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Dixons Carphone PLC (DC.)

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Wednesday 15 July, 2020

Dixons Carphone PLC

Final Results 2019/20

RNS Number : 0112T
Dixons Carphone PLC
15 July 2020
 

Audited Results for the 53 Weeks Ended 2 May 2020

Good progress on strategy, robust performance in Electricals despite Covid-19

· Group adjusted* profit before tax fell to £166m (2018/19: £339m) due to Mobile performance and Covid-19 closures

· Group statutory loss before tax of £140m (2018/19: loss of £259m) reflecting UK Mobile store closure costs

· UK & Ireland Electricals revenue +1% (LFL* +1%), adjusted EBIT £162m, -10% year on year (Statutory EBIT £119m)

o Market share gains online and in-store, totalling +0.7%

o Investment in customer offer offset by cost savings as planned; year-on-year profit decline due to Covid-19

o Online sales +22% including +166% in April

· International revenue +2% (LFL +4%), adjusted EBIT £136m, +8% year on year (currency neutral) (Statutory EBIT £135m)

o Nordics share growth +0.5%, Greece share growth +0.4%

o Nordics adjusted EBIT growth (currency neutral) averages +11% per annum over last three years

o Online sales +22% including +114% In April

· UK & Ireland Mobile revenue -20%, adjusted EBIT loss £104m, a £154m year on year decline (Statutory EBIT loss £282m)

o Constrained postpay offer drove sales decline on a legacy fixed cost base

o Sales worse than expected due to enforced 3-in-1 store closures and low sales transfer to online

· Strong progress on transformation priorities

o Omnichannel: Online in-store sales +64% pre Covid-19. 121 UK stores remodelled

o Credit:   UK Credit sales up +27% year on year, active customers almost 1.2m*

o Services: Strong uptake of protection products in UK&I. Nordics customer club grew to over 3m members

o Mobile: UK small, standalone store closures a significant step towards elimination of losses

· Free cash flow* £109m (2018/19: £153m). Net debt* £284m (2018/19: £265m)

· Over £1bn of liquidity headroom at year-end provides security against downside risk and confidence to invest

*See page 41 for further information on our alternative performance measures (APMs) and glossary. This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. The basis of preparation of our IFRS measures is included on page 28.

Alex Baldock, Group Chief Executive

"The first ten months of the year was a story of delivering on our promises and accelerating the transformation of Dixons Carphone. We gained market share online as well as in stores, grew Credit and Services, drove big improvements in customer satisfaction, took difficult but essential decisions such as closing our UK standalone mobile stores, and were on track to meet financial expectations.

With Covid-19, our immediate priorities abruptly changed to keeping everyone safe, helping our customers and securing our future. Our colleagues have delivered on all three, and I thank every one of them for the skill and determination with which they've responded. I'm struck by the vital role that technology has played in helping millions of families through this crisis, and I'm proud of how our business has stepped up, online-only outside the Nordics, to provide that help. Since the year end, all our Electricals businesses have continued to grow sales. Where our stores have reopened we've performed well, while continuing to see strong online sales growth. That said, we expect a weakening of consumer spending later this year and are being cautious in our planning.

We've learned a lot during this crisis and will emerge a better business from it. We've pioneered new ways of shopping, empowered our colleagues to move faster, and seen how technology is set to play an ever-bigger role in everyone's lives. We're also more convinced than ever that Dixons Carphone has the right strategy for our customers, our colleagues and our shareholders in the years ahead."

 

Summary of Performance

Full Year Revenue


2019/20
£m

2018/19
£m

Reported

% change

Local

Currency

% change

Like-for-

Like

% change 

  UK & Ireland Electricals


4,538

4,475

1%

1%

1%

  International


4,043

3,960

2%

5%

4%

  - Nordics


3,573

3,501

2%

6%

4%

  - Greece


470

459

2%

3%

2%

Electricals


8,581

8,435

2%

3%

2%

  UK & Ireland Mobile


1,589

1,998

-20%

-20%

 

Group


10,170

10,433

-3%

-1%


Group adjusted PBT of £166m was around £44m below the guidance that we reiterated in January. We were on track to achieve that guidance before the impact of Covid-19.

In UK&I Electricals, adjusted EBIT declined -10% due to the impact of Covid-19, which was partially offset by operating cost reductions. As expected, our underlying gross margin was down reflecting the planned investment in the customer offer and accelerating channel shift but this impact was more than offset by cost savings. In International, adjusted EBIT grew +2% (+8% currency neutral) as strong underlying performance was offset by Covid-19 related store closures in Greece and the strengthening of sterling relative to the Nordic currencies. In UK&I Mobile, trading was worse than expected after the closure of all our small standalone shops due to the enforced closure of all our other UK stores and low sales transfer to the online business.

Our year end net debt increased slightly to £284m as working capital outflow caused by lower sales was offset by reducing capital expenditure and deferral of taxes and rent.

Profit, EPS and Net Debt*








2019/20 Statutory

2018/19 Statutory

2019/20 Adjusted

2018/19
Adjusted


Currency

Neutral

EBIT

£m

£m

£m

£m

% change

% change

  UK & Ireland Electricals

119

94

162

180

-10%

-10%

  International

135

121

136

133

2%

8%

  - Nordics

115

100

116

112

4%

10%

  - Greece

20

21

20

21

-4%

-1%

Electricals

254

215

298

313

-5%

-3%

  UK & Ireland Mobile

( 282)

(438)

(104)

50

na

na

Group EBIT

(28)

(223)

194

363

-47%

-45%

Depreciation & Amortisation

367

174

128

146

-12%


Group EBITDA

339

(49)

322

509

-37%

-35%

Net finance costs

(112)

(36)

(28)

(24)



(Loss) / profit before tax

(140)

(259)

166

339



Tax

(21)

(52)

(41)

(70)



Discontinued operations

(2)

(9)





(Loss) / profit after tax

(163)

(320)

125

269



(Loss)/earnings per share

  (13.9)p

(26.8)p

10.8p

23.2p










Net debt*



(284)

(265)



*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. The Group's net debt APM does not have a direct IFRS equivalent measure. This has been reconciled back to the statutory balance sheet within the financial information.

 

Outlook & Financial Guidance

The Covid-19 pandemic has had a significant impact on the world, and the wide-ranging repercussions of the crisis will be felt for many years.  It could have a significant impact on consumer spending power across all our markets.

Against this backdrop, technology retailing is resilient. Customers need us, and we have strong foundations; across our operations we have competitive pricing, market leadership and strong supplier relationships that allow flexibility on our inventory intake.

Our extensive network of almost 940 stores and 11.5m sq.ft. of selling space across Europe and the thousands of expert colleagues in them are our most differentiating assets. Delivering a digital first, omnichannel experience requires these assets now as much as ever. Our low average lease lengths and standing as an anchor tenant at many locations give us flexibility to continue to optimise our estate.

This crisis has shown us more than ever that our Vision - We Help Everyone Enjoy Amazing Technology - is the right one. Our business and strategy have so far successfully navigated a stressful period. As we raise our gaze beyond the crisis, our big priorities around Omnichannel, Credit and Services remain. Customers need help now as ever to discover, choose, afford and enjoy tech, for life, especially if they're feeling the pinch of a recession.

We are closely monitoring the external forecasts and are prepared for a range of economic outcomes. Due to the high levels of uncertainty we are not issuing guidance on Electricals sales or profits for 2020/21.

We remain focused on keeping our colleagues safe, helping our customers and securing our cash position. We will make prudent investment decisions as our understanding of the current crisis and potential economic consequences evolves. We expect the following:

Group

· To maintain good liquidity having started the year with over £1bn of unutilised committed debt facilities

· Working capital to include outflow of c.£70m relating to government endorsed tax payment delays before the 2019/20 year end

· To pay 2020/21 annual pension contribution of £46m in monthly instalments. Annual contributions will rise to £78m from 2021/22

· Exceptional transformation cash costs to be c.£175m in 2020/21, mainly related to previously announced Mobile restructuring

 

UK & Ireland Mobile

· Mobile adjusted EBIT losses in 2020/21 to be slightly worse than 2019/20 due to impact of Covid-19 on trading and as a result reaching breakeven 6-12 months later than previously expected

· 2020/21 cashflow from Mobile to be slightly negative as operating losses and restructuring costs will be largely offset by net working capital unwind

· The previously guided £220m cash costs of restructuring and working capital inflow of £500m by 2023/24 remain unchanged but the higher trading losses will mean that the total positive cashflow from Mobile will be lower than the previous guidance of c.£200m and in the range of £125m-175m

 

Results presentation webcast

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

Next scheduled announcement

The Group is scheduled to publish its Interim results on Wednesday 16 December 2020.

For further information

Assad Malic

Group Strategy & Corporate Affairs Director

+44 (0)7414 191044

Dan Homan

Head of Investor Relations

+44 (0)7400 401442

Amy Shields

Director of External Communications

+44 (0)7588 201442

Tim Danaher

Brunswick Group

+44 (0)207 4045959

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 omnichannel retailer of technology products and services, operating through 939 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 24,000 capable and committed colleagues in the UK & Ireland and 36,000 globally across the Group. 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 PC World 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.

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.

 

 

We Help Everyone Enjoy Amazing Technology

Choose, Afford, Enjoy. For Life

 

Our vision is to help customers choose, afford and enjoy amazing technology however they choose to shop with us. By offering the best range of products, Credit and Services across an Omnichannel platform we will drive customer relationships that are stickier and more valuable over time. This will benefit our customers, our colleagues and our shareholders. 

 

2019/20 Strategic Review

Omnichannel

Electricals saw online revenue growth of +11% in the 47 weeks to the end of March before it accelerated rapidly, growing at +149% over the following 5 weeks of the year. Even before Covid-19 we were taking share online across all our markets.

In the UK, we have continued to make it easier for customers to find and buy what they want through improved site speed and bigger range. We have added 2,000 SKUs this year without holding additional stock. Our omnichannel proposition improved again with online in-store[1] sales growing +64% pre-Covid-19[2] (+103% in 2H pre-Covid-19). The new Currys PC World app had been downloaded 0.5m times by the year-end and has delivered revenue growth ahead of our websites during lockdown.

We have also improved our delivery capabilities, including the roll-out of intelligent routing software that allows us to better plan and track delivery routes, resulting in a 20-point improvement in our delivery customer satisfaction scores. This capability has allowed us to fulfil the heightened volumes we have seen in this channel through lockdown.

Data is still a big focus for us, first ensuring our customer data is secure, and now looking at more ways to attract more customers and give existing customers an even more personalised experience. Early improvements in CRM have seen increases in email conversion and in customers returning to abandoned baskets which have driven a +85% increase in online sales attributed to customer targeting.

In International, we improved our Click and Collect propositions and rolled out our customer care centre chatbot. The onset of Covid-19 and store closures in Greece saw a significant acceleration in online sales and the omnichannel experience of the Group has allowed our Greek business to thrive under these conditions. In Nordics, online sales grew significantly even though our stores remained open and we were able to trade safely by implementing measures including a contactless payment solution, 'Drive-in [email protected]', special opening hours for at-risk groups and introducing ShopLive to allow customers to get video help from home.  

Over the next year we will improve the omnichannel experience further, making it even easier for customers to find and buy what they want, including further extending our range, further sharpening our focus on price and improving availability. We will also improve customer experience through better search, recommendations and improving the app.

Omnichannel is not just about online. Our stores are exciting places of discovery where customers can see and interact with exciting technology, and where our expert colleagues can give face-to-face advice to enable customers to choose the best tech for them. We completed the remodelling of 121 large stores in the UK, slightly behind the target of 142 set at the start of the year, as 20 stores were due to be completed in March and April. In the International stores, we started to roll out our new POS system in stores during April, enhancing our ability to provide customers with a seamless omnichannel experience.  

Our unique omnichannel strengths make it easier for customers to choose, afford and enjoy the right technology, however they want to shop. Customers value being able to access our wide range of products and services across both channels, and we can provide this at scale in a way our competitors cannot match. We start with strong foundations and have made good progress but there is a lot more to go for in this area. We will continue to build on our progress, as demonstrated by new innovations like ShopLive which is bringing face-to-face advice from our store colleagues to customers online. No one else can deliver this experience at scale.

Credit

Credit is the second big growth opportunity across the Group. Credit appeals to customers as technology is exciting but expensive, and credit makes the amazing technology customers want more affordable by allowing them to spread the cost.  And customers are happy to have it, demonstrated by a +18%pts higher satisfaction score than for non-credit customers.  We take our responsibility in providing access to credit seriously and we train our 25,000 frontline colleagues to sell responsibly and in compliance with all regulations. The credit risk sits with our lending partner, BNPP.

Credit is good for suppliers too as customers are more likely to trade up into higher value products. It is also good for us as Credit customers shop with us more frequently, spend more and have a significantly higher adoption rate of services than for non-credit customers. Our experience is that Credit customers have a lifetime value double that of cash customers.

Over the year, we built on the strong foundations established in 2018/19. Credit adoption is now over 11.2% (+240bps year on year) in the UK&I and the number of active credit customers is now almost 1.2m, +36% year on year. This resulted in +27% growth in Credit sales to over £530m. Credit adoption over the year was higher in-store than online but online progress closed the gap towards the end of the year.

At over 29% credit adoption, Greece is a leading example of the potential for credit. In Nordics, credit penetration lags the UK but we see equivalent opportunity and there was also progress with credit sales growing slightly year-on-year.

We are developing a new credit offer and a new IT platform to go with it. This will give us improved and easier customer journeys, more personalised offers, and improved acceptance rates providing a further tailwind to credit sales growth.

Credit is a big opportunity where we have strong foundations and significant headroom for growth.

Services

We are uniquely positioned to provide services to our customers to help them enjoy technology for life. The services we provide include set-up and connect, protect, maintain, repair, trade-in and upgrade. We can provide this range of services at scale in ways no competitor can match. In the UK&I we set up or installed over 1m products and repaired 1.3m products including 570,000 mobile phones and 360,000 white goods. We delivered 3.8m large products through our own two-person delivery network.

During the year we continued to improve our Services propositions with the introduction of a new set-up option (Computing Set-up & Personalise), In-store repairs (Tech Treatments) and Protection product (Care & Repair) which launched in January and gives customers even greater flexibility and transparency. Protection is a service that customers value highly, and this year saw a strong uptake of protection in the UK&I and we have almost 10m active agreements.

