Hey, good morning again. Welcome to day two of our Pepco Capital Markets Day. Hopefully, you enjoyed yesterday afternoon and the dinner. Thank you for your attendance. Just first of all, a disclaimer, I have no intention of reading that, but, you know, need to do the legal stuff, so I'll assume you've read all that very quickly. Who are you going to hear from this morning? Myself, Neil, our relatively new CFO, Barry, who recently moved from Poundland to Pepco as the MD, Marcin, who's our long-standing Dealz MD, Agnieszka, who's our main product and commercial person, and Mark, who's rejoining the company as Transformation Director. So that's who you'll hear from. The agenda for the morning, you'll notice there's a coffee break in there somewhere.
So the way the morning will unfold, I'll give an update at a broad level about the things that I feel are important for the company to address. We'll then have three presentations on the core business, one from Mark on an outside-in view of our competitive positioning. Barry will give you an update on Poundland. Obviously, he's moved on from that role, so he can dish the dirt on his successor. And then Agnieszka will give us a bit more an update on how our product flow works from product design through to store. And then finally, in terms of the first part of the session, Marcin gives an update on Dealz.
There'll then be a coffee break, and then the core section of the morning will be Neil give us an update on modeling, how to think about the business. Lots of data. For those of you who are data hungry, that will please you. And then finally, Neil Brown will give us a brief update from the perspective of Ibex in terms of the non-public market shareholding and how he sees future ownership and sell down. And then we'll have a Q&A at the end. Now, look, to be clear, we won't take Q&A at every section of the day, because otherwise, we just won't get through stuff. So please respect the fact we will have a very fulsome and open Q&A, but it'll come at the end of the morning rather than at every section along the way.
So look, a few thoughts from me to start the day. Coming back into the business as Executive Chairman, the way I describe it, it feels like I've been in the car for quite a long time, but I've moved from the passenger seat to the driver's seat, and while that's only a short movement, the view looks totally different from an exec role than a non-exec role. So I'm relearning a lot about what's going on in the business. In general, what I'd say is I feel very reassured and confident that this business still has a long runway for growth and profitable growth. There's nothing I'm looking at that says the business is broken or there's anything that you guys should be fundamentally concerned about what's going on in the business.
However, I do think that the key theme I would have is as an executive team, we need to do less to achieve more. We've just tried to do too many things on too many fronts, and it's created a lot of wheel spin, a lot of poor execution. And also, as you know from the numbers, we're not delivering profit growth as well as sales growth. So I think we need to do less to achieve more and re-earn the right to grow, because growth is only relevant if in the short, medium, long term, it delivers profitability. And I think, again, if we do less, we will achieve a lot more. Our vision remains very much as it was.
I think there's a very great opportunity for us to be Europe's biggest and best discount variety business, serving a mom on a budget with her needs across clothing, FMCG, and general merchandise. No other retailer covers all three categories well, and I think we have a real opportunity to deliver a leading market position on that. So I am confident. As I say, I don't think there's anything fundamentally broken about the business, and the opportunities remain very, very significant. What do I think that we've not done well in a little bit more detail? I think, first of all, it's really important that we do recognize the macro environment has been tough. Mark will explain this a bit more objectively with work he's done with OC&C. But in simple terms, our core customer has just found the last 6-12 months super hard.
Look, and I've said this to a number of you at different occasions. Just think of yourself as a mum on a budget in Eastern Europe, where your household income for the last 20-30 years has had unbroken disposable income growth. No one in... Oh, not no one, but in general, people in Eastern Europe did not struggle in the way that people in Western Europe did in the financial crisis. 20-30 years of unbroken growth, and actually, a Polish household today is wealthier than the average Italian household. That's a remarkable story of growth in East Europe, but that's not been true the last 6-12 months.
You know, using the basic Maslow hierarchy of needs, you need to put a roof over your head, heat your home, and feed your family first, and all three of those factors have been disproportionately stressed in Eastern Europe versus Western Europe. You know, most people have variable rate mortgages. Energy price increases have been significantly higher in Eastern Europe than Western Europe, and food inflation's been higher. And so while we would say within the categories we sell things, they are essential items, you know, actually, clothing and homewares does come later in your needs than putting a roof over your head, heating your home, feeding your family. So again, we'll show this, but our markets have been in contraction over the last 12 months in a way that we've not seen in recent history.
Furthermore, certainly in Poland, our competitive set has got better and has expanded more rapidly than us. So in general, competitive intensity has increased. And finally, you know, no management team likes to talk about this, but it is a reality. The weather patterns in Europe this year have been super unpredictable. You know, a number of us from the management team were here ten days ago, and it's 29 degrees Celsius. I mean, that's just mad for this time of year. So, you know, it's undoubtedly true, certainly in the last part of the spring, summer season, weather was really tough. The second point is I strongly believe, and I hope you agree, that any great business is built on a core business model that's continually improving rather than continually diluting.
If you think about in a retail business, my view of what the metric of a core health of a business is Four Wall EBITDA. What does a core store in your core business deliver in terms of Four Wall cash profitability? It's fair to say that our business has not yet fully recovered from COVID. Neil will give us the details on this, but at headline level, a store in Poland today delivers less cash profit than it did in 2019. That is not a great, healthy business, and that's got to be our core focus. You know, we can't grow and grow and grow while our core business is getting slightly weaker every year. So that's got to be our core focus for the next 12 months.
Our growth ambitions have just been too great, as I said, and what does that lead to? Look, you know, if you're a management team, anybody, you'll have your own perspective on your own business, but, look, you can't do too much. If you try to, you'll just start falling apart at the edges, and that's really what we've been doing. Nothing's broken, but we've just been executing poorly because we've been trying to do too many things. 800 net new stores, opening a franchise business, trying to build a wholesale business, converting a business in Spain, converting a business in Ireland, refit all of our stores in Eastern Europe. The list is endless. The business has just tried to do too much and has executed poorly and spent a lot of money.
Speed, almost a contradiction to what I've just said, but, you know, we have a very clear, strong ambition to be a singular business, and that will deliver huge flow through to the bottom line when we get there. You know, when every store sells the same product offering, built on one single platform from a supply chain and IT point of view and one organization structure, that is a very compelling vision, and it will deliver a lot for the company. But moving from where we've been to that platform is just taking us too long, and we're really stuck in the middle, whether it be organizationally, supply chain and IT, and we've got to accelerate to that new vision very, very quickly.
Lack of data analytics, you know, it surprised me how, frankly, the decisions that have been taken in the business over the last 12-18 months, while generally in the right direction, have lacked enough data and analysis of the real underlying performance of the company. And finally, in terms of what's gone wrong, half two performance. I just want to unravel this a bit because, you know, certainly it's in no one's best interest to have delivered 2 profit warnings. And, you know, I don't feel good about that, but it's what we had to do, and let me explain the circumstances as to why. It really starts with where the business was at the half... the end of half one. As we look backwards at that point, Pepco operating company had delivered 14% like-for-like growth.
We knew we had a huge number of stores to open, and we thought we were going to open them much more quickly than we did, and we thought that they were going to deliver stronger sales than we did. So our inventory purchases, in hindsight, were significantly ahead of where they should have been. Also, we were manning up our supply chain and our stores to that higher sales expectation. So what then unraveled was a lower like-for-like level, stores that opened later, stores that opened and their performance was poorer than we anticipated, and so we ended up with a lot of excess inventory. Furthermore, as the half went on, we were then also started continuing to sell Spring/Summer because the weather was so hot.
In the latter months, our Autumn/Winter stock that was now in stores is in stores at a higher gross margin because we're starting to see margin recovery than our Spring/Summer. So we were forecasting for August and September that we're going to start selling higher margin Autumn/Winter stock, and we sold none because it was 29 degrees. So you've got a really difficult mix of sales underperformance, gross margin underperformance, and cost over, you know, a cost rate above plan because we're manning up to a higher sales level. Therefore, as we went through September, you know, our P&L just had a really, really tough time, and we only really got to grips with that through September. So it wasn't ideal.
It wasn't at all what we wanted to achieve, but to say that the numbers that we've ended the year on are a very robust platform for the future, and as far as I'm aware, there's nothing more for us to do in terms of downside management. It's all out there, and we're in good shape. It wasn't the right way of doing things, but it happened. So looking to the future, I mean, the first thing to say is I feel that the competitive advantages that we've described before remain in place and will see us to being a very strong, successful retailer in the future. And I'll just go through them very quickly. We'll talk about these in the different presentations.
But our direct sourcing model for our wholly owned and integrated team, and it's not a separate business, it's part of our team, PGS, really stands us in good stead. It allows us to understand our factories better, it allows us to design products, it allows us to actually have more consistency in high quality products, and most importantly, allows us to have privileged gross margins. Secondly, I mean, we are unusual as a discounter in that we design everything we sell in clothing and and general merchandise. That allows us to curate product more. It allows the product on the shelf to be more organized, more into collections and look more appealing to consumers. And equally importantly, our our FMCG range is now of scale, not only in the U.K., but increasingly across continental Europe. We've got scale in FMCG goods, which brands like.
They want scale, and they want growth, and we offer them both. So I think our product offering is a point of difference. Thirdly, our stores are both convenient, not only in location, but in terms of size. So we can penetrate markets much more deeply than a lot of our competitors, because our store size is relatively small, means we can go into towns that are much smaller than many of our competitors. So we can penetrate markets more deeply and offer a greater level of convenience to our customers. A penultimate point, you know, while we've still got a bit of work to do to recover our Four Wall EBITDA, again, Neil will go through the details of this, our store model is extraordinarily profitable.
Despite all of the hiccups we've had this last year, it remains an extremely investable model. Finally, you know, our brand equity, particularly in this part of the world, is remarkable. You know, if you look at the metrics of our Eastern European business, it's more like a supermarket, the frequency with which people shop, and the loyalty of our customer base. Finally, and again, Mark will cover this, there's nothing about our business model and consumers' views of our business model that say anything's broken. Whether it be our price position, as customers' views of value, customers' views of competitor set, we remain the leading retailer in our segments in our core markets. So what do I want us to do? You know, I, I've got a very, what is hopefully, a relatively simple mantra.
In this priority order, this is what we need to do in the next 12, 18, 24 months. First of all, we need to refocus on our core business and start to deliver, and not only for our customers, but that Four Wall EBITDA recovery. And secondly, in terms of a second tier of growth, we've got a remarkable amount of headroom in our core markets still. Our business growth will not be dependent wholly on purely entering Western Europe. Eastern Europe has a remarkable amount of headroom in most of the markets that we trade in. We will not to contradict that, we will continue to grow in Western Europe, and Neil will give us some pretty exciting headlines in terms of what we've achieved so far in Western Europe. So we will progressively move into Western Europe.
But the subtlety here is, number one, we don't need to grow purely in Western Europe. There's a lot of headroom in Eastern Europe. And secondly, that growth will be progressive. We won't go from 0 to 100 miles an hour in Western Europe. It will be considered in the rate of growth in each of our markets. And finally, you know, back to my point about do less, achieve more. We've just got to do less things. There's 101 projects that I'm not going to list here, but there's 101 projects the company's tried to do, and we're going to cut them all out because there's just way too much spray and pray in terms of what we've been doing. So a little bit more detail about each of those.
I mean, first of all, for core business health and Four Wall EBITDA. I'm very confident by the end of FY 2024, we will have achieved that key milestone, that our core business will have a higher EBITDA cash than it did in FY 2019. And that really is achieved by progress on each of the key lines, sales, costs, and gross margin. But fundamentally, it will be about recovering our gross margin position. You know, most of us in the room, at some point, have talked about this in the last year, but we've got to evidence that that 600 basis points that we lost during the COVID period, we can start to recover. And what we're not going to do today is give you detailed ambitions about exactly when we're going to achieve what.
But in the medium term, I'm absolutely confident we can recover all of that gross margin. Secondly, from a sales point of view, and this is really important to get the nuance of this, we absolutely can start to recover like-for-like growth and have a positive like-for-like growth. Again, I'm not going to say exactly when we'll get to what like-for-like growth, but to say there's nothing broken about our business model that says we can't have sustainable like-for-like growth in our core markets. The things we need to do are just get back to the basic great retailing that this business has been about, which is about price leadership and a very strong promotional stance. That won't in any way be contradictory to recovering our gross margins.
It will mean that we've just gonna be somewhat more aggressive, both on our price position and our promotional stance, but I'm very confident with the work we've all done as a leadership team, we can deliver that stronger price and promotional position and still recover our gross margin. That is not contradictory. We can do both. And finally, from a cost point of view, wherever you are in Europe, but particularly in Eastern Europe, there's a lot of cost pressure. You know, wage increases are going to come through. We're very clear that we have both scale and a, you know, discount mentality that means we will be capable of delivering a simple productivity loop, where we can reduce our cost base at a rate that allows those cost pressures not to drive up our cost of doing business.
You know, I think in the short and medium term, we'll absolutely be able to maintain our cost of doing business as a percentage of sales. On our opportunities in our core markets, as I said, first of all, we do not need to open stores solely in Western Europe. There's a lot of new stores we can open in Eastern Europe, and we've got the detail of that within our own plan. But certainly, with the possible exception of Poland, which is now pretty mature, every one of our Eastern European markets offers great opportunity to open more new shops. Point two, being focused, obviously, is about deciding what you're not going to do as well as what you are going to do. I'm stopping, for the time being, the New Look refit program.
I think at its heart, it's a good idea to upgrade our stores for customers, but actually, it's not delivering a return on invested capital, and it's been way too expensive to implement. So until we get to grips with how we do it in a way that is less, less expensive and delivers more in terms of sales, we won't be doing any more of those. And thirdly, in terms of our core markets, and this is probably gonna readjust your head space a little bit in terms of what we're gonna deliver in terms of the numbers in Neil's pack, but I think we've all decided that the U.K. business is the ugly child of the group, and actually, it's fundamentally not. The work that Barry and his team have done over the last number of years to improve the business, it's a remarkably successful business now.
Actually, it delivers the strongest forward EBITDA cash profit of any one of our business units, and I bet that blows your mind because no one would have imagined that. We will keep and grow our U.K. business. There's been speculation about where we, as a management team, stand on that. We will be keeping it and growing it. It is firstly, a very large European market, arguably second or third biggest, so the scale of the opportunity is large. Our sales per square meter in the Poundland business are remarkably high. It's in the top quartile of any U.K. retail in terms of its sales densities. There's demand out there. The issue we've got to grapple, we've grappled with and will continue to grapple with, is how to improve the profit conversion.
Barry's already done a great job on that, but there's more to come. Why do I feel very confident about this? Look, one of the things you may not understand about the Poundland business is irrespective of what name is above the door, within 12 months, it is effectively a Pepco Plus. Every store in the U.K. will be selling Pepco clothing, Pepco GM, and the group range of FMCG goods. So it is, within 12 months, fundamentally just another region of the Pepco business. And it will, as a consequence of that, it will deliver incremental gross margin and also, in time, significantly lower cost base. So it is already our most profitable business and should get even stronger, and its scale is large. So it'll be our biggest market and arguably our most profitable market.
In terms of focused growth, I mean, we will, as I say, focus on growing into Western Europe. Again, Neil will talk about the details, but I'd segment it into two areas. Spain and Italy, we know enough now, we've got enough confidence in the business model to really accelerate the rate of growth there. However, with regard to Germany, there's nothing I'm going to say that says we're reversing that, but we're, we were in danger of just growing too quickly. We still need to perfect our model there. It's not to say that we've got any lack of confidence, but you don't go from zero to hundred miles an hour overnight, and we've got to actually just get to grips with what the business model should look like there.
So really, I'm differentiating between Spain and Italy, where we're now very confident we'll accelerate growth there, and in Germany, we just need to learn a lot more. Point two, as I said, without going through the detail here, but there's a lot of projects that we will just stop doing. Whether that be at, you know, new markets, new channels, there's just too much stuff going on, and we will stop a lot of that. And finally, Dealz. My perspective and position now on Dealz is that could be an amazingly exciting opportunity for the group, but I'd put it in the probation category, if you want a better term. There's a lot that needs to improve about Dealz for us to invest a lot of money.
So our focus will be on continuing to grow purely in Poland, on proving the business model, which Marcin will talk about the details shortly. So I'm not, I'm not announcing we're closing it, but I'm also not announcing we're going to go for broke in terms of its growth rate. So some more specifics on FY 2024. The overall point here is this should be a year of reset. We need to rebuild confidence amongst you. We need to rebuild confidence in the public markets, but most importantly, we need to rebuild confidence in the management team that we can deliver profitable growth. The biggest priority, and I'm very confident, is we will, by the end of this year, have delivered an improvement in our forward EBITDA versus pre-COVID. Secondly, we'll have a more considered approach to growth.
This year, we will open somewhere north of 400 stores as a group. That's a group number, not a Pepco number. So by comparison, that was 800 in FY2023. We will be much, much more disciplined about our CapEx and return on invested capital, and as I said earlier, primarily, that's just about being more disciplined about the numbers. You know, does this deliver a good sales level? Does this deliver a good return on invested capital? We will commit to the U.K. market. I've explained why, and I think that, you know, I want you to either ask questions, challenge, or embrace that because it's a great opportunity for the group. We will continue our growth into Italy and Spain, as I said, but we will be much more thoughtful as we learn more in Germany.
You know, we will, therefore, end up generating free cash flow for the first time, proper key free cash flow for the first time in a long time. You know, what the mantra has been historically is spend everything you earn. Well, we're not going to do that this year. We will be generating free cash flow. Underlying all this will be much more aggressive and speedy about moving to single business model. Link it to my point about Poundland, within 12-18 months, there won't be two businesses. There's just one business now. It's called Pepco. It may have a different name above the door, but every store will sell the same product wherever you are in our business, and that has huge scalability and cost benefits.
We will, you know, get out of a lot of things that we've been doing that aren't core. I'm not going to announce the detail of all that today, but there will be a lot of stuff we won't do. You know, and finally, we will be continue to work on where Dealz fits in. So look, back to where I started, I'm very clear that this is still a super exciting business that can grow dramatically, but not only top line, but bottom line. I think we've got a very clear positioning in the market that will serve us well. But the key thing is we've got to do less to achieve more and sort of earn the right to grow. You don't just grow because you want to, you grow because you've earned the right to grow.
We'll be much, much more disciplined, and in doing so, achieve a lot more. I say I'm super confident about the business, and nothing here worries me or is broken. Okay, I will come back at the end and host Q&A, but for now, I will hand over to Mark.
