We Help Everyone Enjoy Amazing Technology

Chief Executive's Review

Our priorities last year were simple: to get the Nordics back on track, to keep the UK&I's encouraging momentum going, and to strengthen our balance sheet and liquidity in a turbulent environment. I am pleased to say that we made good progress in all three areas, and we can plan confidently for the future.

In the Nordics, consumer demand remained weak. Headwinds of inflation and interest rate rises impacted consumer confidence and drove a market decline of (3)% YoY. Against this backdrop, we grew market share (1H: (90)bps, 2H: +100bps), recovered our gross margin (+190bps) back to the level of two years ago, and saw our profits more than double, despite a headwind from currency translation.

In the UK&I, the market was similarly soft, declining (3)% YoY. We maintained our #1 position but lost (70)bps of share, as we continued to focus on more profitable sales. This focus saw UK&I gross margin improve +120bps Yo2Y, and, alongside significant net cost savings, this resulted in adjusted profits climbing +£25m compared to two years ago, despite a (9)% drop in revenue over the same period.  

These achievements have been built on our long-term strategy.

Our strategy starts with colleagues, as it is difficult in a business like ours for the customer experience to exceed that of the colleague. We have supported colleagues with better tools, training and reward, and now have world class colleague engagement scores to show for it, with Group eSat climbing +3 to 81, putting Currys plc in the top 10% of global companies. I am lucky enough to see my colleagues in action every day, and the calibre of people in our business, from my immediate leadership team through to colleagues on the front line, has never been higher.

Second, we are making our customer proposition ever easier to shop. We look to constantly improve on the retail fundamentals of range, price, and availability. To this we add solution selling whereby we seek to sell the customer everything they need (products, accessories and services) rather than just a product on its own. We have seen a +10pts YoY improvement in UK&I solutions adoption rates to nearly 30% of eligible products sold now have ancillary products alongside, helping customers enjoy the technology to the full while growing our profits. We are also doing more to get it 'Right First Time' for customers. This big business-wide effort improves customer satisfaction (they like it when the right washing machine arrives undamaged at the appointed time, and can be installed there and then), and so indirectly reduces customer acquisition costs. It also reduces the cost of repeat work (by £8m last year), while boosting margins: customers will pay more for a better service.

We are doing all this with the benefit of the omnichannel shopping model. Customers clearly prefer to use stores as an integral part of their shopping journey, and we have invested to continually improve that experience online and in-store. This year will see prudent increases to those investments.  

The third leg of our strategy is to create customers for life. At the heart of this is our unique range of services that help customers afford and enjoy amazing technology to the full.

We help customers afford tech through credit, and we have seen UK&I adoption climb +240bps to 20.1%, and active customer accounts grow +17% to almost 2.3m.

We help customers get tech started, through installation and set-up. Our installation services are becoming ever more valued by customers, and 28% of UK big box deliveries now include installation, a rise of +290bps YoY. Our in-home customer satisfaction is amongst the highest of all activities we carry out.

Once they have the tech, customers want to keep it working. We are uniquely well placed to keep tech working as we operate repair services in Norway, Sweden and the UK, where we have Europe's largest technology repair centre. We are the only tech retailer that operates our own repair facilities, allowing us to offer customers the protection they want at good value. The result of this can been seen in the 12m protection plans in place across the Group. During the year, our team of over 1,400 engineers successfully completed 1.4 million product repairs, both at our repair centres and in customers' homes.

When tech has reached the end of its life, we want everyone to bring their old or unwanted tech into our stores to be reused or recycled for free - whether they bought it from us or not. If we can't reuse it, then we can harvest the parts which can be put to good use by our amazing repair colleagues in our labs. Or we can recycle it.

Currys has worked on responsible recycling for many years. We provide free in-store drop off and collect our customers' unwanted electrical equipment and small electrical appliances for recycling when we deliver their new technology. In 2023/24, 8.1 million e-waste products were collected for reuse and recycling across the Group.

The circularity of trade-in, protection, repair, refurbishment, reuse and recycling is not just a PR exercise for Currys, it's our business model. Colleagues increasingly want to work for organisations with powerful societal benefit, and customers want to shop there. Customers value the economic benefit of pre-loved and repaired products. Currys' well-invested capabilities in this area are barriers to competitors, while our unmatched scale makes offering the complete set of activities more profitable for us.

Finally, we help customers get the most out of their tech, with connectivity being the greatest enabler of this.

Our mobile business is growing, profitable and cash generative. iD Mobile, our MVNO (Mobile Virtual Network Operator) in the UK, has been the standout performer this year. It has grown +34% to 1.8m subscribers, as customers have realised the value in the deals we offer. iD is an increasingly valuable asset in the business, one that we intend to keep growing, targeting at least 2m subscribers before year end.

