DC..L Regulatory News (DC.)

16 July 2015

Embargoed until: 7.00am 

An excellent year with pro forma Headline profit before tax up 21%

Highlights: 13 months to 2 May 2015

• Group like-for-like revenue(3) up 6% (UK & Ireland up 8% and Nordics up 4%)

• Strong profit performance:

- Group pro forma Headline PBT(1) of £381 million (2013/14: £316 million), up 21%

- Group pro forma Headline basic EPS(1) (2) 25.5p (2013/14: 20.5p)

- Total statutory profit of £97 million (2013/14: £48 million) after Non-Headline(1) charges of £188 million (2013/14: £55 million) which include a loss from discontinued operations of £114 million (2013/14: £10 million)

• Strong balance sheet with year end pro forma net debt of £260 million(8)  

• Final dividend of 6.0p (2013/14: 4.0p) proposed, taking total dividends for the year to 8.5p (2013/14: 6.0p), up 42% year-on-year

• Integration progressing well, expecting to deliver at least £80 million of synergies by 2016/17, one year ahead of plan

• Disposals of non-core operations in France, Germany, the Netherlands and Portugal

Pro forma results - continuing business

See notes on page 3 for basis of preparation

Sebastian James, Group Chief Executive, said:

"This has been a terrific first year for Dixons Carphone. We have seen excellent increases in both sales and profitability and we have made very encouraging progress with the tricky job of integrating these two great companies. At the same time, we have continued to generate strong customer satisfaction numbers, made significant strides in our Connected World Services business including our agreement with Sprint, and launched a brand new mobile network.

The job is far from done. I am acutely aware that there is no room for complacency in a sector which has seen unprecedented change, bringing both opportunities and challenges. We have set ourselves ambitious goals, not only financial, but also in terms of driving customer happiness, building a completely integrated company and delivering a brand new global services business with CWS. To achieve these, we will need to exhibit creativity, energy, resilience and toughness of purpose. Nevertheless we are very optimistic about the road ahead, and Dixons Carphone is lucky to have such a fantastic team of people - in every part of the business - to deliver these goals. My sincere thanks to them for everything that has been done so far."

Investor and analyst webcast

There will be a conference call with presentation for investors and analysts at 9:00 am today. The presentation slides will be available via webcast (listen only) on our corporate website, www.dixonscarphonegroup.com

Dial-in details: UK/International +44(0) 20 3003 2666: Passcode: 9163055

Next announcement

The Group will publish its Q1 trading statement on 10 September 2015.

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.

Basis of preparation - pro forma information

On 26 June 2013 the Carphone Warehouse Group plc (Carphone Warehouse) acquired the 50% of CPW Europe which it did not already own from Best Buy Co. Inc., (the CPW Europe Acquisition) and on 6 August 2014 an all share merger of Carphone Warehouse and Dixons Retail plc (Dixons Retail) (the Merger) took place. The information in the highlights and performance review sections refer, unless otherwise stated, to pro forma Headline(1) information for continuing businesses, reflecting the results of both Carphone Warehouse (including CPW Europe) and Dixons Retail throughout both the current and comparative periods as if the CPW Europe Acquisition and the Merger had occurred at the start of the comparative period.

The Group has changed its year end to be the Saturday closest to 30 April. The current year end therefore comprises the 13 months to 2 May 2015 for the Carphone Warehouse business with a comparative period of the 12 months ended 29 March 2014 in line with previously reported results. As such the current year includes an additional five weeks of results from the Carphone Warehouse business. The prior period results of Carphone Warehouse have been restated to exclude the results of its retail operations in France, Germany, the Netherlands and Portugal which are treated as discontinued operations following the decision to exit these businesses.

Prior year comparatives for Carphone Warehouse have also been restated to reclassify the unwind of discounts for the time value of money on network commissions receivable from pro forma Headline EBIT to interest, in line with the treatment in the current period and with the classification in the statutory results. This item had a value of £9 million for the prior year and the reclassification has the impact of reducing pro forma Headline EBIT.

Current period pro forma results for the Dixons Retail business comprise the 12 months ended 2 May 2015 with a comparative period of the 12 months ended 30 April 2014.

Notes

(1) Headline results exclude amortisation of acquisition intangibles, Merger integration and transaction costs, CPW Europe Acquistion related items, Phone House France operating and closure costs whilst it formed part of the CPW Europe joint venture, 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'. For further details see notes 3 and 10 to the financial information.

(2) Pro forma EPS has been calculated assuming the number of shares existing at 2 May 2015, adjusted for the number of shares held by the Group ESOT, apply from the start of the current and comparative periods.

