H2 20/21 Pre Recorded

Jun 30, 2021

Hello, ladies and gentlemen, though not quite yet in person. Let's get straight into it. First, the results from Johnny and then I'll come back and talk to you about how we're achieving them and what comes next. Johnny, over to you. Good morning, everybody. We're pleased to announce this morning results which reflect a strong performance in a very difficult year driven by an agile Response from a great team of colleagues to the demands of the COVID crisis in which strong growth in our omnichannel sales more than offset lost sales from enforced store closures in most of our markets. The financial highlights of the year are shown on this slide. We saw strong trading across all markets and market share gains in every open channel. Electricals revenue increased 12% or 14% like for like despite the enforced store closures for substantial periods. This sales growth led to a significant increase in profits with adjusted PBT up 34% year on year. And combined with strong working capital inflow largely from the mobile debtor, this resulted in substantial improvement of £373,000,000 in the group's cash position. Now electrical sales grew strongly across the group. This chart shows on the left, the total sales growth in UK and I and in international. The growth rate was a bit slower in the second half as we lapped around the start of stronger markets at the outset of the COVID crisis in March April of 2020. We've been particularly pleased with the dramatic growth in online sales, which is on the right of the slide, which more than doubled and added an additional €4,700,000,000 of sales in the year. Now we believe that markets have increased structurally in size as customers have developed a closer relationship with the use of technology in their lives with more time at home. And we haven't seen any signs of the market softening in the couple of months following the year end. Now throughout last year, computing was the standout category, up 25% as customers adapted to the new world of home or hybrid schooling and working. But there was broad based growth in sales across a wide range of categories. And we've called out some examples at the bottom of this slide, including important technology categories for home entertainment and home catering. Since the year end, this broad based sales growth across many categories has continued. But in particular, We've seen renewed strength in white goods reflecting the impact of the reopening of stores. So now I'll describe the divisional results starting with UK and I Electricals. And here is a summary of those financial results. Revenue was up 8% with like for like growth of 14% and the difference explained principally by a 53rd week last year, some non like for like services and some store closures. As a reminder, where stores were closed temporarily by the government, The corresponding loss of sales was included in our like for like calculation. Now online share of revenue increased from 35% to 69%. And we estimate that it will revert to around 50% with stores reopened going forward reflecting a systemic shift in how customers shop. Margins increased at both the EBIT and the operating cash flow levels by 60 basis points 40 basis points respectively and I'll come back to that. Adjusted EBIT improved by £45,000,000 and free cash flow by £67,000,000 to £127,000,000 in total including the benefit of lower CapEx. Now let's look at the revenue. Total sales grew by £383,000,000 to a total of £4,900,000,000 Our travel stores were severely impacted by operating restrictions and by lower passenger numbers. Sales were down £130,000,000 on the previous year to close to 0. And sales through stores were £1,300,000,000 less, which was more than offset by the substantial increase in online sales, which grew in the UK by 114%, adding an additional €1,800,000,000 of online sales in the year. The market grew by 23% during the year, with the store channel up store channel down, excuse me, 45% and the online market almost doubling. We lost 1.8 points of share overall because of the temporary enforced store closures when not all of our competitor stores were required to close. We estimate that even after accounting for the increased online sales, The enforced store closures and the closure of Dixons Travel reduced our total sales in the year by at least £580,000,000 or 12% for the year. Now we were very pleased to grow our online market share by 6 points and we are confident that we will recover our stores' share now that they are open again. So next is margin, which increased 60 basis points in the year. There was a drag on gross margin from channel shift of around 2.7 percentage points and this was because as described last year, gross margin is lower online mostly because of higher distribution costs and lower services adoption. We did make progress during the year in reducing the gap with improved delivery cost ratio and better online sales journeys. But as we said before, the leveling up of contribution across different channels is a multi year program. There was also a negative impact approximately 60 basis points from the loss of travel sales, which were higher gross margin. Relief from business rates saved £62,000,000 and the remaining EBIT margin improvement came from a combination of underlying cost savings and volume leverage. As