Profits Slump At Poundland; Steinhoff Grabs 23% Stake Ahead Of Expected Takeover Bid

Poundland has reported a slump in annual profits and disappointing underlying sales, a day after South Africa’s Steinhoff International confirmed that it is weighing up a potential takeover of the retailer.

In the year ended 27 March 2016, Poundland’s pre-tax profits plummeted 83.7% to £5.9m, impacted by integration costs related to its purchase of the 99p Stores chain last year. Excluding the cost of converting 99p Stores, the retailer said pre-tax profits fell 13.5% to £37.8m.

The discounter’s total sales rose 18.7% to £1.3bn, although like-for-like sales dipped 3.9% in what it described as “challenging” trading conditions.

Poundland opened a net 60 new stores during the year as well completing 190 conversions of 99p Stores to the Poundland format, taking its estate in UK & Ireland to 896 stores (2015: 588). The group has since completed the conversion process of all 235 99p Store stores. In the year, Poundland said it planned to consolidated its position, opening just 20 to 30 new stores, primarily in Ireland and in retail parks.

Jim McCarthy, who retires as Chief Executive in July, said: “After a period of significant change, including an unprecedented integration programme at pace, Poundland now has a unified estate of over 900 stores. The retail environment remains challenging, but with our significantly enlarged store portfolio, greater scale and ability to focus fully on trading our stores, I believe we are well placed to make progress in the year ahead.”

“I believe that under the leadership of my successor, Kevin O’Byrne, Poundland will return to growth.”

The results come after retail giant Steinhoff revealed that it is considering making a takeover bid for Poundland, sending the chain’s share price up 25% in the last two days. It was revealed yesterday that Steinhoff has increased its shareholding in Poundland to 22.78% having bought a 15% stake from the discounter’s private equity owner Warburg Pincus. The serial bidder, which has already attempted to buy the Home Retail Group and Darty this year, said any possible offer for Poundland will be made in cash.

In accordance with the City Code on takeovers and mergers, Steinhoff has until 5.00pm on 13 July 2016 to announce a firm intention to bid for Poundland.

Steinhoff already owns Bensons for Beds and Harveys in the UK, as well as a number of other retailers in Europe, Australasia and Africa. Steinhoff is part owned by South African retail billionaire Christo Wiese, who also has stakes in New Look and Iceland. Speaking to Reuters, Wiese he was interested in Poundland because it would be a “good fit” for the business, adding it had a disciplined approach to acquisitions.