(3) Like-for-like sales are calculated based on 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 stores-within-a-store are included in like-for-like. Like-for-like revenue reflects performance for the Carphone Warehouse business for the 13 months to 2 May 2015 compared to the 13 months to 3 May 2014 and for the Dixons Retail business for the 12 months ended 2 May 2015 compared to the 12 months ended 30 April 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. Prior to the announced disposals of operations in Germany and the Netherlands which previously formed part of this segment, it was named Northern Europe.

(6) Southern Europe comprises operations in Spain and Greece. This now excludes the results of Portugal which are presented as discontinued operations.

(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.

(8) Pro forma net debt reflects the consolidated net debt of the Group at 2 May 2015 including net funds recognised within assets held for sale of £53 million.

Performance review

Group

Group pro forma Headline revenue was up 2% to £9,936 million (2013/14: £9,752 million) and up 6% on a local currency basis, with both including a 2% benefit due to an extra five weeks of trading from the Carphone Warehouse business. Like-for-like revenue growth was 6% reflecting growth in our UK & Ireland, Nordic and Greek businesses, partially offset by performance in the Spanish market. The difference between the total revenue growth on a local currency basis (adjusted for the additional weeks from the Carphone Warehouse business) and like-for-like is predominantly due to a reduction in stores.

Despite operating in a highly competitive market place, the Group has continued to grow market share and maintain stable gross margin across the year.

Pro forma Headline EBIT was up 15% to £414 million (2013/14: £359 million) driven by the strong operating performance in the UK & Ireland. Pro forma Headline profit before tax was £381 million (2013/14: £316 million) reflecting the improved EBIT and a lower interest charge year-on-year following the redemption of the bonds previously held by Dixons Retail in August 2014.

As a part of the Merger we carried out a thorough analysis of the opportunities that combining the two businesses could bring and, as previously communicated, our stated target of a minimum £80 million of synergies by 2017/18 has now been brought forward by one year to 2016/17. Integration of the two businesses continues to progress well with 244 new Carphone Warehouse stores-within-a-store (SWAS) now open and our head office teams combined and operating as one. We are also rationalising down to one single head office location in each of the UK, Ireland and Sweden and we have announced the integration of our UK logistics and repair centres to the legacy Dixons Retail site in Newark.

UK & Ireland

The UK & Ireland had a very strong year with pro forma revenue up by 7% to £6,451 million (2013/14: £6,011 million) including a 2% benefit of the additional five weeks of trading from the Carphone Warehouse business. Like-for-like revenue for the year was up 8% reflecting strong performances in both electricals and mobile and the roll-out of the Carphone Warehouse SWAS which have delivered strong revenue growth on existing floor space, contributing 1% of the like-for-like increase. The difference between the total revenue growth (as adjusted for the additional five weeks of trading from the Carphone Warehouse business) and like-for-like predominantly reflects a reduction in stores.

Pro forma Headline EBIT up 26% versus last year, to £306 million. The business continued to gain market share with strong sales driving increased profitability.

The electricals business had a very positive year supported by record advocacy and customer net promoter scores and our pricing being at its most competitive ever. The peak period, which now stretches six weeks from 'Black Friday' into the new year, was particularly strong with both small and large white goods, as well as large screen TVs, selling very well.

Our mobile business in the UK & Ireland also performed well. Postpay volumes and market share continued to grow year-on-year, driven by the exit of Phones 4U and some very successful product launches. During the year all the major networks have moved the majority of their customers onto 4G tariffs. These factors have helped drive a better customer experience and have led to higher data usage.

In May 2015, the Group launched iD, a new mobile network focused on providing users with increased contract flexibility, greater access to free data roaming and competitively priced 4G tariffs. The initial performance of iD and the customer response, so far, has been very promising indeed.

Nordics

Nordics revenue, expressed in Sterling was affected by a significant movement on foreign exchange rates in the region. As a result pro forma Headline revenue in the Nordics was down 6% to £2,718 million (2013/14: £2,895 million). Pro forma Headline revenue on a local currency basis was up 4%.

Nordics pro forma Headline EBIT was £86 million (2013/14: £102 million) reflecting a negative impact of foreign exchange of £11 million and the investments noted below.

The Nordics business has had a sound year, continuing to consolidate and grow its position as market leader in all of the countries in which it operates. The business has invested in various areas during the year to strengthen its market position further and drive customer satisfaction which is at an all-time high in each of its countries.

The team has launched co-branded Elgiganten Phone House stores with very positive results. In addition the 'epoq' kitchen business has provided very encouraging results with strong revenue growth, driving market share and appliance sales. We expect that this operation will also provide opportunities in smart home and integrated products.

The Phone House operations in Sweden encountered tough trading conditions during the year, but its integration with the Elgiganten business has been swift, driving synergy savings and we expect both the businesses to benefit greatly from the Merger.

Southern Europe

Revenue expressed in Sterling was affected by a significant movement on foreign exchange rates in the region. Pro forma revenue on a local currency basis was down 10% including a 3% benefit of the additional five weeks of trading from the Phone House Spain business. The difference between the local currency revenue growth and like-for-like predominantly reflects the closure of stores in Spain explained below.

