Dixons Carphone plc 2017/18 Preliminary Results

2 Segmental analysis continued

*Headline results and total profit/(loss) have been restated to exclude the results of the Sprint Joint Venture operations, Spanish operations and honeybee operations which have been classified as discontinued operations as discussed in note 3 and note 11.

Reconciliation of headline profit to total profit before tax

*      Headline results and total profit/(loss) have been restated to exclude the results of the Sprint Joint Venture operations, Spanish operations and honeybee operations, which have been classified as discontinued operations as discussed in note 3 and note 11.

Restatement of segmental information

As discussed above, during the period the Group's reportable segments have been changed, and comparatives have been restated accordingly. The below tables provide reconciliations for the headline Revenue and headline EBIT for the year ended 29 April 2017. The relevant adjustments are:

•       Removal of honeybee revenue from Connected World Services to discontinued operations

•       Allocation of previous B2B operations within Connected World Services to geographic segments

•       Removal of Spain results from Southern Europe as treated as a discontinued operation (see note 11) and renaming of the Southern Europe segment to Greece

Year ended 29 April 2017

3 Non-headline items

*      Comparative hon-headline results for the year ended 29 April 2017 have been restated as set out in note 11.

 (i)   Businesses to be exited:

        Comprises the trading result of businesses to be exited where they do not meet the criteria under IFRS 5 for separate disclosure as discontinued operations. In the current period, this comprises the iD mobile operations in the Republic of Ireland.

(ii)   Amortisation of acquisition intangibles:

        A charge of £32 million arose during the year in relation to acquisition intangibles arising on the CPW Europe Acquisition, the Dixons Retail Merger and the Simplifydigital acquisition (2016/17: £33 million).

3 Non-headline items continued

 (iii) Exceptional items - Merger and transformation related costs:

        The Merger has given rise to the following costs which have been treated as exceptional items:

•    Merger integration costs of £nil (2016/17: £18 million) relate to the reorganisation of the Group following the Merger and primarily comprise professional fees, employee severance and incentive costs associated with the integration process, which are now complete.

•    Transformation costs of £23 million in the current year relate primarily to the business restructuring and rebranding in the Nordics of £14 million (2016/17: £3 million), together with UK business restructuring and functional transformation costs of £9 million (2016/17: £10 million) primarily related to redundancy and consultancy fees.

 (iv) Property rationalisation costs:

        Following the Merger it was announced that the Group would launch a major roll-out of its fully refurbished 3-in-1 store concept in the UK & Ireland. This involves merging the remaining PC World and Currys stores and inserting a Carphone Warehouse, reducing the overall store portfolio by 134. The costs associated with this initiative, being early lease termination premiums, onerous lease provisions, dilapidations and fixed asset impairments, have been treated as exceptional items.

        An additional £29 million has been provided following a review of the current status of the remaining stores yet to be exited.

(v)   Acquisition related:

Acquisition related credit of £2 million is a result of changes in the fair value of contingent consideration payable in relation to the Simplifydigital acquisition in 2016.

(vi)  Net non-cash financing costs on defined benefit pension schemes:

        Under IAS 19 'Employee Benefits', the net interest charge on defined benefit pension schemes is calculated by applying the corporate bond yield rates applicable on the last day of the previous financial year to the net defined benefit obligation. Corporate bond yield rates vary over time which in turn creates volatility in the income statement and balance sheet and results in a non-cash remeasurement cost which can be volatile due to corporate bond yield rates prevailing on a particular day and is also unrepresentative of the actual investment gains or losses made or the liabilities paid and payable. Consistent with a number of other companies, the accounting effects of these non-cash revaluations of net defined benefit pension liabilities have been excluded from headline earnings.

(vii) Share plan taxable benefit compensation:

        In the prior year a provision was made for compensation payable to participants of the Share Plan for any taxable benefit arising on the waiver of any portion of loans granted under the scheme. Following the payment of compensation to the participants in the current year, the excess provision has been released.

(viii)         Unieuro income:

        In November 2013, the Group disposed of its Unieuro operations, but retained an investment of 14.96%. The investment was initially recognised at £nil based on the fair value of the retained interest. In March 2017, Unieuro undertook an IPO for 31.8% of its shareholdings, which reduced the Group's investment to 10.2% of the Unieuro operations. As a result of the IPO, the Group received a dividend from the intermediate holding company of £5 million, which was treated as non-headline in 2016/17 as relates to a disposal of a portion of our investment.

        In October 2017, IEH announced a corporate restructuring, whereby the Group obtained direct control of the investment of 7.18% of Unieuro, together with a receivable for previous dividends and the share sales. The amount realised as a result of the divided and share sale of £10 million has been recycled to the income statement.

(ix) Taxation

        The effective tax rate on non-headline items of 28% is higher than the statutory UK tax rate of 19% due to a one-off credit in relation to the recognition of previously unrecognised deferred tax assets in Greece of £10 million.
 

4 Net finance costs

(i) Headline finance costs exclude net interest on defined benefit pension obligations  (see note 3).

5 Tax

The effective tax rate on headline earnings of 21% (2016/17 restated: 22%) has decreased due to a reduction in items attracting no tax relief or liability and a reduction in tax paid, largely as a result of statutory rate changes in both the UK and Nordics. The UK corporation tax rate for the year ended 28 April 2018 was 19% (2016/17: 20% for the 11 months to 31 March 2017 and 19% thereafter).

6 Earnings per share

Basic and diluted earnings per share are based on the profit for the period attributable to equity shareholders. Headline earnings per share is presented in order to show the underlying performance of the Group. Adjustments used to determine headline earnings are described further in note 3.

7 Equity dividends