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Dixons Carphone PLC (DC.)

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Wednesday 12 December, 2018

Dixons Carphone PLC

Dixons Carphone Interims 18/19 & Strategy Update

RNS Number : 1790K
Dixons Carphone PLC
12 December 2018
 

Dixons Carphone plc

 

 

Interim Results for the 26 weeks ended 27th October 2018

 

H1 headline results as expected, strategy set, transformation underway

 

We Help Everyone Enjoy Amazing Technology

 

New vision and strategy launched

•     Transformation plan underway to deliver a more valuable business

•     Focusing on the core; two big growth opportunities in online and credit; revitalising our mobile business; and giving customers an easy experience

•     Over 30,000 colleagues to become shareholders through new share awards, aligning business behind strategy

Results Summary

•     Gained market share in electricals in all territories

•     Group H1 like-for-like revenue(3) up 2%; Q2 like-for-like up 4%

•     Group headline PBT(1) of £50 million (2017/18: £73 million)

•     Statutory loss before tax of £440 million (2017/18: profit before tax of £54 million), including non-headline charges of £490 million (2017/18: £19 million), primarily relating to non-cash impairments, mainly goodwill(4)

•     Free cash flow(5) of £116 million (2017/18: £174 million), with different working capital phasing year-on-year

•     Net debt(6) of £274 million (2017/18: £206 million)

Financial Guidance(7)

•     2018/19 headline PBT guidance of around £300 million unchanged

•     Transformation plan targeting:

Market share gains and LFL sales growth

Group EBIT margin improvement to at least 3.5%(8) over 5 years

£200 million of identified gross cost savings available for reinvestment and margin progression

Additional £200 million of capex over 3 years, to accelerate transformation, funded by working capital improvement

•     Board committed to maintaining a strong balance sheet and investing in the colleague and customer experience to deliver long term shareholder value

For 2018/19, dividend rebased to 3 times earnings cover; expected to grow dividends from this level

Interim dividend 2.25p (2017/18: 3.5p)

•     Expect to generate more than £1bn of free cash flow over 5 years

Alex Baldock, Group Chief Executive, said:

"We believe that Dixons Carphone is now on the path to sustainable success. We have set a clear long-term direction that will deliver more engaged colleagues, more satisfied customers and a more valuable business for shareholders.

 

We have powerful strengths, as a growing market leader with amazing people and capabilities no competitor can match. Our plan builds on those strengths. We're focusing on our core, and on four things that matter most: two big profitable growth opportunities in online and credit; revitalising our mobile business; and giving customers an easy experience. We'll deliver these through capable and committed colleagues, working in one joined-up business, with strong infrastructure.

 

We're underway and investing in all of these, including giving our colleagues at least £1,000 of shares, making every colleague a shareholder. We strongly believe aligning and energising the business behind our strategy in this way will benefit customers and shareholders.

 

There are headwinds and uncertainty facing any business serving the UK consumer, we've had our own challenges, and our plan will take time. But, with this plan, we can now see the way to unleashing the true potential of this business. We believe in our plan, are underway making early progress and determined to make it a lasting success."

 

 

H1 results summary

 

 

 

 

Headline revenue (1)

 

Headline profit / (loss) (1)

 

 

H1 18/19

H1 17/18

Reported

Local currency(2)

Like-for-

like (3)

 

 H1 18/19

 H1 17/18

 

Notes

£m

£m

% change

% change

% change

£m

£m

UK & Ireland electricals*

(4)

1,997

1,953

2%

2%

2%

 

42

70

UK & Ireland mobile*

(4)

1,009

1,056

(4)%

(4)%

-%

 

(31)

(36)

Nordics

(4)

1,675

1,666

1%

4%

3%

 

44

42

Greece

(4)

212

191

11%

11%

11%

 

6

6

Group

 

4,893

4,866

1%

2%

2%

 

61

82

Net finance costs

 

 

 

 

 

 

 

(11)

(9)

Profit before tax

 

 

 

 

 

 

 

50

73

Tax

 

 

 

 

 

 

 

(12)

(17)

Profit after tax

 

 

 

 

 

 

 

38

56

Headline basic EPS(1)

 

 

 

 

 

 

 

3.3p

4.8p

                     

* - previously reported as combined UK & Ireland - see footnote 4

 

Quarterly revenue summary

 

 

 

 

Q2 2018/19

 

Q1 2018/19(4)

 

Notes

 

 

 

 

Reported

% change

Local

currency(2)

% change

Like-for-

like (3)

% change

 

Reported

% change

Local

currency(2)

% change

Like-for-

like (3)

% change

UK & Ireland electricals

(4)

 

 

 

 

4%

4%

3%

 

-%

-%

-%

UK & Ireland mobile

(4)

 

 

 

 

(2)%

(2)%

1%

 

(7)%

(7)%

(1)%

Nordics

(4)

 

 

 

 

3%

7%

7%

 

(2)%

1%

-%

Greece

(4)

 

 

 

 

12%

12%

12%

 

11%

11%

9%

Group

 

 

 

 

 

3%

4%

4%

 

(2)%

(1)%

-%

 

Notes

(1)   Headline results exclude amortisation of acquisition intangibles, significant reorganisation costs, significant impairments, businesses to be exited, property rationalisation costs, acquisition-related costs and other one-off, non-recurring items, net interest on defined benefit pension schemes and discontinued operations. Such excluded items are described as 'non-headline'. For further details see note 3 to the financial information. Comparatives have been restated following the classification of the honeybee operations as discontinued operations and are therefore included in non-headline results. For further details see note 13 of the financial information.

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

(3)   ‌Like-for-like revenue is defined in the glossary on page 44

(4)   During the period, the reportable segments of the Group have been changed and comparatives restated accordingly. The full year and half year restatements are detailed in note 2 to the financial information. As part of the strategic review, the Group has separated the previous UK & Ireland operating segment into the separate electricals and mobile operating segments. Given the challenges in the mobile market, and the corresponding change in the UK&I mobile performance in the period, the Group has changed the information presented to the Board to provide greater clarity over the relative performance of the two UK&I businesses and to support decisions related to the allocation of the Group's resources. This change has included the provision of separate financial information being provided in respect of the UK&I mobile and electricals segments. As a result of the change, the goodwill previously allocated to the UK & Ireland has been separated into UK & Ireland electricals and UK & Ireland mobile and an impairment review was then performed over the new segments. This identified a material non-cash impairment charge of £225 million  recorded over the goodwill of the UK & Ireland mobile segment, together with impairment of related assets £113 million and additional onerous lease charges of £6 million to be recorded against individual stores.

(5)   Free cash flow is defined in the glossary on page 46

(6)   Net debt is defined in the glossary on page 46

(7)   Dixons Carphone has in place substantial contingency plans to mitigate the expected operational disruption that could arise in the event of a 'hard Brexit'. However, all financial guidance is provided on the basis that there is no significant change in macroeconomic outlook.

(8)   Excludes any changes in the revaluation of network receivables, the impact of which will continue to be separately disclosed.

 

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.

 

 

 

Strategy update and medium term targets

 

 

Our strategy starts with the customer

 

We have developed a clear vision underpinned by strategic initiatives. We are building a sustainable business for the long term which will offer significant financial upside versus where we are today; with reinforced scale benefits; One Business with a simpler and lower cost infrastructure; and a profitable more cash generative mobile business.

 

This is a business with a significant opportunity. This opportunity starts with the customer and with what they think of technology. Customers find technology exciting, but also confusing and expensive. We know they value help to discover, choose, afford and enjoy technology throughout the life of their products. Using strengths that derive from our scale there is no one better placed than us to help them do this.

 

Our strategy starts around a clear vision:

 

"We Help Everyone Enjoy Amazing Technology"

 

The strategy to deliver our vision focuses on our core, and on four things that matter most: two big profitable growth opportunities in online and credit; revitalising our mobile business; and giving customers an easy experience. This will be delivered through three core enablers: capable and committed colleagues; working in one joined-up business and strong infrastructure.

 

Big four levers of value

 

 

Online

This is a big profitable growth opportunity, where we have strong foundations and headroom for growth. Improving our Online proposition is important because:

 

•     Online accounts for more than 100% of the growth in the market (electricals and mobile)

•     We are underweight versus the market online despite strong foundations to build on

We currently have an Online business that is taking share in the overall online market with revenue of over £1.5 billion per annum in the UK & Ireland. This makes us the largest retailer in the category delivering multi-channel technology at scale. With our online market share below that of our store share we see opportunities to narrow this gap over time.

 

We will use what we uniquely have to accelerate online. We intend to achieve this by:

 

•     Giving customers access to a much larger range accessible through all channels

•     Making it easier to find, buy, and get hold of amazing technology online

•     Focus on smartphone first, the growth channel within online

•     Drive crossover benefits across electricals and mobile via credit and services

Online performed strongly in the first half, with revenues up 12% year-on-year in the UK and Ireland. We are making good early progress on our initiatives, including a 30% increase in site speed, a faster and simpler checkout process and improvement in the delivery and contact centre customer experience.

 

 

Credit

Credit is another big profitable growth opportunity and the largest and fastest growing segment of services with strong demand in both electricals and mobile. Technology is expensive, particularly at the big-ticket end of the market where we are strongest; our credit makes it affordable, as well as giving customers reason to shop with us.

 

 

 

 

 

•     Credit is valuable to us because it:

Attracts a greater number of new customers

Allows customers to buy at a higher average transaction value (ATV) and with greater frequency

Increases customer retention

Drives the adoption of other services

Is profitable in its own right

Is important for both electricals and mobile

 

We have strong foundations with customer-focused colleagues who are trained experts in credit. We understand responsible lending. This gives us an opportunity to build profitably on our existing proposition. Our current credit proposition, Your Plan, has grown since 2016 to over 700k active accounts with more than £440 million of credit revenues expected this year and over £2 billion of approved credit.

We are building on these strong foundations and have signed a new agreement with our established strategic partner, BNP Paribas, which gives us better economics and better breadth of offer, still without taking on credit or fraud risk. We see significant headroom for growth and expect to at least double credit adoption from the 8% of our sales today.

 

Easy Customer Experience

We are obsessed with making the customer end to end experience of shopping with us easier through purchase, set up, to delivery and installations, and to resolving queries and issues. We will build a reputation for consistency and reliability and give customers fewer reasons to shop elsewhere.

 

We will make it easier for customers to:

•     Find and buy the right products, whether in store or online

•     Get products how they want them - through improved delivery and collection

We are underway with e.g. smarter routing and improvements to our Supply Chain

•     Resolve queries through improved contact centre performance

We are underway with improvements to answer rates and more joined up contact centres

 

We have a clear plan focusing on the services that matter most to customers and that make the most of our strengths and scale. We will help the customer to get the most out of their tech, throughout the life of the product through our services, from connect, protect, set-up, maintain and repair, to trade-in and upgrade. Work is underway strengthening what we already have. Services for us are a means of making our customer relationships stickier and more valuable.

 

Today our customer satisfaction scores (NPS) are not where we want them to be. We see significant opportunity to improve.

 

 

UK&I Mobile

 

Mobile is central to our vision. It is the most important category for us, it is our largest, and the most important product to customers and where we are still number one in the market. But it is loss making and we need to change that. Our challenges are well understood in the market, i.e. reduced handset volumes and mix changes, have resulted in declining share for us. And our profitability has been impacted by mix, contractual pressure and an inflexible cost base.

 

 

 

 

 

 

 

 

 

 

 

 

We are responding, with a clear plan to restore mobile to profitability and cash generation:

 

·      Reset our relationships with network partners onto a more sustainable footing with increased choice, improved access to best tariffs and improved terms:

We are making good progress here and secured all the connectivity we need to achieve our plan

We have a new deal with 3 which will see our own network be more competitive and new deals with other network partners.

We have secured connectivity, improved choice and access, with improved economics and significantly eased the burden of hard volume commitments

 

·      Radically improved our offer to the customer with the widest choice of handsets, connectivity, ways to pay, accessories and services.

 

·      We are completing the Dixons Carphone merger to become truly one business and realise the top and bottom line benefits of doing so:

We will deliver a better joined up experience for colleagues, driving significant cost opportunities

We will deliver a better joined up experience for customers between mobile and other categories and drive opportunities to cross sell via bundles and credit

We have made good progress with operating model changes as we move closer to a single retail leadership, supported by combined online and commercial teams

We will have a large, optimised and profitable store estate. We are well underway towards that having nearly completed the previously announced store programme

As we implement our strong infrastructure programme we will integrate and move to a single modern IT stack, our single biggest cost prize

 

All this will take time but make sure we reinforce our leading position in the category and deliver a sustainable, profitable and cash generative business underpinned by working capital improvements.

 

 

Core enablers

 

 

Capable and Committed Colleagues

Capable and committed colleagues are our number one advantage. The best assisted selling to customers requires super-helpful colleagues. To deliver this we've increased investment in learning and development, creating customer-first training and will relaunch our Dixons Carphone Academy, equipping colleagues with the right tools for the job. To date there has already been a 25% increase in front line customer training hours.

Today, we are announcing the launch of a share ownership scheme which will see every permanent colleague with 12 months service granted at least £1,000 of shares each at over the next 3 years. By making every colleague a future shareholder we are energising our colleagues behind the vision and strategy in a way that will benefit customers and shareholders. The scheme is expected to cost c.£10 million per annum over the period with the shares vesting after 3 years.

