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 Bruce Marsh, CFO, Dan Homan, Director of Investor Relations and Joe Saunders, Investor Relations Manager, to the latest Yellowstone Advisory webinar. The team outline the company strategy, recent performance as reported at the full year results on 27 June and discuss future prospects for the company. A recording of the webinar is available here.
Currys performed well over the last year with Nordics getting back on track after a strong year, the Greek business was disposed of for an attractive price and the UK business is showing good momentum. In terms of outlook the business is planning prudently but confidently for the future, the focus is on growing profits and cash generation, the balance sheet is in good shape and the company believes it’s in a good position for the current and future years.
There are four pillars to the Currys strategy as follows: Capable and Committed Colleagues; Easy to Shop; Customers for life; and Grow Profits. Currys believes its colleagues are its most important asset and so is investing heavily in tools, training, wellbeing, management and rewards and has consequently benefitted from improvements in engagement levels. Current engagement scores from colleagues would place Currys in the top 10% of companies globally and the top 5% within the UK, a position they are particularly pleased to have achieved. The next part of the strategy is being easy to shop and this starts with getting the retail fundamentals of range, price and availability right. Progress has been made across all three metrics with a particular step up in availability. Easy to Shop is also about being available where customers want and the Currys Omni channel strategy is key in delivering this. Over 2/3 of Currys customers want to use stores as part of their shopping journey.
The third strategy pillar is keeping customers for life. This is centred around providing complimentary services to the products sold which are high margin recurring revenue streams. Customer purchases are helped by the provision of credit, products can be delivered and installed, repair and recycling services are offered and finally connectivity services are provided to enable customers to get the most out of their products. On the repair side, Currys is unique in owning their own repair facilities at scale and they provide a seven day repair guarantee which is highly valued by customers. Repair plans have grown significantly during the year and further growth is targeted through increased awareness of the service. Mobile/Connectivity is another important part of the service revenue line. A problem area in the past but for the last 2 years profits and cash generation have been growing driven by ID mobile, their own MVNO. ID Mobile grew more than 30% in 2024 taking subscribers to 1.8m. Churn is falling whilst revenue per user is growing putting the mobile business in a very strong position. Some analysts value the business at £240 per subscriber and forecast 2m subscribers by the end of the year valuing the whole business at c£480m, more than half of the current market cap.
If you take all of the improvements made across the strategy pillars not only has there been an improvement in company profitability but there has also been a significant improvement in customer satisfaction. On Trustpilot the company has a 4.1 star rating and has overtaken John Lewis in terms of most trusted retailer within their category.
The final strategy pillar is to grow profits and significant cost savings have contributed to this. Over the last 3 years almost £300m of gross cost savings have been made in the UK, more than offsetting inflationary pressures. In the Nordics almost £30m of gross cost savings have been made over the last year, broadly in line with inflationary pressures.
Looking more closely at the financials the company has performed well despite the negative impact of the cost of living pressures on the overall size of the market. Sales fell 2% last year to £8,476m but profits grew 10% to £118m. Free cash flow improved by £174m to £82m and the balance sheet has been transformed, from both improved operating cash flow and the sale of the Greek business, to a net cash position of £96m, Earnings per share rose 7% to 7.9p and the company decided not to pay a dividend.
Looking at progress over the last 2 years, the UK grew profits from £117m to £142m improving margins from 2.1% to 2.9%, despite the headwinds from a declining overall market. This was achieved through a 120bps improvement to gross margin and significant cost savings. As the market comes back and if the company is able to hold onto the cost savings made, Currys believes it can significantly move ebit margins higher. For the Nordics, FY 22 saw peak profits delivering £142m of profits and a margin of 3.5%. Last year the Nordics delivered £61m of profits and a margin of 1.7%. Revenues and profits were hit by a falling market and a 12% devaluation of the NOK. However, they remain optimistic about raising margins back to historic levels. Some of this will come through plans to grow gross margin and reduce costs and some will come from a recovery in the overall market.
Free cash flow was exceptionally strong improving from a cash outflow in the previous year of £92m to a cash inflow of £82m. Operating cash flow was flat at £246m, capex was cut by more than 50% to £48m and there was a big improvement in working capital outflow from £127m to £34m. Moving from FCF to the overall improvement in the balance sheet, the Greek business was sold for £156m, a great price, which has also left a much streamlined business. About 7% of revenue was sold with this transaction for 25% of the market cap, which underlines the hidden value in the company. The pension contribution was more than halved to £36m and all in all there was an overall improvement in net cash of £193m taking net cash at the period end to £96m. The net debt and pension deficit has improved from a negative £800m in 2020 to less than £100m.
Moving onto outlook, the company is targeting a return to at least 3% margins in both the UK and the Nordics over the medium term, a level they are close to in the UK. In the Nordics this has been achieved in many of the previous years so getting back there should be eminently achievable. Improved gross margins will come from selling more accessories with products, more service sales, increasing credit adoption, charging for delivery and installation, cutting out less profitable products and reducing supply chain and operation costs. Substantial costs have been reduced from the business but there is more to be done here too. Outsourcing some functions has been beneficial and this will expand, group synergies are being expanded and a right first time approach has brough good cost savings particularly within the delivery unit. AI is also driving cost savings within after-sales by supporting the contact centre and the service infrastructure.
So overall management are optimistic about growth and believe it will come from a number of sources. The overall market has the potential to grow driven by the adoption of AI and new technologies in mobile phones, laptops and tablets, there are further growth opportunities in solution selling, the strong B2C channel can be improved further and there is increased focus on growing the B2B opportunity, there is opportunity to grow in the gaming and health and beauty categories where Currys is underweight relative to their overall market share, services will continue to be a focus and store and online channels will continue to be optimised.
All in all this should lead to a significant improvement in free cash flow generation. Funds will be used to maintain a prudent balance sheet, pay required funds into the pension scheme where the deficit is falling rapidly, invest to grow the business, return to the dividend list and any surplus cash after this will be available to return to shareholders.
The company has had a good start to the year in line with expectations and they expect to grow profits and cash flow irrespective of what happens to the market this year. With regard to specific guidance, capital expenditure is expected to be £90m, net exceptional cash costs £30m and the annual pension cost is expected to be £50m.
In conclusion, Currys is the market leader in all the markets where they operate, it has 4 strategic pillars which are delivering higher profits and cash flow, there is now a robust balance sheet which places them in a really strong position for the future. The management team presented confidently and with everything that is being delivered it is easy to see why.
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
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