Currys (LSE:CURY) — Investor Presentation

0:00 Good afternoon, and welcome to the CURRYS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Dan Horman. Good afternoon, sir.

0:31 Hi. Good afternoon. Thank you very much for joining us today to talk about CURRYS PLC. I'm Dan Horman, Director of Investor Relations, and I'm joined by my colleague, Carlo Fabiano, who is Head of Investor Relations here at CURRYS. Just to briefly introduce you to CURRYS, I'm sure many of you are familiar with The UK brand, but we are the international market leader at selling omnichannel technology retail and services across both The UK and Ireland and all of the Nordic countries. We've been following a strategy for several years now based around capable and committed colleagues and easy to shop experience and customers for life, which we'll talk to in more detail later. And that strategy is delivering results in terms of better profits and free cash flow.

1:21 And we are now doing that on a balance sheet that is significantly stronger than it was a few years ago, allowing us to reinitiate and grow shareholder returns. Just to touch on the group in a little bit more detail. So we are present in The UK and Ireland as CURRYS, where we have almost 300 stores. And across the Nordic countries where we trade under the L Shop brand, over 400 stores. We've got almost 9,500,000,000 of annual revenue and 24,000 colleagues, but the most important point on this slide is we are the market leader. So in The UK, we've got almost 18% market share, and in The Nordics, we've got 28% market share, allowing us to serve all the customers across those markets with a full range of technology products and services.

2:15 And before I hand over to Carla to talk about our strategy, I just wanted to touch on technology. We see technology is as increasingly important and embedded and prevalent in everyone's lives, whether that's helping you stay connected, fit, productive, clean, healthy, entertained, technology plays an ever larger part. And one of the challenges I often pose people is walk into your home this evening and start counting up the number of pieces technology

2:45 that are there. And I think you'll be quite amazed at the number of pieces that you rely on on a day to day basis. And that's what we're here for, to sell that technology.

2:57 And everything we do at CURRYS, it starts with our vision, which is to help everyone enjoy amazing technology. That underpins our strategy, which as Dan was mentioning, is based around the pillars of the customer experience. We look to build capable and committed colleagues, an easy to shop experience for customers, creating customers for life. And we know that if we continue to deliver on those three pillars, we will continue to grow profits as a business. Taking each of those pillars in turn and starting with capable and committed colleagues, it's very difficult in a business like ours for the customer experience to be better than the colleague experience. If a customer comes to one of our stores and is faced by a colleague who is unhappy and disengaged, that would not lead into a positive result for us. And that is why we have unashamedly spent time, money, and effort making sure engagement levels are high.

3:55 And that is right through the training tools, well-being, leadership, right to the reward that colleagues get. The result of which is world leading engagement levels. We're proud to say that as measured by Viva Glint, which is a Microsoft company, we are ranked amongst the top 10 companies globally in terms of engagement. And that is turning into record level customer satisfaction levels across both UKNI and The Nordics. The second pillar of our strategy is easy to shop. And that for us starts with having an omnichannel model. It's long been debated whether a retailer should have a physical presence alongside digital channels, and I think that debate is now settled.

4:43 If you look at all the developed nations around the world, the top tech retailers command an omnichannel model. And if you look more generally at how tech investors and and customers spend. The chart on the left hand side of this slide tells you that 60% of all journeys touch a store, whether that's part of the research process, trying and testing products, or the actual acquisition of the physical product in store, that is 60 of all journeys. And if you look at us in The UK and I, a third of our sales are through stores, another third through online channels. And finally, the last third is through omnichannel that encompasses click and collect and purchasing in store for delivery at home.

5:32 And that is the one channel that is growing the most across both The UK and I and The Nordics. The second aspect of easy to shop is what we call the retail fundamentals. And here, we look at price, range, and availability. It is very easy in retail to overlook at these fundamentals. But actually, no matter how developed a company's strategy is, if it's not covering those retail fundamentals, it will not succeed. And that is the reason why we have relentlessly prioritized these aspects of the business.

