Annual Financial Report

Currys PLC

03 August 2023

 

3 August 2023

ANNUAL REPORT 2022/23 AND NOTICE OF ANNUAL GENERAL MEETING 2023

Currys plc (the 'Company') has today published its Annual Report and Accounts 2022/23 and Notice of Annual General Meeting 2023. These documents are available to view on the Company's website at www.currysplc.com/investors. In addition, along with the Proxy Form for the Annual General Meeting 2023, they have been posted or otherwise made available to shareholders depending on their elected method of communication.

In accordance with Listing Rule 9.6.1, the Annual Report and Accounts 2022/23, Notice of Annual General Meeting 2023 and Form of Proxy have been submitted to the National Storage Mechanism, where they will shortly be available for inspection at

https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Company's 2023 Annual General Meeting (the 'AGM') will be held at 11.00am on Thursday 7 September 2023 at Hilton London Kensington, 179 - 199 Holland Park Avenue, London SW11 4UL.

Shareholders are encouraged to vote in favour of all resolutions proposed in advance of the AGM, and to submit any questions they may have for any member of the Board to [e-mail]. Please submit your votes and questions before 11.00am on Tuesday 5 September 2023.

The information included in the Appendix to this announcement has been extracted from the Annual Report and Accounts 2022/23 and is reproduced here solely for the purposes of complying with the requirements of Disclosure Guidance and Transparency Rule ('DTR') 6.3.5 in respect of how to make annual financial reports available to the public.

The content of this announcement, including the Appendix, should be read in conjunction with the Company's Preliminary Results announcement, which was released on 6 July 2023 and is available on the Company's website at www.currysplc.com/investors.

Together, these announcements constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report and Accounts 2022/23. Defined terms used in the Appendix refer to terms as defined in the Annual Report and Accounts 2022/23. Page numbers and cross references in the Appendix refer to pages and sections of the Annual Report and Accounts 2022/23.

Appendix

A. Principal risks to achieving the Group's objectives (pages 64 to 72)

The Group recognises that taking risks is an inherent part of doing business and that competitive advantage can be gained through effectively managing risk. The Group has developed and continues to evolve robust risk management processes, and risk management is integrated into business decision-making. The Group's approach to risk management and risk governance framework is set out in the Corporate Governance Report on pages 97 to 109. The risks are linked to the strategic priorities on pages 16 to 35.

Our approach to horizon scanning and emerging risks

In order to promote sustainable success, the business continues to analyse the risks likely to emerge in the short, medium and longer term that may impact the delivery of our Strategy. To provide a view over the medium to longer term, a horizon scanning approach is required.

Our approach to undertaking horizon scanning is based on conducting both reviews of external thought leadership and also through obtaining the views of key business stakeholders on emerging risks. The horizon scanning exercise is updated at least semi-annually to ensure that the horizon is consistently scanned for developments and changes that may impact the business. The Group Risk and Compliance Committee is asked to review and discuss the horizon risks and to form a view as to whether any of these should be considered a Principal Risk.

Risks and potential impacts

The Group continues to develop its risk management processes, fully integrating risk management into business decision-making. The risk management process mirrors the operating model with each business unit responsible for the ongoing identification, assessment and management of their existing and emerging risks. The output of these assessments is aggregated to compile an overall Group-level view of risk.

The principal risks and uncertainties, together with their potential impacts and changes in net risk since the last report, are set out in the tables below along with an illustration of actions being taken to mitigate them.

Key changes to the Risk Profile

During 2022/23 a number of changes were made to the Group Risk profile, these included:

• As a result of changes in the macro economic environment, covering, inflation, the cost of living, consumer spending and competitor activity, this has been raised up to a principal risk.

• Following a reduction in the threat from Covid-19, and the impact on colleague safety and availability, the People risk was removed as a standalone risk with elements subsumed into other existing principal risks.

• The importance of long term access to, and diversification of, funding and liquidity has been recognised within the risk profile; and

• Our supply chain resilience risk has been split in two to recognise the importance of the key parts of that risk: sourcing and logistics.

Breach of Financial Services

Risk owner: Chief Commercial Officer

Risk category: Regulatory

Risk movement: Decreased

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: Yes

What is the risk?

Failure to manage the business of the Group in compliance with FCA regulation and other financial services regulation to which the Group is subject in a number of areas including the mobile insurance operations and consumer credit activities of Currys Retail Limited.

What is the impact?

• Enforcement action by the regulator

• Loss of authorisation and inability to trade regulated products.

