Currys plc (CURY) Earnings Call Transcript & Summary

Good morning. Welcome to Currys' Interim Results Call with Alex Baldock, Group CEO; and Bruce Marsh, Group CFO. My name is Sarah, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand the call over to Alex Baldock to begin today's conference. Thank you.

Thanks, Sarah. Good morning, ladies and gentlemen, thank you for your time. You'll hear from me in a bit after Bruce has taken you through the financials and before we get to your questions. So with that, I'll hand over to Bruce.

Thank you, Alex. Good morning, all. I hope you're well. So let me take you through the first half financials. The first half was a mixed performance in a tough market. Our U.K. trading continued to strengthen, whilst our International business has been challenging. If I start with a summary, our overall revenue was GBP 4.5 billion. That's down 8% on a like-for-like basis year-on-year, but up 7% compared to 3 years ago. Our adjusted profit before tax was a loss of GBP 17 million. That's down by GBP 62 million. Our free cash flow was an outflow of GBP 86 million [ adverse ] GBP 271 million. Total indebtedness was GBP 1.6 billion. Our adjusted EPS was a loss of 1.3p. And finally, shareholder return was GBP 24 million of dividend. This table shows the disparity of performance across our markets. So starting off with sales. Within our U.K. and Ireland business, our like-for-like sales year-on-year were down 10%, although compared to 3 years ago, they were up by 2%. In the Nordics, like-for-like year-on-year was down 7%, but compared to pre-pandemic, they were plus 10%. And in Greece, we saw sales growth up 3% year-on-year and up 25% over 3 years. In terms of profits, in the U.K., despite a tough market, our profitability, our EBIT was GBP 25 million. That's up by 25% year-on-year. However, both of our International markets saw significant reductions in profits. In our Nordics business, our profit was GBP 3 million, down 95%; and Greece, GBP 1 million, down 91%. Now let me take you through each market in turn. So starting with the U.K. As I say, our revenue has been down at 10% on a like-for-like basis year-on-year, and our online share of business has been flat at 43%. Despite the drop in sales, our adjusted EBIT was GBP 25 million, that's a set forward of GBP 5 million; and our EBIT margin of 1.1% was plus 0.3%. Our operating cash flow was GBP 33 million, and our segmental free cash flow after CapEx, working capital and exceptionals was an outflow of GBP 18 million. Big delta year-on-year within our segmental free cash flow in the U.K., 2 big factors. One is working capital, which was flat this year compared to a sizable inflow last year. And within exceptionals, we benefited from 2 big settlements this time last year. From a performance perspective, the U.K. continues to make progress with EBIT increasing despite some significant headwinds. It's been another strong period of gross margin progression, up 160 basis points, as our strategy really starts to deliver. We've seen higher adoption rates on both credit and other services, and this is particularly true online as our new online platform really starts to deliver. We've been able to monetize improvements within customer experience, for example, by putting delivery charges on our product moved away from free delivery. We're also using our data and our analytics better. We put in place an end-to-end profitability tool to understand where we make profit and where we don't, and therefore, adjust our behavior accordingly. And then finally, we continue to deliver cost savings across both our supply chain and our service operations, both of which appear in our gross margin. We've seen our operating expenses as a proportion of sales dilute. However, our costs in absolute terms have gone down, with headwinds from the business in terms of rates, inflation and the reclassification of IT spend being more than offset with GBP 44 million of cost savings. The reason the ratio has moved adverse is simply due to the drop in sales. In terms of the headwinds, in the first half, we faced a total of GBP 36 million worth of headwinds, particularly inflation impacts. So for example, within wages, both in our stores and our supply chain, an adverse impact of GBP 7 million. We saw a further 12% increase in energy cost, which impacted us year-on-year by GBP 11 million, and other inflation was GBP 4 million. And finally, we lost the final elements of business rates tax relief that was worth GBP 14 million, and hence, the total headwinds and inflation of GBP 36 million. However, we more than offset those headwinds by a GBP 44 million of cost savings. The selling buckets that we've talked about previously, within Supply Chain, we saved a further GBP 11 million through our contact center strategy involving consolidation and also working to reduce demand on course. And also within supply chain, we have network savings, for example, with our partner, GXO. In Stores, we've made opportunities and efficiencies through changing our retail operating model. We've removed non-value-added [ tasks ] from our stores and developed multi-skilled colleagues that are able to support our customers from anywhere within the store footprint. We also continue to see savings within our IT costs as we continue to retire legacy systems. And finally, within our Central Overheads, we've signed a group contract with an organization called Infosys who are helping us simplify and automate our back office. Finally, I want to just spend a minute explaining the goodwill impairment, the GBP 511 million goodwill write-off that went through our books in the first half. The first point to make is obvious, it's non-cash and it's non-underlying. The goodwill relates to the 2014 Dixons Carphone merger. The impairment predominantly is driven by discount rates, with our WACC increasing from 10.5% to 13%. So to put it in context, our calculation moved us from having headroom within goodwill of GBP 69 million to an impairment of GBP 511 million, so an overall movement of GBP 580 million. And of that GBP 580 million, GBP 469 million related to discount rates. Why was that so big? Well, we do our impairment calculations twice a year in our period 5 and 11 which meant that we were using rates in September, at the time that