Dixons Carphone Half Year Results 2020/21: Online success and accelerating transformation drive strong performance

   Unaudited Results for the Half Year Ended 31 October 2020

Key Highlights:

• Kept colleagues safe and provided customers with vital technology during the pandemic 

• Adapted quickly to overcome challenges of multiple lockdowns 

• Strong trading across all markets; market share gains in every channel when open 

• Electricals online sales growth +114% to £1.8bn; UK&I Electricals online +145% to £1.3bn 

• Significant acceleration in omnichannel transformation 

• Further development of colleague tools and training; all invested in our success through continued share awards  

Group Financial Performance:

• Electricals LFL +17%, despite UK, Ireland and Greece stores shut for substantial periods 

• Group adjusted* profit before tax £89m (1H 2019/20: £2m) 

• Group statutory profit before tax of £45m (1H 2019/20: loss of £(86)m)  

• Since start of pandemic, estimated** impact on profit before tax of store restrictions in UK&I was £155m (1H 2020/21: £80m, 2019/20: £75m) 

• Over the same period furlough payments to colleagues and business rates tax relief was £103m (1H 2020/21: £80m, 2019/20: £23m)  

• Net cash* £269m (H1 2019/20: net debt £(208)m, FY 2019/20: net debt £(204)m)  

• Free cash flow* £499m (H1 2019/20: £77m), including £509m working capital* benefit (H1 2019/20: £137m)  

• No Interim dividend declared 

Current trade remains strong:

• Electricals LFL +16% over six weeks to 12 December, despite extensive store closures in UK and Greece
  * See page 2 for the basis of preparation for all performance measures and guidance given
  ** See page 3 for more details. Based on management estimates.

Alex Baldock, Group Chief Executive:
“I’m especially proud of our colleagues today. Thanks to them, we’ve come through an exceptionally challenging time and emerged a better business. Our UK stores were closed for months, but our colleagues adapted fast, continuing to help millions of people enjoy the technology that’s playing an ever-more vital role in their lives, and doing so safely. We’ve grown sales and profits, preserving our market leadership while accelerating our transformation in the UK, and continuing to power ahead internationally.

We’ve achieved this performance by doing what we said we’d do. We’re winning online, and have triple-digit growth and rapid market share gains to show for it. Still, most customers prefer to buy technology through a mix of online and in store, and we’ve innovated fast to bring the best of both digital and physical shopping to every customer. In particular, ShopLive 24/7 live video shopping points to a retail future where every customer online can get face-to-face advice from an expert store colleague. Meanwhile, we’ve continued to build lasting and valuable customer relationships. Our Customer Club grew spectacularly, and now has a third of Nordics households signed up. In the UK, we helped ten million credit and services customers, and we now account for more than half of all UK retail electricals recycling.

We’ve also been responsible in our use of government support. We used the furlough scheme to preserve jobs in the first lockdown, and didn’t use the scheme at all in the second. Meanwhile, leaders have taken salary cuts and waived bonuses, and we suspended the dividend.
The outlook remains uncertain, and we’re still nowhere near our full potential. Much hard work lies ahead. But this year has shown this business’s qualities, especially the grit and skill of our colleagues. Our strategy has been stress-tested as never before, we’ve had one arm tied behind our back versus our competitors, and we’ve responded with stronger performance and an accelerating transformation. I’m more confident than ever that we’re on the right path to create a world class business for colleagues, customers, shareholders and society.”

Divisional highlights:

• UK&I Electricals revenue +15% (LFL +16%), adjusted EBIT £95m, +£63m year on year (Statutory EBIT £69m)

  • Online sales +145%, almost £800m more sales year on year, offsetting sales loss from enforced store closures and in Dixons Travel  

  • Online market share gain +6.5%pts, store market share up when stores open 

  • Lost profit from enforced temporary store closures partially offset by strong omnichannel performance 

• International revenue +16% (LFL +18%), adjusted EBIT £81m, +£20m year on year (Statutory EBIT £75m)

  • Online sales +57%, over £160m more sales year on year contributing 21% of sales, +5%pts year on year 

  • Nordics share growth +1.5%pts, gaining market share in all countries and all categories  

  • Nordics on course for another year of strong profit growth, Greece impacted by closures 

• UK&I Mobile revenue (54)%, adjusted EBIT loss £(36)m, +£9m year on year (Statutory EBIT loss £(44)m)

  • Sales decline due to UK standalone Carphone Warehouse store closures announced in March 

  • Network debtor unwind funding restructuring costs and drove segmental free cash flow of £2m 

Transformation progress accelerating despite Covid-19 interruption:

• Omnichannel: Group online sales +53% to £3.6bn in the last twelve months  

• Credit: UK Electricals Credit sales up +25% year on year, total customers over 1.3m 

• Services: Nordics Customer Club to over 4.3m members and almost 40% of revenue 

• Mobile: Restructuring on track, on course to deliver positive cashflow target 

Basis of preparation
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’ or “APMs”) 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. These APMs, including adjusted results, free cash flow, net debt, currency % neutral change and like-for-like % change are defined in the glossary on page 46. The Directors consider free cash flow to be a useful measure as, unlike statutory equivalents, it is a good indicator of cash generated from continuing operations which is available to fund future growth or be distributed to shareholders. Free cash flow includes adjusted working capital as defined in the glossary on page 46. 

