Currys plc (CURY) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Currys Peak Trading Update Investor presentation. Questions are encouraged throughout the presentation and can be submitted via the Q&A box situated on the right-hand side of your screen. There will be a short video, and Alex Baldock, CEO, will begin the presentation. Thank you. [Presentation]

Welcome to our peak trading update, not quite in real life, but at least we will show the continuing relevance of stores as part of our omnichannel model, the importance of our colleagues and the effectiveness of our marketing has 3 features of our strengthening performance today. And today, you will hear about strong peak results from the strategy that's working. It's good to get the Nordics back into like-for-like rates performing well in a still weak market. It's good to see the U.K. and Ireland for the first time in COVID showing like-for-like growth over peak, continuing to show strengthening performance. And in both markets, good margin and cost discipline building on a strong first half that leaves us confident in beating consensus for this year's profits and together with strong cash generation and improving cash generation and a strong balance sheet, an imminent return to the dividend. Now I'm going to talk about the strategic progress that lies behind this performance after Bruce takes through the numbers.

Thank you, Alex. So let me quickly remind you of our half one results that we shared in December. It was a good period with revenue at GBP 3.9 billion, up 1% year-on-year. Remember, U.K. plus 5%, Nordics minus 2%. From a profit perspective, our adjusted EBIT was GBP 41 million, up 52% year-on-year with both markets up around 50%. Our adjusted EPS was up 1.7p at 0.6p. We saw free cash flow very strong at GBP 50 million, up GBP 46 million year-on-year, particularly strong within the U.K. and that gave closing net cash of GBP 107 million. We also saw our pension deficit fall by GBP 45 million year-on-year to GBP 143 million, which helped our total indebtedness. Moving on to the 10 weeks of peak. As Alex said, a very healthy performance continued. Our sales like-for-like in the U.K. plus 2% in the Nordics, plus 1%. Both markets seeing positive year-on-year growth for the first time since the pandemic. And with a strong peak behind us, we can now share a profit outlook. For the full year FY '25, our group adjusted PBT is expected to be in the range of GBP 145 million to GBP 155 million. That equates to between 23% and 31% year-on-year increase, and that's despite the impact of U.K. government budget measures. Trading also allows us to share more details on shareholder returns. The Board expects to declare a final dividend of around 1.3p at our full year results in July. That represents 2/3 of our full year dividend at around 5x adjusted EPS cover. Looking ahead, surplus cash will be returned to shareholders in line with our capital allocation policy. Let me hand back to Alex.

