H1 2019/20 Interim Results

 

12 December 2019

 

Unaudited Results for the Half Year Ended 26 October 2019

Performance robust, good progress on transformation

·   Group adjusted^* profit before tax of £24m (H1 2018/19: £60m)

·   Group statutory loss before tax of £86m (H1 2018/19: loss of £440m)

·   UK & Ireland H1 Electricals revenue -1%, like-for-like revenue flat

o Q2 like-for-like -2% against tough comparatives

o Share gains online and in-store against market down -3% in H1

o H1 profits down as expected given investment in customer proposition

·   International H1 revenue +1%, like-for-like revenue +3%

o Q2 like-for-like revenue +1% 

o Share gains across all markets with strong online growth

o Profit growth driven by sales and operating margin improvements

·   UK & Ireland H1 Mobile revenue -18%, like-for-like revenue -10%

o In line with plan, guidance for £90m^* loss for the year unchanged

o Traditional postpay market continues to be challenging, down -8% in H1

o Negative network debtor revaluation of -£26m

·   Transformation driving increasing customer satisfaction across Group

o Online / Multichannel: Online growth in Electricals +11%. 81 UK stores remodelled

o Credit:  UK Credit adoption over 11%, active customers +15% since year end

o Services: Improved protection products to launch in the UK this financial year

o Mobile: New mobile offer to launch in H1 2020/21

o Colleagues: Quadrupled investment in training. Extending share award

o One Business: On track to deliver £200m of cost savings by FY22

o Stronger Infrastructure: Good progress on IT, rephasing of spend on larger projects

·   Adjusted PBT^* expected to be around £210m for FY20, as previously guided

·   Capital expenditure to be c.£200m (from £275m) due to rephasing of IT spend, adjusted net debt^* expected to be lower year-on-year

·   All medium-term guidance unchanged

*See page 2 for the basis of preparation for all performance measures and guidance given.

Alex Baldock, Group Chief Executive, said:

"We're on track to deliver what we promised this year, and with our longer-term transformation.

In a tough UK Electricals market, we've gained significant share, and strengthened our market leadership. Our planned investments in the colleague and customer experience have played a big part in this resilient performance, demonstrated by sharply increased customer satisfaction scores. Our big International business also registered market share gains in every territory, with solid sales and margin improvements.

And we've taken important strides in our transformation. It's easier for customers to shop how they want: we're now gaining share Online as well as in stores, where we are investing to create exciting, enticing stores. More customers can also afford the tech they want: we now won't be beaten on price, and more are taking up our Credit offer. More, too, are getting the most out of their tech through our Services. 

Mobile is challenging as expected. As promised, this will be the trough year for Mobile losses, and it will be break-even by 2022.

Good progress, yes, but all of us at Dixons Carphone are shareholders, and conscious that our business is still nowhere near its full potential. We're determined to realise that potential, and confident we're on the right path to do so."

 

H1 Revenue	2019/20   £m	2018/19   £m	Reported   % change	Local Currency % change	Like-for- Like % change
UK & Ireland Electricals	1,979	1,997	-1%	-1%	0%
International	1,904	1,887	1%	3%	3%
- Nordics	1,677	1,675	0%	3%	2%
- Greece	227	212	7%	8%	8%
Electricals	3,883	3,884	0%	1%	1%
UK & Ireland Mobile	830	1,009	-18%	-18%	-10%
Group	4,713	4,893	-4%	-3%	-1%

 

Quarterly Revenue	Q2 2019/20			Q1 2019/20
	Reported	Local currency	Like-for- like	Reported	Local currency	Like-for- like
UK & Ireland Electricals	-3%	-3%	-2%	2%	2%	2%
International	-2%	2%	1%	4%	5%	4%
- Nordics	-3%	1%	0%	4%	5%	4%
- Greece	8%	9%	9%	7%	6%	7%
Electricals	-2%	-1%	0%	3%	3%	3%
UK & Ireland Mobile	-23%	-23%	-10%	-12%	-13%	-10%
Group	-7%	-5%	-2%	0%	0%	0%

 

 

H1 Profit, EPS and Net Debt
	2019/20 Statutory	2018/19 Statutory		2019/20 Adjusted			2018/19 Adjusted
EBIT	£m	£m		£m			£m		% change
UK & Ireland Electricals	19	(44)		31			42		-26%
International	55	44		54			50		7%
- Nordics	46	38		47			44		6%
- Greece	9	6		7			6		15%
Electricals	74	-		85			92		-8%
UK & Ireland Mobile	(107)	(423)		(49)			(21)		-133%
Group EBIT	(33)	(423)		36			71		-49%
Net finance costs	(53)	(17)		(12)			(11)
(Loss) / profit before tax	(86)	(440)		24			60
Tax	16	(20)		(5)			(14)
(Loss) / profit after tax	(70)	(460)		19			46
Basic continuing (loss) / earnings per share	(6.0)p	(39.7)p		1.6p			4.0p
Discontinued operations	(2)	(12)
Statutory loss after tax	(72)	(472)
Basic loss per share	(6.2)p	(40.7)p
Net debt	(1,592)	(274)		(290)			(274)

 

Next announcement

The Group will publish its Peak Trading Statement on Tuesday 21 January 2020.

 

 

 

For further information

Assad Malic	Group Strategy & Corporate Affairs Director	+44 (0)7414 19144
Dan Homan	Head of Investor Relations	+44 (0)7400 401442
Amy Shields	Head of External Communications	+44 (0)7588 201442
Tim Danaher	Brunswick Group	+44 (0)207 404 5959

Information on Dixons Carphone plc is available at www.dixonscarphone.com 

Follow us on Twitter: @dixonscarphone

About Dixons Carphone

Dixons Carphone plc is a leading multichannel retailer of technology products and services, operating through 1,500 stores and 16 websites in eight countries. We Help Everyone Enjoy Amazing Technology, however they choose to shop with us.

We are the market leader in the UK & Ireland, throughout the Nordics and in Greece, employing 42,000 capable and committed colleagues. Our full range of services and support makes it easy for our customers to discover, choose, afford and enjoy the right technology for them, throughout their lives. The Group's core operations are supported by an extensive distribution network, enabling delivery to stores and homes, a sourcing office in Hong Kong and a state-of-the-art repair facility in Newark, UK.

Our brands include Currys PCWorld and Carphone Warehouse in the UK & Ireland and iD Mobile in the UK; Elkjøp, Elgiganten and Gigantti in the Nordics; and Kotsovolos in Greece. Our Dixons Travel brand has a presence across several UK airports as well as in Dublin and Oslo, and our services are provided through Team Knowhow.

 

 

 

Continuing to Transform and Perform

We Help Everyone Enjoy Amazing Technology

 

In this section we provide an assessment on the four key priorities and three enablers. In the following performance review is an assessment of performance by division during H1 2019/20. 

