WORLD TELEVISON Dixons Retail Interim Results Presentation 24th November 2011
WORLD TELEVISON
Dixons Retail
Interim Results Presentation 24th November 2011
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Dixons - Interim Results Presentation 24th November 2011
John Browett: So we're going to go through quite a lot of material this morning
just to give you a sense of the activity going on. There are several
points which we want to make, and I'm even going to actually try
and sell you a computer, because I think there's a reason why you
should all be rushing down to the stores now. And for those of
you who have chiropractors they'll be particularly unhappy that
you're buying that project because it will probably mean that you'll
have less visits to them.
As you know the thing, which we're trying to do, is to implement
this service led business model. We use customer insight to
design all the things which we do in terms of the customer offer,
the way the stores work, the way the internet does, how we select
our products, etc. But underpinning all of that is actually the low
cost operating model, because we've got to be the right price for
customers, we have to have big ranges which are expensive to
list in the stores and we have to offer the service as well.
So the only way we can do that is by actually doing the work on
the operating costs, and one of the things which we wanted to be
very clear with you about is one of the reasons why we're able to
manage and control the profitability of the business is being able
to take that money in times which are this tough and as is for
example in the UK is to half the operating losses in the first half
through cost reductions.
So in terms of this half-year announcement, what we would say is
that we really do believe is that our service led business model is
working well. Group sales were actually up 1%, 2% down in
constant currency terms. But I think that's still a very credible
performance in what has been quite turbulent markets and where
we're lapping the launch of iPad and the World Cup.
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We've been growing share consistently in all the markets we
operate in, because the plan works not just in the UK but across
all the marketplaces. And the reasons why that plan works is it's
great for customers, but we're also getting a lot of help from our
supply base and that's the big thing which distinguishes our
business from some of the other people operating in the
marketplace, where they're actually fighting against the suppliers
in the way in which they operate.
Customer satisfaction has improved again, I'll show you the latest
updates today since we're seeing big improvements year on year,
but also quarter on quarter. And that's one of the reasons we did
the Star Wars ad.
Stock management has improved quite dramatically, in constant
currency terms it's about 10% up; this is just so you can reconcile
back to the overall numbers. We are very pleased by that
because of course it's helping us with our cash generation and
there's more of that to come in the future. And therefore as I
mentioned we're also on our low cost operating model, we're very
comfortable we'll be able to take 60 million of costs out of the
business this year.
Just talking to the various business units, a little bit of an
improvement in the second quarter in the UK, like for like sales
down for the half, down 5%, sorry 8% - the total down 5%. But in
the second quarter we actually had very good back to school, in
fact for the back to school period we were - for the four weeks
around that we were actually slightly positive sales increase year
on year which we were quite pleased by.
It is still challenging out there so we're not sort of saying it's all
coming good in terms of the consumer, it's going to be a hard few
months ahead. But just to remind you, for peak trading we've
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been up for the two weeks before Christmas and the two weeks
after Christmas we've been up every single year since 2007. So
I'm not saying it's going to be an easy Christmas, but I'm also
saying for our market, we sell highly desirable things which are a
big part of gift and of course sale is very important to us.
KNOWHOW has embedded into our business very well, we're
very pleased by the numbers, we're on plan for our KNOWHOW
sales, that's launched extremely well with customers, they really
like the services and we're getting very good cut through with the
set up services, etc, which we're doing in store. So the
KNOWHOW bars which you see on the high street, or the
KNOWHOW clinics which you see in the out of town stores are
doing extremely well. That's been a big improvement and it looks
like a business that has got lots of legs in it, it looks like we can do
much more with it in the future.
Just a technical note, for the next time we do the update for you,
we're actually going to put Dixons.co.uk back into the UK
numbers. We'll show you a reconciliation so you can see there
are no shenanigans about that. The reason why we're doing that
is it's actually how we run the business, so from the technical
accounting perspective we have to change it this way. We don't
have the Pure Play French business operating Dixons.co.uk it's
actually run by the UK team.
This just a couple of bits of data just to help you around staff
measures, these again are the ones which come straight off our
system. This is the results from our exit interviews and you can
see the darkest line here are our latest numbers, again significant
improvements year on year and we're very pleased by this, it's a
big thing.
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And what's really interesting though, and this is the measure,
which we look at probably most of all, is very likely to recommend,
the advocacy measure in the business and that's now over 70%.
Again you can see big improvements year on year and of course
with the next graph we're over 90%. So that's not really a big
measure, it's this very likely we know is the thing which actually
forms opinions about our business.
And as a consequence of this we of course have actually now
started to advertise for the first time in Currys and PC World's
history the service which we deliver in store as a separate item,
no price, nothing else, not a tag but the real thing. I just wanted to
show you the adverts on that …
Adverts Shown
John Browett: These are the stings which we're now doing on YouTube.
Adverts Shown
John Browett: So I think you'll agree it's a completely new departure for the
business in terms of the way in which we want customers to look
at the business. And the partnership which we have with Lucas
Films which we're very privileged to be able to use that - is
because they actually like the association with the technology, etc,
and of course because of the launch of the Star Wars product on
Blu-Ray.
The other thing which we're also doing is continuing to work on
the offer which we have for customers. So this is just a few
examples, this is Infinity for tablet, so the idea here is that you pay
a monthly amount and then after two years you're able to get
another tablet. It's been quite popular actually; we're quite
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surprised by the uptake. But also within it you also get Cloud
services, and again that's been quite attractive to customers.
Similarly, we're actually now selling Cloud storage in our business
as an additional service, which is offered. Again it's the power of
actually have a sales force is that you can do these things. This
has actually been very popular in the last few weeks of course
because external hard drives have become very expensive
because of the flooding in Thailand and this we think is how
customers will save their data in the future, especially with the
new product coming along.
And also we're using now our customer database much more
effectively in terms of targeting offers online, in terms of email, so
you'll see a lot of that. And one of the reasons why we don't do as
much newspaper advertising now is we actually put the resources
from newspapers into CRM, it's a much more effective way for us
to communicate to customers who are interested in particularly
products.
And in the gift guide we've been running a wish list in conjunction
with the Gadget Show which has been highly popular, really
popular we've had tens of thousands of people sign up in order to
be part of that. And of course there are three things it gives us,
one it gives us customer information because they have to sign
up and give us their email address. Second of course it gets
people to actually take the gift guide and have a good look at it.
And then the third thing which was probably unexpected in a
sense, it gives us an indication of what customers are really
interested in.
So the number one item this year is iPad, number two - is Dr Dre
headphones, sorry I think that's number five, it's a bit of a pot full.
It's a little bit sad this but the other one which is very popular with
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women is a food mixer. I have to say it's a £400 food mixer but it's
the number one product. Anyway there you go.
We also in terms of improving the offer we've actually done quite
a lot in terms of shopping trip. On your seats you'll actually have a
little foldout which is now the customer journey we have in our
large stores. And what we're doing here is walking customers
through the features and benefits of buying large screen TVs,
we're very pleased with the results of this. And again it's the thing
which you can do with a sales force, because this doesn't work on
its own, you just can't put this up in a store. You actually can walk
people through the size, the technology, smart, 3D and sound on
this wall. And we've had very good results in terms of average
selling price and we think this is the thing - why customers come
to our stores, to have things explained.
