Presentation Alex Baldock Chief Executive Officer, Dixons Carphone - - PDF document

Dixons Carphone – Full Year Results – 15 July 2020

Presentation

Alex Baldock

Chief Executive Officer, Dixons Carphone Alex Baldock: Good morning everybody. What you're going to hear from Jonny and I this morning, before we take your questions, is a story of a business that was on track pre-crisis. On track both with the five major legs of the transformation, with which you are all familiar, but also on track to meet financial expectations for performance in the year. Then the crisis hit, and we pivoted abruptly to a new set of priorities: to keep everyone safe, to help millions of customers through the crisis, and to secure the business' future. And it fills me with pride the work that thousands of colleagues did and the success with which we fulfilled those three imperatives. Nevertheless, COVID has impacted the business and you see that reflected in the financial performance that Jonny will take you through later. It also, even though we have traded strongly wherever we've been open through the crisis, and even though we have started the new financial year trading strongly as well, we do expect a weakening of consumer demand later this year and we are being cautious in all of our planning. Nonetheless, we look forward now to raising our gaze beyond this crisis and to resuming a transformation that was visibly working. So, let's get into that. Let's get into the fact that we did what we said we would do pre-crisis and that it was visibly working. Online and in-stores together, omnichannel. We were making good progress online. We were gaining market share online before the crisis, 240 basis points of market share gained. We were growing, 25% up year on year in our online business. We did that by doing what we said we'd do. By making it easier for customers to find and buy stuff online, by increasing the size of the range by 2,000 SKUs for example, by making significant improvements to the online customer experience in areas like search, recommendations, checkout, and site speed. By improving the experience after customers bought in areas like delivery where we saw a nine-point jump in customer satisfaction. But it's not all about online, it was about stores as

• well. And we've got behind, as we said we would, the 300 big 3-in-1 stores in the UK. We've

invested tens of millions of pounds in those stores, remodelling 121 of them before the crisis hit. And it's still in online and stores together that we see our future. We're starting to do some quite interesting things in bringing the two together. We saw, for example, a 64% year-on- year increase in online stock sold in the store. And we've done some quite interesting innovation in areas like ShopLive, as you will see. So good progress online and good progress in stores and that's reflected in online growing, that’s reflected in online growing as a share of business and growing in market share as well. Not just online, credit is another big profitable growth driver as you will recall. Credit is important because with it, customers buy more, they come back more often, and they're more satisfied – 18 points happier.

Dixons Carphone – Full Year Results – 15 July 2020

And we made good progress there as well, whether it's credit sales up by 27% in the year and whether it's credit customer numbers up by 30 something per cent. Good, important progress

• n credit.

Likewise, progress on services, another important means of getting the stickier and more valuable customer relationship that we want. We said we would focus on the most important

• f those services such as protection, which is warranty and insurance, and so we did. We

improved customers’ adoption of our protection products during the year and we launched a new market-leading and regulator-friendly warranty and insurance product during the year. So we did what we said we'd do there as well. So good progress on services, but much more to come. For example, in Customer Club, which we launched first in the Nordics, it's grown quite nicely from one to over three million members in 18 months. The benefits to customers are clear. They get exclusive content and deals, and the benefits to us are clear as well: much better data, higher sales, and improved margins for Club Customers. So, a good start on the Club as well, as we head towards stickier and more valuable customers. And to achieve that, it's also important not to give customers reasons to go anywhere else, to make their end-to-end experience easier. And we said we'd do that as well. The hard, unglamorous yards of eking out marginal gains in the end-to-end customer experience has been reflected in significant, for the most part, double- digit year-on-year improvements in customer satisfaction as well. And finally, mobile, as we know was challenging but was on track pre-crisis. We know the issue in mobile, that the business has been geared to a declining post-pay segment, but we were

• n track in doing what we said we would do about it.

Whether it was in network renegotiations and widening the range of networks – we weren't able to reach an acceptable deal with O2, but we were with the likes of Virgin and Voxi and a much-improved ID Mobile, our own proposition, as well. Meanwhile, we managed to lower the volume commitments without completely getting rid of

• them. So, we did what we said we'd do on the network renegotiations. Likewise, on improving

the offer – our future mobile offer, our own credit-based bundle – was on track for delivery as planned in FY21. And the cost reductions totalling £200 million of central and IT cost reductions, so important for the mobile economics, were also on track for FY21. So, we were on track. For a mobile business that once we were free of the legacy constraints, the contracts, and of costs, we were on track for a mobile business that would be smaller but would be profitable, cash generative, and an integrated category. Then the crisis hit. And in Mobile, it hit us in two ways. First of all, on the sales line because with the enforced closure of the large 3-in-1 stores, we weren’t as successful in Mobile as we have been in UK Electricals. That's transferring those lost store sales online. The investment online, you will recall, was deliberately focused on UK Electricals. So that did hit us. And also, as a response to the crisis, we paused large chunks of our transformation with the CapEx spend. That, in two areas, has set us back in Mobile, on the development of the future mobile offer and on aspects of the systems integration, the two into one, and that will make us around six to 12 months late on the transformation here.

