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Dixons Carphone plc

A strong half year with pro forma Headline profit before tax up 23%

Interim results for the 26 weeks ended 31 October 2015

• Group H1 like-for-like revenue(3) up 5%; Q2 like-for-like up 3%

• Market share gains across UK & Ireland, Nordics, Greece and Spain

• Group pro forma Headline PBT(1) of £121m (14/15: £98m), up 23%

• Group pro forma Headline EBIT(1) of £135m (14/15: £120m)

• Group pro forma Headline basic EPS(1)(2) from continuing operations 7.5p (14/15: 6.3p)

• Statutory profit before tax from continuing operations of £78m (14/15: £71m) after non-Headline charges of £43m (14/15: £31m), statutory basic EPS from continuing operations of 4.8p (14/15: 6.6p)

• Interim dividend of 3.25p, payable in January 2016, an increase of 30%

• CWS pipeline developing well and an encouraging start to the Sprint trial

See notes on page 3 for an explanation of the basis of preparation and defined terms. This document also uses definitions that are set out in the Group's Annual Report and Accounts for the 13 months ended 2 May 2015 on pages 147 and 148.

Sebastian James, Group Chief Executive, said:

"This has been a very good first half for Dixons Carphone. Against a broadly flat market overall and a very strong comparative period we have seen continued like-for-like growth driven by market share gains across all territories. Our business in the UK and Ireland has had an impressive start to the year with 31% earnings growth. It is also great to see iD, our new MVNO, hitting the milestone of 200,000 subscribers to date. In the Nordics we have made very good progress in getting more match-fit on pricing against pure players, while broadly maintaining profits on a constant currency basis. This has, however, been masked by FX headwinds when translating Nordic profits into Sterling. Sharpening our pricing in the Nordics has inevitably had some impact on margins, but is now closer to being complete. I am particularly pleased to see progress in Southern Europe despite a lively year in the Greek political and economic scene.

Across the board we continue to see improved customer satisfaction and price competitiveness which gives me confidence that our core business continues to be focused on the things that matter to our long term future.

Our integration continues to go well and it gives me real pleasure to see the business looking and feeling like a single unit. The vast majority of the difficult decisions have been made and implemented and we will complete this with the move of the Carphone Warehouse depot to Newark in the new year. I think that, with nearly all the bigger changes done, we are now ready to settle into a more normal married life and to think about our business as a single Dixons Carphone entity.

CWS has also had a very encouraging start to the year with the rapid rollout of the Sprint trial which has yielded excellent results so far across the board. In addition, we have done some very good work in developing our pipeline of major global accounts which should bear fruit in the months and years ahead. I continue to be happy to invest in this part of the Group and am increasingly optimistic that it will deliver our ambitious longer term goals.

Overall then, I am very pleased with this performance but there is lots left to play for. A strong Black Friday was a great start to Christmas and I will look forward to communicating again in January with a more complete view of the season and plans for the year ahead."

Investor and analyst webcast

There will be a conference call for investors and analysts at 9:00 am today:

Dial-in details - UK/International: +44(0) 20 3003 2666; passcode: 4405645

Seven-day replay - UK/International: +44(0) 20 8196 1998; passcode: 4405645

Accompanying slides will be available on the company website, www.dixonscarphone.com, at 7:00am

Next announcement

The Group will publish a trading update on 26 January 2016 and will host a management presentation that morning at the Deutsche Bank offices in London.

For further information

Certain statements made in this announcement are forward-looking. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Information contained on the Dixons Carphone plc website or the Twitter feed does not form part of this announcement and should not be relied on as such.

Performance review

Headline(1) revenue, profit and EPS analysis - pro forma basis

Basis of preparation - pro forma information

On 6 August 2014 an all-share merger of Carphone Warehouse Group plc (Carphone Warehouse) and Dixons Retail plc (Dixons Retail) (the Merger) took place. The information in the highlights and this performance review refer, unless otherwise stated, to pro forma Headline(1) information for continuing businesses, reflecting the results of both Carphone Warehouse and Dixons Retail throughout both the current 26 week period ended 31 October 2015 and comparative period as if the Merger had occurred at the start of the comparative period.

