Currys : Half Year Results 2021/22

15 December 2021

Unaudited Results for the Half Year Ended 30 October 2021

Strong trading and cash generation as strategic progress continues

We Help Everyone Enjoy Amazing Technology

Key Highlights

• Strong UK market share gains, mitigating industry-wide supply chain challenges
• Maintaining previous profit expectations despite a softer market in the Christmas run-up
• Strong colleague engagement and customer satisfaction continues
• Now under one market-leading brand in each country with successful move to single 'Currys' brand in UK & Ireland
• One of only two UK retailers to receive 'A' score from CDP for our work to combat climate change

Financial Performance

• Group LFL (1)% (Yo2Y +15%)
• Group total Revenue (2)% (Yo2Y +2%)
• Group adjusted Profit before tax £48m (H1 2020/21: £40m, H1 2019/20: £2m)
• Group Profit before tax £48m (H1 2020/21: £45m, H1 2019/20: £(86)m)
• Free cash flow £185m (H1 2020/21: £499m, H1 2019/20: £77m)
• Period end net cash £250m (H1 2020/21: £269m, FY 2020/21: £169m)
• £75m share buyback commencing in January, interim dividend of 1.00p declared

All figures are year-on-year unless stated. There are a number of non-GAAP measures and alternative profit measures "APMs" discussed within this announcement. Adjusted results are consistent with how business performance is measured internally and presented to aid comparability of performance. Refer to the glossary and definitions section set out at the end of this report for further details on definition, purpose, and reconciliation to nearest statutory measure as well as information on the restatement of the comparative interim results announced on 8 October 2021.

Alex Baldock, Group Chief Executive

"We've had a strong first half of the year. We grew colleague engagement and customer satisfaction, gained market share and stabilised gross margins in the UK, grew profits and generated strong cash flow.

Technology is now more important than ever to people's lives, and we're best-placed to make the most of that. More and more, we are doing so.

We have strategic clarity, aligned behind a common purpose: "We Help Everyone Enjoy Amazing Technology". We're a simpler, more focused business, and have completed the hardest yards of our transformation, with big legacy issues now behind us, and the pandemic so far successfully navigated. Our big international business has continued to shine, and we can now put our weight behind a single, market leading brand in every country.

Above all, we're showing that in technology retail omnichannel wins. Yes, more customers are shopping online, and our hard work to build a strong online business has seen us thrive here. But most customers buy tech through both online and stores, our sweet spot, where we've worked hard to build on our strengths. That's paying off.

Our market has been softer over recent weeks, and we may face into further headwinds from omicron and associated restrictions, but the stronger business we've built can ride out both the industry-wide disruption to supply chains and bumpy demand. After the strong first half, we remain on track to meet the expectations we set out a month ago for full year adjusted PBT of around £160m.

We owe all this to our tens of thousands of capable and committed colleagues, 16,000 of whom will receive £1,000 of free shares in February, as we continue to make all colleagues shareholders. It's their skill and will that's keeping us on track for another successful year, and that's transforming Currys into a business to be proud of. I'm proud to be their colleague."

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Divisional Highlights

• UK&I Revenue (4)%, LFL (3)% (Yo2Y Revenue (9)%, LFL +11%). Adjusted EBIT £23m, +£13m YoY (EBIT £33m) o Electricals LFL (1)%, Yo2Y LFL +21%
  o Adjusted EBIT growth of +130% driven by +110bps gross margin improvement and cost reductions
• Nordics Revenue +3%, LFL (1)% (Yo2Y Revenue +20%, LFL +19%). Adjusted EBIT £57m, £(17)m YoY (EBIT £51m) o Online sales +9% (ccy neutral), contributing 24% of sales, +2ppts year-on-year
  o Adjusted EBIT +10% Yo2Y but down (23)% YoY due to gross margin decline and planned transformation costs
• Greece Revenue +15%, LFL +8% (Yo2Y Revenue +28%, LFL +19%). Adjusted EBIT £11m, +£4m YoY (EBIT £11m) o Adjusted EBIT +£4m YoY due to strong sales growth and improved gross margin

Performance Summary

Group sales were flat YoY on a currency neutral basis, as +4% growth in our international business was offset by the decline in UK&I sales and the Carphone Warehouse Ireland closures.

