Carphone Warehouse 2016 Annual Report Download - page 28

Dixons Carphone plc Annual Report and Accounts 2015/16
Strategic Report
Performance review
26
Revenue on a local currency basis was down 5%, though
up in Greece despite the Greek business reducing volumes
in the low margin wholesale business. The Spanish business
continued to shift its store mix to franchise and away from
owned stores, with owned stores down 52 to 249 but with an
increase in franchise stores from 198 to 249. Southern Europe
has reported a year-on-year 9% decline in Headline revenue
to £550 million (2014/15: £606 million) reflecting the factors
above and a weaker Euro for much of the financial year.
Southern Europe Headline EBIT was £17 million
(2014/15: £15 million), up 13%.
Connected World Services
Connected World Services (‘CWS’) has continued to grow,
delivering revenue of £152 million, up from £121 million in the
prior year. We are announcing new developments in three of
the distinct business areas within CWS – connected retailing,
technology platform and support & services.
In connected retailing, following the success of the trial stores
we have agreed to roll out up to 500 stores with Sprint in the
US, including c.150 in the year ahead. Separately we continue
to expand on our consultancy agreement with Sprint and
deliver significant benefits to both parties, including operating
27 of Sprint’s own stores in Miami and Dallas. The joint venture
continues to go from strength to strength and we expect it to
contribute $40 million - $50 million to the Group’s annual EBIT
by 2019/20.
Within our technology platform business, we have reached
agreement with Sprint to roll out honeyBee across the entire
Sprint estate in the US.
In support and services, we aim to be the UK’s largest
third-party provider of mobile phone insurance. We have
agreed a new third-party mobile insurance contract in the UK
with EE, we have extended an existing contract with RBS and
we have entered into a significant new distribution agreement
with TalkTalk to support the sales and distribution of mobile,
TV and broadband connectivity.
We remain very excited about CWS’s prospects and continue
to invest in building the team and infrastructure to support the
growth potential of this business. CWS’s result for the year of
£7 million (2014/15: £7 million) is after a £4 million share of
losses from the joint venture arising on the Sprint venture and
is a result that we consider satisfactory and in line with
expectations.
Net finance costs
Headline net finance costs were £21 million (2014/15: £32
million). The reduction in financing costs was primarily due to
the redemption of the bonds previously held by Dixons Retail
on 21 August 2014 and the Group’s new revolving credit
facility incurring a lower rate of interest.
Tax
The Headline effective tax rate for the full year is 25%
(2014/15: 23%). The rate is higher than the UK statutory rate of
20% due mainly to higher statutory rates in the Nordics, certain
non-deductible items mainly in the UK and a reduction in the
value of UK-related deferred tax assets due to the forthcoming
reductions in the UK statutory tax rates.
Cash and movement on net funds
The prior period information provided below is on a pro forma
basis and aggregates the net funds / (debt) and cash flows of
the Group and Dixons Retail, as though Dixons Retail had been
100% owned by the Group throughout the prior period, to
enable a complete understanding of cash flows.
Free Cash Flow – pro forma basis
2015
/
16
£million
2014/15
£million
Headline EBIT 468 413
Depreciation and amortisation 137 137
Working capital (76) (159)
Capital expenditure (221) (182)
Taxation (56) (62)
Interest (31) (46)
Other items 24 4
Free cash flow before restructuring
items – continuing operations 245 105
Restructuring costs (43) (16)
Free Cash Flow 202 89
Free Cash Flow before restructuring was an inflow of
£245 million (2014/15: £105 million), an increase of 133%.
The Group experienced a working capital outflow of £76 million
(2014/15: £159 million), being an improvement on the previous
year which included a non-recurring unwind of certain supplier
funding arrangements.
Capital expenditure in the period was £221 million
(2014/15: £182 million), lower than anticipated, reflecting tight
management of capex spend. The year-on-year increase
reflected spend on Carphone Warehouse SWAS, investment in
IT platforms and continued development in both our retail and
Connected World Services businesses. We continue to keep
tight management of our capex spend as well as other
integration activities.
The reduction in interest reflects the prior year including
interest paid on the bonds previously held by Dixons Retail
until August 2014 and the Group’s new revolving credit facility
incurring a lower interest rate.
Restructuring costs in both the current year and prior year
relate to Merger integration costs and primarily reflect
employee severance and incentive costs, property costs
associated with the integration process and professional fees.
00_DC 2016 Annual Report.pdf 26 11/07/2016 18:34