Comparative period pro forma results for the Carphone Warehouse business are for the 26 week period ended 1 November 2014. In the previous year, pro forma half year results for the Carphone Warehouse business had been for the 31 week period ended 1 November 2014, reflecting the period from when it had last reported. This pro forma financial information has been restated to 26 weeks to provide improved year-on-year comparability. The prior period results of Carphone Warehouse have also been restated to exclude the results of its retail operations in Germany, the Netherlands and Portugal which are treated as discontinued operations following the decision to exit these businesses. Comparative period pro forma results for the Dixons Retail business comprise the 6 months ended 31 October 2014, as previously reported.

Under IFRS the opening balance sheet remains open for a period of twelve months from the date of acquisition with any new information about circumstances that existed at the acquisition date being recognised in the opening balance sheet with a corresponding entry in goodwill. For further details see note 1 to the consolidated financial statements.

Notes

(1) Headline results exclude amortisation of acquisition intangibles, Merger integration and transaction costs, net interest on defined benefit pension schemes and discontinued operations (comprising Virgin Mobile France and Phone House operations in Germany, the Netherlands and Portugal). Such excluded items are described as 'non-Headline'. For further details see note 3 to the consolidated financial statements.

(2) Pro forma EPS has been calculated for H1 14/15 assuming the number of shares existing at 1 November 2014, adjusted for the number of shares held by the Group ESOT, apply from the start of the period.

(3) Like-for-like revenue is calculated based on pro forma Headline store and internet sales using constant exchange rates. New stores are included where they have been open for a full financial year both at the beginning and end of the financial period. Sales from franchise stores are excluded and closed stores are excluded for any period of closure during either period. Customer support agreement, insurance and wholesale revenues along with revenue from Connected World Services and other non-retail businesses are excluded from like-for-like calculations. Revenue from Carphone Warehouse store-within-a-store (SWAS) is included in like-for-like. Like-for-like revenue reflects performance for the Group for the 26 weeks to 31 October 2015 compared to the 26 weeks to 1 November 2014.

(4) UK & Ireland comprises operations in the UK and Ireland and the Dixons Travel business.

(5) Nordics comprises operations in Norway, Sweden, Finland, Denmark and Iceland.

(6) Southern Europe comprises operations in Spain and Greece.

(7) Connected World Services comprises the Group's B2B operation which leverages the specialist skills, operating processes and technology of the Group to provide managed services to third parties looking to develop their own connected world solutions.

Performance review - pro forma basis

The performance review below refers, unless otherwise stated, to pro forma Headline information for continuing businesses. The basis for the preparation of this information is described on page 3.

Group

Group like-for-like revenue growth in the first half was 5%, with growth in all territories. On a local currency basis revenue has increased 2%, however Group revenue in the first half was down 3% to £4,394m (14/15: £4,530m) due to the stronger Pound, in particular relative to the Norwegian Krone.

EBIT has increased to £135m (14/15: £120m), ahead of revenue growth, driven by solid trading results and the delivery of synergy benefits related to the Merger.

Headline profit before tax in the first half was £121m (14/15: £98m) reflecting the improved EBIT and a reduction in the net finance cost from lower year-on-year interest charges following redemption of the bonds in August 2014.

Integration continues to progress well and we reaffirm our commitment to delivering a minimum £80m of synergies by 2016/17, one year ahead of plan.

UK & Ireland

Revenue in the first half in the UK & Ireland increased by 2% to £2,872m (14/15: £2,818m). This revenue growth combined with cost savings and synergy savings has resulted in EBIT increasing 31% to £101m (14/15: £77m). This positive performance for the first half puts us in a strong position ahead of the peak trading period.

The electricals business has delivered a consistent result in the first half, with notable growth in the sale of white goods offsetting a fall in demand for tablets and PCs following recent market trends. Television sales held up well despite tough World Cup driven comparatives.

Our mobile business in the UK & Ireland performed well. Postpay volumes and market share have continued to grow year-on-year, with the business benefiting from increased volumes from our additional SWAS stores, the performance of iD Mobile which has achieved over 200,000 subscriptions to date, and market share gains following the closure of Phones 4U in the prior year.

Excellent progress in the integrating the businesses continues - we had 261 Carphone Warehouse SWAS operating within Currys and PC World stores at the end of October. We also continue to consolidate our sales space and our 3-in-1 store formats are showing promising results.

Like-for-like revenue for the first half was up 7% reflecting the particularly strong performances from UK mobile category.

