25th Jun 2009 07:00
25 June 2009 - PR 31/09
Strictly embargoed
For release at 07.00 hours
DSG international plc
Renewal & Transformation plan making good progress
Profits in line with expectations
DSG international plc, one of Europe's largest specialist electrical retailers, today announces preliminary audited results for the 52 weeks ended 2 May 2009:
Financial
Total Underlying Group sales down 1% to £8,227.0 million (2007/08 £8,338.6 million). (1) (2)
Group sales, including those from businesses to be closed, down 1% to £8,364.6 million (2007/08 £8,488.0 million).
Group like for like sales(3) down 9%.
Underlying Group gross margins up 0.2% in the second half, down 0.1% in the full year.
Underlying Retail profit(4) of £95.5 million (2007/08 £219.9 million).
Underlying pre-tax profit(5) of £50.5 million (2007/08 £225.6 million) (excluding operations of PC City Sweden, Markantalo in Finland and Electro World in Hungary).
Underlying diluted earnings per share of 0.7 pence (2007/08 7.2 pence).(7)
Total loss before tax after deducting net non-underlying charges of £190.9 million was £(140.4) million (2007/08 loss £(184.1) million). Basic loss per share for continuing operations (9.2) pence (2007/08 (11.5) pence).
As at 2 May 2009 the Group had net debt of £477.5 million (excluding net proceeds of £293.6 million from equity issue).
Successful refinancing completed through the equity issue and amendments to the £400 million revolving credit facility and £75 million letter of credit facilities.
Renewal and Transformation
Intense activity on the five point Renewal and Transformation plan throughout the year to improve profitability and competitiveness by offering an unbeatable combination of value, choice and service for our customers.
Rapid progress on the store transformation programme
63 stores reformatted at the year end in the UK and Nordics.
Further 19 stores reformatted in the UK to date, including one new Megastore.
Additional 101 reformatted stores to be opened during the year in the UK, including 4 Currys Megastores.
Successful new Megastore format in the Nordics being rolled out with a further 3 open at the year end.
Trial of the new store concept in Ireland, Spain, Greece and Italy now commenced.
Reformatted stores continue to perform well, delivering gross profit uplifts of between 11% and 65% versus the rest of the chains.
UK wide training of colleagues of five step selling process with greater emphasis on service, connectivity, delivery, installation and repair in a world of converging technology.
Get Connected programme in PC World replicated in Currys to provide mobile broadband with the widest range of free or subsidised laptops.
Successful launch of further services for customers including next-day delivery and market leading timed delivery slots.
E-commerce division profits doubled to £15 million.
Turnaround plan in Italy showing progress with 46 stores closed ahead of plan, improving margin trends and 22 PC City implants.
Portfolio review has resulted in the closing of loss making standalone PC City stores in Sweden and Markantalo in Finland as well as the sale of Electro World in Hungary.
Good progress on the step change programme:
Costs reduced by £95 million in the 2008/09 financial year;
£200 million of further cost reductions identified over the next 4 years; and
Initiatives underway to reduce working capital by £80 million to £130 million.
John Browett, Chief Executive commented:
"This has been a year of significant change for the Group. We have taken wide ranging actions to re-organise and restructure the business as well as implementing our Renewal and Transformation plan. Following our successful rights issue and placing, which received very strong support from our shareholders, and was well received by our suppliers, we now have the resources and flexibility to deliver on our Renewal and Transformation plan at a faster pace.
We are improving the business for our customers. We are providing better service in store, selling complete solutions, delivering at more convenient times and improving our technical and after sales service. We are well positioned to emerge from the recession with a compelling offer for customers. We remain confident of our medium term target of achieving a 3%-4% return on sales."
Outlook
The difficult economic backdrop across Europe and subsequent impact on consumer spending, particularly on discretionary products, has been well publicised. The Group expects these conditions to continue throughout the coming year in many of its markets. The Group is well prepared for this environment and continues to focus on managing costs, margins, stock turn and cashflow, alongside the Renewal and Transformation plan.
For further information
Investor Relations:
David Lloyd-Seed Group Communications Director, DSGi 01727 205065
Press and Media:
Mark Webb Head of Media Relations, DSGi 01727 205019
Jayne Rosefield Brunswick Group 020 7404 5959
Information on DSG international plc is available at http://www.dsgiplc.com
An audio webcast of the analyst presentation being held this morning will be available from 3.00pm today at http://www.dsgiplc.com (click "financial information", then "presentations").
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NOTES |
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(1) |
Underlying Group sales exclude sales from businesses to be closed and discontinued operations. Sales for the 53 weeks ended 2008 have been re-presented to reflect this exclusion. Businesses to be closed comprise the operations of PC City in Sweden and Markantalo in Finland. Discontinued operations in 2008/09 comprises Hungary, while in 2007/08 comprised Hungary, The Link and Genesis. |
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(2) |
Sales in 2008/09 were based on a 52 week year, compared to 53 weeks in 2007/08. On a consistent 52 week basis, underlying Group sales were down 1% and total Group sales were down 1%. |
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(3) |
Like for like sales are calculated based on stores that have been open for a full financial year both at the commencement and end of the financial period. Customer support agreement sales are excluded from all UK like for like calculations to remove the distorting effect of the introduction of pay as you go customer support agreements. Operations that are subject to closure have sales excluded as of the announcement date. |
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(4) |
Underlying retail profit is profit before tax, net finance (charges) / income and net property losses. |
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(5) |
Throughout this statement, references are made to 'underlying' performance measures. Underlying results are defined as excluding trading results from businesses to be closed, the amortisation of acquired intangibles, net restructuring and business impairment charges and other one off items, profit on sale of investments, 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. |
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(6) |
Free Cash Flow relates to continuing operations and comprises net cash flow from operating activities before special pension contributions, plus net finance income, less income tax paid and net capital expenditure. |
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(7) |
The weighted average number of shares used in the calculation of earnings per share for both 2008/09 and 2007/08 has been multiplied by an adjustment factor to reflect the bonus element of the shares issued under the terms of the rights issue (as described in note 11 to the financial information). The adjustment factor used was 1.2138. |
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(8) |
Unless otherwise noted, throughout this statement figures relate to continuing operations, excluding the results of businesses to be closed. Total revenue including discontinued operations and businesses to be closed was £8,415.1 million (2007/08 £8,556.8 million). |
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(9) |
Certain statements made in this announcement are forward looking statements. 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. |
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(10) |
Sales and underlying profit for the first half of the 2008/09 financial year, together with comparative figures for the first half of the 2007/08 financial year, have been restated to exclude sales from businesses to be closed and discontinued operations and this information is shown at the end of the financial information in this announcement. |
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UNDERLYING SALES AND PROFIT ANALYSIS
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Underlying sales (1) |
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Underlying profit /(loss) (1) |
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Note |
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
Like for like(2) % change |
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
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UK & Ireland Electricals |
3 |
2,657.8 |
2,927.0 |
(10)% |
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17.7 |
93.5 |
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UK Computing |
4 |
1,570.8 |
1,818.7 |
(13)% |
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41.0 |
63.2 |
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UK & Ireland |
4,228.6 |
4,745.7 |
(11)% |
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58.7 |
156.7 |
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Nordics |
5 |
1,625.3 |
1,469.3 |
(7)% |
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76.1 |
97.7 |
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Southern Europe |
6 |
1,405.3 |
1,325.7 |
(13)% |
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(19.4) |
(14.8) |
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Central Europe |
7 |
160.4 |
145.6 |
n/a |
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(9.9) |
(2.8) |
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Other International |
1,565.7 |
1,471.3 |
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(29.3) |
(17.6) |
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e-commerce |
8 |
807.4 |
652.3 |
7% |
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15.0 |
7.5 |
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Central Costs |
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- |
- |
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(25.0) |
(24.4) |
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Total Group Retail |
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8,227.0 |
8,338.6 |
(9)% |
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95.5 |
219.9 |
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Underlying net finance (charges) / income |
(26.9) |
13.0 |
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Property losses |
(18.1) |
(7.3) |
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Group underlying (loss) / profit before tax |
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50.5 |
225.6 |
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Notes |
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(1) |
Underlying results are defined as excluding trading results from businesses to be closed, the amortisation of acquired intangibles, net restructuring and business impairment charges and other one off items, profit on sale of investments, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. Discontinued operations in 2008/09 comprise Hungary, and in 2007/08 comprised Hungary, The Link and Genesis. Businesses to be closed comprise the operations of PC City in Sweden and Markantalo in Finland. |
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(2) |
Like for like sales are calculated based on stores that have been open for a full financial year both at the commencement and end of the financial period. Customer support agreement sales are excluded from all UK like for like calculations. Operations that are subject to closure have sales excluded as of the announcement date. Stores subject to a refurbishment are excluded during the period of refurbishment. |
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(3) |
UK & Ireland Electricals comprises Currys, Currys.digital and Dixons Travel as well as the operations in Ireland. |
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(4) |
UK Computing comprises PC World, DSGi Business and The TechGuys. Like for like sales are for PC World only. |
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(5) |
Nordics comprise the Elkjøp Group, and no longer include the results of PC City Sweden and Markantalo which are now classified as businesses to be closed within non-underlying items. |
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(6) |
Southern Europe comprises Greece (Kotsovolos and Electro World), Italy (UniEuro), Spain (PC City Spain) and Turkey (Electro World). |
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(7) |
Central Europe comprises Electro World operations in the Czech Republic, Poland and Slovakia and no longer includes the results of the discontinued operation Electro World Hungary. Central Europe results are excluded from like for like comparisons as the number of stores trading is insufficient for a meaningful like for like comparison to be made. |
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(8) |
e-commerce division comprises PIXmania and Dixons.co.uk. |
BUSINESS PERFORMANCE
Underlying Group sales (excluding discontinued operations and businesses to be closed) were down 1% to £8,227.0 million (2007/08 £8,338.6 million) and down 9% like for like. Excluding the effects of significant movements in exchange rates underlying group sales were down 8% at constant exchange rates. Group underlying retail profit before property profits or losses, interest and tax was £95.5 million (2007/08 £219.9 million). Group sales (including the operations of PC City in Sweden and Markantalo in Finland) were down 1% to £8,364.6 million (2007/08 £8,488.0 million). Group underlying profit before tax was £50.5 million (2007/08 £225.6 million). Group gross margins were up 0.2% in the second half and down 0.1% in the full year.
UK & IRELAND
Total sales in the UK & Ireland division were down 11% to £4,228.6 million (2007/08 £4,745.7 million) and like for like sales were down 11%. Underlying operating profit was £58.7 million (2007/08 £156.7 million).
UK & Ireland Electricals
This division comprises Currys, Currys.digital and Dixons Travel in the UK and Currys and PC World in Ireland. Total sales were down 9% at £2,657.8 million (2007/08 £2,927.0 million) with like for like sales down 10%. Underlying operating profit was £17.7 million (2007/08 £93.4 million).
Currys and Currys.digital experienced difficult trading conditions throughout the year as the consumer environment deteriorated. In July 2008 Currys introduced a programme to reduce prices on televisions to bring them more into line with the internet. In the first half Currys also executed a programme to reduce stock levels, particularly older stock. These two actions, together with an increased mix into small brown and technology products, impacted gross margins in the first half of the year. A very tough market in the lead up to the important Christmas period was followed by a better than expected sale period. Following the Christmas trading period gross margins improved as management continued to focus on in store service, costs and cash generation.
White goods have been particularly hit by the slowdown in the housing market, but have shown signs of stability in the latter part of the year. Computing products, particularly laptops and netbooks have shown strong volume growth in the second half. With good stock control, careful cost and cash management, improving customer service as well as the benefits of the Renewal and Transformation plan, Currys and Currys.digital are well placed to operate prudently through the recession and capitalise on any improvement in consumer demand.
In Ireland the economic environment remains very tough, impacting sales and margins. However, management are taking the necessary actions to focus on cash management. The market leading position and efficient structure that the Group operates in Ireland outperforms its competitors. During the year Dixons stores in Ireland were rebranded Currys in order to reduce costs and align the business with that of the UK.
During the year Dixons Tax Free rebranded as Dixons Travel. The new format stores introduced with the opening of the new Terminal Five at Heathrow are being rolled out across the rest of the airport stores. These new formats incorporate many of the same customer benefits as the reformatted Currys.digital and Currys Superstores with playtables and improved ranges. In June, Dixons Travel opened its second accessories store, ADD+, in Stansted Airport. Despite the weaker economic environment the Dixons Travel stores are performing well.
UK Computing
UK Computing comprises PC World, DSGi Business and The TechGuys. Total sales were down 14% at £1,570.8 million (2007/08 £1,818.7 million) with like for like sales down 13%. Underlying operating profit was £41.0 million (2007/08 £63.2 million).
PC World was trading against a strong comparative period in the first half of the year as laptop overstocks were cleared and was also impacted by the weaker consumer environment as the year progressed. However, careful margin and stock management as well as a number of initiatives described below have limited the impact of the weaker sales environment on profit performance.
PC World extended its range of connectivity solutions. 'Get Connected', the market-beating mobile broadband proposition, offers the biggest range of subsidised or free laptops and netbooks in the UK, tailored to suit customers' needs. A number of the new format store teams are trialling a dedicated zone to demonstrate connectivity solutions for the household. Netbooks are now established as a new product range and PC World has swiftly established clear market-leadership in this new area.
The PC World store refurbishment has progressed well, with 41 stores (25% of the PC World portfolio) converted in time for Christmas trading.
