Final Results

PR 06/14

7.00am, Thursday, 26 June 2014

DIXONS RETAIL PLC

A YEAR OF STRONG PERFORMANCE

Dixons Retail plc, one of Europe's leading specialist multi-channel electrical retail and services companies, today announces preliminary audited results for the financial year ended 30 April 2014.

Key highlights

· Group underlying profit before tax increased by 76% to £166.2 million versus £94.5 million reported last year and up 10% on a restated basis (1),(2).

- Further strong progress in the UK & Ireland with underlying operating profits up 24%(1)

- Elkjøp delivered another strong year with record sales

- Greece delivered an improved performance with some signs of stability returning to the market

· Another successful year for the Group, delivering on its key objectives:

- Firm establishment of a sustainable business in a multi-channel world

- Disposals of all non-core operations, leaving the Group with leading positions in all our core markets

· Proposed merger with Carphone Warehouse announced to develop a leading position across electricals, mobiles and connectivity.

- European Commission has confirmed that it has unconditionally cleared the proposed merger

· Group online sales increased by 16% to £1 billion.

· Customer service metrics at their highest ever recorded levels in all markets.

· Return on capital employed of 16.3%, up from 14.9% in the prior year.

· Group costs reduced by a further £45 million completing the two year £90 million cost reduction initiative.

· Very strong cash generation with the Group ending the year with net cash increasing to £70.9 million.

Financial highlights

· Total underlying Group sales up 3% at £7.22 billion (2012/13 £7.03 billion) (1).

· Group gross margins down 0.2% in the full year, with an improvement in the second half.

· Total profit before tax after non-underlying items increased by 53% to £132.9 million (2012/13 profit of £86.6 million).

· Post tax non-underlying charges of £186.0 million, relating mainly to disposals of non-core operations. (1)

· Underlying diluted earnings per share 3.0 pence (2012/13 earnings of 2.6 pence)(1). Basic loss per share including discontinued operations of (1.9) pence (2012/13 loss per share of (4.5) pence).

Sebastian James, Group Chief Executive, commented:

Underlying sales and profit analysis

Notes

(1) Throughout this report, references are made to 'underlying' performance measures. Underlying results are defined as excluding trading results from businesses exited, amortisation of acquired intangibles, net restructuring and business impairment charges and other one off non-recurring items, profits / (losses) on sale of investments or businesses, net interest on defined benefit pension schemes, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. These excluded items are described as 'non-underlying'. The financial effect of these items is shown in the analyses on the face of the income statement and in note 3 to the financial information.

(2) Underlying Profit before Tax originally reported for the year ended 30 April 2013 was £94.5 million, as reported on 20 June 2013.

(3) Businesses exited comprise the operations of PC City Spain and Equanet.

(4) Like for like sales are calculated based on underlying 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. Closed stores are excluded for any period of closure. Customer support agreement sales are excluded from all UK like for like calculations.

(5) Underlying figures for the year ended 30 April 2013 have been re-presented to exclude discontinued operations. Discontinued operations comprise Electroworld in Turkey, Unieuro, PIXmania and Electroworld in the Czech Republic and Slovakia.

(6) UK & Ireland comprises Currys, PC World, CurrysDigital, Dixons Travel, Harrods concession, operations in Ireland, DSGi Business and KNOWHOW. Like for like sales exclude DSGi Business.

(7) Nordics comprises the Elkjøp group which operates in Norway, Sweden, Finland and Denmark.

(8) Greece comprises the Kotsovolos business.

(9) Earnings Before Interest and Tax (EBIT) equates to underlying operating profit and is defined as underlying earnings from retail operations, after property losses, before deduction of net finance costs and tax.

(10) Free Cash Flow relates to continuing operations and comprises net cash flow from operating activities before special pension contributions, less net finance costs, less income tax paid and net capital expenditure.

(11) 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.