				Year-on-year			Year-on-2-year
	H1	H1		Currency	Like-for-		Currency		Like-for-
Revenue	2021/22	2020/21	Reported	neutral	Like	Reported	neutral	Like
	£m	£m	% change	% change	% change	% change	% change	% change
UK & Ireland	2,546	2,650	(4)%	(4)%	(3)%	(9)%	(9)%		11%
International	2,239	2,209	1%	4%	-%	18%	21%		19%
- Nordics	1,959	1,952	-%	3%	(1)%	17%	20%		19%
- Greece	280	257	9%	15%	8%	23%	28%		19%
Group	4,785	4,859	(2)%	-%	(1)%	2%	3%		15%

Group adjusted EBIT was flat YoY. UK&I EBIT margins increased due to higher mix of store sales and continuing cost reductions. This was offset by lower Nordic profits due to a decline in gross margin after the strong performance last year, planned transformation cost and additional costs to mitigate supply chain headwinds.

Operating cash flow was in-line with last year. Capital expenditure and exceptional cash costs were lower than last year but as expected, working capital inflow was substantially lower for the half, resulting in lower free cash flow.

	H1 2021/22	H1 2020/21	H1 2021/22	H1 2020/21		Currency
Profit and Cash Flow Summary			Adjusted	Adjusted	Reported	neutral
	£m	£m	£m	£m	% change	% change
Segmental EBIT
UK & Ireland	33	25	23	10	130%	140%
International	62	75	68	81	(16)%	(16)%
- Nordics	51	68	57	74	(23)%	(24)%
- Greece	11	7	11	7	57%	83%
EBIT	95	100	91	91	-%	-%
EBIT Margin	2.0%	2.1%	1.9%	1.9%	- bps	- bps
Net finance costs	(47)	(55)	(43)	(51)
Profit before tax	48	45	48	40	20%	20%
Tax	(6)	(28)	(16)	(12)
Profit after tax	42	17	32	28
EPS - continuing operations	3.7p	1.5p	2.8p	2.4p
						2%
Operating cash flow			134	133	1%
Operating cash flow margin			2.8%	2.7%	10 bps
						(63)%
Free cash flow			185	499	(63)%
Net cash			250	269

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Current Trading & Outlook

During the last few months, well-publicised global supply chain challenges have affected the industry. We have coped with these challenges well, mitigating the impact for our customers by making the most of the strength of our supplier relationships to maintain market leading product availability. Nevertheless, there are costs associated with some of these mitigations, and there has been some impact on our product availability and on sales of some in-demand products.

After a strong sales performance in the first half of the year, market demand has softened in the run-up to Christmas. Against this backdrop, we have taken market share in the UK, margins have remained stable and customer satisfaction has further improved.

The immediate outlook has become more uncertain, with the omicron Covid-19 variant and associated government restrictions potentially further dampening market demand. Nevertheless, the strong first half performance from a stronger business means we remain on track to meet expectations outlined at our Capital Markets Day last month for full year adjusted PBT of around £160m.

Guidance

Current year guidance - as previously guided:

• Capital expenditure of around £170m
• Net exceptional cash costs of around £70m
• To finish the year with at least £100m of net cash
• £75m annual buyback to commence when close period ends in January 2022

Medium term guidance - as previously guided:

• Group to generate cumulative free cash flow of more than £1bn over 2019/20 to 2023/24
• Group expects at least 4.0% adjusted EBIT margin by 2023/24

Capital structure and allocation - as previously guided:

As announced at our Capital Markets Day on 4 November, reviewed our capital allocation framework, with a particular focus on the appropriate balance sheet leverage, our ongoing pension commitments, our dividend policy and on our ability to return surplus cash to shareholders.