Even though around one-third of our UK&I Electricals sales have a paid-for service as part of the total proposition, we are only in the foothills of being able to join these propositions together for customers. We know that customers' tech needs will change through their life, and we want to help customers make the most of amazing technology - helping them stay in touch with loved ones, helping them keep fit and healthy, entertained and productive - at all stages of life.

A good example of where we can start to join together all of our Services is the Nordics "Customer Club". This was launched in Sweden in October 2016 and it successfully grew to over 1m members by December 2017. This year we took the decision to roll this out to Denmark, Finland and Norway and now have well over 3m members. During 2H 2019/20 these club members contributed one-third of our Nordics revenue, giving us a wealth of data that we can use to improve our proposition for both Club and non-Club customers.

Club customers benefit from a differentiated value proposition including permanent discounts on accessories, weekly and monthly exclusive deals, VIP shopping, extended returns polices and increasingly some great collaborations with streaming services. Our Club members show increased customer satisfaction, while purchasing more frequently and at better margin, generating a higher lifetime value for us.

Easy To Shop

None of the Services that we provide are worthwhile unless we give the customer a great experience. The significant improvements made to our customer journey drove a +11pts increase in our UK&I Electricals NPS. Our International businesses grew their already impressive "Happy or Not" scores.

There is much more we can do to improve the customer experience, and Covid-19 has shown us clearly where some pain points are. An example is our contact centre operations. Over the course of lockdown, the average number of calls received each week significantly increased while the number answered dropped as our contact centres were closed and colleagues were less efficient while working from home across multiple different technology platforms.  We reacted quickly by improving home-working systems, setting up temporary call centres in Sweden and Norway and moving more than 300 UK store colleagues to contact centre roles and training and upskilling large numbers of them. We have reduced call volumes by improving digital solutions, increased the productivity and capacity of our call centres and moved a lot closer to meeting our internal targets.

Mobile

As we expected, our UK & Ireland Mobile performance was challenging as customers continue to change the way they buy mobile devices and connectivity, replacing their handsets less often and buying them separately or as part of more flexible bundles. Our business carries the burden of volume commitments on our network contracts and a cost base geared to traditional postpay.  We have reacted by renegotiating all our legacy network contracts and beginning to revamp our own mobile offer, to address the trend of unbundling handsets from connectivity, and consolidate duplicate cost bases.

The essential next step in the transformation of our UK Mobile business was taken when we closed all 531 small, standalone Carphone Warehouse stores in the UK.  Our full range of Mobile products is still available online and in our large 3-in-1 stores, featuring Currys PC World and Carphone Warehouse, which allow customers to see, touch and play with technology and receive trusted independent advice from expert colleagues. Our contract with O2 ended in March 2020 and the remaining legacy volume commitments with the mobile network operators will substantially roll off during 2020/21. As a result, the Group will then no longer be encumbered by historic sales volume targets.

Unfortunately, Covid-19 has impacted the Mobile business. Compared to our Electricals business, our Mobile business has a much smaller share of revenue from online operations and is running on a platform that has deliberately seen little investment over the last two years as it will be integrated into our new platform. Consequently, it has not seen the same sales transfer to online as Electricals during lockdown. Our new Mobile offer will reflect how customers are buying phones and technology while still providing flexibility, transparency and value. But this has also been delayed as we paused system development during the crisis.

In total, this Covid-19 impact will mean that operating losses will grow slightly in 2020/21. We are still on course to eliminate trading losses as we remove costs such as running the historic Mobile POS systems, on top of the removal of duplicate cost bases as part of the One Business £200m cost reduction programme. However, due to the delay in transformation, we expect this to happen during 2021/22, 6-12 months later than originally planned.

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. We have invested in learning for all our colleagues and in September, we opened our new training facility, The [email protected] 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.

We also extended our award-winning colleague shareholder scheme to almost 7,000 newly eligible colleagues in the year, granting each of them at least £1,000 worth of shares, which vest three years from the award date. Over 38,000 colleagues in 11 countries have received an award under the Colleague Shareholder Scheme launched in 2019. 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's success and positions us as a progressive employer.

In collaboration with 6,500 Colleague contributors across the business, we recently launched our new culture and values. Many world class businesses have shown the power of strong values and we strongly believe in them here.

The senior leadership team has also been strengthened: Paula Coughlan joined as Chief People Officer from McDonald's at the end of last year, Erik Sønsterud was promoted to CEO of International, Mark Allsop is our new Chief Operating Officer having joined in December from Merlin Entertainments plc, Lindsay Haselhurst, previously of Kingfisher plc, joined in January to become our new Chief Supply Chain Officer and Ed Connolly joined in March from John Lewis Partnership as our new Chief Commercial Officer.

One Business

We have made further progress in becoming One Business that is a clearer, simpler and faster place to work. As we move towards being one truly joined up business, this means a joined up customer experience, so customers get the full benefit of everything we have to offer, and a joined up business behind the scenes, realising the cost benefits of moving to One Business. 

In the year we made savings through outsourcing contact centres, decommissioning 40 legacy IT applications, restructuring the head office teams, re-gearing some store leases and making many efficiencies in cost areas such as Supply Chain.

The closure of our standalone Mobile shops in the UK is an enabling step towards a significant portion of the £200m of gross annual Group cost savings that we are targeting by the end of 2021/22.

Stronger Infrastructure

The introduction of new colleague tools has further improved our in-store experience. Our new store mode tablets have enabled conversations with customers away from fixed terminals and given customers access to our full online range. Our new zero-contact Drive Thru Order & Collect proposition has enabled a closer connection between online and stores. A new pricing platform has helped us ensure we are always cost competitive whilst in the Nordics, we went live with the first phase of our SAP based Next Generation Retail platform.

We deliberately paused spend on our large UK re-platforming programme as Covid-19 began. During the crisis we successfully pivoted to a new more agile approach for technology innovation and delivery. This saw us launch our ShopLive online personal shopping service in less than four weeks and which already now supports over 20,000 customer conversations each week.

Technology infrastructure is still a constraint for the business, but clear progress is being made and this will accelerate as investment in this area is prioritised to ensure We Help Everyone Enjoy Amazing Technology through rich customer centric experiences.

 

Reaction to Covid-19

Since the start of the pandemic, the business has focussed on three priorities: Keeping our Colleagues and Customers Safe, Helping our Customers and Securing our Future. Through this focus we transformed our operations and services almost overnight, including implementing social distancing and hygiene standards in our Nordics stores, which have remained open throughout the crisis, and operating our UK and Greek businesses as online-only retailers for the first time in their history. The speed and skill with which our colleagues reacted meant that through these challenging times we can still provide the vital technology our customers need, to keep them connected with loved ones, their families fed, clean and entertained, to work from home and home-school their children. The vital role we play has been reflected in customer demand and we have generated strong sales in every channel open for business.

Keeping Our Colleagues and Customers Safe

There is no bigger priority than colleague and customer safety at any time. During the lockdown we have taken even further steps to protect colleagues while meeting high customer demand. These measures ensure social distancing, provide high levels of personal hygiene, maintain the highest standards of customer safety, and help us to continue to deliver to customers the technology they need. Our colleagues have risen to this challenge brilliantly.

Helping Our Customers

Our customers need our products, services and expert advice, especially now. As well as continuing to provide all our usual technical expertise and support we have taken steps to ensure that older and vulnerable customers who need us can get our help and get it safely.

Supporting vulnerable people

· Through Age UK, our UK charity partner, we have donated hundreds of tablets with network connectivity to help older people at risk of social isolation stay connected and up to date with the latest information on the pandemic. A dedicated phoneline has been launched to provide any follow up tech support.

· We donated hundreds of laptops, headsets, chargers and phones to SilverLine, an Age UK organisation, to ensure they could carry on their important work during lockdown.

· iD Mobile, our mobile network, offered NHS workers and customers over-70 years old free texts, minutes and data.

· In Finland, Sweden and Greece we focused on donating hundreds of items of vital technology to care homes to support the most vulnerable during the crisis.

Supporting medical teams  

· In the UK we are prioritising requests for tablets, mobile phones, laptops, webcams, headsets and chargers for all NHS Trusts and individual hospitals to help critically ill patients stay in touch with loved ones.

· In Sweden, teams have donated refrigerators and microwaves to hospitals, TVs for nursing staff rooms and radios for wards for Covid-19 patients.

· In Greece, we supported local hospitals through donations of electronic and electrical equipment for newly-established Covid-19 units and provided 200,000 medical masks and gloves to the Ministry of Health.

· In Nordics, we donated unused processing power from c.1,500 in-store Gaming computers to Stanford University's [email protected] project to research ways to tackle Covid-19.

 

Securing Our Future

When considering the impact of business interruption, the most material impact on the Group's liquidity will arise through the change in trade payables. The Group generally buys goods for resale on 60-90 day payment terms and sells the product before payment becomes due. A decline in sales drives a short-term outflow of working capital. As evidenced by our sales to the end of April, the strength of trading in the Group's online businesses and in the Nordics has somewhat compensated for sales lost through store closures. Working capital outflow was therefore manageable.

In order to be prudent and maximise spare liquidity to cope with current and potential future business interruption, the Group has undertaken the following actions:

Extended debt facilities - As previously announced, the Group has extended its committed debt facilities with an additional £266m RCF and now has total committed facilities in excess of £1,350m. At the year end, the Group had net debt of £284m and access to over £1bn of unutilised committed facilities.

Utilised Government cost support - We furloughed over 16,500 store, supply chain and support colleagues across territories who were temporarily not working due to Covid-19. All UK&I furloughed colleagues are paid at 80% of their salary, with the company making up any difference beyond the Government subsidy limits. In 2019/20, the UK job retention scheme combined with the UK business rates suspension and International government support measures lowered net operating costs by c.£30m. We expect these measures to reduce net operating costs by c.£80m in 2020/21.

Reduced central costs - All Executive and Board members took a temporary 20% pay reduction and other senior leaders took a temporary 10% pay reduction, effective from 5 April to 28 June 2020, and non-essential expenditure was stopped.

Reduced Capital expenditure - The Group capital expenditure in 2019/20 was £191m, slightly lower than previous guidance of around £200m. Due to the delay to transformation projects, we would expect 2020/21 expenditure to be closer to run rate of £175m than the previously expected £240m. The Group can control capital expenditure and will continue to evaluate the right level for 2020/21 as the Covid-19 situation develops.

Streamlined working capital - We moved some of our rents to monthly payments and, where offered, have accepted extended payment terms from some of our large, global suppliers. Our normal inventory commitment is 4-14 weeks in advance, depending on product.

Delayed tax payments - At the end of 2019/20 the Group had a cash benefit from Government backed tax payment delays of c.£70m which will reverse through 2020/21. In addition, UK VAT payments due between March and July 2020 will be deferred until March 2021.

Spread pension payments - The Group's annual pension contribution of £46m will now be paid in monthly instalments, instead of an annual lump sum in May.

Not declared a final dividend - The Group paid an interim dividend of 2.25p per share (£26m total) in January. The Board has decided not to pay a final dividend for 2019/20. Dividend payments will not be resumed at least until our standby debt facilities have been cancelled. Given the current uncertain environment, the Board will keep the payment of dividends under review to establish the appropriate time and level to recommence payment.

Our internal planning has stress tested the business against a range of downside scenarios, including the possibility that stores may need to close on a national or local basis for another extended period. We do not foresee needing to access any additional liquidity, and we expect to comply with bank covenants, unless substantially all our operations are required to close for an extended period, which we regard as highly unlikely.

2019/20 Financial 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.

This financial year is reported on a 53-week basis. The 53rd week has a small impact on sales, which is highlighted where appropriate but an immaterial impact on profits.

To aid understanding of our performance through the year, here we present like-for-like and online sales growth for Electricals both pre and post Covid-19:

Like-for-like growth

47 Weeks to 21 March

5 Weeks to

25 Apr

52 Weeks to

25 Apr[3]

UK&I Electricals

3%

-16%

1%

- UK&I Online growth

10%

166%

22%

International

3%

16%

4%

- International Online growth

14%

114%

22%

Nordics

3%

24%

4%

- Nordics Online growth

14%

98%

20%

Greece

5%

-40%

2%

- Greece Online growth

19%

597%

56%

Electricals

3%

-3%

2%

Electricals Online growth

11%

149%

22%

 

 

UK & Ireland Electricals

 

2019/20
£m

2018/19
£m

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

Revenue

4,538

4,475

1%

1%

1%







Statutory EBIT

119

94










Less IFRS 16 impact

(2)

-




Add back other adjusting items

45

86




Adjusted EBIT*

162

180

-10%

-10%


Adjusted EBIT margin

3.6%

4.0%




*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures.

Sales increased +1%, driven by like-for-like sales +1% with slight negative impact from store closures and +1% benefit from the 53rd week. Like-for-like sales grew +3% across the first 11 months of the year before declining -16% in April due to stores closing from 24 March. Across the year, online sales grew +26% and contributed 35% of sales, +7%pts higher than last year. There was a sharp acceleration in this growth when stores were closed in April as online sales grew +166% from +10% across the first 11 months.

Sales were very strong in large screen TVs, computing, gaming and smart tech across the whole year, as were sales of small domestic appliances where our extended ranges and experience zones drove performance. White goods saw solid performance across most of the year, but sales were impacted by the Covid-19 lockdown.

The market declined -1.4% over the year as a whole, with Currys PCWorld gaining +0.7% of share, with market share gains both in stores and online. To the end of February 2020, the share gain was +1.0%, however, our market share declined by -1.3% in March and April 2020 as some of our competitors were able to keep stores open as they were part of broader businesses deemed to be essential retailers. Encouragingly, over this period our online market share increased significantly as customers valued the breadth and depth of range sold online.

Gross margin declined -170bps (1H: -40bps / 2H: -280bps) including a c.-110bps (1H: na / 2H: -200ps) impact from Covid-19 due to the accelerated shift towards online, delay of product launches, negative impact from not hitting supplier volume targets and associated end of range provisions. The remaining movement of -60bps (1H: -40bps / 2H: -80bps) was due to the continuing expected growth of online as a proportion of our sales, continued investment in our unambiguous price promise and our improved delivery proposition.  

Operating costs improved relative to sales driven by head office team restructuring, contact centre outsourcing,  renegotiated rent deals and government schemes that reduced rates and colleague costs.

As a result, adjusted EBIT reduced -10% to £162m in 2019/20, from £180m in 2018/19. We estimate that without the impact of Covid-19 our operating margins would have been flat for the year, driving profit growth on an increased revenue base.