Thanks, Bruce. Before I get to strategy, let's start with some color. This peak, we saw drones flying high, especially DJI. We have a much better range and availability of these along with action cams, especially the GoPro Hero 13 bundle these 2 together, so called videography, up 50% year-on-year. Computing at a really good peak. Overall, our fastest-growing category and tablets and Windows PCs and in gaming PCs as well. So the AI trend really is picking up steam, that's good for us as we have 75% market share of AI PCs. We expect a big year in 2025 for computing, especially when you throw in the imminent Windows refresh, which is always good for computer upgrades. Health, beauty and fitness. There's an electrification trend that's really now hitting home in health and beauty in earnest. You could see it as effectively growing our total accessible market. I mean, the likes of Shark beauty masks, for example, see the customers buying technology instead of face cream. And we expect this mask to go well in the Valentine's Day and Mother's Day. Other highlights, Oral B toothbrushes, Remington Stylers, Braun and Philips Shavers all going well. Large screen TV. I mean, TV overall wasn't our strongest category over peak but this supersizing trend, which took off in Germany and is now coming to the U.K. in earnest, shows no signs of abating, I mean 98-inch plus TVs were the fastest-growing part of the market, up 400% year-on-year. Coming is the 120-inch TV. There's 160-inch TV that I saw at CES in Vegas last week, which is coming along. We're best placed for this because we're the only retailer who can showcase TVs on this scale from the likes of Samsung, Hisense and TCL. And we're the ones who can solve the delivery and installation headache that comes with it. Finally, coffee is perking up, bean-to-cup coffee machines up 34% year-on-year. As Starbucks sales declined, so in-home coffee sales are growing. And of course, we've got over 50% market share in this space. So much for color. Now let's get to drivers of performance. Starting with the Nordics, where we're getting back on track even in this weak market and showing the strengths of our business, good peak results with sales up, market share gains, gross margins up again and further cost savings, as you've heard from Bruce, a story of a business outperforming its market. And I appreciate that not all of you were able to attend the Oslo Capital Markets Day recently. So let's step back a minute and look at this Nordics performance in context. Until the recent market dislocation, Elkjøp enjoyed a long track record of revenue and profit growth, 8% sales growth in the 10 years to COVID annually and a similar level of EBIT growth. And now we're recovering from the post-COVID slump despite a still weak market. Now the market in the Nordics has had some well-known problems in recent years, a consumer downturn with high inflation and interest rates in overstocked market and a volatile currency. And today, customer demand is still weak, but despite falling inflation, which is now back or less than 2%, interest rates are persistently high and the Nordics consumer is especially exposed to these with a very high penetration of variable rate mortgages. So inflation coming down and consumer confidence is still low. Though it is trending upwards and -- but what we're seeing overall is despite some signs of life, a market that's averaged 3% down a year in recent years. And in this market, the team is responding well and growing market share, extending our lead as the market #1 with gross margins now recovered to a historic levels, a 3-year high, but with further to go, especially through sales with the solutions and services and especially through further reductions in supply chain and service operations costs. So this margin discipline, plus good cost discipline when we're seeing lower absolute costs in the first half and peak year-on-year. These disciplines have seen our profits as well as our sales recovery ahead of the competitors. The likes of Komplett, NetOnNet and Verkkokauppa. And these, let's remember, with the online pure-play competitors, who said they were coming to eat our lunch after the pandemic. While our EBIT is up 40 basis points to 1.1% positive in the first half, whereas Komplett's is down by nearly 200 basis points to minus 1.2%, Verkkokauppa's down by 250 to minus 1.1% neither of these competitors is producing any free cash flow. And given that the market is more rational now, and they're not making any money at all now, does have to raise some questions about the business model, but our improving performance rests on some important competitive advantages. I mean, notably scale, well-invested infrastructure. Now historically, that we've invested in a way that should give confidence in future cash flow generation. And there's no prospect of any big new investment required. We can keep CapEx really well controlled. Our logistics is modern and efficient. We've got centralized Nordics distribution center based around young shopping in Sweden, which recently effectively doubled capacity to nearly 200,000 square meters. Our stores are well invested and high spec and we've got a fully upgraded IT platform. So to sum up the Elkjøp context, I mean we're a clear #1 and what is still fundamentally healthy, wealthy markets. We're outperforming competitors, recovering faster. We're well invested. We've got relatively resilient free cash flow, which will grow further. And there's upside if the consumer environment recovers ahead of our pretty prudent expectations. In the U.K., meanwhile, you've heard that from Bruce, we had a strong peak with like-for-likes back into growth, building on a strong first half with good margin and cost discipline there, too. And in both the U.K. and the Nordics, we owe our strengthening performance to a strategy that's working, a strategy that's transformed historically bricks-and-mortar retailer into an omnichannel retailer and services provider through colleagues, who know what they're doing and who actually want to be here who make us easier to show up for customers and who, in turn, encourage those customers to become stickier and more valuable customers for life in our language, in turn allowing us to grow profits and cash flow. And this, as the scale specialist in our market, and we've maintained that #1 position in every market, including recently, nudging forward our market share with world-class colleague engagement and with our ESat, employee satisfaction now firmly established in the top 10% of companies worldwide and growing customer satisfaction with the U.K. up another 2 points in NPS in the first half. That's up 9 points year on 3, and our Trustpilot score in the U.K., having climbed in the last 12 months from 3.6 to 4.2, just saying that we've now overtaken John Lewis, who are at 4.0. So good progress in U.K. Likewise in the Nordics, we've recently moved to NPS almost up to U.K. levels already, which is -- by the way, developing some pretty healthy competition between the 2 markets. Now we owe this improving customer satisfaction in part to being easier to shop for our customers. And first, that's through better retail fundamentals, a better range, 2/3 bigger than pre-COVID, better availability, our