PRIORITIES

Online / Multichannel

This is a big profitable growth opportunity for us. Electricals saw online revenue growth of +11% in H1, including +7% in the UK & Ireland and +19% in Nordics. We are taking share online and in-store across all our markets.

In the UK this has been aided by making it easier for customers to find what they want: through improved digital marketing such as AI driven emails, up to 30% quicker site speed and increasing our range.  We are on track to add c.4,000 SKUs this year without holding additional stock and to have 40,000 SKUs available by the end of the plan.  We've made it easier for customers to buy too with improved AI driven product recommendations and an easier single check-out page. All of this has been done in a smartphone first way. Since the period-end we have launched a Currys PCWorld smartphone app which has had over 100,000 downloads with early data suggesting a higher conversion rate and average order value than mobile web. In the Nordics, improved Click & Collect propositions and a new customer care centre chatbot was launched in Norway, followed by Denmark and Sweden. The early feedback is positive, and this has contributed to the strong growth in those markets.

We want to make stores exciting, enticing destinations for face-to-face advice and demos. We're therefore making our biggest investment in UK stores in five years to give more space to such high-growth categories as large screen TVs, while putting slower moving products online only. We are giving more space for experience zones where customers can see, touch and interact with amazing technology, including 40 gaming battlegrounds, 52 TV experience zones and 72 experience zones for Major Domestic Appliances to date.  We have so far remodelled 81 UK stores. Early results are promising, and we will invest in a further 64 this year.

We already know that many of our customers are multichannel shoppers. Online and stores need to work together to give a true multichannel experience. We've made a start here. A customer in store can now be sold the full online range by instore colleagues equipped with Store Mode tablets where NPS is up to 20pts higher, driving a +35% increase in online sales in stores. Online customers can use stores to access our services including laptop set-up, repairs and trade-in while having an easier Reserve & Collect experience, which climbed to 33% of online sales. This is only the start: we have a long way to go in order to deliver a full multichannel experience.

Credit

We are going with the flow of how customers want to buy as two thirds of customers already use some form of credit to buy technology in the UK. 

We are committed to being responsible and safe in this area and all of our 21,000 frontline colleagues are fully trained and compliant. The credit and fraud risk sit with our lending partner, BNP Paribas.

Credit appeals to customers as technology is exciting but expensive, and credit makes the amazing technology they want more affordable:  demonstrated by a +16%pts higher satisfaction score than for non-credit customers.  And credit is good for us.  It gives customers a reason to shop with us, then shop more, and adoption of other services by credit customers is almost double that of cash customers. Credit is good for suppliers as well. All this produces stickier, more valuable customer relationships.

This is another big profitable growth opportunity for us where we've made strong progress.  Credit adoption is now over 11% in the UK (+90bps y-o-y) and our number of active credit customers is over 1 million (+15% from year end). Credit sales were up +8% year-on-year.

In the Nordics business, the credit penetration lags the UK but we are making progress towards achieving 16% adoption in line with the UK ambition.

 

Easy Customer Experience / Services

Customers find technology exciting but also confusing and value our help to get the most out of their products for life through our services.  These services include set up and connect, protect, maintain, repair, trade-in and upgrade. We can provide this range of services in ways no competitor can match at scale. In the UK our two-person delivery network covers 99.9% of the country, with 73% next day and 95% within two days. In a year we will carry out 4.6m two-person home visits, including deliveries, installations, collections and repairs. In stores, we set up 250,000 laptops annually.

Our commitment to recycling and our scale means that we are the only national retailer that collects Waste Electrical and Electronic Equipment (WEEE) from homes and will take in WEEE in any of our stores without requiring a purchase. This has a commercial as well as environmental benefit. This has helped drive a greater than 400% increase in our small WEEE collection. This recycling gives customers another reason to prefer us.

These services also help make customer relationships stickier and more valuable, and at the full year we will update on where we are taking this unique set of capabilities.

One set of Services that consumers tell us they consistently value is in protection. Our protection services are good for customers. Technology is expensive and 69% of customers tell us they want protection against the risk of breakdown and accidental damage.  This is a big strength for us today as we already have 10m warranty agreements. We're making our protection products market-leading, fit for the future, and even better value for money. We are investing in our customer protection proposition, here as elsewhere, to give customers flexibility, transparency that they value and to ensure the sustainability of this core service. We will land our new products as planned in Q4. 

In the Nordics, initiatives in the period included launching the Customer Club Loyalty Scheme in Norway, Denmark and Finland - following a successful launch in Sweden in 2016. We now have over 2.6m customers and are on course to have 3m customers by the year end. Membership provides such benefits as early access to Black Tag discounts and VIP shopping. Again, early signs are good that this results in stickier and more valuable customer relationships. Security & Alarms was launched as a new product group in the Smart Home category in the Nordics. This is a fast-growing segment with an opportunity for us to become a destination for home security solutions involving hardware and subscription models.

Our Kitchen category continues to grow in the Nordics. We offer kitchen installation in all countries with a large range both on kitchens and hardware including built-in appliances. Our share of integrated Major Domestic Appliances is growing.

 

Mobile

Our UK&I Mobile performance was as challenging as expected, underlining the need for the actions we have previously set out and are underway with. This includes successfully renegotiating all our legacy network contracts last year, revamping our own mobile offer and consolidating duplicate cost bases.

The renegotiation of our legacy network contracts resulted in lower volume commitments with better economics (PBT is £60m better in FY20 than it otherwise would have been). We still have these legacy volume commitments, but they will expire during FY21.

We have improved our offer to address the trend of unbundling handsets from connectivity. We now have a better choice of connectivity to offer our customers, including a wider choice of networks, more SIMO products and better security of supply through our own MVNO, iD, which has over 1m customers.

We are also developing our own credit-based bundles. Good progress has been made and we expect this to make a meaningful contribution in FY21 when we are not constrained by postpay volume commitments.

The consolidation of the duplicate cost bases into One Business is also on track to deliver £100m of mobile related cost reductions by FY22 as planned.

As guided, we expect FY21 to be the trough year for losses (£90m) and FY22 at least break-even in Mobile.

 

ENABLERS

Capable and Committed Colleagues

Capable and Committed Colleagues are our greatest advantage. We are building capabilities that are important for the long term in areas such as Data, Information Security, Analytics, Financial Services Digital, CRM and Connectivity, and are also investing in our frontline colleagues.  We have increased the frontline training budget four-fold this year and empowered employees with our new assisted selling model, 'Freedom in a Framework'. In September, we opened our new training facility, The Academy@Fort Dunlop. This will have an intake of over 6,000 colleagues annually and will provide new colleagues with an additional 400,000 hours of training a year.

In collaboration with 6,500 Colleague contributors across the business, we recently launched our new Culture and Values and over the next twelve months we will embed these, starting with our frontline colleagues.  Many world class businesses have shown the power of strong values - standards that colleagues themselves have set - to bind us together as we get behind our common vision. We strongly believe in them here.