The adoption of IFRS 16 increased EBIT by £2m in the year. Other adjusting items of £45m were lower by £41m year on year with current year costs relating to the strategic change programmes and ongoing amortisation of acquisition intangibles recognised during the 2014 merger and impairment losses.  Statutory EBIT increased to £119m in 2019/20 from £94m in 2018/19.

 

Nordics

 

2019/20
£m

2018/19
£m

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

Revenue

3,573

3,501

2%

6%

4%







Statutory EBIT

115

100







 

 

 

Less IFRS 16 impact

(10)

-




Add back other adjusting items

11

12




Adjusted EBIT*

116

112

4%

10%


Adjusted EBIT margin

3.2%

3.2%




*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures.

Nordics delivered another year of sales and profit growth. On a currency neutral basis, this business has almost doubled sales over the last eight years and adjusted EBIT growth has averaged +11% over the last three years. Currency neutral revenue grew by +6%, with strong growth in all territories. The 53rd week benefitted sales growth by +1%. Reported revenue was +2% year-on-year, the difference from local currency due to the relative weakening of Nordic currencies.

Like-for-like revenue grew by +4% with particularly strong performance in March and April as the majority of the stores continued to trade.

Online sales grew +22% during the year and contributed 19% of sales, +3%pts higher than last year. Online saw a marked acceleration in April when online sales grew +98% from +14% over the first 11 months of the year.

Across the year, there was an uplift in built-in kitchen appliances on the back of our increased emphasis on the kitchen category while headphones, wearables and cordless vacuums all sold well driven by innovation and new product launches. 

Market share in the Nordics grew again, up +0.5% to 26.0%, with share gains across most categories.

Gross margin was flat year-on-year, as the impact of weaker currency was offset by commercial initiatives including services, subscriptions, peripherals and accessories.

Operating costs ratio remained flat relative to sales due to cost efficiencies and a small benefit of weaker currency offset by higher branch costs.

The resulting adjusted EBIT of £116m was up +4% year-on-year in reported terms, and +10% year-on-year in local currency. Every market saw EBIT growth in local currency.

The impact of IFRS 16 adoption was an increase in EBIT of £10m. Other adjusting items relate to amortisation of acquisition intangibles.  

As a result of the above factors statutory EBIT increased to a profit of £115m in 2019/20 from a profit of £100m in 2018/19.

 

Greece

 

2019/20
£m

2018/19
£m

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

Revenue

470

459

2%

3 %

2%







Statutory EBIT

20

21







 

 

 

Less IFRS 16 impact

(1)

-




Add back other adjusting items

1

-




Adjusted EBIT*

20

21

-4%

-1%


Adjusted EBIT margin

4.2%

4.6%




*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures.

Sales in local currency increased +3%, with like-for-like sales +2% over the year. Store closures from the 18 March to 10 May meant that like-for-like sales dropped from +5% over the first 11 months of the year to -40% in April.

Across the year, online sales grew +60% and contributed 8% of sales, with a significant acceleration in April when online grew +597%.

Products that sold well during the year included TVs, laundry and cooling equipment.

This sales performance resulted in market share increasing to 35% (2018/19: 34.6%).

Gross margin was up +10bps over prior year due to better trading offset by higher distribution costs.

Operating costs increased due to investments in IT services and additional depreciation associated with recent store developments.

Overall EBIT impact from Covid-19 was slightly negative, as a result of lost gross profit, offset by reduced store costs due to rent reductions in March and April and lower payroll as employees' contracts were suspended with Government support.

The total adjusted EBIT was £20m, down -4% year-on-year in reported terms and -1% on a neutral currency basis.

The adoption of IFRS 16 increased EBIT by £1m while costs associated with the strategic change programme totalled £1m in the year, resulting in statutory EBIT of £20m.

 

UK & Ireland Mobile

 

2019/20
£m

2018/19
£m

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

Revenue

1,589

1,998

-20%

-20%

na[4]







Statutory EBIT

(282)

(438)







 

 

 

Less IFRS 16 impact

(7)

-




Add back mobile network debtor revaluations

47

41




Add other adjusting items

138

447




Adjusted EBIT*

(104)

50

na

na


Adjusted EBIT margin

-6.5%

2.5%




*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures.

Revenue decreased by - 20% reflecting the continuing challenges in the 24-month postpay market and our decision in March 2020 to close the Carphone Warehouse standalone stores in the UK.

The decrease in adjusted EBIT to a £104m loss in 2019/20 from a £50m profit in 2018/19 mostly reflects the reduced sales of our constrained offer on a largely fixed legacy cost base. 

The implementation of IFRS 16 has resulted in a £7m increase in EBIT.

In the year the net decrease in the network commission receivables and contract assets was £181m as a result of £47m negative out of period network debtor revaluations and £1,139m cash received, offset by £995m of new capitalisation and £10m of other movements.

The negative revaluation of £47m (2018/19: negative revaluation of £41m) was driven by three factors: Regulatory impacts causing total consumer spend reduction and end of contract notifications; changes in customer behaviour driven by Covid-19 and impacts from the closure of the UK standalone Mobile stores. These are exceptional events and we believe there will be no further significant reversal of revenue in future periods. Out of period revaluations are excluded from the Group's alternative performance measures as explained further on page 41.

Other adjusting items of £138m predominantly reflected the costs associated with the closure of the UK Carphone Warehouse standalone stores and redundancies and claims from a small proportion of customers who believe they were mis-sold Geek Squad mobile phone insurance policies in the past.

Statutory EBIT has improved to a loss of (£282m) from a loss of (£438m).

 

Finance costs
Statutory net finance costs have increased from £36m to £11 2m year-on-year primarily as a result of interest on newly recognised lease liabilities following the adoption of IFRS 16. Adjusted net finance costs were £4m higher than last year at £28m, mainly driven by costs associated with the increased debt facilities (2018/19: £24m).

Tax
The full year adjusted effective tax rate at 25% was higher than the prior year rate of 21% due to a reduction in the Group's total adjusted profits for the year and the impact of different tax rates in the UK and overseas on the mix of those profits, together with the impact of prior period adjustments.

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*

2019/20

  2018/19


£m

£m

Adjusted EBIT

194

363

Depreciation and amortisation

128

146

Working capital

108

(17)

Capital expenditure

(191)

(166)

Taxation

(20)

(45)

Interest

(31)

(30)

Other

-

9

Free cash flow before exceptional items

188

260

Exceptional items

(79)

(107)

Free cash flow

109

153

*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures.


Free cash flow was an inflow of £ 109 m (2018/19: £153m). Adjusted EBIT decreased for the reasons described above.

Depreciation and amortisation in the year decreased by £18m due to the reduced depreciation on assets fully impaired in the prior year.

The Group benefited from a working capital inflow of £ 108 m (2018/19: -£17m), this was largely as a result of £134m network debtor unwind in the   year (2018/19: £219m).

Capital expenditure was £191m, an increase of £25m compared to the prior year reflecting the investment in our UK IT infrastructure and store estate.

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

Exceptional items predominantly related to strategic change programmes and payment of previously provided data incident costs.

A reconciliation of cash generated from operations to free cash flow is presented in note A9 to the Financial Information.

 

Funding

2019/20

  2018/19


£m

£m

Free cash flow

109

153

Dividends

(78)

(116)

Net issue of new shares and purchase of own shares

(12)

-

Pension contributions

(46)

(46)

Other items

8

(7)

Movement in net debt

(19)

(16)

Opening net debt 

(265)

(249)

Closing net debt*

(284)

(265)

 

 

 

 

*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. The Group's net debt APM does not have a direct IFRS equivalent measure. This has been reconciled back to the statutory balance sheet within the financial information.

 

As at 2 May 2020, the Group had net debt of £284m (2018/19: £265m). A reconciliation of net debt is presented in note A10 to the financial information. Free cash flow was an inflow of £109m (2018/19: inflow of £153m) for the reasons above.

Of the free cash flow, £78m was returned to shareholders in the form of dividends. This was the payment of the prior year's final dividend and the interim dividend for 2019/20. The Board has decided not to pay a final year dividend for the current year.  The employee benefit trust acquired £12m of shares to satisfy share awards to colleagues.

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

 

Statutory Cash flow statement


2019/20

  2018/19


£m

£m

Loss before interest and tax - continuing operations

 (28)

(223)

Loss before interest and tax - discontinued operations

(2)

(14)

Depreciation and amortisation

367

174

Impairments

64

347

Working capital

235

72

Other operating cash flows

(53)

(70)

Cash flows from operating activities

583

286

 

 

 

Acquisitions

(3)

(1)

Capital expenditure

(191)

(166)

Other investing cash flows

2

17

Cash flows from investing activities

(192)

(150)

 

 

 

Dividends paid

(78)

(116)

Interest paid

(106)

(23)

Capital repayment of lease liabilities

(219)

(8)

Other financing cash flows

20

(62)

Cash flows from financing activities

(383)

(209)

 


 

Increase / (decrease) in cash and cash equivalents

8

(73)


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

Depreciation and amortisation in the current year includes £217m of depreciation on newly recognised right-of-use assets following the adoption of IFRS 16 and £25m 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.

Working capital cash inflow on a free cash flow basis was £155m (2018/19: £24m) as explained above. The remaining £80m increase in statutory working capital was mainly due to the group adopting IFRS 16 (free cash flow is shown excluding IFRS 16) resulting in a £56m increase and £43m increase due to lower provisions, partially offset by share based payment charges.

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

The increase in capital repayment of lease liabilities relates to the adoption of IFRS 16. Prior year relate solely to capital repayments on finance leases under IAS 17.

Interest paid relates to interest on borrowings and lease liabilities.

Other financing cash flows related to increased use of the revolving credit facility in the year offset by shares purchased in the period to satisfy the colleague share scheme.  Prior year other financing cash flows related to reduction in usage of the revolving credit facility.

 

Balance sheet


2 May 2020

27 April 2019


£m

£m

Goodwill

2,803

2,840

Other fixed assets

1,823

740

Network commission receivables and contract assets

616

797

Working capital

(795)

(956)

Net debt*

(284)

(265)

IFRS 16 leases*

(1,359)

-

Pension

(550)

(579)

Tax & other

26

63

 

2,280

2,640

*See page 41 for further information on our alternative performance measures (APMs). This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. This includes a reconciliation of the above working capital balance to the statutory balance sheet. The IFRS 16 leases relate to the incremental impact of leases brought on balance sheet due to the adoption of IFRS 16. For comparability purposes this excludes leases that were previously on balance sheet classified as finance leases under IAS 17.

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

Other fixed assets increased by £1,083m primarily as a result of newly recognised right-of-use assets following the adoption of IFRS 16 in the year of £1,114m (net of depreciation).

Network commission receivables and contract assets decreased by £181m as the scale of our mobile business reduced resulting in a net cash inflow, as well as a negative £47m out of period network debtor revaluation. Out of period network debtor revaluations are excluded from the Group's APMs as further detailed on page 41.

Working capital increased by £161m as a result of the timing of payments around year end due to the financial close being a week later than prior year.

Net debt increased by £19m due to working capital outflow caused by lower sales, offset by reduced capital expenditure and deferral of taxes and rent.

Tax and other decreased as a result of a reassessment of the deferred tax asset position due to the loss in year.

Comprehensive income / changes in equity

Total equity for the Group decreased from £2,640m to £2,280m in the period, driven by the statutory loss, the loss on retranslation of overseas operations of £39m, dividend payments of £78m and the actuarial loss (net of taxation) on the defined benefit pension deficit for the UK pension scheme of £3m.

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 £550m at 2 May 2020 (26 October 2019: £586m, 27 April 2019: £579m). Contributions during the period under the terms of the deficit reduction plan amounted to £46m (2018/19: £46m).

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

A full actuarial valuation of the scheme was carried out as at 31 March 2019 and showed a shortfall of assets compared with liabilities of £645m. A 'recovery plan' based on this valuation was agreed with the Trustees such that contributions in respect of the scheme will be £46m for 2020/21, rising to £78m per year from 2021/22 until 2027/28, with a final payment of £52m in 2028/29.

Dividends

The Group paid an interim dividend of 2.25p per share (£26m total) in January. The Board has decided not to pay a final dividend for 2019/20. Dividend payments will not be resumed at least until our standby debt facilities have been cancelled. Given the current uncertain environment, the Board will keep the payment of dividends under review to establish the appropriate time and level to recommence payment.

 

Appendix

H2 Revenue


2019/20
£m

2018/19
£m

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

  UK & Ireland Electricals


2,559

2,478

3%

3%

2%

  International


2,139

2,073

3%

7%

6%

  - Nordics


1,896

1,826

4%

8%

7%

  - Greece


243

247

-2%

0%

-3%

Electricals


4,698

4,551

3%

5%

3%

  UK & Ireland Mobile


759

989

-23%

-23%


Group


5,457

5,540

-1%

0%


 

Quarterly Revenue

Q1 2019/20

Q2 2019/20


Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

  UK & Ireland Electricals

2%

2%

2%

-3%

-3%

-2%

  International

4%

5%

4%

-2%

2%

1%

  - Nordics

4%

5%

4%

-3%

1%

0%

  - Greece

7%

6%

7%

8%

9%

9%

Electricals

3%

3%

3%

-2%

-1%

0%

  UK & Ireland Mobile

-12%

-13%

-10%

-23%

-23%

-10%

Group

0%

0%

0%

-7%

-5%

-2%

 

Quarterly Revenue

Peak 2019/20

Post Peak 2019/20


Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

Reported

% change

Currency neutral

% change

Like-for-

Like

% change  

  UK & Ireland Electricals

1%

1%

2%

6%

6%

2%

  International

-1%

4%

3%

8%

11%

8%

  - Nordics

-1%

3%

3%

10%

14%

11%

  - Greece

3%

7%

6%

-7%

-8%

-12%

Electricals

0%

2%

2%

7%

8%

5%

  UK & Ireland Mobile

-11%

-11%

-9%

-34%

-34%


Group

-2%

0%

0%

-1%

0%


 

 

 

Financial Information

 

Consolidated income statement

 


Note

Year ended 2 May

2020
£m

Year ended 27 April

2019
£m

Continuing operations

 



Revenue

2

10,170

10,433


 



Loss before interest and tax

2

(28)‌

(223)‌


 



Finance income

 

10

11

Finance costs

 

 (122)‌

 (47)‌

Net finance costs

3

 (112)‌

 (36)‌


 



Loss before tax

 

(140)‌

(259)‌


 



Income tax expense

 

(21)‌

(52)‌

Loss after tax - continuing operations

 

(161)‌

(311)‌


 



Loss after tax - discontinued operations

7

(2)‌

(9)‌


 



Loss after tax for the period

 