risk-free rates spiked up at 4.4%. The time of the mini budget, and hence, the size of the impairment. In terms of the remainder of the impairment, very much driven by more prudent assumptions within our valuation model as we predicted recessionary impacts into our financial performance. Moving on to the Nordics. From a top line perspective, as I said, year-on-year, down 7%, year on 3 years, plus 10%. Online share of business within the Nordics was 23%, down at 1%. However, as I said, the key point is that adjusted EBIT was down by GBP 54 million or 95% to GBP 3 million, and our EBIT margin down to 0.2%. Therefore, our operating cash flow also stepped back to GBP 23 million. We saw an outflow in working capital because of lower volume, and we also paid a tax creditor, which left us with a segmental free cash flow being an outflow of GBP 49 million. Pretty much all of the profit reduction within the Nordic was caused by a gross margin decline of 200 basis points. We've seen substantial cost of goods sold inflation that hasn't fully been passed on to consumers. Why is that? Well, 3 factors. First of all, weak demand within the market means that every sale matters. The second is that we have seen an excess of stock in the market, and that has meant that suppliers have pushed stock on to different channels, for example, supermarkets and discounters, which has put downward pressure on retail prices. But the third one, and definitely the most important in terms of the impact, was aggressive discounting from competitors who had an excess stock to clear, and Alex will talk more about that later. In terms of our operating expenses as a percentage of sale, the ratio went down. But actually, our costs are actually up only very slightly. We've got an increase in wage and energy costs that are being mitigated by lower IT and central costs. The ratio is very much being impacted by the drop in the topline. In terms of Greece, similar challenges to the Nordic, but the good news is that we're seeing revenue growth, up 4% like-for-like and up 25% year on 3 years. Online share of business has also stepped back by 1% in Greece down to 7%. Our adjusted EBIT, however, has dropped by GBP 10 million down to GBP 1 million or 0.3% margin. Our operating cash flow has also stepped back to GBP 4 million. However, we do have a working capital upside driven by the incremental volume, and that gives us a segmental free cash flow of GBP 18 million. Why are we seeing Greek EBIT step back? Well, as I said, very similar to the Nordics. We've seen COGS inflation not being passed on to consumers and higher discounting, causing gross margins to step back by 210 basis points. But in addition, we've seen some changes within the promotional environment. For example, free delivery and installation has become more of the norm. And we've also seen adverse product mix and category mix impacting our margin. So for example, sales of computing and mobile have increased as a result of government subsidies, and we've also mixed into low-end appliances because of the government voucher scheme. We've also seen operating expenses as a percentage of sales go adverse, and we've seen costs moving up slightly. We've also seen government support come to an end that we still were receiving on rental payments this time last year, and we're seeing increased energy and payroll costs. Moving onto cash, we've seen our group free cash flow for the first half be an outflow of GBP 86 million. One of the biggest impacts, of course, is operating cash flow dropping down to GBP 60 million because of the fall in International profits. Our CapEx is broadly flat at GBP 56 million. Our adjusting items are GBP 25 million outflow, which has split roughly 50-50 in terms of restructuring and lease payments on closed premises. Cash tax is up significantly, but I flagged at the year-end that we have GBP 50 million of Nordic tax payments that have been deferred last year that have paid in the first half. And finally, cash interest has also stepped forward, as our average debt position has worsened along with increased interest rates. And finally, working capital. Working capital is an outflow of GBP 28 million at a group level compared to an inflow of GBP 102 million last year. There's a number of factors here, but the most significant is a drop within stock terms. This time last year, there was a shortage of stock in some areas and sales were higher. This year, we've been able to get more stock and our rate of sale is lower. And hence, because of that drop in stock terms, more of our stock has been paid full. In terms of use of free cash flow, as you'll be aware, our final dividend was GBP 24 million. Our pension contribution was consistent year-on-year at GBP 39 million, which meant we had an overall movement in net cash, an outflow of GBP 149 million, which meant that our cash position went from net cash of plus GBP 44 million to a net debt of GBP 105 million. But to remind you that our cash generation is very much weighted to the second half. From a balance sheet perspective, we maintain a strong liquidity position. Although we have net debt of GBP 105 million, we've supplemented our existing revolving credit facility of GBP 536 million with an additional facility of a further GBP 140 million, which leaves us with liquidity at the half year of GBP 571 million. So what's our expected outlook? In the second half, we expect the U.K. and Ireland to deliver robust profitability in a weak market with profit stable year-on-year. And just to point out, that excludes some of the mobile one-offs. From an International profitability, we expect it to improve compared to the second half based on self-help activity, and as I say, group will generate cash in the second half. In terms of full year guidance, our adjusted profit before tax, we're guiding to between GBP 100 million and GBP 125 million compared to the GBP 125 million to GBP 145 million that we guided at the year-end, and I've adjusted that for CapEx to OpEx switches. Our capital expenditure, we expect to be GBP 120 million, down from the GBP 135 million to GBP 155 million we said previously, and our net exceptional cash costs are unchanged at GBP 40 million. Overall, we expect our year-end net debt to be better than the first half. I'll now hand over to Alex.