best for 5 years in store, small box and big box availability up 6, 7 and 20 points, respectively, year on fall. We're more trusted on price. Our price competitiveness perception is 340 basis points up year on 3. And we're easier to shop as well because as we help customers shop how they want to shop, which is omnichannel. It's still omnichannel in our category anyway. And one way to look at the left-hand side of this chart is that our online-only competitors have a total accessible market, less than 1/3 the size of ours in effect, whereas we can go for the whole thing. And we can go for the whole thing first because we're big online as well as in stores. We're over 2.2x the size of AO online in the U.K. and in the Nordics, we're nearly 4x the size of Verkkokauppa, 10% bigger than NetOnNet, Komplett, despite online sales only making up 25% of our sales in that market. And we're investing in both channels, too. We're reengineering 113 stores in the U.K. this year. We're allocating more space to the most profitable, fastest-growing categories, introducing new products, new categories that drive greater frequency into the stores. And we have made over 60 online customer experience improvements, better navigation, search, filtering, easier checkout. And these investments we can make as a result of the healthier financial position of the group. And omnichannel sales are the fastest growing part of the business, joining up online and stores in a way that competitors can't. We're getting better at serving customers through both the channels together. So omnichannel sales up to over 30% of our sales from 25% a few years ago and order and collect up 13% this peak. We're also easier to shop because we're getting it right first time more often for our customers. And a customer after all likes it when we turn up with the right cooker undamaged at the point in time and with the right colleagues and parts to install it there and then also saves us, by the way, the cost of having to return another time. And so the number of 30 this year, a small right first time initiatives add up to some quite big customer satisfaction gains at every stage of the customers purchase whether purchase delivery collections, you see on the left-hand side, big gains in customer satisfaction and some significant cost savings, GBP 14 million already with more to come as you see on the right. So we're easier to shop them and with further to go. We're building stickier and more valuable customer relationships too, customers for life, first through selling more of the complete solutions, which are good for customers because they get everything they need and buying off if they buy the bundle together, and it's good for us because we make significantly more margin. And so the progress in solution selling is good news for everybody, and that's up 13 points year-on-year to 38% of eligible sales in the first half, up to 41% this peak, really good progress through both channels, but in terms of selling complete solutions. Now these solutions include services as well as products, of course, services that help the customer through the life of the product and services that are the source of additional higher margin and recurring revenue for us, big revenue to over GBP 670 million of U.K. services revenue a year over 1/4 of it recurring. Then you add that to getting on for GBP 1 billion of product sales on our credit service. So services provide a competitive advantage to Currys, resting as they do on scale and capabilities that no competitor will ever realistically match them. And if we didn't have these capabilities, it's hard to see us building them today, but luckily, we do. And these services start the credit. I mean the service that helps customers afford sometimes expensive technology. And the credit customers, you'll remember, are happier with NPS over 20 points higher, the noncredit customers, they buy more. They have a higher adoption rate of other services and they shop more often more than twice as likely to return within the next 12 months. So credit's good for Currys as well as for customers. So it's important it's going well as it is peak credit adoption up 250 basis points to 23%. And Currys credit, by the way, is now the leading way to pay for Currys customers over taking credit cards, of which are 18% of sales. And this credit growth is coming from both channels. It's coming from existing customers. Now nearly 2/3 of credit sales, up 300 basis points year-on-year. It's coming from new customers too, active accounts now 2.5 million and counting up 15% year-on-year. And this has been driven by the relaunch of credit as Currys Flex Pay credits now available on all products, including the online in-store extended range, and we can better simulate customers repeat purchase from their unused credit limits. Progress here, but still plenty to go forward with over GBP 5.1 billion of unused balances still to simulate. So much more to come from credit. Not just credit though, our services to help customers get started the likes of setup and installation are also in growth now over 30% of the white goods are installed by Currys and there's more to come here on installation as this rate, we would say, is still too low. The same is true of repairs. Even with over 12 million repair customers. Repairs, you'll remember, is good for customers pocket, the planet and our profits, repair plans have got very healthy margins. And importantly, again, this is based on capabilities that others simply don't have, like Europe's #1 electrical repair center that many of you were visited in Newark with over 1,000 colleagues, 3 others like it in the Nordics. I mean we're trusted by partners too, in recent evidence that from Microsoft who have given us an exclusive contract to repair their service and Xbox products. And we've done a good job of building capability here. We have not yet done a good enough job of getting it known. So there's plenty more to come from that. And then finally, how we help customers get the most out of their technology is an important service, for example, connecting their tech. And here, iD mobiles growth is important, and it's growing well. Customer number is up 30% to 2.1 million in December with lower churn and higher ARPU. And we've done this through market-leading value for money through the excellent terms that we have with 3 as well as improvements in the customer experience, for example, the app now being used by 1.3 million customers, evidenced in high NPS and a great Trustpilot rating. So I mentioned our healthy financial positions allow us to invest in channels. It's also allowing enabling the growth here because as you'll know, the benefits of iD are deferred, there is a near-term drag on profit and cash flow from growing iD, excellent NPV though it has. So we can sustain it because of our healthy financial position, we can also sustain it because of the Vodafone 3 merger, the CMA remedies announced in December have secured our current and excellent terms until the end of 2031, a benefit that we see from the merger alongside better network of coverage for our customers. So aligning to, happy to answer any questions and all the strategy a bit later, but I'm going to pass on to Bruce to talk through outlook.

