Proposed disposal of Comet and First Half Trading

Wednesday 9 November 2011

Proposed disposal of Comet and First Half Trading Statement

Proposed disposal of Comet

Kesa Electricals plc (the "Company" or "Group") announces today that it has entered into an agreement with Hailey Holdings Ltd and Hailey Acquisitions Limited, entities advised by OpCapita LLP (the "Purchasers"), to sell to them Comet Group plc, its subsidiaries and Triptych Insurance N.V. (together, the "Comet Group" or "Comet") for an aggregate consideration of £2. The sale is subject to approval of the disposal by the Company's ordinary shareholders (the "Ordinary Shareholders"). In addition, there will be an investment by the Group of £50 million into Hailey 2 LP ("Holdco" the shareholder of the Purchasers). The Company will retain the liability for the Comet Defined Benefit Pension Scheme.

David Newlands, Chairman of Kesa Electricals plc, said:

"In June 2011, the Board decided to explore strategic alternatives for Comet in parallel with implementing the turnaround plan focused on restoring profitability at Comet over the medium term.

"Having concluded the review of its strategic alternatives, the Board believes that a disposal on the terms agreed with the Purchasers is in the best interests of Ordinary Shareholders and delivers a more certain outcome than continuing with the turnaround plan. Whilst good progress has been made against the turnaround plan's strategic objectives, in reaching its view the Board took into account: the ongoing negative impact of Comet on the financial position of the group; the significant challenge involved in achieving an acceptable level of profitability at Comet over the long term given the specific competitive nature of the UK market; and the substantial costs involved if the turnaround plan proved to be unsuccessful."

The principal terms and conditions of the proposed sale are outlined in Appendix I of this announcement. A circular containing further details of the disposal, and including more specific information on these proposals and setting out the notice of the Extraordinary General Meeting will be sent to Ordinary Shareholders as soon as is practicable. The disposal is expected to complete on 3 February 2012.

The proposed terms of the transaction and write down of Comet's assets would have resulted in the Group having negative net assets of €11m on a proforma basis as at 30 April 2011, which has no impact on the dividend paying ability or debt capacity of the Group. The proposed disposal is expected to increase the Group's ongoing reported earnings and significantly reduce its lease exposure, thus improving the Group's financial strength while enabling management to focus on fully embedding the Darty concept across the Group.

First Half Trading Statement

For the period 1 May 2011 to 31 October 2011, based on unaudited management accounts. Revenue figures are provided in Appendix II of this announcement.

Total Group revenue fell by 7.6 per cent in euros, 6.2 per cent in local currency, and by 7.9 per cent on a like-for-like basis. The revenue performance reflected an improvement in all divisions in Q2 compared to Q1 despite increasingly challenging underlying market conditions through the period. Web-generated sales continued to be developed successfully, growing by nearly 6 per cent and now represent 12 per cent of total product sales.

Overall gross margin improved by around 10 basis points reflecting our strategy of driving sales of higher margin small domestic appliances and accessories. However, sales of these categories only partly offset a poor vision market and a weaker refrigeration and air conditioning market due to the poor summer across Europe.

Darty France continued to outperform a market that has weakened further since the end of the back to school period. Revenue fell by 2.4 per cent and by 3.7 per cent on a like-for-like basis. Stable white goods sales and growth in multi-media were insufficient to off-set a strong decline in TV sales. Overall gross margin slightly declined. Web-generated sales continued to grow strongly, by 18 per cent, and now represent 12 per cent of total product sales. In the light of these trends actions are being taken to address the cost base, but unless current market conditions significantly improve, we expect Darty France's retail profit for the full year to be below the prior year.

During the period Comet completed the planned service centre and logistics consolidation as well as a store relay programme ahead of peak season. These actions however had a short-term impact on Comet's revenue, which fell by 17.9 per cent in local currency and by 18.6 per cent on a like-for-like basis. The focus on arresting margin loss together with the continued relative outperformance of higher margin product categories contributed to an improvement in gross margin of 70 basis points for the period.

At the Other established businesses, BCC, Vanden Borre and Datart, revenue increased by 0.7 per cent in local currency and fell by 0.2 per cent on a like-for-like basis. Web generated sales increased by 20 per cent and now represent over 9 per cent of total product sales. The benefits of the Darty concept continued to be demonstrated with improved sales and gross margin trend at BCC, an improvement towards the end of the period at Datart and continued sales growth and market share gains at Vanden Borre. Overall like-for-like sales were up 2.4 per cent in the second quarter and gross margin improved by 40 basis points for the period.

At the Developing businesses, Darty Italy, Darty Turkey and Darty Spain revenue increased by 5.2 per cent in local currency and fell by 8.0 per cent on a like-for-like basis, with an overall improvement in the second quarter of 1.2 per cent like-for-like sales. Given the market conditions in Spain and Italy and stock clearance ahead of competitor closures in Spain, overall gross margin was down 200 basis points. Darty Italy held share in an increasingly promotional market that has experienced a deteriorating trend. Darty Spain strongly outperformed the market delivering a positive like-for-like sales performance in the second quarter and maintained share having closed the five stores not viable for rebranding to Darty. In both Italy and Spain we are seeing sharply contrasting store performance and we are taking actions to address weaker stores in the portfolio. Darty Turkey delivered a strong sales performance, taking share in a positive market.

As previously highlighted the positive impact of the World Cup in the prior year and market conditions across Continental Europe, will result in the balance of revenue, profit and cash flow being significantly more weighted than last year towards the second half of the financial year. In line with this, and weaker trading conditions in the later part of the period in France and the UK it is anticipated that the Group will deliver a first half retail loss of around €11m, including a retail loss of around €26m at Comet.