Dixons Carphone – Full Year Results – 15 July 2020

So, while we are still on track to break even in Mobile during the course of FY22, it won't be for FY22 and Jonny will come back and take you a bit more detail about that later. So, on track to do what we said we would do on all five legs of the transformation then. Also, some important progress on the enablers underneath that; capable and committed colleagues bursts and some good progress of learning and development with the launch of our new academy in Birmingham. On incentives, continuing to make all of our colleagues shareholders. But perhaps most pleasing was the development in the leadership team where we got five world class hires to show for our progress there. Whether it's Erik Sonsterud, Mark Allsop, Paula Coughlan, Ed Connolly or Lindsay Haselhurst, all joining the team. On one business, as I said, we were making good progress and on track for the £200 million of cost reduction. And likewise, stronger infrastructure, stronger IT infrastructure in particular, which remains a constraint for the business. And we have stronger leadership now to take us through it. Not just Mark Allsop, we also hired Dyson's CIO, Andy Gamble. And we've made some good progress, whether it's giving colleagues frontline tools, for example, the store mode tablets in

• stores. So essential but delivering our on the channel proposition.

Or better routing technology. It's been important on some of the supply chain efficiencies that we've seen. We've also landed some important new pricing technology, which allows us to be more scientific in our pricing while being more consistently on the money. And on the big SAP re-platforming, we've continued with that in the Nordics through the crisis and happily have landed the first phase of that successfully and on time. We paused it in the UK, again as part of our prices response. But we're now close to being ready to start resuming that. Progress on all the big three enablers of the strategy, in all of this progress, is reflected in better customer satisfaction. You'll see, in the UK for example, electrical NPS up nicely in the double digits. It's also reflected in strengthening number one market leadership positions. We've had another year of gaining market share in all of the core Electrical businesses in the UK and in the Nordics, and we're now up to close to 27% market share in the UK Electricals business which has never been higher. So, progress on all five legs of the transformation and progress reflected in happier customers giving us more of their money. Nonetheless though, as I mentioned at the start, the crisis has hit us. You'll hear more on this from Jonny a little later and has hit the financial results. We were on track to meet our promises. We were on track not just to meet the expectations of a £210 million PBT. But we were on track to do other important things, like grow not just sales but profits in UK and International Electrical. But of course, the crisis has hit us. So, I refer to the crisis. Let's look for a moment at what we did about it and its impact and some of its longer-term implications for the business. First of all, when it hit, the first thing we did was to abruptly pivot to a much simpler set of crisis priorities, to keep everyone safe, colleagues and customers; to continue to help millions of people through the crisis with vital technology and to secure the business' future. It does fill me with pride the work that my tens

• f thousands of colleagues have done, the success with which they've tackled this crisis and

success on all three fronts.

Dixons Carphone – Full Year Results – 15 July 2020

First of all, keeping each other safe, and that's important not just because we're human beings and it's the right thing to do, but it was also really important to make colleagues engaged and feel like continuing to come to work at an uncertain time. And all of the good work that we did to help set the BRC’s and the retail industry’s standards

• n areas like social distancing and hygiene – first of all in our supply chain and service
• perations and contact centres, latterly in the reopening stores, has stood us in good stead

because it's allowed us to do the second of those things. Which is to continue to provide vital help to millions of people through this crisis. And it has been striking how important technology has been to people through this crisis. To keep each other connected with loved

• nes, entertained, healthy, and productive as people increasingly work from home and home

school the kids. And we've been able to do that in the UK as an online-only player, and pivot to that overnight, which is testament to not just the fantastic efforts of all of the colleagues, it's also testament to the efforts over the past 18 months to improve the online business in the ways that I've talked about. Without which, there's just no way we would have been able to sustain 166% year on year increase in online sales during April, for example. So really good work there in the UK to pivot to online. But of course, getting on for half of the business, International, with the exception of Greece, was largely unaffected by the crisis. Last but certainly not least, we're proud of the work that we've done to help vulnerable older people through the crisis, in partnership with our partner, Age UK, as well as prioritising the NHS for scarce stock. Helping our customers, in turn, played an important role in securing the business' future. There, we took radical action quite quickly. To spend less, to raise more money, at the same time as raising our gaze beyond the crisis. Spending less both on CapEx and OpEx, taking the difficult but necessary decisions to cancel bonuses and pay rises, to temporary pay cuts for everybody except those colleagues who were leaving their homes through the crisis, as well as pausing substantial elements of the transformation program. At the same time, raising more money. But now with over £1 billion of liquidity headroom and no intention and no need foreseen to raise any more money, that stands us in good stead. But equally, at the same time, we are raising our gaze beyond this crisis. We are raising our gaze to make sure that we are well set to prosper beyond it. So, what do we see when we look forward? Well, the first thing, in the very short term, what we have seen in the crisis, is sales hit wherever our stores have been closed. That much is

• bvious.

But looking forward, what do we see? Looking forward, what we see first of all is - right now – is continuing strong trading. We've traded well wherever we've been open throughout this

• crisis. Online-only when necessary, but the stores have traded well when reopened too.

That's been true at the start of this financial year as well as towards the end of the last one. At the start of this new financial year, UK and International Electricals' total sales have been up year on year. The stores have reopened well. Online has continued its strong growth. So, we've seen that. Equally, we're being cautious in our outlook. We expect the weakening

• f consumer demand and we've done a lot to prepare ourselves for it should it happen.

Dixons Carphone – Full Year Results – 15 July 2020

And that's in a couple of different areas. First of all, is our category, the space that we're in. I mentioned before that we've seen technology becoming a more important part of consumer's

• lives. That might point to the relative resilience of tax spenders in proportion with disposal

income. But whether that's true or not, whatever the state of our market, we are much better equipped now to be resilient, than we were for example in the last crisis in 2008/2009. Our market share is higher, our market positions are significantly stronger and that's reflected in even stronger supplier relationships, which gets us access to scarce stock. Our availability has been market leading, it gets us better terms. It also gets us more flexible terms and we're doing some quite interesting things now in risk- sharing with suppliers that give us confidence that we can prepare for very different scenarios

• f how the market pans out, particularly over this Peak period.