Nordics

The Nordic business has performed well in a challenging economic environment, delivering 2% growth in pro forma revenue on a local currency basis. However pro forma Headline revenue in the first half was down 11% to £1,198m (14/15: £1,352m) predominantly due to the devaluation in the Norwegian Krone relative to Sterling.

Like-for-like revenue was up 1% despite the challenging commercial environment and some aggressive competitive pricing. The growth in like-for-like revenue was driven by white goods, mobile and laptops and we gained share in all territories. Furthermore we continue to make very good progress in getting more match-fit on pricing against pure players, albeit with some margin impact.

The Nordics EBIT was £30m (14/15: £38m) primarily reflecting the adverse movement in foreign exchange, both from translation of local currency results into Sterling, as well as margin pressure due to increased buying costs.

Synergy delivery is progressing well with the launch of Elkjøp Phone House stores in Norway, and the integration of Phone House Sweden into El Giganten is now complete.

At the end of November, as part of our services strategy, we acquired Infocare Workshop, a service and repair business which will strengthen our capability and allow us to provide improved services to our customers.

Southern Europe

Southern Europe had strong underlying results in the first half, with like-for-like revenue up 4%. This result was driven by performance in the second quarter, with both Greece and Spain experiencing like-for-like growth. We saw good growth in handset-only sales in Spain as the market mix continues to evolve, and the introduction of Movistar multiplay has been well received by customers. Our Greek business held up exceptionally well in the face of a challenging economic and political environment.

Revenue on a local currency basis was down 6% as the Spanish business continues to shift its store mix to franchise and away from owned stores, and in Greece we have exited from low margin wholesale business. Southern Europe has reported a year-on-year 15% decline in Headline revenue to £257m (14/15: £303m) reflecting the factors above and the weakening of the Euro.

Southern Europe EBIT remains stable at £1m (14/15: £1m).

Connected World Services 

CWS has continued to grow well in the first half, with revenue up 18% to £67m (14/15: £57m), supported by our Samsung Experience Stores. We continue to benefit from our existing relationships with a number of blue-chip companies and embrace the opportunity of new challenges. Most notably this included our agreement with Sprint Corporation to open and manage Sprint-branded stores in the US, which took effect during the half year. Whilst we are in the early stages of this relationship, we have been very encouraged by the performance of the trial stores to date. We believe that this partnership has much potential and a decision will be made in early 2016 on the investment in a joint venture and the wider rollout of stores.

We remain excited about the opportunities for CWS and continue to make investment in building the team and infrastructure to support the growth potential of this business. An acceleration of investment in the first half has resulted in EBIT during the period modestly declining to £3m (14/15: £4m).

Tax

The Group's Headline effective rate of taxation for the full year has been estimated at 25% (14/15: 24%) with this rate being applied to the half year results. 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. The rate for the first half of the year is higher than that for the full year as the full reduction in the value of UK related deferred tax assets is recognised discretely in the first half.

Statutory results

The explanation of the Group's results presented above is on a pro forma basis as if the Group structure following the Merger had been in place throughout the current and comparative periods. Group results as reported in the consolidated financial statements are prepared on a statutory basis, consolidating the results of Dixons Retail from 6 August 2014 and the results for the comparative period reflect the 31 weeks ended 1 November 2014.

These results are summarised below:

Headline income statement - continuing operations - statutory basis

(1) Results for the 31 weeks ended 1 November 2014 have been restated to reclassify the results of Phone House operations in Germany, the Netherlands and Portugal as discontinued operations. For further details see note 1 to the financial statements.

Headline EBIT increased from £114m to £135m predominantly reflecting the reasons explained above for pro forma results and the inclusion of a full period of earnings from Dixons Retail following the Merger on 6 August 2014. The tax charge increased from £23m to £35m reflecting the higher pre-tax earnings described above and the reduction in the value of deferred tax assets following the enactment of future UK tax rate reductions.

The decrease in statutory basis EPS reflects the fact that the number of shares in issue doubled following the Merger, whilst this increased number of shares has been in place for the entire period in the current year.

Non-Headline items

Headline profit before tax is reported before non-Headline charges. These charges are analysed below and are reported on a statutory basis with the Dixons Retail business only consolidated from completion of the Merger on 6 August 2014.