Similarly in computing and we actually had a few of these outside,
we have Project Auto… where we're lifting products out of the run
and actually showing people the features and benefits which are
actually genuine customer enhancements for particularly
products.
So one of the products we do there is the HP DV6 it's a mid range
computer, typically sells for £600, £600 to £800, £599 to £799
and the reasons why you would buy that machine is it actually has
aluminium casing to it, so it will look good in two or three years
time, it has a fingerprint reader on it, so it means it's very easy and
very secure to use, and it has good battery life, it's about five
hours battery life which is about double the normal battery life.
These are not about fees and speeds, these are about genuine
customer benefits and we've found this to be really helpful in
explaining to customers how to differentiate the product from a
£299 laptop.
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In fact while we're on the subject of new products I also wanted to
show you this because people often ask me, well the trouble with
laptops, etc, is that there's not real reason to upgrade. So this is
the latest ultrabooks, this is a new category you'll see this big next
year. It involves the new Intel processors, so this is the Sandy
Bridge processor. So this is essentially a MacBook Air, but at
much, much better pricing in terms of for the mass market. And
it's between - the rules for actually calling it an ultrabook it's got to
be between 1.1 and 1.4 kilos, it can't be more than I think 18
millimetres, or 20 millimetres and in order to have that it has a
solid state disk storage.
The great thing about this is that the battery life can be up to 12
hours, but certainly 8 hours easily. The reason why I made the
joke about the chiropractor of course is that this is the one you will
all want because it makes your briefcases much, much lighter
indeed. And when you actually open it up, so this is where of
course it will go wrong, it's always the same with the technology, it
comes on straight away.
So there'll be a lot of reasons for people next year to come and
buy laptops. These products are in, we've got the first three
products in our range for Christmas, they range between £699
and £999, that will get the early adopters in to buy it and
especially people who work in the City who've got lots of money.
But next year there will be products which start from £599 in that
space and it's not a product which is going to be - you won't see
that at £299 any time soon, it's a better quality product, a better
quality processor and a big innovation in the marketplace.
We're also working on developing our format further, I know a
number of you have seen the store in Stratford, but I just wanted
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to do a quick fly through. This is actually the Stratford store, but
we'll go through a video to fly through some of our latest formats.
Video Shown
John Browett: So I was in Grantham yesterday, sorry we only opened the store
last week so we haven't had a chance to get the video ready for
those stores. But the core point which I wanted to make with that
is that we're continuing to develop the format, our stores must be
cool places to come which you really want to shop in. And the
reason why we're working particularly hard on the colours which
you'll see in the store and the way in which the shops work is that
these shops really appeal to younger customers and to women,
because our belief is that that is core market for us. At the
moment we find these places a bit cold and impersonal, so we've
had very good results out of the change in the way in which we're
retailing.
This is just somewhat slightly different, this is actually a design
skill which we've built in the business over the last three years,
this actually helped us a lot with our relationships with our supply
base. In fact this year we've done a lot of - now most of the things
which come into our stores, the supplier stands, are actually
designed by us, they're not designed by the supplier. We've
found that we can do a better job for them and can do it more cost
effectively.
And the people at Harrods saw what we've been doing,
particularly in our Black store in Birmingham and have asked us
to do the technology store in Harrods and I was just going to give
you a quick fly through about what this store will look like and it
really will look like this.
Video Shown
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John Browett: Don't worry we haven't gone soft, we're still hard on price, but just
to show you that there is something more to our business than
product and price, it is about the service, and it is about the
shopping experience.
Just to move onto our overseas business Elkjøp had a very good
first half, this is of course in sterling terms, total sales up 16% like
for like sales strong at 5%, which I think we a very credible
performance given that they had, in this period they actually had
the World Cup and iPad as well. They are strongly investing, as
you know from the investor day, which is we're still strongly
investing in gross margin. So we've held our first half profits
broadly.
One of the things that's making a big difference there is also the
store refurbishments which we're doing. The Megastores and
Superstores we've done have been very successful, we're really
pleased by the performance there, particularly the Megastores.
We are going to now manage Central Europe out of the Nordic
business and probably no surprise given what we've done there,
that we're now actually growing that business at double digit
positive like for like, growing market share and actually starting to
leverage the operating model Elkjøp. What it's meant is that
we've actually been able to take out quite a lot of cost in Central
Europe as we're actually running it off the Elkjøp hub.
Just a few words on the other international businesses, Greece,
obviously a very, very challenging environment, I think our
management team there get the prize for the most difficult
business to run. What has been exceptional though has been the
teamwork which they've shown in terms of getting the cost down
and taking market share. So although we've been very heavily
impacted by certainly the recent turbulence there, we're getting
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very strong support from suppliers, we're now up at believe it or
not almost 30% market share and we think there's more problems
for the competitor set to come.
Italy actually I think has done remarkably well, again for some of
the problems there. We know we're trading ahead of the market
and that's because we're still getting the benefits from the
turnaround plan feeding through. We've opened some new
stores there, we have refurbished some stores and we're getting
new uplifts there from the Winning New Revenues format. And
so we've now actually got 24 of our stores out of the hundred or
so we operate there on that new format and that looks good.
It's not easy, there have been profitability issues in Italy because
of some of the problems our competitors are in and that has
actually hurt our margins a bit in the first half, but nonetheless a
very good performance.
And then Turkey, and this is like going to another planet of course
because the Turkish market operates much more like Russia, or
India, or China, it's very much of that ilk. The market I think
cumulatively year to date is up 20%, it has slowed a little bit, but
it's still growing at probably 10% clip at the moment.
Our stores there have done amazingly well, we've had fantastic
acceptance from Turkish customers, and we've really got a good
brand established in the major cities. We're now taking that out
into the smaller cities, of course these are still catchment areas of
half a million, or a million people, with our franchise network. This
was a strategy we used in Greece, Nordics, to expand those
businesses when they were first established so we know exactly
how to do it. And the initial results are astounding, astounding
sales density. So we're very pleased, because it's the first time
these markets have seen proper electrical stores.
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If you remember how electricals are distributed in that
marketplace, it's through single brand manufacturer franchise
outlets. So to see full range and full availability of product is
unusual.
We've got nine franchises open already, we expect to be opening
another 15 over the next 12 months and eventually there's no
really why we can't have a hundred in Turkey, it's a big market
and there's plenty of space there for us to do that.
Just moving on to Pixmania, so Pixmania is going through quite a
big transition at the moment and the results are not where we'd
want them to be; partly because they're very strong in cameras
and camcorders. Camcorders is a market which has shrunk quite
a lot, but in cameras this year, particularly the higher end of
cameras Pixmania was impacted by the tsunami. We had issues
around supply. But nonetheless we've been able to grow some
other categories in order to make up for that.
We've been expanding PixPlace which is their marketplace, that's
going very well. And we've now opened these Pixmania stores,
we at some point will have to give you a separate briefing about
that so you understand why we're so excited, but these stores are
about 1,000 square feet, 100 square metres, they sell at internet
pricing and they generate very high sales density. In fact higher
sales density than we do at our airport stores. So we'll have sort
of ten or so in the right format of that open through the next few
months and then if that works we're going to rollout quickly.
The bigger news on Pixmania which has held back their
profitability and has held back the attention of the business has
been launching our e-merchant services. And as you probably
know we opened our Carrefour, or we opened the Carrefour
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website on Monday. It's a soft launch because Carrefour is a big
brand and we need to get this right, we have to get it right for their
customers. And as you know Carrefour have had some issues in
the past on websites and so therefore they're quite cautious about
that. It's opened, it's working, it's very good.
