Poundland launches £50m share placing but warns on first-half profits

• 99p Stores’ financial position ‘weakened’ during the CMA review
• Poundland still expects profits to be in line with expectations
• Like-for-like sales fell in its half-year
• First-half pre-tax profits expected to be lower year-on-year

The discounter is raising the funds immediately through an accelerated book-building process that will offer new ordinary shares of 1p each to institutional investors.

Poundland revealed in February that its £55m acquisition of 99p Stores would be funded by an equity placing on the closing of the deal.

The deal was given approval by the Competition and Markets Authority on September 18 after the watchdog initially expressed concerns about the acquisition. 

Poundland has also revealed that during the “longer than anticipated” CMA review process, where it had limited access to 99p Store’s trading performance data, the financial position of 99p Stores “weakened somewhat since our original due diligence”.

However, Poundland insists the weakening does not affect its plans or potential synergies fo the deal and argues the strategic value of the deal is in the trading uplift it expects to see from 99p Stores following their conversion to the “Poundland formula”.

Profit expectation

Poundland reported that its sales for the 14 weeks ending September 20 were ahead 6.6% on a constant currency basis and increased 5.9% on an actual currency basis to £303.2m.

Like-for-like sales declined 2.9% for the half year, compared with a 4.7% increase in the first half of last year.

The retailer said it expects profits to be “phased” towards the second half of the current financial year after tough comparables in the first half, the impact of the Euro and softer sales comparables in the second half.

“We will also incur higher pre-opening costs, as we have opened 55 stores gross in the first half, compared with 34 in the corresponding period last year,” Poundland said. “In light of this, we anticipate that the group profit before tax for the first half of the current financial year will be lower than in the first half of 2015.”

However it added it expects pre-tax profit for the year ending March 2016 to be in-line with expectations.

The acquisition is expected to complete on September 28 and Poundland will set about converting 99p Stores to Poundland outlets. After the key Christmas trading period.

It expects to have the “vast majority” of stores converted in the next 12 months.

99p Stores generated sales of £370.4m and underlying EBITDA of £6.1m in the year to February 1.