Thanks, Andy. Morning, everyone. So two things I'm going to cover. Firstly, a bit about the macro context in our core markets of Poland, Romania, Hungary, and Czechia over the last period, just to give a bit of context to where we are. And then building on Andy's concept of a healthy core, having a bit of deeper dive on the Polish market, and looking at the sustained customer position or competitive position that Pepco's had from the pre-COVID period to today. So to look at how we've been faring from a customer and competitive position. So, I mean, a lot of this is not new news, but on the chart here, you'll see on the left-hand side, just the, you know, the material impact of inflation across the CE markets. The pink line is the Pepco average.
The gray lines are the four core markets that I spoke about. And it peaked at about 18%, you know, earlier, back end of last year, beginning of this year, and it has started to come off. Clearly, that inflation has a material impact on real wage growth, which then, if you look at the charts on the right, has a direct, you know, not one for one correlation, but materially impacts household consumption, which has moved into negative territory, as we've moved through FY 2023. If you convert that into kind of retail markets, on the left of the chart, you've got clothing, and that has seen a pretty material decline into negative year-on-year volume growth as you move through 2023.
And on the right-hand side, you see the same story in homewares. Starts at a slightly more negative position, I think, as Andy alluded to in his opening remarks. The discretionary, the slightly more discretionary nature in the Maslow hierarchy in homewares means that is more materially impacted from a volume perspective than clothing. So all of the markets have been in decline. You see, Hungary was an outlier on the first slide in terms of inflation. It's also an outlier in terms of consumption. So look, it's been a very, very challenged macro for the last 12 months. There is some tentative signs of, you know, positive momentum, particularly in real wage growth. Again, as Andy said, it has been positive pretty much year on year on year on year since anyone can remember.
Here for the, you know, for the first time, you see it dips negative. You know, so on a real basis, you know, the households that shop in the Pepco business have less, less money in their wallets, and was having a big impact. That has slowly started to recover. You can see the top line, I think, is Romania. That's slightly ahead of the curve. Poland is now inching back into positive territory, and you've still got a bit of a lag and the outlier in the Hungary market. And the forecast for the next period is equally positive.
So tentative signs of recovery, too early to call, but, if real wage growth continues to, to progress, then, you know, our customers will have more money in their pockets, which is, which is good for retail sales. So there's been a lot of short-term kind of turbulence in the CE, but I think just useful to recap and explain that, you know, fundamentally underlying the long-term kind of macro dynamics of, of our core markets are still strong. As Andy said, there's still, there's still space and there's still opportunity to grow in these markets. You know, we'll have positive real GDP growth at a higher level than more mature Western European markets.
That converts then into, you know, disposable income in the pockets of our customers, and then that in turn, you know, converts into real retail sales growth of about 5% from our forecast. So, you know, so very choppy waters, as we all know from a macro perspective in CE, but I think important to, you know, re-emphasize that it's still got runway, you know, and inherent macro growth ahead of us. So that's the market. Now, you've all been in shops yesterday, so you'll have a sense of how Pepco sits from a kind of an assortment perspective versus its competitors. This is your classic kind of 2-by-2 matrix. It's illustrative, not definitive. On the vertical axis, you've got relative pricing.
So at the top, the higher price retailers, at the bottom, the lower, and then along the, the horizontal axis, you've got clothing on the one side and food at the other. So Pepco kind of sits in a fairly unique position in terms of its assortment. It's an apparel-led discount variety retailer. So as you'll have seen, roughly half the shop is clothing and the other half is general merchandise and homewares. If you pick some of our key competitors, Action, as you'll have seen, a much broader assortment of homewares, and also it's much more commodity hard lines, general merchandise. So different to Pepco, in that we have a good proportion of what you call softer home or more decorative home.
KiK, it's similar to Pepco, but again, you look at the general merchandise execution there, it's a bit more like the Lidl, Aldi model. There's a central aisle of general merchandise. And then Sinsay, which is one of our big clothing competitors, you can see is, you know, big womenswear, big adult wear offer, and kidswear, but doesn't have very much general merchandise at all. So Pepco kind of... It has a fairly unique positioning. So just to kind of contextualize some of these slides, competitors A, B, C, and D are anonymized. They're not the same on all the slides before we try and cross-reference them. But as Andy said, if you look at the Poland discount market, it's maturing. I suppose unsurprisingly, competitive growth is high.
Over the last five years, our main competitors have opened 700 shops, so about a 22% growth. We've grown at about 8%. And you can see that the long tail is growing at a much slower rate. So there are many more competitors now operating in the Polish market. And we're the pink bit at the bottom, just for reference, is Pepco. Now, the positive, I guess, point that we need to emphasize is that despite that increase in competitor intensity, fairly materially, Pepco has maintained its market share on the left-hand side in the clothing market and on the right-hand side in homeware. So despite all of that growth, we are maintaining share pre- and post-COVID through that period, with the big compression in share coming from others.
So there's a long tail there of 70%-75%. That is what's getting compressed as we've moved through those years. So you know, lots more competition. Pepco maintains its share. Now, Andy mentioned this a few times, the question of price and price leadership is fundamentally important to the Pepco business. Just orienting you to this slide, we do every season an independent price survey. We've been doing this, as you can see, since 2019. The eagle-eyed of you will notice there's no 2020. Because of COVID, it made it much harder to go into shops and do the price survey. So if you look at the bottom, you've got spring, summer, autumn, winter, so the seasons that we sell. And we benchmark a basket of about 100 products.
So it's a... You know, it's material, and it's large. The gray bars show the difference to Pepco. So on average, competitors are higher than Pepco, and the pink line is the average over the last 5 years. So we're still on average on a minimum price basket, sorry, that's the point to make, so the lowest entry price products that we sell are 30% cheaper than our competition. And if you look at the Pepco ranking at the bottom, what that then also re-emphasizes is that we are, even though we're 30% cheaper than the average, we are the number one, cheaper than every single competitor in the market on an entry price basket. However, just the small but is you can see that the trend line is lower.
That means there's been more competition from competitors on price. So as I think Andy mentioned, we will look to reaffirm our position from a price perspective. The gap is still big, but you know, we can't underestimate the importance of maintaining that. So this is clothing. Similar story for homewares. Our price leadership is a bit higher. It's about 50% on average. And again, big basket of minimum entry products, which will be a frying pan, you know, a mug. It's that kind of product that is in these baskets. So clear price leadership for Pepco in the Polish market against all competitors in clothing and home. Now, importantly, what do customers think about us? Do they perceive we are the price leader?
This is research that we've done in 2023 with OC&C. So again, independent research with a large statistical sample of people that we've spoken to. So if you ask customers that know all the brands, 53% think we, Pepco, are the price leaders. So the price leadership shown on the price slide flows through into customer perception and materially higher than two of our very, you know, key competitors. So very good, positive reinforcement from our, our customers on our price leadership. Now, the next slide, so this shows the importance of various things to customers in terms of a retailer's offer. Price, range, quality, service, that's along the bottom. You go from left to right, it's of decreasing importance.
Particularly in discount retailers, you do these slides, price is always the most important thing, and it's on the far left. So that's how the slide works, and it's out of a scale of 0 to 5. And what we're showing here is that between 2019 and today, if you take the far left of the chart at the top, the low prices, our customers perceive us the highest, you know, with the same score for pricing in 2019 as they do today. So we are still seen as a low price retailer. And I think it's just important to say that position has not changed.
So despite all of the turbulence that we're seeing, some of the like-for-like pressures that we've had in the second half of this year, customers, 2019 versus today, still see us from a price position as good as we were. And on pretty much every other metric, we've got better, particularly on quality, which is, you know, important for a lot of the work that Agnieszka and the team have done in terms of range extension and some of the new things we've brought into the business. The only little outlier there is promotions, and I think, as Andy said, again, we'll be looking this year to be doing more to reaffirm our promotional kind of campaigns. So very positive story in terms of how customers perceive us from a price perception.
And then the, you know, the gold standard metric for any customer-facing business, Net Promoter Score. So we have, against all of our key competitors, the best Net Promoter Score in the market. You know, this is one of those slightly, kind of, you know, a holistic view of what customers think of you, and I think this is a very, again, a very positive story that, you know, we lead on price, we lead on perception of price, and customers give us a very positive rating from an NPS perspective. So just to try and wrap up, a few closing kind of thoughts. You know, the macro has been tough, but there is still, you know, solid underlying forecast growth in the CE markets.
You know, and so the concept of a healthy core, the underlying fundamentals of what we see in the Pepco customer proposition, you know, in our biggest and principal market, remains strong. Increased competition, but we maintain market share. We're still the price leader. You know, we've got a 30%-50% price gap on the lowest price basket against all of our competitors, against the average. And importantly, you know, we're not marking our own homework. Customers tell us the same thing. They perceive us to be the lowest price, to have price leadership, and they really like the business. As I mentioned, as Andy mentioned, we'll reaffirm our price leadership over the next 12 months. We will take active steps to make sure we are, you know, maintaining that.
Then while we haven't talked about Western Europe today, about Spain and Italy, 'cause the focus has been on, you know, the core big markets, I think directionally, everything you've seen here in terms of price and customer perception are directionally the same. So just to round off on that point about Western Europe. Thank you.
Morning, everybody, thank you, Mark, for that warm introduction. I'm Barry Williams. I'm the new Managing Director of the Pepco business here in Europe. This is week three in my new role, but I want to reassure you that the Pepco business and the Pepco teams are very familiar to me. Why is that? Well, I've been with the group for over seven years now, and in those seven years I've worked with and alongside the Pepco leadership team and the Pepco business. For the vast majority of those seven years, as you heard earlier, and it says on the slide, I was the Managing Director of our business units in the U.K. and Irish segments, namely our Poundland business.
We're joined today, actually, with Austin Cooke, who succeeded me as managing director of those business units. Austin and I worked together for over five years, leading those businesses, so really great to see that really important internal succession working very well in that business for us. So look, what I'm gonna do is I'm gonna build upon some of the messages that, that Andy shared in terms of the importance of the U.K., the progress that we've made with the business in the U.K., and, and what we see the, the future outlook to be, and quite an exciting opportunity, for us to build upon. I'm gonna share with you a, a couple of very simple slides in terms of the U.K. market dynamics.
This will not be new news to you. It'll be numbers that you're very familiar with, but I think it's helpful to set a context of why this is such an important market for us and a clear opportunity. Why does the Poundland proposition win in the market? I'll share with you what are the key strengths that we have, and what are some of those differentiators that create points of competitive advantage for us. I'll then come on just to talk about what we see the vision of the future and the overall opportunity, and then some initiatives, particularly around that one range and bringing us together as one business, that will further enhance those competitive advantages and the proposition benefits that we've got in the market. So look, very, very briefly, a market of significant scale, number three in Europe.
So a really large market for us, and actually forecast to outgrow number one and two, Germany and France, over the coming years. And within this market, we already have a significant presence within the Poundland business. I'll come on and talk to what those numbers look like shortly. It's an attractive market to us as well from a customer dynamic perspective. Discount retailing continues to grow share in the market. This is a continuation of a long-term trend... For at least the last two decades, discounters have continued to take share in this market. U.K. customers are attracted to the discount format, and when you look at that growth of discounters, it splits predominantly into two: food-led discounters and variety discounters.
So the food-led discounters would be the Aldis and the Lidls of this world, and variety discounters would be ourselves, B&M Bargains, that I'm sure many of you are familiar with, and Home Bargains as well, and we see ourselves with them as the winners in that, in that variety part of the market. So look, it's a market of scale. Discounters are taking share. Customers are very familiar and attracted to the discount format, and we have a very significant presence in this marketplace to build from already. So what makes the Poundland proposition win in the marketplace? Well, I'd, I'd split it into two, really. First of all, the unique category focus that we've got, and then this convenient format location strategy that we deploy.
So that unique category focus, we're the only one of the discounters to combine FMCG, general merchandise, and most importantly, clothing, and deliver clothing in a very professional way within our overall product mix. We have a full clothing offer in over 400 stores in the U.K. now, and I'll come on to talk about some of the great work with Agnieszka and the Pepco team of how we're building upon that strength already. But add to that general merchandise, and then core strengths in FMCG goods, and in particular in FMCG, we're talking about impulse categories, predominantly confectionery, but health and beauty and household. These are all categories where we dramatically overtrade our traditional market share, and they're critically important to that discounter shopper. So building on clear strengths within our FMCG business as well. I said I'd talk about category.
Before I do, growth comes from two opportunities for us, core like-for-like, and that builds to Andy's previous point of that four-wall EBITDA. Core like-for-like being one of the most critical measures of health within the business. When you see Neil's presentation after the break, he'll point to some proof points of consistent, very nice growth in like-for-like for the business. So proving a track record of developing that business over time, and that's a critical measure for us. But growth doesn't just sit with like-for-like, there's also space expansion. Even with 823 stores, there are many markets where we're currently underserviced, so there's opportunity for us to grow our overall space as well. And there's continuing opportunities of market consolidation, and I'll come on to talk about that in a little bit of detail.
But the format strategy, we operate stores from 300 to 1,200 square meters. The sweet spot is around about 1,000 to 1,200 square meters. Why would I say that? Because that's where we can house the full proposition, and that creates the best return for us. And as you see us grow our space, we're growing our space in more of those larger units going forwards because the economics are, are the most attractive for us. I mentioned market consolidation. Many of you, I, I think, will be aware of, the, the Wilko, acquisition or deals that we provided. We made an agreement with the receivers to assign 71 leases to the business. What that allowed us to do was negotiate exclusively with the landlords on those sites. We've concluded 60 successful deals. It's really important that process for us.
We were never gonna take these stores based upon the Wilko property deal. We wanted the opportunity to renegotiate that. We've had 60 successful negotiations. Most importantly, I think Austin and the team have done an excellent job because to date, we've opened 30 stores. We've got another 10 that are opening this week, and by the space of the next 3-4 weeks, all of those units will be open and trading, so we can maximize the opportunity of them in the critical golden quarter trading period as we lead up to Christmas. I don't see this as being the end of consolidation opportunities. It's certainly not the end of the Wilko opportunity.
There's plenty more stores out there that are now vacant, that could be of interest to us, and equally, there's a transfer of trade from the closed stores, where we're competing with them, into our business as well. Add to that, there's further weaker players in the market, so I think this is an area that we can continue to benefit from. So what does all that lead to? Well, it kind of leads to what the exciting opportunity for the U.K. and Ireland segment is under the Poundland brand. I said, even with the 823 stores that we've got, and add the Wilko stores to them, now you see the progress we're making on this journey, we're still underrepresented in many of the markets that we operate within.
As we view the market, we see the potential for an estate of up to 1,200 stores. Andy talked about our market-leading sales densities. As we open more of those larger 1,000-1,200 meter footprint stores, that will drive our turnover, and we'll end up with a business with turnover in sterling terms of around about GBP 3 billion. By any measure, for a Western European variety discounter, creating very exciting returns for us as a business. We've got a very clear plan and opportunity of what we see we can unlock in the U.K. market.
I would reiterate, when you listen to Neil's presentation, what Neil will provide is proof points on a number of the key metrics of the progress that the business has made over the past three years or so that gives us confidence and evidence that we can deliver against this plan. We can deliver more, though, by strengthening the core proposition. Even though we've got core competitive advantage, through a program that we're calling One Range, this will strengthen our offer even more in front of customers. What we're doing is leveraging the best of what takes place in the group and pulling it together. Specifically, that is landing the great ranges that Agnieszka and the team develop in Poznań for clothing and general merchandise.
So the clothing ranges, that in-house designed, unique product, that is going to build on this existing strength that we've got from a clothing perspective. Then add that to general merchandise, and GM is particularly an exciting opportunity for us. And why would I say that? Well, the GM ranges are quite different to the GM ranges that we currently offer to our U.K. customers. They're much more homewares-based, as you've seen in the stores yesterday. That's a real untapped for us in the U.K.. It's a big market that we haven't managed to access yet. Actually, the average unit price is higher than the current GM ranges in the U.K., so that's got the potential to drive the basket for us. So the combination of these two creates a really exciting opportunity to further drive that like-for-like performance.
We've trialed these ranges in some of our Irish stores. The Irish consumer is very similar to the U.K. consumer, and the feedback was extremely strong. You can see that in these NPS results. Now, please don't try and read across these NPS numbers to the numbers that Mark shared. They're not like-for-like. It's different methodologies, and these are our internal metrics, but nonetheless, they're consistent in our business, and it demonstrated a really strong performance for us. So look, as I speak to you today, this is the clothing ranges that are landing in the U.K. business. So everything that you saw in the two Pepco stores yesterday, these are now being exposed to U.K. customers, and the initial feedback is very strong.
Customers call out the value, they recognize the price points, the quality, the design, and we're seeing really encouraging initial results from the clothing ranges. The general merchandise ranges start to land from January going forward, so a real exciting opportunity for us. What, what does this do, though? Whilst it's a great opportunity and gives something new and a benefit to our customers, it does something really great for the group as well. It creates a much simpler business for us. So doing things once and in one place is a great principle to have as a discount retailer. It creates absolute leverage for us. So leveraging our negotiations with the factories, all of that done through PGS under Agnieszka's leadership, and Agnieszka will come on and talk about PGS and how that works for us.
Creates a much simpler operating model for us as well, much more efficient business and lower cost for us to do business. This actually paves the way for the next category for us to complete the journey, and that's FMCG. So we're starting work on pulling together our FMCG ranges, so to Andy's point, you will end up with the same proposition across all of our markets and all of our segments. The only difference in the U.K. will be the name above the door. Because of the heritage of the Poundland brand, name, sorry, we will call it Poundland in the U.K.. But essentially, the customer experience and what's inside those four walls will be exactly the same. Creates a simpler business and really builds that leverage point. How are we presenting this to customers?
Well, as any good retailer does, we continually develop and reinvest in our stores. We reinvest in a very appropriate way, for the market and the payback for us. These are well thought through, well-designed stores. What we do is we liberate more space, because these ranges, it's really important that we create a great environment for customers to be able to browse the range and get the right experience as they shop this product. And then a consistent deployment model, so each store is laid out and feels the same. This is our redevelopment program that we're running in the U.K.. It's not just about the landing of the ranges, though. So curb appeal, what's the outside of the store looking like? The signage. Flooring and lighting, where appropriate and where required.