This is actually completely our technology end to end. The site is
absolutely fantastic; it's our first implementation of Google search.
So if you go onto the website and search on it you'll find it's very
fast and very forgiving of making spelling mistakes, etc. That I
think is probably one of the best search engines I've seen in the
world, we'll implement it in the UK as soon as we can and on the
French site, on Pixmania sites as well.
We think this is a very large opportunity. Carrefour, just so people
are clear because there is some press about their performance,
they are the largest retailer in Europe. This website, the first
website we've launched on has seven million hits a month. So
the potential for us to build a very big e-commerce business is
pretty obvious.
We have all the infrastructure, so essentially what we're doing
here is we've created for them world class infrastructure, with a
world class website, with a world class brand. And the
combination of those things should be very, very powerful indeed.
There will be thrills and spills along the way to build that, but if you
compare the performance of this site there is no other
multichannel mass merchant in Europe who's got anything close
to this. This is a real breakthrough in the thing. So we'll see how
it goes, if it works it'll be very profitable for both Carrefour and
ourselves.
So Humphrey is now going to take us through the numbers.
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Humphrey Singer: Thanks John. So good morning everybody, so we delivered a
robust performance in spite of the challenging markets in which
we operate with total Group sales up 1% to £3.3 billion and down
2% on a constant currency basis.
We are reporting profit before tax of £2.4 million and that
compares to a loss last year of £11.4 million. This was net of a
non-underlying credit of £27.7 million which predominately arose
from a £37.2 million profit on the sales and subsequent leaseback
of the Group's Nordic distribution centre in Jönköping in Sweden.
So underlying losses before tax were £25.3 million, impacted of
course by the tough market conditions and competitive pressures,
but offset by substantial cost savings.
Group gross margins were down 60 basis points, with a much
improved performance in the second quarter, especially in the UK
where margins ended up 20 basis points for the first half. I think
evidence of the strong partnerships what we have with our
suppliers, but also the work we have done to reduce costs and
improve operational efficiencies.
We generated £105 million of free cash before restructuring items
and that compares to £24 million last year. The sales of
Jönköping brought in £58 million, but we also prudently reduced
our capital expenditure in the half, which meant we were able to
reduce our net debt significantly to £143.2 million.
We maintained significant headroom on the Group's £360 million
revolving credit facility throughout the half and I'm pleased to say
we're not currently drawing on the facility.
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As I mentioned we made significant cost savings across the
Group, and are on target to deliver £60 million of cost savings this
years as part of our three year £150 million programme.
So just turning to sales I think John's really covered most of the
detail here; but just to recap, trade improved in the second
quarter with like for like declines reduced from down 7 to down 3,
to give a blended minus 5 for the first half. So we had a good
back to school period, I think gaining share in most of the markets
in which we operate, so overall Group sales up 1% to £3.3 billion.
So turning to profit before tax the UK and Ireland improved year
on year by £6.8 million as margins increased and we substantially
reduced costs really across all lines on the P&L, including store
efficiency, stock management, central costs, and also some
reductions in marketing as we anniversary the strong World Cup
promotional period last year.
Nordics remained strongly profitable with some margin invested
to drive market share, as John talked about earlier, and to
consolidate our strong position.
Other international losses increased as we saw the impact of the
very difficult economic environment in Italy and Greece. In both
markets as you'd expect we are taking very tough action on costs,
some of which will, I'm confident drive more benefit in the second
half. And then in Turkey, completely different, profitability is
improving as the business gains more critical mass. And in all of
these markets we continue to gain share.
E-commerce losses increased driven primarily by the sales
reduction, but also as John referenced earlier investments in
developing our e-merchant business, some of which will drive
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benefit, God willing, with the Carrefour site going live in the
second half. So looking forward to that.
Property losses were in line with expectations and mainly
comprise store re-site and store asset disposal costs associated
with the Renewal and Transformation plan and that's
predominantly in the UK and Nordics. We still expect
approximately £15 million of losses for the full year.
Underlying net finance costs were up year on year, primarily due
to the effect of the higher coupon rate on the 2015 bonds issued
part way through last year's first half, but also a net foreign
exchange loss compared to a net gain in the prior year.
Non-underlying items are previously mentioned are
predominately profits on the sales of Jönköping, offset by other
charges including the final trading losses of the closed Spanish
business. Some restructuring charges relating to the
transformation of the UK business, additionally it includes £4
million relating to the UK riots. These are however the subject of
ongoing insurance claims and we expect to recover many of
these costs.
So turning to the positive free cash, we've generated strongly
positive free cash in the half of £72.6 million, this has resulted
primarily from a combination of the property disposals, but also
prudent capital expenditure. Working capital inflow was £63.6
million, this reflects the normal cyclical increase at this point in the
year, but also improvements in stock management with overall
group stock levels down 12% year on year.
Now this is partly offset by two headwinds totally approximately
£30 million that will be disclosed at the last year-end. So one of
those results from the closure of the Spanish operation where
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stock had been sold before last year end, but paid for this year
and secondly the impact of the additional Royal Wedding bank
holiday on the last Friday of the last financial year.
Cash tax improvement year on year is just a timing issue, the
improvement you see there and doesn't change our full year
expectations. However, I should note that we expect the
underlying tax charge in the P&L on full year earnings to be
approximately 49%. This increase reflects greater losses in
jurisdictions where no tax benefit has been recognised, and also
the non-recurrence of one off leases that benefited last year's
rate.
Net restructuring predominately comprises costs of £23.8 million
associated with the closure of operations in Spain. So to reiterate
we have substantially reduced net debt to £143.2 million, we're
not currently utilising our revolving credit facility, and we remain
on track to repay our 2012 bond in November next year. So I'll
now hand back to John to summarise.
John Browett: Thanks Humphrey. Yes so the clear thing which again we
wanted to go through with you today was look the service led
multichannel model works, it's exactly the right way to retail in this
market, it works for customers and it works for our supply base,
it's a very important part of how we go to market.
You can see the improvements we're making to the shopping trip,
those improvements are actually what has caused the
competitive pressure in the UK market which has then caused
other people to make decisions about how they're going to run
their business.
We're growing share as a consequence of that and while we're
making all these improvements we're reducing the debt within the
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business. Now clearly we're cautious about the outlook, but what
we wanted to show you with these numbers, that we're absolutely
in control of the situation, we can control working capital, we can
control stock, we can control the profitability of the business by
the work which we're doing behind the scenes in the operating
model.
There are still many improvements to feed through, we have
improvements to feed through in the portfolio, the cost of the real
estate in our company, we have lots of process improvements still
to come and we still think we can turn the stock faster in the future.
And all of those things mean that we can control our destiny and
make the business work more effectively in the future.
We're not reliant necessarily on improvements in the marketplace,
our view is that the next few years are going to be quite hard, not
disastrous, but it's just going to be a hard time and therefore
you've got to make your own profitability out of this business, not
actually be reliant on the overall market.
So with that sort of summary of where we are I'd now like to open
up for questions.
Chris Chaviaras, Barclays Capital: Hi, three questions from me if I may. The first one on the
revolving credit facility, can you remind us if year on year you
have undrawn RCF last year and also what are your plans, when
do you think that you'll start engaging it, if you can give us a sense
of what will the pick be, and then what your expectations about
after Christmas with the RCF?