the loss of gross margin as sales moved online was partly offset by flexing of operating costs in stores. So the difference in profitability between channels was mitigated. So last on U. K. And I Electricals is cash flow. Operating cash flow in the middle of the chart was up £36,000,000 year on year representing an increase in margin to sales to 5%. There was a reduction in CapEx of £47,000,000 year on year to £106,000,000 because of the pause in transformation projects when the COVID crisis first hit. That was offset by higher adjusting items of transformation spend. Working capital was flat, which was a lower contribution than the previous year, leading to free cash flow of 127,000,000 Now let's move to international and I'll comment on Nordics and Greece separately in line with our reporting segments. This slide shows the summary financial results for Nordics. Revenue grew by 15% on a currency neutral basis with double digit growth in all markets. Like for like growth was 16% and online sales grew grew to 29% of total sales, which was 10 points higher than the prior year. Adjusted EBIT improved by £25,000,000 This represented another year of record high sales and record high profit for the after 5 years of continuous growth. Now stores were not forced to close in the Nordics as much as they were in the U. K. And I. Closures were limited to mostly Denmark and Norway and in the second half of the year. So store sales did see positive growth in the year, although it was roughly flat in the second half because of the closures. Online sales grew 74% adding an extra €1,200,000,000 as Nordics also benefited from the same changes in customer buying patterns as observed in the UK. So this resulted in market share increasing to 0.8 by 0.8 percentage points, excuse me, to 26.8 with share gains in every market except Denmark where the enforced store closures impacted most. And this was another year of record high market share. In terms of cash flow, Operating cash flow in the middle of the chart increased by £14,000,000 in the year to £176,000,000 taking the margin to sales to 4.2% and that's because of improved profit performance offset by some cash rent timing which related to the COVID crisis. CapEx was £52,000,000 including the delivery of the first phase of the next generation retail platform. And as in the UK, this was lower than the prior year because of a pause to projects at the start of the crisis. The working capital inflow of £64,000,000 was driven by timing of year end payments and that will largely reverse in 2021, 2022. So a very strong free cash flow result of £188,000,000 for the year. And now on to Greece, which was arguably hardest hit of our territories by the COVID crisis because of extensive enforced store closures combined with lower penetration of Internet shopping in the market. So revenue was up by 8% and online revenue grew from the low base by 186 percent to be 21% of sales compared to 8% in the previous year. Gross margin was down because of channel shift, partly offset by lower operating costs from a government enforced rental reduction of between 40% 100% for 8 months of the year. But overall, the cost savings did not fully compensate for the loss of sales and margin. So EBIT was down 9% to €19,000,000 But free cash flow increased by €83,000,000 because of lower CapEx and strong working capital timing benefits. And then I'll finish the divisional comments with mobile. Here is the financial summary. Revenue decreased by 57%, reflecting our decision in March 2020 to close the small standalone Carrefund Warehouse stores in the UK and the lower than expected transfer of sales to our larger stores because of the unanticipated enforced closures. There were substantial cost savings in the year in rent, in payroll and in marketing, but the EBIT loss was a bit worse than initially expected because of the lower sales transfer. Now as I expect you know, during the year, the unprofitable legacy contracts with 2 and EE expired, which will enable us to continue to shrink the cost base. And we are on track to eliminate mobile losses from the group completely during FY 2022 as previously announced. The good news was that free cash flow improved by £52,000,000 which we'll look at now. So this graph shows very clearly that the operating losses in blue on the left and the reorganization costs called adjusting items in red were more than funded by the unwind of the network debtor which is in yellow. This was supported in the year by the acceleration of all of the outstanding EE debtor with a receipt of £189,000,000 before year end. So the network debtor which was over £1,000,000,000 3 years ago finished last year at £239,000,000 as the cash due was collected. And this year was reflective of our plan overall with the cash from the debtor, funding, operating losses and change costs through the transformation away from the loss making traditional post pay business to our future mobile offer and all that to be cash positive overall. More on that in a moment. And in FY 2022, the accounting for ID will change to reflect the new contract. So that as we've previously announced Amounts that were previously capitalized upfront will be recognized over the term of the customer connections more in line with the cash receipt. So now I'll conclude with a few slides on the group. This chart