When you do a refit, that's probably the most expensive things as part of the refit, so we only do it where it's really required for us, and we've got a very low-cost, appropriate solution for us, particularly from a flooring perspective. We house these new ranges. But something that is very topical at the moment is security and shrinkage, not just in the U.K., but across Western markets, I would suggest. We deploy a lot of different solutions to make sure that we maintain our shrinkage. And again, you'll see from Neil's presentation, how we do a good job of keeping that stable. But whether it be security guards, camcorders for colleagues, there's lots of different solutions that we've put in place, but our principles are protect the colleague first, and then protect the product.
And then finally, how we invest in some of the colleague areas. Austin talks a lot in our business about the customer experience can only ever be as good as the colleague experience. So investing in our colleagues, giving them the right tools to do the job and the right environment is critically important. Happy colleagues equals happy customers, and that's very much the journey that we're on with the U.K. business. So look, let me summarize. The U.K. is an attractive market. It's attractive for discount retailers, and it's a real scale market, and we have a very strong presence in that market right now.
You'll see proof points of the progress that the business has made over the last number of years that gives us confidence about the journey and the opportunity that we see in front of us. Some of the work that we're doing to pull the overall group together in terms of One Range will further leverage the scale of the group and provide benefits in the market to our customers there as well. So an exciting journey for us to continue within the U.K. Now, look, I'm conscious I've not spoken to you about the Pepco business yet, and, you know, I look forward to it in future sessions and future updates, sharing with you my experiences and the progress that we'll make on the Pepco business.
What I'm gonna do is I'm gonna hand over to Agnieszka, and Agnieszka is gonna walk through the difference between clothing and GM to FMCG, how we source it, and all of the work that goes into creating those amazing ranges, and PGS as its model, and how that supports us in creating that point of difference and competitive advantage. So I'll hand you over to Agnieszka.
... Hi. Thank you, Barry. I would like to talk about our business model a bit, because you have to understand that some of the decision we are making now, you will see in the numbers in 10 months, 9 months. For example, now I start to work on the next autumn-winter collection, and we already hedge around 20% of our currency for next autumn-winter. So the process is really different to FMCG, and not everything what we are doing now is visible in our numbers now. Oh, what's that? FMCG, it's 4-8 weeks time, and then the goods are in our shops. In case on GM and clothing, the process take 10 times more time, so it's around 10 months. It's a huge difference. I would like to show you our process base, for example, on spring, summer collection.
Very soon, in December, the first Spring/Summer goods transitional collection will appear in our shops. I start to work with my team on that collection already in past February. In February, we start to work on the trends. We have a trend forecast for our trend agency across the world. They prepare the trends and color palette for us. 2-3 months later, when we have the first results on our Spring/Summer 2023 collection, we match it together. We match the trends, forecast, and our real results, and based on that two factors, we decided the trends which we are going for the next Spring/Summer, which will be in our shops very soon, in 3-4 months. When we have trends, when we have a color palette, when we know what we sell good, very good, then we start to plan the collection with planning.
So we simply match the concrete style with the number and price. When we have the plan, then PGS came to us with the suppliers, or we go to Bangladesh, India, China, and we start to buy. We start the negotiation process. Of course, of course, all the negotiations are done by PGS before the trip, so they pre-negotiate the prices, but the final call is face-to-face with our supplier base. Then, when we renegotiate the price, we start the production, we start the placement, the placing the orders, and then the production starts, and then we move the production to Europe, to our warehouses, and a few weeks later, we start to sell it. So more or less, when you split that 10 months, we need 5 months; it's called pre-preparation and planning, and 5 months, it's production and transportation. That is a long process. Why?
You probably will ask, why we need 10 months? You cannot have everything, or you have. We are not the trendsetter, we are trend follower. We base our collection of the key trends, not on the hottest trends. That's why we don't need short delivery time to deliver the hottest trends. We need a proper core trend in our shops, and we give more time to our supplier base to prepare the capacity, to prepare everything, to have the best possible price, FOB price for us. We are producing very often our production in low period for supplier, when they don't have enough orders, and that's why we can have the best possible price. That's why the process is quite long, but secure us very good quality, delivery on time, and the best possible price.
What we do to attract our customer, we are delivering permanently the licensed product, which increase the share in our sales year by year. Why? Because our customer like very much the license. Here you can see a few example for last 3 months when we launched our promo license, Barbie, Warner 100, and Harry Potter. Barbie was the most successful promotion from that year because it was done when the movie arrived in our cinemas, and everybody wanted to have a Barbie T-shirt, Barbie skirt or Barbie accessories. And we sold almost 80% in 2 weeks. When we launched Harry Potter with quite heavy sweatshirts, it was outside 30 degrees Celsius. It was less successful, but still very successful for us. And when you look on the key numbers below the slide, you can see that the customer really like that.
It bring us additional margin, it bring us additional sales, and every 10 customer has some piece of our licensed product in the basket. To attract our customer, we also introduced two years ago, the cooperation with quite famous brand, but we also develop our own brand. When we were yesterday in shops, you could see Bekkin, which is our own sports brand, and I told you a few numbers, how successful that collection, that brand is for us and how much the customer trusts that brand. We already, very soon, in November, we will introduce first time for Pepco, MasterChef collection. Everybody know MasterChef, and very soon you can buy MasterChef product with the best possible price on the market, only in Pepco.
We introduce also Cardio Bunny, sport Polish brand, which has only online sales, and you can buy in Cardio Bunny online, leggings for 150 PLN. When in Pepco, you can buy the same leggings for 50 PLN, so it's three times less expensive. This collection we create to attract new customer, more affluent customer, because we knew the core customer, it's very important to us. That's why you saw on the presentation of Mark, that we still are in our core prices, the most competitive on the market. But to develop our like-for-like, we need also the new, more demanding customer, and this all license and brand cooperation, it's mostly to attract the new, more affluent customer. This everything will be not possible when we will not have integrated sourcing entity. The sourcing, it's now part of Pepco.
It's our department, sourcing department, and that is few key numbers. What done sourcing in year 2023 to us. They shipped $1.5 billion value, so it's huge amount. We source 88% through PGS last year, and we would like to source in the next few years 95-96% through our PGS sourcing. Here you can see flow-- few numbers, how we grow, how the PGS grow with us last few years, and how important PGS is to us. Why? You have to understand, to have the best possible FOB price, we have to be very efficient with this all pre-order process. We have to give our supplier everything, because we work with Chinese supplier, they are not speaking English. We are going directly to the factories. We are not working through agent.
So our tech pack, our 3-D development sample, our pattern has to be perfect, because we are going directly to the factory and we give, gave the factory all technical support to produce the best product. And this is possible only because we have people there. We have people in China. We have people in India. We have people in Bangladesh, Pakistan. Now, we also open the PGS office in Europe, and we develop also our Europe sourcing, which in year 2024 will deliver around $35 million FOB. We also would like, with PGS, de-risk China. It's a lot of speculation about China, but still, the China is the biggest market for all of us, not only Pepco, but for all retailer. But to de-risk the China, we need to discover new countries like Sri Lanka, Cambodia, probably in the future, also other region.
PGS is there. It's on the floor in that countries. Look on the situation, on factories, research the factories, make the factory compliance, control our production, go to the factory, make inline control. After the production finish, make the end control to really secure that the product has the best possible quality and delivery on time. Here you can see the few levers which help us to deliver our margin and to have the best FOB price. To the... Of course, the biggest lever is economy of scale. As we are growing quickly, our quantity increase, and that help us to negotiate better prices. The one range help that, that even more, but today I would like to explain you a bit the last lever, like supplier development program, which we introduced last year. What that mean? That mean we hired high specialized technical people.
They are going to our factories, and they help the factory to be more efficient. What that mean? That, with the efficiency of the factory, they can produce, for example, 20% more per hour as they produced before, because we offer them our technical support. Then when we improve the efficiency of the factory, of course, we can lower price, and we share the benefit with the factory. So our supplier are happy with that, and we are happy because we have better quality and better price. The all levers which you see here help us to manage our pricing and our quality, and deliver on, on time. This is what we are working on permanently to improve our product year by year, season by season. Summary.
So 10 months, it's a long process, but it is an efficient process, and it's a process which matches our end customer requirements. And in-house competitive advantage through PGS. So once again, every single clothing which we have in our shops, it's designed in-house, and 50% of our GM range is designed by us. So you cannot find that product by our competitors because they are exclusive for us, and this is because we have the tools, and because we have a PGS, we can allow it us to do that. Thank you very much. Martin?
Thank you, Agnieszka. Good morning, everyone. Yes, so let me introduce myself, however, Andy made just a bit, describing me as a long-service MD in the group, which is the true. However, not only that, I'm in the group since 17 years. Before, I used to work for almost 11 years in Pepco as a trading director, buying director, so I know the group quite well. So let me start from the context, because I think it's quite important. Why Dealz? Yeah, so now you ask yourself this question: Why Dealz in the group? Is this make sense? And, believe or not, 10 years ago, with the former MD of Pepco, Rob Taylor, we asked ourselves, "How to expand Pepco model? Should we increase the store size? Should we add the FMCG?
Should we increase the range even further?" So we start the project. Funny enough, we called it as a working Pepco Plus. However, in the meantime, in Pepco Group, Poundland appears. Yeah. So we've got the opportunity, and we ask ourselves: What do we want to do? Do we want to stretch the Pepco successful model, you know, adding the new range, extending the store size? It's not, it's not... It's quite complex, honestly speaking. Or do we want to use the opportunity and bring simply the Poundland to this part of the world? So obviously, the right question was okay. The right answer was, "Yeah, let's bring the Poundland here." Obviously, it's not a Poundland, it's a Dealz, Dealz, which the brand exists already, in Republic of Ireland. So we said, "Let's open the 10 Dealz.
Let's take the full range of Poundland, almost full range, and and look what will happen." So that's what we did. In 2018, we opened... In February, we opened the first two stores with huge help of Barry and his team, with basically almost 100% of the range from Poundland, which you can believe that after 3 months, we de-list something like 500 lines because it totally doesn't work. However, that's fine. What was happened? Really, we achieve what we wanted, yeah, because, because, the customer reaction was fantastic, so it was really the kind of the commercial success. We were different operator to what have been existing on the market at the time, so we have FMCG offer at the EDLP basis. You know, the FMCG is much more about the high-low.
We've got the fantastic, unique offer, which you couldn't buy anywhere else. We've got a really great price leadership, and we've got the, again, new, it was totally new on the market, kind of the simple round pricing. So if you now look at the Pepco or Auchan, whoever it is, the round prices, it's not their invention. Basically, we bring it here with, with the Dealz. So, what Dealz means for the, for the customer? As I said, we achieve what we planned. So basically, 70% of our customers quite consistently say that the number one reason to visit Dealz is the lowest prices. Almost 60% customers constantly said that the second reason to go to the Dealz is the wide range, which is kind of typical for the, discount, variety model.
And the third reason to go to Dealz, which is constantly, roughly about the 50% of the customers said, that we've got the unique offer. Yeah, we've got unique offer, which you cannot buy anywhere else, and this is quite consistent. Where we are now? Last financial year was pretty impressive in terms of the growth, and you can imagine that also from some of the not top lines; however, the bottom lines, we paid some price for that because we opened 116 stores on top of 168, which we closed the last financial year. It was pretty massive dynamic growth.
So yeah, we are one of the fastest growing company, not only in terms of the stores number, also in term of the market share contribution, we've got a pretty good Nielsen data, which showing this as well. As Andy said, let's cool down a bit, slow down with the growth because we cannot growth like a net, I would say. So the plan for this year is to open between 50-60 stores. Yeah, that's just stabilize something, which is, I think, the right thing to do. And we still have a big wide space in Poland, and not only in Poland. Basically, you know, that we can expand, going with the Pepco route, with the Pepco infrastructure across the entire of the C.
Because, again, whatever we will build successfully in Poland, it will be even more success in the rest of the C, just because the Poland is the most competitive market in this part of Europe, in this part of the world. So the wide space is pretty big for that model. What you have opportunity to see yesterday, I think majority of you, you could see the old store, and you could see the new, refreshed format. So basically since Mark this year, we open every store in this, in this new format. So, so currently, the number of the, new stores is more than 100 in, in our, our chain stores, so that's fine. And it's much better version of the this. Again, it's, it, it can be your objective, subjective impressions, however, customers loves it. They love the change.
The change was dictated by them, basically, just to have the clear category roles, just to have the clear navigation. From our business perspective, I was pushing to have a very strong POS, very strong price message. So I think that from the look and feel and shopping environment, we really achieve what customer requires from us and what we want to achieve. You've got the pictures from the other store. And what is really important, even if we-as you look for the FMCG retailer, the footprint of almost 300 stores, of the size of average selling space, 390 square meters, it's still not big. However, we are well-recognized, so customer loves us and customers need us everywhere in Poland. So as you can see, the brand awareness growing very, very quick. That's just...
I don't say it's normal trend, because in Pepco, for this brand awareness at the early stages, we were working for the long, long time. However, now it's with the online mechanics and, and, and all the communication tools, we can, we can achieve this, pretty quick. Also, we've got fantastic NPS score. It's not here. We are, top three in Poland, included all the retailers, either it's Lidl, Biedronka, Pepco, Action. So that's, that's very important. We've got almost 4 million unique customers from the catchment where we exist of 10 million inhabitants. Yeah, so which is good as well. So, so 4 million customers from the catchment where we are present, 10 million, so it just shows you the, the potential, the potential of, of growing, expand, the business. And the model.
So, yeah, definitely it's something what was written by myself and then accepted by, by Andy, this, almost seven years ago, the simple model, 35, 25, 10. 35% of the gross margin, 25% of the CODB, and then 10% for you guys, yeah? Which is, which is, which is the great model for the FMCG type of the products retailer. Because if you look at the, our portfolio of the products, currently, less than 20% represent general merchandise offer, and the rest is FMCG. In Action is the totally opposite. Yeah, so 75% is the GM with a bit of the clothing and, and 22%-23% FMCG. Pepco is also different. So we are fit to all this, this kind of portfolio of the new modern shopping nodes. So 35% gross margin, obviously, we are not there yet.
As all you know, you are a professional team, knows that FMCG is all about the scale, so we still have a few points to make up. However, to deliver what we have promised, and what is one of the DNA of the Dealz, to deliver the lowest prices and to have this 35% of the margin, there is some kind of a challenge we need to face, but this is the challenge, it means the scale. So it's not only scale, it's as well improvement. If you once you have been in the stores, you could see that, the GM offer, maybe it's not so perfect. So I can assure you that from January, February next year, we'll have a totally new GM proposition. It will be led by, by Pepco team.
It will be unique, so it will be not the same as Pepco, obviously, from the obvious reason, just to not cannibalize ourselves. So this is a unique proposition which will fit much more to the market. So just because of improving the GM offer, which obviously will improve significantly the sales mix or sales contribution of the GM, we will make up some of the gross margin just by definition. The second point is, once I mentioned about the scale, it's what Andy just mentioned at the beginning, is the one FMCG approach across the group. Because we still buy as separate entities, Dealz in CEE by themselves, Poundland by themselves, Pepco Plus in Spain by themselves. So now we've got quite advanced initiatives already in flight, so we have already some of the fruits.
We have already some contract negotiated with the key players on the group level, which obvious things, is that it brings us the much better buying conditions, yeah? As well, one FMCG infrastructure, one FMCG team, will bring us much more, unification of the assortment. So, this is also pretty important, which again, will help in scale and to buy better. The second, on the first point here is as well, the way how we buy now. So 30% of our goods are coming from Poundland, and many of you could see on the products and the stickers, label. We need to label this. We label this in our DC, which is more than 1% of the gross margin, just by definition. Yeah, so obviously it's going down every year.
However, it's something which we shouldn't have, and it just shows the potential scale benefits. And then, if you compare the results of the last year and what we are aiming to achieve this year, just 2% of the margin, gross margin we lost on the Forex. So it was pretty headwind of the, of the Forex management, you know, the war in Ukraine, all the stuff, a bit of the managing the currency. So it wasn't easy. It wasn't easy for, for everyone. However, we, we paid the price for that, so we're going to improve this, yeah? And also the negotiations, the back margin, that's what I mentioned, one FMCG. On the operating costs, we are quite efficient already, so we've got a very good, way of working, and operating model for the labor.
It's really, really strong. Really strong already, so we know how to manage this. We also opened a new DC in February this year. This is the central gravity of Poland. We used to work with the two DCs, somewhere in the west side of Poland, so it wasn't great. Now, we've got one DC, which is dedicated for us, designed for us, layout for us, it just the Dealz DC, so we can already see the benefits of the reducing the costs, and I can tell you now that we already achieve a lot in terms of the cost optimization. And then we also have the one initiative with Pepco, so the property are negotiated together. It's not single team for Pepco and single team for Dealz, Dealz.
Everything what happened on the property side is the kind of the joint team who. Or actually one team who negotiate on behalf of the two brands. So here as well, we can expect some kind of the benefits on the CODB. So this model is real. It's not far away to show you where we land this. So that's from the investment perspective, is pretty attractive. And that's the kind of the answer of the question, why Dealz? Yeah, because our dream with Andy, before with Rob Taylor as well, was, "Okay, so let's just build the second Pepco." Pepco was and is still is so successful model with a pretty high level of the saturation, so let's just utilize the strength, let's utilize the scale of what Pepco built.
Let's utilize the infrastructure, what Pepco built, and just simply build a second brand under the one Pepco Group banner, which is something which is standard. If you look at the Inditex, if you look at the LPP, even if you look at the Jeronimo Martins, that's how it works. Yeah, so it's not like unusual. However, I know that you all guys have a question, should we have one brand across the whole entity, or it's Dealz which makes the things the complex? So as Andy said, we will have the answer within the next couple of months, what will be really the strategic decision around Dealz. However, from my perspective and my recommendation will be, let's invest in this and, you know, the...
We can show and we show already that whatever we promise, we are going to deliver. So yeah, thank you for that.
Great. Thank you, Marty. Okay, look, we're, excuse me, a bit ahead of time. It's coffee break now, so we'll take 20 minutes or so. So, we'll call you back in when it's time, but feel free to stretch your legs, have a coffee. Coffee's around where it was before, and, yeah, we'll call you back in about 20 minutes time. Thank you.
Okay, welcome, welcome back from the coffee break. So Neil Galloway, nice to meet all of you. It's always good to come at this point, sort of the end of the morning, when all of my colleagues are very helpfully passed sort of all the difficult questions in my direction. But, I'm gonna try and go through some of the numbers.