Thank you, Alex. Let me revisits our financial position. So firstly, we have a strong balance sheet. At the end of the first half, we had net cash of GBP 107 million and a pension deficits of GBP 143 million. So overall, net indebtedness of GBP 36 million, and that compares to over GBP 800 million 5 years ago. Our medium-term ambition in terms of margin remains the same to get the group EBIT margins to at least 3%. In the U.K., we're broadly there. In the Nordics, despite 18 months of great progress, there's more to do, but we're confident we can get the Nordics to 3% margin. We're also confident in delivering improved cash flow with margin improvements and particularly disciplined within CapEx and exceptionals, we will increase cash available to equity, allowing healthy shareholder returns. And finally, our capital allocation priorities are clear. We will maintain a prudent balance sheet. We'll continue to pay the required contributions to the pension scheme. Although as you've heard, we expect these to reduce as the deficit pulls away. Available cash will then be used to invest to grow with the business to pay and grow the ordinary dividend, again with surplus cash available to be returned to shareholders. Let me hand back to Alex.

Yes. Thanks, Bruce. I'm going to conclude very quickly. I mean, looking ahead, we're confident we're going to continue this progress. And we're confident as our performance continues to strengthen in the first half this peak, this year and with the improved profit and free cash flow outlook, we're talking about, today, and the resumption of shareholder returns as you heard. Nordics, we're back into growth and peak, a strong business is outperforming the weak markets and with upside is that market recovers faster than we're prudently planning and in the U.K. our encouraging multiyear momentum continues with a strong peak and strategy behind both the U.K. and the Nordics, which is pleasingly working. So with that, thank you very much, and we will get to your questions.

[Operator Instructions] The first question. Thank you for the presentation. I have just one question. How do you ensure that Currys has the right products in the right quantities at the right time?

Well, you're talking about what you might call retail fundamentals, having the right range, making it available, being seen by the customers sufficiently on the money on price, our retail fundamentals. And I suppose being good at them, it comes with the turf of being a long-standing market leader. We've had to transform many things in this business, building out online, building out services to complement being a good bricks-and-mortar retailer, but we were and have been for some time a good bricks-and-mortar retailer. We matter more than anybody else to our suppliers. That again, comes with the turf of being market leader. So we're first in the queue for new and scarce stock. We don't have to go out searching particularly for new and emerging and exciting technology, it comes to us because people want to be stocked by someone with 1/4 of the market. Now none of that means we can't get better at it, and we have. And our range is 1/3 bigger than it was pre-COVID. Our availability is the best in 5 years and up between 6 and 20 points depending on which part you measure. And on pricing, we've managed to improve our price competitiveness perception by 340 basis points year on to all the while continuing to enjoy healthy steady or growing gross margins. So we are good at the retail fundamentals, but we're not complacent about it, and we want to get better.

So our next question, what is driving iD, the growth -- what's driving growth of iD? And how profitable is this business? And could it potentially be sold?