Southern Europe pro forma Headline EBIT was £14 million (2013/14: £10 million).

The business in Greece delivered strong like-for-like revenue growth during the year, with most categories performing well, in particular large screen TVs. The strong performance in this market saw the business return to profitability during the year. We do however remain very mindful of the uncertain economic and political situation in the country and the effect this may have on our business. The team have been very active in planning for every contingency.

Our business in Spain continues to operate in a tough marketplace. Although it has been negatively impacted by these pressures, we have a strong management team in place, which continues to innovate and develop the business. During the year we reached agreement with Telefonica to distribute the products and services of Movistar in our stores which has been a positive force. We have also focused the business model to a greater extent on franchise operations and reduced our own store portfolio. In total we closed a net 35 stores during the year reflecting an increase of 20 franchise stores and a reduction in own stores of 55. These activities resulted in restructuring costs and the disposal of some non-core assets all of which have been included within pro forma Headline results.

Connected World Services

Connected World Services (CWS) pro forma Headline revenue was £130 million (2013/14: £78 million) with the increase predominantly reflecting the revenue from our Samsung Experience Stores which launched at the end of last year, in addition to the benefit of the additional five weeks of trading from the legacy Carphone Warehouse business. Pro forma Headline EBIT was £8 million (2013/14: £5 million).

The CWS management team has worked hard during the year to grow its strong pipeline and to build on relationships with blue-chip partners including Samsung, Aviva, RBS and TalkTalk. It has also continued to develop its omni-channel platform, honeyBee.

On 2 July 2015, CWS announced that it had entered into an agreement with Sprint Corporation, a leading US mobile network operator, to open and manage Sprint-branded stores in the US. CWS will supply retail expertise to Sprint who will initially open around 20 retail stores, and if this trial is successful, the parties will progress to a second phase which will involve CWS investing equally with Sprint in a joint venture to support roll-out plans of up to 500 stores in the US. During the second phase, Dixons Carphone has agreed to invest up to $32 million to obtain a 50% interest in the new venture. Dixons Carphone will also provide support across the whole of the Sprint estate as part of a wider know-how sharing arrangement. We believe this is a very exciting opportunity for the future and provides a platform for the Group to return to the US marketplace.

Net finance costs

Pro forma Headline net finance costs were £33 million (2013/14: £43 million). The reduction in financing costs was primarily due to the redemption of the bonds previously held by Dixons Retail on 21 August 2014.

Tax

The Headline pro forma rate of tax for the full year is 23% (2013/14: 25%). This rate is higher than the UK statutory rate of 21% predominantly reflecting higher statutory rates in the Nordics and certain non-deductible costs primarily in the UK.

Statutory results

The explanation of the Group's results presented above is on a pro forma basis as if the group structure following the CPW Europe Acquisition and the Merger had been in place throughout the current and comparative periods. Group results as reported in the financial information are prepared on a statutory basis, consolidating the results of CPW Europe from 26 June 2013 and Dixons Retail from 6 August 2014. These results are summarised below:

Headline income statement - continuing operations - statutory basis 

(1) Results for 2013/14 have been restated to reclassify the results of the operations in Germany, the Netherlands and Portugal as discontinued operations.

Headline profit before tax increased from £128 million to £376 million predominantly reflecting the inclusion of a full period of earnings from CPW Europe and the inclusion of Dixons Retail results from 6 August 2014. The tax charge increased from £25 million to £91 million reflecting the higher pre-tax earnings described above.

This in turn resulted in an increase in basic Headline EPS from 18.6p to 29.7p for the period. This EPS reflects the growth in profit after tax explained above but also the fact that the number of shares in issue approximately doubled following the Merger.

Non-Headline items

Headline profit before tax is reported before Non-Headline charges of £89 million (2013/14: £51 million). 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.

Costs incurred in relation to the Merger include transaction costs of £9 million, predominantly reflecting banking and professional fees, and merger integration costs of £32 million primarily being professional fees, employee severance and property costs associated with the integration process. Further integration costs will be incurred during 2015/16 as the integration of the two businesses continues.

The charge for the amortisation of acquisition intangibles was £35 million (2013/14: £13 million) with the current period including a full 13 months of amortisation of intangible assets recognised following the CPW Europe Acquisition and, since 6 August 2014, the amortisation of intangible assets recognised as a result of the Merger.

Net pension interest was £13 million reflecting the charge incurred in relation to the Dixons Retail UK pension scheme following completion of the Merger.