Group business performance

Underlying Group sales were up 3% at £7,217.6 million (2012/13 £7,026.6 million) and up 3% on a like for like basis, outperforming local markets in general. Underlying Group sales were up 3% at constant exchange rates. Underlying profit before interest and tax was £202.8 million (2012/13 £186.4 million). Underlying profit before tax was up 10% year on year at £166.2 million (2012/13 £151.0 million). Group gross margins were down 0.2% across the full year, with improvements in the second half.

UK & Ireland

· Underlying operating profit growth of 24% to £141.0 million

· Strong market share gains, especially in white goods

Total sales in the UK & Ireland division were up 3% to £4,148.6 million (2012/13 £4,014.5 million) and like for like sales were up 5%. Underlying operating profits increased 24% to £141.0 million (2012/13 £113.3 million).

The UK & Ireland division has delivered a strong performance across the year with significant growth in profitability delivering a 3.4% return on sales. With these results the division has firmly established a sustainable business model in a multichannel world. In the early part of the year the business continued to take advantage of the exit of Comet, establishing itself as the leading service led multichannel operator in electrical retailing. This benefit anniversaried out during the third quarter, and since then we have consolidated our market share gains and continue to trade ahead of the market. The establishment of 'Black Friday' as a new promotional period in the lead up to Christmas this year moved trading patterns around in the important Christmas period. However, these types of planned promotional periods are a particular strength of ours and enable us to perform ahead of the market, indeed, we experienced record trading on Boxing day and a strong sale in the period after Christmas. A shift in the Easter trading period year on year gave the business a challenging final quarter to anniversary, but with a strengthened market position and great offers for customers the out turn was better than we had anticipated.

A continued focus on serving our customers with the best advice, expertise and help means that we have achieved even higher levels of advocacy. 96% of customers said they would be likely to recommend our stores following their shopping trip, while 88% said they were very likely to recommend. 319 stores recorded a 100% very likely to recommend score at least once during the year. This is a fantastic achievement and is a testament to our teams up and down the country who strive each and every day to make customers feel welcome and help them as best they are able whenever a customer comes into our stores.

We continue to innovate our stores to make them even better places to showcase the exciting range of products we sell. During the year we opened new high street formats in Bluewater and Canary Wharf and a new larger format 2-in-1 store in Aylesbury. These stores trial a number of retailing innovations such as mobile and flexible fittings, new playtables, showhow areas around the store, and tablets for colleagues to better help customers. We opened a new kitchen department in Thurrock which extends our traditional product range into other products for the kitchen such as cookware, utensils and cooking accessories. More recently we have opened Connected World departments in five megastores to showcase, amongst other things, home automation, such as heating, lights and security cameras, as well as some of the latest 'wearable' technology. It is early days for these trials, and we will develop them further as the range of products evolves. The Connected World is a particularly exciting opportunity most notably in connection with the proposed merger with Carphone Warehouse, as it takes us into new product areas and potentially new services.

Knowhow, our market leading end to end services offering continues to perform strongly. During the year we made 2.5 million two man deliveries achieving a 97.2% right first time, of which 230,000 involved gas and electric installations. In our state of the art repair facility we processed more than half a million repairs of laptops, tablets, PCs and flat panels. Added value services, such as Showhow, provide an exciting opportunity to help customers get the most out of their products as well as new revenue streams. In the year these added value services sales continued to grow strongly.

During the year our IT teams successfully transferred the IT infrastructure supporting www.currys.co.uk and www.pcworld.co.uk to the UK, supported by our shared services centre in Brno, Czech Republic. This was a seminal development for our multichannel offering as it puts us firmly in control of our IT platform. We are now focused on delivering a world class experience online for our customers.

Nordics

· Nordics delivered another year of record sales, growing by 2% to £2.79bn

· Delivered a 4.2% return on sales, in line with the Group's objective

The Elkjøp group in the Nordics continues to perform strongly. Sales grew by 3% at constant exchange rates, while in sterling, underlying sales grew by 2% to £2,789.8 million (2012/13 £2,733.3 million). Like for like sales were up 2%. Underlying operating profits were £116.9 million (2012/13 £125.4 million).

