent partners to increase the level of scrutiny.
We know that, through the depletion of natural resources, apparel,
A good example of this is the increasing number of products with
general merchandise, food and beverage and personal care
certifications such as Recycled Claim Standard (RCS) or Global
products carry potentially negative environmental impacts. The
Recycled Standard (GRS) for recycled materials, Organic Content
societies in which we sell our goods are becoming progressively
Standard (OCS) or Global Organic Textile Standard (GOTS) for
more interested in product sustainability and, whilst affordability
cotton, Forest Stewardship Council for products from forestry, such
continues to be a key concern amongst our customers, customer
research indicates an increasing focus on environmentally and
as paper or wood, or Oeko-TEX for textiles.
ethically sound products and practices.
29
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Better products continued
Better Cotton Initiative
Avoiding waste – product packaging
In FY23, the Group became a proud member of the Better Cotton
Initiative (BCI) – the largest sustainability programme in the world
In the previous section, we described our focus on waste prevention
formed of over 2,500 multi-stakeholder members, which aims to support
and recycling activities. In addition to this, our revised packaging
farming communities socially, environmentally and economically. In the
handbook is applied to all our suppliers through PGS and used by
2022-2023 cotton season, the Better Cotton programme reached more
our buying teams across the Group.
than 2.8m cotton farmers in 22 countries and trained them to use water
efficiently, care for soil health and natural habitats, reduce use of the
Clear packaging materials labelling provides our customers with
most harmful chemicals and respect workers’ rights and wellbeing.
information on how they can better recycle packaging at home – in
Pepco is the first Poland-based company which is part of this initiative.
the UK we have adopted the OPRL guidelines and are rolling them
By sourcing cotton through Better Cotton, Pepco contributes to raising
out across our own-label products.
the standards of cotton production, which translates into the wellbeing
of farmers and the local environment. By 2025, our target is to source at
Pepco Group has three main aims when it comes to packaging:
least 25% of our cotton from sustainable crops.
–
100% of our packaging to be recyclable in all the markets we
operate in;
–
reduce the amount of packaging produced by 20% by
2025; and
–
use 30% recycled materials in packaging.
We implemented a comprehensive packaging policy in FY23
in response to the need for collective action in limiting plastic
pollution and driving towards a circular economy. The policy is
aimed at identifying and eliminating all unnecessary or problematic
packaging through design, innovations, and use of alternative
resources. We also want to reduce weight and increase the
recyclability of our packaging among other factors. In FY24, we will
establish Group-wide goals against each of these aims.
Additionally, in order to learn about the best industry standards, we
joined the Polish Plastic Pact in February of 2023.
In addition to responsibly sourced cotton, we provide our customers
with a range of affordable, sustainable product options across our
Environmentally responsible production
clothing, general merchandise and FMCG lines including Oeko-
Tex and Forest Stewardship Council (FSC) eco-certified products,
Some of our own-brand clothing has been a member of the Better
recycled polyester clothing and vegan and vegetarian ranges. We
Cotton Initiative (BCI) for a number of years. We have extended this
label those products accordingly, to help our customers clearly
further across the whole Group, with Pepco achieving membership
identify more sustainable choices and show our commitment to
in FY23 for all own-brand clothing and textiles. Through our retail
environmentally responsible production.
partnerships with Better Cotton, the tonnage of cotton sourced
under the BCI scheme is recorded via the BCI membership platform
each calendar year, independently assessed and subsequently
reported at Group level, providing an external membership
validation of this data point. By extending the membership and
reporting across more product lines, we have in effect re-baselined
our goal. This does mean in FY23, our overall percentage of BCI-
sourced fibres has reduced to (an estimated) 21% in FY23 from 40%
in FY22 (21% now applies to the whole group-sourced cotton fibres.
40% applied to FY22 Poundland-sourced fibres). However, we
believe that the more comprehensive goal and wider membership
will enable us to offer more sustainable products to more customers.
Our clothing range also includes organic cotton items sourced
under the Global Organic Textile Standard (GOTS) and the Organic
Content Standard (OCS).
Shopping bags
Customer shopping bags are a
highly visible indicator of waste and
plastic use, so making sure they are
recyclable and made of recycled
material is an important first step.
To further encourage customers to
reuse, Poundland have begun to
introduce their new 100% recycled
and recyclable bag for life.
30
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Social
Serving our customers and communities. Valuing our people,
contributing to a strong society and placing the Pepco Group
at the heart of a responsible and efficient supply chain.
Valued supply chain
Our priority areas
Our sourcing business, PGS, manages a supply chain comprising
Strong society
385 vendors using 743 factory production sites and is responsible
for sourcing 88% of our own-label products. To simplify our
E
Valued supply chain
operations, PGS was further integrated into the Pepco business
Exceptional employer
in FY23, which will help maximise and align the buying cycle, as
V
S
well as help drive further operating efficiencies. We work with our
suppliers to develop sustainable product options which meet our
customers’ preferences at an affordable price point, which is made
Material topics
possible through the commercial advantage provided by PGS.
Serving our customers and communities; responsible supply
Having a vertically integrated sourcing model provides the
chain; employment
Group with enhanced visibility across the overall supply chain
and optimises the level of control and coordination we have with
Goals
our sourcing and buying teams, enabling better oversight and
–
Perform annual audit of all factories
influence over the social, ethical and environmental management
–
Engage all colleagues regularly for feedback
practices of our partners and improved risk mitigation.
Our FMCG products are sourced directly from both domestic
FY23 KPIs
and international suppliers including some of the world’s biggest
–
% factories audited
brands such as Nestlé, Unilever and Proctor & Gamble.
–
% colleagues surveyed
Owing to the scale of Pepco Group’s operations and the
significant investment in our supply chain, we have the opportunity
–
Number of people supported through our charitable work
to support economic development, industry and employment
opportunities. By implementing responsible sourcing policies
Policies
and practices throughout our supply chain, Pepco Group aims
–
Supplier Code of Conduct
to procure products and services in an ethical, sustainable and
–
Group Board Diversity Policy
socially conscious way, bringing positive impacts to the people
and economies in which we operate, as well as minimising any
–
Diversity and Inclusion Policy
negative environmental impacts.
–
Global Quality Assurance and Quality Control Policy
–
Gender Pay Gap reporting
–
Modern Slavery statement
–
Zero-Tolerance Policy
–
Parental Leave Policy
Associations and accreditations
–
Ethical Trading Initiative aligned
–
SEDEX: global data platform for supply chain assessment
–
Better Cotton Initiative
SDGs
31
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Valued supply chain continued
Working with our supply chain
Supplier social and ethical practices
Our approach
We believe in helping our suppliers to continuously develop their
We have strong policies in place to protect the integrity of
social and ethical standards in partnership with the Group. As part
our supply chain, including a Pepco Group Supplier Code of
of this, we prioritise:
Conduct which applies to all suppliers and contractors. The
Code of Conduct is aligned with the Ethical Trading Initiative
(ETI) Base Code, an internationally recognised code of labour
1
practice founded on the conventions of the International Labour
Commitment to developing the livelihoods of the people
Organisation (ILO). It includes expectations concerning human
who make our products, which includes ensuring that the
rights (with specific reference to child labour), ensures colleagues
workers in our supply chain are:
in factories are treated fairly, and lays out our position on bribery,
transparency and unauthorised subcontracting as well as
- working willingly and not forced to work;
environmental provisions.
- not discriminated against by their employer;
Before onboarding a new supplier or factory, the buying, sourcing
- working in safe working conditions and are not exposed
and merchandising team from PGS will visit the facility to perform
to dangerous working conditions; and
a high-level technical, social and environmental audit to check
if the supplier or factory can meet our Cost, Quality, Ethical and
- receive all due wages for their work.
Environmental Compliance Standards. New suppliers are required
to confirm adherence to the Code of Conduct and acknowledge
the Pepco Group ethical and environmental guidelines for
suppliers before starting a business relationship.
2
We then continue to work closely with our suppliers to improve the
Providing support for suppliers to help them develop and
sustainability and responsible business practices within our value
improve their workers’ livelihood through safe working
chain and look to provide a positive influence through regular
conditions, fair wages and other basic human rights.
engagement and auditing. Factories actively producing goods
for the Group are audited at least once per year by the Group’s
sourcing compliance team in accordance with the Supplier
Code of Conduct. We also perform additional announced and
3
unannounced factory audits during the course of the year, to
further strengthen our review procedures.
Supporting our suppliers to contribute to sustainable
development through partnerships such as the Heart
We firmly believe that addressing the root cause is essential to
to Heart charity described in the exceptional employer
achieving sustainable and responsible business practices. In
section below.
instances where potential negative impacts are detected, we
collaborate closely with our suppliers, requesting their active
participation in conducting thorough risk assessments. This
evaluation helps us gauge the likelihood of the situation occurring
4
and guides us in determining the appropriate course of action.
If there is even a remote possibility of an impact arising, we urge
We have a risk-based audit approach, taking into
our suppliers to proactively implement preventive measures to
consideration of factories’ geographic location,
mitigate any potential adverse effects.
reputation, the type of manufacturing process and the
most recent ethical audit rating. Frequency of audits are
We understand that immediate preventive action may not
increased based on risk associated with the factory.
always be feasible. In such cases, we expect our suppliers to
present a well-thought-out mitigative or remediation plan that
will effectively address the negative impact when it arises. This
proactive approach ensures that we are prepared to take swift
action whenever necessary, minimising any potential or negative
impacts. By fostering transparency and collaboration throughout
our supply chain, the Group aims to ensure that our valued
partners are fully aware of the social, ethical and environmental
impacts associated with their practices.
The compliance team arranges regular induction training and
holds meetings with suppliers to ensure they understand our Code
of Conduct, Zero Tolerance Policy, and auditing standards.
32
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Auditing process
The compliance team reviews the CAP submitted by factory
management and arranges follow-up audits to review and monitor
All active factories are audited at least once a year. All potential
progress against the Corrective Action Plan. Frequency of audits
new factories must go through the ethical audit process and
must pass the ethical compliance audit to be eligible to do
are increased based on the most recent ethical audit rating,
business with us. During the audit, we rigorously check issues
reputation and other risk factors.
related to human right violation e.g. wage retention, child labour,
In addition, the compliance team conducts unannounced supply
discrimination, restriction on freedom of movement, any form
chain monitoring audits to control unauthorised subcontracting of
of forced labour and safe working conditions. We develop a
Pepco Group merchandise manufacturing. See the case study on
Corrective Action Plan (CAP), which is agreed with the supplier and
page 34 for an example of how our auditing process led to social
factory management during the closing meeting on audit date.
and safety improvements at a factory in Bangladesh.
After each audit, we share an ethical audit report with compliance
(CAT) risk ratings with the suppliers and factories. Factories with
CAT 1, CAT 2 and CAT 3 are deemed to have no-risk to medium-
risk issues and approved for new business. Business restrictions
are imposed on factories with CAT 4 and CAT 5 grading for having
high-risk or critical issues. Factories need to submit a CAP for all
high-risk issues identified during the audit.
–
Potential new suppliers are sent
–
Supplier and colleague Code of
our Code of Conduct
Conduct training programme
–
Approved factories acknowledge
–
All potential new factories must
our Code of Conduct
go through the ethical audit
process and must pass the ethical
compliance audit to be eligible
to do business with us. A CAT
rating is then applied, with CAT 1-3
indicating supplier approval and
Screen
Onboard
CAT 4-5 setting out restrictions
with 180 days to remediate
–
New suppliers are given their CAP,
onboarded and added to active
factory list
–
Supplier works on CAP
–
Ethical and environmental audits
corrective actions
–
Audit rating and follow-up actions
–
Regular supplier meetings
provided to suppliers
Resolve
Monitor
and follow-ups
–
Annual audit repeated for all
–
Subsequent audits arranged
active factories
if required
Training and engagement to develop
further training or support to meet our expectations. This preliminary
research will be used to develop the full audit and compliance
our supplier standards
programme and target future training and development resources
Before introducing our environmental guidelines to our suppliers, training
to work collaboratively with suppliers to support them in meeting
was provided to our buying, sourcing and merchandising teams. As part
the Group’s environmental standards.
of the launch programme, introductory ESG workshops were held with
representatives from each of the suppliers. The workshops provided an
Additionally, we proactively invested in the professional development of
opportunity to engage with suppliers on the importance of ESG topics
our Bangladesh suppliers and factories by facilitating third-party training
to the Group and an explanation of the Group’s ESG strategy, followed
programmes. These programmes covered seven key environmental
by a training session on the guidelines. The guidelines were then sent to
topics, including environmental management systems, chemicals,
our largest suppliers, who were asked to sign an acknowledgement slip
wastewater, water, energy, air emissions, and waste.
and complete a “checklist” review of their environmental practices. The
By placing environmental education and collaboration at the core of
results of this preliminary questionnaire indicate a range of knowledge
our supply chain operations, we strive to foster a culture of sustainability
and performance across our suppliers, with some suppliers requiring
and responsibility.
33
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Valued supply chain continued
Supplier performance in FY23
–
100% of new suppliers were screened using Ethical Trading
Supplier environmental practices
Initiative-aligned criteria.
In FY23, the Group developed a voluntary set of Pepco Group
–
1,548 audits were performed at 1,154 factories. Ethical audits
Environmental Guidelines For Suppliers which cover the following
were undertaken either by our own compliance team or by
key areas:
third-party audit companies.
–
environmental management system;
–
We supported improvement in standards at 175 factories,
successfully remediating critical issues and enhancing their risk
–
environmental regulations;
ratings from CAT 5 or CAT 4 to CAT 3 or above.
–
recording and minimising greenhouse gases (GHGs);
–
97% of our factories categorised as no to medium risk – CAT 1,
–
waste management;
CAT 2 or CAT 3.
–
increased water usage efficiency;
–
Demonstrating the strength of our stance, contracts with 22
factories were terminated for repeated infringements of our
–
chemical management;
Code of Conduct and violating our Zero Tolerance Policy.
–
safeguarding natural resources and biodiversity;
–
New business placement was restricted in 137 factories with
–
sustainable packaging; and
high-risk violation e.g. CAT 4 or CAT 5 rating.
–
sustainable raw material sourcing for products.
We work with our suppliers to develop sustainable product options
which meet our customers’ preferences at an affordable price
Environmental due diligence and auditing
point, which is made possible through the commercial advantage
We have introduced this environmental due diligence to our
provided by PGS.
supplier selection process. We intend to audit new suppliers
> See ‘Better products’ on page 29 for more information
for compliance against the environmental guidelines, allowing
us to identify and address any current or potential negative
environmental impacts within our supply chain, with any
Exceptional employer
improvement areas provided in a CAP. This will further help us to
mitigate environmental risks in our supply chain and drive towards
Investing in people to support growth is one of our four strategic
our future Group-wide Net Zero strategies.
pillars. By striving to be an exceptional employer, we aim to
support our colleagues and ensure that they thrive – we believe
Upon identification of current environmental impacts, our
that, in order to serve our customers well, our employees should
dedicated team creates a comprehensive CAP, which is
love what they do.
meticulously designed to remediate issues and prevent their
recurrence in the future. Together, we strive to implement
As a large retail organisation spanning multiple countries and
appropriate measures that prevent, mitigate, or remediate any
employing more than 47,000 colleagues, we absolutely recognise
adverse effects. Through these proactive initiatives, we aim to set
the vital role they play in supporting our growth and continued
a benchmark for environmental responsibility within our industry
success. We feel a real responsibility to work with them in creating
and contribute to a sustainable future. We are fully committed
an environment where they experience a sense of value and
to expanding our efforts in upskilling an even greater number
support where they can truly be the best version of themselves.
of suppliers and factories, ensuring they possess the necessary
Opportunities to progress internally are actively encouraged
knowledge and understanding of critical environmental practices
and we work together to enable both personal fulfilment and
and principles.
opportunities for progression.
Improving working conditions for workers – one of many
success stories in FY23:
In December 2022, we audited a ready-made knit garments
manufacturer in the outskirts of Dhaka, Bangladesh. The factory failed
our initial audit for these reasons:
–
failure to pay minimum wages to 23 workers of total 570 workforce;
–
dangerous working conditions e.g. no automated smoke detection
and fire alarm system, locking feature on exit door; and
–
inadequate building approval and fire licence coverage
for factory.
Following our audit, the factory management started taking the
necessary corrective action. We worked closely with the factory in the
remediation process by reviewing their CAP progress report and guiding
them to take appropriate corrective action. As a result, the following
improvements were made:
–
factory management pay at least minimum wages to all workers
since our audit; and
–
automated smoke detection and fire alarm systems were installed
and building construction approval and fire licences were
Above: 2023-04-03: Photo of fire alarm control
obtained from the local Government authority.
panel of factory’s Addressable Smoke detection
In April 2023, on request of the supplier, we arranged an unannounced
& fire alarm system.
follow-up audit in the factory and the factory was assessed as CAT 3
by resolving all Zero Tolerance issues. Due to our audit process, living
Below: 2022-12-13: No Addressable Smoke detection
conditions of several workers were improved in the factory.
or fire alarm system installed.
34
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Our Group gender pay gap was conducted across all Company
entities and according to ESRS methodology1, is 39%. While we
acknowledge that the gender pay gap is a result of the natural
distribution of our employees across different business areas,
with a significant representation of women in our store staff, we
recognise our responsibility to ensure that all colleagues are
treated fairly and receive support in their career growth.
Our performance management process encourages career
and development conversations, promoting employees’ ideas
and thoughts regarding their career journeys while ensuring
managerial support throughout the process. This has resulted in
over 2,709 internal promotions in our Pepco operating company
during FY23 among our staff, of which, over 91% are women.
The remuneration for store positions, which is our biggest group
We have a combined commitment throughout the Group to
of colleagues, is based on standardised rates, which are also
ensure that we foster a great experience for all our colleagues,
published and available to our staff. For other positions, we
regardless of their role and location. This includes, but is not limited
rely on grading methodologies to ensure effective evaluation.
to, fair and regularly reviewed competitive pay, providing career
Additionally, we use market benchmark data to formulate
progression opportunities, effective employee engagement,
our Salary Policy and meticulously monitor our remuneration
creating an inclusive environment with clear and supportive
practices. Comparing same level positions, we see no significant
people policies. Furthermore, we place a strong focus on the role
discrepancies. Although different methodologies may currently
of culture and leadership in shaping our colleagues’ experience.
be used across the Group, our goal for the next year is to work
That’s why we’re dedicated to fostering a collaborative culture
towards adopting a single methodology. This transition will enable
based on our core values that drive the right behaviours.
us to analyse the gender pay gap in a more detailed manner.
We continue to invest time and resources in making sure that our
This year we also introduced a Diversity & Inclusion Policy and
leaders are well trained, building further on our established internal
kicked off the education with workshops for our leaders and
suite of development programmes. It is important that access
Executive groups through our Leaders Forum event. Next year we
to learning via different options including e-learning, classroom
plan to work on the Diversity & Inclusion strategy for Pepco to align
delivery and support guides is accessible and enables everyone
with our colleagues in Poundland, further work on the gender pay
to be confident in their role and provide support and guidance to
gap and unconscious bias training for hiring managers.
their respective teams. To also adapt to our colleagues’ evolving
needs of exploring various opportunities, we actively provide
Employee engagement
various internal and external development options and career
Our colleagues receive the latest information about the Company
advancement opportunities.
via the Pepconet intranet platform. They access information
through a dedicated online platform called “Pepcopedia”. The
Our culture
Pepco distribution centres also have daily briefings with shift
We implemented the Pepcoolture Masters to embed our values
managers. Pepco’s head office staff also benefit from these
within the organisation and strengthen a daily appreciation
initiatives together with online meetings with senior managers.
culture. Colleagues nominate others, who represent our values in
The most important initiatives and achievements are summarised
daily life as a role model. During the first phase, there were over
in the quarterly Pepco Voice, available to all Pepco employees.
1,200 nominations.
Poundland surveys employees every year, while Pepco operates a
full colleague survey every two years.
Developing our colleagues
In FY23, the Poundland employee survey included a new question
An average of 12 hours of training was provided to employees
about sustainability. We achieved a 78% response rate with 73%
annually. We are investing into regional training centres and
agreeing with the statement – ‘I am aware of what initiatives we
providing tablets in each store to give access to a broader range
are doing to be more sustainable and help the environment’.
of online training covering longer term career development,
In Pepco, the ‘difficult case’ procedure makes it easier for
customer service and e-learning. We discuss our top talents
employees to report possible violations with regard to the violation
and plan succession for key roles in organisation during regular
of Company values, unfair treatment, discrimination, harassment,
meetings with each ExCo. We have started a strategic project on
sexual harassment or mobbing.
the recruitment, onboarding and succession planning for stores to
ensure high effectiveness and positive candidate satisfaction and
to manage retention within the first few months of hiring. We’ve
refreshed the performance and development process so that it
focuses on feedback and people development. The processes
have been implemented in all our stores and DCs.
1
ESRS S1-16: the male-female pay gap, defined as the difference between
average gross hourly earnings of male paid employees and of female paid
employees expressed as a percentage of average gross hourly earnings of
male paid employees.
35
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Sustainability continued
Exceptional employer continued
Pepcoolture Masters
Employee engagement continued
We introduced a “Pepcoolture Masters” programme in FY23 to promote
Collective bargaining agreements
Company culture and recognise employees who embody Pepco values:
Pepco consistently collaborates with trade unions, work
growth, team spirit, simplicity, respect, and love of the customer.
councils, and representative groups across Europe, adhering to
During the programme’s implementation in 16 markets, we emphasised
national CBAs where applicable. Given the notable variations in
a fundamental belief that “being appreciated every day at
employee organisations throughout Europe, our most extensive
work matters”.
cooperation occurs in Spain and in Poland. In these countries,
Nearly 1,200 nominations came in from across all markets. These were
we conduct regular meetings with trade union representatives.
submitted by peers, who highlighted nominees whose values are
genuinely reflected in their actions.
These sessions involve discussions on pertinent organisational
projects and changes, employee health and safety, the review of
In collaboration with our local coordinators, we announced 99 local
emerging challenges, and consensus-building on alterations to
winners in each of the three quarterly editions. This group included six
employment terms.
global winners, one for each value and one for Pepco Management
team’s special prize.
In the UK, we continue to work with our union partner, Usdaw. Our
relationship is supported by a collective bargaining agreement
(2012). The agreement covers all retail, driving, warehouse and
stock colleagues (hourly paid) for negotiations, consultation and
collaboration on wages and other aspects of work. We have a
good relationship with the National Officer and at local level
with the area organisers and shop stewards. We hold bi-annual
National Joint Consultative Committee meetings led by the
National Officer, and quarterly Health and Safety Committees. The
agreement requires us to be transparent with our plans and we are
where possible.
Dignity and respect
We continue to focus on diversity, equality and inclusion and
regularly review our colleague data in all aspects, from attracting
a diverse talent pool to collating feedback via the annual “Your
Voice” survey enabling us to create an environment where
everyone feels they belong. To drive progression and change, we
empower colleagues at all levels to become Champions, playing
an active role in driving an inclusive culture. We have a specific
Parental Leave Policy applying to employees with at least one
Health and safety
year of continuous service in the UK and Ireland; in other countries
As a retail organisation, we pay special attention to health and
across Europe, we follow the relevant rules for parental leave.
safety. Our general approach is focused on the operations, each
As an employer, we are responsible for making reasonable
market organisation has a team to manage all relevant health and
adjustments to support colleagues. As we evolve to become
safety matters. In each country we implement advanced health
more tech-enabled, we identified the need to be more digitally
and safety standards and comply with legal obligations.
inclusive, introducing resources that will help visually impaired and
neurodivergent colleagues. At Poundland, this has included the
In our daily work, we strive to maintain a high safety standards,
minimise potential risks and raise employee awareness regarding
launch of “Recite Me” in FY23 on our colleague portals.
safe working culture:
Pepco actions in FY23:
–
In Poland (the market with the largest number of our stores),
–
introduction of a revised D&I Policy, kicking off education
we employ regional safety inspectors who monitor our stores
workshops for leaders and Executive groups; and
for safety compliance. Inspectors’ visits to stores take place at
least twice a year.
–
updated communication materials, recruitment toolkit and
recruitment policy.
–
Our headquarters of our Pepco business in Poznan operates
a Safety Committee, consisting of employee representatives.
This is an advisory body driving the development of safety
In FY23, there were no reported incidents of discrimination.
procedures and regulations within the organisation.
–
We conduct a variety of educational activities to prevent
Promoting wellbeing
potential accidents and we share our best practices across
Supporting the wellbeing of our colleagues is an important
the markets (through newsletters, instructions, posters and
element of our approach to responsible employment.
educational materials for stores, DCs, etc.).
We recently launched a Wellbeing and Inclusion Committee and
–
We constantly monitor accident rates, descriptions of
use various channels to raise awareness with new dedicated
incidents in stores and tips on how to prevent them in the
wellbeing and inclusion pages on our internal portal.
future are published in our newsletters, which are sent to all
Pepco store managers.
36
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Strong society
To date
4,840 beneficiaries at 600 sports clubs have been supported
Serving our customers and communities
through our Kits 4 Kids programme, helping kids keep active
through sports.
At the core of our business model is our aim to provide value to
our customers, which is confirmed by our stakeholders through
211 Make-A-Wish® wishes have been granted for children who don’t
our materiality assessment. For us this means providing our
have the luxury of time on their side.
customers with affordable, high-value products, from convenient
stores, sourced in an ethical and sustainable way. Given the
5,277 Tommy’s families have been helped to keep their babies safe.
current inflationary environment, we are committed to supporting
124 children and young people at Whizz-Kidz have received life-
customers in meeting the challenges of the cost-of-living crisis and
changing mobility equipment.
contributing to the raising of living standards in society.
Across all our UK stores, “Pennies”, a digital charity box roll-out has
Through its operations, the Group provides employment,
now been completed giving customers the opportunity to donate
development and investment opportunities in the communities
a small amount of money.
where it operates resulting in a “multiplier” effect into the local
economy and the livelihoods of local people. As part of its
In October 2022, we launched a charity partnership with
operations the Group also supports community-based initiatives
Barretstown in the Republic of Ireland. Barretstown runs residential
and charity work.
camps for children with a serious illness. During the first year,
€250,000 was raised and donated.
Our operating companies have multiple community partnerships
across our markets. These predominantly focus on supporting
In PGS, our Asia sourcing operations, if an unauthorised
vulnerable or sick children and their families – from providing
subcontract is identified at a supplier, we impose a financial
terminally ill children with fun days out to supporting literacy and
penalty. The financial penalty amount is donated to our charity
access to sports. We track these activities through our Poundland
organisations which focus on children’s education and wellbeing:
Foundation and “Pepcolandia” donation management process.
1) School of Hope in Bangladesh
In FY23, the Poundland Foundation issued its first public report
according to UK Fundraising Commission guidelines. £1.3m in
2) School of Hope in India
grants were made to UK charities – see here for more details
3) Heart to Heart in China
https://poundlandfoundation.org.uk.
The School of Hope in Bangladesh and India provides free
Local communities and charitable support
education and lunch to students, as well as awareness training
In each of our European markets, the Group and its operating
on social issues, thus improving conditions for garment workers
companies support projects aimed at equalising educational
living near those schools. The schools also offer skills and training
opportunities for children and young people from disadvantaged
programmes for students’ family members to enable them to
backgrounds, strengthening their personal development, mental
achieve financial independence. Heart to Heart is a Shanghai-
health and empowerment.
based charity which provides corrective surgery for children with
Some of the many projects supported during the year are
congenital heart disease.
described below:
We are proud of the work we do to support communities around
Poland: 8 summer camps were provided for 360 children through
the world that are connected to our value chain.
the care of Society of Children’s Friends.
Romania: through the Concordia Humanitarian Association, Pepco
In summary, at Pepco Group, we aim to democratise
supported additional classes for 154 children in underprivileged
sustainability for our customers by offering affordable choice
communities in Prahova.
and demonstrating that price is not a barrier to sustainable
Croatia: a reforestation programme aimed at educating our
and ethically produced products. As a large employer, we bring
customers and young people about the importance of forests and
employment and training opportunities to thousands of individuals
climate change, planted 3,000 trees.
in multiple countries. As a retailer serving over 57m customers
per month, we develop engagement possibilities with a diverse
Slovenia: the Pepco Life Academy programme educates teens
range of communities and individuals across the world. We
about human and citizen rights through a series of workshops.
source products from many suppliers, all over the world, giving
Serbia: workshops for children and youth on building self-esteem
us the opportunity to bring positive impacts to the people and
and educating on modern addiction diseases (i.e. internet games,
economies in which we operate. Our joint strategic focus on
shopping, betting).
environmental and social responsibility drives us to improve our
impact on the planet while creating benefits for society, both
Bulgaria: “My future with art” project in cooperation with Fusion
directly and indirectly. We are committed to delivering growth and
Foundation educates children in different types of visual arts:
long-term value for our stakeholders whilst also maintaining high
fine, applied and craft, and presents various opportunities for
standards of ethics, honesty and integrity, managing our impact
professions related to the visual arts.
on the environment, developing our colleagues, and enhancing
In the UK, our Poundland Foundation continues to go from
the communities across our supply chain. We commit to continuing
strength to strength, supporting more families than ever with the
our journey to becoming more mature in our ESG strategy and
Kits 4 Kids grants programme and helping back the vital work of
disclosures, aligning across the Group and building on the past
achievements of Poundland and Pepco.
our charity partners Make-A-Wish®, Tommy’s and Whizz-Kidz.
Since we launched in May 2021, over £1.8m in grants has been
awarded, supporting over 10,000 families in our communities. The
Foundation provides help in three key areas: our national charity
partnerships, the provision of community grants and inspiring
Poundland colleagues, customers and suppliers to support causes
they care about in their communities.
37
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Risk management
Our approach to
risk management
Risk management and internal control framework
The Group’s risk management framework is designed to identify
and manage, rather than eliminate, the risk of failure to achieve
The Group and its operating companies, like all businesses,
business objectives, and to provide reasonable, but not absolute,
are exposed to risks and uncertainties that could impact their
assurance against material misstatement or loss. The framework
business model, business continuity, financial performance,
is designed to be sufficiently agile to respond to changes in
or brand reputation.
macroeconomic and geopolitical circumstances.
Our approach to risk management remains consistent with
The continued expansion of the Group’s operations across new
previous year, and addresses these risks in a conscious manner
geographies and the development of additional categories to
that increases the likelihood of achieving our strategy and
serve our customers’ needs can increase our risk footprint, while
business objectives. This proactive approach ensures risk
decreasing the impact of any single risk to the business as a whole.
management is part of our management conversations and is
embedded in our processes which benefits our decision making
and is essential to creating and preserving long-term value.
The Group Audit Committee, under delegated authority from the
Group Board, is accountable for overseeing the adequacy and
effectiveness of the Group’s risk management processes and
ensures the Group Board and management are appropriately
discharging their risk responsibilities.
The Group Risk Management Team is responsible for defining
the risk management framework and driving consistent
application across the Group. The team constructively challenges
and supports businesses and functions in following the risk
methodology outlined in the Group risk management framework.
Internal reporting
External
Top-down
reporting
Group-level risks
–
Review and approval
–
Consolidation of significant risks from underlying
by the Board and
Principal risks and
risk registers
Audit Committee
uncertainties
–
Overlay of Group-level risks
–
Full disclosure of
–
Review and
principal risks and
approval by
–
Review and agreement of the principal risks by
uncertainties
the Board and
the Executive Directors
Audit Committee
–
Review and approval by the Audit Committee
–
Full disclosure of
principal risks and
uncertainties
Business and functional risk registers
–
Development and ongoing maintenance of risk
registers, including consideration of emerging
risks, by business owners and leadership teams
–
Review and challenge of risk content and
Bottom-up
the quality of mitigation plans by the Group
–
Group Risk team
Risk teams
–
Business and
–
Monitoring of risks associated with our operating
functional
companies review and challenge of risks at
leadership teams
leadership forums
–
Policy and
Emerging risks and issues
process owners
–
Monitoring emerging areas of change or issues
that may become significant at a Group level
38
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Risk identification and assessment
Risk appetite
To ensure risks are consistently identified and managed, the
The Group’s risk appetite takes into account its wide geographical
Group’s risk management process is structured as follows:
spread, careful financial management and commitment to
long term value creation and is an expression of the level and
–
identification, measurement and reporting of risks against
type of risk that the Group is willing and able to accept in pursuit
consistently applied criteria, considering both the likelihood
of its strategic objectives.
of occurrence and potential impact to the Group, with clear
ownership sitting with relevant functional leaders;
Risks are taken consciously, assessing their impact on the Group’s
objectives, and risk appetite is typically expressed as a statement
–
maintenance of detailed risk registers and mitigation plans
of intent by risk category.
by operating companies and functions, which are approved
by their leadership teams and the operating company’s Audit
The Group has defined seven risk appetite categories, informed
and Risk Committees, and are also incorporated into related
by the Group’s strategic objectives and Group-wide risks, ensuring
governance processes, such as ESG or Safety Committees;
alignment to strategic plans and risk language. The amount and
type of risk that the Group is prepared to accept and tolerate, or
–
monitoring of emerging risks where the full extent and
be exposed to, have been considered for each of these.
implications may not be clear but need to be tracked;
–
management action to evaluate changes to the risks created
Changes to risk profile
by new or unexpected events. Over the last three years this
The Board is committed to ensuring that key risks are managed
has included the rapid assessment and business response to
on an ongoing basis and the Group’s activities are within the
Russia’s invasion of Ukraine and the Covid-19 pandemic;
agreed Group risk appetite. Whilst the principal risks described
below all have the potential to affect future performance, work
–
continued assessment of risks to reflect changes in the
is undertaken to mitigate and manage these risks such that they
business operating model, IT infrastructure, supply chain
should not threaten the overall viability of the business.
and reporting;
The impact of each risk across a number of dimensions, including
–
half-yearly review of all risk registers by the Group Risk
financial and reputational, as well as the likelihood of the risk
Management Team to provide independent challenge and
occurring, is considered both before (inherent risk) and after
support cross-business alignment;
(residual risk) the mitigating actions being progressed by
–
internal audit reports on the effectiveness of internal control
the Group.
procedures, which are presented to the Audit Committee; and
The principal risks outlined below represent, in the judgement of
–
in practice the risk management process mirrors the Group’s
the Group Board, the most significant gross risks to the Group.
operating model, with each operating company and
Topical and emerging risks
functional area contributing to the ongoing identification,
The macroeconomic environment, which can be characterised by
assessment and management of their existing and
inflationary pressures and low unemployment, is impacting on the
emerging risks.
risks being faced by the Group.
This “bottom-up” identification of risks is overlaid by those risks
Business profitability could be affected by the increasing costs of
highlighted from the “top-down” review and challenge process
doing business, including wage inflation in some of our countries of
by the Group Risk Management Team and Group Board. These
operation, if not properly controlled.
assessments are aggregated, together with the consideration of
risks existing at the Group level, to compile an overall Group-wide
Consumer sentiment is affected by the inflationary environment
view of risk.
and the cost-of-living crisis within the countries and communities
in which we operate, which negatively impacts customers’
The output from the above process is subject to periodic review
spending habits, their disposable income, and the value of their
and challenge by the Executive Directors and, subsequently,
purchases in our stores.
the principal risks and uncertainties are submitted to the
Audit Committee ahead of final review and approval by the
Group Board.
39
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Risk management continued
The Directors confirm that they have carried out a robust assessment of the principal
risks and uncertainties facing the Group, including any emerging risks and those that
would threaten its business model, future performance, solvency or liquidity.
Principal risks
The Group offers price leadership and a differentiated proposition. This is facilitated by increasing economies of scale and Group-level
buying and operating cost synergies made possible by our vertically integrated sourcing model and underpinned by our strategy as
described on page 10.
The Group’s growth strategy has four core sources of revenue and earnings growth: the expansion of its physical store footprint; like-for-like
growth driven by development of the customer proposition; earnings improvement through operating cost efficiencies, and ongoing
investment in infrastructure.
These growth opportunities are enabled by the Group’s constant investment to improve the capability, scalability and resilience of its
infrastructure, and the synergies from activities increasingly being performed consistently or jointly across each of our retail brands.
The principal risks and uncertainties that are faced by the Group, and their impact on the growth strategy of the Group,
are summarised below.
Customer and markets
Description and potential impact
Risk mitigation
Long-term expansion strategy
Failure to implement the Group’s growth strategy:
In FY23 we delivered a record number of 668 net
and business transformation
new stores under our accelerated store expansion
–
to strengthen market-leading proposition in existing
programme, including 171 new stores in the important
Link to strategy:
markets and implement long-term expansion into
Western European markets of Italy, Spain and Portugal.
new markets; and
We are continuing our store expansion programme, but
–
to transform the business operations to
are adopting a more disciplined approach to growth,
Risk movement:
support growth.
with new store openings focused on our existing markets.
We are targeting opening at least 400 net new stores in
The Group’s expansion strategy involves the continued
FY24 across the Group.
expansion of its Pepco store networks across Europe and
Dealz in Poland. This will necessarily include increasing
We continued to enhance our customer offer in FY23
the reach and density of the brands in the countries in
through store and proposition renewals with 846 store
which these business units currently operate, as well as
renewals completed (715 Pepco brand, 131 Poundland).
identifying suitable new markets for entry.
Transformation programmes are aligned to the Pepco
To support the growing number of stores and long-
Group business strategy and closely governed by senior
term strategy, we will drive efficiencies in the head
management.
office and distribution centre network. In flight business
transformation projects include consolidating IT systems
We have dedicated transformation roles in place to
and creating centre of excellence from office functions
support focus and track delivery of the programs.
across operating companies.
Strategy key:
Change key:
Increase
Unchanged
Decrease
New Risk
> Read more about our strategy on page 10
40
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Customer and markets continued
Description and potential impact
Risk mitigation
Competition, consumer trends
Inability to predict changes to consumer trends and
Pepco has very high brand awareness and customer
and behaviours
behaviours, anticipate and respond to competitive
satisfaction, with timely responses to customer feedback
changes, and maintain our competitive advantage in a
and insights.
Link to strategy:
timely and cost-effective manner.
Competition is highly fragmented in many markets,
This includes the ability of the Group to monitor
limiting impact.
and adapt to changing behaviours amongst its
Risk movement:
Pepco offers price leadership and a differentiated
consumer base.
proposition. This is facilitated by increasing economies
The Group’s business is subject to trading peaks and
of scale and Group-level buying and operating
seasonality risk, together with changing consumer
cost synergies.
trends and behaviours. The Group’s success therefore
We offer a diverse range of FMCG, homeware-led GM
depends, in part, on its ability to predict and respond
and apparel, providing our core shoppers, with their
to changing trends, and to translate those trends into
regular shopping replenishment needs.
appropriate levels of in-store inventory. This is relevant
to the Group’s apparel, soft homeware and seasonal
Our in-house sourcing function, PGS, maximises buying
product categories.
scale and operating efficiencies, thereby lowering costs
and improving margins.
Failure to respond to these trends may result in weak
sales during the Group’s peak trading period.
We own and operate a multi-format, Europe-
wide variety discount retail business, through local
The Group competes at national and local levels with a
and therefore convenient stores, located across
wide variety of general and specialist retailers of varying
21 countries.
sizes and product offerings across all the geographic
markets in which it operates, including with respect
We continue to invest in the development of
to price, product selection and quality, store location
high-quality, scalable infrastructure, including
and design, inventory, customer service, advertising
information technology, automated warehouses and
and marketing.
more efficient and resilient multi-point distribution.
The Group’s competitors include small scale,
independent stores and organised chains of multi-
price discount and non-discount general merchandise
retailers, fixed-price discount general merchandise
retailers, grocery-led convenience stores, and online
retailers or specialty retailers in particular categories
such as homeware.
Legal and regulatory
Description and potential impact
Risk mitigation
Legal, regulatory and tax
Risk of significant breaches of legal, regulatory or
We have clear corporate governance policies which set
compliance
tax compliance, resulting in fines and penalties and
a culture of responsible business for all our operating
potentially a decline in customer visitation due to the
companies and our colleagues, customers and suppliers.
Link to strategy:
reputation of any or all of the Group’s retail brands
A Modern Slavery Act Statement and Anti-Bribery
being severely damaged.
and Corruption policy are in place. These policies are
underpinned by training for our colleagues and our
The Group is subject to a wide range of laws and
Risk movement:
external independent reporting facility, which allows
regulations (including those relating to health and safety,
colleagues to report in a safe and confidential way.
and intellectual property) across jurisdictions in which
it operates, and compliance with these is an essential
The Group has legal teams at both Group and operating
part of the Group’s business operations. Any failure to
company levels, and has strong relationships with
comply with applicable laws, rules and regulations may
lawyers in all relevant jurisdictions to ensure access to
result in fines and penalties, and adverse publicity, and
professionally qualified legal advisors.
reflect poorly on the Group’s reputation or that of its
The Group operates in European markets with
retail brands.
intellectual property protection in place and can rely
The Group, as most companies do, have a potential
on trademark and copyright laws and contractual
exposure to systems of fraudulent activities (including
arrangements.
corruption, financial reporting and misappropriation of
We employ qualified colleagues who monitor proposed
assets) that could result in non-compliance, reputational
changes in legislation and tax law, assess the impact,
damage, or financial loss to the Group.
and seek advice from leading external professional
The Group has an established and mature presence in a
advisors as require, for example to determine country
number of territories, however as we enter new markets
specific requirements where we do not have
and international tax law continues to evolve, unfamiliar
internal capability.
tax environments or regulations present a risk.
Our core tax principle is to manage our tax affairs
Furthermore, tax law is often complex and subjective,
responsibly in compliance with local and international
and tax authorities may not agree with determinations
law, as set out in our tax strategy which is approved by
that are made by the Group with respect to the
the Group Board and can be found on our website.
application of tax law.
We seek to foster positive relationships with tax
authorities and to undertake all dealings with
tax authorities in a professional, courteous, and
timely manner.