(163)‌

(320)‌


 



Loss per share (pence)

4



Basic - continuing operations

 

(13.9)‌p

(26.8)‌p

Diluted - continuing operations

 

(13.9)‌p

(26.8)‌p

Basic - total

 

(14.1)‌p

(27.6)‌p

Diluted - total

 

(14.1)‌p

(27.6)‌p

 

 

Consolidated statement of comprehensive income

 

 

 

 

Year ended

 2 May

 2020
£m

Year ended 27 April

2019
£m

Loss after tax for the period

(163)

(320)




Items that may be reclassified to the income statement in subsequent years:



Cash flow hedges



  Fair value movements recognised in other comprehensive income

26

10

Reclassified and reported in income statement

12‌

(19)‌

Exchange loss arising on translation of foreign operations

(39)‌

(30)‌

Tax on items that may be subsequently reclassified to profit or loss

  -

  2


(1)‌

(37)‌




Items that will not be reclassified to the income statement in subsequent years:



Actuarial losses on defined benefit pension schemes   - UK

(3)‌

(128)‌

  - Overseas

(1)

(1)

Fair value through other comprehensive income financial assets



 (Losses) / gains arising during the period

(8)

1

Tax on actuarial movements on defined benefit pension schemes

(39)

22


(51)‌

(106)‌




Other comprehensive expense for the period (taken to equity)

(52)

(143)




Total comprehensive expense for the period

(215)

(463)

 

 

Consolidated balance sheet

 


Note

2 May
 2020
£m

27 April

2019

(restated)

£m

28 April
2018

(restated)
£m

Non-current assets

 




Goodwill

 

2,803

2,840

3,088

Intangible assets

 

469

464

478

Property, plant & equipment

 

240

276

394

Right-of-use assets*

 

1,114

-

-

Lease receivable*

 

4

-

-

Investments

 

10

18

17

Interests in joint ventures and associates

 

-

-

1

Trade and other receivables

 

294

387

507

Deferred tax assets

 

259

282

240


 

 5,193

 4,267

 4,725

Current assets

 




Inventory

 

970

1,156

1,145

Lease receivable*

 

1

-

-

Trade and other receivables

 

831

1,039

1,154

Derivative assets

 

76

18

27

Assets held for sale

 

-

-

17

Cash and cash equivalents**

 

660

665

1,383


 

 2,538

 2,878

3,726

Total assets

 

7,731

7,145

8,451

Current liabilities

 




Trade and other payables

 

(2,017)‌

(2,350)‌

(2,505)

Derivative liabilities

 

(52)

(6)

(7)

Contingent consideration

 

(1)‌

(1)‌

(1)

Income tax payable*

 

(78)‌

(76)‌

(72)

Loans and other borrowings**

 

(584)‌

(559)‌

(1,218)

Lease liabilities*

 

(258)‌

(3)‌

(3)

Liabilities held for sale

 

-

-

(2)

Provisions

 

(114)‌

(86)‌

(67)


 

 (3,104)‌

 (3,081)‌

(3,875)

Non-current liabilities

 




Trade and other payables

 

(131)‌

(252)‌

(318)

Contingent consideration

 

 (2)‌

 (4)‌

(12)

Loans and other borrowings

 

(280)‌

(288)‌

(329)

Lease liabilities*

 

(1,186)‌

(80)‌

(82)

Retirement benefit obligations

 

(550)‌

(579)‌

(472)

Deferred tax liabilities

 

(162)‌

(156)‌

(135)

Provisions

 

(36)‌

(65)‌

(32)


 

 (2,347)‌

 (1,424)‌

(1,380)

Total liabilities

 

 (5,451)‌

 (4,505)‌

(5,255)

Net assets

 

 2,280

 2,640

3,196

Capital and reserves

 




Share capital

 

1

1

1

Share premium reserve

 

2,263

2,263

2,263

Accumulated profits***

 

791

1,089

1,610

Other reserves***

 

(775)

(713)

(678)

Equity attributable to equity holders of the parent company

 

2,280

2,640

3,196

* During the period the Group has adopted IFRS 16: 'Leases' using the modified retrospective approach, as a result prior year comparative numbers have not been restated. Lease liabilities for the year ended 27 April 2019 relate solely to finance lease obligations recognised in accordance with IAS 17.

** Cash and cash equivalents and loans and other borrowings have been restated to meet the presentational requirements of IAS 32 as further described in note 1. This has had no impact on net assets.

*** In order to provide better visibility of reserves, the Group has restated the comparative periods to reclassify certain reserves balances. The Group has separately presented 'other reserves' for the first time in the period. This is to separately disclose the hedging, investment in own shares, and investment revaluation reserves which were previously presented within accumulated profits. Other reserves also include the previously disclosed translation and demerger reserves.

 

Consolidated statement of changes in equity

 

 

 

 

Note

Share
capital
£m

Share
premium reserve
£m

Other reserves*
£m

Accumulated profits
£m

Total equity
£m

At 28 April 2018

 

1

2,263

(678)

1,610

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

(678)

1,613

3,199


 






Loss for the period

 

-

-

-

(320)‌

(320)‌

Other comprehensive income and expense recognised directly in equity

 

-

-

( 36 )‌

( 107 )‌

(143)‌

Total comprehensive income and expense
for the period

 

-

-

( 36 )‌

( 427 )‌

(463)‌


 






Amounts transferred to the carrying value of inventory purchased during the year

 

-

-

1

-

1

Equity dividends

5

-

-

-

(116)‌

(116)‌

Net movement in relation to share schemes

 

-

-

-

19

19

At 27 April 2019

 

1

2,263

(713)

1,089

2,640


 






Adjustment on initial application of IFRS 16

 

-

-

-

(45)

(45)

Taxation on IFRS 16 transition adjustment

 

-

-

-

8‌

8

Adjusted balance at 27 April 2019

 

1

2,263

(713)

1,052

2,603


 






Loss for the period

 

-

-

-

(163)‌

(163)‌

Other comprehensive income and expense recognised directly in equity

 

-

-

(9)‌

(43)‌

(52)‌

Total comprehensive income and expense
for the period

 

-

-

(9)‌

(206)‌

(215)‌


 






Amounts transferred to the carrying value of inventory purchased during the year

 

-

-

(41)

-

(41)

Equity dividends

5

-

-

-

(78)‌

(78)‌

Net movement in relation to share schemes

 

-

-

-

23

23

Purchase of own shares

 

-

-

(12)

-

(12)

At 2 May 2020

 

1

2,263

(775)

791

2,280

*  In order to provide better visibility of reserves, the Group has restated the comparative periods to reclassify certain reserves balances. The Group has separately presented 'other reserves' for the first time in the period. This is to separately disclose the hedging, investment in own shares, and investment revaluation reserves which were previously presented within accumulated profits. Other reserves also include the previously disclosed translation and demerger reserves.

 

Consolidated cash flow statement

 


Note

Year ended

 2 May

 2020

£m

Year ended

 27 April

 2019

£m

Operating activities

 



Cash generated from operations*

6

649

377

Contributions to defined benefit pension scheme

 

(46)‌

(46)‌

Income tax paid

 

(20)‌

(45)‌

Net cash flows from operating activities

 

583

286

Investing activities

 



Net cash outflow arising from acquisitions

 

(3)

(1)

Proceeds from disposal of property, plant & equipment

 

-

9

Proceeds on sale of business

 

2

8

Acquisition of property, plant & equipment and other intangibles

 

(191)

(166)

Net cash flows from investing activities

 

(192)

(150)

Financing activities

 



Interest paid*

 

(106)

(23)

Capital repayment of lease liabilities*

 

(219)

(8)

Purchase of ordinary shares

 

(12)

-

Equity dividends paid

 

(78)

(116)

Drawdown / (repayment) of borrowings

 

36

(61)

Facility arrangement fees paid

 

(4)

(1)

Net cash flows from financing activities

 

(383)

(209)


 



Increase / (decrease) in cash and cash equivalents and bank overdrafts

 

8

(73)


 



Cash and cash equivalents and bank overdrafts at beginning of the period

 

106

185

Currency translation differences

 

6

(6)

Cash and cash equivalents and bank overdrafts at end of the period

 

120

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. For the year ended 27 April 2019 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 within the scope of IFRS 16 in the current period.

 

 

 

 

Notes to the Financial Information

 

1  Basis of preparation

The Financial Information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and extracts from the notes to the accounts for the year ended 2 May 2020 and 27 April 2019, has been prepared in accordance with the accounting policies set out in the full financial statements and on a going concern basis.

Alternative performance measures (APMs)

In the prior year, the financial statements included presentation of alternative performance measures in addition to IFRS measures. In the current year, the financial statements present only IFRS measures which are in line with the basis of preparation disclosed above. The alternative performance measures used by the group are included within the glossary and definitions section on page 41. This includes further information on the definitions, purpose, and reconciliation to IFRS measures.

Going concern

Going concern is the basis of preparation of the financial statements that assumes an entity will remain in operation for a period of at least 12 months from the date of approval of the financial statements. The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future and they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Directors have reached this conclusion based on the following considerations.

Key judgements

The key judgement that the Directors have considered in forming their conclusion is the potential impact of Covid-19 on future revenue and earnings. In relation to forecast revenue the primary consideration is the likelihood and future impact of a recurrence of Covid-19 which could result in the closure of stores in the Group's key markets. The Directors have also considered the longer-term economic outlook in the countries where the Group operates. In forming their conclusion, the directors have reviewed the trading performance during the first lockdown period, which varied across the countries where the Group operates, between 18 March 2020 and 14 June 2020, the trading performance since restrictions have been lifted in the Group's key markets and have considered the extent to which the observed level of trading activity should influence the trading forecasts over the lookout period, particularly in light of the uncertain economic environment.

In forming their conclusions, Management have considered the potential mitigating actions that the Group could take to preserve liquidity and ensure compliance with the Group's financial covenants. In doing so, judgement has been applied in determining whether such actions would be reasonably possible to execute as well as the financial impact of taking such actions.

Operational impact of the virus

Stores

-  In line with Government regulations, the Group's stores in Greece closed on 18 March 2020 and all UK and Ireland stores closed on 24 March 2020. Our Nordics stores predominantly remained open throughout the period. Our stores in Greece were then fully reopened between 11 - 18 May 2020, and our stores in UK and Ireland began to reopen from 15 June 2020 and 18 May 2020 respectively.

-  In our stores we have ensured colleague and customer safety through measures including protective barriers for cashiers, contactless payment, pre-paid pickups and increased cleaning and hygiene actions.

Online

-  Across the Group, the online sales channel remained operational, and the Group benefitted from an increase in online activity. To ensure delivery colleague safety, shift patterns were adjusted to reduce potential congestion and rosters are designed to keep colleagues in the same pairs and the same vehicle wherever possible. Among many measures, our colleagues are equipped with masks and full safety equipment, and deliveries are done on a no-contact basis. We ask customers to keep a safe distance from our colleagues while they are delivering to, or working in or near, their homes.

-  Our distribution centres have introduced extensive measures to keep our colleagues safe, including social distancing in all areas, one-way systems, signage and tannoy reminders, regular cleaning and sanitisation of all frequently touched surfaces.

Head office and customer service

All UK contact centres and offices have enabled working from home for all colleagues by providing laptops and increasing VPN access. Our UK head office building has been closed since 20 March 2020 with continuity of operations maintained.

Mitigations implemented

In responding to the impact of the pandemic the Group has initiated a number of mitigations that are relevant for assessing cashflows during the going concern period:

Utilised Government cost support - We furloughed over 16,500 store, supply chain and support colleagues across territories who were temporarily not working due to Covid-19. All UK&I furloughed colleagues are paid at 80% of their salary, with the Company making up any difference beyond the Government subsidy limits. In 2019/20 the UK job retention scheme combined with the UK business rates suspension and International government support measures lowered net operating costs by c.£30m. We expect these measures to reduce net operating costs by c.£80m in 2020/21.

Reduced central costs - All Executive and Board members took a temporary 20% pay reduction and other senior leaders took a  temporary 10% pay reduction, effective from 5 April to 28 June 2020, and non-essential expenditure was stopped.

Reduced Capital expenditure - The Group capital expenditure in 2019/20 was £191m, slightly lower than previous guidance of around £200m. Due to the delay to transformation projects, we would expect 2020/21 expenditure to be closer to run rate of £175m than the previously expected £240m. The Group has the ability to control capital expenditure and will continue to evaluate the right level for 2020/21 as the Covid-19 situation develops.

Streamlined working capital - We moved some of our rents to monthly payments and, where offered, have accepted extended payment terms from some of our large, global suppliers. Our normal inventory commitment is 4-14 weeks in advance, depending on product.

Delayed tax payments - At the end of 2019/20 the Group had a cash benefit from Government backed tax payment delays of c.£70m which will reverse through 2020/21. In addition, UK VAT payments due between March and July 2020 will be deferred until March 2021.

Spread pension payments - The Group's annual pension contribution will now be paid in monthly instalments, instead of an annual lump sum.

Not declared a final dividend - The Group paid an interim dividend of 2.25p per share (£26m total) in January. The Board has decided not to pay a final dividend for 2019/20. Dividend payments will not be resumed at least until our standby debt facilities have been cancelled. Given the current uncertain environment, the Board will keep the payment of dividends under review to establish the appropriate time and level to recommence payment.

Modelling and potential future impact of Covid-19

In their consideration of going concern, the Directors have reviewed the Group's future cash forecasts and profit projections, which are based on market data and recent past experience. Given the global political and economic uncertainty resulting from the Covid-19 pandemic, it is difficult to estimate with precision the impact on the Group's prospective financial performance. We have therefore modelled a range of Covid-19 scenarios into our going concern considerations.

The Directors have also modelled a 'downside worst case' scenario which assumes that the Group's stores are required to shut in all territories in the event of a second Covid-19 outbreak during our peak Christmas trading period later in the year, with a gradual reopening throughout the following two months. The scenario assumes Group sales decrease by approximately £800m throughout the closure and following two months. Throughout this second closure, which we have modelled within our peak trading period, we have assumed no government support across our territories. This modelled 'downside worst case' scenario is significantly worse than the initial Covid-19 outbreak we have witnessed to date given our stores in the Nordics markets did not close in this period. In this scenario once the stores reopen this is followed by ongoing reduced sales against pre Covid-19 levels for the remainder of the going concern period across all of the Group's key markets. The scenario models a recessionary impact of 15% for the UK&I and Greece markets, and 7% within the Nordics markets over the remainder of the going concern 12 month period. The scenario models approximately £1.4bn lower sales over the 12 month going concern period compared to a similar 12 month period of the pre-Covid-19 budget for 2020/21. During this period, online in these territories would continue operating at a level similar to that seen during the first period of lockdown but would not include any increase for recovery of store sales during the following two month period, which is again a worse case than has actually occurred during the first period of lockdown. This 'downside worst case' scenario includes a number of cost savings and cash mitigations that are within the Group's control and would need to be implemented. Throughout this 'downside worst case' scenario the Group would not breach any of their financing covenants and would not require any additional sources of financing.