The TechGuys continues to be a valued differentiator providing service and expertise to customers. The TechGuys service desk is now operational in all PC World stores and has been incorporated in the Currys Megastores and some trial Currys stores. Improvements are being made to The TechGuys operations to provide improved choices and services for customers with new propositions planned to be rolled out during the course of the year. The Group expects to innovate further with other subscription products and service offers for customers.
DSGi Business sales were £325.8 million (2007/08 £397.0 million). It continued to perform in line with expectations in a challenging environment. DSGi Business is making good progress with its transformation programme to deliver an efficient, customer-focused organisation which will be even more competitive going forward. Customers are already benefitting from a more specialist solution, tailored to their needs.
NORDIC
In the Nordic region, Elkjøp saw sales decline 1% at constant exchange rates, while in sterling, sales grew by 11% to £1,625.3 million (2007/08 £1,469.3 million). Like for like sales were down 7%. Underlying operating profits were £76.1 million (2007/08 £97.7 million). Nordic region results are stated excluding the businesses to be closed of PC City in Sweden and Markantalo in Finland.
Sales performance was impacted as the effects of the global financial crisis spread more widely across Europe during the year. The businesses have performed well relative to the overall markets in the Nordic region, gaining market share, especially in Denmark, where customers are recognising the strong value proposition. Management are taking the necessary actions to manage the business appropriately focusing on margin, costs, stock and capital.
At the start of the year, Elkjøp opened a new Megastore in Lørenskog (near Oslo) in Norway. Offering customers significantly increased ranges, it has had a strong first year's trading with positive customer feedback and a further three Megastores have been opened across the Nordics from which initial results have also been promising.
Elkjøp's multi-channel offering continued to grow in all markets with a 48% increase in online sales. It introduced a reserve and collect service in August 2008 in most of its operations which has been well received by customers.
In March 2009, management also announced that it would close the loss making operations of PC City in Sweden and Markantalo in Finland.
OTHER INTERNATIONAL
SOUTHERN EUROPE
This division comprises operations in Italy, Greece, Spain and Turkey. Total Sales declined by 10% at constant exchange rates and grew by 6% in sterling to £1,405.3 million (2007/08 £1,325.7million), with like for like sales down 13%. Underlying operating loss was £(19.4) million (2007/08 loss of £(14.8) million).
Italy
Total sales for UniEuro in Italy were down 17% at constant exchange rates and down 1% in sterling to £722.5 million (2007/08 £732.6 million).
The turnaround plan in Italy continues to make good progress with some encouraging signs in a difficult economic environment. The two year store closure programme has been completed ahead of schedule with 46 stores closed within the year, impacting the total sales performance. Store trials continue to perform ahead of expectations and the integrated PC City store-in-stores are delivering significant sales uplifts in the computing category. Management have significanty improved availability in store, with plans for further improvements in place, they have reduced stock and margins have shown good progress across the year.
Following the strategic review, the Group is focused on the turnaround plan under the new management team. As a result of the improvements being delivered, the Group is confident in the long term prospects for UniEuro, however the weak consumer environment will impact overall performance in the short term. Management estimate that approximately €60 million to €75 million of cash in total over the next three financial years will be required before the Italian business can achieve profitability.
Greece
Kotsovolos total sales were down 3% at constant exchange rates and up 15% in sterling at £405.7 million (2007/08 £354.1 million).
During the first half Kotsovolos and Electro World were trading against tough comparables in the prior year which, together with a weak consumer environment across the year, has held back total sales. However as Greece's leading specialist electrical retailer, Kotsovolos and Electro World are growing market share. Careful management of costs, cash and stock have limited the effects of the weakening environment on bottom line performance.
On 29 December 2008, the Group acquired a further 10% interest in Kotsovolos for a cash consideration of €28.1 million (£27.5 million) following the exercise of a put option by Fourlis Holdings SA. The consideration was calculated in accordance with the pricing formula agreed at the time that the Group acquired a controlling interest in Kotsovolos in September 2004. This acquisition takes the Group's total interest in Kotsovolos to 99% of the issued share capital.
Spain
PC City sales in Spain were down 13% at constant exchange rates and up 3% in sterling at £224.3 million (2007/08 £217.4 million). An extremely tough economic environment has impacted consumer demand. Management are implementing a plan to reduce costs, manage stocks and preserve cash. As at 9 May 2009, 11 stores had been closed and management believe that losses will be materially reduced as well as position the business better when the Spanish economy recovers.
Turkey
The Group now operates 8 stores in Turkey under the Electro World brand with its local joint venture partner. These new stores are based on the Group's new large space format, providing a greater product range and exciting retail environment for customers. Initial results from these stores have been positive with further stores planned.
CENTRAL EUROPE
In Central Europe, Electro World saw sales decline by 15% at constant exchange rates, growing by 10% in sterling to £160.4 million (2007/08 £145.6 million). Underlying operating losses were £(9.9) million (2007/08 £(2.8) million). Central Europe results are stated excluding the operations in Hungary, which have been sold.
Operations in the Czech Republic continue to perform well, despite the weak consumer environment. During the year the Group opened its first stores in Slovakia and these have performed in line with expectations.
On 19 May the Group announced that it had sold the operations of Electro World in Hungary for consideration of €1. The sale involved the transfer of all 9 stores, operations and employees to the purchaser, EW Electro Retail Ltd. The important operations in Czech and Slovakia, which continue to perform well in their markets, remain as part of the Group. Management is planning to restructure the central office operations based in Czech to meet the needs of customers in these two countries better. The operations in Poland remain under review.
E-COMMERCE DIVISION
This division comprises Dixons.co.uk and PIXmania. Total sales for the e-commerce division were £807.4 million (2007/08 £652.3 million). Underlying operating profit was £15.0 million (2007/08 £7.5 million).
PIXmania performed well in most of its core markets, although sales growth has been impacted by the slowing consumer environment, particularly in the UK, France and Spain. Its overall performance was held back by lower sales in the UK due to the strength of the Euro making the business less price competitive. Improvements to logistics and better integration into DSGi's European buying network will reduce this issue over time. In its core Euro trading markets, PIXmania's sales were up 15%. Overall gross margins continued to make progress.
Dixons.co.uk continues to improve its customer proposition which will be bolstered further when it transitions onto the PIXmania e-merchant platform later in the year ahead.
UPDATE ON RENEWAL AND TRANSFORMATION
The first year of implementing the five point Renewal and Transformation plan has seen intense activity. The customer offer has been improved through new store formats, improved ranges and enhanced in store services combined with an unbeatable combination of value, choice and service. The following is an update on each of the five points of the plan.
1. Focus on the customer: Providing better value, choice and service to customers
A series of innovations have been implemented aiming to address customer needs more effectively, including:
over 20,000 colleagues in Currys and PC World completing a comprehensive service training programme to provide improved in-store service and to help customers choose the most suitable mix of products, services, and accessories to meet their needs;
improvements to the logistics infrastructure and after-sales service, for example through the introduction of Currys' next day delivery in three-hourly time slots, at a time to suit customers;
enhancements to The TechGuys support services business, resulting in an increase in the annual sales of services in PC World.
with approximately 110,000 flat panel television and over 330,000 laptop repairs carried out by the Group in the UK during the year, work has started on improving this service for customers. As a result of initial actions, customers' TVs are now being repaired within 8 days on average rather than 21 days previously. Further enhancements to this service will follow.
improvements to product ranges across all of DSGi's UK and Italian store brands in order to provide customers wider and clearer choices of products at competitive prices; and
incentive and remuneration schemes for UK store colleagues being adapted as new store formats are rolled out in order to support improvements in customer service.
2. Transform the Business: Improving the in-store retail operations of the business through better service, product range and store format
Stores are being reformatted to provide wider ranges, better service, improved physical layout, display and in-store communication, to offer a significantly improved customer experience.
As at 20 June 2009, in the UK, the following new format stores had been opened:-
30 Currys Superstores which have delivered gross profit uplifts of between 23% and 65% versus the rest of the chain, strongly ahead of management's expectations. There are plans to refurbish a further 58 Currys Superstores in the current financial year.
Five Currys.digital stores which have delivered gross profit uplifts of 31% versus the rest of the chain. As already reported, management intend to focus Currys.digital in approximately 100 core locations across the UK. The remaining Currys.digital stores will be closed as their leases come to an end. The average lease length of the Currys.digital stores is approximately 4.0 years.
Two Currys Megastores. This is a unique new concept to the UK providing the largest range of electrical products under one roof in the UK. The first Megastore at Junction 9 in Birmingham opened in October and is, at 55,000 ft2, the UK's largest electrical store. In its opening weekend it generated sales of £2.3 million, exceeding expectations, and is expected to generate approximately £30 million of sales per annum. It has delivered gross profit uplift of 65% versus the rest of the chain. On 4 June the second Currys Megastore opened in New Malden, London, a new site of 37,000 ft2 which has got off to a very encouraging start. A further four Currys Megastores are planned for the new financial year.
41 PC World Superstores have now been reformatted. The changes to the PC World format have been less significant than compared to the Currys stores and have generated a gross profit uplift of approximately 11% versus the rest of the chain. Further improvements are being made to the new PC World stores and management believe that further improvements to the gross profit uplifts can be achieved.
One trial Currys and PC World 2-in-1 store in Weybridge, Surrey has been opened. By incorporating a mezzanine into an existing Currys store the PC World brand has been introduced into a catchment where no PC World existed before. This new format has exceeded expectations generating an uplift to gross profit of 65% compared to the store prior to its refit. Further trials of these 2-in-1 stores are planned this year.
The Group shares best practice across its international business and learnings from new formats are being introduced across the Group
The Group's first new format Megastore was opened in Lørenskog in Oslo on 5 May 2008 followed by three further Megastores in Sweden and Norway.
Superstores in Greece, Italy, Ireland and the Nordics are being reformatted utilising the latest formats from the UK, with strong early results
On the basis of the gross profit uplifts achieved to date, and taking into account the investment and costs involved in reformatting stores, DSGi plans to roll out these renewed formats across the UK, to capture the benefits of a superior customer experience as rapidly and effectively as possible.
The average cash payback of the total investment spent on reformatting stores in the UK & Ireland is targeted to be 3 to 4 years, which is equivalent to a cash return on investment of 25 % to 33%.
During the 2009/10 financial year the Group expects, in total, to reformat 15 Currys.digital stores, 75 Currys Superstores, 20 PC World stores, open 5 Currys Megastores (with one already open) and trial 5 further 2-in-1 combined Currys and PC World stores in the UK. In the Nordics the Group has plans to open 5-10 Megastores across the region as well as refurbish 15-20 Superstores.
3. Focus the portfolio on winning positions
The Group intends to exploit the potential of its market-leading electrical and computing retail operations in the UK & Ireland, the Nordic region and Greece as well as the strong and growing internet presence in Europe. Additionally the Group is introducing a programme to reduce losses and turn around the operations in Italy, Spain and Central Europe.
DSGi is the leading electrical and computing retailer in the UK, Ireland, the Nordic region and Greece by market share and the Group is continuing to invest in these businesses in order to retain these market-leading positions despite the economic downturn.
In the Nordic region, management have closed the PC City stores in Sweden and are improving the computing offer in El-Giganten. In Finland the loss making store operations of Markantalo were also closed.
In Italy, following a strategic review, the first stage of a comprehensive turnaround plan is being implemented, involving store closures, cost reductions, improved stock management and the integration of PC City within UniEuro. Management estimates that approximately €60 million to €75 million of cash in total over the next three financial years will be required before the Italian store portfolio can begin to achieve profitability.
A strategic review of PC City in Spain has resulted in a decision to restructure that business to reduce costs and to minimise cash outflow until the Spanish market recovers. As a result 11 stores have been closed and the remaining 33 stores will be reformatted utilising the principles of the new store formats in the UK. Management believes that PC City's underlying cash losses in Spain will be materially reduced over the next two years.
In Central Europe the operations in Hungary have been sold. The important operations in Czech and Slovakia, which continue to perform well in their markets, remain as part of the Group. Management is planning to restructure the central office operations based in Czech to meet the needs of customers in these two countries better. The operations in Poland remain under review.
4. Win on the internet: Utilising the skills within PIXmania and exploiting the Group-wide multi-channel opportunity.
DSGi achieved over £1.2 billion of sales over the internet across Europe in the financial year and management is aiming to achieve a return of 2% - 3%. per annum on internet sales in the medium term. The PIXmania e-merchant platform is a leading internet sales engine for electrical and computing products in Europe. In order to leverage the PIXmania e-merchant platform across the Group's brands, this platform is expected to be rolled out to Dixons.co.uk during the course of the 2009/10 Financial Year.
This will provide customers with improved functionality, easier navigation, better product information and accessory attachment. In addition, system changes will be made so that PIXmania can benefit from access to DSGi's logistics infrastructure, particularly in the UK, enabling it to reduce its cross border stock and pricing risk on sales of products.
In addition the Group will continue to exploit its successful reserve and collect option for customers in the UK and also across its European store based operations.
5. Reduce costs
The Group is focused on re-engineering the operational processes within the Group in order to reduce costs for the Company, improve the service provided to customers, and assist colleagues in operating the business effectively.
Cost savings of £95 million were achieved in the 2008/09 Financial Year. There remains significant opportunity for productivity improvements within the Group and management are targeting these improvements to deliver some £200 million in cost savings over the next 4 years through efficiency initiatives in logistics, services, head office administration and in-store processes, such as ensuring that the Group gets deliveries and repairs right first time. Process improvement initiatives have already contributed to reductions in levels of stock held by the Group of between 15% and 20% year-on-year.