Strategy key:
Change key:
Increase
Unchanged
Decrease
New Risk
> Read more about our strategy on page 10
41
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Risk management continued
Principal risks continued
Supply chain
Description and potential impact
Risk mitigation
Supply chain disruption
Failure to identify, develop or maintain relationships
The Group’s integrated in-house sourcing operation,
– sourcing
with a significant number of reputable suppliers, to
PGS, sources in excess of 80% of own label goods across
source high-quality, low-cost, safe products, may
clothing and general merchandise through its operations
Link to strategy:
impact the Group’s financial position or reputation.
in mainland China, Hong Kong, Bangladesh and India.
The loss of, or a substantial decrease in, the availability
We believe our in-house sourcing model makes us well
of products from the Group’s key suppliers could lead to
placed to leverage the Group’s growth plan in order to
Risk movement:
lost sales and reduced saliency of the customer offer.
negotiate scale benefit on pricing and agree long-term
partnerships with strategic vendors.
Inadequate product quality or safety could negatively
impact financial position and the brand reputation.
The Group continues to expand its sourcing footprint to
reduce the risk of over-reliance on any single country
The Group sources the majority of its own-brand product
and increase flexibility through near-shore sourcing in
directly from China, India and Bangladesh where the
European countries and additional Asian countries.
Group’s Supplier Code of Conduct can be significantly
stricter than local practices.
Strong policies are in place to protect the integrity of
our supply chain, including a Group-wide Supplier Code
This significant business risk requires active management
of Conduct and ethical and social audit programme,
of both the Group’s employees and our suppliers to
managed by our Group Sourcing Compliance team (see
ensure compliance with our Code.
page 32 for further details).
The Group has an established Global Quality Assurance
and Quality Control policy with strict quality control
measures to bring low prices and value to our customers
while protecting our brand integrity.
Supply chain disruption – logistics Disruption of the logistics and distribution network
The Group have experienced buying and supply chain
and inventory management
resulting in inability to maintain sufficient inventory
teams responsible for maintaining an effective and
levels to meet growing customer demands without
efficient supply chain.
Link to strategy:
allowing levels to increase to an extent that causes
The Group has invested in an end-to-end supply chain
excessive markdowns.
redesign and improved efficiency of distribution centres
As a multi-category discount retailer, efficient logistics
as well as positive impact on optimised markdown
Risk movement:
and inventory management is a key component of the
management and expansion of retail selling space.
Group’s success and profitability. To be successful, the
The Pepco supply chain design is scalable and
Group must assess a product’s lifecycle and maintain
repeatable, with a standard blueprint for all elements of
sufficient inventory levels both in Distribution Centres
the supply chain which is being retrofitted to the existing
and in the stores to meet customers’ demands without
supply chain and the future deployment models.
allowing those levels to increase to such an extent
that the Group may be forced to rely on additional
Consistent levels of stock cover by product category are
promotional markdowns to dispose of excess or slow-
maintained and regularly reviewed.
moving inventory.
People
Description and potential impact
Risk mitigation
Talent acquisition and retention
Dependence on key personnel and inability to attract or Talent retention and development are central to our
retain the required knowledge and skills.
success, and we aim to maintain the right pipeline of
Link to strategy:
skills within the Group to facilitate the long-term success
The Group is dependent on key personnel at both the
of our growth strategy (see page 13).
Group and operating company level who have extensive
experience and knowledge of the discount retail industry Across the Group there are Executive and senior
Risk movement:
in the markets in which the Group operates. There is a
management with significant experience and leadership
risk that failure to recruit or retain individuals with the
in both retail and their own relevant functions.
required knowledge and skills, a lack of succession
The Remuneration Committee develop performance
planning for key roles, or failure to successfully adapt
based reward packages for Executive Directors
to the expectations of a post-pandemic labour market
and Senior Managers to appropriately incentivise
could impact the Group’s performance and achievement
key personnel.
of its strategy.
We work hard to facilitate access to professional
and personal development opportunities across
the Group, including learning and development
opportunities, and supporting our colleagues to
gain professional qualifications.
We have many talented and committed colleagues
across our workforce and where possible we seek to
promote internally.
Strategy key:
Change key:
Increase
Unchanged
Decrease
New Risk
> Read more about our strategy on page 10
42
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial
Description and potential impact
Risk mitigation
Geopolitical and macro-
The Group is exposed to short-term political and
The Group’s operations are spread over 21 countries
economic environment
economic factors which reduce disposable income or
in Western, Central, and Eastern Europe, reducing
increase the cost of doing business in countries where
an over exposure to any single market and providing
Link to strategy:
the Group operates.
cyclical protection.
The Group’s business is impacted by the prevailing
The diversified nature of the Group’s operations
political and economic climate in the countries in which
creates a portfolio of currency exposures, creating a
Risk movement:
it operates and globally including: political uncertainty;
natural hedge against currency fluctuations whilst the
volatility in foreign exchange rates; rising interest rates,
ongoing expansion into Western Europe increases the
inflation rates, energy prices and availability; levels of
percentage of Group revenue in Euros.
employment; levels of disposable income; salaries and
The Group has established foreign exchange hedging
wage rates (including any increase as a result of payroll
policies providing near-term protection on both the
cost inflation or contributions to pension provisions); and
purchase of stock from Asia and the sale of goods
lack of consumer confidence.
in Europe.
In relation to foreign exchange risk, the Group pays
Whilst inflation remains at recent historic highs, clothing
the majority of its overseas suppliers in US Dollars and
and food remain resilient categories in the Central
Chinese Yuan and in certain countries in which the Group
and Eastern European retail sector. The Group’s
operates it is customary for a number of costs, including
value-led proposition becomes even more relevant in
leases, to be denominated in a foreign currency (such
these challenging times and continues to drive new
as Euros) rather than the local currency. However, the
customers to our stores, expanding our target market
Group’s customers pay for products in the local currency
across Europe.
in each of the countries in which the Group operates.
Financial, profitability
Inadequate cash generation or cost management could The Group remains cash generative including the
and liquidity
have an adverse impact on business performance and/
largely self-funding of the new store openings and new
or viability. Failure to meet obligations under credit
country expansion.
Link to strategy:
facilitates and/or inability to access further external
Transformation programmes are in place to drive
financing in the future.
operating leverage and efficiencies through becoming
Cash generation is fundamental to liquidity and
‘one business’.
Risk movement:
downturns in sales or inability to produce desired
The Group has significant headroom within the
margins may impact our ability to continue investing into
covenants of the existing Senior Facility Agreement.
future expansion.
During the year, the Group refinanced a EUR300m Term
Operating costs related to both our store network and
Loan A, that was due to mature in April 2024, with a
our head office and central operations could impact the
EUR375m publicly listed 5 Year Bond.
profitability and viability of the business.
The revolving credit facility was increased during FY23
Any failure to comply with the covenants or payment
from EUR190M to EUR390M, which provides additional
obligations contained in the Group’s financing
committed headroom.
arrangements could result in a default thereunder.
Linked to its debut bond issuance, Pepco Group
If the Group is unable to refinance in a timely fashion or
obtained its first standalone Credit Ratings (solid BBs
on acceptable terms in the longer term, would have a
from 3 major Credit Rating Agencies).
material adverse effect on the Group’s financial position.
The Term Loan B of EUR250m, that matures in April 2026,
remains with a syndicate of strong and supportive
relationship banks at competitive interest rates.
The Group’s and operating companies’ currency
deposits are maintained across a number of financial
institutions to minimise counterparty risk.
Strategy key:
Change key:
Increase
Unchanged
Decrease
New Risk
> Read more about our strategy on page 10
43
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Risk management continued
Principal risks continued
Sustainability
Description and potential impact
Risk mitigation
Environmental, social and
Failure to meet our customers’ and wider society’s
The Group has a Group-wide ESG Strategic Framework
governance (ESG)
expectations in addressing ESG impacts can lead to
and goals to set a vision for our ESG strategy (see
public scrutiny and significant reputational damage to
our ESG section for further details). The Group CFO
Link to strategy:
the Group and its brands.
is responsible for setting the Group’s ESG Strategic
Framework and has overall responsibility for execution. In
The Group recognises the impact that its rapidly
FY23 we have established an ESG Executive Committee;
growing business may have on the social and natural
Risk movement:
the purpose of which is to determine, align and review
environment and has a clear strategy to address this
progress and next steps for ESG across Pepco Group
(see our ESG section for further details of our ESG
and its companies and functions. It is chaired by the
strategy and goals). There is a risk of failure to address
Group CFO and its objectives are to create alignment
the growing needs and expectations from society if
and drive progress across group in ESG. The terms of
the Group does not meet its ESG goals, resulting in
reference and standing agenda of this Committee
reputational damage and reduced customer demand
cover all the priority material topics as identified in the
for our products and brand.
recent double materiality assessment. Updates on ESG
progress are made for approval and review to the Audit
ESG risk also arises from any immediate to long-term
Committee of the Group Board each quarter.
physical impact of climate change on the resilience of
the Group’s business model and operations. This includes
We believe that our business model, including both the
the potential for climate change-related disruption to
vertical integration of our sourcing operations through
the supply chain or an increase in raw material costs.
PGS and the work of our in-house Group Sourcing
Compliance team, provides us with a high degree of
Climate change also increases the risk of extreme
visibility over our supply chain and constructive working
weather events, for example increased severity of
relationships with our supply partners.
flooding. While an extreme weather-related event could
severely impact our distribution operations, given the
At Pepco Group, our goal is to democratise sustainability
location of our warehouses in Western and Central and
for our customers by offering affordable choice and
Eastern Europe, we consider this risk to be low currently.
demonstrating that price is not a barrier to sustainable
and ethically produced products. Driving efficiency
improvements throughout the business is an integral
element of the Group’s strategy and we believe there is
an important link between increasing cost efficiencies
and enhancing the long-term sustainability of
our operations.
Applies to all risk categories
Description and potential impact
Risk mitigation
IT systems, cyber security,
Disruption/failure of the Group’s IT systems,
The Group has information security and data protection
data protection and business
including failure to adequately prevent or respond
policies in place with dedicated cyber security
continuity
to a data breach or cyber-attack, could adversely
specialists and Data Protection Officers.
impact our reputation, result in legal exposure or
Link to strategy:
Information security and data protection awareness and
business disruption.
training programmes are in place across the Group.
The Group depends on its IT systems and infrastructure
A Group-wide ERP consolidation and improvement
for the efficient functioning of its business. A failure or
Risk movement:
programme is ongoing, to replace legacy IT
disruption in information technology systems (e.g. due
infrastructure with one ERP system.
to a deliberate or targeted cyber-attack) may result in a
loss of business-critical data, compromise data integrity,
There is a strong IT project management across the
fraudulent activity or result in an inability to manage
Group for all change management projects, with
operations, in turn leading to financial and regulatory
change freeze periods implemented during the key
penalties and reputational damage.
trading months.
The Group is also subject to data protection regulations
There is an ongoing improvement programme for Tier 1
regarding the collection, retention, use and processing
applications in specialist functions that are not covered
of personal information. Failure to operate effective
by the ERP system.
controls to protect confidentiality and security of
The Group’s current limited transactional e-commerce
personal information could potentially lead to regulatory
reduces its recording of and exposure to customer data.
censure, fines, and reputational and financial costs.
There is a disaster recovery plan in place at both Pepco
This includes the risk of unsuccessful or delayed go-live
and Poundland.
in the delivery/implementation of the Group’s new
ERP system.
Strategy key:
Change key:
Increase
Unchanged
Decrease
New Risk
> Read more about our strategy on page 10
44
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Going concern
The FY23 consolidated financial statements have been prepared on the basis that the Group will continue as a going concern for at least
12 months subsequent to the authorisation of the consolidated financial statements for the period under review.
The Group has continued to show resilience in FY23 despite the challenging economic conditions. Underlying EBITDA growth of 3% to
€753m illustrates the strong continued profit delivery. In addition the Group has continued to execute its growth strategy through the
opening of 668 net new stores through largely self-funded investment.
Whilst cash is lower year-on-year at €330m (FY22: €344m) this is a function of the Group continuing to expand the estate as evidenced by
capital expenditure of €390m. The Group’s net debt to underlying EBITDA ratio of 2.3x on an IFRS 16 basis (1.0x pre-IFRS 16 basis) remains
low, and well within the targeted range. The Group also remains well financed with expiry of term loans not until at least April 2026 and
retains significant liquidity headroom, and covenant headroom, should any further unforeseen volatility arise.
Based on the Group’s cash flow forecasts and financial projections, alongside assessment of a robust set of plausible but aggressive
downside stress test scenarios, the Directors are satisfied that the Group will be able to operate within the levels of its facilities and
resources for the foreseeable future and deem it appropriate to adopt the going concern basis in preparing the financial statements.
45
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial review
Progress in
a challenging year
A weaker consumer environment caused
by inflationary challenges increasingly
impacted performance during the
second half of the year. Despite the
challenging economic backdrop the
business delivered record store openings,
record sales and EBITDA, while further
strengthening its balance sheet.”
Introduction
The Group has opened a record number of new stores and
delivered strong double-digit revenue growth in FY23, resulting in
record revenues and the delivery of our highest ever underlying
EBITDA outturn of €753m. The Group has also achieved a
significant milestone in the year with the issuance of a €375m
five-year debut high-yield bond, following a comprehensive
Neil Galloway
rating process, which has refinanced shorter-term debt, further
Chief Financial Officer
diversified our debt sources and extended our maturity profile.
In addition to the 72% increase in stores we have achieved over
the last five years, we have grown space by 77%, with larger
average store size accelerating revenues. In FY23 specifically, store
numbers grew by 17% with space growing by 19%.
Underlying EBITDA YoY
+3%
However, Group performance has been mixed against a
challenging market backdrop and our core customer remains
under pressure given the continued inflationary headwinds that
have persisted following the Covid-19 period and the subsequent
Ukraine conflict. This, coupled with increasing competition in core
Net Cash from Operations (pre-Capex)
markets, slower than anticipated recovery on gross margin –
€266m
compounded by weaker H2 sales – and inconsistent execution of
over ambitious growth plans has led to profitability being lower
than expected for the year.
46
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Strategic focus
Trading environment
From a financial perspective, as an international discount variety
Pepco has retained clear entry price leadership in clothing and
retailer, we have four key operating levers at our disposal to drive
home categories, putting the Group in a strong position to support
profitability and cash generation across our business. These levers
our customers in this period of high inflation. Whilst the impact of
are covered throughout the financial review to demonstrate how
Covid-19, which has been a significant feature across FY20 to FY22,
we are addressing the challenges we face. These are:
has now passed, high inflation has remained across FY23 which
has increasingly impacted customer spend and consumption,
–
Revenue underpinned by LFL growth and new store openings,
driving a significant decline in the volume growth of clothing and
supported by continuously improving product ranges and
homewares in our core markets.
propositions to attract and retain our customers;
–
Gross margin influenced by category mix and our ability to
Key macroeconomic indicators: July 2022 –
buy better including external factors such as freight and
commodities, balanced with maintaining price leadership;
September 2023
% YoY
–
Operating costs relating to both our store network and our
Monthly CPI
head office and central operations, where we expect to drive
greater operating leverage and efficiencies through becoming
‘one business’; and
26%
–
Cash generation which is fundamental to the success of the
24%
business, requiring execution of our trading plans coupled
22%
with tight management of stock, optimisation of our supplier
20%
payment relationships and discipline with regards to
18%
18%
18%
capital expenditure.
17%
17%
18%
17%
Hungary
The underlying strength of the business remains intact as
16%
15%
evidenced by the health of our store network. We continue to offer
14%
13%
price leadership to our customers through a growing store network
12%
12%
11%
Core CEE1,2
which has driven record sales and underlying EBITDA. However, we
10%
Poland
need to address the challenges we have faced particularly across
10%
Romania
Czechia
H2, ensuring sales growth translates to a better profit growth.
8%
This requires a refocus on our core business, stopping non-core
projects which are a distraction to our strategic objectives. We
will refocus on improving our 4-wall cash EBITDA to bring it back
to pre-Covid levels, whilst implementing a more targeted growth
1
Weighted by quarterly normal GDP.
plan in markets where we have a presence, and accelerating the
2
Core CEE includes Poland, Romania, Czechia and Hungary.
transition into a single business. These objectives will be coupled
Source: INSSE, KSH, CZSO, GUS, Statistical Office SR, OC&C analysis.
with a more disciplined approach to operating costs, where
we must drive operational leverage, and capex where we must
Quarterly real household consumption expenditure per
generate appropriate returns, being selective and challenging our
capita growth
investment decisions. By doing so, we aim to improve profitability
8%
and cash generation in our established business and deliver more
measured growth.
6%
Importantly, we have confidence in our ability to achieve gross
4%
margin recovery when taking account of the Group’s strategic
2%
1%
Romania
direction, coupled with the normalisation of commodity and freight
0%
rates and foreign exchange headwinds which are showing positive
0%
-1%
Hungary
signs of recovery as we transition into the new financial year.
-2%
Core CEE1,2
-2%
Having successfully completed our inaugural €375m bond issuance
Poland
-4%
in June 2023, with credit ratings in line with key competitors from
Czechia
all three major ratings agencies (Moody’s Ba3, Fitch BB, S&P BB-),
-6%
the Group maintains a robust balance sheet with strong operating
-8%
cashflows, and access to over €400 million in liquidity (from cash
and credit facilities) as at 30 September 2023. This foundation,
alongside strong brand equity and strong market share in our core
CEE market together with a proven profitable store model, gives
us continuing confidence in our path to building Europe’s leading
variety discount retailer.
47
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial review continued
Trading environment continued
The Group’s and Pepco’s LFL performance over recent and
prior periods helps to illustrate these factors, particularly the
In Pepco, FY23 was a tale of two halves, with H1 trading
performance drop off in H2 FY23 following a strong H1.
underpinned by LFL sales of 15.8% including a strong peak
Christmas trading performance. As can be seen from the charts
below, volumes in the CEE clothing market declined during
LFL% Evolution
the summer, correlating strongly with the LFL challenges we
experienced in Pepco across H2, where LFL deteriorated to -1.8%.
The magnitude and speed of decline in category performance
2.6%
FY19
affected Pepco’s results and was compounded by (i) increasing
levels of organised competition within the markets in which Pepco
6.1%
operates; and (ii) a prolonged period of warm weather across
Europe that delayed the transition into the Autumnal seasonal
-5.2%
products, materially impacting performance across the final few
weeks of the financial year.
FY20
-7.1%
Clearly encouraging, however, are the tentative signs of market
recovery as real wage growth in our core Pepco markets returns to
6.5%
positive territory as illustrated in the chart below.
FY21
Drivers of market growth – Volume: October 2022
9. 8%
to July 2023
3-month rolling YoY % growth
5.2%
FY22
Clothing
7. 4%
25%
16%
20%
6.0%
FY23
15%
12%
15%
6.3%
11%
9%
13%
10%
11.0%
FY23 H1
5%
2%
15.8%
0%
Poland
-5%
-4%
-2%
Core CEE1,2
-5%
1.4%
Romania
FY23 H2
Hungary
-10%
-1.8%
5Yr CAGR Pepco Group +2.9%
1
Weighted by quarterly normal GDP.
5Yr CAGR Pepco +4.3%
2
Core CEE includes Poland, Romania and Hungary.
Source: Institutul National de Statisticá (INSSE), Central Statistical Office (GUS),
Hungarian Central Statistics Office, Czech Statistics Office, OC&C analysis.
Pepco Group
Pepco
Quarterly average real wage growth: January 2022 – 2025F
YoY % growth
Forecast
12%
10%
8%
Hungary
3.9%
6%
Czechia
Romania
4%
1.7%
1.7%
Core CEE1,2
0.4%
2%
3.7%
Poland
-0.9%
0%
-1.4%
-2%
-3.2%
-2.8%
-4%
-6%
-8%
-10%
-12%
1
Forecasts weighted by quarterly normal GDP of each country as of Q2 2023.
2
Core CEE includes Poland, Romania Czechia and Hungary.
Source: INSSE, KSH, CZSO, GUS, minieterstwo Finansow, The Central Bank of Hungary (MNB), Oxford Economics, OC&C analysis.
48
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
In the UK market where Poundland operates, high inflation has also
Container costs have recovered from Covid-19 highs of $10k per
remained a material factor across the year illustrated in the chart
container, to c. $1.5k with shipping backlogs cleared costs are
below, although has reduced from a high of 11.1% in October 2022
expected to remain stable going forwards. This further supports
to 6.7% in September 2023. This inflationary trading environment
our anticipated margin recovery.
has resulted in a significant squeeze on our customers’ disposable
income and has necessitated a shift in spending habits, re-focusing
Global container freight rate index costs ($)
on the more essential items such as heating and food, versus
discretionary items of clothing and homewares. With its high
category mix of FMCG products, Poundland has benefitted from
10,517
9, 293
this macro trend across FY23, with FMCG LFL performance of 12.0%
9,430
underpinning a strong LFL growth of 5.6% year for the business.
6,753
6,577
On the supply side, we have seen solid improvements in conditions
4,367
with cotton prices and container costs returning to well below
their peak. Given the buying cycle of the Pepco Group (which is
4,060
3,143
roughly 10 months to market for clothing and GM), coupled with
weaker sales in the latter stages of H2, the benefits of these
2,246
2,247
supply side conditions are yet to fully manifest in terms of a full
1,785
1,481
1,446 1,400
recovery of gross margins, but we remain confident that this
will come through in the short to medium term and are already
seeing an improvement in the early stages of FY24 as we start
FY20 FY20 FY20 FY20 FY21 FY21 FY21 FY21 FY22 FY22 FY22 FY22 FY23 FY23
to sell through our higher margin Autumn and Winter ranges. We
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
have taken measures to optimise buying processes which include
the integration of PGS into Pepco to maximise and align the
buying cycle and drive efficiencies, as well as introducing some
near-shore sourcing operations in Poland alongside increasing
Cotton prices (USD cents per pound) – long term view
Asian capabilities.
UK Consumer Price Index FY22 and FY23 (YoY % Change)
108.4
12
11%
10%
10%
10
9%
93.2
8%
83.5
8
7%
64.7
7%
6
5%
4
2020
2021
2022
2023
2
0
Source: ONS gov.uk
49
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial review continued
FY23 financial performance
Highlights
Pepco Group (€m)
FY23
FY22
YoY (reported)
YoY (constant)
Revenue
5,649
4,823
17.1%
17.7%
+6.0%
Like-for-like revenue (%)
+5.2%
n/a
0.8pp
Gross profit
2,268
1,968
15.3%
15.6%
Gross profit margin (%)
40.1%
40.8%
(0.7)pp
(0.7)pp
Operating costs (IFRS 16)
(1,514)
(1,237)
22.4%
23.0%
Operating costs (IFRS 16) (%)
26.8%
25.6%
(1.2)pp
(1.2)pp
Underlying (IFRS 16) EBITDA
753
731
3.1%
3.1%
Underlying (IFRS 16) EBITDA margin (%)
13.3%
15.2%
(1.8)pp
(1.9)pp
Depreciation and amortisation
(470)
(378)
-24.3%
-24.4%
Net financial expense
(82)
(52)
-57.8%
-60.2%
Underlying PBT
202
300
-32.7%
-33.7%
Non-underlying items
(55)
(75)
26.3%
27.3%
Reported PBT
147
226
-34.9%
-35.8%
€m
FY23
FY22
YoY (reported)
YoY (constant)
Underlying (pre-IFRS 16) EBITDA
396
439
-9.9%
-10.0%
Underlying (pre-IFRS 16) EBITDA (%)
7.0%
9.1%
(2.1)pp
(2.1)pp
Net debt (pre-IFRS 16)
411
275
49.4%
n/a
Leverage (pre-IFRS 16)
1.0x
0.6x
0.4x
n/a
Net debt (IFRS 16)
1,704
1,404
300
n/a
Leverage (IFRS 16)
2.3x
1.9x
0.4x
n/a
1
All foreign currency revenues and costs are translated at the average rate for the month in which they are made.
50
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Group revenue of €5.6bn has grown materially in the year, up
proportion of stores were opened late in the year so, whilst costs
17.1% on a reported basis driven by the continued delivery of our
were incurred, the corresponding sales and profit contribution from
store expansion strategy where we opened a record 668 net
the stores reaching maturity has not yet been delivered.
new stores in the year. LFL revenue of +6.0% is also contributing
FX
to the revenue growth with Poundland benefitting from strong
FY23 saw the appreciation of our main selling currencies of Polish
FMCG performance and Pepco supported by a very good first
Zloty, British Pound and Euro against the main buying currencies
half sales performance.
of US Dollars and Chinese Yuan. However, the group’s hedging
Gross profit margin was challenge having declined 0.7pp year-
policy builds up cover over the duration of the buying season to
on-year to 40.1% impacting profitability within the year. As a result
support the buying prices of the GM and Apparel purchases from
of our relatively long buying cycle for clothing and GM ranges,
Asia, and we carried those weaker 2022 hedging rates into FY23,
products sold across FY23 still had the high freight and commodity
predominantly in the second half of the year.
prices embedded as they were purchased several months
The adverse transactional FX on buying was partially offset by
prior when input costs were at their historic peaks. In addition,
the positive transactional FX for selling our products in the United
unfavourable year-on-year hedge rates have only partially been
Kingdom and, increasing, Eurozone markets.
offset by pricing. This was due to a strategic decision to ensure
we retained our price leadership on entry price point items across
The Group is also exposed to translational FX, which is not hedged.
Pepco – something that our customers recognise during these
However, in FY23 translational exposure between EUR/PLN
challenging times.
and EUR/GBP broadly offset such that our underlying EBITDA
of €753m grew at 3.1% year-on-year on both a reported and
The weaker second half in Pepco also included a slower gross margin
constant currency
recovery as weaker sales in August/September – when weather
remained warm – meant that sales run-rates on higher margin
Non-underlying items
Autumn/Winter ‘23/24 season product was lower than anticipated.
The Group manages performance on an underlying basis after
adjusting for non-underlying items. In FY23 non-underlying items
Nonetheless, the gross profit margin in Pepco has improved
totalled €55m (FY22: €75m) and were:
materially across the year which supports management’s positive
outlook for margin as we see these freight and foreign exchange
–
€43.5m relating to ERP Software-as-a-Service (SaaS) costs
headwinds subside. Pepco’s H2 gross margin was 1.2pps higher
which are considered to be unusual and material costs
than H1, rising to over 43% in Q4 FY23, giving further confidence on
by nature.
recovery as we head into FY24.
–
€13.5m associated with restructure costs relating mainly to
Gross Margin %
the retirement of the Dealz brand in Spain and conversion to
Pepco Plus stores, and closure of Fultons branded stores;
Poundland
Period
Pepco
Group
Total
–
€(1.9)m of credit relating to the Value Creation Plan (VCP)
H1
41.2%
37.3%
40.1%
scheme which relates to adjustments to reflect leavers in
H2
42.4%
36.4%
40.2%
the scheme, offset by charges for a new grant.
Full Year
41.8%
36.9%
40.1%
Audit opinion
A large proportion of the 23.0% increase in IFRS 16 operating costs
year-on-year has been driven by the continued store expansion
of the Group. However, with weaker than anticipated trade across
Management note that the Auditors have been able to obtain
Q4, particularly in August and September, the Group’s operating
sufficient and appropriate audit evidence on the existence
leverage was degraded. Given that we saw this weaker trading
and completeness of the inventory closing balance as at
towards the end of the financial year and that we have a relatively
30 September 2023 meaning there is no qualification relating
high fixed cost base, we were unable materially to adjust the cost
to the closing balances. The opinion remains qualified but
base downwards to reflect lower sales run-rate. This, compounded
only on the opening balances carried forward from FY22.
with non-core projects have added cost to the business, resulting
in operating cost percentage of 26.8%, an increase of 1.2pps on a
constant currency basis versus the prior year.
Recognising these issues, we will take a more disciplined approach
to both operating costs and capital investment as we go forward
and look to increase the flexibility in the cost base. Our first priority
was halting peripheral projects.
As a consequence of the above challenges on gross profit
margin and operating cost leverage, whilst we have added over
€800m (+17%) to top line revenue in FY23, only a small portion has
flowed through to profit with underlying (IFRS 16) EBITDA of €753m
being +3.1% higher than the prior year on both an actual and
constant basis.
Group level underlying (IFRS16) EBITDA margin reduced 1.9pps
Presentation of financial information
to 13.3% (FY22 15.2%) largely operating costs driven. This clearly
Where appropriate the financial information has been
resets the focus going forward as we look to rationalise our efforts
quoted on an “underlying” basis, removing the impact of
and refocus on driving the core business, delivering gross margin
“non-underlying” items, defined as material and unusual in
recovery and being more disciplined on cost.
nature, in order to help the reader better understand the
Group underlying (pre-IFRS 16) EBITDA of €396m (7.0% of sales)
key drivers of business performance. Please refer to note
represents a decline of 10.0% year-on-year as a result of increased
27 of the financial statements for detail on use of APMs for
rent costs. Whilst on an absolute level rent costs have increased
further information.
23%, on a % of sales basis they have increased 0.3pps to 6.3%. This
was as a result of inflation-driven indexation and because a large
51
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial review continued
Group performance summary
Revenue by Geographic Location (€bn)
Geographic Segments
Below we have summarised some of our key trading metrics into
Poland +13% 4-year CAGR
the appropriate geographic segmental split.
Other CEE +21% 4-year CAGR
UK & Ireland +4% 4-year CAGR
5.6
Revenue
4.8
0.5
Year to
Year to
Constant
4.1
0.2
30 September 30 September
Reported
currency
3.5
1.8
0.1
2023
2022
% YoY
% YoY
3.4
1.5
0.1
1.2
UK & ROI
2,001
1,890
5.9 %
9.0%
0.9
0.8
1.4
Poland
1,414
1,192
18.6%
17.1%
1.2
1.1
0.8
0.9
Rest of Europe
2,234
1,741
28.3%
27.4%
5,649
4,823
17.1%
17.7%
1.9
2.0
1.8
1.7
1.7
Like-for-like
FY19
FY20
FY21
FY22
FY23
Year to
30 September
Year to
YoY
2023 30 September
change
UK & Ireland
Poland
Other CEE
Other WE
% YoY
2022
(pps
UK & ROI
+5.5%
+2.1%
3.4pp
Geographic Location Revenue Mix
Poland
+4.9%
+4.2%
0.7pp
Rest of Europe
+7.4%
+10.3%
(2.9)pp
1%
2%
2%
+6.0%
+5.2%
0.8pp
5%
9%
24%
25%
28%
Store Number: Net
32%
31%
Year to
Year to
YoY
24%
25%
30 September 30 September
26%
25%
2023
2022
24%
UK & ROI
823
821
2
Poland
1,539
1,335
204
51%
48%
44%
39%
Rest of Europe
2,267
1,805
462
35%
4,629
3,961
668
FY19
FY20
FY21
FY22
FY23
As we evolve as a business, our geographic footprint is changing.
The UK and Polish markets remain significant although recent
expansion into Western Europe sees this segment becoming
UK & Ireland
Poland
Other CEE
Other WE
increasingly material. Below we have summarised our revenue to
illustrate the growing significance of Western Europe.
Segmental reporting
For reporting and operating purposes, the Group reports
performance across two operating segments, Pepco and
Poundland Group. The Pepco segment represents 60% (FY22: 56%)
of total revenue and 73% (FY22: 71%) of underlying (IFRS 16) EBITDA
with the Poundland Group segment contributing 40% (FY22: 44%)
and 27% (FY22: 29%) respectively.
Total revenue
Underlying (IFRS 16) EBITDA
Pepco
60%
Pepco
73%
Poundland Group 40%
Poundland Group 27%
52
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Constant
Reported Currency
currency
Revenue
FY23
FY22
% YoY
% YoY
Pepco (€m)
3,416
2,714
25.9%
24.8%
Like-for-like revenue (%)
+6.3%
+7.4%
(1.1pp)
Poundland Group (€m)
2,233
2,109
5.9%
8.4%
Like-for-like revenue (%)
+5.6%
+2.6%
+3.0pp
Total Group (€m)
5,649
4,823
17.1%
17.7%
Like-for-like revenue (%)
6.0%
5.2%
0.8pp
Constant
Reported Currency
currency
Gross profit margin %
FY23
FY22
Variance
% YoY
Pepco
41.8%
42.3%
(0.5)pp
(0.5)pp
Poundland Group
36.9%
37.6%
(0.7)pp
(0.7)pp
Total Group
40.1%
40.8%
(0.7)pp
(0.7)pp
Constant
Reported Currency
currency
Operating costs (IFRS 16) %
FY23
FY22
Variance
% YoY
Pepco
25.6%
23.1%
2.5pp
2.5pp
Poundland Group
27.7%
27.5%
0.2pp
0.1pp
Total Group
26.8%
25.6%
1.2pp
1.2pp
Constant
Reported Currency
currency
Underlying (IFRS 16) EBITDA
FY23
FY22
Variance
% YoY
552
Pepco (€m)
519
6.3%
5.4%
204
Poundland Group (€m)
214
(4.5%)
(2.7%)
Other (€m)
(3)
(3)
(11.8%)
(12.1%)
Total Group (€m)
753
731
3.1%
3.1%
Constant
Reported Currency
currency
Underlying (IFRS 16) EBITDA margin %
FY23
FY22
Variance
% YoY
Pepco
16.2%
19.1%
(3.0)pp
(3.0)pp
Poundland Group
9.2%
10.2%
(1.0)pp
(1.0)pp
Total Group
13.3%
15.2%
(1.8)pp
(1.9)pp
Constant
Reported Currency
currency
FY23
Underlying (pre-IRFS 16) EBITDA
FY22
Variance
% YoY
Pepco (€m)
330
348
(5.2%)
(5.9%)
Poundland Group (€m)
69
94
(26.3%)
(25.2%)
Other (€m)
(4)
(4)
(17.4%)
(1.2%)
Total Group (£m)
396
439
(9.9%)
(10.0%)
Constant
Reported Currency
currency
Underlying (pre-IFRS 16) EBITDA margin %
FY23
FY22
Variance
% YoY
Pepco
9.7%
12.8%
(3.2)pps
(3.2)pp
Poundland Group
3.1%
4.5%
(1.4)pps
(1.4)pp
Total Group
7.0%
9.1%
(2.1)pps
(2.1)pp
53
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial review continued
Pepco performance
As we move into FY24, we are seeing some early signs of recovery
as real wage growth in our core Pepco markets returns to positive.
Revenue growth
LFL
Gross profit margin in FY23 fell 0.5pps year-on-year to 41.8%
+24.8% +6.3%
reflecting the continuing drag from high freight and commodity
costs and unfavourable FX, as a consequence of our relatively long
buying cycle. Increases in average unit prices have only partially
offset the FX and freight costs, a conscious decision to ensure we
(FY22: +28.7%)
(FY22: +7.4%)
maintained our price leadership against competition, something
we see as more important now than ever. Weak sales in Q4,
Underlying (IFRS16) EBITDA YoY
Pre-IRFS 16 EBITDA YoY
have also hampered margin recovery as the challenging August
+5.4% -5.9%
and September highlighted above have resulted in lower than
expected sales on higher margin Autumn/Winter season product.
As these macro headwinds begin to subside, we are already
(FY22: +16.9%)
(FY22: 4.9%)
starting to realise a positive outlook on margin recovery,
highlighted by the fact that Pepco’s Q4 margin exited at 43%,
Pepco sales performance in FY23 has once again grown at
giving us heightened confidence going into FY24.
an impressive +24.8% with the majority of this driven by the
annualisation of store openings in FY22 along with the in-year
Underlying (IFRS 16) operating costs in Pepco have increased
impact of the opening of 5561 net new stores in FY23 taking the
by almost 40% year on year in absolute terms in FY23. A large
total number of Pepco stores to 3,523.
portion of this relates to the strategic expansion of the estate,
with increases in costs being experienced due to inflation, greater
As we continue to expand our range and customer proposition,
store numbers, higher costs of expanding into Western Europe,
Pepco space growth of 22% is ahead of new store openings growth
the addition of a new warehouse in Romania and a higher spend
of 19% due to the opening of larger format Pepco “Plus” stores
on IT infrastructure. Inflationary pressures have been a key feature
which also include an FMCG offer alongside the Clothing and
of FY23 with core wage inflation of 13% putting pressure on the
General Merchandise offer of a standard Pepco store.
operating costs across the business. This along with the drop
Within our Pepco store opening programme, we entered new
off in sales in H2 Pepco has driven a step back in operational
markets of Greece (22 stores), Portugal (14 stores) and Bosia and
leverage meaning underlying (IFRS 16) operating costs as a % of
Herzegovina (9 stores) in the year. In addition, we successfully
sales are 25.6%, 2.5pps higher year-on-year. Going forward, costs
completed our conversion of Dealz Spain stores to Pepco Plus
will be a key focus in FY24. We will look to increase the flexibility
stores, a programme which began in FY22 with 15 conversions
of the cost base to ensure it can be more easily adjusted to sales
followed by 42 conversions in FY23. This complemented our
performance. We have already cut any low value peripheral
expansion in Western Europe where we have added 257 net new
projects that add material cost to the Company.
stores in the year and now operate from 523 stores across Western
Pepco’s underlying (IFRS 16) EBITDA of €552m (FY22: €519m)
Europe, building our scale and customer reach.
increased by 5.4% versus FY22, with the underlying EBITDA margin
Pepco’s LFL sales in FY23 of 6.3% also drove the overall revenue
of 16.2% declining 3.0pps year on year, driven by the operating cost
growth, but the shape of delivery highlighted the trading
headwinds and lack of recovery on gross margin. At an pre-IFRS 16
challenges we have faced across the financial year. H1 performed
underlying EBITDA level, €330m in FY23 represents a decline of 5.9%
well benefitting from a strong Christmas period.
versus FY22 driven by inflationary lease indexation challenges and
the significant expansion of the Pepco estate.
Pepco FY23 quarterly LFL sales growth
19.7%
Poundland Group performance
10.7%
Revenue growth
LFL
+8.4% +5.6%
-1.2%
-2.4%
(FY22: +5.0%)
(FY22: +2.6%)
H2 LFL sales growth progressively weakened and despite
some selected upsides from events like our excellent “Barbie”
Underlying (IFRS16) EBITDA YoY
Pre-IFRS 16 EBITDA YoY
collaboration, the second half trading period delivered
-2.7% -25.2%
negative like-for-like.
In particular, the final weeks of August and into September
weakened significantly driven by a mixture of the impact of
(FY22: 6.9%)
(FY22: +25.6%)
prolonged inflation and lagging wage growth really impacting
the customer’s spending decisions, weaker than anticipated
In the face of inflationary pressures, the Poundland Group
performance of ‘Back-to-School’, high levels of promotional
delivered a solid performance in FY23 increasing revenue by 8.4%
activity from competition and the prolonged warm weather across
(constant currency) through a mixture of new store roll-out largely
Europe negatively impacting on Autumn transitional stock. To put
in Dealz Poland and through strong FMCG driven LFL performance
this into context, Pepco’s LFL sales in the month of September were
in Poundland.
-10.7%, with some weeks in September down closer to -20%.
Poundland saw a significant customer switch to FMCG products
1
The opening balance of 2,910 Pepco stores (as at 30 September 2022) has been
in the year as squeeze on incomes resulted in our consumers
restated to 2,967 to account for the Dealz Spain stores which were converted
choosing ‘essential’ items over more discretionary items. This was
to Pepco stores. At the end of FY22, there were 57 Spanish Dealz stores
illustrated by Poundland’s FMCG LFL sales tracking very strongly at
included within the Poundland Group store total that are now included within
+12.0% in FY23, materially higher than clothing which was broadly
the opening FY23 Pepco base 2,910 + 57 = 2,967. This includes 15 converted in
FY22 and 42 in FY23. Converted stores are assumed to be LFL stores within the
flat and general merchandise which was negative.
Pepco base.
54
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financing
In Dealz Poland, LFL growth of +11.3% along with roll-out of another
115 net new stores took the total year end store count to 283 and
FY23 was an important and very successful year for the business
helped support the overall 6% revenue growth in this segment. As
in terms of financing. Triggered by the upcoming maturity in April
highlighted in the October 2023 capital markets day presentations,
2024 of a €300m Term Loan external bank facility, the Group
the focus on Dealz in the short term will be centred around Poland
undertook a process to replace and diversify this debt with a
only as we look to refine the strategic positioning of the Dealz
debut Euro bond issuance.
brand in CEE.
The process began with obtaining a public credit rating where in
Poundland Group gross margin is marginally down year-on-year at
June 2023 all three major ratings agencies recognised the success
36.9% with the mix impact of the strong performance of the lower
of Pepco Group’s compelling strategy and business model and
margin FMCG category partially offset by some recover of freight
issued positive ratings. Fitch issued a ‘BB’, Moody’s a ‘Ba3’ and
costs relative to prior year peaks.
S&P Global issued a ‘BB-‘ rating. This places Pepco Group in line
with peers.
From an operating costs perspective, IFRS 16 operating costs as a
% of sales have increased marginally by 0.1pps to 27.7%. This is due
Following the ratings process, the Group received significant
to provision releases in FY22 compounded by inflationary pressures
interest in the debut bond. Due to over-subscription, the quantum
across FY23 with energy cost increases a key driver. These cost
of the bond was increased from €300m initially sought, to €375m,
downsides were partially offset by Covid-driven holdover leases
taking the opportunity to increase liquidity.
being extended to longer-term leases and as such no longer being
In parallel with the successful debut bond process, we increased
recognised as operating costs under IFRS16.
the size of the revolving credit facility (RCF) from €190m to €390m
At an IFRS 16 level, Poundland Group EBITDA of €204m is marginally
to provide additional liquidity given the ongoing growth and
down on the prior year of €214m. Pre-IFRS 16 EBITDA of €69m in
expanding scale of the business.
FY23 has declined by 25.2% versus the prior year driven by provision
As at 30 September 2023 the Group’s total (IFRS16) gross debt of
movements and year-on-year inflationary cost increases as
€741m is made up of:
described above.
–
€375m 7.25% bond due 2028
Profit before tax
–
€250m Term Loan B due 2026
Group statutory profit before tax of €147m was down 35.8% (FY22:
€226m). Whilst IFRS 16 EBITDA is marginally higher than the prior
–
€120m drawn RCF (total RCF facility of €390m)
year, inflation and store expansion driven rent costs (23% YoY)
–
€11m finance leases
and depreciation (24% YoY) growth, coupled with the increase in
external borrowing costs, have more than offset this.
