UK Markets closed

Loss of market share means 'more pain' for Currys PC World owner

(c) Sky News 2019: <a href="http://news.sky.com/story/dixons-carphone-sees-uk-mobile-remaining-significantly-loss-making-11745319">Loss of market share means 'more pain' for Currys PC World owner</a>
 

The company behind Carphone Warehouse and Currys PC World has warned its UK mobile division will remain "significantly loss-making" this year.

Shares fell as much as 27% in early deals after Dixons Carphone used the publication of its full-year results to tell investors it would take time for plans to transform the business to deliver value.

The annual figures were announced against a backdrop of a half-year loss of £440m - reflecting a £490m writedown in the value of its Carphone Warehouse operations.

It divulged a statutory loss before tax of £259m for the year to 27 April as a result, compared with a profit of £289m in the previous 12 months.

Included was a £20m bill for a 2017 data breach - not discovered until 2018 - that affected millions of customers.

The company's headline profit measure, which better reflects day-to-day trading, came in at £298m - a fall of 22%.

Dixons Carphone guided that the headline figure was likely to dip further in the current financial year, towards £210m, as it gets to grips with challenges including the loss of market share in its mobile operations.

It has been badly hit by the trend of customers holding on to costly mobile handsets for longer at a time of already weak consumer confidence in its core UK market that has hit the retail sector as a whole.

But it has also complained that the division has been held back by its contracts with network partners - agreements that have restricted its offering on price and handset choice.

Dixons Carphone said it was accelerating its turnaround efforts through further negotiations with network operators and integrating its more successful electricals and mobile businesses into one entity.

Other work includes investment in online and bolstering customer service.

But it warned this extra effort would come at a cost.

Chief executive Alex Baldock said: "This means taking more pain in the coming year, when mobile will make a significant loss.

"But accelerating our transformation provides certainty that this year is the trough, as during next year the legacy contractual constraints on our mobile business lift, and the integration cost benefits build.

"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. In any case, cash generation from mobile will be strong."

Patrick O'Brien, UK retail research director at analytics firm GlobalData, said the chief executive may feel he has to go further in trimming its exposure to physical retail.

He wrote: "Baldock joined Dixons in March 2018. In his early months he substantially lowered profit expectations in a clearing-the-desks exercise, heavily criticised his predecessor and slated the lack of integration of the Carphone Warehouse merger.

"He also had a data breach to contend with (which occurred before his tenure). While he quickly identified the problems of the mobile business, there is a question mark around the company's ability to adapt quickly enough, and despite the closures in the last year, its portfolio of over 1,000 stores in the UK looks way too heavy.

"Baldock may have to take further action here, which would be costly.''