... over the next 40-45 minutes or so. And then we'll take questions subsequent to that. Just wait for a few people to grab their seats. So what I'm gonna try and do today is provide a bit of context. So sort of evolution, an evolution of the business over the past five years. And five years, really going back to pre-COVID, to 2019, as a sort of maybe an undisturbed year prior to the disruption that's come through the pandemic, and looking forward to full year 2023, where we kind of are today, to give a bit of context. I'll then talk about the key business and cost levers. And maybe just to say right now, this is not a complicated business, and from a financial perspective, there's really three things drive performance.
It's the sales line, and that's driven by like-for-like and growth. It's the margin, and that's really driven. The gross margin, really driven by how we're buying. Yes, there's some costs against that, and then really, the category mix in terms of what's delivering that. And thirdly, it's how we manage our costs. And that's essentially what's at the core of the financial performance. So we'll talk about some of those inputs and aspects. And then lastly, I'll talk about, in some detail, the store performance review, and really cover the core business in Central Eastern Europe, Western Europe, which I know a number of you have been asking about. And I'll also talk about the U.K., picking up on some of the comments that were made earlier.
Fundamentally, the health of the business is really about the health of the stores. I think that's really felt was helpful to end on that, and then we'll have a wrap up. In the context of the numbers in the presentation today, just to say, obviously, we haven't closed the year-end yet. We're kind of going through that year-end process. So the numbers you'll see today are not audited at this point in time, so there's health warning around some of those may change when we get to the full year audited results announcement, which is on the twelfth of December. But it's to sort of give some context around performance.
So some of these are coming from the P&L annualized or the management accounts, but it's just to give you the best representation we can on the, on the business as it stands, sort of as of the full year 2023. But just to reiterate, these are not audited numbers at this point, and we will update those when we get to the full year results on the twelfth of December. Unless specifically called out, we're really focusing on an IAS 17 EBIT, EBITDA number, so really trying to bring it back to a cash EBITDA number. Previously, we've tended to headline on the IFRS 16 EBIT number, so essentially a pre-rent number. We felt it was appropriate to bring that back to what we believe is a better metric for reflecting the financial performance of the business, specifically around the stores.
We'll talk about store contribution in that context as well, again, talking about the health of the stores. That's excluding central overheads and pre-opening costs, but I will talk a little bit about the overheads as well, just to give a bit of context on that. That's just to set the scene in terms of where the numbers are that are in the presentation we're gonna go through. A very short recap on the last five years. The business has obviously grown quite materially from 2019, so 65% in revenue terms. The like-for-like in 2019, it's about 2.6 across the group. I'll show you the breakdown of how that like-for-like has evolved across the different formats through the period. And it's sort of 6% full year 2023.
With 72% growth in store numbers, so we've added, you know, over 2,000 stores in the last five years, so averaging about 500 a year. But we've obviously been accelerating. 400 a year, but we've been accelerating the growth of those stores. And as Andy mentioned, the gross store openings last year were around about 800 for full year 2023, net about 668, as we disclosed. EBITDA, and again, this is the IAS 17 EBITDA, it's up 20%, so it's obviously growing behind the pace of the top line growth, and some of that's just a drag from the pace of growth, and leverage has remained fairly flat, actually down.
A couple of things just to remind the room, this business has grown with no external capital throughout this period. It's all, all of the growth we talk about today has been funded from operating cash flow and some improvements in working capital over the last few years. The debt that's in the business was put in place as part of the capital restructure at the time of the IPO in 2021, and the equity was raised at the time of the IPO was actually secondary. So the company has actually managed to deliver this growth from operating cash flow, and I think that's quite important in the context of the business and performance. So if we start off with the sort of sales growth over the period, so 13% compound annual growth over the period.
Pepco has actually been growing at about 20% and Poundland about 4%. We'll talk about Poundland in the future, but over the last few years, we haven't seen much growth in the Poundland business. Partly, as Andy referred to, we've been prevaricating about what we do with Poundland and where that fits in within the context of the group, and I think we're fully committed to standing behind Poundland and seeing that as part of the future. And you will see more growth coming through the U.K. and Poundland going forward. And Barry referred to a little bit of that in the opportunity and aspiration for Poundland in the context of the U.K.. The red bar in the...
The red blocks in the bar chart on the left there are essentially the growth, sort of, the new store growth. And actually, for 2023, that's quite understated, just given that a lot of the new store growth came in the latter part, the second half of the year, and particularly in the last quarter. So if we had the benefit of that for the full year, it would've, it would have been significantly higher. And you'll obviously see the benefit of that coming through in 2025, FY 2024. So even if we didn't open any new stores at all in FY 2024, which we do intend to do, there'd be quite material growth from those new stores we opened during FY 2023....
And again, you can see, you can see the effects of the new stores on the year-on-year growth on the right, where the total company growth is 17, versus the like-for-like performance around about 6. If we go back to 2019, the business was sort of 50/50 between, essentially between Poundland and Pepco. And you can see, so you can see from this chart, most of the growth going forward has been driven by expansion in the Pepco format and Pepco brand. Initially, from Poland into Central Eastern Europe and increasingly into Western Europe in the last couple of years. And I'll show the geographic mix and the difference. But, you know, it is worth calling out here, the U.K. and Poundland remains our single largest market in revenue terms.
So I don't think we've particularly called that out before, but that has been a fact and remains a fact today. Pep-- The U.K. business is our single largest business today from a revenue perspective. And you'll see some of the contribution numbers at the store level at the end of the presentation, which reaffirm the comment Andy made earlier about from a cash contribution perspective store, Poundland is our, you know, best performer. If we look at geographic change over the years, you can see the shift here. And I think this is the first time we've actually calling out Western Europe as a block. You can see the growth has accelerated into Central Eastern Europe and sort of the lighter green block at the top.
And then as we move from 2022 into 2023, you'll see an emergence of Western Europe as part of the sort of future of the business. We intend going forward to give this geographic disclosure an ongoing basis. It's not something we've done before, but I think if we call out the U.K. and Republic of Ireland as a block, Poland, the rest of Central Eastern Europe and Western Europe, we expect to continue to disclose against this, which will hopefully, you know, give you some greater visibility on performance across those different geographic markets. In the last couple of years, it hasn't made much sense to talk about Western Europe. It's been a pretty small part of the business, and it's really only a two-year-old business, if we're honest about it.
You'll see some of that when we go onto the details on store contribution and how that's built up over the last couple of years in our key markets. Western Europe today, for us, is essentially 80% of that from a revenue perspective, is coming from Spain and Italy. That's what we'll focus on today. Those are really the markets that have enough scale to give some meaningful context into financial performance. If we then talk about category performance, Andy's talked today about moving to one business. That will be a business that's delivering from a core range of FMCG, clothing, and general merchandise. Now, you've got the three categories here over the last 5 years. They haven't been aligned. You know, I think the FMCG has had a much larger range of products.
There's been different clothing and different GM between the Poundland business and the Pepco businesses. But going forward, from this financial year onward, we're moving to a single core range of FMCG, and there's a lot of work being going on this year to define what that core range is, which will be available across all the stores where we offer FMCG. And clothing, as Barry said earlier, is moving into Poundland this year. It's a year of transition, so we're transitioning out from the Pep&Co clothing range, and we've begun to bring in the Pepco clothing and general merchandise for next year. As you can see here, FMCG has dwindled as a sort of share of the overall business. It's about 27% now from about a third five years ago.
Going forward, with the increased focus on a Pepco Plus model, FMCG will regrow that share going forward over the next five years. So clothing's been the sort of growing segment, if we look back five years to today, but going forward, FMCG will take a greater share of the overall mix going forward. Now, that has some implications on margin over time, but as you'll see from some of the numbers later, it should drive higher frequency from a customer in store and facilitate a larger cash contribution per store. That's the sort of flywheel effect we expect to see from that coming through across the business. So I'll now try and talk about like-for-like, which has certainly been challenging from a forecasting and baselining. So this is by brand, over the last five years.
You can obviously see the impact of the pandemic hitting in 2020, with negative across the board. It was sort of more muted in Poundland because of the food category. A number of the Poundland stores could remain open during COVID as an essential retailer, not all of them, but a number of them. So the negative impact was more muted in the case of Poundland than it was in Pepco, where stores were open and closed in different geographies that it operates in during the pandemic. And then you can see Dealz obviously growing from a small base. I mean, if you look year-on-year, FY 2023 versus FY 2022, it's, I mean, I've seen about 70% revenue growth.
A lot of that coming from new stores, but obviously as it's matured, it's coming off a low base, but it's been growing quite rapidly as a business. But across the whole group, if you take away the noise, it's about a 3% like-for-like, if you go from 2019 through to FY 2023 across the whole group, made up from that mix. And I'll talk a little bit in a second about the quarter-on-quarter performance throughout the period for each of the brands. You can see a little bit of the challenges we've had in terms of forecasting. So a lot of data on this slide. This is the Pepco like-for-like performance. The pink bars represent Poland, which is obviously our biggest market, and the blue bars represent the rest of CEE for Pepco.
This is quarter-on-quarter from 2019 through to date. Clearly, pretty challenging forecasting quarter-on-quarter, year-on-year, or year-on-quarter in terms of performance. So not an excuse, this is just the fact base that the business has had to try and forecast against to meet sort of, external expectations and how to run the business. So it's not been easy. I think one thing to call, and you can see if you look in the 4 columns on the far right of the slide, that's the 5-year compound annual growth rate. If you just take the quarter-on-quarter, 5-year period, you can see the range is between 4 and 5%, essentially, like-for-like over those quarters.
Q1 has always been our strongest quarter, which is the last quarter of the calendar year, which brings on board our main trading period, which is obviously Halloween, now going through Christmas into the new year. So just to bear that in mind. So Poland, as you can see here, has underperformed the rest of CE from a like-for-like performance over the period. A little bit of that's due to it's the biggest market. We've got more stores. As Mark talked about earlier, more competition, more maturity in the business, probably some cannibalization coming through as we've extended the network in Poland. But just to give some context about splitting out Poland and the rest of CE.
It also goes to Andy's point about the importance of focusing back on Poland and CE, just to drive better performance in our existing business. And when I get onto the store performance, you'll see there's a great opportunity if we can deliver that in terms of profit improvement across the company. One of the questions that comes up regularly is, you know, what's driving like for like? Is it price, or is it transaction volumes? If you look at the blue line, that's the solid blue line. That's essentially the average transactions, the basket. It's around about 9, about 9 EUR average basket. You can see it's obviously growing over the five-year period. And the red line, that's the total like for like across the business.
So those lines are, to some extent, converging. So there's been more volume driving improvement than prices going up. If you look at the dotted lines, actually taking the 2019 cohort, which was in large part driven by Poland, and you can see again, it's reflecting what I said in the previous slide, that there's been some, you know, erosion in terms of trans. So I think, again, some of the competition, maturity, cannibalization in Poland, just driving a weaker like for like in terms of volumes across the store base in Poland. So we move on to Poundland. Same picture over the same period, quarter by quarter.
To the point Andy made earlier, you know, Poundland has improved quite significantly over the period in terms of its performance, led by Barry and Austin and the rest of the team, in terms of driving better performance in the core estate. There hasn't been a lot of growth in terms of new stores in Poundland, so the performance has really been driven by improving like-for-like performance. Clearly, there was a big bounce back in 2021 as stores opened again post-COVID. But in 2023, we've seen an outperformance of the business, really driven by its category mix. About 65% of Poundland is FMCG, so it's an FMCG-led discount retailer, as Barry said. And so it's benefited during this year, as people have focused on that particular category.
Similar chart in terms of price and basket. What you can see is that during, when we went in, through COVID, we saw people shopping less, but spending more, and actually, the baskets held up since then quite well. The reality is there's not much convergence in the lines in terms of price and basket. It's just there's not a lot of new stores. It's been, there's been a little bit of pickup transactions. I think that partly reflects, we've picked up some additional customers in the more challenging economic environment we've seen. So we've seen some people, you know, be trading down as customers into Poundland, who may not have shopped there before and keeping those customers. Just to give you a little bit of a picture on what's driving the performance across the business.
Something else we have talked about in very general terms, but we haven't called out specifically in numbers, is the difference between, is related to space. So we have, on average, been opening slightly larger stores throughout the period. So you can see this. If you look at the chart on the left, the lighter, the pink line at the top is the space growth in square meters. And the line below it, which is the purple color, is the number of stores. So we have been growing space ahead of the number of stores. So about 75% space growth over the period, compared with about 68% growth in stores.
I mean, that has a few consequences, one of which is more stock in the business because we've got more space. So in terms of some... And we will give more disclosure on an ongoing basis about space metrics as well as store metrics, because it has implications on the business more generally. And again, on the chart on the right, again, most of this has clearly been driven by Pepco. You can see that from the store numbers in the blue bars on the bottom and pretty much, in fact, slightly lower store numbers in Poundland.
That's partly reflecting running off some of the loss-making stores and underperforming stores, and we'll share that. I'll share a little bit more of visibility on the store performance for Poundland and the other brands at the end. And then, obviously, we've got deals coming in in the light green on the left at the top bar. You can see the average space per store on the right, so Poundland, larger, as Barry said. The Poundland store size is gravitating to the higher end. It's sort of than this. There's quite a number of smaller stores from a historical perspective that sat within the Poundland, but the Poundland store size is getting increasingly bigger. And actually, some of the Wilko stores that Barry referred to earlier are on the larger side.
So we'll see a continued increase in the Poundland store size. As Barry mentioned, that's partly, that's partly behind the plan to, you know, drive towards the opportunity we see for Poundland in the U.K. and leverage that opportunity, but also Pepco has been getting slightly bigger. Part of that reflect, reflects the move to a Pepco Plus format in Western Europe, but we have seen some increase generally in the Pepco stores. And then Dealz actually have got a little bit smaller, as we've expanded Dealz within Poland. But that just gives you a little bit of context on space versus stores, and we'll give better disclosure on this going forward in the future. What might be more interesting is the sales density picture, which we've given here, and obviously, as we give space metrics, you can obviously calculate this.
So couple of things to highlight on this slide. So Pepco has not recovered to its sales density levels it had pre-COVID in 2019, so it's trading below that. And that's one of the things, when Andy talks about getting back to focus on the core business and driving stronger performance, is trying to attack this. You'll see from the data later on, store performance, Western Europe's actually, you know, higher than this. It's over 3,000 per square meter. So Western Europe's driving better sales densities in Pepco than some of our core estates in Central and Eastern Europe. The other thing that's probably a call-out here, it may surprise some of you, is the Poundland sales, which is almost double what Pepco is. And that's actually grown from 2019 through to date.
So Poundland is driving, you know, good sales densities in its business, and that's partly a function of the category mix that's gone, FMCG being a frequent, frequent purchase category. And Dealz, again, is delivering better sales densities than Pepco. So again, that all points to sort of getting more focused on how do we get that sales density and performance up in the core Pepco business, which is where we have the majority of our stores. Excuse me. A topic a number of you have raised in the last couple of days, and I'm gonna go through this briefly, and I'm sure there'll be questions later. But in terms of the gross margin picture, and I'll give you some breakdown in a second by the Pepco and Poundland.
Poundland, actually fairly consistent, probably not surprising given the category mix, and actually has improved slightly. We've obviously saw a dip during, during COVID and the pandemic, but, but Poundland, remarkably consistent. Pepco, we've obviously lost quite a lot, again, impacted through the pandemic period, recovered slightly afterwards because we'd, we'd a smaller volume business. But it's still sitting about, on a gross margin base of 400-500 basis points below where it was in 2019. And obviously, the key object... There's different reasons for that, and you'll see in a moment why that's the case. The key is really to focus on getting that trajectory back to, back to pre-pandemic 2019 levels or better.
There's good indications as to why that's deliverable, and I'll show you that in a second on the next slide. The other factors I mentioned in terms of margins, obviously, category mix. You can see on the right, we've got FMCG at the bottom, structurally, a lower margin, as you'd expect, just given the mix. And within that, there's a mix within a mix, and that's the same for each of those categories. And clothing has sort of underperformed relative to general merchandise over the last couple of years.
So if we look at the evolution of gross margin in Pepco, and I'll show you Poundland in a second, we've got what we call that here is the product margin, so the sort of highest margin when we're actually buying the product from the factories. Actually, that now in FY 2023, and the benefit for that will flow through into FY 2024, and this goes to the point Agnieszka was making earlier about the lead lag impact of the buying cycle, where we're buying at and where we're selling at are not in the same. We're buying now to sell next year. So we've just got to remember that's part of the reason for giving some context around the different buying cycles for FMCG, clothing, and GM. In twenty...
And then you've got the gross margin, which is the red line, which is the, what's actually landing in our financial statements, and obviously, what all of you are particularly focused on. And there's been different drivers throughout the five-year period impacting that. There's always been freight. If you look at the... I'll call out the key ones. There's always been freight and distribution, you know, transport costs, and that's been fairly steady until 2022, and obviously into 2023, when we saw container rates and going up dramatically. I think for the low point from $1,400 a container to $15,000-$16,000, and they're coming back down. But a lot of the stock we have that's been landing this year, we bought last year when rates were still higher.
And as we called out when we had the sort of profit outturn discussion of a couple of weeks ago, we're still cycling through some of that stock that has some of that higher cost sitting in it. And so the sooner we burn through that, the better. That will burn off, and we'll see an improvement in the gross margin just as we burn through that component of it. Second element, maybe just to call out, markdown. In 2020, in particular, we had a big one. That was really when we had COVID. It was critical to sort of drive cash out of the business, so we were marking down product to drive sales, to drive cash.
So that was an anomaly due to the environment we were operating in. When a lot of the stores were closing, we just needed to generate some cash in the business. It was the same time we were going around our suppliers, looking for payment terms that we hadn't had at the time. So there was a lot of activity that was really focused during the pandemic on, you know, getting the business through that period. We've seen some increase coming back on that in this year, and that relates to, obviously, a desire to use markdown.
Partly, we used it some over the summer as we saw weakness coming through in consumers to sort of stimulate sales, and partly, we referred to it in the recent rise about sort of putting some provisions in through to try and accelerate the clear-out of the stock that's a higher cost to get us back to a better margin position going forward. The other aspect that's hit us during this year has been the FX impact that has been... And again, mind you, we're a zloty-based business. We've been buying everything as a buying entity into Poland and then reselling into the other markets we operate in. So we've had a challenge in terms of zloty, CNY, CNY, and dollar CNY, so there's been an impact....
