Pepco Group N.V. (PCO) Earnings Call Transcript & Summary

Good morning, everyone. This is Stephan Borchert speaking. It's my true pleasure speaking to you for the first time as the new CEO of Pepco Group today. As you know, I joined the group in July '24 and then officially the Group CEO as of this October. Please allow me to maybe briefly introduce myself. I am a Swiss-born German national and now 54 years old. Throughout my professional career, I have worked in retail and consumer-related industries. And I joined Pepco Group from my previous role as Group CEO of GrandVision Group, a global leader in optical retail operating more than 7,000 stores in 40 countries worldwide and publicly listed on the Amsterdam Stock Exchange. I spent the last couple of months exploring all parts of the business. And it's the fact that our business has gone through a couple of turbulent times. However, overall, I'm not convinced that -- we do have a really healthy core and with this very exciting growth opportunities going forward. Do we have areas that need some fixing? Of course, as probably many companies have right now. However, we are very, very convinced that we will continue driving profitable growth through positive like-for-like sales performance and disciplined investments going forward and build a strategy plan for the next phase of our group growth. I started to work my way through these, and I'm glad to share with you that most of the details around these topics will be presented at our Capital Markets Day in March. Next slide. Now please, let me highlight the main elements of our fiscal year 2024 performance before I hand over to our group CFO, Neil Galloway, who will share with you our results in much more detail. Overall, we are looking back to a year of very good success. We have grown to over EUR 6.2 billion in revenue, a 10% year-on-year growth driven by new store growth. Our group gross margin has seen sharp rise to 43.9%, up 390 basis points year-on-year. And this was driven by the Pepco with a very strong 530 basis points increase year-on-year. We have generated a record underlying EBITDA of EUR 944 million, up 25% and clearly ahead of guidance. As you can see, again, Pepco is the main driver with an increase of 42% year-on-year in this field. With that, we have further strengthened our balance sheet and our liquidity profile. I do, of course, not want to brush over the situation in Poundland. We had to book a significant noncash impairment charge for Poundland, given the disappointing performance and a challenged profit outlook amid increasing competition and cost challenges. This overall positive group results contribution came despite the difficulty we have with Poundland from Pepco, which generates the vast majority of our group earnings and our highest return on capital. So the heart of our business, particularly our Pepco brand in CEE, is in good shape and has ample of opportunity for further growth. The overall strong group performance and a very healthy balance sheet and leverage situation has given the Board confidence to issue an inaugural dividend. So we'll continue to be laser sharp and laser focused on driving shareholder value. Given the current situation, what are my immediate focus areas? Clearly, and first and foremost, driving further our like-for-like sales performance, mainly with focus on the already promising development at Pepco. Secondly, the immediate remediation actions at Poundland. And thirdly, to develop a strategy plan for our March '25 Capital Markets Day with the main focus areas around Western Europe growth potential, our digital strategy and the long-term Poundland recovery plan. With this, I'd like to hand over to Neil, who will share with you way more details now on our results in fiscal year '24. Thank you.