6:10 The third pillar of the strategy is customers for life. The key to understand this pillar is that currently 80% of UK households purchase products at CURRYS, but we only get 30% of their annual tech budget. There is a great opportunity here to tap into the remaining 70% through customer insights. So it all starts with data. This year alone, we have consolidated in the UKNI five databases comprising over 20,000,000 customers, and that is allowing us to have a one single view of the customer, providing more bespoke solutions and services that are more valuable to our customers and more profitable for us. Over time, there is a potential here to monetize these through retail media.

7:02 The other aspect of customers for life is services and solutions. If I was to say what is the one aspect of CURRYS business that is least understood by the market and actually customers is that we offer services. We want to help customers enjoy technology through the life cycle. And that starts right at the beginning of the purchasing journey. We offer credit to customers to help them with affordability. Technology can be expensive. And at the moment, we have 2,700,000 credit customers, and that is growing 12% year on year. It's important to note here that we're just just a broker of credit. We're not the provider. We partner with BNP Paribas, and ultimately, we don't have any balance sheet risk associated with this service.

7:53 Once the customers acquire the products, we help them with delivery and installation. If you think about the type of products we sell, oftentimes, they require a two person technical handling and installation of what can be a specialized setup like a gas appliance. Last year, we delivered 1,200,000 big box installations. We also help customers get the most out of their technology, and this is mainly through mobile connectivity. We have our own MVNO, which for those of you who don't know, stand for mobile virtual network operator. Essentially, we rent network access through Vodafone three and offer that connectivity to our customers through our own ID brand.

8:38 Currently, we have 2,600,000 ID subscribers, and that is also growing double digits. Finally, we help customers give technology a longer life, and this is through extended warranties and care and repair plans, with almost 12,000,000 total active repair plans as a group. I want to spend a couple of moments talking about ID. Mobile. So as I was saying, this is our own MVNO, and this is an asset that has been growing quite nicely over the last couple of years. If you look at the sell side analysts that have done some research in terms of these assets, comparing other similar transactions in Europe, they have valued similar assets assets between 200 and £400 per subscriber.

9:30 Currently at 2,600,000 subscribers, I'll let you do the math, but this is clearly a very valuable asset that we're growing. Now we touched on colleagues, easy to shop, and customers for life. And as I said, if we continue to deliver on those three, we will grow profits. But there are other opportunities beyond core electricals that we are tapping into. So this slide is showing you that in The UK and I, our core electrical market is worth £17,000,000,000. But once you add mobile handsets, services, b to b, and new categories, which I will touch on shortly,

10:11 you will see that we are more than doubling our total addressable market from 17,000,000,000 to 48,000,000,000 in The UK. And it's a similar story in The Nordics where we are targeting b to b and kitchens through our Epoch brand, and that is also more than doubling our TAM from 15,000,000,000 to 34. Now touching a little bit on new categories. We try we try to segregate these into different buckets. It starts with new and emerging tech. This is technology that sits within core electricals, but that helps us mitigate declines elsewhere in the category. And here you can see things like metaglasses, aura rings, LED masks, and robot vacuums.

11:02 Then we have adjacent categories, and here we sell pet technology, kids technology, and fitness. And in addition, we also sell seasonal and impulse purchases. So for example, batteries and our Christmas ranges. And finally, as I touched on before, in The Nordics, we offer modular ready to assembly kitchen systems through eBook, which represents a 1,000,000,000 TAM.

11:32 Last but not least, I wanted to expand on b to b. Here, we're targeting SMEs with less than a 100 employees, and this plays to our strengths. If you think about the foundations in b to c, which are obviously suppliers, products, services, channels, supply chain, we share that ecosystem with our b two c... B two b customers, sorry, as well. It is currently 8% of group sales and is growing double digits in the UKNI and The Nordics. Our ambition is to more than double UKNI sales in three years, and that is from a 2425 base. And in The Nordics, we want to increase b to b sales by over 50% in four years, again, from the same base.