But that, that is largely behind us, and we should see, as we cycle through that, if you look at the product margin outlook and the trend line, as we cycle through the freight rates and the FX headwinds we've had this year, there's a good reason. That's why we keep saying there's a good reason to believe that the gross margin will follow through on that, and we'll be in a better place over the next 12 to 12 and 24 months. Poundland, slightly different story, and we generally had a, an improving, an improving margin. It's, it's also suffered some headwinds in terms of freight rates, and container rates. But as you can see from the gray bars here, it's not as impacted, 'cause again, 65% of the business mix is coming from FMCG, which is essentially sourced locally.
So it's much less exposed than Pepco is. Remember, Pepco is sourcing, as you saw earlier, 80+% of its products through PGS from Asia. So the majority of the Pepco range is coming from Asia, whereas the majority of the Poundland range is coming from within, from the FMCG universe within Europe, so it's not as impacted. And again, that's another reason we move forward to, you know, that category mix changing forward, that will also mitigate some of the risks around freight from other parts of the world. The other thing that, and Barry touched on it, to call out in terms of the drag from the product to the gross margin in Poundland has been markdown on shrinkage. And, you know, you can see a little bit of a worsening in 2023.
For those of you who spend time in the U.K., it's been difficult to miss the headlines about rampant theft in the high street. I don't think there's a retailer in the U.K. now that is not looking for some action to try and address this. Partly, there's a material financial loss. You know, it's running north of 2% in terms of shrinkage in the business, and, you know, on a sales level, that's a material number. It's a material number in the context of net margin in the business. Just to put it in context, this is a big and structural problem, and it's a growing problem. As Barry said, it is a...
It's more of a problem in Western Europe than it is in Central and Eastern Europe, but it is getting worse in Central and Eastern Europe, just given the economic environment. But this is a problem we need to try and get after as an industry in the U.K. and other markets, because it's becoming a behavioral challenge for some segments of the community in our stores. The other reason, the product margin benefit, is we've been doing as we move to multi-price and multi-pack deals, that's obviously helped the margin in Poundland as well. So there's a good margin story, improving margin story in Poundland as a business over time. So this chart's giving a little bit more of a call-out in relation to the impact of category mix on the margin.
This is not, as someone, for clarity, this is not a time period from left to right. So this is not from 2019 through to 2023. This is taking, in the case of clothing, general merchandise, and FMCG, the subcategory, by the various subcategories we measure within the business, the different margins that are sitting within those subcategories. So the average for the business is around about 40%, which is the dotted black line across there. And you can see the categories that are above and below that, and within the categories, the subcategories. And so part of the margin outcome depends on the sales mix running through the business in any particular day, week, month of the year.
So as we see shifts in behavior, Mark talked a little about, little bit about the challenges we've seen in clothing and GM in Pepco over the course of the last 12 months. We've obviously seen strength in FMCG. So as I was saying, there's two things around driving the margin outcome. One is how we're buying and some of the costs against that, FX, freight rates, et cetera. And the other is the category mix and where the consumers are shopping. And so it's just a mathematical outcome from all these. And it's just to give you some visibility on where that, where the margin structure is. And you can see it's quite a big difference if we were all FMCG or all clothing or all GM, and so the mix is important.
You know, I think where we feel the best place to be is a blend of all these, and there's pros and cons of each of them. FMCG has been a strength in the business this year. Had we not had it, the outcome for the year would have been worse than it is. It's driven a lot of the like-for-like performance, not just in Poundland, but also in the Pepco Plus stores in Spain, as an example. So the last area, if I come on to costs, I've talked about sales, I've talked about margin, now talking about costs. Cost has been a real challenge in the last twelve months. We obviously didn't forecast when we went into FY 2023, the sort of labor inflation we've seen in Central and Eastern, 15% wage inflation.
We didn't see that coming at that magnitude, and that inflationary headwind's been a challenge all the year. And it's been a challenge generally across the cost base, because obviously that feeds into things we're buying from suppliers to fixtures and fittings and anything else. It's all part of the same inflationary story. So there's been an inflation generally in terms of costs coming into the business from the base business, and obviously, as we've added a lot of new stores, there's been an incremental inflationary impact from that. The dotted line on the left reflects the space growth. So again, you can see a correlation between the space growth, which has been accelerating as we've been opening more space, 'cause this average store size has been bigger and the cost base.
We had particularly, probably some own goals in transport, and we've got some handicaps in transport, which is the top gray bar on the left in relation to... You'll see in a second when I talk about stores, some of the reasons we've got that handicap. We've got distribution centers sitting in Central and Eastern Europe. We've got stores all the way over in Portugal, and you can see that graphically when I get on to the store performance, just to explain some of the... and we also had, and I think we called out, in the full week, we, we had too much stock at the end of last year, got too much stock at the end of this year, but we, we had to source some external warehouses to host that....
lost that incremental stock last year, which is quite a significant additional sort of own goal in terms of cost last year, which fed into the FY 2023 numbers. So we hope not to repeat that during the course of this year. We have opened a new distribution center that we, our own DC in Romania this year, will obviously help mitigate some of that. Frankly, the business was struggling from a supply chain perspective to keep up with the growth, and I think we're in a better place now. There's more opportunities, but, just to explain why there was some you know, one-off incremental, transport, distribution costs in the business last year. But most of it's coming from store costs, i.e., rent.
As you know, we've got some escalation clauses in our rent, our rent bills and new stores and from labor. And we have some challenges in some of our markets in terms of less labor flexibility, for example, in Poland, than we do in the U.K.. In the U.K., it's much more variable on an hourly basis. In Poland, we've got more stringent contracts with our, with our colleagues in terms of FTE base. There are opportunities to address some of that, but, you know, this is a supertanker, not a speedboat, so some of these things take time to work through the system to get improvements, and that's something we intend to get after during the course of 2024.
If you look at the graph on the right, if we try and bring that down to a per square meter equivalent basis, actually you can see from 2019 through 2021, partly as a result of what was going on with COVID, we've actually, you know, the cost trend was in the right direction then. So we, we did take sort of decisive action to try and mitigate some of this, but we've lost a little bit of control of that in the last 12-18 months, and we need to refocus on, on that. Some of it relates to what Andy said, is we've opened new stores with sales aspirations that we didn't meet. We've kind of staffed up to, to help, you know, to support those sales, which we haven't met.
So we've got some opportunities around some of those areas to take that cost out of the business. We will need to get after and focus on during the next 12 months. If we look at Poundland, it's a much better story in terms of cost management. I think a lot of that's more, again, as Barry talked about, much more competitive environment we've been used to living in, in the U.K., and there's been a lot more focus out of necessity, just given where Poundland was performing at, to focus on costs. So, we've done a much better job on controlling and managing rents, and there's more ability to control labor. It's gone up, but it's been relatively well controlled.
Where it's been challenging for Poundland in the U.K., and again, for those of you in the U.K., has been around about energy costs, where, you know, that's obviously impacted, and we've got refrigeration in stores and those sorts of things. So we've been. You know, that's been an impact. We have taken, we are taking and continue to take efforts to get more efficient in terms of energy use, but that's been an impact, and the other is in terms of transportation with fuel costs. So those are the two things in particular that have had an impact, along with, as the store size average gets slightly bigger, again, just remember, although we've got a similar number of stores, the space is slightly larger. So again, those explain some of those costs being higher.
But generally, Poundland has been in a better place in terms of managing that cost. But as it gets bigger, there'll be... It's an ongoing challenge. So the other aspect is central cost or overhead, and you can see the trend line there. The 6.8% in 2020, I mean, that's a combination. Yes, costs were up, but obviously sales were muted because of the pandemic. So I would ignore that from an anomaly perspective, just given the environment the business is operating in. But again, from 2022 to 2023, we've seen an unfavorable trend in overhead and operating costs, which is something absolutely we need to get after.
I'd maybe call out a couple of specific things, but, you know, projects, which is the purple bar in there, that's really called out as there's a lot of things that have been going on in the business, which we're re-looking at as to whether these are distractions or essential. Just to give you some... So there are definitely opportunities to address overhead costs by, you know, doing less to deliver more, to use the words Andy was using earlier. So that's an area of specific attack during the course of 2024. So trying to move on to sales have grown, profits haven't grown, please explain. This is attempting to do that. So the top pink line is the sort of IFRS 16 EBITDA we have historically been reporting against and guided against.
So the latest number you recognize on the far right, we had EUR 731 million of IFRS 16 EBITDA for FY 2022. We've guided to EUR 750 million for the full year. You'll get the final number on the twelfth of December when we announce the full year results. If we take that down to the next level, the sort of IAS 17 EBITDA, so what's the difference is essentially rent. I mean, I'll characterize it as rent, it's a combination of ROU amortization and interest costs around, but it's essentially rent within the business. That's the difference. And again, that's a combination of increases in the base rent within the core business, and we've opened a lot more stores. So that's really what's driving that impact.
So it's about EUR 40 million less than an IAS 17 basis, really is a drag. You could characterize that as a drag from growth in large part. And obviously, some of the rent is coming in in the latter part of the year. So just to characterize, that's the main difference between IFRS 16 and the cash EBITDA number. The other thing, as a consequence of growth, and the New Look program, which we've talked about in Central and Eastern Europe, it's been a much higher depreciation charge. So we've added about 100 basis points. If you look back to 2019 to today, there's about 100 basis points increase in the depreciation from, it's gone from about 2.2 to 3.2 as a consequence of opening more stores.
CapEx has probably been higher than it should be, and that's something we will look at, and I'll talk about when we get onto the stores. And the New Look program has been an additional specific handicap to this factor. And again, we can talk about, I mean, Andy talked about pausing it. And I'll give some context on the numbers you need to achieve for it to pay for itself. But it's been an incremental cost on the business in a lot of stores that were essentially had no depreciation running through them because they were older stores. So that's been an incremental cost on an existing base business, and we've opened...
I think we've done 700-800 stores through the New Look program in Central East, which is quite a material out of 2,500 stores. About a third of the Central Eastern European state, we've put incremental costs through as part of the New Look program, which at the time, the decision made, I think, was done for all the right reasons. It's just not delivering the performance to offset the impact of that additional cost that's gone in to invest in those stores. So that is what's driving that, and obviously, we've got higher interest costs to resolve. Slightly higher gross debt, but obviously, as rates have gone up, we've had an impact from that, and that's why the PBT has gone backwards.
So just to, I mean, call it out quite simply, that's what's driving the impact from sales to EBITDA to PBT and obviously down to after-tax profit. A bit more context on depreciation, that you can see here that an incremental 100 basis points in depreciation moving from 2019 through... The blue line reflects the cumulative new store growth throughout the period, and then the gray line's overlaying the impact of the New Look stores. So you can see about 3,000, I mean, round numbers, 3,000 stores over that period. In the context that we've got total 4,000 stores in the business today, just gives you a sense of the impact that that's having on the cost line through depreciation. So just to give you some context around that, that's what's the impact.
And we'll talk about what it means going forward for growth in terms of, you know, we have to be much more rigorous about, you know, are we spending the right amount of money on new stores and on the New Look program? So even if it comes back and as we go forward, what can we do to get more aggressive on managing that CapEx of the store to sort of mitigate the impact of the depreciation running through the business? And to call out an illustrative example of what the New Look program has meant, it's essentially added about EUR 20,000 in round numbers per store. We're typically depreciating our stores over 5, typically a 5 + 5 lease, but so we're typically depreciating on a 5-year basis if you took a store.
So the impact is about EUR 100,000 we were spending on New Look, so it's about twenty... So we've, we've put an additional tax on those stores, and essentially, for that to be profit neutral at a store level, we'd have needed to deliver about a 6% like for like in those stores to offset the impact of that investment, and we're not hitting that at the moment. When we started the program, we were. I think we've-- I think prior to my time, but I think in previous investor community, we were delivering about 10% like for like performance in the New Look stores against the control group. But, you know, that's obviously eroded over the last 6-9 months for the reasons we've talked about, macro, consumer, weather, et cetera. And hence, the reason for pausing and reviewing the program today.
Don't think the principle and the premise behind it was bad, but it's not delivering the performance needed to offset the incremental cost behind it, so we paused it. The next thing I'll talk about, which sort of feeds into a discussion on cash and working capital, is stock. So we have too much stock in the business today. We have too much stock in Poundland, we have too much stock in Pepco. Some of that relates to, as Andy described earlier, if you look at the beginning of the year, things were trading particularly well. We bought more stock on the basis that would continue to be the case. It hasn't. So we've bought more stock than we can trade through the business, so we've accumulated more stock.
So we're about EUR 1.2 billion, slightly more than EUR 1.2 billion of stock in the business. It's about EUR 100 million more than we were in Mark or this time last year. It'll be slightly higher, I think, by the end of September. This is in August. Excuse me, this is in August, August period. It'll be slightly more by September. We are, we are taking action to delay, defer, and cancel some of the stock, recognizing where we are. The benefit of having PGS in direct relationship with suppliers, we're in a much better position to do that than some other retailers who just don't have that direct relationship. So we've got a good relationship with suppliers, so we are managing to mitigate that to some extent, in terms of future commitments we would have otherwise had to make.
But you can see the stock day position here has gone up, and I'll talk about that in a... So there's an opportunity if we can get after improving our stock management, to move this back to where it was historically. It's quite a significant opportunity for cash back into the business. If I look at the mix of the stock, so the gray bar at the... This is, again, this is going back for the last 20, last 2 years. This is, the gray bar at the top is FMCG. So just to remind you, about 26%-27% of sales mix is coming from FMCG. It's about 10% of the stock in the business. Again, that just reflects the higher stock turn we've got in the FMCG category.
Where we've seen, and again, it's a little bit difficult to see, but the blue is clothing, and we've seen a gradual build-up in excess clothing over the period. So it's more in clothing we've seen an accumulation stock than GM on a relative basis. And that's largely obviously coming through Pepco more than Poundland. So then taking that and looking at the working capital impact, again, if you look at where we were in 2019, 100 stock days, and we're at 130, and right now is about 130 days. So there's been a, you know, material deterioration in stock days in terms of. We've had a big improvement in payable days. We've gone from 30 to close to 80, which is obviously a significant improvement.
So the opportunity here, obviously, is how can we continue to sort of maintain and improve the payable days? And there are some opportunities around that still, but how can we manage stock down? Because there's a very material cash opportunity by narrowing that 130 days down towards-- If we could get it back to 100 days, happy days, that would be a very material cash infusion back into the business. So that is an area of focus in terms of how we deliver against, towards that, over the coming year. And I'll talk a little bit about cash flow. Again, I referred to this earlier, but this business has funded its own growth.
So the solid blue, the dark blue bar there, is really the operating free cash flow in the business from trading the business. Obviously, struggled in 2020 with COVID, and we had to really go out, and you can see from the working capital, we really had to go out and beg, borrow, and steal from the suppliers to get some payment terms that we really didn't have. I mean, if we come back from history, the business had struggled, and I'll be quite direct, that it had struggled from the legacy environment of Steinhoff ownership in terms of, you know, nervousness around our supplier base and nervousness around the credit insurer market providing that. COVID actually provided us an opportunity to address a lot of that because the business needed cash and support from its suppliers to keep going.
So funnily enough, in this respect, the pandemic was actually quite helpful in terms of moving away from that sort of legacy environment to, you know, getting support from our suppliers, which they did provide to help us move through. So there was... The business did a really good job in a very difficult period when a lot of the stores were shut, to get out and get support from our supplier base, and you can see the working capital benefit there in 2020 from doing that, and that's continued. There are still opportunities, particularly in our FMCG supplier base, where we see big growth opportunities, and that's something we are again going after this year. But generally, the business has funded all of the CapEx.
This year, it's about EUR 373 million of CapEx, record CapEx spend in the business in FY 2023. You can see it's all being covered by the operating free cash flow in the business. So notwithstanding missing on profit, the business has self-funded its own growth, and genetically, and, you know, in its DNA, that's important, and that's something we expect to continue doing. As Andy said, if we deliver on the sort of revised focus for 2024, we should see a significant improvement in terms of the free cash flow generation after everything from within the group, 'cause CapEx will be reduced, and there's opportunities around working capital and stocks. We should see an excess of cash generation during the course of FY 2024, and that's very much what the target is for the team.
Just to give you some context of where the CapEx spend has gone, again, you can see the acceleration. Most of it's gone into Pepco. That reflects the fact that that's where most of the new store expansion has gone. Dealz has been, I think, it's record in the last year, as we've added the stores Mark and talked about, as the Dealz sales year on year is about 72% growth, and we've added about, no, well over 100 stores, I think, in the last twelve months in Dealz. And then if you look at the breakdown of CapEx spend, again, the biggest spend is in stores. It's in that network expansion. So you can see that, over EUR 200 million last year.
The second elements, which are the red, relate to the store refitting. The vast majority of that is the New Look program. Some of it was in Poundland, but the vast majority has gone into the New Look program, and that's what we're pausing at the moment, as Andy said. And then the rest is a range of other things. IT and other is a combination of projects and some of the IT investments and the ERP transformation to landing on a single platform, which we think is the right thing to do to move, to help support the move to one business over time. So the next section, I'm gonna try and sort of cover what I believe is the critical metric of health in the company, is really the store performance.
I think there's some very good news in here, and there's also some opportunities for us to focus on. So I'm specifically focusing on Pepco and Poundland here, because that's essentially the majority of the business. I'm gonna leave Dealz to one side for today and just talk about Pepco and Poundland, so you know, essentially the core formats. So over 4,300 stores and about 558 net new openings in those formats this year. So the difference between the number we announced, the 668, was the Dealz growth. Excuse me for one second.
So I'll show you the detail of the business in a second, but in summary, essentially, Eastern Europe remains our best performing region, 16% EBITDA. Now, again, this is all store level. We had 57 loss-making stores with less than EUR 1 million of cash drag at the store level. I mean, if you talk to any other retailer, that is beyond world-class in terms of performance, in terms of that sort of metric. In Western Europe, which I know is a concern to people, and again, I'm focusing particularly on Spain and Italy, because that's where we've got, you know, up to 2 years of trading history, so, and enough stores to be meaningful and give us sort of picture.
We're only delivering about 5%-6%, so there is a lot of opportunity in terms of improving performance, and I'll show you where those opportunities lies, and we can talk to them. But a lot of that is within our gift as operators to fix the performance of those stores to get to the level where the store contribution is the right level of contribution. But again, the cash drag from those stores is less than EUR 1 million. That's a business that two and a half years ago didn't exist, and it's doing about run rate of about EUR 400 million in sales today. So again, I think as a start-up business in those markets, that's not a bad performance in the space of two and a half years. And then Poundland, it still has about 100 loss-making stores.
