Currys : Interim Results 2023/24

We Help Everyone Enjoy Amazing Technology

Summary

• Group adjusted EBIT +7% YoY
• Further progress in UK&I, with strong momentum in Services: Credit adoption +330bps to 20.3%, Care & Repair adoption +340bps, iD Mobile subscriptions > 1.5m, +24% YoY
• Nordics profitability improved despite difficult consumer environment, with gross margins back up to the levels of two years ago
• First-half free cash outflow limited to £(10)m (H1 2022/23: £(86)m)
• After period closed, agreed sale of Greece for an enterprise value of £175m and net proceeds of £156m, representing an attractive return for shareholders. Greece will be included in continuing operations until transaction completes

Financial performance

• Group LFL revenue (4)%; Currency neutral revenue (4)%; Reported revenue (7)%
• Group adjusted loss before tax £(16)m, in line with last year
• UK&I LFL revenue (3)%, adjusted EBIT £15m, (40)% YoY - profit decline as anticipated as improved gross margin and costs savings of £53m were more than offset by inflationary pressures and non-repeat of £11m of mobile revaluations
• Nordics LFL revenue (6)%, adjusted EBIT £12m, +300% YoY - significant gross margin recovery of +190bps and cost actions offset continued market driven sales decline
• Greece LFL revenue (4)%, adjusted EBIT £4m, +300% YoY - delivering another period of robust profits
• Group statutory loss before tax of £(46)m, from £(548)m in prior year
• Period end net debt of £(129)m - first-half cash outflow of £(32)m, compared to £(149)m outflow in prior year
• Period end IAS 19 pension deficit £(190)m, from £(249)m at year end

Outlook

• Trading since the period end has been consistent with the Board's expectations
• No change to previous guidance
• Greece disposal expected to receive final approvals and to complete in first quarter of 2024
• Group expected to finish year in net cash position if disposal completes before year end

Alex Baldock, Group Chief Executive

"Our priorities this year are simple: to get the Nordics back on track, to keep up the UK&I's encouraging momentum, while strengthening our balance sheet and liquidity. We're making good progress on all these in a still challenging economic environment.

In the Nordics, our trusted brands have delivered substantial gross margin gains, which combined with strong cost discipline have resulted in significantly improved profits. There's still a long way back to healthy Nordics performance, but we're on the way.

In the UK&I, profits are in line with expectations, as we focus on more profitable sales and growing the services that drive margins and customer lifetime value. Credit, Care & Repair and iD Mobile are all performing strongly, while colleague engagement and customer satisfaction continue to rise.

We've already substantially strengthened our balance sheet and liquidity this year. The proceeds of the planned sale of Kotsovolos, at a price that represents a very good outcome for shareholders, will strengthen us further. We're confident we're building a business that's resilient today and fit to prosper long term."

Performance Summary

Group sales decreased (4)% on a like-for-like basis with a decline in all markets as consumer spending remained under pressure from persistent inflation and rising interest rates, coupled with our increased focus on more profitable sales to maximise operating cashflow.

In the UK&I, adjusted EBIT decreased (40)% YoY. Underlying improvements to gross margin were largely offset by the non-repeat of c.£11m of benefits in our mobile category last year, while operating costs fell in absolute terms as savings in property, marketing and IT more than offset inflationary cost pressures.

In the Nordics, adjusted EBIT increased to £12m despite the market driven sales decline. Gross margin recovered by +190bps and achieved a level only (20)bps lower than two years ago. Costs were tightly controlled in an inflationary environment resulting in a small increase in costs in absolute terms.

In Greece, adjusted EBIT increased to £4m. After a strong start to the period, sales declined, particularly in August and September due to the impact of wildfires on customer footfall, but gross margin recovered strongly and costs were well controlled.

As a result, Group adjusted EBIT increased slightly to £31m which was reflected in operating cashflow that also increased slightly to £62m. Free cash outflow of £(10)m for the period was a £76m improvement on last year due to deliberate actions to lower capital expenditure, tighter working capital control and lower tax payments. Alongside no dividend payment and previously negotiated reduction in pension contributions, this resulted in cash outflow for the period of (£32)m, a £117m improvement compared to the same period last year.

Current year guidance

Trading during the six weeks since the period end has remained in line with the Board's expectations and the Group is maintaining all guidance given at the Full Year results on 6 July 2023.

Guidance has not been revised to reflect the expected disposal of Greece and is based on Greece remaining in the Group for the rest of the financial year.

• Capital expenditure of around £80m
• Net exceptional cash costs around £50m
• Pension contributions of £36m
• Depreciation & amortisation of £320-330m
• Cash payments of leasing costs, debt & interest of £280-290m
• Cash interest of around £40m
• Group to finish the year with net debt better than £(97)m

The Group expects to receive the necessary final clearances and for the Greece disposal to complete in the first quarter of 2024, and following the disposal, the Group is expected to finish the financial year in a net cash position.