 

 

One Business

As we move towards being one truly joined up business, this means:

•     A joined up customer experience, so the customers get the full benefit of everything we have to offer

•     A joined up business behind the scenes, realising the cost benefits of moving to One Business. We have firm plans across 10 areas, including IT, Supply Chain and central costs, to deliver £200 million of cost savings available for reinvestment, margin progression and to combat headwinds

 

 

Stronger Infrastructure

There is plenty of work ahead to upgrade our infrastructure to enable our transformation. In our Supply Chain we are focusing on building consistency and reliability to enable us to keep the promises we make to our customers. For example, we are investing in new Warehouse and Order Management systems and routing capabilities to improve right first-time delivery. As a result of this, we have already seen a 2% improvement in right first-time deliveries in the last six months, equating to a 30% reduction in missed deliveries year-on-year.

 

In IT we have plenty of work ahead to upgrade to an IT infrastructure that will enable our Transformation. We are:

•     Focusing our spend in the areas that matter most across the big four levers of value; credit, online, easy, customer experience and mobile

•     Infosec, to deliver a more secure experience for our customers

Most importantly, we are building in a way that will de-risk execution, led by a new IT leadership team, supported by new and improved partnerships. We are using vanilla, lower risk, proven solutions, minimising time, cost and risk.

 

We are underway with some early deliveries:

•     Better kit and connectivity to frontline colleagues

•     Stockless technology to extend the range

•     Revionics tool - more trust in pricing

•     Planning and forecasting systems for better product availability

 

 

International

We have a strong international business today, generating around 40% of the Group's profits this year and continuing to grow its market leading positions. First half results show good top and bottom line trajectory with strong management teams in place. The focus of our transformation today is on the UK & Ireland but we have a clear plan that is consistent with the UK but locally tailored. This includes growth opportunities in B2B, online, credit, an easy customer experience and focused on two growth categories, smart home and kitchen.

 

 

Financial Guidance

Our transformation is reshaping the business to be one which responds to how customers shop across all categories and to one which, over time, will deliver sustainable earnings growth with higher cash flows.

 

 

2018/19:

•     No change to headline PBT guidance of around £300 million, despite an expected modest loss in mobile.

•     As we commence the transformation we expect capex of c.£190 million. Given regulatory and data incident costs we now expect exceptional cash costs of £100 million (previous guidance of c.£30 million)

•     Net debt, broadly flat year-on year

•     All other guidance is unchanged

 

Medium term targets:

•     We will continue to grow market share in the categories of technology retailing where we operate in the UK & Ireland, Nordics and Greece. This will lead to like-for-like sales growth

•     UK mobile will go through a period of transition for 3 years, whilst we build new propositions, infrastructure, capability and combine mobile with other categories into One Business

•     Group EBIT margin will grow to at least 3.5%(1) as we complete the transformation to One Business. Savings in operating costs of £200 million will be sufficient to more than offset the headwinds and to support investments in our customers' experience

•     We believe that a steady state capex run rate of c.£175 million per annum is sufficient to maintain a well-invested business. Over the next 3 years we plan to invest an additional £200 million, weighted to the early years, to complete the merger and to create one modernised business with unified IT infrastructure  

•     The additional capex will be funded by a significant reduction in working capital

•     With this plan, we expect to deliver more than £1 billion of cumulative free-cash flow(2) over the next 5 years

 

 

 

Capital Structure and allocation

 

We intend to maintain a strong balance sheet throughout this business transformation.  We believe that net debt is at about the right level now.

We expect next year, FY20, to be the low point of cash flow generation, because the additional capex for transformation of £200m will be front-end loaded, whilst working capital reduction will take time to build. 

We plan to increase pension fund contributions next year, following the next triennial valuation, in agreement with the trustees, to reduce the recovery period to less than the current 12 years.

We will revert to the previous policy of 3 times cover for dividend, which will lead to a reduction of approximately 40% in the dividend this year. This is intended to allow the dividend and the pension fund contributions to be at least covered by free cash flow, which we consider to be prudent.

Going forward, our cash flow will build and we will apply it according to the following priorities, to maximise long-term shareholder returns:

1.   Invest to grow the core business

2.   Pay and grow the ordinary dividend and fund the pension deficit recovery plan agreed with the trustees

3.   Any appropriate strategic investment to enhance the core business

4.   Any surplus available for distribution to shareholders

 

(1)    Excludes any changes the revaluation of network receivables, the impact of which will continue to be separately disclosed.

(2)    Free cash flow: see glossary for definition.

 

 

 

 

Investor and analyst presentation and webcast

 

There will be a management presentation for investors and analysts at the London Stock Exchange at 8:30 am (GMT) this morning. There will be a video webcast of the presentation, details of which can be found on our corporate website, www.dixonscarphone.com and there will be an accompanying conference call:

Dial-in details: +44(0) 20 3936 2999; passcode: 310100

Seven-day replay: +44(0) 20 3936 3001; passcode: 793333

Next announcement

The Group will publish its Christmas 2018/19 trading update on 22nd January 2019.

For further information

Assad Malic

Group Corporate Affairs Director

+44 (0) 7414 191 044

Mark Reynolds

Head of Investor Relations

+44 (0) 7979 696 498

Amy Shields

Head of External Communications

+44 (0) 7588 201 442

Tim Danaher, Helen Smith

Brunswick Group

+44 (0) 207 4040 5959

 

 

About Dixons Carphone:

Dixons Carphone plc is a leading multinational consumer electrical and mobile retailer and services company, employing over 42,000 people in nine 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. With a full range of services and support, we make it easy for our customers to discover, choose and enjoy the right technology for them, throughout the life of the product. Our core multichannel operations are supported by an impressive distribution network and 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 in the UK, Ireland and the Nordics.

 

Performance review

The performance review below refers, unless otherwise stated, to headline information for continuing businesses. Statutory performance is discussed in the statutory results section below. The basis for the preparation of this information, including restatements due to businesses to be exited, discontinued operations and segmental classification, is described on page 2.

Group

Group revenue has increased 2% on a local currency basis, 2% on a like-for-like revenue basis and 1% on a reported currency basis to £4,893 million. This is primarily driven by strong performance in the UK&I electricals segment of 2% on a like-for-like basis, together with the Nordics region and Greece, reporting 3% and 11% like-for-like revenue growth respectively, with UK&I mobile like-for-like flat.

Headline EBIT has decreased to £61 million (2017/18: £82 million), largely driven by decreased EBIT of £28 million for UK & Ireland electricals, which is discussed below.

UK & Ireland electricals

Revenue increased by 2% to £1,997 million (2017/18: £1,953 million), with like-for-like revenue for the half year up 2%. This was driven by an increase in consumer electronics as well as strong gaming growth, including the successful rollout of gaming stations in 7 stores. Computing markets remained softer, against which we gained share.

Headline EBIT decreased £28 million year-on-year to £42 million (2017/18: £70 million) primarily in gross margin due to one-off credits in the prior year (including the systems reconciliation item previously disclosed) and in the current year, the shift in category mix away from computing as well as increased online penetration led to lower services attachment.

UK & Ireland mobile

Revenue decreased by 4% to £1,009 million (2017/18: £1,056 million) with like-for-like revenue for the half year flat. The reported decrease reflects the challenges in the 24 month postpay market in the period, partly offset by improvements in SIM Only and SIM Free categories. Like-for-like revenue grew 1% in Q2. Overall revenue was impacted by the closure of stores as announced in May 2018.

Gross margin has increased by 50 bps including the positive impact of 60bps resulting from network receivable revaluations year-on-year, partly offset by the continued challenging 24 month postpay market conditions.

Headline loss before interest and tax was £31 million (2017/18: loss of £36 million). This includes a negative revaluation of network receivables of £10 million (2017/18: negative revaluation of network receivables of £19 million offset by a positive £3 million relating to system reconciliation releases). This leads to a year-on-year positive impact on EBIT of £6 million relating to these one-off items.

 

Nordics

The first half has seen a strong performance in the Nordics with 4% local currency revenue growth. Reported revenue in the first half was up 1% to £1,675 million (2017/18: £1,666 million), the difference from local currency due to the strengthening in the Pound.

Like-for-like revenue grew by 3%, maintaining our leadership position with good growth in most categories particularly in telecoms and gaming, supported by strong online growth of 19%. This growth was particularly pleasing given the strong comparatives, with two year like-for-like up 12%, and was supported by further improvement in availability and customer satisfaction.

Gross margin improved c.20bps, with a more stable competitive environment, coupled with improved distribution cost efficiencies following the previously announced investments in the Jönköping distribution centre, as well as efficiencies resulting from the consolidation of brands in Norway, with the rebranding of Lefdal.

As a result, Nordics headline EBIT improved by £2 million to £44 million (2017/18: £42 million).

Greece

Greece has continued to grow strongly, with like-for-like revenue increasing 11%, local currency revenue increasing 11% and reported currency revenue increasing 11% to £212 million (2017/18: £191 million), with market share increasing across all categories. Gross margins remained stable, and reported EBIT of £6 million remained flat year-on-year (2017/18: £6 million) reflecting continued investment in core operations to support future growth.

Finance costs

Headline net finance costs have increased to £11 million (2017/18: £9 million) largely as a result of increased interest rates on the revolving credit facility. The non-headline costs of £6 million (2017/18: £8 million) relate to the interest on the UK defined benefit pension scheme.

 

 

Tax

The full year headline effective tax rate is expected to be 22%. The Group's headline effective rate of taxation applied to this period is 23%, due to the weighting of profits in the first half (2017/18: 24%). The rate is higher than the UK statutory rate of 19% due mainly to higher statutory rates in the Nordics and certain non-deductible items arising mainly in the UK.

Free cash flow

 

             H1 18/19

                        £m

             H1 17/18

                        £m

Headline EBIT

61

82

Depreciation and amortisation

81

78

Working capital

109

165

Capital expenditure

(84)

(92)

Taxation

(24)

(30)

Interest

(14)

(12)

Other

9

2

Free cash flow before restructuring items

138

193

Restructuring costs

(22)

(19)

Free cash flow - continuing operations

116

174

 

Free cash flow before restructuring in the first half was an inflow of £138 million (2017/18: £193 million), with the Group benefiting from a working capital inflow of £109 million (2017/18: £165 million). Working capital inflow is largely as a result of seasonality. The reduction in working capital benefit year-on-year is as a result of the timing of intake payments associated with product launches on extended payment terms with third parties of £61 million (see note 9 of the financial information).

 

Capital expenditure in the first half was £84 million, a reduction of £8 million compared to the prior period. The transformation programmes are now underway and expenditure in the second half of the year is anticipated to exceed that in 2017/18 recovering the shortfall seen in the first half.

 

Taxation paid has decreased from £30 million to £24 million due to overpayments in the prior year recovered in this year and the impact of reduced profitability.

 

Interest paid has increased primarily due to higher borrowing and increased interest rates following the LIBOR increase.

 

Restructuring costs comprise the cash costs associated with non-headline charges, including the strategic change programme, property rationalisation and the data incident as outlined in the non-headline section below.

 

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

 

 

 

Funding

 

H1 18/19


£m

H1 17/18


£m

Free cash flow

116

174

Dividends

(90)

(89)

Acquisitions and disposals including discontinued operations

-

27

Investment in joint venture

-

(3)

Net issue of new shares and purchase of own shares

-

3

Pension contributions

(46)

(46)

Other items

(5)

(1)

Movement in net debt

(25)

65

Opening net debt  

(249)

(271)

Closing net debt

(274)

(206)

 

At 27 October 2018 the Group had net debt of £274 million (2017/18: £206 million). A reconciliation of net debt is presented in note 9 to the financial information. Free cash flow was an inflow of £116 million (2017/18: inflow of £174 million) for the reasons above.

 

Of the free cash flow, £90 million was returned to shareholders in the form of dividends for the 2017/18 financial year.

 

Acquisition and disposals primarily relates to consideration received for honeybee of £8 million, offset by £5m of additional payments for honeybee related costs and £3 million payment for warranties in relation to previously disposed operations in Portugal.

 

Pension contributions of £46 million are consistent with the prior period, and in line with the current agreement with the Trustees of the fund. Annual contributions are paid in full in the first half of the year.

 

Other items in both the current and prior periods relate to foreign exchange gains and losses on net debt.

Statutory results

Income statement - continuing operations

 

 

H1 18/19
£m

H1 17/18

£m

Revenue

4,893

4,869

EBIT

(423)

71

Net finance costs

(17)

(17)

(Loss) / profit before tax

(440)

54

Tax

(20)

(2)

(Loss) / profit after tax - continuing operations

(460)

52

Basic (loss) / earnings per share - continuing operations

(39.7)p

4.5p

Diluted (loss) / earnings per share - continuing operations

(39.7)p

4.5p

 

EBIT decreased from £71 million to a loss before interest and tax of £423 million predominantly reflecting the non-headline costs described below of £484 million (2017/18: £11 million) and decreased headline EBIT as discussed above.

Net finance costs remain in line with the prior year at £17 million.

The full year headline effective tax rate is expected to be 22%. The increased tax charge in the current year is primarily due to the tax provision of £46 million as outlined below, offset by additional tax credits due to the non-headline charges recorded.

The decrease in statutory basic EPS reflects the reduced profit after tax in the period, with no significant changes in the number of shares in issue.