Non-Headline items included within Dixons Retail total results in the period prior to the Merger comprised £11 million in respect of the acceleration of share based payment charges which vested on the Merger, £12 million of merger related professional fees and £5 million of merger integration planning costs committed to prior to completion of the Merger, £42 million of debt restructuring costs in respect of early repayment of the bonds previously held by Dixons Retail, £5 million of provision releases relating to discontinued operations and £4 million of pension interest costs. As these items were incurred prior to the Merger they do not form part of the Group's consolidated results.

Discontinued operations

On 16 May 2014 the Group announced that it had entered into an agreement to sell its interest in Virgin Mobile France and completed the disposal on 4 December 2014 for gross consideration of £104 million and generated a profit of £87 million.

Following the Merger, the Group put in place a strategy of focusing on market leadership positions, while engaging in other markets through partnerships with its Connected World Services division. The Group carried out detailed strategic assessments of its Phone House operations, which led to the decision to exit certain markets.

· On 15 April 2015, the Group announced that it had agreed to the sale of its operations in Germany to Drillisch AG, a leading mobile virtual network operator in Germany. The sale completed on 5 May 2015.

· On 24 April 2015, the Group entered into an agreement to dispose of a majority stake (83%) in its operations in the Netherlands to Relevant Holdings BV, a company set up by the shareholders of Optie1 which has extensive telecom retailing experience in the Dutch market. The sale completed on 30 June 2015.

· On 16 July 2015, the Group announced its commitment to dispose of its operations in Portugal following the completion of a strategic review during 2014/15. Discussions, which commenced with potential acquirers during 2014/15, are advanced and an announcement confirming details of the disposal is expected in due course.

The closure of the Phone House operations in France, which was announced in 2013/14, was completed during the year ended 2 May 2015 and is therefore now treated as a discontinued operation.

Prior to the Merger, Dixons Retail agreed to sell its operations in the Czech Republic and Slovakia (Central Europe). The net assets held for sale associated with this business were included within the fair value of assets and liabilities acquired through the Merger and the sale completed on 11 August 2014.

The above businesses have been treated as discontinued operations and a net loss of £114 million (2013/14: £10 million) has been recognised in relation to them. Comparative information has been restated to reflect this classification.

Cash and movement on net funds

The information provided below is on a pro forma basis and aggregates the net funds / (debt) and cash flows of the Group, Dixons Retail and CPW Europe, as though Dixons Retail and CPW Europe had been 100% owned by the Group throughout the current and prior periods, to enable a complete understanding of cash flows.

Free cash flow - pro forma basis

Pro forma free cash flow before restructuring was an outflow of £96 million (2013/14: inflow of £286 million). The Group experienced a working capital outflow of £366 million (2013/14: inflow of £5 million) on a pro forma basis with the year-on-year increase largely reflecting timing issues associated with the change of year end and the day on which month end fell, as well as the unwind of certain supplier funding arrangements previously in place.

Capital expenditure in the period was £186 million on a pro forma basis (2013/14: £142 million), with the year-on-year increase reflecting significant capital expenditure on honeyBee and investment in relation to merging the two businesses.

Restructuring costs in 2014/15 relate to Merger integration costs and primarily reflect professional fees and employee severance costs.

Funding - pro forma basis

(1) Opening net funds in the current period reflects net funds for Carphone Warehouse at 29 March 2014 and for Dixons Retail at 30 April 2014. Opening net funds in the prior period reflects net funds for Carphone Warehouse (including CPW Europe) at 31 March 2013 and for Dixons Retail at 30 April 2013.

(2) Pro forma net debt reflects the consolidated net debt of the Group at 2 May 2015 including net funds recognised within assets held for sale of £53 million.

At 2 May 2015 the Group had pro forma net debt of £260 million compared to prior period pro forma closing net funds of £63 million. Pro forma net debt at the end of April 2014 for both businesses was £181 million.

Free cash flow was an outflow of £112 million (2013/14: inflow of £280 million) for the reasons described above.

Merger transaction costs reflect professional and banking fees, the cash cost of share option exercises as a result of the Merger and the cost of redeeming the bonds previously held by Dixons Retail.

Net cash outflows from acquisitions and disposals in the current year were £41 million reflecting the first payment of deferred consideration for the CPW Europe Acquisition and cash outflows in discontinued operations. Cash flows in the prior period were £441 million predominantly reflecting cash flows associated with the CPW Europe Acquisition, as well as those associated with discontinued operations.

The Group had a total of £875 million of committed borrowing facilities comprising: i) a £625 million multi-currency term and revolving credit facility, and ii) a £250 million revolving credit facility, both of which mature in April 2017. The £625 million facility is split into two tranches: a £400 million revolving tranche and a term loan tranche of £225 million. The term loan was amortised by £25 million during the period and is due to reduce by a further £50 million on 30 June 2016. These facilities mature in 2017 and we expect to complete refinancing of our facilities during 2015/16.

Goodwill

The goodwill of £2,629 million arising from the Merger reflects the fact that the value of Dixons Retail is based on its cash generating potential rather than its existing assets and the fact that many of its key strengths, such as its scale and expertise, do not represent intangible assets as defined by IFRS.