Yes. iD is growing nicely. I mean it's up 31% to 2.1 million subscribers and still climbing. I mean what's driving it is a couple of things. Firstly, iD as an MVNO has access to the Currys customer base, and that's a very big advantage that we're getting better tapping into. Second, we enjoy market-leading pricing. So if you go on to the price comparison websites, you'll see that iD is usually there or thereabouts at the top of the value for money list. So -- and we're able to do that profitably because we have negotiated good terms with our partner 3 terms, which we happily -- we're now guaranteed to continue enjoying for another 6 years because of the remedy terms from the CMA on the Vodafone 3 merger. So we've got access to customers, we've got good value for money. We've got confidence we can sustain that. And we can also sustain it because as I mentioned in the presentation because of the healthy financial state of the group. Yes, it is dilutive to P&L and free cash flow in year, certainly, this rate of growth of iD, but it's NPV, very positive. And so we're building a valuable asset. I mean you ask can it be sold. I think while we're growing it at 31% a year and while we're providing customers with something that's important, a functioning because connected mobile phone, I think we're showing pretty good owners of this asset. But of course, it is theoretically separable, and we are building something of significant value and with no reason to close down future options.

Alex, you mentioned that the Nordics market is weak. When and how do you think this will turn around? And how confident are you in the long-term growth?

Well, let me start with the latter point first because I mean, Nordics are still fundamentally healthy and wealthy markets. Norway hasn't become a poor country overnight and better macroeconomic judges than me -- forecast the markets to normalize at some point. Now the question is when. And what we are seeing in the Nordics is returning consumer confidence, that's up and significantly up over the depths of the crisis a couple of years ago. We're seeing inflation significantly down, which is also good. Interest rates have yet to fully follow and that's the missing piece. There's a very high level of homeownership in the Nordics, very high levels of adoption of variable rate mortgages. So high interest rates feed through into lower disposable income pretty quickly in the Nordics. So interest rates are the ones to watch. You'll have your own views on how far and how fast these will come down as and when the market normalizes, which in time it will, we will be ready to benefit disproportionately, we think, which brings me to the second part of my answer, that independent, irrespective of what happens to the Nordics market, I think we've demonstrated in the last couple of years that we can significantly improve the performance of the business without any help from that market. I mean what we said at peak and what we said at the half year is that the Nordics is pulling off a fairly good trick of growing market share, growing top line sales, improving gross margins back to the levels of 3 years ago, showing really strong cost discipline and significantly improved profits at a time when listed competitors are unprofitable and getting worse. So we'll be ready. I mean no one would have wished this period on our Nordics business. But you can argue that we'll be leaving this crisis in a relatively stronger competitive position than we entered it.

So I actually had a number of questions around the budget. I'll start with this one. What is the impact of the U.K. government budget? And how will you mitigate the cost increases due to government policies?

Unwelcome is the impact of the U.K. government budget, but to be a bit more detailed in my response than that. So GBP 32 million in effect, as the year-on-year headwind from increased national insurance rates, the reduced threshold, the higher national living wage and rates relief in inverted commerce that actually added slightly to the rates build year-on-year. So much of the headwind. We already have plans and are confident to mitigate half of that. And the other half, we're working hard on. And the good news is, we're pretty confident that we'll be able to mitigate it. And we've got some well-established cost levers to pull further. We've got a well-developed outsourcing and offshoring arrangement with the likes of Infosys. We've got nearly 1,000 colleagues based in Currys India now. And we can -- you can expect to see that significantly increase its scope. We're experimenting -- more than experimenting, we're adopting automation in various parts of the supply chain in the stores through the likes of electronic shelf-edge labeling and prospectively through the application of generative AI in partnership with Microsoft and Accenture. So greater degrees of automation as well as offshoring and outsourcing you can expect to see as well as continuing process improvement. We've enjoyed some success with the likes of right first time and getting it right for customers first time obviously makes the customer happier. It also reduces the cost of having to go back and serve the customer a second time. And we've added GBP 14, GBP 15 million to the bottom line through cost reductions in right first time with another GBP 8 million that we're confident will come. So these -- as I said, these headwinds are unwelcome. They are unhelpful, but they're something that we've already dealt with half of, and we're working hard on mitigating the rest.

And next question, are suppliers passing on cost increases to your business? And how much of those were we passed on to the end customers?