A year ago we launched a colleague share ownership scheme which saw every permanent colleague with 12 months' service granted an award of at least £1,000 worth of shares vesting three years later. This complements existing Sharesave schemes and we now have over 30,000 Colleagues who are shareholders in 11 countries.  This is a crucial lever of engagement and alignment behind our common vision.  Our colleagues are acting more like owners, because they are.  It gives us all a stake in the business' success and positions us as a progressive employer.

Today we are very pleased to announce that we have extended the Colleague share award scheme and every colleague will become eligible for at least £1000 award after 12 months of service.

 

One Business

We are on course to deliver £200m of cost savings by FY22 by improving and removing duplication in IT, Supply Chain and Central costs through consolidating the two legacy UK businesses into one.

 

Stronger Infrastructure

In a multichannel world, better infrastructure starts with better IT. Currently this is a constraint for the business but over the course of the plan it will become an enabler and then an accelerant for us.

We have made some good progress and landed new IT in areas important to our transformation. This includes customer-facing colleague tools such as store mode tablets, headsets, laptops and store Wi-Fi to help the assisted sale and demo of products. We've rolled out more scientific pricing technology, and tools to allow us to keep our delivery promises through better planning and forecasting systems and improved routing software. We have taken more time planning our underlying ERP re-platforming programme to ensure we land this right first time and within planned costs.  This delays the spend, without increasing it. The benefits of this will still be realised within the original timelines of our transformation plan.

Our new leadership team in Digital and IT, Mark Allsop as Chief Digital Officer and Andy Gamble as Chief Information Officer, join in January to give further confidence in delivery.

In the Nordics and Greece, the implementation of SAP is progressing in line with plans.

 

 

 

Financial guidance

Current year financial guidance

•     Sales and profit to grow in Electricals in both UK&I and International

•     UK & Ireland mobile: significantly loss making this year; improving materially in following two years by accelerating transformation

•     Adjusted PBT expected to be around £210m with growth thereafter as transformation benefits feed through

•     Capital expenditure of circa £200m (down from £275m), due to rephasing of spend on some larger IT projects

•     Exceptional cash costs expected of c.£80m including cash associated with the regulatory provision made in the period. See note 3(vi) to the financial information

•     Adjusted Net debt to be down (from broadly flat) year-on-year

•     Full year dividend expected to be flat year-on-year reflecting confidence in both cash flow and future profit growth

 

Full year Impact of IFRS 16 implementation

•     EBIT increase of c.£26m

•     EBITDA increase of c.£244m

•     PBT decrease of c.£42m

 

Longer term financial guidance - up to and including FY24

•     Group adjusted EBIT margin improvement to at least 3.5% by FY23

•     Underpinned by £200m of identified cost savings, delivered by FY22

•     Combination of transformation benefits and Mobile improvement to drive adjusted PBT to over £300m by FY22

•     Nordics to benefit from adoption of Group strategy in Services, Credit and Online, taking margins to at least 3.5%

•     On track for over £1 billion of cumulative free cash flow over life of the plan, including working capital improvements of over £500m, mostly from Mobile debtor

 

 

Performance review

During the period the Group has adopted IFRS 16, which requires lease liabilities and corresponding right-of-use assets to be recognised on the balance sheet. The Group has adopted IFRS 16 using the modified retrospective approach, therefore prior year comparative numbers have not been restated. The impact of adopting IFRS 16 in the current period is as follows:

Statutory performance	H1 2019/20 £m	IFRS 16 adjustment £m	Excluding IFRS 16 £m
Revenue	4,713	-	4,713
EBITDA	148	(117)	31
Loss before interest and tax	(33)	(12)	(45)
Net finance costs	(53)	34	(19)
(Loss) / profit before tax	(86)	22	(64)
Tax	16	(5)	11
(Loss) / profit after tax - continuing operations	(70)	17	(53)

 

 

 

 

UK & Ireland Electricals

	2019/20 £m	2018/19 £m	Reported % change	Local Currency % change	Like-for- Like % change
Revenue	1,979	1,997	-1%	-1%	0%
Statutory EBIT	19	(44)
Less IFRS 16 impact (note 1b)	(1)	-
Add back other adjusting items (note 3)	13	86
Adjusted EBIT	31	42	-26%	-26%

Sales declined -1%, with like-for-like sales flat over the period. In Q2 like-for-like sales declined -2%, but on a 2-year basis, like-for-like growth was broadly stable across the half at +2%. Across H1, online sales grew +7% and contributed 27% of sales. Store sales saw some disruption from the remodelling of 81 stores.

The market declined -3% over the six months and Currys PCWorld gained +0.7% of share, with market share gains both in stores and online.

The market was particularly challenged in categories such as console gaming, imaging and major domestic appliances, while market growth was particularly strong in health & beauty and headphones. We drove broad based market share gains with notable success in gaming where our sales were up, major domestic appliances and smart tech where sales were up double digit. In contrast we lost share in Imaging as we dedicated less space to the category.

Gross margins declined -40bps as we invested in the customer proposition through more competitive pricing and improved, more reliable delivery propositions. We have strengthened our price promise policy this year, making it simpler for customers to understand and building on our opportunity to be more trusted on price.

During the period we have carried out a full review of our 3-in-1 store estate and negotiated new leases where appropriate. We will agree terms on almost 100 stores this year, this will extend the average outstanding lease length to 6 years, from 4 years at the end of April, but will generate an average rent reduction of over 30% per annum on these leases.

Operating costs were flat relative to sales as branch costs declined year-on-year due to the renegotiation of leases, partially offset by increases in payroll due to National Living Wage rises and investment in training.

We expect progress in UK&I Electricals sales and profits for the year, with H2 to benefit from cost saving programmes implemented in H1.

The implementation of IFRS 16 has increased EBIT by £1m in the year.

Other adjusting items of £13m decreased by £73m year on year with current year costs relating to those associated with the strategic change programmes and ongoing amortisation of acquisition intangibles recognised during the 2014 Merger. 

Statutory EBIT improved from a £44m loss in H1 2018/19 to a profit of £19m in H1 2019/20 whilst adjusted EBIT reduced 26% to £31m in the same period.

Nordics

	2019/20 £m		2018/19 £m	Reported % change	Local Currency % change	Like-for- Like % change
Revenue		1,677	1,675	0%	3%	2%
Statutory EBIT		46	38
Less IFRS 16 impact (note 1b)		(5)	-
Add back other adjusting items (note 3)		6	6
Adjusted EBIT		47	44	6%	10%

The Nordics saw good H1 growth with local currency revenue increasing by +3%, with positive growth in all territories and Finland the standout performer. Reported revenue in H1 was flat year-on-year, the difference from local currency due to the relative weakening of Nordic currencies. At current spot rates, we would expect a c.-4% impact on sales in H2.