Credit, protection plans and connectivity are all sources of higher margin, recurring revenue. Our aim is to continue growing these, so that over time our business mixes away from single product purchases to the more predictable, recurring and higher margin revenue streams of solution sales.

All of this rests on important progress in collecting, protecting and using data, evidenced by our Nordics Customer Club growing to 8.6m members, and 8.9m Currys Perks members. These memberships generate over £4bn of customer revenue per year.

Delivering on our strategy drives improved customer satisfaction, which has climbed to record levels this year. It also drives improved profits.

Our UK&I gross margin is now +240bps higher than three years ago and our Nordics gross margin has rebounded strongly, up +190bps YoY. The drivers of gross margin are the same across the Group:

·   Better bundling of products - Selling customers a complete solution enhances customer satisfaction and our margins

·   Higher adoption of services - Our services are higher margin than our product sales, and produce recurring revenues

·   Monetising the improved experience - As our strategy has improved the customer experience we have been able to charge more for it

·   Focus on higher margin sales - Our enhanced data and analytics have provided a better understanding of end-to-end profitability, which we have used not to chase sales that fall below internal margin thresholds

·   Cost savings - We have delivered significant cost savings in our supply chain and service operations through outsourcing and efficiencies

Cost savings have also reduced our operating costs, and in the UK&I we have delivered £268m of total cost reductions over the last three years as a result of actions in supply chain and service operations, stores, central operations and IT. Cost saving processes and culture are now embedded across the Group. There is more cost to go after, with more we can do on Group synergies, and through process improvement enhanced by Artificial Intelligence (AI) technology. We are in the early phases of exploring Generative AI and, having identified over 60 potential use cases, we are focussing, with our partners Accenture and Microsoft, on opportunities in aftersales returns and repairs.

Alongside improved profitability, we have been prudent in deploying cash. Last year, our capital expenditure was deliberately reduced and working capital was tightly controlled. In April, we completed the disposal of our Greece business for net proceeds of £156m, allowing us to focus on our larger businesses in the UK&I and Nordics and further strengthening our balance sheet. We finished the year with £96m net cash and a pension deficit of £(171)m. This £(75)m net position is £700m better than it was four years ago at the start of the pandemic.

We are the clear #1 brand in all our markets, with a diversified revenue base and a strategy that is working. After a volatile five years that have been impacted by the legacy issues in UK Mobile, the pandemic disruption, and a challenging situation in the Nordics, we have delivered a year without any surprises and with material progress in all three priorities of Nordics recovery, UK&I momentum and financial strength. Our priority for the year ahead is simple: to continue doing the same. We are planning prudently but confidently on this basis.

After three years of revenue declines, there are also reasons to be more cheerful about the outlook for topline growth. First, when we look at what we sell, the coming wave of AI led technology offers arguably the most exciting tech cycle since the Apple iPad in 2010. We are uniquely placed to help consumers understand the power of this technology and are working closely with suppliers on recent and upcoming product launches. For example, we were the first retailer globally to launch Microsoft Copilot+PC. We also see opportunities in product categories and services where we're growing but are still underweight. Second, in terms of who we sell to, we are starting to see consumers in all our markets recover, with confidence and spending indicators increasing. We also have an opportunity in B2B, where we are well placed to serve small and medium sized enterprises, a market almost as large as B2C which currently represents only 6% of our sales. Finally, on how we sell product, we will continue making improvements to our websites, and further judicious investments in our stores.

We remain focussed on generating improved free cash flow through improved operating performance, tight working capital management and increasing capital expenditure back to normalised levels to support profitable growth and the long-term success of this business.

Combined with our proactive actions to strengthen the balance sheet, this will enable resumption and growth of shareholder returns. We will then see a business that's increasingly valuable for shareholders as well as colleagues, customers and society.

Results call

There will be a live presentation followed by Q&A call for investors and analysts at 9:30am today.

It will be webcast here: https://brrmedia.news/CURY_FY24

Next scheduled announcement

The Group is scheduled to publish a trading update at its AGM on 5 September 2024.

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 719 stores in 6 countries. We Help Everyone Enjoy Amazing Technology, however they choose to shop with us.

In the UK & Ireland we trade as Currys and in the UK we operate our own mobile virtual network, iD Mobile. In the Nordics we trade under the Elkjøp brand. We're the market leader in all markets, able to serve all households and employing 24,000 capable and committed colleagues.

We help everyone enjoy amazing technology. We believe in the power of technology to improve lives, helping people stay connected, productive, fit, 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.

Our full range of services and support makes it easy for our customers to discover, choose, afford and enjoy the right technology to the full. The Group's operations include Europe's largest technology repair facility, a sourcing office in Hong Kong and an extensive distribution network, centred on Newark in the UK and Jönköping in Sweden, enabling fast and efficient delivery to stores and homes.

