DC..L Share News (DC.)

(Sharecast News) - Dixons Carphone said it would spend £200m over three years to accelerate its restructuring strategy after reporting a large first-half loss and cutting its dividend.The retailer unveiled £4.89bn of revenue for the 26 weeks ended 27 October, up 2% on a like-for-like basis, with a dramatic swing to a statutory pre-tax loss of £440m from the £54m PBT a year ago. This loss is primarily related to non-cash impairments, chiefly a write-down of mobile goodwill and impairment of related assets.Excluding this, underlying profit before tax came out at £50m, down sharply from £73m but better than the City consensus is said to have been £45m.Free cash flow of £116m was down from £174m a year ago, while net debt had swelled to £274m from £206m.Directors decided to 'rebase' the dividend lower so that it was covered threefold by earnings and said they expected to grow dividends from this level as they expect the business to generate more than £1bn of free cash flow over five years. The interim dividend was cut to 2.25p from 3.5p.Management also announced a plan to improve the infrastructure of the business, to be funded by a change in strategy whereby less working capital will employed as the mobile offer moves to a more SIM-only business, in line with changes in customer buying patterns.Chief executive Alex Baldock said: "We believe that Dixons Carphone is now on the path to sustainable success."He said the group had "powerful strengths" and "capabilities no competitor can match", with the accelerated plan building on those strengths."We're focusing on our core, and on four things that matter most: two big profitable growth opportunities in online and credit; revitalising our mobile business; and giving customers an easy experience. We'll deliver these through capable and committed colleagues, working in one joined-up business, with strong infrastructure."With a nod to the Labour manifesto, Baldock said all colleagues will be given at least £1,000 of shares."There are headwinds and uncertainty facing any business serving the UK consumer, we've had our own challenges, and our plan will take time. But, with this plan, we can now see the way to unleashing the true potential of this business. We believe in our plan, are underway making early progress and determined to make it a lasting success."The strategic review today includes £200m of higher capital expenditure over three years to accelerate the transformation, funded by the lower mobile network receivables. This is aiming to generate a group EBIT margin improvement of at least 3.5% over five years, helped by £200m of cost savings.A low point of cash flow generation is expected in the 2020 financial year due to higher capex not fully offset by working capital.DC shares were down more than 8% at 138.15p by late morning on Wednesday, having earlier hit an all-time low of 124.65p."What does it all mean," wondered Goldman Sachs. "Other things equal, we would expect no change to consensus PBT for FY19E, nor to the Reuters consensus EBIT margin assumption for FY21 (circa 3%) as we expect investments to be front loaded."Morgan Stanley said the four levers "may sound a little vague to some, we are encouraged by the fact that the group is setting a number of clear financial targets", though raising the group EBIT margin "may not seem very ambitious" given that consensus is currently expecting an EBIT margin of in 2018/19 of 3.0%."We suspect, however, that for many people the headline news today will be that the group has taken the decision to rebase its dividend, reverting to its previous policy of 3x cover, which will lead to a reduction of approximately 40%. Whilst we see this as a prudent move, we think this could come as something of a surprise to the market today."Analyst Tony Shiret at Whitman Howard said he was taking a "neutral" view of the strategic rejig, sceptical about management remaining "silent on the path towards the medium-term outcomes envisaged" and "no update on physical space and a less-than-positive update on negotiations with mobile network operators", not to mention the dividend cut. He concluded: "Strategy updates can be value traps despite sounding very plausible at inception. Today's seemingly re-assuring plan delivered with decent figures is likely to be well received albeit the path over the next 2-3 years is in our view likely to be a little Kingfisher-esque. We do not expect much sustained share price progress as the long-term plan seems to indicate working hard for five years broadly to stand still."