LONDON (Reuters) - Dixons Carphone plans to accelerate its response to a rapidly changing mobile phone market after reporting a 22% slump in annual profit and warning of another big fall in the current year, hammering its shares.
Shares in Britain’s biggest seller of electricals and mobile phones, which trades as Currys, PC World and Carphone Warehouse in the UK, opened at a 10-year low on Thursday after it forecast profit for the current year would be nearly a third lower than the market had expected. The stock was trading down 13% at 108.3 pence at 0939 GMT, extending year-on-year losses to 43%.
Dixons Carphone has been damaged by a shift in the mobile phone market as customers keep their handsets for longer, choose cheaper SIM-only deals, and turn to more flexible credit-based offers.
“What’s going on in the market is fewer handsets being sold and when they are being sold they’re being sold differently,” Chief Executive Alex Baldock told reporters.
“That hurts our (market) share twice. We get hurt along with everybody else when fewer handsets are sold (and) this is a business that’s been geared to the old-style (less flexible) 24 months post-pay contracts.”
Baldock, who joined Dixons Carphone in April 2018 and launched a turnaround plan in December, said the mobile market was changing faster than management had anticipated, requiring it to speed up its response.
He has renegotiated all of the group’s legacy contracts with network providers Vodafone, EE and O2 which pre-date the current management team.
Baldock succeeded Seb James, now the boss of Boots, as CEO. Dixons Carphone’s finance chief Jonny Mason joined in August, succeeding Humphrey Singer, who now holds the same post at Marks & Spencer.
The company also cut its full year dividend to 6.75 pence from 11.25 pence last year, and forecast a flat payment for 2019-20.
Baldock is also revamping the group’s mobile product range, including improved choice in SIM-only deals and flexible credit based bundles, which it expects to introduce to the market this year, and is speeding-up the integration of mobile and electricals into one business.
“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 (2019-20) is the trough,” he said, adding that he expected the mobile business to break even within two years.
Sales and profit was forecast to grow in the group’s electricals business in both the UK & Ireland and international divisions. The group also trades as Elkjøp, Elgiganten and Gigantti in Nordic countries and Kotsovolos in Greece.
Dixon Carphone said underlying pretax profit was expected to be around £210 million in 2019-20, with growth then returning as the benefits of its turnaround plan feed through. Analysts’ consensus forecast for 2019-20 prior to Thursday’s update was about £300 million.
The group reported an underlying pretax profit of £298 million in the year to April 27. That compared to company guidance of around £300 million and was down from £382 million made in 2017-18.
Mobile phone like-for-like revenue fell 4%. Electricals revenue on the same basis was up 1%, while international revenue was up 4%.
The group reported a statutory pretax loss of £259 million. That reflected charges of £557 million, primarily non-cash impairments relating to the changing UK mobile market that were detailed in December.
Reporting by James Davey and Paul Sandle; Editing by Keith Weir