Like-for-like revenue grew by +2%, maintaining our leadership position with market share gains in each country against a market that was broadly flat. This growth was particularly pleasing given the strong comparatives, with two year like-for-like sales up +5% driven by continued improvements in availability and customer satisfaction. Online sales grew +19% over the period and contributed 17% of sales.

Gross margins decreased by c.30bps, mainly due to the impact of channel shift as sales moved online with some impact from the weaker currency. Operating costs declined by -40bp relative to sales due to cost efficiencies and a small benefit of weaker currency. The overall impact of currency is margin neutral.

The impact of IFRS 16 adoption was an increase in EBIT of £5m.

Other adjusting items related to amortisation of acquisition intangibles and remained flat year on year.

As a result of the above factors statutory EBIT increased by £8m and adjusted EBIT increased by £3m.

 

 

Greece

	2019/20 £m		2018/19 £m	Reported % change	Local Currency % change	Like-for- Like % change
Revenue		227	212	7%	8%	8%
Statutory EBIT		9	6
Less IFRS 16 impact (note 1b)		(2)	-
Adjusted EBIT		7	6	15%	18%

Greece continued to perform strongly with like-for-like sales increasing +8% and market share increasing across all categories. Online sales grew +18% but still only constitute a small proportion of divisional sales. 

The profit reflects the strong sales performance alongside continued investments to underpin future growth and which resulted in stable margins.

The adoption of IFRS 16 increased EBIT by £2m in the year.

 

 

 

UK & Ireland Mobile

 

	2019/20 £m		2018/19 £m	Reported % change	Local Currency % change	Like-for- Like % change
Revenue		830	1,009	-18%	-18%	-10%
Statutory EBIT		(107)	(423)
Less IFRS 16 impact (note 1b)		(4)	-
Add back mobile network debtor revaluations (note 3)		26	10
Add other adjusting items (note 3)		36	392
Adjusted EBIT		(49)	(21)	-133%	-133%

Revenue decreased by -18% reflecting the continuing challenges in the 24 month postpay market. Like-for-like revenue for H1 and Q2 was down -10%.  

The profit outturn reflects the reduced sales on a largely fixed cost base. The benefit of reduced depreciation on assets fully impaired at the prior half year was largely offset by the non-repeat of £14m EBIT from multiplay and broadband sales with third parties in the prior year, following the mutual cancellation of the contract as disclosed in June.  

The implementation of IFRS 16 has resulted in a £4m increase in EBIT.

Changes in customer behaviour and regulatory impacts on previously recognised transactions led to a negative revaluation of mobile network debtors of £26m (H1 18/19: negative revaluation of £10m).

Other adjusting items decreased by £356m year-on-year to £36m, reflecting the £344m non-cash impairment of assets in the prior year. Costs associated with strategic change programmes have reduced from £18m to £5m year-on-year.

In the prior year the Group reported that it was subject to a fine imposed by the FCA following the conclusion of an investigation into historical Geek Squad mobile phone insurance selling processes. 

The Group has subsequently received claims from a small proportion of customers who believe they were mis-sold policies. In the six month period to 26 October 2019, the Group has paid a total of £1m in respect of such customer compensation.

Taking into account the short period of time elapsed since this announcement and the small proportion of customers who have made claims, the volume and value of any potential future claims is highly uncertain. Despite this level of uncertainty the Group has recorded an additional provision of £30m in the six month period to 26 October 2019 leading to a total provision of £35m.

Statutory EBIT loss has decreased from £423m to £107m with adjusted EBIT loss increasing from £21m to £49m year-on-year.

 

 

Finance costs
Statutory net finance costs have increased from £17m to £53m year-on-year primarily as a result of interest on newly recognised lease liabilities following the adoption of IFRS 16. Adjusted net finance costs remained in line with the prior year at £12m (2018/19: £11m).

Tax
The full year adjusted effective tax rate is expected to be 21%. The Group's adjusted effective rate of taxation applied to this period is 23%, due to the weighting of profits in H1. The full year rate is higher than the UK statutory rate of 19% due mainly to higher statutory rates in the Nordics.

Income statement - Discontinued operations

The current year discontinued operations charge of £2m relates to a change in provisions for potential payments under warranties for legacy European Carphone operations.

Cash flow

Free cash flow*	H1 2019/20	H1 2018/19
	£m	£m
Adjusted EBIT	36	71
Depreciation and amortisation	63	81
Working capital	133	99
Capital expenditure	(98)	(84)
Taxation	(5)	(24)
Interest	(15)	(14)
Other	-	9
Free cash flow before adjusting items	114	138
Cash adjusting items	(37)	(22)
Free cash flow - continuing operations	77	116

*excludes the impact of adoption of IFRS 16
 

Free cash flow before adjusting items in H1 was an inflow of £114m (2018/19: £138m). Adjusted EBIT has decreased for the reasons described above.

Depreciation and amortisation in the half decreased by £18m, largely reflecting the reduced depreciation on assets fully impaired at the prior half year.

The Group benefited from a working capital inflow of £133m (2018/19: £99m). Working capital inflow is largely as a result of higher trade creditors reflecting an increased mix of suppliers on extended payment terms.

Capital expenditure in H1 was £98m, an increase of £14m compared to the prior year reflecting the investment in our IT infrastructure.

Taxation cash flows were £19m lower than prior year reflecting lower profitability in the UK & Ireland and tax cash refunds during the period.

Cash adjusting items predominantly relate to payment of previously provided data incident costs and strategic change programmes.

A reconciliation of free cash flow to cash generated from operations is presented in note 9 to the financial information.

 

 

 

Funding	H1 2019/20	H1 2018/19
	£m	£m
Free cash flow	77	116
Dividends	(52)	(90)
Net issue of new shares and purchase of own shares	(5)	-
Pension contributions	(46)	(46)
Other items	1	(5)
Movement in net debt	(25)	(25)
Opening net debt	(265)	(249)
Closing net debt before IFRS 16 lease liability	(290)	(274)
Closing additional IFRS 16 lease liability	(1,302)	-
Closing net debt including IFRS 16 lease liability*	(1,592)	-

^*A reconciliation of net debt is included within note 9 to the financial information

 

At 26 October 2019 the Group had net debt of £290m excluding additional IFRS 16 lease liabilities (£1,592m including additional IFRS 16 lease liabilities) (2018/19: £274m). A reconciliation of net debt is presented in note 9 to the financial information. Free cash flow was an inflow of £77m (2018/19: inflow of £116m) for the reasons above.

Of the free cash flow, £52m was returned to shareholders in the form of dividends for the 2018/19 financial year.

Pension contributions of £46m are consistent with the prior period, and in line with the current agreement with the Trustees of the fund. Annual contributions are paid in full in H1.