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 aim to 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.

Performance Review

The business is managed and evaluated across two reporting segments, UK & Ireland and Nordics. The table below shows the combined Group results, with further explanation following under each of the individual segments.

Following the disposal of Kotsovolos on 10 April 2024, the Greece reporting segment has been removed from current and prior year results.

UK & Ireland

Total reported and like-for-like UK&I sales declined (2)% and the online share of business was 45%, flat YoY.

The UK market shrank (3)% during the year with the store channel reducing by around (6)% and the online market reducing by (3)%. Our market share was down (70)bps compared to the previous year, in line with our focus on profitable sales. In higher margin areas, our market share is stable. Mobile and services were the strongest performing categories, in line with our plans to grow our mix of recurring revenue. Sales of major domestic appliances fell slightly, while consumer electronic and computing sales declined more steeply.

Gross margins decreased (40)bps (1H: +10bps, 2H: +(80) bps). The non-repeat of £30 million mobile revaluations impacted margins by (60)bps. The underlying improvement of +20bps reflects the investment in long-term transformation activities which has yielded higher adoption rate of credit and other services and allowed us to better monetise the improvements in our customer proposition. Alongside this, improved understanding and analysis of the end-to-end profitability has allowed for more selective promotional activity and we have driven £35m of cost savings within supply chain. Operating costs fell in absolute terms as wage and other inflation was offset by savings in stores, IT, central and marketing costs. The operating expense to sales ratio worsened by (10)bps due to operating deleverage.

Adjusted EBIT decreased to £142m at 2.9% EBIT margin, down (50)bps YoY.

In the period, adjusting items to EBIT totalled £(54)m mainly due to £(11)m of restructuring charges, £(17)m of impairment losses and new provisions related to historical regulatory matters. The cash costs in the period primarily relate to ongoing strategic change and leases on closed properties.

Operating cash flow was down (14)% to £156m due to lower operating profit, slightly offset by lower lease costs. Capital expenditure was down significantly compared to last year due to deliberate decision to reduce spend during the year, with £22m spent on a variety of small-scale IT and systems upgrades. Adjusting items are described above. Working capital cash outflow was driven by iD Mobile, offset by small inflows in the rest of the business because of internal efficiencies and sales growth in the final few months of the year. In combination, this resulted in segmental free cash inflow of £83m, £67m higher than last year.

Nordics

Revenue declined by (2)% on a currency neutral basis, due to a like-for-like sales decline of (3)%.

Compared to last year, the Nordic market declined around (3)%. Our market share was 27.7%, +10bps higher than last year, with improving trajectory throughout the year (1H: (80)bps, 2H: +100bps). Mobile and service revenues saw growth, with all other product categories experiencing a sales decline, particularly computing and consumer electronics.

Gross margin recovered strongly, growing +190bps YoY, almost back to level of two years ago. This was driven through a better balance of trading in a market where the inventory position and competitive intensity have normalised, but consumer spending remains subdued. The operating expense to sales ratio worsened by (90)bps as cost inflation meant that costs increased slightly, despite the impact of cost savings delivered across marketing, procurement, and IT expenditure.

As a result, adjusted EBIT increased +135% to £61m.

In the period, adjusting items to EBIT totalled £(32)m, with £(12)m due to the amortisation of acquisition intangibles and £(15)m of asset impairments which have no cash impact, as well as £(5)m of restructuring costs. The cash cost of restructuring was £(16)m in the year.

Operating cash flow increased by +43% to £90m, driven by the higher profit outturn. Capital expenditure was £26m, a (42)% reduction YoY as investment was reduced in line with group policy. Significant areas of expenditure included store refits, IT transformation and the upgrades to our Nordic Distribution Centre expansion in Jönköping. Working capital outflow was £(15)m, driven mainly by the lower sales volumes.

Finance Costs

Interest on lease liabilities was £(59)m, lower than last year and in line with our overall lease commitment. The cash impact of this interest is included within "Cash payments of leasing costs, debt & interest" in segmental free cash flow.

The adjusted net finance costs were lower than last year due to lower interest on lease liabilities. The net cash impact of these costs was £(27)m from £(26)m in the prior year.

The finance cost on the defined benefit pension scheme is an adjusting item and increased by £4m compared to the prior year due to higher average interest rates.

Tax
The full year adjusted effective tax rate of 27% was higher than the previous year rate of 23% due to the impact of the increase of the UK tax rate from 19% to 25% in April 2023 on current year profits. Taxation payments of £7m (2022/23: £40m) were lower due to the settlement of previously deferred payments in the Nordics in the prior year. The cash tax rate of 6% is lower than the adjusted effective rate of 27% primarily due to the tax impact of adjusting items, which reduce taxes payable.