(1) Results for the 31 weeks ended 1 November 2014 have been restated to reclassify the results of Phone House operations in Germany, the Netherlands and Portugal as discontinued operations. For further details see note 1 to the condensed financial statements.

Costs incurred in relation to the Merger in the first half of 15/16 relate to integration costs of £15m (1 November 2014: £3m) primarily being professional fees, employee severance and incentive costs, asset write-downs and property costs associated with the integration process. During 14/15 Merger transaction costs of £8m were incurred. Further integration costs are expected to be incurred during the second half of the year and in 16/17 as the integration of the two businesses continues.

The charge for the amortisation of acquisition intangibles was £20m (1 November 2014: £16m) with the comparative period only including approximately three months of amortisation of intangible assets recognised in relation to the Merger.

Net pension interest was £8m (1 November 2014: £4m) reflecting the charge incurred in relation to the pension scheme following completion of the Merger. Further details on the pension scheme can be found in the Pensions section later in this performance review.

For further details of non-Headline items see note 3 to the consolidated financial statements.

Discontinued operations

As previously reported, Virgin Mobile France and the Group's retail operations in France, Germany, the Netherlands and Portugal have been treated as discontinued operations following the decision to exit these businesses. The sale of operations in Germany was completed on 5 May 2015, the Netherlands on 30 June 2015 and Portugal on 30 August 2015. A net loss of £9m (1 November 2014: £91m) has been recognised in relation to these businesses.

Cash and movement on net debt

The information provided below is on a pro forma basis and aggregates the net debt and cash flows of the Group 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

(1) Pro forma free cash flows for H1 14/15 have been restated as explained in the basis of preparation on page 3.

Pro forma free cash flow before restructuring in the first half was an inflow of £76m (14/15: £56m). The Group had a working capital inflow of £17m, broadly consistent with £22m in the prior period.

Capital expenditure in the first half was £110m up from £89m reflecting spend on the integrated retail offering, investment in IT platforms and continued development in both our retail and Connected World Services businesses.

Taxation paid has reduced from £38m to £12m due to the timing of tax payments, whilst the reduction in interest primarily reflects the redemption of the bonds in August 2014. Restructuring costs primarily comprise the cash costs of integration activities noted above within non-Headline items.

Funding - pro forma basis

(1) Opening net debt in the current period reflects the consolidated net debt of the Group at 2 May 2015 including net funds recognised within assets held for sale of £55m. Opening net debt in the comparative period reflects net debt for Carphone Warehouse at 3 May 2014 and for Dixons Retail at 30 April 2014.

At 31 October 2015 the Group had net debt of £378m (14/15: £293m). Free cash flow was an inflow of £64m (14/15: inflow of £52m) for the reasons described on the previous page.

Merger transaction costs in the prior period included the cash cost of share option exercises as a result of the Merger and the cost of redeeming the bonds.

Cash outflows associated with acquisitions and disposals in the current period include the second deferred consideration payment for CPW Europe, the cash flows of discontinued operations prior to their disposal and the cash held by these operations on the date of their disposal. Cash outflows in the prior period were £50m reflecting the first payment of deferred consideration for the CPW Europe Acquisition and cash outflows in relation to discontinued operations.

In October 2015 the Group completed the refinancing of its facilities so that it has total committed borrowing facilities of £800m comprising a five year multi-currency revolving credit facility.

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme amounted to £423m at 31 October 2015 (1 November 2014: £382m, 2 May 2015: £486m). The assumptions used for determining the accounting valuation use a consistent basis to that adopted for the period ended 2 May 2015 and which build from the most recent actuarial valuation as at 31 March 2013. Contributions during the period under the terms of the deficit reduction plan amounted to £18m on a pro forma basis (14/15: £13m).

The deficit has decreased during the first half largely as a result of changes in financial assumptions, primarily the discount rate, which determine liabilities, partially offset by a decrease in asset values.

Dividends

The Board has declared an interim dividend of 3.25p per share, up from 2.50p per share last year. The ex-dividend date is Thursday 31 December 2015, with a record date of Monday 4 January 2016 and an intended payment date of Friday 22 January 2016.

Consolidated income statement

* Headline figures exclude amortisation of acquisition intangibles, Merger integration and transaction costs, net interest on defined benefit pension schemes and discontinued operations (comprising Virgin Mobile France and Phone House operations in Germany, the Netherlands and Portugal). Such excluded items are described as 'non-Headline'. Further information on these items is shown in notes 2, 3 and 10.