It's about less than EUR 8 million in cash drag from those stores, and the right thing to do from those stores is to run them to lease expiry. Most of those stores will run off the books within the next three years. The right cash decision, which I think is the right way of looking at this, is to let them run to lease expiry rather than accelerating the exit from those stores. Because they are obviously helping us drive sales and volume and all the benefits we get from having more coming into the business. So there's a self-help mechanism to deal with Poundland, and obviously, we're looking much more forward at new stores and opportunities. Wilko was a reflection of that, and again, good place. So that just gives you an overview of the business.
So first up, if I look at Central and Eastern Europe. Couple of things to highlight on this chart, and it's important when we get onto Western Europe. The DC infrastructure, the distribution center infrastructure we have today, is sitting in Central and Eastern Europe. We do not have any distribution centers in Western Europe. I'm leaving U.K. to one side, we obviously do, but in the Western European business, the DCs, we've got two in Poland, got one in Hungary, Gyál, which is our biggest one, and we have a new one that we opened about three months ago, I think, in Romania. So all of the product from Pepco is coming from these DCs, not just in Central and Eastern Europe, but into Western Europe.
Romania added this year, so as I said, when we had an issue last year, we didn't have that DC, so we've added quite a bit more capacity within the business, to hold and manage stock. So about 3,000 stores, at the end of 2023, 6.5% like-for-like growth. We opened about just under 300 in the year. And we entered one new market, which I think was since the last update, which was in Bosnia and Herzegovina. And again, you can see from the pie chart on the bottom, Poland remains our biggest market, and then Mark talked about the other key three markets, Hungary, Czech, and Romania. So that's about 75% of the CE business.
Actually, some of our strongest markets are the smaller markets up at Lithuania, Latvia, but there's some very strong performance in some of the smallest markets, some of our smaller markets in the Baltics. Really outstanding performance. You'll see that in a second. So this chart, so in the spirit of full transparency, which people are asking for, is the store contribution level across Central and Eastern Europe. It's the like-for-like stores across Central and Eastern Europe, not hiding anything, the picture's all there. So 98% of those stores are contributing to the business. 75% of them are higher than 10% EBITDA margin at the store level. As you can see, there are the few, which we've highlighted with a little red circle, so you can actually see them. That's the underperforming stores.
43 of those are losing less than EUR 20,000 a year. So if there's any concern, to the point Andy made, about the health of the business at the core, this is an unbelievable chart to look at. If you look across that, this is a good story. It also is where the opportunity is. A lot of the attention to date has been on the loss-making stores, of which we have very few, and how we fix those. The opportunity is around how we improve the profitability in these stores, because we've got a lot of them. As you can see from this slide, if you look left to right, and I've taken the 2019 cohort, it's about 13 stores, and gone back to 2019 and look forward to 2023.
We've seen sales improvement, about EUR 100,000 on average per store of sales improvement, but we've seen a gross margin erosion of over 600 basis points. We've seen the impact of inflation in the operating costs, so we've lost about 700 basis points of store contribution. So that's about EUR 40,000, you know, underperformance relative to where they were in 2019. This is the point that Andy was making earlier. You know, stores were doing about EUR 211,000 on average, now doing about 175, 177. So if we can recover that level of store contribution across the estate, which I showed you in the prior slide, that's a massive opportunity for profit improvement across the company.
And that's really when we talk about focusing on our core business, it's how to get higher profitability in stores that are already generating money, because that will, you know, that will drive much higher cash and profit conversion than focusing on the small number of loss-making stores we have, wherever they are in the group, 'cause there's not very many of them. And again, the table on the right gives you the average performance across all the stores today, all the like-for-like stores, not just the 2019 cohort. The table on the right is all of the like-for-like stores. There's about EUR 1 million average revenue per store, delivering about 175 contribution at the store level. We've got opening costs in terms of CapEx, et cetera, about 200.
So we've got a cash payback on those stores of about 20 months. It used to be about 16 months when we had the higher performance. So it's how do we get it back to that 16, 16 months? That's sort of the ambition in terms of trying to drive better improvement. So that's the... This is the core of the business. This is what we're trying to, you know, this is when we talk about revitalizing, refocusing, improving, focusing, this, it's on, it's on this particular part of the business. And again, to give you transparency, this is a sales range across all of the stores in Central and Eastern Europe. So within 80% of the stores in each of these markets are within that parameters.
And you can see the underperforming market, actually, on a sales perspective, is Poland, on a mean basis. So again, our biggest markets are our biggest opportunity. And the same on a contribution level. So you can see again, Hungary, we've already moved to increase prices. There were some specific issues, so we've already put prices up in Hungary, so we're on a path to seeing some improvements in Hungary, specifically. And Poland, again, remains a strong opportunity for us, if we can address that. It's our biggest market with the most stores, biggest opportunity for improvement. So hopefully that at least gives you some confidence about the performance of the core business, which is sitting at the heart of Pepco.
So we talk about Western Europe, and again, this is a 2.5-year-old business, in reality, of any sort of materiality. Again, I've put the distribution centers are the red dots in Eastern Europe. So we've got stores in Portugal coming from Hungary, products. So we've got product that's sitting in trucks for 8, 10, 12 days, depending on traffic and congestion. So we've got a lot, we've got a lot of opportunities to improve efficiency from a logistics, warehousing, distribution perspective in Western Europe. We know that that's a fixable problem. It's related to network density and scale that we need, we know we need to get after. That's an addressable problem at the right time, with the right number of stores. But it's a handicap as we speak today, and it has been for the last 12-18 months. We just haven't, you know...
So that's something that's improvable. So again, full transparency on Italy. There'll be copies of the slides available, so you're more than welcome to take photographs, but we will obviously make all this available after the session. So again, just to give you some picture, if you go from right to left, that's from the newest store to, you know, two years open. So we... I was asked, I think yesterday, by some of you around the stores, the maturity profile for stores. In Central Eastern Europe, the Pepco brand is extremely well known. Everyone knows Pepco. Mark shared some of that data. We've got strong market share. We've got strong category performance.
When the stores open, they're generally trading at pretty mature maturity, pretty much from the day we open the store, partly because it's just such a well-known brand. Not the case in Western Europe. But you can see here a fairly consistent sales performance across all of the stores. So we've, on the far left, we've got those from, you know, we've got over two years, not that many. At the end, we've got one, you know, over a year, so between one and two years, and then less than a year. And to give some proxy for performance, we've annualized the run rate sales in the last month to give you a sense of what it would look like, had they been open for a full year. I'm not forecasting that.
I'm just giving you an indication of if you take those metrics and annualize it, that gives you a sense of performance, and remarkably consistent, we would argue, across the business. So as a reference point, and Andy talked about the disposable income of a, of an Italian consumer, these stores are doing essentially 50% more average sales per store than Central and East, about EUR 1.5 million on average per store. So we would argue there is, there is definitely a consumer response and demand for the Pepco proposition in Italy. And again, to remind you, Italy has got no Pepco Pluses. Italy is a Pepco market. It's the, it's the standard Pepco, regular Pepco stores. And again, you can see the sales densities are improving, so again, it just reflects that maturity curve.
The reason we haven't talked about this in prior years is we just didn't have much in the way of historical data. We had very few like-for-like stores. So this is probably the first time we've really been in a position to give you some data about store performance. So a similar picture on Spain. It's a much newer market for us, and there are a few complexities around Spain to highlight. So as you may remember, we had two businesses operating in Spain. We had Dealz, and we had Pepco, and we took a decision to essentially eliminate the Dealz brand, move to Pepco brand, and introduce what we're now calling a Pepco Plus format, which is including FMCG as part of the range, as part of the offer from a consumer in the store.
We've got very few of those that have really got a like-for-like performance. So if you look on the far left, we've got a handful of stores that have been in a Pepco Plus format for anything sort of beyond a year. So the, you know, it's a much younger estate than we have in Italy, about a year younger, just to give some context around it. And most of those stores were standard sort of Pepco stores. The red ones are essentially the stores that are a Pepco Plus in format, so they're offering FMCG, clothing, and GM. And again, we've. You can see the average store performance from a sales perspective, the Pepco Pluses on average, are doing EUR 2.2 million.
If you look at the average line there, you can clearly see that some of the Pepco Plus stores are driving almost double that in terms of sales performance. The standard Pepco stores are more in line with what we're seeing in Central and Eastern Europe. Don't know, at this point in time, whether that's the end state or they're still going through the same maturity curve as we've seen in Italy. I suspect it's the latter. But again, we need long—'cause you can see the improvement between 1 and 2 years, and we haven't got many stores that are over 2 years. So again, we're expecting there to be a similar maturity curve as the customer and the consumer gets more familiar with the brand proposition.
But again, we believe in these numbers, and again, you'll see it relative to Poundland. The Pepco Plus store metrics from a revenue perspective are not that far off where Poundland is in the U.K.. And we haven't got the same sales densities, and we certainly haven't got the same contribution level. But again, to the question of is there a market and is there an opportunity for Pepco or Pepco Plus in Western Europe, we believe there's enough data here to give us conviction there is, but we have to get after the unit economics, the store economics from a contribution perspective, 'cause that's not good enough at the moment. I'll show you that in a second. So if we look at...
I was taking Italy as the proxy for a standard Pepco in Western Europe, because we, that's where we've got the most data, and there's a lot of consistency around the estate as a whole. So they're doing higher sales than a standard Pepco in Central Europe. The store contribution currently is about half of what it is in Central East. So 90,000 EUR rather than 180,000 EUR. We know that's handicapped for distribution costs. We know that should see some benefit from a margin recovery perspective. And we know our CapEx here is higher, so it obviously impacts in terms of various other things.
So what we sought to do here, to give a guide as to what we think we can get after in that business, is to get the store contribution close to or equivalent to what we're seeing currently in Central and Eastern Europe. If we adjust for the transport costs, which we will get after, we see some of the margin recovery, and we can get after a more aggressive view on CapEx in the stores to get to that sort of level. And that would bring it back to what we had guided previously of about, you know, between two and three years of cash payback for the Western European stores.
So yes, lower margin structure for a number of reasons, but from a cash contribution per store, we don't see any reason why we can't get to the same place where we've got with the other Pepco, the core Pepco business, given that we've got a higher sales number coming through these stores. So that's... And again, if I go back to, and again, prior to my time, but if I go back to what I think was, excuse me, said at the Capital Markets Day last year, I think we indicated a regular store being about EUR 1.8 million. So we're missing on sale. We are missing on sales versus the target we set ourselves when we laid out the plan for the standard Pepco store in Western Europe.
I don't know whether that's the format or the impact from the macro environment that we've seen washing across. I don't know the answer to that, but I suspect it's a combination of all of those things. But again, there's every reason to believe if we can address some of the operating issues within the business, which are within our own control, there's a good opportunity for Pepco in Western Europe and the standard Pepco stores. Pepco Plus is a more challenging situation at the moment. On top of the things I've just talked about for the regular stores, there's a couple of particular things that have made it more difficult in Spain for us.
The Dealz side of the business that has fed into Pepco Plus and the FMCG, we're sitting on a Poundland IT landscape, and the GM in clothing was sitting on a Pepco IT landscape. They're fundamentally different in terms of how they've worked, and we've had to cobble together the IT platforms for now to try and deliver, you know, a full range into the Pepco Plus stores. Together, with a distance from the DCs into... We've had significant availability issues in, both in term-- Well, we've, we've had significant visibility issues of, of products, and we've had significant availability issues of products in the stores in Spain. So we have definitely handicapped our ability to deliver sales in Spain. And if you've been in the stores in Spain, you can see, you can see that. So it's just a fact.
We have, we have not done a great job in terms of delivering, giving ourselves the best chance of delivering a successful business in Spain at this point in time. And that, that is something we're consciously aware of, and, and it's something that Barry and the team are looking to address specifically over the next few months. How do we get a better, better outcome for our customers in the stores in Spain? Notwithstanding that, we're delivering, you know, an average of EUR 2.2 million in sales, which is not far off a Poundland. So what we need, We, we can see a path to getting the store contribution up to round, again, round about where the Central Eastern Europe Pepco store contribution is, based on various things we believe are within our own control. Distribution.
We're planning to open a distribution center in Spain next year, middle of next year. So that will help, that will help on some of the higher costs we've got in distribution running into Spain. So then if I talk about Poundland, which I don't think we've really ever talked about much in the past before, but we will do going forward. So our biggest market is the U.K. Again, this is all of the Poundland estate. You can see there are more loss-making stores in Poundland, but it is still a pretty good, it is still a pretty good picture by any measure in terms of store performance. All credit to Barry, Austin, and the team for improving the Poundland business. It wouldn't have looked like this five years ago. There's been a material improvement in store performance across the period.
So we've got a strong base to build on in Poundland and the U.K., and the loss-making stores that we have, we have a path to exit, as I said earlier, over the next three years. So this estate will continue to get better through self-help. So Poundland today is doing about GBP 2.5 million on average revenue per store, delivering about EUR 213,000 of cash contribution at the store level. So that's higher than that, that's EUR 40,000 higher than Pepco today, with an opportunity through, again, continued operational improvements to get that up to about EUR 240 thousand - EUR 250 thousand. So that will still remain the highest cash contribution per store in the company. And again, I remind you back to the sales densities, you know, more than, close to double.
There's a couple of specific things we do have opportunities, and we need—we are looking at. So the CapEx per store is too high, and the working capital is too high, and those are the things we're looking at. How do we address that? And some of the opportunities for that in CapEx can come through, you know, buying across the whole group. So, for example, around fixtures and fittings, we're centralizing a lot of the activity around goods not for resale and how we buy better, not just trade, but non-trade products across the company. That's a, that's another piece of activity in relation to excuse me, in relation to moving to a single business.
But that hopefully gives you a little bit of a visibility on the Poundland business, which I think we really haven't talked about in the past, but we have a good, you know, we have a good foundation and opportunities to grow that business into an increasingly successful retail format in the U.K.. So in summary, we've got a healthy... Hopefully, you will agree, we've got a healthy store base across our markets, which is fundamental to the company's profit performance. There's specific opportunities to improve that profitability going forward, not just addressing loss-making stores, but most importantly, improving the profitability in our core estate. We can see margin recovery coming through. We just have to cycle through and lapse through some of the headwinds we've been facing for the last 12 or 18 months.
I appreciate there's a little bit of the boy who cried wolf around this, and I, you know, I think we fully recognize the need. You and we need to see that in the rearview mirror. We need to earn, as I think as Andy said, we need to earn, you know, the conviction behind that, but that's something over the next 12 months, we expect to see coming through in terms of the financial performance. We've got very specific and identifiable cost opportunities to address across pretty much every cost line, and eliminating some of the projects that have been distractions from the core business. We will see stronger cash generation through reducing the sort of growth profile and focusing much more attention on stock KPIs than we have done over the last few years.
So all of those are specific things we can see a path through to, you know, generate more cash in the business. And lastly, there is a successful business model here with good growth prospects. We've just got to get back to focusing on exposing that and delivering it. So I'm sure there'll be questions when we get to that in a minute. I'm gonna hand over now to... But that's the end of this sort of run-through in terms of some of the numbers, and hopefully, that breaks down a lot of the questions and addresses some of the areas of concern or focus that you have.
I appreciate it will never be enough detail for some of you, but, but hopefully, it's enough detail to at least give a bit of confidence in terms of what the key building blocks are for the business. I'm gonna hand over now to Neil, to Neil Brown. Neil is Non-Executive Director on the Pepco Group board. He's also a nominee for Ibex, which is, you know, is our largest single shareholding. And we've had a number of questions around, you know, Ibex and where does that sit, and we thought the best way to sort of address that was ask Neil to give a little bit of context around that as we kind of move forward. So with that, I'll pass it on to Neil. Leave that. It's just that one.
Thank you. I'm never quite sure what a vice chair is, but, it sounds a bit dodgy. But anyway, thank you very much, Neil and, Andy, and the whole team for interesting and informative set of presentations today. We're very supportive, as a shareholder of getting greater visibility into what's happening in the company. I think it's good for us, I think it's good for everybody in the room, so I think, that's really to be applauded. I, as Neil said, I'm one of five, a group of five directors who are appointed to, to oversee the Steinhoff assets over the last five years. There's a couple of others of us who have been around.
You may have seen Louis du Preez, who's masterminded a lot of this from South Africa, has been with us, and also, Sean Mahoney, who's the newest colleague we've got joining that group, has also been present. So you may, if you see them, say hello, and they can introduce themselves. I've only got two slides for you today, so I won't take up too much time. This is the first slide that relates to a project that, since the last capital markets day, has been occupying a lot of our time, which is called Project Purple. It was very complicated, and as these things do, it took an awful lot of time, seemed like forever, to get it all done.
A few people in the room have been very involved in that process and know it in detail. The good news from the perspective of the Pepco shareholders and stakeholders is there's only really two things that matter to this group in relation to that restructuring, and both of them, I think, are positive. So the first of those things was the restructuring of the old Steinhoff NV and the replacement of Steinhoff with a new top company called Ibex, and is controlled by the original lender group. That was followed by immediate, pretty much immediately, the delisting of Steinhoff NV, which becomes a shell company, and the new top co, Ibex, is parent of Ibex Europe, the company which indirectly owns 72% stake in Pepco.
So, technically, that has very little impact on the Pepco shareholders or the company. But the removal of the Steinhoff, both as a name and as a listed entity, with all of the public reporting that goes alongside that, and the public shareholders, and the sort of whole paraphernalia, created quite a lot of confusion around what was actually a much more simple process and structure. So going forward, there won't be really any reference to Steinhoff, and we've really separated out, at our level, the old Steinhoff legacy. All the cloud of issues that went with litigation and stuff have gone. And I think moving forward, that'll become much more apparent, and none of that sort of infection of noise will come down to Pepco to the extent it might have done in the past.
What we're left with moving forward then is a creditor-owned structure, no public company interests above Pepco to deal with for ourselves. The Ibex companies now have three main assets left with their own separate sell down programs. Mattress Firm is one of those, which was a U.S. company, which was announced its sale to Tempur Sealy earlier this year, is going through FTC approval process. The second is Pepkor in South Africa, which is more advanced in its sell down process than Pepco. And finally, the third main asset that we've got left is Pepco itself. So it's a simpler task for us. It's a much simpler structure, and a lot of that fog and noise that goes with Steinhoff has really disappeared.