 

 

Statutory Cash flow statement

	H1 2019/20	H1 2018/19
	£m	£m
Loss before interest and tax - continuing operations	(33)	(423)
Loss before interest and tax - discontinued operations	(2)	(11)
Depreciation and amortisation	181	96
Impairments	-	343
Working capital	185	208
Other operating cash flows	(35)	(61)
Cash flows from operating activities	296	152
Acquisitions	(2)	(1)
Capital expenditure	(98)	(84)
Other investing cash flows	-	17
Cash flows from investing activities	(100)	(68)
Dividends paid	(52)	(90)
Capital repayment of lease liabilities	(116)	(1)
Other financing cash flows	(4)	(80)
Cash flows from financing activities	(172)	(171)
Increase / (decrease) in cash and cash equivalents	24	(87)

 

The movements in statutory loss before interest and tax, capital expenditure, working capital and dividend cash flows are for those reasons previously discussed in this report.

Depreciation and amortisation in the current year includes £106m of depreciation on newly recognised right-of-use assets following the adoption of IFRS 16 and £13m of amortisation of acquisition related assets. The prior year includes depreciation and amortisation on UK & Ireland mobile tangible, intangible and acquisition related assets fully impaired at the prior year end.

Other operating cash flows primarily relate to pension contributions and taxation cash flows.

Capital repayment of lease liabilities relate to capital repayments for lease liabilities following the adoption of IFRS 16. Prior year relate solely to capital repayments on finance leases under IAS 17.

Other financing cash flows relate to interest paid on borrowings, interest paid on IFRS 16 lease liabilities net of cash inflows from increased use of the revolving credit facility in the year.  Prior year other financing cash flows relate to interest paid on borrowings and reduction in usage of the revolving credit facility.

 

 

Balance sheet

	26 October 2019	27 April 2019
	£m	£m
Goodwill	2,821	2,840
Other fixed assets	1,835	740
Network commission receivable	785	797
Working capital	(937)	(956)
Net debt	(1,592)	(265)
Tax, pension & other	(484)	(516)
	2,428	2,640

Goodwill has decreased in the period as a result of revaluation of foreign currency goodwill in the Nordics operations.

Other fixed assets have increased by £1,095m primarily as a result of newly recognised right-of-use assets following the adoption of IFRS 16 in the year of £1,081m (net of H1 depreciation), capital expenditure in the year of £98m, net of depreciation and amortisation on non IFRS 16 assets of £74m.

Negative working capital has decreased by £19m since the year end. Inventory has increased by £231m in readiness for peak trading and an additional buffer in case of hard Brexit. This increase in inventory is offset by a corresponding increase in trade and other payables. Trade receivables have decreased £40m in the year.  Provisions have decreased as a result of adjusting item cash flows as discussed above, and IFRS 16 transitional adjustments.

Net debt has increased by £1,327m as a result of newly recognised lease liabilities of £1,302m and other net cash out flows as described above.

Tax, pensions and other has decreased as a result of lower income tax creditors, reflecting the lower taxable profits in the half year and an increase in deferred tax assets on IFRS 16 transitional adjustments.

Comprehensive income / changes in equity

Total equity for the Group has decreased from £2,640m to £2,428m in the period, driven by the statutory loss in the period, the loss on retranslation of overseas operations of £22m, dividend payments of £52m and the actuarial loss (net of taxation) on the defined benefit pension deficit for the UK pension scheme of £37m.

Following the adoption of IFRS 16 a £37m charge has been taken to reserves reflecting the impact of transitional impairments net of taxation.

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme amounted to £585m at 26 October 2019 (27 October 2018: £514m, 27 April 2019: £579m). Contributions during the period under the terms of the deficit reduction plan amounted to £46m (H1 18/19: £46m, FY 18/19: £46m) reflecting the timing of contributions following the 2016 triennial valuation.

The deficit has increased during H1 largely as a result of changes in discount rates following falling bond yield returns, offset by decreases in inflation rate assumptions and increased values of underlying assets in the period and the annual contributions made in H1 of £46m.

Dividends

The Board has declared an interim dividend of 2.25p per share. The ex-dividend date is 24 December 2019, with a record date of 27 December 2019 and an intended payment date of 24 January 2020.

 

Financial information   Consolidated income statement
		26 weeks ended 26 October 2019   Unaudited			26 weeks ended 27 October 2018 (restated) Unaudited
	Note	Adjusted* £m	Adjusting items* £m	Total £m	Adjusted* £m	Adjusting items* £m	Total £m
Continuing operations
Revenue	2,3	4,739	(26)	4,713	4,903	(10)	4,893
Profit / (loss) before interest and tax	2,3	36	(69)	(33)	71	(494)	(423)
Finance income		5	-	5	6	-	6
Finance costs		(17)	(41)	(58)	(17)	(6)	(23)
Net finance costs		(12)	(41)	(53)	(11)	(6)	(17)
Profit / (loss) before tax		24	(110)	(86)	60	(500)	(440)
Income tax (expense) / credit	4	(5)	21	16	(14)	(6)	(20)
Profit / (loss) after tax - continuing operations		19	(89)	(70)	46	(506)	(460)
Loss after tax - discontinued operations	10	-	(2)	(2)	-	(12)	(12)
Profit / (loss) after tax for the period		19	(91)	(72)	46	(518)	(472)
Loss per share (pence)	5
Basic - continuing operations				(6.0)p			(39.7)p
Diluted - continuing operations				(6.0)p			(39.7)p
Basic - total				(6.2)p			(40.7)p
Diluted - total				(6.2)p			(40.7)p

 

*   Adjusted results reflect adjustments to total performance measures. The directors consider adjusted performance to reflect the ongoing trading performance of the Group and are consistent with how the business performance is measured internally. Such excluded items are described as 'adjusting items' as discussed in note 3. Discontinued operations are disclosed in note 10.

     The adjusted results have been restated for the 26 weeks ended 27 October 2018 and the year ended 27 April 2019 to reflect the updated performance measures reported to the Board as discussed in note 1a. The restatement has no impact on Statutory reported results.

    

 

					Year ended 27 April 2019 (restated) Audited
	Note				Adjusted* £m	Adjusting items* £m	Total £m
Continuing operations
Revenue	2,3				10,474	(41)	10,433
Profit / (loss) before interest and tax	2,3				363	(586)	(223)
Finance income					11	-	11
Finance costs					(35)	(12)	(47)
Net finance costs					(24)	(12)	(36)
Profit / (loss) before tax					339	(598)	(259)
Income tax (expense) / credit	4				(70)	18	(52)
Profit / (loss) after tax - continuing operations					269	(580)	(311)
Loss after tax - discontinued operations	10				-	(9)	(9)
Profit / (loss) after tax for the period					269	(589)	(320)
Loss per share (pence)	5
Basic - continuing operations							(26.8)p
Diluted - continuing operations							(26.8)p
Basic - total							(27.6)p
Diluted - total							(27.6)p

 

*   Adjusted results reflect adjustments to total performance measures. The directors consider adjusted performance to reflect the ongoing trading performance of the Group and are consistent with how the business performance is measured internally. Such excluded items are described as 'adjusting items' as discussed in note 3. Discontinued operations are disclosed in note 10.

