The owner of Poundland has revealed a £642m (€775m) hit to the UK discount retailer, citing several major headwinds including rising costs amid the budget burden facing businesses.

Pepco said it was taking the impairment charge – a reduction on the perceived paper value of its assets – following “challenges” including poor performance and increased competition across its last financial year.

Pepco said it was also taking account of a weaker outlook and higher costs facing Poundland, which employs around 15,000 staff.

The charge, the company added, was primarily a goodwill gesture based on the original acquisition of the chain.

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The group recorded a €662m (£548m) net loss for its 2024 financial year, which covers the 12 months to 30 September, on the back of the decision.

The private sector has widely warned of a hit to investment, jobs and pay on the back of the chancellor’s 30 October budget which will raise employer National Insurance contributions and the National Living Wage.

The retail sector has warned of a £7bn hike to its costs in 2025 alone.

Pepco indicated that the budget would add pressure at a time when comparable sales growth was in decline at Poundland, with sales flat on last year.

Underlying profits in the UK arm fell by 63%.

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Pepco said: “As a result of the material underperformance in Poundland, along with slower growth prospects and a higher cost outlook in the UK following the recent budget, we have assessed the carrying value of that investment and recognised a non-cash impairment of the goodwill and brand asset related to Poundland of €775m, which has driven a reported net loss for the year for the Group of €662m.

“On an underlying basis, Group net profit for FY24 was €179m, up 14.0% on the prior year.”