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Currys PLC is a leading omnichannel retailer of technology products and services, operating online and through 720 stores in 6 countries. Its shares have a premium listing on the London Stock Exchange (symbol: CURY), have a market cap of £700m and are a constituent of the FTSE 250 index.
We were delighted to welcome Dan Homan, Director of Investor Relations, Carla Fabiano, Head of Investor Relations, and Joe Saunders, Investor Relations Manager, to the latest Yellowstone Advisory webinar. The team provided an introduction to Currys PLC updated on current trading and outlined future prospects before engaging in a lively Q&A session. A recording of the webinar is available here.
Currys is the number 1 technology omnichannel retailer in all markets where they operate and have 20%+ market share in the UK and a 25%+ market share in the Nordics. Until recently they also operated in Greece but this business, which accounted for 7% of sales, was sold for 25% of the market capitalisation of the whole company. The UK&Ireland represents c 57% of sales and the Nordics 43% of sales. The business has a highly diversified revenue base by product, channel and also by services. They also operate at significantly larger scale than the competition being over 4x larger than the next biggest specialist competitor in the UK. In the Nordics the second largest competitor is different in each market giving Currys much greater scale than the competition.
The company vision is clear: “helping everyone enjoy amazing technology” a vision reflecting that technology is playing a more and more important role in all our lives. The strategy to achieve this vision has three pillars. The first is to invest in colleagues so that they can provide a good customer experience. Colleague engagement scores place Currys in the top 5% of global businesses for employee engagement. In the UK and in the Nordics after a brief drop in performance in early 2023, they are scoring strongly again. The second part of the strategy is making their products easy to shop. The key component of this is providing an omnichannel experience, which is a proven winning model for all technology retailers in all the developed markets. Customers access their products and services roughly equally between online only, store only and a combination of both online and in stores. The second component of easy to shop is providing excellence across the retail fundamentals of range, availability and price. All have shown progress over the last few years and one of the big success stores has been their ability to bundle products and services together to improve margin and lifetime value.
The final part in the strategy is keeping customers for life. While 80% of all UK households have shopped for electricals with Currys, they only spend 30% of their electricals wallet with Currys. Growing that share of wallet is a key focus for the company. Data is a key part of this strategy and comes from a variety of sources. The customer loyalty programme in the Nordics has 8m members and the UK programme has 11m – these members are happier, spend more and spend more frequently. Other data sources include the 2.2m credit customers, 9m customers on care and repair plans and 1.6m customers on ID mobile. Customers for life are also acquired by providing a range of services like credit, delivery and installation, protection, repair, refurbishment and connectivity. Services offer an in year uplift on profits but also a recurring revenue element which is why they are considered so valuable. Combining information about customers from a variety of sources helps create stickier, more valuable customers. Credit is a good example of a service that increases profitability and creates more loyal customers. Credit customers have great levels of customer satisfaction, spend more and return more frequently. The Care and Repair service is extremely popular and is designed to allow customers to pay for the services they value. Currys has built Europe’s largest tech repair centre in Newark which is open 363 days a year, processes 3m products from 40 different brands and this is one of their service differentiators. The last component of keeping customers for life is providing a good connectivity service. In the past mobile has been unprofitable but Currys ID mobile, a MVNO backed by “3” is growing at 30% and is a profitable cash generative business.
These strategy pillars are all helping to grow profits at Currys. Gross margins are growing as the company focuses on profitable sales, more profitable solution selling is increasing, more customers are taking additional services (like credit), the improved customer experience is being monetised more efficiently and overall costs have been taken out of the business. A target of £300m cost savings over three years has almost been achieved with £240m delivered to date and they are on track to hit their target by the end of the year. This has translated into gross margins and EBIT rising since 2020.
Looking specifically at the Nordics, the region delivered solid top line and bottom line growth for 10 years but had a difficult 2022/23 due to increased competition, overstocking and a weak consumer environment. A new leadership team was installed in 2023/24 and positive results are being seen. Colleague engagement scores are rising, as are customer satisfaction scores and the region is on track to hit their £25m cost cutting target. All in all, sales have stabilised and profits are growing again.
Touching on sustainability, Currys has 3 priorities: to achieve net zero by 2040, to eradicate digital poverty and to increase the use of circular business models. Rankings on all of these are improving at a number of external ratings agencies, no doubt in part due to the fact that ESG scores make up 40% of the bonus scorecard for management. The capabilities at the Newark centre are also key to achieving the sustainability goals by keeping products in use for longer.
Moving onto the financials, the balance sheet is in a very healthy position and net debt has almost been completely eliminated. The company is expecting to finish the year in a net cash position and with a pension liability of less than £200m. There are scheduled contributions into the pension scheme of £327m until 2027 but contributions will cease when the actuarial deficit reaches zero, which isn’t far away now.
Moving to margins, the ambition is to return to 3% EBIT margins which is at a level which has been surpassed in the past in both the UK&I and the Nordics. Some peers achieve over 5% margins and management very much believe these targets are achievable. If these 3% margins can be achieved and capex and exceptionals come in below 1.5% of sales then the company should be able to produce sustainable free cash flow of £150m a year which will result in growing returns to shareholders as payments to the pension deficit reduces.
Finishing off with guidance the group (excluding Greece), Currys expect to make adjusted PBT of at least £105m for the current year, capital expenditure to come in at around £50m, exceptional costs of £50m, the annual pension contribution to be £36m and for the group to finish the year in a net cash position.
So, in summary Currys is the number 1 retailer of tech products and services across the markets where it operates and its strategy is delivering good results. There is a team of capable and committed colleagues, their omnichannel model provides an easy to shop experience and through the use of data and services customers are staying longer and spending more. The balance sheet is in a very healthy position and achieving the 3% margin target should deliver attractive shareholder returns. No surprise that the company received interest from external parties: an offer from one at 67p was unanimously rejected by the board.
A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact info@yellowstoneadvisory.com