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme of Dixons Retail amounted to £486 million at 2 May 2015 compared to £429 million at the date of the Merger on 6 August 2014. The assumptions used for determining the accounting valuation use a consistent basis to that adopted within the financial statements of Dixons Retail for the year ended 30 April 2014 and which build from the most recent actuarial valuation as at 31 March 2013, which was completed during the period being reported. Contributions during the period under the terms of the deficit reduction plan amounted to £28 million on a pro forma basis (2014: £20 million).

The deficit has increased largely as a result of the changes in financial assumptions which determine liabilities, partially offset by an increase in the asset values.

Dividends

The Board declared an interim dividend of 2.5p per share, up from 2.0p per share last year. The interim dividend was paid on 23 January 2015.

We are proposing a final dividend of 6.0p per share, taking the total dividend for the year to 8.5p per share, a 42% increase on the previous year (2013/14: 6.0p). The final dividend is subject to shareholder approval at the Company's forthcoming annual general meeting. The ex-dividend date is 27 August 2015, with a record date of 28 August 2015 and an intended payment date of 25 September 2015.

Financial Information

Consolidated Income Statement

* Headline results exclude amortisation of acquisition intangibles, Merger integration and transaction costs, CPW Europe Acquisition related items, Phone House France operating and closure costs whilst it formed part of the CPW Europe joint venture, 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'. For further details see notes 3 and 10 to the financial information.

† The results for the year ended 29 March 2014 have been restated to recognise the results of the operations in France, Germany, the Netherlands and Portugal as discontinued operations.

Consolidated Statement of Comprehensive Income and Expense

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Financial Information

1 Basis of preparation

The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income and expense, consolidated balance sheet, consolidated cash flow statement, consolidated statement of changes in equity and extracts from the notes to the accounts for 2 May 2015 and 29 March 2014, has been prepared in accordance with the accounting policies set out in the full financial statements and on a going concern basis.

In their consideration of going concern, the directors have reviewed the Group's future cash forecasts and profit projections, which are based on market data and past experience. This review considered the implications of the Merger and the continuing uncertainty in Greece, including the effect on forecast cash flows and changes to the Group's financing facilities. The directors are of the opinion that the Group's forecasts and projections, which take into account reasonably possible changes in trading performance, show that the Group is able to operate within its current facilities and comply with its banking covenants for the foreseeable future. In arriving at their conclusion that the Group has adequate financial resources, the directors were mindful of the Group's level of borrowings and facilities. Accordingly the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future and consequently the directors continue to apply the going concern basis in the preparation of the financial statements.

As described in note 8, on 6 August 2014, the Group completed an all-share merger of Dixons Retail plc (Dixons Retail) and Carphone Warehouse plc (Carphone Warehouse) (the Merger), which was implemented by way of a scheme of arrangement of Dixons Retail. The Company has been renamed Dixons Carphone plc (Dixons Carphone). Under the terms of the Merger, Dixons Retail Shareholders received 0.155 of a new Dixons Carphone Share in exchange for each Dixons Retail share. In accordance with the criteria set out in IFRS 3 'Business Combinations' it has been determined that Carphone Warehouse acquired Dixons Retail.

Historically, the Group has prepared its financial statements to the Saturday closest to its accounting reference date of 31 March. Following the Dixons Retail Merger, which is described further in note 8, the Group has changed its accounting reference date to 30 April which was the pre-existing accounting reference date of Dixons Retail plc, but will continue to draw up accounts to the nearest Saturday and accordingly the financial period is for the 13 months ended 2 May 2015. The comparative period is for the year ended 29 March 2014.

The financial information set out in this announcement does not constitute statutory accounts within the meaning of Sections 434 to 436 of the Companies Act 2006 and is an abridged version of the Group's financial statements for the year ended 2 May 2015 which were approved by the directors on 16 July 2015. Statutory accounts for the year ended 29 March 2014 have been delivered to the Registrar of Companies, the auditor has reported on those accounts, their report was unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006. Statutory accounts for the 13 months ended 2 May 2015 will be delivered in due course. The auditor has reported on those accounts, their report was unqualified and did not contain statements under Section 498 of the Companies Act 2006.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRS issued by the International Accounting Standards Board and those parts of the Companies Act 2006 applicable to those companies reporting under IFRS. The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings for the 13 months ended 2 May 2015. 

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 exceptional 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, CPW Europe Acquisition related items, Phone House France operating and closure costs whilst it formed part of the CPW Europe joint venture, 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).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 and the exclusion of pension interest is such an item applicable to the 13 months ended 2 May 2015. 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 year ended 29 March 2014 have been restated to recognise the results of the operations in France, Germany, Netherlands and Portugal as discontinued operations. Therefore financial information in the income statement, cash flows statement and associated notes have been restated to reflect this classification.

