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Currys - dividend ditched as profits fall

Currys' full-year revenue fell 7% to £9.5bn on a like-for-like basis, with declines in all markets except Greece...

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Currys full-year revenue fell 7% to £9.5bn on a like-for-like basis, with declines in all markets except Greece. This was due to a fall in consumer spending as persistent inflation and rising interest rates took their toll on consumers.

Group underlying operating profit fell 24% to £214m. The UK & Ireland division saw a 45% uplift to £170m, driven by a focus on more profitable sales and a successful cost-cutting programme. In the International division, underlying operating profit fell 73% to £44m as the market became overstocked, leading to heavily discounted products which prevented the pass-through of inflated costs.

Free cash flow fell from an inflow of £72m to an outflow of £74m, driven by lower profitability. The £44m net cash position turned to a net debt position of £97m.

Currys said the economic outlook remains "uncertain" in its main markets. No current-year guidance was given, but longer-term guidance for operating margins to reach 3% was reiterated.

The group decided not to declare a final dividend.

The shares dropped 12.1% following the announcement.

View the latest Currys share price and how to deal

Our view

Currys has pulled the plug on its final dividend.

Financial health measures are slightly behind management's targets, largely because of tough trading conditions over the past year. While the balance sheet health can certainly improve, we'd like to stress that it's not currently at catastrophic levels. But given the uncertain economic outlook, the final dividend got the chop to help shore up the balance sheet for any further bumps in the road.

Consumers are simply struggling to justify discretionary spending on computers and gadgets amidst a cost-of-living crisis.

In the Nordics region, the second largest segment, the group's long track record of success was brought to an abrupt halt. The market here is extremely tough and overstocked. Currys has had to slash prices to clear inventory piles. That, combined with inflated costs has ultimately hurt the bottom line.

Despite all the challenges, there are some bright spots.

The UK & Ireland division is showing some signs of life - with margin improvements and cost efficiencies helping to drive profits higher. In Greece, performance has remained robust. The strategic review of the Greek arm remains ongoing. Currys feels the strengths of the Greek business are not fully reflected in the group's valuation, and a potential sale of that business is being considered.

One of the group's main attractions is its omnichannel model. You can enter a store and have access to the entire online shopping range or speak to an in-store expert in the comfort of your own house. These services help Currys attract and retain a customer once they've made contact, and likely due to the more personal touch, stores have been outperforming online.

The group's services channels have also been a beacon of light. Services typically have higher margins than goods sales, so can help to relieve some of the pressure of the group's falling revenues. And there's also been record levels of credit adoption, which saw active credit customers grow 12.5% last year to over 1.9m customers.

The cost-saving programme is progressing well too, with a further £110m in savings expected to be achieved over the current financial year. That should provide some relief to the underlying operating margin which is running thin at 2.3%, below the group's target of 3%.

Net debt landed in at £97m, towards the lower end of the group's guidance. That's higher than we'd like to see but capital expenditure's expected to fall significantly this year, which alongside the dividend cut should help restore debt levels.

The valuation is well below the long-term average, reflecting the short-term challenges. A great deal hinges on a recovery in the Nordics, but until that happens, group performance is likely to be lacklustre. Investors may need to be patient and for now that won't be rewarded with a dividend.

Currys key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 6th July 2023