Management believe that there is an opportunity to reduce stock by approximately £80-£130 million over the medium term through actions including: improved forecasting and ordering accuracy; range improvements; better allocation of store stock; in store fulfilment processing for faster delivery-to-shelf; and a new clearance policy incorporating dynamic pricing.
The Group continues to implement the step change programme that makes the business better for customers, easier for colleagues and cheaper to operate.
Management remains confident that it can achieve a 3%-4% return on sales, through the Renewal & Transformation plan, over the medium term.
FINANCIAL POSITION
The Group delivered underlying profit before tax of £50.5 million (2007/08 £225.6 million). Underlying diluted earnings per share, after adjusting for the rights issue was 0.7 pence (2007/08 7.2 pence). After taking account of non-underlying adjustments, total Group loss before tax was £(140.4) million (2007/08 loss £(184.1) million).
Underlying profit before tax is reported before non-underlying charges of £190.9 million. A further explanation of these charges is shown below:
ADJUSTMENTS TO UNDERLYING RESULTS
|
|
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
||||
|
Loss before tax |
(140.4) |
(184.1) |
||||
|
Add back non underlying items: |
||||||
|
Trading results from Businesses to be closed |
14.1 |
15.9 |
||||
|
Other non-underling items |
||||||
|
Amortisation of acquired intangibles |
4.9 |
4.4 |
||||
|
Net restructuring charges |
||||||
|
Strategic reorganisation |
59.1 |
29.5 |
||||
|
Distribution network re-org & PC City France closure |
- |
(8.8) |
||||
|
59.1 |
20.7 |
|||||
|
Business impairments |
|
|
|
|||
|
|
Italian operations |
(18.8) |
341.3 |
|||
|
Other businesses |
126.1 |
22.9 |
||||
|
107.3 |
364.2 |
|||||
|
Other items - Buncefield release |
(1.9) |
|
- |
|
||
|
Financing items: |
|
|
|
|
||
|
Profit on sale of investments |
- |
|
(1.7) |
|
||
|
Net fair value remeasurements |
7.4 |
|
6.2 |
|
||
|
|
7.4 |
|
4.5 |
|
||
|
Other non-underlying items - total |
176.8 |
393.8 |
||||
|
Total net non-underlying charges to add back |
190.9 |
409.7 |
||||
|
Underlying profit before tax |
50.5 |
225.6 |
||||
In March the Group announced the closure of standalone stores of PC City in Sweden and Markantalo in Finland which were completed by 20 May 2009. Trading results of businesses to be closed comprises the pre tax losses from these operations.
Amortisation of acquired intangibles of £4.9 million predominantly comprises brand names with the year on year change being affected by currency movements.
Strategic re-organisation costs of £59.1 million relate to the UK business transformation which primarily comprises: asset impairments associated with the reformat of the UK store portfolio; re-organisation costs of the Service infrastructure; and headcount reductions which have predominantly been incurred in the UK retail support centre. The prior year amounts related mainly to the reformat of the UK store portfolio.
The turnaround plan announced for Italy in the prior year has made significant progress. The planned store closures have been achieved in a faster timeframe than originally expected and also at lower cost. This has resulted in the release of surplus lease and employee severance provisions in the current financial year.
Other business impairments comprise the closure costs of the PC City Sweden and Markantalo stores; the closure costs of 11 stores and impairment charges in PC City Spain in connection with the restructuring of this business; the impairment of Polish stores following a disappointing performance in this market; and the impairment of Currys.digital and certain Currys High Street stores as the closure programme of those non-core stores, identified last financial year, is implemented.
The Buncefield release relates partly to a settlement received from the oil companies' insurers together with a related release of surplus provision originally set up following the explosion at the oil storage depot near the Group's UK retail support centre in December 2005.
The financing charge of £7.4 million relates to net fair value remeasurement losses on revaluation of financial instruments as required by IAS 32 and 39. The main component of the net charge is a £5.9 million revaluation of the Kotsovolos put option up to the exercise date of 29 December 2008 and arose mainly as a result of foreign exchange movements between Sterling and the Euro.
FREE CASH FLOW
Free Cash outflow was £(412.6) million (2007/08 £91.6 million Free Cash inflow)
|
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|
|
Underlying profit before tax |
50.5 |
225.6 |
|
Businesses to be closed loss before tax |
(14.1) |
(15.9) |
|
Depreciation & amortisation |
135.7 |
137.1 |
|
Working capital |
(287.5) |
8.6 |
|
Taxation |
(35.7) |
(53.1) |
|
Capital expenditure (i) |
(141.8) |
(165.7) |
|
Sale of freehold property (ii) |
10.8 |
41.5 |
|
Other cash items |
(65.8) |
(48.9) |
|
Free Cash Flow before restructuring items |
(347.9) |
129.2 |
|
Net restructuring and impairment (ii) |
(64.7) |
(37.6) |
|
Free Cash Flow |
(412.6) |
91.6 |
(i) Capital expenditure in the prior year excludes £7.1 million (shown within net restructuring and impairment costs) relating to the restructuring of distribution assets in the UK.
(ii) Sale of freehold property in the prior year excludes £10.0 million of sale proceeds relating to PC City France, and in the current year excludes £18.0 million of sale proceeds relating to the sale of the Group's former warehouse in Stevenage. These sale proceeds are shown within net restructuring and impairment costs.
The cash utilisation was primarily due to working capital outflows, reduced profitability, restructuring costs and cash costs associated with the Group's hedging activities.
The working capital outflows were primarily due to:
structural changes in the trade supplier credit environment which have limited DSGi's ability in the 2008/09 Financial Year to repeat historical deferrals of payments due to suppliers of between approximately £130 million - £150 million that previously occurred over its prior financial year end;
one-off early settlement payments to trade suppliers of approximately £50 million to assist them in managing their credit risk;
continued unwinding of the Customer Services Agreement creditors as a result of the change in mix from term to monthly payment contracts.
Capital expenditure was £141.8 million (2007/08 £165.7 million), down £23.9 million due to a reduction in store openings and postponement of the One Group programme. Cash generated from the sale of property was £10.8 million (2007/08 £41.5 million), as previously announced this was lower than anticipated due to the decision to delay the sale and leaseback of the Group's Swedish distribution centre.
Other spend of £65.8 million includes £83.3 million of revaluation settlements primarily on currency hedges taken out in previous years against certain overseas assets and intercompany balances (2007/08 £29.5 million). As previously announced this was approximately £30 million higher than anticipated due to the significant further movements in foreign exchange rates during the year.
Net restructuring and impairment reflects the cash outflows relating to the strategic reorganisation and business impairment activities. These predominantly comprise lease and other property related payments and employee severance costs, less the disposal proceeds from the sale of the Stevenage site.
FUNDING
Net funds
At 2 May 2009 the Group had net debt of £477.5 million, compared with net funds of £50.1 million in the previous year. The Group's net (debt) / funds include restricted funds of £67.6 million (2007/08 £66.5 million) which predominantly comprise funds held under trust for potential customer support agreement liabilities.
|
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|||
|
Opening net funds |
50.1 |
224.9 |
||
|
Free Cash Flow |
(412.6) |
91.6 |
||
|
Dividends |
(60.3) |
(160.8) |
||
|
Share buy back programme |
- |
(100.0) |
||
|
Acquisitions & disposals |
(27.6) |
(19.7) |
||
|
Discontinued operations |
(13.2) |
(5.0) |
||
|
Special pension contribution |
(12.0) |
- |
||
|
Other items |
(1.9) |
19.1 |
||
|
Other movements in net funds |
(115.0) |
(266.4) |
||
|
Closing net (debt) / funds |
(477.5) |
50.1 |
||
Movements in net funds include £60.3 million dividend payments (being the final 2007/08 dividend), £27.6 million acquisition costs primarily representing the additional 10% of Kotsovolos acquired on 29 December 2008, and £13.2 million representing the net cash utilisation of the discontinued operations in Hungary. The £12.0 million special pension contribution was made in accordance with the agreement with the trustee of the UK defined benefit pension scheme to reduce the pension deficit, with further amounts of £12.0 million being payable annually until December 2012. Other items include the impact on net funds of revaluing the 2012 Bond, offset by the revaluation of net funds held in foreign currencies and capital contributions made by our Turkey joint venture partner.
It should be noted that the restricted funds balance has reduced by less than was originally expected as a result of the cancellation of a £50 million letter of credit facility in December 2008 which necessitated additional funds to be placed in trust. Furthermore, management expect the amount of restricted funds to increase during 2009/10 by approximately £20 million as a result of the amendments made to the Group's remaining £75 million letter of credit facility.
On 30 April 2009 the Group announced that it had reached agreement with its lending banks to amend its £400 million revolving credit facility and its £75 million letter of credit facility, as well as raising £310.6 million by way of an equity placing and rights issue. The equity placing and rights issue were approved by shareholders on 18 May 2009. The receipt of net proceeds of approximately £293.6 million was completed on 9 June 2009 and, as required by the amended facilities, have been used to reduce the drawings on these facilities.
PROPERTY LOSSES
Property losses increased to £18.1 million (2007/08 £7.3 million loss), as the provision to cover the potential cost of subleasing or assigning our non trading stores in the UK was increased to reflect the deterioration in the UK property market.
UNDERLYING NET FINANCE COSTS
Underlying net finance costs were £(26.9) million (2007/08 £13.0 million income). The movement year on year was driven by three key areas:
Interest cost increases driven by higher borrowings, the cost of refinancing, and lower interest rates on cash on deposit;
Losses on earnings related hedges due to the weakening of the pound against the Norwegian Krone and the Euro, offsetting the gains on the translation of earning included in the retail profit; and
Higher pension interest due to increased discount rates on liabilities and lower earnings on assets.
DIVIDENDS
The Board believes that DSGi's existing financial resources should be used to invest in the Renewal and Transformation plan, which is showing early and encouraging signs of delivering changes in DSGi's performance, and to ensure liquidity.
The Revolving Credit Facility and Letter of Credit Facilities, amended at the time of the refinancing, prohibit payments of dividends to Shareholders in respect of the 2008/09 Financial Year and the 2009/10 Financial Year. The same agreements allow the Company, subject to certain conditions, to pay a dividend in respect of the 2010/11 Financial Year.
Subject to the above, the Board aims to resume dividend payments when possible and appropriate, consistent with a sustained recovery in DSGi's operational and financial performance.
TAX
The Group's tax rate on underlying profit before tax was 67.9% (2007/08 29.8%). The increase in the tax rate reflects an increased proportion of loss making businesses where tax benefits are not fully recognised.
On 27 February 2009, DSGi reached an agreement in principle with HMRC regarding settlement of certain intra group trading arrangements as well as certain other matters. The settlement amount, which was confirmed on 4 June 2009, exceeded the provision already held in the balance sheet and as a result an additional non-underlying income tax charge of £52.7 million has been recorded.
PENSIONS
At 2 May 2009, the IAS 19 accounting deficit of the UK defined benefit pension scheme amounted to £148.8 million (3 May 2008 £51.0 million). The assumptions used for determining the accounting valuation use a consistent basis to that adopted in prior periods. The increased deficit is largely due to a significant decrease in the value of the scheme's assets, which reflects current market conditions but has been partly offset by an increase in the discount rate applied to the liabilities (in accordance with accounting standards) which again reflects the current market conditions.
The actuarial deficit of £61.0 million (measured as at 5 April 2007) is being addressed by special cash contributions of £12 million per annum which are payable in two equal tranches of £6 million in June and December each year until December 2012.
Over recent years, the Group has implemented a number of changes to pension arrangements in order to address the deficit over the longer term. The defined benefit section of the UK pension scheme was closed to new entrants on 1 September 2002.
