Good morning, everybody. I'm gonna give a quick intro with Bruce, and then we can dive straight into your questions. FY 2023 was a better than expected performance in what was a tough environment, with a poor Nordics performance being offset by solid Greece and a strong and strengthening U.K. performance. We've been quite attentive to mitigating downside risk, and as we'll talk about, we're pretty prudent on the outlook. Let me start with the Nordics, which was a bad year, in a very tough market, with demand down, inflation up, and vicious competition. I think it's true to say however we would have responded, profits would have been sharply down last year. Still, we believe we could and should have responded better. We could have spotted those market trends a little faster.
Costs could have come out sooner, we could have got the balance of our trading response with the benefit of hindsight, a bit better. It's still tough in the Nordics, we're responding better now with decisive action. I'm pleased with the clarity, the grip, and the energy of the new leadership team. We've got a better balance of our trading response between volume and margin and some good margin boosting initiatives are underway alongside some decisive action on costs, both some in-year tactical cost-out, as well as some more structural cost reduction, which will benefit in future years.
A poor year in the Nordics, a much stronger year in the U.K., a strong and strengthening performance, in fact, with profits up over 40% year-on-year and trading better than expected, especially in the last couple of months of the year. That's despite sales being down 7% like-for-like in the year, market share for the full year did slip more than we would have liked. It was 120 basis points down in the first half. We made some adjustments, it was better in the second half, we did still manage to protect our number one slot. The big story has been on gross margin and on cost. Gross margin have improved again. I think we said 160 basis points up in the first half.
It'll be similar for the full year. That after 110 basis points improvement last year. We can talk to what we've been doing there, doing a better job of selling margin accretive services, especially online, monetizing an improved customer experience, not chasing less profitable sales, and good progress on supply chain and service operations costs. That's part of a broader story on cost, where we're nicely in line with our GBP 300 million cost out target and good progress right across, as I say, supply chain and service operations, but also store costs, GNFR and IT and central. Really good performance on costs and on gross margins, a performance that we intend to keep improving. Greece had another strong year, which is a nicely profitable and cash generative business.
Thanks, Alex. Good morning, everyone. I'd like to spend just a moment focused on the balance sheet, which remains healthy. In terms of working capital, group stock finished in a good position, down 10% year-on-year, despite high single-digit cost of goods inflation. In terms of net debt, last time we guided to between GBP 100 million-GBP 150 million of net debt. I'm pleased to say we expect to come in at the positive end of that range at around GBP 100 million. The number was helped by the stronger U.K. trading that Alex described, which impacted positively both free cash flow and conversion stock into cash. Average net debt for the year is similar to the year-end balance, and we expect that to be the case going forward.
It is worth reflecting on the strength of our balance sheets compared to pre-pandemic. Our net debt at GBP 100 million compares to GBP 204 million 3 years ago. Today, we have no working capital facilities, our pension deficit has more than halved, and our lease liabilities have reduced as we have fewer stores and lower rent. A recent topic of discussion with both shareholders and investors has been our banking covenant fixed charge coverage ratio. We expect to finish the year with a fixed charge cover of about 1.9 times for FY23. That gives us a headroom of GBP 40 million compared to the covenant of 1.75 times.
To avoid any concern over future headroom, particularly whilst we get our Nordic business back on track, we've had productive conversations with our very supportive lenders, and they've agreed a covenant relaxation for the next three measurement periods. For October 2023, April 2024, and October 2024, our fixed charge coverage ratio will be 1.5 times, and will then revert to 1.75 in April 2025, and that increases our headroom by a further GBP 75 million. Our balance sheet's in a healthy place. We want to strengthen it further, and in July, we'll talk about our cost and CapEx plans for the year ahead.
Thanks, Bruce. In a volatile and challenging environment, as Bruce says, we are taking plenty of action to minimize downside risk, which we think is prudent given a still uncertain outlook. You know, we might be surprised on the upside, but we're preparing for another tough environment in FY 2024. We're not planning on any tailwinds. We're prudently assuming a market that declines for the year ahead. Our focus in the year ahead is to protect against that downside risk, to continue the very encouraging U.K. trajectory and to get the Nordics back on track. Longer term, if we do all of this, we'll be in good shape. We're standing by.