Well, we've said that some price rises in the market are inevitable. That said, this isn't grocery. This isn't apparel where -- and retailers in those categories might find it a little easier to pass on cost increases and increased prices. I mean ours is a relatively transparent and elastic and competitive sector. So we expect some price rises to be inevitable, but that's not what we're depending mostly upon. Now you asked about supplier cost increases. I mean we experienced those -- we experienced inflation in our input costs, last calendar year. That's abated, that's not a significant driver of inflation at the moment. The biggest inflation is in our operating costs, principally government driven, as we just touched on, and we talked about how we plan to mitigate those. So we expect some price rises, but we expect to have to swallow the majority, if not all of these headwinds through cost efficiencies at our end.

Next question, Alex, is how could the government help companies like Currys?

First, do no harm, much as doctors are enjoying, so could governments be. It is what it is. We've already had the increases in national insurance. We've already had the national living wage inflation busting increase. We've had the lack of rates relief. And that's the headwinds that we've already talked to. How could government help? Well, on the National Insurance, we and other retailers are advocating if this has to rise, at least phase it in over 2 years, which would not only significantly ease the burden on us, it would significantly reduce the risk of inflation, which the government doesn't want. On rates, we do need a fundamental rethink. It's iniquitous and damaging for a sector that's already significantly overtaxed. I mean retail pays more than 50% more than its fair share of all business taxation. It's iniquitous and damaging for us to be experiencing the rates that we experienced at the moment, let alone a slightly increased bill from this GBP 500,000 threshold the government has introduced. That means a fundamental rethink. Third, is the prospective employment law changes, which we're consulting on with government at the moment. In fairness, they are listening. We and other retailers and our trade association, ERC are arguing hard, to avoid any unintended consequences of no doubt, well-intentioned measures that risk making it harder, riskier and more costly for us to employ people, particularly entry-level people coming into their first jobs, older people coming back into the workforce, carers, working parents. All of the people who tend to -- we tend to employ disproportionately in our sector. And to value the flexibility that we have to offer, we don't want that to be inadvertently damaged by well-intentioned legislation. So we're on things like guaranteed hours and collective consultation threshold, we're consulting intently with government to make sure that, that doesn't happen.

How do Currys repair capabilities compare to other tech retailers? And how big is the repair opportunity and how does Currys react to the ever-changing technology?

Yes. I mean, thanks for the question because you give an opportunity to showcase something that we have that no other technology retailer in Europe, never mind in the U.K. has. And something, as I said in the intro that candidly, I mean if we didn't have it, I'm not sure we could justify building it, which gives us a pretty good moat around our repair capabilities. So we have over 12 million repair customers. We have capabilities such as Europe's largest technology repair center in Newark with 1,000 colleagues repairing everything from mobile phones to laptops to TVs and washing machines. And this is a scale of repair customer base and the scale of capability that no one can realistically match. I mean the colleagues that we've got have got high average tenure, I think about 9 years, their experience. They know what they're doing. They want to stick around. And we're growing that part of the business across the group quite nicely. So that's the capability that we've got. I mean you asked about how we're coping with the differentiated capability that we've got. You ask how we're coping with technology changes, reasonably well. I think we keep up quite nicely. I mean I talked about Microsoft giving us their exclusive deal to repair Surface, Surface Pro and Xbox products, they don't give that to anybody else in Europe. And we discussed from time to time making our repair facilities available to noncompeting but similar retailers in other parts of Europe. So people are making a [ B line ] to us to understand what we've got, whether it's suppliers or noncompeting equivalent businesses. And we'll see where we take this. We like providing repair services to customers. Clearly, it's good for customers' pockets. So the demand is there. People want their technology to have longer life. It's good for the planet, which is good as well as being the right thing to do. It makes us more appealing to the colleagues that we want to attract and retain. And the customers who care about sustainability when making their purchase decisions, but it's also good for our profits. I mean we believe that purpose and profit must go hand in hand. We don't have vanity projects on ESG. We like doing the right thing, but we like doing the right thing in a way that benefits everybody, including shareholders.

What are the market dynamics between exclusively online and the omnichannel approach?

