Currys Half Year Results 2022/23

Unaudited Results for the Half Year Ended 29 October 2022

UK&I performance strengthens again, International impacted by temporary market disruption

We Help Everyone Enjoy Amazing Technology

Key Highlights

• UK&I profit growth as gross margin improvements and cost savings offset sales decline
• International profits down significantly due to actions taken in face of competitors’ heavy discounting
• Cost savings: UK&I programme well on track for £300m saving target, International offsetting inflationary pressures
• Tech market still larger than pre-pandemic (UK +14% Yo3Y, Nordics +15% Yo3Y)
• Online share of business stable, highlighting strength of omnichannel model following pandemic disruption
• UK&I Credit adoption of 17%, +460bps YoY and well ahead of 16% target for 2023/24

Financial Performance¹

• Group LFL (8)% (Yo3Y +7%); Revenue (7)% (Yo3Y (6)%)
• Group adjusted loss before tax £(17)m, down £(62)m YoY due to lower International profits
• Group statutory loss before tax £(548)m driven by non-cash goodwill impairment of £(511)m
• Period-end net debt £(105)m with significant liquidity headroom given total revolving credit facilities of £676m
• Pension deficit decreased slightly to £(251)m (30 April 2022: £(257)m, 30 Oct 2021: £(416)m) despite market volatility
• Interim dividend of 1.00p declared (flat YoY).

Current Year Guidance: Reflecting the strength of the UK&I business and the disruption to our International markets, we now expect full year PBT to be between £100-125m, with cash generation in the second half.

Alex Baldock, Group Chief Executive

“Currys UK&I performance continues to strengthen, and is showing real momentum, reflecting good progress in our transformation. International, however, has had a tough period, and faces short-term but intense pressures from a disrupted market.

In the UK&I, our profits are up, from increased gross margins and strong cost discipline. We’re bucking the trend with world-class and increased colleague engagement. Our customers are happier too, and are more likely than ever to recommend us. We are making more of our winning Omnichannel model and are building more Customers for Life with strong Services growth.

Our International business, which has consistently delivered growth in sales and profits over many years, has had a difficult first half with margins sharply down. Lower demand has left domestic competitors with excess stock, which they’re now heavily discounting. This has substantially disrupted the market, and required margin investment to keep our sales strong. We expect these pressures, intense though they are, to be temporary - demand will normalise, excess stock will wash through, and competitors will find unprofitable aggression hard to sustain. We’ve also stepped up our self-help actions on margins and cost.

Of course, our customers are feeling real cost of living pressure and our job is to help them get hold of the technology that’s more essential to their lives than ever. We’re doing that, through our price promise, giving customers access to responsible credit, and offering more products that save them money through lower energy costs. Our Go Greener range is flying off the shelves.

It’s a tough environment, and we are planning for that to continue. Still, we expect to maintain the trajectory of improving UK&I profitability and a robust recovery in International profits. Our ever-improving customer experience and strong Services give us confidence in improving margins. And we will continue our excellent progress on cost efficiency.

We have a strong balance sheet and a strategy that’s working. By focusing on the things we can control, while doing everything we can to support our colleagues and customers, we’ll ride out the current turbulence and emerge an even stronger business well-set for long-term success.”

Performance Summary

Group sales declined (7)% and (8)% on a like-for-like basis against the high level of sales seen over the last two years. Compared to three years ago, like-for-like sales grew +7%, with positive trends in all territories. Over the same period total sales are down (6)% due to the closure of legacy operations.

In UK&I adjusted EBIT increased +25% YoY and was higher than three years ago. Improvements to gross margin were driven through higher customer adoption rate of credit and other services (especially online), improved use of data and analytics to drive better returns on marketing and promotions, cost savings and the introduction of two-person delivery charges towards the end of the period. Operating costs fell in absolute terms as savings offset inflationary cost pressures and increased business rates tax.

We have recorded a £(511)m non-cash impairment of UK&I goodwill that arose at time of Dixons Carphone merger in 2014. This was primarily driven by increased discount rates as a result of the sharp increases in UK gilt yields around our period end, as well as more prudent economic assumptions within our internal valuation models.

In International, adjusted EBIT declined (94)% YoY and is also down significantly on three years ago. This was driven by gross margin erosion as some smaller domestic competitors are following aggressive growth strategies to gain share in a market that is structurally bigger following the pandemic. They substantially overestimated demand and the excess stock bought into market is being cleared at discounted prices. Against this backdrop, we deliberately kept pricing competitive to preserve market share in what we expect to be a temporary period of depressed market profitability. Demand will normalise, the excess stock will sell through, and the smaller competitors are unlikely to be able to sustain these unprofitable practices.

Due to lower International profitability, operating cash flow declined (54)% YoY, while free cash flow was an outflow of £(86)m reflecting the lower operating profitability , normalized levels of investment and a small, expected working capital outflow.

Current Trading

In the six weeks since the period end, trading performance is in-line with the first half.

Current year guidance

We are confident that the improvements to UK&I gross margin and ongoing cost control will continue to deliver robust profitability despite our expectation that market conditions will not improve in the second half.

In International, the high market shares and our long track record of growth in sales and profit, together with self-help action on margin and costs, give us confidence that profitability will recover robustly when market conditions normalise. The timing and extent of this will depend on when demand normalises, but especially on how long competitors need to clear excess stock, and how long they sustain unprofitable pricing.

The Group expects to generate stronger free cash flow in the second half of the year.

• Full year adjusted PBT to be range of £100-125m, assuming no further unexpected macro deterioration
  (vs previous guidance of £125-145m on like-for-like basis, after adjusting for the reclassification of £5m IT spend)
• Capital expenditure of around £120m (vs previous guidance of £135-155m on like-for-like basis)
• Net exceptional cash costs of around £40m (unchanged guidance)

Medium term guidance

• Group targeting at least 3.0% adjusted EBIT margin by 2024/25. We aim to continue to improve it thereafter

^{1 In the reporting of financial information, the Group uses certain measures that are not required under IFRS. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority (‘ESMA’) and are consistent with those used internally by the Group’s Chief Operating Decision Maker to evaluate trends, monitor performance, and forecast results.}

^{We consider these additional measures to provide additional information on the performance of the business and trends to shareholders. Adjusted results and adjusting items for the comparative periods ended 30 October 2021 and 30 April 2022 have been restated to reflect the updated adjusting items policy that reflects management’s belief that the more stringent classification provides greater clarity on the current and future performance of the Group’s ongoing omnichannel retail operations. There has been no impact on statutory results as a result of the restatements.}

^{The below, and supplementary notes to the APMs, provides further information on the definitions, purpose, prior period restatements and reconciliations to IFRS measures of those APMs that are used internally to provide parity and transparency between the users of this financial information and the CODM in assessing the core results of the business in conjunction with IFRS measures.}

^{These APMs may not be directly comparable with other similarly titled measures of ‘adjusted’ or ‘underlying’ revenue or profit measures used by other companies, including those within our industry, and are not intended to be a substitute for, or superior to, IFRS measures.}

Results call

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

It will be webcast here:  https://stream.brrmedia.co.uk/broadcast/638e00cd21e50e480f0739b3

Next scheduled announcement

The Group is scheduled to publish its Peak trading update covering the 10 weeks to 7 January 2023 on Wednesday 18 January 2023.

For further information

Information on Currys plc is available at www.currysplc.com
Follow us on Twitter: @currysplc

About Currys plc

Currys plc is a leading omnichannel retailer of technology products and services, operating online and through 826 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 30,000 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 or the Twitter feed does not form part of this announcement and should not be relied on as such.}

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