Another difference between this crisis and the last one is on price. Last time we couldn’t say that we were on the money on price, and we were vulnerable as a result. We're not vulnerable

• now. We've taken the difficult but necessary steps to be on the money on price.

We won't be beaten by anybody. And the competitors are starting to realise that. And the customers are certainly realising that, shown in the greater trust that we see to be on the money

• n price in brand equity measures.

Finally, this is a more diversified business than it was 12 years ago. Diversified more geographically, as International is a more important part of the business than it was. By channel, as online is a more important part. But also, in the increasing importance of credit and services as well as product sales. So, a resilient business and it's got to be a more resilient business than during the last crisis. But we also get asked about online. Obviously, the consumers had a forced digital-first immersion during the course of this crisis and many people discovered digital tech for the first time, whether it's video conferencing or telemedicine. And of course, online shopping. And we're asked, do we expect that to endure? What are the implications for our stores? What are the implications for our sales and for our profits? Well, the first thing to say is that we do expect this trend to be an enduring one. We are seeing a shift online and we expect that, a big chunk of that, to stick. But that's not bad news for us. Because we are big, and we are gaining online. You can see that our growth rates online are accelerating, more than twice the growth rate in the past year versus the previous one of 25%. And our market share is growing. We've gained 240 basis points of market share online. So we're well equipped to serve those customers who shop online-only. The thing is, in our category, in electricals with its leaning towards big ticket, considered purchases, the online-

• nly customer is a minority still.

20% of the market consider themselves to be online-only customers. 80% use both online and

• stores. And what that means is that we, with being big and gaining online, and we with our

large, well-invested, increasingly exciting destinations in the stores that we're getting behind, we are well placed to benefit from that. And we've seen that, for example, in the Nordics. As the crisis has developed, footfall has

• recovered. So to the extent if the market has more customers buying stuff online, we're well

equipped to deal with that.

Dixons Carphone – Full Year Results – 15 July 2020

But those customers remain a minority and beyond the channel omnichannel, is [unclear 18:37]. There is a question, though, about what that means for profitability. And undoubtedly, if we are to look for a moment at the channels separately, if we look at online and stores separately, a shift to online, everything else being equal, is gross margin diluted. Online has a lower product margin than stores, with the mix skewing towards lower value product and categories. Services adoption has been lower than in stores. Credit and services like trade in and protection and set up have all been lower online than in stores in the past. And likewise, some variable costs are higher in online. Notably digital marketing and also distribution and installation costs. Although the gap in the latter is probably less than some might think. The infrastructure is increasingly shared across the channels. A quarter of online sales are collected in stores, a quarter of store sales delivered to home and so the gap is only circa three to four percentage points. The total gross margin gap between the channels, while notable, is less than some might think, less than 10% wise. Importantly, that gap is narrower because of the steps that we're taking. We've already almost eliminated the gap in credit penetration between online and stores and we're narrowing the gap on services penetration too. customer adoption of our protection products online for example, has improved by 150 basis points and that's just the start. But possibly the most exciting development here is the omnichannel colleague and to say what I mean about that; I'm going to use the example of ShopLive which has been an innovation landed during the course of this crisis with some quite exciting longer-term implications for us. ShopLive is simply bringing the best of our stores, face-to-face advice from expert colleagues, to customers online. What that means is a customer in Glasgow wanting to buy a washing machine online can be helped by a colleague with the right expertise and capacity at that moment in Guildford. What I like about this is a few things. Firstly, it's that rare thing, a scalable and defensible innovation which the customer clearly values. Very early days but we're seeing significant upticks in both conversion and average order value for ShopLive customers versus unassisted

• nline sales, significant upticks.

And also, it's defensible because we are the ones with the tens of thousands of expert colleagues, the millions of customers, and therefore the scale to benefit from the network effects here. We also, by the way, have the proprietary technology which is the in-app or in-website integrated video now. So, this is properly exciting. It's still relatively small. We're getting on for 300 colleagues, 280 I think it is, that are up and running full live on ShopLive at the moment. We've served about 130,000 customers. But the longer-term potential here for sales, for product margin, for service margin as well as for cost leverage is significant. I mention cost leverage and that of course is one of the things that sharing assets across the channels, like store colleagues, will give us. But it's not just that, we're also getting flexibility in our costs from other sources, whether it's the still relatively low, even after the re-gearing of some leases, remaining lease length in the UK of five years and less than that in the Nordics.

Dixons Carphone – Full Year Results – 15 July 2020

But it's also the flexibility that we have from how we've structured our colleagues. In-store for example, we have a high and increasing proportion of variable compensation and we also have a lot of flexibility on the colleague hours. So more flexible costs, also lower costs. We're achieving circa 30% on the rent reductions on lease renewals for example, and as I mentioned before, we're on track for that £200 million of central and IT cost benefits. Cost benefits that come from supply chain efficiencies, from some head office restructuring, from some outsourcing of the contact centres, all of which we've made good progress within the year just past. So, to summarise before I hand over to Jonny, what have we seen over the past year? What we've seen is a business that was on track pre crisis. It was on track with the big five legs of

• ur transformation and it was on track to meet financial expectations of performance in the

year and for the longer term, we can draw comfort from the double-digit improvements in customer satisfaction that we've seen as well as continuing to strengthen our market leadership. The crisis, of course, came and we abruptly pivoted to keeping everyone safe, to helping customers through the crisis, and to securing the business' future. And it does, as I say, fill me with immense pride, the work that my colleagues have done to see us through this crisis and see us out strong the other side. Coming out the other side, we are trading strongly. We have traded strongly wherever we've been open through the crisis and we've started the new financial year well. Nevertheless, we are cautious about this outlook, but our caution is in the context of a business that's much more resilient than it was previously in the previous crisis to any external weakening of demand. And a business that believes in the omnichannel model, that we are better equipped to give customers than anyone else. The customer demonstrably prefers online and in-store together in our space. We're demonstrably best-equipped to give it to them and we can do so not only while continuing to make top line gains, but we're also working hard to make sure that works for us economically as well. So, with that, I'm going to pass over to Jonny Mason before we then go on to take your

• questions. Thank you.