Well, the first thing is that we get to play in the whole market, whereas online-only players get to play in only 1/3 of it. That's the bold fact of it. I mean, we showed in the presentation that has remained relatively stable, the 2/3 of customers in our markets prefer in the U.K., even more in the Nordics, 2/3 of customers prefer to shop through a mix of online and stores. There's good reasons for that, that we can get into. But -- and that's remained relatively stable -- as has the simple channel mix in the market and in our business, I mean, mild nudge towards online in recent years, but only mild. So that plays to our strengths. Clearly, we have online and stores at scale. It meets the customers' needs. We're showing we can do it profitably with the improved performance that we're talking about today. And we wish to sustain that. Now if we're wrong, I mean, should the market move again to -- should the channel mix and the market shift again, towards online. We'll be ready. We've got a relatively low average remaining lease length on our stores. We've got a strong online business that we've built up over time and we'll adapt but you ask what I expect to happen, what I expect to happen is for stores to continue to have an important role in what is an expensive and considered purchase where customers value the expert advice they can get from our colleagues. They value the demonstration of the product and seeing it, touching it for themselves. They also value the urgency, the speed with which they can get hold of the products within 30 minutes when you have a national network of stores as we do. And finally, they value the services, whether it's trading setup, returns or repairs that are most easily accessed through a store. So stores will have -- we believe, will have a strong role within the mix for years to come as part of an omnichannel offer that we're best able to provide.

Alex, you mentioned surplus cash being returned to shareholders in an appropriate manner. Can you expand on this, please?

Yes. I mean we are generating more cash, and we're flagging an improving trend going into the future. As you heard from Bruce, we've got a very clear capital allocation policy. I mean, we -- first of all, a prudent balance sheet. Well, as we've moved into a net cash position and sort of only GBP 30-odd millions of total indebtedness even including a much reduced pension deficit, that's seen us in good stead. First of all, I've talked about the pension contributions. Then there's investment in the business. Well, we've guided to a sensible CapEx number that perhaps a little bit lower than some expected. We've done the bulk of the big investment in the business. We benefit from being a well-invested business. So we're not flagging a big need for extra future CapEx. And that leaves the dividend and further cash to shareholders. And as we generate more cash, which we expect to, and you can expect to see that reflected in a progressive dividend policy and perhaps other forms of shareholder returns. So we're confident of growing the free cash to equity in this business and then using that to the benefit of shareholders.

[Operator Instructions] Next question, how does credit adoption compare in different regions?

Well, it's significantly lower in the Nordics where it's in single digits compared to the U.K. where we go to credit adoption to 23% over peak. This is one of the benefits, by the way, of having a group in a relatively homogenous category like technology retail. I mean we know -- we can see in the Nordics, something that's working in the U.K. and be reasonably confident of adopting it there. Credit is a good example of that where we got off a [ flyer ]. In the U.K., we've grown credit from less than 9% to 23%, as I say, in recent years, whereas the Nordics is starting from a much lower base, but they intend to grow it. And I mean, there are other examples. B2B is a good one, where the Nordic showed the way and made faster progress, and we're learning from that in the U.K. So yes, it's further advanced in the U.K. But the fact that it's growing in both geographies is good for us because credit is clearly good for customers in what's still a relatively big ticket category. Our customers like the fact that are good value, easy to adopt, easy to use credit brings technology within reach of them, which is why credit customers NPS is 20 points higher than noncredit customers. They're happier. And we're happier too with credit customers because they spend more, their baskets are bigger, they're liable -- more liable to take additional services, and they come back and shop with us much more reliably because they still have open to buy from a credit account. And finally, we got a meaningful contribution -- a cut of the net interest income from our partner bank, which goes straight to the bottom line. So there are big advantages to us as well as the customers of a growing credit book.

And Alex, what are your sustainability priorities?

Well, most of all, purpose and profit must go hand in hand. I said that we don't have vanity projects and we're not a philanthropic organizations. We're a commercial asset. And so we're unapologetic about the fact that we want to do the right thing, but we want to make money doing it. And the best example of that we have talked about, which is repair and the fact that 12 million customers benefit from us giving their tech longer life is good for their pockets. It's good for the planet, but it's good for our profits, too, because our repair plans are a significant part of the GBP 674 million of services income that not only a chunk of which is recurring, but all of which is margin enhancing for us.

Next question. You're doing well when operating in a competitive environment, but how hard have your employees been hit?