Good morning, all. Thank you, Stephan. Justturn to slide, our profit and loss summary for the year. I'll pick up some of the key highlights. I think notwithstanding the negative 3.2% like-for-like sales performance during the year, Stephan mentioned we had record revenue, up 10% to just under EUR 6.2 billion. It was principally driven by store growth in Pepco based on both the new stores we opened in 2024 and annualizing a number of stores we opened in the latter part of 2023. The gross margin improved 390 basis points to 43.9% for the group, driven by Pepco, which is now back at its pre-COVID levels of margin improvement, which, as many of you recall, we said it's an objective last year at our Capital Markets Day. So we have achieved what we set out to do as expected during the year. That's driven a record the IFRS 16 EBITDA of EUR 944 million, up 25% year-on-year and ahead of the guidance we gave earlier last year. So again, seeking to deliver what we guided the market to and indeed beat that. That's despite the weak performance from Poundland, which actually deteriorated in the second half, and we'll talk more about that in a short while. The underlying pretax profit of 27% increase year-on-year to EUR 271 million. And as Stephan mentioned, we've announced an inaugural full-year dividend approximately 20% payout of underlying profit of EUR 0.062 per share, which will -- has been recommended to shareholders for approval at the AGM in early 2025. But there were a few things that impacted the results during the year, both nonunderlying. One was, as Stephan mentioned, the impairment of Poundland that really related to fair market value assessment against its carrying value, resulting in a noncash write-down goodwill and brand, et cetera, of EUR 775 million during the year. I think that reflects essentially a failure at our attempt to deliver a sort of one Pepco solution, really reflecting a different customer in Poundland. The FMCG component of the business held up well, and I'll talk about that shortly, but we significantly missed in our clothing and general merchandise categories. The other 2 elements that were disappointments during the year. We took a decision to exit Austria which is now classified as discontinued operation impact of EUR 49 million on the results, which you can see in the table. And again, as we announced back in February-March time last year, we experienced a fraud in Hungary, which had an impacts of around about EUR 60 million. So those are the main highlights in terms of the P&L for the year. Now if we turn to the key drivers. So if we look at what has driven the revenue has been driven essentially during last year by new store growth. We opened 392 net new stores. We obviously had some benefit from annualizing the 648 we opened in FY '23. And we closed the year 4,948 stores across the group. So plus 10% revenue despite the negative 3.2% like-for-like. And actually, if you look at the Pepco performance, which has really driven the overall group, we had 14% revenue growth, notwithstanding a negative 2.8% like-for-like. And so it remains very much a growth story for this business. And although it's a small business, Dealz Poland, which we guided last year, we put increasing focus on had a 40% growth in revenue, again, notwithstanding a negative like-for-like performance in the business. So the main drag in terms of the growth performance from a revenue perspective, Poundland, which was flat year-on-year. And again, we had a positive 1.6% in FMCG for Poundland, but a negative performance, and I'll come on to that shortly in the clothing and general merchandise categories. Let's turn to the next slide. Like-for-like clearly has been a key focus for us given the underperformance during the course of last year. On this slide, we've shown the quarter the like-for-like performance over the last 2 years. And you can see the sort of story of 2023 and 2024. I think Pepco, we have seen improving like-for-like performance quarter-on-quarter during FY '24. And positively, we exited the year in September a positive like-for-like, and I'll give a bit of an on trading performance since September in the next coming slides. I think that really meant us course correcting during the year by focusing more on price and investing in price, and we are beginning to see the benefits of that coming through in the business. With respect to Poundland and Dealz, they had the benefit in FY '23 of inflationary pricing on supporting food businesses. So we have that tailwind coming through, which unwound during 2024 as that inflation dropped. And we misfired in including in general merchandising categories in both businesses, which has caused an underperformance from sales perspective. If we turn to next slide, just to give you some perspective on drivers between price and volume. Again, you can see in respect to Poundland and Dealz on this chart, the impact and the benefit that inflation had on the price during 2024 -- 2023, and that has come off during 2024. With respect Pepco, as you can see, we called -- we were less competitive in price in 2023, which we recognized during the year and we talked about it. We've obviously made some adjustments, which have begun to come through in 2024, recognizing we've got a relatively long line cycle between spring, summer and autumn, winter. So we are beginning to see some of the benefits coming through in terms of as we made investments in price driving improving volume, and I'll show you that in the next slide. So if you turn to the next slide, focusing specifically on Pepco. Here, we've shown the price volume movements from June monthly. And as you can see, in September, we moved into positive like-for-like territory, plus 2%. That's continued into October of 4.9% and into November, through November as well plus 2.7%. So we had 3 months of sustainable like-for-like performance within the Pepco business. We had indicated an expectation of exiting the year in positive like-for-like. We delivered against that objective, which you may recall, Andy Bond referred to back in the first half results last year. And really, we can see the impacts of the price investment rate coming through with double-digit volume growth from August onwards. It's worth mentioning with respect to August, we put significant markdown activity during the year -- during August to clear some of our older stock, which again was another objective we've delivered on during the course year and have exited the year with a much healthier stock position than the prior year. I think if we look at like-for-like generally, which is really our core area of focus, beyond the investments in price, I think there are some other areas where we know we have had some impact. One was in terms of the store opening profile from 2023 on. We had -- we were obviously lapping some of that and