shows group cash flow. Operating cash flow was £338,000,000 from all divisions. And there is the same shape for group as I've just discussed for mobile with the CapEx and the large quantum of adjusting items related to driving the transformations and in mobile in red on the left more than funded by the unwind of the network debtor which is the large yellow bar. The other yellow bar was a working capital inflow. It's mostly timing. So Despite this high level of transformation cost, segmental free cash flow more than tripled to €497,000,000 which is the middle bar. And then after interest tax pension and share purchases, cash generation was £373,000,000 the bar on the right, which improved the year end position to net cash of £169,000,000 So the balance sheet is much stronger than it was 2 years ago. I've just mentioned the move from net debt to net cash. In addition to that, we used to have supplier funding facilities, which we no longer use. Our pension deficit has reduced by £120,000,000 in the last year, with a new funding plan in place. Provisions on the balance sheet halved over last year to £85,000,000 and we have lower lease liabilities as well. And to reflect this de gearing, we renewed our bank facilities before the year end at a smaller total quantum of €550,000,000 and for a longer maturity out to 2025. And then finally, a few words on guidance. For this year FY 2022, our guidance focuses on cash. This is expected to be the peak year for investment in the U. K. And I as the transformation away from the old mobile post Pay business is in the final stages and the foundations for 1 omnichannel business have been set. So we're expecting CapEx to reach approximately £190,000,000 and non headline costs to be just under £100,000,000 which is about £35,000,000 lower than previously guided in April. We're recommending to restart the dividend at 3p or £35,000,000 And despite this and the high level of investment. We expect to maintain a net cash position on average for the year and for next year end. In the medium term, we maintain our target of delivering over £1,000,000,000 of free cash flow over the 5 years up to FY 'twenty four. And after the first two years, more than half of this has been delivered. So we're increasing confident of reaching that target. It's partly because of the stronger cash flow from mobile and we update that guidance today. We're now expecting more than €200,000,000 overall and each year of the transformation will be cash positive with the unwind of working capital more than funding operating losses and transformation costs as we said it would. We're looking forward to launch, the future mobile offer imminently. And we're pleased to have signed new contracts on good terms with 3 for our MVNO ID and with Vodafone. We're sticking with the same profitability target, but restating for the new accounting standard. So 3.5% EBIT pre-sixteen becomes 4% under IFRS 16 and that is expected to be reached in FY-twenty 24. So thanks very much for your attention. And I'll now hand back to Alex. Thanks, Johnny. Strong results. Have we delivered them? Well, I hope to show that for all the obstacles in our path recently, the strategy we set out 2.5 years ago is working. A strategy to help everyone enjoy amazing technology, a strategy to take a 1st rate bricks and mortar retailer, add online credit and services to build a 1st rate omnichannel retailer and services provider. Chapter and verse to come at our November Capital Markets Day on our progress and plans. But some highlights today. First, what we've seen over the past year. Our market has changed. Tech is now more central to people's lives. It's a larger market and we expect it to stay that way. And we can make the most of that as the growing market leader with the winning omnichannel business model and differentiating services, and we are making the most of it. With a strategy that's visibly working with legacy issues substantially dealt with and with the pandemic successfully navigated. All this is coming through in cash. And this year, the peak year of our transformation will see us remove some constraints to still faster progress and to richer shareholder value. Our market first. We've all seen people's eyes opened during this pandemic to everything that technology can do for them, whether it's staying connected with their friends and family or working from home or homeschooling the kids or keeping the family fed, clean, fit, healthy and entertained. Many people's attitudes towards technology has changed now. It's a more central part of their lives. They're spending more on it. And we expect that to continue. Some trends won't be going away. Hybrid working is expected to become normal for 48% of U. K. Office workers and a bigger part of the entertainment budget will stay in home with the gaming market now worth more than music and movies combined. We expect people to replace their technology more often with more usage and with more eyes opened now to what brand new tech can do for them. And more products have been sold, which means a larger installed base and a bigger opportunity for add on sales of products and services. That's our belief. And it's a belief shared by the world's biggest tech hardware manufacturers who are investing hard behind it. And current trading backs this view up. Even as we annualize