     The adjusted results have been restated for the 26 weeks ended 27 October 2018 and the year ended 27 April 2019 to reflect the updated performance measures reported to the Board as discussed in note 1a. The restatement has no impact on Statutory reported results.

 

 

 

 

 

Consolidated statement of comprehensive income
		26 weeks ended 26 October 2019 Unaudited £m	26 weeks ended 27 October 2018 Unaudited £m	Year ended 27 April  2019 Audited £m
Loss after tax for the period		(72)	(472)	(320)
Items that may be reclassified to the income statement in subsequent years:
Cash flow hedges
Fair value movements recognised in other comprehensive income		14	2	10
Reclassified and reported in income statement		(12)	(12)	(19)
Amounts recognised in inventories		(2)	1	1
Fair value through other comprehensive income financial assets
(Losses) / gains arising during the period		(1)	(4)	1
Exchange (losses) / gains arising on translation of foreign operations		(22)	19	(30)
Tax on items that may be subsequently reclassified to profit or loss		-	-	2
		(23)	6	(35)
Items that will not be reclassified to the income statement in subsequent years:
Actuarial losses on defined benefit pension schemes: - UK		(46)	(66)	(128)
- Overseas		-	-	(1)
Tax on actuarial losses on defined benefit pension schemes		9	12	22
		(37)	(54)	(107)
Other comprehensive expense for the period (taken to equity)		(60)	(48)	(142)
Total comprehensive expense for the period		(132)	(520)	(462)

 

 

 

Consolidated balance sheet
	Note	26 October 2019 Unaudited £m	27 October 2018 Unaudited £m	27 April 2019 Audited £m
Non-current assets
Goodwill		2,821	2,882	2,840
Intangible assets		478	420	464
Property, plant & equipment*		236	322	276
Right-of-use assets*		1,121	-	-
Investments	8	17	14	18
Lease receivable*		5	-	-
Trade and other receivables		366	447	387
Deferred tax assets*		296	247	282
		5,340	4,332	4,267
Current assets
Inventory		1,387	1,410	1,156
Lease receivable*		1	-	-
Trade and other receivables*		1,020	1,210	1,039
Derivative assets	8	39	21	18
Cash and cash equivalents		135	119	125
		2,582	2,760	2,338
Total assets		7,922	7,092	6,605
Current liabilities
Trade and other payables*		(2,717)	(2,886)	(2,350)
Derivative liabilities	8	(20)	(15)	(6)
Contingent consideration	8	(1)	(2)	(1)
Income tax payable*		(55)	(79)	(76)
Loans and other borrowings		(43)	(36)	(19)
Lease liabilities*		(226)	(3)	(3)
Provisions*		(112)	(171)	(86)
		(3,174)	(3,192)	(2,541)
Non-current liabilities
Trade and other payables*		(109)	(283)	(252)
Contingent consideration	8	(2)	(3)	(4)
Loans and other borrowings		(300)	(273)	(288)
Lease liabilities*		(1,164)	(81)	(80)
Retirement benefit obligations	7	(586)	(516)	(579)
Deferred tax liabilities		(153)	(122)	(156)
Provisions*		(6)	(24)	(65)
		(2,320)	(1,302)	(1,424)
Total liabilities		(5,494)	(4,494)	(3,965)
Net assets		2,428	2,598	2,640
Capital and reserves
Share capital		1	1	1
Share premium account		2,263	2,263	2,263
Accumulated profits		927	1,026	1,117
Translation reserve		(13)	58	9
Demerger reserve		(750)	(750)	(750)
Equity attributable to equity holders of the parent company		2,428	2,598	2,640

 

*   During the period the Group has adopted IFRS 16, which requires lease liabilities and corresponding right-of-use assets to be recognised on the balance sheet. The Group has adopted IFRS 16 using the modified retrospective approach. As a result prior year comparative numbers have not been restated. Prior period lease liabilities relate solely to finance lease obligations recognised in accordance with IAS 17. See note 1b for details of transitional impacts.

 

 

 

Consolidated statement of changes in equity
	Note	Share capital £m	Share premium account £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total equity £m
As reported at 27 April 2019		1	2,263	1,117	9	(750)	2,640
Adjustment on initial application of IFRS 16	1b	-	-	(45)	-	-	(45)
Taxation on IFRS 16 transition adjustment	1b	-	-	8	-	-	8
Adjusted balance at 27 April 2019		1	2,263	1,080	9	(750)	2,603
Loss for the period		-	-	(72)	-	-	(72)
Other comprehensive expense recognised directly in equity		-	-	(38)	(22)	-	(60)
Total comprehensive expense for the period		-	-	(110)	(22)	-	(132)
Equity dividends		-	-	(52)	-	-	(52)
Net movement in relation to share schemes		-	-	14	-	-	14
Purchase of own shares		-	-	(5)	-	-	(5)
At 26 October 2019		1	2,263	927	(13)	(750)	2,428

 

 

		Share capital £m	Share premium account £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total equity £m
As reported at 28 April 2018		1	2,263	1,643	39	(750)	3,196
Adjustment on initial application of IFRS 15 (net of tax)		-	-	4	-	-	4
Adjustment on initial application of IFRS 9 (net of tax)		-	-	(1)	-	-	(1)
Adjusted balance at 28 April 2018		1	2,263	1,646	39	(750)	3,199
Loss for the period		-	-	(472)	-	-	(472)
Other comprehensive income and expense recognised directly in equity		-	-	(67)	19	-	(48)
Total comprehensive income and expense for the period		-	-	(539)	19	-	(520)
Equity dividends		-	-	(90)	-	-	(90)
Net movement in relation to share schemes		-	-	9	-	-	9
At 27 October 2018		1	2,263	1,026	58	(750)	2,598

 

 

 

 

 

 

		Share capital £m	Share premium account £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total equity £m
As reported at 28 April 2018		1	2,263	1,643	39	(750)	3,196
Adjustment on initial application of IFRS 15 (net of tax)		-	-	4	-	-	4
Adjustment on initial application of IFRS 9 (net of tax)		-	-	(1)	-	-	(1)
Adjusted balance at 28 April 2018		1	2,263	1,646	39	(750)	3,199
Loss for the period		-	-	(320)	-	-	(320)
Other comprehensive expense recognised directly in equity		-	-	(112)	(30)	-	(142)
Total comprehensive expense for the period		-	-	(432)	(30)	-	(462)
Equity dividends		-	-	(116)	-	-	(116)
Net movement in relation to share schemes		-	-	19	-	-	19
At 27 April 2019		1	2,263	1,117	9	(750)	2,640

 

 

 

 