- ENDS -
|
Maylands Avenue |
John Browett |
|
Hemel Hempstead |
Chief Executive |
|
Hertfordshire HP2 7TG |
25 June 2009 |
|
Report and Accounts publication date |
31 July 2009 |
|
Annual General Meeting |
2 September 2009 |
|
Copies of the Report and Accounts will be available from the Company Secretary at the above address and on the Group's website at http://www.dsgiplc.com |
|
CONSOLIDATED INCOME STATEMENT
|
|
|
|
52 weeks ended 2 May 2009 |
|
53 weeks ended 3 May 2008 Re-presented+ |
||||||||
|
|
|
Non-underlying* |
Non-underlying* |
||||||||||
|
|
Note |
Under- lying* £million |
Businesses to be closed** £million |
Other £million |
Total £million |
Under- lying* £million |
Businesses to be closed** £million |
Other £million |
Total £million |
||||
|
Continuing operations |
|||||||||||||
|
Revenue |
2 |
8,227.0 |
137.6 |
- |
8,364.6 |
8,338.6 |
149.4 |
- |
8,488.0 |
||||
|
(Loss) / profit from operations before associates |
73.8 |
(12.2) |
(169.4) |
(107.8) |
206.4 |
(14.3) |
(389.3) |
(197.2) |
|||||
|
Share of post tax results of associates |
3.6 |
- |
- |
3.6 |
6.2 |
- |
- |
6.2 |
|||||
|
Operating (loss) / profit |
2 |
77.4 |
(12.2) |
(169.4) |
(104.2) |
212.6 |
(14.3) |
(389.3) |
(191.0) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Profit on sale of investment |
- |
- |
- |
- |
- |
- |
1.7 |
1.7 |
|||||
|
Finance income |
69.6 |
- |
32.2 |
101.8 |
93.9 |
- |
11.8 |
105.7 |
|||||
|
Finance costs |
(96.5) |
(1.9) |
(39.6) |
(138.0) |
(80.9) |
(1.6) |
(18.0) |
(100.5) |
|||||
|
Net finance (costs) / income |
4 |
(26.9) |
(1.9) |
(7.4) |
(36.2) |
13.0 |
(1.6) |
(4.5) |
6.9 |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(Loss) / profit before tax |
50.5 |
(14.1) |
(176.8) |
(140.4) |
225.6 |
(15.9) |
(393.8) |
(184.1) |
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income tax expense |
5 |
(34.3) |
2.7 |
(25.2) |
(56.8) |
(67.2) |
4.2 |
(3.0) |
(66.0) |
||||
|
(Loss) / profit after tax - continuing operations |
16.2 |
(11.4) |
(202.0) |
(197.2) |
158.4 |
(11.7) |
(396.8) |
(250.1) |
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Loss after tax - discontinued operations |
- |
- |
(22.1) |
(22.1) |
- |
- |
(9.6) |
(9.6) |
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(Loss) / profit for the period |
16.2 |
(11.4) |
(224.1) |
(219.3) |
158.4 |
(11.7) |
(406.4) |
(259.7) |
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Attributable to: |
|||||||||||||
|
Equity shareholders of the parent company |
16.1 |
(11.4) |
(224.1) |
(219.4) |
157.3 |
(11.7) |
(406.4) |
(260.8) |
|||||
|
Minority interests |
0.1 |
- |
- |
0.1 |
1.1 |
- |
- |
1.1 |
|||||
|
16.2 |
(11.4) |
(224.1) |
(219.3) |
158.4 |
(11.7) |
(406.4) |
(259.7) |
||||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Loss per share (pence) |
6 |
||||||||||||
|
Basic- total |
(10.2)p |
(11.9)p |
|||||||||||
|
Diluted- total |
(10.2)p |
(11.9)p |
|||||||||||
|
Basic- continuing operations |
(9.2)p |
(11.5)p |
|||||||||||
|
Diluted- continuing operations |
(9.2)p |
(11.5)p |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|||||
|
Underlying earnings per share (pence) |
6 |
||||||||||||
|
Basic- continuing operations |
0.7p |
7.2p |
|||||||||||
|
Diluted- continuing operations |
0.7p |
7.2p |
|||||||||||
+ Underlying figures for the 53 weeks ended 3 May 2008 have been re-presented to exclude the trading results of businesses to be closed whereby such closures were announced in 2008/09 and the results of discontinued operations.
* 'Underlying' profit and earnings per share measures exclude the trading results of businesses to be closed, impact of amortisation of acquired intangibles, net restructuring and business impairment charges and other one off, non-recurring items, profit on sale of investments, 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, 3, 5 and 6.
** Businesses to be closed comprises Markantalo and PCC Sweden whereby their closures were announced on 31 March 2009 and 23 March 2009, respectively. Owing to their closure rather than disposal, these operations do not meet the definition of discontinued operations as stipulated by IFRS 5 and accordingly the disclosures made above differ from those for discontinued operations.
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
|
|
Note |
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|
|
Loss for the period |
(219.3) |
(259.7) |
||
|
|
|
|
|
|
|
Actuarial losses on defined benefit pension schemes |
- UK |
(114.3) |
(24.7) |
|
|
- Nordics |
(2.1) |
- |
||
|
Cash flow hedges |
||||
|
Fair value remeasurement gains |
42.6 |
4.7 |
||
|
Gains transferred to carrying amount of inventories |
(27.4) |
(11.5) |
||
|
(Gains) / losses transferred to income statement |
(13.4) |
6.4 |
||
|
Net investment hedges |
||||
|
Fair value remeasurement losses |
(74.3) |
(125.3) |
||
|
Investments |
||||
|
Fair value remeasurement losses |
(0.9) |
(0.9) |
||
|
Tax on items taken directly to equity |
53.2 |
42.4 |
||
|
Currency translation movements |
122.5 |
166.9 |
||
|
Net (expense) / income recognised directly in equity |
(14.1) |
58.0 |
||
|
Total recognised expense for the period |
7 |
(233.4) |
(201.7) |
|
|
Attributable to: |
||||
|
Equity shareholders of the parent company |
(236.9) |
(205.2) |
||
|
Minority interests |
3.5 |
3.5 |
||
|
(233.4) |
(201.7) |
|||
CONSOLIDATED BALANCE SHEET
|
2 May 2009 £million |
3 May 2008 £million |
|||
|
Non current assets |
||||
|
Goodwill |
1,069.1 |
984.3 |
||
|
Intangible assets |
148.4 |
143.9 |
||
|
Property, plant & equipment |
489.6 |
531.3 |
||
|
Investments in associates |
29.8 |
29.3 |
||
|
Trade and other receivables |
68.5 |
49.8 |
||
|
Deferred tax assets |
150.3 |
75.6 |
||
|
1,955.7 |
1,814.2 |
|||
|
Current assets |
||||
|
Inventories |
971.9 |
1,093.1 |
||
|
Trade and other receivables |
508.2 |
442.9 |
||
|
Income tax receivable |
8.3 |
58.8 |
||
|
Short term investments |
9.0 |
82.0 |
||
|
Cash and cash equivalents |
192.6 |
365.8 |
||
|
1,690.0 |
2,042.6 |
|||
|
Assets held for sale |
13.2 |
- |
||
|
Total assets |
3,658.9 |
3,856.8 |
||
|
Current liabilities |
||||
|
Bank overdrafts |
(4.8) |
(2.1) |
||
|
Borrowings |
(250.1) |
(0.2) |
||
|
Obligations under finance leases |
(2.8) |
(1.5) |
||
|
Trade and other payables |
(1,664.5) |
(2,040.1) |
||
|
Income tax payable |
(58.0) |
(30.0) |
||
|
Provisions |
(72.1) |
(46.2) |
||
|
(2,052.3) |
(2,120.1) |
|||
|
Net current liabilities |
(362.3) |
(77.5) |
||
|
Non-current liabilities |
||||
|
Borrowings |
(322.5) |
(294.6) |
||
|
Obligations under finance leases |
(98.9) |
(99.3) |
||
|
Retirement benefit obligations |
(153.0) |
(54.0) |
||
|
Other payables |
(369.8) |
(365.4) |
||
|
Deferred tax liabilities |
(22.7) |
(18.8) |
||
|
Provisions |
(40.4) |
(51.1) |
||
|
(1,007.3) |
(883.2) |
|||
|
Liabilities directly associated with assets classified as held for sale |
(14.4) |
- |
||
|
Total liabilities |
(3,074.0) |
(3,003.3) |
||
|
Net assets |
584.9 |
853.5 |
||
|
Capital and reserves |
||||
|
Called up share capital |
|
44.3 |
44.3 |
|
|
Share premium account |
|
169.4 |
169.4 |
|
|
Other reserves |
|
(534.9) |
(502.9) |
|
|
Retained earnings |
|
880.1 |
1,115.9 |
|
|
Equity attributable to equity holders of the parent company |
|
558.9 |
826.7 |
|
|
Equity minority interests |
|
26.0 |
26.8 |
|
|
Total equity |
|
584.9 |
853.5 |
|
The financial statements were approved by the directors on 25 June 2009 and signed on their behalf by:
|
John Browett Chief Executive |
Nicholas Cadbury Group Finance Director |
CONSOLIDATED CASH FLOW STATEMENT
|
|
Note |
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|
|
Operating activities - continuing operations |
||||
|
Cash (utilised by) / generated from operations |
* |
(151.0) |
301.0 |
|
|
Special contributions to defined benefit pension scheme |
(12.0) |
- |
||
|
Income tax paid |
* |
(35.7) |
(53.1) |
|
|
Net cash flows from operating activities |
(198.7) |
247.9 |
||
|
Investing activities - continuing operations |
||||
|
Purchase of property, plant & equipment and other intangibles |
* |
(141.8) |
(172.8) |
|
|
Purchase of subsidiaries |
(27.6) |
(22.5) |
||
|
Sale of investment |
- |
1.7 |
||
|
Interest received |
* |
20.9 |
28.7 |
|
|
Decrease in short term investments |
73.3 |
103.1 |
||
|
Disposals of property, plant & equipment and other intangibles |
* |
28.8 |
51.5 |
|
|
Dividend received from associate |
4.9 |
2.3 |
||
|
Proceeds from sale of discontinued operations |
- |
1.1 |
||
|
Net cash flows from investing activities |
(41.5) |
(6.9) |
||
|
Financing activities - continuing operations |
||||
|
Issue of ordinary share capital |
- |
3.2 |
||
|
Purchase of own shares |
- |
(100.0) |
||
|
Additions to finance leases |
|
|
2.4 |
- |
|
Capital element of finance lease payments |
(1.7) |
(1.7) |
||
|
Interest element of finance lease payments |
* |
(6.9) |
(7.1) |
|
|
Increase / (decrease) in borrowings due within one year |
249.9 |
(3.1) |
||
|
Decrease in borrowings due after more than one year |
(0.1) |
(2.2) |
||
|
Interest paid |
* |
(126.9) |
(56.6) |
|
|
Investment from minority shareholder |
5.7 |
6.1 |
||
|
Equity dividends paid |
(60.3) |
(160.8) |
||
|
Net cash flows from financing activities |
62.1 |
(322.2) |
||
|
Decrease in cash and cash equivalents |
(i) |
|||
|
Continuing operations |
(178.1) |
(81.2) |
||
|
Discontinued operations |
(13.2) |
(5.0) |
||
|
(191.3) |
(86.2) |
|||
|
Cash and cash equivalents at beginning of period |
(i) |
9 |
363.7 |
434.8 |
|
Currency translation differences |
15.4 |
15.1 |
||
|
Cash and cash equivalents at end of period |
(i) |
9 |
187.8 |
363.7 |
|
Free Cash Flow |
(ii) |
(412.6) |
91.6 |
|
(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. A reconciliation to the balance sheet amounts is shown in note 9. |
|
(ii) |
Free Cash Flow comprises those items marked * and comprises cash generated from continuing operations before special pension contributions, plus net finance income, 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. |
|
NOTES TO THE FINANCIAL STATEMENTS 1 Basis of preparation |
The financial information, which comprises the consolidated income statement, consolidated statement of recognised income and expense, consolidated balance sheet, consolidated cash flow statement and extracts from the notes to the accounts for 2 May 2009 and 3 May 2008, has been prepared in accordance with the accounting policies set out in the full 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 52 weeks ended 2 May 2009 which were approved by the directors on 25 June 2009. Statutory accounts for the 53 weeks ended 3 May 2008 have been delivered to the Registrar of Companies, the auditors have reported on those accounts, their report was unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. Statutory accounts for the period ended 2 May 2009 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts, their reports were 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 52 weeks ended 2 May 2009. Comparative figures are for the 53 weeks ended 3 May 2008.
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 from businesses to be closed, impact of amortisation of acquired intangibles, net restructuring and business impairment charges and other one off, non-recurring items, profit on sale of investments, 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 and in the case of e-commerce, as a business area with geographical territories aggregated. Accounting policies for each operating segment are the same as those for the Group as described in note 1. The Group evaluates each operating segment based on underlying operating profits which excludes those items described in note 1.
On 18 May 2009 the Group disposed of its operations in Hungary to EW Electro Retail Limited for consideration of €1 and accordingly has classified its assets and liabilities as held for sale owing to the sale being highly probable under the definitions stipulated in IFRS 5 "Non current assets held for sale and discontinued operations". As a result of the sale, the business has been classified as discontinued and the prior periods have been re-presented on a consistent basis. Hungary was previously shown within the Other International division.
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 and on-line.
The Group's reportable segments have been identified as UK & Ireland, Nordics, Other International and e-commerce.
The UK & Ireland division comprises UK & Ireland Electricals (which consists of Currys, Currys.digital, Dixons Travel and the Irish business) and UK Computing (which consists of PC World and DSGi Business) both of which are engaged predominantly in retail sales with the latter also engaging in business to business sales of computer hardware and software, associated peripherals and services and related financial and after sales services.
The Nordics division comprises the Elkjøp Group which operates in Norway, Sweden, Finland, Denmark, Iceland, Greenland and the Faroe Islands. The Nordics division engages predominantly in retail sales.
The Other International division comprises operations in Central and Southern Europe. Central Europe comprises ElectroWorld operating in the Czech Republic, Poland and Slovakia whilst Southern Europe operates in Italy, Greece, Spain and Turkey. The Other International division engages predominantly in retail sales.
The e-commerce division, primarily comprising PIXmania and Dixons.co.uk, is engaged in on-line retail sales and operates in all of the countries in which the other divisions operate and across Europe.
Businesses to be closed comprise Markantalo and PCC Sweden whereby their closures were announced on 31 March 2009 and 23 March 2009, respectively. Owing to their closure rather than disposal, these operations do not meet the definition of discontinued operations as stipulated by IFRS 5. Their results have been shown as businesses to be closed and prior year comparatives have been re-presented on a consistent basis. Both businesses were previously shown as part of the Nordics division.
(a) Profit and loss account
|
52 weeks ended 2 May 2009 |
|||||
|
|
External revenue £million |
Intersegmental revenue £million |
Revenue £million |
Underlying profit / (loss) £million |
Total (loss) / profit £million |
|
UK & Ireland |
4,228.6 |
84.2 |
4,312.8 |
58.7 |
(17.0) |
|
Nordics |
1,762.8 |
1.1 |
1,763.9 |
72.5 |
14.2 |
|
Other International |
1,565.8 |
2.3 |
1,568.1 |
(29.3) |
(59.4) |
|
e-commerce |
807.4 |
0.4 |
807.8 |
15.0 |
11.7 |
|
Eliminations |
- |
(88.0) |
(88.0) |
- |
- |
|
|
8,364.6 |
- |
8,364.6 |
116.9 |
(50.5) |
|
Share of post tax result of associates |
3.6 |
3.6 |
|||
|
Operating profit / (loss) before central costs and property losses |
120.5 |
(46.9) |
|||
|
Central costs |
(25.0) |
(39.2) |
|||
|
Property losses |
(18.1) |
(18.1) |
|||
|
Operating profit / (loss) |
77.4 |
(104.2) |
|||
|
Finance income |
69.6 |
101.8 |
|||
|
Finance costs |
(96.5) |
(138.0) |
|||
|
Profit / (loss) before tax for the period |
50.5 |
(140.4) |
|||
External revenue for the Nordics includes £137.6 million relating to businesses to be closed.