As a result of the uncertainties surrounding the forecasts due to the Covid-19 pandemic, the Group has also modelled a reverse stress test scenario. The reverse stress test models the decline in sales that the Group would be able to absorb before requiring additional sources of financing in excess of those that are committed. Such a scenario, and the sequence of events which could lead to it, is considered to be remote.

Financing

The Group has extended its committed debt facilities with an additional £266m RCF and now has total committed facilities in excess of £1,350m. At the year end the Group had net debt of £284m and access to over £1bn of unutilised committed facilities. The Group has a number of financing facilities that contain covenants terms requiring the Group to comply with certain financial covenants. The financial covenants are tested semi-annually in line with our October interim reporting and April year end reporting. The covenants relate to fixed charge cover (1.75x) and leverage (2.5x) ratios. These covenants are normally met with significant headroom and are outside times of peak liquidity demands for the Group which tends to be in February and March following peak trading inventory purchases. As at 2 May 2020 the financial covenants were met. As a result of the Covid-19 outbreak and the uncertainty caused, the Group requested and received a reduction in the  hurdle rate for assessing covenant compliance for October 2020. The additional £266m RCF expires in April 2021. The other RCF's totalling £1bn expire in October 2022 and the €50m term loan expires in October 2020.

Under the 'downside worst case' Covid-19 scenario as explained above, factoring in the cost savings and mitigations within the Group's control, the Group is forecast to comply with all financial covenants throughout the going concern period.

Going concern conclusion

The additional RCF and the reduction in the hurdle rate for assessing covenant compliance agreed with the banks combined with the other measures taken mean that, even under the Covid-19 scenarios modelled (excluding the reverse stress test), the business would continue to have significant liquidity headroom on its existing facilities and against the revolving credit facility financial covenants for the going concern period. As a result, the Board believes that the Group is well placed to manage its financing and other significant risks satisfactorily and that the Group will be able to operate within the level of its facilities for the foreseeable future. For this reason, the Board considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements. The long-term impact of Covid-19 is uncertain and should the impacts of the pandemic on trading conditions be more prolonged or severe than what the Directors consider to be reasonably possible, the Group would need to implement additional operational or financial measures.

Restatement of prior periods

Within the period, it was determined that the Group's cash and overdrafts within notional cash pooling arrangements did not meet the requirements for offsetting in accordance with IAS 32: 'Financial Instruments: Presentation' and cannot be presented net in the balance sheet. For presentational purposes, amounts have therefore been restated for the preceding period ended 27 April 2019 and the beginning of the preceding period being 28 April 2018 in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Policies and Errors'. The impact of this change is to increase both cash and cash equivalents and overdrafts within current loans and other borrowings for the year ended 27 April 2019 by £540m (2017/18: £1,155m) in the Group's Consolidated balance sheet.

This has had no impact on net assets as seen on the face of the Consolidated balance sheet.

Further information

The Financial Information set out in this announcement does not constitute statutory accounts within the meaning of Sections 434 to 436 of the Companies Act 2006 and is an abridged version of the Group's financial statements for the year ended 2 May 2020 which were approved by the directors on 14 July 2020.  Statutory accounts for the year ended 27 April 2019 have been delivered to the Registrar of Companies, the auditor has reported on those accounts, their report was unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006. Statutory accounts for the year ended 2 May 2020 will be delivered in due course. The auditor has reported on those accounts, their report was unqualified and did not contain statements under Section 498 of the Companies Act 2006.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRS issued by the International Accounting Standards Board and those parts of the Companies Act 2006 applicable to those companies reporting under IFRS. The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings for the year ended 2 May 2020.

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 the 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.

In accordance with IFRS 5, discontinued operations are disclosed separately as a single amount within the Group's consolidated income statement after profit after tax for continuing operations. Discontinued operations are therefore excluded from the segmental analysis. Further information on the Group's operations classified as discontinued is outlined in note 7.

2 Segmental analysis (continued)

 

 






Year ended 2 May 2020


UK &

 Ireland Electricals

£m

UK &

 Ireland

Mobile  

£m

Nordics

£m

 Greece
£m

Eliminations
£m

Total
 m

External revenue

4,538

1,589

3,573

470

-

10,170

Inter-segmental revenue

86

98

-

-

(184)‌

-

Total revenue

4,624

1,687

3,573

470

(184)‌

10,170








Profit / (loss) before interest and tax

119

(282)

115

20

-

(28)

 






Year ended 27 April 2019


UK &

 Ireland Electricals

£m

UK &

 Ireland

 Mobile

 m

Nordics

£m

Greece
£m

Eliminations
£m

Total
 m

External revenue

4,475

1,998

3,501

459

-

10,433

Inter-segmental revenue

79

90

-

-

(169)‌

-

Total revenue

4,554

2,088

3,501

459

(169)‌

10,433








Profit / (loss) before interest and tax

94

(438)

100

21

-

(223)

 



Year ended

2 May
2020

£m

Year ended

27 April
2019

£m

UK & Ireland Electricals

 

119

94

UK & Ireland Mobile

 

(282)‌

(438)‌

Nordics

 

115‌

100‌

Greece

 

20‌

21

Loss before interest and tax

 

(28)‌

(223)‌

Finance income

 

10

11

Finance costs

 

(122)

(47)

Loss before tax

 

(140)‌

(259)‌

 

 

2 Segmental analysis (continued)

 

 

The Group's disaggregated revenue recognised under 'Revenue from Contracts with Customers' in accordance with IFRS 15 relates to the following operating segments and revenue streams:



Year ended 2 May 2020

 

UK & Ireland Electricals £m

UK & Ireland Mobile
£m

Nordics
£m

Greece

£m

Total

£m

Sale of goods

4,147

397

3,218

446

8,208

Commission revenue

5

1,090

268

1

1,364

Support services revenue

285

-

30

17

332

Other services revenue

97

102

57

6

262

Other revenue

4

-

-

-

4

Total revenue

4,538

1,589

3,573

470

10,170

 



Year ended 27 April 2019

 

UK & Ireland Electricals £m

UK & Ireland Mobile
£m

Nordics
£m

Greece

£m

Total

£m

Sale of goods

4,085

474

3,161

437

8,157

Commission revenue

9

1,401

263

1

1,674

Support services revenue

275

-

25

14

314

Other services revenue

99

123

52

7

281

Other revenue

7

-

-

-

7

Total revenue

4,475

1,998

3,501

459

10,433

 

Revenue from support services relates predominantly to customer support agreements, while other services revenue comprises delivery and installation, product repairs and product support.

 

 

3 Net finance costs


Year ended

2 May
2020

£m

Year ended

27 April
2019

£m

Unwind of discounts on trade receivables

10

11

Finance income

10

11




Interest on bank overdrafts, loans and borrowings

(15)‌

(17)‌

Interest expense on lease liabilities(i)

(80)

-

Finance lease interest payable( i)

-

(6)‌

Net interest on defined benefit pension obligations

(14)‌

(12)‌

Unwind of discounts on liabilities

-

(4)‌

Amortisation of facility fees (ii)

(2)‌

(2)‌

Other interest expense

(1 1 )‌

(6)‌

Finance costs

 (122)‌

 (47)‌




Total net finance costs

 (112)‌

 (36)‌

 

(i)  During the period the Group has adopted IFRS 16: 'Leases' using the modified retrospective approach, as a result prior year comparative numbers have not been restated. Interest expense on lease liabilities for the year ended 27 April 2019 relates to finance leases recognised in accordance with IAS 17.

(ii)  All finance costs in the above table represent interest costs of financial liabilities and assets, other than amortisation of facility fees which represent non-financial assets.

 

 

4 Loss per share


Year ended

2 May
2020

£m

Year ended

27 April
2019

£m

Total loss

 



Continuing operations

 

(161)‌

(311)‌

Discontinued operations

 

  (2)‌

  (9)‌

Total

 

 (163)‌

 (320)‌


 



 

Million

Million

Weighted average number of shares

 



Average shares in issue

 

1,162

1,160

Less average holding by Group EBT

 

  (5)‌

  (1)‌

For basic loss per share

 

1,157

1,159

Dilutive effect of share options and other incentive schemes

 

25

9

For diluted loss per share

 

 1,182

 1,168


 




Pence

Pence

Basic loss per share

 



Total (continuing and discontinued operations)

 

(14.1)‌

(27.6)‌

Adjustment in respect of discontinued operations

 

0.2

0.8

Continuing operations

 

(13.9)‌

(26.8)‌


 



Diluted loss per share

 



Total (continuing and discontinued operations)

 

(14.1)‌

(27.6)‌

Adjustment in respect of discontinued operations

 

0.2

0.8

Continuing operations

 

(13.9)‌

(26.8)‌

 

Basic and diluted loss per share is based on the loss for the period attributable to equity shareholders.

 

5 Equity dividends

 

2 M ay

2020

£m

27 April
2019

£m

Amounts recognised as distributions to equity shareholders in the period

 - on ordinary shares of 0.1p each



Final dividend for the year ended 28 April 2018 of 7.75p per ordinary share

-

90

Interim dividend for the year ended 27 April 2019 of 2.25p per ordinary share

-

26

Final dividend for the year ended 27 April 2019 of 4.50p per ordinary share

52

-

Interim dividend for the year ended 2 May 2020 of 2.25p per ordinary share

 26

-

 

7 8

116

 

Following the Group's Covid-19 business update, announced 29 April 2020, the Board has made the decision not to pay a final dividend.

6 Notes to the cash flow statement

a) Reconciliation of operating profit to net cash inflow from operating activities


Year ended

2 May

2020

£m

Year ended

27 April
2019

£m

Loss before interest and tax - continuing operations

(28)‌

(223)‌

Loss before interest and tax - discontinued operations

(2)‌

(14)‌

Depreciation and amortisation

367

174

Share-based payment charge

23

21

Loss on disposal of fixed assets

3

-

Impairments and other non-cash items

51

347

Operating cash flows before movements in working capital

414

305




Movements in working capital:



Decrease / (increase) in inventory

156‌

(26)‌

Decrease in receivables

284

226

(Decrease) in payables

(248)‌

(182)‌

Increase in provisions

43

54


235

72




Cash generated from operations

649

377

 

6 Notes to the cash flow statement (continued)

b) Changes in liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities.

 

28 April
2019
 m

Adjustment on initial application of IFRS 16
£m

Financing cash flows £m

New
Leases
£m

Other changes (i)
£m

2 May
2020
 m

Loans and other borrowings*

(288)‌

-

(10)

-

(26)

(324)

Lease liabilities(ii)

(83)‌

(1,403)

299

(194)

(63)

(1,444)

 Total liabilities from financing activities

(371)‌

(1,403)

 289

(194)

(89)

(1,768)

*   The Group uses interest rate swaps and FX forward contracts to hedge borrowings. The fair value of these derivatives rounded to £nil (2019: £nil). There were no material cash flows or changes in fair value on these instruments during the year.

(i)  Other changes include interest accruals and FX.

(ii)  During the period the Group has adopted IFRS 16 using the modified retrospective approach. The current period lease liabilities are recognised on balance sheet under IFRS 16.

 

29 April
2018
 m

Financing cash flows £m

Disposal of leases
£m

Other changes(i)
£m

27 April
2019
 m

Loans and other borrowings**

(349)‌

84

-

(23)

(288)

Lease liabilities(ii)

(85)‌

8

-

(6)

(83)

 Total liabilities from financing activities

(434)‌

 92

-

(29)

(371)

**  The presentation of Financing cash flows has increased from £61m to £84m and Other changes decreased from £nil to -£23m for the year ended 27 April 2019 to reflect the gross movement of interest paid on Loans and other borrowings. This has had no impact on the opening or closing balance of liabilities.

 

 

7 Discontinued operations and assets held for sale

 

There have been no additional operations classified as discontinued during the year ended 2 May 2020. The following were classified as discontinued in the year ended 27 April 2019 and have continued to incur costs in the current financial year:

 

honeybee

For the year ended 2 May 2020 no profit or loss has been recognised in relation to the disposal of the honeybee operation.

 

For the year ended 27 April 2019 additional costs of £7m were recognised in relation to onerous contracts following the sale of the operation and compensation to previous employees. A further £4m tax credit was recognised in the year ended 27 April 2019 relating to accelerated capital allowances.

 

Spain

On 29 September 2017, the Group completed the disposal of The Phone House Spain S.L.U., Connected World Services Europe S.L. and Smarthouse Spain S.A. which together represented the trading operations in Spain. For the year ended 27 April 2019, the £1m tax credit was recognised in relation to the reversal of previously held provisions for tax risks due to the fact that the statute of limitations had lapsed.

 

Other

As previously reported the sale of operations in Germany was completed on 5 May 2015, the Netherlands on 30 June 2015, Portugal on 31 August 2015 and Virgin Mobile France on 4 December 2014.

 

During the current year, VAT assessments have been issued for historical periods relating to the disposed Phonehouse Germany business. These assessments fall under warranties given as part of the sale agreement and as such, it is probable that the Group will need to pay these amounts. Therefore, the full amount of these assessments has been provided, resulting in a current year charge of £6m.

 

An additional £4m credit has been recognised following the release of provisions relating to other legacy European Carphone operations which are now in liquidation.

 

No additional profit or loss has been recognised in relation to Portugal (2018/19: £2m) or Virgin Mobile France (2018/19: £5m) in the current period.

