Currys : Peak Trading Update 2021/22 - Transcript

Currys

Peak Trading Update 2022

14 January 2022

Transcript

Disclaimer

This transcript is derived from a recording of the event. Every possible effort has been made to transcribe accurately. However, neither Currys nor BRR Media Limited shall be liable for any inaccuracies, errors, or omissions.

Alex Baldock:	Good morning, everybody. As you heard in November we're on journey towards a
	much more valuable business by making the most of a winning business model and
	as a stronger business now. And today, in that context, we're going to take you
	through peak trading, where we're outperforming the challenging market, and first
	Bruce, to talk through the numbers.
Bruce Marsh:	Thank you, Alex. Good morning, all. So let me start by reminding you of our key
	cash flow drivers that we spoke about at the Capital Markets Day. Our focus is
	fivefold: steady revenue growth driven by a wide range of initiatives, stable gross
	margin, operating cost reduction, which will get us to our target 4% EBIT margin,
	controlled capital expenditure at 1.5% of sales, and minimal exceptional cash costs.
Bruce Marsh:	During the first half, we very much operated in line with these principles. We enjoyed
	strong growth compared to pre-pandemic levels with group year and two year like-
	for-like up plus 15%. Our UK&I electricals business was up +21% and international
	up +19%. Our adjusted EBIT was £91m, which is flat year-on-year. And that was
	despite £16m of rates headwinds. And we achieved that through stabilising and
	growing our UK gross margin and taking cost out of the business.
Bruce Marsh:	We achieved strong free cash flow at £185m, which left us with net cash of £250m.
	Very healthy position, and up from year end. And finally, our total indebtedness was
	£1.4bn. That's a further £240m down on year end as we've seen pension deficit
	reduce and lease liabilities fall.
Bruce Marsh:	Moving on to peak performance on the 10 weeks to the 8th of January, as you've
	seen this morning, we're presenting a strong performance that we had in the first
	half decelerating over peak very much caused by softer markets. In the UK
	electricals business, our overall year-on-year sales fell over peak by (7)% compared
	to a market that fell by (10)%, but sales were still +3% over two years and that's
	+13% year-to-date over two years. In the Nordics, sales fell by (5)% off a very
	strong base. And that strong base is demonstrated by the fact that we were
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	achieved +16% positive year-on-two-years. And finally, Greece, strong year-on-year
	performance, +18%. Although obviously the Greek stores were heavily impacted
	last year due to closures.
Bruce Marsh:	So, in terms of our outlook, based on peak trading, we've nudged our guidance
	down to around £155m PBT. And that's down from £160m that we previously
	stated. Our capital expenditure is consistent at around £170m. We've taken down
	our net exceptionals cash cost from £70m down to £50m, partly due to the great job
	the team are doing on lowering our lease exit cost from store closures, but also the
	settlements of an outstanding dispute that wasn't budgeted.
Bruce Marsh:	We still aim to finish the year with at least £100m of net cash and we will commence
	a £75m annual buyback from today. But it's important to bring all of this back to our
	medium-term targets and everything that you've heard in relation to both the first
	half and peak leaves us confident that we can achieve our medium-term goals in
	terms of steady growth, stable margin, and lower cost to achieve 4% EBIT,
	controlled capital expenditure, and minimal new cash exceptionals. And this will
	allow us to deliver annual sustainable free cash flow of over £250m a year by our
	financial year '24 to grow shareholder returns. Let me hand back to Alex.
Alex Baldock:	Thanks Bruce. A few minutes from me now on the market, this peak, and how we've
	threaded through it. And I'm going to go through this as a fair clip before we get to
	your questions.
Alex Baldock:	I mean, as we flagged in December, the market was softer this peak, but even with
	that, it's worth that is larger than pre-pandemic. In the UK, +8% larger during peak
	and year-to-date +17% larger than pre-pandemic. I guess the question is how much
	of this larger market will stick? And we do expect some to and trends like hybrid
	working are not going away, gaming's been one of the stand-out categories this
	peak and reinforces our belief that a bigger slice of the consumer's entertainment
	dollars going to be spent in home. And there are other drivers too, like faster
	replacement cycles of the larger installed base, new product innovation from
	suppliers. So, we do expect some of this to stick, but we're not depending on it. And
	for all that, this Christmas, the market was softer, (10)% down in the UK year-on-
	year and more volatile.

