Dixons Carphone Preliminary Results 2016/17

Dixons Carphone plc

Good results with headline profit before tax up 10%

Preliminary results for the 12 months to 29 April 2017*

 

•  Group like-for-like revenue⁽³⁾ up 4%. Statutory revenue up 9%

•  Strong profit performance:

-  Headline PBT⁽¹⁾ of £501 million (2015/16: £457 million), up 10%.

-  Headline basic EPS⁽¹⁾ 33.8p (2015/16: 30.2p), statutory basic EPS 25.6p (2015/16: 14.0p)‌‌

-  Total statutory profit before tax of £386 million (2015/16: £263 million) after non-headline⁽¹⁾ charges of £115 million (2015/16: £194 million).

•  Free cash flows⁽⁸⁾ of £160 million (2015/16: £202 million) and net debt⁽⁹⁾ broadly flat year-on-year at £271 million 

•  Final dividend of 7.75p (2015/16: 6.50p) proposed, taking total dividends for the year to 11.25p (2015/16: 9.75p), up 15% year-on-year

 

Headline results*(1)		Headline revenue(1)					Headline profit / (loss)(1)
	Note	2016/17 £million	2015/16 - restated £million	Reported rate % change	Local currency(2) % change	Like-for-like(3) % change	2016/17 £million	2015/16 - restated £million
UK & Ireland	(4)	6,550	6,402	2%	2%	4%	385	371
Nordics	(5)	3,156	2,632	20%	5%	1%	89	79
Southern Europe	(6)	661	550	20%	4%	6%	22	17
Connected World Services	(7)	213	152	41%	37%	N/A	21	11
Group		10,580	9,736	9%	3%	4%	517	478
Net finance costs							(16)	(21)
Profit before tax							501	457
Tax							(112)	(110)
Profit after tax							389	347
Headline basic EPS							33.8p	30.2p

Notes:     

-  In the UK & Ireland, like-for-like revenues in the full year improved by approximately 3% as a net result of sales successfully transferred from closed stores and sales disruptions.

* See notes on page 2 for an explanation of the basis of preparation and defined terms.

 

Seb James, Group Chief Executive, said:

"Over the last few years a great deal of work has been done to make the company stronger, lower risk and more resilient. We are seeing the upside of these efforts now as we declare record headline profits before tax of over half a billion pounds - up 10%. More importantly, the improvement in our cost base, the strong leadership position that we have built, the investment that we have made in our digital business and, above all, the enormous shift in customer satisfaction and price competitiveness that we have driven leave us well positioned to flourish in the years ahead.

While the UK consumer environment seems to be holding up for us, there will undoubtedly continue to be changes in the way people buy all of the products that we sell from phones to washing machines. Change always represents opportunity, and our job is to find the propositions that keep us compelling to our customers forever. We are excited about our plans in services and about the myriad of initiatives that will drive long-term relationships with our customers.

In short, it has been a good year for Dixons Carphone and it gives me great pleasure once again to thank my 43,000 colleagues for the work that they have done to deliver so well and so energetically for our customers."

 

 

 

 

 

Investor and analyst webcast

There will be a conference call with presentation for investors and analysts at 9:00 am today. The presentation slides will be available via webcast (listen only) on our corporate website, www.dixonscarphone.com

Next announcement

The Group will publish its Q1 trading statement on 7^th September 2017.

For further information

Kate Ferry	IR, PR & Corporate Affairs Director	+44 (0)7748 933 206
Mark Reynolds	Head of Investor Relations	+44 (0)7979 696 498
Hannah Collyer	Head of Media Relations	+44 (0)7834 256 775
Nick Cosgrove, Helen Smith	Brunswick Group	+44 (0)207 404 5959
Information on Dixons Carphone plc is available at www.dixonscarphone.com Follow us on Twitter: @dixonscarphone and @DCSebJ
About Dixons Carphone Dixons Carphone plc is Europe's leading specialist electrical and telecommunications retailer and services company, employing over 43,000 people in ten countries. Focused on helping customers navigate the connected world, Dixons Carphone offers a comprehensive range of electrical and mobile products, connectivity and expert after-sales services from the Geek Squad and Team  Knowhow. Dixons Carphone's primary brands include Carphone Warehouse and CurrysPCWorld in the UK & Ireland, Elkjøp, Elkjøp Phonehouse, Elgiganten, Elgiganten Phone House, Gigantti and Lefdal in the Nordic countries, Kotsovolos in Greece, Dixons Travel in a number of UK airports as well as Dublin and Oslo, and Phone House in Spain. Our key service brands include Team Knowhow in the UK, Ireland and the Nordics, and Geek Squad in the UK, Ireland and Spain. Business-to-business (B2B) services are provided through Connected World Services, CurrysPCWorld Business and Carphone Warehouse Business. Connected World Services aims to leverage the Group's existing expertise, operating processes and technology to provide a range of services to businesses. Dixons Carphone was voted 'Retailer of the Year' at the Retail Week Awards last year.