covering some of the halo benefits we had in some of those new store openings and particularly in Western Europe. So again, that was one additional impact. We had some stock availability issues during the year, which we referred to. I think we have taken actions to remediate some of that. We'll continue to see that improvement. So those were a couple of other factors impacting the like-for-like, which we feel we have got on top of. If we then move on specifically to talk about Poundland on the next slide, you can see quite clearly from this chart the impact that a misfiring on the clothing and general merchandise transition to Poundland has had with negative 9% on general merchandise like-for-like and negative 19% on clothing. So I think that they're about 1/3 of the revenue profile of Poundland. The other impact of that has been with the mix effect changing, we've moved from about a 64% FMCG mix within the business from a revenue perspective to 67%.And the impact of that, given the FMCG lower margin contribution has been quite a significant deterioration in the profitability of Poundland during the year. I think we're clear on what has happened to the business. And I think we're clear in terms of the actions we need to take to sort of course correct and move Poundland back to the best version of what it used to be. But we have -- we misjudged the transition to one business, and I think we need to correct that. It is worth remembering, however, that the FMCG business was positive for the year. And it's also worth remembering that notwithstanding these challenges, Poundland still delivered a flat revenue performance of EUR 2 billion. So it's still a business that has significant scale and has the opportunity of operating leverage to see a recovery in performance as we move forward with some course correcting actions. If we then move on to a bit of a segment and geographic analysis. This year, in FY '24, we changed our segmental reporting to focus on 4 geographic regions being the U.K. and Ireland, which essentially represents Poundland; Poland; the rest of Central and Eastern Europe, our core markets and Western Europe as that becomes more significant. You can see that Western Europe has been the fastest-growing region from a sales perspective, about 62% revenue growth year-on-year, notwithstanding it still remains a relatively small part of the overall group, about 10% of revenues, but it is becoming more important. And as Stephan alluded to earlier, we'll talk much more about Western Europe as we move to our Capital Markets Day. We'll have a much more detailed outlook on that particular business where we see good opportunities for the future of the business. Approximately 60% of revenues coming from Poland and Central and Eastern Europe, our core region of operation, and that has become a larger share of the pie as Poundland's performance has been flat year-on-year. And if we turn to the next slide, just to break that down by brand format. Again, we changed reporting this year. So we've broken out the performance by Pepco, Poundland, which is the U.K. and Ireland and Dealz Poland. And as you can see, Dealz has had a good improvement year-on-year, 40% revenue growth. It's still a small part of the group, and it's a business that's focused still exclusively in Poland, representing now about 5% of group revenues. But the key growth driver from an overall performance perspective and has been Pepco at 14% year-on-year revenue growth. Picking up on Slide 15, I think it's category review performance. Again, just to give you a little bit of a breakdown by our key categories of FMCG, clothing and general merchandise. Clothing and general merchandise continue to dominate the category mix, like-for-like underperformed in both categories. You see it sort of getting worse during the course of the year, minus 4.2% for general merchandise, minus 6% for clothing. That was significantly driven by the underperformance in Poundland, again, which we've referred to, although it was negative clearly for Pepco as well during the year and FMCG positive. If we look at the -- if we then move on to -- move away from the revenue mix to gross margin on the next slide, we've put in here a margin bridge from the FY -- full year '23 to full year '24. And as you can see, 2 key drivers of that during the year, again, as expected and as outlined, with better product margins, so we we're buying better and a benefit from foreign exchange, which was a headwind during FY '23, and we saw lapping that. So this is very much as expected driven for the group. If you look at the Pepco gross margin movement as opposed to the group has moved from 41.5% to 46.7% for the year. And again, on the chart on the right there, you can see the movements by quarter where you can see that incremental margin improvement. And as we've moved into the first quarter of FY '25, we're seeing continued performance in margin, so slightly up on the fourth quarter. We turn to the next slide, we've given you a chart showing the evolution of gross margin by brand during the course of the year. So you can see a consistent upward trajectory within the Pepco business, Poundland relatively flat and Dealz making some progress, which we expect to continue during this year. I think the underperformance in Dealz gross margin is really related to an underperformance in its general merchandise category, which meant the FMCG mix in that business was around about 80% when that's something we'd like to see trending close towards 75%. So those are the key things driving the brand gross margins during the year. And then if we provide a bit more color on the core categories within Pepco, you can see we've laid out on this slide a breakdown by the various different subcategories across clothing and general merchandise, where we've got some strong performance across those categories, leading to that average gross margin, which is back at, as I said, pre-COVID levels of approximately 47% gross margin. And as we sort of focus more on those categories and less on FMCG within the Pepco business, that should drive continued margin performance within Pepco. Now if I move on to operating costs. This is an area where we continue to have challenges year-on-year. Obviously, these have largely been driven by the increase in stores. So as we've grown the business, obviously, costs have gone up. We've broadly held or improved the cost as a percentage to sales in relation to rent and distribution and other store costs. The one area where it continues to be challenging has been labor, both in terms of at the store level and in terms of SG&A given the sort of wage inflation environment we've seen in many of our core operating markets, which is continuing to be the case. I think with respect to SG&A, it has grown more than expected for a couple of key reasons. In FY '23, we didn't pay bonuses during the course of FY '23, given the miss in performance. So that has come back into '24. So that is a significant additional cost. We had some provision movements between 2023 and 2024. We had a significant increase in project costs across the group as we look to address and invest in some of the challenges we had in prior year and some higher IT and other related costs. So it is fair to say that cost remains a critical area of focus for us going forward into FY '25, and we're looking at a number of initiatives to manage costs more aggressively because as they stand at the moment, particularly if our store costs are too high within the business. Part of the miss during FY '24 related to an expectation of higher sales during the year. We had expected a positive like-for-like and having missed that, we put costs in ahead of that sales performance. And obviously, we've got to course correct for that during this year. So if we then look to what does that mean, I think in terms of the EBITDA performance for the group, up 25% on an IFRS 16 basis to EUR 944 million, ahead of the guidance we gave around and then at least EUR 900 million, so a strong performance there. And on a pre-IFRS 16 basis, up 28% year-on-year. That masks the very, very strong performance of Pepco, up 42% on an IFRS 16 basis that was offset by the underperformance in Poundland, where performance fell from EUR 75 million to EUR 28 million year-on-year. And there was a number of reasons for that, partly the misfiring in clothing and general merchandise, I mentioned earlier, partly a more competitive environment in the U.K. with some of the larger FMCG retailers aggressively going after that share of the market. And we've also faced into 2 other areas in the U.K., an increase in shrink, which has gone up quite significantly over the last 2 years and a more challenging cost environment, partly from wage increases, minimum wage and partly from other elements like national insurance, which have come through to some extent, unexpectedly. So we have a more challenging revenue environment in our key category of FMCG, notwithstanding it was positive for the year, and we had a more challenging cost environment and outlook. But notwithstanding that, overall, we've seen a strong profit performance for the year driven by Pepco. We then move on to cash flow, another area of success for the year and an area we intended to focus on. Operating cash flow of EUR 433 million, up over EUR 100 million on the prior year as we've seen performance recover within Pepco, a significant reduction in CapEx during the year, so down EUR 170 million from prior year, really on much more disciplined capital allocation process, much more rigorous focus on where we were spending money. Obviously, we opened fewer stores. And that's driven a free cash flow position that's EUR 274 million better than prior year at EUR 168 million for the year. So all of that is very positive, and it was an area we called out last year, we intended to focus more on cash flow. We've paid down our revolving credit facility during the year. So it was undrawn at year-end. That's a facility of EUR 390 million. So we have significant available liquidity within the group. And our net debt fell to EUR 256 million, 0.5x on an LTM to EBITDA leverage profile, the strongest balance sheet the company has had since the IPO, and that's allowed us to initiate an inaugural full year dividend of EUR 0.062. So I think from a balance sheet and financial strength perspective, the group has never been in a stronger position. We then look at the breakdown in CapEx. On the next slide, you can see most of the reduction came from a slowdown in the store opening. That's about focusing on quality rather than quantity, both the reduction in the new stores and New Look program. And we've also focused more on Central and Eastern Europe, our core region of operation during the year, which also had the benefit of a lower CapEx per store amount as well. And it's the region that's driven the strongest returns for us as we've opened the stores. So we expect CapEx to remain at this level or lower going forward as we continue to focus on opening around about 300 net new stores this year. There's a couple of areas that we will be looking to give more color on in relation to investment in digital and where that may come from Western Europe, and that will be part of the discussions at the Capital Markets Day that Stephan mentioned in early March. If we then look at the balance sheet key movements, I think the key movement has really been driven by principally store growth. So in terms of PPE, ROU assets and lease liabilities, that's all essentially driven by store growth. The most material movement on the balance sheet has been related to the impairment of Poundland we wrote down the goodwill and brand of that business. We've seen some increase in stock, but that's largely being covered by improved working capital activities around payment terms to our suppliers. And that's despite the fact we are carrying some additional stock in the business related to longer transit times. We have more stock on water than historically because of the longer travel times due to the Red Sea issue, which caused us some issues in the early part of last year. That's part of the new normal. So I think that's factored into the business now. And obviously, we've reduced our debt due to repayments from excess cash flow I mentioned earlier. So balance sheet in a strong shape. We then move on to stock, a slight increase in stock days, partly related to the reasons I've just given in terms of timing differences, stock on water, et cetera, and longer travel times and not a material shift in the category mix other than clothing. We put some significant efforts in during the course of last year to clear older inventory, and we've been quite successful in that during the year. So generally, the stock position in a fairly healthy position. And if you can see, if you look at our working capital cycle, that's generally -- we've seen some improvements in that. So overall, a much better approach we've seen in terms of stock and working capital, and we continue to focus on that into FY '25. So we just conclude in terms of the financing profile of the group, no significant changes. We had no financing events during the year and no movements in our rating outlook in the sort of BB territory from Fitch, Moody's and S&P. And we closed the year at, as I said, EUR 256 million net debt, 0.5x leverage on a pre-IFRS 16 basis, EUR 1.6 billion net debt on an IFRS 16 basis, including the lease profile, which is an LTM leverage of 1.7, well within our financial covenants and a significant improvement on prior year. So with that, I'll pass back to Stephan just to conclude on some of the business highlights and outlook.