Consolidated cash flow statement
		Note	26 weeks ended 26 October 2019   Unaudited £m	26 weeks ended 27 October 2018   Unaudited £m	Year ended 27 April  2019   Audited £m
Operating activities
Cash generated from operations*		9	347	222	377
Special contributions to defined benefit pension scheme			(46)	(46)	(46)
Income tax paid			(5)	(24)	(45)
Net cash flows from operating activities			296	152	286
Investing activities
Net cash outflow arising from acquisitions			(2)	(1)	(1)
Proceeds from disposal of property, plant & equipment			-	9	9
Proceeds on sale of business			-	8	8
Acquisition of property, plant & equipment and other intangibles			(98)	(84)	(166)
Net cash flows from investing activities			(100)	(68)	(150)
Financing activities
Interest paid			(13)	(14)	(23)
Interest paid on lease liabilities*			(39)	-	-
Capital repayment of lease liabilities*			(116)	(1)	(8)
Purchase of ordinary shares			(5)	-	-
Equity dividends paid			(52)	(90)	(116)
Drawdown / (Repayment) of borrowings			53	(66)	(61)
Facility arrangement fees paid			-	-	(1)
Net cash flows from financing activities			(172)	(171)	(209)
Increase / (decrease) in cash and cash equivalents and bank overdrafts			24	(87)	(73)
Cash and cash equivalents and bank overdrafts at beginning of the period			106	185	185
Currency translation differences			5	(5)	(6)
Cash and cash equivalents and bank overdrafts at end of the period			135	93	106

 

*    During the period the Group has adopted IFRS 16 using the modified retrospective approach, as a result prior year comparative numbers have not been restated. Prior period interest and capital repayments on lease liabilities relate solely to finance leases recognised in accordance with IAS 17. Prior period cash generated from operations includes lease rental expenses that fall under the scope of IFRS 16 in the current period. See note 1b for details of transitional impacts.

 

 

 

 

Notes to the financial information

 

1      Accounting policies

a) Basis of preparation

The interim financial information for the 26 weeks ended 26 October 2019 was approved by the directors on 11 December 2019.  The interim financial information, which is a condensed set of financial statements, has been prepared in accordance with the Listing Rules of the Financial Conduct Authority and International Accounting Standard 34 "Interim Financial Reporting" (IAS 34) as adopted by the European Union and has been prepared on the going concern basis as described further in the section on risks to achieving the Group's objectives.

The accounting policies adopted are those set out in the Group's Annual Report and Accounts for the year ended 27 April 2019 which were prepared in accordance with IFRS as adopted by the European Union, except for as disclosed in note 1b, where the impact of new accounting standards is detailed for IFRS 16 "Leases". Additional amendments to standards and IFRIC interpretations which became applicable during the period were either not relevant or had no impact on the Group's net results or net assets.

The interim financial information uses definitions that are set out on pages 50 to 54 of this document.

The interim financial information is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006, but has been reviewed by the auditor.  The financial information for the year ended 27 April 2019 does not constitute the Company's statutory accounts for that period but has been extracted from those accounts which have been filed with the Registrar of Companies and are also available on the Group's corporate website www.dixonscarphone.com. The auditor has reported on those accounts, their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.

The Group's income statement and segmental analysis identify separately alternative performance measures, reflecting adjustments to total performance measures. The directors consider these 'adjusted' measures to be an informative additional measure of the ongoing trading performance of the Group and believe that these measures provide additional useful information for shareholders on the Group's performance and are consistent with how business performance is measured internally.

Adjusted results are stated before the results of discontinued operations or exited / to be exited businesses, amortisation of acquisition intangibles, acquisition related costs, any exceptional items considered so one-off or material that they distort underlying performance (such as significant reorganisation costs, impairment charges, property rationalisation costs, out of period mobile network debtor revaluations and non-recurring charges), income from previously disposed operations and net pension interest costs. Businesses exited or to be exited are those which the Group has exited or committed to or commenced to exit through disposal or closure but do not meet the definition of discontinued operations as stipulated by IFRS and are material to the results and/or operations of the Group.

Items excluded from adjusted results can evolve from one financial year to the next depending on the nature of exceptional items or one-off type activities described above. In the current period the adjusting items include the impact of adoption of IFRS 16 using the modified retrospective approach. The Directors believe this adjustment is helpful in the current year in aiding shareholders in comparability with prior periods, which are reported under IAS 17.

Following the separation of the UK & Ireland mobile reporting segment in the prior year, those performance measures, internal targets and KPIs reviewed by the board and performance guidance given to the external stakeholders have evolved to provide greater transparency over in year trading results. To reflect this, current year adjusting items include the impact of revaluations of network debtor balances due to changes in assumptions, where the original transaction was recorded in periods prior to the current financial reporting year (out of period).  The removal of such items is considered to be additional useful information to aid the understanding of current year trading. Comparative period performance measures have been restated accordingly as disclosed in Note 2.

A reconciliation of adjusted profit and losses to total profits and losses is shown in Note 2, together with a description of the nature of the adjustments recorded.

These performance measures may not be directly comparable with other similarly titled measures or 'adjusted' revenue or profit measures used by other companies.

The accounting policy for the use of these measures is outlined in the 'Alternative Performance Measures' section of the Glossary.

 b) Impact of new standards

The group has adopted IFRS 16 "Leases" from 28 April 2019 using the modified retrospective approach. Comparatives for the prior reporting period have not been restated and continue to be reported under IAS 17 "Leases", as permitted under the specific transitional provisions of IFRS 16. The reclassifications and the adjustments arising from the new leasing standard are therefore recognised in the opening balance sheet on 28 April 2019.

IFRS 16 introduces new requirements with respect to lease accounting. It presents significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. The impact of the adoption of IFRS 16 on the Group's consolidated financial statements is described below.

 

 

1      Accounting policies (continued)

b) Impact of new standards (continued)

Impact of the new definition of a lease

The group has performed a review of all leasing arrangements and applied the definition of a lease and related guidance as set out in IFRS 16. The change in definition mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has:

-       the right to obtain substantially all of the economic benefits from the use of an identified asset; and

-       the right to direct the use of that asset.

Impact on Lessee Accounting

Former operating leases

IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet and charged to the income statement on a straight-line basis over the period of the lease.

On initial application of IFRS 16, for all leases (except as noted below), the Group:

a)     Recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at the present value of future lease payments;

b)     Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement; and

c)     Recognises the total amount of cash paid (both principal and interest portion) within financing activities (previously presented within operating activities under IAS 17) in the consolidated cash flow statement.

On transition to IFRS 16 these lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 28 April 2019. The Group's weighted average incremental borrowing rate applied to the lease liabilities on 28 April 2019 was 5.4%.

Lease incentives (e.g. rent-free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expense on a straight-line basis.

On initial adoption, the right-of-use assets were adjusted for any previously recognised prepaid and accrued lease payments as well as any liabilities from previously applying IFRS 3 "Business Combinations" relating to unfavourable terms of an operating lease.