The second thing that's really important is, and probably is crucially important for the people in this room, and not just a sort of optical cleanup, if you like, is the extension of the stable platform that was created by the lenders back in 2019. There's been an extension of the lending commitments from all the lender groups through to June 2026, with the potential for two 1-year extensions going out to 2028. So this creates a multiyear continuation of the same stable platform that was put together at the outset in 2019 by the lenders. It's operated successfully since 2019 to create stability for the group.
And there've been very few changes of personnel, either in the director group that we've got managing the assets, or for that matter, in the larger lender group that constructed the original stable platform, and have stayed with the business and supported since that, and continue to do so. So where are we now? We have this stable platform. It's been carefully constructed. It allows for an orderly sell down of shares over time, and we think that's good for the lenders, and we think it's good for everybody in this room. We have the support of the lenders, who have been very patient and cohesive as a group.
I think we've had to be more patient, both ourselves and everybody in the room, as we've been through the process, because of two bouts of COVID, because of the war in Ukraine, it's extended the period over which we set out to do the sell down program, and that's just a thing that's happened. We do believe in the business very strongly. We support the executive, and we believe in its potential to become a leading discount retailer across Europe. None of that's changed. We're fully supportive of Andy, and his reintroduction into an executive role in the company, and we believe that the changes that we've heard about, the strategic direction that we're going in, are shareholder friendly, and we're fully supportive of disciplined and thoughtful capital allocation, as you can imagine.
We're also very supportive, I think, of the changes being introduced by Neil Galloway to provide the market with more visibility and more granular financial performance. We think that's really important. I said at the beginning, and I think I'd like to reiterate it now, we want a position where there's good visibility for everybody in this room, including ourselves, and a common view of the potential, the performance, and the future of the business. So in summary, we've got, I think, a shared view, probably with everybody in the room, that we'd like to see the share price move up from here. Our first and second and third priority, really, in terms of how we look to sell our shares over the coming periods, is through a steady ABB program.
We think that we'd like to see that accompanied by a steady share price progression reflective of business performance and providing increased liquidity that everyone want to see in this room as well. There's a virtuous circle there. We are not seeking to go down a path to do anything that's investor unfriendly, and it's not in our interest to do so. We're not seeking to go down a route that hasn't been tried and tested before, and we're not looking to spring any surprises.
So while it's taken a lot longer than we would have wanted, and it will take a bit longer in the future, our plans are still, I think, solid and sound, and the path forward, I think, will get easier, as we believe, as we go through to 2024, and we see some of the tailwinds that we think are in the business coming through and helping deliver performance. So we look forward to hopefully having an acceleration of our sell down program as 2024 goes ahead, goes through. We'd like to think that that will follow on from the development that we're seeing in the company and the development performs to the company. So with that, I think I'll leave it for any questions and hand over to Andy to summarize then. Thanks, Andy.
Thank you, Neil. Hi, everyone, again. Thank you, Neil, and thank you all of my team, for what have been, hopefully you agree, excellent presentations. We're gonna take Q&A in a moment, but just look, just to summarize, and I'll reiterate the points I made at the start. Coming back into the business, I'm extremely confident and excited about the opportunity the business has got to be Europe's best and biggest discount variety business. There's nothing that I've seen would suggest anything other than opportunity rather than problems. I guess as a segue into Q&A, I'll upfront this now. Look, when you think about it, I'm very confident that we can get back to sustainable like-for-like growth in our business.
Furthermore, I'm very confident we can open shops in an affordable, high return environment and deliver growth in that way. But what we've also got to do, and again, I'm confident about this, is recover our margins and get some of our cost, you know, profligacy over the last 18 months, 2 years, back under control. So I, I've got the challenge of guiding, and with Neil, all of you towards, we're gonna improve sales, we're gonna improve margins, and we're gonna improve costs. And I'm very confident we can do all of that, but what I'm not gonna do today is give you detailed guidance on FY 2024, because what we need to do is build confidence and trust in you and other investors that we can deliver.
So our first job is to get through the next few months and deliver some of those things that we've promised, and then talk about them, rather than talk about them today and not deliver. So, you know, I, I'm just preempting some of the detailed discussions. Also, by the way, you're all super bright people. We've actually given you a lot of guidance, if you look in the detail about what we're talking about. We've talked about the recovery in FY 2024 of our core story, EBITDA. We've talked about a guidance on new store openings, and we've talked about controlling our costs. So, you know, you can actually build quite a detailed view about what we believe we're gonna deliver, but what we're not gonna do is go to a specific profit number at, through the discussion we have in a moment.
So just, just bear that in mind, and I hope you understand why. We've got to build confidence with you that we can deliver, and a lot of that is about delivering it first. So with that, I'll invite Neil up to join me, and then we'll take Q&A. And I'll host the Q&A, but I'll obviously get some colleagues to be involved in that. And there's a mic that's gonna come round, so if you have a question, put your hand up, please. And would you also, if you don't mind, introduce yourself with your name and the company you represent, if that's okay. So who wants to ask a question? Hands up, please. Yeah.
Hi, thank you for the presentation. It's Michal Potyra from UBS. I have one question, well, to start, but it's a big one. So I really wanted to ask about Poland. The market kind of underperformed. Sales densities are below COVID, and really, you know, trying to figure out, can this extend to other markets? Because my thinking is that the level of competition is significantly higher. This is the market where Sinsay expanded first, and this is also the market where online part of the market was growing the quickest after COVID. So I'm wondering, you know, how much of those challenges are, you know, macro struggles, and how much is just more structural, which will be much harder to address? So if you could just address maybe, you know, the competitive landscape, including Sinsay, and also the online development-
Yeah.
and your plans. Thank you.
Look, I mean, first of all, I mean, without suggesting I'm an economist or a politician, I would argue generally, the Polish economy, I would be excited about over the next 12 months in terms of reversal of some of the headwinds that both myself and Mark described. I think we will see an ablation of some of the headwinds that we've seen around mortgage rates, inflation in core categories, and therefore, I think the categories we sell in will start to expand again. And we, I hopefully explained and demonstrated pretty accurately that they've been in contraction over the last 12 months. You know, I think that there's some specific things that will help us over the next 12 months, as well as that general macro environment, the implementation, the 800+ child support grant will help be helpful.
While minimum wage increase on the cost line is tough for us, the corollary is that a lot of our core customers will have a significant amount more to spend. I think the change in government will provide some other stimulus opportunities. So I think the Polish market over the next 12 months will be easier for us than it has been over the last 12 months at a macro level. In terms of competition, I think, again, as Mark demonstrated, and it's certainly been my experience in the sort of nearly 35 years I've been involved in retail, that as markets consolidate, as good players like Sinsay, like Action, like TEDi, become stronger, that is not bad for us. The thing is that markets consolidate where the big players continue to grow. And the unfortunate disbeneficiary are the weaker secondary players.
Our market share remains strong in Poland, and it will remain strong. I think in terms of self-help, the things that we need to do are those that we described. Agnieszka's got a very good product development program, and we'll—we will become more front-footed again in terms of our promotional program, and there'll be some degree of choice or price investment, all of which we can deliver against our target of recovering our gross margins. So I think that that competitive environment is not to our disbenefit. As far as online, I think, first of all, to position that, I think of our competitor environment, by far, the bigger thing we need to reflect on and continue to be strong against is the incremental growth of our store competitors. I think in terms of online, a lot of the transition on the...
First of all, the transition to online is relatively low in Poland versus other markets. But where there are new entrants, and everyone likes to keep talking about, as an example, Shein, you've got to reflect on the fact that the customer type and the shopping occasion is, certainly in a power, is fundamentally different. You know, where there is growth in online shopping, it tends to be in, for a young person, particularly a young woman, who's buying for today, a fast fashion type item, and that is not our market. You know, whilst I think we've got to have an eye on online, and eventually, I'm sure we'll need to play in that sector, it's not a big issue for us now, and the growth companies in that market are targeting, both a different customer and a different shopping occasion.
Wrapping that all up, I actually see the Polish market not only as our core market, but as an actually genuinely exciting opportunity. I'm optimistic about Poland over the next 12 months.
Thank you. Let me just challenge you here a little bit.
Please do.
'Cause, I mean, firstly, the competitors seem to perform a little bit better on like-for-likes and margins. And also regarding the online part, I mean, if you talk to Sinsay, they would argue that kids is the biggest online category and is very profitable for them.
Well, first of all, I think, you may have more analysis than me, but if you strip out what we've said, I don't think many retailers in Poland have a privileged economic model to us. You know, a business that, with a recovery in our margins, will deliver something like 15-16-month payback period. That's an extraordinary economic model. So, you know, I would say we're extremely strongly placed in terms of our economic model in Poland against any other retailer. As far as what Sinsay say about their customer, well, that's for Sinsay to say. I can just talk about ours. You know, I don't agree that our major concern and major competitive set are online retailers. Our major concern and competitive set should be making sure we're competing aggressively against Sinsay, Action, TEDi, and KiK.
Thank you.
Other questions? Yeah. Ah, sorry. Yeah.
Hi there. My name is Dirk Jooste from DJ Asset Management, and no relation to Marcus.
Do you have to say that regularly?
Yeah, especially in this setting. So the store refit program, the CapEx that's being spent, I guess, you know, one can have a bit of a skeptical view that part of that was as maintenance CapEx to refresh an existing sort of estate already. With the refit program now falling away, how should one actually think about maintenance CapEx? There's, you know, the store, the CapEx on refresh goes away, but surely there should be a component that still maintains the current estate. So just in terms of that kind of expense, how should we think about that?
I mean, the maintenance CapEx across the group is running about EUR 25-30 million a year, so that's in the business and will continue. I mean, I have a couple of comments. A lot of the... If we leave aside the New Look program, it was more than maintenance. It was obviously, it wasn't just about making the store look better. There was a number of other things going around it, which was in terms of efficiencies in store, from a colleague perspective, some of the things Barry highlighted around back room. There was a number of other things. So there is a consequence of not going forward on it.
The maintenance, I mean, don't be under the assumption we're stopping, you know, maintaining the stores in terms of painting, fitting cracked tiles, all the things that you would expect to see. We've learned lessons from the past, and Poundland, in particular, has learned lessons in the past from not maintaining the stores. So from that perspective, it's around about that number, and we will continue to do that. The New Look was something that was pretty unusual in the context of a retailer. Normally, you've got a generation of stores, and you'll move through generations on a cyclical basis. Pretty unusual to take the entirety of your store base and say, "We want to move this entirely to a new New Look format," which is what it was about.
It was about doing other things. It's, as Andy said, we haven't stopped. We've paused it because it's not delivering on what it was delivering when we started it, and there's a number of reasons that could be behind that, all to do with the general performance. So I think we'll revisit it as things change. If you see the consumer coming back and spending more in the stores, we'll obviously review it sensibly. But it makes no sense to spend money when it's not generating that return at the moment. But rest assured, there is a sensible maintenance program running across the business, and we've learned lessons from the past, particularly in Poundland, about the risks of not doing that.
I think you had your hand up, yeah.
Hi, thanks very much. It's Henry Cackett from Morgan Stanley. I just wanted to follow up. I mean, you, we, we sort of know the starting point now, and we know where you're going. I was just wondering if you could help us a little bit with the trajectory. I know you're not going to give detailed guidance for 2024, but could we... I mean, it sounds like it'll be a pretty straight line of improvement. I just want to check that that's actually how it'll work, or whether there will be an investment, and so if it's more of a J curve to get to where you want to be. And then secondly, on that topic as well, are you going to change your LT programs or remuneration programs at all? I think up till now, it's been based on IFRS 16 EBITDA.
Yeah. Look, I, again, I'm not going to give you, give you detailed information yet to the degree Henry, you're asking me for. I, I think that, I think that certainly if we start with margin, we're very confident the trough is behind us, so we will start to see improvements. The rate at which we're going to see improvements, I'll remain somewhat ambiguous about, but I do strongly believe in the medium term, we will get back to pre-COVID gross margins. As far as the sales line, this is the one that in some ways is the most speculative. You know, we're all grappling with a multivariant environment where to some degree, our, our recent historic performance has been driven by weather. It's been driven by consumer environment. It's been driven by year-on-year analysis of how many Ukrainian people are in our markets.
All those things are multi-var- and I'm, to a degree, guessing as much as you about the pace at which we can improve our like-for-likes. But I'm extremely confident, again, that we can improve our like-for-likes and get back to sustainable positive growth. Now, I'm not quite sure exactly when, but I'm confident that we'll get there, and I'm confident it'll be sustainable. And then on the cost line, again, I think that the, the, in inverted commas, the worst is behind us. You know, there's a lot of stuff that we can stop doing that will improve our cost burn, and Neil started to mention some of the headlines about projects, one-off costs in last year about transportation. So again, I think you'll start to see some pretty quick, progressive approach to our cost improvement program.
That would be my overall summary.
LTI.
Oh, sorry, and then LTI. Yeah, look, I mean, our, our, this actually hasn't been stated publicly, and it's the matter for the board rather than me in, in, as an individual, but I can express that we are... Our LTIs are driven off three metrics, profits, ESG, and what's the third one? Oh, earnings per share. And we are moving the profit element to that, to IAS 17 EBITDA from IFRS 16. And sorry, and for the STIs as well as, so annual bonuses and long-term incentives will be realigned to IAS 17 numbers. I think you had your hand up, yeah.
Good morning, Tobie Lochner from CUTHMAN CAPITAL , also in South Africa. Am I reasonable to conclude that what you've said is that the original EUR 1 billion EBITDA target is probably one we should put on ice until things clear up again? Right now, there are too many moving parts to assume that that happens, you know, three or five years from now. I think that's the reasonable conclusion from your previous answer.
You might think you're reasonable. I'm joking. Look, I think we are at the moment just as a reminder, on one hand, you can look at me and say, "This is a guy who's been involved with the business for 12 years." On the other hand, using the metaphor I used earlier, I'm back in the driver's seat. I haven't been in the passenger seat. You see the world differently from that seat, and it's only 4 weeks since I've been back. So one of the things I think we've done extremely quickly and effectively is reshape FY 2024's plan. You know, I mean, it's probably not been explicitly said, but we inherited a business with a momentum on store opening program, overall project programs, et cetera, that's significantly larger than the one we've presented to you today.
So job one is getting after FY 2024's plan, which I think we've done very well. We don't really yet have our own view on how that rolls out over forthcoming years. But do I think that we can, you know, in the medium term, still hit that target? Yeah, I, I'm not going to be drawn today on exactly when, but, you know, this business is not going to only grow its top line. It's going to grow its bottom line, which frankly, as you saw earlier, it hasn't done for the last two years. So we will be growing our, our bottom line progressively, but when we get to EUR 1 billion, I'm not going to get drawn on that today. Yeah.
Lukasz Wachel, Wood & Company. I have a question about Wilko deal and its impact on rollout last year and this year, because I understand that some part of 668 last year was including some Wilko stores, and within the 400+ for this year, what's the impact of Wilko?
Sorry, I'm not quite sure I understood the question.
Could you speak up a little bit?
Well, you are guiding for opening more than 400 stores this year. What's the part of it related to Wilko deal? So like 50 stores coming from Wilko, and 10 stores already opened last year. Does it include those stores or not?
Well, look, first of all, one of the reasons we're talking about group number is we want to reinforce this point, that in the future, all our businesses are Pepco businesses other than Dealz. So the way I'll. The only thing I'll isolate out of that is in the Dealz number for this year will be roughly, as Marcin said, about 50 stores.
So those, but that includes Wilko or without Wilko?
It does include Wilko.
Okay, thank you.
Javier. Sorry, you need to wait for the mic next.
Thank you. Javier Fernandez from Veragua. Just two questions, Andy. One is, I guess you are seeing a big opportunity in Poundland just by rearranging a lot of the business. May you please elaborate a little bit about the execution risks you may see there? And the other is about your management model. It seems to me you are directly moving to a much more centralized-
Yeah
management model looking forward.
Okay, good, good prompt. I mean, first of all, to reiterate what's already been said, I mean, I think one of the most remarkable facts I'm guessing you'll leave today with, certainly based on people I talked to over dinner last night. I don't think anyone in the room would have voted for Poundland having, today, the best cash profit per store. So already today, irrespective of future change, the business delivers the best cash profit, and that's based not only what we inherited when we bought the business, and I think we've all done a poor job of communicating and falling in love with what is a good business.
You know, that's not least us, but to a degree, we've all decided to see it as the ugly child, but it actually was a good business, and it is an even better business today with the work that Barry and the team and Austin, et cetera, have done. I think when we look forward, to your point about risk, I mean, we are going to convert... Fundamentally, we're gonna convert Poundland-sourced clothing and Poundland-sourced GM into Pepco-sourced clothing and GM. So that, the, the clothing element of that execution risk is substantially already behind us because that product's in shops. Now, of course, there's still some degree of execution risk because in the detail, whilst Barry gave a headline that customers love it, and they do, of course, there'll be some product that we need to modify. You know, the space allocations might be slight.
There's all that stuff you need to do in the detail when you introduce new range, but substantially, the supply chain risk around that change is behind us. The product's in the store, and it's selling. And the obvious point to flag up is that is at a higher gross margin than the historic Poundland product. We are just in the medium stages, not the early stages, of the flow-through of GM. That product's already been bought. The Poundland team have been involved with that buy, and that product will be in stores from January. So I would argue we're at least 50% the way through, and arguably more, if you take GM and clothing together, of the risk profile of that execution.
Now, once it's all in, as I say, there'll be lots and lots of little bits and bobs that need to be sorted out, but the biggest risk is, can you get the product from source to the stores, and we're a long way through that. As far as the point about singular organization structure, look, we've got to talk and act cautiously about this because it's a fundamental change. But to your point, and you're appropriately reading between the lines, as I said in my presentation, by the end of this change program, we'll have one business, and we'll therefore have one organization structure, which will be a group structure, and it will have a singular operating company, and all the U.K. will be another market for Pepco.
Its biggest market, and arguably, its most profitable, but that's, that's what it will be. There's a big change program to go through that's got to be done thoughtfully and sensitively, but at the end of that, it will be simpler and cheaper.
