DC..L Regulatory News (DC.)

Dixons Carphone plc

Interim Results for the 26 weeks ended 28th October 2017

• Strong performance in electricals across the Group with growing revenues, profitability and market share

• Maintaining scale in UK mobile but profitability challenging. Repositioning mobile business to deliver a simpler, less capital-intensive business

• Interim dividend 3.5p (2016/17: 3.5p), Board intends to maintain total full year dividend at 11.25p

• Expect to deliver full year 2017/18 Headline PBT within £360m - £400m range

o Headline PBT consensus for FY18: range £362m-£420m, average £383m

• Good start to peak trading with record Black Friday in all geographies

Notes:

- In the UK&I H1 like-for-like revenues improved by approximately 3% as a result of sales successfully transferred from closed stores

- See notes on page 3 for an explanation of the basis of preparation and defined terms. This document also uses definitions set out on pages 37 to 41

* H1 16/17 UK & Ireland EBIT includes £17m (H1 17/18: £18m) relating to the remaining core of CWS, which has been restated as set out in note 2.

Financial Highlights:

• Group headline PBT(1) of £61 million (2016/17: £154 million)

o Includes a negative £58m impact year-on-year from a change in receivables revaluations and insurance contract terms as indicated in August

• Statutory profit before tax of £42 million (2016/17: £111 million), including non-headline charges of £19 million (2016/17: £43 million). Statutory basic EPS of 3.3p (2016/17: 8.1p)

• Group H1 like-for-like revenue(3) up 4%; Q2 like-for-like up 3%; statutory revenue for H1 up 3%

• Group H1 electricals like-for-like up 7%, growth across all markets and market share gains

o UK&I electricals like-for-like up 6%

o Nordics like-for-like up 8%

o Greece like-for-like up 7%

• UK&I H1 mobile like-for-like down 3%

o Including the impact of delayed iPhone X launch into second half of financial year

• Free cash flow(6) of £169 million (2016/17: £64 million) resulting from reduction in capex year-on-year, improved stock management, and favourable timing on working capital

• Net debt(7) of £206 million (2016/17: £285 million)

Seb James, Group Chief Executive, said:

'Our interim results highlight the continuation of trends that we saw in our Q1 trading update. Overall we have delivered strong free cash flow, expect to deliver full year PBT within the £360m to £400m range and the Board intends to maintain the full year dividend.

I am encouraged by the continued achievements in our electricals businesses across the Group with like-for-like sales up 7% and growth in revenues, market share, customer satisfaction and profitability in these markets thanks to our commitment to retail innovation and to serving customers well. As we said in August, the UK postpay mobile phone market is tougher, with a combination of higher handset costs and relatively incremental technology growth continuing to cause customers to hold on to their handsets for longer and some to choose a SIMO contract in the meantime. In addition, the later launch of the iPhone X pushed some sales into the second half of our financial year. Throughout the period, we made a very conscious decision to fight hard to drive sales in our product offering, and this has impacted mobile profitability. Vitally, though, these actions have helped maintain scale, reinforce our position as market leader, and ensure our relevance to the customer.

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, and increase the simplicity and profitability of what we do.

The start to peak trading has gone well with sales records being broken in all territories. Everywhere, we have seen material share gain and this shows that our retail businesses continue to be able to entice customers into buying the amazing new technologies that we offer. We must remember, though, that there is plenty of peak left to go.

At this time of year, our 42,000 colleagues go above and beyond the call of duty to support our customers, and I would like to take this opportunity to record my thanks to them for their hard work so far, and, in advance, for what we expect will be a busy Christmas period ahead.'

Quarterly summary

Notes:

- UK&I electricals like-for-like: Q1 7%, Q2 5% and H1 6%

- In the UK&I Q2 like-for-like revenues improved by approximately 2% as a result of sales successfully transferred from closed stores, in Q1 this was 4% and in H1 this was 3%.

- UK&I mobile like-for-like revenue: Q1 flat, Q2 (6)% and H1 (3)%

Investor and analyst presentation and webcast

There will be a management presentation for investors and analysts at the Deutsche Bank offices in London at 9:00 am (GMT) this morning. The presentation slides will be available via webcast (listen only) on our corporate website, www.dixonscarphone.com and there will be an accompanying conference call:

Dial-in details - UK/International: +44(0) 20 3059 8125; passcode: 156444

Seven-day replay - UK/International: +44(0) 121 260 4861; passcode: 2280344 #

Next announcement

The Group will publish a trading update on 23 January 2018 with an accompanying conference call.