† Results for the 31 weeks ended 1 November 2014 have been restated to recognise the results of the operations in France, Germany, the Netherlands and Portugal as discontinued operations, as was reflected in the results for the 13 months ended 2 May 2015.

 Consolidated income statement

* Headline figures exclude amortisation of acquisition intangibles, Merger integration and transaction costs, net interest on defined benefit pension schemes and discontinued operations (comprising Virgin Mobile France and Phone House operations in France, Germany, the Netherlands and Portugal). Such excluded items are described as 'non-Headline'. Further information on these items is shown in notes 2, 3 and 10.

Consolidated statement of comprehensive income

Consolidated balance sheet

† The balance sheet as at 1 November 2014 has been restated to reflect final fair value allocations for the Merger - see note 1 for further information.

Consolidated statement of changes in equity

Consolidated cash flow statement

† Cash flows for the 31 weeks ended 1 November 2014 have been restated to recognise the results of the operations in France, Germany, the Netherlands and Portugal as discontinued operations.

Notes to the financial information

1 Basis of preparation

The interim financial information for the 26 weeks ended 31 October 2015 was approved by the directors on 15 December 2015. The interim financial information, which is a condensed set of financial statements, has been prepared in accordance with the Listing Rules of the Financial Conduct Authority and International Accounting Standard 34 'Interim Financial Reporting' (IAS 34) as adopted by the European Union and has been prepared on the going concern basis as described further in the section on risks to achieving the Group's objectives.

The accounting policies adopted are those set out in the Group's Annual Report and Accounts for the 13 months ended 2 May 2015 which were prepared in accordance with IFRS as adopted by the European Union. New accounting standards, amendments to standards and IFRIC interpretations which became applicable during the period were either not relevant or had no impact on the Group's net results or net assets.

The interim financial information uses definitions that are set out on pages 147 and 148 of the same document.

Following the Merger the Group draws up its Annual Report and Accounts to the Saturday nearest the end of April and its interims results to the Saturday nearest the end of October. Prior to the Merger it had drawn up its Annual Report and Accounts to the Saturday nearest the end of March and its interims results to the Saturday nearest the end of September. Accordingly the current financial period is for the 26 week period to 31 October 2015 whilst the comparative period is for the 31 week period to 1 November 2014. The comparative annual result was for the 13 month period ended 2 May 2015.

The interim financial information is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006, but has been reviewed by the auditor. The financial information for the 13 months ended 2 May 2015 does not constitute the Company's statutory accounts for that period but has been extracted from those accounts which have been filed with the Registrar of Companies and are also available on the Group's corporate website www.dixonscarphone.com. The auditor has reported on those accounts, their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.

The Group's income statement and segmental analysis identify separately Headline performance and non-Headline items. Headline performance measures reflect adjustments to total performance measures. The directors consider 'Headline' performance measures to be a more accurate reflection of the ongoing trading performance of the Group and believe that these measures provide additional useful information for shareholders on the Group's performance and are consistent with how business performance is measured internally.

Headline results are stated before the results of discontinued operations or exited / to be exited businesses, amortisation of acquisition intangibles, any other items considered so one off and material that they distort underlying performance (such as reorganisation costs, impairment charges and other non-recurring charges) and net pension interest costs. Businesses exited or to be exited are those which the Group has exited or committed to or commenced to exit through disposal or closure but do not meet the definition of discontinued operations as stipulated by IFRS and are material to the results and operations of the Group. 

Non-Headline items in the current and prior year comprise amortisation of acquisition intangibles, Merger integration and transaction costs, net interest on defined benefit pension schemes and discontinued operations. A reconciliation of Headline profit and losses to total profits and losses is shown in note 2. Items excluded from Headline results can evolve from one financial year to the next depending on the nature of exceptional items or one off type activities described above. Headline performance measures and non-Headline performance measures may not be directly comparable with other similarly titled measures or "adjusted" revenue or profit measures used by other companies.

The results for the period ended 1 November 2014 have been restated to reflect the results of Virgin Mobile France and Phone House operations in Germany, the Netherlands and Portugal as discontinued operations. As part of the finalisation of determining the fair value of assets and liabilities acquired through the Dixons Retail Merger net liabilities acquired reduced from £656m to £647m resulting in a reduction in the goodwill recognised from £2,638m to £2,629m.