Gains on disposal of non-core businesses in Southern Europe have been included in Headline results net of restructuring costs. The net impact of these activities totalled £5 million.

Since the period ended 2 November 2014, the Group applied adjustments to the fair values of assets and liabilities acquired through the Merger. These adjustments resulted in the fair value of identifiable net liabilities acquired reducing from £656 million to £647 million resulting in a reduction in the goodwill recognised from £2,638 million to £2,629 million.

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.

Following the Merger, the Group operates four operating segments as described below. Comparative periods have been restated to reflect this change.

As explained in note 10, Virgin Mobile France, the Phone House operations in Germany, the Netherlands, Portugal and France as well as Dixons Retail operations in Czech Republic and Slovakia have been treated as discontinued operations and are therefore excluded from this segmental analysis.

The Group's reportable segments have been identifiedas follows:

• UK & Ireland comprises operations in the UK and Ireland as well as operations in airports in UK and Ireland which are managed from the UK.

• 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

During the 13 months ended 2 May 2015, there were no customers which represent more than 10% of the Group's revenue.

Reconciliation of Headline profit to total profit

2 Segmental analysis continued

(a) Segmental results continued

Included within total revenue is income from two MNOs of approximately £450 million and £400 million. No other customers or MNOs represent more than 10% of the Group's revenue.

Reconciliation of Headline profit to total profit

3 Non-Headline items

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

 (i) Amortisation of acquisition intangibles:

A charge of £35 million (2013/14: £13 million) arose during the year in relation to acquisition intangibles arising on the CPW Europe Acquisition and Merger.

 (ii) Exceptional items - CPW Europe Acquisition:

CPW Europe Acquisition:

The CPW Europe Acquisition which occurred on 26 June 2013 gave rise to the following exceptional items in the year ended 29 March 2014:

• Professional fees of £7 million, costs of £11 million associated with the early vesting of incentive schemes (of which £8 million were cash in nature) and a tax credit of £3 million was recognised in respect of these costs.

• A gain of £1 million resulting from the requirement of the Group to fair value its existing 50% interest in CPW Europe, which was considered to be equal to the £500 million gross consideration for Best Buy's 50% interest.

• Arrangements with Best Buy allowed the Group to manage the disposal of the Consideration Shares issued to Best Buy, and to benefit from any gain on disposal above a share price of £1.90. The Consideration Shares were placed at a price of £2.44, resulting in a net cash gain of £23 million for the Group. The gain implied by comparing the share price at completion, being £2.38 and £1.90, was treated as an adjustment to consideration and the remaining gain of £2 million was recorded in the income statement.

3 Non-Headline items continued

 (iii) Exceptional items - Dixons Retail Merger:

The Dixons Retail Merger is described further in notes 1 and 8. The Merger has given rise to the following costs which have been treated as exceptional items:

• Merger costs comprise banking and professional fees in relation to the transaction.

• Merger integration costs relate to the reorganisation of the Group following the Merger and comprise the rationalisation of certain operational and support functions. These costs mainly comprise professional fees, employee severance and property costs associated with the integration process.

 (iv) Share of joint ventures exited - Businesses exited:

In light of an increasingly challenging market, the closure of the Phone House France operations was announced in April 2013. Prior to the CPW Europe Acquisition, when the French operations were part of the CPW Europe joint venture, operating losses of £10 million were incurred and restructuring items comprised asset write-downs of £8 million and provisions for exit costs of £32 million principally covering redundancies and lease exit costs. A tax credit of £3 million was recognised against these items. The Group's post-tax share of these losses, asset impairments and restructuring costs was £23 million. The results of the Phone House France following the CPW Europe Acquisition on 26 June 2013 have been classified as discontinued operations following the completion of the closure during the 13 months ended 2 May 2015.

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

Under IAS 19 'Employee Benefits', the net interest charge on defined benefit pension schemes is calculated by applying the corporate bond yield rates applicable on the last day of the previous financial year to the net defined benefit obligation. Corporate bond yield rates vary over time which in turn creates volatility in the income statement and balance sheet and results in a non-cash remeasurement cost which can be volatile due to corporate bond yield rates prevailing on a particular day and is also unrepresentative of the actual investment gains or losses made or the liabilities paid and payable. Consistent with a number of other companies, the accounting effects of these non-cash revaluations of net defined benefit pension liabilities have been excluded from Headline earnings.

4 Net finance costs

Headline total net finance costs exclude net interest on defined benefit obligations (see note 3).

5 Tax

The Headline effective rate of tax for continuing operations is 24% (2013/14: 20%). This rate is higher than the UK statutory rate of 21% due mainly to higher statutory rates in the Nordics and non-deductible items, mainly in the UK business. The UK corporation tax rate for the 13 months ended 2 May 2015 was 21% for the 12 months to 31 March 2015 and 20% thereafter (2013/14 23% for the year ended 29 March 2014).

