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Customers are used to be being put on hold by retailers. Retailers are less used to being put on hold by customers. But that is exactly what has happened to Dixons Carphone this year: customers decided to put their mobile phone upgrades on hold, refusing to choose expensive new models, and forced the electricals retailer to ring up a profit warning.
This morning, Dixons Carphone showed how much half year profit it managed to hold on to. Or rather how little. Pre-tax profit fell 60 per cent in the period, from £154m a year ago to just £61m now – worse than consensus estimates of a 56 per cent fall.
But what shareholders, as well as customers, really wanted to hear was what will happen to its 700 Carphone Warehouse outlets. Analysts had suggested that the lack of profitability in the mobile phone market could result in around a quarter of outlets being closed. But all Dixons Carphone chief executive Seb James would say today was:
We recognise that the performance of the mobile division needs addressing, and are taking action to adapt our model in order to cement our place in a changing world. We will update the market on these developments in due course, but we believe that we can, over time, reduce the complexity and capital intensity of our mobile business model.
Mobile like-for-like sales in the UK and Ireland were down 3 per cent.
At least the performance in electrical goods sales was positive. In the first half, like-for-like revenues were up 7 per cent, growth was achieved across all markets, and there were gains in market share.
As a result, total revenues at group level were up 4 per cent like-for-like, and 3 per cent on a statutory basis.
Some had hoped that high profile launches from Apple and Samsung – plus Black Friday promotions – might help current trading. However, UBS analysts recently noted that some handset demand might unhelpfully spill over into next year, because of the split launch of the Apple iPhone 8 and X models. Dixons Carphone admitted as much, saying the impact of the delayed iPhone X launch was one reason for the fall in mobile sales.
This is likely to ring alarm bells over a share price that has already more halved in the space of a year. In the past 12 months, the shares are down 54 per cent to 167.5p, and now trade on just 6.6 times earnings.
Even more attention will now be focused on Christmas and Boxing Day sale periods. Mr James noted that “the start to peak trading has gone well with sales records being broken in all territories” over the Black Friday period. However, Dixons Carphone warned that full-year results were likely to be in the £360m-£400m range, lower than the consensus range of £362m-£420m.
Serco boss Rupert Soames is holding on to his company shares, and feels no need to phone his broker, despite having bought £1m-worth on joining in May 2014 only to see them move largely downwards ever since. He told the FT earlier this week that he believes the public-sector outsourcer is on the brink of the recovery, as he anticipated, and now represents – to use his grandfather’s phrase, “the end of the beginning”.
This morning’s full year trading update suggests he is right to hold on. Profit performance for 2017 is expected to be at the top end of previous guidance of £65-£70m. And profit in the second half will be around 10 per cent higher than in the comparable period in 2016.
Full-year revenue will be just under £3bn, a small reduction on previous guidance due mainly to adverse currency movements during the second half of the year and other volume and timing effects. Serco’s profit margin for the year will actually be better than expected.
Closing net debt expected to be towards the lower end of the indicated range and – most importantly for all shareholders, including Mr Soames – strong profit growth is expected for 2018 and 2019.
Nevertheless, the group did add the caveat: “Growth thereafter [will be] more dependent upon when market demand reverts to trend”. Or, as Mr Soames put it:
Beyond 2019, our long term ambitions for margins and revenue growth remain intact, but the timing of achieving these remains subject to seeing improvements in the trading conditions across our markets.
In the meantime, Serco is helping troubled public sector contractor Carillion reduce its debt burden by agreeing to acquire a portfolio of UK healthcare facilities management contracts for a total consideration of approximately £47.7m.
Carillion said that, after taking account of fees, costs and taxes, the net disposal proceeds would be £41.4m and help the group towards its target of £300m worth of “non-core disposals’ – as announced in its strategic review to reduce net debt.
Today’s Lombard column focuses on how Ashtead is benefiting from the policies of US president Donald Trump .
President Trump’s proposed visit to Britain next year has led a former ambassador to warn of “enormous demonstrations and public disorder”, one politician to predict “the biggest protest this country has ever seen”, and a satirical website to anticipate a stockpiling of eggs and fishheads. But for one UK company, some of the US president’s more controversial stances have proved nothing but favourable. Ashtead, the US-focused plant hire group, is clearly benefiting from Mr Trump’s belief in self-help for hurricane regions and tax cuts for corporations.
Read the rest of today’s Lombard column here.
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