3rd Mar 2009 09:30
3 March 2009 - PR 12/09
Strictly embargoed
For release at 09.30 hours
DSG international plc
RENEWAL AND TRANSFORMATION UPDATE
DSG international plc, one of Europe's largest specialist electrical retailers, is today hosting analysts and investors at its Birmingham Currys Megastore to provide an update on its Renewal and Transformation plans.
The ten months since the 15th May 2008, when DSGi announced its five point plan, has been a period of intense activity:
Transformation plan is working well - moved from concept to execution.
5 new formats delivering for customers - 60 stores reformatted in the UK so far.
90-120 stores targeted to be reformatted in the UK and Nordics in 2009/10.
Successful new Megastore trial to be rolled out to 5 further stores this year in the UK.
Business processes for stock, service and distribution are being re-engineered.
Italian turnaround on track.
Restructuring of PC City in Spain to focus on cash.
Strategic review in Central Europe progressing.
Financials
New format stores have delivered average gross profit uplifts of 15% to 50% versus the chain.
Capital expenditure guidance of £140m to £155m in 2009/10 and £155m to £165m in 20010/11.
Renewal and transformation plan on track to deliver 3% - 4% return on sales in the medium term.
Cost savings of £95 million to be achieved in current financial year.
Further £50m of cost savings targeted per annum to be reinvested to improve the customer offer.
John Browett, Chief Executive, commented:
"The past ten months have been a period of intense activity for the Group, and the results of our new formats show that our plans are working. The store transformation programme in the UK is delivering both sales and margin uplift ahead of expectations, and we are on track with plans to reformat another 90-120 stores in the UK and Nordics over the next 12 months.
While the current economic climate is impacting us in the short term, the good progress we have made with our Renewal and Transformation plan is already making a difference for our customers. This gives us confidence we will come out of the recession stronger and better positioned to deliver a good return for our shareholders."
Transforming the business
DSGi is making significant progress on delivering on its five point plan set out on 15 May 2008. The primary purpose of today's analyst and investor visit to the new Currys Megastore in Birmingham is to provide an update on the store transformation programme in the UK.
As part of the programme to reinvigorate Currys and PC World as the destinations for electrical products, computing and new technology, new store formats have been developed. To date 13 Currys Superstores, 4 CurrysDigital stores, 41 PC World Superstores, one new Currys Megastore and one trial combined Currys and PC World store have been reformatted. These stores provide improved layout to ease navigation as well as offering a wider range of products and services.
This transformation is working across all the new store formats with average gross profits increasing by 15% to as much as 50% over the most recent 6 week period. With capital expenditure in the larger superstores of between £20 to £40 per square foot and approximately £100 per square foot in the smaller High Street stores the cash payback is expected to be 3 - 4 years.
The Currys Superstore and CurrysDigital refits provide a significantly improved shopping environment for customers. A grid layout with clear signage enables customers to find the products they are looking for more quickly as well as encouraging longer dwell times in store. Improved mix between product categories and wider ranges combined with the new colleague training programmes deliver for customers. The average gross profit uplifts for the newly formatted Currys stores over the most recent 6 week period has been between 15% and 35% versus the rest of the chain. Gross profit uplifts of as much as 50% have been achieved in the mezzanine stores where the combination of improved layout, improved ranges and enhanced customer services are delivering most effectively.
The reformatted CurrysDigital stores experienced gross profit uplifts of between 30% and 40% versus the chain. DSGi believes that CurrysDigital can operate most effectively from 100 sites around the UK, mostly focused in city centres and smaller catchment areas. As set out on 15 May 2008 the Group plans to exit the remaining High Street locations.
In PC World the uplift in gross profit has been 10% on average. In stores where the Renewal & Transformation plan has been fully embedded, gross profit uplifts have been in the range of 15% to 25%. Management believes that there are further improvements that can be made following the rapid roll out of 41 new format stores in 2008. Several stores did not achieve the target level of availability. In addition, for the smaller stores, further changes to the format to emphasise the new consumer electronics ranges are planned. In the meantime the PC World refits will focus on those stores where management believe the greatest uplift can be achieved.
The Group is trialling a combined Currys and PC World store in a catchment area where no PC World previously existed. This store encompasses all the benefits and improvements of the new format PC World and Currys Superstore formats. The performance from this store has been encouraging so far with a gross profit uplift of over 50% versus the standalone Currys store prior to reformatting. Further dual branded store trials will be opened during the course of the year.