Then secondly on Greece, I take it that this is the highest, I mean
the losses that are coming from the other international are mostly
out of Greece, can you give us a sense of where these losses are
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and your next couple of years view, I mean since you took a
decision to exit Spain why not Greece is my question?
And thirdly how much do you plan to save on Italy's cost because
you said that in the second half you'd expect to take costs out?
Thank you.
Humphrey Singer: RCF last year we were drawn, I think it was approximately 80 to
90 million, so there's a significant improvement year on year.
Actually we've been tracking generally around about 100 million
better than the prior year. So expectations, I think you're asking
after Christmas, so we'll go through the usual building up of
significant cash through Christmas and then it will outflow in
February/March and that's traditionally a time when we do dip
back down into the borrowings, potentially not this year so we'll
just see how it goes, all to play for at Christmas.
John Browett: So if we manage it well we shouldn't actually draw the facility
again until, well we actually won't draw the facility at all will we.
Humphrey Singer: Yes so I think …
John Browett: … until we repay the bond a little bit, you have a draw a little bit
when we repay the bond.
Humphrey Singer: So as we've said before there will be a drawing in the November
of next year when we repay the bond to the tune of about 100
million.
John Browett: Greece, well in Greece you're right we do lose money there but
we have been quite prudent we've actually taken some provisions
on a loan book we have out there. The provisions are ahead of
actually the real experience we're having on the consumer loan
book so we're market leader there, we're taking huge share, we
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should actually generate cash in Greece this year still. And so it's
actually a very good business, we're the market leader; it would
be very unusual to give up on being the market leader even in a
market as difficult as Greece is at the moment.
And we think that in fact at the end of this the sales will eventually
recover even if it never goes back to the peak of 2007, even a
small improvement we'd make big money there. So I think there's
absolutely no case whatsoever for coming out of Greece so it's
very different from our position in Spain … no it's not a big loss
which we make in Greece.
In Italy the savings come progressively though the year, what do
you want to indicate on that?
Humphrey Singer: Yes I think single digit millions, so Italy is already a pretty lean
operation, it's been through some pretty tough times and it's been
part of their turnaround to get leaner. So I would think of it in that
sort of order of magnitude. And they're going through as all the
business are, another round of very challenging conversations
around cost and some of that we will see come through in the
second half.
Chris Chaviaras, Barclays Capital Thank you, very helpful.
Philip Dorgan, Panmure Gordon: I'd like first of all to pick up something that John said in his
presentation, we're all skint, we can't afford these expensive
items for Christmas … not without a big discount … every little
helps as some retailer says.
Two questions, what is the impact of Best Buy, positive or
negative on you numbers at the moment? And secondly because
I know you keep on confidently saying you're going to repay these
bonds in November 2012 as if it's a given but the way the share
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price reacting it isn't a given. So can you explain in words of one
syllable why you're so confident and run through the numbers
please?
John Browett: Okay so on Best Buy there's very little impact on the business. 11
stores we actually know what the number is in terms of how much
stock they've got left, it's not enough to have any impact on the
business, they're going to close all the shops by the 23rd
December. I think they'll actually run out of stock in many of the
stores before then so that's really not a planning piece.
I think we will get benefit from that next year but again it's not
enough to move the numbers really. It'll be great for the store
managers who are head to head with them but nothing which we
really could make overall.
In terms of the bond repayment I suppose it's always possible in
our business that Christmas might not happen. But many years
ago when I was working in another retailer, a very grizzled older
guy, when everybody was running round panicking said to me let
me tell you John, I was a strategy director at the time, he said
you're new to this business but Christmas comes every year. And
of course he's absolutely right in our business if you look at peak
trading and this is not a prediction because it's always possible
that it will go wrong but our peak trade, which is the two weeks
before Christmas, and the two weeks after Christmas have been
stronger every year since 2007.
So we are confident that we've got cash generation in this
company. The year on year numbers we've given you are
conservative in terms of how we're doing on the debt facility, we
are planning our capex conservatively for next year. This is a
very cash generative business, there's no reason why we can't
generate the cash.
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Dixons - Interim Results Presentation 24th November 2011
Humphrey Singer: So I'd add that we've demonstrated I think in this half that we can
generate cash particularly when we're prudent around capex.
And we continue to look at the outlook and manage accordingly
and I think that's how we'll deliver it through running the business
prudently.
Philip Dorgan, Panmure Gordon: Okay thanks.
John Browett: So we're perplexed by some of the things, the notes that people
write, we don't understand how they do the calculations …
All talking together
Humphrey Singer: The irony is when you repay the 2012 I suspect the price on the
2015 will go up won't it …
Pause and Chat
Assad Malic, Credit Suisse: Morning, just three questions. Again in terms of this 60 million
cost savings could you just break out how much was delivered in
the first half? Secondly on the gross margin, given the sort of
swing in the UK between Q1 and Q2 what's your planning
assumption for margin going into Christmas and if you want to
give us your sales planning assumptions that would be quite
helpful?
John Browett: I'm sure our competitors would love that.
Assad Malic, Credit Suisse: And just lastly in terms of the store space in the UK, I'm just
looking at your numbers, obviously the actual store count's come
down but the space has gone up. Just wondering if you can
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Dixons - Interim Results Presentation 24th November 2011
update us on the store closure plan over the next two to three
years and what you think in terms of space as well? Thank you.
Humphrey Singer: So just on the savings I think you can assume that they are more
weighted to the first half. So we've had a real good go on costs in
the UK and you can see that in our numbers, some of that is
phasing as I said when I was speaking, there was marketing
significantly in the first half a year ago. So I think overall I think it's
40/20 roughly speaking in that order of magnitude of the 60.
John Browett: And that doesn't mean that it's going to run out it's just the
phasing that we - look we expected, we worked out that it was
going to be hard in 2011 in the first half - this financial half so we
brought forward our plans in order to actually take the costs out of
the business early in the year. So we were very, very tough in our
budget rounds and squeezed the business for the programmes of
work which they're doing.
We will almost certainly run the same programme for next year,
because we don't expect 2012 to be particularly easy so you'll
see it again and of course when you're running a business you
want all the change out of the way so that you can then run
through peak without looking over your shoulder.
Just in terms of gross margin I think when we spoke at the end of
the first quarter we did say to you all and it was hard for us to be
very explicit about this, in the first quarter in the UK we cleaned
our stock file very deliberately. We took - we accelerated the
clearance programme in that first quarter because we had
worked out that if we actually did that we in fact would get again,
net, net, net on our gross margin in the half. So what we're doing
is we're clearing stock faster, if you clear stock faster it means of
course that you get higher margin on the stock which you clear
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Dixons - Interim Results Presentation 24th November 2011
because obviously the stock degrades over time in its value in our
markets.
The second thing which we also have been doing is that we've
been working a lot on the quality of the stock which we bring into
the business and in the second quarter I'd say was the first period
where we actually were able to see the benefits of the new
forecasting and ordering systems in gross margin. So what that
means is you've got more of the right product and less of the
product you have to mark down. And that's a fundamental
change in the way in which we run the supply chain.
And then the third thing which we've been doing is we've been
working on returns. I know this sounds incredibly tedious and
boring but in our business there is a proportion of product which is
returned into stores. And we have done some very simple things
that sound simple when you say them but actually hard to do
where when product comes in we're able to actually use a set of
screens on the tills which suggest to the person taking back the
return all the simple checks you need to do.