Non-headline items

Statutory loss before tax of £440 million (H1 2017/18: profit before tax of £54 million) includes non-headline charges of £490 million (H1 2017/18: £19 million), of which £338 million relates to non-cash impairments. These charges are analysed below:

 

 

H1 18/19


£m

H1 17/18


£m

Acquisition / disposal related items

 

(9)

(9)

Strategic change programmes

 

(57)

(2)

Data incident costs

 

(17)

-

Regulatory costs

 

(57)

-

Impairment losses

 

(344)

-

Total non-headline items before interest and tax

 

(484)

(11)

Net pension interest

 

(6)

(8)

Total non-headline items before tax

 

(490)

(19)

Tax

 

(8)

15

(Loss) after tax - discontinued operations

 

(12)

(14)

Total non-headline items

 

(510)

(18)

 

Acquisition / disposal related costs in the current year relate to amortisation of acquisition intangibles and the release of contingent consideration for a previous acquisition. Prior year costs relate to amortisation of acquisition intangibles, results of businesses to be exited and income received from previously disposed businesses.

Strategic change programmes relate to significant reorganisation, additional property rationalisation costs provided and costs to exit non-core businesses. Prior year costs include functional transformation costs and property rationalisation costs.

Data incident costs relate to costs associated with the data incident announced on 13 June 2018, Regulatory matters relates to an increase in pension liability as a result of Guaranteed Minimum Pension equalisation of £18 million, on-going employee related matters and other ongoing regulatory matters.

As part of the strategic review, the Group has separated the previous operating segment in the UK & Ireland into the separate electricals and mobile operating segments. Given the challenges in the mobile market, and the corresponding change in the UK&I mobile performance in the period, the Group has changed the information presented to the Board to provide greater clarity over the relative performance of the two UK&I businesses and to support decisions related to the allocation of the Group's resources. This change has included the provision of separate financial information being provided in respect of the UK&I mobile and electricals segments. As a result of the change, the goodwill previously allocated to the UK & Ireland has been separated into UK & Ireland electricals and UK & Ireland mobile and an impairment review was then performed over the new segments. This identified a material non-cash impairment charge of £225 million to be recorded over the goodwill of the UK & Ireland mobile segment, together with impairment of related assets £113 million and additional onerous lease charges of £6 million to be recorded against individual stores.

Net pension interest was £6 million (2017/18: £8 million) reflecting the charge incurred in relation to the Dixons Retail UK pension scheme. Further details on the pension scheme can be found in the Pensions section later in this performance review.

The tax charge of £8 million represents a tax credit on the above non-headline items of £38 million, offset by an additional tax provision of £46 million in relation to pre-merger legacy corporate transactions.

For further details of non-headline items see note 3 to the interim financial information.

Discontinued operations

On 4 May 2018, the Group agreed to sell the honeybee operations through an asset sale, which was completed on 31 May 2018. These operations were classified as a disposal group held for sale in the year ended 28 April 2018.

During the 26 weeks ended 27 October 2018, no profit or loss on disposal was recognised from the completion of the sale of the operations. Additional costs of £6 million have been recorded following the sale in relation to onerous contracts of £3 million and compensation to previous employees of £3 million.

 

 

 

Balance sheet

 

27 October 2018

                        £m

28 April 2018

                        £m

Goodwill

2,882

3,088

Other fixed assets

742

872

Working capital

(291)

(96)

Net debt

(274)

(249)

Tax, pension & other

(461)

(419)

 

2,598

3,196

 

Goodwill has decreased by £206 million to £2,882 million largely as a result of impairment to UK & Ireland mobile goodwill.

The net working capital liability has increased by £195 million to £291 million, driven by increases in trade payables due to the timing of payments to suppliers, seasonal increase in inventory balances in readiness for peak trading, and an increase in provisions in the period as a result of the non-headline charges described above. Overall net debt has increased by £25 million as described in the cash flow section above.

Tax, pension and other liabilities have increased by £42 million driven by the increase in the UK defined benefit pension scheme of £44 million.

Cash flow statement

 

             H1 18/19

                        £m

             H1 17/18

                        £m

EBIT - continuing operations

(423)

71

EBIT - discontinued operations

(11)

(16)

Depreciation and amortisation

96

102

Impairments

343

-

Working capital

208

130

Other operating cash flows

(61)

(64)

Cash flows from operating activities

152

223

 

 

 

Acquisitions

(1)

(3)

Capital expenditure

(84)

(98)

Investment in joint venture

-

(3)

Other investing cash flows

17

48

Cash flows from investing activities

(68)

(56)

 

 

 

Dividends paid

(90)

(89)

Other financing cash flows

(81)

7

Cash flows from financing activities

(171)

(82)

 

 

 

(Decrease) / increase in cash and cash equivalents

(87)

85

 

 

The statutory EBIT for the Group has decreased for the reasons discussed in the performance section above. The statutory EBIT includes the charges of £484 million relating to the 'non-headline' items. Depreciation and amortisation charges remained relatively consistent in the period. Working capital movements are due to the reasons described in the free cash flow section above, together with the movement of provisions recorded associated with the non-headline costs incurred and timing variances.

 

Other operating cash flows primarily relates to pension contributions and taxation cashflows.

 

Acquisition outflows of £1 million (2017/18: £3 million) relate to deferred consideration payments in the Nordics for the 'Epoq' kitchen business. Investment in joint venture of £3 million related to further contributions into the Sprint joint venture prior to disposal.

 

Other investing cash flows relate to proceeds on disposal of fixed assets, representing consideration for a property sold in the previous period and the consideration received for the honeybee assets (2017/18: proceeds received following the disposal of the Group's Spanish operations and the disposal of the Sprint joint venture in the period and additional consideration received in relation to prior period disposals). Other financing cash flows of £81 million primarily relate to the repayment and drawdown of cash under the revolving credit facilities.

 

Comprehensive income / changes in equity

Total equity for the Group has decreased from £3,196 million to £2,598 million driven by the statutory loss of £472 million in the period, the gain on retranslation of overseas operations of £19 million, dividend payments of £90 million and the decrease in the IAS19 defined benefit pension deficit for the UK pension scheme. This latter result reflects the change in discount and inflation rates in the period, giving an actuarial loss of £66 million.

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme amounted to £514 million at 27 October 2018 (28 October 2017: £492 million, 28 April 2018: £470 million). Contributions during the period under the terms of the deficit reduction plan amounted to £46 million (H1 17/18: £46 million, FY 17/18: £46 million) reflecting the timing of contributions following the 2016 triennial valuation.

The deficit has increased during the first half largely as a result of changes in discount and inflation rate assumptions, together with an additional £18 million relating to increases for Guaranteed Minimum Pension equalisation as discussed in the non-headline section in note 3 of the financial information.

Dividends

The Board has declared an interim dividend of 2.25p per share. The ex-dividend date is 27 December 2018, with a record date of 28 December 2018 and an intended payment date of 25 January 2019.

Consolidated income statement

 

 

26 weeks ended 27 October 2018

 

Unaudited

26 weeks ended 28 October 2017

(Restated)*

Unaudited

 

Note

Headline*

£m

Non-headline*

£m

Total
£m

Headline*

£m

Non-headline*

£m

Total
£m

Continuing operations

 

 

 

 

 

 

 

Revenue

2,3

4,893

-

4,893

4,866

3

4,869

 

 

 

 

 

 

 

 

Profit / (loss) before interest and tax

2,3

61

(484)

(423)

82

(11)

71

 

 

 

 

 

 

 

 

Finance income

 

6

-

6

7

-

7

Finance costs

 

(17)

(6)

(23)

(16)

(8)

(24)

Net finance costs

 

(11)

(6)

(17)

(9)

(8)

(17)

 

 

 

 

 

 

 

 

Profit / (loss) before tax

 

50

(490)

(440)

73

(19)

54

 

 

 

 

 

 

 

 

Income tax (expense) / credit

4

(12)

(8)

(20)

(17)

15

(2)

Profit / (loss) after tax - continuing operations

 

38

(498)

(460)

56

(4)

52

 

 

 

 

 

 

 

 

Loss after tax - discontinued operations

10

-

(12)

(12)

-

(14)

(14)

 

 

 

 

 

 

 

 

Profit / (loss) after tax for the period

 

38

(510)

(472)

56

(18)

38

 

 

 

 

 

 

 

 

Earnings/(loss) per share (pence)

5

 

 

 

 

 

 

Basic - continuing operations

 

3.3p

 

(39.7)p

4.8p

 

4.5p

Diluted - continuing operations

 

3.3p

 

(39.7)p

4.8p

 

4.5p

Basic - total

 

 

 

(40.7)p

 

 

3.3p

Diluted - total

 

 

 

(40.7)p

 

 

3.3p

 

 

 

 

 

 

 

 

 

*    Headline results exclude amortisation of acquisition intangibles, significant reorganisation costs, significant impairments, businesses to be exited, property rationalisation costs, acquisition-related costs and other one-off, non-recurring items, net interest on defined benefit pension schemes and discontinued operations. Such excluded items are described as 'non-headline' as discussed in note 3.

     The headline and non-headline results have been restated for the 26 weeks ended 28 October 2017 to reflect the classification of the honeybee operations as discontinued as discussed in note 10 and note 13.

 

 

      

 

 

 

 

Year ended 28 April 2018

 

Audited

 

Note

 

 

 

Headline

£m

Non-headline

£m

Total
£m

Continuing operations

 

 

 

 

 

 

 

Revenue

2,3

 

 

 

10,525

6

10,531

 

 

 

 

 

 

 

 

Profit / (loss) before interest and tax

2,3

 

 

 

400

(79)

321

 

 

 

 

 

 

 

 

Finance income

 

 

 

 

14

-

14

Finance costs

 

 

 

 

(32)

(14)

(46)

Net finance costs

 

 

 

 

(18)

(14)

(32)

 

 

 

 

 

 

 

 

Profit / (loss) before tax

 

 

 

 

382

(93)

289

 

 

 

 

 

 

 

 

Income tax (expense) / credit

4

 

 

 

(79)

26

(53)

Profit / (loss) after tax - continuing operations

 

 

 

 

303

(67)

236

 

 

 

 

 

 

 

 

Loss after tax - discontinued operations

10

 

 

 

-

(70)

(70)

 

 

 

 

 

 

 

 

Profit / (loss) after tax for the period

 

 

 

 

303

(137)

166

 

 

 

 

 

 

 

 

Earnings per share (pence)

5

 

 

 

 

 

 

Basic - continuing operations

 

 

 

 

26.2p

 

20.4p

Diluted - continuing operations

 

 

 

 

26.1p

 

20.3p

Basic - total

 

 

 

 

 

 

14.4p

Diluted - total

 

 

 

 

 

 

14.3p

 

 

 

 

 

 

 

 

 

*    Headline results exclude amortisation of acquisition intangibles, significant reorganisation costs, significant impairments, businesses to be exited, property rationalisation costs, acquisition-related costs and other one-off, non-recurring items, net interest on defined benefit pension schemes and discontinued operations. Such excluded items are described as 'non-headline' as discussed in note 3.

 

Consolidated statement of comprehensive income

 

 

26 weeks ended
27 October 2018

Unaudited
£m

26 weeks ended
28 October 2017

Unaudited
£m

Year ended
28 April

 2018

Audited
£m

(Loss) / profit after tax for the period

 

(472)

38

166

 

 

 

 

 

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

 

 

 

 

Cash flow hedges

 

 

 

 

Fair value movements recognised in other comprehensive income

 

2

(3)

(5)

Reclassified and reported in income statement

 

(12)

(4)

(11)

Amounts recognised in inventories

 

1

8

29

Fair value through other comprehensive income financial assets

 

 

 

 

(Losses) / gains arising during the period

 

(4)

10

9

Reclassification adjustments for gains included in profit or loss

 

-

(11)

(11)

Exchange gain arising on translation of foreign operations

 

19

47

8

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

 

-

-

-

 

 

6

47

19

 

 

 

 

 

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

 

 

 

 

Actuarial (losses) / gains on defined benefit pension schemes      - UK

 

(66)

59

87

                                                                                                                - Overseas

 

-

-

(1)

Tax on actuarial gains / (losses) on defined benefit pension schemes

 

12

(10)

(15)

 

 

(54)

49

71

 

 

 

 

 

Other comprehensive (expense) / income for the period (taken to equity)

 

(48)

96

90

 

 

 

 

 

Total comprehensive (expense) / income for the period

 

(520)

134

256

 

 

 

 

 

 

Consolidated balance sheet

 

Note

27 October 2018

 

Unaudited
£m

28 October 2017

 

Unaudited
£m

28 April

 2018

 

Audited
£m

Non-current assets

 

 

 

 

Goodwill

 

2,882

3,125

3,088

Intangible assets

 

420

565

478

Property, plant & equipment

 

322

400

394

Investments

 

14

18

17

Interests in joint ventures and associates

 

-

1

1

Trade and other receivables

 

447

534

507

Deferred tax assets

 

247

243

240

 

 

4,332

4,886

4,725

Current assets

 

 

 

 

Inventory

 

1,410

1,375

1,145

Deferred consideration

 

-

17

-

Trade and other receivables

 

1,210

1,242

1,154

Derivative assets

 

21

18

27

Assets held for sale

 

-

-

17

Cash and cash equivalents

 