The total effective tax rate for continuing operations is 26% (2013/14: 25%).

6 Earnings 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.

7 Equity dividends

The following distribution is proposed but had not been effected at 2 May 2015 and is subject to shareholders' approval at the forthcoming Annual General Meeting:

8 Merger and acquisition

2014/15: All-share merger of Dixons and Carphone

On 6 August 2014, the Group completed an all-share merger of Dixons Retail and Carphone Warehouse after which the shareholders of Dixons Retail and Carphone Warehouse each held 50% of Dixons Carphone on a fully diluted basis taking into account existing share options and award schemes for both companies.

Under the terms of the Merger, Dixons Retail shareholders received 0.155 of a new Dixons Carphone Share in exchange for each Dixons Retail share. In accordance with the criteria in IFRS 3 'Business Combinations' it has been determined that Carphone Warehouse acquired Dixons Retail.

Carphone Warehouse and Dixons Retail have put in place appropriate banking facilities to ensure that Dixons Carphone will have a strong financial profile enabling the combined Group to retain flexibility whilst reviewing its optimal capital structure going forward.

The merged entity creates a leader in European consumer electricals, mobiles, connectivity and related services. The directors believe that the Merger will deliver significant value to shareholders through a combination of enhanced commercial opportunities, operating synergies and growth opportunities. The integration of the two businesses is being managed by a dedicated integration team, bringing together the best relevant capabilities of both businesses, with the aim of facilitating a smooth integration.

a) Fair value of assets and liabilities

The provisional fair values of identifiable assets and liabilities of Dixons Retail as at the acquisition date were as follows:

8 Merger and acquisition continued

a) Fair value of assets and liabilities continued

All-share merger of Dixons Retail and Carphone Warehouse continued

(i) The fair value of trade and other receivables represents gross trade receivables of £324 million less amounts not considered collectible of £19 million.

(ii) Assets held for sale included cash and cash equivalents of £8 million.

(iii) Provisions include the recognition of contingent liabilities of £7 million mainly in relation to lease covenants relating to premises assigned or sublet to third parties and legal claims. It is anticipated that the majority of any utilisation associated with these contingent liabilities will be incurred over the next 5 years. No utilisation of these provisions has occurred between the acquisition date and 2 May 2015.

(iv) The finalisation of the fair value of the acquired assets and liabilities will be completed within 12 months of the acquisition and therefore remains provisional until 5 August 2015 owing to the extensive nature of the valuation process as well as the requirement to re-assess the status of contingent liabilities which have been provided for. It is therefore possible that adjustments to goodwill could arise up until 5 August 2015.

(v) The goodwill arising on acquisition is not deductible for income tax purposes. The provisional goodwill of £2,629 million reflects the fact that Dixons Retail value is based on its cash generating potential rather than its existing assets and the fact that many of its key strengths, such as its scale and expertise, do not represent intangible assets as defined by IFRS. The goodwill furthermore reflects the main reasons the directors of Dixons Retail and Carphone Warehouse proposed the Merger, being:

• The markets in which Carphone Warehouse and Dixons Retail operate are converging and the combination of the two complementary businesses will create the opportunity for compelling end-to-end propositions and long-term relationships with customers;

• The Group will have improved scale and reach;

• Significant synergies will arise with operating synergies of at least £80 million on a recurring basis expected to be delivered in full in the financial year 2016/17; and

• The Merger will provide a stronger platform for growth through the provision of services to customers and businesses.

(vi) On 6 August 2014 the Company issued 574,723,226 shares with a mid-market share price of £3.432 as consideration to Dixons Retail shareholders, resulting in an increase to share capital and share premium of £1,972 million. In addition, the Company assumed the obligation to satisfy outstanding share options within the Dixons Carphone business for which a fair value of £11 million has been included as part of the consideration. This has been partially offset by shares with a value of £1 million included within Dixons Retail Employee Share Trust.

b) Other information

Transaction related charges of £9 million incurred by the Group in respect of the Merger have been included in Non-Headline operating expenses.

The results of Dixons Retail have been consolidated from 6 August 2014, contributing £5,586 million of revenue and profit after tax of £200 million in the period to 2 May 2015. If the acquisition had completed at the beginning of Dixons Retail's financial year, being 1 May 2014, the Group's revenue would have been £9,936 million and the Group's Headline profit after tax would have been £293 million. Non-Headline items included within Dixons Retail results in the period prior to the Merger comprised £11 million in respect of the acceleration of share-based payment charges which vested on the Merger, £12 million of merger related professional fees, £5 million of merger integration costs, £42 million of debt restructuring costs in respect of early repayment of Dixons Retail Guaranteed Notes, £5 million of provision releases relating to discontinued operations and £4 million of pension interest costs. A tax credit of £11 million was recognised against these charges.

c) CPW Europe Acquisition

On 26 June 2013 the Group completed the CPW Europe Acquisition for a gross consideration of £500 million, bringing the Group's ownership interest to 100%. CPW Europe is one of the largest independent telecommunications specialists in Europe, operating retail stores, principally under the Carphone Warehouse and Phone House brands, together with well-developed online propositions. CPW Europe is also increasingly focused on leveraging its assets and expertise to provide services to third parties through its Connected World Services business.