For further information

Notes

(1) Headline results exclude amortisation of acquisition intangibles, Merger integration and transformation costs, businesses to be exited, property rationalisation costs, acquisition-related costs and other one-off, non-recurring items, net interest on defined benefit pension schemes and discontinued operations. Such excluded items are described as 'non-headline'. For further details see notes 3 and 10 to the financial information. Comparatives have been restated following the classification of the iD mobile operations in the Republic of Ireland as businesses to be exited and classification of the Sprint joint venture and Spanish operations as discontinued operations, and are therefore included in non-headline results. For further details see note 13 of the financial information.

(2) ‌Change in local currency revenue reflects total revenues on a constant currency and period basis.

(3) ‌Like-for-like revenue is defined in the glossary on page 37.

(4) During the period, the reportable segments of the Group have been changed and comparatives restated accordingly. The full year and half year restatements are detailed in note 2 to the financial information.

(5) UK & Ireland comprises operations in the UK and Ireland, the Dixons Travel business and the non-honeybee B2B operations which leverage 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. Nordics comprises operations in Norway, Sweden, Finland, Denmark and Iceland. Greece comprises operations in Greece and, for non-headline results, previously disposed operations in the Southern Europe region. honeybee comprises our proprietary IT multi-industry software that simplifies the delivery and management of complex digital customer journeys. These segmental results have been restated as set out in note 2.

(6) Free cash flow is defined in the glossary on page 39.

(7) Net debt is defined in the glossary on page 39.

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

The performance review below refers, unless otherwise stated, to headline information for continuing businesses. The basis for the preparation of this information, including restatements due to businesses to be exited, discontinued operations and segmental classification, is described on page 3.

Group

Group revenue has increased 1%, on a local currency basis, 4% on a like-for-like revenue basis and 3% on a reported currency basis to £4,868 million. This is primarily driven by strong performance in the Nordics region and Greece, reporting 8% and 7% like-for-like revenue growth respectively and UK electricals growth of 6% on a like-for-like basis with UK mobile like-for-like down 3%.

Headline EBIT has decreased to £70 million (2016/17: £163 million), driven by a negative impact of £58 million composed of the change in network receivables revaluation year-on-year and the prior period impact of the change in contractual terms for third party insurance products. Excluding these negative impacts, Group EBIT has decreased by £35 million. The electrical businesses have continued to perform well, growing market share and profitability year-on-year.

UK & Ireland

Revenue in the UK & Ireland decreased by 2% to £3,009 million (2016/17: £3,067 million), with like-for-like revenue for the half year up 2%. The electricals business has delivered 6% like-for-like-growth benefiting by approximately 4% as a net result of sales transferred from closed stores with the mobile business delivering like-for-like revenues down 3%.

The electricals business has delivered revenue and profit growth with tight cost control and market share gains across consumer electronics and white goods. The business has largely completed its property optimisation programme, which remains on track to deliver the £20 million of incremental EBIT contribution in the current year.

In Currys PC World, white goods performance has remained strong supported by launch of our next day delivery proposition. We have seen growth across all major categories and have launched our same day delivery offer. The Dixons Travel business continues to grow benefiting from the new format Heathrow Terminal 3 store and the launch of our first cruise ship store. Team Knowhow continued its roll-out launching same day mobile phone repairs whilst our flexible credit offering 'Your Plan' has seen strong customer take up. 

The mobile phone market continued to be difficult in the first half of the year with revenues impacted as consumers hold on to their handsets for longer reducing the size of the overall postpay market and the phasing of the iPhone X product launch into the second half further slowed market growth. Mobile gross margins were down reflecting the impact of the network debtor revaluation and insurance elements highlighted below as well as lower trading margins to support postpay volumes.