–
Less €15m of debt issuance costs which have been capitalised
At an underlying level, FY23 underlying PBT of €202m (FY22: €300m)
Whilst the refinancing activity in FY23 has been very positive, the
represents a decline of 33.7% on constant currency basis, driven
global macro-economic factors have resulted in a significant
by the rent, depreciation and amortisation and external interest
increase in interest rates. Net external finance expenses have
factors summarised above.
increased from €54.9m in FY22 to €91.7m in FY23. Of this non-lease
related interest costs increased by €24.2m to €35.7m, an effective
Taxation
interest rate of 3.75%.
In FY23 the Group’s tax charge was €44.7m (FY22: €51.9m),
reflecting an effective tax rate of 30.4% (FY22: 23.0%). The increase
in our effective tax rate is principally driven by the profile of Group
performance in each operating territory. In FY24 we expect the
Group’s effective tax rate to more closely reflect the blended
rate of tax in the countries in which we operate. In our principal
operating markets of the UK and Poland, the tax rate is currently
25% and 19% respectively.
> Read more about our approach to tax on page 23
55
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial review continued
Investment activity
Cash and net debt
Across FY23, we continued to invest in expansion and infrastructure
Pepco Group (€m)
FY23
FY22
YoY
to support our vision of becoming Europe’s biggest and best
Cash generated by Operations
discount variety business. Capital investment in the year
(reported)
728
425
303
accelerated from 4.7% of sales in FY22 (€225m) to 6.9% of sales
in FY23 (€390m), with investment in new stores and the refit
Lease payments (IFRS 16
programme in Pepco the biggest driver of the increase.
Payments and Interest)
(387)
(292)
(95)
Additions to property, plant and equipment, and intangible
Tax Paid
(75)
(61)
(14)
assets in FY23 of €390m were €165m higher than the previous year
Net Cash from Operations
(FY22: €225m).
(pre-Capex)
266
72
194
The key drivers of our capital investment in FY23 include:
Capex
(390)
(225)
(164)
–
€210m was invested in the opening of a record 826 gross
Net Cash from Operations
new stores in FY23 (668 net openings). This included 22 stores
(post-Capex)
(124)
(154)
30
in Greece, 14 stores in Portugal, and 9 stores in Bosnia and
Funding and investment
Herzegovina – our new markets in FY23.
activities
102
(7)
108
–
€102m was invested in store refit programmes. This was
Net cash flow
(22)
(161)
138
primarily driven by Pepco’s New Look programme, alongside
Effect of exchange rate
Poundland’s investments in store refits as we prepare to sell
fluctuations
9
(3)
12
one clothing and GM range in across the whole group.
Cash and cash equivalents at
the beginning of the period
344
508
(164)
–
In addition, €50m was invested in IT and supply chain
infrastructure as we continue on the journey of underpinning
Cash and cash equivalents at
the growth with core infrastructure to support this.
the end of the period
330
344
(14)
–
The remaining €28m investment relates to maintenance capex,
Net debt (pre-IFRS 16)
411
275
136
largely store upkeep.
Net debt: underlying EBITDA
In September 2023, Poundland announced a deal to acquire up to
1.0x
(pre-IFRS 16) multiple (leverage)
0.6x
0.4x
71 Wilko store leases following the well-publicised liquidation of the
Current ratio
0.9x
1.1x
(0.2)
Wilko business, a rival UK discount retailer. The first store opened
on 30 September 2023 and by early December 64 former Wilko
Cash generated by operations of €728m, which has grown €303m
stores had been opened, having received a light touch refit and
year-on-year, reflects solid IFRS16 EBITDA generation of €753m in
re-branding under the Poundland banner.
the year less a small cash outflow from net working capital (where
The integration of Wilko stores into the Poundland brand provides
an improved year on year payables position is offset by a higher
the Group with an exciting opportunity to accelerate the new store
inventory position).
pipeline in the UK, with no additional central cost base increase.
Whilst inventory has naturally increased due to the growth of
It also offers the ability to bring our Poundland proposition to
the business, the sales headwinds across Q4 have led to a
new regions and customers, and provide job opportunities to
higher stock build than originally planned with inventory days
some of the people who were unfortunately impacted by the
trending higher than the prior year. Going forward we will closely
Wilko collapse.
target stock days as a measure with a view to reduce it to more
optimal levels.
Group stock holding (€m) FY22–FY23
129
126
124
127
118
113
111
1,135
104
1,060
959
980
955
298
280
776
286
235
736
288
638
239
268
233
837
779
720
694
661
537
468
405
Dec 21
Mar 22
Jun 22
Sep 22
Dec 22
Mar 23
Jun 23
Sep 23
Pepco
Poundland Group
Inventory Days
For deriving the inventory days, the impact of provisions has been removed.
56
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Cash and net debt (continued)
Lease payments of €387m have grown +33% year-on-year
reflecting the growth in the store portfolio. This, along with capex
outflows of €390m, which are driven by store roll out and store
refits and tax payments, is partially offset by increased funding
as a result of the €375m bond financing, and has resulted in a net
cash outflow of €22m in the year.
We see a significant opportunity to improve the Group’s cash
conversion cycle through focusing on optimising our end-to-
end supply chain to enable more efficient stock management,
alongside a more disciplined approach to capital investment
whereby we will look to reduce overall capex spend and be clearly
focused on prioritising the highest returning investments.
The Group ended the year with net debt of €411m on an pre-
IFRS16 basis, representing an increase of €136m versus FY22
predominantly reflecting additional borrowings of €115m.
Our net debt to underlying EBITDA leverage ratio of 1.0x (pre-IFRS
16) whilst higher than the prior year, remain below the previously
communicated targets and provide significant headroom against
our external funding covenants.
Dividends
No dividends were proposed or paid in FY23. The initiation of a
dividend remains under review by the Board whilst investment-led
growth opportunities are fully explored.
Neil Galloway
Chief Financial Officer
22 December 2023
57
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Introduction to governance
Introduction to Governance
Dear Shareholders,
This section of the report provides an outline of the Group's
corporate governance structure and covers corporate governance
matters relevant to the Company during the reporting period.
As Executive Chair, I am responsible for ensuring that we
have the right structure in place to uphold high standards of
corporate governance.
This has been of particular importance this year, as it has been a
year of significant change in Board composition, with a change
in Chair, the departure of our CEO, and the appointment of a
new CFO. Our recruitment and selection process, led by our
independent Non-Executive Directors through the Nomination
Committee, ensures that our Board continues to have the
appropriate range of knowledge, skills, and experience to carry
out its duties effectively; and to provide the Company with strong
leadership as we search for a new CEO and navigate through
challenging macroeconomic circumstances.
I would like to thank our Board and our colleagues for their
continued commitment to the success of the Company for
the benefit of all our customers, colleagues, investors and
other stakeholders.
Andy Bond
Executive Chair
Pepco Group N.V. (the Company) is a public limited liability
of the Board’s Committees, as well as applicable laws and
company incorporated under the laws of the Netherlands on
regulations. The Articles of Association, Board Rules and terms
14 May 2021, having been converted from Pepco Group B.V,
of reference of the Board’s Committees can be viewed on the
incorporated on 17 February 2021. Its shares are listed on the
Company’s website at www.pepcogroup.eu.
Warsaw Stock Exchange (Giełda Papierów Wartościowych w
As the Company is incorporated under the laws of the
Warszawie) (WSE).
Netherlands and listed on the Warsaw Stock Exchange,
The Company is registered in the commercial register of the
the Company complies with the Code of Best Practice for
Chamber of Commerce and Industry for Amsterdam under
GPW Listed Companies 2021 (the Warsaw Code) and with
number 81928491. The corporate seat of the Company is in
the Dutch Corporate Governance Code 2016 (the Dutch
Amsterdam and the registered office is 14th Floor, Capital
Code). The Company is moving towards compliance with
House, 25 Chapel Street, London, NW1 5DH, United Kingdom.
the Dutch Corporate Governance Code published in 2022,
which entered into force for financial years beginning on
The Company is organised in a one-tier board structure
or after 1 January 2023. This report covers the period from
under which managing and supervisory duties are performed
1 October 2022, and therefore the Dutch Code will be applied.
by the Board of Directors of the Company (the Board). The
Board is responsible for the direction and oversight of the
The full text of the Warsaw Code is available at
Company and is accountable for all aspects of the Company’s
www.gpw.pl/best-practice2021 and the full text of the
business. The Company’s corporate governance structure is
Dutch Code can be viewed at www.mccg.nl. Deviations from
based on the Articles of Association, the Board of Directors
the Dutch Code and Warsaw Code are explained in this report
Rules of Procedure (Board Rules), and the terms of reference
in accordance with the “comply or explain” principle.
58
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
The Board
Seven Non-Executive Directors
One Executive Director
Our seven Non-Executive Directors provide independent oversight
Our CFO is appointed to the Board as an Executive Director.
and constructive challenge to the Executive Directors.
Board Committees
Audit Committee
Nomination Committee
Remuneration Committee
Key responsibilities:
Key responsibilities:
Key responsibilities:
–
reviewing the integrity of the
–
lead the process for Board appointments
–
recommending the Remuneration Policy
financial statements and any formal
and succession planning;
and Executive and senior leadership
announcement relating to the Group’s
remuneration framework of the Company;
–
review and make recommendation on
financial performance;
the Board profile; and
–
advising on the structure and target
–
providing oversight of the Group’s
setting of performance-based incentive
–
make recommendations to the Board
internal control and risk management
plans; and
on the Board’s policy on diversity
systems; and
and inclusion.
–
reviewing all share incentive plans.
–
assisting the Board with and reviewing risk
management, policies and exposures, and
ESG strategies, reporting, and goals.
Membership:
Membership:
Membership:
Pierre Bouchut (C)
María Fernanda Mejía (C)
Brendan Connolly (C)
María Fernanda Mejía
Andy Bond
Pierre Bouchut
Brendan Connolly
Brendan Connolly
Grazyna Piotrowska-Oliwa
Neil Brown
Neil Brown
Paul Soldatos
Paul Soldatos
Neil Brown
Executive Committee
The Executive Committee, composed of key leaders, directs the Company’s strategies, ensuring alignment with objectives and fostering
sustainable growth through collective expertise and decisive leadership.
Senior Leadership Group
1
This diagram shows the structure of the Board and its Committees as at the date of publication. Please see Committee reports for details of membership
as at 30 September 2023.
2
Whilst Andy Bond is formally a Non-Executive Director, he temporarily has Executive duties in his role of Executive Chair.
59
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Board of Directors
We have a strong, experienced Board of Directors, with a diverse range of
professional backgrounds, skills, and perspectives. The collective experience
of the Directors and the diverse skills and experience they possess, supported
by independent thought and constructive debate, enable the Board to reach
decisions in a focused and balanced way, which is crucial to ensuring the
continued long-term success of the Company.
Pierre Bouchut
Andy Bond
Neil Galloway
María Fernanda Mejía
Executive Chair
Chief Financial Officer
Independent
Independent
British, Male, 55
Non-Executive Director
British, Male, 58
Non-Executive Director
French, Male, 68
Appointed 2 February 2023;
Appointed 1 April 2023;
American, Female, 60
first term expires 2026
first term expires 2026
Appointed 24 May 2021;
Appointed 24 May 2021;
first term expires in 2024
first terms expires in 2024
N
A
R
N
A
Andy has an extensive retail career,
Neil joined Pepco Group as CFO
Pierre is the former chief executive
María Fernanda has broad and
focused on the discount sector,
in April 2023. He is an experienced
officer of Casino, the French
deep experience and expertise
having been Chief Executive
public company CFO who has
multi-national grocery group, and
in general management
Officer of Pepco Group until his
worked in senior finance and
the former CFO of the Schneider
including strategy development,
retirement from the role in January
commercial roles at multi-national
Electric and Carrefour groups.
operations, supply chain and
2022. Prior to this, Andy was COO
businesses over the last 15 years,
Pierre has extensive international
talent development. She stepped
and later CEO of Asda between
following an 18-year career in
experience in both senior executive
down as CEO international at
2005 and 2010, and Chair from
investment banking. Prior to Pepco,
and non-executive roles within
Newell Brands in February 2023.
2011. Earlier in his career, Andy
Neil was executive vice president
finance, European retail, logistics,
Until February 2020, she served for
acted as corporate marketing
at IWG plc and led the corporate
and property businesses. Pierre’s
more than eight years as corporate
director and managing director
finance and business development
experience of managing large,
officer and executive committee
of George clothing. Andy is the
activities. From 2013 to 2019, Neil
listed companies gives him a
member at the Kellogg Company,
non independent Chair of the
was group finance director at DFI
deep insight into how strategic
with her final roles being senior
Pepco Group Board since his
Retail Group, the international
changes may affect the retail
vice president and president of
appointment in February 2023. From
multi-format retailer based in
and property sectors. He is
Kellogg Latin America. Prior to
12 September he also adopted the
Hong Kong and operating across
currently non-executive director
this, María Fernanda spent 23
role of Executive Chair.
11 markets in Asia. Prior to that
of Profi, independent director
years at the Colgate-Palmolive
he was group finance director of
and chairman of the audit
Company in global marketing
The Hongkong & Shanghai Hotels
committee of Entain (formerly
and senior management roles
Limited. He is also a non-executive
GVC Holdings), a member of the
within developed and emerging
director of AVI Global Trust plc, a
Board of La Rinascentre spa
markets. Until February 2022, María
FTSE 250 investment trust.
and non-executive director
Fernanda was a non-executive
of GeoPost/DPD.
director of Bunzl plc, where she
was a member of the audit,
remuneration, and nomination
committees, and a non-executive
director and member of the
audit and risk committee at
Grocery Outlet, a US discount
retailer. Prior to this, she served
as a non-executive director
of International Consolidated
Airlines Group from 2014 to 2020,
including as a member of the
audit and compliance and
remuneration committees.
60
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Committee membership
A
Audit Committee
N
Nomination Committee
R
Remuneration Committee
Chair of Committee
Brendan Connolly
Grazyna Piotrowska-Oliwa
Neil Brown
Paul Soldatos
Independent
Independent
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
British, Male, 64
American, Male, 74
British, Male, 67
Polish, Female, 54
Appointed 17 February 2021;
Appointed 4 May 2021; first
Appointed 24 May 2021; first
Appointed 24 May 2021; first
first term expires in 2024
term expires in 2024
term expires in 2024
term expires in 2024
R
A
N
R
A
R
N
R
N
With extensive executive and non-
Grazyna has strong experience
Neil has extensive global
Paul is a board member and senior
executive experience, Brendan
across government and business
experience in corporate
advisor in the industrial, service
brings extensive operational,
both in Poland and Central and
restructurings, private equity,
and consumer/retail sectors. He
commercial and strategic expertise
Eastern Europe. At the start of her
dispute resolution, and wide
has international experience
and insights to Pepco Group. He is
career, Grazyna spent four years
international commercial board
in M&A, strategic assessment,
a non-executive director at Victrex
at the Polish Ministry of the State
experience. He has held a
organisational transformation
and Applus. Brendan has more
Treasury, where she headed two
number of chairman, director,
and financial restructuring with
than 30 years’ experience in the
different divisions. With a proven
and committee positions in
a focus on the US and Europe.
oil and gas and the testing and
track record in some of Poland’s
international organisations
Paul has served and is serving
inspection industries. He was a
WIG20 companies, Grazyna brings
including Magma Fincorp India,
as chairman or member of the
senior executive at Intertek Group,
20 years’ experience working on
Gategroup, Iceland Foods, and
audit, remuneration, governance,
having been chief executive officer
C-level for Telekomunikacja Polska
Islandsbanki. Earlier in his career
and nomination committees for a
of Moody International, which
and PTK Centertel (now Orange
Neil helped to build the successful
number of companies for which he
was acquired by Intertek in 2011.
Polska), PZU (on the supervisory
financial services arm of Apax
is a board member. Paul previously
Brendan was managing director of
board), PKN Orlen and PGNiG, as
Partners. He acted as a special
was a partner and member of the
Atos in the UK after spending more
well as chief executive officer and
advisor to the Senior Oversight
management committee of AEA
than 25 years with Schlumberger in
president of the management
Committee of the Asset Protection
Investors LP in AEA’s London office.
senior international roles.
board of Virgin Mobile Poland/
Scheme, operated by an executive
CEE, following a period advising
arm of HM Treasury. Neil is a
private companies and private
qualified Chartered Accountant
equity funds. Grazyna is co-owner
and a former corporate finance
and CEO/chair of renowned
partner at PwC and Deloitte.
e-commerce platforms Grupa
Modne Zakupy and RentPlanet.
Board changes in FY23
Board and Board's Committee changes post year end
Richard Burrows (Independent Chair, Irish, Male): Resigned
–
María Fernanda Mejía was appointed as Chair of the Nomination
on 2 February 2023 (appointed 24 May 2021). Served as
Committee on 2 October 2023.
Chair of the Nomination Committee until 2 February 2023.
–
Neil Brown, Paul Soldatos and Brendan Connolly were appointed
Trevor Masters (Chief Executive Officer, British, Male):
as members of the Nomination Committee on 13 November 2023.
Resigned on 11 September 2023 (appointed 2 February 2023).
Helen Lee Bouygues (Non-Executive Director, American, Female):
Resigned on 2 October 2023 (appointed 4 May 2021).
61
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Corporate governance statement
Board of Directors
At the end of the reporting period, the Board established an
Executive Committee. The Executive Committee, composed of
key leaders including the Group CFO and business Managing
The role of the Board is to supervise and manage the general
Directors, directs the Company’s strategy, ensuring alignment with
affairs of the Company and its affiliated enterprises (the Group).
objectives and fostering sustainable growth through collective
The Board is collectively responsible for supervising the strategy
expertise and decisive leadership.
and long-term success of the Company in achieving its objectives,
and for ensuring that there is an effective system of internal
Appointment and composition of the Board
controls within the Group for the assessment and management of
At the Company’s AGM on 2 February 2023, Andy Bond was
key risks. In discharging its role, the Board ensures that the Group
acts ethically and takes into account relevant interests of the
appointed Non-Executive member of the Board and Trevor
Company’s stakeholders.
Masters was appointed Executive member of the Board.
Neil Galloway was appointed Executive member of the Board
In supervising the strategy of the Company, the Directors also take
with effect from the date of his commencement in the role of
into account the following matters:
Chief Financial Officer on 1 April 2023. Andy Bond was appointed
–
the implementation and feasibility of the strategy;
Chair of the Board, replacing Richard Burrows, who stepped down
as Non-Executive Director and Chair of the Board following the
–
the appropriateness of the Company’s business model and
conclusion of the AGM.
the markets in which the Group operates;
Prior to this reporting period and in accordance with Article 15.5
–
the opportunities and risks for the Company;
of the Company’s Articles of Association, the Board appointed
Neil Brown as Vice Chair of the Board.
–
the Company’s operational and financial goals and their
impact on the Group’s future operations in its markets;
On 11 September 2023, Trevor Masters resigned as CEO. Andy Bond
was appointed as Executive Chair with effect from 12 September.
–
compliance with the Company’s legal and regulatory
obligations; and
As at the end of the reporting period, four of the Non-Executive
Directors – Brendan Connolly, María Fernanda Mejía, Pierre
–
environmental, social, governance and employee-
Bouchut, and Grazyna Piotrowska Oliwa – are considered to be
related matters, the Group’s supply chain and respect for
independent in accordance with best practice provisions of the
human rights.
Warsaw Code and the Dutch Code. The remaining four Non-
The tasks, responsibilities and internal procedure matters for
Executive Directors – Andy Bond, Neil Brown, Helen Lee Bouygues
the Board are addressed in the Articles of Association and
and Paul Soldatos – are not considered to be independent within
Board Rules.
the best practice provisions of the applicable Codes. Andy Bond
as former CEO and Executive Director of the Company does not
Roles and responsibilities
qualify as independent. Neil Brown, Helen Lee Bouygues, and Paul
The Executive Directors are responsible for the day-to-day
Soldatos are not independent due to their position as directors of
management of the Company. The Non-Executive Directors are
the Company’s principal shareholder.
responsible for supervising and advising the Executive Directors.
The general meeting appointed Trevor Masters and Neil Galloway
The positions of the Chair and CEO are two distinct positions,
as Executive Directors and Andy Bond as Non-Executive Director
each with their own areas of responsibility, conferred by
and Chair of the Board at the Company’s AGM in February 2023.
and accountable to the Board as a whole. This distinction is
Following the resignation of Trevor Masters, at the end of the
explained below, and further details are set out in the Articles of
reporting period the Board comprised of eight members.
Association and the Board Rules of Procedure available on the
Following the end of the reporting period, Helen Lee Bouygues
Company’s website.
resigned as Non-Executive Director.
The Chair of the Board is a Non-Executive Director and responsible
All other members of the Board were appointed during the 2021
for leading the Board and ensuring its effectiveness, setting its
reporting period and are serving their initial terms. Board members
agenda and maintaining high standards of corporate governance.
are appointed for an initial period of three years and may then be
The Chair facilitates the effective contribution of the Non-
reappointed for two subsequent three-year terms.
Executive Directors and constructive relations between them and
the Executive Directors.
All Directors are subject to formal appointment by shareholders at
the AGM and to re-appointment after a three-year term in office,
The Chief Executive Officer is responsible for the day-to-day
following a binding nomination of the Board and in accordance
management of the Group and implementation of the strategy
with the Articles of Association of the Company. The general
and other Board decisions.
meeting of shareholders may reject a binding nomination of
Separate individuals have occupied the positions of the Chair
the Board by a resolution passed by two-thirds of the votes
and the CEO until the resignation of the CEO on 11 September 2023.
cast representing more than half of the Company’s issued
With effect from 12 September 2023, Andy Bond, the Chair of the
share capital.
Board, stepped into the role of Executive Chair to temporarily lead
the Executive team and overall management of the Company
until a successor CEO is appointed. Whilst both roles are now
being performed by the Executive Chair, this does not amend the
respective roles and responsibilities of the Chair and CEO. Given
Andy’s wealth of experience within the retail sector and within the
Pepco Group, the Board believes that he is well placed to lead
the business as Executive Chair whilst the search for a new CEO is
in progress.
62
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Induction, training and development
The general meeting of shareholders can dismiss and suspend
members of the Board other than on the proposal of the Board
When appointed to the Board, Directors are provided with
upon a majority of two-thirds of the votes cast representing more
induction training and information about the Group, the role of
than half of the Company’s issued share capital. If the proposal is
the Board and the matters reserved for its decision, the terms
made by the Board, a simple majority of the votes cast is sufficient.
of reference and membership of the Board Committees and the
latest financial information about the Group. This is supplemented
The Chair of the Board and the Board itself are supported by the
by meetings with the Company’s professional advisors, and, where
Company Secretary, who is appointed by the Board and available
appropriate, visits to key locations and meetings with certain
for advice and assistance to all Board members. The Company
senior executives to develop the Directors’ understanding of
Secretary is responsible for ensuring that proper procedures
the business.
are followed and that the Board acts in accordance with its
statutory obligations as well as its obligations under the Articles
Throughout their period of office, Non-Executive Directors are
of Association.
continually updated on our business, markets and other changes
affecting the Group and industry in which we operate, including
Where Board members have external appointments, the Board is
changes to the legal and governance environment and the
satisfied that such appointments do not impact on the individual
obligations on themselves as Directors. Specific updates this year
Board member’s ability to devote adequate time and sufficient
included an externally facilitated Board Risk Workshop.
attention to the concerns of the Company.
Board Committees
Diversity
The Board operates the following principal Committees: the Audit
Our Board Diversity Policy has been in place since December 2021,
Committee, the Remuneration Committee, and the Nomination
and addresses the legal and regulatory requirements to set
Committee. The function of these Committees is to prepare the
appropriate and ambitious targets to achieve a more balanced
decision making of the Board.
ratio between men and women. Our Board Diversity Policy
commits to at least 30% representation of men and women on
Each Committee of the Board has established terms of reference
the Board for both the Executive Directors and the Non-Executive
which prescribe the role and responsibility of the relevant
Directors. As at year end, the Board comprised eight Non-
Committee, its composition, and the process through which the
Executive Directors and one Executive Director, among whom
Committee discharges its duties. These terms of reference are
six are male (66.6%) and three are female (33.3%). The policy is
available on the Company’s website: www.pepcogroup.eu.
considered in the operation of the Nomination Committee and has
During the reporting period, more than half of the members of
continued to be met throughout the financial year.
the Audit Committee (including its Chair) and the Remuneration
When considering nominations of new Board members, the Board
Committee were independent within the meaning of the
takes account of the following diversity aspects: nationality,
applicable best practice provisions of the Warsaw Code and
work background, gender, age, and qualifications (including
Dutch Code with due observance to the Dutch Decree on
educational and expertise).
Implementation Audit Committee.
Risk Workshop
The Board attended a strategic risk workshop in July 2023 with the support of its external advisors. The workshop objectives were split
into short-term and long-term outcomes:
Short-term
–
Discussion of strategic risk outlook, including relevant emerging geo-political themes impacting the Group
–
Challenge the way principal risks are considered in the context of the Group risk management framework
–
Update and refresh Pepco Group appetite for risk
Long-term
–
Update the business ecosystem and risk landscape to refresh principal risks
–
Overlay a strategic lens to the way principal risks are considered within the Group
–
Refresh the parameters within which management should operate, making informed risk-based decisions
–
Change the nature of risk conversation and enable more focus on the management of risk and allocation of resources
The Board feedback included a requirement to increase visibility, executive accountability, specific detail, and the speed of risk reporting;
all of which has been incorporated into a new Group Risk Register and improvements to the Enterprise Risk Management Roadmap.
63
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Corporate governance statement continued
Board of Directors continued
Areas of focus in FY23
The Board focused on the below areas during the reporting period.
Board Committees continued
Strategy and operational
Board and Committee meetings and attendance
–
Scrutinised operational and business performance in the
All Directors are expected to attend each Board meeting and
context of the Company’s business plan and long-term
each Committee meeting for which they are members, unless there
strategy, including the status of key projects.
are exceptional circumstances preventing them from participating.
Attendance at Board and Committee meetings was as follows:
–
Reviewed the Group’s strategy and approved the five-year
business plan for FY24 to FY28.
Audit Remuneration Nomination
Board Committee
Committee Committee
–
Monitored the implementation of the Enterprise Resource
Directors
(16)
(10)
(7)
(3)
Planning system within the Pepco Group.
Andy Bond
–
Approved the vesting of nil-cost options under the VCP on the
(Executive Chair)1
6
n/a
n/a
1
recommendation of the Remuneration Committee.
Neil Brown
–
Approved the bonus payout level for FY22 for colleagues.
(Vice Chair)
15
10
7
n/a
Helen Lee
–
Approved the issuance of new shares in the capital of the
Bouygues
12
8
n/a
2
Company to satisfy the potential exercise of share options
Paul Soldatos
15
n/a
7
n/a
under the incentive schemes, Equity Award Plan and VCP.
Pierre Bouchut
16
10
7
n/a
External stakeholder engagement
Brendan Connolly
13
6
7
n/a
–
Reviewed the agenda for the Capital Markets Day.
María Fernanda
–
Reviewed the content of the Company’s
Mejía
15
10
n/a
3
external announcements.
Grazyna
Piotrowska-Oliwa
15
n/a
7
n/a
Financial performance and risk
Trevor Masters2
3
n/a
n/a
n/a
–
Reviewed financial performance and forecasts.
Neil Galloway3
5
n/a
n/a
n/a
–
Approved the upsizing of the revolving credit facility, made
Richard Burrows
available under the Senior Facilities Agreement, and inaugural
(Chair)4
10
n/a
n/a
2
bond issuance.
–
Evaluated and approved the FY24 budget.
1
Andy Bond was appointed Non-Executive Director and Chair of the Board
with effect from 2 February 2023. He was appointed as Executive Chair on
–
Approved the Company’s Annual Report and Consolidated
12 September 2023.
Financial Statements for FY22, together with the letter of
2
Trevor Masters was appointed Executive Director of the Board with effect from
2 February 2023. He resigned on 11 September 2023.
representation in connection with the Annual Report 2022.
3
Neil Galloway was appointed Executive Director of the Board with effect
–
Reviewed approach to risk and risk management framework.
from the date of his commencement in the role of Chief Financial Officer on
1 April 2023.
Governance
4
Richard Burrows resigned as Non-Executive Director and Chair of the Board
–
Approved the terms of the reference of the Audit Committee,
following the conclusion of the AGM on 2 February 2023.
Remuneration Committee, and Nomination Committee.
Board meetings, attendance and decision making
–
Approved the appointment of the new CFO, Neil Galloway, on
According to the Board Rules, the Board meets in principle once
the recommendation of the Nomination Committee.
every two months and at least once each financial quarter. Each
–
Approved Andy Bond’s appointment as Chair, and later as
Director is entitled to cast one vote. In the event of a tie, the Chair
Executive Chair following the resignation of the CEO.
has the casting vote. During FY23, meetings of the Board were held
both in person and virtually via Microsoft Teams, as permitted by
–
Approved the external appointments held by Executive Directors.
Article 16.6 of the Articles of Association.
–
Approved the updated Insider Trading Policy and UK
Most decisions of the Board require a simple majority of the votes
tax strategy.
cast. For Board decisions on matters which cannot be resolved
–
Approved the updated Board profile as required by the new
upon by the Non-Executive Directors due to a direct or indirect
2022 Dutch Corporate Governance Code.
conflict of interest and for Board decisions to approve a related
party transaction, such decisions require the majority of the votes
–
Approved the FY23 Internal Audit Plan.
cast to include at least a majority of the votes of the independent
–
Recommended to the shareholders the appointment of
Non-Executive Directors.
Mazars as the Company’s external auditors for FY23.
When determining how many votes are cast by members of the
–
Approved the 2023 AGM Agenda and Convocation Notice.
Board, no account shall be taken of Board members who are not
permitted to take part in the discussions or decision making due to
–
Reviewed and approved the updated Bank Mandates for
a conflict of interest.
Treasury Activities.
Decisions of the Board may be taken in writing, provided that
–
Approved changes to the Board Rules.
all Board members (in respect of whom no conflict exists) have
–
Approved the renewal of the Directors and Officers
consented in writing.
insurance policy.
64
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Remuneration
The key elements of the Group’s system of internal controls are
as follows:
In line with the Remuneration Policy of the Company, the
remuneration of the Executive members of the Board is
–
Financial reporting: Monthly management accounts are
determined by the Non-Executive members of the Board, upon
provided to members of the Board that contain current
recommendation of the Remuneration Committee. The Non-
financial and operational reports. Reporting includes an
Executive Directors appointed via the Relationship Agreement
analysis of actual versus budgeted performance and
(being Neil Brown, Helen Lee Bouygues, and Paul Soldatos) do
overviews of reasons for significant differences in outcomes.
not receive remuneration from the Company or its affiliated
The annual budget is reviewed and approved by the Board.
enterprises. The remuneration of the Non-Executive members of
The Group reports half yearly.
the Board is determined by the Non-Executive members of the
–
Risk management: A risk register has been created and
Board in accordance with the Remuneration Policy applicable to
is continuously updated and monitored, with full reviews
the Non-Executive Directors, including the Chair of the Board.
occurring on at least an annual basis. Each risk identified on
The Remuneration Policy and the elements of the remuneration of
the risk register is allocated an owner and the action required
Board members are set out in the Remuneration report and note 8
or acceptance of the risk is also recorded. The risk registers are
to the financial statements.
provided to the Audit Committee as appropriate.
–
Monitoring of controls: The Audit Committee receives regular
Conflicts of interest
reports from the external auditors. There are formal policies
The Articles of Association and Board Rules prescribe how conflicts
and procedures in place to ensure the integrity and accuracy
of interest between the Company and Board members must
of the accounting records of the Group and to safeguard
be managed.
its assets.
Transactions between the Company and a Board member who
–
Staff policies: There are formal policies and processes in
has a conflict of interest must be entered into on arm’s length
place within the Group supported by third-party technology
terms. A Board member who has a conflict of interest cannot
in relation to anti-bribery and corruption and anti-slavery,
participate in deliberations and decision making relating to the
as well as whistleblowing polices and independent reporting
subject matter of the conflict of interest.
mechanisms to facilitate the reporting of any suspected
In FY23, payments totalling £47,100 were made to Woodcliffe
wrongdoing or malpractice.
Associates Limited, a company that Andy Bond has a related
> Information on the key risks and uncertainties of the Group is set out on
party interest in. These costs relate to consultancy services
pages 38 to 44
provided by Andy Bond prior to his appointment as Chair in
February 2023.
General meetings
Any decision to enter into a transaction under which a member of
the Board has a conflict of interest that is of material significance
to the Company and/or the relevant Board member requires the
The Articles require that the AGM be held in the Netherlands
approval of the Board.
within six months of the end of the financial year. Additional
general meetings may be convened at other times by the Board
There were no material transactions which gave rise to conflicts
as necessary. The Company’s FY22 AGM was held at the Hilton
of interest with any Board members reported during the reporting
Amsterdam Airport Schiphol on 2 February 2023. Shareholders
period. Reference is made to note 25 (Related party transactions)
were invited to attend the AGM in person, and the AGM was
of the consolidated financial statements for a description of any
broadcast via the Company’s website. The right to vote at the
related party transactions.
AGM could be exercised by an electronic voting proxy with
voting instructions to a civil-law notary or submitting the voting
Risk management activities of the Board
instructions by means of a proxy form via the Company’s website.
The Board has the overall responsibility for ensuring that the Group
Shareholders were entitled to submit questions about agenda
maintains a strong system of internal controls.
items prior to the AGM.
The system of internal controls is designed to identify, manage
The FY23 AGM will be held prior to 31 March 2024. The Articles
and evaluate, rather than eliminate, the risk of failing to achieve
provide that the agenda for the AGM shall at least be as follows:
business objectives. It can therefore provide reasonable but not
–
advisory vote in respect of the Remuneration report;
absolute assurance against material misstatement, loss or failure
to meet objectives of the business, due to the inherent limitations
–
discussion of the Annual Report;
of any such system.
–
discussion and adoption of the annual accounts;
In FY23 internal audit activities were consolidated into one Group
–
discharge of the Board members from their liability;
internal audit function to provide assurance over key risks in all
operating companies. Internal audit activities were performed
–
(if put on the agenda) designation of the Board as competent
using a combination of in-house staff based in the UK and
to issue shares;
Poland as well as co-sourced with EY to leverage industry best
–
(if put on the agenda) appointment of external auditors; and
practice and subject matter expertise. A Group risk management
framework is in place and updates to risk registers are presented
–
(if required) authorisation of the Board to permit the Company
to the Group Audit Committee.
to acquire its own shares.
The Board is satisfied that the key risks to the business and
relevant mitigating actions are acceptable for a business of the
type, size and complexity as that operated by the Group.
65
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Corporate governance statement continued
General meetings continued
Substantial shareholdings
Convocation
Pursuant to the Financial Supervision Act (Wet op het financieel
The AGM is convened by publication of a notice on the Company’s
toezicht) and the Dutch Decree on Disclosure of Major Holdings
website at least 42 days prior to the AGM. Shareholders are
and Capital Interests in Issuing Institutions, the Company has been
entitled to propose items for the agenda of the AGM provided
notified of the following substantial shareholdings regarding the
that, alone or jointly, they hold at least 3% of the issued share
Company as at 30 September 2023:
capital of the Company. Proposals for agenda items must be
Shares
Percentage
submitted at least 60 days prior to the date of the meeting.
A request of a shareholder for an item to be included on the
Total free float on WSE, of which:
agenda of the AGM must be explained in writing. The principles
Non-substantial shareholdings
155,419,470
26.98
of reasonableness and fairness may permit the Board to refuse
Andy Bond*
3,745,301
0.65
the request.
Independent Non-Executive Directors**
240,613
0.04
IBEX Retail Investments (Europe) Limited 415,594,616
72.15
Voting rights
Pepco Group Employee Benefit Trust***
1,027,342
0.18
The authorised share capital of the Company is €17,250,000.00
and is divided into 1,725,000,000 shares with a nominal value of
Total
576,027,342
100.00
€0.01 each. The issued share capital is €5,760,273.42 divided into
576,027,342 shares. Each share carries one vote. The shares are
*
Including shares held via Kent Road Investments 2019 Limited and Kent Road
listed on the Warsaw Stock Exchange (WSE).
Investments 2020 Limited.
** Includes shares held by the previous Chair of the Board, Richard Burrows.
All shares carry equal rights and are freely transferable.
*** The trust operates for the fulfilment of the VCP and LTIP, as described in the
Remuneration Report.
Shareholders who hold shares on a statutory record date (i.e.
72.15% of the Company’s issued share capital is ultimately owned
the 28th day prior to the AGM) are entitled to attend and vote
by IBEX Topco B.V. (ITBV), with 0.04% owned by the Independent
at the AGM.
Non-Executive Directors, 0.65% owned by Andy Bond, Executive
Shareholders may exercise their rights if they are the shareholders
Chair, and the remaining 26.98% traded on the WSE. Of the shares
of the Company on the record date and they or their proxy have
traded on the WSE, no shareholder owns more than 5%.
notified the Company of their intention to attend the AGM in
At the time of the Company’s initial listing on the WSE, the
writing or by any other electronic means that can be reproduced
Company entered into a relationship agreement with Steinhoff
on paper ultimately at a date set for that purpose by the Board
International Holdings N.V. and certain of its affiliate enterprises.
of Directors, which may not be earlier than the seventh day prior
Following the implementation of the Steinhoff reorganisation, the
to the AGM.
rights of Steinhoff International Holdings N.V. were transferred to
Each share in the issued share capital of the Company confers the
ITBV, resulting in an amended and restated agreement between
right to cast one vote at the AGM.
ITBV and certain of its affiliate enterprises (the ITBV Affiliates) to
regulate the relationship between the Company and the IBEX
Adoption of resolutions
group of companies (the Relationship Agreement). The terms of the
Subject to certain exceptions provided by Dutch law or the Articles
Relationship Agreement comply with the requirements of principle
of Association, resolutions of the AGM are adopted by a simple
2.7.5 of the Dutch Code.
majority of the votes cast at the meeting.
The Relationship Agreement provides that:
Shareholder votes can be cast either in writing or electronically.
a) for so long as the ITBV Affiliates hold, in aggregate, more than
30% of the voting rights of the Company, the ITBV Affiliates
Amendment of Articles of Association
will jointly be entitled to nominate three Non-Executive
The Articles of Association can be amended by resolution of the
Directors to the Board. This nomination right is reduced to
AGM. A resolution to amend the Articles of Association can only be
two Non-Executive Directors when the ITBV Affiliates hold, in
adopted at the proposal of the Board.
aggregate, less than 30% of the voting rights of the Company.
This nomination right is further reduced when the ITBV Affiliates
Appointment and dismissal of Directors
hold, in aggregate, less than 20% of the voting rights of the
The Company has a one-tier system of management that means
Company. If the ITBV Affiliates hold, in aggregate, less than 10%
that managing and supervisory duties are joined in the Board of
of the voting rights of the Company, they will no longer have the
Directors. Appointment and/or dismissal and/or suspension of
entitlement to nominate any members of the Board;
the members of the Board of Directors is the prerogative power of
b) subject to compliance with applicable laws and regulations,
the general meeting of the shareholders. Each Executive Director
including the Market Abuse Regulation, the Company will:
may also, at any time, be suspended by the Board. Pursuant
to the Articles of Association, the number of Directors shall be
i. provide certain information to the ITBV Affiliates to enable
determined by the Board. Following a binding nomination by the
the ITBV group of companies to fulfil its regulatory and legal
Board, with due observation of the provisions under the Articles of
obligations and to facilitate the preparation of the accounts
Association, the Directors are appointed by the general meeting. If
of the ITBV Affiliates and connected enterprises for so long as
and when selecting and nominating candidates for the Board, the
such provision is reasonably required by generally applicable
Diversity Policy is taken into consideration.
accounting principles; and
ii. provide reasonable assistance and access to Company
management in connection with any planned disposal of
shares in the Company that are held by the ITBV Affiliates;
66
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Lock-up arrangements
c) transactions and arrangements between the ITBV group of
companies and the Pepco Group will be conducted at arm’s
Management Selling Shareholder lock-up
length and on normal commercial terms; and
Andy Bond, Mark Elliott, and Sean Cardinaal (the Management
Selling Shareholders) hold or previously held management
d) no member of the ITBV group of companies will propose or
positions within the Group and held founder shares that were
procure the proposal of a member resolution which would
converted into shares of the Company in May 2021. Each of the
prevent the Company from complying with its legal and
Management Selling Shareholders agreed that from 5 May 2021
regulatory obligations.
until 1 January 2024, they will not, without the prior written consent
of the Company directly or indirectly, offer, issue, lend, mortgage,
Issuance of shares, acquisition of own shares and
assign, charge, pledge, sell or contract to sell, issue options
disapplication of pre-emption rights
in respect of, or otherwise dispose of, directly or indirectly,
The Articles of Association provide that the general meeting
or announce an offering or issue of, any shares held by them
may issue shares (or delegate that authority to the Board). Any
immediately following the IPO (Locked-up Shares) (or any interest
delegation to the Board to issue shares must specify the maximum
therein or in respect thereof) or any other securities exchangeable
number of shares that can be issued under the delegation and
for or convertible into, or substantially similar to, the Locked-up
the duration of the delegation cannot exceed five years. The
Shares or enter into any transaction with the same economic
designation can be extended for periods not exceeding five years.
effect as, or agree to do, any of the foregoing, such lock-up
restrictions being subject to certain customary exceptions. The
A resolution by the general meeting to issue shares or to designate
lock-up undertaking described above has, on 1 January 2023,
such authority to the Board can only be taken at the proposal of
ceased to apply in respect of two-thirds of the Locked-up Shares
the Board.
held by a Management Selling Shareholder at such date, and from
The Articles of Association permit the general meeting to restrict
1 January 2023 applied to one-third of the remaining Locked-up
or exclude the pre-emption rights of shareholders at the proposal
Shares held at such date until 1 January 2024 (unless waived with
of the Board. A resolution to exclude shareholders’ pre-emption
the prior written consent of the Company). During the October 2021
rights requires a majority vote of at least two-thirds of votes cast
Board meeting, the Company agreed to allow Sean Cardinaal to
if less than half of the Company’s issued and outstanding share
sell up to one-third of his Locked-up Shares from 1 January 2022,
capital is present at the general meeting.
and his remaining Locked-up Shares from 1 January 2023. The
Company waived the remaining lock up provisions relating to Mark
Under the Articles of Association, the Company may acquire its
Elliott on 7 June 2023.
own shares if the general meeting authorises the Board to do so.