Thanks, Bruce. Mixed results, as you've heard. I mean, we're obviously pleased by the strengthening U.K. performance from a strategy that's working. Equally, obviously, we're disappointed by the first half interruption to that long International trajectory that improved sales and profits, and we'll talk about the market disruption behind that and why we expect that to be temporary. The outlook, as you've heard, we remain confident in the longer term even as profits hold up relatively well in the short term. So let's start with that strengthening U.K. performance where, as you've heard, profits are up again by 25% from sales that are strong enough to protect our market leadership. But importantly, we're not chasing unprofitable sales, more on that in a minute. Second, from great cost efficiency with more to come, but particularly from gross margins improving again, up 160 basis points after the 100 basis point improvement a year before. So let's look at the drivers of those improving gross margins and why we're confident, we can keep that trajectory going. First, services is growing. We talked a lot about how services make for stickier and more valuable customer relationships. We've taken big strides in such margin boosting services as credit, up 460 basis points, and warranty, where our front book adoption is up 350 basis points on last year and the whole warranty book is back into growth, 2.5% larger. Second, our customer experience is better, and so we can charge for it while still giving the customer good value for money. And delivery is a good example of that. When it was unreliable, we have to give it away. Now, it's much better, we can charge for it, and the customer still is getting good value for money. And MDA of major appliances is a good example of that where we're gaining share and improving profitability and improving customer satisfaction all at the same time. More to come from that. Third, as I said, we're not chasing less profitable sales. And importantly, we now have better tools so that we don't have to. Bruce touched on the end-to-end profitability model which might sound a bit dry, but is super important. And that is allowing us to be increasingly forensic on the true profitability of suppliers, categories, products, services, solutions, customers and activity like promotions, like marketing to allow us to zero on the less profitable stuff, either stop doing it, reduce it or improve it or a combination of the 3, which is seeing real benefits in areas like [ PPC ] efficiency in marketing and in making sure that we're doing profitable promotions only. Fourth, as you know, some of our costs hit the gross margin line in supply chain and service operations, and that's in good shape, too. So all of these 4 contributed to increasing gross margins. And importantly, there is much more to come from all of these. We're not happy with our gross margins, important to say. But what we are happy with is the trajectory, and we can see how they're growing, and we're confident that we're going to keep that growth going, even in less than friendly circumstances that we're in. So a good strengthening performance in the U.K., with more to come. Obviously, International is a different story. We've had a difficult first half there through intents, though we don't believe structural, market disruption with -- as you've heard gross margins sharply down even as we've outperformed on sales and costs. So why? Well, first of all, we've got the same pressures in the Nordics as in the U.K. and everywhere else, pressures of soft demand and COGS inflation. But there's some additional Nordics-specific disruptions. There's a long tail of domestic competitors, the likes of power Komplett, NetOnNet, Verkkokauppa. Who perhaps, overconfident by the boost they got from the pandemic and some funding since, have chosen aggressive growth strategies, made big stock buys to match just as demand started falling off, and they've felt forced to discount their excess stock heavily since, much more than we're seeing in the U.K. We've seen crashed pricing that's taken the market profit called near zero, as you see on the right-hand side. In the Nordics, as we do everywhere in the group, obviously, we seek to balance the benefits of keeping our #1 spot, and we like those benefits with profitability. Fair to say that in the Nordics, it's required unexpectedly heavy margin sacrifice to protect our market leadership. Equally important to say that we expect these market pressures, intense though they may be, to be fleeting. Demand will normalize in time. These are healthy, wealthy markets. Excess stock will wash through. It always does. And these smaller competitors will struggle to maintain this current level of unprofitable aggression. And meanwhile, we're stepping up our self-help, both on margins and on cost, that give us a confidence that the long track record that we've seen over many years of growth in Nordics sales and profits will be resumed. And we put that together with the strengthening performance in the U.K., you can see why we're confident. So the strengthening U.K. performance from the same strategy that lies behind the long Nordics track record, #1 in every market on foundations of happier colleagues and customers, better retail fundamentals and making more of our 2 big differentiators of omnichannel and services on the back of a stronger business financially. Let's get into our markets first, and I'm going to wrap up through this to give plenty of time for your questions. The market we're in even now larger than pre-pandemic, double digits larger. And of course, our market and ourselves have come under pressure from the cost of living squeeze. Nevertheless, Technology, we don't think can any longer be seen as a purely discretionary category. It's more essential now. And we owe our #1 position in those markets in large part to happier colleagues and happier customers. But colleague engagement is very important for us. Not just because we're nice people, but because it's very hard for the experience of the customer to be better than that of the colleague. So it's good that we've bucked global trends and increased colleague engagements to world-class levels in the U.K. as it's good that customer satisfaction is 5 points up on pre-pandemic. It's also important that we've continued our focus on retail fundamentals, you might call them. The range is quarter larger. And with energy-efficient products like our GoGreen arranged to the full, our availability is 430 basis up year-on-year and market-leading. Unlike others, we've stood by our price promise, and we're making the most of our heft with our suppliers to keep the lid on inflation-driven price rises as much as we can, and we're getting preferential access to the most desirable stop as well. And the customer experience is easier. We talked about delivery being better, and you can see the evidence of that on the right-hand side. Not happy with where we are on any of this, of course. But again, we are happy with the trajectory, and we're going to keep it up. Meanwhile, on our 2 big differentiators of Omnichannel and Services, again, good progress to report. Omnichannel, online stores together. We've said before, it's the winning model, continues to prove that it is. 2/3 of customers continue to use stores, the online share of business is stable year-on-year, and we're building on our advantages here. We've invested, as you've heard in our store colleagues, 16% wage increases for our frontline colleagues over the past year or so. We've invested in new online platforms, and you've seen some impact from those platforms already in the improving gross margins with full benefits to come. And other omnichannel benefits like 24/7 video shopping, ShopLive, continue to prove their worth to customers. And now, as our improving gross margin show, we're making the omnichannel model work increasingly for us economically as well as for customers as we continue to level up profitability between channels. And on Services, we've made excellent progress as well, notably on credit, where at 17% penetration, we're already past next year's target, 460 basis points up year-on-year. Credit, as you know, is important to customers, especially in a cost of living squeeze. It's important for the business too. Credit customers continue to spend more, they continue to be much likelier to come back and shop with us, stickier and more valuable. So it's good that we're growing credit as we are with credit customers and sales up by over 2/3 in 2 years. How? The unlovely phrase of leveling up, but an important concept, we continue to do it. And in fact, as you see on the left-hand side, our credit penetration online has doubled in the past 3 years from 9% to 18%, and is actually now higher than stores, so leveling up continues as well as an easier customer experience and an improved offer. There is further to go on credit. Likewise, on Other Services, where we're leaders in protecting and repairing products. Again, an important reason for customers to choose Currys when they care about affordability and the cost of living squeeze and about sustainability, and this is where our big repair business with GBP 14 million now, Care and Repair customers, comes into its own. And as you've heard, they're both the front book and the total book are back into growth now. So final thing to say on this slide, by the way. It's -- we're not just -- again, we're not just doing this because we're nice people, we're doing this because we make money. We already make money in protection and repair, and we have plans to do more. Looking ahead, you've heard the outlook is obviously uncertain. And we're certainly not counting on any eminent macro improvement, but this is a more resilient business now. With a strong balance sheet and ample liquidity, we believe we are well set for long-term success despite the sharp decline in first half International margins and profits. We can still hit the bottom end of the previous group guidance that's still achievable. And as we expect the continued strengthening of the U.K. performance to largely make up for a weaker year in the Nordics, which allows us long term to stand by at least the 3% EBIT margin target, though prudently and solely because of macro assumptions. We're now committing to that only by FY '25. Though we will, of course, aim for more and sooner. To do that, we'll continue to protect our #1 share, but we believe we can continue to grow gross margins. We'll do at least the GBP 300 million of cost out together with normalized CapEx and exceptionals, will get us to GBP 150 million of sustainable free cash flow a year. So summary, tough environment. And though International trajectory was interrupted temporarily, we believe the U.K. performance continues to strengthen on the back of best -- happier colleagues and customers, better retail fundamentals, making more big differentiators like Omnichannel and Services, with a stronger business financially well set, we believe, to come through this turbulence in good shape and for the longer term. And with that, I will pause, and we'll have -- we'll go to your questions.