This has been another very satisfactory year for the Elkjøp business across the Nordics. It has consolidated its position as market leader, delivered record sales and improved its already very strong customer services. The electrical retailing landscape remains competitive, and Elkjøp continues to trade robustly against the competition supported by its low cost structure and its efficient sales and logistics platform, enabling it to deliver a 4.2% return on sales.

In the Spring of 2013 we introduced 'Happy or Not' kiosks into the stores across the region, this enables the store to monitor customer satisfaction scores in real time and make dynamic adjustments in response, such as adjusting shift patterns. Encouragingly we have seen a steady improvement in these scores through the year with 85% of customers in April 2014 saying they were happy with their store visit.

During the year, we rebranded the Elkjøp Group's brands with a new logo that underlines our commitment to our customers. In Denmark, El Giganten was recognised as the second strongest brand across all categories while in Norway, Elkjop was ranked as one of the top 10 most recognised brands.

We continue to embed the Knowhow services brand into the Nordics with Knowhow bars in all our megastores. Initial customer response to the range of Knowhow services has been very encouraging.

 Greece

· Robust performance in difficult markets

· Early signs of economic stability returning to the market

Total sales in Kotsovolos in Greece were down 3% at constant exchange rates and flat in sterling at £279.2 million (2012/13 £278.8 million), with like for like sales down 9%, largely as a result of the weak economic environment being experienced in Greece coupled with a mild summer and the digital switchover benefit in the prior year. Underlying operating loss was £10.5 million (2012/13 loss of £11.0 million).

Kotsovolos has proved to be incredibly robust in the face of a very challenging economic environment in Greece over the last few years. With a strong brand recognition amongst customers, a service led approach, learnings from its sister companies in the Group around accessories and services as well as a focus on managing costs stringently, the business has fared better than its peers. During the year Kotsovolos has been able to increase both its conversion rate as well as the number of transactions, despite continued weak markets through much of the year. In addition a number of weaker operators have exited the market, or are showing some signs of economic distress. In the last quarter of the year we saw some evidence that the economic environment is showing signs of stability. As the outlook has started to improve, management has initiated a number of actions to improve its offer for customers, particularly around services and multichannel, by introducing new customer relationship tools that make the shopping trip for customers even more integrated between the stores, sales colleagues and online. It is early days for this technology and process, but initial indications are positive and the tools that have been developed have the potential to be rolled out across the Group and are highly complementary to Carphone's honeyBee platform. Alongside this Kotsovolos is improving the way it communicates with customers through, for example, its marketing. Management are also investigating and trialing a number of initiatives to deliver a wider range of services under its Support360 brand, as well as opportunities to extend its franchise network across Greece. We are confident, therefore, that the outlook for Kotsovolos is improving and the management team are focused on returning the business to profitability.

Proposed merger with Carphone Warehouse

Our proposed merger with Carphone Warehouse will bring together two strong businesses to provide customers with a great offer across electrical, mobile, connectivity and services for the connected world that is already upon us. Our two businesses are coming together from positions of strength which will enable us to focus on adding value in the following ways.

Firstly, in bringing two sizeable companies together we can leverage significant synergies from the combination. We believe that we can deliver at least £80 million of synergies on a recurring basis, with delivery expected in the 2017/18 financial year. These are a combination of costs, revenue opportunities from putting a Carphone Warehouse mobile offering in all of our stores as well as some benefits from having increased scale in administrative purchasing, such as marketing. We confirm that the synergy statements that were set out in our joint merger announcement with Carphone Warehouse on 15 May 2014 remain valid. Deloitte LLP and Deutsche Bank AG, London Branch reported on these synergy statements in that joint announcement and we expect them to confirm to Carphone Warehouse on publication of the shareholder documentation relating to the merger that their reports continue to apply.

In addition, by being a unique place for customers to experience new products that will make up the connected world as well as get advice from our highly trained colleagues we can truly be the go to expert for this new, exciting and complex world for customers. Not only can we help them in navigating their way to a truly connected home, we can bring existing and new services to them to keep their world functioning and connected. This will not only open up new products and services for us, but can take our relationship with our customers from a transactional one, to a longer term relationship.