We intend to maintain a strong balance sheet. We'll therefore assess our financial strength on a total indebtedness basis and will target the following metrics1;

• Fixed charge cover of greater than 1.5x
• Indebtedness leverage of less than 2.5x

After maintaining a prudent balance sheet and paying the agreed pension contributions2, our refreshed capital allocation priorities are:

1. Invest to grow the business, profits, cash flow
2. Pay and grow the ordinary dividend
3. Return surplus cash to shareholders3

• Fixed charge cover is calculated as annual operating cash flow plus cash lease costs divided by total annual cash lease costs, interest and pension contributions
  Indebtedness leverage is defined as total indebtedness divided by operating cash flow plus cash lease costs 2 Monthly pension contributions of £6.5m are due to continue until 31 December 2028
  3 Annual cash returns including ordinary dividend in excess of £78m per year to be matched by additional pension contributions

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Results call

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

Dial-in: [phone], Confirmation code: 7960441

Next scheduled announcement

The Group is scheduled to publish its Peak trading update covering the 10 weeks to 8 January 2022 on Friday 14 January 2022.

For further information

Assad Malic	Corporate Affairs	[phone]
Dan Homan	Investor Relations	[phone]
Anastasia Alden	Corporate Communications	[phone]
Tim Danaher, Sam Chiene	Brunswick Group	[phone]

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 832 stores in 8 countries. We Help Everyone Enjoy Amazing Technology, however they choose to shop with us.

In the UK&I 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 33,000 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 are supported by a sourcing office in Hong Kong, state-of-the-art repair facilities 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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We Help Everyone Enjoy Amazing Technology

Chief Executive's Review

Amazing technology now plays a more vital role in our customers' lives. Market demand will have its short-term ups and downs, but the big picture is of a technology market sustainably larger post-pandemic. Hybrid working will become normal, and in-home entertainment will continue to grow. More time at home means more usage, and more customers' eyes have been opened to what new technology can do, both of which point to faster replacement. A larger installed base means more upgrades, repairs and recycling and means more opportunity to sell complementary products and services. We have seen these trends during the first six months of the year, and we expect some of this increased demand to be permanent. The UK electricals market was down (1)% compared to last year but fully +21% larger than two years ago, and +20% larger than two years ago in the Nordics.

Against this backdrop, we are continuing to grow our leadership position. In the UK, our Electricals market share increased by +0.7ppts during the period. Even more tellingly, our omnichannel model has proven itself capable of thriving in any circumstances as our market share is up by over +3ppts in stores and online compared to two years ago. This equates to an overall share loss of just (0.3)ppts over two years as the market has moved more online. In the Nordics our market share was down (1.4)ppts against the backdrop of +1.5ppts gain during the same period last year; again, we have gained share in both channels compared to two years ago.

This period has also seen challenging conditions in our supply chain. Since the start of the Covid pandemic in early 2020 there has been a shortage of high demand tech products or products where manufacturing has been limited due to pandemic restrictions. In the last few months, these problems have been exacerbated by well documented issues such as oceanic freight inflation, a shortage of HGV drivers, 7.5tonne van drivers and warehouse operatives as well as Brexit-related teething problems with getting stock into our Irish business.

We have maintained market leading stock availability by working closely with our suppliers, making the most of the strength of our relationships with them, and increasing our stock holding. Our customer promises have been kept by recruiting and retaining colleagues through increasing base pay, adding sign-on and retention bonuses and moving retail colleagues into our supply chain, as well as through the broader ongoing transformation of our supply chain.

Despite these challenges, our customer satisfaction ratings have improved again. Our Nordic businesses have continued to see "happy or not" scores climb from already high bases while in the UK we have seen Currys NPS improve by almost +5 compared to two years ago. Pleasingly, satisfaction measured at almost all parts of the customer journey was up materially compared to last year. However, there is still a lot of work to go in this area and a lot of our energy will continue to go into fixing customer pain points.

In October we made a change that will significantly improve all areas of our UK&I business by moving to a single brand, Currys. Currys has been providing vital technology to enrich customers' lives since 1884. As a single, trusted brand, more customers will see Currys as their natural choice for electricals, mobile, products and services. This move doesn't just help customers, it makes it very clear to our almost 19,000 UK&I colleagues that we are part of a single joined up business, aligned behind one vision, one strategy and one set of values.

At the same time as delivering robust in-year results, we've continued to make strong progress on the important areas of our strategy.

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