Jonny Mason

Chief Financial Officer, Dixons Carphone Jonny Mason: Hello everybody and welcome to this first remote working results announcement. I'm going to spend the next 15 minutes talking about our financial results for FY20 and the impact that COVID-19 had on those. There's not going to be much today about forward-looking guidance given the high levels of uncertainty there are out there in the market. But what I will describe is how we are well placed for the year ahead.

Dixons Carphone – Full Year Results – 15 July 2020

Alex has already talked about how our colleagues have responded brilliantly to the crisis that's hit us. And we also have lots of liquidity to deal with whatever and however the market develops. So, here are the summary highlights of our financial results. Revenue was down 3% overall to 10.2 billion and that was because of the reducing sales in mobile. The Electrical businesses together, like-for-like growth was about 2% in the year and it would have been higher than the previous year if it hadn’t been for the impact of COVID. Adjusted EBIT declined from £363 million to £194 million and that was because of a combination of the increasing losses in mobile and the impact of COVID-19 on the UK Electricals results, which I will describe next. PBT declined slightly more than EBIT and that was because of increasing finance costs on the new facility we put in place to deal with the crisis. And there was a statutory loss of £140 million and that was after adjustments to PBT of £306 million in total, which I will describe shortly. These were mostly non-cash, included restructuring costs in the mobile division and IFRS 16

• adjustments. Free cashflow declined to £109 million because of the impact of the enforced

store closures in the UK, Ireland, and Greece right at the end of the year. And this led to a small increase in net debt to £384 million and we'll take a look at the cash movements shortly. So, this slide shows the impact on profits of COVID-19 on UK Electricals on the left and on UK Mobile on the right. Alex has already said we were on track to achieve market expectations before we had to close up shops. And as you will recall, we guided to £210 million of Group PBT and for net debt to decline slightly year on year. But the shop closures had a big impact in the UK and Ireland. In UK Electricals first, we lost margin on the reduced sales and then we also lost further margin

• n the accelerated shift online and on missing some year-end volume targets, because this was

a very important time of year. And we also made some provisions for the impact on stock. This was partially offset by government support on rates and on colleague costs in furlough. Then in UK Mobile, similarly, we lost some margin on lower sales. We lost further margin on missing those important year-end targets and on some provisions for the impact on future consumer spending of the COVID situation. This too, was offset by rates and furlough subsidy from the government but to a much lesser extent in the smaller business. We estimate that in total the impact on profit last year was about £50 million, which seems a lot in only six weeks, but it did have those year-end impacts in there, including missing the year-end targets and the provisions. And important to say, we're not expecting any further inventory write off as we go forward. Then we also estimate that the impact on cash was about £40 million. That's as the lost sales, including VAT, were mostly offset by deferrals of tax payments, rent payments, and a bit lower CapEx. So now I'll talk about each of the divisions in turn before moving onto cash. And we'll do UK Electricals first. So, there was good sales growth in the year. Like for like was 1%. That would have been about 3% if it hadn’t been for the forced closure of the shops. The 53rd week added a percentage to the total sales growth but that had an immaterial impact

• n profit and therefore we don’t split that out separately for any of the divisions.

Dixons Carphone – Full Year Results – 15 July 2020

This sales growth was based on market share gain of 0.7 points and that was higher than the previous year, with gains in both online and shops. Over the first 10 months, the market share gain was one point, but that fell back towards the end of the year when our shops were forced to close but some of our competitors were able to remain open. Strongest categories in the year, Alex has mentioned, computing, large screen TVs, gaming, and smart tech, with imaging the main category to reduce. Our online revenue grew 10%. But

• nline in-store grew 64% and that demonstrates how our business is becoming more
• mnichannel.

In period 12, when we traded online-only, online sales grew 166%. And the IT infrastructure and the supply chain coped admirably with this unplanned peak everyday situation. Which was very reassuring. Adjusted EBIT declined despite that sales growth and that's because of the margin impacts that I described from the COVID situation earlier. So, let's look at how the margin developed in UK Electricals in the second half of the year. So, on the left of this graph, the red and the green bars are the impact of COVID, which I described earlier, on both margin and operating cost. If we look at the underlying movements, excluding that COVID impact, in the second half, gross margin in UK Electricals went down about 80 basis points. A bit less than half of this was because of the accelerating shift online, and the remainder was continuing investment in our customer offer, improved delivery and repair promises and our unambiguous price promise. And this investment was more than it was in the first half of the year but as expected, it was more than covered by operating cost efficiencies. It was 120 basis points of operating cost efficiencies in the second half and this came mainly from head office team restructuring, from contact centre outsourcing, and from renegotiated rent deals. And so, for the full year, the EBIT margin was close to flat and that's why we are confident that our profits would have increased in line with the sales increase had it not been for the COVID impact at the end of the year. Now let's switch to International, where there was very good sales growth. Up 4% like for like and 5% in total in local currency. Market share increased in both the Nordics and Greece by 0.5 points and 0.3 points respectively. In the Nordics, the best performing categories were kitchens, headphones, wearables, and cordless vacuum cleaners. And online sales grew by 14% in the first 11 months and that accelerated to nearly 100% in April. Even though the shops stayed open. And that's because, of course, customers were at home more. And so online represented a 19% share of business last year. And then in Greece, the best performing categories were TV, laundry, and cooling equipment. Online sales grew there 19% in the first 11 months and then accelerated to an amazing 597% in April. Albeit from a much smaller starting point. And so online became 8% share of business in Greece all that year. Now in International, the profit margin was not much impacted by COVID. Gross margin was flat year on year, with the impact of channel shift and a weaker currency being offset by commercial initiatives including growth in services, subscriptions, and accessories.