 

 

7 Discontinued operations and assets held for sale (continued)

 

a) (Loss) / profit after tax - discontinued operations

 

 






Year ended 2 May 2020




honeybee £m

Spain

£m

Other
£m

Total
 m

Revenue



-

-

-

-

Expenses



-

-

(2)‌

(2)‌








Loss before tax



-

-

(2)

(2)

Income tax



-

-

-

-




-

-

(2)‌

(2)‌

 






Year ended 27 April 2019




honeybee

£m

Spain

£m

Other
£m

Total
 m

Revenue



-

-

-

-

Expenses



(7)‌

-

(7)‌

(14)‌








Loss before tax



(7)‌

-

(7)‌

(14)‌

Income tax



4

1

-

5




(3)‌

1

(7)‌

(9)‌

 

b) Cash flows from discontinued operations

The net cash flows incurred by the discontinued operation during the year are as follows. These cash flows are included within the Consolidated cash flow statement:






Year ended 2 May 2020




honeybee £m

Spain

£m

Other
£m

Total
 m

Operating activities



-

-

(1)

(1)

Investing activities



2

-

-

2




2

-

(1)‌

1

 






Year ended 27 April 2019




honeybee £m

Spain

£m

Other
£m

Total
 m

Operating activities



(5)‌

-

(3)‌

(8)‌

Investing activities



8

-

-

8




3

-

(3)‌

-

 

 

8 Related party transactions

 

Transactions between the Group's subsidiary undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed.

The Group had the following transactions and balances with its associates and joint venture:


2 May

2020

£m

27 April
2019

£m

Revenue from sale of goods and services

14

13

Amounts owed to the Group

2

2

 

All transactions entered into with related parties were completed on an arm's length basis.

 

Risks to Achieving the Group's Objectives

 

The Board continually reviews and monitors the risks and uncertainties which could have a material effect on its results. The updated risks and uncertainties are listed below. Risks 2 to 13, and the factors which mitigate them, are set out in more detail in the 2018-19 Annual Report and Accounts on pages 22 to 24 and remain relevant in the current period.

1.  Covid-19 has been added to the Group risk profile. Covid-19 has had an impact across the Group's business in every operational function and geography in order to comply with Government instructions and could impact on profitability, cash flow and colleague / customer illness or loss of life;

2.  Dependence on key suppliers in driving profitability, cash flow and market share;

3.  The UK's future EU relationship could lead to a period of economic uncertainty and a loss of consumer confidence, foreign exchange volatility and long-term changes in tax and other regulations which may impact the Group's operations and financial performance;

4.  Failure to deliver an effective business transformation programme in response to a changing consumer environment could result in a loss of competitive advantage impacting financial performance;

5.  Failure to comply with Financial Services regulation could result in reputational damage, customer compensation, financial penalties and a resultant deterioration in financial performance;

6.  Failure in appropriately safeguarding sensitive information and failure to comply with legislation could result in reputational damage, financial penalties and a resultant deterioration in financial performance;

7.  Failure to adequately invest in and integrate the Group's IT systems and infrastructure could result in restricted growth and reputational damage impacting financial performance;

8.  Failure to appropriately safeguard against cyber risks and associated attacks could result in reputational damage, customer compensation, financial penalties and a resultant deterioration in financial performance;

9.  Failure to action appropriate Health and Safety measures resulting in injury could give rise to reputational damage and financial penalties;

10.  Business continuity plans are not effective and major incident response is inadequate resulting in reputational damage and a loss of competitive advantage;

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

12.  Failure to employ adequate procedures and due diligence regarding product quality and safety could result in the provision of products which pose a risk to customer health, resulting in fines, prosecution and significant reputational damage; and  

13.  Failure to sufficiently diversify the Group's long term funding could result in restricted growth and reputational damage.

The directors have prepared the preliminary Financial Information on a going concern basis. In considering the going concern basis, the directors have considered the above mentioned principal risks and uncertainties, especially in the context of a highly competitive consumer and retail environment as well as the wider macro-economic environment and how these factors might influence the Group's objectives and strategy.

The directors have reviewed the Group's future cash forecasts and profit projections, which are based on market data and past experience, including seasonal borrowing requirements and available facilities on a monthly basis. The directors are of the opinion that the Group's forecasts and projections, which take into account reasonably possible changes in trading performance, show that the Group is able to operate within its current facilities and comply with its banking covenants for the foreseeable future. In arriving at their conclusion that the Group has adequate financial resources, the directors were mindful of the level of borrowings and facilities and that the Group has a robust policy towards liquidity and cash flow management.

Accordingly, the directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future and consequently the directors continue to apply the going concern basis in the preparation of the financial statements.

 

Glossary and definitions

 

Alternative performance measures (APMs)

In the reporting of financial information the Group uses certain measures that are not required under IFRS. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority ("ESMA"). We consider that these additional measures (commonly referred to as 'alternative performance measures') provide additional information on the performance of the business and trends to shareholders. These measures are consistent with those used internally, and are considered critical to understanding the financial performance and financial health of the Group. APMs are also used to enhance the comparability of information between reporting periods, by adjusting for non-recurring or items considered to be distortive on trading performance which may affect IFRS measures, to aid the user in understanding the Group's performance. These alternative performance measures may not be directly comparable with other similarly titled measures or 'adjusted' revenue or profit measures used by other companies, and are not intended to be a substitute for, or superior to, IFRS measures.

Adjusting items

Included within our APMs we report adjusted revenue, adjusted PBT, adjusted EBIT, and adjusted EPS. These measures exclude items which are significant in size or volatility or by nature are non-trading or highly infrequent. 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 material that they distort underlying performance (such as reorganisation costs, impairment charges and property rationalisation costs, out of period mobile network debtor revaluations and non-recurring charges), income from previously disposed operations and net pension interest costs. There are no adjustments made to exclude the impact of Covid-19. 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.

Impact of IFRS 16: 'Leases'

The Group adopted IFRS 16: 'Leases' using the modified retrospective method which means prior year comparatives are not restated. In order to aid comparability with prior year measures, the impact of IFRS 16 has been included within adjusting items within the current period. 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. This will not be disclosed as an adjusting item in future years given comparatives will be under IFRS 16.

Out of period network debtor revaluations

Following the separation of the UK & Ireland Mobile reporting segment in the prior year, those performance measures, internal targets and KPIs included in the information 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 also include the impact of out of period network debtor revaluations. When we recognise transactions, we do not expect material revaluations. If they arise it is because of unanticipated one-off changes in the external environment, for example changes in regulation. These out of period revaluations can be either positive or negative. Our treatment for these revaluations is to exclude from our APMs, changes in the expected consideration related to revenue recognised from performance obligations satisfied in previous years. In contrast, whether positive or negative, for the changes to expected revenue where the point of sale (i.e. the initial recognition of commission) was within the current financial year we recognise these changes within our APMs for that year.

The removal of these out of period network debtor revaluations is considered to be additional useful information to aid the understanding of current year trading. Comparative period performance measures have been included accordingly as disclosed below.

The network commission receivables are increased each year in line with RPI. As part of the variable revenue constraint, the Group does not include this RPI estimate in the revenue recognised at point of sale. This revenue is recognised once a year when the RPI figure is confirmed. In addition to this, there are other out of period amounts settled in relation to historical transactions that are not included in the initial estimate of revenue at point of sale. As the Group does not recognise an estimate of these amounts within revenue at the point of sale, they are recognised in revenue within each financial year once the amounts for that period are known and our treatment is to include these items within our APMs.

Local currency

Some comparative performance measures are translated at constant exchange rates, called 'local currency' measures. This restates the prior period results at a common exchange rate to the current year in order to provide appropriate year-on-year movement measures without the impact of foreign exchange movements.

Definitions and reconciliations

In line with the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority ('ESMA'), we have provided additional information on the APMs used by the Group below, including full reconciliations back to the closest equivalent statutory measure

Alternative performance
measure

Closest equivalent GAAP measure

Reconciliation to IFRS measure

Definition and purpose

Revenue measures




Adjusted revenue

Revenue

See note A1

Adjusted revenues are adjusted to remove out of period mobile network debtor revaluations and the revenues of those operations which the Group classifies as exited or to be exited but do not meet the definition of discontinued in accordance with IFRS 5: 'Non-Current Assets Held for Sale and Discontinued Operations'.

Like for Like (LFL) % change

No direct equivalent

Not applicable

Like-for-like revenue is calculated based on adjusted store and online revenue using constant exchange rates. New stores are included where they have been open for a full financial year both at the beginning and end of the financial period. Revenue from franchise stores are excluded and closed stores (where closed by the Company's decision and not where closed due to government imposed restrictions related to the global Covid-19 pandemic) are excluded for any period of closure during either period. Customer support agreement, insurance and wholesale revenues along with revenue from Connected World Services and other non-retail businesses are excluded from like-for-like calculations. We consider that LFL revenue represents a useful measure of the trading performance of our underlying and ongoing store and online portfolio.

Local currency % change

Revenue compared to prior period consolidated at a constant exchange rate.

Not applicable

Reflects total revenue on a constant currency and period basis. Provides a measure of performance excluding the impact of foreign exchange rate movements.

Profit measures




Adjusted profit / (loss) before tax, EBIT

Profit / (loss) before tax, Profit / (loss) before interest and tax.

See note A2 and A5

As discussed above, the Group uses adjusted profit measures in order to provide a useful measure of the ongoing performance of the Group. These are adjusted from total measures to remove adjusting items, the nature of which are disclosed above.

EBIT

Profit/(loss) before interest and tax

No reconciling items

Earnings before interest and tax (EBIT) is directly comparable to profit/(loss) before tax. The terminology used is consistent with that used historically and in external communications.

Adjusted EBITDA

Profit / (loss) before interest and tax

See note A4

As discussed above, the Group uses adjusted profit measures in order to provide a useful measure of the ongoing performance of the Group. These are adjusted from total measures to remove adjusting items, the nature of which are disclosed above.

EBITDA

Profit / (loss) before interest and tax

See note A3

Earnings before interest, tax, depreciation and amortisation (EBITDA). Provides a measure of profitability based on profit / (loss) before tax, and after adding back depreciation and amortisation expense.

 

The terminology used is consistent with that used historically and in external communications.

 

Other earnings measures




Adjusted net finance costs

Net finance costs

See note A4 and A6

Adjusted net finance costs exclude certain adjusted finance costs from total finance costs. The adjusting items include the impact of IFRS 16, the finance charge of business to be exited, net pension interest costs, finance income from previously disposed operations not classified as discontinued, and other exceptional items considered so one-off and material that they distort underlying finance costs of the Group. Under IAS 19: 'Employee Benefits', the net interest charge on defined benefit pension schemes is calculated based on corporate bond yield rates at a specific date, which, as can vary over time, creates volatility in the income statement and is unrepresentative of the actual investment gains or losses made on the liabilities. Therefore, this item has been removed from our adjusted earnings measure in order to remove this non-cash volatility.

Adjusted income tax expense / (credit)

Income tax expense / (credit)

See note A4 and A7

Adjusted income tax expense / (credit) represents the income tax on adjusted earnings. Income tax expense / (credit) on adjusting items represents the tax on items classified as 'adjusted', either in the current year, or the current year effect of prior year tax adjustments on items previously classified as adjusted. We consider the adjusted income tax measures represent a useful measure of the ongoing tax charge / credit of the Group.

Adjusted / Total effective tax rate

No direct equivalent

Not applicable

The effective tax rate measures provide a useful indication of the tax rate of the Group. Adjusted effective tax is the rate of tax recognised on headline earnings, and total effective tax is the rate of tax recognised on total earnings.

Earnings per share measures

Adjusted basic EPS - continuing operations, adjusted diluted EPS - continuing operations, adjusted basic EPS - total, adjusted diluted EPS - total

Statutory EPS figures

See note A8

EPS measures are presented to reflect the impact of adjusting items in order to show an adjusted EPS figure, which reflects the adjusted earnings per share of the Group. We consider the adjusted EPS provides a useful measure of the ongoing earnings of the underlying Group.

Cash flow measures




Free cash flow

Cash generated from operations

See note A9

Free cash flow comprises cash generated from / (utilised by) continuing operations including restructuring costs, but before cash generated from / (utilised by) businesses exited / to be exited, less net finance expense, less income tax paid, less net capital expenditure and before any special pension contributions and dividends. Free cash flow is derived from adjusted EBIT which excludes the impact of IFRS 16 and other adjusting items.

Net debt

No direct equivalent

See note A10

Comprises cash and cash equivalents and short-term deposits, less borrowings and before the incremental impact of IFRS 16 lease liabilities. The impact of previous finance lease liabilities under the scope of IAS 17 are included. We consider that this provides a useful measure of the indebtedness of the Group and a comparable measure with prior periods.

 

 

A1 Reconciliation from Statutory to adjusted revenue






Year ended 2 May 2020


UK &

 Ireland Electricals

£m

UK &

 Ireland

Mobile  

£m

Nordics

£m

 Greece
£m

Eliminations
£m

Total
 m

S tatutory e xternal revenue

4,538

1,589

3,573

470

-

10,170

O ut of period mobile network debtor revaluations

-

47

-

-

-

47

Adjusted external revenue

4,538

1,636

3,573

470

-

10,217

Inter-segmental revenue

86

98

-

-

(184)‌

-

Total a djusted revenue

4,624

1,734

3,573

470

(184)‌

10,217








Adjusted EBIT

162

(104)

116

20

-

194

 






Year ended 27 April 2019


UK &

 Ireland Electricals

£m

UK &

 Ireland

 Mobile

 m

Nordics

£m

Greece
£m

Eliminations
£m

Total
 m

Statutory external revenue

4,475

1,998

3,501

459

-

10,433

Out of period mobile network debtor revaluations

-

41

-

-

-

41

Adjusted external revenue*

4,475

2,039

3,501

459

-

10,474

Inter-segmental revenue

79

90

-

-

(169)‌

-

Total adjusted revenue*

4,554

2,129

3,501

459

(169)‌

10,474








Adjusted EBIT*

180

50

112

21

-

363

 

*  Adjusted results have been restated for the year ended 27 April 2019 to exclude the out of period mobile network debtor revaluations to reflect the performance measures reported to the board, who are considered the Chief Operating Decision Maker under IFRS 8: 'Operating Segments'. IFRS 16 has been adopted using the modified retrospective approach and as such prior year results have not been restated.