Cash flow

Segmental free cash flow was an inflow of £116m (2022/23: outflow of £(26)m) mainly due to improvements in working capital and lower capital expenditure as described in segmental performance above. Interest and tax outflows totalled £(34)m as described above, resulting in free cash flow of £82m (2022/23: outflow of £(92)m).

During this period, the Group disposed of its Greece business, Kotsovolos, generating cash proceeds of £162 million, with funds received upon completion in the final month of the year. Fees associated with the transaction were paid after the year end.

The employee benefit trust acquired £12m worth of shares to satisfy colleague share awards.

Pension contributions of £36m (2022/23: £78m) were in line with the contribution plan agreed with the pension fund trustees at the previous triennial review.

Other movements relate to currency translation differences due to movements on foreign net debt across multiple currencies.

The closing net cash position was £96m, compared to a net debt position of £(97)m at 29 April 2023.

Balance sheet

The prior year balance sheet is shown including and excluding Greece. The commentary below refers to the balance sheet movements excluding any impact from the disposal of Greece.

Goodwill decreased £(33)m as currency revaluations impacted goodwill allocated to Nordics.

Other fixed assets decreased by £(229)m, as reduced capital expenditure and lease additions were more than offset by impairments, depreciation and amortisation.

At year-end, total working capital was £(163)m (29 April 2023: £(220)m). Group inventory was £1,034m, +3% higher than last year, due primarily to an increase in mobile stock to support strong demand. Stock days remained flat year-on-year at 61. Trade payable days slightly improved to 74 (2022/23: 73) since 29 April 2023, trade payables decreased by £68m to £(1,180)m (29 April 2023: £(1,248)m).

Total network receivables increased £32m due to growth of iD Mobile.

The majority of the movement in other receivables and other payables is due to a reclassification between the two balances, with the net payable increase of £(6)m driven by lower contract assets and an increase in accruals.

Lease liabilities have reduced by £(144)m against 29 April 2023 due to the closure of stores and reduction in rents at lease renewals.

The IAS 19 accounting deficit of the defined benefit pension scheme amounted to £171m (30 April 2023: £248m). The reduction of £77m during the period was primarily driven by £36m of contributions and £46m due to updated assumptions on longevity and commutation. The application of a higher discount rate was favourable for the deficit, but this was entirely offset by a lower return on assets as the asset portfolio is structured to materially hedge the scheme's funding position against movements in the discount rate.

As agreed during the last triennial valuation, pension contributions will rise to £50m in 2024/25 and to £78m per annum for the following three years, with a final payment of £43m in 2028/29, when deficit is scheduled to be closed.

As part of the triennial valuation, the Group has agreed to matching on shareholder distributions such that distributions above £12m for 2024/25 and above £60m for 2025/26 onwards will be matched by additional contributions to the pension scheme.

\* The prior year figures have not been restated for the disposal of Kotsovolos as these calculations are consistent with the covenants in place at the time

At 27 April 2024 the Group had a net cash position of £96m (2022/23: net debt £(97)m) and average net debt for the year of £(69)m (2022/23: average net debt £(96)m). The Group has access to £493m across two longer term revolving credit facilities that expire in April 2026, and two additional short-term credit facilities totalling £134m that expire in October 2024, taking total available credit from revolving credit facilities to £627m. The covenants on the debt facilities are net debt leverage <2.5x and fixed charge cover >1.75x. In April 2023 the Group's supportive lending syndicate agreed to relax the fixed charge cover covenant to >1.5x until after the October 2024 measurement date.

The deferred tax asset remained at £8m in the year and related primarily to the Nordics business. The potential UK deferred tax asset remained de-recognised in the year, which has been prudently assessed based on the current macroeconomic uncertainty.

Provisions primarily relate to property, reorganisation and sales provisions. The balance increased by £24m during the year due to additions for new provisions related to historical regulatory matters, and reclassification of balances related to insurance claim liabilities and commercial clawbacks.

Comprehensive income / Changes in equity

Total equity for the Group increased from £1,892m to £2,072m in the period, driven by profit after tax of £165m, the actuarial gain (net of taxation) on the defined benefit pension deficit for the UK pensions scheme of £57m, hedging gains of £4m and movements in relation to share schemes of £8m. This was partially offset by £(42)m for the translation of overseas operations and purchase of own shares by the EBT of £(12)m.

Share count 

The weighted average number of shares used for basic earnings increased by 2m to 1,106m due to a small decrease in the average number of shares held by the Group EBT to satisfy colleague shareholder schemes.

The dilutive effect of share options and other incentive schemes increased as some schemes improved performance against vesting conditions.