Currys plc (CURY) Earnings Call Transcript & Summary

Good day, and welcome to the Dixons Carphone webcast and conference call. At this time, I would like to turn the conference call over to Alex Baldock, Group Chief Executive. Please go ahead, sir.

Thanks, Ledryn. Good morning, everybody. Particularly for the benefit of for those of you who may not have had a chance to go through the presentation just yet, I'll say a few introductory words for a couple of minutes, and then we can go straight into your questions. We are quite pleased with a pretty strong performance on sales, profit and cash for the half year. And I think that says a few things about the business. I mean, first of all, that we're in a space that's where the consumer is finding what we do increasingly important. And that was a trend before the crisis; we've seen that accentuated during it. Customers finding technology playing a much more important role in their lives. The second thing is that I think we've shown that we're best placed to win in that space. We've come through the crisis strong, still #1, despite having one arm tied behind our backs against the competition, keeping everybody safe, adapting fast to continue to help people and securing the business' future at the same time as accelerating our transformation, and that's particularly in omnichannel. And yes, more customers are buying technology online. So we're winning online. So that's okay. And we have the market share gains to show for it, going from less than 15% to over 22% market share in the past 3 years. And we've done that by doing what we said we'd do back in December 2018. We've grown range, price, improved availability that made the customer experience easier, and we have an enhanced platform. So that's why we are winning online. That's how we've been able to grow U.K. online by 145% over the period. But still, in our space, at least, 60% of customers still prefer to use a mix of online and stores. And that's where we're increasingly putting the best of both online and stores together for every customer. We've continued to invest in our store estate, which is large numbers of big stores in the right place, and they're well invested. But I think particularly exciting, we're starting to do, and we've accelerated doing some quite interesting things, bringing the best of both together. So whether it's a customer in store, getting access to the full online range, so that we're very rarely out of stock as far as that customer is concerned. All the customer online, being able to order and collect now within an hour into the customer's boot an example of the rapid innovation that we've seen during this crisis and particularly perhaps Shop Live, where in our space, customers do value a face-to-face advice from a trusted expert. That's one of the things that they've got from our stores, but they can now get that face-to-face advice even when online. And this is properly exciting. I mean, our 24/7 live video shopping, customers really like it, but so do we, with the significant increase in conversion and average order value against unassisted online, and it's a defensible innovation as well that the competitors are going to find hard to replicate that points to the future viability of the store model. Maybe we can come back to that. And both online and stores lean on us being #1 on services, which we are and having a big flexible and improving infrastructure. I mean our 5 million square feet of warehousing space came in very handy during the course of this year and was able to flex into online demand very quickly. And our IT capacity, we managed to grow that threefold during the course of the year, also important. I think in the presentation, we talk about a case study in gaming of omnichannel in action. And it's not a bad one. Given that gaming with its youngest customer base and fastest growth -- excuse me, of any, we've grown sales by 72%, and some of the big lead in market share to show for it. And that's by putting this omnichannel approach into action. And we believe that we've shown this year that in our space, at least, omnichannel wins. Finally, if we're winning, we think we'd be good winners, too. And as I said in the presentation, it's not a case of doing any frantic green washing in this place. What we do has a powerful societal benefit, and particularly how we do it, which isn't just selling new technology, it's helping bring it within reach of everybody through credit and through being on the money on price. And it's through helping everybody get the most out of it by being #1 in services. And one example of that is recycling, where we do more than half now of all the U.K. electrical recycling, 65x what Amazon do by the by. So in conclusion, what I would say is that pleasing these results are, and we are nowhere near the full potential of this business. I'm super proud of the adaptability and the dedication of my colleagues during what's been a particularly challenging year, and when they had one arm tied behind their back responding with a stronger performance and an accelerating transformation. But we're under no illusions about how much hard work still lies ahead to make the most of this business, which we remain determined to do. With that, I think I'll pass over to your questions.

[Operator Instructions] We will take our first question from Andrew Porteous from HSBC.

Well done on a very strong set of results to date. A couple of questions from my end. I know areas of the supply chain have obviously been plenty disrupted over this year. And obviously, we've got Brexit looming. Can you just perhaps talk to us about availability of product. Are there any issues in any areas of your range there? And how are you setting up for Brexit? And then a second one, really, a bit longer term. Just given what's going on this year, how should you think about the role of your stores in the future? Do you change the way that you set them up and run them and the role that they play within your business?