So for example we found that nine out of ten Xbox's which are
being returned to our business, there was nothing wrong with
them, all that needed to be done was to have them reset. There's
a particular combination of things you have to do to reset an Xbox.
By doing that in store we're able to actually dramatically improve
our returns cost in the business and again that fed through in that
quarter. So that's part of what's going on there. So this is not us
actually putting up pricing, if anything we're actually investing in
product pricing because we're being successful around these
things.
In terms of gross margin planning assumptions, as I said to you
all in the past it's very hard for us to warrant our gross margin in
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Dixons - Interim Results Presentation 24th November 2011
any one quarter or even one half or even a year because it
entirely depends on the competitive environment. We don't set
prices in this market, people choose for whatever reason to have
a go on price for time to time. But generally we are not expecting
any major movements in gross margin up or down in the second
half, we would expect that we'd run it pretty much as we've been
doing for now.
On store space, the numbers which you were talking about are
very small in terms of ups or downs. We will have 8 million
square feet in terms of the numbers which are disclosed here, in
five years time. But we will go from the 540 stores we've got or so
to about 410 to 420 in the UK. There's about half of the difference
there is about straight stores closures, these are typically high
street locations and they're stores which we just don't need in
terms of the way that people shop any more on the high street.
And then the other part of it is of course consolidating into the 2 in
1 format, so no big changes on space.
A big change though in cost of real estate because about a million
of that 8 million square feet, no probably a bit more than that will
be mezzanine space so that's where we've actually put a
mezzanine into the store. So our typical property strategy for a
regional shopping centre in the UK would be to close either of the
Currys or the PC World to move, typically actually it's a PC World
into the Currys, put a mezzanine in and actually get higher sales
from the new store. And that's why we're quite confident about
the impact of that in the future.
Assad Malic, Credit Suisse: Just to clarify, how much mezzanine space have you got at the
moment?
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Dixons - Interim Results Presentation 24th November 2011
John Browett: Good question. Can we answer that question later, I think we're
about halfway through that programme, but can we get you the
numbers for that, it's not a secret.
Adam Cochrane, UBS: Hi couple of questions please. On the cost savings is there a
benefit from an annualisation impact from cost savings made in
H2 last year within H1? Within that 40 million that you've done in
the first half this year how much of that was in the UK? And then
finally in terms of, just a specific question, I couldn't see the H1
Nordic gross margin in the pack anywhere, can you just clarify
what that was please?
Humphrey Singer: So of the 40 million it was quite a large proportion in the UK. So a
significant part of that 40 million was UK but there were savings
elsewhere like in Greece and Italy, etc. In Nordics I think the
margin has remained as we guided really in the first quarter. So
that was somewhere between 100 and 120 basis points down
with this drive to gain share and consolidate our position.
John Browett: And then on the annualisation point, yes you're absolutely right,
so when we came out of peak last year we recognised then it was
going to be difficult and that's when we put our foot flat to the floor
and we executed a whole load of change in the business to -
these are programmes we've been working on all year but that's
the time we were doing it. Just so you're clear we trying to also
get the business into a natural rhythm, so the natural rhythm is
that you come out of peak, you start your store refurbishment so
everything's ready by September 1st is your ideal, or certainly by
the end of August because then you get all of your peak trading
for your programme.
You also after Easter and the summer, that's when you want to do
all your major change programmes because it's our quietest time
of year but it's a time when we can engage on making all the
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Dixons - Interim Results Presentation 24th November 2011
fundamental changes in the business. So that's what we're doing,
so it's taken us a few years to get there but unfortunately in
previous years we've been trying to do that in the run up to peak.
So we're pulling all that forwards and actually that's why you're
seeing some of this annualisation effect.
I have to say though it's not because we're running out of stuff
we're just actually doing it in the natural rhythm on the business
rather than …
Adam Cochrane, UBS: So the annualisation might be 30 million or so from last year rolled
into this first half …
John Browett: I can't remember the number. We don't look at the programme in
that way because we've got, there's all kinds of stuff being done
all the time but we look at the total number for the year and then
we look at the exit rates at the half year and the full year.
Adam Cochrane, UBS: Thank you.
Eithne O'Leary, Oriel: Morning, just wondering in relation to KNOWHOW you said
you're happy with the launch, what sort of attach rates are you
seeing for the services?
John Browett: Gosh that's a tricky question to answer …
Humphrey Singer: Reality is it varies very significantly doesn't it?
John Browett: Yes it does, just so you know how we run KNOWHOW there are
two parts to what we're trying to do within KNOWHOW. There is
the stuff which we're selling as part of the customer journey
through buying a laptop, a TV or white goods and I could give you
numbers for that. But the other thing which we're doing with
KNOWHOW and the reason why we're particularly excited about
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Dixons - Interim Results Presentation 24th November 2011
what we can do is what we describe as unattached sales where
people come in to actually get the service without having bought
the product with us.
And the market which we're, for our pains we got in to Watchdog
on, was the new service which we've offered for laptops where
we'll actually repair your laptop if you bought it somewhere else in
the market. That's a £500 million a year market, it's done by lots
of Mom-and-Pop shops all round the country, we're the only
people who do it on an industrial scale and our service frankly is
better, we're cheaper, we're quicker and we're more certain.
So that's where the opportunity is for us and the reason why we
got onto Watchdog with that service was that we had not quite got
the relationship right with the customer, we basically were trying
to do a garage repair. And the idea was that we would call you up
once we got the machine on the bench and say look it's going to
cost you £80 to get this laptop fixed.
We didn't take their mobile telephone number and of course in
modern UK society nobody answers their fixed line phone at
home so it was taking us days to get back to the customers and
that was cause of it. Now we won't take your computer unless we
take your mobile number. But we're very excited about what that
could bring to the business because we've got the infrastructure,
we've got the scale in this operation and if we just put more
volume through it it's very, very profitable indeed.
So the reason why I pause on the question is it's not quite the way
in which we're seeing the revenue growth from that over time.
Where we've done that we're seeing double-digit growth on our
business and that's the real potential, could you bring in £100
million with additional repair revenue would not be an
unreasonable target over a five year period. Now don't rush to
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put that into your models just yet we need to prove it out, but the
potential is there and that's why we think this is a really good
opportunity for us.
Simon Irwin, Liberum Capital: Hi, three quick ones for you. Firstly if you look through the videos
in some of your newer stores they appear to have a lot less stock
in them, the big TV walls are not quite so dense as they used to
be. Has there been a significant SKU count reduction across the
stores and does this enable you to buy less and what does this
mean for your overall stock count within your major subsidiaries?
John Browett: So the reason why I'm smiling is actually it allows you to take the
SKU count up and we've actually got more stock in the stores
relative to the warehouse than we've ever had.
Simon Irwin, Liberum Capital: Can you talk us through the mechanics of that?
John Browett: So it's good retailing. The reason for that is that it turns out that if
you look at the physics of the play tables you can get more stock
out on them and display them more effectively than you can on
shelving. So it's a silly thing and if you go and look at it you'll see,
the best example is cameras where on a table which is this size
you could basically double stack the cameras. So you've got a
camera behind and a camera in front and it looks very
comfortable to shop for the customer so literally you've doubled
your density at that point.
When you actually then look at the way you manage stock
underneath it, underneath the plate, I'm probably giving too much
away to our competitors, but anyway when you actually look at
the stock underneath because people's eye is drawn to the
camera they're not drawn to how the stock is arranged
underneath. And therefore you don't actually have to be as
precise in order to make the store look good.
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Dixons - Interim Results Presentation 24th November 2011
So it means that you could actually pull all the stock out the back
because it doesn't have to be precisely underneath the camera
and therefore it's enabled us to manage the stock better in the
stores. It's actually cleared our backrooms almost entirely where
we've done the whole store in play tables.
So the reason why we're excited about the new format stores is
not only do they look great for customers they're much easier to
operate from both a service perspective because you can see
right across the store so you can see all the customers and also
you can replenish them much more easily as well.
Simon Irwin, Liberum Capital: Okay just a couple of detailing questions. You're very positive on
Turkey, is that actually profitable now?
Humphrey Singer: It's moving towards profitability but not there yet.
John Browett: We'll see how we do at the end of the year; see how we do at the
end of the year. I mean obviously we've got two benchmarks,
EBITDA positive and then EBIT positive and we'll get there. It's
still a relatively new business; we're very pleased with progress
though it's going well.
Simon Irwin, Liberum Capital: And finally given what you were saying about UK space. Given
the current environment should we expect higher exit costs going
forward out of these stores, is 15 new normal, is it going to go up
from here?
Humphrey Singer: No I think we've said in the past 15 to 20 is the range we'd expect
for the next couple of years as we work through the full
programme.
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Dixons - Interim Results Presentation 24th November 2011
John Browett: One of the legacies which we left with the real estate portfolio is
we were always privileged in Dixons to have great property
directors. And therefore the quality of our out of town real estate
is good. We have very good relationships with the major out of
two landlords because they see us as a core part of the offer for
their space. They don't want just clothing retailers or just DIY
chains, they want a proper mix and therefore they have been very
helpful in actually reconfiguring the real estate into what we want.
And there are still people who want that space and if you are in a
good quality site you can with normal judicious negotiation get to
what you want and so that's not been too bad.
Whether or not it's going to get more difficult with the other retails
who are in trouble, I don't think so because we've been through a
store by store analysis and many of the estate which we're on are
the best estate in that region or shopping area and people are
queuing to get on to it and so therefore it's all about the
negotiation you have to go through rather than a fundamental
problem.
Of course in the North there are problems but that's the same with
any portfolio but generally we've been able to do better than we
expected on that.
Simon Irwin, Liberum Capital: Thank you.
John S…, RBS: Couple of areas. First of all you said in the commentary you don't
set the pricing in the market in the UK which sounded a little odd
for the market leader. But perhaps you could take us through
where you see the structure of pricing in the UK specifically
between full price planned promotion and what's left and how that
moved year on year … and maybe you could give us the same
figures for you? Sorry that's quite a big question …
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Dixons - Interim Results Presentation 24th November 2011
And the second quite big question is about Amazon and if you
could give us some idea about how you're seeing trading against
them, difficult to know what question to ask about this but if you
give us some sort of colour and your view of Amazon and how
you're trading against them?
John Browett: So you've picked up the right point around the stock management
because it is the work which we do privately and quietly in the
background. We think there are big improvements possible to
sell through rate and what we mean by that is did you sell the
product at the price you intended to sell it in when you actually
ranged it.
It's a little bit tricky to answer the questions because the systems
environment which we're operating in means that we can only
calculate that on a periodic and quarterly basis. Ideally we'd be
love to be able to have our systems automatically give us say a
running commentary on that.
I think we need to reflect on whether or not we should update the
market on it. I don't think actually it's anything which is terribly,
terribly sensitive, I think the only issue we would have is that we
know enough to know that our general direction's right and the
bottom number popping out is improving. Whether or not we'd be
prepared to warrant those numbers is a different thing. So I can't
specifically give you numbers around that. But let's reflect on that
for another time because I think it's a big part of what we're
actually trying to do.
Whilst it's true we don't set pricing in the market because it's a
very competitive market, we're not dominant, we can't move
pricing around, clearly what we do heavily impacts what other
people choose to do. My comments really were around the fact
that if any of our general merchant competitors decide that they're
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Dixons - Interim Results Presentation 24th November 2011
going to have a price war with us, we have to have a price war,
there's not question about that. And so the characteristic of this
market is not so much that people behave irrationally it's that
they've got other agendas because they want to drive people into
their stores to buy food or toys or something else. So that's what
I mean by we don't necessarily control price.
In the end it doesn't make a huge amount of difference it just
gives us a volatility as we teach yet another category manager
that they can't take us on. And it tends to go in cycles by the way,
when a new category manager arrives you usually have two or
three month's fracases around that.
The question on Amazon is a little bit harder for us to answer,
mainly because we don't have fantastic visibility given the way the
market works. What we know is that in the last year the growth,
and unfortunately it's still growing in terms of pure online players,
has slowed dramatically. But underneath that what we are seeing
is that while a number of pure online players who used to be quite
big companies in electricals online are shrinking, Amazon is still
growing. And what we think their strategy has been is to actually
mop up and to actually get these other competitors out the
marketplace. So it's difficult for us to tell overall.
Having said all of that, when you look at our multichannel
e-commerce business that is growing faster now than the
e-commerce overall, so we're now actually edging up in terms of
our share. I think in the UK we're hitting sort of 16% of our sales
now online, we think the market in total including all the
multichannel players is about 20% online roughly, very difficult to
warrant these numbers. And so there's a point where we get to
the same proportion online as the overall market we've got a fair
share of the market.
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Dixons - Interim Results Presentation 24th November 2011
So we think that as a threat to our economic system it is actually
receding somewhat because people are really finding it tough
now to make money and the reason for that is of course that the
selective distribution strategies of our suppliers are now starting
to bit in the marketplace. So if you look at some of the websites
you'll see that they no longer sell Samsung televisions, the best
quality Samsung televisions are basically only available from
multichannel retailers, they are available online but it's the
quantity, the people who have got the stock are the people who
are multi channel retailers, etc. So that's a big change in the
marketplace and we'll see after peak what that brings.
Andy Hughes, UBS: Thanks, just a question on Pixmania. You said you were very
excited about the developments there and all the third party
business opportunities but at the bottom line depending on how it
does in the second half it could wipe 10 or 15% off your Group
profit and presumably more off cash just at a time when you need
every drop of cash you can get your hands on. Should you be
looking to JV it or do you think you're the right owner for it long
term?
Humphrey Singer: It's not going to be a big drain on cash actually so … there's
relatively limited amounts of capex actually that we're spending in
that business and the losses at the moment are relatively small so
it's not the biggest issue.
John Browett: Just to be clear on Pixmania. Pixmania is our underlying
e-commerce platform for the UK; it's now supporting quite a big
internet business. It's supporting our UK business which is big
and it's going to support Carrefour's business, that is a fantastic
opportunity. In order to make that transition to support essentially
three big e-commerce businesses you have to invest in the
infrastructure, the development, you can't capitalise everything in
an e-commerce business so there is a bit of that going.
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Dixons - Interim Results Presentation 24th November 2011
So that's what I said they're going through a transition at the
moment and we think we're absolutely the right owner for that
transition because the thing that attracted Carrefour and other
retailers, because we've got a pipeline of other people who are
going to come on to the platform, is that you get a platform which
works because it actually runs a retail business.