Our over 3% EBIT margin target by FY 2025, as the Nordics has achieved only last year, and the U.K. is getting close to achieving on an underlying basis now. If we do what we say we do, get that EBIT margin over 3%, keep the balance sheet strong, and that'll leave us in a position to give healthy shareholder returns. Fair to say, for the year ahead, we're not counting on any favors from our environment. Laura, with that, we're gonna pass back to the group for some questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Once again, press star one on your telephone keypad. Thank you. We'll take our first question from Michael Benedict at Berenberg. Your line is open. Please go ahead.
Morning, all. Thanks very much for taking my questions. Just a couple from me, please. Firstly, on the U.K., you mentioned that the performance there has been better than expected, particularly in the last couple of months. I wondered if that's a function of the environment or you stabilizing your market share here, please. The second one, in the Nordics, looks like top line momentum has slowed further. Is that a sign of the environment getting increasingly difficult, or is that the local team there focusing on stabilizing profit? Thanks very much.
Thanks, Michael. Let me start. Bruce may have a couple of bills. The short answer on the U.K. is it's not attributable to the environment. It's got everything to do with the actions that we've taken. We have stabilized market share since the 120 basis point decline that we flagged in the first half. The big story has been on gross margin improvement and cost reduction. We've done a better job of selling margin-accretive services like credit and care and repair, especially online. We've been able to monetize an improving customer experience, especially in areas like delivery charging. NPS has been up again in the year just passed.
We're not chasing less profitable sales, and so things like digital marketing efficiency has significantly improved, and we're much more selective on our promotions, and we've taken costs out in supply chain and service operations. That's in addition to the other cost efficiency measures that I talked about. I think it's been a story of self-help in a tough environment in the U.K., which is encouraging, 'cause it leaves us in good shape to benefit from any recovery in the macro, not that we're counting on one. I mean, on the Nordics, I think, again, I wouldn't say that we're counting on any improvement in our environment. The market still remains very tough. We're still seeing depressed demand. Cost inflation is still high, and the competition is still vicious.
We're not waiting for any improvement. We've made the changes that we've talked about in leadership, in getting the balance right in our trading response, between volume and margin and taking decisive action on cost.
The only thing I would add to your question regarding Nordic top line performance, I would say that has been caused by some softening within the macroeconomic environment. Clearly it's not one country, it's four, we're seeing particular softness within Sweden and Denmark, which is impacting the group top line and therefore dropping through to profitability. That is, however, being offset by some great work that we're doing, self-help on cost base within the Nordic business and some slight improvements that we're starting to see within our gross margin. The overall trends at a bottom line are consistent with what we saw in the first half because of the slower top line sales.
Great. Thanks so much, Bruce.
Thank you, Michael.
Thank you. We'll now take our next question from Nicholas at BNP Paribas. Your line is open. Please go ahead.
Hi, thanks for taking my question. I'm standing in for Warwick Okines at BNP Paribas Exane. I just have a couple of questions. I'll start with the Nordics. You've flagged restructuring costs there in FY 2023. Is there anything to flag for FY 2024 that might feed into there? Maybe if there's a cash and PBT impact split you could give us, that'd be great. Just on your OpEx base, how are you seeing the inflationary trends impact your OpEx for the year ahead? Are you seeing any of that? Are you seeing any disinflation basically or anything to call out there? Thank you.
Thank you, Nicholas. In terms of the restructuring, the number that we're talking about when we're talking about restructuring in the Nordic will from a cash flow perspective will impact both years. There'll be roughly a third will impact the current financial year, two-thirds will flow into next year when it comes to redundancy payments, et cetera. In relation to inflationary trends, there has been some reduction within inflation, particularly around shipping costs, for example, that were particularly high last year. We've started to see them normalize, but they're still at a high base. We clearly continue to see high levels of inflation within, for example, energy, although we do hedge forward between six to twelve months on our energy costs. The flow-through of increased wage costs continue to impact us.
As we described, cost of goods sold, inflation has been a particular challenge, in particular within our Nordic markets, who continue to see weakness within the NOK and the SEK against the euro and the dollar. I'd say those are the key inflationary impacts.
Thank you.
Pleasure.
