Pepco Group warns of meagre proceeds from any Poundland sale

By James Davey

LONDON (Reuters) -European discount retailer Pepco Group plans to separate its struggling Poundland business in Britain from the group by September, but warned investors not to expect "major proceeds" from any sale.

The Warsaw-listed group, which owns the Pepco and Dealz brands, also warned on Thursday that the 818-store Poundland chain might not make a profit in its 2024/25 financial year.

Pepco Group said in March that it had attracted interest from potential buyers of the Poundland chain.

U.S.-based investor Gordon Brothers has emerged as the front runner among a clutch of potential suitors, The Sunday Times reported on May 17.

Gordon Brothers did not respond to a request for comment.

"It's clear, given the current situation Poundland is in, that major proceeds can't be expected," Pepco Group CEO Stephan Borchert told Reuters in an interview.

"There are very different options on how to solve this problem," he said, declining to comment on the separation process further.

Pepco Group shares were down 6%.

The group said Poundland continued to face "highly challenging trading conditions" in its half year to March 31, with like-for-like sales down 7.3% and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) down 75% at 22 million euros ($24.9 million).

Like-for-like sales in the third quarter also shrank.

The group made another cut to its full-year outlook for Poundland, forecasting underlying EBITDA between zero and 20 million euros, versus previous guidance of 50 million to 70 million euros.

To reflect a deterioration in Poundland's trading and its weaker outlook, the group booked a non-cash impairment charge of 234 million euros. It had already booked a charge of 775 million euros in December.

The group as a whole reported a 5.5% fall in first-half underlying EBITDA to 460 million euros on revenue up 4.3% at 3.34 billion euros.

It maintained guidance for the Pepco brand to deliver "high single-digit" revenue and EBITDA growth in 2024/25 and plans 250 net new stores in the year. The group currently trades from 5,049 stores.

($1 = 0.8821 euros)

(Reporting by James Davey; Editing by Sonia Cheema, David Goodman and Jan Harvey)