Dixons Carphone – Full Year Results – 15 July 2020

And the operating cost ratio was also flat with cost efficiencies and a slightly weaker currency

• ffsetting higher branch costs. So, all and all, it was another very good year of solid growth

from the international division. So, let's move onto Mobile. Now revenue in Mobile dropped significantly in the year and that's because of the continuing challenge of competing in the traditional 24-month post-pay market against competitors who have more flexible, customer friendly offers. This sales declined accelerated, of course, in the second half when all of our small standalone shops were closed, and that was exacerbated by the COVID impact which impeded our planned transfer of some of those sales to the big 3-in-1 shops which also had to close. The sales transfer online post COVID was not as strong as in Electricals. That was because the Mobile business has a smaller share of revenue online anyway, and it's running on a platform that has deliberately not been invested in over the last two years as it is planned for that to be integrated into the new one business platform. But this declining sales trend on a large legacy fixed-cost base is what led to the large losses for the year. These would have been in line with expectations of no worse than £90 million for the year if it hadn’t been for that COVID impact at the end that I've already described. So let me now move onto the adjusting items to profit which were £222 million at the EBIT

• level. First, there was a negative revaluation on network debtors. This was to reflect three new

factors. The first was the estimated impact on future spend of COVID-19. The second was the impact

• f the closure of the small standalone shops. And the third was impact of new regulation.

£26 million was the amortisation of acquisition in tangibles, it's in line with previous years. £121 million strategic change costs and that's mostly property and payroll provisions for the closure of the Mobile shops that was previously announced. £30 million of regulatory claims is also as was announced at the half year. Then there were £18 million of store impairments offset by the negative £20 million or the £20 million credit from IFRS at the EBIT level. That £222 million becomes £306 million at the Group PBT level because of a large IFRS 16 adjustment and also the pension fund interest. Let's now look onto free cashflow. Same changes we've seen in previous years. £109 million

• f free cashflow in total was £44 million below the previous year. We estimate that £40 million
• f that was caused by COVID-19.

We've talked about why the EBIT is lower. Depreciation and amortisation were lower than the prior year because of previously fully impaired assets. And in working capital, the network debtor reduced by over £100 million, excluding any revaluations, so cash effect. We had lower stock at the end of the year but that was offset by some year-end payment timings so other working capital netted off to a small number. CapEx of £191 million was slightly lower than the £200 million we'd guided and that's because we paused our transformation projects close to the end of the year. I'll talk about CapEx future in a minute. Tax was lower on lower profits and we also spent less cash on restructuring items in the year just passed. And so, all of that, what did we do? Let's move onto the use of funds. The free cashflow was applied to pay the dividend and pension contributions. This dividend,

• f course, reflects the final dividend of the prior year and the interim dividend of FY20.

Dixons Carphone – Full Year Results – 15 July 2020

As you know, the Board has decided not to pay a final dividend for FY20 and it will consider, going forward, both the level and the timing of future dividend payments. And then the pension contribution, £46 million. In the year ahead, that has been changed to be paid in monthly amounts to help our liquidity. And from FY22, that's going to increase to £78 million which is designed to repay the actuarial deficit over eight years. Now this is a new slide, to give a bit of context about our net debt. As you can see from the top left, £384 million of net debt comprises of £120 million of cash, £324 million of drawn facilities and then £80 million of finance leases old style, IAS 17, as it were. The facilities are shown on the bottom left, including the new one for £266 million, which we put in place for the crisis. And then most importantly, I think, on the top right, this is a profile

• f our net debt through the year, the blue line at the top. You can see two peaks in debt, it's a

very similar pattern every year. Most importantly, there's a lot of headroom between our net debt and the committed facilities that we have. And without getting into any forecasts, what I can say is that net debt now is comfortably lower than it was at the same time last year. So, as we look forward, we don’t want to provide profit guidance at this stage. And that's because of the high level of uncertainty in the market. We will update the market appropriately, as we did in March and April, when the outlook becomes clearer. But what we will say now is we've got lots of liquidity, as we've just seen. I've already talked about the pension contribution. We do expect large restructuring costs this year, but these are the restructuring of the Mobile division relating to the closure of the shops and they are as was previously announced. And then on CapEx, we'd expect CapEx in the year ahead to be a bit lower. More in line with

• ur normal run rate of about £175 million for a year. Rather than the £240 we had previously

guided to, and that's because of the pausing of our transformation projects. But it's important to say that this CapEx is within our control. And we can reduce or increase the quantum depending on the development of the market. And then a few words on Mobile. As we look into the year ahead, our transformation has been delayed. We're six to 12 months slower and what that means is that we now expect Mobile losses in the year ahead to be slightly higher than they were last year, rather than what we've previously said of a reduction. And we expect the break-even point on mobile to be during FY22 rather than for FY22. So, six to 12 months later than we'd previously said. Restructuring costs and working capital unwind are in line with what we've previously said. But the increase in operating losses, both this year and next, mean that the net cash receipts for the period of unwind of the old traditional post-pay business, we now expect to be in the range

• f positive £125 million to £175 million, rather than the £200 million that we'd said previously.