119

290

228

 

 

2,760

2,942

2,571

 

 

 

 

 

Total assets

 

7,092

7,828

7,296

Current liabilities

 

 

 

 

Trade and other payables

 

(2,886)

(3,073)

(2,505)

Derivative liabilities

 

(15)

(8)

(7)

Deferred and contingent consideration

 

(2)

(8)

(1)

Income tax payable

 

(79)

(70)

(72)

Loans and other borrowings

 

(36)

-

(63)

Finance lease obligations

 

(3)

(3)

(3)

Liabilities held for sale

 

-

-

(2)

Provisions

 

(171)

(75)

(67)

 

 

(3,192)

(3,237)

(2,720)

Non-current liabilities

 

 

 

 

Trade and other payables

 

(283)

(337)

(318)

Deferred and contingent consideration

 

(3)

(12)

(12)

Loans and other borrowings

 

(273)

(408)

(329)

Finance lease obligations

 

(81)

(85)

(82)

Retirement benefit obligations

7

(516)

(494)

(472)

Deferred tax liabilities

 

(122)

(134)

(135)

Provisions

 

(24)

(12)

(32)

 

 

(1,302)

(1,482)

(1,380)

Total liabilities

 

(4,494)

(4,719)

(4,100)

Net assets

 

2,598

3,109

3,196

 

 

 

 

 

Capital and reserves

 

 

 

 

Share capital

 

1

1

1

Share premium reserve

 

2,263

2,263

2,263

Accumulated profits

 

1,026

1,517

1,643

Translation reserve

 

58

78

39

Demerger reserve

 

(750)

(750)

(750)

Equity attributable to equity holders of the parent company

 

2,598

3,109

3,196

 

            Consolidated statement of changes in equity

 

Note

Share
capital
£m

Share
premium reserve
£m

Accumulated profits
£m

Translation reserve
£m

Demerger
reserve
£m

Total equity
£m

As reported at 28 April 2018

 

1

2,263

1,643

39

(750)

3,196

Adjustment on initial application of IFRS 15 (net of tax)

1b

-

-

4

-

-

4

Adjustment on initial application of IFRS 9 (net of tax)

1b

-

-

(1)

-

-

(1)

Adjusted balance at 28 April 2018

 

1

2,263

1,646

39

(750)

3,199

Loss for the period

 

-

-

(472)

-

-

(472)

Other comprehensive income and expense recognised directly in equity

 

-

-

(67)

19

-

(48)

Total comprehensive income and expense
for the period

 

-

-

(539)

19

-

(520)

 

 

 

 

 

 

 

 

Equity dividends

 

-

-

(90)

-

-

(90)

Net movement in relation to share schemes

 

-

-

9

-

-

9

At 27 October 2018

 

1

2,263

1,026

58

(750)

2,598

 

 

 

Share
capital
£m

Share
premium reserve
£m

Accumulated profits
£m

Translation reserve
£m

Demerger
reserve
£m

Total equity
£m

At 29 April 2017

 

1

2,260

1,513

31

(750)

3,055

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

38

-

-

38

Other comprehensive income and expense recognised directly in equity

 

-

-

49

47

-

96

Total comprehensive income and expense
for the period

 

-

-

87

47

-

134

 

 

 

 

 

 

 

 

Ordinary shares issued

 

-

3

(2)

-

-

1

Equity dividends

 

-

-

(89)

-

-

(89)

Net movement in relation to share schemes

 

-

-

8

-

-

8

At 28 October 2017

 

1

2,263

1,517

78

(750)

3,109

 

 

 

 

Share
capital
£m

Share
premium reserve
£m

Accumulated profits
£m

Translation reserve
£m

Demerger
reserve
£m

Total equity
£m

At 29 April 2017

 

1

2,260

1,513

31

(750)

3,055

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

166

-

-

166

Other comprehensive income and expense recognised directly in equity

 

-

-

82

8

-

90

Total comprehensive income and expense
for the period

 

-

-

248

8

-

256

 

 

 

 

 

 

 

 

Ordinary shares issued

 

-

3

(2)

-

-

1

Equity dividends

 

-

-

(130)

-

-

(130)

Net movement in relation to share schemes

 

-

-

14

-

-

14

At 28 April 2018

 

1

2,263

1,643

39

(750)

3,196

            Consolidated cash flow statement

 

 

Note

26 weeks
ended
27 October 2018

 

Unaudited

£m

26 weeks
ended
28 October 2017

 

Unaudited

£m

Year
ended
28 April

 2018

 

Audited

£m

Operating activities

 

 

 

 

 

Cash generated from operations

 

9

222

298

420

Special contributions to defined benefit pension scheme

 

 

(46)

(46)

(46)

Income tax paid

 

 

(24)

(29)

(62)

Net cash flows from operating activities

 

 

152

223

312

Investing activities

 

 

 

 

 

Net cash outflow arising from acquisitions

 

 

(1)

(3)

(7)

Proceeds from disposal of property, plant & equipment

 

 

9

2

2

Proceeds on sale of business

 

 

8

46

63

Acquisition of property, plant & equipment and other intangibles

 

 

(84)

(98)

(187)

Investment in joint venture

 

 

-

(3)

(3)

Net cash flows from investing activities

 

 

(68)

(56)

(132)

Financing activities

 

 

 

 

 

Interest paid

 

 

(14)

(9)

(19)

Repayment of obligations under finance leases

 

 

(1)

(4)

(10)

Issue of ordinary shares

 

 

-

3

1

Equity dividends paid

 

 

(90)

(89)

(130)

(Decrease)/Increase in borrowings

 

 

(66)

17

(32)

Facility arrangement fees paid

 

 

-

-

(2)

Net cash flows from financing activities

 

 

(171)

(82)

(192)

 

 

 

 

 

 

(Decrease) / increase in cash and cash equivalents and bank overdrafts

 

 

(87)

85

(12)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

185

209

199

Currency translation differences

 

 

(5)

(4)

(2)

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

 

 

93

290

185

 

.

            Notes to the financial information

1     Accounting policies

a) Basis of preparation

The interim financial information for the 26 weeks ended 27 October 2018 was approved by the directors on 11 December 2018.  The interim financial information, which is a condensed set of financial statements, has been prepared in accordance with the Listing Rules of the Financial Conduct Authority and International Accounting Standard 34 "Interim Financial Reporting" (IAS 34) as adopted by the European Union and has been prepared on the going concern basis as described further in the section on risks to achieving the Group's objectives.

The accounting policies adopted are those set out in the Group's Annual Report and Accounts for the year ended 28 April 2018 which were prepared in accordance with IFRS as adopted by the European Union, except for as disclosed in note 1b, where the impact of new accounting standards is detailed for IFRS 9 "Financial Instruments: Recognition and Measurement" and IFRS 15 "Revenue from contracts with customers". Additional amendments to standards and IFRIC interpretations which became applicable during the period were either not relevant or had no impact on the Group's net results or net assets.

The interim financial information uses definitions that are set out on pages 44 to 48 of this document.

The interim financial information is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006, but has been reviewed by the auditor.  The financial information for the year ended 28 April 2018 does not constitute the Company's statutory accounts for that period but has been extracted from those accounts which have been filed with the Registrar of Companies and are also available on the Group's corporate website www.dixonscarphone.com. The auditor has reported on those accounts, their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.

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

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

A reconciliation of headline profit and losses to total profits and losses is shown in note 2, together with a description of the nature of the non-headline results recorded.

Items excluded from headline results can evolve from one financial year to the next depending on the nature of exceptional items or one-off type activities described above. Headline performance measures and non-headline performance measures may not be directly comparable with other similarly titled measures or 'adjusted' revenue or profit measures used by other companies.

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

b) Impact of new standards

The Group has adopted IFRS 15: 'Revenue from Contracts with Customers' and IFRS 9: 'Financial Instruments: Recognition and Measurement' from 29 April 2018. Both standards have been applied using the modified retrospective approach.

IFRS 15: 'Revenue from Contracts with Customers'

The Group has adopted IFRS 15 using the cumulative effect method of initially applying IFRS 15 as an adjustment to the opening balance of equity at 29 April 2018. Therefore, comparative information has not been restated and continues to be reported under IAS 18 and IAS 11.

The majority of Group sales are for goods sold in store and online, where there is a single performance obligation and revenue is recognised at the point of sale or, where later, delivery to the end customer. There is no impact from the adoption of IFRS 15 on these sales, other than reclassification of returns provisions currently recorded within accruals in the balance sheet, to a gross expected return liability and asset.

For network commission revenue, there is no impact from the adoption of IFRS 15, and revenue continues to be recognised in a manner consistent with the current accounting policy as detailed in the 2017/18 Annual Report.

For certain other revenue streams, the adoption of IFRS 15 has had an impact on the timing of revenue recognition and the allocation of total transaction price between performance obligations based on relative standalone fair values. The revenue types affected, revised accounting policy and impact are disclosed below:

 

 

1     Accounting policies (continued)

b) Impact of new standards (continued)

·      Customer support agreements - under IAS 18 revenue was recognised with reference to the stage of completion of the contract based on the contracted term or, for monthly contracts, our estimate of customer tenure, and the profile of total expected costs.

IFRS 15 introduces new requirements relating to the assessment of the contract length over which revenue is recognised, and recognition over time or at a point in time. Due to the cancellation options and customer refund clauses within the agreements, the term has been reassessed to be either monthly or a series of day to day contracts.

Revenue has therefore been recognised in full as each performance obligation is satisfied. For monthly agreements revenue has been recognised in full in the month to which payment relates. For arrangements assessed as being a series of day to day contracts revenue has been recognised on a 'straight-line' basis.

The impact of these changes has been a release of £24 million of deferred income recorded in the FY 2018/19 opening balance sheet for current contracts to reserves. This impact will unwind to the income statement over a 5 year period. The impact on the statement of comprehensive income in the six months ended 27 October 2018 has been a decrease in revenue and headline EBIT of £3 million in the UK&I electricals reportable segment.

·      Commission from insurance products - The Group receives sales commission from the sale of third-party insurance products and for the provision of brokerage and other claims handling services on behalf of the insurance provider.

Under IAS 18, sales commission from the sale of these products is recognised when the insurance policies are sold, and revenue from the provision of administration services is recognised over the life of the relevant policies.

Under IFRS 15 the Group has re-assessed the standalone selling price of the commission and administration services provided, which has resulted in a reduction in the level of commission receivable recognised on the opening balance sheet of £18 million, to reallocate consideration from commission (recognised up front) to other services (recognised over time). This has led to an increase in reported Revenue and headline EBIT of £1 million in the six months ended 27 October 2018 in the UK&I mobile reportable segment.

In addition, a small impact has been identified in relation to the treatment of credit sales in the Greece reportable segment, which has resulted in a reallocation of £1m in the six months ended 28 October 2018 from revenue to finance income.

Classification of contract assets and contract liabilities

Under IFRS 15, assets and liabilities previously recognised as accrued income and deferred income have been reclassified as contract assets and contract liabilities respectively and have been presented under the trade and other receivables and trade and other payables categories in the consolidated balance sheet.

IFRS 9: 'Financial Instruments: Recognition and measurement'

As at 28 April 2018, financial assets were assessed for impairment using the IAS 39 incurred loss model. IFRS 9 requires financial assets to be assessed using the expected credit loss model. The Group applies the simplified model to recognise lifetime expected credit losses for its trade receivables and other receivables by making an accounting policy election. The application of the model has led to a change in the recognition of credit losses to bring forward the impact of future expected credit losses compared to the previous accounting policy. The financial assets affected by this change largely relate to credit receivables in Greece, franchise receivables in Nordics and Greece and the B2B businesses in the UK&I electricals operating segment. The network commission receivable in UK&I mobile is unaffected by the change. The overall impact has been a reduction in opening reserves of £2 million, with no impact on the statement of comprehensive income in the six months ended 27 October 2018.

IFRS 9 contains three classifications of financial assets, they are: measured at amortised cost, fair value through other comprehensive income (FVTOCI) and fair value through profit and loss (FVTPL). Guidance set out by IFRS 9 states that the business model of the entity which holds the financial asset and its contractual cash flow characteristics determine how the asset is classified. Categories of assets such held to maturity, loans and receivables and available for sale that applied under IAS 39 are no longer valid.

Under IFRS 9, equity investments are held at fair value including those that do not have a quoted price in an active market for an identical instrument. The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies for financial liabilities.

Other than reclassifications, the adoption of IFRS 9 has not had led to any valuation changes or changes in treatments for financial assets or liabilities other than the impairment change described above.

All Group hedging relationships designated under IAS 39 at 28 April 2018 met the criteria for hedge accounting under IFRS 9 at 29 April 2018, and are therefore regarded as continuing hedging relationships.

The Group has taken advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement changes under IFRS 9. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are therefore recognised in retained earnings and reserves as at 1 January 2018.