• Reputational damage

• Financial penalties

• Reduced revenues and profitability

• Deteriorating cash flow

• Customer compensation

How we manage it

• Board oversight and risk management structures monitor compliance and ensure that the Company's culture puts good customer outcomes first

• Senior Manager and Certification Regime and if required CBI/other regulators certification implemented

• Regulatory Compliance Committee, Product Governance and other internal governance structures

• Control structures to ensure appropriate compliance

• Compliance monitoring and internal audit review of the operation and effectiveness of compliance standards and controls

• Recruitment, remuneration and training competency programmes

• Conduct risk and control framework, including defined minimum control standards

Changes since last report

This risk likelihood and impact has reduced over 2022/23.

Business Continuity and IT DR

Risk owner: Chief Operating Officer

Risk category: Operational

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life

Considered in the Viability Statement: Yes

What is the risk?

A major incident impacts the Group's ability to trade and business continuity plans are not effective, resulting in an inadequate incident response.

What is the impact?

· Reduced revenue and profitability

· Deteriorating cash flow

· Reputational damage

· Loss of competitive advantage

How we manage it

· Business continuity and crisis management plans in place and tested for key business locations

· Enablement of home working for office-based and contact centre colleagues

· Disaster recovery plans in place and tested for key IT systems and data centres

· Cross functional Crisis team appointed to manage response to significant events

· Major risks insured

· Group Business Continuity strategy

Changes since last report

This risk has remained stable over 2022/23.

Business Transformation

Risk owner: Chief Information Officer

Risk category: Strategic

Risk movement: Decreased

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: Yes

What is the risk?

Failure to respond with a business model that enables the business to compete against a broad range of competitors on service, price and / or product range.

Failure to optimise Digital opportunities.

Failure to respond to changes in consumer preferences and behaviours.

What is the impact?

· Reduced revenue and profitability

· Deteriorating cash flow

· Reduced market share

How we manage it

· Continued strengthening of digital expertise as part of omnichannel capability

· Transformation Programme office established and delivering key strategic objectives

· Development of customer credit propositions

· Development of omnichannel capabilities

· Enhancement of data analytics capabilities

· Robust portfolio governance

Changes since last report

The likelihood of the risk has decreased over 2022/23 whilst the impact has remained stable.

Crystallisation of legacy tax

Risk owner: Group Chief Financial Officer

Risk category: Financial

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: No

What is the risk?

Crystallisation of potential tax exposures resulting from legacy corporate transactions, employee and sales taxes arising from periodic tax audits and investigations across the various jurisdictions in which the Group operates.

What is the impact?

· Financial penalties

· Reduced cash flow

· Reputational damage

How we manage it

· Board and internal committee oversight actively monitors tax strategy implementation

· Appropriate engagement of third-party specialists to provide independent advice where deemed appropriate

· The Group remains committed to achieving a resolution with HMRC in relation to open tax enquiries

Changes since last report

The risk has remained stable over 2022/23.

Data Protection Compliance

Risk owner: Chief Information Officer

Risk category: Regulatory

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life

Considered in the Viability Statement: No

What is the risk?

Major loss of customer, colleague, or business sensitive data.

Adequacy of internal systems, policy, procedures and processes to comply with the requirements of EU General Data Protection Regulation ('GDPR').

What is the impact?

· Reputational damage

· Financial penalties

· Reduced revenue and profitability

· Deteriorating cash flow

· Loss of competitive advantage

· Customer compensation

How we manage it

· The operation of a Data Management Function to ensure compliance with GDPR compliant operational processes and controls

·   The operation of a Data Protection Office to ensure appropriate governance and oversight on the Group's data protection activities

·  Control activities operate over management of customer and employee data in accordance with the Group's data protection policy and processes

·   Investment in information security safeguards

·   IT security controls and monitoring

Changes since last report

The risk has remained stable over 2022/23.

Failure of IT systems and infrastructure

Risk owner: Chief Information Officer

Risk category: Technology

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: Yes

What is the risk?

A key system becomes unavailable for a period of time.

What is the impact?

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Loss of competitive advantage

·    Restricted growth and adaptability

·    Reputational damage

How we manage it

· Ongoing IT transformation to align IT infrastructure to future strategy

· PEAK planning and preparation to ensure system stability and availability over high-demand periods

· Individual system recovery plans in place in the event of failure which are tested in line with an annual plan, with full recovery infrastructure available for critical systems

· Long-term partnerships with 'tier 1' application and infrastructure providers established

· Strengthening of Technology leadership team

· A mature IT Service Design & Transition process controls and manages the transition of new and changed services into production

Changes since last report

The likelihood of the risk has increased over 2022/23 whilst the impact has decreased.