Then I'll finish with the same slide that Alex finished with, which summarises our key messages for this year. We've seen great delivery on our strategy through last year. And through the crisis, we have become even more convinced that it is the right strategy. We saw continuing gains in all of our territories wherever our businesses were open. Our colleagues reacted brilliantly to the COVID crisis and the business is performing strongly at the moment.

Dixons Carphone – Full Year Results – 15 July 2020

But there's a lot of uncertainty out there in the market. Whatever happens, we have a lot of liquidity available to deal with it and we are determined to emerge from this crisis as a stronger business in the future. Thanks very much for your attention and I'll hand back to the operator and we'll now be happy to take any questions that you've got, thank you.

Q&A Session

Simon Bowler - Numis Thank you. Good morning. Just a couple of questions if it's okay. First of all, you mentioned your revenues were up across regions, would the same comment be true for profit or some of the impacts you've spoken about regarding margins, I mean that wouldn’t be the case. Then the second one is around the cost saving piece. I was just wondering how far through that £200 million cost-based program are you? I.e. how much further is there to go? And how can we square that with the 120 basis points of underlying cost savings you've spoken about in the electrical parts of the business? Alex Baldock Jonny, do you want to take this? Jonny Mason Yeah, I'll take that. So, we don’t want to talk about profits for this year at this stage, Simon. There's lots of moving parts. As an ongoing trend, we are planning for our operating cost efficiencies to cover any investment required in gross margin to maintain our customer offer. But in this unusual time, we've also got furlough subsidies and rates, so I think we'd rather come back and comment on profit developments later in the year. There are pluses and minuses. And was there another part? Excuse me. Yes, how are we getting on through our central costs? Yeah, we're making good progress. We're still sure that we're on track to deliver the £200m of cost saving. A chunk of that remember is related to transforming the mobile business into one business. And we are for now, still requiring a duplicate overhead structure and duplicate IT system

• costs. The reason that our break-even point in Mobile has been delayed is that we're now

anticipating we're going to have run those duplicate systems for a bit longer. Until the transformation is complete and they all go onto one business platform. Simon Bowler - Numis That's great, thank you. Actually, if I may just ask one quick follow-up on the Mobile side of

• things. It feels like there's some very big moving parts with regards to getting to the 125 to

175 number. What's the risk I guess in either direction? How strong is your visibility on that when you think about retention of customers and so on and so forth given the current environment?

Dixons Carphone – Full Year Results – 15 July 2020

Jonny Mason I think that range gives us plenty of scope. Remember there are some big parts in the cashflow, but the other parts are not moving. So, the restructuring costs, we're pretty sure of, and they are on track. The working capital unwind, we're also pretty sure of, and that's on track. So, what's changed since we since £200 million is that we're going to run losses for a bit longer because of the delay in the transformation. But sitting here today, we wouldn’t anticipate a delay longer than six to 12 months. So that range is pretty safe. Simon Bowler - Numis

• Great. Thank you.

Richard Chamberlain - RBC Yeah, thanks. Morning guys. I've got three questions if that's all right. I just wondered, Alex, first of all if we can just talk about the size and shape of the store footprint now, we've got the COVID crisis? I mean I guess we could see some sort of combination of super stores, more sort of showroom type stores carrying less inventory and maybe more pick-up type locations. I wondered how you see the store footprint evolving for Currys from what we have now? That's the first one. Second, I wondered if you've got any comments about 5G and potential delays there? I presume none of that was in any of your mobile guidance to start with. But I just wondered what impact you think that might have on the market. Then the final one is on ShopLive. How many products has that been rolled out to? Or how many areas is that [attributable] to and what's the scope to extend that further in the business? Thanks a lot. Alex Baldock Okay, Richard. Three big questions there. Let's start with the store footprint. As you know, we took the decision to close the small standalone stores to get behind the big ones and we're up to 121 remodellings of the 308 so far of the big ones. So, we're not flagging any change to that footprint. We believe that the stores that we have, the larger stores, are equipped to do what you just said. They are equipped to house enough of the experts and enough of the tech all in one place to allow the face-to-face advice but also the demo of the product that the customer values. So that's the first thing. The second thing touches on your third question, which is where the sharing of the storing of the assets, where the leverage of the store assets, how far that could go. We envisage a future where a store's economics if you like are not solely dependent on the footfall that happens to walk in off the street. We envisage a future where a store houses a bunch of experts and those experts, of course, will continue to serve customers who walk in

• ff the street. And let's remember that that footfall is relatively stable in the large retail park

stores where our estate is now concentrated. But more than just the footfall that's coming in off the street, we're building a future now where the colleague in Guildford can serve the customer in Glasgow. We can fit the two together at scale in a way that others cannot, with the tens of thousands of colleagues on one hand and the millions of customers on the other, and the proprietary digital technology to match a specific