1     Accounting policies (continued)

b) Impact of new standards (continued)

Impact on opening reserves and primary statements

The impact of the change on opening reserves is as follows:

 

 

 

£m

Opening balance at 28 April 2018

 

 

1,643

IFRS 15 - consumer support agreements

 

 

24

IFRS 15 - commissions from insurance products

 

 

(18)

IFRS 9 - expected credit loss model

 

 

(2)

Taxation on transition adjustments

 

 

(1)

Adjusted balance at April 2018

 

 

1,646

 

Consolidated statement of comprehensive income

Headline

 

As reported 26 weeks ended 27 October 2018

£m

IFRS 15 and IFRS 9 adjustment

£m

Amounts without the adoption of IFRS 15 and IFRS 9

£m

Revenue

 

4,893

3

4,896

Profit / (loss) before interest and tax

 

61

3

64

Net finance costs

 

(11)

(1)

  (12)

Profit / (loss) before tax

 

50

2

52

Tax

 

(12)

-

   (12)

Profit after tax for the period

 

38

2

40

 

Consolidated balance sheet

 

 

As reported 26 weeks ended 27 October 2018

£m

IFRS 15 and IFRS 9 adjustment

£m

Amounts without the adoption of IFRS 15 and IFRS 9

£m

Non-current assets

 

4,332

-

4,332

 

 

 

 

 

Trade and other receivables

 

1,210

19

1,229

Other current assets

 

1,550

-

1,550

Current assets

 

2,760

19

2,779

 

 

 

 

 

Total assets

 

7,092

19

7,111

 

 

 

 

 

Trade and other payables

 

(2,886)

(20)

(2,906)

Other current liabilities

 

(306)

-

(306)

Current liabilities

 

(3,192)

(20)

(3,212)

 

 

 

 

 

Non-current liabilities

 

(1,302)

-

(1,302)

 

 

 

 

 

Net assets

 

2,598

(1)

2,597

 

 

 

 

 

Accumulated profits

 

1,026

(1)

1,025

Other capital and reserves

 

1,572

-

1,572

Equity attributable to equity holders of the parent

 

2,598

(1)

2,597

 

 

1     Accounting policies (continued)

b) Impact of new standards (continued)

IFRS 16: 'Leases'

IFRS 16 'Leases' is applicable for periods beginning on or after 1 January 2019, and will therefore be applied by the Group in the 2019/20 financial year. IFRS 16 will require the Group to recognise a lease liability and a right-of-use asset for most of those leases previously treated as operating leases. This will have a material effect on both non-current and current liabilities, fixed assets and the measurement and disclosure of expense associated with the leases which under the new standard will be treated as depreciation and financing expense which were previously recognised as operating expenses over the term of the lease.

The adoption of the standard will materially increase total assets, as leased assets will be recognised on balance sheet, primarily relating to our trading store portfolio. There will also be a material increase in liabilities in relation to these committed leases. Lease expenditure will be reclassified and split from the current presentation in operating expenditure to depreciation and interest costs. This will result in a change to the profile of the net charge taken to the income statement over the period of the lease.

The Group intends to apply the modified retrospective approach on transition. A project continues across the Group to finalise the overall impact of the standard. Given the complexities of the standard, and the sensitivities to key assumptions, it is not yet practicable to provide a full estimate of the impact.

 

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.

Changes to operating segments

During the period, the operating and reporting segments of the Group have changed, and reflect the updated segments reported to the Board, who are considered the Chief Operating Decision Maker under IFRS 8 "Operating Segments". The previously disclosed UK & Ireland segment has been separated into UK & Ireland electricals and UK & Ireland mobile. Given the challenges in the mobile market, and the corresponding change in the UK&I mobile performance in the period, the Group has changed the information presented to the Board to provide greater clarity over the relative performance of the two UK&I businesses and to support decisions related to the allocation of the Group's resources. This change has included the provision of separate financial information being provided in respect of the UK&I mobile and electricals segments. The UK & Ireland electricals operating segment consists of the CurrysPCWorld and Dixons Travel businesses, and the UK & Ireland mobile segment relates to the Carphone Warehouse, iD mobile and Simplify Digital businesses and the Connected World Services B2B operations.

In addition, as disclosed in the Annual Report and Accounts for the year ended 28 April 2018, following the classification of the results of the honeybee segment as discontinued operations, these are no longer presented as a separate operating segment.

The restatement of comparative information for these segments has been set out in part (b) of this note.

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

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

•        UK & Ireland electricals comprises operations of CurrysPCWorld 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 and for non-headline items, our previously disposed operations in Southern Europe.

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

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.

 

2     Segmental analysis (continued)

(a)   Segmental results

 

 

 

 

 

 

 

26 weeks ended 27 October 2018

 

 

 

UK & Ireland electricals

£m

UK & Ireland mobile

£m

Nordics

£m

 Greece
£m

Eliminations

£m

Total
 £m

Headline external revenue

 

 

1,997

1,009

1,675

212

-

4,893

Inter-segmental revenue

 

 

36

41

-

-

(77)

-

Total headline revenue

 

 

2,033

1,050

1,675

212

(77)

4,893

 

 

 

 

 

 

 

 

 

Headline EBIT

 

 

42

(31)

44

6

-

61

 

 

 

 

 

 

 

 

 

 

Reconciliation of headline profit to total profit

 

 

 

 

 

26 weeks ended 27 October 2018

 

Headline
profit / (loss)
£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

Total
profit / (loss)*

£m

UK & Ireland electricals

42

(7)

(39)

(17)

(23)

-

-

(44)

UK & Ireland mobile

(31)

4

(18)

-

(34)

(344)

-

(423)

Nordics

44

(6)

-

-

-

-

-

38

Greece

6

-

-

-

-

-

-

6

EBIT

61

(9)

(57)

(17)

(57)

(344)

-

(423)

Finance income

6

-

-

-

-

-

-

6

Finance costs

(17)

-

-

-

-

-

(6)

(23)

Profit / (loss) before tax

50

(9)

(57)

(17)

(57)

(344)

(6)

(440)

 

 

 

 

 

 

 

26 weeks ended 28 October 2017 (restated)

 

 

 

UK & Ireland electricals

£m

UK & Ireland

mobile

£m

Nordics

£m

Greece
£m

Eliminations

£m

Total
 £m

Headline external revenue*

 

 

1,953

1,056

1,666

191

-

4,866

Inter-segmental revenue

 

 

45

21

-

-

(66)

-

Total headline revenue*

 

 

1,998

1,077

1,666

191

(66)

4,866

 

 

 

 

 

 

 

 

 

Headline EBIT*

 

 

70

(36)

42

6

-

82

 

 

 

 

 

 

 

 

 

 

Reconciliation of headline profit to total profit

 

 

 

26 weeks ended 28 October 2017 (restated)

 

Headline
profit / (loss)*
£m

Acquisition / disposal related items

£m

Strategic change programmes
£m

 

 

 

Pension scheme interest
£m

Total
profit / (loss)*

£m

UK & Ireland electricals

70

(7)

(1)

-

62

UK & Ireland mobile

(36)

(6)

-

-

(42)

Nordics   

42

(6)

(1)

-

35

Greece

6

10

-

-

16

EBIT

82

(9)

(2)

-

71

Finance income

7

-

-

-

7

Finance costs

(16)

-

-

(8)

(24)

Profit / (loss) before tax

73

(9)

(2)

(8)

54

 

 

2     Segmental analysis (continued)

(a)   Segmental results (continued)

 

 

 

 

 

 

 

Year ended 28 April 2018 (restated)

 

 

 

UK & Ireland electricals

£m

UK & Ireland

 mobile

£m

Nordics

£m

 Greece
£m

Eliminations

£m

Total
 £m

Headline external revenue*

 

 

4,412

2,233

3,470

410

-

10,525

Inter-segmental revenue

 

 

86

66

-

-

(152)

-

Total headline revenue*

 

 

4,498

2,299

3,470

410

(152)

10,525

 

 

 

 

 

 

 

 

 

Headline EBIT*

 

 

234

47

101

18

-

400

 

 

 

 

 

 

 

 

 

 

Reconciliation of headline profit to total profit

 

 

 

 

Year ended 28 April 2018 (restated)

 

Headline*
profit / (loss)
£m

Acquisition / disposal related items
£m

Strategic change programmes

£m

Share plan taxable benefit compensation

£m

Pension scheme interest
£m

Total
profit / (loss)*

£m

UK & Ireland electricals

234

(13)

(32)

2

-

191

UK & Ireland mobile

47

(13)

(6)

-

-

28

Nordics    

101

(12)

(14)

-

-

75

Greece

18

9

-

-

-

27

EBIT

400

(29)

(52)

2

-

321

Finance income

14

-

-

-

-

14

Finance costs

(32)

-

-

-

(14)

(46)

Profit / (loss) before tax

382

(29)

(52)

2

(14)

289

 

* - Headline results and total profit/(loss) have been restated to exclude the results of the honeybee operations which have been classified as discontinued operations, and comparatives have been restated accordingly as discussed in note 13.

 

 (b) Restatement of segmental information

 

As discussed above, during the period the Group's reportable segments have been changed, and comparatives have been restated accordingly. The below tables provide reconciliations for the headline revenue and headline EBIT for the year ended 28 April 2018 and 26 weeks ended 28 October 2017. The adjustment relevant for both periods are the reallocation of UK & Ireland results between the UK & Ireland electricals and UK & Ireland mobile segments.

 

The restated comparatives for the 26 weeks ended 28 October 2017 have also been adjusted to remove the iD Mobile Ireland and Sprint Joint Venture results which were previously treated as 'non-headline' as set out in note 3.

 

26 weeks ended 28 October 2017

 

 

 

 

 

 

26 weeks ended 28 October 2017

 

 

 

 

Total headline revenue as previously reported

£m

Reallocate UK & Ireland electricals

£m

Reallocate UK & Ireland mobile

£m

Remove honeybee

results
£m

Total
 £m

UK & Ireland electricals

 

 

 

-

1,953

-

-

1,953

UK & Ireland mobile

 

 

 

-

-

1,056

-

1,056

UK & Ireland (previously reported)

 

 

 

3,009

(1,953)

(1,056)

-

-

Nordics

 

 

 

1,666

-

-

-

1,666

Greece

 

 

 

191

-

-

-

191

Honeybee

 

 

 

2

-

-

(2)

-

Total headline revenue

 

 

 

4,868

-

-

(2)

4,866

 

 

2     Segmental analysis (continued)

(b) Restatement of segmental information (continued)

 

 

 

 

 

 

 

 

26 weeks ended 28 October 2017

 

 

 

 

Total headline EBIT as previously reported

£m

Reallocate UK & Ireland electricals

£m

Reallocate UK & Ireland mobile

£m

Remove honeybee results
£m

Total
 £m

UK & Ireland electricals

 

 

 

-

70

-

-

70

UK & Ireland mobile

 

 

 

-

-

(36)

-

(36)

UK & Ireland (previously reported)

 

 

 

34

(70)

36

-

-

Nordics

 

 

 

42

-

-

-

42

Greece

 

 

 

6

-

-

-

6

honeybee

 

 

 

(12)

-

-

12

-

Total headline EBIT

 

 

 

70

-

-

12

82

 

Year ended 28 April 2018

 

 

 

 

 

 

Year ended 28 April 2018

 

 

 

 

 

Total headline revenue as previously reported

£m

Reallocate UK & Ireland electricals

£m

Reallocate UK & Ireland mobile

£m

Total
 £m

UK & Ireland electricals

 

 

 

 

-

-

2,233

2,233

UK & Ireland mobile

 

 

 

 

-

4,412

-

4,412

UK & Ireland (previously reported)

 

 

 

 

6,645

(4,412)

(2,233)

-

Nordics

 

 

 

 

3,470

-

-

3,470

Greece

 

 

 

 

410

-

-

410

Total headline revenue

 

 

 

 

10,525

-

-

10,525

 

 

 

 

 

 

 

Year ended 28 April 2018

 

 

 

 

 

Total headline EBIT as previously reported

£m

Reallocate UK & Ireland electricals

£m

Reallocate UK & Ireland mobile

£m

Total
 £m

UK & Ireland electricals

 

 

 

 

-

-

47

47

UK & Ireland mobile

 

 

 

 

-

234

-

234

UK & Ireland (previously reported)

 

 

 

 

281

(234)

(47)

-

Nordics

 

 

 

 

101

-

-

101

Greece

 

 

 

 

18

-

-

18

Total headline EBIT

 

 

 

 

400

-

-

400

 

(c)   Seasonality

The Group's business is highly seasonal, with a substantial proportion of its revenue and EBIT generated during its third quarter, which includes Black Friday and the Christmas and New Year season.

 

 

2     Segmental analysis (continued)

(d)   Other geographic information

 

 

 

 

Non-current assets*

Capital expenditure*

Depreciation / Amortisation*

 

 

 

26 weeks ended 27 October 2018

£m 

26 weeks ended 28 October 2017

£m 

26 weeks ended 27 October 2018

£m 

26 weeks ended 28 October 2017

£m 

26 weeks ended 27 October 2018

£m 

26 weeks ended 28 October 2017

£m 

UK & Ireland

 

 

2,313

2,680

52

69

66

66

Nordics

 

 

1,286

1,322

28

19

28

27

Greece

 

 

25

22

4

4

2

2

Total

 

 

3,624

4,024

84

92

96

95

 

 

 

 

 

Non-current assets*

Capital expenditure*

Depreciation / Amortisation*

 

 

 

 

Year ended 28 April 2018

£m 

 

Year ended 28 April 2018

£m 

 

Year ended 28 April 2018

£m 

UK & Ireland

 

 

 

2,670

 

125

 

133

Nordics

 

 

 

1,266

 

40

 

54

Greece

 

 

 

24

 

8

 

5

Total

 

 

 

3,960

 

173

 

192

 

* Non-current assets above exclude financial assets, deferred tax assets and assets related to discontinued operations.