We don't think our employees -- we don't see our employees as hard hit, I mean, rather the reverse. And more importantly, they don't. So in our frontline colleagues, for example, have benefited from 29% rise in their base pay over the past couple of years. We're happy to pay that. And we're pleased for them that we can offer ever better paid work. But it's not all about pay, good rewards that we offer our colleagues on the variable front as well as on the fixed pay. It's about the place that they have to work and our colleagues tell us and tell the independent measure [indiscernible] that we're in the top 10% of companies worldwide. I mean there are a lot of good employers out there. And our colleagues tell us that we're better than 9 out of 10 of them and we're proud of that, but we're determined to keep working at it. We're determined to keep providing the learning, the training, the career path development, the wellness, the -- as I said, the career development, the training and development and the tools that give our colleagues, make Currys a good place to work as well as a cultural environment that values them and gives them, we hope, a good place to work. So when we talk about colleague engagement being one of the big 3 measures of the big 3 KPIs that we hold ourselves to in this business, it's not just because we're nice people because it's a commercial imperative. It's very difficult in our business for the experience of the customer to be better than that at the colleague, which is why we place so much store in and invest so much money in making our colleagues engaged and want to stay here, which is why we see the results that we see.

Thank you, Alex. What do you see as the biggest risk to achieving your 3% adjusted EBIT -- EBITDA margin target? Or put it another way, how are you planning to make gains that will allow you to hit its given OpEx headwinds discussed?

Well, you can cut the answer to that in a number of ways. I mean, firstly, geographically, I mean, we're pretty much there in the U.K. and the Nordics has been there and beyond in the recent past. So in one sense, it's as simple as carrying on the momentum that we've got over multiple years in the U.K. and getting the Nordics back to where it was. So that's one reason to believe, if you like, that we can get to at least the 3% EBIT margin target that we've committed to. Another is when you look down the P&L, this is a business that benefits from operating leverage. And so if -- as we've returned the business to modest but noticeable levels of top line growth, then that itself gives confidence in the EBIT margin rate as well as the EBIT pounds that we can generate and there is good reason to believe that we -- even without much help from the market, which we haven't had, even without much help from the market, that we can continue at least a steady modest level of top line growth. And we can talk about the reasons to believe in that, whether it's the small business opportunity, whether it's the small box and small ticket electricals products opportunity where we're underweight we have reasons to believe that we can grow, whether it's the further growth potential in solutions and in services and the further growth potential by investing in our online and store channels as we are. So there's a reason to believe in continuing top line growth. We are successfully holding or continuing to improve our margins through things like selling more solutions as we've successfully done over peak. I mean, we talked about an 8-point improvement in solutions adoption to 41% over peak. That's good as a trajectory, but I'm not satisfied with the score. There's further to go there, and we'll keep going on it just as we'll keep going with the services we've been talking about. And 23% is better than 9% as it was on -- in credit adoption, but we don't see that as a ceiling. So all of these things serve to improve margins just as continuing to make our supply chain and service operations cost more efficient also continue to boost gross margins. Finally, we've talked about our intention to at least offset inflationary headwinds through continued cost reduction, something that we've got a reasonable track record in having delivered GBP 300 million of cost out in the U.K. alone in recent years. So for all of these reasons, we believe that at least 3% EBIT margins is a sensible aspiration that is not too far away.

Super, Alex, that's all the time we've got for questions at the moment. So maybe I hand back to you for any closing remarks.

Thank you, and thank you for your attention and questions this afternoon. We think we're on a decent track in Currys, whether it's continuing the encouraging momentum that we've shown in several years in the U.K., whether it's getting the Nordics back on track as we demonstrably are even without any help from still soft market. And we also think that based off a very strong balance sheet and improving cash flow generation and the capital allocation policies that we've described that this should be good for shareholders as well as for colleagues and for customers. We're happy with the trajectory, not yet with the score. We don't think we're close to full potential, but we are committed to realizing it. So thank you very much, and have a good rest of your day.

Well, thank you, everybody, for joining us today. And obviously, thank you, Alex, for his time. And that concludes the Currys Peak Trading Update Investor Presentation. If I could ask you to take a moment to complete the short survey following the event, and I hope you enjoyed the presentation today. Thank you.