Under IFRS 16, there is a lease-by-lease transition choice whereby a lessee can take a practical expedient to rely on assessments immediately before the date of initial application of whether leases are onerous under the IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" definition and to adjust the right-of-use asset by this amount. Alternatively, the new requirements under IFRS 16 can be applied and the right-of-use asset is tested for impairment in accordance with IAS 36 "Impairment of Assets". The Group has considered this on a lease by lease basis with a transitional impairment review taken on a number of leases.

On those leases where an impairment review was performed, rather than taking the practical expedient, this resulted in an opening adjustment to reserves of £37m (net of tax). Changes around assumptions on the probability of future sub-lease cash flows used in the impairment tests caused impairments. In addition to this, the impairment predominantly resulted from the application of different discount rates in line with the applicable accounting standards. The onerous contract provisions previously recognised in accordance with IAS 37 used a risk-free rate however on adoption of IFRS 16 and recognition of right-of-use assets, these assets are tested for impairment under IAS 36 which uses a market participants rate. The application of these standards and changes in discount rates caused an impairment on numerous right-of-use lease assets.

Payments associated with short-term leases, leases of low-value assets, and variable lease payments not included in the right-of-use asset are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.

Former finance leases

The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e. the right-of-use assets and lease liabilities equal the lease assets and liabilities recognised under IAS 17). The requirements of IFRS 16 were applied to these leases from 28 April 2019.

Impact on lessor accounting

IFRS 16 does not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently.

Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the head lease (and not by reference to the underlying asset as was the case under IAS 17).

Because of this change, the Group has reclassified certain sublease agreements as finance leases and recognised finance lease asset receivables. This change has impacted the timing of recognition of the related revenue (recognised in finance income).

 

 

1      Accounting policies (continued)

b) Impact of new standards (continued)

Practical expedients applied on adoption

In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:

-       the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

-       reliance on previous assessments on whether leases are onerous (with the exception of certain leases as discussed above);

-       the accounting for operating leases with a remaining lease term of less than 12 months as at 28 April 2019 as short-term leases;

-       the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and

-       the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

 

The following table reconciles the minimum lease commitments for the year ended 27 April 2019, to the amount of lease liabilities recognised on 28 April 2019:

	£m
Operating lease commitments restated as at 27 April 2019*	1,680
Discounted using the lessee's incremental borrowing rate at the date of initial application	1,346
Add: Finance lease liabilities recognised as at 27 April 2019	83
(Less): short-term leases recognised on a straight-line basis as expense	(23)
Add: adjustments as a result of a different treatment of extension and termination options	79
Lease liability recognised at 28 April 2019	1,485
Of which are:
Current lease liabilities	210
Non-current lease liabilities	1,275
	1,485

*    Operating lease commitments have been restated as at 27 April 2019 to reflect the future minimum lease payments under non-cancellable operating leases in line with IAS 17. The figure disclosed within the 27 April 2019 Annual Report and Accounts overstated these future lease payments.

 

Impact on primary statements

Consolidated income statement

Statutory performance	As reported 26 weeks ended 26 October 2019 £m	IFRS 16 adjustment £m	Amounts without the adoption of IFRS 16 £m
Revenue	4,713	-	4,713
Loss before interest and tax	(33)	(12)	(45)
Net finance costs	(53)	34	(19)
(Loss) / Profit before tax	(86)	22	(64)
Tax	16	(5)	11
(Loss) / Profit after tax for the period - continuing operations	(70)	17	(53)

 

 

 

Consolidated balance sheet

		26 October 2019 £m	IFRS 16 adjustment £m	Amounts without the adoption of IFRS 16 £m
Right-of-use asset		1,121	(1,121)	-
Property, plant & equipment		236	40	276
Deferred tax asset		296	(8)	288
Lease receivable		5	(5)	-
Other non-current assets		3,682	-	3,682
Non-current assets		5,340	(1,094)	4,246
Lease receivable		1	(1)	-
Other current assets		2,581	20	2,601
Current assets		2,582	19	2,601
Total assets		7,922	(1,075)	6,847
Trade and other payables		(2,717)	(8)	(2,725)
Lease liabilities		(226)	223	(3)
Provisions		(112)	(5)	(117)
Other current liabilities		(119)	(6)	(125)
Current liabilities		(3,174)	204	(2,970)
Trade and other payables		(109)	(130)	(239)
Lease liabilities		(1,164)	1,086	(78)
Provisions		(6)	(31)	(37)
Other non-current liabilities		(1,041)	-	(1,041)
Non-current liabilities		(2,320)	925	(1,395)
Total liabilities		(5,494)	1,129	(4,365)
Net assets		2,428	54	2,482
Accumulated profits		927	54	981
Other capital and reserves		1,501	-	1,501
Equity attributable to equity holders of the parent		2,428	54	2,482

 

 

 

 

Consolidated cash flow statement

		As reported 26 weeks ended 26 October 2019 £m	IFRS 16 adjustment £m	Amounts without the adoption of IFRS 16 £m
Net cash flows from operating activities		296	(151)	145
Net cash flows from investing activities		(100)	-	(100)
Net cash flows from financing activities		(172)	151	(21)
Increase in cash and cash equivalents and bank overdrafts		24	-	24

 

2      Segmental analysis

The Group's operating segments reflect the segments routinely reviewed by the Board and which are used to manage performance and allocate resources. This information is predominantly based on geographical areas which are either managed separately or have similar trading characteristics such that they can be aggregated together into one segment.

The Group's operating and reportable segments have therefore been identified as follows:

•        UK & Ireland electricals comprises operations of Currys PCWorld and the Dixons Travel business.

•        UK & Ireland mobile comprises the Carphone Warehouse, iD Mobile and Simplify Digital businesses and the Connected World Services B2B operations.

•        Nordics operates in Norway, Sweden, Finland, Denmark and Iceland.

•        Greece, consisting of our ongoing operations in Greece.

UK & Ireland electricals, UK & Ireland mobile, Nordics and Greece are involved in the sale of consumer electronics and mobile technology products and services, primarily through stores or online channels.

Transactions between segments are on an arm's length basis.

Changes to performance measures

During the period, the performance measures reported to the Board, who are considered the Chief Operating Decision Maker in accordance with IFRS 8 "Operating Segments", have changed. Accordingly the performance measures disclosed have changed to reflect this.

The previously disclosed 'headline' performance measure has been adjusted to eliminate the effect of out of period mobile network debtor revaluations, the impact of IFRS 16 and those items previously disclosed as 'non-headline'. The Group has changed the information presented to the Board to provide greater clarity over the relative performance of the Group against comparative periods and to support decisions related to the allocation of the Groups resources. This new measure is now referred to as 'adjusted' and further information is included within note 1a.

Adjusting items are allocated to each reportable segment. Where these relate to businesses to be exited or income or expense from previously disposed operations, they are allocated where practicable to the region in which the operation was originally held.

Discontinued operations are excluded from this segmental analysis. Results are reviewed by the Board on an adjusted basis by segment.