Reconciliation of underlying profit / (loss) to total (loss) / profit
|
|
52 weeks ended 2 May 2009 |
||||||||
|
|
Under-lying profit / (loss) £million |
Business-es to be closed £million |
Amortisa- tion of acquired intangibles £million |
Restructur- ing and other £million |
Business impairment charges £million |
Net fair value remeas-urements £million |
Total (loss) / profit £million |
||
|
UK & Ireland |
58.7 |
- |
(0.4) |
(43.0) |
(32.3) |
- |
(17.0) |
||
|
Nordics |
72.5 |
(12.2) |
(0.5) |
- |
(45.6) |
- |
14.2 |
||
|
Other International |
(29.3) |
- |
(0.7) |
- |
(29.4) |
- |
(59.4) |
||
|
e-commerce |
15.0 |
- |
(3.3) |
- |
- |
- |
11.7 |
||
|
116.9 |
(12.2) |
(4.9) |
(43.0) |
(107.3) |
- |
(50.5) |
|||
|
Share of post tax result of associates |
3.6 |
- |
- |
- |
- |
- |
3.6 |
||
|
Operating profit / (loss) before central costs and property losses |
120.5 |
(12.2) |
(4.9) |
(43.0) |
(107.3) |
- |
(46.9) |
||
|
Central costs |
(25.0) |
- |
- |
(14.2) |
- |
- |
(39.2) |
||
|
Property losses |
(18.1) |
- |
- |
- |
- |
- |
(18.1) |
||
|
Operating profit / (loss) |
77.4 |
(12.2) |
(4.9) |
(57.2) |
(107.3) |
- |
(104.2) |
||
|
Finance income |
69.6 |
- |
- |
- |
- |
32.2 |
101.8 |
||
|
Finance costs |
(96.5) |
(1.9) |
- |
- |
- |
(39.6) |
(138.0) |
||
|
Profit / (loss) before tax for the period |
50.5 |
(14.1) |
(4.9) |
(57.2) |
(107.3) |
(7.4) |
(140.4) |
||
Share of post tax result of associates relates to the Nordics.
|
53 weeks ended 3 May 2008 Re-presented |
|||||
|
|
External revenue £million |
Intersegmental revenue £million |
Revenue £million |
Underlying profit / (loss) £million |
Total profit / (loss) £million |
|
UK & Ireland |
4,745.7 |
34.7 |
4,780.4 |
156.7 |
144.8 |
|
Nordics |
1,618.7 |
1.4 |
1,620.1 |
91.5 |
56.2 |
|
Other International |
1,471.3 |
3.5 |
1,474.8 |
(17.6) |
(360.8) |
|
e-commerce |
652.3 |
1.9 |
654.2 |
7.5 |
4.7 |
|
Eliminations |
- |
(41.5) |
(41.5) |
- |
- |
|
8,488.0 |
- |
8,488.0 |
238.1 |
(155.1) |
|
|
Share of post tax result of associates |
6.2 |
6.2 |
|||
|
Operating profit / (loss) before central costs and property losses |
244.3 |
(148.9) |
|||
|
Central costs |
(24.4) |
(34.8) |
|||
|
Property losses |
(7.3) |
(7.3) |
|||
|
Operating profit / (loss) |
212.6 |
(191.0) |
|||
|
Profit on sale of investment |
- |
1.7 |
|||
|
Finance income |
93.9 |
105.7 |
|||
|
Finance costs |
(80.9) |
(100.5) |
|||
|
Profit / (loss) before tax for the period |
225.6 |
(184.1) |
|||
External revenue for the Nordics includes £149.4 million relating to businesses to be closed.
Reconciliation of underlying profit / (loss) to total profit / (loss)
|
|
53 weeks ended 3 May 2008 Re-presented |
|||||||||
|
|
Under- lying profit / (loss) £million |
Bus- inesses to be closed £million |
Amortisa-tion of acquired intangibles £million |
Net restruc- turing charges £million |
Business impairment charges £million |
Net fair value remeasure -ments £million |
Profit on sale of invest-ments £million |
Total profit / (loss) £million |
||
|
UK & Ireland |
156.7 |
- |
(0.6) |
(11.3) |
- |
- |
- |
144.8 |
||
|
Nordics |
91.5 |
(14.3) |
(0.5) |
(0.6) |
(19.9) |
- |
- |
56.2 |
||
|
Other International |
(17.6) |
- |
(0.5) |
1.6 |
(344.3) |
- |
- |
(360.8) |
||
|
e-commerce |
7.5 |
- |
(2.8) |
- |
- |
- |
- |
4.7 |
||
|
|
238.1 |
(14.3) |
(4.4) |
(10.3) |
(364.2) |
- |
- |
(155.1) |
||
|
Share of post tax result of associates |
6.2 |
- |
- |
- |
- |
- |
- |
6.2 |
||
|
Operating profit / (loss) before central costs and property losses |
244.3 |
(14.3) |
(4.4) |
(10.3) |
(364.2) |
- |
- |
(148.9) |
||
|
Central costs |
(24.4) |
- |
- |
(10.4) |
- |
- |
- |
(34.8) |
||
|
Property losses |
(7.3) |
- |
- |
- |
- |
- |
- |
(7.3) |
||
|
Operating profit / (loss) |
212.6 |
(14.3) |
(4.4) |
(20.7) |
(364.2) |
- |
- |
(191.0) |
||
|
Profit on sale of investment |
- |
- |
- |
- |
- |
- |
1.7 |
1.7 |
||
|
Finance income |
93.9 |
- |
- |
- |
- |
11.8 |
- |
105.7 |
||
|
Finance costs |
(80.9) |
(1.6) |
- |
- |
- |
(18.0) |
- |
(100.5) |
||
|
Profit / (loss) before tax for the period |
225.6 |
(15.9) |
(4.4) |
(20.7) |
(364.2) |
(6.2) |
1.7 |
(184.1) |
||
Share of post tax result of associates relates to the Nordics.
3 Non-underlying items
|
|
52 weeks ended 2 May 2009 |
53 weeks ended 3 May 2008 Re-presented |
||||||
|
|
|
Businesses to be closed £million |
Other £million |
Total £million |
Businesses to be closed £million |
Other £million |
Total £million |
|
|
Included in operating profit: |
|
|
|
|
|
|
|
|
|
|
Businesses to be closed |
(i) |
(12.2) |
- |
(12.2) |
(14.3) |
- |
(14.3) |
|
|
Amortisation of acquired intangibles |
- |
(4.9) |
(4.9) |
- |
(4.4) |
(4.4) |
|
|
|
Net restructuring charges |
(ii) |
- |
(59.1) |
(59.1) |
- |
(20.7) |
(20.7) |
|
|
Business impairment charges |
(iii) |
- |
(107.3) |
(107.3) |
- |
(364.2) |
(364.2) |
|
|
Other items |
(iv) |
- |
1.9 |
1.9 |
- |
- |
- |
|
|
|
(12.2) |
(169.4) |
(181.6) |
(14.3) |
(389.3) |
(403.6) |
|
|
Included in net finance charges: |
||||||||
|
|
Businesses to be closed |
(1.9) |
- |
(1.9) |
(1.6) |
- |
(1.6) |
|
|
|
Profit on sale of investment |
(v) |
- |
- |
- |
- |
1.7 |
1.7 |
|
|
Net fair value remeasurements of financial instruments |
(vi) |
- |
(7.4) |
(7.4) |
- |
(6.2) |
(6.2) |
|
(1.9) |
(7.4) |
(9.3) |
(1.6) |
(4.5) |
(6.1) |
|||
|
|
|
|
|
|
|
|
|
|
|
Total impact on (loss) / profit before tax |
(14.1) |
(176.8) |
(190.9) |
(15.9) |
(393.8) |
(409.7) |
||
|
|
|
|
|
|
|
|
|
|
|
Included in income tax expense: |
||||||||
|
|
Businesses to be closed |
2.7 |
- |
2.7 |
4.2 |
- |
4.2 |
|
|
|
HMRC settlement |
(vii) |
- |
(52.7) |
(52.7) |
- |
- |
- |
|
Other non-underlying items |
- |
27.5 |
27.5 |
- |
(3.0) |
(3.0) |
||
|
|
|
2.7 |
(25.2) |
(22.5) |
4.2 |
(3.0) |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total impact on (loss) / profit after tax |
(11.4) |
(202.0) |
(213.4) |
(11.7) |
(396.8) |
(408.5) |
||
|
(i) |
Businesses to be closed: Comprises the operating activities of PC City Sweden and Markantalo whereby the announcement of the closure of these chains of stores was announced on 23 March 2009 and 31 March 2009, respectively. The chains were subsequently closed on 10 May 2009 and 20 May 2009, respectively. |
|
(ii) |
Net restructuring charges: |
|
|
|
Property disposal gains £million |
Property (charges) / credit £million |
Asset impairments £million |
Other charges £million |
Total £million |
|
52 weeks ended 2 May 2009 |
|
|
|
|
|
|
|
Strategic reorganisation |
|
- |
(3.9) |
(13.6) |
(41.6) |
(59.1) |
|
|
|
|
|
|
|
|
|
53 weeks ended 3 May 2008 |
|
|
|
|
|
|
|
Strategic reorganisation |
|
- |
(0.7) |
(21.8) |
(7.0) |
(29.5) |
|
Distribution network transformation |
|
12.3 |
(5.6) |
- |
- |
6.7 |
|
PC City France closure |
|
3.3 |
2.1 |
- |
(3.3) |
2.1 |
|
|
|
15.6 |
(4.2) |
(21.8) |
(10.3) |
(20.7) |
|
Net restructuring charges relate predominantly to the renewal and transformation of the UK business which has been focused mainly on the reformatting of the UK store portfolio and the reorganisation of the service offering. Property (charges)/credit comprise onerous lease costs and charges related to vacating properties. Asset impairments relate to intangible assets and items of property, plant & equipment which are to be eliminated from the business over a shorter period than their current useful expected lives and inventories. Impairments relating to intangible assets and property, plant & equipment comprise a combination of asset write offs and incremental accelerated depreciation charges associated with the economic useful life of these assets being shortened and for which incremental charges of £5.3 million (2007/08 £17.7 million) are expected to be incurred, spread over the next three financial periods. Other charges predominantly comprise employee severance and contract termination costs.
|
|
(iii) |
Business impairment charges: |
|
|
|
Goodwill impairment £million |
Other assets impairment £million |
Property credits / (charges) £million |
Other credits / (charges) £million |
Total £million |
|
52 weeks ended 2 May 2009 |
|
|
|
|
|
|
|
Italian business |
|
- |
- |
12.4 |
6.4 |
18.8 |
|
Other businesses |
|
(10.2) |
(48.0) |
(58.9) |
(9.0) |
(126.1) |
|
|
(10.2) |
(48.0) |
(46.5) |
(2.6) |
(107.3) |
|
|
|
|
|
|
|
|
|
|
53 weeks ended 3 May 2008 |
|
|
|
|
|
|
|
Italian business |
|
(246.2) |
(30.2) |
(51.9) |
(13.0) |
(341.3) |
|
Other businesses |
|
(15.7) |
(3.4) |
(3.8) |
- |
(22.9) |
|
|
|
(261.9) |
(33.6) |
(55.7) |
(13.0) |
(364.2) |
|
The Italian business impairment credit relates to the reversal of charges incurred in prior periods whereby either liabilities have settled at lower amounts than those originally provided or in respect of properties which the Group has been able to exit earlier than previously expected. |
|
|
Other business impairments comprise businesses in the Nordics, Spain and Poland as well as stores in underperforming locations in the UK High Street locations. Goodwill impairment relates to the full write off of Markantalo in Finland following the announcement of the closure of this business. Other asset impairments comprise the brand name associated with Markantalo, other intangible assets, property, plant & equipment and inventory. Such impairments relate to assets in individual under performing businesses whereby either the whole business is to be closed or which result from impairment reviews of certain businesses whereby either individual stores have been deemed impaired or are to be closed. Property charges comprise onerous lease costs and charges related to vacating properties. Property credits relate to onerous provisions set up in prior periods where such provisions have been determined to be no longer required. Other charges relate predominantly to employee severance. |
|
|
(iv) |
Other items relate to releases of unutilised provisions and settlement income received for claims for damages incurred following the Buncefield explosion in December 2005 and for which exceptional charges were incurred in the 2005/06 financial year. |
|
(v) |
Profit on sale of investments: For 2007/08, related to the sale of a small minority shareholding which had been held at £nil in the balance sheet. |
|
(vi) |
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 is prepared). Also included within this amount are remeasurement losses relating to put options predominantly held by minority shareholders. 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. |
|
|
(vii) |
As announced on 27 February 2009, the Group has been in dispute with HMRC regarding settlement of certain intra group trading arrangements in the years 1997 to 2005 as well as certain other matters. The Group reached an agreement in principle with HMRC regarding the settlement which was subsequently confirmed on 4 June 2009. The settlement amount exceeded the provision already held in the balance sheet and as a result a non-underlying income tax charge of £52.7 million has been recorded. The key elements of the agreement are such that a small proportion of the liability is not currently payable and the remainder has been offset against the income tax receivable which the Group held on its balance sheet such that no cash payment has been made in respect of this offset. The amount has been treated as non-underlying owing to its one-off non-recurring nature. |
4 Net finance income
|
|
|
|
52 weeks ended 2 May 2009
£million |
53 weeks ended 3 May 2008 Re-presented £million |
|
Profit on sale of investments |
* |
- |
1.7 |
|
|
|
|
|
|
|
|
Bank and other interest receivable |
21.8 |
45.7 |
||
|
Expected return on pension scheme assets |
47.8 |
48.2 |
||
|
Fair value remeasurement gains on financial instruments |
* |
32.2 |
11.8 |
|
|
Finance income |
|
101.8 |
105.7 |
|
|
|
|
|
|
|
|
6.125% Guaranteed Bonds 2012 interest and related charges |
(18.3) |
(18.7) |
||
|
Bank loans, overdrafts and other interest payable |
|
|
|
|
|
- Underlying |
(24.1) |
(15.0) |
||
|
- Businesses to be closed |
* |
(1.9) |
(1.6) |
|
|
Finance lease interest payable |
(6.9) |
(7.1) |
||
|
Interest on pension scheme liabilities |
(47.2) |
(40.1) |
||
|
Fair value remeasurement losses on financial instruments |
* |
(39.6) |
(18.0) |
|
|
Finance costs |
(138.0) |
(100.5) |
||
|
|
|
|
|
|
|
Total net finance income - continuing operations |
|
|
(36.2) |
6.9 |
|
|
|
|
|
|
|
Underlying total net finance income - continuing operations |
(26.9) |
13.0 |
||
Underlying total net finance income excludes items marked *. See note 3 for a description of such items. Businesses to be closed comprise interest on bank loans and overdrafts.
