December 12, 2018 / 7:31 AM / a year ago

Dixons Carphone cuts dividend after profit slump

LONDON (Reuters) - Britain’s Dixons Carphone (DC.L) cut its dividend and warned its turnaround plan would take time after slumping to a 440 million pound first half loss, sending its shares sharply lower.

FILE PHOTO: Signs display the logo of Dixons Carphone at the company headquarters in London, Britain August 1, 2017. REUTERS/Neil Hall

Shares in the group, which trades as Currys PC World and Carphone Warehouse in Britain, were down 8.6 percent at 1110 GMT on Wednesday, taking their fall for the year to 30 percent.

Dixons Carphone has been hurt by tougher conditions in the mobile phone market as customers keep their handsets longer. While it is still market leader in Britain and Ireland, reduced sales of handsets have resulted in a declining share and a loss-making business.

Chief Executive Alex Baldock, who joined only in April and has been critical of previous management, plans to restore the mobile business to profit by putting its relationships with network operators - EE (BT.L), O2 (TEF.MC), Vodafone (VOD.L) and 3 (0215.HK) - on to a more sustainable footing, with increased handset choice and improved terms.

Other elements of his strategy include focusing on its core electricals business and the growth areas of online and credit.

“There are headwinds and uncertainty facing any business serving the UK consumer, we’ve had our own challenges, and our plan will take time,” said Baldock.

“But, with this plan, we can now see the way to unleashing the true potential of this business,” he added.

Baldock told reporters the group had no current plans for store closures beyond the 102 already announced.

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The chief executive is targeting an operating margin improvement to at least 3.5 percent over five years, an additional 200 million pounds of cost savings and an additional 200 million pounds of capital expenditure over three years.

He also wants to get Dixons Carphone’s workforce of 30,000 behind the strategy by awarding each of them at least 1,000 pounds of shares.

Dixons Carphone’s statutory pretax loss of 440 million pounds for the 26 weeks to Oct. 27 reflected the booking of 490 million pounds of exceptional charges, mainly related to writing-off goodwill in the mobile business. It posted a pretax profit of 54 million pounds a year earlier.

The group said it was taking the “prudent” measure of cutting its dividend by about 40 percent this year so that the payout and pension fund contributions are covered by free cash flow. Its interim payout was cut to 2.25 pence from 3.5 pence last time.

The group also trades as Elkjøp, Elgiganten and Gigantti in Nordic countries and Kotsovolos in Greece.

Its underlying pretax profit of 50 million pounds was ahead of analysts’ expectations but down from 73 million pounds last time. Guidance for the full 2018-19 year was maintained at 300 million pounds.

“Although it faces structural headwinds in mobile and ongoing Brexit related currency risk, it should be able to benefit from its strong relative position in the UK and Nordic electricals and to release cash from the mobile business over time,” said RBC Europe analyst Richard Chamberlain, maintaining his “outperform” stance.

($1 = 0.8006 pounds)

Reporting by James Davey; Editing by Jason Neely and Keith Weir

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