An authorisation for the Board to acquire shares in the Company
Independent Non-Executive Director lock-up
is limited to 18 months. Such authorisation was obtained at the
In respect of work undertaken by them in relation to and in
general meeting in February 2023, and will be requested at the
preparation for roles as Board members, in the period prior to the
general meeting in March 2024.
Company’s listing on the WSE one-off fees were paid to Richard
Burrows, Brendan Connolly, María Fernanda Mejía, Grazyna
No authorisation of the general meeting is required for the
Piotrowska-Oliwa, and Pierre Bouchut which were used by these
Company to acquire its own shares for the purpose of transferring
individuals to subscribe for shares in the Company on admission to
such shares to employees of the Pepco Group under an applicable
the WSE (at the admission offer price).
share plan.
Shares acquired by these Board members on admission must be
held until the later of: (i) 26 May 2024; or (ii) the first anniversary
of the date on which the relevant Board member ceases his or
her directorship of the Company. Richard Burrows stepped down
as Non-Executive Director and Chair of the Board following the
conclusion of the AGM on 2 February 2023.
67
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Audit Committee report
Providing oversight
and ensuring integrity
Dear Shareholders,
Introduction
I am pleased to present the report of the Audit Committee for
the year ended 30 September 2023, setting out the ongoing
responsibilities and objectives of the Committee and the work that
has been conducted during this year.
Committee composition
As at year end, the Committee comprised of five members, each
of whom is a Non-Executive Director of the Company (with three
members constituting a quorum). María Fernanda Mejía, Brendan
Connolly and I are considered to be independent Non-Executive
Directors within the meaning of the Dutch Code and Warsaw
Code; Helen Lee Bouygues (who resigned from the Board with
effect from 2 October 2023) and Neil Brown are not considered to
be independent.
The Committee must have at least one member with recent and
relevant financial experience and with competence in accounting
and/or auditing. The Chair of the Board may not be a member of
the Committee. The Company Secretary acts as secretary to the
Committee. The Group CFO, Senior Internal Auditor, and external
auditors attend all meetings and other individuals including the
Group General Counsel, the Group Finance Director, and the
Group Director of Treasury, Tax and Risk may also attend and are
available to meet on a one-to-one basis as and when required to
Pierre Bouchut
support me in fulfilling my role as Chair.
Audit Committee Chair
The Audit Committee meets as often as is required for its proper
functioning and the timing of meetings is agreed in advance
and set to accommodate the dates of release of financial
information. In addition to scheduled meetings, I regularly liaise
with the Group CFO. The Committee has a schedule of regular,
structured meetings and consults with external auditors, advisors
and Company management where appropriate. We also hold
regular meetings with the external auditors without management
being present.
The governance structure of the internal audit function was
reviewed in FY23. To increase the independence of the function,
the Senior Internal Auditor reports organisationally to the Group
CFO and functionally to me as the Chair of the Audit Committee.
The new Group Head of Internal Audit was appointed in
October 2023.
68
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Responsibilities
Committee activities in FY23
The responsibilities of the Audit Committee, as delegated by the
The Committee has an extensive agenda concerning the
Board, are set out in its terms of reference and include the following:
Group’s financial reporting cycle, with a focus on the Group audit
assurance and risk processes. The Committee oversees these
–
reviewing the integrity of the financial statements and any
matters, working in conjunction with senior management, the
formal announcement relating to the Group’s financial
external auditor, the internal audit function and the financial
performance. This includes reviewing the significant financial
reporting team. Additional activities during the year included:
judgements and estimates relating thereto, together with
compliance with relevant accounting standards and other
–
considered internal audit reports presented to the Committee
legal and regulatory requirements;
and satisfied itself that management had resolved, or was in
the process of resolving, any outstanding issues or actions;
–
providing oversight of the Group’s internal control and risk
management systems and considering reports on their
–
received an audit debrief session from management about the
effectiveness from the Group CFO and Senior Internal Auditor;
key issues identified after the close of the FY22 audit process
and progress on the remedial actions being taken;
–
assisting the Board with the development and execution
of the risk management strategy, risk policies and current
–
reviewed the internal audit plan and approach for 2023;
risk exposures, including the maintenance of the Group’s
–
at the end of FY23, following an external search and
risk register;
recruitment process, approved the appointment of a
–
reviewing ESG strategies, reporting, goals and targets,
dedicated Group Head of Internal Audit;
monitoring progress and advising the Board as appropriate;
–
reviewed the internal audit team structure for the Pepco Group
–
monitoring the scope of work, quality, effectiveness and
and key improvement projects for FY24;
independence of the external auditors and recommending to
–
considered the effectiveness of the external auditors and
the Board their appointment, reappointment and fees; and
recommended to the Board the reappointment of Mazars
–
reviewing the engagement of the external auditors to ensure
as the Company’s external auditors (subject to shareholder
that the provision of non-audit services by the external audit
approval at the Annual General Meeting);
firm is in accordance with the Group’s policy which seeks to
–
reviewed and approved the increase in external auditor fees;
ensure that their independence is not impaired.
–
considered the external audit strategy for FY23;
ESG Oversight:
–
reviewed the status of the FY23 internal audit programme;
I am pleased with the progress we have made across all
areas of our ESG agenda, and I am encouraged by the level of
–
considered the going concern assessment and key accounting
engagement across the Group. The Committee structure allows
judgements in connection with the FY23 audit review;
for greater depth of engagement and clear focus in driving
–
reviewed the Group’s principal risks and risk registers;
forward our ESG agenda. The provision of a quarterly report to
the Committee on ESG initiatives and deliverables by the Director
–
considered the status of and financial provisions for material
of Group Treasury, Tax and Risk and Group Head of Risk and ESG
disputes across the Group;
Reporting, provides a clear reporting line on all ESG matters to
–
considered the approach to governance and resource, and
me. We also continue to prepare the Group to comply with ESG
implementation plan for Group-level internal audit, risk and
regulatory reporting requirements. During the year, the Group
ESG functions;
recruited a Head of Group Sustainability to strengthen its
ESG governance.
–
considered the Group compliance framework;
> For further information on the Group's approach to ESG, please see our
–
considered the ERP update and the background to the
report at page 16
implementation programme;
More detail on the role and duties of the Committee can be found
in the terms of reference on the Company’s website.
69
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Audit Committee report continued
Committee activities in FY23 continued
Internal control and risk management
–
reviewed the H1 and H2 FY23 draft financial results
The Board has overall responsibility for ensuring that the Group
announcements prior to Board review;
maintains a sound system of internal control. There are inherent
limitations in any system of internal control and no system can
–
reviewed the process through which the Pepco Group ethical
provide absolute assurance against material misstatements, loss,
sourcing team review supplier compliance with the Pepco
or failure. Equally, no system can guarantee elimination of the risk
Group Compliance Code of Conduct;
of failure to meet the objectives of the business.
–
monitored incidents of whistleblowing;
Against that background, the Committee has helped the Board
maintain an approach to risk management which incorporates a
–
reviewed the Group’s FY23 tax strategy and recommended it
framework within which risk is managed and the responsibilities
to the Board for approval;
and procedures pertaining to the application of that framework. In
–
reviewed and approved the Corporate Criminal
FY23, this has been further strengthened through the appointment
Offence Policy;
of a dedicated Group Head of Internal Audit.
–
reviewed and approved the Treasury Policy for
The Group is proactive in ensuring that Group and operational risks
recommendation to the Board;
are consistently identified and managed within each operating
company. In addition, the Group risk appetite and risk register are
–
considered the ESG priorities for FY23, the supplier
maintained which detail:
environmental guidelines, and the ESG reporting framework,
including timelines for implementation;
–
the risks and the impact they may have;
–
considered the planning and preparation for enhanced
–
actions to mitigate risks; and
reporting on the pathway to CSRD compliance in FY25; and
–
ownership of risks.
–
reviewed and approved the Committee’s terms of reference,
prior to making a recommendation to the Board. In completing
A description of the key risks are set out on pages 38 to 44.
its review, the Committee concluded that the terms of
The Board has confirmed that it has conducted an assessment of
reference remained appropriate and reflected the manner in
the principal risks facing the Group, including those which threaten
which the Committee was discharging its duties.
its business model, future performance, solvency or liquidity.
In considering the accounting matters referred to above, the
The Board considers that the processes undertaken by the
Committee was provided with papers and reports prepared by
Committee are appropriately robust and effective.
the Group’s finance department and the external auditors and
the explanations and disclosures made in the Group’s financial
During the year, the Board has not been advised by the
statements. The Committee also considered the significance
Committee of, nor has it identified itself, any failings, fraud, or
of these accounting matters in the context of the Group’s
weaknesses in internal control which it has determined to be
financial statements and their impact on the Group statement of
material in the context of the financial statements.
comprehensive income and statement of financial position.
The Committee continues to believe that appropriate controls are
in place throughout the Group and that the Group has a well-
Regulation
defined organisational structure with clear lines of responsibility
The Group operates within an increasingly regulated marketplace
and a comprehensive financial reporting system including internal
and is challenged by regulatory requirements across the board,
audit reporting to the Audit Committee.
including those controlling bribery and corruption, the importation
of goods, data protection, and health and safety.
Reviewing the Annual Report and Consolidated
This creates risk to the organisation as non-compliance can
Financial Statements
lead to financial penalties and reputational damage in respect of
Prior to publication, the Committee reviewed this Annual
customers, colleagues, suppliers, investors, and other stakeholders.
Report, Consolidated Financial Statements, Company financial
statements, and the Independent audit opinion. In particular, it
The Group has policies and processes in place for whistleblowing
considered the following:
and the Committee is satisfied that colleagues have the
opportunity to raise concerns about possible fraudulent activity
–
the accounting principles, policies and practices adopted and
and any other concerns that arise within the organisation. The
the adequacy of related disclosures in the reports;
Committee is also satisfied that arrangements are in place for
–
the significant accounting issues, estimates and judgements
proportionate investigation of such matters, including appropriate
of management in relation to financial reporting;
follow-up action.
–
whether any significant adjustments were required as a result
of the audit;
–
compliance with statutory tax obligations;
–
whether the information set out in this Annual Report and the
financial statements was fair, balanced, comprehensive, clear,
and understandable and covered both positive and negative
aspects of performance; and
–
whether the use of Alternative Performance Measures
obscured IFRS measures.
70
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Going concern
The Committee reviewed the appropriateness of adopting the
going concern basis of accounting in preparing the Annual
Report and Consolidated Financial Statements. The assessment
included a review of the liquidity impact of a severe, but plausible,
management downside scenario and a series of reverse
stress tests.
True and fair view
At the request of the Board, the Committee considered whether
the financial statements and the elements of the Annual Report
that are relevant to the financial statements, as a whole, are
fair, balanced and understandable and whether they provide
the necessary information to shareholders to assess the Group’s
position, performance, business model and strategy.
The Committee considered the Company management’s
assessment of items included in the financial statements and the
prominence given to them. The Committee and subsequently the
Board were satisfied that, taken as a whole, the Annual Report
and Consolidated Financial Statements are fair, balanced,
and understandable.
External auditors
Mazars Accountants NV were appointed as the independent
auditors of the Company and its subsidiaries for the financial year
ended 30 September 2023. The partner responsible for the Group
audit opinion is Nathalie Habers.
Supervision of the external auditors
Auditor independence is maintained by reviewing Mazars’
confirmation of their independence and monitoring the nature and
value of non-audit services performed.
The Group’s policy prevents the external auditors providing any
services designated as prohibited within the Dutch Code or the
Warsaw Code and requires Audit Committee approval for the
provision of any other services regardless of their magnitude.
Any non-audit services will be subject to tender processes, with
the allocation of work made on the basis of competence, cost
effectiveness, regulatory requirements, potential conflicts of
interest, and knowledge of the Group’s business.
The level of non-audit fees is monitored to ensure it does not
exceed 70% of the average annual statutory audit fees payable
over the last three years.
Payments were made to Mazars in the financial year ended
30 September 2023 for non-audit services in respect of a review
of the bond prospectus and agreed upon procedures provided
to PGS, both totalling €132,000 as detailed within note 4 to the
financial statements.
I would like to thank the management team and all Committee
members for their valuable contribution and support during
the year.
Pierre Bouchut
Audit Committee Chair
22 December 2023
71
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Nomination Committee report
Shaping Board
excellence
Dear Shareholders,
The Nomination Committee’s report for the year ended September
2023 is set out below.
Committee composition
The Committee comprises three members, each of whom is a
Non-Executive Director of the Company. Two members constitutes
a quorum. Following the departure of Richard Burrows after the
conclusion of the AGM in February 2023, I adopted the role of Chair
of the Nomination Committee until 2 October 2023 (following the
close of the reporting period) when the Board appointed María
Fernanda Mejía as the new Chair. María Fernanda Mejía and Helen
Lee Bouygues both served as members of the Committee during
the year, having been appointed in FY21. María Fernanda Mejía
is an independent Non-Executive Director within the meaning
of the Dutch Code and Warsaw Code. Helen Lee Bouygues
and I are Non-Executive Directors who are not considered to
be independent. The Company Secretary acts as secretary to
the Committee.
Following the end of the reporting period, Helen Lee Bouygues
resigned as a Director and Committee member on 2 October 2023.
Neil Brown, Paul Soldatos and Brendan Connolly were appointed
as members of the Committee on 13 November 2023.
The timings of Committee meetings are agreed in advance and
the Committee makes recommendations to the Board which it
Andy Bond
deems to be appropriate on any area within its remit where action
Nomination Committee Chair
or improvement is needed.
Responsibilities
The Committee meets at least twice each year and its main
duties are:
–
to lead the process for Board appointments including
selection criteria and appointment procedures;
–
to review the structure, size, and composition of the Board;
–
to make recommendations to the Board on the Board profile;
–
to make recommendations to the Board on the Board's policy
on diversity and inclusion;
–
to manage succession planning for the Board and senior
Executives of the Company; and
–
to review the Board evaluation process.
More detail on the role and duties of the Committee can be found
in the terms of reference on the Company’s website.
72
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Committee activities in FY23
The Committee considered the following matters during the year:
–
recommended to the Board the appointment of Neil Galloway
as the new Group CFO and his nomination as Executive
Director of the Company at the 2023 AGM;
–
recommended to the Board the nomination of Andy Bond (i) as
Non-Executive member of the Board and designate Chair of
the Board for approval at the 2023 AGM; and (ii) in September
2023, as Executive Chair; and
–
considered the composition of the Board Committees.
Board profile
The Board has prepared a profile of its size and composition,
taking into account the nature of the business, relevant activities,
and the preferred expertise and background of Board members.
The combined experience, expertise, background and
independence of the Board members enables the Board to
Statement from Maria
effectively carry out its duties and responsibilities in relation to the
Fernanda Mejia
Company and its stakeholders.
Chair of the Nomination Committee
The appointments of Pierre Bouchut, Brendan Connolly, María
from 2 October 2023.
Fernanda Mejía, and Grazyna Piotrowska-Oliwa ensure that
I am delighted to have been appointed
the composition of the Board complies with the independence
as the Chair of the Nomination
requirements of the Dutch Code and the Warsaw Code, and
Committee and would like to thank
Andy for his leadership of the
the appointments of Neil Brown, Helen Lee Bouygues, and Paul
Committee in FY23.
Soldatos to the Board ensure that the composition of the Board
complies with the terms of the Relationship Agreement. I was
Since the close of the previous reporting
period, the Committee has reviewed
appointed as a Non-Executive member of the Board at the
areas of strategic priority:
February AGM and subsequently elected Chair of the Board.
Following the resignation of the CEO, I have stepped into the role
–
Succession planning;
of Executive Chair until a successor CEO is appointed.
–
Diversity & Inclusion policy;
–
Board profile;
Board diversity
–
Directors Retirement Schedule;
The Company has a Board Diversity Policy, which underscores
our commitment to promoting equality, diversity and inclusion in
–
Nomination Committee Terms of
the boardroom. Please see our Corporate Governance section on
Reference; and
page 63 for more information on Board diversity.
–
Adopted the Nomination Committee
report of the former Chair.
Within FY24, the Committee intends to
Andy Bond
conduct an externally led evaluation of
Nomination Committee Chair
our Board, review the Group’s succession
plans and, of course, forge ahead with
22 December 2023
our search for a new CEO.
I look forward to working with the
Committee to ensure Board leadership
through this next phase of growth for
the business.
73
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Remuneration Committee report
Rewarding
performance
Dear Shareholders,
I would like to thank our shareholders for their continued support
in 2023, during which time we have faced many changes as a
business. We amended our Remuneration Policy at the AGM in
February 2023 to align with our strategy and have continued to
operate within this for the year.
As a Dutch company listed on the WSE we have various reporting
requirements and, as we did last year, we have chosen to
supplement these with additional information in the interests of
transparency. This letter and the Remuneration report on pages
77 to 81 will also be presented for an advisory vote at our next
AGM. We would like to thank our shareholders for supporting our
Remuneration report at our AGM in February 2023.
Introduction
The Remuneration Committee’s purpose is to develop a reward
package for Executive Directors and senior managers that
supports the Company’s vision and strategy, and to ensure
that rewards are performance based, encourage long-term
shareholder value creation and take into account the
remuneration of the whole workforce. More detail on the role and
duties of the Committee can be found in the terms of reference on
the Company’s website.
Committee composition
Brendan Connolly
The Committee comprises five members, each of whom is a
Remuneration Committee Chair
Non-Executive Director of the Company. Three members constitutes
a quorum. Pierre Bouchut, Grazyna Piotrowska-Oliwa and I are
members of the Committee who are independent Non-Executive
Directors within the meaning of the Dutch Code and Warsaw
Code. Paul Soldatos and Neil Brown are not considered to be
independent. The Chair of the Board may not be a member of
the Remuneration Committee. The Company Secretary acts as
secretary to the Committee. Other individuals, including senior
Executives and external professional advisors to the Committee,
may be invited to attend when appropriate and necessary.
No individual will be present when their own remuneration
is discussed.
The Remuneration Committee meets at least three times each
year and is responsible for preparing the decision making of the
Board on the remuneration of members of the Board and selected
senior Executives.
The Committee is also responsible for reporting to the Board on
the implementation of the Remuneration Policy in each year in the
context of the achievement of the Company’s long-term strategy
and objectives.
74
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Responsibilities
–
reviewed the 2023 AGM feedback and issues raised by proxy
voting agencies;
The main duties of the Remuneration Committee are as follows:
–
to recommend to the Board the Remuneration Policy of
–
considered alignment of Executive pay with Company culture;
the Company;
–
reviewed the Remuneration Report; and
–
to advise on and recommend to the Board the remuneration
–
considered the mechanism to be used to calculate the value
framework for the Executive Directors and selected senior
of participation rates for 2023 under the VCP.
Executives and to advise the AGM on the remuneration of the
Non-Executive Directors;
Board changes
–
to advise on the structure of and target setting for
Chair appointment
performance-based incentive plans of the Company,
During the year, Richard Burrows stepped down as Non-Executive
including monitoring performance against any targets;
Director and Chair of the Board. Following the recommendation
of the Board and the approval of the shareholders at the AGM on
–
to review all share incentive plans for approval by the Board
2 February 2023, Andy Bond was appointed as Chair of the Board
and shareholders; and
with effect from the close of the meeting.
–
to prepare the Remuneration Report.
Outgoing CEO and Executive Chair appointment
Trevor Masters stepped down from the Board and as CEO on
Committee activities in FY23
11 September 2023. In the interim period, Andy Bond has stepped
During the reporting period, the Board focused on the areas as set
up as Executive Chair whilst we search for an appropriate CEO
out below:
candidate. On appointment as Executive Chair, Andy received
–
reviewed remuneration for the Executive Directors and
a salary of £835,000 and will receive a bonus of up to 150% of
his annual base salary. This salary is reflective of the increased
selected senior Executives;
time commitment involved. Andy will maintain his previous VCP
–
reviewed the revised terms of the Company’s Value Creation
participation percentage of 1.0%.
Plan including alternative financial measurement;
Trevor will receive a payment equal to his salary and benefits over
–
reviewed and approved the remuneration packages for our
the remainder of his notice period until 11 March 2024, a statutory
Executive Chair, and outgoing remuneration for both our
severance payment of £11,000 (in accordance with Polish law),
previous Chair and previous CEO;
and severance pay as described in the Remuneration Report. He
will also remain eligible to receive 334,482 shares by reason of his
–
reviewed performance against FY23 bonus targets for the
nil-cost options granted in 2022, subject to reaching the vesting
Executive Directors;
target at the end of financial years 2023 and 2024.
–
reviewed the FY23 Short-Term Incentive Plan (STIP) targets and
CFO appointment to the Board
salary levels for Executive Directors;
Neil Galloway was appointed as CFO and as an Executive member
–
considered the Executive remuneration market update;
of the Board at the 2023 AGM. On appointment to the Board, Neil’s
salary was set at £600,000 with a pension allowance of 13% of
–
reviewed the terms of reference to ensure alignment with the
his salary.
Dutch Code and Warsaw Code;
Neil is eligible for a maximum bonus of 150% of salary and, upon
–
considered appropriate metrics for the Group LTIP;
appointment, had a VCP participation percentage of 0.6%. Neil
–
reviewed Non-Executive Director fees for 2024;
was awarded nil-cost options over 156,888 shares to compensate
for the loss of an award in his previous role, which will vest on
–
reviewed Executive Directors’ shareholdings against
1 April 2026, subject to conditions. In October 2023, the Committee
shareholding requirements;
agreed with Neil that his VCP participation percentage would be
–
reviewed and approved the annual cap for VCP participants;
replaced with the Group LTIP, at a level of 250% of salary, together
with the grant of 125% salary in restricted stock units (RSUs) in
exchange for the loss of VCP participation.
75
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Remuneration Committee report continued
Remuneration outcomes in FY23
Long Term Incentive Plan
At the AGM held in January 2022 we received your support for the
Base salaries
introduction of a new LTIP. Until the VCP concludes, the new LTIP is
Andy Bond and Neil Galloway did not receive salary increases
intended to be used alongside the VCP for senior Executives.
as their salaries were set upon appointment during the year. The
Executive Directors receive a pension allowance of 13% of salary.
Chair and Non-Executive Director fees
As mentioned above, Andy has agreed to take on the role of
During the year, Trevor Masters and Neil Galloway received a
Executive Chair until we have a permanent CEO in place; therefore,
pension allowance of 13% of salary. Andy Bond does not receive a
Andy’s current base salary of £835,000 will be inclusive of his
pension allowance.
Chair’s fee. He will retain his 1.0% participation right in the VCP
Bonus plan
which is subject to an annual cap of €14m. It should be noted that
The bonus plan for FY23 for the Executive Directors consisted
a review of Non-Executive fees will take place during FY24.
of a financial goal of €869.7m of the Group's underlying EBITDA
Alignment to Group strategy
delivery on an IFRS 16 basis, representing 80% of the annual bonus
opportunity, with the balance based on achieving certain personal
Growth is the main strategic driver and is well aligned to the
and strategic goals.
remuneration structure where both value creation (through
the VCP) and delivering yearly and longer-term targets are
Neil Galloway was awarded a cash bonus of £600,000 paid in
incorporated into the annual bonus plan and LTIP respectively.
October 2023, following an assessment by the Committee of
his personal contribution during the year as the formal bonus
objectives were not deemed to be suitable.
Conclusion
In FY23 we have moved the Company towards a more
As explained in last year’s report, bonus opportunities for
standardised and recognisable structure of STIPs and LTIPs and
Executive Directors increased from 100% of salary to 150% of salary,
agreed a move away from the VCP, as well as dealing with the
following a change in the Policy. The bonus plan has a financial
personnel changes as highlighted.
element (Group underlying EBITDA on an IFRS 16 basis) of 80% and
a strategic/personal element of 20%.
After due consideration and debate, we believe the remuneration
outcomes to be fair in terms of alignment to the stakeholder
For FY24, the maximum bonus opportunity for the CFO will remain
experience and, other than setting appropriate packages in
at 150% of salary, with the Executive Chair receiving a maximum
relation to appointment and first year performance, no discretion
bonus opportunity of 150% of base salary (pro-rated for the time
was applied. I would like to thank the Committee for its work,
he is fulfilling the role of Executive Chair).
debate, and input during the year and look forward to interacting
The bonus opportunity will be divided into 80% for underlying
with our stakeholders during 2024.
Group EBITDA on an IAS 17 basis and 20% for strategic goals. This
financial performance metric is aligned with senior management’s
bonus plan.
Brendan Connolly
Remuneration Committee Chair
Value Creation Plan
Trevor Masters received an additional grant of participation rights
22 December 2023
in the VCP of 1.15%, taking his aggregate participation in the VCP to
a holding of 2.0%.
During the year we have continued to review the effectiveness of
the VCP. Upon the recommendation of the Committee, the Board
exercised its discretion to apply an EBITDA target as an alternative
measurement criteria in respect of the nil-cost options granted on
14 February 2022 to specific VCP participants. Further, the annual
caps for Trevor Masters, Andy Bond, and any other Executive
Director (including Neil Galloway) were set at €20m, €14m and
€10m respectively.
Last year we decided that with a new CEO and CFO, and the
development of a new strategy, the Remuneration Committee
should review the VCP terms. Following shareholder approval, we
made changes to the operation of the VCP to permit the Chair to
participate, to rebase the valuation from which participants could
benefit, extend the period of the plan and introduce additional
caps. However, moving forward, we will transition into the use of
the LTIP for any new CEO appointment and for our CFO.
In summary, the Committee has discussed the operation of the
VCP, and has decided to move towards closure of the VCP in
favour of the new Group LTIP.
76
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Remuneration report
The following section provides details of how Board members were paid during the financial year to 30 September 2023.
The Remuneration Committee members, activities and meetings during the year are set out on pages 64 and 75, along with the
Committee’s purpose, roles and responsibilities, and are thereby included in this part of the report by reference.
The Remuneration Committee took scenario analyses into account when initially setting the Remuneration Policy, and continues to take
them into account when operating the Remuneration Policy. None of the Directors received any remuneration from entities within the
Group other than as disclosed in this report. The Remuneration Committee did not deviate from the Remuneration Policy in the year.
No concerns or issues were raised with respect to the advisory vote of the AGM approving the 2022 Remuneration Report.
Advisors
Korn Ferry is a signatory to the UK Remuneration Consultants Group Code of Conduct (the Code of Conduct) and was appointed by the
Remuneration Committee in 2021 having submitted a proposal which demonstrated its skills and experience in executive remuneration
both in the UK and across Europe. Korn Ferry provides advice to the Committee on matters relating to Executive remuneration.
The Committee was satisfied that the advice provided by Korn Ferry remains objective and independent, having noted its commitment to
the Code of Conduct.
Single total figure of remuneration table
Salary/
Taxable
Total fixed
Total variable
fees
benefits
Pension
Bonus
LTIP
Other
Total remuneration remuneration
remuneration
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
FY23
FY22
FY23
FY22
FY23
FY22
FY23
FY22
FY23 FY22
FY23
FY22
FY23
FY22
FY23
FY22
FY23
FY22
Executive Directors
Trevor
Masters
731,423 319,638 48,148 7,562 133,869
—
— 319,638 3,115,308
— 625,109
— 4,653,857 646,838 913,440 327,200 3,740,417 319,638
Neil
Galloway 344,610
—
8,937
—
44,799
— 689,220
—
—
—
—
— 1,087,566 — 398,346 689,220
—
—
Andy
Bond*
327,335 241,941
9,659 17,475
—
—
— 159,854
—
—
—
37,222 336,994 456,492 336,994 259,416
— 197,076
Nick
Wharton
— 345,774
—
11,522
—
—
— 228,459
—
—
— 124,251
— 710,005
— 357,296
— 352,709
Executive Directors (Post-Retirement)
Andy
Bond*
— 283,248
—
—
—
—
—
—
—
—
—
—
— 283,248
— 283,248
—
—
Nick
Wharton
— 246,981
—
—
—
—
— 163,185
—
—
—
—
— 410,166
— 246,981
— 163,185
Non-Executive Directors
Richard
Burrows
164,838 472,080
—
—
—
—
—
—
—
— 238,056
—
402,894 472,080 164,838 472,080 238,056
—
Pierre
Bouchut*
89,024 88,515
—
—
—
—
—
—
—
—
—
—
89,024 88,515 89,024 88,515
—
—
Helen Lee
Bouygues
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
-
-
Neil
Brown
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Brendan
Connolly*
89,024 88,515
—
—
—
—
—
—
—
—
—
—
89,024 88,515 89,024 88,515
—
—
María
Fernanda
Mejía
71,219 70,812
—
—
—
—
—
—
—
—
—
—
71,219 70,812 71,219 70,812
—
—
Grazyna
Piotrowska-
Oliwa
71,219 70,812
—
—
—
—
—
—
—
—
—
—
71,219 70,812 71,219 70,812
—
—
Paul
Soldatos
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
*
FY23 Committee Chair.
Notes to the table
1
Trevor was appointed as permanent CEO with effect from 1 May 2022 and stepped down on 11 September 2023. His remuneration in the table is pro-rated for the
proportion of the year in which he performed the role; this includes some time before he was formally appointed into the role at the 2023 AGM.
2
Andy Bond has not formally been appointed as an Executive Director, but for the purpose of comprehensive disclosure, his remuneration will be expressed as an
Executive Director in order to reflect his Executive Director duties within his Executive Chair role. Andy became Chair on 2 February 2023; before becoming Executive
Chair on 12 September 2023. Andy’s fees for FY23 are therefore reflective of his annual fees as Chair of £400,000 and the salary he received as Executive Chair of
£835,000, each pro rated to the relevant periods. Andy did not receive any payments under the annual bonus plan during his time as Chair.
3
Andy Bond does not receive a separate pension payment within his role of Executive Chair. Trevor Masters and Neil Galloway’s pensions are in the form of a cash-
equivalent payment.
4
Andy Bond retired as CEO with effect from 1 April 2022. His post-retirement fees have been shown where he remained to the end of the financial year in an
advisory capacity.
5
Salary/fees, taxable benefits, and bonus are all short-term employee benefits.
6
The Company has not revised or clawed back the remuneration of any Directors in the year.
7
No loans, advances or guarantees have been provided to any Director.
8
Neil Brown, Helen Lee Bouygues, and Paul Soldatos did not receive payment from the Company for the financial year 2023.
9
‘LTIP’ in respect of Trevor Masters relates to 334,483 unexercised share options vested under the VCP in FY23 at 2 February 2023 closing share price of PLN43.00
10 ‘Other’ remuneration in respect of Trevor Masters includes severance payments.
11 ‘Other’ remuneration in respect of Richard Burrows relates to consultancy services provided between the close of the AGM and 31 July 2023.
12 Pension payments to Trevor Masters for FY23 include backdated payments relating to FY22.
77
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Remuneration report continued
FY23 annual bonus performance against targets
As discussed in the Remuneration Committee report, 80% of the maximum payout is conditional upon the delivery of the Group’s EBITDA
target and 20% is conditional upon strategic KPIs. The Committee exercised its discretion to award Neil Galloway a bonus of 100% salary,
following an assessment of his personal contribution during the year. Trevor Masters resigned prior to the end of the reporting period, and
therefore no bonus under the scheme was paid. Save for Andy Bond, Non-Executive Directors are not eligible for bonuses.
Directors’ share option plans in Pepco Group
The table below details outstanding share awards previously granted to the Executive Chair, the previous CEO, and the current CFO. Save
for Andy Bond, no share awards have been granted to the Non-Executive Directors.
Share
Share
Share
Share
awards
awards
awards
Total share
price
held at
Awarded
Vested
lapsed
held at
value at
Award Exercise
used
30 Sept during the during the during the
30 Sept
award Vesting
Exercise
Scheme
date price
(PLN)
2022
year
year
year
2023
(EUR) date
period
Andy Bond
VCP 14/2/22
Nil 46.3510 2,389,162
—
—
Nil 2,389,162 24,119,000
See 2/3/32
notes
Trevor Masters
VCP 14/2/22
Nil 46.3510
668,965
—
334,483
Nil
668,965 6,753,000
See 2/3/32
notes
Neil Galloway Buy-Out 12/10/23
Nil
30
—
—
—
—
156,888
738,598
See 1/4/26
notes
Neil Galloway
VCP 30/09/23
Nil
22.42
—
—
—
—
181,600
861,523
See 30/9/25
transfer
notes
1
The VCP award of nil-cost options granted to Andy Bond will be fully offset at vesting against founder shares.
2
The VCP award of nil-cost options granted to Trevor Masters partially vested under the discretion contained within the rules for the Committee to vary performance
conditions. The amended target for the 50% of these nil-cost options that fell to be tested for vesting in early 2023 was the achievement of underlying EBITDA of €668m
in FY22, which was met. The target for 50% of the remaining unvested nil-cost options is €783m for FY23. This target supplements the total shareholder return targets in
the VCP in relation to the nil-cost options granted on 14 February 2022.
3
The nil-cost options are capable of being granted under the VCP over various years, subject to annual hurdles up to early 2027 (further details are included in
the Remuneration Policy). Vesting is determined following the year end. Where the annual hurdle has been reached, awards may continue to vest until the eighth
vesting date.
4
VCP awards are also subject to a holding period which ends two years from the first vesting date for that award.
5
Following appointment, in acknowledgement of the forfeited short-term incentives from Neil’s past employment, Neil was granted nil-cost options equivalent to 150% of
his annual base salary. The grant was approved prior to 30 September 2023 and was formally documented on 12 October 2023.
6
The VCP opportunity granted to Neil Galloway is exchanged for RSUs as detailed in this table, alongside participation in the Group LTIP. The grant will vest in two years,
subject to financial performance measures, and has a one-year hold period.
Awards granted during the financial year to 30 September 2023
In the financial year to 30 September 2023, Trevor Masters received an additional grant of participation rights in the VCP of 1.15%, taking
his aggregate participation in the VCP to a holding of 2.0%, with effect from the date of his appointment as CEO. Upon appointment to
the role of Chair, Andy Bond was granted a participation of 1.0%, and upon appointment to the role of CFO, Neil Galloway was granted
a participation of 0.6%.
There have been no nil-cost options granted in the financial year under the VCP as the performance threshold was not met. No new
awards have been granted under the Equity Award Plan (EAP) during the financial year. Nick Wharton, who retired as a good leaver,
held 359,209 nil-cost options under the EAP which vested in full on 2 February 2023. The Board exercised its discretion to waive the
two-year holding period attaching to the EAP nil-cost options to recognise the retirement of Nick Wharton. Following receipt of a valid
notice of exercise under the EAP and in accordance with the terms of the EAP, the Board exercised its discretion to settle the EAP in cash.
Accordingly, on 6 March 2023, £2,952,881 was paid to Nick Wharton in full and final settlement of his nil-cost options under the EAP.
Neil Galloway – Buyout award
Following appointment, in acknowledgement of the forfeited short term incentives from Neil’s past employment, Neil was granted nil-cost
options equivalent to 150% of his annual base salary.
Date of grant
Number of share options
Vesting date
Performance conditions
12 October 2023
156,888
1 April 2026
Continued employment
The share price used to calculate the award was 30 PLN as approved by the Remuneration Committee, and the Polish National Bank
GBP/PLN exchange rate of 5.2296 was applied.
Neil Galloway – VCP transfer award
During the year, the Remuneration Committee approved a move to transition participants from the VCP to the new Group LTIP. Prior
to the end of the reporting period, Neil Galloway was granted: (i) a 250% of salary participation in the new Group LTIP; and (ii) a one-time
grant of 125% of salary in RSUs with performance measures applied in compensation for the removal of his VCP participation. The RSUs
vest after two years, subject to performance measures, and have a one-year holding period. In the event that Neil leaves the Group
before 1 April 2024, the RSUs will lapse. Any subsequent departure would result in a pro-rated calculation.
78
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Statement of Directors’ shareholding and share interests
Under the share ownership guidelines set out in the Remuneration Policy, the CEO and CFO are encouraged to build and maintain a
shareholding equivalent to at least 300% and 200% of their base salaries respectively. The 300% level will also apply to the Executive Chair
whilst in role. Shares are valued using the Company’s closing middle market share price on 29 September 2023 of 20.24 PLN, the PLN/EUR
exchange rate of 0.216, and the GBP/EUR exchange rate of 1.1487.
The following table shows how each Executive Director complies with the shareholding guidelines and the current holdings by Non-
Executive Directors as at 30 September 2023:
Unexercised
and/or Unvested
Shares
Shares and subject to a
held at
held by
service and
Current
30 September
connected
performance
Shareholding
shareholding
Requirement
2023
persons
requirement
requirement
% of salary
met
Executive Directors
Andy Bond
3,745,301
—
2,389,162
300% of salary
1,712%
Yes
Neil Galloway
—
—
338,488
200% of salary
0%
No
Trevor Masters
—
—
668,965
N/A
0%
N/A
Non-Executive Directors
María Fernanda Mejía
18,067
Grazyna Piotrowska-Oliwa
20,651
Pierre Bouchut
37,497
Brendan Connolly
25,700
Neil Brown
—
Paul Soldatos
—
1
Trevor Masters stepped down from the Board on 11 September 2023. The shareholdings in the table represent his holdings at the date of cessation.
2
Shares held by Andy Bond include shares held by investment vehicles.
3
There is not a requirement to maintain shareholdings post cessation of employment.
4
The nil-cost options issued to Andy Bond under the VCP in February 2022 when he was CEO will be offset against his founder shares, and underpinned, in line with
the VCP underpin mechanism approved by the AGM in February 2023. The shareholding requirements under the Remuneration Policy apply to Executive Directors.
Andy Bond is not an Executive Director; his information has been included to reflect his Executive Director duties as part of his Executive Chair role.
5
Helen Lee Bouygues held no shares.
Directors’ and employees’ remuneration table
The information below is in respect of the financial year ended 30 September 2023 against the prior year comparison.
Total
Total
remuneration
remuneration
2023
2022
€
€
Executive Directors
Andy Bond (Executive Chair and previously NED Chair)
336,994
739,740
Trevor Masters (previously CEO)
4,653,857
646,838
Neil Galloway (CFO)
1,087,566
—
Non-Executive Directors
Richard Burrows (Chair)
402,894
472,080
María Fernanda Mejía (NED)
71,219
70,812
Grazyna Piotrowska-Oliwa (NED)
71,219
70,812
Pierre Bouchut (Committee Chair)
89,024
88,515
Brendan Connolly (Committee Chair)
89,024
88,515
Neil Brown (NED)
—
—
Helen Lee Bouygues (NED)
—
—
Paul Soldatos (NED)
—
—
Andy Bond’s total remuneration for FY22 is based on his role as a CEO and for FY23 is based on his role as Chair from 2 February 2023
until 12 September 2023 when he became the Executive Chair. Richard Burrows stepped down as Chair from 2 February 2023.
79
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Remuneration report continued
Change in Director and employee remuneration
The following table outlines the percentage change from one year to the next for Director and employee remuneration, reported in line
with the regulations.
Executive pay ratio
The Dutch Civil Code requires the executive pay ratio and the trend to be disclosed in the annual Remuneration Report. The basis of the
pay ratio comparison uses the Dutch methodology of average employee remuneration.
The chart below summarises the five-year history of total remuneration for the Executive Directors, being the Group CEO and Group CFO,
alongside the average remuneration per FTE (excluding Executive Directors). Also shown is the remuneration ratio of the CEO versus the
average employee remuneration.
Note, that whilst the table has been shown in Euros to reflect the reporting currency of the Group, the Executive Directors were paid in GBP.
In FY23, Neil Galloway received a salary of £600,000 per annum and Trevor Masters received a salary of £650,000 per annum, which have
been pro-rated in the table below to reflect the portion of the year in which they were in the role.
FY19
FY20
FY21
FY22
FY23
€
€
€
€
€
CEO1,4, 6 total remuneration (A)
775,484
584,918
801,970
1,103,330
4,079,370
YoY %
38%
(25%)
37%
38%
270%
CFO1,3 total remuneration
388,767
697,906
964,442
710,005
1,087,566
YoY %
n/a
80%
38%
(26%)
53%
Average employee (FTE) total remuneration costs2 (B)
18,094
17,986
20,640
21,309
21,395
YoY %
(7%)
(1%)
15%
3%
0%
Ratio (A) versus ratio (B)
43:1
33:1
39:1
52:1
191:1
1
Remuneration of the CEO and CFO reflects the total remuneration by year including base salary, taxable benefits, Company pension contributions, STIPs and LTIPs
(where received). The GBP amounts have been converted to Euros based on FX rates used for consolidating the Group’s results.
2
Average employee remuneration is based on the total employee costs across the Group divided by average number of employees on a “full time equivalent”
basis by year.
3
The previous CFO joined the Group in May 2019; therefore, the 2019 figure reflects a partial year only. The previous CFO retired with effect from 1 May 2022 so the 2022
figure reflects the pre-retirement remuneration. The current CFO joined the Group on 1 April 2023, therefore, the 2023 figure reflects a partial year only.
4
The former CEO (Trevor) was appointed to the role in May 2022; therefore, the 2022 figure reflects an aggregated figure for the retired CEO (Andy) up to his retirement
in March 2022 and the former CEO from his appointment in May 2022.
5
Andy Bond’s remuneration in his role as Executive Chair has been included in the CEO line.
6
Remuneration for Trevor Masters includes unexercised share options and excludes severance payments.
Relative importance of spend on pay
The table below shows the Company’s expenditure on employee pay compared to distributions to shareholders between 1 October 2022
and 30 September 2023.