[Operator Instructions] Our first question comes from the line of Adam Tomlinson from Liberum.

Three or 4 questions from me, please. The first one is just around that gross margin improvement in the U.K. So I think about 300 basis points on a 2-year view, that improvement there. So any color you can just give around the relative contribution over the fact that helped with that improvement? How much there is -- how much more there is you think to go for there in terms of that gross margin? And then thinking back to pre-COVID, you made a comments around the gross margin of an online transaction being about 10 percentage points lower than an in-store transaction. So I'm inferring that gap has largely been closed now, so if you could just -- any sort of update on that? Second question, please.

Let me kick off. Bruce might follow-up. And then if you have any more, obviously, we'll take those, too. So we're not guiding to the relative weighting of these drivers. They're all important. I mean, we talked a lot about how Services are very important for margin boosting in year as well as for lifetime value. So it's good, the progress on credit and on protection services. The customer experience improvements, we've only just started to tap into the potential there with, for example, delivery charging. But as we continue to improve the customer experience, obviously, we can keep charging more for it and still get good value for money. The chasing of less profitable sales has a lot more to run. The end-to-end profitability model that Bruce has driven is in its relative infancy, but is already showing strong results in the areas that I highlighted. And obviously, you know where we are on the cost out. Bruce, do you want to add anything to that?

Not specifically. I pick up the question regarding the relative profitability of stores and online. I guess we're still in a position that we wouldn't want to separately break those out. We see our omnichannel model of both stores and online blowing very heavily based on our proposition and the way we operate it. In terms though of that 10% delta within gross margin, I would say that is shrinking not by a material amount on the basis, it's not disappearing entirely, but it is reducing. Any other questions?