The Carphone Warehouse is the largest independent retail destination in the UK for mobile phones. It has a brand consideration of 78%, a postpay market share in excess of 22%, the widest range of handset and network offerings and record customer NPS. The business launched its leasing proposition in stores during the first half and rolled out new SIMO journeys. Multiplay continued to grow strongly with market share increasing to 10% of the switching market and also launched energy switching. The changing market landscape will require us to use our expertise and scale to work even closer with our existing partners, broaden our range of product offerings whilst continuing to drive value for our customers. iD in the UK continues to benefit from its differentiated proposition with the number of active customers increasing to 715,000 from 600,000 at the end of the last financial year.

Headline EBIT decreased £96 million year on year reflecting the reduction in UK mobile as set out above and a net negative revaluation of our network debtor balance of £19 million (including the impact of EU roaming legislation changes) compared to a positive impact in the prior year of £17 million as a result of net changes in upgrade propensity, sleeper assumptions and out-of-bundle spend. The prior year headline EBIT also included £22 million benefit from changes in contractual terms for the sale of third party insurance contracts. Excluding these items, EBIT was down £38 million year-on-year.

Nordics

The first half has seen strong performance in the Nordics with 8% local currency revenue growth and 8% growth on a like-for-like basis. Reported revenue in the first half was up 13% to £1,666 million (2016/17: £1,476 million) the difference over and above local revenue growth as a result of the weakening in the Pound.

Like-for-like revenue increased by 8%, driven by strong performance across most categories, in particular consumer electronics and telecoms. The investment in our Jönköping distribution centre, doubling its overall product range, and the introduction of an automated replenishment system have led to improved availability, record customer satisfaction and strong market share growth in all markets.

Nordics headline EBIT was £42 million (2016/17: £34 million) with the increase in revenues in the first half and cost saving initiatives partially offset by a continued determination to offer competitive prices in the market. 

Greece

Greece has continued to grow with like-for-like revenue increasing 7%, local currency revenue increasing 9% and reported currency revenue increasing 14% to £191 million (2016/17: £167 million), with market share increasing across all categories. Reported EBIT increase of £3 million reflects this strong sales growth and improved margin.

honeybee 

As previously announced the Group has changed the way we are selling the honeybee software platform from an upfront sale to a software-as-a-service model. As a result, the current period has seen a decrease in revenue from £8 million to £2 million with an EBIT loss of £12m (2016/17: £4m). With a new framework in place, we are exploring a number of options for the future development of honeybee.

Finance costs

Headline net finance costs have remained in line with the prior year at £9 million. The non-headline costs of £8 million (2016/17: £8 million) relate to the interest on the UK defined benefit pension scheme.

Tax

The full year headline effective tax rate is expected to be 22%. The Group's headline effective rate of taxation applied to this period is 24%, due to the weighting of profits in the first half (2016/17: 23% before the recognition of tax credits). The rate is higher than the UK statutory rate of 19% due mainly to higher statutory rates in the Nordics and certain non-deductible items arising mainly in the UK.

Free cash flow

Free cash flow before restructuring in the first half was an inflow of £188 million (2016/17: £109 million), with the Group benefiting from a working capital inflow of £171 million (2016/17: £15 million). The working capital inflow is largely as a result of better stock management, seasonality and the effect of non-cash revaluations. In addition there were timing benefits, in particular relating to the timing of product launches.

Capital expenditure in the first half was £96 million, a reduction of £13 million compared to the prior period as the capital element of the property rationalisation programme and Merger and integration capital expenditure is now largely complete.

Taxation paid has increased from £17 million to £30 million as the prior period included a cash receipt of £14 million following successful resolution of a historical tax issue.

Interest paid has reduced primarily due to fees paid in the prior year following renegotiation of the Group's revolving credit facility.

Restructuring costs primarily comprise the cash costs associated with the Merger and transformation activities, which were largely completed during the period, and property rationalisation costs.

A reconciliation of free cash flow to cash flow from operations is presented in note 9 to the financial information. 

Funding

At 28 October 2017 the Group had net debt of £206 million (2016/17: £285 million). A reconciliation of net debt is presented in note 9 to the financial information. Free cash flow was an inflow of £169 million (2016/17: inflow of £64 million) for the reasons described on the previous page.

Of the free cash flow, £89 million was returned to shareholders in the form of dividends for the 2016/17 financial year.