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Alex Baldock:	The one question that this raises from this softer peak is, is Christmas less important
	now? And you could look at this picture and conclude that in the last five years that
	the average peak week has gone from being 2.1 times the sales of a normal week to
	1.7. Now, maybe this is just a pandemic peculiarity of the last two years, availability
	shortages, some pull forward, and maybe this peak will revert, but maybe not. And
	maybe this is a sign that technology is a less discretionary item now, a more
	essential year-round category, less peaky, which obviously would be good for this
	business in more than one way. We don't know yet and we'll know in the next couple
	of years, but this is certainly one thing that we intend to keep a close eye on.
Alex Baldock:	So that's the market. What sort of carries within it? Well, there's a couple of things. I
	mean, first of all, sales, as you see here have been up and down during peak and
	have been softer than expected, especially in the UK where we're just growing +3%
	year-on-two-years in UK electricals, but in that softer market, we've gained market
	share. So fully a +100bps of market share gained during peak and that's +60bps
	year-to-date. And that leaves us, as you heard from Bruce still on track for the
	steady growth that we've committed to for this full year. I mean circa +11% year-to-
	date, year-on-two-years, arguably a little bit better than steady, but that's what
	we've been able to do.
Alex Baldock:	Now, some products did sell well. And this one has been a gaming Christmas. I
	mean, consoles have flown out the shops. VR has broken out of niche and very
	much into the mainstream. Appliances, large and small have done really well. And
	fridge-freezers for one thing, I think we sold 24,000 American style fridge-freezers,
	about half the total market range. Range cookers have been great. Dyson Hair
	Care, and so on. So, there've been some stars in the show. Many of the mobile
	products like Google 6, iPhone 13 family, Samsung Air, have had good Christmases
	as well as we start the recovery in our mobile business and get that back into
	growth. But others obviously have struggled in the overall context of a market.
Alex Baldock:	I talked about a stronger business at the start, and this is an ever-stronger business.
	And we can show that by our progress in a couple of big strategic priorities,
	omnichannel, notably. And omnichannel wins, we've asserted, and it did again
	during this peak period. Yes, more customers are shopping online, but we're
	winning online. As you see on the left-hand side here in the UK, we are showing
	decent growth and good share gains online. Equally, stores have reopened strongly,
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	as you see bottom left here. The channel mix has reverted to the circa 50/50 that
	we expected. And importantly though, omnichannel is about bringing online and
	stores together, giving every customer the best of both. And we've made excellent
	progress here during peak on the big three customer benefits of omnichannel,
	whether it's as far as the customer's concerned, never being out of stock in store,
	online in-store sales up over 50%, whether it's getting technology to the customer
	right now.
Alex Baldock:	The UK order&collect sales up over +170% and helping wherever the customer is
	on their sofa, face to face advice from an expert via our 24/7 video shopping service
	shop live, which continues to make customers happier. They're four times likely to
	buy something and they spend on average 60% more than unassisted online. So
	good progress in omnichannel and excellent progress in services. Notably credit,
	where our adoption level of 13.9% during peak was fully +350 basis points up on
	peak last year. More customers are choosing our credit and importantly for gross
	margin stability, we're getting better at bringing credit to customers online as well.
	And both online and stores are now at over 13%. And the gap in adoption levels
	between online and stores has narrowed from 3.1%pt to 1.5%pt year-on-two-year.
	Really good example of levelling up profitability between channels and really
	important for gross margin stability as I say.
Alex Baldock:	Our confidence that this progress is sustainable is further reinforced by happier
	colleagues making for happier customers. We've got record levels now of colleague
	satisfaction. That's new data, that sees us get up to world class levels on the left-
	hand side. That's good because it helps produce happier customers. As you see on
	the right-hand side here over peak, which can be a pretty challenging time of year
	for the customer experience, a full five points of gain year-on-year, which makes us
	happy and behind the scenes of all of this operationally, our best ever peak as well.
	IT stability has never been stronger, customer service levels, whether it's in the
	contact centres, repairs, returns have been really strong, and our delivery of
	customer satisfaction is significantly improved.
Alex Baldock:	Finally, good progress on sustainability as well with scope one and two emissions
	down 44% year-on-year in half one. So good progress overall towards an ever-
	stronger business. And in summary, what would I say? Well, yes, the market has
	been disappointing this peak, but it's still bigger than it was pre-pandemic and
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