Just a couple of more, please. Just on the Nordics, noting your comment around the fact -- the behavior from competitors is unsustainable. I'm just wondering if there is any visibility there in terms of stock levels in the Nordic markets at the moment where they sit versus where they have been, and whether you're getting any signs that those are coming down at all?

We've been cautious in putting a timeline to these market pressures easing, and we're not calling it now with the 6 weeks since the end of the reporting period. We're not flagging any significant change. We're simply saying that at some point, clearly, demand will normalize in markets that have been very healthy. Obviously, on that, depends how fast the excess stock will sell through and for the investors in those businesses to decide how much unprofitable aggression they will put up with. Obviously, the part that is in our control and where we are stepping up our self-help actions is on margins and on cost. And you can be assured that everything that we're doing in the U.K., whether it's increasing services, improving the customer experience, not chasing those profitable sales and taking cost out of supply chain and service operations but also do in the Nordics, as well as have -- exert an even tighter grip on total costs.

Great. And then just one final question. On balance sheet, obviously, still a very robust position there and good liquidity headroom. I guess there were -- people will always ask the question around whether you're seeing any changes in terms of the behavior of credit insurers in these tougher markets. So I'm just wondering if there's any comments you can make around that as well, please?

No. I mean, we have a regular dialogue with the credit insurers, and all the meetings we've had with them recently have been very positive.

Just one extra bit of color that might be useful to you. It's just worth pointing out that, as you know, we've guided to GBP 100 million to GBP 125 million of adjusted PBT for the full year. We can hit the lower end of that without any improvement in the Nordics gross margin performance. Now clearly, we intend to improve it, but that's the safety that we built in.

The next question comes from the line of Warwick Okines from BNP Paribas.

Just 2 questions, please. Firstly, was any of the margin decline in International in the first half directly caused by the inventory that you opportunistically brought in during the summer? Or is that totally unrelated? And then secondly, on the U.K., you said the market is up 14% since COVID. Your own like-for-likes are up too, and clearly, most of that is channel mix because your store share is stable, and I imagine Carphone is also part of the explanation. But my question is, how much do you think the lack of market share improvement over this period is because you are not chasing less profitable sales now? Or is that really not much of a factor in your market share?

Let me lead off this -- on the second point, first of all, Warwick. So essentially, all of the effects that you're talking about is channel mix. So over the period, our online market share has increased and our store market share has been stable since pre-pandemic. That's the first point.

Then on the other question regarding the stock, you're right. At year-end, we talked about GBP 100 million of incremental inventory within our Nordic business that have been bought to get ahead of the market and to take advantage of favorable FX rates. So I think -- are reflected in July. At that point, all of that stock has been sold through. So in the round, actually having that stock upfront, given the way the U.S. dollar moved, probably gave us a net help to our margin.

Just one thing to add, actually, Warwick. It's worth saying that while the 3-year trend, as I said, of gaining market share online and holding it steady in stores. We are reporting a 120 basis points reduction in U.K. market share in the first half year-on-year. And that we would flag is us having better tools so that we don't have to chase on profitable sales, and we're less inclined -- less and less inclined to do so.

The next question comes from the line of Simon Bowler from Numis.

I was going to kind of start by kind of touching on inventories as well to an extent here. I think your inventories are up at this point in time kind of 25% versus pre-pandemic levels on a similar revenue base. And just -- can you touch on how you feel about the quality and quantity of inventory you've currently got in your business at the moment? And if you can give a sense of where that's distributed in terms of U.K. versus Nordics, and to the extent that you kind of place the drive on competitors in terms of their inventory position in the Nordics. Can you just kind of comment on how you feel about your own in the context of the market decline and further working capital outflows in that part of your business?

Let me kick off on this one, Simon, and Bruce can pick up. I mean, the first thing to say is we've noted a 430 basis point improvement in availability in the U.K. as one of the retail fundamentals that we're pleased about. And we are pleased about that because it gives us the stock that we need, for example, in more energy-efficient items just do a good job for customers this week and beyond, and it gives us a competitive advantage. The second thing I would say is it's good stock. The headline picture is that we're actually satisfied with our stock position and outlook for the year and not calling it out as a risk, but Bruce will want to say more.

Yes. Simon, thanks for your questions. So you're right, our stock is up, and I would say that there are 3 factors within that. The first is the increase of COGS inflation. So within the U.K., that is mid-single-digit COGS inflation compared to a year ago, and indeed, in the past. In the Nordics, it is low double-digit COGS inflation. So that is feeding through into our cost of goods sold, but it's also feeding through into our stock. The second point is that our sales are higher than they were 3 years ago. So therefore, we've got incremental stock in the business to deal with greater turnover. And finally, we have invested in stock in some categories such as white goods to take advantage of the availability. And we've seen growth in market share within our white goods in particular. If I just then build on in terms of the quality of stock, probably the most accounting answer to this is to consider the stock provision, which has been consistent all the way through the last 3 years, and we provide the stock on an aging basis with a different profile for each category. And actually, our level of provision is lower now than it was at the year-end or was previously, so I think that points to the fact that the quality of our inventory and the aging of it is robust. That doesn't mean that we have no overstock everywhere, but generally, our health of our stock is robust.

