15th May 2008 07:00
15 May 2008 - PR 46/08
Strictly embargoed
For release at 07.00 hours
DSG international plc
BUSINESS REVIEW
RENEWAL AND TRANSFORMATION
DSG international plc, one of Europe's largest specialist electrical retailers, today announces its business review in which it outlines plans for the renewal and transformation of the Group.
Five Point Plan
1. Focus on the customer
2. Focus the portfolio on winning positions
3. Transform the businesses (UK & Italy)
4. Win in the internet market (masters of multi-channel retailing)
5. Reduce costs
Financials
John Browett, Chief Executive commented:
"DSGi has many inherent strengths as a leading specialist electrical retailer, including market leading positions and strong supplier relationships. However it has not kept pace with its core customer needs, particularly in the UK. We will focus the business on delivering an unbeatable combination of value, choice and service for our customers. This includes helping our customers with complete solutions such as connectivity, delivery, installation, repair and converging technology.
We have developed radical and detailed plans that will transform the very DNA of our business over the next three years.
There is much to do to improve and simplify the business which will improve the customer offer, make us a better place to work and deliver value for our shareholders."
Introduction
As one of Europe's leading specialist electrical retailers, DSG international has market leading positions with strong brands in the UK, Nordics, Greece and Ireland, as well as across Europe through its pure play internet business of PIXmania. DSGi has strong competitive advantages through its buying and product sourcing operations, supplier relationships and service infrastructure.
In recent years however, it has not kept pace with changing customer needs. This has resulted in poor performance in some of its markets. DSGi today announces a five point plan for the renewal and transformation of the Group.
Five point plan
The transformation and renewal programme will be based around five key objectives:
1. Focus on the customer.
DSGi has carried out a significant amount of customer analysis in the UK and Italy. From this it is clear that DSGi must deliver unbeatable choice, value and service to customers through the following actions in store:-
2. Focus the portfolio on winning positions.
The Group focus will be on the potential of the strong market leading retail operations in the UK & Ireland, Nordics, Greece and over the internet. The operations in Italy require a significant turnaround. A strategic review is underway of the other businesses.
3. Transform the businesses.
The initial focus will be in the UK and Italy where there is the greatest potential to serve customers better and improve value for shareholders. The range in each category will be improved to provide better and simpler choices for customers. Store formats will be improved to provide easier navigation, improved display and greater interactivity with products for customers. Trials will be in place for Christmas 2008, with potential roll out across the UK businesses thereafter. These formats include reallocation of space to provide the right mix of products for the brand as well as increasing overall densities.
PC World will be reinvigorated as the destination for computing and new technology digital products and services. A new store format has been developed and is currently being trialled with plans to refit at least 10% of the stores in the portfolio in time for Christmas 2008.
Currys will reinvigorate its position as the destination for electrical products for everyone by offering an unbeatable range of products and services at great prices. A new store format has been developed with several stores to be trialled through Christmas 2008.
Currys.digital will become the High Street destination for the latest portable technology. White goods, small kitchen appliances and personal care products will be replaced by a greater range of laptops, televisions and other digital products and a much greater depth of accessories. While the majority of the 177 Currys.digital stores make a positive contribution to the Group there are up to 100 stores in attractive catchments that most likely will be the focus for future trading. The remaining stores will be closed as their leases expire. The average high street lease has 4-5 years to run to expiry.
The new Italian management team has already announced a rationalisation of its portfolio with the planned closure of up to 43 stores that were uneconomic or poorly located. The Italian team have identified several material issues that need to be addressed. Improvements in availability, stock turns, cost structure and marketing efficiency are needed. Ranges will also be broadened.
4. Win in the internet market.
DSGi is already the number one electrical retailer on the internet in Europe with £1 billion of sales achieved in 2007/08. The internet market is expected to grow to around 30% of the electricals market over the next few years, through a combination of pure-play and multi-channel. Going forward DSGi will become masters of multi-channel retailing and grow share. PIXmania's market leading operating platform will be implemented in all the Group's internet sites. In addition PIXmania will be integrated into the logistics infrastructure of the Group.
5. Reduce costs.
The existing One Group programme will establish a common operating model for the Group and consequently reduce costs significantly. The programme will simplify business processes, improve systems and decision making. One set of business processes will make it easier to improve operations more quickly across the Group.
The introduction of a Step Change programme will remove £50 million of costs in 2008/09 with further opportunities in subsequent years. Initial focus will be on removing duplication and creating efficient structures in the head office, the supply chain and in stock management. Savings from this programme will largely be re-invested back into the stores to enable the Group to deliver on the needs of its customers better.
Both One Group and Step Change makes the business processes better for customers, easier for staff to do and therefore cheaper for the Group.
Financial effects
The Group believes that an operating margin of between 3%-4% can be achieved over the medium term through increasing sales densities, managing margins through better product mix and higher sales of accessories and services, asset efficiency and the space cost savings outlined above.
However 2008/09 is expected to be a very challenging year. Predicting performance in the coming months is difficult in this uncertain environment. The renewal and transformation programme should begin to demonstrate tangible benefits in the 2009/10 financial year.
The performance in Italy in recent years has been disappointing and as announced on 3 January 2008 the holding value of the goodwill will be reviewed as part of the preparation of the report and accounts for the full year. In addition certain other assets will need to be written off as the renewal and transformation plans mean that these will no longer be required in the Group. A preliminary assessment indicates that exceptional costs of some £395 million will be incurred in the financial year to 3 May 2008. Of this some £340 million relates to the Italian operations of which £240 million is the write down of UniEuro acquired goodwill. As a result a goodwill balance of approximately £135 million for UniEuro will remain on the balance sheet.
The Group currently spends approximately £160 million per year on capital expenditure. It is expected that a further capital expenditure of approximately £110 million in total will be required over the next three years to deliver the transformation and renewal programme.
It is anticipated that the net finance cost for the 2008/09 financial year will be approximately £10 million, largely as a result of reduced average cash balances.
Dividend
The Board has reviewed the level of dividend in light of the Group's current performance, the transformation and renewal program and the outlook for the consumer environment. As a result it proposes to pay a final dividend for the year to 3 May 2008 of 3.43p (6.85p in 2006/07) making a total for the year of 5.45p. It currently anticipates recommending a dividend of 4.44p for the 2008/09 financial year (versus 8.87p for the year to 30 April 2007). The Board believes that the Group should have an objective of rebuilding dividend cover to 2.0x underlying earnings. Once this objective has been achieved the Board considers that the Group should be capable of growing dividends in line with earnings.
For further information:
Investor relations
David Lloyd-Seed Group Communications Director, DSGi 01727 205 065
Media
Mark Webb Head of Media Relations, DSGi 01727 205 019
Susan Gilchrist or
Laura Cummings Brunswick Group 020 7404 5959
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Information on DSG international plc is available at http://www.dsgiplc.com
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A video webcast of the analyst presentation being held this morning will be available from 3.00pm today at http://www.dsgiplc.com/webcast08
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