WORLD TELEVISION Dixons Retail Results Presentation - 29th November 2012
WORLD TELEVISION
Dixons Retail
Results Presentation - 29th November 2012
Dixons Retail - Results Presentation 29th November 2012
Page 2
DIXONS RETAIL
Sebastian James, Chief Executive
Humphrey Singer, Group Finance Director
QUESTIONS FROM
Charlie Muir Sands, Deutsche Bank Eithne O'Leary, Oriel Chris Chaviaras, Barclays Geoff Lowery, Redburn Nick Hawkins, Cenkos Geoff Ruddell, Morgan Stanley Matthew Taylor, Numis Assad Malic, Citi Andy Hughes, UBS Rod Whitehead, Deutsche Bank Simon Bowler, Exane Andy Wade, Numis
Dixons Retail - Results Presentation 29th November 2012
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Presentation
Sebastian James, Chief Executive
Thank you first of all very much for coming this morning. I'm just also very grateful to
our hosts Rothschild's for lending us this amazing space and we love it and we'll certainly
use it again.
I want to run through this morning a quick canter round the Group and how we've done
in these first six months. Overall I think we're pretty pleased with these results and I
think that they show some encouraging trends in terms of how customers are choosing
to shop with us more and more and so I want to talk about that a little bit.
Then Humphrey is going to go through in more detail the numbers, then I wanted to go
through with you to recap on what I think the three key strategic priorities are for the
Group and to give you a little bit of an update on how we're doing on them and give you
some examples of some of the new products and how we're working … that's a fantastic
ringtone by the way.
All of that should take a little over half an hour after which Humphrey and I will be
delighted to answer any questions you may have.
So just to start with the interim results for this year, firstly overall Group like for likes up
3%. And particularly I'm pleased with the UK and Ireland up 3%, Northern Europe up
11%, we've seen some very good growth in various areas and I'll talk about that a little
bit later on.
In particular I'm pleased to see Group EBIT up by 5.1, I think that's a little better than
consensus expectation and certainly I think augurs well for performance this year. We
have got difficulties in France with PIXmania having a very difficult and poor trading first
half and I'm going to talk a little bit later about actions we're taking to address that
which are both radical and urgent.
The business has had a very good and strong cash year so far, and we've been
absolutely thrilled that we've been able to pay down our bond and our currency hedge
without drawing on our revolving credit facilities, this is something that I think only a
year ago much of the market would have thought was quite impossible and we were
very pleased to be able to do it. And we have made good progress on our core three
strategic priorities.
So just to canter around the Group very quickly and give you a sense of what's
happening in each of the territories. First half we're up 3%; we had an extremely strong
quarter, helped by the summer of sport and helped by relatively weak comparables, so
we had an excellent first quarter. The second quarter was as expected a little quieter,
there were a few things playing into that, one was a lot of people who bought TVs for the
Olympics obviously didn't buy them in the second quarter and also the timing of these
results is such that Windows 8 was launched just after the end of these results so we
were running down computing stocks of Windows 7 and that had some impact.
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But overall we were quite comfortable with our second quarter, and we have seen, as
expected, as we got computers back in stock we have seen some improvement since
then and we would expect - at the moment we're cautiously expecting that to continue.
Market consolidation continues, that is probably the politest way of saying Comet has
gone out of business. And Comet, you know, as our principal specialist competitor
exiting the market is clearly helpful from a capacity point of view. We do not feel
complacent about that, we think that that means that we will need to continue to drive
our service proposition and continue to drive our value propositions for customers. We
think that Comet's departure increases the pressure on us in a very competitive world.
We have returned to first half profitability in the UK for the first time in five years, I
think that's a great result and I'm very pleased with it; I'm very proud of the team and
what they've achieved. And I think it's given a real boost to our morale, I think those of
you who've been into our stores recently will feel a sense of a team that feels what it's
like to be on the winning side. And actually making money in both halves of the year is
curiously psychologically impactful for our team.
And our gross margins overall have been flat, which as we'll see later, given what we've
been able to do on pricing I think is again a remarkable achievement.
This Christmas and in fact from now three quarters of our sales go through our new
format and as I said earlier this year, I'm really pleased that most of the customers who
buy from us are buying with us with our best foot forward, with our new format stores
they're really getting the kind of experience that I want them to get from the Dixons
Retail Group and I'm pleased that we're doing that now in three quarters. Over the next
two or three years we will complete the journey, it's really a property story now, we
need to make sure we get the right deals and investors and stakeholders generally will
want me to be sensible about how we do that and we're doing that in a sensible way.