now on some quite big months last year, We're seeing the market stay substantially larger year on 2 years around 25% larger. And in that bigger market, we're best placed to win. As the growing market leader in every market, in the U. K, we've made up for closed stores with 6 points of share gain online and still growing healthily overall. Internationally, we've seen another year of share gains and growth equal to that of all major competitors combined. A growing number 1 then and a well balanced one too with limited with concentration risk geographically by category or by supplier. And with the proven winning model in technology retail, which is online and stores together. Omnichannel wins in every major market. Yes, more customers are shopping online. So a strong online arm is essential. But most customers still want to use both online and stores. They want both. That's what they say, as you see in the bottom left. And that's how they're shopping, as you see in the top left, as the channel mix settles down post store reopening to the expected fifty-fifty. Customers want both channels and that's what they can get from us. And they want the credit and the services that help them afford sometimes expensive technology, help them get it working, keep it working to give it longer life and at the end of its life, get it responsibly reused and recycled. We're number 1 in all of these differentiating services too. And that's part of the privileged business model that we enjoy as the growing, diversified, omnichannel market leader best placed to make the most of a bigger market. And we are making the most of it despite some pandemic disruption. 1st, we're building a truly omnichannel business, starting with a stronger online arm more than doubled in size in a year to nearly £5,000,000,000 in sales. We owe this to the hard work before the pandemic of many colleagues on some retail basics. A bigger range for one thing, 50% bigger in the UK, but with plenty of headroom to grow, as our Swedish business shows with more than 100,000 SKUs and counting. There's more growth to come from a bigger range. It's a more available range too. And our number one position with suppliers has never been more important as the chipset shortage bites smaller competitors. We're also on the money on price. We needed to be better trusted on price and we invested behind it. It's an important growth driver. That investment is behind us now and we don't expect further gross margin dilution here. And 3rd, we've made it easier for customers, for example, on delivery, another important growth driver. Lots of hard work has led to sharply increased customer satisfaction with our delivery options and performance. And that's part of a huge effort by my colleagues to cope with the impact on the customer experience of the surging demand and extensive disruption we've seen during the pandemic. For example, calls into the contact centers surging just as we had to close the contact centers. As you see, all of this hard work has paid off with a recovery in customer satisfaction to level or better year on year. There's more to come online this year. Paradoxically, I'm most encouraged by our current limitations. We've more than doubled our online arm while constrained by legacy technology platforms. And we're shedding those constraints this year with proven new platforms landing in the U. K. And in the Nordics that will give customers a radically easier richer shopping experience online and radically improve our ability to upsell, cross sell, sell credit and sell services online, unlocking further growth and gross margin improvements online. And we're doing this in our stores too. We're investing in our stores channel. Customers value stores most for their face to face advice and the trusted experts who provide it as well as for the demonstration of the product face to face. And that's where we focused our investment. In the capable and committed colleagues who give the advice, we've invested £14,000,000 in their safety and well-being, a record 600,000 hours in training to build skills for life. We've invested in being a business for everyone, for colleagues, just as we are for customers with big strides in inclusion and diversity. And we've invested in much better tools and incentives, giving 12,000 colleagues a 9% pay rise to real living wage levels, bonuses to reflect our strong performance and continuing to make all colleagues shareholders. And we've invested in the stores themselves to show off our product to best effect. Now. Now we're innovating to bring the strengths of both channels to every customer to give them what a mono line can't. Those big three customer benefits. 1st, we're never out of stock for a customer in store. We now have the full online range to sell there, with online in store sales up 76% last year. That drives growth. 