 

 

A2 Reconciliation from Statutory loss before interest and tax to adjusted EBIT and adjusted PBT

Year ended 2 May 2020



 

 

 

Total profit / (loss)

£m

Mobile network debtor revaluations
£m

Acquisition / disposal related items £m

Strategic change programmes £m

Regulatory costs
 m

Impairment losses
£m

Impact of IFRS 16
 m

Pension scheme interest
£m

Adjusted
profit / (loss) £m

UK & Ireland Electricals


119

-

14‌

13‌

-

18

(2)‌

-

162

UK & Ireland Mobile


(282)

47

1

107‌

30

-

(7)‌

-

(104)‌

Nordics


115

-

11

-

-

-

(10)

-

116

Greece


20

-

-

1

-

-

 (1)

-

20

EBIT


(28)

47

26‌

121‌

30‌

18‌

(20)‌

-

194‌

Finance income


10

-

-

-

-

-

-

-

10

Finance costs


(122)

-

-

-

-

-

70

14‌

(38)‌

(Loss) / profit before tax

(140)

47

26‌

121‌

30‌

18‌

50‌

14‌

166‌

 

Year ended 27 April 2019 (restated)



 

 

 

Total profit / (loss)

£m

Mobile network debtor revaluations
£m

Acquisition / disposal related items £m

Strategic change programmes £m

Data incident costs
 m

Regulatory costs
£m

Impairment losses and onerous leases
 m

Pension scheme interest
£m

Adjusted
profit / (loss)* £m

UK & Ireland Electricals


94

-

14‌

44‌

12

16

-

-

180

UK & Ireland Mobile


(438)

41

(3)

23‌

8

36

383

-

50

Nordics


100

-

12

-

-

-

-

-

112

Greece


21

-

-

-

-

-

-

-

21

EBIT


(223)

41

23

67‌

20‌

52

383‌

-

363

Finance income


11

-

-

-

-

-

-

-

11

Finance costs


(47)

-

-

-

-

-

-

12

(35)‌

(Loss) / profit before tax

(259)

41

23

67‌

20‌

52

383‌

12‌

339‌

 

*  Adjusted results have been restated for the year ended 27 April 2019 to exclude the out of period mobile network debtor revaluations to reflect the performance measures reported to the Board, who are considered the Chief Operating Decision Maker under IFRS 8: 'Operating Segments'. IFRS 16 has been adopted using the modified retrospective approach and as such prior year results have not been restated.

 

A3 Reconciliation from Statutory loss before interest and tax to EBITDA

 

 

Year ended
2 May
2020
 m

Year ended
27 April
2019
 m

Loss before interest and tax

(28)

(223)

Depreciation*

298

91

Amortisation

69

83

EBITDA

339

(49)

 

*  During the period the Group has adopted IFRS 16: 'Leases', which requires depreciation of right-of-use assets to be recognised in the income statement. The Group has adopted IFRS 16 using the modified retrospective approach. As a result, prior year comparative numbers have not been restated.

 

 

A4 Reconciliation from adjusted EBIT to adjusted EBITDA


Year ended 2 M ay

2020

£m

Year ended 27 April
2019

(restated)*

£m

Adjusted EBIT

194

363

Depreciation

84

91

Amortisation

 4 4

55

Adjusted EBITDA

322

509

 

*  Adjusted results have been restated for the year ended 27 April 2019 to exclude the out of period mobile network debtor revaluations to reflect the performance measures reported to the board, who are considered the Chief Operating Decision Maker under IFRS 8: 'Operating Segments'. IFRS 16 has been adopted using the modified retrospective approach and as such prior year results have not been restated.

 

As disclosed in note A5, adjusted results exclude amortisation of acquisition intangibles and depreciation on right of-use-assets recognised in accordance with IFRS 16 but includes £3m of depreciation on right-of-use assets that were previously capitalised as they met the definition of a finance lease under IAS 17.

 

 

A5 Further information on the adjusting items between statutory profit to adjusted profit measures noted above

Income statement


Note

Year ended

2 M ay
2020

£m

Year ended

27 April
2019

(restated)*

£m

Included in revenue:

 



Mobile network debtor revaluation*

(i)

47

41


 

47

41


 



Included in (loss) / profit before interest and tax:

 



Mobile network debtor revaluation*

(i)

47

41

Acquisition / disposal related items

(ii)

26‌

23

Strategic change programmes

(iii)

121‌

67

Data incident costs

(iv)

-

20

Regulatory costs

(v)

30

52

Impairment losses and onerous leases

(vi)

18

383

Impact of IFRS 16

(vii)

(20)

-


 

222

586


 



Included in net finance costs:

 



Impact of IFRS 16

(vii)

70

-

Net non-cash finance costs on defined benefit pension schemes

(viii)

14

12


 



Total impact on (loss) / profit before tax

 

306

598


 



Tax on regulatory matters

(ix)

(17)

46

Tax on other adjusting items

(x)

( 3 )

(64)

Total impact on (loss) / profit after tax - continuing operations

 

286

580


 



Discontinued operations

7

2

9

Total impact on (loss) / profit after tax

 

288

589

*  Adjusted results have been restated for the year ended 27 April 2019 to exclude the out of period mobile network debtor revaluations to reflect the performance measures reported to the board, who are considered the Chief Operating Decision Maker under IFRS 8: 'Operating Segments'.

 

(i)  Mobile network debtor revaluations

Changes in consumer behaviour and legislative impacts on previously recognised transactions have led to negative revaluations of network receivables of £47m (2018/19: £41m).

 

(ii)  Acquisition / disposal related items

Amortisation of acquisition intangibles:

 

A charge of £26m (2018/19: £28m) relates primarily to amortisation of acquisition intangibles arising on the Dixons Retail Merger. The prior period includes intangibles recognised on the CPW Europe and Simplify Digital acquisitions which were subsequently impaired at 27 October 2018.

 

Acquisition related:

 

During the prior period, acquisition related income of £5m primarily relates to the release of deferred consideration for a previous acquisition no longer payable given the strategic change of the business.

 

(iii)  Strategic change programmes:

During the current year the Group continued with the previously announced strategic change programme. As part of this strategy, the Group took the next steps in the turnaround of the Mobile business by announcing on 17 March 2020 that it would be closing the Carphone Warehouse UK store estate and continue to focus on selling devices and connectivity through its shop-in-shops in 305 big Currys PCWorld stores and online. Further information on the announcement can be found here: https://www.dixonscarphone.com/en/news-and-media/press-releases/year/2020/dixons-carphone-takes-essential-next-step-turnaround-uk .

 

As a result of the change, 531 stores under the Carphone Warehouse brand have closed.

 

During the current period, one-off implementation costs and redundancy costs of £56m (2018/19: £49m) have been incurred in relation to this Group strategic change programme.

 

In addition to this, property rationalisation costs related to this strategic change programme, specifically in the UK & Ireland Mobile operating segment have been recorded as follows:

 

-  An additional £24m property closure and dilapidations provisions related to the closure of the Carphone Warehouse standalone stores;

 

-  £32m of right-of-use asset impairment related to the Carphone Warehouse store estate;

 

-  £15m of asset impairments, primarily relating to software development costs and store assets.

 

£6m of property provisions recognised within the UK & Ireland Electricals operating segment from previously announced strategic change programmes have been released in the period.

 

(iv)  Data incident costs:

During the year ended 27 April 2019, costs associated with the data incident announced on 13 June 2018 of £20m were recorded.

 

(v)  Regulatory costs:

The Group operates in a regulated environment and failure to manage the business in line with regulation could expose the Group to financial penalties.

 

In the year ended 27 April 2019 the Group reported that it was subject to a £29m fine imposed by the FCA following the conclusion of an investigation into historical Geek Squad mobile phone insurance selling processes. This fine related to a period prior to June 2015. Historical regulatory investigations may be subject to potential future claims and subsequent payments that may take several years to complete and evaluate. The Group ran two voluntary redress programmes which led to the refund of £1.5m.

 

Nonetheless, the Group has subsequently received claims from a number of customers who believe they were mis-sold Geek Squad policies. These claims are carefully considered by the Group on a case by case basis. The majority of claims received have been invalid. The Group has paid a total of £16m in respect of customer compensation.

 

Following the relatively small proportion of customers who have made claims, the volume and the value of any potential future claims is uncertain. Despite this level of uncertainty, the Group has recorded an additional regulatory costs provision of £30m in the period.

 

For the year ended 27 April 2019, £15m of additional pension related costs following the High Court judgement on the GMP Lloyds Banking Group case and £1m of redress for ongoing employee related matters for historical periods were also recognised.

 

(vi)  Impairment losses and onerous leases (prior year):

Following the unprecedented effects of Covid-19 and the closure of stores across the UK & Ireland, an impairment indicator was identified, and an impairment review was performed over the store estate. Management considered future cash flow forecasts derived from the board-approved budget and strategic plan and adjusted to model the negative impact of Covid-19. This resulted in an impairment of £18m being recorded over right-of-use assets in UK & Ireland Electricals operating segment.

 

In the prior year, a strategic review was performed by the Group which led to the separation of the previously reported UK & Ireland operating segment into separate UK & Ireland Electricals and Mobile operating segments. As a result of the change, the goodwill previously allocated to the UK & Ireland group of cash generating units (CGUs) was separated into the UK & Ireland Electricals and UK & Ireland Mobile CGUs. This identified a material non-cash impairment charge to be recorded in the UK & Ireland Mobile segment of £383m for the year ended 27 April 2019.

 

(vii) Impact of IFRS 16

During the period the Group has adopted IFRS 16: 'Leases' using the modified retrospective approach, as a result prior year comparative numbers have not been restated. The impact of adoption is included as an adjusting item for the year ended 2 May 2020 as the directors believe this adjustment is helpful to users in aiding comparability of adjusted results against prior periods which are reported under IAS 17. The impact of IFRS 16 results in a net credit of £20m to profit / loss before interest and tax and a charge of £70m in net finance costs on a statutory basis.

 

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

The net interest charge on defined benefit pension schemes represents the non-cash remeasurement calculated by applying the corporate bond yield rates applicable on the last day of the previous financial year to the net defined benefit obligation. As a non-cash remeasurement cost which is unrepresentative of the actual investment gains or losses made or the liabilities paid and payable, the accounting effect of this is excluded from adjusted earnings.

 

(ix)  Tax regulatory matters:

As previously disclosed, the Group has been co-operating with HMRC in relation to the tax treatment of certain pre-merger legacy corporate transactions. The Group maintains the tax treatment was appropriate, however, the likelihood of litigation, and therefore risk associated with this matter was such that a provision was recognised in the year ended 27 April 2019. The provision has been adjusted in the current period to reflect the current status of discussions.

 

(x) Taxation:

The effective tax rate on adjusting items is 7%. The rate of relief is lower than the UK statutory rate of 19% predominantly due to a release of part of the provision recognised in relation to pre-merger legacy corporate transactions. For the year ended 27 April 2019, the effective tax rate on adjusting items was 3% predominantly due to non-deductible goodwill impairment and the creation of the provision for tax regulatory matters.

 

A6  Reconciliation from Statutory net finance costs to adjusted net finance costs


Year ended

2 May
2020

£m

Year ended

27 April
2019

£m




Total net finance costs

(112)

(36)




Impact of IFRS 16 (i)

70‌

-

Net interest on defined benefit pension obligations

14‌

12‌

Adjusted total net finance costs

(28)

(24)

 

(i) The total IFRS 16 lease interest is £80m, of which £5m relates to previously held finance leases under IAS 17. The incremental impact of IFRS 16 excludes the previously held finance leases and the unwind of discounting on IFRS 3 fair value provisions held on balance sheet prior to the adoption of IFRS 16. These items are excluded as adjusted net finance costs is on a pre-IFRS 16 basis as explained in the definitions.

 

A7 Adjusted tax expense

a)  Tax expense

The corporation tax charge comprises:


Year ended

2 May
2020

£m

Year ended

27 April
2019 (restated)

£m

Current tax



 

UK corporation tax at 19% (2018/19: 19%‌)  - Adjusted

13

34

 

  - Adjusting

(4)‌

17

 

Overseas tax  - Adjusted

26

29

 

  - Adjusting

(2)

 -

 

 

33

80

 

Adjustments made in respect of prior years:



 

UK corporation tax  - Adjusted

12

(5)‌

 

  - Adjusting

(17)‌

(5)‌

 

Overseas tax  - Adjusted

1

 (4)‌

 

  - Adjusting

 -‌

(1)

 


(4)

(15)

 

Total current tax

29

65

 




 

Deferred tax



 

UK tax  - Adjusted

(9)‌

11‌

 

  - Adjusting

6

(27)‌

 

Overseas tax  - Adjusted

6

3

 

  - Adjusting

(3)

(2)

 


-‌

(15)

 

Adjustments in respect of prior years:



 

UK corporation tax  - Adjusted

(4)‌

2

 

Overseas tax  - Adjusted

(4)‌

 -‌

 

 

(8)‌

2

 

Total deferred tax

(8)

(13)

 

Total tax charge

21

52

 

Adjusted tax charge*

41

70

 

 

*  Adjusted results have been restated for the year ended 27 April 2019 to exclude the out of period mobile network debtor revaluations to reflect the performance measures reported to the board, who are considered the Chief Operating Decision Maker under IFRS 8: 'Operating Segments'. The restatement has no impact on statutory reported results.

 

Tax related to discontinued operations is included in the figures set out in note 7.

 

b) Reconciliation of standard to actual (effective) tax rate

The principal differences between the total tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax to profit / (loss) before taxation are as follows:


Year ended 2 May 2020

Year ended 27 April 2019 (restated)

 

Adjusted
£m

Adjusting items
£m

Statutory
£m

Adjusted*
£m

Adjusting items*
£m

Statutory
£m

Profit / (loss) before taxation

166

(306)

(140)

339

(598)

(259)








Tax at UK statutory rate of 19% (2018/19: 19%)

31

(58)‌

(27)‌

64

(113)‌

(49)‌

Items attracting no tax relief or liability

3

3

6

7

98

105

Movement in unprovided deferred tax

-

52

52

(1)‌

-

(1)‌

Effect of change in statutory tax rate

(2)‌

(1)‌

(3)‌

1

3

4

Differences in effective overseas tax rates

4

(1)‌

3

5

-

5

Adjustments in respect of prior years - provision

-

(17)‌

(17)‌

-

-

-

Adjustments in respect of prior years

(6)‌

(6)‌

(12)‌

Other

-

2

2

-

-

-

Total tax charge / (credit)

41

(20)

21

70

(18)

52

 

*  Adjusted results have been restated for the year ended 27 April 2019 to exclude the out of period mobile network debtor revaluations to reflect the performance measures reported to the board, who are considered the Chief Operating Decision Maker under IFRS 8: 'Operating Segments'. The restatement has no impact on statutory reported results.

 

The effective tax rate on adjusted earnings for the year ended 2 May 2020 is 25% (2018/19: 21%).

 (i) Items attracting no tax relief or liability relate mainly to non-deductible depreciation in the UK business. Adjustments in respect of prior periods relate to the reversal of an expected historical tax credit that is no longer available in the UK.

The effective tax rate on adjusting items is 7% (2018/19: 3%).

(ii) Deferred tax assets relating principally to tax losses in the UK business have not been recognised due to uncertainty over the group's ability to utilise the losses in the future.