Further, both we and Carphone Warehouse have started to explore how we can leverage the platforms we have created that support our core retailing and services expertise to further benefit our shareholders. Carphone Warehouse have made great strides in this field with their Connected World Services business that provides a selection of services to support retailers wishing to add connectivity to their offering. We already provide two man delivery logistics for certain manufacturers in the UK and are in discussions to leverage our Hong Kong white label product sourcing operations for other retailers around the World. Together we can offer a full range of services to businesses customers with the potential to build a significant operation across the Globe, adding real value for our shareholders.

Financial position

The Group has again delivered a very robust performance against the financial priorities of profitability and strengthening its financial position:

· The Group delivered a £28.8 million increase in net funds at year end, to £70.9 million.

· Exit of loss making businesses of Electroworld Turkey, Unieuro Italy and PIXmania completed, with disposal of Central Europe expected to complete around the end of the first quarter of 2014/15.

· The increase in net funds was delivered after incurring cash costs of £156.6 million in respect of trading losses and exit costs of the discontinued operations.

· Return on capital employed of 16.3%, up from 14.9% in the prior year.

· Positive Free Cash Flow, before restructuring items, of £207.3 million was generated.

· Costs reduced by £45 million in the year, as part of the two year £90 million cost reduction programme.

· The RCF has remained undrawn since October 2011.

Free Cash Flow

Free Cash Flow was £200.5 million (2012/13 £207.8 million). The working capital result in the prior year benefited from the timing of payments around year end as previously announced, and in this context the positive working capital result this year reflects a strong underlying performance. Cash tax costs increased mainly reflecting higher taxable profits.

Funding

At 30 April 2014 the Group had net funds of £70.9 million, compared with net funds of £42.1 million at 30 April 2013.

Net funds are stated inclusive of restricted funds of £103.3 million (2012/13 £110.2 million), which predominantly comprise funds held under trust for potential customer support agreement liabilities. The improvement in the net funding position was due to the Free Cash Flow generated, partly offset by the trading losses and exit costs associated with the discontinued operations, as well as the ongoing payments to the UK defined benefit pension scheme under the terms of the deficit reduction plan.

Adjustments to underlying results

Underlying profit before tax is reported before net non-underlying charges before tax of £33.3 million.

(1) Underlying figures for the year ended 30 April 2013 have been restated for the impact of the amendment to IAS 19 "Employee Benefits" and re-presented to exclude discontinued operations.

(2) Net restructuring charges relate to the impairment of system costs following a revision in strategy following the business disposals.

(3) Continuing operations

Discontinued operations

During the year, the Group disposed of its Turkish and Italian operations as well as PIXmania. In addition, following the year end, the Group also announced the disposal of its Central European operations in the Czech Republic and Slovakia. All four businesses have been classified as discontinued and charges associated with these exits comprise the trading losses of £(42.1) million together with the loss incurred on the disposal transactions of £(116.0) million.

Property losses

Underlying property losses were £25.4 million (2012/13 loss of £24.4 million). These comprise mainly store re-site and store asset disposal costs in the UK and Nordics.

Underlying net finance costs

Underlying net finance costs were £36.6 million (2012/13 £35.4 million). The increase in costs was primarily due to the full year net effect of issuance of the 2017 Notes, partial redemption of the 2015 Notes and full redemption of the 2012 Bonds and associated hedging instruments in the prior year.

Tax

The Group's underlying tax charge equates to an effective rate of 30.4% (2012/13 35.8%). The decrease in the tax rate has, in the main, been affected by an increase in the proportion of taxable profits relative to the non-deductible expenses.

Pensions

The IAS 19 accounting deficit of the defined benefit section of the UK pension scheme amounted to £399.8 million compared to £406.4 million at 30 April 2013. The assumptions used for determining the accounting valuation use a consistent basis to that adopted at 30 April 2013 which build from the most recent actuarial valuation as at 31 March 2010.