2nd, if you must have your amazing new tech right now and customers aren't getting any more patient. You can get it fastest with us. Order online, collect in store within an hour in the U. K. Where order and collect made up 30% of online sales. And in the Nordics, we've got that time down to 30 minutes, where Order and Collect makes up over 40% of online sales. We'll keep bringing that time down towards our aspiration of 15 minutes. For example, we're looking to trial same day delivery from store with Uber in the U. K. And 3rd, if customers like the face to face expert help they can get in store, they can now get that online too through ShopLive, our 20 fourseven video shopping service that customers prefer to unassisted online, as they show by buying more. That's great for colleagues' reward and careers and that we like for its better economics and because it's so hard for others to copy. We're scaling ShopLive up and we expect it to be very big. Plenty of omnichannel progress then. Credit progressed too despite COVID with credit customers up 20% last year. There's more to come in credit this year with new technology platforms fueling new customer growth through risk based pricing and a second lender and stimulating existing customers better with more customers we can talk to, better data and CRM to do so. Even though credit adoption stalled with closed stores last year, we're still comfortably on track for the promised 16% penetration. Now in services, U. K. Store closures were disruptive, with the percentage of sales with the service down 10 points to 29%, including fewer repairs as you see. This year, we'll see that come back with open stores and the radically improved online selling and services that technology platforms enable. More than that, customer demand for services is increasing. More customers as we know care about the planet as well as their pocket. As well as new technology, We sell customers longer life for the technology they already have. This taps into the zeitgeist. It leans on our scale in repairs and recycling that no one else can get close to. Much, much more to come on this in November. How selling longer life for technology, plus helping customers make greener new product choices, backed up by market leading commitments to net 0 and to electric vehicles. This is how we're building perceptions of curries as good for the planet as well as for your pocket. And all of this builds stickier and more valuable customer relationships. Just as our customer club does, with its rapid growth, higher sales, doubled customer profitability, higher repeat spend with 2 thirds of club customers coming back in year 2. It's proven itself in the Nordics. Expect to see it elsewhere in due course. We'll say more in November on how we're building stickier and more valuable customer relationships. There's much more to come here, especially as we now have many more customers, 25% more than 3 years ago in the U. K, customers we know better and who we can talk to more with our quite exciting advances in data and CRM and big leaps forward in contact rights last year, as you see on the right hand side of the chart here. We can help more customers better, more often and that's more valuable to all concerned. This is also the year we put the legacy mobile issue behind us. Despite some COVID hiccups, our transformation is on track here too, with strong mobile cash generation with us being on track for breakeven during this year. And now we're out from underneath all legacy contract constraints and able to integrate mobile into Currys. We're going for more than we promised, of course, though our future mobile offer is late, It will still land this year and it will still offer market beating flexibility, transparency and value to mobile customers. We've got strong partner support from hardware suppliers like Apple, Samsung and Google and from network providers like 3, Virgin and from Vodafone where we've signed a big new improved deal as we announced last week. As we complete this mobile transformation into a smaller, but profitable and cash generative category integrated into 1 Currys business, so it's the right time to move to 1 Currys brand. It will be easier for our customers to see everything that we do for them across electrical and mobile products and services, and it will help to build Currys as evermore the natural number one choice for all things tech. I suppose it's also a sign of our confidence in our progress and in our prospects that we're investing in our brand now. And we expect it to be a further driver of growth and profitability. Finally, and enabling all of this progress, are more engaged colleagues. And colleagues can see our progress and they want to be a part of it. And that's reflected in a big jump in engagement scores last year, up 8 points in the U. K, now ahead of other retailers and only 1 point shy of the top 20% of global companies. In our business, we need happy colleagues to have happy customers. And we're making some big strides here. As we are in translating all of this progress into the building blocks of shareholder value, with a growing number 1 in a bigger category and fueling further growth, confident of hitting our margin and our cash targets with a stronger balance sheet today with lower investment and exceptionals ahead on top of strong underlying cash generation. It's because of that strength and confidence that we've decided we want 100% of the upside. And so we won't be pursuing a Nordics partial IPO. And that strength and confidence has allowed us to resume the dividend while being attentive to all other stakeholders. We believe in what we're doing here. And that belief is grounded in strong performance in difficult circumstances, a winning business model, a strategy that's working and that's building shareholder value. Thank you.