2 Segmental analysis

The Group's operating segments reflect the segments routinely reviewed by the Board and which are used to manage performance and allocate resources. This information is predominantly based on geographical areas which are either managed separately or have similar trading characteristics such that they can be aggregated together into one segment.

The Group operates four operating segments as described below. Discontinued operations are excluded from this segmental analysis.

The Group's reportable segments have been identified as follows:

• UK & Ireland comprises operations in the UK and Ireland as well as operations in airports in the UK and Ireland.

• Nordics operates in Norway, Sweden, Finland, Denmark and Iceland.

• Southern Europe comprises operations in Spain and Greece.

• Connected World Services is the Group's B2B operation which leverages the specialist skills, operating processes and technology of the Group to provide managed services to third parties looking to develop their own connected world solutions.

UK & Ireland, Nordics and Southern Europe are involved in the sale of consumer electronics and mobile technology products and services, primarily through stores or online channels.

Transactions between segments are on an arm's length basis.

2 Segmental analysis (continued)

(a) Segmental results

Reconciliation of Headline profit to total profit

Reconciliation of Headline profit to total profit

2 Segmental analysis (continued)

(a) Segmental results (continued)

Reconciliation of Headline profit to total profit

(b) Seasonality

The Group's business is highly seasonal, with a substantial proportion of its revenue and EBIT generated during its third quarter, which includes the Christmas and New Year season.

3 Non-Headline items

Non-Headline items also include discontinued operations, which comprise the results of Virgin Mobile France and the Phone House operations in Germany, the Netherlands and Portugal. The post-tax results of these businesses have been reported separately and are further described in note 10.

(i) Amortisation of acquisition intangibles:

This relates to acquisition intangibles arising on the CPW Europe Acquisition and the Dixons Retail Merger.

(ii) Dixons Retail Merger:

The Merger has given rise to the following costs which have been treated as non-Headline:

· Merger transaction costs comprised banking and professional fees incurred in relation to the transaction.

· Merger integration costs relate to the reorganisation of the Group following the Merger and primarily comprise professional fees, employee severance and incentive costs, asset write-downs and property costs associated with the integration process.

(iii) Net non-cash financing costs on defined benefit pension schemes:

The net interest charge on defined benefit pension schemes represents the non-cash remeasurement calculated by applying the corporate bond yield rates applicable on the last day of the previous financial year to the net defined benefit obligation. As a non-cash remeasurement cost which is unrepresentative of the actual investment gains or losses made or the liabilities paid and payable the accounting effects of this is excluded from Headline earnings.

4 Tax

The taxation charge on Headline earnings is based on the estimated effective rate of taxation of 25% on Headline earnings for the 15/16 full financial period (13 months ended 2 May 2015, the equivalent effective rate was 24%).

The UK corporation tax rate for the 26 weeks ended 31 October 2015 was 20% (31 weeks ended 2 November 2014: 21%, 13 months ended 2 May 2015: 21%).

5 Earnings (loss) per share

† The weighted average number of shares for the calculation of diluted loss per share does not include potentially dilutive shares if they would decrease the loss per share.

Basic and diluted earnings per share are based on the profit for the period attributable to equity shareholders. Headline earnings per share is presented in order to show the underlying performance of the Group. Adjustments used to determine Headline earnings are described further in note 3.

6 Dividends

The proposed interim dividend for the year ending 30 April 2016 is 3.25p per share. The expected cost of this dividend is £37m and incorporates the agreement of the Group's Employee Share Ownership Trusts to waive its rights to receive dividends.

7 Retirement benefit obligations

The Group operates a number of defined contribution and defined benefit pension schemes. The principal scheme operates in the UK and includes a funded defined benefit section, the assets of which are held in a separate trustee administered fund. The defined benefit section of the scheme was closed to future accrual on 30 April 2010. The net obligations of this scheme, calculated in accordance with IAS 19, are analysed as follows:

The value of obligations is particularly sensitive to the discount rate applied to liabilities at the assessment date as well as mortality rates. The value of the plan assets is sensitive to market conditions, particularly equity values. The assumptions used in the valuation of obligations are listed below: