Poundland, which faces a possible takeover bid from the South African conglomerate Steinhoff, has reported a sharp fall in profits, following the £55m acquisition of its loss-making rival 99p Stores.
The UK discount retailer said pretax profits crashed nearly 84% to £5.9m in the year to 27 March. Like-for-like sales dropped 3.9%, following a 2.4% rise in 2015. The retailer cut its full-year dividend to 3.65p a share, from 4.5p in 2015.
Poundland blamed the long regulatory process for the declining performance of 99p Stores before the acquisition. The competition regulator approved the deal in September after a six-month investigation. During that time 99p Stores lost its credit insurance, which meant it was cut off by many suppliers.
To stem losses at the new shops, Poundland rushed through a store refurbishment programme in four months, converting 235 new stores to Poundland by the end of April. The conversion programme is now complete; a further 17 shops are to be closed or sold.
Steinhoff has amassed a near-23% stake in Poundland and said on Wednesday it was considering a possible offer. It is on the prowl again after failing to buy Home Retail Group, the owner of Argos, and French electrical goods group Darty in the last few months.
Steinhoff, chaired by the retail mogul Christo Wiese, already owns furniture chains Harveys and Bensons for Beds in the UK, as well as stakes in fashion chain New Look and grocer Iceland.
Jim McCarthy, Poundland’s chief executive, will hand over to Kevin O’Byrne in two weeks. He said the retail environment remained challenging, but expressed confidence that Poundland would return to growth.
Poundland has scaled back new store openings, after opening a net 60 last year, to focus on improving its 896-store business.
The retailer’s underlying profits – earnings before interest, tax, depreciation and amortisation – fell 4.1% to £56.9m last year. Total sales, including new stores, rose 9.7% on a constant currency basis to £1.2bn.
Darren Shapland, the chairman, said: “This has been a challenging but transformative year for Poundland and the acquisition of 99p Stores has further strengthened our position as Europe’s biggest single-price discounter.”
McCarthy said the company had grown from 146 stores to about 900 during the 10 years he was at the helm. Sales rose by £1bn during that time, and Poundland floated on the stock exchange in March 2014.