Longer term guidance

• Group continuing to target at least 3.0% adjusted EBIT margin
• Exceptional cash costs expected to fall significantly from 2024/25 onwards
• Scheduled pension contributions will rise to £50m in 2024/25 and to £78m for the following three years before a final payment of £43m in 2028/29

Greece disposal and use of proceeds

On completion of the disposal of Kotsovolos, the Currys Group expects to receive Net Cash Proceeds of approximately £156 million. It is the Board's intention to use the Net Cash Proceeds to reduce the Currys Group's total indebtedness (defined as the sum of net debt, pension deficit and lease liabilities). This will initially involve using proceeds to reduce net debt, and then, at the appropriate time following the completion of the Group's peak trading period, entering into discussions with the pension trustees regarding the funding for the Pension Scheme.

Reducing total indebtedness will provide greater flexibility to enable the Currys Group to invest to grow profits and cashflow.

The Group will also explore the potential to return any surplus capital to Shareholders, based on a number of factors including the underlying financial strength of the business, prevailing market conditions, the balance of shareholder preference, and the scale of proceeds to be returned.

This planned use of proceeds is consistent with Currys' stated capital allocation policy, and the Board intends to provide an update on use of proceeds to shareholders before the end of the financial year.

Chief Executive's Review

Our priorities this year are simple: to get the Nordics back on track, to keep the UK&I's encouraging momentum going, while maintaining a strong balance sheet and liquidity in a still-turbulent environment. We are only part way through the year with important trading periods still ahead of us, but so far we have made good progress in all three areas.

In the Nordics, consumer demand has remained weak as headwinds of inflation and interest rate rises have impacted consumer confidence and driven another year of market declines. Against this backdrop, our competitors are realising how expensive it is to take market share away from our well established and trusted brands as we saw from improving trends in our market share (1Q: (130)bps, 2Q (50)bps) in the period. Crucially, gross margin has recovered most of the deterioration we experienced last year as we have anniversaried last year's overstocked market issues with a balanced trading stance. Meanwhile, our cost saving initiatives have helped keep cost under control in an inflationary environment. All this drove a significant improvement in profits compared to last year.

In the UK&I, sales declined (3)% driven by a market decline and a (100)bps share loss. Over half of the share loss was a result of deliberate actions to prioritise profits over sales. We are very pleased with the continued momentum on gross margin and customer lifetime value accretive services, with Credit adoption rising +330bps to 20.3%, Care and Repair adoption rising +340bps and iD Mobile subscriptions now exceeding 1.5m, +24% YoY, having added 200,000 net new subscriptions in the last six months. These are all sources of recurring, sustainable cashflow which provide increased confidence in future financial performance. Combined with strong cost control and further progress on our £300m cumulative saving target, this resulted in profits above our expectations for the period.

We have also built on our efforts to deliver Group synergies across IT, offshoring and goods-not-for-resale (GNFR) procurement. In the period, we have combined our UK&I and Nordics Technology functions under our Group CIO Andy Gamble, which will enable us to use our Group scale to get ever better terms with our large outsource partners and software providers. We have continued to strengthen our offshoring relationship with Infosys and now have over 1,000 Infosys colleagues. We have also started aligning our GNFR procurement across the Group which we believe will make a significant impact to some of our operating costs in time.

We remain passionate about our ability to give tech a longer life. We are uniquely placed in this area as the only UK retailer that has its own repair operations, and those repair operations being of materially greater scale and sophistication than anything else available in our markets. This was clearly expressed by the Prime Minister when he visited the facilities in October.

"What's great about what you do, is that is has so much impact on the country. You are saving millions of people a fortune. When you extend the lifetime of their laptop, their TV, or allow them to buy something refurbished - all of that is just putting cash in their pockets.

And at the same time, you are doing something wonderful for the environment because you are able to find every little bit of these big electronic devices and re-use them and put them back into circulation - great for the environment, great for people's wallets."

As well as maximising our operating cashflow, we have been prudent in deploying cash. We have limited the usual first half free cash outflow to £(10)m, from £(86)m last year, as we have kept tight control over capital expenditure and working capital. Tight stock control meant we finished the period with Group inventory down (11)% compared to last year. Our liquidity is strong, and during the period, we have agreed an extension of our "top-up" revolving credit facility. As a result, we have facilities of £498m until April 2026 and a further £134m until October 2024, providing us with significant headroom.

On 3 November, we announced the proposed disposal of Kotsovolos, a transaction that has subsequently been approved by our shareholders. Kotsovolos is a fine business that we've been proud to own, but a disposal at this time is in the best interest of shareholders. Firstly, it recognises Kotsovolos's value and accelerates its realisation. Secondly, it further strengthens the balance sheet and the foundations on which to improve the much larger UK&I and Nordics businesses. Finally, it creates a valuation precedent for what we can achieve if we continue to execute on our strategy.