Net inflows associated with acquisitions and disposals in the current period largely relates to consideration received on the disposal of the Group's Spanish operations (£22 million) and exit from the Group's joint venture with Sprint (£17 million).

Pension contributions during the period increased to £46 million (H1 2016/17: £18 million, FY 16/17: £43 million) reflecting the timing of these contributions and increased commitment following the 2016 triennial valuation.

Other items in both the current and prior periods relate to foreign exchange gains and losses on net debt.

2017/18 Guidance

· Full year headline PBT expected to be within £360m-£400m range. We anticipate that our electrical businesses will deliver earnings growth this year across the Group

· Full year headline interest of c.£18m

· The 2017/18 effective headline tax rate is expected to be around 22%

· Mobile debtor revaluation, including EU roaming, expected to be in line with negative £10m-£40m range provided

· Exceptional cash flow in 2017/18 c.£40m

· Pension contribution of £46m

· Capital expenditure is expected to be c.£200m

Statutory results

Income statement - continuing operations

EBIT decreased from £128 million to £59 million predominantly reflecting the decreased headline EBIT as discussed above, which has been offset by the reduced non-headline costs described below of £11 million (2016/17: £35 million).

Net finance costs remain in line with the prior year at £17 million.

The full year headline effective tax rate is expected to be 22%.

The decrease in statutory basic EPS reflects the reduced profit after tax in the period, with no significant changes in the number of shares in issue.

Non-headline items

Statutory profit before tax of £42 million (H1 2016/17: £111 million) includes non-headline charges of £19 million (H1 2016/17: £43 million). These charges are analysed below:

Businesses to be exited represent the trading losses of the iD mobile operations in the Republic of Ireland for which a decision to exit the business was announced in the prior year.

Merger and transformation costs in the first half of 2017/18 relate to integration costs of £nil (2016/17: £9 million) and functional transformation costs of £2 million (2016/17: £6 million). Functional transformation costs relate to projects across the finance, procurement and human resources functions to rationalise shared service centre activities and harmonise policies and procedures across key support functions of the business.

Following the successful IPO of Unieuro on the Milan stock exchange in the second half of FY16/17, in H1 17/18 the Group disposed of shares in the operation reducing the ownership from 10.2% to 7.2%. A profit of £10 million has been recognised, relating to dividends received during the period and the disposal of a portion of the investment.

Net pension interest was £8 million (2016/17: £8 million) reflecting the charge incurred in relation to the Dixons Retail UK pension scheme. Further details on the pension scheme can be found in the Pensions section later in this performance review.

The tax on non-headline items of £15 million credit includes an £11 million credit due to recognition of previously unrecognised deferred tax assets in Greece.

For further details of non-headline items see note 3 to the interim financial information.

Discontinued operations

On 29 September 2017, the Group completed the disposal of Phone House Spain S.L.U, Connected World Services Europe Srl and Smarthouse Spain S.A, which together represented the trading operations in Spain. A gain of £1 million arose on the disposal, being the difference between the proceeds of disposal and the carrying amount of the subsidiaries' net assets and attributable goodwill. The trading results of the operations have been classified as discontinued (£Nil, 2016/17: £1 million profit).

On 7 June 2017 an agreement was reached to dispose of the Group's 50% interest in the Sprint Connect LLC joint venture to Sprint Corporation. £nil gain or loss was recognised in relation to the disposal. The share of results of the operation to the date of disposal have been classified as discontinued (£3 million loss, 2016/17: £8 million loss) together with additional costs of £3 million incurred by the Group post closure. 

Balance sheet

Goodwill has increased by £14 million to £3,125 million largely as a result of foreign exchange movements on Nordics' goodwill offset by the goodwill disposed with the Group's Spanish business.

The net working capital liability has increased by £133 million to £336 million, driven by increases in trade payables due to the timing of payments to suppliers offset by an increase in the carrying value of ongoing network commission receivables, seasonal increase in stock balances in readiness for peak trading, and a reduction in provisions due to payments made in the period. Overall net debt has decreased by £65 million as described in the cash flow section above.

Tax, pension and other liabilities have decreased by £116 million driven by the decrease in the UK defined benefit pension scheme of £97 million and a reduction in income tax payable of £24 million.