Thank you very much, Neil. Thanks a lot. Yes, let's conclude. Looking back, the objectives at the start of the year were fourfold, right, rebuild Pepco's profitability in its core CE markets through gross margin recovery, adopt a more disciplined approach to investment with more targeted growth, review underperforming areas of the business; number four, deliver strong cash generation. I think it's fair to say that at the end of last fiscal the progress made on all objectives were quite significant. But as Neil also alluded on, there are areas that remain to be fixed and further improved going forward. If you now look at next one in detail, it's quite obvious that with the percentage of the fiscal year '24 group EBITDA, 80% came from Pepco CEE. So very strong performance there in our heartland of our business. The Pepco gross margin increase year-on-year was driven by strong CEE performance that went up by 530 basis points. And as also alluded on by Neil, our Pepco CEE store profit came back to pre-COVID levels with EUR 218,000 per store. On the next chart, a bit more illustration on the targeted store growth that was mentioned. So we, yes, had lesser store openings, but with a strong focus on high-return openings, mainly in CEE. So 99 stores in Western Europe. Some of them were a bit an overhang from fiscal year opening plan. And we also, as you have seen, did a couple of cleanups of underperforming stores in there. But a healthy expansion, which we intend to continue with going forward. The slide on the next page is, basically, as Neil just alluded on the underperforming areas. So as guided last year, we've acted swiftly to address noncore activities to strengthen the investment profile. So the Pepco Plus formats were paused, and we continue to look at the core focus on the standard Pepco formats to simplify the business. Pepco Austria was exited, as Neil alluded on, and the New Look program was paused since it did not fully deliver on the results and the returns we had in mind. With that, we've achieved a significantly stronger cash performance through this disciplined investment. As I said before, on the store openings, we are in gross EUR 509. So the store refits, we had EUR 219 that led to a lower CapEx number, but a significantly higher free cash flow of EUR 168 million. So -- and that enabled us, Neil also alluded to pay our first inaugural dividend proposed at least to the AGM. Going forward, looking at the current trading and the outlook. We call it a mixed current trading across formats. However, I want to stress that the positive Pepco like-for-like sales since September 2024 were healthily driven by volume increase through our sharper pricing initiatives that Neil also alluded to. We unfortunately see continued negative Poundland like-for-like sales due to the underperformance of clothing and GM categories. But on the group, gross margin improvements in Q1 of the fiscal year 2025 to date are visible. And as I said before, we expect to open around 300 net new stores in this year. So therefore, as a conclusion, we are cautiously optimistic in making progress in the year ahead. And this leads me to the summary on the final page. I think in summary, the business has made very good progress over the last 12 months with record revenue and EBITDA performance driven by Pepco mainly. The business has been reset with some more measured growth and capital discipline, providing a solid foundation to build on, which we will continue to build on. The management team has strengthened. We've hired a new group CIO and a group CHRO to senior managers and executives, helping us driving our efficiency and our also people performance going forward further up. We've announced the first dividend following a strong free cash flow generation and robust balance sheet. And it has become very visible that the Pepco concept is our key engine for future strategic and financial growth, which we will focus on. And on the Poundland side, excuse me, we have already taken swift action to get the business back on track. And with all of that, I'd like to conclude that further detail on strategic vision will be outlined at our Capital Markets Day on the 6th of March 2025, where you should have received a save to date. Thank you for your attention. We're open to questions.