FY23
FY22
€m
€m
Distributions to shareholders
—
—
Total employee pay
724.5
678.3
Payments to past Directors
£
Nick Wharton1 (previous CFO)
2,952,881
1
See “Awards granted during the financial year to 30 September 2023” above.
Payments for loss of office
The financial arrangements in relation to the departure from office of Trevor Masters were in line with the Directors’ Remuneration Policy.
Trevor received an amount equal to the value of his salary and benefits for the six-month notice period in his contract. He retains the nil-
cost options which he was granted as a result of the VCP.
80
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Implementation of Policy from 1 October 2023 to 30 September 2024
Policy element
Andy Bond (Executive Chair)
Neil Galloway (CFO)
Base salary
£835,000
£600,000
Benefits
Pension of 13% of base salary, private medical
insurance, life assurance, income protection,
and car allowance
Annual bonus (payable in cash following
Maximum entitlement of £1,252,500
Maximum entitlement of £900,000
completion of the annual audit)
(150% of salary)
(150% of salary)
VCP
Participation percentage is 1%.
For FY24 VCP participation has been replaced
with the LTIP
LTIP Grant of performance share awards with
No participation
Annual grant of 250% of salary of performance
a three-year performance period and
share awards
additional two-year holding period (see below)
Malus and clawback
Provisions apply
Provisions apply
Shareholding requirement (whilst employed)
300% of salary (noting that Andy Bond
200% of salary
has not formally been appointed as an
Executive Director, but this requirement is
included to reflect the Executive nature of
his Chair role)
LTIP performance conditions
Awards granted to the CFO in FY24 will be subject to the following performance conditions which will be assessed by the Remuneration
Committee following the end of the 30 September 2026 financial year.
The performance conditions comprise of 30% EBIT growth measure, 60% IAS17 EBITDA measure, and 10% environmental measures.
Directors’ Remuneration Policy
This Remuneration Policy is available on our website and remains unchanged from the Policy adopted by the Board at the 2023
AGM. The Committee’s intention is that this Policy will operate for the three-year period to the AGM for the financial year ending on
30 September 2025, unless approval for a new Policy is sought sooner. When drafted and approved, the Policy did not envisage the
appointment of an Executive Chair. That role is however, covered by the way the Policy is to operate for an “Executive Director”.
The Remuneration Policy permits deviation from the policy in the event that it is required for long-term interests and stability of the
Company or for its profitability. Due to the changes in Board and Board Committee composition over this reporting period, it has been
necessary to adjust the remuneration of the Chair, utilising the scope of the CEO remuneration, to recognise his role as Executive Chair.
As part of the agreement to discontinue the operation of the VCP for the CFO, it was agreed that an RSU award would be granted to
the value of 125% of his salary. These two decisions were taken for the long-term interests of the Company. There have been no other
deviations from the Remuneration Policy (or the malus and clawback provisions contained within it) to report for the period ending
30 September 2023.
The proportion of fixed and variable remuneration
To support the Policy’s objectives to deliver long-term sustainable success of the Company, the remuneration package of our Executive
Directors includes a mix of fixed and variable remuneration. The proportion for FY23 is approximately 27% for fixed pay and 73% for variable
remuneration on a target basis. For Andy Bond the fixed element of pay is 100% and for Neil is 37% fixed, 63% variable.
Brendan Connolly
Remuneration Committee Chair
On behalf of the Board
81
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Deviation from the Dutch Corporate Governance Code and Warsaw Code
As the Company is listed on the WSE and incorporated under the laws of the Netherlands, the Company applies the Code of Best Practice
for WSE Listed Companies (the Warsaw Code) and complies with the Dutch Corporate Governance Code (the Dutch Code) by applying
principles and best practice provisions that are applicable or explaining why the Company deviates from them.
As the principles set out in the Warsaw Code are similar to the principles of the Dutch Code, the Company complies with a majority of the
principles and best practice provisions of the Dutch Code.
The Company currently does not apply the following provisions of the Dutch Code:
2.1.7 Independence of the
The Company operates a one-tier Board which complies with principle 2.1.7(i).
supervisory board
At the AGM held on 2 February 2023, Andy Bond was appointed Non-Executive member of the Board.
Consequently, the Company does not meet the criteria under best practice provision 2.1.7(ii).
At the same AGM, Trevor Masters was appointed Executive member of the Board and Neil Galloway
was confirmed as Executive member of the Board from the date of his commencement in the role of
CFO on 1 April 2023.
Following the three new appointments, the Board consists of four independent Non-Executive
Directors, three Non-Executive Directors, and one Executive Director.
With regard to principle 2.1.7(iii), two Non-Executive Directors are appointed to the Board pursuant
to arrangements between the Company’s majority shareholder (which holds more than 10% of the
shares of the Company) and certain of its creditors. This arrangement was entered into before the
Company listed on the WSE.
The conditions of appointment of the shareholder-nominated Non-Executive Directors are set
out in a Relationship Agreement between the Company and certain affiliates of the Company’s
majority shareholder. A summary of the key terms of the Relationship Agreement is available on the
Company’s website.
Given the nature of the Relationship Agreement, the independence of the supervisory board is not
expected to change in the short term.
2.1.9 Independence of
Andy Bond was formerly CEO and Executive Director of the Company. Therefore, Andy Bond is
the chairman of the
non-independent Chair of the Board. With effect from 12 September 2023, he is Executive Chair.
supervisory board
2.2.2 Appointment and
Members of the Board are appointed for a period of three years and may then be reappointed twice
reappointment periods –
for three-year periods. These appointment arrangements are common in the UK, and permitted
supervisory board members under the Warsaw Code to which the Company is subject to. For these reasons, the status of
compliance with 2.2.2 is not expected to change.
2.2.4 Succession
All members of the Board, save those mentioned in 2.1.7. above, were appointed during 2021.
The term of appointment for the creditor-appointed Non-Executive Directors is determined by the
Relationship Agreement, and the independent Non-Executive Directors have been appointed for a
term of three years, capable of extension for a further two three-year terms. A retirement schedule is
in place and has been published on the Company's website.
2.5.2 Code of Conduct
The Company does not currently have a Group-wide Code of Conduct. Most of the subject
matter which is traditionally included in a Code of Conduct is included in established policies and
procedures in place across the Group. However, the Company intends to consider the introduction of
a group-wide Code of Conduct in the new fiscal year.
2.5.4 Accountability
The Company does not currently have a Group-wide Code of Conduct. Most of the subject
regarding culture
matter which is traditionally included in a Code of Conduct is included in established policies and
procedures in place across the Group. However, the Company intends to consider the introduction
of a group-wide Code of Conduct in the new fiscal year.
3.3.2 Remuneration of supervisory In respect of work undertaken by them in relation to and in preparation for roles as Board members,
Board members
in the period prior to the Company’s listing on the WSE, one-off fees were paid to Richard Burrows,
Brendan Connolly, María Fernanda Mejía, Grazyna Piotrowska-Oliwa, and Pierre Bouchut which were
used by these individuals to subscribe for shares in the Company on admission to the WSE (at the
admission offer price).
Shares acquired by these Board members on admission must be held until the later of: (i) 26 May 2024; or
(ii) the first anniversary of the date on which the relevant Board member ceases his or her directorship
of the Company.
5.1.3 Independence of the
Andy Bond was formerly CEO and Executive Director of the Company. Therefore, Andy Bond does not
Chairman of the Board
qualify as independent within the meaning of best practice provision 2.1.8.
of Directors
82
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
The Company currently does not apply the following provisions of the Warsaw Code:
1.5 Disclose amounts expensed The Company’s businesses are empowered to partner with local charities to provide direct support
by the group in support of
to their local communities. The expenses have been reported for the first time this year, and will be
culture, sports, charities,
developed during the next financial year to include information on rationality.
media, social organisations,
trade unions, etc.
2.11.5 The supervisory board
The Company’s businesses are empowered to partner with local charities to provide direct support
prepares a report to the
to their local communities. The expenses have been reported for the first time this year, and will be
Annual General Meeting
developed during the next financial year to include information on rationality.
once per year to include an
assessment of the
rationality of expenses
referred to in principle 1.5
3.4
Basis of remuneration
Risk and compliance are managed by the Group General Counsel and the Senior Internal Auditor.
for those responsible for
The remuneration of these individuals is primarily dependent on the performance of delegated
risk, compliance and
tasks. However, consistent with all employees of the Company, a proportion of these individuals’
internal audit
respective annual bonuses is dependent on the Company achieving specific financial targets for the
relevant financial year. The financial targets for the Company’s annual bonus scheme are set by the
Company’s Remuneration Committee.
3.7
Group remuneration for risk, The remuneration of employees who work in risk and compliance roles and internal audit roles across
compliance and internal
the Group comprises a salary and eligibility to receive an annual bonus. A proportion of the annual
audit roles
bonus is dependent on the Company achieving specific financial targets. The financial targets
for the relevant company’s annual bonus scheme are set by the relevant company’s remuneration
committee and are aligned with the financial targets set by the Company’s Remuneration Committee.
The risk, compliance and internal audit functions of businesses within the Group report
organisationally to the CFO. Managers within the risk, compliance and internal audit functions of the
Group’s businesses attend the meetings of the local board’s audit committee.
6.3
Company incentive schemes The Company established an incentive scheme (the Value Creation Plan) for senior management of
the Group in March 2020, which was 12 months prior to the Company’s admission to the WSE.
The Value Creation Plan incentive scheme complies with the majority of the requirements of principle
6.3 except that the incentive scheme does not include non-financial targets and share options will
be issued to participants at nil cost.
83
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Directors’ report
The Board presents its report, together with the
Ethical conduct
The Board is committed to ensuring that all employees, customers
audited consolidated financial statements, for the
and suppliers act in an ethical manner. The Group has policies
year ended 30 September 2023.
in place relating to anti-bribery and corruption, anti-money
laundering, insider trading, and sanctions.
Indemnity provisions
> See further detail on page 22
The Company indemnifies all Directors within its Articles
Going concern
of Association.
The Board is satisfied that the Group will be able to operate within
In addition, the Company holds: (i) Directors’ and Officers’ liability
the levels of its facilities and resources for the foreseeable future
insurance, which provides cover for liabilities incurred by Directors
and deems it appropriate to adopt the going concern basis in
in the performance of their duties or powers; and (ii) Public Offering
preparing the financial statements. This is outlined in more detail in
of Securities Insurance, to ring-fence any exposure arising from the
the Going concern statement on page 45.
initial public offering in May 2021.
No payments were made as a result of the indemnity or by the
Additional information
insurer during the reporting period.
Political donations
No political donations were made and no political expenditure
Conflicts of interest
was incurred during the year (FY22: £Nil). The Company has an
Group-wide processes are in place to review potential conflicts
established policy of not making donations to any political party.
of interest held by senior management, including the Board.
Dividends
Conflicts are routinely raised at Board meetings and recorded
No dividends were recommended or paid.
as appropriate.
Significant post-balance sheet events
Audit information
There are no post-balance sheet events to report for FY23.
The Board confirms that: (i) to its knowledge there is no relevant
Articles of Association
audit information of which the auditors are unaware; and (ii) the
The Company’s Articles of Association may only be amended by a
Board has taken all reasonable steps to ascertain any relevant
resolution of the general meeting.
audit information and ensure that the auditors are aware of
such information.
Rules of Procedure
The Rules of Procedure provide for an internal division of tasks,
Information contained in the Strategic report
procedures, and decision-making of the Board of Directors of the
Company. In performing their duties, the Directors shall comply
The Strategic report on pages 1 to 57 contains certain information
with these rules.
required to be included within this Directors’ report. This relates to
employee matters, future developments, risk management, and
On 11 September 2023, Trevor Masters stepped down as CEO of the
how the Board considers the views of stakeholders.
Company. On 12 September, Andy Bond was appointed Executive
Chair with the responsibility for leading the Executive team and
To the extent that the reports contain forward-looking statements,
the overall management of the Company until a successor CEO
these are made by the Board in good faith based on the
is appointed. This is a deviation from the Rules of Procedure, in
information available at the time of the Annual Report.
particular the responsibilities of the Chair and CEO. This statement
is made in accordance with clause 20 of the Rules of Procedure.
Financial instruments
Details of the Group’s objectives and policies on financial risk
Research and development
management and of the financial instruments currently in use are
The Group designs products for sale in stores and has
set out in note 17 to the consolidated financial statements which
arrangements with suppliers for the development of goods.
form part of the report.
Further, the Group has invested in the use of more sustainable
products and packaging (see ESG section on pages 16 to 37 for
Employees
further details).
Diversity and inclusivity
Change of control
The Company is fully committed to the elimination of unlawful
The Senior Facilities Agreement provides that if the Company is
and unfair discrimination and values the difference that a diverse
delisted or otherwise removed from the Warsaw Stock Exchange,
workforce brings to the Company. The Company has policies
or all or substantially all of the assets of the Group are sold in
applicable to all colleagues in furtherance of these commitments
a single transaction or a series of transactions, the Company
and will continue to focus on developing these in the next
is required to notify the finance agent. Following a negotiation
financial year.
period, lenders have a right to cancel their commitments upon
giving 30 days’ notice.
Disabled people
The Group seeks to ensure that disabled people, whether
applying for a vacancy or already in employment, receive equal
opportunities in respect of job vacancies that they are able to
fulfil. They are not discriminated against on the grounds of their
disability and are given full and fair consideration of applications,
continuing training while employed, and equal opportunity for
career development and promotion. Where an existing colleague
suffers a disability, it is our policy to retain them in the workforce
where that is practicable.
84
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Board of Directors’ statement
The Board is responsible for preparing the Annual Report and
the financial statements in accordance with applicable law
and regulations.
The Board of Directors hereby represents, to the best of its
knowledge, that the statutory financial statements of the
Company and its consolidated subsidiaries for the year ended
30 September 2023 are prepared in accordance with the applicable
accounting standards and that they give a true and fair view of
the assets, liabilities, financial position, and results of the Company
and its consolidated subsidiaries, and that the report of the Board
of Directors for the year ended 30 September 2023 gives a true
and fair view of the position of the Company and its consolidated
subsidiaries as at 30 September 2023 and of the development and
the performance of the Company and its consolidated subsidiaries
during the year ended 30 September 2023, including a description
of the key risks that the Company is confronted with.
The Board confirms that:
i.
the report provides sufficient insights into any failings in
the effectiveness of the internal risk management and
control systems;
ii. the aforementioned systems provide reasonable assurance
that the financial reporting does not contain any
material inaccuracies;
iii. based on the current state of affairs, it is justified that the
financial reporting is prepared on a going concern basis; and
iv. the report states those material risks and uncertainties that
are relevant to the expectation of the Company’s continuity
for the period of 12 months after the preparation of the report.
Andy Bond
Neil Galloway
Executive Chair
Chief Financial Officer
22 December 2023
22 December 2023
85
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Financial
statements
Financial statements
Other information
87 Consolidated income statement
145 Articles of Association provisions
governing the distribution of profit
88 Consolidated statement of other
comprehensive income
146 List of branches
89 Consolidated statement of
147 Statutory list of all subsidiaries and
financial position
affiliated companies
90 Consolidated statement of
149 Glossary of terms
changes in equity
151 Shareholder information
92 Consolidated statement of
cash flows
93 Notes to the financial statements
128 Separate income statement
129 Separate statement of
financial position
130 Separate statement of changes
in equity
131 Separate statement of cash flows
132 Notes to the separate
financial statements
139 Independent auditor's report
86
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Consolidated income statement
for the year ended 30 September 2023
Year to
Year to
30 September
30 September
2023
2022
Note
€000
€000
Continuing operations
Revenue
3
Cost of sales
(3,381,068 )
(2,855,221 )
Gross profit
Administrative expenses
(2,039,332 )
(1,689,485 )
Other operating income
—
Operating profit from continuing operations
5
Financial income
6
Financial expense
7
(91,728 )
(54,856 )
Profit before taxation from continuing operations for the year
Taxation
9
(44,733 )
(51,900 )
Profit from continuing operations for the year
Loss on discontinued operations
26
—
(110 )
Profit for the year
Earnings per share
30
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
-c
-c
Basic earnings per share
Diluted earnings per share from continuing operations
-c
Diluted earnings per share from discontinued operations
-c
Diluted earnings per share
The notes on pages 93 to 127 form part of these financial statements.
87
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Consolidated statement of other comprehensive income
for year ended 30 September 2023
Year to
Year to
30 September
30 September
2023
2022
€000
€000
Profit for the year
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences – foreign operations
(55,513 )
Effective portion of changes in fair value of cash flow hedges
(38,060 )
(128,442 )
Net change in fair value of cash flow hedges reclassified to profit or loss
Deferred tax on items that are or may be reclassified subsequently to profit or loss
(13,430 )
Other comprehensive loss for the year, net of income tax
(87,046 )
(3,735 )
Total comprehensive income for the year
The notes on pages 93 to 127 form part of these financial statements.
88
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Consolidated statement of financial position
at 30 September 2023
30 September
30 September
2023
2022
Note
€000
€000
Non-current assets
Property, plant and equipment
10
Right-of-use asset
12
Goodwill and other intangible assets
11
Trade and other receivables
14
Derivative financial instruments
17
Deferred tax asset
18
Current assets
Inventories
13
Tax receivable
Trade and other receivables
14
Derivative financial instruments
17
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
15
Current tax liabilities
—
Lease liabilities
12
Borrowings
16
Derivative financial instruments
17
Provisions
19
Non-current liabilities
Trade and other payables
15
Lease liabilities
12
Borrowings
16
Derivative financial instruments
17
Provisions
19
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
20
Share premium reserve
20
Cash flow hedge reserve
(32,391 )
Merger reserve
(751 )
(751 )
Translation reserve
(25,784 )
(70,316 )
Share-based payment reserve
Retained earnings
Total shareholders’ equity
The notes on pages 93 to 127 form part of these financial statements.
89
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Consolidated statement of changes in equity
for the year ended 30 September 2023
Cash flow
Share-based
Share
Share
hedge
Translation
Merger
payment
Retained
capital
premium4
reserve1
reserve2
reserve3
reserve4
earnings
Total equity
€000
€000
€000
€000
€000
€000
€000
€000
Balance at 1 October 2022
(70,316 )
(751 )
Total comprehensive income for the period
Profit for the year
—
—
—
—
—
—
Other comprehensive income for the period
—
—
(131,578 )
—
—
—
(87,046 )
Total comprehensive income for the period
—
—
(131,578 )
—
—
Transactions with owners, recorded
directly in equity
Issue of share capital
—
—
—
—
—
—
Equity-settled share-based payments
(see note 21)
—
—
—
—
—
(2,817 )
—
(2,817 )
Total contributions by and distributions
to owners
—
—
—
—
(2,817 )
—
(2,807 )
Balance at 30 September 2023
(32,391 )
(25,784 )
(751 )
1
The cash flow hedge reserve represents the cumulative effect of fair value gains and losses on cash flow hedges in the Group.
2
The translation reserve represents the cumulative foreign exchange differences on the translation of the net assets of the Group’s foreign operations from their
functional currency to the presentation currency of the parent.
3
The merger reserve represents the difference between the cost of the Company’s investment in its subsidiaries acquired using the principles of merger accounting and
the aggregate carrying value of assets and liabilities of the subsidiaries acquired.
4
The Group implemented a Value Creation Plan (VCP) for its Executive Directors; see note 21.
The notes on pages 93 to 127 form part of these financial statements.
90
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Consolidated statement of changes in equity
for the year ended 30 September 2022
Cash flow
Share-based
Share
Share
hedge
Translation
Merger
payment
Retained
capital
premium4
reserve1
reserve2
reserve3
reserve4
earnings
Total equity
€000
€000
€000
€000
€000
€000
€000
€000
Balance at 1 October 2021
(14,803 )
(751 )
Total comprehensive income for the period
Profit for the year
—
—
—
—
—
—
Other comprehensive income for
the period
—
—
(55,513 )
—
—
—
(3,735 )
Total comprehensive income for the period
—
—
(55,513 )
—
—
Transactions with owners, recorded
directly in equity
Issue of share capital
—
—
—
—
—
—
—
—
Equity-settled share-based payments
(see note 21)
—
—
—
—
—
—
Total contributions by and distributions
to owners
—
—
—
—
—
—
Balance at 30 September 2022
(70,316 )
(751 )
1
The cash flow hedge reserve represents the cumulative effect of fair value gains and losses on cash flow hedges in the Group.
2
The translation reserve represents the cumulative foreign exchange differences on the translation of the net assets of the Group’s foreign operations from their
functional currency to the presentation currency of the parent.
3
The merger reserve represents the difference between the cost of the Company’s investment in its subsidiaries acquired using the principles of merger accounting and
the aggregate carrying value of assets and liabilities of the subsidiaries acquired.
4
The Group implemented a Value Creation Plan (VCP) for its Executive Directors; see note 21.
The notes on pages 93 to 127 form part of these financial statements.
91
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Consolidated statement of cash flows
for the year ended 30 September 2023
30 September
30 September
2023
2022
Note
€000
€000
Cash flows from operating activities
Profit/(loss) for the period:
Continuing operations
Discontinued operations
—
(110 )
Adjustments for:
Depreciation, amortisation and impairment
10,11
Right-of-use asset depreciation
12
Financial income
6
(10,220 )
(2,242 )
Financial expense
7
Profit on sale of property, plant and equipment
(477 )
—
Equity-settled share-based payment expenses
21
(2,817 )
Taxation
9
Increase in trade and other receivables
(62,238 )
(19,730 )
Increase in inventories
(175,524 )
(384,052 )
Increase in trade and other payables
Decrease in provisions and employee benefits
(17,192 )
(21,841 )
Settlement of derivatives
(38,099 )
(12,566 )
Cash generated by operations
Tax paid
(75,424 )
(61,387 )
Net cash inflow from operating activities
Cash flows used in investing activities
Proceeds from sale of property, plant and equipment
Interest received
—
Acquisition of a subsidiary net of cash acquired
—
—
Additions to property, plant and equipment
10
(363,823 )
(218,217 )
Additions to other intangible assets
11
(25,815 )
(6,764 )
Net cash outflow used in investing activities
(385,296 )
(224,355 )
Cash flows from financing activities
Proceeds from the issue of share capital
—
Proceeds from borrowings net of fees incurred
Repayment of borrowings
(315,000 )
(43,193 )
Interest paid
(18,809 )
(9,642 )
Payment of interest on lease liabilities
12
(61,367 )
(46,052 )
Repayment of lease liabilities
12
(325,594 )
(245,598 )
Net cash outflow from financing activities
(289,545 )
(299,485 )
Net (decrease)/increase in cash and cash equivalents
(22,146 )
(160,533 )
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations on cash held
(3,236 )
Cash and cash equivalents at end of period
The notes on pages 93 to 127 form part of these financial statements.
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Notes to the consolidated financial statements
1. Significant accounting policies
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group). The parent company financial statements present information about the Company as a separate entity and not about its Group.
The Group financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU (Adopted IFRSs), and also comply with the statutory provisions of part 9 of Book 2 of the Dutch Civil Code. The parent company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as endorsed by the EU and with part 9 of Book 2 of the Dutch Civil Code; these are presented on pages 127 to 137.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all years presented in these Group financial statements.
1.1 Measurement convention
The financial statements have been prepared on the historical cost basis except for derivatives which are measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share- based payment transactions that are within the scope of IFRS 2 and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
1.2 Going concern
In determining the appropriate basis of preparation of the 2023 consolidated financial statements, the Board of Directors are required to consider whether the Group and the Company can continue in operational existence for the foreseeable future.
At the time of signing the consolidated financial statements, the Directors have a reasonable expectation that the Group has sufficient resources to continue in operation for the foreseeable future, which is not less than 12 months from signing these financial statements. The Group undergoes a rigorous and comprehensive annual budgeting and long-term planning process which is reviewed and challenged by various stakeholders across management and the Board. This financial plan, which is ultimately approved by the Board, is then utilised to measure business performance and it also forms the ‘base case’ upon which the going concern analysis has been based.
In assessing going concern, the Group has considered a 2-year period to the end of FY25, beyond the minimum requirement of 12 months form the date of signing the financial statements. The Directors have considered a severe but plausible downside sensitivity and a reverse stress test. The analysis suggested that despite the harsh scenario assumptions, which the management judge to be very unlikely, the Group still retains sufficient headroom across the assessment period and is able to meet all the requirements of its lending covenants. It should also be noted that historically the Group continued to meet its convent obligations and maintain significant liquidity headroom throughout the extreme circumstances presented during the Covid-19 pandemic restrictions in 2020 and 2021. In addition, in June 2023 the Group has further strengthened its financial position through the completion of a €375m debut bond issuance, refinancing an existing €300m term loan, due to expire in April 2024 which would have fallen within the period under review for going concern. The Group also increased its Revolving Credit Facility from €190m to €390m to provide additional liquidity if required.
Further information regarding the Group’s business activities, together with the factors likely to affect its future development, performance and position including the ongoing store expansion strategy and the response to the current challenges faced by the tough macroeconomic environment and inflationary pressures, is set out in the Executive Chair's and CFO’s reports. Since the going concern assessment uses a base case which has been built on the financial plan, careful consideration has been given to the current macroeconomic environment and the future implications and impacts it may have.
Given the above, the Directors have deemed the application of the going concern basis for the preparation of these consolidation financial statements to be appropriate.
1.3 Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Acquisitions from entities under common control
In accounting for Group reorganisation as a business combination under common control, the following principles have been adopted:
–
Where investments are acquired in exchange for consideration and the transactions have economic substance the Group has chosen to account for these transactions at fair value by applying acquisition accounting in accordance with the principles of IFRS 3 as discussed in the accounting policy for business combinations.
–
Where businesses are acquired in exchange for the issue of shares, the Group has chosen to account for these transactions using the transferor’s book values (pooling of interest method) with the difference between the value of the net assets acquired and nominal value of the shares issued being recognised within a merger reserve in equity.
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N.V.
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1. Significant accounting policies continued
1.3 Basis of consolidation continued
Change in subsidiary ownership and loss of control
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are derecognised along with any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Unless otherwise indicated, the consolidated and parent company financial statements are prepared on the accruals basis in thousands of Euro (€000). The Euro is the Group’s presentation currency and the Company’s functional currency.
Group reorganisation
The Group undertook a Group reorganisation exercise during 2021. As part of this process, Pepco Group N.V. (formerly Pepco Group B.V.) was inserted above Pepco Group Limited in the Group’s structure.
On 13 May 2021, Pepco Group N.V. (the Company) acquired the entire shareholding of Pepco Group Limited and its related subsidiaries, by a way of a share for share exchange with Flow Newco Limited, becoming the Group’s immediate parent company. The insertion of the Company on top of the existing Pepco Group Limited does not constitute a business combination under IFRS 3 “Business Combinations” and instead has been accounted for as a Group reorganisation. Merger accounting has been used to account for this transaction.
1.4 Foreign currency
Transactions in foreign currencies are translated to the Group’s presentation currency at the monthly average foreign exchange rate. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Foreign exchange differences arising on translation are recognised in the income statement except for differences arising on the retranslation of qualifying cash flow hedges, which are recognised in other comprehensive income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentation currency, the Euro, at foreign exchange rates ruling at the statement of financial position date. The revenues and expenses of foreign operations are translated at the average rate during the month in which they were incurred. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in the translation reserve.
1.5 Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
a)
they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
b)
where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Group’s own shares, the amounts presented in this consolidated historical financial information for share capital exclude amounts in relation to those shares.
1.6 Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Financial assets – classification, subsequent measurement and gains and losses
On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or fair value through profit or loss (FVTPL).
The Group makes an assessment of the objective of the business model in which a financial asset is held because this best reflects the way the business is managed and information is provided to management.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
–
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
–
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Group does not have any financial assets accounted for at FVOCI. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets which are accounted for in accordance with the accounting policy (note 1.7) for derivative financial instruments and hedge accounting.
Notes to the consolidated financial statements continued
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1. Significant accounting policies continued
1.6 Non-derivative financial instruments continued
Financial liabilities – classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held for trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in the income statement.
See the accounting policy 1.7 regarding derivative financial instruments and hedge accounting for further information.
Derecognition
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which either substantially all of the risks and rewards of ownership of the financial asset are transferred, or the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. On derecognition of a financial asset, the difference between the carrying amount derecognised and the consideration received is recognised in the income statement.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in the income statement.
1.7 Derivative financial instruments and hedging
Derivative financial instruments (comprising foreign currency forward contracts and commodity hedges) are used to manage risks arising from changes in foreign currency exchange rates (primarily relating to the purchase of overseas sourced products) and fuel price fluctuations. The Group does not hold or issue derivative financial instruments for speculative trading purposes. The Group uses the derivatives to hedge highly probable forecast transactions and, therefore, the instruments are mostly designated as cash flow hedges.
Derivatives are recognised at fair value on the date a contract is entered into and are subsequently remeasured at their fair value. The effective element of any gain or loss from remeasuring the derivative instrument is recognised directly in the cash flow hedge reserve.
The associated cumulative gain or loss is reclassified from the cash flow hedge reserve in equity and recognised in the income statement in the same period or periods during which the hedged transaction affects the income statement. Any element of the remeasurement of the derivative instrument which does not meet the criteria for an effective hedge is recognised immediately in the income statement within financial income or financial expenses.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss which was reported in other comprehensive income is recognised immediately in the income statement.
The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months or as a current asset or liability if the remaining maturity of the hedged item is less than 12 months from the reporting date.
1.8 Property, plant and equipment
Property, plant and equipment are stated at purchase cost (together with incidental costs of acquisition) less accumulated depreciation and accumulated impairment losses.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
| Leasehold property improvements | – | Over the term of the lease |
| Fixtures and equipment | – | 3 to 25 years (dependent upon lease term) |
| Buildings | – | 10 to 40 years |
| Land | – | No depreciation is charged |
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
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1. Significant accounting policies continued
1.9 Business combinations
When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
1.10 Intangible assets and goodwill
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired. Goodwill is initially measured at cost, being the excess of the acquisition cost over the Group’s interest in the assets and liabilities recognised. Goodwill is not amortised, but is tested for impairment annually or whenever there is an indication of impairment. For the purposes of impairment testing, goodwill acquired is allocated to the cash-generating unit (CGU) that is expected to benefit from the synergies of the combination. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.
Brand
Brand is stated at cost less any accumulated amortisation and accumulated impairment losses. Brand is amortised over 40 years on a straight-line basis from 1 October 2018.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Software
Capitalised software costs include both external direct costs of goods and services, and internal payroll-related costs for employees who are directly associated with the software project.
Development costs are recognised as intangible assets when the following criteria are met:
–
It is technically feasible to complete the software so that it is available for use.
–
Management intends to complete the software for use in the business.
–
It can be demonstrated how the software will generate probable economic benefits in the future.
–
Adequate technical, financial and other resources are available to complete the project.
Capitalised software development costs are amortised on a straight-line basis over their expected economic lives.
Computer software under development is held at cost less any recognised impairment loss. Any impairment in value is recognised within the income statement.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each reporting date.
Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
| Trademarks | – | 5 years |
| Software | – | 3–7 years |
1.11 Inventories
Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete and slow-moving inventory. Cost is calculated on a weighted average basis. The Group estimates a slow-moving inventory provision based on prior stock performance and current market conditions. The Group also provides for obsolete inventory. Inventory cost includes all direct costs and an appropriate proportion of fixed and variable overheads.
Notes to the consolidated financial statements continued
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1. Significant accounting policies continued
1.12 Impairment excluding inventories and deferred tax assets
Financial assets (including receivables)
The Group is not exposed to large amounts of credit risk due to the nature of its operations as a direct to customer retailer; however, the Group recognises an allowance for expected credit losses for all financial assets measured at amortised costs. These losses are calculated with reference to the difference between contractual cash flows and cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit (CGU)). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to CGUs. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
1.13 Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less.
1.14 Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement in the periods during which services are rendered by employees.
Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity for equity-settled schemes or liabilities for cash-settled schemes, over the period in which the employees become unconditionally entitled to the awards. The fair value of the awards granted is measured using an option valuation model where appropriate, taking into account the terms and conditions upon which the awards were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting and/or market performance conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
1.15 Provisions
A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability and current market assessment of the time value of money.
1.16 Revenue
Revenue comprises the consideration paid for products by external customers at the point of sale in stores, net of value added tax and promotional discounts. Revenue is recognised on the sale of goods when the product is sold to the customer.
It is the Group’s policy to sell its products to customers with a right of return. The Group uses the expected value method to estimate the value of goods that will be returned, because this method best predicts the amounts of variable consideration to which the Group will be entitled. However, the level of returns is not considered material; therefore, no right of return asset or refund liability is recognised. On the basis of materiality revenue is therefore recognised at the full value of the consideration received. This is assessed on an ongoing basis.
The Group does not operate any loyalty programmes or sell gift cards.
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1. Significant accounting policies continued
1.17 Cost of sales
Cost of sales consist of costs related to purchase price of consumer products sold to customers and inbound shipping charges to distribution centres. Shipping charges to receive products from suppliers are included in inventory and recognised as cost of sales upon sale of products to customers. In addition, warehouse reception and storage costs are not incorporated into inventory valuation on the balance sheet but directly expensed through the income statement as distribution costs. Supplier rebates and contributions to common marketing or advertising campaigns are measured based on contracts signed with suppliers and are considered as a reduction of the prices paid for the products and, therefore, recorded as a reduction of the inventory cost.
1.18 Distribution costs
Distribution costs consist of costs incurred in operating and staffing distribution centres and stores and transporting inventory from distribution centres to stores. They consist of warehousing and store employee salaries and wages, store expenses, advertising costs and other selling expenses.
1.19 Administrative expenses
Administrative expenses consist of support office employees’ salaries and wages, impairment losses and reversals, gains and losses on the sale of non-current assets and disposal groups held for sale, restructuring costs and other general and administrative expenses.
1.20 Lease accounting
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets (such as personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
Lease liability – initial recognition
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted at the Group’s incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
–
fixed lease payments (including in-substance fixed payments), less any lease incentives;
–
variable lease payments that depend on an index or rate (such as RPI), initially measured using the index or rate at the commencement date;
–
the amount expected to be payable by the lessee under residual value guarantees;
–
the exercise price of purchase options where the Group is reasonably certain to exercise the options; and
–
payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs. As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient.
The lease liability is presented as a separate line in the Consolidated statement of financial position, split between current and non- current liabilities.
Lease liability – subsequent measurement
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
Lease liability – remeasurement
The lease liability is remeasured where:
–
there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; or
–
the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments’ change is due to a change in a floating interest rate, in which case a revised discount rate is used); or
–
the lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
When the lease liability is remeasured, an equivalent adjustment is made to the right-of-use asset unless its carrying amount is reduced to zero, in which case any remaining amount is recognised in profit or loss.
Right-of-use asset – initial recognition
The right-of-use asset comprises the initial measurement of the corresponding lease liability, lease payments made at or before the commencement date and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Where the Group has an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.
The right-of-use asset is presented as a separate line in the balance sheet.
Notes to the consolidated financial statements continued
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1. Significant accounting policies continued
1.20 Lease accounting continued
Right-of-use asset – subsequent measurement
Right-of-use assets are amortised over the shorter of the lease term and useful life of the underlying asset.
Impairment
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the “Impairment – non-financial assets” policy.
1.21 Taxation
Tax on the profit or loss for the year comprises current and deferred tax recognised and measured in accordance with IAS 12. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
The Group has adopted International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12) upon their release on 23 May 2023. The amendments provide a temporary mandatory exception from deferred tax accounting for the top-up tax, which is effective immediately, and require new disclosures about the Pillar Two exposure for accounting periods beginning on or after 1 January 2023.
The mandatory exception applies retrospectively. However, because no new legislation to implement the top-up tax was enacted or substantively enacted at 30 September 2022 in any jurisdiction in which the Group operates and no related deferred tax was recognised at that date, the retrospective application has no impact on the Group’s consolidated financial statements.
1.22 Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker. The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board that makes strategic decisions.
1.23 Government grants
Grants are recognised only when there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.
1.24 Events after the balance sheet date
The consolidated financial statements are adjusted to reflect events that occurred provided they give evidence of conditions that existed at the balance sheet date.
Events that are indicative of conditions that arose after the balance sheet date are disclosed where significant, but do not result in an adjustment of the consolidated financial statements themselves.
1.25 Supplier income
Rebate income
Rebate income consists of income generated from volume-related rebate agreements and other supplier funding received on an ad hoc basis for in-store promotional activity. The income received is recognised as a credit against cost of sales.
Volume-related income is recognised based on the expected entitlement at the reporting date based on agreed and documented contractual terms. Where the contractual period is not yet complete, the Group will estimate expected purchase volumes taking into account current performance levels to assess the probability of achieving contractual target volumes.
Other supplier funding is recognised as invoiced to the suppliers, subject to satisfaction of any related performance conditions. To minimise the risk arising from estimate, supplier confirmations are obtained at the reporting date prior to amounts being invoiced.
Promotional funding
Promotional pricing income relates to income received from suppliers to invest in the customer offer. It is recognised as a credit against cost of sales. Timing of invoicing of amounts due is agreed on an individual basis with each supplier.
Uncollected supplier income at the reporting date is presented within the financial statements as follows:
–
Where there is no practice of netting commercial income from amounts owed to the supplier, the Group will present amounts due within trade receivables.
–
Where commercial income is earned but not invoiced to the supplier at the reporting date, the amount due is included within prepayments and accrued income.
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1. Significant accounting policies continued
1.26 Financial income and expenses
Financial expenses comprise interest payable and the ineffective portion of change in the fair value of cash flow hedges that are recognised in the income statement. Financial income comprises interest receivable on funds invested and the ineffective portion of changes in the fair value of cash flow hedges.
Interest income and interest expense are recognised in the income statement as they accrue, using the effective interest method.
1.27 Reserves
Share capital
Called-up share capital represents the nominal value of shares that have been issued. Share premium represents the difference between the issue price and the nominal value of the shares issued.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax from the proceeds.
Cash flow reserve
The cash flow hedge reserve represents the effective portion of cash flow hedges where the contract has not yet expired. The reserve is stated net of the associated tax. The effective portion is recycled to the income statement upon expiry of the contract or when the hedged future cashflows affect profit or loss.
Translation reserve
The translation reserve represents the cumulative translation differences for foreign operations.
Merger reserve
The merger reserve arose on consolidation as a result of the acquisition of the Pepco Group companies and Pepkor Import BV on 4 May 2016 and also the acquisition of Fully Sun China Limited and its subsidiaries on 18 January 2018 and the share for share exchange transaction that took place on 13 May 2021. It represents the difference between the cost of the Company’s investment in its subsidiaries acquired using the principles of merger accounting and the aggregate carrying value of assets and liabilities of the subsidiaries acquired.
1.28 New standards and amendments
Standards adopted by the Group for the first time
A number of new and revised standards, including the following, are effective for annual periods beginning on or after 1 January 2022:
–
Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture
– Annual Improvements to IFRS Standards 2018–2020 (effective 1 January 2022)
–
Amendments to IFRS 3 Business Combinations – Reference to the Conceptual Framework (effective 1 January 2022)
–
Amendments to IAS 16 Property, Plant and Equipment – Proceeds before Intended Use (effective 1 January 2022)
–
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts – Cost of Fulfilling a Contract (effective 1 January 2022)
Adoption of these standards has not had an impact on the Group’s financial statements.
Standards and interpretations to existing standards which are not yet effective and are under review as to their impact on the Group.
The following standards and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 October 2023 or later periods but which the Group has not early adopted:
–
IFRS 17 Insurance Contracts, including amendments Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective 1 January 2023)
–
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates (effective 1 January 2023)
–
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements – Disclosure Initiative: Accounting Policies (effective 1 January 2023)
–
Amendments to IAS 12 Income Taxes – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (effective 1 January 2023)
–
Amendments to IFRS 16 Leases – Lease Liability in a Sale and Leaseback (effective 1 January 2024)
–
Amendments to IAS 1 Presentation of Financial Statements – Non-current Liabilities with Covenants, Classification of liabilities as current or non-current (effective 1 January 2024)
–
Amendments to IAS 7 and IFRS 7 regarding supplier finance arrangements (effective 1 January 2024)
–
Amendments to IAS 21 to clarify the accounting when there is a lack of exchangeability (effective 1 January 2025)
No other new standards, new interpretations or amendments to standards or interpretations have been published which are expected to have a significant impact on the Group’s financial statements. In relation to the published standards and interpretations above, the Groupis continuing to assess the impact on the financial statements for future periods and expects there to be no significant material impact.
Notes to the consolidated financial statements continued
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1. Significant accounting policies continued
1.29 Accounting estimates and judgements
The preparation of these financial statements requires the exercise of judgement, estimates and assumptions that affect the application of policies and reported amount of assets and liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and various other factors, including expectations of the future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period impacted.
The Group makes estimates and assumptions concerning the future. By definition, the resulting accounting estimates will seldom equal the related actual results. The Directors continually evaluate the estimates, assumptions and judgements based on available information and experience.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.
Impairment of intangible assets (goodwill and other intangible assets) and right-of-use assets
The Group assesses whether there are any indicators of impairment as at the reporting date for all intangible assets and right-of-use assets. Goodwill is tested for impairment annually and at other times when such indicators exist. Other intangible assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
When value in use calculations are undertaken, the Directors must estimate the expected future cash flows from the cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. The key sources of estimation uncertainty are the future business performance over the forecast period (five years), projected long-term growth rates and the discount rates applied. See note 11 for detailed disclosures.
The useful life is considered to be 40 years which represents management’s best estimate of the period over which the brand will be utilised based on the trading history of the business, future financial projections and ongoing investment in the business, along with the retail segment occupied by Poundland and the active proposition development happening within the business. The brand is amortised on a straight-line basis. See note 11 for detailed disclosures.
The judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.
Where a rate implicit to the lease is not available, the selection of a discount rate for a lease is based upon the marginal cost of borrowing to the business in relation to the funding for a similar asset.
Management calculates appropriate discount rates based upon the marginal cost of borrowing currently available to the business as adjusted for several factors including the term of the lease, the location and type of asset and how often payments are made.
Management considers that these are the key details in determining the appropriate marginal cost of borrowing for each of these assets. See note 1.20 for detailed disclosures.