When you look at the competing products in the marketplace the
problem is you can go and look at their reference clients but the
reality is they're not retailers. And that is a big problem for most
people who are buying this because quite often they do an
implementation and then they find it doesn't work sufficiently well
or is very expensive to run. So it's a good thing.
So I'd say, I can see why you say what you're saying about the
comments but I think there's a lot of potential within Pixmania and
we'd be loathed to give it up. We've done all the hard work, we
now want to see the benefits from that but there's a lot more to
come out of that business in the future.
Andy Hughes, UBS: Just one follow up on the debt side as well, you were saying that
you expect to pay the bond out the RCF, are you absolutely 100%
sure you can do that without any change in terms and conditions
relating to the RCF?
Humphrey Singer: Yes I have the ability to draw on the RCF to repay the bond.
John Browett: You couldn't have it any other way could you?
Humphrey Singer: And that's been clear I think from the plans right from the
beginning a couple of years ago when we refinanced that
because of the natural cyclical nature of working capital we would
inevitably draw just before Christmas.
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Dixons - Interim Results Presentation 24th November 2011
John Browett: Just to be absolutely crystal clear about this. If the bond
repayment was, how many weeks later, three weeks later …
Humphrey Singer: Yes.
John Browett: … we wouldn't need to draw on RCF at all. So in fact all we're
doing is drawing down our normal working capital. Because the
way in which you would normally finance this business is that you
have your working capital facility and you draw down
approximately 100 million just before peak.
Humphrey Singer: So we inherited a very unfortunate timing for the anniversary of it.
John Browett: So that's just one of those things. So all we're doing is just
drawing down, the fact of the matter is it's not drawn at the
moment because we're actually generating the cash to repay the
bond.
Andy Hughes, UBS: You've got the swap repayment that falls …
John Browett: Yes at the same time but that number we gave you is all in that
calculation.
Andy Hughes, UBS: Right but that will be paid out of the RCF as well?
Humphrey Singer: That will form part of the cash outflow that will mean that we
predict we'll draw by 100 million for those couple of weeks.
Andy Hughes, UBS: That's in the 100 million.
John Browett: All we're doing is we're drawing down our normal working capital.
Andy Hughes, UBS: Thanks.
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Dixons - Interim Results Presentation 24th November 2011
Geoff Ruddell,
Morgan Stanley: Did I understand correct that you've got a loan book in Greece
because I wasn't aware of that?
John Browett: Yes it's back to back with some Greek banks and the way in
which that works is that we have a small risk on the loan book that
if there's a catastrophic problem the banks are on risk.
Geoff Ruddell,
Morgan Stanley: But you've got no asset there?
John Browett: No absolutely and we don't hold that asset, it's all back to back.
Geoff Ruddell,
Morgan Stanley: Okay thank you. And then another question on Turkey you were
talking about astounding sales densities from franchise stores
which leads me to ask why do them as franchise stores though?
John Browett: Pardon.
Geoff Ruddell,
Morgan Stanley: My understanding, you said on Turkey that you had astounding
sales densities in your new franchise stores, I was wondering why
not do them as company owned stores then?
John Browett: I think really because of the structure of the Turkish market. So if
you look at the way in which Turkey works most of the big cities
there have very strong local families and very strong local
business cultures. So what we concluded was that the best way
to enter there was to actually go along to the local families and
say we've got this great new concept how about you open a store
for us. And the reasons that's fantastic is they actually stand on
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the shop floor and sell for you and therefore we get quite a big,
we're actually bringing something to that business community.
It also means that we don't get into trouble with local authorities,
etc, which is always a challenge in lots of markets. And to be fair
they control all the stock loss and everything else. And I think our
organisation would have to be much bigger in order to actually
enter into these markets because it enables, I mean I was out in
Turkey recently, we have a store in U…, U… is almost as far from
London as New York. So our ability to be able to actually do the
controls around that would be limited and our view is that it means
that we can go very, very quickly and we can establish our brand
as a Turkish brand across the whole market way before anybody
else will get there, years in fact before anybody else will get there.
And we can also at a future time we can open company stores in
that environment and this is a 20 year journey, you have to think
we're building a major business over 20 years, you have to think
about it in chapters, in phases, to get to the right place.
Humphrey Singer: It also means we don't have to spend any capex.
John Browett: And we don't have to capex there as well and we make good
returns on it so it's helpful.
Geoff Ruddell,
Morgan Stanley: Great thanks.
Chris Walker, Nomura: Can you just talk about supply at the moment. You mentioned
supply restrictions on the hard drives cameras as well, how about
other categories I guess iPads is there a shortage, maybe TV's is
there an over supply and does that give you some opportunity to
work with suppliers ahead of peak?
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John Browett: Yes I think so. I mean just so you're clear on the numbers, this is
what was reported to me by the computer manufacturers.
Typically the worldwide production of hard drives is 120 million a
quarter. This quarter coming up to the year end, December year
end they're expecting only to make 60 million to give you a sense
of the change. Now before you all go rushing to sell, what of
course then happens is that all of the - there are two places the
hard drives are used, external hard drives and within computers.
All of the production has been shifted into computers so they'll be
no shortage of computers although there will be supply issues
and it will cause the price of product to go up, not in a serious way
but it will go up. And that's why you see external hard drives, I
was talking to somebody beforehand who'd looked at one a few
weeks ago, didn't buy it for £60, the next time they went in to buy
it it was over £100, that's why those have gone up in price very
dramatically.
In a sense it's an opportunity for us because the relationship with
the supply base is such that they would fill us first. So we've had
all of our Q4 volumes for computing confirmed, we're in the
process of getting Q1 confirmed where I think actually that's going
to be the bigger issue. And I think if for any sense it is an
opportunity for us in the marketplace.
We're a little bit, the reason why we haven't spoken about it more
broadly, not because it's a competitive issue, only because we
don't know when the suppliers going to come back on and so
although we might get a win going into it the danger is that you've
got expensive stock where you have a loss coming out of it
because suddenly the production turns on. And we know from
Asia that despite people's prognostications things can normalise
amazingly fast, so difficult to know, but if anything that kind of
thing helps us.
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Dixons - Interim Results Presentation 24th November 2011
Chris Walker, Nomura: And the other category is into Christmas, iPads …
John Browett: Well again we would be prioritised on these things. So if you want
to buy Dr Dre headphones you should try our store first especially
if you leave it right to the last week before Christmas because
they are going to get all sold out. So again at the moment what's
happening is that the manufacturers generally are prioritising us
in the Christmas stock so I don't think that will be an issue for us.
Assed Malic, Credit Suisse: Just two follow up questions more around the product side. It
probably makes it a bit difficult in terms of the World Cup in Q1 but
are you seeing a shift in the breakdown of your sales at all to the
computing, grey goods versus consumer electronics and is that a
trend you expect to see going forward. And secondly you're
promoting the ultrabooks, I'm just wondering in terms of iPads or
let's say tablets versus laptops, are you seeing any
cannibalisation effects there and what's your view on how the
consumer adopts those technologies going into next year?
John Browett: You're right we are seeing shift into computing and white goods.
In this period both computing and white goods would be positive
for the group, etc so the issues are all within consumer
electronics. I'd have to actually say small box consumer
electronics is probably the most difficult area and people talk
about TV's because it's a big category but TV's obviously be
down year on year because we were annualising the World Cup
effect.
