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Dixons Carphone takes essential next step in turnaround of UK Mobile business

Dixons Carphone Plc (LON:DC.) is taking the next step in its transformation by joining up its UK Mobile operations with the wider business as customers change how they buy mobile devices, connectivity and technology overall.

The company will close its 531 standalone Carphone Warehouse stores in the UK and focus on selling mobile devices and connectivity through its shop-in-shops in 305 big Currys PCWorld stores and online.

  • UK Mobile to be fully joined up with wider business as customers change how they buy technology
  • All UK standalone Carphone Warehouse stores, representing 8% of Dixons Carphone’s total UK selling space, to close
  • Almost 40% of affected colleagues are expected to take new roles in the business, and other colleagues will be fully supported
  • Mobile to be sold through Carphone Warehouse shop-in-shops in 305 big Currys PCWorld stores and online, giving customers the widest range of technology and services in one place
  • Today’s changes are an essential next step towards making Mobile a sustainable and profitable category, and staying on track with our longer-term transformation of the Group
  • New mobile offer to launch later this year, offering customers flexibility, transparency, and value
  • Positive cashflow in every year from Mobile restructuring, expected to total c.£200m
  • The Group has not yet seen a material impact from COVID-19, though we are preparing for one
  • FY 2019/20 Adjusted* PBT still expected to be around £210m and net debt lower than last year

The small standalone stores, representing 8% of Dixons Carphone’s total UK selling space, will close on 3 April 2020. The business expects almost 40% (1,800) of affected colleagues to take new roles internally, but sadly expects 2,900 redundancies as the businesses are brought together. Dixons Carphone will go well beyond legal obligations in financial and other support for all affected colleagues. There’s never an easy time for an announcement like this, but the turbulent times ahead only underline the importance of acting now, to ensure a business fit for the future.

Today’s announcement is an essential next step in Dixons Carphone’s turnaround of its Mobile business as part of its strategy outlined in December 2018, to return this part of the business, which will make a £90m loss this year, to profitability. Customers are changing the way they buy mobile devices and connectivity, replacing their handsets less often and buying them separately or as part of more flexible bundles.

The company has taken action in response, including renegotiating its legacy volume commitments with the mobile network operators: these will continue to roll off during FY21. As a result, the Group will no longer be encumbered by historic sales volume targets. We will provide an offer that reflects how customers are buying technology today and prepare for an even more connected 5G future that goes well beyond the mobile phone.

Customers are also increasingly choosing to shop, not only with our large and growing online business, but also in the company’s big 3-in-1 stores, featuring Currys, PCWorld and Carphone Warehouse, which continue to grow market share and where customer satisfaction is sharply up. These stores, which are 20 times larger than Carphone Warehouse standalone stores, allow customers to see, touch and play with technology (electricals as well as mobile, services as well as products) and receive trusted independent advice from 17,000 expert store colleagues, all in one place. The business has been investing tens of millions of pounds in these stores.

Dixons Carphone also remains committed to the mobile category. Current Carphone Warehouse customers will be able to enjoy the same expert service in the big stores. The mobile offer will continue to be available online – including at carphonewarehouse.com – and through phone sales teams. Later this year, the business will launch its new mobile customer offer. This will better reflect what customers want: flexibility, transparency, and value. This will include deals they can’t find anywhere else, nationwide face-to-face advice, the best range of handsets from the biggest brands and a wide range of tariffs and networks, underpinned by a market-beating price promise.

The changes being announced today do not affect the 70 Carphone Warehouse stores in the Republic of Ireland or any operations internationally.

Alex Baldock, Dixons Carphone Group Chief Executive

“Customers are changing how they buy technology, and Dixons Carphone must change with them. We’re underway with a fundamental transformation to do so. Today’s tough decision is an essential part of that, the next step in making our UK Mobile business a success for customers, colleagues and other shareholders. Clearly, with unsustainable losses of £90m expected this year, Mobile is currently holding back the whole business. There’s never an easy time for an announcement like this, but the turbulent times ahead only underline the importance of acting now.