5 Taxation
|
|
|
|
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|||
|
Current tax |
|
|
|
|
|||
|
UK corporation tax at 28% (2007/08 29.84%) |
0.2 |
(0.2) |
|||||
|
Credit in respect of non-underlying items |
* |
- |
(3.6) |
||||
|
|
|
|
0.2 |
(3.8) |
|||
|
Double tax relief |
|
|
(0.2) |
(0.1) |
|||
|
|
|
|
- |
(3.9) |
|||
|
Overseas taxation |
- underlying |
24.2 |
36.9 |
||||
|
|
- businesses to be closed |
* |
(1.1) |
(3.8) |
|||
|
Credit in respect of non-underlying items |
|
* |
(3.1) |
- |
|||
|
Adjustment in respect of earlier periods: |
|
|
|
|
|||
|
UK corporation tax |
- underlying |
6.8 |
(16.1) |
||||
|
- non-underlying |
* |
52.7 |
- |
||||
|
Overseas taxation |
(5.3) |
2.9 |
|||||
|
74.2 |
16.0 |
||||||
|
Deferred tax |
|
|
|
|
|||
|
Current period |
- underlying |
9.6 |
30.0 |
||||
|
|
- businesses to be closed |
* |
(2.5) |
(0.4) |
|||
|
(Credit) / charge in respect of non-underlying items |
* |
(24.4) |
6.6 |
||||
|
Adjustment in respect of earlier periods: |
|
|
|
|
|||
|
UK corporation tax |
- underlying |
1.6 |
9.3 |
||||
|
Overseas taxation |
- underlying |
|
(2.6) |
4.5 |
|||
|
|
- businesses to be closed |
* |
0.9 |
- |
|||
|
|
|
|
(17.4) |
50.0 |
|||
|
Income tax expense - continuing operations |
56.8 |
66.0 |
|||||
|
Underlying income tax expense - continuing operations |
|
34.3 |
67.2 |
||||
Underlying income tax expense excludes those items marked *. The UK corporation tax rate for the 53 weeks ended 3 May 2008 was 30% for the period up to 31 March 2008 and 28% thereafter. The effective tax rate on underlying earnings of 68% (2007/08 30%) is expected to fall in future periods due mainly to unrecognised losses starting to form a lower proportion of net profits/(losses).
6 (Loss) / earnings per share
|
|
|
52 weeks ended 2 May 2009
£million |
53 weeks ended 3 May 2008 Re-presented £million |
|
|
Basic and diluted (loss) / earnings |
||||
|
Total (continuing and discontinued operations) |
(219.4) |
(260.8) |
||
|
Discontinued operations |
- loss after tax |
|
22.1 |
9.6 |
|
Continuing operations |
(197.3) |
(251.2) |
||
|
Adjustments |
||||
|
Businesses to be closed |
14.1 |
15.9 |
||
|
Amortisation of acquired intangibles |
4.9 |
4.4 |
||
|
Net restructuring charges |
59.1 |
20.7 |
||
|
Business impairment charges |
107.3 |
364.2 |
||
|
Other items |
(1.9) |
- |
||
|
Profit on sale of investment |
- |
(1.7) |
||
|
Net fair value remeasurements of financial instruments |
7.4 |
6.2 |
||
|
190.9 |
409.7 |
|||
|
Tax on adjustments |
||||
|
Businesses to be closed |
(2.7) |
(4.2) |
||
|
HMRC settlement |
52.7 |
- |
||
|
Other non-underlying items |
(27.5) |
3.0 |
||
|
|
22.5 |
(1.2) |
||
|
Total adjustments (net of taxation) |
213.4 |
408.5 |
||
|
|
|
|||
|
Underlying basic and diluted earnings |
16.1 |
157.3 |
||
|
|
|
|
||
|
|
Million |
Million |
||
|
Basic weighted average number of shares |
2,148.7 |
2,184.6 |
||
|
Employee share option and ownership schemes |
3.1 |
5.8 |
||
|
Diluted weighted average number of shares |
2,151.8 |
2,190.4 |
||
|
|
Pence |
Pence |
||
|
Basic (loss) / earnings per share |
|
|
||
|
Total (continuing and discontinued operations) |
(10.2) |
(11.9) |
||
|
Discontinued operations |
1.0 |
0.4 |
||
|
Continuing operations |
(9.2) |
(11.5) |
||
|
Adjustments (net of taxation) |
9.9 |
18.7 |
||
|
Underlying basic earnings per share |
0.7 |
7.2 |
||
|
Diluted (loss) / earnings per share |
||||
|
Total (continuing and discontinued operations) |
(10.2) |
(11.9) |
||
|
Discontinued operations |
1.0 |
0.4 |
||
|
Continuing operations |
(9.2) |
(11.5) |
||
|
Adjustments (net of taxation) |
9.9 |
18.7 |
||
|
Underlying diluted earnings per share |
0.7 |
7.2 |
||
The weighted average number of shares used in the calculation for earnings per share information for all years presented in these financial statements has been multiplied by an adjustment factor to reflect the bonus element in the shares issued under the terms of the rights issue (as described in note 11). The adjustment factor used was 1.2138.
Basic and diluted (loss) / earnings per share are based on the loss for the period 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 Reconciliation of movements in equity
|
|
Share capital £million |
Share premium £million |
Other reserves £million |
Retained earnings £million |
Sub total £million |
Minority interests £million |
Total equity £million |
||
|
At 29 April 2007 |
46.1 |
166.2 |
(420.8) |
1,490.2 |
1,281.7 |
22.6 |
1,304.3 |
||
|
Total recognised income and expense for the period |
- |
- |
(91.1) |
(114.1) |
(205.2) |
3.5 |
(201.7) |
||
|
Equity dividends paid |
- |
- |
- |
(160.3) |
(160.3) |
- |
(160.3) |
||
|
Minority interests |
- increase in capital |
- |
- |
- |
- |
- |
6.1 |
6.1 |
|
|
Transfers |
- |
- |
(8.4) |
8.4 |
- |
- |
- |
||
|
Put option exercised |
- |
- |
15.6 |
- |
15.6 |
(5.4) |
10.2 |
||
|
Share based payments |
- |
- |
- |
(2.6) |
(2.6) |
- |
(2.6) |
||
|
Tax on share based payments |
- |
- |
- |
(5.7) |
(5.7) |
- |
(5.7) |
||
|
Purchase and cancellation of own shares |
(1.8) |
- |
1.8 |
(100.0) |
(100.0) |
- |
(100.0) |
||
|
Ordinary shares issued |
- employee options |
- |
3.2 |
- |
- |
3.2 |
- |
3.2 |
|
|
At 3 May 2008 |
44.3 |
169.4 |
(502.9) |
1,115.9 |
826.7 |
26.8 |
853.5 |
||
|
Total recognised income and expense for the period |
- |
- |
(52.8) |
(184.1) |
(236.9) |
3.5 |
(233.4) |
||
|
Equity dividends paid |
- |
- |
- |
(60.7) |
(60.7) |
- |
(60.7) |
||
|
Minority interests |
- increase in capital |
- |
- |
- |
- |
- |
5.7 |
5.7 |
|
|
Transfers |
- |
- |
(6.7) |
6.7 |
- |
- |
- |
||
|
Put option exercised |
- |
- |
27.5 |
- |
27.5 |
(10.0) |
17.5 |
||
|
Share based payments |
- |
- |
- |
2.1 |
2.1 |
- |
2.1 |
||
|
Tax on share based payments |
- |
- |
- |
0.2 |
0.2 |
- |
0.2 |
||
|
At 2 May 2009 |
44.3 |
169.4 |
(534.9) |
880.1 |
558.9 |
26.0 |
584.9 |
||
Minority interests comprise shareholdings in DSGi South East Europe AEVE (Kotsovolos), PIXmania and ElectroWorld Iç ve Dis Ticaret AS (ElectroWorld Turkey).
On 29 December 2008 the Group acquired a further 10% of Kotsovolos, following the exercise of a put option held by the main minority shareholder, Fourlis Holdings SA, for a total consideration of £27.5 million which together with previously acquired shares, brought its stake in Kotsovolos to 99.2 %. Included in other reserves is a reduction of £27.5 million (2007/08 £15.6 million) relating to the exercise of this put option.
8 Dividends paid
|
|
per share |
|
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|
Amounts recognised as distributions to equity shareholders in the period - on ordinary shares of 2.5p each |
||||
|
|
|
|
|
|
|
Final dividend for 2006/07 |
6.85p |
- |
126.4 |
|
|
Interim dividend for 2007/08 |
2.02p |
- |
36.6 |
|
|
Final dividend for 2007/08 |
3.43p |
60.8 |
- |
|
|
60.8 |
163.0 |
|
9 Notes to the cash flow statement |
(a) Reconciliation of operating loss to net cash (outflow) / inflow from operating activities
|
|
52 weeks ended 2 May 2009 £million |
53 weeks ended 3 May 2008 £million |
|
|
Operating loss |
(125.8) |
(194.9) |
|
|
Operating loss - discontinued operations |
21.5 |
3.9 |
|
|
Operating loss - continuing operations |
(104.3) |
(191.0) |
|
|
Amortisation of acquired intangibles |
4.9 |
4.4 |
|
|
Amortisation of other intangibles |
23.5 |
25.4 |
|
|
Depreciation |
112.2 |
111.7 |
|
|
Share based payment charge / (credit) |
1.8 |
(4.4) |
|
|
Share of post tax results of associates |
(3.6) |
(6.2) |
|
|
Loss on disposal of property, plant & equipment |
20.0 |
8.1 |
|
|
Profit on disposal of property, plant & equipment arising from restructuring |
- |
(15.6) |
|
|
Additions to non-underlying |
- provisions |
92.9 |
79.9 |
|
- impairment and accelerated depreciation / amortisation |
71.8 |
317.3 |
|
|
Utilisation of non-underlying provisions |
(82.7) |
(37.2) |
|
|
Operating cash flows before movements in working capital |
136.5 |
292.4 |
|
|
|
|
|
|
|
Movements in working capital: |
|||
|
Increase in inventories |
167.4 |
1.3 |
|
|
Increase in trade and other receivables |
(58.6) |
(7.8) |
|
|
(Decrease) / increase in trade and other payables |
(396.3) |
15.1 |
|
|
(287.5) |
8.6 |
||
|
|
|
|
|
|
Cash (utilised by) /generated from operations - continuing operations |
(151.0) |
301.0 |
|
(b) Analysis of net funds / (debt)
|
|
|
4 May 2008 £million |
Cash flow £million |
Other non-cash movements £million |
Currency translation £million |
2 May 2009 £million |
|
Cash and cash equivalents |
(i) |
365.8 |
(188.8) |
- |
15.6 |
192.6 |
|
Bank overdrafts |
|
(2.1) |
(2.5) |
- |
(0.2) |
(4.8) |
|
|
|
363.7 |
(191.3) |
- |
15.4 |
187.8 |
|
|
|
|
|
|
|
|
|
Short term investments |
82.0 |
(73.3) |
(0.9) |
1.2 |
9.0 |
|
|
|
|
|
|
|
|
|
|
Borrowings due within one year |
(0.2) |
(249.9) |
- |
- |
(250.1) |
|
|
Borrowings due after more than one year |
(294.6) |
0.1 |
(28.0) |
- |
(322.5) |
|
|
Obligations under finance leases |
(100.8) |
1.7 |
(2.4) |
(0.2) |
(101.7) |
|
|
|
(395.6) |
(248.1) |
(30.4) |
(0.2) |
(674.3) |
|
|
|
|
|
|
|
|
|
|
Net funds / (debt) |
50.1 |
(512.7) |
(31.3) |
16.4 |
(477.5) |
|
|
|
|
29 April 2007 £million |
Cash flow £million |
Other non-cash movements £million |
Currency translation £million |
3 May 2008 £million |
|
Cash and cash equivalents |
(i) |
440.5 |
(89.8) |
- |
15.1 |
365.8 |
|
Bank overdrafts |
(5.7) |
3.6 |
- |
- |
(2.1) |
|
|
|
|
434.8 |
(86.2) |
- |
15.1 |
363.7 |
|
Short term investments |
185.9 |
(103.1) |
(1.2) |
0.4 |
82.0 |
|
|
Borrowings due within one year |
|
(2.9) |
3.1 |
- |
(0.4) |
(0.2) |
|
Borrowings due after more than one year |
(290.4) |
2.2 |
(6.1) |
(0.3) |
(294.6) |
|
|
Obligations under finance leases |
|
(102.5) |
1.7 |
- |
- |
(100.8) |
|
|
(395.8) |
7.0 |
(6.1) |
(0.7) |
(395.6) |
|
|
|
|
|
|
|
|
|
|
Net funds |
224.9 |
(182.3) |
(7.3) |
14.8 |
50.1 |
|
Restricted funds, which predominantly comprise funds held under trust to fund customer support agreements were £67.6 million (3 May 2008 £66.5 million). Net debt excluding amounts held under trust to fund potential customer support agreement liabilities totalled £545.1 million (3 May 2008 £16.4 million).
|
(i) |
Cash and cash equivalents are represented as a single class of assets on the face of the consolidated balance sheet. For the purposes of the consolidated cash flow, cash and cash equivalents comprise those amounts represented on the consolidated balance sheet as cash and cash equivalents, less bank overdrafts (which are disclosed separately on the consolidated balance sheet and as disclosed in note 17). |
|
10 Related party transactions |
Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed.