I mean it's difficult to know, there is clearly an upgrade cycle to
happen within large screen TV's because your ability to watch
iPlayer on a smart TV with 3D, with better picture quality means
that everybody should upgrade. It's clear to me that the economy
means that people will wait as long as possible for the upgrade
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Dixons - Interim Results Presentation 24th November 2011
but there will be a point where eventually the family pressure is no,
no, no we really do need to upgrade the TV and so that will come
and it's just deferred gratification for us in that sense, so it'll
happen. So I'm not worried about the long run in consumer
electronics I think it's just discretionary purchase in that sense.
In terms of ultrabooks versus tablets etc, difficult for us to predict
all of that, I don't think the consumers have even decided what
they need. What we saw early on with tablets was that it did have
an impact on laptop volumes because people have only a limited
number of £300 or £500 they can spend a month and therefore
they deferred their laptop expenditure. What we've seen this year
is we can't see any cannibalisation between it, we see the laptop
numbers being quite consistent even when we see tablets roaring
away. And tablet growth is quite strong at the moment.
So how that's going to play out when we get to these kind of
products, I don't know, I think it's too early for anybody to tell. We
are quite hopeful, we think this is a breakthrough, we think this will
cause a massive upgrade cycle but again how much will people
say that's discretionary versus I must have it because it's the
latest coolest thing, is difficult for us to judge. What's clear on
iPad is that people have decided they want it and the great thing
is that despite what's going on in the economy people can afford
to buy it, they've got the cash if they choose to buy it. And I just
don't know if this product is going to be enough to get people
saying no I must have one of those and that's the difficult thing to
judge.
Assed Malic, Credit Suisse: Just coming back to your comments on TV's and the pent up
demand. Are you able to sort of measure that by looking at
warranty repair rates or anything, I mean is that starting to
increase where people still have older devices?
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John Browett: Not really because again this is all about consumer confidence.
So what we'll see, as soon as people are confident that they can
keep their jobs and the world isn't going to come to an end then
we know that people actually want to buy this stuff. We can see it
in the wish list, we can see it in everything we're doing, there are
no issues for long term demand.
Assed Malic, Credit Suisse: Thank you.
John Bailey, SG: Good morning. Could you tell me a bit more about the UK market
and with Comet's change of control what you're finding coming
out of the industry, what's coming out of Comet and the short term
and maybe medium term implications and the whole behaviour of
that business?
Humphrey Singer: Nothing yet, I mean I think the deal hasn't gone through and
doesn't go through until February.
John Bailey, SG: Do you think maybe the behaviour of Comet is going into this
that's it's where the personnel certainly have been exiting how the
suppliers are looking at it and …
Humphrey Singer: I guess you should ask the suppliers, I'm guessing they might be
a bit more nervous than they were but time will tell.
John Browett: It's very difficult for us to comment because of course we have an
industry inside view.
John Bailey, SG: That's really what I want to hear.
John Browett: Yes I know that's what you want to hear but it's a big serious
business with several thousand employees and therefore I'm
always very cautious about making public statements about that
because it's a lot of peoples jobs and livelihoods at stake.
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Dixons - Interim Results Presentation 24th November 2011
Bluntly from our perspective it doesn't look good for them
because what we know and this comes back to what we're doing,
is that our offer is making a very, very big impact on their business.
And the last quarter's results show that, I mean the differential
performance between our stores and their stores is huge.
Now the reason why you couldn’t see that a year ago was
because the way in which they ran the business for six months
last year where they had done the government scheme and a
number of other things in order to pump up the numbers. But we
knew that they were in very serious trouble because we knew
what the sales were in the stores where we had done the
refurbishments against them.
And the problem for that business is that the reality is that our
programme next year is big and it is head on in their stores so I'm
not sure how they can respond to that. And it's not clear to me
that a venture capitalist is going to be able to respond to that kind
of better offer. Because they can't do price, we do price every day,
that's not going to differentiate you. You've just had one of the
worlds best, because … are good, they know what they're doing,
they've had one the worlds best retailers at service fail to
implement service within Comet, the service based strategy in
Comet.
So I can't run their business for them, I'm running my business
and I'm just saying our concept is just better and that's what's
causing the actions of our competitors in the market.
John Bailey, SG: I mean what's your sense of what they'll be spending on the
marketing and advertising side?
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Dixons - Interim Results Presentation 24th November 2011
John Browett: It's difficult to know, I mean I doubt they'll publish their business
plan, why don't you ask them … they've got a tremendous track
record that group as well so …
Rod Whitehead,
Deutsche Bank: You've mentioned in the past that you're going to be fairly flexible
on capex just to make sure that people aren't worried about the
debt. Where is your thinking now in terms of spending and
particularly given your comments about a big programme for next
year?
And secondly can you just clarify … presumably when you talk
about small box being the biggest problem that's kind of DVD,
audio and that kind of area and is there anything coming down the
track that would change that?
Humphrey Singer: So just on the capex actually the big programme that John talks
about in part is because we're now trialing some much lower cost
refits that we think potentially can generate a significant
proportion of the overall uplift that we get in a normal refit. So
there is a possibility that we can go faster in terms of numbers of
stores but lighter on capex. I mean we remain, I think we're both
aligned of that, focused on being prudent around capex and that
lasts until we've sorted out the balance sheet. I don't think we've
landed yet on a number that we're going to disclose externally
and we obviously need to go through the process …
Rod Whitehead,
Deutsche Bank: Can you give us a range?
Humphrey Singer: Well I think we gave a range probably at the last update so there's
no movement from that.
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Dixons - Interim Results Presentation 24th November 2011
John Browett: I mean like all these things the tension which you see between
the finance director and the chief executive is the right tension,
which is it depends on how you do at Christmas is the first one.
Humphrey Singer: That's why we haven't made the call yet.
John Browett: And we've got to make sure we dock the cash for next year. The
thing which has changed is as Humphrey says that we've looked
at our capital expenditure programme, we've now ruthlessly
prioritised where we want to spend and we have freed up our
capital expenditure so that we can focus it in the way which
actually has the maximum benefit for customers and has the
maximum impact in the marketplace. And that means that we
can do a reasonable programme next year.
Humphrey Singer: I think it's just judging it, the fine balance between managing
prudently for the balance sheet issues versus we know that
what's causing stress in our competitors is because we're doing a
winning programme. So we've just got to pick the right line to
draw between those two pressures.
John Browett: And to be fair also the other thing; sorry there's probably one
other explanation which we should share with you which is
straightforward. So far we've done 38 Megastores, in that we
sorted out some pretty dire situations particularly in London and
South East where we had stores which hadn't been invested in for
a long time and weren't working properly. So there's one which is
close to David Lloyd-Seed's because he lives near Guildford …
open tomorrow is the Guildford mega store for all of you who live
in that area. We had two stores which weren't right for the
customers, we're now going to a fantastic store which is going to
be absolutely amazing, it's just incredible.
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Dixons - Interim Results Presentation 24th November 2011
And that was quite expensive and we had quite a lot of those
special situations which were hurting our brand and everything
else. We've actually got through the bulk of those and so actually
the projects which we're doing next year are much more
affordable because some of the Megastore things we had to do
cost us 2 to £3 million and we've got less of those coming through
now.
Any other questions? Okay well we're available all day today so if
you've got any further thoughts just give us a call. Thank you very
much.
END