And we've had further improvements to our multichannel offer, so when we spoke earlier
this year I said that we were determined to become as good as the best multichannel
retailer in the UK and I think we've done that. We've got our pay and collect working
now, so we you can not only reserve products that are in store but you can get products
delivered to store. You can choose to have any combination of order, deliver and pick
up from any point, either your home, your store, your office, anything. And you can
order on any channel and we're completely indifferent now, that is best practice. We
allocate store sales, internet sales to the nearest store, so that stores are genuinely
indifferent, we're beginning to properly feel that we are an Omni-channel retailer.
We did one other thing which I'm just going to show you, we introduced - a lot of
businesses have multichannel, have mobile sites and we're no exception. But we
introduced one this year, the so called liquid HTML and it automatically adapts to the
screen size that you have. So even if you have it on a browser on your PC and you
make it smaller we will adapt the website that we serve you to exactly give you the best
experience that you can for the size of screen that you want to operate on. And we
think we're unique in retail to do that. It's a small thing, but it's an indication that we're
absolutely determined to be at the cutting edge of our so called Omni-channel retail.
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And our overall multichannel offering is up very substantially with collect at store up
44%. So we're really seeing the benefit of that, we're really seeing customers wanting to
shop with us in this kind of Omni-channel way.
Northern Europe has continued to deliver extremely well. We've seen a lot of growth in
particular in Denmark, an astonishing performance, 28% growth. It's somewhat lower
margin, Denmark is a somewhat lower margin country and when we talk about margins
in just a second that's important. We've seen market share growth in all of our
territories in Scandinavia and we have seen consolidation in the market there too with
the departure of Expert from Sweden the number three player. And we think that that's
a good thing because we think that Sweden probably did have too much capacity and
everybody except us is losing a great deal of money in that territory and we like it that
way.
We've seen strong growth in multichannel sales, 29% growth, actually a little bit behind
the UK but very strong nevertheless. Gross margins are down, that is mostly a mix
story, so we've seen good growth in internet, we've seen good growth in franchise and
we've seen good growth in Denmark and also in tablets. All of those categories are
profitable, but as a percentage are somewhat lower profitability. So these margins are
definitely down but they don't worry us, we're quite comfortable that overall profitability
is enhanced in those territories. And we saw operating profits up to just over £40m, so
again a pleasing result for the first half.
And I'm also proud of what's happened in Southern Europe. I think in particular in Italy
the team were tasked with stopping the bleeding and I think they've done a terrific job
of doing that. Profits are up in Southern Europe generally, but also in particular are up
in Italy. They've also been extremely skilful in management of cash in Italy and I think
the progress that we're making in Southern Europe generally has meant that we can
now look at a relatively stable platform from which we can start thinking intelligently
about what we do next for the longer term. So I'm pleased with the Southern European
results and I'm pleased that we can look forward to a period of relative stability despite
extremely difficult market conditions continuing there.
In Greece I think we are the only business to up like for like. So if anybody can find
another Greek business which is up like for like please do let me know. But I think we
certainly are and we're very proud of that result.
The only fly in our ointment I would say is PIXmania. PIXmania you'll remember is our
single channel internet business in France, based in France and operating in 29
countries. That business has been having difficulties for some time and when I took
over in March I think it was pretty clear that we needed to get a grip on it and we
needed to make some quite radical changes. That proved to be quite difficult in the
shareholding structure that we have and so I'm pleased that I was able to come to an
agreement with our joint venture partners that they would leave the business.
I've put a new management team in there and a month ago we launched a fairly
aggressive social plan which envisages reducing the number of countries in which we
operate from 29 to more like 12, reducing the categories into which we have expanded
which were not profitable, so we had a wide range of new categories which were not
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profitable and for which we were not famous, and which were spreading our resources
too thin. And also we are exiting, or considering exiting our stores as part of this social
plan.
Now as you know in France social laws are complex and these processes take quite a
long time and we are in consultation to do these things. But if we are successful in
reaching agreement on them that would represent about a quarter of the cost base of
PIXmania and again would leave us with a much more stable business and that must be
our first priority to give us time to examine these assets and what the best thing to do
with them is. So that's PIXmania.