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. 

Items excluded from adjusted results can evolve from one financial year to the next depending on the nature of exceptional items or one-off type activities. The Group adopted IFRS 16: ‘Leases’ using the modified retrospective approach in the prior year. In order to aid comparability with prior year measures, the impact of IFRS 16 was included within adjusting items, which were reported under IAS 17. Following the adoption, and ability to report comparatives under IFRS 16, the impact of such is no longer considered to be an adjusting item. The adjusted results and adjusting items for the comparative reporting periods ended 26 October 2019 and 2 May 2020 have subsequently been restated in to reflect this. Details of all adjustments are included within the glossary and definitions section of the report on page 46. 

During the period the Group has redefined net cash / debt to comprise only cash and cash equivalents and short-term deposits, less borrowings, excluding the previously included IAS 17 finance leases. The Directors consider the revised definition to be a more useful measure of the indebtedness of the Group. A full reconciliation to net cash / debt can be found in note A10 within the glossary and definitions.  

Throughout results statement references are made to earnings before interest and tax (EBIT), as this is directly comparable to profit / (loss) before interest and taxation. The terminology used is consistent with that used historically and in external communications. 

Summary of Performance

*See page 46 for further information on our alternative performance measures (APMs) and glossary. This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. The basis of preparation of our IFRS measures is included on page 2. 

UK & Ireland: Stores were closed from start of period on 2 May (lockdown started on 24 March), with reopening starting in Ireland from 18 May and UK from 15 June. 

Greece stores closed:  7 – 30 October. Sales only through internet and call centres. 

Sales have been strong across all Electricals markets as we helped customers choose, afford and enjoy the vital technology we sell to keep them connected with loved ones, their families fed, clean and entertained, to work from home and home-school their children.  

At the start of the pandemic, sales were particularly strong in refrigeration and TVs. As the crisis developed and customers across our markets spent more time at home, the technology they needed changed and we saw increased sales of items such as food processors and fitness trackers. All areas of computing (laptops, desktops, tablets and gaming) have been very strong throughout the period.   

In the UK, Ireland and Greece we have traded into and out of multiple lockdowns, each time rapidly transferring sales from stores to online and back again. It is a testament to the scale and adaptability of our business that growth has remained so robust throughout. We have also quickly pivoted to make even more of our expert colleagues, with 2,100 now trained to use ShopLive, our video shopping service, and a further 500 having moved from retail operations to contact centres to cope with elevated demand.  

The impact of Covid-19 accelerated the pace of change in the business, with new ways of working making us faster and smarter. This is evidenced by the speed and scale of innovation in some of the most important omnichannel growth areas.  

In UK & Ireland our sales and profit have been impacted by Covid-19 and government closure of our stores twice, for a total of four months as we were classified as non-essential. This left us disadvantaged against our principal competitors. Grateful though we are for vital government support, we have lost more profit from lost store sales due to restrictions on stores than we have received in government support. In assessing the enforced store closures, we have estimated the impact on revenue and profits generated by stores. In doing so we have considered the movements in these metrics compared to the comparative period, historic trading patterns and the sales trends that we saw when stores were open. We estimate the cumulative impact of the enforced store closures and the reduction in our Travel business (a strong business that has effectively closed due to travel restrictions) have reduced store sales by at least £320m (1H 2020/21: £185m, 2019/20: £135m). In combination with the ongoing restrictions when stores opened and the shift towards lower margin online sales, this negatively impacted profit before tax by £155m (1H 2020/21: £80m, 2019/20: £75m), including c.£15m we have spent on keeping our colleagues and customers safe, on distancing, hygiene and protective equipment. UK and Irish government schemes paid furlough to our colleagues and allowed relief on business rates tax, totalling £103m (1H 2020/21: £80m, 2019/20: £23m). Together with executive pay cuts, bonus cancellation and suspension of dividend, this allowed us to keep thousands of colleagues employed even as our stores were required to temporarily close. Despite further store closures in the second lockdown, we have not used the Job Retention Scheme since October. 

Nevertheless, the strong sales we have seen through our omnichannel model has partly enabled UK & Ireland online sales growth of +145% resulting in additional sales of almost £800m in the period.  This meant that our profits are improved against the first half last year despite the enforced store closures. This profit outturn and a focus on cash has resulted in a net positive cash position at the half year and unused committed debt facilities of £1.3bn.  