 

(e)   Disaggregation of revenues

 

26 weeks ended 27 October 2018

 

 

 

 

 

 

 

 

 

 

UK & Ireland mobile

£m

Nordics

£m

 Greece
£m

Total
 £m

Sales of goods

 

 

1,802

243

1,482

201

3,728

Commission revenue

 

 

9

705

141

-

855

Support services revenue

 

 

135

-

11

7

153

Other services revenue

 

 

47

61

41

4

153

Other revenue

 

 

4

-

-

-

4

Total headline revenue

 

 

1,997

1,009

1,675

212

4,893

 

 

 

 

 

 

 

 

 

26 weeks ended 28 October 2017

 

 

 

 

 

 

 

 

 

 

UK & Ireland mobile

£m

Nordics

£m

 Greece
£m

Total
 £m

Sales of goods

 

 

1,755

246

1,466

181

3,648

Commission revenue

 

 

4

744

146

1

895

Support services revenue

 

 

141

-

13

6

160

Other services revenue

 

 

51

66

41

3

161

Other revenue

 

 

2

-

-

-

2

Total headline revenue

 

 

1,953

1,056

1,666

191

4,866

 

 

 

 

 

 

 

 

 

 

 

 

3     Non-headline items

 

Note

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017 (restated)

£m

 

Year ended

28 April

 2018

£m

Included in revenue:

 

 

 

 

   Businesses to be exited

(i)

-

3

6

 

 

-

3

6

 

 

 

 

 

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

 

 

 

 

   Acquisition / disposal related items

(i)

(9)

(9)

(29)

   Strategic change programmes

(ii)

(57)

(2)

(52)

Data incident costs

(iii)

(17)

-

-

   Regulatory costs

(iv)

(57)

-

-

Impairment losses and onerous leases           

(v)

(344)

-

-

Share plan taxable benefit compensation

(vi)

-

-

2

 

 

(484)

(11)

(79)

 

 

 

 

 

Included in net finance costs:

 

 

 

 

   Net non-cash finance costs on defined benefit pension schemes

(vii)

(6)

(8)

(14)

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

 

(490)

(19)

(93)

 

 

 

 

 

Tax regulatory matters

(viii)

(46)

-

-

Tax on other non-headline items

 

38

15

26

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

 

(498)

(4)

(67)

 

 

 

 

 

Discontinued operations

10

(12)

(14)

(70)

Total impact on profit / (loss) after tax

 

(510)

(18)

(137)

 

(i) Acquisition / disposal related items

 

Amortisation of acquisition intangibles:

A charge of £15 million (28 April 2018: £32 million, 28 October 2017: £16 million) relates to acquisition intangibles arising on the CPW Europe Acquisition, the Dixons Retail Merger and Simplify Digital acquisition.

Acquisition related:

        Acquisition related income of £6 million primarily relates to the release of deferred consideration for a previous acquisition no longer payable given the strategic change of the business (28 April 2018: £2m release)

Unieuro income

        Income of £10 million was recorded in the 26 weeks ended 28 October 2017 in relation to a previous investment in Unieuro. In November 2013, the Group disposed of its Unieuro operations, and retained an investment of 14.96% in Italian Electronics Holdings s.r.l (IEH)‌‌ , a holding company which in turn owned 100% of the Unieuro operations. The investment was initially recognised at £nil based on the fair value of the retained interest. In March 2017, Unieuro undertook an IPO for 31.8% of its shareholdings, which reduced the Group's investment to 10.2% of the Unieuro operations.

        In October 2017, IEH announced a corporate restructuring, whereby the Group obtained direct control of the investment of 7.18% in Unieuro, together with a receivable for previous dividends and share sales. The amount realised as a result of the dividend and share sale of £10 million has been recycled to the income statement in the 26 weeks ended 28 October 2017 and year ended 28 April 2018.

Businesses to be exited:

        Comprises the trading result of businesses to be exited where they do not meet the criteria under IFRS 5 "Non-Current Assets Held for Sale and Discontinued Operations", for separate disclosure as discontinued operations. In the prior period, this comprises the results of the iD mobile operations in the Republic of Ireland. There has been no profit or loss in relation to businesses to be exited in the current period, with an EBIT loss of £3 million in the 26 weeks ended 28 October 2017 and an EBIT loss of £9 million recorded in the year ended 28 April 2018.

 

 

3     Non-headline items (continued)

(ii)                   Strategic change programmes:

 

        During the current period, costs of £38 million have been incurred in relation to the strategic change programme, to set a clear long-term direction for the business which sharpens our focus on the core and that better joins up our offer to customers and our business behind the scenes. The cost incurred relate to the following:

·      £8 million cost in relation to costs of implementing the strategy;

·      £14 million cost in relation to restructuring and redundancy costs for central operations organisational design;

·      £8 million in relation to the closure of non-core operations, relating to certain of our concession arrangements across the Currys PC World, Carphone Warehouse and Dixons Travel brands and our energy switching business; and

·      £8 million in relation to further rationalisation of our property estate, including the closure of Carphone Warehouse stores in the UK as announced on 4 May 2018.

        Property rationalisation:

Additional costs of £19 million have been provided in relation to additional provisions for the remaining stores under the Currys PC World 3-in-1 and Carphone Warehouse programme announced in 2015/16, due to the challenges in the UK retail property market. In the prior year ended 28 April 2018, an additional charge of £29 million was recorded.

        Merger and transformation costs:

        There has been no profit or loss in relation to previous merger and transformation programmes in the current period. Transformation costs of £23 million in the prior year ended 28 April 2018 related to business restructuring in the Nordics of £14 million, together with UK business restructuring and functional transformation costs of £9 million primarily related to redundancy and consultancy fees.

(iii)  Data incident costs:

        During the period, costs associated with the data incident announced on 13 June 2018 of £17 million have been recorded. These costs are expected to be incurred within the next twelve months.

(iv)  Regulatory costs:

A provision of £57 million has been recorded in relation to pension related costs, employee related costs and other regulatory matters in the current period. This includes:

-       An additional pension related costs of £18 million. On 26 October 2018, the High Court issued a judgement in a claim to address the issue of unequal Guaranteed Minimum Pensions (GMPs) in the Lloyds Banking Group's defined benefit pension schemes (the "Lloyds case"). This will potentially impact the DSG Retirement and Employee Security Scheme operating in the UK. The Group is working through the details of the ruling and assessing its impact on the liability valuation of the scheme. We currently estimate that this will increase the liability by £18 million, and therefore have recorded this as a past service cost in the current period. There are a number of uncertainties surrounding the change, including the method of calculation of the equalisation and any potential appeals against the ruling, therefore we consider that the amount is subject to further change, however currently represents our best estimate. 

-       Costs of £5 million have also been provided in relation to redress for ongoing employee related matters for historical periods.

(v)   Impairment losses and onerous leases

        As part of the strategic review performed by the Group, and as discussed in note 2, the Group has separated the operating segments in the UK & Ireland into the separate electricals and mobile operating segments. As a result of the change, the goodwill previously allocated the UK & Ireland group of cash generating units ("CGUs") has been separated into the UK & Ireland electricals and UK & Ireland mobile CGUs. This allocation has been performed on a relative value basis on the value of the two operating segments.
 

 

3     Non-headline items (continued)

        In separating the goodwill, an impairment review has been performed over both operating segments based on our future projections and cashflows, reflecting the conclusions of the Group's strategic review which has been undertaken since the year end. This identified a material non-cash impairment charge to be recorded over the goodwill of the UK & Ireland mobile segment, together with impairment of related assets and additional onerous lease charges to be recorded against individual stores. The breakdown of the impairment recorded in relation to the UK & Ireland mobile operating segment asset base was as follows:

•      £225 million representing the goodwill associated with the UK & Ireland mobile operating segment

•      £10 million of acquisition intangibles recognised during previous acquisitions

•      £70 million of intangible assets, primarily relating to capitalised software development costs

•      £23 million of central property, plant and equipment

•      £10 million of store assets

        In addition, £6 million of onerous lease provisions for stores within the UK & Ireland mobile operating segment have been recognised.

(vi) Share plan and taxable benefit compensation:

        A provision of £11 million was recognised in 2016/17 in relation to taxable benefits arising to participants of the Share Plan, as discussed in the Remuneration Committee Chairman's statement on page 61 of the 2016/17 Annual Report. In 2017/18, the excess portion of the provision was released following the payment of compensation to participants of the scheme

(vii) 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 headline earnings.

(viii)        Tax regulatory matters:

        As previously disclosed, the Group has been co-operating with HMRC in relation to the tax treatment arising due to pre-merger legacy corporate transactions. The Group maintains the tax treatment was appropriate, however, the likelihood of litigation, and therefore the risk associated with this matter, has increased and therefore a provision has been recognised.

4     Tax

The Group's headline effective rate of taxation for the full year has been estimated at 22% (2017/18: 21%). A rate of 23% has been applied to the half year results due to the weighting of profit in different jurisdictions. The rate is higher than the UK statutory rate of 19% due mainly to higher statutory rates in the Nordics and certain non-deductible items arising mainly in the UK.

The effective tax rate on non-headline earnings and costs is -2%. Once the impact of the increase in provision of £46 million is removed (see note 3), the effective tax rate is 8%. The rate of relief is lower than the UK statutory rate of 19% predominantly due to non-deductible costs particularly in respect of the goodwill impairment, property rationalisation and regulatory costs.

 

 

5   Earnings / (loss) per share

 

 

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017 (restated)

£m

 

Year ended

28 April

 2018

£m

Headline earnings

 

 

 

 

Continuing operations

 

38

56

303

 

 

 

 

 

Total earnings / (loss)

 

 

 

 

Continuing operations

 

(460)

52

236

Discontinued operations

 

(12)

(14)

(70)

Total

 

(472)

38

166

 

 

 

 

 

 

 

Million

Million

Million

Weighted average number of shares

 

 

 

 

Average shares in issue

 

1,160

1,156

1,157

Less average holding by Group EBT

 

(1)

(1)

(1)

For basic earnings per share

 

1,159

1,155

1,156

Dilutive effect of share options and other incentive schemes

 

4

3

4

For diluted earnings per share

 

1,163

1,158

1,160

 

 

 

 

 

 

 

Pence

Pence

Pence

Basic earnings per share

 

 

 

 

Total (continuing and discontinued operations)

 

(40.7)

3.3

14.4

Adjustment in respect of discontinued operations

 

1.0

1.2

6.0

Continuing operations

 

(39.7)

4.5

20.4

Adjustments for non-headline items - continuing operations (net of taxation)

 

43.0

0.3

5.8

Headline basic earnings per share

 

3.3

4.8

26.2

 

 

 

 

 

Diluted earnings per share

 

 

 

 

Total (continuing and discontinued operations)

 

(40.7)

3.3

14.3

Adjustment in respect of discontinued operations

 

1.0

1.2

6.0

Continuing operations

 

(39.7)

4.5

20.3

Adjustments for non-headline items - continuing operations (net of taxation)

 

43.0

0.3

5.8

Headline diluted earnings per share

 

3.3

4.8

26.1

 

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

6     Dividends

 

 

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017

£m

 

Year ended

28 April

 2018

£m

Amounts recognised as distributions to equity shareholders in the period - on ordinary shares of 0.1p each

 

 

 

 

Final dividend for the year ended 29 April 2017 of 7.75p

 

-

89

89

Interim dividend for the year ended 28 April 2018 of 3.50p

 

-

-

41

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

 

90

-

-

 

 

90

89

130

 

The proposed interim dividend for the year ending 27 April 2019 is 2.25p per share. The expected cost of this dividend is £26 million and incorporates the agreement of the Dixons Carphone plc Employee Benefit Trust to waive its rights to receive dividends.

 

7     Retirement benefit obligations

 

 

 

27 October 2018

£m

28 October 2017

£m

28 April

2018
£m

Retirement benefit obligations             - UK

 

 

514

492

470

                                                                - Nordics

 

 

2

2

2

Net obligation

 

 

516

494

472

 

The Group operates a number of defined contribution and defined benefit pension schemes. The principal scheme operates in the UK and includes a funded defined benefit section, the assets of which are held in a separate trustee administered fund. The defined benefit section of the scheme was closed to future accrual on 30 April 2010. The net obligations of this scheme, calculated in accordance with IAS 19 "Employee Benefits", are analysed as follows:

 

 

 

27 October 2018

£m

28 October 2017

£m

28 April

2018
£m

Fair value of plan assets

 

 

1,143

1,148

1,114

Present value of defined benefit obligations

 

 

(1,657)

(1,640)

(1,584)

Net obligation

 

 

(514)

(492)

(470)

 

The value of obligations is particularly sensitive to the discount rate applied to liabilities at the assessment date as well as mortality rates. The value of the plan assets is sensitive to market conditions, particularly equity values. The assumptions used in the valuation of obligations are listed below:

 

 

27 October 2018

28 October 2017

28 April

2018

Rates per annum:

 

 

 

 

Discount rate

 

2.80%

2.75%

2.80%

Rate of increase in pensions in payment / deferred pensions

- pre April 2006

3.20%

3.10%

3.10%

 

- post April 2006

2.20%

2.20%

2.20%

Inflation

 

3.30%

3.20%

3.10%

 

Mortality rates are based on historical experience and standard actuarial tables and include an allowance for future improvements in longevity.