The primary reasons for the acquisition were to bring a simplified ownership structure, making day-to-day management easier and the strategic decision-making process more streamlined, and enabling the Group to better leverage CPW Europe's asset base and know-how.

9 Notes to the cash flow statement

a) Reconciliation of operating loss to net cash inflow from operating activities

b) Analysis of net debt

10 Discontinued operations and assets held for sale

Discontinued operations

On 16 May 2014 the Group announced that it had entered into an agreement to sell its interest in Virgin Mobile France and completed the disposal on 4 December 2014 for gross consideration of £104 million and generated a profit of £87 million.

Following the Merger, the Group put in place a strategy of focusing on market leadership positions while engaging in other markets through partnerships with its Connected World Services division. This led the Group to carry out detailed strategic assessments of its Phone House operations which concluded in the decision to exit certain markets.

· On 15 April 2015 the Group announced that it had agreed the sale of its operations in Germany to Drillisch AG, a leading mobile virtual network operator in Germany. The sale completed on 5 May 2015.

· On 24 April 2015 the Group entered into an agreement to dispose of a majority 83% stake in its operations in the Netherlands to Relevant Holdings BV, a company set up by the shareholders of Optie1 which has extensive telecom retailing experience in the Dutch market. The sale completed on 30 June 2015.

· On 16 July 2015 the Group announced its commitment to dispose its operations in Portugal following the completion of a strategic review in 2014/15. Discussions which commenced with potential acquirers during 2014/15 are advanced and an announcement confirming details of the disposal is expected in due course.

The closure of the Phone House operations in France, which was announced in 2013/14, was completed during the year ended 2 May 2015 and is therefore now treated as a discontinued operation.

Prior to the Merger, Dixons Retail agreed to sell its operations in the Czech Republic and Slovakia. The net assets held for sale associated with this business were included within the fair value of assets and liabilities acquired through the Merger and the sale completed on 11 August 2014.

All businesses noted above have been presented within discontinued operations and the assets and liabilities associated with Germany, Netherlands and Portugal have been recognised as held for sale at 2 May 2015. The results of the Phone House Germany, Netherlands and Portugal prior to the CPW Europe Acquisition continue to be reported in results of joint ventures within Headline continuing operations. The Group's interest in Virgin Mobile France was presented as an asset held for sale as at 29 March 2014 and equity accounting was ceased from this date.

a) Loss after tax - discontinued operations

The results of discontinued operations are comprised as follows:

The profit on disposal of Virgin Mobile France comprises consideration of £104 million, £4 million of costs and £13 million of net assets disposed. The loss before tax of the operations in Germany, the Netherlands and Portugal include restructuring costs and asset impairment charges from reorganisations carried out prior to the businesses being classified as held for sale. Such costs include the Non-Headline exceptional restructuring charges of £67 million, of which £35 million relates to goodwill impairment, recognised in relation to the Phone House Germany and Netherlands. The impairment losses recognised on classification as held for sale on all other businesses reflects the difference between the consideration expected to be received and the net assets held for sale including any impairment of assets to their anticipated net realisable value on completion less any accrued costs to sell.

10 Discontinued operations and assets held for sale (continued)

b) Assets held for sale

The Group's assets held for sale and associated liabilities are analysed as follows:

11 Related party transactions

Transactions between the Group's subsidiary undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed. Transactions between Group undertakings and associates comprised sales of goods of £8 million (2013/14 £nil).

The Group had the following transactions and balances with its joint venture, Virgin Mobile France (see also note 10):

Revenue for services provided to Virgin Mobile France in the prior year related to commissions on sales of Virgin Mobile France connections by the Group's wholly owned operations in France.

All transactions entered into with related parties were completed on an arm's length basis.

Risks to Achieving the Group's Objectives

The Group recognises that taking risks is an inherent part of doing business and that competitive advantage can be gained through effectively managing risk. The Group continues to develop a robust risk management processes, integrating risk management into business decision making. Risks have evolved for the Group as a result of the Merger. A comprehensive post-merger risk assessment has been undertaken resulting in a revised set of principal risks. The principal risks and uncertainties are set out in the tables below along with an illustration of what is being done to mitigate them. The Group's overall risk environment is relatively unchanged since last year, notwithstanding changes to specific risks.

Specific risks and potential impacts