(iii) The Group is currently cooperating with HMRC in relation to open tax enquiries arising from pre-merger legacy corporate transactions in the Carphone Warehouse group. One of the underlying pre-merger transactions under enquiry is considered to have a "more likely than not" chance of resulting in settlement. Due to this level of risk, a provision was recognised in the prior period. This enquiry is still open and a release of £17m has been made during the period to reflect the current status of discussions.

The future effective tax rate is likely to be impacted by the geographical mix of profits and the Group's ability to take advantage of currently unrecognised deferred tax assets.

 

 

A8 Adjusted earnings per share


Year ended

2 May
2020

£m

Year ended

27 April
2019

(restated)

£m

Adjusted earnings

 



Continuing operations

 

125

269


 



Total loss

 



Continuing operations

 

(161)‌

(311)‌

Discontinued operations

 

  (2)‌

  (9)‌

Total

 

 (163)‌

 (320)‌


 



 

Million

Million

Weighted average number of shares

 



Average shares in issue

 

1,162

1,160

Less average holding by Group EBT

 

  (5)‌

  (1)‌

For basic earnings per share

 

1,157

1,159

Dilutive effect of share options and other incentive schemes

 

25

9

For diluted earnings per share

 

 1,182

 1,168


 




Pence

Pence

Basic earnings per share

 



Total (continuing and discontinued operations)

 

(14.1)‌

(27.6)‌

Adjustment in respect of discontinued operations

 

0.2

0.8

Continuing operations

 

(13.9)‌

(26.8)‌

Adjustments - continuing operations (net of taxation)

 

24.7

50.0

Adjusted basic earnings per share

 

 10.8

 23.2


 



Diluted earnings per share

 



Total (continuing and discontinued operations)

 

(14.1)‌

(27.6)‌

Adjustment in respect of discontinued operations

 

0.2

0.8

Continuing operations

 

(13.9)‌

(26.8)‌

Adjustments - continuing operations (net of taxation)

 

24.5

49.8

Adjusted diluted earnings per share

 

 10.6

 23.0

 

Basic and diluted earnings per share are based on the profit for the period attributable to equity shareholders. Adjusted earnings per share is presented in order to show the underlying performance of the Group. Adjustments used to determine adjusted earnings are described further in note A5.

 

 

A9 Reconciliation of cash inflow from operations to free cash flow


Year ended

2 May

2020

£m

Year ended

27 April
2019

£m

Cash inflow from operations

649

377

Operating cash flows from discontinued operations(i)

1

8

Taxation

(20)‌

(45)‌

Interest, facility arrangement fees and repayment of finance leases(ii)

(39)‌

(30)‌

IFRS 16 impact(iii)

(291)

-

Capital expenditure

(191)‌

(166)‌

Proceeds from disposal of fixed assets

-

9

Other movements

 -

 -

Free cash flow

109

153

(i)  Operating cash flows from discontinued operations are removed in the above reconciliation as free cash flow is presented on a continuing basis.

(ii)  Current period excludes cash interest on leases and repayment of leases now within the scope of IFRS 16. Prior period interest and capital repayment on lease obligations relate solely to finance leases recognised in accordance with IAS 17.

(iii)  In the comparative periods cash inflow from operations includes rental expenses on leases that now fall under the scope of IFRS 16 and are therefore now included within cash flows from financing activities within the current period. As part of the reconciliation of free cash flow, the cash flows arising from leases have been reclassified into free cash flow in the current period.

 

 

Reconciliation of adjusted EBIT to free cash flow

Within the performance review we include a reconciliation from adjusted EBIT to free cash flow. Both of these APMs are on a pre-IFRS16 basis as explained within the definitions.


Year ended

2 May

2020

£m

Year ended

27 April
2019

£m

Adjusted EBIT (note A2)

194

363

Depreciation and amortisation (note A4)

128

146

Working capital (note A11)

108‌

‌(17)

Capital expenditure

(191)‌

(166)‌

Taxation

(20)

(45)

Interest(i)

(31)‌

(30)‌

Other

 -

 9

Free cash flow before exceptional items

188

260

Exceptional items(ii)

(79)

(107)

Free cash flow

109

153

 

(i)  Interest per the cash flow statement is £106m, this differs to the above interest due to the incremental impact of IFRS 16 interest. The total IFRS 16 lease interest is £80m, of which £5m relates to previously held finance leases under IAS 17.

(ii)  Relates to the cash flows on the adjusting items that are described in note A5.

 

A10 Reconciliation from liabilities arising from financing activities to net debt

 

 

2 May

2020
£m

27 April
2019

(restated)
£m

Loans and other borrowings*

(324)

(288)

Lease liabilities

(1,444)

(83)

Total liabilities from financing activities (note 6)

(1,768)

(371)

Cash and cash equivalents*

660

665

Overdrafts*

(540)

(559)

Add back lease liabilities excluding previous IAS 17 finance leases**

1,364

-

Net (debt)

(284)

(265)

 

 

*  Cash and cash equivalents and loans and other borrowings have been restated to meet the presentational requirements of IAS 32 as further described in note 1. This has had no impact on net assets or net debt.

**  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 lease liabilities relate solely to finance leases recognised in accordance with IAS 17. See note 32 for details of transitional impacts.

As described above, the Group has lease liabilities of £1,444m. To aid comparability with prior periods, net debt for the year ended 2 May 2020 includes £80m (2018/19: £83m) of lease liabilities that fell within the definition of finance lease liabilities in accordance IAS 17 and excludes the incremental impact of lease liabilities of £1,364m that fall within the scope of IFRS 16.

 

 

A11 Reconciliation of statutory working capital cash inflow to adjusted working capital cash inflow

 

Within the performance review, a reconciliation of the adjusted EBIT to free cash flow is provided. Within this, working capital balance of £108m (2018/19: -£17m) differs to the statutory working capital balance of £235m (2018/19: £72m) as cash flows on adjusting items are separately disclosed. A reconciliation of the disclosed working capital balance is as follows:

 

 

Year ended
2 May

2020
£m

Year ended
27 April
2019
£m

Working capital cash inflow (note 6a)

235

72

Share based payments

23

21

Discontinued operations

-

1‌

Exceptional provisions

(43)

(55)

GMP equalisation

-

(15)

Network debtor out of period revaluation

(47)

(41)

IFRS 16

(56)

-

Facility arrangement fees

(4)

-

Working capital inflow within free cash flow

108

(17)

 

 

A12 Summary of working capital presented within the performance review

 

Within the performance review, a summary balance sheet is provided which includes a working capital balance of -£795m (2018/19: -£956m). The below table provides a breakdown of how the summary working capital balance ties through to the statutory balance sheet. Network commission receivables are excluded from the breakdown as they are presented separately.

 

 


2 May

2020
£m


27 April
2019
£m

Non-current assets



Trade and other receivables*

35

34

Current assets



Inventory

970

1,156

Trade and other receivables*

474

595

Derivative assets

76

18

Current liabilities



Trade and other payables

(2,017)‌

(2,350)‌

Derivative liabilities

(52)‌

(6)‌

Provisions

(114)

(86)

Non-current liabilities



Trade and other payables

(131)‌

(252)‌

Provisions

(36)

(65)

Working capital presented within the performance review

(795)

(956)

 

* Trade and other receivables excludes network commission receivables and contract assets of £616m (2018/19: £797m) as these are presented separately within the condensed balance sheet in the performance review. 

 

A13 Summary IFRS 16 leases presented within the performance review

Within the performance review, a summary balance sheet is provided which includes an IFRS 16 leases balance of -£1,359m. The below table provides a breakdown of how the summary IFRS 16 leases balance ties through to the statutory balance sheet. Comparative year is nil as IFRS 16 was not adopted until 28 April 2019.


Year ended 2 M ay

2020

£m

Year ended 27 April
2019

£m

Lease receivables

5

-

Lease liabilities

( 1,444)

-

Exclude IAS 17 finance lease liabilities (included in net debt)

80

-

IFRS 16 leases presented within the performance review

(1,359)

-

 

The lease receivables and lease liabilities are included on the face of the statutory balance sheet. The IAS 17 finance leases that were previously on balance sheet before the adoption of IFRS 16 are then excluded as they are included within the net debt line within the summary balance sheet in the performance review in order to aid comparability with prior periods.

 

Other definitions

The following definitions apply throughout this Annual Report and Accounts unless the context otherwise requires:

Acquisition intangibles

Acquired intangible assets such as customer bases, brands and other intangible assets acquired through a business combination capitalised separately from goodwill. Where businesses have grown organically rather than through acquisition, there is no amortisation of acquired intangibles and therefore the non-cash amortisation charge is removed from our headline earnings measures in order to increase comparability between segments

Active credit customers

Customers with an open "Your Plan" account

ADRs

American Depositary Receipts

ARPU

Average revenue per user

B2B

Business to business

Board

The Board of directors of the Company

Businesses to be exited

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 or operations of the Group. Comparative results in the statement of comprehensive income and the notes are restated accordingly for the impact of businesses exited or to be exited.

Carphone, Carphone Warehouse or Carphone Group

The Company or Group prior to the Merger on 6 August 2014

CGU

Cash Generating Unit

Colleague engagement

Measured using 'Make a Difference' survey in Greece and UK & Ireland and a colleague engagement survey in the Nordics

Company or the Company

Dixons Carphone plc (incorporated in England & Wales under the Act, with registered number 07105905)‌, whose registered office is at 1 Portal Way, London W3 6RS

CPW

The continuing business of the Carphone Group

CPW Europe Acquisition

The Company's acquisition of Best Buy's interest in CPW Europe, which completed on 26 June 2013

Credit adoption

Sales on Credit as a proportion of total sales

CRM

Customer Relationship Management

CWS

The Connected World Services division of the Company

Dixons or Dixons Retail

Dixons Retail plc and its subsidiary companies

Dixons Carphone or Group

The Company, its subsidiaries, interests in joint ventures and other investments

Dixons Retail Merger or Merger

The all share merger of Dixons Retail plc and Carphone Warehouse plc which occurred on 6 August 2014

EBT

Employee benefit trust

Electricals

Represents the combination of our UK & Ireland Electricals, Nordics, and Greece operating segments

HMRC

Her Majesty's Revenue and Customs

honeybee

honeybee was our proprietary IT software operation for which an asset sale was completed on 31 May 2018

GfK

Growth from Knowledge

IFRS

International Financial Reporting Standards as adopted by the European Union

Market position

Ranking against competitors in the electrical and mobile retail market, measured by market share. Market share is measured for each of the Group's markets by comparing data for revenue or volume of units sold relative to similar metrics for competitors in the same market

MNO

Mobile network operator

Mobile

Represents sales made from legacy Carphone brands, iD Mobile and SimplifyDigital

MVNO

Mobile virtual network operator

NPS

Net promoter score, a rating used by the Group to measure customers' likelihood to recommend its operations

Online-in-store

Online-in-store is the term used for sales that are generated through in-store tablets for product that is not stocked in the store

Peak / post peak

Peak refers to the 10 week trading period ending on 4 January 2020 as reported in the Group's Christmas Trading statement on 21 January 2020. Post peak refers to the trading period from 5 January 2020 to the Group's year end on 2 May 2020

RCF

Revolving credit facility

Sharesave or SAYE

Save as you earn share scheme

SIMO

Sales of SIM-only contracts, without attached handset

SWAS

Stores-within-a-store

TSR

Total shareholder return

UK GAAP

United Kingdom Accounting Standards and applicable law

Virgin Mobile France

Omer Telecom Limited (incorporated in England & Wales)‌ and its subsidiaries, operating an MVNO in France as a joint venture between the Company, Bluebottle UK Limited and Financom S.A.S.

WAEP

Weighted average exercise price

 

Responsibility Statement

 

The 2019/20 Annual Report and Accounts which will be issued in July 2020, contains a responsibility statement in compliance with DTR 4.1.12 of the Listing Rules which sets out that as at the date of approval of the Annual Report and Accounts on 14 July 2020, the directors confirm to the best of their knowledge:

· the Group and unconsolidated Company financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company, respectively; and

· the performance review contained in the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that they face.

At the date of this statement, the directors are those listed in the Group's 2018/19 Annual Report and Accounts.

The financial statements were approved by the directors on 14 July 2020 and signed on their behalf by:

 

 

Alex Baldock

Group Chief Executive

Jonny Mason

Group Chief Financial Officer

 

Number of stores (unaudited)

 


2 May
 2020

27 April
 2019


Own

 stores

Franchise stores

Total

Own

 stores

Franchise stores

Total








UK Electricals

309

0

309

314

0

314

UK Dixons Travel

31

0

31

29

0

29

Ireland Electricals

18

0

18

18

0

18

UK Mobile

0

0

0

560

0

560

Ireland Mobile

70

0

70

70

0

70

UK & Ireland

428

0

428

991

0

991








Norway

83

67

150

80

67

147

Sweden

104

70

174

110

62

172

Denmark

38

0

38

38

0

38

Finland

22

19

41

22

19

41

Other Nordics

0

13

13

0

13

13

Nordics

247

169

416

250

161

411








Greece

75

20

95

70

25

95








Total

750

189

939

1,311

186

1,497

 

 

Selling space '000 sq ft (unaudited)

 


2 May
 2020

27 April
 2019


Own

 stores

Franchise stores

Total

Own

 stores

Franchise stores

Total








UK Electricals

5,542

0

5,542

5,613

0

5,613

UK Dixons Travel

38

0

38

42

0

42

Ireland Electricals

209

0

209

204

0

204

UK Mobile

0

0

0

493

0

493

Ireland Mobile

44

0

44

44

0

44

UK & Ireland

5,833

0

5,833

6,396

0

6,396








Norway

1,096

637

1,733

1,100

630

1,730

Sweden

1,194

371

1,565

1,260

345

1,605

Denmark

691

0

691

691

0

691

Finland

530

163

693

537

163

700

Other Nordics

0

90

90

0

90

90

Nordics

3,511

1,261

4,772

3,588

1,228

4,816








Greece

953

76

1,029

886

101

987








Total

10,297

1,337

11,634

10,870

1,329

12,199

 

 



[1]   See page 41 for glossary of terms

[2] In order to give a clear and accurate review of developments this Strategic review often refers to the pre-Covid-19 period. This has been defined as the period to the 21 March 2020. 

[3]   Like-for-like calculated and disclosed on 52-week basis for comparability purposes

[4] During this period, the Group closed its 531 standalone Carphone Warehouse shops in the UK. As a result of these closures our UK&I Mobile sales will no longer be disclosed on a like-for-like basis.


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