12:22 And with that, I hand over to Dan to talk you through the financial performance and capital allocation. Thank you, Carla. So when I think about the financials and what we're trying to achieve, the first element of them is we want to deliver steady sales growth. We are not aiming for blow the lights out sales growth, but we want to deliver some sales growth every year. And we're doing that, first of all, through growing in our core markets. And even when the core markets have been against us recently and seeing declines, We are growing market share and growing in those core markets. But also through the diversified range of growth areas that Carlo just talked about, whether that's the services we offer, notably ID mobile and our protection services, whether that's b to b or new categories.

13:15 All of these are enabling us to outgrow the core market and to outgrow that further again through these diversified opportunities. And look, just to talk to recent performance, The UK for the four months to the end of August, we grew at 6% like for like. And The Nordics for the four months to the end of August, we grew at 9% like for like. We're clear that there was a little bit of a boost in both of those figures from the very hot summer and World Cup, but we still see that the recent trend of low to mid single digit like for like continuing. As well as growing our sales, we want to translate that into better profits. And we do that through, first of all, maintaining or growing our gross margins as we've done very successfully over the last few years and keeping our costs tightly controlled.

14:10 And we've got some ambition to have EBIT margins of at least 3%. Now you'll see in The UK that we've been bumping along at 2.9% for the last three years. That is despite in over the particularly the last year, some significant headwinds in the form of additional costs from the government. If it wasn't for those additional costs, we would have been well clear of a 3% margin in The UK already. And in The Nordics, having historically generated 3.5% margins or better for about twenty years, there was a period that we described as a perfect storm of retail conditions in The Nordics following COVID, which we are building back from very handsomely and continue to see opportunities to build back to above the 3% margins that we're targeting.

14:59 It should be said that 3% is not the limit of our ambitions. And if you look across global peers and indeed our own historic performance, you'd say that 3% isn't a heroic ambition, and our plan is to go beyond that.

15:16 And we are generating those better margins on a balance sheet that significantly improved. If I go back to pre COVID, we had almost 1,000,000,000 of debt in the business between the pension deficit and the annual lending that we had on the balance sheet. We have now transformed that into a net cash position. The net cash that we finished the year end, the last year end with, was a 176,000,000. And on accounting basis, the pension deficit was less than 6,000,000. That means that overall, we've got a 170,000,000 of cash.

15:54 So what do we want to do with that cash? Well, first of all, we want to maintain a prudent balance sheet. We want to maintain a cash balance of at least $100,000,000 at the year end, and that's very similar to the average cash balance that we will hold through the year.

16:11 Then we must continue to pay the required pension contributions. But the good news is that those pension contributions, having been 60,000,000 to $80,000,000 a year for the last decade, are now $13,000,000 a year for the next five years, and they will drop further if we make additional accelerated contributions. Once we've done those, we want to invest in the business, and we've been very clear that annualized normal capital expenditure should stay below GBP 100,000,000 per annum. We're a well invested business across our store estate, across our supply chain and across our IT. And so we don't need to overinvest in the business. We want to generate a good return on the investment we make. But given that the cash we're now sitting on, we do have flexibility to go beyond this, either inorganically or organically should suitable opportunities arise.

17:04 Finally, then we want to return cash to shareholders. So we want to pay and grow an ordinary dividend. And last year, we paid 3p per share at 4.5 times cover, and we expect that coverage to reduce to four times in the current financial year. We're scoped to continue reducing that cover and growing that dividend in the future. But then surplus capital, want to be available for buybacks, and we're doing a GBP 50,000,000 buyback at the moment for our second year in a row. So overall this year, we will return at least the GBP 85,000,000 to shareholders this year, up on the $75,000,000 that we returned to shareholders last year.

17:42 So to summarize before handing over to your questions, CURRYS is on a really good trajectory. We are growing our colleague and our customer satisfaction. We're growing both in our core market and in new business areas. We are growing in the services and the solutions that we offer, and all that means that we are growing our profits on an ever healthier cash base. This gives us the flexibility to continue investing in growth and continue outperforming the competition in our markets. With that, I'll leave it there and hand it over to questions. That's great. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab situated on the right hand corner of your screen.