[Operator Instructions] We have just received our first question, which comes from James Anstead from Barclays.

Stephan, Neil, I appreciate this might well be a question for the CMD. But obviously, Poundland has been quite a challenging business and you're really stressing you want to focus on Pepco. Are you convinced you're the right owner for Poundland? And then a second one, which might be easier to answer. Has Poundland continued to be cash generative during the last year?

Yes. I think on the second question -- this is Neil, James. Thanks for the questions. On the second question, I mean, we've obviously been investing in Poundland in relation to some of the CapEx and various other things. So on an overall basis, no, we've invested cash in Poundland during the year. As you may recall, at the back end of -- or the beginning of the financial year, we opened quite a few new stores, which we took over from Wilko as part of that process. So no, we have invested during the year in Poundland. I think in relation to how we look at Poundland going forward, I'll let Stephan comment on that in terms of how we look at that.

Yes, James, thank you. Look, Poundland is 1/3 of our revenue. And of course, a significant part of the group. We've clearly seen the miss, as Neil outlined before and have taken some immediate remediating activities, and they are -- they have to be quite strong. We are very aware of this. So going forward, we want to take them, and we have basically rendered our full commitment and support to the management of Poundland. We will look at it now over the next couple of weeks and months to see how far the strategic repositioning of the business can happen for us because it's important to bring this company back on track. But I think it's a bit premature to guide on this one. We will be more specific at the Capital Markets Day in March.

That's very helpful. Perhaps I can just have one follow-up on Pepco. Obviously, Pepco is the major value creator of the group, as you say. So I don't want to be totally focused on Poundland. Just one question. One of the key concerns of investors in the last year has been the large number of stores being opened by formats that may not be identical to Pepco, but overlap in certain ways. Are you -- do you feel you're seeing an impact from those -- that increase in competitor stores? Or is that not really the major driver of like-for-like weakness?

I don't think it's been the major -- so it's Neil, James. I don't think it's been the major driver of like-for-like. I mean let's just contextualize it. I mean, our core estate and most of our stores still remain in Central and Eastern Europe. There's been a degree of cannibalization more by ourselves than compared. There has been some impact on compared more so in Poundland, just given the number of stores we have in that market. But we still see good room for continuing to expand the business in those core markets. And as you've seen from the results this year, that increased focus on that has delivered the significant profit improvement during the year. And we have the -- store contribution level, our core Central and Eastern Europe stores are back ahead of where they were pre-COVID, which was the sort of peak store contribution level. So I think with more focus on our core region, I think there remains opportunity. So let's remember, in our core category of children, we're a market leader in that region. And I think we intend to continue to strengthen that position, and that will see continued growth. As you say, there are some overlaps between competitors and categories, but Pepco has a unique proposition for its customers. We are a convenient clothing led, particularly in childwear and general merchandise retailer, which we think is a unique format in terms of what we offer. And it's been highly successful for the last 15 years since the business has grown. Clearly, FY '23 was a disappointment. As you know from last year, that was really caused by excessive growth over a sort of 12-, 18-month period, we've slowed that down. And as we set out to do during last year, we've seen significant improvements in performance with a 42% profit improvement year-on-year. So I think we -- while we are more respectful and aware of competitors than I think probably we were in the last 2 or 3 years. We've got a great proposition, as Stephan mentioned. And I think, hopefully, these results and as I mentioned, the last 3 months have been positive like-for-like performance as we focused on the areas where we felt we were misfiring. We begin to provide some confidence to people that this is a business that has a clear customer proposition and continued prospects for growing into the future, which is very much how we see the business opportunity.