Certain statements made in this announcement are forward-looking. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Information contained on the Dixons Carphone plc website or the Twitter feed does not form part of this announcement and should not be relied on as such.

 

 

Notes

(1)  Headline results exclude amortisation of acquisition intangibles, Merger integration and transformation costs, businesses to be exited, property rationalisation costs, acquisition-related costs and other one-off, non-recurring items, net interest on defined benefit pension schemes and discontinued operations. Such excluded items are described as 'non-headline'. Comparatives have been restated following the classification of the iD mobile operations in the Republic of Ireland and the Sprint Joint Venture as businesses to be exited, and therefore included in non-headline results. For further details see notes 3,  9 and 11 to the financial information.

(2)‌‌‌‌  Change in local currency revenue reflects total revenues on a constant currency and period basis.

(3)‌‌‌‌  Like-for-like revenue is defined in the Glossary and definitions section.

(4)‌‌‌‌  UK & Ireland comprises operations in the UK and Ireland and the Dixons Travel business.

(5)‌‌‌‌  Nordics comprises operations in Norway, Sweden, Finland, Denmark, and Iceland.

(6)‌‌‌‌  Southern Europe comprises operations in Spain and Greece.

(7)‌‌‌‌  Connected World Services comprises the Group's B2B operation which leverages the specialist skills, operating processes and technology of the Group to provide managed services to third parties looking to develop their own connected world solutions.

(8)‌‌‌‌  Free Cash Flow comprises cash generated from / (utilised by)‌‌‌‌ continuing operations before special pension contributions, less net finance expense, less income tax paid and net capital expenditure.

(9)  Net debt is defined in the Glossary and definition section.

See glossary on pages 24 to 28 for further definitions of terms

 

 

Performance review

 

The performance review below refers, unless otherwise stated, to headline information for continuing businesses. Prior year comparatives have been restated to remove the results of businesses to be exited as disclosed in note 11 to the financial information.

 

Group

Group headline revenue increased 3% on a local currency basis and 9% in Sterling terms to £10,580 million (2015/16: £9,736 million)‌‌. Like-for-like revenue growth was 4%, reflecting growth across all divisions.

Headline EBIT was up 8% to £517 million (2015/16: £478 million)‌‌.

Headline profit before tax was £501 million (2015/16: £457 million)‌‌, with a reduced year-on-year interest charge.

 

UK & Ireland

Revenue in the UK & Ireland increased by 2% to £6,550 million (2015/16: £6,402 million), with like-for-like revenue for the year up 4%, benefiting by approximately 3% as a net result of sales transferred from closed stores and sales disruption. The electricals business delivered a solid result with market share gains across consumer electronics, white goods, computing and multiplay.

The mobile market was more challenging due to product safety and supply issues, limited product innovation, delays in product launches and more competitive SIMO propositions. iD in the UK continues to benefit from its differentiated proposition and innovative tariffs with the number of active customers increasing to more than 600,000 from 325,000 in the prior year.

Headline EBIT has increased 4% to £385 million. Electricals profitability growth has reflected revenue growth with margins remaining relatively flat year on year. There has been an in-year benefit of £28 million from changes in the cost profile of services provided under long-term customer support agreements.

Electricals growth has offset lower mobile margin caused by higher handset costs. In addition we have seen lower out of bundle spend (partly due to new EU roaming legislation) but have experienced higher average customer contract life (net impact positive £21 million; 2015/16: £32 million). Changes in contractual terms for the sale of third party insurance contracts have benefited headline EBIT by £22 million.

We have made the decision to exit our iD mobile operations in the Republic of Ireland. The iD mobile operations in the Republic of Ireland represent a different business model to the UK, as it is a capacity MVNO with options for expanding its spectrum. This brings with it excellent control, but that comes with upfront costs and increased administration, and we believe the business will flourish faster under dedicated ownership.

 

Nordics

The Nordic business delivered 5% revenue growth on a local currency basis with growth across all countries. Reported revenues increased 20% to £3,156 million (2015/16: £2,632 million) benefiting from the weakness of Sterling.