Management exercises judgement in determining the lease term on its lease contracts. Within its lease contracts, particularly those in respect of its retail business, break options are included to provide operational and financial security should store performance be different to expectations. At inception of a lease, management will typically assess the lease term as being the full lease term as such break options are not typically considered reasonably certain to be exercised.
As stated in the accounting policies, the discount rate used to calculate the lease liability is based on the incremental borrowing rate. Incremental borrowing rates are determined quarterly and depend on the lease term, currency and start date of the lease. The incremental borrowing rate is determined based on a series of inputs including the risk-free rate based on government bond rates, country specific risk and entity specific risk. See note 12 for detailed disclosures.
1.30 Non-underlying items
Management exercises judgement in determining the adjustments to apply to IFRS measurements. Management believes these measures provide additional useful information to illustrate the underlying trends, performance and position of the Group. Non-underlying adjustments constitute material, exceptional, unusual and other items. In determining whether events or transactions are treated as non- underlying items, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Examples of charges or credits meeting the above definition and which have been presented as non-underlying items in the current and/ or prior years include:
–
IFRS 2 charges in respect of management Value Creation Plan;
–
cost relating to implementation of Software-as-a-Service IT solutions and expensing significant ERP programme costs incurred; and
–
business restructuring programmes.
In the event that other items meet the criteria, which are applied consistently from year to year, they are also treated as non-underlying items. Further information about the determination of non-underlying and other items in financial year 2023 is included in note 4. The non- underlying items are not defined by IFRS.
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1. Significant accounting policies continued
1.31 Alternative performance measures (APMs)
Management exercises judgement in determining the adjustments to apply to IFRS measurements in order to derive suitable APMs. As set out in note 27, APMs are used as management believes these measures provide additional useful information on the underlying trends, performance and position of the Group. These measures are used for performance analysis. The APMs are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs. These measures are not intended to be a substitute for, or superior to, IFRS measurements.
2. Segmental analysis
Operating segments are defined as components of the Group about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance.
The Group has identified two significant revenue-generating operating segments. One being businesses trading under the Pepco banner and the second being business trading under the Poundland and Dealz banners. A third “other” operating segment includes the Group’s sourcing operations, Group functions and other activities that do not meet the threshold requirements for individual reporting.
EBITDA is the primary profit metric reviewed by the CODM and has been presented by operating segment with a reconciliation to operating profit. EBITDA is defined as operating profit before depreciation, amortisation, impairment, profit/loss on disposal of tangible and intangible assets and other expenses.
Tax and interest are not reviewed by the CODM on an operating segment basis.
Segment assets and liabilities are measured in the same way as in the consolidated financial statements. These assets and liabilities are allocated based on the operations of the segment and the physical location of the asset. Investments in subsidiaries within the Group, along with relevant consolidation adjustments and eliminations are allocated to the relevant segment. Assets and liabilities included within the “other” segment relate to balances held by the Group’s sourcing operations
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| External revenue | ||
| Pepco | 3,415,598 | 2,714,003 |
| Poundland Group | 2,233,287 | 2,108,816 |
| Group external revenue | 5,648,885 | 4,822,819 |
| Underlying EBITDA | ||
| Pepco | 552,037 | 519,382 |
| Poundland Group | 204,406 | 214,121 |
| Other | (3,090) | (2,765) |
| Group underlying EBITDA | 753,353 | 730,738 |
| Reported EBITDA | ||
| Pepco | 528,657 | 501,843 |
| Poundland Group | 171,196 | 180,805 |
| Other | 1,899 | (17,716) |
| Group EBITDA | 701,752 | 664,932 |
| Less reconciling items to operatingprofit | ||
| Depreciation of right-of-use asset | (309,000) | (260,284) |
| Depreciation of property, plant and equipment | (151,807) | (108,740) |
| Impairment of property, plant and equipment | (3,130) | (8,401) |
| Amortisation of other intangibles | (9,572) | (9,261) |
| Profit on disposal of property, plant and equipment | 477 | 227 |
| Other expenses | (235) | (244) |
| Group operating profit from continuing operations | 228,485 | 278,229 |
All income statement disclosures are for the continuing business only. The total asset, total liability and capital expenditure disclosures are for the entire Group.
Notes to the consolidated financial statements continued
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2. Segmental analysis continued
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Depreciation and amortisation | ||
| Pepco | 294,322 | 226,486 |
| Poundland Group | 174,582 | 150,461 |
| Other | 1,475 | 1,338 |
| Group depreciation and amortisation | 470,379 | 378,285 |
| Impairment of property, plant and equipment and intangible assets | ||
| Pepco | 3,130 | (238) |
| Poundland Group | — | 8,639 |
| Group impairment of property, plant and equipment and intangible assets | 3,130 | 8,401 |
| Total assets | ||
| Pepco | 2,607,113 | 2,307,013 |
| Poundland Group | 1,928,644 | 1,478,781 |
| Other | 55,060 | 213,534 |
| Group total assets | 4,590,817 | 3,999,328 |
| Total liabilities | ||
| Pepco | 1,788,940 | 1,377,556 |
| Poundland Group | 883,163 | 1,131,319 |
| Other | 761,569 | 345,699 |
| Group total liabilities | 3,433,672 | 2,854,574 |
| Additions to non-current assets | ||
| Pepco | 561,587 | 376,369 |
| Poundland Group | 267,101 | 188,219 |
| Other | 946 | 7,905 |
| Group additions to non-current assets | 829,634 | 572,493 |
3. Revenue and Geographical segments
Revenue comprises the consideration paid for products by external customers at the point of sale in stores, net of value added tax and promotional sales discounts. The Group’s disaggregated revenue recognised relates to the following geographical segments:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| UK and Republic of Ireland | 2,000,633 | 1,889,610 |
| Poland | 1,413,973 | 1,191,826 |
| Rest of Europe | 2,234,279 | 1,741,383 |
| 5,648,885 | 4,822,819 |
The Group’s disaggregated non-current assets recognised relates to the following geographical segments:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| UK and Republic of Ireland | 1,334,269 | 1,268,687 |
| Poland | 404,019 | 336,326 |
| Rest of Europe | 1,081,354 | 754,436 |
| 2,819,642 | 2,359,449 |
Please note that the figures above exclude deferred tax assets and derivative assets.
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4. Non-underlying items
The Group believes underlying profit, an alternative profit measure, is a valuable way in which to present business performance as it provides the users of the accounts with a clear and more representative view of ongoing business performance. Non-underlying items, which are removed from the reported IFRS measures, are defined as material, exceptional, unusual and other items.
Underlying performance measures should be considered in addition to IFRS measures and are not intended to be a substitute for them. The Group also uses underlying financial performance to improve the comparability of information between reporting periods and geographical units and to aid users in understanding the Group’s performance. Consequently, the Group uses underlying financial performance for performance analysis, planning, reporting and incentive setting.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Reported EBITDA from continuing operations | 701,752 | 664,932 |
| Group Value Creation Plan (VCP) | (1,905) | 13,988 |
| Impact of implementation of IFRIC interpretation on SaaS arrangements | 42,351 | 35,354 |
| Restructuring and Other costs | 11,155 | 16,464 |
| Underlying EBITDA from continuing operations | 753,353 | 730,738 |
| Reported operating profit from continuing operations | 228,485 | 278,229 |
| IPO-related expenses | — | 1,230 |
| Group Value Creation Plan (VCP) | (1,905) | 13,988 |
| Impact of implementation of IFRIC interpretation on SaaS arrangements | 43,493 | 32,891 |
| Restructuring costs | 14,285 | 26,128 |
| Underlying operating profit from continuing operations | 284,358 | 352,467 |
| Reported profit before taxation from continuing operations for the year | 146,977 | 225,615 |
| IPO-related expenses | — | 1,230 |
| Group Value Creation Plan (VCP) | (1,905) | 13,988 |
| Impact of implementation of IFRIC interpretation on SaaS arrangements | 43,493 | 32,891 |
| Restructuring costs | 13,473 | 26,574 |
| Underlying profit before tax from continuing operations | 202,038 | 300,298 |
IFRS 2 charge: A Value Creation Plan (“VCP”) was approved by the Board of Directors in March 2020 as a reward tool to incentivise the top management of the Pepco Group and to retain them post an IPO. The Group treat the VCP associated costs as Non-Underlying Costs on the basis;
–
the VCP was specific IPO related incentive which is not a typical share based payment scheme; and
–
the scheme was implemented prior to the IPO and the total cost of the scheme (€45.3m) is already reflected in the share price achieved at IPO.
Management believe it is beneficial for the users of the financial statements to understand the underlying operational performance without it being skewed by the impact of the VCP charges. See note 21 for more details on the VCP.
Impact of implementation of IFRIC interpretation on SaaS arrangements and expensing significant ERP programme costs incurred: Following the IFRIC interpretation on accounting for SaaS costs, the Group has expensed previously capitalised costs in relation to certain SaaS projects as part of the retrospective application of the new accounting policy. In FY23, the Group has specifically expensed costs related to significant ERP programmes.
Restructuring costs: The Group undertook strategic decision to discontinue the Dealz business in Spain and stores acquired as part of the Fultons acquisition. The non-underlying costs relate to winding down of the operations and store closures. Prior year costs relate to head office cost reduction and strategic change to rationalise the supply chain network.
IPO-related expenses: IPO-related expenses relate to project costs associated with this listing of the Company on the Warsaw Stock Exchange.
Notes to the consolidated financial statements continued
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5. Operating profit from continuing operations
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Operating profit for the period has been arrived at after charging: | ||
| Expense relating to short-term, low-value and variable leases | 53,704 | 34,174 |
| Depreciation of tangible fixed assets and other items: | ||
| Owned | 151,807 | 108,740 |
| Depreciation of right-of-use assets | 309,000 | 260,284 |
| Impairment of property, plant and equipment | 3,130 | 8,401 |
| Amortisation of other intangibles | 9,572 | 9,261 |
| Impairment of other intangible assets | — | — |
| Cost of inventories recognised as an expense | 3,300,689 | 2,856,523 |
| Write downs of inventories recognised as an expense | 67,385 | 33,630 |
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Auditors’ remuneration | ||
| Fees payable to the Company’s auditors and their associates for the audit of the Company’s annual accounts1 | 540 | 373 |
| Fees payable to the Company’s auditors and their associates for the audit of the Company’s subsidiaries1 | 960 | 977 |
| Fees payable to other auditors and their associates for the audit of the Company’s subsidiaries | 867 | 654 |
| Fees payable to other auditors and their associates in the current year in relation to prior year audit | 244 | 349 |
| Total audit fees | 2,611 | 2,353 |
| Audit related services | 147 | 148 |
| Other services | 132 | — |
| Total auditors’ remuneration | 2,890 | 2,501 |
1
Audit fees are payable to Mazars Accountants N.V. the auditors of the Company.
6. Financial income
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Bank interest income | 2,897 | 2,242 |
| Foreign exchange gains | 7,323 | — |
| 10,220 | 2,242 |
7. Financial expense
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Interest on bank loans and amortisation of capitalised finance costs | 35,684 | 11,548 |
| Interest on lease liabilities | 61,367 | 46,052 |
| On amounts owed to Group undertakings | — | — |
| Ineffective element of hedging | 1,918 | — |
| Unrealised foreign currency losses on borrowings | (7,241) | (3,190) |
| 91,728 | 54,410 | |
| Non-underlying financial expenses1 | — | 446 |
| 91,728 | 54,856 |
1
Non-underlying financial expenses relate to lease liability expensed in relation to stores closed as part of the restructure.
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105
8. Staff numbers and costs
The average number of persons employed by the Group (including Directors) during each year was as follows:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| Administration | 2,458 | 2,544 |
| Selling and distribution | 43,871 | 40,668 |
| 46,329 | 43,212 |
The Group does not have any staff employed in the Netherlands.
The aggregate payroll costs of these persons were as follows:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Wages and salaries | 701,527 | 646,442 |
| Social security costs | 91,991 | 78,260 |
| Other pension costs (note 24) | 23,607 | 17,876 |
| Share-based payments expense (note 21) | 1,093 | 13,988 |
| 818,218 | 756,566 |
Key management remuneration
The amounts for remuneration include the following in respect of the key management personnel:
| Other | Post- | |||||
| Short-term | short-term | employment | ||||
| Basic | annual bonus | Company | pension | |||
| remuneration | paid | contributions | contribution | LTIP1 | Total | |
| €000 | €000 | €000 | €000 | €000 | €000 | |
| 2023 | 3,367 | 689 | 85 | 227 | 5,499 | 9,867 |
| 2022 | 3,948 | 1,676 | 54 | 24 | 7,883 | 13,585 |
1
Long Term Incentive Plan; this includes VCP-related IFRS 2 charges. See note 21 for more details and see Remuneration report (on pages 77 to 81) for Directors’ remuneration in detail.
9. Taxation
Analysis of tax (charge)/credit for the year
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Current tax (charge)/credit | ||
| Current tax on profits for the year | (37,451) | (87,441) |
| Adjustments in respect of prior periods | 2,502 | (3,396) |
| Total current tax | (34,949) | (90,837) |
| Deferred tax (charge)/credit | ||
| Origination and reversal of temporary differences | (7,842) | 37,797 |
| Adjustments in respect of prior periods | (1,942) | 1,138 |
| Impact of change in tax rate | — | 2 |
| Total deferred tax | (9,784) | 38,937 |
| Total tax charge for the year | (44,733) | (51,900) |
Notes to the consolidated financial statements continued
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9. Taxation continued
Factors affecting the tax (charge)/credit for the year
The tax charge for the year differs from the standard rate of corporation tax in the UK of 22.0% (2022: 19.0%). The differences are explained below.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Profit before tax – continuing operations | 146,977 | 225,615 |
| Loss before tax – discontinued operations | — | (110) |
| 146,977 | 225,505 | |
| Expected tax (charge)/credit at the UK statutory rate of 22.0% (2022: 19.0%)* | (32,335) | (42,846) |
| Effects of: | ||
| Movement in unrecognised temporary differences | (9,592) | (2,214) |
| Expenses not deductible for tax purposes | (12,658) | (8,931) |
| Overseas tax rate differences | 8,277 | 4,419 |
| Adjustments in respect of prior periods | 560 | (2,258) |
| Difference in tax rates | 1,015 | (70) |
| Total tax charge for the year | (44,733) | (51,900) |
*
The Company is UK tax resident based on the Company being managed and controlled in the UK and as such is subject to UK corporation tax with the expected tax charge reconciled to the UK statutory rate.
Tax (charge)/credit recognised in other comprehensive income
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Deferred tax (charge)/credit | ||
| Fair value movements on derivative financial instruments | 34,924 | (13,430) |
| Total tax charge recognised in other comprehensive income | 34,924 | (13,430) |
Factors that may affect future current and total tax charges
An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the Group’s future UK current tax charge accordingly. The deferred tax asset relating to the UK at 30 September 2023 has been calculated at 25% (FY22: 25%). Deferred tax assets and liabilities relating to other jurisdictions have been calculated based on the relevant tax rate under domestic law.
Global minimum tax
To address concerns about uneven profit distribution and tax contributions of large multinational corporations, various agreements have been reached at the global level, including an agreement in October 2021 by over 135 jurisdictions to introduce a global minimum tax rate of 15% (Pillar Two). In December 2021, the Organisation for Economic Co-operation and Development (OECD) released a draft legislative framework, and since then domestic legislation has followed in some countries in which the Group operates including the UK (substantively enacted on 20 June 2023). However, since the newly enacted tax legislation in the UK is only effective for accounting periods commencing on or after 31 December 2023 there is no current tax impact for the financial year ended 30 September 2023.
The Group has applied a temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax and accounts for it as a current tax when it is incurred.
The Group continues to monitor the progress of the legislative process in each jurisdiction the Group operates in and will be required to include new disclosures about the top-up tax in its next accounting period beginning on 1 October 2023.
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10. Property, plant and equipment
| Leasehold | Fixtures | |||
| Land and | property | and | ||
| buildings | improvements | equipment | Total | |
| €000 | €000 | €000 | €000 | |
| Cost | ||||
| Balance at 1 October 2021 | 60,969 | 282,569 | 412,754 | 756,292 |
| Additions | — | 95,156 | 123,061 | 218,217 |
| Disposals | — | (9,397) | (17,994) | (27,391) |
| Impairment | — | (8,873) | 472 | (8,401) |
| Differences on translation | — | (16,840) | (450) | (17,290) |
| Balance at 30 September 2022 | 60,969 | 342,615 | 517,843 | 921,427 |
| Balance at 1 October 2022 | 60,969 | 342,615 | 517,843 | 921,427 |
| Additions | 176 | 178,908 | 184,739 | 363,823 |
| Disposals | — | (6,029) | (31,032) | (37,061) |
| Impairment | — | - | (3,130) | (3,130) |
| Differences on translation | 1 | 11,107 | 11,816 | 22,924 |
| Balance at 30 September 2023 | 61,146 | 526,601 | 680,236 | 1,267,983 |
| Depreciation | ||||
| Balance at 1 October 2020 | 863 | 99,545 | 216,378 | 316,786 |
| Charge for the period | 607 | 38,715 | 69,418 | 108,740 |
| Disposals | — | (8,045) | (18,379) | (26,424) |
| Reclassifications1 | — | — | 2,042 | 2,042 |
| Differences on translation | (41) | (9,193) | 4,967 | (4,267) |
| Balance at 30 September 2022 | 1,429 | 121,022 | 274,426 | 396,877 |
| Balance at 1 October 2022 | 1,429 | 121,022 | 274,426 | 396,877 |
| Charge for the period | 572 | 59,505 | 91,730 | 151,807 |
| Disposals | — | (6,073) | (29,544) | (35,617) |
| Differences on translation | 4 | 1,035 | 7,440 | 8,479 |
| Balance at 30 September 2023 | 2,005 | 175,489 | 344,052 | 521,546 |
| Net book value | ||||
| Balance at 30 September 2023 | 59,141 | 351,112 | 336,184 | 746,437 |
| Balance at 30 September 2022 | 59,540 | 221,593 | 243,417 | 524,550 |
1
The reclassifications during the prior year primarily relate to Finance leases within fixtures and fittings being reclassified to right of use assets.
An impairment was recognised in the year of €3.1m (2022: €8.4m) as a result of the closure and rebranding of certain stores.
Notes to the consolidated financial statements continued
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11. Goodwill and other intangible assets
| Software and | ||||
| Goodwill1 | Brand1 | trademarks | Total | |
| €000 | €000 | €000 | €000 | |
| Cost | ||||
| Balance at 1 October 2021 | 821,823 | 127,672 | 41,026 | 990,521 |
| Additions | 1,557 | — | 6,764 | 8,321 |
| Disposals | — | — | (714) | (714) |
| Differences on translation | (20,211) | (3,249) | 933 | (22,527) |
| Balance at 30 September 2022 | 803,169 | 124,423 | 48,009 | 975,601 |
| Balance at 1 October 2022 | 803,169 | 124,423 | 48,009 | 975,601 |
| Additions | — | — | 25,815 | 25,815 |
| Disposals | — | — | (6,853) | (6,853) |
| Differences on translation | 17,112 | 2,646 | 1,942 | 21,700 |
| Balance at 30 September 2023 | 820,281 | 127,069 | 68,913 | 1,016,263 |
| Amortisation | ||||
| Balance at 1 October 2021 | 117,170 | 9,577 | 29,259 | 156,006 |
| Amortisation for the period | — | 3,271 | 5,990 | 9,261 |
| Impairments | — | — | (2,042) | (2,042) |
| Differences on translation | (2,982) | (404) | 1,524 | (1,862) |
| Balance at 30 September 2022 | 114,188 | 12,444 | 34,731 | 161,363 |
| Balance at 1 October 2022 | 114,188 | 12,444 | 34,731 | 161,363 |
| Amortisation for the period | — | 3,284 | 6,288 | 9,572 |
| Disposals | — | — | (5,742) | (5,742) |
| Differences on translation | 2,433 | 288 | 872 | 3,593 |
| Balance at 30 September 2023 | 116,621 | 16,016 | 36,149 | 168,786 |
| Net book value | ||||
| Balance at 30 September 2023 | 703,660 | 111,053 | 32,764 | 847,477 |
| Balance at 30 September 2022 | 688,981 | 111,979 | 13,278 | 814,238 |
1
Brand and goodwill relate to the acquisition of the Poundland Group, Fultons Group and Poundshop.com. For details on additions to goodwill during the prior year, please refer to note 22.
Impairment
Under IAS 36 “Impairment of Assets”, the Group is required to:
–
review its intangible assets in the event of a significant change in circumstances that would indicate potential impairment; and
–
review and test its goodwill and indefinite-life intangible assets annually or in the event of a significant change in circumstances.
As part of the annual impairment review, the carrying value of the assets or, if they do not generate independent cash flows individually, the carrying value of the cash-generating unit (CGU) that they belong to is compared to their recoverable amount.
CGUs represent the smallest identifiable group of assets that generate cash flows that are largely independent of cash flows from other groups of assets. In accordance with internal management structures, the group of CGUs against which goodwill is monitored comprises the Poundland Group, which is aligned with the level at which the Directors monitor that goodwill.
The recoverable amount represents the higher of the CGU’s fair value less the cost to sell and value in use. The recoverable amount has been determined based on value in use. Where the recoverable amount is less than the carrying value, an impairment results. Goodwill acquired in a business combination is allocated to groups of CGUs according to the level at which the Directors monitor that goodwill.
During the year, all goodwill was tested for impairment and no impairment was booked to goodwill (2022: €Nil).
The key assumptions on which the value in use calculations are based relate to future business performance over the forecast period (five years), projected long-term growth rates and the discount rates applied. The forecast cash flows include the Directors’ latest estimates on future revenue, pricing and other operating costs, which underlie EBITDA. Management has reviewed and approved the assumptions inherent in the model as part of the annual budget process using historical experience and considering economic and business risks facing the Group.
In assessing Poundland Group’s value in use a pre-tax discount rate of 10.6% (2022: 10.9%) was used.
In assessing future EBITDA growth the Group has modelled the underlying movements in the constituents of EBITDA and has used a growth rate of the constituent elements ranging from 0.4% to 4.0% (2022: 1.0% to 10.8%) in the first five years which has resulted in an average growth rate of 2.5% (2022: 6.4%) in the first five years and a terminal-term growth rate of 2% (2022: 1.2%).
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
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11. Goodwill and other intangible assets continued
Impairment continued
Management has considered reasonable possible changes in the key assumptions underpinning EBITDA growth and the pre-tax discount rate and has identified the following instances that could cause changes in available headroom of €201m (2022: €214m). Sensitivity analysis has not been prepared based on changing any one element of the constituents of EBITDA because it is considered that this is not meaningful information as it does not consider the interrelationship of the cash flows of the business.
A 10% reduction in EBITDA in the terminal year will result in a headroom reduction of €194m; if the post-tax discount rate applied to the cash flow projections of Poundland had been 0.5% higher than management’s estimates the goodwill headroom would reduce to €127m. Should the projected long-term growth rate applied to the cash flow projections of Poundland reduce to 1.5%, the headroom would reduce to €148m.
A reduction in EBITDA in the terminal year of 10.5%, an increase in the post-tax discount rate of 1.5% or a reduction in the long-term growth rate to -0.2% will reduce the recoverable amount to €Nil.
Cash EBITDA is significantly impacted by product mix, shrinkage rates and future rent reductions.
–
Product mix: The roll-out of the Pepco clothing range in Poundland stores and product mix improvements in general merchandise together with further buying efficiencies from increased intergroup trading are driving improvements in margin.
–
ERP: The Poundland Group has now implemented an ERP system which is expected improve shrinkage rates and also improve inventory management. The business plan included a reduction in the shrinkage rate and working capital improvements as a result of this.
–
Rent reduction rate: There is an opportunity to renegotiate lease costs to current market-related rentals upon expiry of existing leases.
12. Leases
Right-of-use assets
| Buildings | Equipment | Vehicles | Total | |
| €000 | €000 | €000 | €000 | |
| Cost | ||||
| Balance at 1 October 2021 | 1,352,095 | 27,141 | 19,593 | 1,398,829 |
| Additions | 341,468 | 1,735 | 2,752 | 345,956 |
| Disposals | (5,685) | (317) | — | (6,002) |
| Differences on translation | (35,490) | (830) | 773 | (35,547) |
| Balance at 30 September 2022 | 1,652,389 | 27,729 | 23,118 | 1,703,236 |
| Balance at 1 October 2022 | 1,652,389 | 27,729 | 23,118 | 1,703,236 |
| Additions | 417,880 | 17,424 | 4,692 | 439,996 |
| Disposals | (95) | — | — | (95) |
| Differences on translation | 83,688 | 443 | 689 | 84,820 |
| Balance at 30 September 2023 | 2,153,862 | 45,596 | 28,499 | 2,227,957 |
| Depreciation | ||||
| Balance at 1 October 2021 | 417,536 | 16,189 | 7,761 | 441,486 |
| Depreciation for the period | 247,604 | 3,843 | 8,837 | 260,284 |
| Disposals | (3,102) | (188) | (3,740) | (7,030) |
| Differences on translation | (10,973) | 1,228 | — | (9,745) |
| Balance at 30 September 2022 | 651,065 | 21,072 | 12,858 | 684,995 |
| Balance at 1 October 2022 | 651,065 | 21,072 | 12,858 | 684,995 |
| Depreciation for the period | 302,194 | 4,267 | 2,539 | 309,000 |
| Disposals | (104) | — | — | (104) |
| Differences on translation | 7,370 | 771 | 242 | 8,383 |
| Balance at 30 September 2023 | 960,525 | 26,110 | 15,639 | 1,002,274 |
| Net book value | ||||
| Balance at 30 September 2023 | 1,193,337 | 19,486 | 12,860 | 1,225,683 |
| Balance at 30 September 2022 | 1,001,324 | 6,657 | 10,260 | 1,018,241 |
Notes to the consolidated financial statements continued
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Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
12. Leases continued
Lease liabilities
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| At beginning of period | 1,133,544 | 1,099,318 |
| Additions | 469,203 | 346,834 |
| Interest on lease liability | 61,367 | 46,052 |
| Repayment of lease liability | (386,961) | (291,650) |
| Disposal | — | (2,137) |
| Differences on translation | 16,018 | (64,873) |
| At end of period | 1,293,171 | 1,133,544 |
| Current | 304,794 | 310,484 |
| Non-current | 988,377 | 823,060 |
| 1,293,171 | 1,133,544 |
Amounts recognised in the income statement
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Interest expenses (included in finance cost) | 61,367 | 46,052 |
| Expense relating to short-term leases (included in cost of goods sold and administrative expenses) | 603 | 144 |
| Expense relating to leases of low-value assets that are not shown above as short-term leases (included in | ||
| administrative expenses) | 2,153 | 410 |
| Expense relating to variable lease payments not included in lease liabilities (included in administrative expenses) | 50,948 | 32,280 |
Amounts recognised in the statement of cash flows
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Total cash outflow for leases | 386,961 | 291,650 |
The Group leases various retail stores, offices and vehicles under non-cancellable operating leases. The leases have varying terms, escalating clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The Group has recognised right-of-use assets for these leases, except for short-term and low-value leases.
Some property leases contain variable payment terms that are linked to sales generated from a store. Variable payment terms’ percentages range from 1.5% to 7.5% of sales. Variable payment terms are used for a variety of reasons, including minimising the fixed cost base for newly established stores. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs.
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
13. Inventories
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Goods purchased for resale | 739,893 | 642,123 |
| Goods in transit | 394,725 | 316,971 |
| 1,134,618 | 959,094 |
Inventories have been reduced by €70,543k (2022: €33,630k) as a result of the write-down to net realisable value.
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
111
14. Trade and other receivables
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Non-current trade and other receivables | ||
| Other receivables | 46 | 2,422 |
| 46 | 2,422 | |
| Current trade and other receivables | ||
| Trade receivables | 2,624 | 3,195 |
| Other receivables | 30,454 | 8,515 |
| Prepayments | 110,444 | 59,708 |
| 143,522 | 71,418 |
As the principal business of the Group is retail sales made in cash or with major credit cards, the Group’s trade receivables are small and therefore credit risk primarily consists of accrued income and cash and cash equivalents. Accordingly, the Group does not systematically report outstanding receivables analysed by credit quality, in particular with respect to the credit quality of financial assets that are neither past due nor impaired.
There is no significant concentration of credit risk with respect to trade receivables, as the Group has a large number of customers that are widely dispersed. As such, any further detailed analysis of the credit risk of the Group’s financial assets by category is not considered meaningful.
The carrying amount of trade and other receivables recorded in the financial statements represents the Group’s maximum exposure to credit risk and any associated impairments are immaterial.
15. Trade and other payables
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Current | ||
| Trade payables1 | 767,424 | 555,023 |
| Other taxation and social security | 64,923 | 79,618 |
| Other payables | 139,833 | 100,619 |
| Accruals | 294,015 | 192,619 |
| 1,266,195 | 927,885 | |
| Non-current | ||
| Accruals and deferred income | 21,894 | 37,300 |
| Amounts owed to Group undertakings | — | 433 |
| 21,894 | 37,733 |
1
Trade payables includes €212m (FY22: €130m) payable to suppliers utilising the Supply Chain Financing Programme implemented by
the Group.
Amounts owed to Group undertakings are repayable on demand and are non-interest bearing at 30 September 2022.
16. Borrowings
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Current | ||
| Borrowings from credit institutions | 118,794 | 68,339 |
| Non-current | ||
| Borrowings from credit institutions | 610,270 | 546,203 |
Included within non-current liabilities are loans from credit institutions of €250m (2022: €550m) and a secured bond of €375m (2022:nil). Costs incurred in obtaining the loans from credit institutions and the secured bond have been capitalised and are allocated to theConsolidated income statement over the life of the debt facility. At 30 September 2023 borrowings are stated net of unamortised issuecosts of €14.7m (2022: €6.1m).Interest is being charged on borrowings from credit institutions at an effective rate of 3.75%. These loans contains financial covenantswhich are typical for this type of facility and include minimum leverage and interest cover. The Group remained compliant with thesecovenants for the year ended 30 September 2023. The loans from credit institutions are secured over the shares of material overseassubsidiaries and debentures over other assets of the Group.
The secured bond issuance matures in June 2028 and has a fixed interest rate of 7.25%.
Notes to the consolidated financial statements continued
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17. Financial instruments and related disclosures
Financial risk management
The Directors have overall responsibility for the oversight of the Group’s risk management framework. A formal process for reviewing and managing risk in the business has been developed. A register of strategic and operational risk is maintained and reviewed by the Directors, who also monitor the status of agreed actions to mitigate key risks.
Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligation. This risk arises from the Group’s foreign exchange and commodity hedging agreements.
As the principal business of the Group is cash sales the Group’s trade receivables are small. The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to credit risk and any associated impairments are minimal.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is sufficient cash or working capital facilities to meet the cash requirements of the Group for the current business plan.
The risk is measured by review of forecast liquidity each month to determine whether there are sufficient credit facilities to meet forecast requirements and by monitoring covenants on a regular basis. Cash flow forecasts are submitted monthly to the Directors. These continue to demonstrate the cash-generating ability of the business and its ability to operate within existing agreed facilities.
Market risk
Market risk is the risk that changes in the market prices will affect the Group’s income. The Group’s exposure to market risk predominantly relates to interest and currency risk.
Interest rate risk
The Group’s external borrowings comprise loans which incur variable interest rate charges linked to Euribor which are added to the loan. Interest rate risk is measured by sensitivity analysis. The Group’s policy aims to manage the interest cost of the Group within the business plan. The Group does not utilise interest rate swaps to hedge interest rate risks.
The table below shows the interest rate risk profile for the Group’s financial instruments:
| 2023 | 2022 | |
| €000 | €000 | |
| Cash and cash equivalents | 330,417 | 343,933 |
| Borrowings | (729,064) | (614,542) |
| Finance lease liabilities | (1,293,171) | (1,133,544) |
| Total | (1,691,818) | (1,404,153) |
Interest rate sensitivity analysis
The table below shows the Group’s sensitivity to interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank borrowings which attract interest at floating rates) if interest rates were to change by +/-1%. The following assumptions were made in calculating the sensitivity analysis:
–
it is assumed interest is receivable on the entirety of the Group’s cash balances; and
–
the impact is reflected on net assets (gross of tax).
| 2023 | 2022 | 2023 | 2022 | |
| (decrease)/ | (decrease)/ | (decrease)/ | (decrease)/ | |
| Increase | Increase | increase | increase | |
| in income | in income | in equity | in equity | |
| €000 | €000 | €000 | €000 | |
| +1% movement in interest rates | (3,304) | (3,439) | (3,671) | (6,145) |
| -1% movement in interest rates | 3,304 | 3,439 | 3,671 | 6,145 |
Foreign currency risk
The Group has a significant transaction exposure to directly sourced purchases from its suppliers in the Far East, with most of the trade being in US Dollars and Chinese Yuan. The Group’s policy allows these exposures to be hedged for up to 18 months forward in order to fix the cost in Polish Zloty and Sterling. Hedging is performed through the use of foreign currency bank accounts and forward foreign exchange contracts. See below for further details on FX hedge accounting.
The Group does not hedge either economic exposure or the translation exposure arising from the profits, assets and liabilities of its businesses.
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
113
17. Financial instruments and related disclosures continued
Foreign currency risk continued
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows:
| 30 September 2023 | 30 September 2022 | |||||||
| GBP | EUR | PLN | Others | GBP | EUR | PLN | Others | |
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
| Cash and Cash | ||||||||
| equivalents | 21,251 | 127,634 | 18,580 | 162,952 | 49,439 | 31,792 | 243,136 | 19,566 |
| Trade and other | ||||||||
| receivables | 101,658 | 25,777 | 23,415 | (7,282) | 4,597 | 2,876 | 6,256 | 403 |
| Borrowings | — | (729,064) | — | — | — | (614,542) | — | — |
| Trade and other | ||||||||
| payables | (274,613) | (98,088) | (707,177) | (208,211) | (312,481) | (10,685) | (559,674) | (82,777) |
| Provisions | (12,501) | (4,314) | (12,284) | (1,474) | (12,500) | — | (35,264) | — |
| Finance Lease liabilities | (286,749) | (225,796) | (738,329) | (42,297) | (458,757) | (541,094) | (102,267) | (31,425) |
| (450,954) | (903,851) | (1,415,795) | (96,312) | (729,703) | (1,131,653) | (447,815) | (94,234) | |
Significant exchange rates used
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| Average rate for the year | ||
| Polish Zloty | 4.62 | 4.66 |
| Pound Sterling | 0.87 | 0.85 |
| Statement of financial position rates | ||
| Polish Zloty | 4.63 | 4.85 |
| Pound Sterling | 0.86 | 0.88 |
Pension liability risk
The Group has no association with any defined benefit pension scheme and therefore carries no deferred, current or future liabilities in respect of such a scheme. The Group operates a number of Group personal pension plans for its employees.
Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to optimise returns to its shareholders. The Board’s policy is to retain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future growth. The Board regularly monitors the level of capital in the Group to ensure that this can be achieved. Refer to note 16 for loan covenant requirements.
The Group monitors capital using net debt. This is because the Group believes this measure provides an indicator of the overall strength of its balance sheet and can be used to assess its earnings as compared to its indebtedness as defined by the Group’s financing agreements. Please refer to note 27 where the calculation of net debt is disclosed.
Fair value disclosures
The fair value of each class of financial assets and liabilities approximates the carrying amount, based on the following assumptions:
| Trade receivables, trade payables, short-term | The fair value approximates to the carrying value because of the short maturity of |
| deposits and borrowings | these instruments. |
| Long-term borrowings | The fair value of bank loans and other loans approximates to the carrying value reported |
| in the statement of financial position. |
Fair value hierarchy
Financial instruments carried at fair value should be measured with reference to the following levels:
–
Level 1: quoted prices in active markets for identical assets or liabilities;
–
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
–
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
All financial instruments carried at fair value have been measured using a Level 2 valuation method.
Notes to the consolidated financial statements continued
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17. Financial instruments and related disclosures continued
Fair value hierarchy continued
The fair value of financial assets and liabilities are as follows:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Financial assets measured at fair value | ||
| Derivative contracts used for hedging (assets) | 48,338 | 170,402 |
| Financial assets not measured at fair value | ||
| Cash and cash equivalents | 330,417 | 343,933 |
| Trade and other receivables | 33,124 | 14,132 |
| Total financial assets | 411,879 | 526,467 |
| Financial liabilities measured at fair value | ||
| Derivative contracts used for hedging (liabilities) | 92,775 | 45,161 |
| Financial liabilities not measured at fair value | ||
| Trade and other payables | 1,288,089 | 965,617 |
| Borrowings at amortised cost | 729,064 | 614,542 |
| Finance lease liabilities | 1,293,171 | 1,133,544 |
| Total financial liabilities | 3,403,099 | 2,758,865 |
Financial instrument sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on its earnings. At the end of each reporting period, the effects of hypothetical changes in interest and currency rates are as follows:
Foreign exchange rate sensitivity analysis
The table below shows the Group’s sensitivity to foreign exchange rates for its Polish Zloty and Pound Sterling financial instruments, the major currencies in which the Group’s assets and liabilities are denominated:
| 2023 increase/ | 2022 increase/ | |
| (decrease) | (decrease) | |
| in equity | in equity | |
| €000 | €000 | |
| 10% appreciation of the Euro against the Polish Zloty | 157,311 | 44,781 |
| 10% depreciation of the Euro against the Polish Zloty | (157,311) | (44,781) |
| 10% appreciation of the Euro against Pound Sterling | 50,106 | 72,970 |
| 10% depreciation of the Euro against Pound Sterling | (50,106) | (72,970) |
A strengthening/weakening of the Euro, as indicated, against the Polish Zloty at each year end would have increased/(decreased) the equity by the amounts shown above. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.
A strengthening/weakening of the Euro, as indicated, against Pound Sterling at each year end would have increased/(decreased) the equity by the amounts shown above. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.
Contractual cash flows
The contractual maturity of bank borrowings including interest payments and trade payables, excluding the impact of netting agreements, is shown below:
| 30 September 2023 | ||||
| Expiring | ||||
| Due in | between | Expiring | ||
| less than | one to five | after five | ||
| one year | years | years | Total | |
| €000 | €000 | €000 | €000 | |
| Borrowings | 155,804 | 732,893 | — | 888,697 |
| Trade and other payables | 1,266,195 | 21,894 | — | 1,288,089 |
| Lease liabilities | 377,379 | 823,170 | 347,267 | 1,547,816 |
| 1,799,378 | 1,577,957 | 347,267 | 3,724,602 | |
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115
17. Financial instruments and related disclosures continued
Contractual cash flows continued
| 30 September 2022 | ||||
| Expiring | ||||
| Due in | between | Expiring | ||
| less than | one to five | after five | ||
| one year | years | years | Total | |
| €000 | €000 | €000 | €000 | |
| Borrowings | 68,339 | 570,691 | — | 639,030 |
| Trade and other payables | 927,884 | 37,733 | — | 965,617 |
| Finance lease liabilities | 310,484 | 744,377 | 78,683 | 1,133,544 |
| 1,306,707 | 1,352,801 | 78,683 | 2,738,191 | |
Derivatives and hedge accounting
The Group uses foreign currency forward contracts and commodity hedges to manage risks arising from changes in foreign currency exchange rates (relating to the purchase of overseas sourced products) and fuel price fluctuations. These have been designated as cash flow hedges with the respective underlying risks identified in accordance with the hedging strategy discussed as part of the financial risk management.
Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.
Hedge ineffectiveness may occur due to:
a) the fair value of the hedging instrument on the hedge relationship designation date if the fair value is not €Nil;
b) changes in the contractual terms or timing of the payments on the hedged item; and
c) a change in the credit risk of the Group or the counterparty with the hedging instrument.
The following table represents the net carrying values and nominal amounts of derivatives in a continued hedge relationship as at 30 September:
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Derivative financial assets at beginning of period | 125,240 | 62,376 |
| Recognised in the income statement1 | (1,427) | 8,491 |
| Recognised in other comprehensive income | (166,502) | 65,208 |
| Translation differences | (1,748) | (10,835) |
| Derivative financial (liabilities)/assets at end of period | (44,437) | 125,240 |
1
Amounts recognised in the income statement are included within cost of sales.