When this transaction completes, we expect the Group to finish the year in a net cash position. This is a strong position compared to the £(374)m net debt and working capital facilities the Group was utilising five years ago (27 October 2018). Alongside this, the pension deficit that has also continued to fall and is now £(190)m on an IAS19 basis, from £(516)m on 27 October 2018. Maintaining a solid balance sheet will remain a key objective for the Group.

The economic outlook remains challenging to forecast, but as we have shown this year, our business is well positioned to weather any storm and well set to prosper when conditions improve. We have market leading, trusted brands, growing margins, controlled costs, improving cashflows and a robust balance sheet.

The remainder of the year will see us continue our focus on three priorities: to get the Nordics back on track, to keep the UK&I's encouraging momentum going and to maintain a strong balance sheet.

Grow Profits

Our improvements for the colleague and customer experience must now translate into improved profits and cash generation. We believe we can now build on our progress on gross margins and costs while being confident in maintaining our top-line market leadership.

• Gross margin increased by +10bps in the UK&I. This included a c.(50)bps negative impact from the non-repeat of last year's positive impact from the revaluation of mobile at the end of one specific MNO contract. Gross margin has improved +280bps compared to three years ago as we have focused on measures to improve the profitability of our sales, especially: higher adoption of credit and services, better monetisation of the improved customer experience, not chasing less profitable sales and supply chain and service operation cost savings.
• In November 2021, we announced a plan to save £300m of annual costs in the UK&I by the end of 2023/24. We are progressing well with those initiatives and have saved over £240m on a cumulative basis as at the end of October 2023. We are on track to save over £300m by the end of this financial year.
• In the UK&I, our programmes drove £53m of savings with the largest areas of cost saving including supply chain efficiencies of £21m, store payroll of £9m and central, IT, procurement and other savings of £23m.
• In the Nordics, we have taken actions that will generate over £25m of permanent cost savings. These actions cover several areas including marketing, store and head office payroll, IT expenditure and consultant fees.
• During the period, we have combined our UK&I and Nordics Technology functions under our Group CIO Andy Gamble. This integration is already allowing more efficient sharing of best practice across the regions as well as synergy savings and, over time, will enable us to use our Group scale to get ever better terms with our large outsource partners and software providers.
• We continued to build our partnership with Infosys, which delivers a large range of services across our business functions, including IT, Data & Analytics, E-Commerce, Finance and Commercial, for our UK&I and Nordics businesses. The engagement has grown to around 1000 Infosys colleagues across centres in India and Czech Republic with significant potential to extend the partnership in the future.
• We have made progress aligning our Goods-Not-For-Resale (GNFR) procurement across the Group, renegotiating contracts with our top 20 suppliers in the Nordics, aligning our IT procurement across the Group and developing approaches which we believe will make a significant impact on the efficiency of our spend across marketing and logistics.
• Lease costs continue to fall. In the UK&I we have negotiated an average effective net rent reduction of more than 30% on the 20 leases renewed during the period.

Capable and Committed Colleagues

Expert face-to-face help is at the heart of why customers shop with us, and that takes skilled and engaged colleagues. We know that happy colleagues make for happy customers, so we go above and beyond in making sure that our colleagues are highly engaged, well trained and competitively rewarded.

• Our Group eSat ("how happy you are to work at Currys") increased to 79 (+2pts YoY) and puts Currys in the top 25% of all businesses surveyed by Glint.
• In the UK&I, eSat has increased to 82 (+3pts YoY) with our engagement scores trending upwards when the peer set is in decline, putting the UK business in the top 5% of all businesses surveyed by Glint.
• Our focus on engaging our sales colleagues has reduced attrition rates of our UK&I sales colleagues by more than 10%pts since pre-covid.

Easy To Shop

Omnichannel is the preferred model for customers in technology retail: two-thirds of customers prefer to shop using stores, underlined by the slight increase in our store share of business. We're continuing to build on this advantaged business model.

• Our focus on removing pain points for our customers is continuing to deliver results. In the UK&I, we saw improvements in customer satisfaction at every measurable stage of the customer journey, resulting in NPS climbing a further +5pts. In the Nordics, our "Happy or Not" measure improved slightly on its already very high levels, with a notable improvement in the online experience because of the improvement in our websites.
• The strength of our brands continues to resonate with consumers, and has allowed us to reduce more expensive "pay per click" online marketing in the UK. Two-thirds of the traffic generated by our website is direct.
• Order and collect sales have grown +35% YoY in the UK and +22% in the Nordics, showing how much consumers value the ability to collect goods quickly at locations that are convenient for them.
• We have continued to improve our 'sold with' solution selling in the UK&I. Customers are happier with the complete solution of products, accessories and services that is right for them; and our margins are improved. In the period we've improved ranging, stock availability and bundle proposition across both stores and online. Over the first half of the year, we saw our overall adoption rate of these product climb >6%pts.
• We maintain a flexible store portfolio and have average lease lengths of 4 years in the UK&I and the Nordics, and less than 5 years in Greece.