The deficit remains largely unchanged as a result of financial assumptions which determine liabilities and asset values remaining broadly the same from one year end to the next. The next triennial valuation as at 31 March 2013 has commenced with the results expected in the first half of 2014/15.

Financial Information

Consolidated Income Statement

* Underlying figures exclude the trading results of businesses exited, amortisation of acquired intangibles, net restructuring and business impairment charges and other one off, non-recurring items, profits / losses on sale of businesses, net interest on defined benefit pension schemes, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. Such excluded items are described as 'Non-underlying'. Further information on these items is shown in notes 1, 2, 3, 4, 5, 6 and 8.

Businesses exited comprise businesses which have either been sold or closed. Certain businesses meet the criteria of discontinued operations as stipulated by IFRS 5 and are disclosed as such, whereas the remainder do not. Accordingly, despite all of the business exits having similar characteristics, the disclosures within non-underlying items differ across these businesses. Further information is shown in notes 2, 3 and 8.

† Results for the year ended 30 April 2013 have been restated for the impact of the amendment to IAS 19 'Employee Benefits', which is described further in note 1. Underlying figures for the year ended 30 April 2013 have been re-presented to exclude the trading results of businesses exited for which the decisions were made or executed in 2013/14.

Consolidated Statement of Comprehensive Income and Expense

Consolidated Balance Sheet

The financial statements were approved by the directors on 25 June 2014 and signed on their behalf by:

Sebastian James Humphrey Singer

Group Chief Executive Group Finance Director

Consolidated Cash Flow Statement

(i) For the purposes of this cash flow statement, cash and cash equivalents comprise those items disclosed as 'cash and cash equivalents' on the face of the balance sheet, less overdrafts, which are classified within current liabilities on the face of the balance sheet plus cash and cash equivalents included within assets held for sale on the face of the balance sheet.

(ii) Free Cash Flow comprises those items marked * and comprises cash generated from / (utilised by) continuing operations before special pension contributions, less net finance expense, less income tax paid and net capital expenditure. The directors consider that 'Free Cash Flow' provides additional useful information to shareholders in respect of cash generation and is consistent with how business performance is measured internally.

Consolidated Statement of Change in Equity

At 30 April 2014, non-controlling interests (minority interests) comprise shareholdings in Dixons South-East Europe A.E.V.E. (Kotsovolos). 

On 27 June 2013 the Group acquired the remaining 40% of Electro World lç ve Dış Ticaret A.Ş (Electroworld Turkey) for TL 2 (£1) in cash, bringing its stake in EW Turkey to 100%. The Group subsequently sold this business on 31 October 2013. On 7 August 2013 the Group acquired the remaining 0.8% of PIXmania S.A.S. (PIXmania) for €0.6 million (£0.5 million) in cash, bringing its stake in PIXmania to 100%. The Group subsequently also sold PIXmania on 31 December 2013. Both disposals are described further in note 8.

Notes to the Consolidated 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 30 April 2014 and 30 April 2013, has been prepared in accordance with the accounting policies set out in the full financial statements and on a going concern basis. The directors have considered the Group's strategy and risks to achieving objectives which are set out in this announcement, together with its liquidity and funds position. Having concluded that the Group has adequate resources to continue in operational existence for the foreseeable future, the directors have continued to adopt the going concern basis in preparing the financial statements. 

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 30 April 2014 which were approved by the directors on 26 June 2014. Statutory accounts for the year ended 30 April 2013 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 year ended 30 April 2014 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 year ended 30 April 2014. 

The directors consider that the 'underlying' performance measures, together with the associated Income Statement presentation, provide additional useful information for shareholders on underlying performance of the business, and are consistent with how business performance is measured internally. Such measures exclude the trading results of businesses exited, impact of amortisation of acquired intangibles, net restructuring and business impairment charges and other one off, non-recurring items, profit on sale of investments or businesses, net interest on defined benefit pension schemes, fair value remeasurements of financial instruments and, where applicable, discontinued operations. These measures may not be directly comparable with 'adjusted' profit measures used by other companies.

