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Trading statements

Dixons Carphone warns of lower FY profits

24 August 2017 08:12

Dixons Carphone has warned that full-year pre-tax profits were likely to be down on last year due to more expensive mobile phones and lower EU roaming charges.

The group said it continued to see a good performance in electricals in the UK & Ireland, Nordics and Greece but conditions in the UK mobile phone market were challenging.

it said receivables revaluation, largely EU roaming legislation related, were expected to be negative this year and recent honeybee business model changes were expected to lead to lower earnings.

It said that as a consequence of these combined factors management now expected group headline PBT for 2017-18 in the range of £360m to £440m with core trading profitability in line with last year.

Group chief executive Seb James said: "We continue to trade well in all geographic markets with like-for-like sales up 6% across the group.

"It is good to see this performance from our UK electrical business particularly against the Euros football championship last year, as well as strong sales from our Nordic and Greek businesses.

"In all of these markets we have seen growth in revenues, market share and profitability with overall product margins remaining flat in electricals.

"However, over the last few months we have seen a more challenging UK postpay mobile phone market.

"Currency fluctuations have meant that handsets have become more expensive whilst technical innovation has been more incremental.

"As a consequence, we have seen an increased number of people hold on to their phones for longer and while it is too early to say whether important upcoming handset launches or the natural lifecycle of phones will reverse this trend, we now believe it is prudent to plan on the basis that the overall market demand will not correct itself this year.

"Over the longer term we believe that the postpay market will largely return to normal but in the meantime we have taken a conscious decision to invest in our margin and proposition to maintain market share and scale so we remain in a strong position as the market leader when this happens.

"Whilst this investment will cause a shortfall in profits for our phone business we do however expect overall profit in our core retail operations to be in line with last year supported by good progress in our UK & Ireland, Nordic and Greek electrical businesses.

"As we highlighted at the full year results, we have, over recent years, reported a number of one-off adjustments, particularly related to our large mobile network debtor.

"Historically these items have mostly been net positive to the business, but, largely caused by changes in EU roaming legislation, we now believe that the outcome is likely to be net negative this year.

"While it is difficult with the limited data currently available to assess the precise impact of these changes, we currently estimate that the net negative effect will be a range of between £10m and £40m this year. In total, the one-off adjustments contributed a net positive, and largely non-cash, effect of £71m last year.

"Additonally, we have recently decided to change the way in which we are selling our honeybee software product with a move towards software-as-a-service rather than upfront sales as we believe that this will create a business with more sustainability and higher value in the longer term.

"It will, however, have an impact on this year's reported profitability.

"Last year we sold a significant upfront contract to Sprint which will not be repeated this year, and all our new contracts are following the new model. As a result, we expect CWS this year to generate limited profits overall.

"Taking the above factors into account, as well as the disposal of our Spanish business, we now expect the group's Headline PBT for 2017/18 to be in the range of £360m to £440m."

At 8:12am: (LON:DC.) Dixons Carphone share price was -63.25p at 172.05p

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