Thank you. We'll now move on to our next question from Simon Bowler at Numis. Your line is open, please go ahead.
Thank you. I'll take them one at a time, I think. First, can you just add a little bit of color on the mobile revaluations? What drove the kind of better than expected performance there, and how are you thinking about that for next year?
Yeah, sure. The overall debtor revaluation, it is roughly GBP 10 million up year-over-year. When you look at our profit progression year-over-year, roughly GBP 10 upside in the U.K. is coming from the debtor revaluation. The key thing that we're calling out is that of the value, there's GBP 35 million that won't repeat into next year. There are two reasons for that, Simon. The first is that there's a chunk of it that relates to RPI. This is where the networks have put up their prices, and that creates incremental value downstream for Currys, and we expect RPI to normalize going into next year. That is one of the reasons we expect to step back.
There's also a set of the legacy contracts that we have, that came through the Carphone estate when it was opened. Those customers are now reaching two, three, four years of tenure, and they're starting to fall off. That will mean that there is less value to come from revaluations going forward. In relation to the delta between maybe our expectations, if you assume that there was roughly mid-single digit of incremental value that came through network data, that has caused some of the beat that we're talking about, that would be roughly right.
Okay, great. Thank you for that. Then secondly, just noting on kind of the progress on inventory. Can you just kind of add some color around where that inventory is located? I'm assuming kind of U.K. is in a very good shape, and kind of Nordics would remain kind of overstocked. Is that kind of a fair assumption, or is it more balanced across the estate?
No, it's definitely more balanced, Simon. You'll remember that we talked at last year-end about some significant investment that the Nordic business had made, and I think we called out GBP 100 million of extra stock year-on-year. That has more than fully reversed, and therefore, when we're talking about a 10% reduction overall, actually, there's a significantly larger reduction within the Nordic compared to that. U.K. stockholding at last year-end was relatively normal, but nevertheless, we've seen that stock continue to fall. Within our Greek business, as you've seen, our like-for-like within Greece have been very healthy. Actually, we've built stock year-on-year.
Great. I would not mean to be too greedy, just one final one. You kind of haven't explicitly kind of repeated your CapEx guidance for FY 2023, by implication, does that mean you've come in somewhere around about the GBP 120 million you have been guiding to?
Yeah. It's broadly there. Maybe a fraction less, but it is broadly there.
Okay, cool. Thank you.
Thank you.
Thank you. We'll now move on to our next question from Adam Tomlinson at Liberum. Your line is open. Please go ahead.
Morning, all.
Morning, Adam.
Three questions from me, please. I'll give you them all at once. First question is on the U.K.., and noting the improving trends you talk about, particularly in March and April there. The consistency of those trends, the exit rate, any comment around that? And your overall confidence that the underlying profitability improvement in the U.K. can be sustained, please. That's the first question. Second question on the Nordics. You've previously talked about the situation there being in terms of the challenging market, being temporary, albeit visibility low on when that recovery comes through. Has anything changed in terms of your view that this should prove temporary over time? The final question on the balance sheet, the fixed charge cover covenant, renegotiation there.
Sounds like that's happened in pretty short order. Just any comment you can give around how smooth those discussions with the banks were? A reminder of how many banks are in the RCF that have agreed to that renegotiation. Thanks very much.
Thanks, Adam. Let me lead off with the first two, then Bruce can take the third. We are quite pleased with the recent months' trading in the U.K., and that's evidenced in a market share decline that improved during the second half. We're happier with the market share trends. Again, the big story in the second half, as for the full year, has been on the gross margin improvement and the cost out side. Are we confident we can keep the underlying improvements going? We are. We see a lot more mileage, both in the big picture, which we can come back to in July.
The continuing improvements in colleague engagement and customer satisfaction and retail fundamentals, and in the big differentiators of omnichannel and services. In the specifics, we see a lot more mileage in doing better at selling services, especially online, and we've got the platform to do that now. We intend to continue the improvements in the customer experience and give us further scope to charge for them as we get a better understanding of end-to-end profitability. We'll be less and less tolerant of chasing any unprofitable sales, and we've got significantly further mileage to go.