Simon, can I just pick up on one other point you made. I think -- I'm not getting the exact phrase, but I think you said [indiscernible] more Nordics competitors for the stock position there. So let me just say a little bit more about that. And this isn't just us saying so. This is publicly available, what they've said in public. The likes of power and NetOnNet and Komplett and Verkkokauppa have been pretty overt about the fact that they've gone for aggressive growth strategies in what they see as fundamentally healthy markets. They've obviously had a new lease of life in COVID, and they've had some new debt and equity funding, which is perhaps made them a little overconfident. As I said, they've been public about these growth strategies. They've certainly bought stock to match, and that's happened as demand has fallen off. And we are certainly not leading the market down on, in fact, quite the opposite. We would like to be able to recover our COGS inflation through some selective price rises in the Nordics, just as we've been able to do elsewhere. We just haven't been able to do so while maintaining our market leadership position. And it's been our judgment that such has been the unexpectedly intense aggression from the competitors that we wanted to protect that market share. We've shaved off 50 basis points of market share in the Nordics in the first half, but it's still 28%, and maintained a healthy sales line. And yes, that has been an unexpectedly heavy margin sacrifice, the 200 basis points. But against that, as I say, these market pressures, we don't see anything structural or permanent in them, and the stepping up of our self-help actions obviously lies entirely in our control. And it's those 2 things together that give us confidence in the resumption of the long track record of this part of the business.

Okay, and then one other quick question. And the risk of sounding really [indiscernible]. I think at the lower end of your guidance, you clearly need to do kind of PBT of GBP 117 million in the second half of the year, which I think if we exclude the mobile piece, is broadly flat year-on-year. And so I'm just struggling to reconcile that with the comments that you're expecting U.K. profits to be flat, but International to be down in the second half. Am I -- have I got my numbers wrong? Am I missing something? Can just help me understand that bridge?

Okay. Simon, obviously, without seeing your spreadsheet, it's hard to comment. So let me talk more generally about how we've constructed the range of GBP 100 million to GBP 125 million. And clearly, the first thing I need to say is that there is still a huge level of uncertainty in terms of the outturn of peak and the second half. But the assumptions that we've made is starting with the U.K. Actually, we see a relatively narrow range of outcomes within the U.K. market. We're expecting sales to continue where they are, so down 10% year-on-year or equivalent as we set forward. But we are expecting to see our gross margin and cost-out activity continue to be successful through the second half and offset headwinds. And therefore, our number for the U.K. is supporting the top end of the range. And as we said, is flat year-on-year. In terms of Greece, [indiscernible] being a much smaller business, I guess, the range is smaller. But we are expecting some recoveries in the gross margin in the second half, particularly those that have been caused by sales mix and some of the other drivers we expect to recover. So again, our great performance with a narrow range is towards the top end of our range, which means that it's the Nordic business and the uncertainty in terms of the future which dictates the breadth of our range. And what we're working on the basis of is that the bottom end would equate to the market and sales continuing at the rate they have been. No recovery in the 200 basis points in gross margin that's being driven by the market, offset by some self-help that's flowing through both margin and lower costs. And our modeling then gets us to that range on that basis. But again, I mean, let me just reemphasize. All of those scenarios assume no further material unexpected deterioration in the macro situation. But happy to pick offline if you've got any more questions.

Yes, it might be helpful just kind of run through the shape, model and perspective as to it. Just one very quick follow-up, just to kind of check with something you said there, within the U.K. expecting sales to continue down kind of a similar quantum across the second half. But the comparative size base is quite meaningfully across the second half of the year. So does that expectation of continued declines reflect the fact you think the market is going to emerge down further? Or is this kind of a reflection of your focus on more profitable sales kind of deliberately almost kind of stepping away from parts of the market?

So our planning assumption is that our like-for-like continues at the same rate in the second half as it does in the first half. You are right. We're facing into softer comparatives. But nevertheless, our planning assumption is that year-on-year decline continues in line with the first half.

The next question comes from the line of Ben Hunt from Investec.

Can we just talk -- I mean, I know you can't give us a week-by-week account of your gross margin. But is there any way you can talk about the exit rate of that in the U.K. and what the trend was throughout the half? And then the second question will be on market share, if that's all right.

So I think the gross margin one is easy. I'm afraid we're not in a position that we're going to share gross margin phasing up over the period. So Alex, do you want to pick up the market share one?

What was your question?

I want to ask a question here on the market share. My question being really is you insinuated to work that the market share was down on a year-on-year basis, which seemed more a function of the fact that you were chasing less unprofitable sales rather than channel mix. Can you just give us a little bit more color on that because of -- you would have -- of all the environment that we're in and all the self-help that you've been doing, that strikes as a very disappointing performance.