Customers For Life

We offer customers more than helping them choose a product: we help them afford and enjoy their technology, for life. Credit and other Services help us build longer lasting and more valuable relationships with customers.

We help customers afford amazing technology:

• UK credit adoption increased +330bps to 20.3%, well ahead of the 16% adoption we had previously targeted for 2023/24, as active credit accounts rose +19.4% to 2.1m. Online credit adoption increased +660bps to 24.5% and store credit adoption increased +70bps to 17.0%. The largest increases in adoption were from repeat customers, particularly online, as our easier to access accounts and targeted marketing have stimulated repeat spend. We take no direct risk on credit, as a reminder. We do benefit from credit customers' higher average order value, and greater likelihood to return to shop at Currys, as well as direct profit benefit from our partner bank. The implementation of the FCA's Consumer Duty framework helps ensure all credit is issued responsibly.

We help customers get tech started:

• Our installation services are becoming ever more valued by customers, and our installation rate on UK big box deliveries rose +2.1%pts.

We help give tech a longer life through protection, repair, trade-in and recycling services:

• In the UK, our Care & Repair adoption climbed +340bps compared to last year, with improvements in-store and online as customers look to benefit from our improved propositions. This resulted in 9.4m active plans at the end of the period, +6% higher than the previous year.
• In the Nordics, our Priority insurance, where customers pay monthly, grew +17% YoY with particularly strong growth online. This was in part aided by offers of three months free insurance, which will have some impact on near term profits but generates longer term, recurring revenue.
• In the UK, we collected over 750,000 items for recycling driven by our "Cash for Trash" initiative. As customers become more aware of the environmental consequences of their actions, we are there to help them as no competitor can.

We help customers make the most out of their tech with connectivity and subscriptions:

• iD Mobile, our award winning MVNO, grew to 1.5m subscribers, +24% YoY, demonstrating the great value, flexibility and control it offers to our customers. iD Mobile is a growing source of recurring, predictable revenue and cashflow.

We will collect, protect, and use data to build more valuable customer relationships:

• Currys Perks members represented well over half of UK sales. Perks customers are happier, shop more frequently, have higher average order values and greater adoption rate of credit and Care & Repair than non-Perks customers.
• The Nordics customer club grew +13% YoY to over 8m members. Club members spend more with us, at better margins, as increased shopping frequency outweighs lower average order values.
  

Results call

There will be a live presentation and audio webcast followed by Q&A call for investors and analysts at 9:00am.

The presentation slides will be available via the following link: https://brrmedia.news/CURY_IR23

To participate in the live audio Q&A session, please use the following participant access details:

UK: +44 (0) 33 0551 0200, please quote 'Currys Investor Call' when prompted by the operator

Next scheduled announcement

The Group is scheduled to publish its Peak trading update covering the 10 weeks to 6 January 2024 on Thursday 18 January 2024.

For further information

Information on Currys plc is available at www.currysplc.com
Follow us on LinkedIn: @currysplc
Follow us on X (formerly Twitter): @currysplc

About Currys plc

Currys plc is a leading omnichannel retailer of technology products and services, operating online and through 815 stores in 8 countries. We Help Everyone Enjoy Amazing Technology, however they choose to shop with us.

In the UK & Ireland we trade as Currys; in the Nordics under the Elkjøp brand and as Kotsovolos in Greece. In each of these markets we are the market leader, employing almost 28,000 capable and committed colleagues. Our full range of services and support makes it easy for our customers to discover, choose, afford and enjoy the right technology for them, throughout their lives. The Group's operations include state-of-the-art repair facilities in Newark, UK, a sourcing office in Hong Kong and an extensive distribution network, enabling fast and efficient delivery to stores and homes.

Our vision, We Help Everyone Enjoy Amazing Technology, has a powerful social purpose at its heart. We believe in the power of technology to improve lives, help people stay connected, productive, healthy, and entertained. We're here to help everyone enjoy those benefits and with our scale and expertise, we are uniquely placed to do so.

We're a leader in giving technology a longer life through repair, recycling and reuse. We're reducing our impact on the environment in our operations and our wider value chain and we will achieve net zero emissions by 2040. We offer customers products that help them save energy, reduce waste and save water, and we partner with charitable organisations to bring the benefits of amazing technology to those who might otherwise be excluded.

_{Certain statements made in this announcement are forward-looking. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Information contained on the Currys plc website, LinkedIn or the X (formerly Twitter) feed does not form part of this announcement and should not be relied on as such.}

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