On supply chain and service operation cost efficiency. That's, we're confident of that. We're also confident that we're in line, at least in line with the GBP 300 million overall cost target. We expect to beat the GBP 170 million cumulative cost out for FY 2023. Whether you look at supply chain and service operations costs, on continuing store cost efficiency, on veteran improvements in our procurement for GNFR or on IT and central cost efficiency, we see further scope with all of those. We are confident we can keep that progress going in the U.K., even without any help from what's been a pretty challenging environment. On the Nordics, I, you know, with the benefit of hindsight, I probably wouldn't use that word temporary again.
I think, you know, we've seen a really tough market right the way through the year, and we're not calling an improvement right now. I think what, equally, you know, do we see anything structural and permanent in these market challenges? We don't. These are fundamentally healthy and wealthy markets. I mean, the fact that consumer confidence is currently at a 40-year low across these markets, do we expect that to continue? We don't. The excess stock from some competitor buys is selling through, and at some point, economic gravity will reassert itself, and these competitors will need to make some money, which none of them are at the moment. Are we calling a time on that? We're not, and we're being more prudent in our expectations there.
What I am pleased with is the energy and the clarity and the grit that the new leadership team have shown. I'm pleased we're getting the trading balance better between margin and volume, and I'm pleased that the costs out, in particular, the structural cost savings, which will flow through into FY 2024, have been well delivered. You know, we're not giving a particular time on a Nordics recovery now, Adam.
Morning, Adam. In terms of the banks, we have eight banks within our banking syndicate who provide our revolving credit facility, and I'm sure you can imagine, we provided them with comprehensive information about current performance and outlook. There was a robust set of questions as they went to their investment committees for approval, but we got unanimous support. There was no challenge to that.
Great. That's very clear. Thank you very much.
Thank you.
Thank you.
Thank you. We'll now move on to our next question from Ben Hunt of Investec. Your line is open. Please go ahead.
Morning, Ben.
Morning there. Sorry, most of my questions have been answered. I just wanted to retouch back on Andy's last question regarding the exit rate and the gross margin in March and April. I don't know if I've got my maths wrong here, but I think you alluded to sort of 160 basis points up in the second half. If I remember rightly, at peak, it was up to 240, I think. Feels like you've lost a bit of the momentum there in the final few months. Is that correct? Or, and if so, why or anything you can sort of give any color there?
I think the short answer, Ben, is, we flagged for the whole of the first half 160 basis points up, and we're flagging the similar for the second half. No, we're not concerned about a loss of momentum. In fact, we're pleased with the progress that we're making on services, on the customer experience, on not chasing less profitable sales, and on supply chain and service operations costs. We're confident that we can maintain that into FY 2024.
Great. Thank you.
Thank you. We'll take our next question from Richard Chamberlain at RBC. Your line is open. Please go ahead.
Morning, Richard.
Morning, Alex. Yeah, just a couple from me, please. I just wondered what your thoughts are on the Nordic competitive environment right now. Any sense we're past the worst? I guess we've had some belated support from the government coming through for consumers and so on, for energy and so on. How do you see the competitive environment there? Then back on the U.K., appreciate this is only a sort of pre-close update, but can you give a bit of color on mix effects on UK margin, so either sort of store recovery versus online, or indeed product mix. Either of those two things had a significant effect on the U.K. margin. Thanks.
Bruce, do you wanna, do you have anything to say on the second of those questions today?
No, we're not gonna talk about channel mix today or overall. We'll come back and talk about that more in July, Richard.
On your question on the Nordics competitive environment, I mean, the short version is it remains vicious, and we're not calling it getting any easier right now. I mean, whether you, the competitors vary a bit market by market. As Bruce points out, there are several markets in the Nordics, but whether you're looking at people like Bilka using our whole products as loss leaders in Denmark, whether you're talking about Power apparently not caring if they make any money or not in the Danish market, or whether you're looking at NetonNet, Komplett and now Power again in Sweden or Verkkokauppa.com in Finland. The short version is that the market profit pool ex Elkjøp in the Nordics has gone to zero.
Those listed competitors who are reporting, that's what you see in their, that's what you see in their results. Now, at some point, as I say, economic gravity will reassert itself, and whether they're private or public owners, we'll presumably want them to make some money at some stage. We're being pretty cautious about calling a time on that. I think what we're focused on is what's within our control. What's within our control is making sure that our trading response is well-balanced. Bruce talked about some of the margin, some of the very early green shoots that we're seeing on margin.
