Currys’ boss has said that the company does not plan to give up its struggling Nordics division, even though the retailer went into the red after cutting its final dividend.
The British retailer has had a difficult year. It has issued two profit warnings in this period amid tough trading conditions, and a bitter pricing war in the Nordics where the group generates roughly 40% of its revenue. Yesterday, it announced that it had recorded a £450m statutory loss before tax. This was due to a £511m goodwill impairment as well as weakness in the Nordics.
It said that it would not be paying a final dividend, and that it would plan prudently, including reducing payments to its pension system, because it was still concerned about the outlook of its markets.
Cost savings were offset by a decline in sales to produce a 45 percent increase in earnings before interest and taxes for the UK division. The Nordics division saw a decline of 82 percent to £26 millions, due to “ferocious” competition.
Alex Baldock is the chief executive officer of Currys. The company was formed by the merger between Dixons Retail, and Carphone Warehouse. He said, “Whatever our response, our performance would’ve taken a sharp drop.” The fierce competition between a group of competitors who didn’t all prioritize making money has led to a drop in demand and an increase in cost inflation. This has brought the market profit pool down to almost zero.
He stated that the average profit margin in the market has gone from 3.5 down to 0.6. “Very few people make any money on this market.”
Baldock stated that he had taken action to reduce costs and margins, and appointed a regional leadership team. He said that he did not plan to sell the struggling Nordics Division. We are happy to have the Nordics as part of the group. These are healthy and wealthy markets. “It’s not helped that these countries are in front line for Putin, but we will recover.”
Baldock stated that Currys has taken steps to maximize operating cashflow by improving margins, reducing costs and reducing capital expenses. To further mitigate risk, Currys agreed to a temporary covenant relaxation previously announced with lenders and reduced cash contributions to their pension scheme.
The revenue for the period fell by 6 percent to £9.5 billion from PS10.1 billion in the previous year. Baldock stated that consumer confidence is “off the bottom in all of our main markets”. . . “With depressed demand and high inflation, the competition is fierce”.
The sale of electrical appliances soared as a result of the pandemic, with more people purchasing laptops, TVs and other appliances due to lockdown restrictions. Electrical retailers have struggled since, however, because consumers who are struggling with the cost of living have avoided certain big-ticket items.
Baldock stated that the demand for big-ticket and discretionary products is generally low. Currys, like AO World its rival, has seen energy-efficient products “fly off the rails”, as consumers look to reduce household costs.
Currys has not given any guidance on the future. Baldock explained that this was due to the fact “we’re forecasting a tough year for market.” . . We plan to continue contracting the markets, and inflation remains stubbornly high.”
Currys shares rose dramatically during the pandemic. They reached 150p per share in April 2020, boosted by laptops and gaming consoles. However, they have fallen over 60 percent since then to close yesterday at 48 1/4p. Currys’ Nordic division was supposed to have a short-term problem (Isabella Fish reports). The Scandinavian division of the electronics retailer is still struggling to the extent that it has been forced to withdraw its final dividend.
Russ Mould said that the Scandinavian business was not given much attention, but ran quietly in the background, serving affluent clients in these markets. It now appears that the initial diagnosis of this business going sour — competitors selling excess stock at a discounted price — did not provide the whole picture. If it was, the full extent of its impact was not known.
Currys purchased the Elkjop Group in 1999, also known as Elgiganten (outside Norway). The largest retailer of consumer electronics in the Nordics, it has more than 400 stores across Denmark, Finland Norway and Sweden. Before the pandemic in 2020, the division had reported earnings of £115 million. This has now fallen to £26 millions due to “ferocious” competition in the region.
The heavy discounting of last year was due to competitors selling excess stock when they withdrawn from Russian markets. Currys stated at the time, that discounting was a sign “that nobody made much money, if anything”. Yesterday, it reported that the average profit margin in the market has dropped from 3.5 percent to 0.6 percent in terms of earnings prior to interest and taxes.
Alex Baldock reaffirmed “decisive actions” were underway, including operational changes which would result in at least £25,000,000 of annual savings, and the bringing in of new local leadership. Baldock has said that despite the challenges, he does not plan to sell the business.