Two interesting questions, Andrew. To take the availability question first, I mean, it's been a very hard work this year. As you can imagine, to stay in stock of sometimes quite scarce products, laptops, for example, have been globally scarce. But we really have benefited this year from being #1 with our suppliers. I mean, the likes of HP, for example, were far more important to them than any other retailer in Europe, and we've benefited from that and being first in the queue for scarce stock. That's been very helpful as a sales driver -- a sales enabler. Obviously, I mentioned earlier that we set out 2 years ago, to become #1 in our availability, and that's what we've been able to do. It's also -- being #1 is helpful when supply is under other disruption threats. And clearly, we spent the best part of 2 years getting ready for any outcome on Brexit, and we are. And those Brexit preparations have come in handy even with the pre-Brexit disruption that we've seen at some ports. I think the short answer is there's a great deal of hard work involved, but it's not a big concern. We think there's a reasonable worst-case scenario of up to 2 days of delay on average. And with all the preparations that we've got hand-in-hand with the suppliers, we can cope with that. And obviously, we don't sell perishable stuff. So that's a manageable risk. Your second question about the role of the stores in the future. Well, we like stores in our space anyway, they've got a really important role. And this comes back to the customer as it should. The customer finds technology confusing as well as exciting and they value help. They value the face-to-face advice from a trusted expert, and they like to see it demonstrated. And that's why we've doubled down on big stores where you can fit all the tech, all the experts, all in one place, stores that are in the right place. Retail parks with much more resilient footfall this year. But -- and stores will continue to do what they've always done, which is to help customers who walk in off the street. I think the exciting innovation, though, is that they can do more than that, and they are doing more than that. And stores and online together, you can give the customers the best of both however they happen to be shopping on any given day. And as I mentioned, in our space, 60% of customers still prefer, even now at the height of a pandemic, to shop technology, both online and in-store. And that means a customer in a store, as far as they're concerned, we're much, much more rarely ever out of stock because we can bring the full 17,000 SKUs to bear even in the smallest store, whatever its stock situation. A customer online who wants their product right now can get it within an hour without even leaving their car, thanks to the innovation in order and collect that over 1 million customers have enjoyed. And a customer online can also get the face-to-face advice that previously they've only been able to get in a store. And that's the exciting part of Shop Live. It's simply bringing the best of stores, face-to-face advice to a customer when they're online. And the uptick that we've seen on conversion, which is 4x and average order value, which is over 50% higher than unassisted online on Shop Live. That suggests that the customers like it and so do we. And as I mentioned, this is a defensible innovation that we can do because we've got the tens of thousands of colleagues. We've got the stores, which have well invested stage sets for these purposes. And this points to a future of the store, where they still continue to perform their traditional function. But they also add value to the online business. And not just in more traditional ways like click and collect, but in becoming -- you might see a store as a stable for talent and start colleague in the store as well as selling to people to walk in off the street can sell anywhere in the country. Thanks to digital technology like Shop Live. So this points to a bigger range for any given store or a bigger scope for any given store than simply their local catchment. And that's -- and we can do that as nobody else can. We've got a big and successful online joined up to big and successful stores.

We will take the next question from Richard Chamberlain from RBC.

The first one is then on specific sort of plans for Shop Live going forward. Can you maybe talk about that, in particular, maybe scope for a number of products it will cover on the website, number of colleagues you're planning to train on it? I mean, obviously, you've seen a huge increase in that already. But just any sort of plans how you can develop that innovation going forward?

Richard, the simplest answer is, what are we shooting for? We are shooting for every customer online to be able to hold a conversation with a relevant specialist whenever they want. And I mean, that's -- it's as simple as that. And that's why we're scaling this up fast. I mean I think as you saw, we took it from idea to launch in 4 weeks, which probably would have taken us 4 months a year ago, but one of the benefits of the crisis is we're moving a lot faster. We've taken it from 13 to 450 active colleagues, and we're taking it to 2,100 who are already trained up. So we are scaling it up reasonably quickly. There's absolutely no reason why this can't eventually encompass all of our store colleagues. And the beauty of it is with our scale, and you start to benefit from the network of experts. Because we've got millions of customers we've got thousands of colleagues. And so at any one time, a customer is calling up with a specific need, like PC gaming, for example, can be connected with a colleague who's a PC gaming expert who's free at that minute because the store might not be that busy right at that moment. And so basically, it's a way of -- from our point of view, increased capacity utilization of store colleagues. From the store colleagues' perspective, it's a way of -- it's a much more exciting career for them because they can practice their specialism in a way that they would find hard to justify in just a store. And obviously, they can be selling all the time rather than just part of the time, and they can be increasing their earnings power as well. Good for colleagues, it's very good for customers and it's good for us because it's a defensible innovation and good like anyone else being able to do this at scale because they haven't got our 15,000 frontline colleagues in the U.K.

