Dixons Carphone’s profits shrank by nearly a quarter last year and the retailer has warned of “more pain in the coming year”.

Pre-tax profits were down 22% from £382m to £298m in the year to April 27, 2019 as UK and Ireland mobile sales shrank 11% to £1.99bn.

The group made a statutory loss after tax of £320m, having made a statutory post-tax profit of £166m the previous year.

The domestic electricals market was healthier than mobiles with sales up 1% to £4.47bn. International sales rose 5% to £3.96bn, driven by the Greek market.

Group chief executive Alex Baldock, who joined the retailer in April 2018, said it had “taken the first big strides in our transformation” but acknowledged that “we have it in us to be a much more valuable business”.

Baldock said the mobile market in the UK was changing faster than the business had expected and that it was accelerating its transformation to match that change in pace.

Market shift

Consumers are switching away from 24-month contracts which come with a free phone to more flexible contracts and to buying phones outright.

Dixons has a lower make share in this area and this has affected both sales and profitability. These problems have been compounded by legacy network contracts, through which it could face large penalties for missing volume commitments.

Over the past year, the business has renegotiated its legacy network contracts and widened its choice of sim-only products and network providers.

Under Baldock, Dixons Carphone is aiming for a greater focus on services and is trying to grow both its credit business and online business.

Online sales grew 9% in the UK and Ireland and now account for 28% of sales as the business increased the number of items available online by 60% to 5,000. It reiterated that it was on track to sell 40,000 items online over the course of its transformation.

Credit customers grew 50% over the period to 900,000, with this business in line to account for 16% of revenue over the course of the transformation plan.

‘The trough’

Baldock said: “We have taken the first big strides in our transformation. But we know we have it in us to be a much more valuable business. That will take time. In December, we set out a clear strategy to help everyone enjoy amazing technology, and early progress is promising.

“We’ve made significant gains in Credit and Online – both big profitable growth opportunities for us. Early steps towards an easier customer experience have seen satisfaction scores start to rise. And we’ve laid important foundations for Services to make our customer relationships stickier and more valuable.

“In UK mobile, the market is changing in the way we described in December, but doing so faster. So, we’re moving faster to respond: we’ve renegotiated all our legacy network contracts, we’re developing our new customer offer, and are accelerating the integration of Mobile and Electricals into one business. This means taking more pain in the coming year, when Mobile will make a significant loss.

“But accelerating our transformation provides certainty that this year is the trough… we commit to transforming Dixons Carphone into a world-class business for colleagues, customers and shareholders. We believe we will.”

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