18:41 Dan, if I could just hand over to you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Yes. Absolutely. And thank you for the questions that have been submitted. So the first is how is Fredrik's approach likely to differ from Alex's?

18:55 And when can investors expect to see him set out his own priorities? So to give you some context for those less familiar, Alex Baldock was CEO of the business for eight years, and he announced that he was leaving the business in the spring. There was a well planned, succession, and Frederick Turnerson took over as CEO in August with a proper handover from Alex. Frederick joined the business having been CEO of The Nordics for the last three years and actually having been part of the CURRYS group for over twenty years, having started on the shop floor in Oslo, more than twenty years ago. He only starts in August, so he's taking his time to fully understand the business and fully understand where his priorities and where his energy needs to go. And he's likely to lay those out in January alongside our peak results.

19:50 But what I can say is this, Frederick was an internal candidate, so the board are clearly pleased with the trajectory of the group. And it is likely that Fredrik will want to see an evolution of strategy rather than anything revolutionary on a plan that is clearly working. But he brings great expertise in retail and a long history of retail in The Nordics that I'm sure he'll bring benefits to to The UK, while equally learning from The UK to benefit his previous business in The Nordics. So overall, I'd expect to see a continued focus on what's working well and doubling down on where that is. The next question is how significant is b to b to group profit today and how much further can it scale?

20:41 Carla, do you want to take that? Sure. I'll take that question. So as I was mentioning before, b to b now represents 8% of group sales. It is a business that is growing double digits in both our geographical segments, and we can continue to expect them to to do so in the future given the ambitions that I talked about

21:02 a few moments ago. Now although we don't disclose profitability by segment, you can expect that as this business scales, it will be more profitable than our our b to c business. Essentially, services buy more often, and they attach more solutions. So you can expect that to continue to grow. And, actually, The Nordics is a bit more advanced in this journey than The UK. Over there, 12% of sales represent b to b. In The UK, it's more around 3%. So this represents a good footprint for growth. And, obviously, sharing knowledge, as as Dan was saying, with Fredrik being now group CEO and bringing all that experience from The Nordics.

21:49 Thanks, Carla. The next question is, what aspects of the Nordic operating model can be transferred to the UKNI to improve profitability? Well, look, one of the great advantages of being a group is that a lot of the business is quite analogous and easy to transfer. And there's always elements of one part of the group that we are learning from to improve another part of the group. And if I give you a couple of examples, The UK is much better at our credit proposition, CURRYS Flexpay in The UK. And that's something the Nordics are keen to learn from and keen to improve. Another example that goes from The UK to The Nordics is

22:30 we've launched an MVNO in Finland in the last twelve months. And that's been really driven by some of the learnings that we've had out of ID mobile in The UK. So that's a couple of examples of UK going into Nordics. Coming back the other way, there is plenty that the Nordics do that The UK can learn from as well. They're much better at selling some of the periphery products in store. So for example, when you buy a coffee machine, are you getting all the correct coffee beans cleaning materials for that machine? They're much better at doing that in Nordic stores. And that's something we've learned from The UK, but are still continuing to harness.

23:06 One of the great advantages though is the closer the businesses work together, the quicker it is to experiment. Because what works in one market tends to work in another market. And that's where a lot of the synergies of the group actually come from, not in hard operational buying synergies, but in the soft synergies of learning quicker.

23:26 The next question is how will you protect the business against rising interest rates? Couple of aspects to this question. So first of all, operationally, the business is pretty well protected from rising interest rates. We have, as I said, a cash balance, so we will earn slightly more interest on that cash balance if interest rates rise. And we also generally work on a negative working capital cycle. So we are paying for goods after we've already sold them and not incurring interest there. So generally, as an operational business, you... We are in a much better position than when we were a few years ago when interest rates were last high. Clearly, the second part of that question is how do consumers react to rising interest rates?