Dixons Carphone – Full Year Results – 15 July 2020

need at a given time for a customer with a colleague with the right expertise and capacity at that time. Longer term, this has the potential to go beyond selling to customers. It could also go to serving customers, and we intend it to. So, for example, a colleague with some spare time who is an expert in washing machines, could answer an inbound service query relating to washing machines that currently is dealt with by the contact centre but could be dealt with by the colleague. We've trialled this too and we quite like the early results. And obviously that [audio cuts out]. Jonny Mason Oh dear. Alex seems to have frozen. Richard Chamberlain - RBC Do you want to pick up on the other points, Jonny? Just on… [Over speaking] You did. Sorry, you were just talking about extending the offer so colleagues could help with service enquiries. Shop ones as well as selling stuff, yeah. Alex Baldock Yeah, that's right. So basically, what we're talking about is both on the sales line and on the cost line, leveraging the store assets more broadly. That's on top of the more obvious ways of doing it that we're already doing, by for example, serving a quarter of online sales through in- store pick up as well as the other way around, of having stores deliver a quarter of their sales to home. So that's the first answer. Second is a very quick answer on 5G. The answer is no, it doesn't make any difference because we weren’t counting on it in the first place. I think we said back in December that there were certain upsides that potentially could materialise, whether it's a 5G-driven upgrade to handsets or others but we weren’t counting on those. So no, it doesn’t make any difference. Then your third question is on ShopLive and I think I've touched on that. Where we see this potentially going is at quite significant scale. Because it's, as I say, bringing the best of our stores to customers online in a way that customers demonstrably value as we're seeing from the uptick - significant uptick - to conversion in average order value. So, customers value it and it's an innovation that's defensible at scale to us with the assets that we have. Richard Chamberlain - RBC Okay, okay. Thanks very much for the colour. Alex Baldock Thank you. Adam Tomlinson - Liberum Morning guys. Two questions from me. I appreciate you're not giving explicit guidance for this year and there's a number of moving parts. But you have obviously talked about in the

Dixons Carphone – Full Year Results – 15 July 2020

past the medium-term free cashflow target accumulative of £1 billion and also the 3.5% EBIT margin at the Group. Are you able to just give any comments around those? Whether we should be thinking differently about those? Obviously cognizant you're not giving explicit guidance but useful to get some colour on that please. Then the second question is around Mobile and again, I know you've talked in the past about getting to break even is not dependent on the new proposition being overly successful. But anything that you're seeing in terms of support from the network operators' new contracts you're entering into? And the overall product offer there would be helpful as well. Thanks. Alex Baldock Jonny, do you want to take the first part of that? Jonny Mason I'll take the first one, yeah. Adam, we're still planning to do exactly what we said we were going to do. It's just that it will be six to 12 months later. Therefore, those targets aren’t

• changing. We're not signalling any change to targets today.

Adam Tomlinson - Liberum Great, thank you. Alex Baldock And the second part, Adam, you're right, that we're not counting on, what we've talked about,

• n any great success from the future mobile offer. Such connectivity as it depends on, we can

now provide ourselves in any case. So, through iD Mobile, we now have security of supply and a much more competitive offer. We still believe that we will be able to offer a broader range of connectivity on that but we're not leaning on it. In any case, getting to where we need to get to on Mobile can be achieved substantially through the cost savings alone, which as Jonny said before, we're confident on. Adam Tomlinson - Liberum Okay, thanks very much. Sylvia Ball - Credit Suisse Good morning gentlemen, thank you for taking my question. It's a question on product categories and development. Can you give us some colour on how the consumer preference has changed during the lockdown in parts of Europe and the UK what are the latest consumer trends as the consumer perhaps moves away from those initial purchases of vital technology and does this have any meaningful impact on your gross margins? Thank you. Alex Baldock Sylvia, Jonny touched on a little bit of this in his intro, but you ask it specifically during

• lockdown. Well, one of the things we've seen is that consumers are obviously working from

home more, as we're demonstrating on this call right now. Everything connected with home working has seen a big jump, whether that's laptops, home networking, or printers, all have been substantially up. And that's a trend that we expect to see

Dixons Carphone – Full Year Results – 15 July 2020

• enduring. And obviously we're working closely with key partners such as HP, and Intel, and

Microsoft and others to take full advantage of that. So that's one big trend. Home schooling is another. And that may or may not endure but it's certainly given another boost to sales of laptops and the like. We've also seen people discover their inner chef during the lockdown. Whether it's small domestic in kitchen appliances like coffee makers or bread makers or pasta makers, we've seen them fly off the shelves in gratifying style. I think people have clearly been looking for ways to entertain the kids during lockdown and gaming sales which are the star of the show, and that's even before the anticipated uptick from the new console launch, PC gaming in particular has been exceptionally strong. More recently, we've seen large screen TV perform strongly, especially as the stores come on [Live]. And right at the start of the crisis, we saw things like American style refrigeration go very well and chest freezers. So we've - if I'm covering a big part of the product offer, that's because we've seen quite a broad based uptick which underlines what we believe, that technology matters more now to customers in their lives than it ever has before and may give you some comfort on the realms of resilience

• f technology spend going forward.

Now the one thing that's missing from that list was washing machines. So, some of the white goods which are more dependent on the housing market haven't been as strong. As the housing market, especially in the UK but also to an extent in Ireland, has been relatively moribund. Sylvia Ball - Credit Suisse Thank you very much. Alex Baldock Thank you. Adam Cochrane - Citi Morning guys. On the cost base, how flexible - I think right now, agility and flexibility are the key watchwords given the uncertainty. How would you describe the flexibility in your cost base as you look over the next 12 months given the potential range of outcomes? And what have you been doing to maximise the flexibility please? Alex Baldock Let me kick off on this one. I'll use a word that Jonny loathes, which is variablising the cost

• base. [I mean angling] the English language so apologies for that. But that's one of the things

that we sought consciously to do, to up the variable element of the cost base as well as provide greater flexibility. So on colleagues, for example, we're leaning more towards variable compensation than we

• were. We're also leaning more towards more flexible colleague hours in the stores.