2 Segmental analysis

The Group's operating segments have been determined based on the information reported to the Board. 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 evaluates each operating segment based on underlying operating profits which excludes those items described in note 1.

On 5 September 2013, 10 October 2013 and 27 September 2013, the Group announced the sales of its Electroworld Turkey, Unieuro S.p.A. (Unieuro) and PIXmania S.A.S. (PIXmania) operations which subsequently completed on 31 October 2013, 29 November 2013 and 31 December 2013, respectively. All three businesses have been classified as discontinued operations and hence are now excluded from the reportable segments listed below. Electroworld Turkey and Unieuro were previously reported within the Southern Europe segment (which is now renamed 'Greece' to reflect its sole constituent). Further information on these sale transactions is set out in note 8. In addition, on 16 May 2014, the Group signed an agreement to sell its Electroworld operations in the Czech Republic and Slovakia. Accordingly these businesses have been classified as discontinued operations and excluded from the reportable segments listed below with the balance sheets being treated as assets held for sale as at 30 April 2014. As a result, the 'Northern Europe' division has been renamed 'Nordics'.

All segments are involved in the multi-channel sale of high technology consumer electronics, personal computers, domestic appliances, photographic equipment, communication products and related financial and after sales services. The principal categories of customer are retail, business to business (B2B) and online.

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

• UK & Ireland comprises electrical and computing retail chains as well as in-store B2B activities. The division is engaged predominantly in multi-channel retail sales, associated peripherals and services and related financial and after sales services. The division also includes operations in airports across Europe (the majority of which are in the UK), all of which are managed from the UK.

• Nordics operates in Norway, Sweden, Finland, Denmark, Iceland, Greenland and the Faroe Islands. The division engages in multi-channel retail sales and provides related product support services to its customers. It also engages in B2B sales of computer hardware, software and services. Across the region, the division operates a successful franchise business, typically in smaller markets.

• Greece comprises retail sales (including multi-channel sales) and provides related product support services to its customers. In addition, it engages in B2B sales of computer hardware, software and services and also has franchise operations.

Businesses exited: in respect of PC City Spain because ofthe closure rather than disposal of these operations, they do not meet the definition of discontinued operations as stipulated byIFRS 5. Equanet was sold rather than closed, however, because it did not form a major line of business under the definitions of IFRS 5, it also did not meet the definitions of discontinued operations.

2 Segmental analysis (continued)

(a) Income statement

Total external revenue for the Group of £7,217.7 million includes £0.1 million relating to businesses exited.

Reconciliation of underlying profit / (loss) to total profit / (loss)

2 Segmental analysis (continued)

Total external revenue for the Group of £7,109.2 million includes £82.6 million relating to businesses exited.

Reconciliation of underlying profit / (loss) to total profit / (loss)

3 Non-underlying items

(i) Businesses exited: comprises the trading results of exited businesses where they do not meet the criteria under IFRS 5 for separate disclosure as discontinued operations and comprise:

• Equanet, which was sold in March 2013 and which constituted the majority of the B2B activities of the UK & Ireland division; and

• PC City Spain which was closed in June 2011 whereby these activities comprise the unwinding of residual deferred income and related costs.

Discontinued operations, which comprise the results of Electroworld Turkey, Unieuro, PIXmania and Central Europe (comprising Electroworld Czech Republic and Electroworld Slovakia) are shown separately after post-tax results in accordance with IFRS 5 and are described further in note 8.

(ii) Net restructuring charges - strategic reorganisation:

Year ended 30 April 2014:

Charges comprise asset impairments of other intangibles work in progress in respect of UK system costs which, following a revision in the Group's systems strategy as a result of the disposals of businesses which have occurred during the year have been concluded as no longer having value.

Year ended 30 April 2013:

Charges related predominantly to the reorganisation of the remaining retained UK B2B operations following the sale of Equanet for which the charges were £22.9 million. The charges related mainly to an onerous operating lease which was retained in respect of these sold operations together with related fixed asset write offs.