Financial, liquidity and treasury

Risk owner: Group Chief Financial Officer

Risk category: Financial

Risk movement: This is a new risk

Link to strategy: Grow profits

Considered in the Viability Statement: Yes

What is the risk?

Failure to manage Currys' access to sufficient liquidity at any given time may impact our ability to meet our obligations and business growth plans.

What is the impact?

• Committed funding facilities could be fully utilised if not monitored limiting our ability to invest in the business, pension scheme or distribute to shareholders

• Knock on detrimental impacts on other areas of liquidity, for example credit insurers decreasing cover which could result in working capital outflow or suppliers reducing payment terms

• Given the external lending environment, the ability to raise further funding could be more difficult

How we manage it

• Regular monitoring of cash and liquidity levels takes place in the Tax and Treasury committee

• Bank facility and covenant cover levels have been reviewed and negotiated during the year

• A series of capex prioritisation sessions have been undertaken by the Executive Committee and cost saving initiatives in place

• The triennial pensions revaluation process undertaken

Changes since last report

This is a new risk.

Health and Safety

Risk owner: Chief Operating Officer

Risk category: Operational

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: Yes

What is the risk?

Failure to prevent injury or loss of life to customers, colleagues, contractors, franchise partners, agency staff and the public which may have serious financial and reputational consequences.

What is the impact?

·    Employee / customer illness, injury or loss of life

·    Reputational damage

·    Financial penalties

·    Legal action

·    Ongoing repercussions of Covid-19

How we manage it

·    Group Health and Safety strategy

·    Comprehensive Health and Safety policies and standards supporting continued improvement

·    Health and Safety governance committee

·    Operational Health and Safety teams located across business units

·    Ongoing review of Pandemic controls to protect colleagues in the workplace and customers in the retail estate, including continuous monitoring of changing government regulation in all jurisdictions

·    Risk assessment programme covering retail, support centres, distribution and home services

·    Incident reporting tool and process

·    Health and Safety training and development framework

·    Health and Safety inspection programme

·    Audit programme including factory audits for own brand products and third-party supply chains

Changes since last report

This risk has remained stable over 2022/23.

Information security

Risk owner: Chief Information Officer

Risk category: Operational

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: Yes

What is the risk?

Inadequate governance and control around information security could result in an information security breach compromising the confidentiality, integrity and/ or availability of customer, colleague or supplier data.

What is the impact?

·    Reputational damage

·    Financial penalties

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Customer compensation

·    Loss of competitive advantage

How we manage it

·    Significant investment in information security safeguards, IT security controls, monitoring, in-house expertise and resources as part of a managed information security improvement plan

·    Information security policy and standards defined and communicated

·    Information Security and Data Protection Committee and Technology Risk forum set up, with responsibility for oversight, co-ordination and monitoring of information security policy and risk

·    Infosec training and awareness programmes for employees

·    Audit programme over key suppliers' information security standards

·    Introduction of enhanced security tooling and operations

·    Ongoing programme of penetration testing

·    Future Security Operations Centre implemented

Changes since last report

This risk has remained stable over 2022/23.

Macroeconomic environment

Risk owner: Group Chief Financial Officer

Risk category: Strategic

Risk movement: This is a new risk

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: Yes

What is the risk?

The external macroeconomic environment in which we operate remains challenging with a range of existing, evolving and new emerging risks driving pressure on our financial performance.

What is the impact?

• The potential for increased operating costs to Currys plc

• The potential for external factors to impact consumer demand which may in turn result in electrical spend by customers.

How we manage it

• Rolling forecast to analyse future expected performance across the financial year

• Monthly Business Plan updates to the Executive Committee to analyse the investment initiatives taking place and progress against delivery and financial benefits, alongside more detailed daily and weekly training performance.

• Cost flexibility in operating model

• Hedging strategy in place (for foreign exchange and energy)

• Expanding the availability of our credit and service offerings for customers in areas such as in order and collect

Changes since last report

This is a new risk.

Our commitment to Sustainability

Risk owner: Chief People, Communications & Sustainability Officer

Risk category: Strategic

Risk movement: Stable

Link to strategy: Easy to shop, Customers for life

Considered in the Viability Statement: No

What is the risk?

Our commitment to sustainability and being a good corporate citizen is either not delivered or not adequately communicated to or recognised by customers and investors.

What is the impact?

·    Reduced cash flow as customers shop elsewhere

·    Reputational damage

·    Loss of competitive advantage

How we manage it

• Agreed strategic priorities for Group, with 12 month and three-year plans for UK&I shared with International Teams.

• Roadmap to Net Zero by 2040

• Commitment to EV100

• Oversight from ESG Committee, ExCo and the Board

• New Board ESG Committee supported by Group Sustainability Leadership Team

• Group ESG strategy regularly reviewed

• Maintenance of a brand tracker

• Commitment to TCFD ahead of mandatory compliance

• Independent reviews on environmental practices e.g. CDP

• Group ESG team and in the line resource in key areas across business

• Horizon scanning

• Partnerships with reputable external agencies Circular Electronics Partnership (on circular economy), British Retail Consortium (on climate change), Digital Poverty Alliance.

• ESG included in SOX project at Group and regional level.

• Management reporting on progress against target for e-waste (monthly) and emissions (quarterly) with metrics for both included in annual bonus scorecard

Changes since last report

The likelihood of the risk has increased over 2022/23 whilst the impact has decreased.

Product Safety

Risk owner: Chief Operating Officer

Risk category: Operational

Risk movement: Stable

Link to strategy: Customers for life

Considered in the Viability Statement: No

What is the risk?

Unsuitable procedures and due diligence regarding product safety, particularly in relation to OEM sourced product, may result in poor quality or unsafe products provided to customers which pose risk to customer health and safety.

What is the impact?

·    Financial penalties

·    Reduced cash flow

·    Reputational damage

How we manage it

·    Factory Audits conducted over OEM suppliers

·    Technical Evaluation of OEM products prior to production

·    Product inspection of OEM products prior to shipment

·    Monitoring of reported incidents

·    Safety Governance reviews conducted by Technical and Business Standards teams

·    Establish protocols and procedures to manage product recalls

Changes since last report

This risk has remained stable over 2022/23.

Supply Chain Resilience - logistics

Risk owner: Chief Operating Officer

Risk category: Operational

Risk movement: Decreased

Link to strategy: Easy to shop, Customers for life, Colleagues

Considered in the Viability Statement: No

What is the risk?

Overall capacity reducton across the SC and SO impacting the customer proposition

and increased costs reducing EBIT and impacting operation of the business.

What is the impact?

• Reduced revenue and profitability

• Deteriorating cash flow

• Reduced market share

• For equipment delays: direct impact on capacity which could impact our customer proposition

• Ongoing labour shortages and the Cost of Living crisis are increasing cost to serve across the Supply Chain and Service Operations impacting on overall profitability

How we manage it

• Longer term review of global sourcing to mitigate shipping costs with OEM teams as more volume moves to Europe

• Review of shift patterns to reduce reliance on agency colleagues within Logistics

• Long term strategy of using greater automation across the network.

• Central review of our response to the Cost of Living crisis ongoing

• Ongoing effort to De-risk next Peak to drive efficiency and reduce the requirements on temporary labour

Changes since last report

This risk likelihood and impact has reduced over 2022/23

Supply Chain Resilience - sourcing

Risk owner: Chief Commercial Officer

Risk category: Strategic

Risk movement: Stable

Link to strategy: Colleagues, Omnichannel, Customers for life

Considered in the Viability Statement: No

What is the risk?

Currys works closely with a number of key suppliers to ensure best in class. The Top 10 brands deliver 60% of our sales, and a larger proportion of our end to end profit. As a result, there are opportunities to manage by focusing on developing and maintaining strong ties with these brands.

What is the impact?

• Disruptions to supply of goods

• Pricing and stock availability terms could worsen, leading to deceasing sales/ reduced margin

• Reduced revenue and profitability

• Deteriorating cash flow

• Reduced market share

How we manage it

·    Ensuring alignment of key suppliers to future strategy; "Project Board Meetings" with strategic suppliers' management

·    Continuing to leverage the scale of operations to strengthen relationships with key suppliers and maintain a good supply of scarce products

·    Working with suppliers to ensure availability of products through Key Supplier Group engagement program

·    Ethical supply chain due diligence over our supplier base

·    Control structures to ensure appropriate Supplier Relationship Management for GFR, GNFR and OEM

·    We are ensuring we still remain competitive on pricing, despite the high cost levels and are mitigating this by reviewing OEM/non competed pricing where possible

·    In certain areas, we have a broad range of suppliers that can support when another supplier encounters shortages

Changes since last report

This risk has remained stable over 2022/23.

B. Responsibility Statement (page 130)

We confirm that to the best of our knowledge:

·    the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

·    the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·    the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and the Company's performance, business model and strategy.

By Order of the Board

Alex Baldock, Group Chief Executive

Bruce Marsh, Group Chief Financial Officer

6 July 2023

* The directors of Currys plc as at 6 July 2023 are listed on pages 92 and 93 of the Annual Report and Accounts 2022/23.

ENDS

For further information:

Dan Homan              Investor Relations                            [phone]

Sarah Thomas          Deputy Company Secretary           [phone]

 

END