Steve Rosenblum and Jean-Emile Rosenblum, members of the Executive Committee, together with close family members and companies controlled by them, own 22.0% of PIXmania, a company controlled by the Group. In connection with their management roles with respect to PIXmania, Steve Rosenblum and Jean-Emile Rosenblum received management fees of €258,000 (£217,000) (2007/08 €258,000 (£184,000)). Steve Rosenblum and Jean-Emile Rosenblum together hold call options over additional shares in PIXmania representing 16.8 per cent of its share capital. The options can be exercised from 30 April 2011 and are subject to the achievement of targets related to earnings and certain capitalisation values of the PIXmania business. In addition to the call options, Steve Rosenblum and Jean-Emile Rosenblum have certain exit rights in relation to their holdings in PIXmania.
Steve Rosenblum and Jean-Emile Rosenblum own one building, and previously owned a second building that was disposed of in July 2007, both of which are occupied and leased by Group undertakings. During the period ended 2 May 2009 total rental payments of €597,000 (£502,000) (2007/08 €1,550,000 (£1,105,000)) were charged in relation to these properties.
11 Post balance sheet events
On 30 April 2009 the Group announced a Placing and Rights Issue to raise gross proceeds of £310.6 million, of which £100 million was to be raised by the Placing. The Placing comprised in aggregate 333,333,333 Placing Shares available for subscription at an issue price of 30 pence per Placing Share. The Rights Issue was made on the basis of 5 new shares for each 7 eligible shares at 14 pence per new share. The Placing and Rights Issue were both approved by shareholders on 18 May 2009 and the receipt of proceeds was completed on 9 June 2009.
Also on 30 April 2009 the Group announced that it had revised the terms of its £400 million revolving credit facility (The Facility) and Letter of Credit facility agreements (the Letters of Credit) which were effective immediately (subject to completion of the Placing and Rights Issue but which has now completed). The expiry date of the Facility remains unchanged at 13 October 2011. The final maturity date of the Letters of Credit is now 31 December 2010.
On 19 May 2009 the Group disposed of its operations in Hungary to EW Electro Retail Ltd for consideration of €1.
On 16 June 2009, following the exercise of a put option by the majority shareholder of a Nordic associated undertaking, the Group acquired full control of this entity for consideration of NOK 111 million (£11 million).
OTHER INFORMATION
GOING CONCERN
In considering the going concern basis for preparing the financial statements, the directors have considered the Group's objectives and strategy, risks to achieving its objectives (including treasury risks) (which are set out below) and its review of business performance (which is set out above).
Over the course of 2008/09, the current difficult consumer and retail environment has placed significant pressure on the Group's revenue, profits, cash flows and overall liquidity. This together with the cost of restructuring the Group, higher finance costs and pressures on working capital due to structural changes to the credit environment, has contributed to an increase in the Group's indebtedness. The continued uncertainty over the economic outlook has made it necessary for the Group to take steps to improve the capital structure of the Group to sustain the business through the current economic cycle. For these reasons, on 30 April 2009 and as described in note 11 to the financial information, the Group announced a Placing and Rights Issue to raise gross proceeds of £310.6 million as well as agreeing with its lending banks to amend terms of the Facility and the Letters of Credit. The Placing and Rights Issue completed on 9 June 2009 and its proceeds have significantly improved the Group's liquidity position since 2 May 2009. In conjunction with applying the Group's policies in relation to liquidity risk (as described below), the directors believe that these amendments will provide the Group with significant covenant and liquidity headroom under these facilities for the foreseeable future.
After reviewing the Group's expenditure commitments, current financial projections and expected future cash flows, together with the available cash resources and undrawn committed borrowing facilities the directors have considered that adequate resources exist for the Group to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements.
RESPONSIBILITY STATEMENT
The 2008/09 Annual Report and Accounts which will be issued on 31 July 2009, contains a responsibility statement in compliance with DTR 4.1.12 of the Listing Rules which states that as at the date of approval of the Annual Report and Accounts on 25 June 2009, the directors confirm to the best of their knowledge:
the Group and unconsolidated Company financial statements give a true and fair view of the assets, liabilities, financial position and loss of the Group and Company, respectively; and
the business and financial review includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties they face.
RISKS TO ACHIEVING THE GROUP'S OBJECTIVES
As required by DTR 6.3.5 of the Listing Rules the risks to achieving the Group's objectives as considered by the Board are set out below. The Board recognises that the profile of risks changes constantly and additional risks not presently known, or that are currently deemed immaterial, may also impact on attainment of the Group's business objectives.
(i) Macro economic factors
Economic environment
DSGi's operating and financial performance is influenced by the economic conditions in each of the countries in which it operates. The economic environment impacts on consumer spending on electrical and computing goods in many ways. Consumer confidence is an important influence on spending on electrical and computing goods, which is largely discretionary. Unemployment levels, interest rates, consumer debt levels, availability of credit, costs of food, fuel and energy, taxation and many other factors influence consumer confidence and customer spending decisions. In addition, house moves and home improvements, which are influenced by the economic environment, impact on consumer spending on domestic appliances.
The Group recognises that the current difficult economic climate may affect individual countries and regions, which has resulted in a general reduction in consumer confidence and spending. Management therefore monitors economic metrics and works closely with suppliers to adjust forecasts of demand. Stock orders are realigned and, where possible, selling capacity and support services are flexed in response to changing expectations.
Meeting customers' needs
What differentiates specialist electrical retailers is the wide range of products stocked and the provision of services that customers want, in a convenient location with staff that provide excellent service at competitive prices. Giving outstanding service is a key ingredient of the Group's Renewal and Transformation plan.
Regular surveys of customer satisfaction are conducted across all stores. The results are used to assess store performance and to drive high standards across each chain. Customer feedback is used to shape our ranges and to understand where the Group can be more responsive to customers' needs.
Seasonality
The Group's business is highly seasonal, with a substantial proportion of its revenue and operating profit generated during its third financial quarter, which includes the Christmas and New Year season. In addition, in southern Europe, hot summer periods encourage sales of air conditioning units and, accordingly, this forms a second peak period of trading.
Any factors negatively affecting DSGi during the third financial quarter of any year, including adverse weather, product sourcing issues, incorrect stock forecasting or unfavourable economic conditions, could have a disproportionately adverse effect on DSGi's financial performance or results of operations for the year.
Competition
The Group operates in a highly competitive environment. There are few barriers to new entrants to markets for the sale of electrical goods. Businesses therefore join and leave the market and / or expand or reduce their product ranges in response to competitive forces. Different channels to market have different cost structures and different appeal to customers.
The Group continuously monitors the activities of its competitors and potential competitors in each of its markets and takes appropriate action in terms of, for example, its product and service offering and pricing to maintain and strengthen its position. The Group actively manages its brands through advertising, promotions and enhancing the retail experience with the goal of ensuring the Group's stores are seen as the primary destination for electrical goods.
Market margin pressure
The level of margins in electrical retailing is governed by a combination of the market and buying prices. Consumer demand, manufacturer supply, competition from store and internet channels, regulation and taxation all impact on margins. The Group is focused on protecting margins through maximising its international buying scale, maintaining an efficient supply chain and placing continued emphasis on strong selling skills. The Group actively manages its cost structures to mitigate the impact of product margin erosion.
Price deflation
Price deflation has been a common feature across most electrical goods categories for a number of years, primarily driven by improving efficiencies in production throughout the life cycle of a product. The Group works closely with its suppliers to bring products to the mass market to meet the increased sales volume driven by price deflation. Where the effect of price deflation is not countered by an increase in sales volumes, the importance of strong cost and expense management, as well as stock management, in maintaining or growing money margins, is increased. (ii) Store portfolio
Quality and location of store portfolio
The quality and location of the Group's store portfolio is a key contributor to the Group's performance and growth strategy. The Group principally operates from large out of town stores in convenient locations that are accessible to substantial numbers of customers. The Group continually reviews its store portfolio in both the UK and overseas and its business is dependent on identifying and securing favourable new sites, reformatting existing stores at an acceptable return on investment and assigning, sub-leasing or terminating lease obligations at an acceptable cost where it no longer wishes to operate.
The Group will continue to actively manage its store portfolio to optimise the location, size and costs of each of its stores. In areas where the population catchment is lower, franchising of the Group's brands offers the potential for market growth. The Group has franchised brands in Norway (Elkjøp), Italy (UniEuro), Sweden (El Giganten), Greece (Kotsovolos), Cyprus (Kotsovolos), Finland (Gigantti), Iceland (Elko), Greenland (Pisiffik), and the Faroe Islands (El Ding).
(iii) Employees
The Group is dependent on its senior management to operate its business and execute its strategies. It has a decentralised management structure with many high-level management responsibilities devolved to regional or country management. The Group has a strong reputation for developing retail leaders with entrepreneurial spirit. All retailers also face the challenge to attract, develop and retain the right calibre of staff for their business. Through the Group's retail reputation, development and incentive programmes and the career opportunities afforded by its size and diversity of operations, the Board believes that the Group is well placed to build on its success.
(iv) Supply of product and product life cycles
Responding to changing technology or consumer preferences
DSGi's success largely depends on its ability to anticipate and introduce new products, services and technologies to consumers, as well as on the frequency of such introductions, the level of consumer acceptance of new products, and the related impact on the demand for existing products, services and technologies. Some electrical and computing products sold by DSGi are subject to rapid technological change, which shortens their life cycle and may negatively impact sales of existing stock by DSGi as consumers may elect to purchase newer products or defer their decision to purchase once technological changes have been announced.
As new technologies become more widely recognised and valued by consumers and sales volumes and availability increase, these types of products have historically tended to suffer a level of price deflation. Careful management is required by the Group to avoid a decrease in the value of its inventory and the risk of stock obsolescence when products are superseded by those that have newer or more popular technology or design, which could lead to a write-off or write-down of stock.
Responding to changes in credit insurance
It is important for the Group to be able to source the electrical and computing goods its requires from its suppliers. Suppliers in the electrical goods and computing products market have traditionally taken out credit insurance to protect their receivables against the risk of bad debt. However, as a result of the current economic downturn, many credit insurers have reduced or withdrawn the availability of insurance to electrical and computing product suppliers, which may impact on the Group's working capital. The management team engages in discussions with its suppliers and, in some cases, the credit insurers to those suppliers. The Rights Issue and refinancing announced on 30 April 2009 has provided the Group with a stronger financial base to provide comfort to the Group's suppliers and their credit insurers with regard to the Group's working capital position.
(v) Entering new markets
The Group enters new markets by introducing new types of business in the countries where it already operates (for example, the development of its product support services business, The TechGuys, in the UK) and by launching its existing businesses in new countries (such as Turkey). Expansion can be through acquisition or the establishment of new businesses. As with store openings, the entry into new markets results in increased revenue, but also results in upfront or start-up costs to the Group.
Historically, the Group has utilised its considerable experience of developing new retail chains through both start-ups and acquisitions. Start-ups usually commence with a small number of stores, which involves relatively smaller upfront costs, with a larger roll out if the start-up proves successful (such as ElectroWorld in Turkey).
The Group's growth through acquisition has been either in stages (such as the acquisition of Kotsovolos in Greece) or as outright purchases in a single stage (such as the acquisition of the Elkjøp Group).
(vi) Treasury risks and policies
Treasury operations are managed centrally within policies approved by the Board and are subject to periodic independent internal and external reviews. Group Treasury reports regularly to the Audit Committee and the Tax & Treasury Committee. The major treasury risks to which the Group is exposed relate to market risks (movements in foreign exchange and interest rates), liquidity risk and credit risk. Areas where risks are most likely to occur are evaluated regularly. The Group uses financial instruments and derivatives to manage these risks in accordance with defined policies. Throughout the period under review, in accordance with Group policy, no speculative use of derivatives, foreign exchange or other instruments was permitted.