*All financials include leases prepared in accordance with IFRS16 unless otherwise stated. See page 46 for further information on our alternative performance measures (APMs) and glossary. This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. The basis of preparation of our IFRS measures is included on page 2. 

*All financials include leases prepared in accordance with IFRS16 unless otherwise stated. See page 46 for further information on our alternative performance measures (APMs) and glossary. This includes definitions, purpose, changes to the prior year, and reconciliation to the nearest IFRS measures. The basis of preparation of our IFRS measures is included on page 2. 

**Repayment of leasing debt and interest includes non-trading stores. The non-trading stores predominantly relate to the closed standalone UK Carphone Warehouse stores as announced on 17th March 2020 and the remaining closed stores under the Currys PC World 3-in-1 and Carphone Warehouse programme announced in 2015/16. 

*** During the period the Group has redefined net debt to comprise only cash and cash equivalents and short-term deposits, less borrowings.  

Impact of IFRS16
Accounts are presented using IFRS16 accounting. To aid understanding and comparability with previous periods, here we present the impact of IFRS16 accounting. 

Current trade
Trading since the period end has continued strongly. In UK&I Electricals, like-for-like growth was +11% despite our stores in England, Wales, Scotland and Northern Ireland having been closed for substantial periods. Online growth was +117%. International growth was +23% despite sales decline in Greece due to store closures. 

UK&I: England stores closed 5 November to 1 December, with stores in Wales, Scotland and Northern Ireland closed for meaningful periods 
Greece stores closed: November 7 and reopened on 14 December for collection-only.  

Outlook & Financial Guidance
Millions of customers increasingly recognise the vital role that technology plays in their lives and we continue to make it easier for them to shop with us via digital-first omnichannel, and build customers for life. This is our route to sustainable profits and cashflow through credit and services that help customers get tech working, keep it working, get the most out of it and recycle it.  

The immediate outlook is less certain. There will be further economic consequences of the pandemic, continued impact on International travel, we may face further enforced store closures and there could be disruption from Brexit. While the relief from business rate taxation in the period has been beneficial, we urge the Government to carefully review business rates which are a significant and unbalanced tax on a store retail sector which has seen an accelerated shift to online. Specifically, we urge a resettlement of business rates based on current rental values. This will increase the rates burden on warehousing and reduce it on retail stores. It could be self-financing, would preserve hundreds of thousands of viable retail jobs, also help the hard-pressed leisure and hospitality sector, and oblige everyone to pay their fair share. 

We continue to discuss the possibility of listing a minority stake of our Nordics business in 2021 with our shareholders and other stakeholders.  

Current year guidance - as previously guided:

• Mobile adjusted EBIT losses to be slightly worse than 2019/20 and cashflow from Mobile to be slightly negative as operating losses and restructuring costs will be largely offset by net working capital unwind  

• Transformation cash costs to be c.£175m, mainly related to previously announced Mobile restructuring  

• Group capital expenditure to be around £175m 

Medium term guidance - as previously guided:

• Group to generate cumulative free cash flow of more than £1bn over FY20 to FY24 

• No change to previous profitability expectations (at least 3.5% EBIT margin on pre-IFRS16 basis). Group moving to cashflow based targets at year end  

• Total positive cashflow from UK&I Mobile will be in the range of £125m-175m 

• Annual pension contributions will rise to £78m from 2021/22, from £46m this year 

Results presentation webcast:
There will be a recorded presentation for investors and analysts available at 8:00am today, followed by a live Q&A at 9:00am. The presentation slides will be available via the webcast and on www.dixonscarphone.com  

Next scheduled announcement
The Group is scheduled to publish its Peak trading statement covering the 10 weeks to 9 January 2021 on Wednesday 20 January 2020. 

For further information:

Follow us on Twitter: @dixonscarphone 

About Dixons Carphone
Dixons Carphone plc is a leading omnichannel retailer of technology products and services, operating through 932 stores and 16 websites in eight countries. We Help Everyone Enjoy Amazing Technology, however they choose to shop with us. 

We are the market leader in the UK & Ireland, throughout the Nordics and in Greece, employing over 22,000 capable and committed colleagues in the UK & Ireland and approximately 32,500 globally across the Group. Our full range of services and support makes it easy for our customers to discover, choose, afford and enjoy the right technology for them, throughout their lives. The Group’s core operations are supported by an extensive distribution network, enabling delivery to stores and homes, a sourcing office in Hong Kong and a state-of-the-art repair facility in Newark, UK. 

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

Certain statements made in this announcement are forward-looking. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Information contained on the Dixons Carphone plc website or the Twitter feed does not form part of this announcement and should not be relied on as such. 

To read the full RNS statement, please click here.