We're not getting carried away with that, but we are doing a better job of selling higher margin accessories and services in the Nordics, just as we are in the U.K.. We're monetizing a better customer experience with things like delivery charging. We're not chasing less profitable sales in the Nordics, just as in the U.K. with our better understanding of end-to-end profitability. We're not having to, we're also taking supply chain and service operations costs down in the Nordics. On the cost side, we've taken some tactical initiatives, whether it's on marketing and taking marketing down and promotional intensity down or getting rid of contractors and outside consultants, making circa GBP 25 million a year of structural cost improvements that we would expect to see flow through.
Those are the things that are within our control, and that's what we're focused on doing. What the competitors do is ultimately up to them, but we're not calling an easier competitive environment. No, Richard.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now move on to our next question from Tony Shiret at Panmure Gordon. Your line is open. Please go ahead.
Morning, Tony.
Thanks very much. Morning, Alex. Morning, Bruce. It's just a quick question for Bruce. I was just circling back around the question on the mobile revaluation, mobile debtor revaluation. I must admit, I was under the impression that that would normally be classified as an adjusting item rather than a headline PBT item. I just wondered, is it equivalent to the GBP 22 million last year? If so, is it included in the headline PBT guidance, or is it gonna be an adjusting item this year?
No. This is an underlying item, Tony. We do have very clear accounting distinction between those network debtor items that go through non-underlying versus those that go through underlying. They are all the items that we're talking about today are part of underlying, and they all relate to customers who are live and have live contracts with us, which by definition means they're part of our underlying business and does equate to the GBP 22 we talked about previously.
It does equate to the 22?
Yeah. It's comparable.
The 2022 was an adjusting item last year.
No, there was... If you look back through the waterfall, unfortunately there were two 22s. There was one that was showing as underlying, and there was one that was showing as non-underlying. Apologies, I misunderstood which one you were talking about. No, this is definitely underlying.
Okay, thank you.
We'll now move on to our next question from Paul Wallace at HSBC. Your line is open. Please go ahead.
Hi, Paul.
Good morning. Good morning. Thank you. I'm sorry to labor the point about the Nordics, but I was just wondering what would actually need to happen or how bad would it need to get in the Nordics for you to consider whether you actually need to be in that market anymore or not? Is there a point or, you know, where do you potentially draw a line or might you kind of consider drawing a line and simply exiting the market because it does otherwise distract from the investment case? Thank you.
No, we're nowhere near that point, Paul. I mean, if we step back, it's important to remember that bad though this year has been in the Nordics, that this is a fundamentally very strong business in a fundamentally very attractive market. I mean, in terms of spend per capita, Norway, Denmark, Finland, and Sweden are some of the most attractive, have been for decades, some of the most attractive markets, in the world. Yes, they're going through. Consumer confidence is going through a particularly torrid time in the Nordics at the moment, not helped by the fact that, you know, you have, two of those countries share land borders with Russia and, you know, the third just joined NATO. I mean, you can see the geopolitics of what's going on.
I don't think any serious commentator expects consumer confidence to stay at a 40-year low. No serious commentator expects the current pressures on consumer spend from inflation and from unprecedented interest rates to stay as high as they are. You know, we expect these fundamentally healthy and wealthy markets to come back. When they do, we'll have a healthy business. I mean, deeply disappointing though these results in the Nordics are, we are the only player making any money there at the moment, and we've got over a quarter of the market. I think there's.
There is an element of nerve-holding here that we need to believe that we've got a fundamentally healthy business that's going to come back to make the very material contributions that it's made to the group for over a decade previously. Now, that said, it's not that we're not just sitting waiting for that to happen, and that's why the leadership changes, the actions on margin, the actions on cost are so important to take control of our own destiny here rather than sit and wait for the markets to improve. No, we to answer your question, Paul, that's not under consideration.
Excellent. Thank you very much.
We'll now move on to our follow-up question from Simon Bowler at Numis . Your line is open. Please go ahead.
Hello again, Simon.