24:12 And that's where we've got to be aware of the potential impacts on slowdown on consumer spending and making sure that we are rightsizing our plans accordingly. And one thing that you will always hear from CURRYS is that we plan prudently. We are never expecting the market to do us any favors. We're never expecting consumer sentiment to suddenly improve and drive our sales growth. We know that all the sales growth we generate has to be internally driven, and therefore, we're not relying on an improved consumer outlook.

24:44 Related to that point, actually, the next question is do you require price rises in order to grow? What happens to margins if inflation falls? The answer is no. We're not reliant on price rises. And in fact, in our category, we rarely ever see price rises. Most of the products we sell tend to be deflationary year over year. A TV that you bought last year for GBP 500 will generally cost you less this year. Now as it happens, we are probably in a period of exception to that given the huge rise in RAM prices that we've seen globally as a response to AI demand. We are seeing price rises in some of our categories, particularly mobile phones and personal computing. And that is a slightly different dynamic to what we've generally dealt with, but it's generally a positive one. Providing we can get the stock in, that stock is actually appreciating in value before we sell it, which is a positive dynamic for us.

25:44 That's not to say, again, per my earlier answers that we are not aware of some of the potential downsides of having

25:53 that additional stock in the business, which is that... And the additional price rises, which is that consumers might see volumes go down if they don't want to pay as much for a laptop as they did a year ago. But it's a dynamic that we are aware of and working through.

26:14 The next question is, do you have ambitions outside of your current geographies? Carla, do you want to take that? Yes. So

26:23 we... I think when you look at CURRYS, and as I was mentioning before, 80% of UK households already buy at CURRYS, but we tap into only 30% of their tech budget. So there's a great opportunity here, and it's a cheap one, to go after that remaining 70% of wallet with existing clients. That is actually the cheapest route to market for us as opposed to expanding geographically. We are happy with the setup of of the business as it is in The Nordics and The UK, but there's more to be done in terms of capturing that remaining share of wallet. Thank you. So then next question is what is CURRYS sustainable through cycle free cash flow potential?

27:10 So you'll see at the moment, we are generating free cash flow to equity of around GBP 120,000,000 to GBP 150,000,000 per year, depending which year and which set of forecast you're looking at. Clearly, that is on a margin that is still sub 3%. As we increase the EBIT margin, each pound that drops through to increase EBIT also drops through to improved free cash flow. And so if we took a bull case scenario and increased our EBIT margins from 3% to 4%, that would be 100,000,000 extra EBIT and pretty much 100,000,000 extra free cash flow. Clearly, a much more significant impact on free cash flow than it would be on EBIT. That's a bold case scenario, but hopefully gives you a flavor of what we are trying to do here.

28:00 But in terms of sustainability, we want to keep moving forward. We want that free cash flow per annum to keep growing. We are not, we believe, at sort of a top of the cycle free cash flow at the moment. There's plenty of opportunity to continue improving it. Then the final question I have on my list is, will the company continue to offer share safe scheme to employees? Look, CURRYS is very proud to offer a very good colleague share safe scheme, where every year, we allow colleagues to save... To buy shares in the company at a 20% discount to the market price. Some colleagues have done very well out of these schemes over the previous years, and it's something that we will look to continue. We want our colleagues to be well invested in the business, and this is one of the best ways that we can encourage them to be invested in the business. So, yes, it will continue.

28:58 That's great. Thank you for answering those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Dan, could I please just ask you for a few closing comments? Yes. Certainly. Look, thank you everyone for your time today, and I'd like to leave you with the comments I made on the previous slide. This is a business in a really strong position with a really encouraging trajectory. Everything that we're doing is seeing slow improvements, and we're now doing that on a balance sheet that is allowing us to invest not only in defending our current positions, but into growing into new areas. And that's an exciting trajectory that the business is on. So while

29:47 we're very pleased with the progress we've made, we're not yet pleased with where we are, and we see plenty of scope to continue improving for our colleagues, for our customers and for our shareholders. So thank you for your attention today. And if you ever want to learn any more about CURRYS, please contact us at ir@CURRYS.co.uk. Many thanks. Dan, Carla, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This won't take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the team of CURRYS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.