As indicated above, in the light of the outcome of the competitive sales process we have undertaken, we have reviewed the carrying value of assets at Comet and expect to write down the majority of Comet's fixed assets in our first half results.

Commenting on the Group's first half performance, Chief Executive Thierry Falque-Pierrotin said:

"The first half of the year has been challenging with weakening market conditions. Nevertheless, the implementation of our strategic actions helped to deliver overall market share gains, an improvement in gross margin and further progress on our cross channel web strategy.

"We are well prepared for peak season and continue to lay the foundations to face continuing tough markets successfully, reducing our cost to serve and delivering best in class cross channel solutions to our customers, supported by the strength of our balance sheet."

ENDS

There will be a telephone conference call for analysts at 08:00 on 9 November 2011. If you would like to listen to a recording of this call, please visit the company's website www.kesaelectricals.com after 10.00am.

The Group will issue its half year results on Wednesday 7 December 2011.

Enquiries

Analysts

Kesa Electricals plc

Simon Ward +44 (0) 20 7269 1400

Media

Simon Ward UK +44 (0) 20 7269 1400

Vinciane Beurlet France +33 (0) 1 43 18 52 00

Finsbury

Rollo Head +44 (0) 20 7251 3801

Jenny Davey

BofA Merrill Lynch +44 (0) 20 7628 1000

Solon Kentas

Andrew Tusa

George Close-Brooks

Citigate Dewe Rogerson (for OpCapita) +44 (0) 20 7638 9571

Grant Ringshaw

Tom Baldock

Information on Kesa Electricals plc

The Group's business comprises: (i) Darty in France, (ii) Comet in the United Kingdom, (iii) BCC in the Netherlands, Vanden Borre in Belgium and Datart in the Czech Republic and Slovakia (together, the "Other established businesses"), and (iv) Darty Italy, Darty Turkey and Darty Spain (together, the "Developing businesses"). As at 30 April 2011, the Group's business operated through 724 stores throughout Europe.

Principal products sold by the Group are categorised as white, brown and grey electrical goods and related accessories. White goods include large and small sized domestic appliances, brown goods include vision and audio products and grey goods include telecommunications and multimedia products.

The Group's strategy is to push market differentiation by rolling out the Darty concept, build a true European network, grow profitable cross channel sales and operationally leverage the Group's size.

The Group's revenue for the year ended 30 April 2011 was €5,917.3 million and its operating profit was €75.1 million, of which €1,808.8 million and an operating loss of €30.2 million respectively were attributable to the Comet Group. As at 30 April 2011, the Group had net assets of €216.1 million and gross assets of €2,050.3 million of which €116.1 million and €553.2 million respectively were attributable to the Comet Group (including the Comet Defined Benefit Pension Scheme).

Information on OpCapita

OpCapita LLP is a private investment firm that focuses on operational change opportunities in the European retail and consumer sectors. The firm's partnership combines financial expertise with in-house operating partners who have strong operational track records. OpCapita acquires and invests in companies that are strategically sound but represent performance improvement opportunities where the potential exists to create long-term, sustainable value.

Lazard acted as financial adviser to OpCapita.

This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction.

Merrill Lynch International ("BofA Merrill Lynch") is acting as financial adviser to the Company in connection with the proposed disposal announced today. BofA Merrill Lynch is acting exclusively for the Company in connection with such disposal and for no one else and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the proposed disposal.

Overseas shareholders should inform themselves about and observe any applicable legal or regulatory requirements. If you are in any doubt about your position, you should consult your professional advisor in the relevant territory.

Appendix I

Principal terms and conditions of the disposal of Comet

The Comet Group will be sold to the Purchasers for an aggregate consideration of £2, subject to certain adjustments relating to cash, intercompany debt, working capital and exceptional items which the Board anticipates will not in aggregate be a material amount. In addition, the Group will invest £50 million in Holdco which will be funded from Kesa's existing cash resources.

The investment will entitle the Group to participate in the equity proceeds of any subsequent sale (or other exit) of Comet by Holdco. No return will be received by the Group unless the net exit proceeds received by Holdco exceed £70 million.

The Board believes that the proposed capital structure of Holdco, with £30 million equity from the Purchasers' investors and access to a £40 million asset-backed lending facility, in addition to the Group's £50 million investment, gives Comet funding to operate in the current trading environment. The Purchasers have confirmed it is their intention to conduct the business of Comet as a going concern for at least 18 months from completion of the disposal.

The pledged funds held by the Group to satisfy extended warranty and service contract arrangements, amounting to €72.7 million as at 30 April 2011, will remain with Comet following the disposal.

The liability for the Comet Defined Benefit Pension Scheme, which is already substantially guaranteed by the Group (and which had a net deficit of €45.9 million as at 30 April 2011) will be retained by the Group following the disposal. The scheme closed to future accrual on 30 September 2007 and had 5,323 members as at 30 April 2011 (3,673 deferred members and 1,355 pensioners). The Trustee has agreed that the terms of the deficit recovery plan for the scheme will not be altered as a result of the disposal.

The disposal is conditional, amongst other things, on:

(a) the passing of an ordinary resolution by Ordinary Shareholders at the Company's Extraordinary General Meeting approving the disposal;

(b) receipt of appropriate clearance from the Pensions Regulator; and

(c) consent from the Central Bank of Curaçao and St. Maarten in relation to Triptych Insurance N.V., in accordance with Curaçao law.

Appendix II

First Half Revenue

For the period 1 May 2011 to 31 October 2011, based on unaudited management accounts.

Revenue growth as reported in Euros Revenue growth in local currency

* BCC, Vanden Borre and Datart

** Darty Italy, Darty Turkey and Darty Spain

Quarterly like-for-like sales