8     Financial instruments, loans and other borrowings

 

The Group holds the following financial instruments at fair value:

 

 

 

27 October 2018

£m

28 October 2017

£m

28 April

2018
£m

Investments

 

 

14

18

17

Derivative financial assets

 

 

21

18

27

Derivative financial liabilities

 

 

(15)

(8)

(7)

Deferred and contingent consideration

 

 

(5)

(20)

(13)

 

The fair value of short-term investments has values determined by 'Level 1' inputs as defined by the fair value hierarchy of IFRS 13 "Fair Value Measurement". Investments comprise shares indirectly held in Unieuro S.p.A., an omni-channel distributor of consumer electronics and household appliances and listed stock corporation in Italy.

The significant inputs required to fair value the Group's net derivatives are observable and are classified as 'Level 2' in the fair value hierarchy.

Deferred and contingent consideration is categorised as 'Level 3' in the fair value hierarchy as the valuation requires the use of significant unobservable inputs. The fair value of contingent consideration arrangements has been estimated by applying the income approach. A reduction in growth assumptions used in the fair value methodology would result in a reduction in the amount of contingent consideration payable. The movement in deferred and contingent consideration during the period is due to cash payments of the amounts due.

Fair values have been arrived at by discounting future cash flows (where the impact of discounting is material), assuming no early redemption, or by revaluing forward currency contracts and interest rate swaps to period end market rates as appropriate to the instrument.

The Group has assessed network commission receivables to be accounted for at amortised cost under IFRS 9 "Financial Instruments: Recognition and Measurement". The carrying value of such network commission receivables is £1,044 million (28 October 2017: £1,071 million, 28 April 2018: £1,057 million). If network receivables were alternatively classified at fair value through profit or loss these receivables would be categorised as level 3 in the fair value hierarchy as the valuation requires the use of significant unobservable inputs. Under this alternative measurement basis their fair value is approximately equal to their current carrying value.

There have been no transfers of assets or liabilities between levels of the fair value hierarchy. For all other financial assets and liabilities, the carrying amount approximates their fair value.

In October 2015, the Group arranged a five year £800 million Revolving Credit Facility (RCF) with a number of relationship banks.  The interest rate applicable to loans drawn on this facility depends on the period of the loan and the currency in which they are drawn, and the interest margin is calculated by reference to covenant performance. The covenants ratios are Net Debt to EBITDA and Fixed Charges Cover. In 2016 and in 2017, this facility was extended by one year and the final expiry of the facility is now October 2022.

In October 2016, the Group arranged a new £250 million Revolving Credit Facility and a €50 million Term Loan. Each of these facilities is on similar terms to the £800 million RCF, including identical covenants, and each is for four years expiring in October 2020.

The Group also has overdrafts and short-term money market lines, all on an uncommitted basis, with available facilities of £110 million.

9     Note to the cash flow statement

 

 

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017

£m

 

Year ended

28 April

 2018

£m

(Loss) / profit before interest and tax - continuing operations

(423)

71

 

321

Loss before interest and tax - discontinued operations

(11)

(16)

(83)

Depreciation and amortisation

96

102

204

Profit on disposal

-

(2)

(2)

Share-based payment charge

9

9

14

Share of results of joint venture

-

3

3

Profit / (loss) on disposal of fixed assets

-

-

(1)

Impairments and other non-cash items

343

1

56

Operating cash flows before movements in working capital

14

168

512

 

 

 

 

Movements in working capital:

 

 

 

   Increase in inventory

(255)

(285)

(72)

   Increase in receivables

(6)

(149)

(32)

   Increase in payables

373

583

17

Increase / (decrease) in provisions

96

(19)

(5)

 

208

130

(92)

 

 

 

 

 

 

 

 

Cash inflow from operations

222

298

420

 

Restricted funds, which predominantly comprise funds held by the Group's insurance business for regulatory reserve requirements, were £55 million (28 October 2017: £60 million; 28 April 2018: £60 million).

Included in trade payables are amounts due where extended payment terms have been requested by the Group and agreed with the supplier. These terms are made available and administered under arrangements between the supplier and third party banks for which a fee is payable by the Group. The total amount outstanding on such extended payment terms at 27 October 2018 is £100 million (28 April 2018: £97 million, 28 October 2017: £173 million, 29 April 2017: £112 million). These arrangements do not provide the Group with significant benefit of additional financing and accordingly are classified as trade payables.

 

 

 

Reconciliation of cash inflow from operations to free cash flow

 

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017

£m

 

Year ended

28 April

 2018

£m

Cash inflow from operations

222

298

420

Operating cash flows from discontinued operations

7

7

11

Businesses to be exited

-

4

-

Taxation

(24)

(30)

(63)

Interest, facility arrangement fees, dividends from investments and repayment of finance leases

(14)

(12)

(24)

Capital expenditure

(84)

(92)

(173)

Proceeds from disposal of fixed assets

9

2

2

Other movements

-

(3)

(1)

Free cash flow

116

174

172

 

Reconciliation of Net Debt

 

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017

£m

 

Year ended

28 April

 2018

£m

Cash

119

290

228

Loans and other borrowings

(309)

(408)

(392)

Finance lease obligations

(84)

(88)

(85)

 

(274)

(206)

(249)

 

10   Discontinued operations and assets held for sale

 

honeybee

On 4 May 2018, the Group agreed to sell the honeybee operations through an asset sale, which was completed on 31 May 2018. These operations were classified as a disposal group held for sale in the year ended 28 April 2018, and an impairment was recognised in the year ended 28 April 2018 of £55 million on classification to assets held for sale. The impairment, together with the trading loss recognised during the year of £21 million were classified as a discontinued operation.

During the 26 weeks ended 27 October 2018, no profit or loss on disposal was recognised from the completion of the sale of the operations. Additional costs of £6 million have been recorded in relation to onerous contracts following the sale of £3 million and compensation to previous employees of £3 million.

Spain

On 29 September 2017, the Group completed the disposal of Phone House Spain S.L.U, Connected World Services Europe Srl and Smarthouse Spain S.A which together represented the trading operations in Spain. A gain of £1 million arose on the disposal, being the difference between the proceeds of disposal and the carrying amount of the subsidiaries' net assets and attributable goodwill. The trading results of the operations have been classified as discontinued (26 weeks ended 28 October 2017: £nil, year ended 28 April 2018: £nil).

Sprint joint venture

On 7 June 2017 agreement was reached to dispose of the Group's 50% interest in the Sprint Connect LLC joint venture to Sprint Corporation. £nil gain or loss was recognised in relation to the disposal. In 2017/18, the share of results of the operation to the date of disposal were classified as discontinued (26 weeks ended 28 October 2017: £3 million loss, year ended 28 April 2018: £3 million loss) together with additional costs of £6 million incurred by the Group post closure in the year ended 28 April 2018.

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 year an additional cost of £2 million has been recorded in settlement of litigation in Portugal and £2 million in relation to employee litigation in Virgin Mobile France.

 

 

 

(a)  Loss after tax - discontinued operations

 

 

 

 

26 weeks ended 27 October 2018

 

 

honeybee

£m

Spain
£m

Sprint Joint Venture

£m

Other

 £m

Total
£m

Revenue

 

-

-

-

-

-

Expenses

 

(7)

-

-

(4)

(11)

Share of results of joint venture

 

-

-

-

-

-

(Loss) before tax

 

(7)

-

-

(4)

(11)

Income tax

 

(1)

-

-

-

(1)

 

 

(8)

-

-

(4)

(12)

 

 

 

 

26 weeks ended 28 October 2017

 

 

honeybee

£m

Spain
£m

Sprint Joint Venture

£m

Other

 £m

Total
£m

Revenue

 

2

144

-

-

     146

Expenses

 

(14)

(144)

(3)

-

(161)

Share of results of joint venture

 

-

-

(3)

-

(3)

(Loss) before tax

 

(12)

-

(6)

-

(18)

Income tax

 

2

-

-

-

2

(Loss) / profit on disposal

 

-

1

-

1

2

 

 

(10)

1

(6)

1

(14)

 

 

 

 

 

Year ended 28 April 2018

 

 

honeybee

£m

Spain
£m

Sprint Joint Venture

 £m

Other

£m

Total
£m

Revenue

 

3

144

-

-

147

Expenses

 

(24)

(144)

(6)

-

(174)

Impairment of assets

 

(55)

-

-

-

(55)

Share of results of joint venture

 

-

-

(3)

-

(3)

(Loss) before tax

 

(76)

-

(9)

-

(85)

Income tax

 

13

-

-

-

13

Profit on disposal

 

-

1

-

1

2

 

 

(63)

1

(9)

1

(70)

 

 

 

(b)   Cash flows from discontinued operations

 

 

 

 

26 weeks ended 27 October 2018

 

 

honeybee

£m

Spain
£m

Sprint Joint Venture

 £m

Other

£m

Total
£m

Operating activities

 

(5)

-

-

(2)

(7)

Investing activities

 

8

-

-

-

8

Financing activities

 

-

-

-

-

-

 

 

 

 

 

26 weeks ended 28 October 2017

 

 

honeybee

£m

Spain
£m

Sprint Joint Venture

 £m

Other

£m

Total
£m

Operating activities

 

(1)

(2)

(2)

(2)

(7)

Investing activities

 

(4)

23

14

4

37

Financing activities

 

-

-

-

-

-

 

 

 

 

 

Year ended 28 April 2018

 

 

honeybee

£m

Spain
£m

Sprint Joint Venture

 £m

Other

£m

Total
£m

Operating activities

 

(7)

(3)

(2)

1

(11)

Investing activities

 

(12)

44

14

-

46

Financing activities

 

-

-

-

-

-

 

11   Contingent liabilities

 

In the past, the Group has entered into agreements to dispose of certain operations. As part of these disposal agreements, the Group has provided the acquirer with general and tax-related warranties. At the date of signing these financial statements, some of these warranties remain open and it is possible that claims could arise under these warranties. Due to the nature of these contingent liabilities, it is not practicable to estimate their timing or possible financial impact.

 

The Group is subject to periodic tax and regulatory audits and investigations by various authorities covering corporate, employee and sales taxes and other regulations across various jurisdictions in which the Group operates. Applicable laws and regulations are subject to differing interpretations and the resolution of a final position, through negotiation or litigation, can take several years to complete.

 

The Group continues to cooperate with HMRC in relation to open tax enquiries arising from pre-merger legacy corporate transactions in the Carphone Warehouse group. The potential range of tax exposures relating to these is estimated to be approximately £nil - £220 million excluding interest and penalties.  Based on the strength of third party legal advice it is not considered probable that these enquiries will result in an economic outflow to the Group and therefore no provision has been made, however, as the likelihood of litigation has increased in the period the matter has been disclosed.

 

Where it is considered that future liabilities are more likely than not to arise, an appropriate provision is recorded in the financial statements.

 

12   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:

 

26 weeks ended 27 October

2018

£m

26 weeks ended 28 October

2017

£m

 

Year ended

28 April

 2018

£m

Revenue for services provided

6

6

11

Amounts owed to the Group

2

1

2

 

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

13   Restatement of comparative information

 

As set out in note 10, the honeybee operations have been classified as discontinued operations, as meets the classification requirements under IFRS 5: "Non-Current Assets Held for Sale and Discontinued Operations". In accordance with the requirements, comparative results for the 26 weeks ended 28 October 2017 have been restated accordingly. The results for the year ended 28 April 2018 have not been restated as already reflected the reclassification.

 

(a)  Income statement

 

The impact of the restatement on the consolidated income statement has been set out below:

26 weeks ended 28 October 2017

 

 

 

 

 

 

H1 2017/18 as previously reported

£million

honeybee

£million

H1 2017/18 as restated

£million

H1 2017/18 as previously reported

£million

honeybee

£million

H1 2017/18 as restated

£million

H1 2017/18 as restated
£million

Continuing operations

 

 

 

 

 

 

 

Revenue

4,868

(2)

4,866

3

-

3

4,869

Profit / (loss) from operations before share of results of joint ventures

70

12

82

(11)

-

(11)

71

Share of results of joint ventures

 

-

-

-

-

-

-

Profit / (loss) before interest and tax

70

12

82

(11)

-

(11)

71

Net finance costs

(9)

-

(9)

(8)

-

(8)

(17)

 

 

 

 

 

 

 

 

Profit / (loss) before tax

61

12

73

(19)

-

(19)

54

 

 

 

 

 

 

 

 

Income tax (expense) / credit

(15)

(2)

(17)

15

-

15

(2)

Profit / (loss) after tax - continuing operations

46

10

56

(4)

-

(4)

52

 

 

 

 

 

 

 

 

Loss after tax - discontinued operations

-

-

-

(4)

(10)

(14)

(14)

 

 

 

 

 

 

 

 

Profit / (loss) after tax for the period

46

10

56

(8)

(10)

(18)

38

 

 

 

 

 

 

 

 

Earnings per share (pence)

 

 

 

 

 

 

 

Basic - continuing operations

4.0p

 

4.8p

 

 

 

4.5p

Diluted - continuing operations

4.0p

 

4.8p

 

 

 

4.5p

Basic - total

 

 

 

 

 

 

3.3p

Diluted - total

 

 

 

 

 

 

3.3p

                     
 

 

(b)  Other disclosures

 

Segmental results have been restated as a result of the above as set out in Note 2.