That, on top of the leases which we've managed to reduce, but sort of circa 30% on

• renegotiation. So there's that element of flexibility been brought into the store cost. But I come

back to what I said before, Adam, is that as our on the channel model develops, we are able to leverage the costs in for example a store over a greater number of customers.

Dixons Carphone – Full Year Results – 15 July 2020

And whether they're customers purchasing online, via ShopLive, or in the future whether they're customers today calling the contact centre, tomorrow they could be speaking to the relevant expert colleague instore who has capacity at that moment. Jonny, what have I missed from that? Jonny Mason No, I would just add remember how we define gross margin. That is after distribution costs and after marketing. Now those costs are clearly entirely variable. Or predominantly variable with the level of sales. Of the remainder of the cost, it's an unusual year with rate subsidies and furlough and all that sort of thing. But with the increasing, and I'm going to use it too, variablisation of our costs, a rule of thumb is that as regards to the rest of the costs, about half of them we can keep variable and the other half is more fixed. Adam Cochrane - Citi In terms of what you've managed to do in April with the short notice on the cost base, with a bit more time, you would have had into May, June, and July. Have you been able to make it more efficient? Is your business model in-store constantly evolving? I'm assuming efficiency is the key watchword when you're deploying the number of staff back into store as an example. Jonny Mason Yes, very much so and Alex referred in his description to the innovations which have accelerated through this short time, since the crisis began. Our colleagues are becoming more

• mnichannel as we work our way through this crisis. It's accelerating trends that were already

there and that makes those costs more variable than they used to be. Alex Baldock We're also being judicious in bringing colleagues back from furlough, for example, into the

• stores. I mean we've got 98% it is now as the big stores reopened. But we haven’t brought

that proportion of store colleagues back from furlough yet. We've brought more than half back. But we're being - as I say, we're being cautious about the rate at which we bring colleagues back and we're making sure that we lean on the government support to do what it is designed to do which is to support the employment - the tens of thousands of jobs that we account for and the millions more broadly in the retail sector. Adam Cochrane - Citi If I could make a small assumption that sales in electricals are up. But only - let's call it more than half of the employees have come back. The dynamic could look okay in profit terms. Jonny Mason Well, it could. But it's very early days, Adam. And as Alex has already said, the year, we're trading well. Online sales are still growing despite the shops reopening. But the future is uncertain and therefore we're being cautious. Adam Cochrane - Citi Thanks.

Dixons Carphone – Full Year Results – 15 July 2020

Dan Homan Yes, morning both. It's Dan Homan here. One question from the webcast which is what do you expect the shift to online to be over the Black Friday period and how are we preparing for that Black Friday period given the shift to the online channel? Alex Baldock Let me answer the second part of that question first. Because obviously, I said at the start that

• and Jonny said the same - that there's never been as much uncertainty of outlook as there is
• currently. And clearly that has implications for how we plan for a Peak period.

I think another dimension of flexibility that we're able to bring into our operations though is flexibility in terms of our arrangements with our suppliers. This is where we do benefit from

• ur scale and this is where our commercial teams have done some excellent work and with full

throated collaboration with our suppliers so that we're ready for very different scenarios of how this Peak could pan out and how this year could pan out. I touched on this before, but we are able to do quite imaginative risk sharing with suppliers in a way that we haven't previously. We're able to get much more flexible terms on things like the time at which we need to forward order on inventory as well as securing better terms and access to scarce stock that boosts our market-leading availability. So, all of those things enable us to an unprecedented degree, not a complete degree, but to an unprecedented degree to get ready for very different scenarios of demand. Now you specifically ask about online and I mean as I mentioned before, we do expect customers to buy more stuff online. And we expect that the jump that we've seen in the proportion of sales transacted online, the jump that we've seen during lockdown to endure for all the reasons that we've said. Customers have had that immersion and some of it will stick. Nonetheless though, we come back to what we said before, which is the typical customer in

• ur space remains an omnichannel one. And they still want to use stores for some purchases

at some times. They still value the face-to-face advice. They still value seeing the technology for themselves and experiencing it for themselves. They value the excitement that good stores can produce and a discovery of tech as well as the choice of it. So, all of those things are reasons that we continue to bet on the big stores that we've invested tens of millions of pounds in previously. And so almost irrespective of where that precisely lands, those customers might buy some more stuff online, but they are still omnichannel customers. Our challenge is first of all to make sure that we've got the winning online, the winning stores and knitting the two together in ways that we've described in order to cement that top line growth that we've seen, to cement the market share improvements that we continue to enjoy at the same time as addressing the economics of that shift in the way that we talked about. Dan Homan Thank you. Alex Baldock In that case, well thank you very much everybody for your attention this morning on what is an unusual way to deliver these results but one in keeping with the times and one that reinforces some of the messages on home working that we've been giving today.

Dixons Carphone – Full Year Results – 15 July 2020

So, I won't repeat everything you've heard already except to say that this is a business that was

• n track pre-crisis, both in terms of its transformation and its in year performance. That crisis

has hit that performance, but we've dealt with it in a way that I think many tens of thousands

• f colleagues can take great pride in.

And this is a business that remains set up for success. We intend to resume this transformation

• f ours as we raise our gaze now beyond the crisis to continue with the transformation that was

visibly working before it and remains as relevant now as ever. So, thank you very much and have a great day. [END OF TRANSCRIPT]