Cash flow statement

The statutory EBIT for the Group has decreased for the reasons discussed in the performance section above. The statutory EBIT includes the charges of £11 million relating to the 'non-headline' items. Depreciation and amortisation charges remained relatively consistent in the period. Working capital movements are largely as a result of timing variances.

Other operating cash outflows in the year have increased by £45 million due to the increase in timing and value of pension contributions and increase in net taxation payments in the period.

Acquisition outflows in the current period of £3 million relate to deferred consideration payments in the Nordics for the 'Epoq' kitchen business. The prior period outflows include £10 million for the acquisition of Simplifydigital and £6 million for the acquisition of ten FONA stores in Denmark. Investment in joint venture of £3 million relates to further contributions into the Sprint joint venture prior to disposal (2016/17: £16 million).

Other investing cash flows relate to proceeds received following the disposal of the Group's Spanish operations and the disposal of the Sprint joint venture in the period and additional consideration received in relation to prior period disposals.

Other financing cash flows of £7 million primarily relate to the repayment and drawdown of cash under the revolving credit facilities.

Comprehensive income / changes in equity

Total equity for the Group has increased from £3,055 million to £3,109 million driven by the statutory profit of £38 million in the period, the gain on retranslation of overseas operations of £47 million and the decrease in the IAS19 defined benefit pensions deficit for the UK pension scheme. This latter result reflects the change in discount and inflation rates in the period, giving an actuarial gain of £59 million, offset by payment of £89 million dividends.

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme amounted to £492 million at 28 October 2017 (29 October 2016: £646 million, 29 April 2017: £589 million). Contributions during the period under the terms of the deficit reduction plan amounted to £46 million (H1 16/17: £18 million, FY 16/17: £43 million) reflecting the timing of contributions and increased commitment following the 2016 triennial valuation.

The deficit has decreased during the first half largely as a result of changes in discount and inflation rate assumptions.

Dividends

The Board has declared an interim dividend of 3.5p per share, maintaining the approved 3.5p per share dividend last year. The ex-dividend date is 28 December 2017, with a record date of 29 December 2017 and an intended payment date of 26 January 2018. The Board intends to maintain the final dividend at the prior year level of 7.75p, maintaining full year expected dividends of 11.25p.

* Headline results exclude amortisation of acquisition intangibles, Merger integration and transformation costs, property rationalisation costs, acquisition-related costs, net interest on defined benefit pension schemes, businesses to be exited, other one-off, non-recurring items and discontinued operations. Such excluded items are described as 'non-headline'.

The headline and non-headline results have been restated for the 26 weeks ended 29 October 2016 and the year ended 29 April 2017 to reflect the current period classification of the iD mobile operations in the Republic of Ireland as businesses to be exited and the Sprint Joint Venture operations and Spanish operations as discontinued operations as discussed in note 3 and note 13. 

* Headline results exclude amortisation of acquisition intangibles, Merger integration and transformation costs, property rationalisation costs, acquisition-related costs, net interest on defined benefit pension schemes, businesses to be exited, other one-off, non-recurring items and discontinued operations. Such excluded items are described as 'non-headline'.

The headline and non-headline results have been restated for the 26 weeks ended 29 October 2016 and the year ended 29 April 2017 to reflect the current period classification of the iD mobile operations in the Republic of Ireland as businesses to be exited and the Sprint Joint Venture operations and Spanish operations as discontinued operations as discussed in note 3 and note 13.

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1 Basis of preparation

The interim financial information for the 26 weeks ended 28 October 2017 was approved by the directors on 12 December 2017. 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 year ended 29 April 2017 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 37 to 41 of this document.

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 year ended 29 April 2017 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 an informative additional measure 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, acquisition related costs, any exceptional items considered so one-off and material that they distort underlying performance (such as reorganisation costs, impairment charges, property rationalisation costs and non-recurring charges) income from previously disposed operations 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/or operations of the Group. 

A reconciliation of headline profit and losses to total profits and losses is shown in note 2, together with a description of the nature of the non-headline results recorded.

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 accounting policy for the use of these measures is outlined in the 'Alternative Performance Measures' section of the Glossary.

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. Results are reviewed by the Board on a headline basis by segment.

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

• UK & Ireland comprises operations in the UK and Ireland, the Dixons Travel business and the non-honeybee B2B operations 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.