The below table illustrates the notional value of the hedged exposure.
| 30 September 2023 | |||||
| EUR | USD | CNY | Other | Total | |
| €000 | €000 | €000 | €000 | €000 | |
| Maturing in less than one year | (677,764) | 683,834 | 601,071 | (367,786) | 239,355 |
| Maturing in greater than one year | (47,000) | 92,505 | 65,027 | (43,370) | 67,162 |
| Total | (724,764) | 776,339 | 666,098 | (411,156) | 306,517 |
| 30 September 2022 | |||||
| EUR | USD | CNY | Other | Total | |
| €000 | €000 | €000 | €000 | €000 | |
| Maturing in less than one year | 109,264 | 959,165 | 878,647 | (528,088) | 1,418,988 |
| Maturing in greater than one year | 30,000 | 64,629 | — | 3,094 | 97,723 |
| Total | 139,264 | 1,023,794 | 878,647 | (524,944) | 1,516,711 |
Notes to the consolidated financial statements continued
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17. Financial instruments and related disclosures continued
Derivatives and hedge accounting continued
The following tables provide an analysis of the anticipated contractual cash flows for the Group’s derivative contracts:
| 30 September 2023 | 30 September 2022 | |||
| Payable | Receivable | Payable | Receivable | |
| EUR | €000 | €000 | €000 | €000 |
| Due in less than one year | (10,850) | 14,371 | (4,932) | — |
| Expiring between one and two years | (1,014) | (1,637) | (1,840) | — |
| Contractual cash flows | (11,864) | 12,734 | (6,772) | — |
| Fair value | (11,864) | 12,734 | (6,772) | — |
| 30 September 2023 | 30 September 2022 | |||
| Payable | Receivable | Payable | Receivable | |
| USD | €000 | €000 | €000 | €000 |
| Due in less than one year | (20,911) | 10,165 | — | 117,691 |
| Expiring between one and two years | — | 3,258 | — | 5,007 |
| Contractual cash flows | (20,911) | 13,423 | — | 122,698 |
| Fair value | (20,911) | 13,423 | — | 122,698 |
| 30 September 2023 | 30 September 2022 | |||
| Payable | Receivable | Payable | Receivable | |
| CNY | €000 | €000 | €000 | €000 |
| Due in less than one year | (55,652) | 7,707 | — | 40,038 |
| Expiring between one and two years | — | 2,982 | — | — |
| Contractual cash flows | (55,652) | 10,689 | — | 40,038 |
| Fair value | (55,652) | 10,689 | — | 40,038 |
| 30 September 2023 | 30 September 2022 | |||
| Payable | Receivable | Payable | Receivable | |
| Other | €000 | €000 | €000 | €000 |
| Due in less than one year | (3,632) | 9,863 | (32,108) | 7,488 |
| Expiring between one and two years | (716) | 1,629 | (6,282) | 179 |
| Contractual cash flows | (4,348) | 11,492 | (38,390) | 7,667 |
| Fair value | (4,348) | 11,492 | (38,390) | 7,667 |
| 30 September 2023 | 30 September 2022 | |||
| Payable | Receivable | Payable | Receivable | |
| Total | €000 | €000 | €000 | €000 |
| Due in less than one year | (91,045) | 42,106 | (37,040) | 165,216 |
| Expiring between one and two years | (1,730) | 6,232 | (8,122) | 5,186 |
| Contractual cash flows | (92,775) | 48,338 | (45,163) | 170,403 |
| Fair value | (92,775) | 48,338 | (45,163) | 170,403 |
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117
17. Financial instruments and related disclosures continued
Changes in liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s Consolidated cash flow statement as cash flows from financing activities.
| Borrowings | Total liabilities | ||
| from credit | from financing | ||
| Lease liabilities | institutions | activities | |
| €000 | €000 | €000 | |
| At 30 September 2022 | (1,133,544) | (614,542) | (1,748,086) |
| Financing cash flows1 | 325,594 | (116,215) | 209,379 |
| Interest cash flows1 | 61,367 | 18,809 | 80,176 |
| Other changes2 | (530,570) | (17,116) | (547,686) |
| Foreign exchange | (16,018) | — | (16,018) |
| At 30 September 2023 | (1,293,171) | (729,064) | (2,022,235) |
| Borrowings | Total liabilities | ||
| from credit | from financing | ||
| Lease liabilities | institutions | activities | |
| €000 | €000 | €000 | |
| At 30 September 2021 | (1,099,318) | (610,792) | (1,710,110) |
| Financing cash flows1 | 245,598 | (1,807) | 243,791 |
| Interest cash flows1 | 46,075 | 9,642 | 55,694 |
| Other changes2 | (261,003) | (11,585) | (272,588) |
| Foreign exchange | (64,873) | — | (64,873) |
| At 30 September 2022 | (1,133,544) | (614,542) | (1,748,086) |
1
The financing cash flows from borrowings from credit institutions make up the net amount of proceeds from borrowings and repayments of borrowings and are presented in the cash flow statement on a gross basis. Interest cash flows for these liabilities are presented separately.
2
Other changes include interest accruals and additions.
Financial assets and liabilities by category as at 30 September 2023
| Fair value | |||
| through | |||
| Amortised | Fair value | income | |
| cost | through OCI | statement | |
| Non-current financial assets | |||
| Derivative financial instruments1 | — | 6,232 | — |
| Trade and other receivables | 46 | — | — |
| 46 | 6,232 | — | |
| Current financial assets | |||
| Trade and other receivables | 33,078 | — | — |
| Derivative financial instruments1 | — | 42,106 | — |
| Cash and cash equivalents | 330,417 | — | — |
| 363,495 | 42,106 | — | |
| Non-current financial liabilities | |||
| Interest-bearing long-term borrowings | 610,270 | — | — |
| Lease liabilities | 988,377 | — | — |
| Derivative financial instruments1 | — | 1,730 | — |
| Trade and other payables | 21,894 | — | — |
| 1,620,541 | 1,730 | — | |
| Current financial liabilities | |||
| Current portion of long-term borrowings | 118,794 | — | — |
| Lease liabilities | 304,794 | — | — |
| Derivative financial instruments1 | — | 91,045 | — |
| Trade and other payables | 1,266,195 | — | — |
| 1,689,783 | 91,045 | — |
1
Derivative financial instruments relate to cash flow hedge.
Notes to the consolidated financial statements continued
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17. Financial instruments and related disclosures continued
Financial assets and liabilities by category as at 30 September 2022
| Fair value | |||
| through | |||
| Amortised | Fair value | income | |
| cost | through OCI | statement | |
| Non-current financial assets | |||
| Derivative financial instruments1 | — | 5,186 | — |
| Trade and other receivables | 2,422 | — | — |
| 2,422 | 5,186 | — | |
| Current financial assets | |||
| Trade and other receivables | 11,710 | — | — |
| Derivative financial instruments1 | — | 165,216 | — |
| Cash and cash equivalents | 343,933 | — | — |
| 355,643 | 165,216 | — | |
| Non-current financial liabilities | |||
| Interest-bearing long-term borrowings | 546,203 | — | — |
| Lease liabilities | 823,060 | — | — |
| Derivative financial instruments1 | — | 8,121 | — |
| Trade and other payables | 37,733 | — | — |
| 1,406,996 | 8,121 | — | |
| Current financial liabilities | |||
| Current portion of long-term borrowings | 68,339 | — | — |
| Lease liabilities | 310,484 | — | — |
| Derivative financial instruments1 | — | 37,040 | — |
| Trade and other payables | 927,884 | — | — |
| 1,306,707 | 37,040 | — |
1
Derivative financial instruments relate to cash flow hedge.
18. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and (liabilities) are attributable to the following:
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Net deferred tax assets at beginning of period | 91,296 | 68,559 |
| Recognised in the income statement (note 9) | (9,784) | 38,937 |
| Recognised in other comprehensive income (note 9) | 34,924 | (13,430) |
| Exchange differences | (3,022) | (2,770) |
| Net deferred tax assets at end of period | 113,414 | 91,296 |
| Deferred tax assets | Deferred tax liabilities | Net | ||||
| 30 September | 30 September | 30 September | 30 September | 30 September | 30 September | |
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| €000 | €000 | €000 | €000 | €000 | €000 | |
| Property, plant and equipment | 37,443 | 35,949 | (1,763) | (2,155) | 35,680 | 33,794 |
| Intangible assets | — | — | (28,167) | (27,985) | (28,167) | (27,985) |
| Provisions | 21,418 | 41,417 | — | — | 21,418 | 41,417 |
| Financial assets | 14,105 | 4,946 | (1,054) | (25,126) | 13,051 | (20,180) |
| Tax losses and other temporary differences | 71,432 | 64,250 | — | — | 71,432 | 64,250 |
| 144,398 | 146,562 | (30,984) | (55,266) | 113,414 | 91,296 | |
The deferred tax asset is available for offset against future taxable profits, which are expected to be sufficient to recover the asset’s value.
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18. Deferred tax assets and liabilities continued
Recognised deferred tax assets and liabilities continued
| Recognised in | |||||
| Recognised in | other | ||||
| 1 October | income | comprehensive | Exchange | 30 September | |
| 2022 | statement | income | differences | 2023 | |
| €000 | €000 | €000 | €000 | €000 | |
| Property, plant and equipment | 33,794 | 8,645 | — | (6,759) | 35,680 |
| Intangible assets | (27,985) | 411 | — | (593) | (28,167) |
| Provisions | 41,417 | (20,807) | — | 808 | 21,418 |
| Financial assets | (20,180) | (1,397) | 34,924 | (296) | 13,051 |
| Tax losses and other temporary differences | 64,250 | 3,364 | — | 3,818 | 71,432 |
| 91,296 | (9,784) | 34,924 | (3,022) | 113,414 |
| Recognised in | |||||
| Recognised in | other | ||||
| 1 October | income | comprehensive | Exchange | 30 September | |
| 2021 | statement | income | differences | 2022 | |
| €000 | €000 | €000 | €000 | €000 | |
| Property, plant and equipment | 32,989 | 1,855 | — | (1,050) | 33,794 |
| Intangible assets | (29,235) | 506 | — | 744 | (27,985) |
| Provisions | 22,847 | 20,487 | — | (1,917) | 41,417 |
| Financial assets | (10,978) | 3,154 | (13,430) | 1,074 | (20,180) |
| Tax losses and other temporary differences | 52,936 | 12,935 | — | (1,621) | 64,250 |
| 68,559 | 38,937 | (13,430) | (2,770) | 91,296 |
Deferred tax not recognised
Deferred tax assets have not been recognised in respect of gross temporary differences of €478.8m (2022: €218.5m). These temporary differences relate to tax losses, and disallowed interest amounts under the Corporate Interest Restriction rules in the UK, which do not have an expiry date and recoverability of which is uncertain.
19. Provisions
| Property provisions | Other provisions | Total | ||||
| 30 September | 30 September | 30 September | 30 September | 30 September | 30 September | |
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| €000 | €000 | €000 | €000 | €000 | €000 | |
| At beginning of period | 12,502 | 25,944 | 35,263 | 64,013 | 47,765 | 89,957 |
| Provisions made during the period | 56 | (189) | 523 | 21,468 | 579 | 21,279 |
| Arising from acquisition | — | — | — | — | — | — |
| Provisions utilised during the period | — | (12,512) | (6,039) | (29,316) | (6,039) | (41,828) |
| Provisions reversed during the period | (3,576) | (34) | (14,930) | (19,766) | (18,506) | (19,800) |
| Translation differences | 3,818 | (707) | 2,956 | (1,136) | 6,774 | (1,843) |
| 12,800 | 12,502 | 17,773 | 35,263 | 30,573 | 47,765 | |
| Current | 1,352 | 7,429 | 902 | 9,320 | 2,254 | 16,749 |
| Non-current | 11,448 | 5,073 | 16,871 | 25,943 | 28,319 | 31,016 |
| 12,800 | 12,502 | 17,773 | 35,263 | 30,573 | 47,765 | |
Provision is made for the exit costs of properties no longer occupied by the Group. The average remaining lease term for these properties is 1.2 years (2022: 3.1 years).
Other provisions include long-term employee benefits where cash settlement is based on the Directors’ best estimate of future cash flows of the Pepco business. The utilisation is expected within the following five years.
Notes to the consolidated financial statements continued
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20. Share capital and premium
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Ordinary share capital | ||
| Allotted, Issued, and fully paid | ||
| 576,027,342 (2022: 575,000,000) A ordinary shares of €0.01 each | 5,760 | 5,750 |
| Nominal value | Share capital | Share premium | Merger reserve | ||
| € | Shares (‘000) | €000 | €000 | €000 | |
| At 30 September 2022 | €0.01 | 575,000 | 5,750 | 13 | (751) |
| At 30 September 2023 | €0.01 | 576,027 | 5,760 | 13 | (751) |
21. Share-based payments
Value Creation Plan
The Value Creation Plan (VCP) was adopted on 3 March 2020 (the Grant Date). The VCP aligns the remuneration of Executive Directors with the value generated for shareholders. The VCP was originally granted by Pepco Group Limited, which was acquired by Pepco Group N.V. on 13 May 2021. On acquisition the VCP was novated from Pepco Group Limited to Pepco Group N.V.; the novation also included the VCP charge recognised in Pepco Group Limited for 2021 (€11.8m).
Following approval at our AGM on 2 February 2023 a number of amendments were made to the VCP. These amendments apply to any Conditional Award or nil-cost options granted under the VCP on or after 18 April 2023. These amendments included:
–
extension of the VCP by a further two years to 30 September 2026 (originally scheduled to end on 30 September 2024);
–
re-basing the Initial Price to 1 October 2022 (previously the Initial Price was based on 1 October 2019);
–
introducing a series of caps to the amounts that can be granted in total in relation to any year and that participants individually can earn from the VCP in any year; and
–
permitting the Chair of the Board to be eligible to participate in the VCP at the discretion of the Board.
In order to facilitate the above, the VCP rules were amended and restated with effect from 18 April 2023 and each holder of a Conditional Award which had not already lapsed received a new Conditional Award to replace any existing Conditional Award. Any nil-cost options granted as a result of a Conditional Award held prior to 18 April 2023 remain subject to the previous VCP rules.
Nature of Conditional Award
Under the VCP, participants are granted a Conditional Award giving the potential right to earn nil-cost options based on the absolute Total Shareholder Return (TSR) generated above a hurdle (the Threshold TSR) at the end of each plan year (the Measurement Date) over a 7 (2022: 5) year period.
At each Measurement Date, up to 6.5% (2022: 6.9%) of the value created above the hurdle may be “banked” in the form of nil-cost options. For any Measurement Date on or after 18 April 2023 the maximum value of nil-cost options which may be granted for each performance period is €52m (based on a full 6.5% Conditional Award allocation).
The Initial Price for the VCP is based on a proxy for the average valuation for the Group on 1 October 2022 (2022: 1 October 2019). Participants may receive a grant of nil-cost options at the end of each year of the performance period with a value representing a proportion of the Company’s TSR above the Threshold TSR at the relevant Measurement Date.
The Threshold TSR or hurdle which has to be exceeded before share awards can be earned by participants is the higher of:
–
the highest previous measurement of TSR (for any Measurement Date on or after 18 April 2023 the reference point is not earlier than 1 October 2022); and
–
the Initial Price compounded by 10% p.a. (re-based with effect from 1 October 2022).
If the value created at the end of a given plan year does not exceed the Threshold TSR, no nil-cost options will be granted on the Measurement Date following that year under the VCP.
The next Measurement Date will be in January 2024, 30 days after publication of the 2023 full year results.
Vesting of nil-cost options
Under the VCP, nil-cost options may vest in three tranches of 50%, 50%, and 100% (in each case, with the percentage applying to the unvested nil-cost options held.
During the year, upon the recommendation of the Remuneration Committee, the Board exercised its discretion to apply an EBITDA target as an alternative measurement criteria in respect of the nil-cost options granted on 14 February 2022 to specific VCP participants.
Vesting schedule for nil-cost options granted prior to 18 April 2023
The vesting schedule provides that 50% of the cumulative number of nil-cost options may vest following the third Measurement Date, 50% following the fourth Measurement Date, and 100% following the fifth Measurement Date. At each vesting date, vesting of awards is subject to:
a. a minimum Threshold TSR of 10% CAGR on the Initial Price being maintained:
–
where the TSR has been achieved at the third Measurement Date, 50% of the cumulative balance of nil-cost options will vest. If the TSR has not been achieved no nil- cost options will vest at this point but they will not lapse;
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21. Share-based payments continued
Vesting of nil-cost options continued
–
where the TSR has been achieved at the fourth Measurement Date, 50% of the cumulative balance of nil-cost options will vest. If the TSR has not been achieved no nil-cost options will vest at this point but they will not lapse; and
–
where the TSR has been achieved at the fifth Measurement Date, 100% of the cumulative balance of nil-cost options will vest. If the TSR has not been achieved no nil-cost options will vest at this point and the remaining cumulative balance will lapse;
b.
shares allocated as a result of the vesting of nil-cost options are subject to a two year post-vesting holding period from the first vesting date; and
c. a personal annual cap on vesting of €20m for the CEO and a proportionate limit for other participants:
–
in the event that in any year vesting as described above would exceed the personal annual cap, any nil-cost options above the cap will be designated as deferred nil-cost options and will be rolled forward and allowed to vest in subsequent years provided the cap is not exceeded in those years, until the VCP is fully paid out or after five years after the fifth Measurement Date when any deferred nil- cost options will vest. Such deferred nil-cost options are not subject to further underpins, performance conditions or service conditions.
Vesting schedule for nil-cost options granted on or after 18 April 2023
The vesting schedule provides that 50% of the cumulative number of nil-cost options may vest following the fifth Measurement Date, 50% following the sixth Measurement Date, and 100% following the seventh Measurement Date. At each vesting date, vesting of awards is subject to:
b. a minimum Threshold TSR of 10% CAGR on the Initial Price being maintained:
–
where the TSR has been achieved at the fifth Measurement Date, 50% of the cumulative balance of nil-cost options will vest. If the TSR has not been achieved no nil- cost options will vest at this point but they will not lapse;
–
where the TSR has been achieved at the sixth Measurement Date, 50% of the cumulative balance of nil-cost options will vest. If the TSR has not been achieved no nil-cost options will vest at this point but they will not lapse; and
–
where the TSR has been achieved at the seventh Measurement Date, 100% of the cumulative balance of nil-cost options will vest. If the TSR has not been achieved no nil-cost options will vest at this point and the remaining cumulative balance will lapse;
b.
shares allocated as a result of the vesting of nil-cost options are subject to a two year post-vesting holding period from the first vesting date;
c.
a personal annual cap on vesting of €20m, €14m, and €10m respectively for Trevor Masters, Andy Bond, and any other Executive Director (including Neil Galloway):
–
in the event that in any year vesting as described above would exceed the personal annual cap, any nil-cost options above the cap will be designated as deferred nil-cost options and will be rolled forward and allowed to vest in subsequent years provided the cap is not exceeded in those years, until the VCP is fully paid out or after two years after the seventh Measurement Date when any deferred nil-cost options will vest. Such deferred nil-cost options are not subject to further underpins, performance conditions or service conditions; and
d. no nil-cost options may be exercised until 1 October 2025.
Valuation of awards
The fair value of awards granted under the VCP was initially calculated at €45.3m and employer social security liability of €9.7m spread over the initial five-year period. An expense of €1.1m was recognised during the period (2022: €14.0m). The expense recognised consisted of a credit of €11.5m (2022: €-m) in relation to the reversal of charges relating to leavers and unallocated amounts in the VCP. In addition, fair value charges of €6.2m (2022: €12.0m) were recognised in relation to the spreading of the initial award granted. Furthermore, due to a modification and new grants in the year, additional fair value charges of €5.8m were recognised whilst other movements including foreign exchange totalled €0.6m. In determining the fair value of the VCP awards granted during the period, a Monte Carlo model was used.
Note that during the year, €3.4m was paid to a participant in the EAP scheme as a cash award which was previously treated as an equity settled award. As a result, this amount was reclassified from the share based payment reserve and settled during the year. The combination of this, offset by the €1.1m charge in the year reflects the movement in the share based payment reserve as disclosed in the statement of changes of equity. The movement in the reserve is further explained by removing the impact of €0.6m of other movements highlighted above.
Other awards
Within the remuneration report, two further grants have been disclosed that were approved by the Remuneration Committee at the end of FY23. The first relates to a one off share based payment award to provide the CFO with nil cost options upon joining the Group. The award was approved by the Board in November 2022 but was not formally documented until after the end of the financial year. The award is based on a 3-year vesting period. An accrual was made for potential charges in the P&L in relation to this award totalling approximately €0.3m.
Secondly, additional awards were approved on 30 September 2023, to replace awards granted under the VCP for a restricted stock unitaward (‘RSU’). This award was expressly approved by the Remuneration Committee on 30 September 2023. The terms of this award arethe new LTIP/RSU rules approved by the Board on 7 December 2023. The vesting period commences on 30 September 2023, for a further2 years with a one year hold period. Given that the awards were approved and agreed after the year end, and that only 1 day is withinthe financial period, it was considered highly immaterial for the purpose of calculating an IFRS 2 charge and as such no IFRS 2 charge isincluded within FY23.
Notes to the consolidated financial statements continued
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22. Business combinations
On 25 February 2022 Poundland Limited executed a Share Purchase Agreement for the purchase of the entire issued share capital of Online Poundshop Limited (“Poundshop") for total consideration of £1. Poundshop is an online discount retailer using the brand name Poundshop.com. The principal reason for the acquisition was to provide Poundland Limited with improved e-commerce.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill for this business combination was as follows:
| 30 September 2022 | |||
| Poundshop.com | |||
| Book value | Adjustments | Fair value | |
| €000 | €000 | €000 | |
| Property, plant and equipment | 140 | — | 140 |
| Intangible assets | 229 | — | 229 |
| Trade and other receivables | 60 | — | 60 |
| Cash and cash equivalents | 162 | — | 162 |
| Inventories | 120 | (1) | 119 |
| Prepayments and accrued income | (140) | — | (140) |
| Trade and other payables | (1,163) | 170 | (993) |
| Provisions | — | — | — |
| Borrowings | (1,673) | 539 | (1,135) |
| (2,264) | 708 | (1,557) | |
The fair value of inventory has been assessed based on the lower of cost and net realisable value.
Fair value of consideration paid
| 30 September | |
| 2022 | |
| Poundshop | |
| €000 | |
| Cash consideration paid on acquisition | — |
| Settlement of existing borrowings | — |
| Deferred cash consideration payable | — |
| Total consideration | — |
| Goodwill | 1,557 |
The effect of discounting the deferred consideration payable is not material.
No material acquisition costs were incurred as a result of the transaction. In relation to the acquisition of Poundshop.com, goodwill has been recognised due to the benefit of accessing e-commerce facilities.
The goodwill recognised will not be deductible for tax purposes.
23. Capital commitments
Capital commitments for which no provision has been made in the financial statements of the Group were as follows:
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Acquisition of property, plant and equipment and intangible assets | 77,746 | 75,344 |
24. Pension scheme
The Group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions payable by the Group to the scheme and amounted to €23.6m (2022: €17.9m). Contributions amounting to €1.1m (30 September 2022: €3.3m) were payable to the scheme at the year end and are included in accruals.
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123
25. Transactions with related parties
The following is a summary of trading transactions and balances outstanding at year end in relation to transactions with IBEX group companies. IBEX group refers to the ultimate parent company, IBEX Topco B.V., and its subsidiaries, excluding companies within the Pepco Group.
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Financial expense | — | — |
| Revenue received | — | 215 |
| Receivables outstanding | — | — |
| Payables outstanding | — | (433) |
Revenue from IBEX companies relates to product sourcing services provided to members of the IBEX group which ended in the prior year. Please refer to note 8 for remuneration paid to key management.
26. Discontinued operations
On 31 March 2019 the Group announced its intention to exit the business in France and initiated an active programme to unwind its activities in France. This process is still ongoing.
Financial performance and cash flow information
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Revenue | — | — |
| Expenses | — | (110) |
| Income tax | — | — |
| Loss from discontinued operation | — | (110) |
| Net cash outflow from operating activities | — | (110) |
| Net cash outflow from investing activities | — | — |
| Net cash outflow from financing activities | — | — |
| Net decrease in cash generated by discontinued operation | — | (110) |
27. Alternative Performance Measures (APMs)
Introduction
The Directors assess the performance of the Group using a variety of performance measures; some are IFRS and some are adjusted and therefore termed ‘‘non-GAAP’’ measures or “Alternative Performance Measures” (APMs). The rationale for using adjusted measures is explained below. The Directors principally discuss the Group’s results on an ‘‘underlying’’ basis. Results on an underlying basis are presented before non-underlying items (large and unusual items).
The APMs used in this Annual Report are underlying EBITDA, underlying profit before tax, like-for-like revenue growth and net debt.
A reconciliation from these non-GAAP measures to the nearest measure prepared in accordance with IFRS is presented below. The APMs we use may not be directly comparable with similarly titled measures used by other companies.
Non-underlying and other items
The Directors believe that presentation of the Group’s results on an underlying basis provides a useful alternative analysis of the Group’s financial performance, as non-underlying and other items are identified by virtue of their size, nature or incidence. This presentation is consistent with the way that financial performance is measured by management and reported to the Board and assists in providing a relevant analysis of the trading results of the Group. In determining whether events or transactions are treated as non-underlying and other items, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.
The following charges and credits have been included within non-underlying and other items for the year ended 30 September 2023; see note 4 for more details:
–
business restructuring programmes;
–
Impact of implementation of IFRIC interpretation on SaaS arrangements and expensing significant ERP programme costs incurred; and
–
IFRS 2 charges in relation to Value Creation Plan award to the management team.
Notes to the consolidated financial statements continued
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27. Alternative Performance Measures (APMs) continued
Like-for-like revenue growth
In the opinion of the Directors, like-for-like revenue growth is a measure which seeks to reflect the underlying performance of the Group’s stores. The measure is defined as year-on-year revenue growth for stores open beyond their trading anniversary, with stores relocated in a catchment and/or upsized included within LFL provided the enlarged store footprint is less than 50% bigger than the existing store.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| Reported revenue growth | 17.1% | 17.0% |
| Like-for-like revenue growth | 6.0% | 5.2% |
Underlying (IFRS 16) EBITDA
Underlying EBITDA (IFRS 16) is defined as reported EBITDA excluding the impact of non-underlying items. Prior year underlying EBITDA (IFRS16) also excluded the impact of the discontinued operations.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Reported EBITDA | 701,752 | 644,932 |
| Non-underlying items | 51,601 | 65,805 |
| Underlying EBITDA | 753,353 | 730,737 |
Underlying profit before-tax
Underlying profit before tax is defined as reported profit before tax excluding the impact of non-underlying items. Prior year underlying profit before tax also excludes the impact of the discontinued operations.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Reported profit before tax | 146,977 | 225,615 |
| Other non-underlying items | 55,061 | 74,683 |
| Underlying profit before tax | 202,038 | 300,298 |
Cash generated by operations
Cash generated by operations is defined as net cash from operating activities excluding tax.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Net cash from operating activities | 652,695 | 363,307 |
| Tax paid | 75,424 | 61,387 |
| Cash generated by operations | 728,119 | 424,694 |
Gross margin
Gross margin represents gross profit divided by revenue.
The Group uses gross margin in its business operations, among other things, as a means of comparing the underlying profitability of the Group from period to period and the performance of its sourcing model. The Group uses gross margin as a useful metric to understand business performance and its ability to “sell for less” by “buying for less”. Gross margin is expressed as a percentage.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Gross profit | 2,267,817 | 1,967,598 |
| Revenue | 5,648,885 | 4,822,819 |
| Gross margin % | 40.1% | 40.8% |
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
125
27. Alternative Performance Measures (APMs) continued
Net debt (pre-IFRS 16)
The Group uses net debt because the Group believes this measure provides an indicator of the overall strength of its balance sheet and can be used to assess its earnings as compared to its indebtedness as defined by the Group’s financing agreements.
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Borrowings from credit institutions | 729,064 | 614,542 |
| Obligations under finance leases | 11,884 | 4,246 |
| Gross debt (excluding IFRS 16 lease liabilities) | 740,948 | 618,788 |
| Closing cash balance | (330,417) | (343,845) |
| Net debt (excluding IFRS 16 lease liabilities) | 410,531 | 274,855 |
1
IFRS 16 lease liability is excluded from the gross debt definition under the Group’s financing agreement.
Excluding impact of IFRS 16
The Group’s performance is also analysed excluding the impact of IFRS 16, which provides greater comparability to prior performance.
Underlying EBITDA (pre-IFRS 16)
Underlying EBITDA (pre-IFRS 16) is defined as reported EBITDA excluding the impact of non-underlying items and the impact of IFRS 16. Prioryear underlying EBITDA (pre-IFRS 16) also excluded the impact of the discontinued operations.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Reported EBITDA | 701,752 | 664,932 |
| Non-underlying items | 51,601 | 65,805 |
| IFRS 16 adjustments | (357,836) | (291,698) |
| Underlying EBITDA (pre-IFRS 16) | 395,517 | 439,039 |
Underlying profit before-tax (pre-IFRS 16)
Underlying profit before tax (pre-IFRS 16) is defined as reported profit before tax excluding the impact of non-underlying items and theimpact of IFRS 16.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Reported profit before tax | 146,977 | 225,615 |
| Non-underlying items | 55,601 | 75,587 |
| IFRS 16 adjustments | (7,430) | 5,685 |
| Underlying profit before tax (pre-IFRS 16) | 194,608 | 305,983 |
Return on invested capital
This provides an annual measure of return based on the capital invested. The calculation is based on the following inputs:
NOPAT/IC, where IC (invested capital) = Property, plant and equipment + intangibles (excl. goodwill) + net working capital (current assets – current liabilities excluding IFRS 16 lease liabilities) and where NOPAT is defined as net underlying operating profit after tax.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| ROIC | 17% | 25% |
28. Subsequent events
There are no reportable subsequent events.
29. Ultimate parent company
The Company is a direct subsidiary undertaking of
IBEX Retail Investments (Europe) Limited
, which is registered in England. IBEX Retail Investments (Europe) Limited’s registered address is The Space (Floor 3), 120 Regent Street, London, W1B 5FE.
At the reporting date, the Company’s ultimate parent company was
IBEX Topco B.V,
an entity registered in the Netherlands.
Notes to the consolidated financial statements continued
126
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
30. Earnings per share
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| ¢ | ¢ | |
| Basic earnings per share | ||
| Earnings per share from continuing operations | 17.8 | 30.2 |
| Earnings per share from discontinued operations | — | — |
| Earnings per share | 17.8 | 30.2 |
| Earnings per share from continuing operations adjusted for non-underlying items | 25.9 | 42.0 |
| Diluted earnings per share | ||
| Diluted earnings per share from continuing operations | 17.7 | 30.0 |
| Diluted earnings per share from discontinued operations | — | — |
| Diluted earnings per share | 17.7 | 30.0 |
| Diluted earnings per share from continuing operations adjusted for non-underlying items | 25.7 | 41.7 |
Basic earnings per share is based on the profit for the year attributable to equity holders of the Company divided by the number of shares ranking for dividend.
Diluted earnings per share is calculated by adjusting the weighted average number of shares used for the calculation of basic earnings per share as increased by the dilutive effect of potential ordinary shares. The only potentially dilutive instrument in issue is share awards under the VCP scheme. Please see note 21 for further details of this scheme.
The following table reflects the profit data used in the basic and diluted earnings per share calculations:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Profit/(loss) from continuing operations attributable to the ordinary equity holders of the Company | 102,244 | 173,715 |
| Add back non-underlying items: | 55,061 | 74,587 |
| Add back tax on non-underlying items | (8,319) | (6,792) |
| Adjusted profit attributable to the ordinary equity holders of the company | 148,986 | 241,510 |
The following table reflects the share data used in the basic and diluted earnings per share calculations:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| ‘000 | ‘000 | |
| Weighted average number of shares | ||
| Weighted average number of ordinary shares in issue | 575,167 | 575,000 |
| Weighted average number of shares for basic earnings per share | ||
| Weighted average of dilutive potential shares | 4,113 | 4,113 |
| Weighted average number of shares for diluted earnings per share | 579,280 | 579,113 |
31. Other information
Distribution of profit
No dividends were declared by Pepco Group N.V. for the 2023 reporting period.
Approval and signatories
London (United Kingdom), 22 December 2023
Management
Andy Bond, Chief Executive Officer
Neil Galloway, Chief Financial Officer
Non-Executive Directors
Pierre Bouchut, Independent Non-Executive Director
Maria Fernanda Mejia, Independent Non-Executive Director
Brendan Connolly, Independent Non-Executive Director
Grazyna Piotrowska-Oliwa, Independent Non-Executive Director
Neil Brown, Non-Executive Director
Paul Soldatos, Non-Executive Director
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
127
for the year ended 30 September 2023
| Period to | Period to | ||
| 30 September | 30 September | ||
| 2023 | 2022 | ||
| Note | €000 | €000 | |
| Administrative expenses | (630) | (675) | |
| Operating loss for the year | 2 | (630) | (675) |
| Financial income | 3 | 2 | 20 |
| Financial expense | 4 | (8) | — |
| Loss before taxation for the year | (636) | (655) | |
| Taxation | 5 | 310 | — |
| Loss for the year | (326) | (655) |
The above results were derived from continuing operations.
There was no other comprehensive income for the period.
The notes on pages 132 to 138 form part of these financial statements.
Separate income statement
128
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
at 30 September 2023
| 30 September | 30 September | ||
| 2023 | 2022 | ||
| Note | €000 | €000 | |
| Non-current assets | |||
| Investment in subsidiary companies | 6 | 702,304 | 705,121 |
| Trade and other receivables | 7 | 53 | 54 |
| 702,357 | 705,175 | ||
| Current assets | |||
| Trade and other receivables | 7 | 762 | 580 |
| Cash and cash equivalents | 13 | 2 | |
| 775 | 582 | ||
| Total assets | 703,132 | 705,757 | |
| Equity and liabilities | |||
| Capital and reserves | |||
| Share capital | 9 | 5,760 | 5,750 |
| Share premium reserve | 663,599 | 663,599 | |
| Share-based payment reserve | 33,013 | 35,830 | |
| Accumulated losses | (1,266) | (939) | |
| Total shareholders' equity | 701,106 | 704,240 | |
| Current liabilities | |||
| Trade and other payables | 8 | 2,026 | 1,517 |
| Total equity and liabilities | 703,132 | 705,757 |
The notes on pages 132 to 138 form part of these financial statements.
Separate statement of financial position
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
129
for the year ended 30 September 2023
| Share-based | |||||
| Share | Share premium | payment | Accumulated | Total | |
| capital | reserve | reserve | losses | equity | |
| €000 | €000 | €000 | €000 | €000 | |
| Balance at 1 October 2021 | 5,750 | 663,599 | 23,809 | (284) | 692,874 |
| Total comprehensive income for the year | |||||
| Loss for the year | — | — | — | (655) | (655) |
| Total comprehensive income for the year | — | — | — | (655) | (655) |
| Transactions with owners, recorded directly in equity | |||||
| Equity-settled share-based payments | — | — | 12,021 | — | 12,021 |
| Total contributions by and distributions to owners | — | — | 12,021 | — | 12,021 |
| Balance at 30 September 2022 | 5,750 | 663,599 | 35,830 | (939) | 704,240 |
| Share-based | |||||
| Share | Share premium | payment | Accumulated | Total | |
| capital | reserve | reserve | losses | equity | |
| €000 | €000 | €000 | €000 | €000 | |
| Balance at 1 October 2022 | 5,750 | 663,599 | 35,830 | (939) | 704,240 |
| Total comprehensive income for the year | |||||
| Loss for the year | — | — | — | (326) | (326) |
| Total comprehensive income for the year | — | — | — | (326) | (326) |
| Transactions with owners, recorded directly in equity | |||||
| Equity-settled share-based payments | — | — | (2,817) | — | (2,817) |
| New shares issued | 10 | — | — | — | 10 |
| Total contributions by and distributions to owners | — | — | (2,817) | — | (2,807) |
| Balance at 30 September 2023 | 5,760 | 663,599 | 33,013 | (1,266) | 701,106 |
Refer to note 9 for a description of each reserve held within equity and details of movements in the period.
The notes on pages 132 to 138 form part of these financial statements.
Separate statement of changes in equity
130
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
for the year ended 30 September 2023
| 30 September | 30 September | ||
| 2023 | 2022 | ||
| Note | €000 | €000 | |
| Cash flows from operating activities | |||
| Cash utilised by operations | 10 | 8 | (3) |
| Net cash outflow from operating activities | 8 | (3) | |
| Cash flows from investing activities | |||
| Interest received | 2 | 2 | |
| Net cash inflow from investing activities | 2 | 2 | |
| Cash flows from financing activities | |||
| Proceeds from the issue of share capital | 10 | — | |
| Net cash outflow from financing activities | 10 | — | |
| Effect of exchange rate fluctuations on cash held | (9) | — | |
| Cash and cash equivalents at beginning of period | 2 | 1 | |
| Net (decrease)/increase in cash and cash equivalents | 11 | (1) | |
| Cash and cash equivalents at end of period | 13 | 2 |
The notes on pages 132 to 138 form part of these financial statements.
Separate statement of cash flows
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
131
1. Significant accounting policies
Pepco Group N.V. is a public limited company which is listed on the Warsaw Stock Exchange and was incorporated on 17 February 2021 and became a UK tax resident entity on 8 March 2021.
As part of a Group reorganisation undertaken prior to the IPO, the Company acquired the entire shareholding of Pepco Group Limited from Flow Newco Limited on 13 May 2021 (the acquisition date), in a share for share exchange by issuing its ordinary shares. Consequently the Company became the immediate holding company of Pepco Group Limited.
The Group reorganisation has been accounted for as a common control transaction whereby the cost of investment in Pepco Group Limited has been determined based on its net asset value on the acquisition date. Please see note 6 for details of the Group reorganisation.
These separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as endorsed by the EU and with part 9 of Book 2 of the Dutch Civil Code and are presented in addition to the consolidated financial statements of Pepco Group N.V.
Unless otherwise stated, the accounting policies applied are the same as those in the consolidated financial statements.
1.1 Measurement convention
The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
1.2 Going concern
The separate financial statements have been prepared on a going concern basis.
In the 2023 reporting period, the Company’s current liabilities exceed the current assets.
Refer to the Going Concern section of the consolidated financial statements for a detailed going concern assessment of the Group, including the Company.
1.3 Investments in subsidiaries
Investments in subsidiaries are carried at cost less impairment provisions. Investments in subsidiaries are impaired to their recoverable amount. Where a common control transaction takes place, an investment is recognised at a value equivalent to the net assets of the acquired entity on the acquisition date. Please see note 6 for more details surrounding the common control acquisition made during 2021.
1.4 Shareholders’ equity
The reserves are recognised in accordance with the Dutch Civil Code.
1.5 Changes in accounting policies
Refer to note 1 of the consolidated financial statements for disclosures regarding new accounting standards adopted by the Company and the Group.
1.6 Accounting estimates and judgements
The preparation of these financial statements requires the exercise of judgement, estimates and assumptions that affect the application of policies and reported amount of assets and liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and various other factors, including expectations of the future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period impacted.
The Company makes estimates and assumptions concerning the future. By definition, the resulting accounting estimates will seldom equal the related actual results. The Directors continually evaluate the estimates, assumptions and judgements based on available information and experience.
Key sources of estimation uncertainty
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.
Impairment of investments
The Company assesses whether there are any indicators of impairment as at the reporting date for all investments in subsidiaries. Investments are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
When value in use calculations are undertaken, the Directors must estimate the expected future cash flows from the cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. The key sources of estimation uncertainty are the future business performance over the forecast period (five years), projected long-term growth rates and the discount rates applied. Refer to note 1 of the consolidated financial statements for detailed disclosures.
Key judgements
There are no key judgements made in preparation of these financial statements.
1.7 Standards issued but not effective
For a list of new standards issued but not yet effective, please refer to note 1.28 of the consolidated financial statements.
Notes to the separate financial statements
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2. Operating loss
The Company does not have any employees. Details of Directors’ remuneration can be found in note 8 of the consolidated financial statements. The Company does not receive a charge for these costs as these are borne by another Group entity.
Auditors’ remuneration is borne by another Group entity. Please refer to note 5 of the consolidated financial statements for details of total Group auditors’ remuneration.
3. Financial income
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Interest income on loans to Group undertakings | 2 | 2 |
| Other financial income | — | 18 |
| 2 | 20 |
4. Financial expense
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Foreign exchange losses | 8 | — |
| 8 | — |
5. Taxation
Analysis of tax (charge)/credit for the year recognised in the income statement
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Current tax (charge)/credit | ||
| Current tax on loss for the year | 139 | — |
| Adjustments in respect of prior periods | 171 | — |
| Total current tax credit | 310 | — |
| Deferred tax (charge)/credit | ||
| Origination and reversal of temporary differences | — | — |
| Adjustments in respect of prior periods | — | — |
| Total deferred tax credit | — | — |
| Total tax credit for the year | 310 | — |
The current tax credit is recoverable via group relief.
Factors affecting the tax (charge)/credit for the year recognised in the income statement
The tax credit for the year differs from the standard rate of corporation tax in the UK of 22.0% (2022: 19.0%). The differences are explained below.
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Loss before tax | (636) | (655) |
| (636) | (655) | |
| Expected tax credit at the UK statutory rate of 22.0% (2022: 19.0%)* | 140 | 124 |
| Effects of: | ||
| Movements in unrecognised temporary differences | — | (124) |
| Adjustments in respect of prior periods | 171 | — |
| Expenses not deductible | (1) | — |
| Total tax credit for the year | 310 | — |
*
The Company is UK tax resident based on the Company being managed and controlled in the UK and as such is subject to UK corporation tax with the expected tax (charge)/credit reconciled to the UK statutory rate.
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133
5. Taxation continued
Factors that may affect future current and total tax charges
An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the Company’s future UK current tax charge accordingly.
Deferred tax not recognised
The Company has no temporary differences (2022: €0.9m) on which no deferred tax assets have been recognised. The prior year temporary differences relate to tax losses which do not have an expiry date and recoveriability was considered uncertain.
6. Investments in subsidiaries
| Total carrying | ||||
| Issued | Shareholding | value | ||
| Country of incorporation | share capital | % | €000 | |
| Pepco Group Limited | United Kingdom | £1,801 | 100 | 669,291 |
On 13 May 2021 the Company acquired the entire share capital of Pepco Group Limited in exchange for issuing its own shares. As a common control transaction, the deemed cost of the investment was the net asset value of Pepco Group Limited on the acquisition date of €669,291,000.
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Historical cost | 669,291 | 669,291 |
| Contributions to subsidiaries | ||
| Group share-based payments1 | 33,013 | 35,830 |
| 702,304 | 705,121 |
1
The Company’s subsidiaries recognise the amounts relating to awards to their employees as a share-based payment expense in their financial statements. As Pepco Group N.V. will settle the share awards, this is recognised as an increase in the investment in relevant subsidiaries in accordance with IFRS 2 “Share-based Payment”. For details of the share-based payments which have increased the Company’s investments, see note 21 to the consolidated financial statements.
7. Trade and other receivables
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Non-current trade and other receivables | ||
| Loans to Group undertakings | 53 | 54 |
| Current trade and other receivables | ||
| Interest due from Group undertakings | 5 | 3 |
| Amounts due from Group undertakings | 384 | — |
| Prepayments | 373 | 577 |
| 762 | 580 |
8. Trade and other payables
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Current trade and other payables | ||
| Amounts due to Group undertakings | 1,863 | 1,357 |
| Trade payables | 163 | 160 |
| 2,026 | 1,517 |
Notes to the separate financial statements continued
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9. Share capital and reserves
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Authorised share capital | ||
| 1,725,000,000 ordinary shares of €0.01 each | 17,250 | 17,250 |
| Issued share capital | ||
| 576,027,342 (2022: 575,000,000) ordinary shares of €0.01 each | 5,760 | 5,750 |
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the meetings of the Company.