Sure. Yes. Yes. Okay. That's really helpful. And just one, maybe, Jonny, if you're on the line. I think you just changed the net debt definition. I think you said slightly for finance leases. But aside from the trading outcome, which we can all have a view on, any sort of big movements or sort of timings to be aware of in the second half? And I guess VAT deferral might be one? Are there any other sort of lumps to flag at the moment?

Yes. Well, I mean, let me just clarify the change of definition very straightforward. We just took IAS 17 finance leases out of the definition in the new era of IFRS 16, right? GBP 70 million difference we've given both figures. So I hope that's clear. We'll use the new definition going forward. So just financial balances will be in that number. Obviously, we finished the half year in a strong net cash position. As we look forward to the second half -- I mean, there are a couple of things to bear in mind. There's GBP 145 million of VAT, which will -- which we intend to repay before the end of the financial year. And then ordinarily, between half year and full year, there is a working capital rebuild of about GBP 200 million. So when you look at those figures together, it all depends on trading. Of course, it does, and we don't want to be giving any guidance on that because the market is uncertain. But with decent trading, we do have a reasonable chance of finishing the year without debt.

[Operator Instructions] Our next question comes from Warwick Okines from Exane BNP Paribas.

I was just wondering whether the process of year-end volume rebates will work in the same way as usual this year or whether there are any sort of differences because of you struck around securing availability? I recall at the full year, you said that you had a sort of negative impact on profits because you mentioned volume rebates and presumably this year versus a normal year, you'd be well ahead of volumes. And therefore, it could be quite material tailwind in the second half. Just interested, any thoughts you have on that, please?

Yes. Well, I think the deals with the suppliers have been reset for the expectations of this year. And as Alex has said, we have very strong relationships with suppliers. So we wouldn't expect any unusual effects this year. What happened last year was because of a significant change in expectations right before year-end. So there was no adjustment time. Our shops got closed 6 weeks before the end of the year. And that's what caused -- I think we said that the COVID impact on last year's results was about GBP 50 million of profit, and that was one of the major factors. Absent any unforeseen events like that, we wouldn't expect to repeat.

[Operator Instructions] Our next question comes from Geoff Ruddell from Morgan Stanley.

Just one quick question on Dixons Travel. What do you see is the future for that business now? I mean, obviously, it's had a very difficult year. Do you remain committed to keeping it on the same scale as it was before? Or are you just waiting and seeing?

Well, clearly, given the choice, we like this business unit. I mean, it's been a nice contributor for us for years now, and it's effectively been shut down by 2 things this year, at least. It's been -- obviously, travel is on the floor. And then second, we've got the planned airside tax changes, which also are significantly damaging. And if these 2 factors continue indefinitely, we're going to be looking at some very tough decisions that are a part of the business that has got 30-odd shops and 400-odd colleagues, and that's been a material contributor in the past. So we are still arguing hard, us and others, to the government to change their mind about the airside tax changes, which we think will be damaging in the extreme for tax as well as the jobs for the U.K. And we are negotiating hard with the -- with our airport partners, as you would expect, to reflect the different conditions. But there's no disguising the fact that this part of the business is extremely challenged.

And have you locked into long leases? I mean, I know the leases tend to be relatively flexible and relatively short, as I understand it, in airport retailing. Is that correct?

Yes, that's right. They're not very long.

Like a couple of years on average or more than that?

No, they're shorter than that, Geoff. The leases are shorter than a couple of years. And obviously, the future will depend on our discussions with airports about the nature of those leases.

But it wouldn't be expensive to exit, but the [indiscernible] with them?

That's correct.

[Operator Instructions] It appears there are no further questions at this time. So I'd like to turn the conference back over to Alex for any additional or closing remarks.

Thanks, Ledryn, and thank you, everybody. I'll just close with 2 Christmas-related items. I mean, firstly, to encourage any of the net organized amongst you to get yourselves to carry soon online or in-store to stock up on some last-minute Christmas gift. I'm particularly looking forward to the Google Nest Mini appearing in my stocking. There's a hint there for anyone who wanted to buy me something. The Apple Airpods 2 are flying off the shelf. Apple has done a good job improving on an already pretty strong product. HP laptops are my personal favorite, they've been lockdown lifeline during the course of this year, and we've got a 255 G7 on a very good price of less than GBP 400. And obviously, for those of you who are feeling much more generous, and more expensive, I'd call you towards our selection of Samsung and LG large screen TVs. The LG 55-inch Smart 4K Ultra HD OLED is a good GBP 100 off and already a good price, a shade over GBP 1,000 for those of you who are feeling generous. But many thanks and just remains to me to wish you all a very happy Christmas.

Happy Christmas.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.