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Dixons Carphone PLC

Dixons Carphone Deliver a robust performance and good progress on transformation

Dixons Carphone (LON: DC.) today provided unaudited results for the half year ended 26th October 2019.

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

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

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

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

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

o H1 profits down as expected given investment in customer proposition

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

o Q2 like-for-like revenue +1%

o Share gains across all markets with strong online growth

o Profit growth driven by sales and operating margin improvements

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

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

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

o Negative network debtor revaluation of -£26m

· Transformation driving increasing customer satisfaction across Group

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

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

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

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

o Colleagues: Quadrupled investment in training. Extending share award

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

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

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

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

· All medium-term guidance unchanged

Revenue2019/20
 £m
2018/19
 £m
Reported % changeLocalCurrency% changeLike-for-Like% change  
  UK & Ireland Electricals1,9791,997-1%-1%0%
  International1,9041,8871%3%3%
   – Nordics1,6771,6750%3%2%
   – Greece2272127%8%8%
Electricals3,8833,8840%1%1%
  UK & Ireland Mobile8301,009-18%-18%-10%
Group4,7134,893-4%-3%-1%

Alex Baldock, Dixons Carphone Group Chief Executive, said:

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

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

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

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

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

PRIORITIES

Online / Multichannel

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

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

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

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

Credit

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

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

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

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

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

Easy Customer Experience / Services

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

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

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

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

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

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

Mobile

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

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

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

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

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

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

ENABLERS

Capable and Committed Colleagues

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

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

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

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

One Business

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

Stronger Infrastructure

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

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

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

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