Dixons Carphone needs help after 60 percent profit drop

news-tmp-56002-dixons_carphone_0--2x1--400Dixons Carphone had admitted that its UK mobile business  needs some work after profits plummeted by sixty percent to almost £100 million.

Group revenues increased by one percent to £4.87 billion during its fiscal H1 ending 28 October, while EBIT decreased by 50 per cent year on year.

The central issue was the outfit’s domestic UK business which saw EBIT fall by £9 6 million year on year which Dixon’s dubbed a “challenging” mobile market.

CEO Seb James said that rising handset costs have discouraged consumers from replacing existing devices, but pledged to address Dixons Carphone’s UK profitability “in due course”.

“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 subscriber identity module only (SIMO) contract in the meantime”, he said.

“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.”

He added: “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.”

Analysts warned of likely store closures as Carphone was dragged down by a three percent fall in like-for-like sales. The business has pledged to deliver a “simpler, less capital-intensive business”. In the second three months of the half year, mobile sales slumped six percent, although more than half of that drop was the result of the delayed launch of the iPhone X.

James said the company would do more to sell broadband and TV packages alongside phone deals, update its IT systems to make them less complex and change the way phone packages were financed.

He said a 25 per cent increase in the price of “flagship handsets” such as the iPhone, partly prompted by the fall in the value of the pound following the EU referendum, and the slowdown in technological progress meant that people were holding on to their phones for an average five months longer. As a result, more people are looking for SIM-only contracts rather than two year deals with a phone thrown in.