Britain's Dixons Carphone to reposition mobile business after profit slump

By James Davey

LONDON (Reuters) - Britain's Dixons Carphone said on Wednesday it would reposition its mobile phone business as it reported a 60 percent slump in first half profit, hurt by a weak mobile market as customers hold onto handsets for longer.

The British group, which issued a profit warning in August, also cut its profit forecast again for the full 2017-18 year, reflecting the later launch of the iPhone X.

But shares in Dixons Carphone which have more than halved this year, rose up to 9 percent after it said it had traded well in its second half so far, with record sales from November's Black Friday promotional event, and would maintain its full-year dividend.

"We think its business is likely to prove more resilient than the market expects given share gains in electricals and its Nordic exposure," said RBC Europe analyst Richard Chamberlain, who has an "outperform" rating on the stock.

Dixons Carphone, which trades as Currys, PC World and Carphone Warehouse in the Britain, said UK and Ireland mobile phone like-for-like sales fell 3 percent in the first half, while electricals sales rose 6 percent.

Chief Executive Seb James said a combination of higher handset costs and relatively incremental technology growth meant customers were holding onto handsets for longer and some were choosing a SIM-only contract in the meantime.

FIGHT HARD

The group had made "a very conscious decision to fight hard to drive sales" in mobile, retaining its position as the British market leader, but the move had hit profitability.

"We recognise that the performance of the mobile division needs addressing, and are taking action to adapt our model," said James.

"We believe that we can, over time, reduce the complexity and capital intensity of our mobile business model, and increase the simplicity and profitability of what we do," he said.

Finance Director Humphrey Singer said Dixons Carphone had already improved its SIM-only range and had introduced "leasing propositions" on some phones.

More strategically the firm was considering changes to its relationships with the big phone networks - EE, O2 and Vodafone.

"Those are three big relationships with complicated, long term agreements, which we are talking to them about re-aligning," Singer told reporters.

Dixons Carphone made an underlying pretax profit of 61 million pounds in the 26 weeks to Oct. 28 - below analysts' average forecast of 63 million pounds and 154 million pounds in the same period last year. Group like-for-like sales rose 4 percent.

It forecast profit for the full 2017-18 year of 360 million to 400 million pounds, having forecast 360 million to 440 million pounds in August. It made 501 million pounds in 2016-17.

James said Black Friday had been a "cracker".

"We had an all time record Black Friday in all of our territories," he told BBC radio.

(Additional reporting by Alistair Smout; Editing by Paul Sandle and Edmund blair)