City reaction: Mobile phone woes hit bottom line at Dixons Carphone

Investors have offloaded shares in Currys and PC World owner Dixons Carphone as the retailer swung to a loss and warned that its mobile division will remain significantly loss-making in the coming year.
The group is Britain's biggest electrical retailer. Picture: PAThe group is Britain's biggest electrical retailer. Picture: PA
The group is Britain's biggest electrical retailer. Picture: PA

Pre-tax losses amounted to £259 million for the 12 months to 27 April, full-year results have revealed. This compares to a profit of £289m a year earlier and includes charges of £557m which primarily relate to the changing UK mobile market.

On a headline basis, which strips these costs out, profits tumbled 22 per cent to £298m. Meanwhile, revenue dipped 1 per cent to £10.43 billion.

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The group's bosses have previously admitted they were too slow to win over online shoppers and committed to a turnaround plan as UK consumers move away from buying long contracts on mobile phones.

Dixons Carphone said it would take "more pain" in the coming year, with mobile operations making a significant loss.

The company said that headline pre-tax profits will decline again to about £210m in the current financial year.

Shares fell by more than a quarter in early trading on Thursday, dropping at one point to just 90p.

But chief executive Alex Baldock insisted this would be the lowest point for the company before turnaround plans begin to bear fruit.

"We expect mobile will at least break even within two years, and beyond that, equipped with a stronger and unconstrained offer, we will of course aim to do better," he said.

The company has renegotiated its legacy network contracts with mobile operators and is combining the mobile business with the electricals division, responding to the rapid changes in the market.

Baldock also pledged to accelerate parts of the turnaround, with a goal to save £200m brought forward by two years. A target for margin improvement of at least 3.5 per cent has also been pushed earlier and is now scheduled for the 2023 financial year, one year before originally planned.

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Emma-Lou Montgomery, associate director from Fidelity Personal Investing's share dealing service, said: "While elsewhere in the group the five-year plan is going to plan - if not a little better - the mobile phone business is under considerable strain as customers demand flexibility, are sticking with their old phones for longer and Carphone is dragged down by binding network contracts."

Richard Hunter, head of markets at Interactive Investor, said: "Dixons Carphone is certainly feeling some acute short-term pain having embarked on a radical overhaul of its business.

"In normal circumstances, these numbers would be poorly received, let alone with an outlook for the next year which looks even more challenging.

"There are some glimmers of hope, however. The electricals part of the business, particularly in the UK and Ireland, is holding its own in terms of revenue and is also seeing market share growth.

"The new focus on the group’s online and credit offerings businesses is also showing promise, with online electrical sales, for example, now accounting for nearly 30 per cent of the total. In addition, Dixons has taken the clever approach of moving slower moving lines of stock online so that it can continue to transform its in-store experience.

"In all, the ambitious five-year transformation plan carries many promises and targets, but it is simply too early to gauge whether these are achievable.

"Of late, there has been an element of investors running out of patience with Dixons. Even before today’s mauling, the shares had given up 37 per cent over the last year, as compared to a decline of 8 per cent for the wider FTSE250 index.

"A previous market consensus of the shares as a strong buy will now surely, as with the numbers themselves, become the subject of red pens across the piece."

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John Moore, senior investment manager at Brewin Dolphin, said: "There’s a lot to process in Dixons Carphone’s preliminary results. Having undertaken fairly dramatic changes thus far, today's announcement sees the business undertake a massive transformation programme in its mobile division, which will lead to ballooning losses in this part of the company over the next couple of years before breaking even.

"This type of intervention is much needed: the division has weighed down Dixons Carphone in recent years and arguably eaten the cash flow and working capital benefits delivered elsewhere.

"Despite a large statutory loss, there are some positives to be taken: UK and Ireland electricals is holding up, the international operations appear to be doing well, the underlying business continues to be profitable, and the company has remained committed to dividend payments.

"It is encouraging that management has recognised a need for significant change and is willing to take action - even if that means short term pain. The hope will be that a significant change in mobile and a period of stability and modest growth elsewhere could offer some degree of encouragement for shareholders, who have endured a lot in the past few years."