In accordance with the policy as set out in Note 1, there have been no restatements made to the consolidated balance sheet, consolidated statement of other comprehensive income, consolidated statement of changes in equity or consolidated cash flow statement, as these statements do not separately distinguish headline and non-headline measures.

(c)  Free cash flow

 

The free cash flow as presented in the Performance Review has also been restated as a result of the above changes. The reconciliation from the previously reported results are presented below:

 

26 weeks ended 28 October 2017

 

 

 

 

 

 

26 weeks ended 28 October 2017

 

 

 

 

 

 

As previously reported

£m

honeybee

£m

Total
 £m

Headline EBIT

 

 

 

 

 

70

12

82

Depreciation and amortisation

 

 

 

 

 

83

(5)

78

Working capital

 

 

 

 

 

171

(6)

165

Capital expenditure

 

 

 

 

 

(96)

4

(92)

Taxation

 

 

 

 

 

(30)

-

(30)

Interest

 

 

 

 

 

(12)

-

(12)

Other items

 

 

 

 

 

2

-

2

Free cash flow before restructuring items

 

 

 

 

 

188

5

193

Restructuring costs

 

 

 

 

 

(19)

-

(19)

Free cash flow - continuing operations

 

 

 

 

 

169

5

174

Dividends

 

 

 

 

 

(89)

-

(89)

Acquisitions and disposals including discontinued operations

 

 

 

 

 

32

(5)

27

Investment in joint venture

 

 

 

 

 

(3)

-

(3)

Net issue of new shares and purchase of own shares

 

 

 

 

 

3

-

3

Pension contributions

 

 

 

 

 

(46)

-

(46)

Other       

 

 

 

 

 

(1)

-

(1)

Movement in net debt

 

 

 

 

 

65

-

65

Opening net debt

 

 

 

 

 

(271)

-

(271)

Closing net debt

 

 

 

 

 

(206)

-

(206)

 

             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 (including new product safety and Long term & diversification of funding risks).  Risks 1 to 11, and the factors which mitigate them, are set out in more detail in the 2017-18 Annual Report and Accounts on pages 15 to 18 and remain relevant in the current period. Risks 12 and 13 have been added during the period.

A potential Greek exit from the Euro has been removed from the Group Risk register given the developments in the Greek economy over the past few years and the successful performance of the Kotsovolos business.

Dependence on networks in driving profitability, cash flow and market share has been incorporated into risk 3 and hence removed as a stand-alone risk. The board believe that the nature or relationships with network providers is one of the core elements of the Dixons Carphone business model. The mitigating actions with regards to dependency on network contracts remain unchanged and will be monitored as part of the review of risk 3.

Failure to attract, develop and retain staff has been removed as a stand-alone risk. The Board monitors employee attraction, development and retention as part of its overall response to maintaining a sustainable business model as per risk 3.

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

2.     The decision of the UK to leave the European Union 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;

3.     Failure to maintain a sustainable business model in the face of a changing consumer environment could result in a loss of competitive advantage impacting financial performance;

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

5.     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;

6.     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;

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

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

9.     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;

10.  Failure to operate an effective fraud control environment may result in the loss of revenue and reputational damage;

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.  Product safety where poor quality or unsafe products provided to customers which pose risk to customer health, and result in fines, prosecution and significant reputational damage has been added to the Group Risk profile. Whilst the Board is assured that the business operates effective controls to mitigate this risk through the businesses Technical and Quality processes and procedures, it wishes to ensure that the risk receives a level of Board oversight; and

13.  Long term diversification of funding has been added to the Group Risk profile. Given the current funding arrangements (see note 8 of the financial information included in this report), the new management team wish to explore the potential for broader, more diverse sources of funding.

The directors have prepared the interim 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. 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.

            Responsibility statement

The directors confirm that to the best of their knowledge:

•     the interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union;

•     the financial highlights, performance review and interim financial information include a fair review of the information required by DTR 4.2.7R (indication of important events during the first 26 weeks and description of principal risks and uncertainties for the remaining 26 weeks of the year); and

•     the financial highlights and performance review includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

At the date of this statement, the directors are those listed in the Group's 2017-18 Annual Report and Accounts, with the exception of Humphrey Singer who resigned on 21 June 2018, and Jonny Mason who was appointed as Group Chief Financial Officer on 13 August 2018.

 

By order of the Board 

 

 

Alex Baldock

Group Chief Executive

11 December 2018

Jonny Mason

Group Chief Financial Officer

11 December 2018

            Independent review report

To Dixons Carphone plc

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim statement for the 26 weeks ended 27 October 2018 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 13.  We have read the other information contained in the interim statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim statement, including the condensed set of financial statements contained therein, is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the interim statement in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this interim statement has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" (IAS 34) as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim statement based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the UK.  A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed set of financial statements in the interim statement for the 26 weeks ended 27 October 2018 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and the Disclosure and Transparency Rules of the UK Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

London, UK

11 December 2018

 

            Retail store data

 

 

Number of stores

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27 October 2018

 

28 April 2018

 

 

 

Own stores

Franchise stores

Total 

 

Own stores

Franchise stores

Total 

 

 

 

 

 

 

 

 

 

 

UK Dixons

 

 

323

-

323

 

322

-

322

UK Dixons Travel

 

 

29

-

29

 

28

-

28

Ireland Dixons

 

 

18

-

18

 

18

-

18

 

 

370

 

370

 

368

 

368

UK Carphone

 

 

583

-

583

 

662

-

662

Ireland Carphone

 

 

71

-

71

 

73

-

73

UK & Ireland mobile

 

 

654

-

654

 

735

-

735

Total UK & Ireland

 

 

1,024

-

1,024

 

1,103

-

1,103

 

 

 

 

 

 

 

 

 

 

Norway

 

 

82

65

147

 

83

64

147

Sweden

 

 

109

57

166

 

111

55

166

Denmark

 

 

37

-

37

 

37

-

37

Finland

 

 

22

19

41

 

20

18

38

Other Nordics

 

 

-

13

13

 

-

13

13

Nordics

 

 

250

154

404

 

251

150

401

 

 

 

 

 

 

 

 

 

 

Greece

 

 

70

25

95

 

69

26

95

Greece

 

 

70

25

95

 

69

26

95

 

 

 

 

 

 

 

 

 

 

Total

 

 

1,344

179

1,523

 

1,423

176

1,599

 

Selling space '000 sq ft

 

 

 

 

 

 

 

 

27 October 2018

 

28 April 2018

 

 

 

Own stores

Franchise stores

Total 

 

Own stores

Franchise stores

Total 

 

 

 

 

 

 

 

 

 

 

UK Dixons

 

 

5,665

-

5,665

 

5,659

-

5,659

UK Dixons Travel

 

 

42

-

42

 

36

-

36

Ireland Dixons

 

 

202

-

202

 

206

-

206

UK & Ireland electricals

 

 

5,909

-

5,909

 

5,901

-

5,901

UK Carphone

 

 

512

-

512

 

567

-

567

Ireland Carphone

 

 

42

-

42

 

43

-

43

UK & Ireland Mobile

 

 

554

 

554

 

610

 

610

Total UK & Ireland

 

 

6,463

-

6,463

 

6,511

-

6,511

 

 

 

 

 

 

 

 

 

 

Norway

 

 

1,151

607

1,758

 

1,145

607

1,752

Sweden

 

 

1,265

329

1,594

 

1,294

337

1,631

Denmark

 

 

654

-

654

 

653

-

653

Finland

 

 

537

163

700

 

536

153

689

Other Nordics

 

 

-

87

87

 

-

87

87

Nordics

 

 

3,607

1,186

4,793

 

3,628

1,184

4,812

 

 

 

 

 

 

 

 

 

 

Greece

 

 

889

104

993

 

881

108

989

 

 

 

 

 

 

 

 

 

 

Total

 

 

10,959

1,290

12,249

 

11,020

1,292

12,312

            Glossary and definitions

Alternative performance measures ('APMs')

In the reporting of financial information, the Group uses certain measures that are not required under IFRS. 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.

Headline and non-headline measures

The Group's income statement and segmental analysis identify separately headline performance and non-headline items. Headline performance measures reflect adjustments to total performance measures. The directors consider 'headline' performance measures to be an informative additional measure of the ongoing trading performance of the Group. Headline results are stated before non-headline items.

Non-headline items consist of the results of discontinued operations or exited / to be exited businesses, amortisation of acquisition intangibles, acquisition-related costs, any exceptional items considered sufficiently material that they distort underlying performance (such as significant re-organisation costs, impairment charges, property rationalisation costs and non-recurring charges), income from previously disposed operations and net pension interest costs.

Items excluded from headline results can evolve from one financial year to the next depending on the nature of exceptional items or one-off type activities. Where appropriate, for example where a business is classified as exited / to be exited, comparative information is restated accordingly.

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.

In response to the Guidelines on Alternative Performance Measures issues by the European Securities and Markets Authority ('ESMA'), we have provided additional information on the APMs used by the Group below.

Alternative performance
measure

Closest equivalent GAAP measure

Reconciliation to IFRS measure

Definition and purpose

Revenue measures

 

 

 

Headline / non-headline Revenue

Revenue

See note 2, 3
and note 13 for
details of restated amounts for
H1 2017 / 18.

Headline revenues represent the ongoing revenues of the Group, and are adjusted to remove non-headline revenue items. In the restated comparative periods, this relates to the iD mobile operations in the Republic of Ireland. the honeybee operations and the Spanish which are classified as discontinued operations and therefore presented in non-headline results. In addition, for the purposes of EBIT reporting, the results of the Sprint Joint Venture have been classified as a discontinued operation and therefore presented in non-headline results.

Like-for-like (LFL) % change

No direct equivalent

Not applicable

Like-for-like revenue is calculated based on headline store and internet 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 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 revenues on a constant currency and period basis. Provides a measure of performance excluding the impact of foreign exchange rate movements.

Profit measures

 

 

 

Headline / non-headline profit / (loss) before tax, EBIT and profit / (loss) after tax

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

See note 2, 3,
and note 13 for
details of restated amounts for
H1 2017 / 18.

As discussed above, the Group uses headline profit measures in order to provide a useful measure of the ongoing performance of the Group. These are adjusted from total measures to remove 'non-headline' 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.

Other earnings measures

 

 

 

Headline / non-headline net finance costs

Net finance costs

See note 3

Headline net finance costs are adjusted from total finance costs to remove non-headline finance cost items. Non-headline finance costs includes the finance charge of businesses 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 headline earnings measure in order to remove this non-cash volatility.

Headline / non-headline income tax expense / (credit)

Income tax expense / (credit)

See note 3

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

Headline / Total effective tax rate

No direct equivalent

See note 3

The effective tax rate measures provide a useful indication of the tax rate of the Group. Headline 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

Headline basic EPS - continuing operations, headline diluted EPS - continuing operations, headline basic EPS - total, headline diluted EPS - total

Statutory EPS figures

See note 5

EPS measures are presented to reflect the impact of non-headline items in order to show a headline EPS figure, which reflects the headline earnings per share of the Group. We consider the headline 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 9

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.

Net debt

Cash and cash equivalents less loans and other borrowings and finance lease obligations.

See note 9

Comprises cash and cash equivalents and short term deposits, less borrowings and finance lease creditors. We consider that this provides a useful measure of the indebtedness of the Group.

Other measures

 

 

 

Return on Capital Employed (ROCE)

No direct equivalent

Not applicable

Calculated on a pre-tax and lease adjusted basis. The return is based on headline EBIT, adjusted to add back the interest component associated with capitalising operating lease costs. Capital employed is based on net assets including capitalised leases, but excluding goodwill, cash, tax and the defined benefit pension obligations. The calculation is performed on a moving annual total in order to best match the return on assets in a year with the assets in use during the year to generate the return. We consider this a useful measure to understand how the Group has used the capital employed during the period.

 

 

 

Other definitions

The following definitions may apply throughout this Interim report and the Annual Report and Accounts 2017/18 previously published:

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.

ADRs

American Depositary Receipts

ARPU

Average monthly revenue per user

B2B

Business to business

Best Buy

Best Buy Co., Inc. (incorporated in the United States)‌‌ and its subsidiaries and interests in joint ventures and associates

Best Buy Europe

Best Buy Europe Distributions Limited and its subsidiaries and interests in joint ventures and associates (incorporated in England & Wales)‌‌

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

Company or the Company

Dixons Carphone plc (incorporated in England and 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

Best Buy Europe's core continuing operations

CPW Europe Acquisition

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

CWS

The Connected World Services division of the Company

Dixons or Dixons Retail

Dixons Retail Holdings Limited 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 sales made from the legacy Dixons brands

 

HMRC

Her Majesty's Revenue and Customs

honeybee

honeybee was our proprietary IT software business which was disposed on 31 May 2018

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

RCF

Revolving credit facility

Sharesave or SAYE

Save as you earn share scheme

SIMO

Sales of SIM-only contracts, without attached handset

Sprint JV

The 50% investment previously held by the Group in Sprint Connect LLC, a disposed distribution joint venture held with Sprint LLC in the USA.

SWAS

Stores-within-a-store

TSR

Total shareholder return

WAEP

Weighted average exercise price

 

 


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