Okay. I mean, we don't quite see it that way. I mean, I think you're right that the channel mix has stayed stable over time year-on-year. But not chasing less profitable sales, to give you a bit color on that, and I mentioned the end-to-end profitability model that is allowing us -- is starting to allow us to be more discriminating on suppliers, on products, on categories and on customers, on bundles, on the solutions as well as on activity like direct marketing and promotional activity. But as I say, it's starting. We expect the benefits of that to build over time. The -- so that's the -- that's the short answer. I mean, yes, we've made some big strides in being able to be more discriminating on profitable versus unprofitable sales. We've been perfectly content to see us keep our #1 slot in the market, still accounting for around [ onefold ] of sales. But seeing our profitability improve again for a second period running, another 160 basis points to build on, 100 basis point improvement last time. So we don't see it as a disappointing trajectory. If your challenge is, is this the best that we can do? The answer is, of course, not. We're not happy with these gross margins. We're nowhere near the potential that we can realize through carrying on doing the -- performing activities that's seeing us improve our gross margins and our overall profits. There's much more to come. We agree.

Okay. So can you then -- I mean, what's been the bigger move for gross margin? Has it been the non-chasing of the unprofitable sales? Or has it been the adoption of credits and services that's pushed us more?

Well, we haven't broken that. We haven't quantified that, Ben. But I mean, you can infer from a couple of things that we've said. I mean, we're very happy with the progress of the cost out and supply chain and service operations. We're very happy with the impact that our increasing services adoption's having, whether it's credit or whether it's the protection services which is sharply up, as you've seen. But we've said that we're in our relative infancy on the other 2 drivers, whether it's the customer experience improvements, that we are now starting to monetize that, you might call it, in a more systematic way. So there's more to come on that. And we've already talked about the fact that we're in the early stages of recognizing this end-to-end profitability model. But more guidance on that, we're not giving.

Okay. And so should we assume going forward now that it's still -- the shape is going to be probably losing market share, but you're getting gross margin to the degree that you have been in this first half? Is that the sort of shape we should now expect as opposed to what prior to this used to be, one of consistently getting market share?

Not necessarily, but market share isn't our principal aim. What is important is that we maintain our #1 leading position, and that we've done and that we will continue to do. What's also important to us is making the profit, and it's making the profit and making the sustainable free cash flows, and that's ultimately where our objectives start from and our most important objectives. How much -- how aggressive we need to be in response to competitors is obviously not solely within our control, but we're going to continue to balance maintaining our market-leading position with making sure that we've become a more profitable business over time. And the fact that you've seen where our longer-term guidance is and you see where we are today, we know -- you can be sure from that, that we don't believe we're anywhere near the potential of that.

Okay, fine. Final question, I probably won't get the answer to it, Bruce. But obviously, this time last year, you were in losses in the legacy mobile business. Can you give us the quantity of what they were in the first half last year?

No, I'd just reinforce what I said previously, Ben. We treat it as a division, so.

The next question comes from the line of Peter Testa from One Investments.

Just on the -- I'm trying to understand a bit more on costs as they come through and how they match versus inflation. Because I guess you highlighted the staff increase in October, I suspect you're probably starting logistics decreases at some point. If you could just give us a sense on as the cost story continues to run through, how the timing of that matches up against inflation through the second half?

So in terms of our expectations of cost inflation through the second half, I think we've got a pretty clear handle on it. Obviously, we've talked previously about wage increases, the 38% that we've given to our colleagues over the last 5 years, and therefore we're able to manage that effectively. Energy costs, we've locked in now through the remainder of this year and also the summer of next year. So again, I think we've got a very good handle on where our energy costs are going to flow through. The one -- another point to call out is that there has been, you're probably aware, a change of the U.K. government rates situation, and that's going to give us roughly a GBP 4 million advantage next year. So those are the key moving parts in terms of inflation going forward.

Do you have any of the deflation factors or logistics and so on that you think will affect this financial year?

The only one is shipping. So we saw real extreme increases within our shipping rates during the course of last financial year. They have stepped back from the peak, but they're still substantially higher than they were pre-pandemic and pre -- the cost of living challenges.

But just maybe in aggregate, you highlighted on H1, the cost inflation factors versus the savings. I was wondering how you thought that balance is going to work its way through, and whether that would be getting better towards the end of the financial year or not?

It's a level of detail that we probably don't want to get into at this stage. Thank you, Peter.

Okay. Sure. And then the question I had on FX and inventory and lagging through the price increases, I was wondering if you could give us a sense on how -- what do you think you need to do in terms of pricing for the high season versus later on to manage the FX lag through in cost of goods?

No. I mean, clearly, those are commercial terms, so we wouldn't get into pricing. But in terms of FX, there has been, as I've already reflected, quite a significant impact of the dollar strength particularly during the first half, which cause within our Nordic business at 25% adversity in terms of FX, and certainly our Nordic business buys a large proportion of their products. The majority of their products in foreign currency. Less of an impact in the U.K., and that reflects the relative size of the COGS inflation that we've seen.