Hi. Hi. Thank you. Sorry, me again. Two quick ones. I'll again kind of just take them in turn. First one, briefly, I'm going round in circles trying to think about this. I just thought I may as well ask the question. Just coming back to that idea of kind of rolling off some of the Carphone, old legacy Carphone contracts. Is there anything from a working capital perspective that we should be thinking about across kind of FY 2024 as that kind of dynamic works through?
Simon, I mean, there is detail we can get into, but I'd prefer to leave that till July, and at that point, of course, we'll be providing you with a breakdown of our working capital year-on-year. You will see the movements in the network, et cetera, and it will be much more straightforward to describe at that point.
Okay. Cool. That's fine. The second one was, can you just comment. The relaxation of covenants, does that come with any restrictions around dividends? I guess either way, in the context of, as you mentioned, kind of strengthening the balance sheet, can you just talk about how you feel about shareholder returns as the Nordics work through its challenges?
Yeah. There is no restriction within the change to the covenants, and we will come back and talk again regarding the dividend in July. The board will make a decision on what our strategy with dividend is at our July board meeting. We'll come back to you at that point, and at that point, we'll talk more broadly about returns to stakeholders.
Great. Okay. Thank you very much.
Thank you, Simon.
Thank you. We'll move on to our next question from Nick Coulter at Citi. Your line is open. Please go ahead.
Hi, Nick.
Hi. Good morning. One last from me, please. On the big U.K. consumer, could you talk about how you see the U..K consumer and how the behavior's evolved since you last updated? Any color, I guess, around pricing points and the consumers' acceptance of pricing would be helpful. Thank you.
There's a few things in there, Nick. I mean, the big picture on the U.K. consumer is that they remain hard pressed by the cost of living crisis, and that's playing through into relatively depressed demand for discretionary and big ticket products. That's played, has placed downward pressure on the technology market. That hasn't changed. We're still seeing consumers being very careful with their spending. Consumer confidence may be up on where it was a couple of months ago, but it's still at historically pretty low levels. The consumers remain cautious about dipping into what are, for this stage of the cycle, still quite high levels of retained savings.
We're not seeing the consumers sort of open their wallets in a carefree way at all. No. Which is one of the reasons that we are remaining cautious in our outlook. As I mentioned, we're assuming that the next 12 months see the tech market in the U.K. continue to go backwards. You know, we might be pleasantly surprised on the upside, but we're not depending on it. That's the big picture. I mean, specifically, what are we seeing? We're seeing consumers lean more on credit to afford the technology that they need. We'll give some more detail on that in July, but we've had a strong year with our credit offer. Is the first thing.
The second, the consumers are certainly chasing a deal and they're looking, they're looking for help with the affordability of their tech with mechanics like trade-in. Consumers are concerned to see their expensive technology last longer, which is where our big repair business has had another strong year. Again, we'll give more color on that, more detail on that in July. You know, getting into a bit more a bit more detail and to give one example out of the world of TVs, for example, we're seeing a squeezed middle. Relatively healthy sales of the entry-level under GBP 500 TVs, healthy sales of the premium, large screen TV over GBP 1,200. Both of those have been in good shape.
In between, you know, the GBP 500-GBP 1,000 mid-market has had a tougher time, both across the market, and we've seen that reflected in our own sales. We've seen consumers buying more of energy-saving devices, whether it's heat pump tumble dryers, whether it's more efficient, energy efficient washing machines, whether it's microwaves or air dryers. We've seen all of that. Air fryers, I should say. We've seen all of that. Those trends remain constant. The U.K. consumer is still in a cautious space and we remain cautious in our outlook.
That's helpful color. Thank you.
There are no further questions in queue. I will now hand it back to Alex Baldock for closing remarks. Thank you.
Thanks, Laura, and thanks, everyone. As just in closing, I mean, this is a better than expected performance in a tough environment. We're pleased by the progress and the continuing momentum in the U.K.. We're determined to get the Nordics back on track after a poor year and to continue the strong momentum in our Greek business. For the year ahead, we're gonna continue that momentum in the U.K., we're gonna get the Nordics back on track, we're gonna do all the things we've talked about in a volatile and challenging environment to mitigate any downside risk and build financial resilience, continue to build financial resilience into the business in facing an uncertain year ahead. We stand by our long-term ambitions and remain confident in delivering them. Thanks, everyone, and have a great day.