3 Non-underlying items (continued)

(iii) Business impairment charges:

Year ended 30 April 2013:

Related to the impairment of goodwill of a small UK B2B operation following the reorganisation and significant reduction in the UK & Ireland's B2B operations following the sale of Equanet as well as the full write down of the investment in an associate following continued declining results.

(iv) Other items comprise the following:

The investment remeasurement relates to an increase in deferred consideration payable on a business acquired in the Nordics in 2011/12 following better than expected actual and forecast trading. UK Riot related income comprises insurance recoveries in respect of charges incurred in 2011/12.

(v) Loss on sale of business:

Year ended 30 April 2013:

On 28 March 2013, the Group completed the disposal of its Equanet B2B operations (Equanet) to Kelway (UK) Limited for consideration of £4.2 million. The loss on disposal is analysed as follows:

As described in note (i), above, the disposal did not satisfy the requirements of IFRS 5 for treatment as a discontinued operation and accordingly the loss on disposal has been included within "continuing" operations.

(vi) 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 and to the net defined benefit liability. 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 underlying earnings.

3 Non-underlying items (continued)

(vii) Net fair value remeasurement gains and losses on revaluation of financial instruments: items excluded from underlying finance income and expense represent the gains and losses arising from the revaluation of derivative financial instruments under methodologies stipulated by IAS 39 compared with those on an accruals basis (the basis upon which all other items in the financial statements are prepared). Such a treatment is a form of revaluation gain or loss created by an assumption that the derivatives will be settled before their maturity.

Such gains and losses are unrealised and in the directors' view also conflict with both the commercial reasons for entering into such arrangements as well as Group Treasury policy whereby early settlement in the majority of cases would amount to speculative use of derivatives.

(viii) Year ended 30 April 2014:

On 19 May 2014, the Group signed a new revolving credit facility agreement (the New Facility) for £150 million. The New Facility is described further in note 10. The New Facility replaced the pre-existing facility of £200 million and has triggered the acceleration of the amortisation of fees related to this facility which would otherwise have been charged evenly over the period to the pre-existing facility's maturity in June 2015 and which have therefore been charged in 2013/14.

Year ended 30 April 2013:

On 20 September 2012, the Group repurchased £15.6 million in nominal amount of its 6.125% Guaranteed Bonds due November 2012 (the 2012 Bonds) as well as £49.4 million in nominal amount of its 8.75% Guaranteed Notes due August 2015 (the 2015 Notes). The latter repurchase was funded by part of a new issue of £150 million 8.75% Guaranteed Notes due September 2017 (the 2017 Notes). 

As a result of the repurchases of the 2012 Bonds and 2015 Notes, charges were incurred relating to the acceleration of the amortisation of fees from the 2012 Bonds and the 2015 Notes which would otherwise have been charged evenly over the period to the 2012 Bonds' maturity in November 2012 and the 2015 Notes' maturity in August 2015, together with a redemption premium.

(ix) Other finance charges relate to onerous finance lease interest costs in respect of the reorganisation of the UK B2B operations which occurred in 2012/13 as described in (ii).

4 Net finance costs

(i) Underlying total net finance costs exclude items marked *. See note 3 for a description of such items. Net finance costs for the businesses exited comprise bank and other interest receivable and interest on bank loans and overdrafts.

5 Tax

Income tax expense

(i) Underlying income tax expense excludes those items marked *. Further information on these items is shown in note 3.

(ii) The UK corporation tax rate for the year was 23% for the period up to 31 March 2014 and 21% thereafter (2012/13 24% for the period up to 31 March 2013 and 23% thereafter).

6 Earnings per share

† In accordance with IAS 33, the weighted average number of shares for the calculation of diluted (loss) / earnings per share does not include potentially dilutive shares if they would decrease the loss per share.

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

7 Notes to the cash flow statement

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

7 Notes to the cash flow statement (continued)

(b) Analysis of net debt