The 55,000 ft2 Currys Megastore in Birmingham opened on 16 October 2008 achieving £2.3 million of sales in its first four days. This store is on track to generate £30 million to £35 million of sales per year and has achieved an average gross profit uplift of over 50% since being reformatted. DSGi has leveraged its skills in operating Megastore formats across mainland Europe in developing this Currys Megastore, key elements of which are the management structure within the store, the depth of range, merchandising and logistics infrastructure to support the high densities across the product categories. DSGi believes that there is scope for between 20 - 50 such superstores across the UK and has plenty of opportunities within the existing Currys and PC World portfolio to achieve this.
It is expected that between 90 to 120 stores across the brands in the UK and Nordics will be reformatted during the financial year 2009/10.
Focusing the portfolio
In addition management will update attendees on the ongoing transformation of the international portfolio of the Group:
The turnaround plan in Italy is starting to deliver. In the 24 weeks to end of December 2008:
(a) Like for like sales were 5% to 6% ahead of a very weak market, with margins slightly ahead of the prior year;
(b) Total costs were reduced by 11% year on year;
(c) Stock management has improved with aged stock reduced and in-store availability up 20% year on year, with further improvements expected;
(d) Store closures are ahead of schedule with the 43 stores to be closed this financial year and a further 10 stores designated for closure;
(e) Successful trial of PC City implants in UniEuro stores in 14 locations. These implants have delivered a gross profit uplift of some 10% versus the store prior to adding the implant and management are planning to open a further 11 this year. Management see further opportunities for more of these implants across the remaining store portfolio in 2009/10; and
(f) Management believe that a further €60 million to €75 million of cash will be required to achieve profitability over the next 3 financial years.
In Spain, DSGi has concluded that in the current market environment optimal shareholder value can be realised by restructuring the PC City operation. A programme is being put in place to reduce costs and to minimise cash outflow until the market recovers. In addition, trials of the new UK formats will be undertaken in PC City Spain to improve the relative performance of the stores. Management believes that the losses, post the restructuring, are expected to be limited to £5 million to £8 million per annum during the recession.
The strategic review in Central Europe continues and further updates will be provided at the end of the current financial year.
Operational improvements
A significant amount of activity is focused on re-engineering the processes within the Group to make things better for customers, easier for colleagues and cheaper for the Company.
In the current financial year cost savings of £95 million have been achieved enabling Group cost growth to be limited to 1%, despite 3% increase in space and 3% inflation.
There has been significant progress to date with improvements to the delivery infrastructure, at no extra cost. This provides Currys and PC World customers with the option of next day delivery in 3 hourly slots when ordering in store.
Management believes there remains a significant opportunity for productivity improvements within the Group through:-
Process re-engineering of service delivery, such as getting deliveries and repairs right first time;
Improved administration and cycle times; and
Cost reduction actions in areas such as logistics and stock holding.
Management are targeting that these actions will deliver £50million of productivity improvements per annum for the next 3-4 years.
Sales of services are growing as products become more complex. Customers want help and support for their products at the point of sale and when they get the product home. DSGi operates the UK's leading nationwide technical support service, The TechGuys. DSGi believes that there is a significant opportunity to provide further help, support and other services to customers as well as improvements in the way DSGi delivers these services. As such DSGi believes there is the opportunity to improve profitability by approximately £20million over the next three years by delivering improved services for customers.
Wining on the Internet
DSGi already has over £1 billion of annual sales over the internet across Europe. The PIXmania e-merchant platform is one of the leading internet sales engines for electrical products in Europe. This platform is being rolled out to Dixons.co.uk and DSGi's other multichannel internet websites during the course of this year. This will also enable PIXmania to access DSGi's logistics infrastructure across Europe reducing cross border stock and pricing risk. Leveraging the PIXmania e-merchant platform provides improved functionality, easier navigation for customers, better product information and accessory attachment.
For further information:
Investor relations
David Lloyd-Seed Group Communications Director, DSGi 01727 205 065
Media
Mark Webb Head of Media Relations, DSGi 01727 205 019
Jayne Rosefield Brunswick Group 020 7404 5959
Information on DSG international plc is available at http://www.dsgiplc.com
A video webcast of the presentation being held this morning will be available from 6.30pm today at http://www.dsgiplc.com/webcast09
NOTES
(1) 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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