Hi, thank you for taking my question. It's Liz Andreeva from GoldenTree Asset Management. I have two, if I may. The first one is around your rollout pace. You made a comment that you had to quickly reshape the full year 2024 plan. I'm curious, I guess, of the 400 stores, how much of it is where you want to be versus maybe prior commitments that you had to fill through based on the prior expectations? And then the second question, hopefully quick one, around your ERP systems. Is that now been done, or are there any remaining bottlenecks that you have there around stock management that prevents you from fulfilling this in your-
I'll answer the first one, then I love handing IT questions to somebody else. Look, on the a more general answer to your question, clearly, when we are inheriting a, I am inheriting a business that's got momentum, some of what you're doing is slowing down and stopping previous decisions, as you articulate. I mean, I'm not specifically concerned about any of those 400+ stores we will open this year, largely because actually, to Neil's presentation, we actually don't have many stores that are poor. And so, our general hit rate of new store openings has always been extremely good. Where we have cut back, it's in very specific areas. We won't be opening many, if any, shops in Germany in the next 12 months.
We'll be slowing down the rate of growth in Poland because we think we're near a maturity in Poland than anywhere else, although we'll still be opening quite a lot of stores there.... I think we've managed to slow down pretty well. But I think there are other aspects of the program where we clearly are stopping a moving train. So as an example, we've made this bold statement that we're going to pause the New Look program. We are, but there's still two months of program we're financially and legally committed to. So, you know, we will be opening some New Look refurbishments this financial year, 'cause we have to, legally. And so there will be a certain amount of reality underneath the headlines of what we're saying.
In general terms, I do not have concerns that we're having to do stuff that we don't want to do. ERP, Neil.
Thank you. So on the ERP program, just to give a bit of backstory on what the mysterious ERP program is, just for... So, as Andy's described, we've had to date two core operating businesses in Poundland and Pepco, and they've come from different places, and they've operated in different ways. A simplest way of describing that is as an FMCG-led retailer with 65, Poundland's run a sort of auto-replenishment store model where, you know, in a fairly classic way. So it's sort of... That's how it's operated. In clothing and GM, clothing and general merchandise, has fitted in around that core operating model within Poundland. Pepco has been much more of a push allocation of clothing and general merch, so they've operated quite differently historically.
But the businesses, up until, you know, the last 12 months or so, had been going down their own ERP plans, in the context of those businesses, reflecting that both using, at the core, Oracle as a modern, scalable ERP platform in terms of, stock and finance, et cetera, but reflecting the history they'd, they'd come from as two different operating businesses. And Poundland is largely complete in that implementation, and through to the end of that program. There are a number of other different systems that hang off the core ERP system, providing inputs into that, things like lease management and various other tools. They are also not-- They're not common across. There are some overlap in terms of categories, but HR, there's lots of other systems. So they've come from different places.
In the context of what we're looking to do now, and by the way, just to complete, Pepco is also looking at an Oracle core solution. It's about probably a year or so behind where Poundland was. It's got through design and migration stage, but hasn't implemented that. But as in the context over the last 6-12 months, if we've looked at an acceleration towards one business, one range and all the rest of it, we're looking to sort of merge those two programs onto the same platform, and are going through that process at the moment as to how we accelerate an end state on a single IT platform. Not just a core ERP, but accommodating the other tools hanging off that core.
So long way of describing, we're not at the end state of that. We're clear on what the end, the core of the end state will be, which will be at the core, Oracle. And we're working through the other, related systems that support that through the two businesses in a collaborative way to get to essentially, in each of those categories, we will have a single solution feeding into the Oracle core across the company. So that will carry on over the next, I don't know, 12-24 months to land that, but that's part of the direction of travel. And that has been an acceleration over the last year from where we were a year ago.
A year ago, we would have carried on in the parallel tracks with two ERP systems that would have had the same thing at the core but have been configured quite differently. And I think in terms of the cost impact of that on the company, I don't think it will be material different from what it would have been, but rather than ending with two parallel similar systems, but not identical twins, we'll end up with a single platform that is supporting the whole business. So I think it shouldn't be any more cost than it would have been had we carried on what we're doing, but the end state will be a singular platform, and we will have to make some choices around some of the peripheral systems that support that, to get us to a good place as a single business.
Next question? Yeah.
Hello, my name is Juan Ibinarriaga from Bank of America. Thank you very much for the presentation, which was quite comprehensive. I wanted to elaborate a little bit more on the recovery of the gross margin.
Yeah.
You've talked about, we've seen a lot of detail about what are being the main reasons why the margin has been dropping below pre-COVID levels in the past five years. So, looking forward, I know you're not going to give guidance, but I was wondering about what is the clear or the easiest or the low-hanging fruit tasks or things that you think you're going to achieve in the next 12 months that will help you to recover-
Yeah.
the gross margin?
Yeah, good-
Price, cost, the freight, you know, what?
Well, good question, and, you know, I'm, I'm more than happy for my colleagues to sort of build on these or contradict me, but look, to a degree, Juan, it's really straightforward in as much as you look at those detriments that Neil described very clearly and the size of them, and then you think about what, what are the biggest chunks and what's going to happen, what has already happened historically or may well happen very soon. The biggest and simplest call out is the fact that freight rates are back to $1,600 rather than $16,000. And in FY 2023, we were still selling a lot of product where the freight rates were $16,000.
So if you think about the size of that blob and, and what's going to happen, totally outside our control, but we're the beneficiary of it, that's gonna disappear as a detriment in the next number of months. You know, the FX issues that we had specifically in FY 2023 will start to abate. So you can start to build a picture that over time, most of those headwinds will disappear through FY 2024 and into FY 2025. The other variable, as you say, is price, and I would just go back to the headline I gave you, which is, first of all, Mark's point, we remain a very strong price leader, but our price gap's closed. But of equal importance, our promotional stance has weakened over the last 2 years.
We will invest some money in pricing and in promotions, but I go back to the headline I stated, I'm still confident in the medium term, adding all that up, we will get back to pre-COVID gross margins.
Okay, just, just on the last point. Yeah, you said medium term, it's clear, pre-COVID levels. What about the next 12 months? 100 basis points?
Come on. You know the answer to your own question, which is let's move on. Okay, who's got the next question?
Mudassar from Barclays. Just obviously, now that you are spending, you're going to be spending less money on opening new stores, the growth, you know, store growth is reducing. With the focus on improving the working capital as well, and mostly, you know, the margins, you should start to kind of accumulate cash a lot quicker.
Yeah.
Have you got any plans on what you, you know, intend to do with that?
Yeah, look, good, good question. I mean, first of all, to be clear, that's a privileged position to be in, and one that we're very hopeful, based on us achieving our targets, we'll be in through the course of this year and certainly towards the tail end of this year. So look, I think it's pretty clear what our priority should be. We should be attributing the right amount of cash to grow aggressively, but in a considered way. So priority one, we'll be spending the relevant amount of cash to grow. Point two, we wanna always have a relatively conservative perspective on our balance sheet for a whole load of reasons, not least, we've also got the issue, as Neil's described, we've got a rehabilitation program to go through with trade credit insurers as well as credit agencies.
And really, you know, one of the biggest call-outs for us in the medium term is we should be getting a hell of a lot better terms from our FMCG suppliers, and part of that is being very prudent in the way we run our balance sheet. All those things said, we will end up with free cash during the year, and the board will need to make a decision how to repatriate that to shareholders, whether it be through share buybacks or dividends, and we'll be making those decisions in the coming months. But all those opportunities will be considered, and we should have free cash flow in which to make those decisions. Yeah, Matt?
Matthew Sherwood from Baupost. You mentioned a couple of times, Andy, the comparable disposable incomes between Italy and Poland and Czech Republic, let's say. I just wondered if the higher sales per store in Italy and Spain is coming from average basket or coming from customer numbers?
I think it's a bit of both, but I'm gonna ask Barry. Do you have an answer to that question?
No. I would plead week three, Matt, but yeah, it's a key metric that we've got to get into.
I mean, I'll just reiterate, clearly, none of us quite have an answer to that question, which is slightly uncomfortable, but it is what it is. But more generally, if you take Italy aside, because it potentially is an anomaly, the interesting thing is in months I see markets, and it may be the same when you were involved in the business, but basket size tends to be driven in total correlation to household disposable income. So the higher affluence per household, the higher the basket size. So, I mean, the one, you would assume Italy will have a relatively high basket size, but it shouldn't theoretically be higher than Poland, but we should, you know, get back to you on that.
Part of the answer, the average store size in Italy is about 23% larger, so there's an element that half of the difference is in relation to we've got a little bit more space in Italy, so that's sort of half the gap. I don't think there's a material difference in the baskets. They're not material, so it's a little bit of a combination of the two. But just remember, the space difference is part of the answer to that question.
Yeah. Oh, sorry, go on, Max.
Hi, hi, Max from UBS. I have just one question. So with the speed of the rollout of the stores, especially in Western Europe, you had in especially last half of this year, do you expect the hit rate being materially lower of what you've historically achieved? And you, you expect that any of those stores are, there's gonna have to be a cleanup at some point, or are you confident that, kind of, you're gonna be at, at historically very good levels?
I think, I answered the question largely earlier, but I'll reiterate it. Look, I've got no data that tells me we've suddenly become much, much less good at the hit rate of our stores. So I refer you to Neil's analysis. You know, particularly if you believe in a maturity curve in West Europe, which you should believe in that maturity curve, then we've got a business that's really quite healthy, considering how new it is, so I don't have a concern, no. And by the way, on the point about maturity curve, it's really, you know, I've got a lot of faith in Italy and Spain. As Neil's described, a lot of the ways of improving our flow through from sales to profit are within our own control.
Improving our distribution cost is massively in our control. Gross margin recovery, we're seeing it coming through, and as Neil's described, that will fundamentally change the economics of this. The other thing is the sales line, and, the one thing that we didn't refer to earlier, is if you look at the history of the Dealz business in Spain, that had a 6 or 7-year maturity curve, Mark. It was a, I mean, you might want to explain that from having run the Spanish business. It was a very long maturity curve.
Yeah? Hello. Well, I think it was in Neil's numbers as well, showing just the maturity curve over two years. I think what we saw in Spain, you know, a very discount savvy customer. You know, the Spanish consumer loves a bargain, but the maturity curve, it takes time for people to recognize the brand. And yet you definitely improve over time. We saw that with NPS as well, by the way, not just sales. So the longer a customer shops with you, you know, the NPS changed materially over the first 12 months as they understand the shop and how it fits into their daily repertoire.
So the one thing linking back to Neil's... The one thing we didn't factor in to the presentation that Neil gave is any strong forward-looking maturity curve on the stores in Italy and Spain. We sort of said the sales we're delivering now are the sales we'll have. You know, that's potentially a big upside, but it's right not to have put that in for now.
Yeah, maybe, maybe just-
One sort of build comment on that, in terms of new stores. When obviously, we've been missing target sales on new stores relative to where we were positioning them a year ago as we went through, to the point in terms of hit or miss on new stores. So I think in terms of looking from now forward into next year, we've essentially taken down the expectation on new store sales, more in line with what we're actually seeing delivering. Which essentially is putting more pressure on getting better property deals around those stores because, obviously, we know what the cost makeup needs to be to deliver store economics.
So that will, by reducing the sales targets to open a store and deliver the same economics, that will put more pressure on the expansion teams to deliver a better rent deal, to deliver the same store economics. So there's an element of... But I'm sure there will have been-- I mean, we obviously, I showed you on the store economics charts, an annualization of, you know, run rate, where we're sitting at today. And some of those, I mean, there's a big assumption, some, 'cause you do see in some of the new stores, very strong sales in the first couple of months when they open, because it's a new experience. The question is whether that continues on as a steady state business.
So there'll be some noise in those younger stores, but we, we wanted to try and give some fact-based proxy for what those sales could look like if it continued at that. But we're trying to sort of re- rebase the target sales and new stores to put pressure on the expansion teams to make sure we're not building a cost base, as Andy described, as Andy described, ahead of the sales outcome. So we're, we're trying to direct that to a better contribution level. So I'm sure there's some misses in what we've done, and partly it's new stores and new, and new markets, and you learn as you go. But we're trying to sort of direct, you know, put tramlines in place to, you know, protect against the risk of that as we look at where the stores are performing today.
Yeah.
Mijo Potera from UBS again. You've given us some data on Italy and Spain, but that was on store level, so I'm wondering if you could give us a little bit more, you know, how are the markets profitable if you put all the overheads on top? And also, you kind of avoided giving anything on Germany, other than saying that you're putting it on hold. So I'm wondering how bad that is, and what makes you actually believe you can turn that around? Thank you.
Well, look, I think we... Like, again, Germany is a very young market for us, and we've got 50 stores today. The number of those that are over a year old is a very small number. I think it's maybe 15, about. It's so-
Austria on, you can bundle that.
Yeah. If you let me finish. So yeah, look, we are looking at all the markets, but, you know, in terms of what's driving Western European performance and the bigger markets, West, Italy and Spain have enough trading history to give a picture. Yes, we are looking at Austria, Germany. We're also in Greece, we're also in Portugal. We're looking at all of the markets we're operating at a store level. So, and yes, we are focusing on store contribution. We are handicapped, as I said, because we... Yes, we've extra costs going in to support the business. There's not a huge amount of overhead to open those countries because we're running a central model. It's a store model. But we've described there's yes, there would be an allocation of management time.
We've explained the distribution costs are higher because we're allocating that on a country basis, and we can prove to get that. So yes, there is a... They aren't profitable from a net profit perspective in those countries because of where they are, and we've described that. I think the read-through on performance, we've described. If you've got a net cash drag in Italy and Spain is 80% of Western Europe, then yes, the profit is going to be a drag. But in the context of the group numbers, it's not material. And it's, you know, Germany, Austria, and those other markets we're reviewing, as we are all of the stores, on a more disciplined basis, and we'll make the right decisions in terms of performance.
Where there's weak performance, we'll either address that or improve it. But you know, I think Germany, as Andy said, we're very cautious in Germany. We've got 50 stores. We're not going to race and open a lot more stores. We're very clear on the German market. We did a lot of research going into it and around it, and we're well aware that there's a number of retailers in Germany, in the discount center, who are struggling and who have, you know, have stores, either portfolios of stores or the whole business available for sale if anyone wants to buy. We haven't acted on that. We're very much focused on delivering our own store performance under our own control.
Thank you.
Yeah.
We'll take two or three more questions, and then we'll close.
Hi, it's Janusz Malta from mBank. You gave us some guidance when it comes to store rollout next year, but do you see some change when it comes to, let's say, your long-term potential? Could you give us some more color when it comes to 2025, 2026? And the second one, more specific, you gave us a target, EBITDA margin target, for Dealz store. And is it on IFRS 16 numbers or or pre-IFRS 16?
Well, look, first of all, beyond FY 2024, I'll reiterate what I said earlier, we're reconstructing the plan for growth, so I'm not going to give any indication of future growth other than to say we've still got a huge amount of white space to enter. Even if we didn't go anywhere else in Europe other than the markets we're in now, that is a very, very long-term white space opportunity at 400, 500, 600 stores. But I'm not going to guide at all on new store openings beyond FY 2024. The key point we're making is we're going to be much more disciplined. We're going to only do the work we have the capacity to do, and in doing so, we'll deliver not only sales growth, but significant profit growth.
So, you know, I'm going to say no more on it than that. And your second question was?
On Dealz, EBITDA margin target. Is it on IFRS 16 numbers? 10%.
IAS 17 numbers. Last question, if anyone has... Yeah.
Rafal Wiatr, Citi. Just a quick question on inventories. You were talking about excess in clothing. What's the plan for this year? What's the impact on profitability?
Well, in terms of the plan, I think in general terms, again, Neil described it earlier, that we are using all of the simple tools a retailer has to rightsize our inventory. That's about where we've got good relationships with vendors, it might mean canceling product, it might mean delaying product, it might mean deferring product. In other areas of the business where, like FMCG goods, it's just better, you know, flow of goods. So we're going to use all the simple, obvious techniques that are available to us. And then in terms of the risk around our P&L, our plan for this year recognizes and is factored in some degree of incremental markdown to move through that stock. But it's nothing that is excessive and should be concerning to anyone in the room.
A lot of these tools and techniques will not be incremental costs. They're just better techniques that we use in our business. I don't know if you want to-
I mean, there's a number of other builds on that. I mean, You know, looking at the category stock, we've been looking at where we are in each subcategory and each SKU level within the range as to where, where are we over and under. One of the benefits we're living right now in the U.K., when we were looking at the plan a few months ago, we... You know, there's about 60 Wilko stores that are coming into the Poundland estate, which are, on average, larger size than the standard Poundland store. Which are, you know, units to sell stock through that we didn't have 2 months ago. Well, we didn't have 6 weeks ago, never mind 2 months ago.
So we've got more retail space to sell through product, so that will obviously also help the stock position. And we just have to put the disciplines about A, selling through more, and B, not buying as much. So as Andy says, all of these things are within our control, and we've just got to be more aware and current in terms of the sales trends and performance and just order, you know, according to that. I mean, there's certainly still some challenges within the supply chain, particularly within Pepco, where we know it's not as efficient as it needs to be, partly because of distance from the DCs and partly just some other inefficiencies.
So, you know, those are all things that are within our own gift to fix and improve, and all of those should lead into a better outcome in terms of stock performance during the course of 2024.
The other thing I'd say is, look. But one of the things that's implicit in all we've said is part of this is management's stance on being pragmatic and arguably prudent rather than super aggressive for growth. Because you're buying your inventory based on an anticipation of what you're going to deliver, and what we aren't going to do is what we did in H2 FY 2023, which is buy way too much stock based on being super aggressive for growth that didn't come through.
Thank you.
Last, last question down here.
Hi, thanks for the presentation. This is Matt Clements from Barclays. You mentioned, Andy, in your opening remarks about a lack of data analytics driving business decisions. Just wondering, is that related to lack of loyalty program, lack of online, and how will you address that going forward?
No, look, I, I think first of all, I think we can be better at the visibility within the business of certain data. And as an example, the reorganization that we've already announced, which is the finance teams reporting directly to Neil, will help with transparency and visibility. But this isn't fundamentally about, you know, do we need customer data? This is just about, first of all, having transparency in the business, and then a cultural norm about how you make decisions. Do you make decisions based on gut feel or based on data? And we are just going to reorient the culture to be much more facts and data-driven. The data's around.
Now, of course, over time, we're going to benefit from an amazing change in all of business relationships with consumers based on a lot more data, but we're not, we're not waiting for that, and we're not reliant on that. This is about internal data culture more than anything. Great. All right, we're going to close it there. Is the lunch provided, Ava?
In 10 minutes.
In 10 minutes. Right. Well, perfect timing then. So look, thank you all for your time. Hopefully, that's been helpful. I appreciate the efforts of my team and appreciate your attendance. You got 10 minutes to sort yourselves out, and then it's lunch, and safe travels home. Thank you.