Okay. And last question is just on the Nordic structure. I was wondering, you talked about some of the smaller players and how they've been competitive. I was wondering if you had any thoughts on how Amazon was positioning themselves in the Nordic market in Sweden, in particular, where they've arrived, and whether how that's sort of made marked pricing to a certain sort of benchmark level?

No, we're not calling out Amazon as a big driver of the substantial disruption to the Nordics market that we've seen, Peter. That -- they've been relatively cautious in their approach in the Nordics market. We know that they're not very enthusiastic about the distribution costs that they've encountered, and then -- which is one of the reasons that they've yet to -- even attempt to go into Norway, and they don't seem to be putting a great deal behind the Swedish venture. They've been -- they haven't been particularly aggressive in their pricing, nor have we seen starting share gains from them. It's much more, as I say, this long tail of domestic competitors like Power, Komplett, NetOnNet, Verkkokauppa who've been driving the aggressive growth strategies and the excess stock that we've seen.

The next question comes from the line of Michael Benedict from Berenberg.

I just had one on the free delivery in the U.K., please. I wondered what sort of improvements in your delivery time or experience that you put through that many could justify charging for delivery? And what sort of impact you've seen on customer demand on the back of charging for delivery? And what impact does that have on your overall pricing advantage, given some of your peers don't charge the delivery?

Yes. So let me -- a couple of things there, Michael. First of all, when we talk about price, we're talking about the product price. And that's -- what's the product -- sorry, what the price promise applies to. But to your question about what's justified, if you like, the increase and what effect have we seen? We look at delivery satisfaction, so we measure CSAT for each of the stages of the customer experience. And our customer satisfaction with our delivery has improved by 17 points from 44% to 61%, I think, in FY '18 to '22. And it's that improvement that we've seen that gave us the confidence that we could start charging, but to FDE delivery, in particular. As to the effect, we've kept a very close eye on our MDA, particularly in washing machines and tumble dryers and fridge freezer categories to which this is principally applied, and what we've seen there has been very encouraging. So our MDA business has continued to gain share. It's continued to improve its profitability, and it's continued to improve customer satisfaction. So I think that's why we have the confidence to do it in the first place, and that's why we're pleased with the results as well as obviously the impact on gross margin. By the way, just to underline, maybe I'm saying this for the fifth time, but we're not happy with where we are on any of this. So for example, 61% customer satisfaction on delivery, we don't see as good. We intend to keep doing the things that is driving that northward period by period. And as we do so, so we'll be able to monetize it well.

As for our last question, we have Nick Coulter from Citi London.

One question, if I may. If you could talk about how you see the U.K. consumer and how customers are behaving and perhaps how that customer behavior has changed across the period, please? Are people trading down, are some categories seeing different behaviors? And then secondly, on the topic of unprofitable sales, please, could you update on the journey to the marketplace, please? I know there's a tech rollout process in order to have that optionality.

Yes, so the first question first. And obviously, is a big question. But the short answer is clearly the customers' hard pressed. Clearly, they're spending less overall even though, as I mentioned before, they're still spending more on technology than they were pre-pandemic. So still shopping, but we are -- what we are seeing is some trading down to a less expensive product, and the customers certainly looking for a deal. All of that's true. But it's a more nuanced picture than that because, I mean, I've talked about MDA, that's a good example of where we're actually seeing some trading up to a more expensive product upfront, but that has significantly lower running costs over its life. And the customers interested in those lower energy consumption both from an affordability perspective, but also from a sustainability perspective about which they still care. And this is the kind of trend that's particularly well supported by our credit proposition because clearly, we can help the customer trade up to a more expensive product, and then they see the benefits of that in lower running costs over time. So just think a lot of that. We're also obviously seeing customers looking for help affording products and looking for help making the products they've already got last longer. And we talked about the significant improvements we've seen in credit, 460 basis points up year-on-year as evidence of that, and we're also seeing our repair business has never been busier. We've got GBP 14 million now Care and Repair customers across the group. And that's not just another important sustainability credential as far as customers are concerned and another reason to prefer Currys, but it's also something that makes us money. And our longer life propositions of trade-in, repair, protection and recycling together are profitable, and we've got some strong plans to continue to improve that trajectory. So that's what we're seeing. I think your second question was on less profitable sales and marketplace. I mean, as you know, we've got a marketplace in our Nordics business. We're not flagging an imminent deployment of it to the U.K. One of the reasons that we've landed things like the new omnichannel platform well in the U.K. is that we're resisting the temptation to try to do too much at once when it comes to big systemic developments. This is definitely on the list, but it has to take its place in the queue, and we'll talk more about that another time. I think with that, we're going to have to wrap up. And so many thanks for your time. Where would I summarize all of this? We are not happy with this performance. We're not happy with the absolute level of performance in the U.K., but we do like the trajectory and we intend to keep doing the things that are strengthening the performance. Clearly, it's disappointing to interrupt trajectory in the Nordics, but both reasons of temporary factors externally and our own self-help actions internally, we're confident that we'll resume the trajectory there, which gets us to a reasonable place in near profitability and gives us confidence in that drive towards at least the 3% EBITDA targets that we've committed to over the medium term. So with that, I thank you for your time, and wish you all a good day.