Exchange rate risk
The Group is exposed to exchange movements on recognised assets and liabilities, overseas earnings and translated values of foreign currency assets and liabilities. The Group's principal translation currency exposures are the Euro and Norwegian Krone. Taking into account the cost of hedging, the Group's policy is to match, in whole or in part, currency earnings with related currency costs and currency assets with currency liabilities through the use of appropriate hedging instruments.
The Group is also exposed to certain transactional currency exposures. Such exposures arise from purchases in currencies other than in the functional currency of the entity. The Group's principal transactional currency exposures are the US Dollar and Euro. It is Group policy to minimise the currency exposures on such purchases through the use of appropriate hedging instruments such as forward exchange contracts. Such contracts are designed to cover exposures ranging from one month to one year.
Interest rate risk
The principal interest rate risks of the Group arise in respect of sterling cash, investments and borrowings, hedged internal Norwegian Krone liabilities and Euro borrowings. Potential exposure to interest rate movements is mitigated by the Group's policy to match to the extent possible the profile of interest payments with that of its interest receipts. Taking into account the cost of hedging, further mitigation is achieved with interest based credit commissions received and through the use of interest based hedging instruments. Such matching is evaluated regularly to ensure that risks are minimised.
Liquidity risk
It is Group policy to maintain a balance of funds, borrowings, committed bank and other facilities sufficient to meet anticipated short term and long term financial requirements. In applying this policy the Group continuously monitors forecast and actual cash flows against the maturity profiles of financial assets and liabilities. Uncommitted facilities are also maintained and used if available on advantageous terms. It is Group treasury policy to ensure that a specific level of committed facilities is always available based on forecast working capital requirements. Cash forecasts identifying the Group's liquidity requirements are produced and are stress tested for different scenarios including, but not limited to reasonably possible decreases in profit margins and increases in interest rates on the Group's borrowing facilities and the weakening of sterling against other functional currencies within the Group.
Credit risk
The Group's exposure to credit risk on liquid funds, investments (mainly bank deposits and floating rate notes) and derivative financial instruments arises from the risk of non-performance of counterparties, with a maximum exposure equal to the book value of these assets. The Group limits its exposure to credit risk through application of Group treasury policy which restricts counterparties to those with a minimum Moody's long term credit rating of Aa3, bank financial strength rating of C and short term credit rating of P1. In the prior period, the policy on investment restricted counterparties to those with a minimum Moody's long term credit rating of Aa3, short term credit rating of P1 and bank financial strength rating of B-. The Group also has policies that limit the amount of credit exposure to any single financial institution. The Group continuously reviews the credit quality of counterparties, the limits placed on individual credit exposures and categories of investments. The Group does not anticipate non-performance of counterparties and believes it is not subject to material concentration of credit risk given the policies in place.
The Group's receivable balances comprise a large number of individually small amounts from unrelated customers, spread across diverse industries and geographical areas. Concentration risk is therefore limited and maximum exposure is equal to the book value of receivables. Sales to retail customers are made predominantly in cash or via major credit cards. It is Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. New credit customers are assessed using an external rating report which is used to establish a credit limit. Such limits are reviewed periodically on both a proactive and re-active basis, for example when a customer wishes to place an order in excess of their existing credit limit. Receivable balances are monitored regularly with the result that the Group's exposure to bad debts is not significant. Management therefore believe that there is no further credit risk provision required in excess of the normal provision for doubtful receivables.
Capital risk management
It is the Group's policy to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Group is subject to certain externally imposed capital requirements in the form of banking covenants involving borrowing ratios which it met throughout the period.
The Board has delegated responsibility for routine capital expenditure to a Capital Committee, which has approval responsibility for: Group long term and budgeted capital spend, setting capital assessment criteria, new store capital approval, subsidiary company funding, business acquisitions, business disposals and contingent liabilities such as guarantees. The Committee also approves routine statutory and internal delegated powers of authority in relation to capital expenditure.
The Group considers the manner in which funds are distributed to shareholders by assessing the performance of the business, the level of available net funds and the short to medium term strategic plans concerning future capital spend as well as the need to meet banking covenants and borrowing ratios. Such assessment will influence the level of dividends payable as well as consideration from time to time of market purchases of the Group's own shares.
The Group monitors available net funds on a regular basis and this is affected by Free Cash Flow, one of the Group's key performance indicators.
(vii) Pension risk and policies
The principal pension scheme operated by the Group is the UK defined benefit scheme.
This scheme is subject to risks regarding the relative amount of the scheme's assets, which is affected by the value of investments held by the scheme and the returns derived from such investments, as compared to its liabilities, which are affected by changes in life expectancy, inflation and future salary increases. In the short term, the difference between the value of liabilities and assets may vary significantly, potentially resulting in an increased deficit having to be recognised on DSGi's balance sheet. In the current overall volatile market environment, there is an increased risk that large deficits may arise on DSGi's pension schemes and that overall deficits of the UK defined benefit scheme in particular may increase further.
In recent years, the pension trustee, in consultation with the Company, has implemented changes to the scheme's investment strategy to mitigate the volatility of liabilities and to diversify investment risk.
(viii) Systems failure
In common with other large businesses, the Group relies heavily on its information technology systems to enable its customers to purchase products in store, online and over the phone as well as record and process transactions and manage its operations. These systems provide information regarding most aspects of financial and operational performance, including sales and stock information and, given the number of transactions that are completed and the importance of the efficient management of stock, it is vital to maintain continuous operation of the computer hardware and software systems. Notwithstanding efforts to prevent an information technology failure or disruption, the Group's systems may be vulnerable to damage or interruption from fire, telecommunications failures, floods, physical or electronic break-ins, computer viruses, power outages and other malfunctions or disruptions.
The Group has developed emergency procedures that are regularly tested. The Group carries out evaluation, planning and implementation analysis before updating or introducing new systems that have an impact on critical functions.
(ix) Outsourcing/ insourcing
The Group outsources a proportion of its UK call handling, IT and HR services including payroll. While these contracts produce significant cost savings, the Group recognises the increased dependency on third parties, in particular the relationships with its IT partner, HCL, and its payroll provider, Northgate, to deliver core activities and has put in place appropriate service level agreements within the contracts. The Group is bringing in-house the operations of its outsourced call centres in Nottingham and Sheffield on 10 July 2009. The Group recognises the risk of failing to integrate these services back into the operations and is going to integrate the management of these services.
(x) Damage to property and consequential business interruption
The Group operates from a large number of sites, all of which are subject to the risks of fire, weather and water damage and in some cases are subject to earthquake and other specific risks. The Group operates from a small number of distribution and administrative sites, all of which are subject to the risks of fire, weather and water damage and, in some cases, earthquakes. The Group's ability to distribute merchandise to its stores and to sell and distribute merchandise to its customers is reliant on its operational infrastructure, particularly the efficient functioning of its distribution centres and distribution network. Failures or unavailability of such infrastructure (caused, for example, by fire, structural damage, natural disaster, industrial action or terrorist activity) could result in disruptions to the Group's ability to deliver products to its stores or its customers.
The Group regularly reviews and assesses these risks, takes action to mitigate the likelihood and cost of potential incidents and has insurance in place to cover material exposures. Business continuity plans are in place to respond to major disruption to the business.
(xi) Legislative, reputational and regulatory risks
The Group is subject to a range of legal and regulatory requirements originating from the UK and the European Union, particularly in the areas of consumer protection, product safety, competition, extended warranties, copyright royalties or levies, health and safety, taxation, the environment, labour and employment practices and transportation.
Compliance with these laws and regulations may result in significant costs for the Group and changes in such laws and regulations or the policies regarding enforcement may have an adverse impact on the Group in terms of cost, changes to business practices or restrictions on activities. In addition, legal, regulatory and other developments affecting the countries in which the Group operates may have a material adverse effect on DSGi's business. The Group engages with governmental bodies in the UK and Europe through trade associations such as the CBI and British Retail Consortium, or directly, where it considers it appropriate to do so.
Tax laws that apply to the Group's businesses may be amended by the relevant authorities, for example as a result of changes in fiscal circumstances or priorities. Such potential amendments and their application to the Group are regularly monitored and, if relevant, appropriate actions taken to ensure ongoing efficiency.
Social, environmental and ethical risks that might impact on the Group's reputation are annually monitored by the Board.
(xii) Customers' confidential information
The Group must comply with restrictions on the use of customer data and ensure that confidential information (including financial and personal data) is transmitted in a secure manner over public networks. Controls have been put in place to ensure the confidentiality, availability and integrity of customer and company data. They are under constant review to ensure we prevent a successful attack from computer programmes that attempt to penetrate the network security and misappropriate confidential information. However, due to advances in these programmes, computing capabilities and other developments, there is no guarantee that the Group's security measures will be sufficient to prevent breaches.
RETAIL STORE DATA
|
|
Number of stores |
Selling space '000 sq ft |
|||||
|
|
2 May 2009 |
3 May 2008 |
2 May 2009 |
|
3 May 2008 |
||
|
|
|||||||
|
UK & Ireland |
|||||||
|
Currys * |
519 |
537 |
|
4,988 |
|
5,052 |
|
|
Ireland ** |
32 |
30 |
|
329 |
|
303 |
|
|
UK & Ireland Electricals |
551 |
567 |
|
5,317 |
|
5,355 |
|
|
|
|||||||
|
PC World |
161 |
160 |
|
2,545 |
|
2,528 |
|
|
UK Computing |
161 |
160 |
|
2,545 |
|
2,528 |
|
|
|
|||||||
|
Total UK & Ireland |
712 |
727 |
|
7,862 |
|
7,883 |
|
|
|
|||||||
|
Nordics |
|||||||
|
Norway |
114 |
103 |
|
1,348 |
|
1,249 |
|
|
Sweden |
66 |
61 |
|
1,148 |
|
1,071 |
|
|
Finland |
34 |
34 |
|
544 |
|
529 |
|
|
Denmark |
27 |
28 |
|
473 |
|
490 |
|
|
Iceland |
3 |
3 |
|
32 |
|
32 |
|
|
Islands |
3 |
9 |
|
17 |
|
122 |
|
|
Total Nordics ** |
247 |
238 |
|
3,562 |
|
3,493 |
|
|
|
|||||||
|
Other International |
|||||||
|
Italy ** |
174 |
201 |
|
2,587 |
|
3,061 |
|
|
Greece ** |
102 |
89 |
|
1,133 |
|
939 |
|
|
Spain |
41 |
38 |
|
603 |
|
589 |
|
|
Turkey |
8 |
5 |
|
270 |
|
186 |
|
|
Southern Europe |
325 |
333 |
|
4,593 |
|
4,775 |
|
|
|
|||||||
|
Czech Republic |
17 |
16 |
|
441 |
|
511 |
|
|
Poland |
9 |
6 |
|
257 |
|
198 |
|
|
Slovakia |
3 |
- |
|
57 |
|
- |
|
|
Central Europe |
29 |
22 |
|
755 |
|
709 |
|
|
|
|||||||
|
Total Other International |
354 |
355 |
|
5,348 |
|
5,484 |
|
|
|
|||||||
|
Continuing Retail |
1,313 |
1,320 |
|
16,772 |
|
16,860 |
|
|
|
|||||||
|
Hungary |
9 |
9 |
|
299 |
|
299 |
|
|
Businesses to be closed |
30 |
45 |
|
429 |
|
505 |
|
|
|
|||||||
|
Total Retail |
1,352 |
1,374 |
17,500 |
|
17,664 |
||
* Comprises Currys, Currys.digital and Dixons Travel.
** Includes franchise stores.
RE-PRESENTED UNDERLYING SALES AND PROFIT ANALYSIS FOR THE 24 WEEKS ENDED 18 OCTOBER 2008
|
|
|
Underlying sales |
|
Underlying profit /(loss) |
|||
|
|
24 weeks ended 18 October 2008 £million |
24 weeks ended 13 October 2007 £million |
Like for like % change |
24 weeks ended 18 October 2008 £million |
24 weeks ended 17 October 2007 £million |
||
|
|
|||||||
|
|
|||||||
|
UK & Ireland Electricals |
1,138.2 |
1,191.4 |
(6)% |
|
(22.3) |
14.1 |
|
|
UK Computing |
696.0 |
772.0 |
(11)% |
|
11.6 |
14.8 |
|
|
UK & Ireland |
1,834.2 |
1,963.4 |
(8)% |
|
(10.7) |
28.9 |
|
|
Nordics |
652.2 |
559.4 |
(7)% |
|
33.3 |
37.8 |
|
|
|
|||||||
|
Southern Europe |
565.9 |
505.2 |
(10)% |
|
(13.5) |
(11.7) |
|
|
Central Europe |
58.0 |
47.7 |
n/a |
|
(5.5) |
(3.4) |
|
|
Other International |
623.9 |
552.9 |
|
(19.0) |
(15.1) |
||
|
e-commerce |
275.6 |
224.6 |
8% |
|
1.0 |
0.9 |
|
|
|
|||||||
|
Central Costs |
|
- |
- |
|
|
(13.2) |
(10.2) |
|
|
|||||||
|
Total Group Retail |
|
3,385.9 |
3,300.3 |
(7)% |
|
(8.6) |
42.3 |
|
|
|||||||
|
Underlying net finance (charges) / income |
(6.1) |
10.5 |
|||||
|
Property (losses) / profits |
(5.3) |
6.8 |
|||||
|
|
|||||||
|
Group underlying profit before tax |
|
(20.0) |
59.6 |
||||
Underlying sales and profit analysis for the 24 weeks ended 18 October 2008 and 24 weeks ended 13 October 2007 has been re-presented to exclude the trading results of businesses to be closed and discontinued operations.
Related Shares:
DXNS.L