I don’t underestimate how upsetting this news will be for our colleagues, and we’ll treat everyone with honesty, respect and care. We want to keep as many of our Carphone Warehouse colleagues as we can, and expect to find new roles for almost 40% of those affected. We’re working hard to look after those colleagues we can’t find new roles for, financially and otherwise. We’ll pay enhanced redundancy, any bonuses, honour their share awards, and help them find new jobs through an outplacement programme. We recognise our responsibilities towards our colleagues and communities, and intend to fulfil them.

But though this is by far the toughest decision we’ve had to make, it is necessary. We must follow our customers. They want help with all technology, all in one place, and this trend is only going to accelerate in a more connected 5G world.

So customers are increasingly heading, not just to our large and growing online business, but into our big stores, where they can find all the experts and tech – mobiles, computers, TVs, smart tech, appliances, gaming and all the rest – they need. But they can’t find all this in the small mobile-only stores that are one twentieth of the size; they’re visiting these less and these stores are losing more money as a result.

That’s why we’re committed to our more than 300 big stores around the UK, why we’re investing tens of millions of pounds in them and in the thousands of expert colleagues who work in them. But it’s also why sadly we have to close the small stores.

We remain committed to Mobile, as we’re showing by developing a new offer for customers, retaining as many Carphone Warehouse colleagues as we can, and making Mobile a core category in our big stores and online. As such, Mobile will be part of the one, joined-up business that customers want and that’s essential for our transformation. Today’s announcement is about ensuring we’re ready for that future, and staying on track for future success.”

Financial Implications of Mobile Restructuring

  • Mobile restructuring has no impact on any of the Group’s transformation or medium-term guidance to deliver over £1bn of cumulative FCF up to and including FY 2023/24 – this includes all exceptional cash costs related to the transformation
  • Positive cashflow from Mobile restructuring of around £200m in total
  • Restructuring expected to be net cashflow positive in all years
  • Working capital inflow still expected to be over £500m
  • Network debtor of £785m (as of 1H 2019/20) expected to mostly unwind over the next three years
  • Offset by associated working capital outflow of c.£200m
  • Cash costs of Mobile restructuring to be around £220m
  • These comprise property, people and other restructuring costs
  • As previously guided, Mobile business will be at least breakeven by FY 2021/22
  • Mobile still expected to lose £90m in FY 2019/20 (excluding revaluations)
  • Losses expected to reduce slightly in FY 2020/21
  • Breakeven by FY 2021/22 through elimination of associated Central and IT costs

COVID-19 Impact

The COVID-19 situation continues to evolve quickly and at this time its future impact is difficult to assess. As always, our first concern is the wellbeing of our colleagues and our customers; we have already taken actions to protect them and are prioritising their safety.

To date, the Group’s trading has not been impacted materially by COVID-19.

  • Supply constraints have been limited to a few products and we have been, and continue to be, able to work closely with suppliers to secure stock or source product from unaffected areas.
  • Our UK and International Electricals sales, which account for over 80% of group revenues, have been resilient. Online sales have recently been strong and stores sales have held up well across all territories, although our Greek stores will be closed, probably for at least two weeks from 18 March. As customers prepare for time at home, fridges and freezers, small domestic appliances and laptops have seen notable increases in sales.
  • The main exception to this is our Dixons Travel stores which have been severely impacted by a significant fall in passenger numbers in recent weeks. As a result, we expect there to be a negative impact on this division’s profit of around £5m in the current year. This is encapsulated in our current guidance.

As a Group, we are monitoring the situation closely. The turbulent times ahead underline the importance of acting now and staying on track with our longer-term omnichannel transformation of the Group. We are aware that our stores could experience a significant reduction in sales in the months ahead and we are modelling a range of downside scenarios and planning accordingly. We are ready to switch more fulfilment to our online and direct channels and we will manage our costs and cash closely, including a tight control of capital expenditure if necessary. Our large bank facilities have substantial headroom (on capacity and covenants) and over two and a half years until maturity.

Financial Guidance

We are currently on track to meet our FY 2019/20 Adjusted PBT guidance of £210m despite the headwind to profit from Dixons Travel and currency translation, as well as for net debt to be lower year-on-year, but we are aware the situation may change over the final weeks of the financial year.

We will give a further update on the medium-term guidance as the impact of COVID-19 becomes clearer.

*See 1H 2019/20 Results for definition of Adjusted measures

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