Share premium reserve
The closing share premium reserve on 30 September 2023 was €663,599,000.
Share-based payment reserve
This reserve comprises the cumulative value of shares to be issued as a result of the Group equity-settled share-based payment scheme. Upon the issue of any shares resulting from the scheme, a transfer will be made out of the share-based payment reserve to share capital and share premium as applicable. Please see note 21 of the consolidated financial statements for details about the share-based payment scheme.
10. Cash flow information
Cash utilised in operations
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Loss before tax | (636) | (655) |
| Adjusted for: | ||
| Net foreign exchange gains | — | (7) |
| Financial income | (2) | (2) |
| Financial expense | 8 | — |
| Cash generated from operations before changes in working capital | (630) | (675) |
| Changes in working capital: | ||
| Increase in trade and other receivables | (181) | (560) |
| Increase in trade and other payables | 509 | 1,232 |
| Impact of group relief not yet received | 310 | — |
| Net changes in working capital | 638 | 672 |
| Cash generated from operations | 8 | (3) |
Net debt reconciliation
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Cash and cash equivalents | 13 | 2 |
| Loans receivable from Group undertakings | 53 | 54 |
| 66 | 56 |
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135
11. Transactions with related parties
The following is a summary of transactions with Group companies during the period and balances at the end of the period:
| Year to | Year to | |
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Interest income | ||
| Peu (Fin) Plc | 2 | 2 |
| Expenses recharged | ||
| Peu (Fin) Plc | 214 | — |
| Loans receivable | ||
| Peu (Fin) Plc | 53 | 54 |
| Interest accrued on loans | ||
| Peu (Fin) Plc | 5 | 3 |
| Amounts due from Group undertakings | ||
| Peu (Fin) Plc | (238) | — |
| Poundland Limited | (46) | — |
| Poundland Elgin Limited | (58) | — |
| Pepkor Europe Limited | (42) | — |
| Amounts owed to Group undertakings | ||
| Peu (Tre) Limited | (903) | (1,042) |
| Pepco Group Services Limited | (960) | (315) |
Interest is charged on the loans receivable at the gross effective interest rate of the Group’s external debt, plus an appropriate transfer pricing mark-up where appropriate. Loans are unsecured and repayable in line with the maturity of the Group’s external debt.
12. Financial risk management
The Management Board and Executive team are responsible for implementing the risk management strategy to ensure that an appropriate risk management framework is operating effectively within the Company. The Company does not speculate in the trading of derivative or other financial instruments.
Total financial assets and liabilities
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Related party loans receivable | 53 | 54 |
| Non-current financial assets | 53 | 54 |
| Related party loans receivable | 5 | 3 |
| Prepayments | 373 | 557 |
| Amounts due from Group undertakings | 384 | |
| Cash and cash equivalents | 13 | 2 |
| Current financial assets | 775 | 582 |
| Amounts owed to Group undertakings | (1,863) | (1,357) |
| Trade payables | (163) | (160) |
| Current financial liabilities | (2,026) | (1,517) |
No items were classified as “at fair value through profit or loss” or “at fair value through other comprehensive income” during the 2023 reporting period.
The carrying amount of financial assets and liabilities approximates its fair value.
The fair value calculation of the financial assets and liabilities was performed at the reporting date. Between the reporting date and the date of this report, the fair values reported may have fluctuated with changing market conditions and therefore the fair values are not necessarily indicative of the amounts the Company could realise in the normal course of business subsequent to the reporting date.
Notes to the separate financial statements continued
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12. Financial risk management continued
Foreign currency risk
The financial assets and liabilities of the Company are denominated in the functional currency except for the following British Pound denominated related party loans receivable, cash and cash equivalents and amounts owed to Group undertakings.
| 30 September | 30 September | |
| 2023 | 2022 | |
| €000 | €000 | |
| Related party loans receivable | 60 | 57 |
| Cash and cash equivalents | 1 | 1 |
| Amounts owed to Group undertakings | (364) | (356) |
| Trade payables | (100) | — |
| (403) | (298) |
The following significant exchange rates applied during the period and were used in calculating sensitivities:
| Forecast rate | Spot rate | |
| Euro:British Pound | 1.16 | 1.13 |
Sensitivity analysis
The table below indicates the Company's sensitivity at the reporting date to the movements in the British Pound that the Company are exposed to on its financial instruments. The percentage given below represents a weighting of foreign currency rates forecasted by the major banks that the Company transacts with regularly. This analysis assumes that all other variables, in particular interest rates, remain constant. The impact on the reported numbers, using the forecast rates as opposed to the reporting date spot rates, is set out below.
| 30 September 30 September | ||
| 2023 | 2022 | |
| €000 | €000 | |
| Through profit/(loss) | ||
| British Pound strengthening by 10% against the Euro | (40) | (30) |
| British Pound weakening by 10% against the Euro | 40 | 30 |
If the foreign currencies were to weaken/strengthen against the Euro, by the same percentages as set out in the table above, it would have an equal, but opposite, effect on profit or loss.
Interest rate risk
At the reporting date the interest rate profile of the Company's financial instruments was:
| 30 September 2023 | 30 September 2022 | |||||
| Variable | Non-interest | Variable | Non-interest | |||
| bearing | Total | bearing | Total | |||
| €000 | €000 | €000 | €000 | €000 | €000 | |
| Non-current financial assets | 53 | — | 53 | 54 | — | 54 |
| Current financial assets | — | 18 | 18 | — | 5 | 5 |
| Current financial liabilities | — | — | — | — | — | — |
| 53 | 18 | 71 | 54 | 5 | 59 | |
Sensitivity analysis
The Directors do not consider the Company to be sensitive to movements in interest rates. A reasonably foreseeable movement in interestrates would not have a material effect on the profit of the Company or the carrying value of the Company’s financial instruments.
Credit risk
Potential concentration of credit risk consists principally of related party loans receivable. At 30 September 2023, the Company did not consider there to be any significant concentration of credit risk which had not been adequately provided for.
The carrying amounts of financial assets represent the maximum credit exposure.
The maximum remaining exposure to credit risk at the reporting date, without taking account of the value of any collateral obtained, was €71,000. All exposure to credit risk is within the United Kingdom.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with financial liabilities. Liquidity risk arises because of the possibility that the entity could be required to pay its liabilities earlier than expected. The Company is not exposed to significant liquidity risk on the basis that its only financial liabilities are owed to other Group companies.
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
137
13. Reconciliation of net profit and shareholders’ equity of the Company with the consolidated results
| 30 September 2023 | 30 September 2022 | |||
| Net profit | Net profit | |||
| Total equity | for the period | Total equity | for the period | |
| €000 | €000 | €000 | €000 | |
| Shareholders’ equity and net profit for the period according to separate | ||||
| income statement | 701,106 | (326) | 704,240 | (655) |
| Share of subsidiaries’ consolidated profit for the period | 102,570 | 102,570 | 174,260 | 174,260 |
| Share of subsidiaries’ consolidated other comprehensive income for the period | (87,046) | — | (3,735) | — |
| Prior period share of subsidiaries’ consolidated total comprehensive income for | ||||
| the period and other reserve movements | 440,515 | — | 269,989 | — |
| Group equity and profit after tax for the period according to Consolidated | ||||
| income statement | 1,157,145 | 102,244 | 1,144,754 | 173,605 |
14. Subsequent events
There are no reportable subsequent events.
15. Principal subsidiaries
The statutory list of all subsidiaries and affiliated companies in included on pages 147 to 148.
16. Ultimate parent company
The Company is a direct subsidiary undertaking of IBEX Retail Investments (Europe) Limited, which is registered in England. IBEX Retail Investments (Europe) Limited’s registered address is The Space (Floor 3), 120 Regent Street, London, W1B 5FE.
At the reporting date, the Company’s ultimate parent company was IBEX Topco B.V., an entity registered in the Netherlands.
17. Approval and signatories
London (United Kingdom), 22 December 2023
Management
Andy Bond, Executive Chair
Neil Galloway, Chief Financial Officer
Non-Executive Directors
María Fernanda Mejía, Independent Non-Executive Director
Brendan Connolly, Independent Non-Executive Director
Pierre Bouchut, Independent Non-Executive Director
Grazyna Piotrowska-Oliwa, Independent Non-Executive Director
Paul Soldatos, Non-Executive Director
Neil Brown, Non-Executive Director
Notes to the separate financial statements continued
138
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Independent auditor’s report
To the shareholders and Board of Directors of Pepco Group N.V.
Report on the audit of the financial statements for the year ended 30 September 2023 included in the
annual report
Our qualified opinion
We have audited the accompanying financial statements for the year ended 30 September 2023 (hereafter “financial statements”) of
Pepco Group N.V. (hereafter “Company” refer to the legal entity, and “Group” refers to the consolidated level), based in London, United
Kingdom. The Company is at the head of a group of entities (“components”). The financial information of this Group is included in the 2023
Consolidated Financial Statements of the Group. The financial statements include the 2023 Consolidated Financial statements and the
2023 Separate Financial Statements.
In our opinion, except for the possible effects on the corresponding figures of the matter described in the ‘Basis for our Qualified
Opinion paragraph’:
–
The accompanying Consolidated Financial statements give a true and fair view of the financial position of the Group as at
30 September 2023 and of its result and its cash flows for the year ended 30 September 2023 in accordance with International
Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.
–
The accompanying 2023 Separate Financial statements give a true and fair view of the financial position of the Company as at
30 September 2023 and of its results for the year ended 30 September 2023 in accordance with International Financial Reporting
Standards as adopted by the EU and with Part 9 of Book 2 of the Dutch Civil Code.
The 2023 Consolidated Financial Statements comprise:
–
the consolidated statement of financial position as at 30 September 2023;
–
the following statements for the year ended 30 September 2023: the consolidated income statement the consolidated statement of
other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows; and
–
the notes comprising a summary of the significant accounting policies and other explanatory information.
The 2023 Company Financial Statements comprise:
–
the separate statement of financial position as at 30 September 2023;
–
the following statements for the year ended 30 September 2023: the separate income statement, the separate statement of changes
in equity and the separate statement of cash flows; and
–
the notes comprising a summary of the significant accounting policies and other explanatory information.
Basis for our Qualified Opinion
We were unable to obtain sufficient and appropriate audit evidence on the existence and completeness of part of the inventory opening
balance as at 1 October 2022 due to an unexplained net difference of € 7 million between physical inventory held in warehouses of Pepco
Sp.z.o.o. (€ 163.4 million) and the related inventory recognised in the Consolidated Financial Statements (€ 170.1 million). This unexplained
difference could have resulted from physical inventory that could not be traced to accounting records and /or recognised inventory not
directly traceable to physical inventory. As a result, we were unable to determine whether any corrections arising from this difference were
necessary with regard to the inventory position as at 1 October 2022.
We note that the aforementioned only refers to the inventory opening balances and the related effect in the results of 2023, as we were
able to obtain sufficient and appropriate audit evidence on the existence and completeness of the inventory closing balance as at 30
September 2023.
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those
standards are further described in the 'Our responsibilities for the audit of the financial statements' section of our report.
We are independent of the Group and the Company in accordance with the EU Regulation on specific requirements regarding statutory
audit of public-interest entities, the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de
onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect
to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening
gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Information in support of our opinion
We designed our audit procedures in the context of our audit of the financial statements as a whole and in forming our opinion thereon.
The following information in support of our opinion was addressed in this context, and we do not provide a separate opinion or conclusion
on these matters.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate, to the financial statements as a whole.
Based on our professional judgement we determined the materiality for the financial statements as a whole at €11.7 million. The materiality
is based on 7.5% of profit before tax from continuing operations. We have also taken into account misstatements and/or possible
misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
Audits of group entities (components) were performed using materiality levels determined by the judgement of the group audit team,
based on the materiality of the Consolidated Financial Statements.
We communicated with the Audit Committee that misstatements in excess of €352 Keur, which are identified during the audit, would be
reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
139
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Independent auditor’s report continued
To the shareholders and Board of Directors of Pepco Group N.V.
Scope of the group audit
The Company is at the head of group of entities (“components”). The financial information of this Group is included in the 2023
Consolidated Financial Statements of the Group.
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements
as a whole. We used the outputs of a risk assessment, our understanding of the Group, its environment, controls and critical process, to
consider qualitative factors in order to ensure that we obtained sufficient audit coverage across all financial statement line items.
As part of designing our audit, we assessed the risk of material misstatement in the financial statements whether due to fraud or error, and
then designed and performed audit procedures responsive to those risks. In particular, we looked at where management made subjective
judgements such as making assumptions on significant accounting estimates.
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In
this respect we have determined the nature and extent of the audit procedures to be carried out on the entities. Our group audit is mainly
focused on financially large entities in terms of size and financial interest or where significant risks or complex activities were present,
leading to full audits performed for 2 sub groups in scope, Pepco Group CEE and Poundland.
We performed audit procedures at group level on areas such as consolidation and financial statement disclosures. Specialists were
involved amongst others in the areas of information technology, treasury and valuation.
We also involved component auditors from the Mazars Network and other audit firms, who are familiar with local laws and regulations.
For these component auditors, the group audit team provided detailed written instructions, which include the requirements for component
audit teams, the audit approach for significant audit areas, other information obtained centrally and the need for awareness for fraud
risks. Our oversight procedures also included a combination of remote and on-site reviews of working papers of the auditors of the
significant components in Poland and United Kingdom, (virtual) meetings with component auditors and management of the components,
and reviewing deliverables supplied by the component auditors to gain sufficient understanding of the work performed. We varied the
nature, timing and extent of these procedures based on both quantitative and qualitative considerations. For smaller components, we
have performed review procedures or specified audit procedures.
By performing the procedures mentioned above we have been able to obtain sufficient and appropriate audit evidence about the
consolidated and separate company financial information and to provide an opinion on the 2023 Financial Statements as a whole.
Audit response to the risks of fraud
We refer to section ‘Risk management’ of the Management Board Report for management’s fraud risk assessment.
As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud, misappropriation
of assets and corruption. We identified the following fraud risks and performed the following specific procedures:
Fraud risk 1
Our audit work performed
Management override of controls
Amongst others we have performed the following audit
Management is ordinarily in an unique position to adjust the
procedures:
financial statements by overriding controls that otherwise appear
–
an assessment of the internal control framework, including
to be operating effectively.
management integrity, and evaluation of the design and
In this context, we paid attention to:
implementation of the relevant controls in the financial
closing process;
–
The appropriateness of journal entries and other adjustments
made in the preparation of the financial statements, such as
–
enquiries of individuals with different levels of responsibility
consolidation journals.
involved in the financial reporting process about
inappropriate or unusual activity relating to the processing
–
Potential biases in estimates, such as impairment of
of journal entries and other adjustments;
intangible assets (goodwill and other intangible assets) and
right-of-use assets, leases and derivatives.
–
a selection of journal entries and other adjustments made
during the year, at the end of the reporting period and
–
Significant transactions, if any, outside the normal course
post-closing entries;
of business.
–
testing of the appropriateness for these journal entries and
other adjustments with the underlying audit documentation.
–
an evaluation of judgements and decisions for bias by
management for key accounting estimates with respect to
goodwill and other intangible assets, leases and derivatives,
including retrospective reviews of judgements and
assumptions related to significant accounting estimates of
the prior and current year.
–
a test of related party transactions and transactions outside
the regular course of business.
140
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Audit response to the risks of fraud continued
Fraud risk 2
Our audit work performed
Risk of fraud in revenue recognition
–
We assessed the internal control framework and evaluated
The disclosure on the accounting principles in relation to
the design and implementation of the relevant controls in the
revenue recognition is set out in Note 3 of the consolidated
financial closing process and other processes.
financial statements.
–
We assessed the IT environment and relevant systems.
The risk of fraud in revenue recognition is a presumed audit
–
We performed audit procedures on journal entries based on
risk and for the Company this has been assessed as a risk
fraud selection criteria.
for overstatement of revenue. The risk of fraud in revenue
recognition is focused on the occurrence of inappropriate
–
We tested the reconciliation point of sales systems to cash
manual transactions (non- standard transactions).
and found no abnormalities.
In addition, we also performed the following more general procedures:
–
we assessed the whistleblowing and compliance matters followed up by management;
–
we evaluated whether transactions, both usual and unusual, with related parties have been identified and appropriately disclosed;
–
we performed a sourcing analysis in order to determine the risk associated with the selection of vendors and use of agents; and
–
we have incorporated an element of unpredictability in the selection of the nature, timing and extent of our audit procedures.
Our response to the risk of non-compliance of laws and regulations
We have obtained an understanding of the relevant laws and regulations. We have identified the following laws and regulations that have
an indirect effect on the financial statements: anti-bribery and corruption laws & regulations, competition and data privacy laws, and
human rights laws and regulations.
We held enquiries with management and the audit committee if the entity is compliant with laws and regulations which directly
or indirectly have a material impact on the financial statements. We also inspected relevant correspondence with regulatory and
supervisory authorities. We also inspected lawyers’ letters and remained alert to indications of (suspected) non-compliance throughout
the audit, held enquiries with legal counsel, and obtained a written representation from management that all known instances of
(suspected) non-compliance with laws and regulations were disclosed to us.
Observations
The aforementioned audit procedures have been performed in the context of the audit of the financial statements. Consequently they
are not planned and performed as a specific investigation regarding fraud and non-compliance with laws and regulations. Our audit
procedures have not led to any findings.
Our audit response related to going concern
Our responsibilities, as well as the responsibilities of the Board of Directors, related to going concern under the prevailing standards
are outlined in the “Description of responsibilities regarding the financial statements” section below. In fulfilling our responsibilities, we
performed procedures including evaluating management’s assessment of the Company’s ability to continue as a going concern and
considering the impact of financial, operational, and other conditions. Based on these procedures, we did not identify any reportable
findings related to the entity’s ability to continue as going concern.
Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements.
We have communicated the key audit matters to the Board of Directors. The key audit matters are not a comprehensive reflection of all
matters discussed.
These matters were addressed in the context of the audit of the financial statements as a whole and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
141
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Independent auditor’s report continued
To the shareholders and Board of Directors of Pepco Group N.V.
Our key audit matters continued
Key Audit Matter
How our scope addressed this matter
Impairment testing of goodwill
We involved our valuation specialists during our audit procedures.
The group accounting policies in respect of
Our audit procedures included the following:
goodwill and impairment are set out in the
accounting policy notes of the consolidated
–
We evaluated the design effectiveness of controls related to the impairment
financial statements (Note 1.10). The
assessment including the appropriateness of management’s assessment of the
disclosure on the ‘Accounting estimates
CGUs, indicators of impairment, discount rates and forecasts.
and judgements’ in relation to impairment
–
We assessed and evaluated the reasonableness of key assumptions in the value
of intangible assets (goodwill) is set out
in use calculations, including the projected revenue growth, operating margin,
in Note 1.29 of the consolidated financial
discount rates and growth rates.
statements.
–
We benchmarked key assumptions against external data and challenged
The carrying value of goodwill is € 703.6m
management by comparing the assumptions to historic performance of the
(2022: € 688.9m) which is attributable to the
company and local economic developments, taking into account the sensitivity
Poundland Cash Generating Unit (CGU).
test of the goodwill balances for any changes in the respective assumptions;
In assessing the recoverability of goodwill,
management prepared a value in use
–
We engaged with our internal valuation experts to assist us in evaluating the
calculation across the CGU, which involves
appropriateness of the impairment model, the discount rates applied and to assess
assumptions, such as future cash flows and
the overall reasonableness of the assumptions;
the discount rate to apply to those.
–
We audited the management‘s sensitivity analysis to assess the impact of potential
Due to the subjectivity involved in
changes in assumptions;
estimating future performance and the
–
We verified the mathematical accuracy of the models and agreed these models
significance of the carrying value of
with relevant data;
goodwill, we identified this as a significant
risk and key audit matter.
–
We evaluated the reasonableness of the disclosures made in the financial
statements in relation to the carrying value of goodwill.
Our observations
Based on the procedures performed, we have no specific findings that the carrying
value of the goodwill in the financial statements is not reasonable.
Risk of bribery and corruption
Our audit procedures included the following:
The majority of the products are sourced
–
We obtained an understanding of the process in place to safeguard agent
from factories in China, India and
transactions as basis for our substantive audit approach.
Bangladesh. The company uses agents
in its sourcing process which creates a
–
We performed substantive audit procedures which consisted of identifying agents
potential risk of fraud / bribery through the
and reconciling selected transactions to underlying source documentation to
use of agents.
assess the validity of the transactions entered into with these parties.
–
We reviewed the Group disclosures in the Valued Supply chain section of the risk
management section of management’s report, included in the directors’ report.
Our observations
Based on the procedures performed, no adverse findings were identified.
Existence of Inventory in Warehouses
Our audit procedures included the following:
The group accounting policies in respect
–
We obtained an understanding of the process in place and identified controls over
of inventories are set out in the accounting
the existence of inventory as a basis for our substantive audit approach.
policy notes of the consolidated financial
statements (Note 1.11). The disclosure on
–
We evaluated the design and tested the operating effectiveness of the Company’s
the inventory is set out in Note 13 of the
IT Application controls/interfaces that address the risk of material misstatement
consolidated financial statements.
relating to the existence of inventory.
The Group has significant levels of
–
We obtained and examined management’s reconciliation between the subledger
inventories in warehouses. The accuracy
of inventory and the financial administration.
and reconciliation of inventory counts
–
We have validated the reports generated used as a basis for the reconciliation
between the Warehouse Management
between the subledger of inventory and the financial administration.
System and accounting records represent
a critical aspect of our audit due to the
–
We have performed reliability testing over the reports generated by management
potential impact on the reliability of
supporting the reconciliation.
reported inventory values. The complexity
–
We conducted independent stock-takes on 30 September 2023 covering all
arises from the need to ensure that physical
warehouses. We selected samples from the warehouse listing (list- to-floor) and
counts align with both the Warehouse
directly from physical inventory (floor- to-list).
Management System and the accounting
records, enhancing the accuracy and
–
We have tested (matching with source documentation), among other procedures,
completeness of inventory information.
details on inputs of the inventory reconciliation.
Given the complexity of the reconciliation
Our observations
this is considered to be a key audit matter.
Based on our procedures performed, we did not identify any material reportable
matters with regards to the existence of inventory as at 30 September 2023.
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Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Report on the other information included in the Annual Report 2023
In addition to the financial statements and our auditor’s report thereon, the Annual Report 2023 contains other information that consists of:
–
Introduction to governance;
–
Report of the Board of Directors;
–
Corporate governance Statement;
–
Audit Committee report;
–
Remuneration report;
–
Annexures – Other information.
The annual report contains other information, in addition to the financial statements and our auditor's report thereon.
Based on the following procedures performed, we conclude that the other information:
–
is consistent with the financial statements and does not contain material misstatements; and
–
contains all the information regarding the management report and the other information as required by Part 9 of Book 2 of the Dutch
Civil Code.
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements
or otherwise, we have considered whether the other information contains material misstatements.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720.
The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the Board of Directors report in accordance with Part 9
of Book 2 of the Dutch Civil Code and other information as required by Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements and ESEF
Engagement
We were engaged by the Board of Directors as auditor of the Company on December 8, 2021 for the audit for the year ended 30
September 2021 and have operated as statutory auditor ever since that financial year.
No prohibited non-audit services
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding
statutory audit of public-interest entities.
European Single Electronic Format (“ESEF”)
The Company has prepared its Annual Report in ESEF. The requirements for this are set out in the Delegated Regulation (EU) 2019/815
with regard to regulatory technical standards on the specification of a single electronic reporting format (hereinafter: the RTS on ESEF).
In our opinion, the Annual Report prepared in XHTML-format, including the partly marked-up Consolidated Financial Statements as
included in the reporting package by the Group, complies in all material respects with the RTS on ESEF.
The Board of Directors is responsible for preparing the Annual Report including the financial statements in accordance with the RTS
on ESEF, whereby management combines the various components into one single reporting package.
Our responsibility is to obtain reasonable assurance for our opinion whether the Annual Report in this reporting package complies with the
RTS on ESEF.
We performed our examination in accordance with Dutch law, including Dutch Standard 3950N ‘Assurance engagement relating to
compliance with criteria for digital reporting’ (assurance-opdrachten inzake het voldoen aan de criteria voor het opstellen van een digital
verantwoordingsdocument).
Our examination included amongst others:
–
obtaining an understanding of the Group’s financial reporting process, including the preparation of the reporting package;
–
Identifying and assessing the risks that the annual report does not comply in all material respects with the RTs on ESEF and designing
and performing further assurance procedures responsive to those risks to provide a basis for our opinion, including:
–
obtaining the reporting package and performing validations to determine whether the reporting package containing the
Inline XBRL instance documents and the XBRL extension taxonomy files have been prepared in accordance with the technical
specifications as included in the RTS on ESEF;
–
examining the information related to the 2023 Consolidated Financial Statements in the reporting package to determine whether
all required mark-ups have been applied and whether these are in accordance with the RTS on ESEF.
143
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Independent auditor’s report continued
To the shareholders and Board of Directors of Pepco Group N.V.
Description of responsibilities regarding the financial statements
Responsibilities of the Board of Directors for the financial statements
The Board of Directors is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS-EU and
with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Board of Directors is responsible for such internal control as the Board of
Directors determine is necessary to enable the preparation of the financial statements that are free from material misstatement, whether
due to fraud or error.
As part of the preparation of the financial statements, the Board of Directors is responsible for assessing the Group’s and the Company’s
ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Board of Directors should prepare the
financial statements using the going concern basis of accounting, unless the Board of Directors either intends to liquidate the Company or
to cease operations, or has no realistic alternative but to do so.
The Board of Directors should disclose events and circumstances that may impact the Group’s and the Company’s ability to continue as a
going concern in the financial statements.
The Audit Committee is responsible for overseeing the company's financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence
for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and
fraud during our audit.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature,
timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with Dutch
Standards on Auditing, ethical requirements and independence requirements.
Our audit consisted of, among other things, the following:
–
identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and
performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
–
obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s
internal controls;
–
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management;
–
concluding on the appropriateness of management's use of the going concern basis of accounting, and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the
Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions
may cause a company to cease to continue as a going concern.
–
evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and
–
evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant findings in internal control that we identify during our audit. In this respect we also submit an
additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory
audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor's report.
We provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine the key audit matters: those matters that were of most
significance in the audit of the financial statements. We describe these matters in our auditor's report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Amsterdam, 22 December 2023
Mazars Accountants N.V.
Original was signed by drs. N.E. Habers-Boerema RA
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Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Articles of Association provisions governing the distribution of profit
The holders of ordinary shares are entitled to one vote per share and to participate in the distribution of dividends and liquidation
proceeds. Pursuant to Article 26 of the Articles of Association, a dividend may be declared provided that the Company's equity exceeds
the amount of the paid-up and called-up part of the issued capital, increased by the reserves which must be kept by virtue of the law. The
Board shall determine the amount of profits to be reserved. The general meeting is authorised to, in whole or in part, distribute the profits
remaining thereafter and to declare a distribution in kind. The Board is authorised to declare interim distributions of profits or on account of
a freely distributable reserve.
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Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
List of branches
The table below lists all branches of the Company as well as all subsidiaries whose results were consolidated during the reporting period.
| Branch | Place of branch | Country of branch | Register of branch | Origin entity | Country of origin entity |
| Fully Sun China | Bangladesh | Bangladesh | TIN- 4404-3933-6667 | Fully Sun China | China (Hong Kong) |
| Limited – Bangladesh | Limited | ||||
| Poundland Limited – | Isle of Man | Isle of Man | Tax reference no: | Poundland Limited | UK |
| Isle of Man | C145894-73 | ||||
| Poundland Limited – | Republic of Ireland | Republic of Ireland | Tax reference no: | Poundland Limited | UK |
| Republic of Ireland | 9798866A |
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Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Statutory list of all subsidiaries and affiliated companies
as at 30 September 2023
This list forms part of the notes to the 2023 separate financial statements and has been referenced therein.
| Entity name | Country of incorporation | Registered no. | Shareholding | Principal place of business |
| Pepco Group Limited | UK | 09127609 | 100% | 14th Floor, Capital House, 25 Chapel |
| Street, London, United Kingdom NW1 5DH | ||||
| Peu (Fin) Plc | UK | 11808114 | 100% | 14th Floor, Capital House, 25 Chapel |
| Street, London, United Kingdom NW1 5DH | ||||
| Peu (Tre) Limited | UK | 11808312 | 100% | 14th Floor, Capital House, 25 Chapel |
| Street, London, United Kingdom NW1 5DH | ||||
| Pepco Group Services Limited | UK | 10972213 | 100% | 14th Floor, Capital House, 25 Chapel |
| Street, London, United Kingdom NW1 5DH | ||||
| Poundland UK and Europe | UK | 09127615 | 100% | Poundland Csc, Midland Road, Walsall, |
| Limited | United Kingdom WS1 3TX | |||
| Dealz Retailing (Ireland) Limited | Republic of Ireland | 541977 | 100% | Unit 3 Westend Retail Park, |
| Blanchardstown, Dublin 15 | ||||
| Poundland International | UK | 03484379 | 100% | Poundland Csc, Midland Road, Walsall, |
| Limited | United Kingdom WS1 3TX | |||
| Vaucluse Diffusion S.A.S. | France | RCS 306 487 075 | 100% | 19 Rue du Musée 13001 Marseille, France |
| Dealz España SL | Spain | B86867512 | 100% | C/Bravo Murillo 192, Madrid, Spain |
| Dealz Poland Sp z.o.o | Poland | KRS 0000692949 | 100% | Ul. Jasielska 16A, 60-476 Poznan, |
| Wielkopolskie | ||||
| Poundland Limited | UK | 02495645 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Pepkor Europe Limited | UK | 09015100 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Pepkor UK Retail Limited | UK | 09288913 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Viewtone Trading Group | UK | 07398652 | 100% | Poundland Csc, Midland Road, Walsall, |
| Limited | United Kingdom WS1 3TX | |||
| Viewtone Limited | UK | 03271182 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Frozen Value Limited | UK | 01003192 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Jack Fulton Limited | UK | 02317009 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Viewtone Trustees Limited | UK | 04560070 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Minaldi Limited | UK | 09151610 | 100% | Poundland Csc, Midland Road, Walsall, |
| United Kingdom WS1 3TX | ||||
| Pepkor Import B.V. | Netherlands | KvK 61649112 | 100% | Noord Brabantlaan 265, 5652LD Eindhoven |
| Pepkor France S.A.S. | France | RCS 805 402 104 | 100% | 1 Place Boieldieu, 75002, Paris, France |
| Pepco Retail España SL | Spain | B86283751 | 100% | Avda. Baix Llobregat 1-3, Módulo A, Planta |
| Baja Par No., Esc. P, El Prat de Llobregat | ||||
| Fully Sun China Limited | China (Hong Kong) | CR 1075298 | 100% | Rm 1006-8, 10/F, Sun House, 181 |
| Des Voeux Road Central Sheung Wan, | ||||
| Hong Kong | ||||
| Shanghai Pepco Group Sourcing | China | 913100007914 | 100% | 8th Floor, H Zone (East), 666 Beijing East Road, |
| Company | Huangpu District, Shanghai | |||
| PGS Partner India Private | India | U74999HR2018 | 100% | Unit No-128, Suncity Success Tower Sector, |
| Limited | FTC073537 | 65, Gold Course Extn Road, Gurugram, | ||
| Gurgaon HR, 122005 | ||||
| Pepco Holdings Sp z.o.o. | Poland | 0000791461 | 100% | ul. Strzeszyńska 73A, 60-479 Poznań |
| Pepco Germany GmbH | Germany | HRB 224064 | 100% | c/o WeWork, Kemperplatz 1, DE-10785, |
| Berlin |
147
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Statutory list of all subsidiaries and affiliated companies continued
as at 30 September 2023
| Country of | ||||
| Entity name | incorporation | Registered no. | Shareholding | Principal place of business |
| Pepco Italy S.r.l | Italy | MI-2568153 | 100% | Via Michelangelo Buonarroti 39, 20145 Milano (MI), |
| Italy | ||||
| Pepco Properties Sp z.o.o. | Poland | KRS 0000356422 | 100% | ul. Strzeszyńska 73A, 60-479 Poznań |
| Pepco Austria GmbH | Austria | FN 534293a | 100% | Gertrude-Fröhlich-Sandner-Straße, 2-4/Turm 9/7. |
| Stock 1100 Wien | ||||
| Pepco Poland Sp z.o.o. | Poland | KRS 0000111962 | 100% | ul. Strzeszyńska 73A, 60-479 Poznań |
| Konopacka Holdings B.V. | Netherlands | KvK 58864504 | 100% | Noord Brabantlaan 265, 5652LD Eindhoven |
| Rawksa Holdings B.V. | Netherlands | KvK 58864385 | 100% | Noord Brabantlaan 265, 5652LD Eindhoven |
| Cardina Investments Sp z.o.o. | Poland | KRS 0000424893 | 100% | ul. Strzeszyńska 73B lok. 4, 60-479 Poznań |
| Evarts Investments Sp z.o.o. | Poland | KRS 0000471011 | 100% | ul. Strzeszyńska 73B lok. 4, 60-479 Poznań |
| Pepco Ingatlan Kft | Hungary | Cg. 01-09-300734 | 100% | H-1138 Budapest, Váci út 187 |
| Pepkor Europe GmbH | Switzerland | CHE-194.732.602 | 100% | c/o Kanzlei Pilatushof, Hirschmattstrasse 15, 6003 |
| Luzern | ||||
| Pepco Hungary Kft | Hungary | Cg. 01-09-192750 | 100% | H-1138 Budapest, Váci út 187 |
| Pepco Czech Republic s.r.o. | Czechia | 24294420 | 100% | Prague 4 – Nusle, Hvězdova 1716/2b, PSČ 14078 |
| Pepco Retail SRL | Romania | J40/4655/2013 | 100% | 17 Ceasornicului street, 3rd floor, District 1, |
| Bucharest, Romania | ||||
| Pepco Slovakia s.r.o. | Slovakia | 46 868 674 | 100% | Nevädzova 6, Ružinov, Bratislava, 821 01, Slovakia |
| Pepco Croatia d.o.o. | Croatia | MBS 081038164 | 100% | Zagreb (Grad Zagreb), Damira Tomljanovića |
| Gavrana 11 | ||||
| Pepco Lithuania UAB | Lithuania | 304488450 | 100% | Viršuliškių skg. 34-1, Vilniaus, 05132, Lithuania |
| Pepco Latvia SIA | Latvia | 40203062113 | 100% | Strelnieku iela 9 – 7, Riga, LV-1010, Latvia |
| Pepco d.o.o. | Slovenia | 7176457000 | 100% | Tržaška cesta 515, Brezovica pri Ljubljani, 1351, |
| Slovenia | ||||
| Pepco Estonia OU | Estonia | 14249111 | 100% | Sõpruse Pst 145, Kristiine District, Tallinn, 13417, |
| Estonia | ||||
| Pepco Bulgaria EOOD | Bulgaria | 205119149 | 100% | Nikola Tesla №5 str., fl. 4, Building BSR 2, Sofia 1574, |
| Bulgaria | ||||
| Pepco d.o.o. Beograd-Novi | Serbia | 21457345 | 100% | Bulevar Mihaila Pupina 10L, 11000 Novi Beograd, |
| Beograd | Serbia | |||
| Pepco Group International | UK | 14772767 | 100% | 14th Floor Capital House, 25 Chapel Street, |
| Limited | London, United Kingdom, NW1 5DH | |||
| Poundland Elgin Limited | UK | 12111238 | 100% | Poundland Csc, Midland Road, Walsall, United |
| Kingdom, England, WS1 3TX | ||||
| Online Poundshop Limited | UK | 08870575 | 100% | Poundland Csc, Midland Road, Walsall, United |
| Kingdom, WS1 3TX | ||||
| Pepco Greece IKE | Greece | 162515401000 | 100% | Municipality of Nikaia – Agios Ioannis Renti, at |
| Petrou Ralli Street No 97, PC 18233 | ||||
| Pepco Portugal Unipessoal LDA | Portugal | 3453-7748-7417 | 100% | Rua Hermano Neves 18, piso 3, E7, 1600-477 |
| Lisbon (Portugal) | ||||
| Pepco B-H d.o.o. | Bosnia and | 4203144510006 | 100% | Sarajevo, street Skenderpašina no. 1, Municipality |
| Herzegovina | Centar Sarajevo, 71 000 Sarajevo, Bosnia | |||
| Pepco Logistics S.L | Spain | 773439 | 100% | C/Bravo Murillo 192, Madrid, Spain |
| Pepco Distribution Sp. z o.o. | Poland | 0001042265 | 100% | ul. Strzeszyńska 75, 60 – 479 Poznań |
148
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Glossary of terms
| Term | Definition |
| AGM | Annual General Meeting of shareholders |
| APM | Alternative Performance Measure |
| Annual Report | Management report (bestuursverslag) as referred to in Section 2:391 of the Dutch Civil Code |
| Articles | Articles of Association of the Company, as amended from time to time |
| BCI | Better Cotton Initiative |
| Board | Directors of the Company |
| Board Rules | Board of Directors’ Rules of Procedure |
| CAP | Corrective action plan |
| CEE | Central and Eastern Europe |
| CEO | Chief Executive Officer of the Company |
| CFO | Chief Financial Officer of the Company |
| CGU | Cash-generating unit |
| CODB | Cost of doing business |
| CODM | Chief Operating Decision Maker |
| Company/PGNV | Pepco Group N.V. |
| Company Secretary | Company secretary of the Company |
| Covid-19 | The pandemic of coronavirus disease 2019 (Covid-19) caused by severe acute respiratory syndrome coronavirus 2 |
| (SARS-CoV-2). The pandemic has led to severe global socioeconomic disruption, the closure of a number of | |
| businesses and wide-spread shortages of supplies | |
| DC | Distribution centre |
| Dutch Code | Dutch Corporate Governance Code |
| Dealz | FMCG-led price-anchored retailer (non-UK) |
| EAP | Equity Award Plan |
| EBITDA | Operating profit or loss before depreciation and amortisation adjusted for capital and reclassification items |
| EPS | Earnings per share |
| ERP | Enterprise resource planning |
| ESG | Environmental, social and governance |
| EU | European Union |
| External auditors | Mazars Accountants N.V |
| FMCG | Fast-moving consumer goods |
| Fultons/Fultons Foods | Viewtone Trading Group Limited and its subsidiaries |
| FVOCI | Fair value through other comprehensive income |
| FVTPL | Fair value through profit and loss |
| FY19 | 1 October 2018 to 30 September 2019 |
| FY20 | 1 October 2019 to 30 September 2020 |
| FY21 | 1 October 2020 to 30 September 2021 |
| FY22 | 1 October 2021 to 30 September 2022 |
| FY23 | 1 October 2022 to 30 September 2023 |
| FY24 | 1 October 2023 to 30 September 2024 |
| GM | General merchandise |
| GOTS | Global Organic Textile Standard |
| Group/Pepco Group | The Company and its subsidiaries |
149
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Glossary of terms continued
| Term | Definition |
| IAS | International Accounting Standards |
| IBEX/ITBV | IBEX Topco B.V. |
| IFRIC | International Financial Reporting Interpretations Committee |
| IFRS | International Financial Reporting Standards |
| ISG | Internal Strategy Group |
| IPO | Initial Public Offering – on 26 May 2021 the Company was admitted for listing on the Warsaw Stock Exchange |
| LFL | Like for like |
| LTIP | Long Term IncentivePlan |
| Mazars | Mazars Accountants N.V., the Company’s external auditors |
| NED | Non-Executive Director |
| NOPAT | Net underlying operating profit after tax |
| NPS | Net promoter score |
| PBT | Profit before tax |
| Pepco | Apparel-led multi-price retailer |
| PGS | Pepco Global Sourcing |
| Poundland | FMCG-led price-anchored retailer (UK) |
| Poundland Group | Poundland and Dealz |
| RCF | Revolving credit facility |
| Relationship Agreement | Agreement between affiliates of ITBV and the Company |
| ROIC | Return on invested capital |
| SaaS | Software-as-a-Service |
| Share | A share in the capital of the Company |
| Shareholder | Holder of one or more shares |
| Subsidiary | Subsidiary of the Company as referred to in Section 2:24a of the Dutch Civil Code |
| VCP | Value Creation Plan |
| WE | Western Europe |
| WSE | Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie) |
| Warsaw Code | Code of Best Practice for GPW Listed Companies 2021 |
| YoY | Year on year |
150
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
Shareholder information
Contact details
The Board values the insight gained from shareholder
engagement and places significant importance on maintaining
General enquiries
close relationships with shareholders, taking account of and
14th Floor, Capital House
responding to their views. The Group’s Executive Chair, CFO and
25 Chapel Street
investor relations team communicate on a regular basis with
London
shareholders and analysts and endeavour to facilitate open
NW1 5DH
engagement. In FY23, frequent investor meetings were held
United Kingdom
alongside a focused Capital Markets Day post year end.
0203 735 9210
The Group has an investor relations website at
contact@pepcogroup.eu
www.pepcogroup.eu/investors/ where all regulatory news
Investor relations
as well as other information on the Pepco Group is available.
investorrelations@pepcogroup.eu
We aim to maintain strong dialogue with our shareholders
General media enquiries
and regularly collect feedback. Please contact
media@pepcogroup.eu
investorrelations@pepcogroup.eu.
Financial and corporate media enquiries
The Company’s Annual General Meeting will be held prior to
PEPCOGroup-LON@finsbury.com
31 March 2024.
CBP022364
Pepco's commitment to environmental issues is reflected in this Annual Report,
which has been printed on UPM Finesse Silk, an FSC® certified material. This
document was printed by Opal X using its environmental print technology,
which minimises the impact of printing on the environment, with 99% of dry
waste diverted from landfill. Both the printer and the paper mill are registered
to ISO 14001.
151
Pepco Group N.V. Annual Report and Consolidated Financial Statements 2023
group
Pepco Group N.V.
14th Floor, Capital House
25 Chapel Street London
NW1 5DH
United Kingdom
0203 735 9210
contact@pepcogroup.eu