[Operator Instructions] There appears to be no further questions at this time. Apologies. We're just receiving a further question now from [ Neil Karni ] from JPMorgan.

Just a question on your cap structure and the term facilities. Obviously, your bonds traded pretty well since you tapped the market 18 months ago. Any plans for refinancing of those term facilities either in the loan market or bond market in the near future?

Look, thanks for the question. I mean we have no sort of short-term maturities coming out. The bond, obviously, was the 5-year deal we issued in 2023. Look, I think the credit -- certainly, the credit profile of the group has strengthened since we did that and obviously, we just shared the metrics. And the next maturity we have is the Term Loan B, which is in sort of -- I think it was April '26. So we'll look at opportunities as they arise in the market, but there's no immediate plans to act preemptively on those at the moment. Term Loan B is giving us quite attractive cost of funding. And as I said, the bond runs to 2028. So nothing immediately on the horizon from an activity point of view, but we'll obviously keep aware -- keep our eye on opportunities to improve the funding profile of the group as you'd expect us to do going forward as those arise.

And we now just received a follow-up question from James Anstead of Barclays.

Sorry to ask another question. But just a quick one on leverage. Obviously, you've had a year where your cash flow has been very strong and your profit has been very good as well. So I had one investor describe your balance sheet to me as undergeared, which is a nice situation to be in. And obviously, you're starting to pay a dividend. But what sort of level of gearing are you looking to target? Because I guess you won't be paying out huge amounts for the foreseeable based on that dividend policy.

Yes. Look, thanks for the question, James. Look, I think there's a couple of things to remind ourselves of. I mean we've been on a journey from the IPO through the bond issue to try and strengthen the credit profile of this company given some of its historical ownership, which I think has been important. And we've spent quite a lot of time building that stronger credit profile, which is important for multiple external stakeholders, not just lenders, but suppliers and colleagues within the business, just given the history of the group. And that's been a conscious mission. So to present a strong balance sheet with significant liquidity. And I think at this point, I think we -- I certainly feel we've certainly got to that position now to sort of offset any sort of historical suggestion that the company had any weakness financially. I think we're in a very strong financial position. We're obviously telegraphing that with the initial dividend. There are a few initiatives. Obviously, we've -- Stephan having joined recently that we have a few initiatives in terms of growth of the business, which we'll give a bit more detail into the digital strategy is an important one, giving people conviction around a clear Western European strategy and bringing the business back into a stronger growth profile has still been quite good this year. So I think it's a little bit premature to put out specific leverage guidance. But when we went through the rating process with the bonds last year, we gave some guidance that we expect to remain within sort of 1.5x EBITDA, and we're really well within that at the moment at 0.5x. But I think the priorities have really been 3 things: one, invest in opportunities to grow the business. And we've got a couple of areas we need to come back and give a bit more clarity to people on, which we'll do in March. I think secondly, present a strong balance sheet with sufficient liquidity to offset any lingering concerns that this group had any financial weakness, which we don't. And then thirdly, we'll look at a sort of approach to return excess cash to shareholders. And we're initiating a dividend to signal that intent, and we'll look at further opportunities going forward as the business continues to generate excess cash flow. So I think it's the right question to ask. We're very conscious of it. But I think given our history, we want to continue to err on the conservative side. And particularly when it's not that long ago, we went through the whole COVID pandemic period and everyone was -- the first thing that we wanted to do was to get a strong balance sheet. We've got one. And I think we want to make sure we are front foot and presenting ourselves as a very strong credit profile for all the stakeholders we have to interact with.

And with that, I'd like to hand the call back over to you, Stephan, for any additional or closing remarks.

Yes. Thank you very much. I appreciate it was my first call in this function with you. Thanks for your interest. Thanks for your attention, and I'm looking forward to the next call with you going forward. Thank you very much.