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

• Greece, consisting of our ongoing operations in Greece and for non-headline items, our previously disposed operations in Southern Europe.

• honeybee comprises our proprietary IT multi-industry software that simplifies the delivery and management of complex digital customer journeys.

Non-headline results are allocated to each reportable segment. Where these relate to businesses to be exited or income or expense from previously disposed operations, they are allocated where practicable to the region in which the operation was originally held.

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

During the period, the reportable segments of the Group have changed, and reflect the updated segments reported to the Board, who are considered the Chief Operating Decision Maker under IFRS 8 "Operating Segments". Previously, segmental results for Connected World Services consisted of both our honeybee and Connected World Services divisions, which was the B2B operations providing managed services to third parties. The Connected World Services division has now been allocated to the respective segmental market (either UK & Ireland, Nordics or Greece). In addition, as a result of the disposal of our Spain operations and the Sprint Joint Venture, these results have also been excluded from the segmental allocation as are treated as discontinued operations.

The restatement of comparative information for these segments has been set out in part (b) of this note.

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

2 Segmental analysis (continued)

(a) Segmental results

Reconciliation of headline profit to total profit

* Headline results and total profit/(loss) have been restated to exclude the results of the iD mobile operations In the Republic of Ireland, which have been classified as businesses to be exited, the Sprint Joint Venture operations and Spanish operations, which have been classified as discontinued operations, and comparatives have been restated accordingly as discussed in note 3 and note 13.

2 Segmental analysis (continued)

(a) Segmental results

Reconciliation of headline profit to total profit

* Headline results and total profit/(loss) have been restated to exclude the results of the iD mobile operations In the Republic of Ireland, which have been classified as businesses to be exited, the Sprint Joint Venture operations and the Spain operations, which have been classified as discontinued operations, and comparatives have been restated accordingly as discussed in note 3 and note 13.

2 Segmental analysis (continued)

(a) Segmental results (continued)

Reconciliation of headline profit to total profit

* Headline results and total profit/(loss) have been restated to exclude the results of the iD mobile operations In the Republic of Ireland, which have been classified as businesses to be exited, the Sprint Joint Venture operations and Spain operations, which have been classified as discontinued operations, and comparatives have been restated accordingly as discussed in note 3 and note 13.

(b) Restatement of segmental information

As discussed above, during the period the Group's reportable segments have been changed, and comparatives have been restated accordingly. The below tables provide reconciliations for the headline Revenue and headline EBIT for the year ended 29 April 2017 and 26 weeks ended 29 October 2016. The adjustments relevant for both periods are:

· Reallocation of honeybee revenues from Connected World Services to honeybee

· Allocation of previous B2B operations within Connected World Services to geographic segments

· Removal of Spain results from Southern Europe as treated as a discontinued operation (see note 10)

The restated comparatives for the 26 weeks ended 29 October 2016 have also been adjusted to remove the iD Mobile Ireland and Sprint Joint Venture results which were previously treated as 'non-headline' as set out in note 3.

26 weeks ended 29 October 2016

Year ended 29 April 2017

(c) Seasonality

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

3 Non-headline items

(i) Businesses to be exited

Comprises the trading result of businesses to be exited where they do not meet the criteria under IFRS 5 "Non-Current Assets Held for Sale and Discontinued Operations", for separate disclosure as discontinued operations. This comprises the results of the iD mobile operations in the Republic of Ireland for which a decision was announced to exit the business at the prior year end. The results of the Ireland MVNO have therefore been classified as non-headline items in the income statement and related disclosures. Restated amounts are set out in note 13.

(ii) Amortisation of acquisition intangibles:

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

(iii) Merger and transformation related costs:

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

· Merger integration costs of £nil (2016/17: £9 million, year ended 29 April 2017: £18 million) relate to the reorganisation of the Group following the Merger and primarily comprise professional fees, employee severance and incentive costs associated with the integration process, which are now complete.

· During the prior period, functional transformation projects commenced across the finance, procurement and human resources functions to rationalise shared service centre activities and harmonise policies and procedures across key support functions of the business. The cost of £2 million (2016/17: £6 million, year ended 29 April 2017: £13 million) primarily relates to consultancy fees.