Like-for-like revenue was up 1% with the difference between like-for-like growth and local currency growth predominantly reflecting new store openings, FONA store acquisitions and the contribution of Infocare, which was acquired in the prior year. Like-for-like revenue growth was helped by strong audio and mobile sales more than offsetting a decline in tablet sales.

Headline EBIT in local currency remained broadly flat year on year. Reported headline EBIT growth of 13% to £89 million reflects the translation benefit of weaker Sterling.

Southern Europe

Southern Europe had strong underlying results with like-for-like revenue up 6%, and revenue on a local currency basis up 4%. The increase was driven by the business in Greece which delivered excellent growth. Our Spanish business continues to evolve to offer multi-play, sim-only and handset propositions and move to a more flexible franchise approach in a changing market.

Southern Europe headline EBIT was £22 million (2015/16: £17 million), up 29% benefiting from the increased revenue noted above and the relative strengthening of the Euro against Sterling.

Connected World Services

Connected World Services ('CWS') has continued to grow, delivering revenue of £213 million, up from £152 million in the prior year with headline EBIT growth of £10 million to £21 million. Year on year revenue and profit growth is driven by contracts with EE and TalkTalk for mobile phone insurance and the distribution of mobile, TV and broadband connectivity, as well as the honeybee platform development contract with Sprint.

On 9 June the Group announced that in light of the changing US mobile market landscape and Sprint's review of its own distribution strategy, the companies have reached mutual agreement that CWS will focus on the deployment of the honeybee platform across the entire Sprint estate and that Sprint will acquire the CWS 50% share of the distribution joint venture. The Group's share of joint venture losses (£17 million 2015/16: £4 million): have been classified as non-headline items in accordance with the Group policy for businesses to be exited.

We continue to develop the honeybee pipeline, and have signed an agreement with WebHelp, a large French outsourcer and a pilot call centre agreement with Capita, both of which we anticipate will deliver further agreements with new customers.

Net finance costs

Headline net finance costs were £16 million (2015/16: £21 million). The reduction in net financing costs reflects the full year benefit of lower margin  on the revolving credit facility negotiated in October 2015 coupled with reduced LIBOR rates and finance income received from the loan with the Group's investment in the Unieuro operations.

Tax

The headline effective tax rate for the full year is 22% (2015/16: 24%). The rate is higher than the UK statutory rate of 20% due mainly to higher statutory rates in the Nordics, certain non-deductible items mainly in the UK and a net increase in tax related provisions in the year.

Cash and movement on net debt

 

Free Cash Flow

	2016/17 £million	2015/16 £million
Headline EBIT	517	478
Depreciation and amortisation	152	137
Working capital	(104)	(80)
Capital expenditure	(242)	(221)
Taxation	(72)	(56)
Interest	(23)	(31)
Other items	2	18
Free cash flow before restructuring items - continuing operations	230	245
Restructuring costs	(70)	(43)
Free Cash Flow	160	202

 

Free Cash Flow before restructuring was an inflow of £230 million (2015/16: £245 million), a decrease of 6%.

The Group experienced a working capital outflow of £104 million (2015/16: £80 million), largely as a result of increased receivables balances relating to network commissions in the UK and changes in contractual terms for the sale of third party insurance contracts coupled with lower deferred income as a result of changes to the cost profile of services provided under long-term customer support agreements as discussed earlier in this report.

Capital expenditure in the period was £242 million (2015/16: £221 million). The year-on-year increase reflected spend on SWAS stores and the refit of the stores as part of the property rationalisation programme announced in the prior year, together with further investment in IT platforms and continued development in both our retail and Connected World Services businesses.

The reduction in interest paid is as a result of facility fees that were paid in H1 2015/16 and the reduction in financing costs explained above.

Restructuring costs primarily comprise the cash costs associated with the Merger, transformation activities and the property rationalisation programme noted below within non-headline items.

A reconciliation of free cash flow to cash flow from operations is presented at note 8c to the financial information.

 

Funding

	2016/17 £million	2015/16 £million
Free Cash Flow	160	202
Dividends	(115)	(106)
Acquisitions and disposals including discontinued operations	(25)	(82)
Pension contributions	(43)	(35)
Other items	19	14
Movement in net debt	(4)	(7)
Opening net debt	(267)	(260)
Closing net debt	(271)	(267)

 

 

At 29 April 2017 the Group had net debt of £271 million, broadly flat year-on-year to net debt of £267 million in the prior year. Free Cash Flow was an inflow of £160 million (2015/16: £202 million) for the reasons described above.

Net cash outflows from acquisitions and disposals in the current year represents cash outflows relating to the Sprint joint venture, the acquisition of Simplifydigital and the FONA stores in Denmark, offset by cash receipts in relation to the Group's previously disposed retail operations in Germany.

The increase in pension contributions reflects the agreed deficit reduction plan following the 2016 triennial valuation. Other items primarily relate to foreign exchange movements on net debt.

Statutory results

 

Income statement - continuing operations 

	2016/17 £million	2015/16      £million
Revenue	10,585	9,738
EBIT	418	304
Net finance costs	(32)	(41)
Profit before tax	386	263
Tax	(95)	(84)
Profit after tax - continuing operations	291	179
Proft / (loss) after tax - discontinued operations	4	(18)
Profit after tax for the period	295	161
Basic EPS	25.3p	15.6p
Diluted EPS	25.2p	15.1p

 

Revenue increased 9% to £10,585 million due to the reasons discussed earlier in this report.

Earnings before interest and tax increased from £304 million to £418 million in the current period, largely due to the reasons discussed earlier in this report and a reduction in non-headline costs incurred in the current year which are explained later in this report.

Net finance costs have decreased by £9 million due to reduced interest on borrowings reflecting the full year benefit of lower interest rates on amounts drawn under the revolving credit facility as described above and prior year non-headline costs relating to the write off of deferred facility fees incurred as disclosed below.

The tax charge increased from £84 million to £95 million reflecting higher statutory profit in the year partially offset by the impact of the lower effective tax rate discussed above. Tax credits on non-headline items reduced as a result of lower non-headline costs incurred in the year.

Basic EPS has increased from 15.6p to 25.3p for the period due to the higher reported profit after tax. Diluted EPS has increased from 15.1p to 25.2p reflecting the increase in the reported profit after tax and the lower number of potentially dilutive shares following the post-Brexit decline in the Group share price.

Non-headline items

Statutory profit before tax of £386 million (2015/16: £263 million) includes non-headline charges of £115 million (2015/16: £194 million). These charges are analysed below. Further details can be found in note 3 to the financial information.

	2016/17 £million	2015/16 £million
Businesses to be exited	(28)	(10)
Merger and transformation related costs	(31)	(52)
Amortisation of acquisition intangibles	(34)	(40)
Property rationalisation costs	-	(70)
Acquisition related costs	-	(6)
Share plan taxable benefit compensation	(11)	-
Unieuro income	5	-
Total non-headline items before interest and tax	(99)	(178)
Net pension interest	(16)	(16)
Total non-headline items before tax	(115)	(194)
Tax	17	26
Profit / (loss) after tax - discontinued operations	4	(18)
Total non-headline items	(94)	(186)

 

Businesses to be exited relates to the trading losses of the iD mobile operations in the Republic of Ireland of £10 million (2015/16: £6 million), and the share of trading losses from joint ventures of £18 million (2015/16: £4 million) (including segmental allocation of central costs of £1 million (2015/16: £nil))  for which an agreement has been reached to sell the Group's 50% interest to Sprint.

Costs incurred in relation to the Merger relate to integration costs of £18 million (2015/16: £48 million) and functional transformation costs of £13 million (2015/16: £nil). Integration costs primarily reflect professional fees, employee severance and incentive costs associated with the initial integration of the two merged businesses. During the current period functional transformation projects have commenced across the finance, procurement and human resources functions to rationalise shared service centre activities and harmonise policies and procedures across key support functions of the business. During 2015/16, Merger-related costs also included the write-off of £4 million deferred facility fees which were incurred as a result of the Merger and the financing required to facilitate the Merger at short notice.

The charge for the amortisation of acquisition intangibles was £34 million (2015/16: £40 million) with the decrease due to some of the acquisition intangibles arising on the CPW Europe Acquisition being fully amortised during the prior period.

In the prior year the Group initiated a reorganisation of its property portfolio. The costs associated with this programme recognised in the prior year of £70 million related to committed property exit costs, asset write-downs and operational costs associated with the 3-in-1 store concept roll out across the UK & Ireland.

Acquisition-related costs in the prior period related to professional fees incurred as a result of the acquisition of Simplifydigital in the UK and Infocare in the Nordics and the revaluation of deferred consideration payable to the former shareholders of the Epoq kitchen business in the Nordics.

In the event of non-vesting, compensation will be paid to participants of the Share Plan for any tax charges arising from taxable benefits from the waiver of any portion of loans granted under the scheme. Based on the current share performance it is considered probable that this liability will crystallise, and therefore a provision of £11 million has been made during 2016/17.

Unieuro income relates to a special dividend to the Group to distribute the proceeds raised through the 31.8% IPO of its investment in Unieuro on the Milan stock exchange.

Net pension interest was £16 million reflecting the charge incurred in relation to the Dixons Retail UK pension scheme.

Discontinued operations

A loss of £18 million was recognised during the prior year in relation to the disposal of the Group's retail operations in Germany, the Netherlands and Portugal. In the current year, £4 million income principally relates to the write back of the previously impaired loan to Unieuro which was repaid during the year. Consistent with the original impairment this income is treated as discontinued operations.

 

Balance Sheet

 

	2016/17 £million	2015/16 £million
Goodwill	3,111	3,054
Other fixed assets	973	906
Working capital	(203)	(361)
Net debt	(271)	(267)
Tax, pension & other	(555)	(472)
	3,055	2,860

 

The movement in goodwill is primarily due to the retranslation of currency denominated balances largely in the Nordics. Other fixed assets have increased, with the higher capital expenditure during the year exceeding amortisation and depreciation. Negative working capital has reduced in the year largely as a result of network commission receivables increasing due to favourable assumptions over future contractual receipts, increased consumer insurance commission receivables following changes in contractual terms for the sale of third party insurance contracts, a reduction in provisions due to utilisation of property related provisions in the year and increases in stock offset by increases in trade payables. Net debt has marginally increased as described above. Other net liabilities (tax, pension & other) have increased primarily as a result of the increase in the IAS 19 accounting deficit described below offset by the increase in carrying value of the joint venture and recognition of the investment in the remaining interest in Unieuro.

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow statement

	2016/17 £million	2015/16      £million
EBIT - continuing operations	418	304
EBIT - discontinued operations	-	(4)
Depreciation and amortisation	186	177
Working capital	(154)	(8)
Other operating cash flows	(86)	(73)
Cash flows from operating activities	364	396
Acquisitions	(46)	(59)
Capital expenditure	(242)	(221)
Other investing cash flows	41	54
Cash flows from investing activities	(247)	(226)
Dividends paid	(115)	(106)
Other financing cash flows	(41)	(11)
Cash flows from financing activities	(156)	(117)
(Decrease) / increase in cash and cash equivalents	(39)	53

 

The statutory EBIT increase and working capital outflow increase in the year are for those reasons outlined above.

Acquisition cash outflows in the current period of £46 million relate to £29 million further capital injected into the US joint venture with Sprint, £10 million deferred consideration payment for the prior year acquisition of Simplifydigital, £2 million in the Nordics in relation to the 'Epoq' kitchen business acquired in 2011/12 and £5 million for the acquisition of ten FONA stores in Denmark. The prior year reflected the final CPW Europe Acquisition deferred payment and the acquisitions of Simplifydigital and InfoCare. The increase in capital expenditure reflects those reasons outlined above.

The increase in other financing outflows is due to interest paid on and reduction in year end amounts drawn under the revolving credit facilities.

Comprehensive income / changes in equity

Total equity of the Group has increased from £2,860 million to £3,055 million primarily reflecting the total statutory profit of £295 million, the gain on retranslation of overseas operations of £76 million offset by the payment of dividends of £115 million and actuarial loss (net of taxation) relating to the defined benefit pension scheme of £123 million.

Other matters

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme of Dixons Retail amounted to £589 million at 29 April 2017 compared to £472 million at 30 April 2016. Contributions during the period under the terms of the deficit reduction plan amounted to £43 million (2015/16: £35 million). The deficit has increased during the year as a result of changes in financial assumptions, primarily the discount and inflation rates, which determine liabilities, partially offset by an increase in underlying asset values.

Dividends

The Board declared an interim dividend of 3.5p per share, up from 3.25p per share last year. The interim dividend was paid on 27 January 2017.

We are proposing a final dividend of 7.75p per share, taking the total dividend for the year to 11.25p per share, a 15% increase on the previous year (2015/16: 9.75p). The final dividend is subject to shareholder approval at the Company's forthcoming Annual General Meeting. The ex-dividend date is 24 August 2017, with a record date of 25 August 2017 and an intended final dividend payment date of 22 September 2017.

 

 

Consolidated income statement