I'm going to pass over to Humphrey now who's going to talk in more detail about the
numbers and then I'd like to come back if I may and talk a little bit about how we're
doing on our strategic priorities. Thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Performance
Humphrey Singer, Group Finance Director
Thank you. So I think an encouraging start to the year. Trading well in pretty much all
the markets that we operate, gaining share in most of those markets and that enabled
us to drive Group sales, which we're reporting as up 4% local currency, like for like up
3%.
We also as Seb said improved our Group EBIT quite significantly by £5.1m. We're
reporting an underlying loss before tax of £22.2m and a pre-tax loss of £79.5m in total.
So given the difficult environment that we face, the challenges we faced in PIXmania we
are impairing the goodwill balance that exists there.
Group gross margins were down 50 basis points, we traded hard in the Nordics for cash
profitability and that had some impact on the gross margins, in the UK we were flat. We
are on target to deliver the £90m of cost reductions over two years that we have
previously talked about and we generated a very strong, positive cash flow performance
of £106.8m, with net debt significantly reducing to £9.9m and I'll come on a bit later and
explain some of the detail behind that. And overall of course we've strengthened the
balance sheet quite substantially in this last period with renegotiating our revolving
credit facility and with the bond transaction that we did towards the end of September.
So overall we improved the underlying loss before tax, particularly pleasing to see the
performance in the UK and Ireland where we went from a loss of £6m to a profit of
£5.6m and as Seb said that is the first time in five years that we have made a profit in
the first half in the UK, which we are particularly pleased about.
We also improved the profitability of Northern Europe, so that was up to £40.4m and
reduced the losses in Southern Europe with some significant cost savings, again in
Greece and even more materially now in Italy, so managing very well the difficult
situation that we faced there. PIXmania is the one issue, significant challenges and that
meant that we're reporting a loss of £17.1m in the first half of the year.
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Overall underlying loss before tax reducing to £22.2m. The other thing I'd just highlight
is the expected effective tax rate will be higher given the situation in PIXmania and so
that is at 55%. If we didn't have the PIXmania losses that we're now choosing not to
recognise the benefit of then it would be 42%. So there is a quite significant impact
from choosing not to recognise the losses in PIXmania and that's really because as we
look ahead and the challenges for that business that seemed the sensible and prudent
thing to do. It doesn't change the cash tax position of course.
So in non-underlying terms we start with underlying loss before tax and that has
improved as I said to £22.2m. There's really one significant item again related to
PIXmania, as I mentioned before we've written off the entire goodwill balance now so
that's a £45.2m charge and overall leads to a total loss before tax of £79.5m.
Free cash - and let me dwell for a little bit on this chart because there's quite a lot to
unpick here. I mean overall strongly cash generative with the net debt at £9.9m down
from £143m. A few things to talk about, working capital first of all, so the prior year
number if you recall was affected by a £30m timing issue, and if that hadn't happened
that would be a more positive number last year, so nearer £90m. So year on year you
can see that there's not as big a gap if you strip out that effect. The reality is in every
year given the time of when we do this announcement you will see strongly positive
working capital inflow, that's just the natural cycle of the business.
However, underlying that there is a strong stock management improvement. So our
turns are up to 6.15 that's an improvement of nearly 8%. So actually we're very
pleased with the way that we're managing working capital. But some of it is just timing
at this stage in the year. My guidance for where we'll end up on working capital for the
full year remains as really previously guided, which is some kind of modest inflow,
reflecting the improving working capital management.
Capex is another one to talk about, so that's obviously favourable in the first half of the
year, but again that's just a phasing issue, so I'm not changing our view on what the full
year capex position which is somewhere between £100m and £110m.
Net restructuring is another one to talk about, so last year we had the cost in the first
half of exiting Spain. This year I expect that the exceptional outflow will be somewhere
between £30m and £40m. So that's up on where we had previously talked about and
reflects the actions that we're now taking, or planning to take, proposing to take,
consulting on taking with PIXmania, so £30m to £40m is the total figure, the majority of
that will be our expected outflow on the French transaction.
Free cash overall generating £106.8m, again to clarify that for the full year I'm not
changing my view which is net debt will be either in line with where it was last year at
£104m, or maybe slightly better.
So where are we at in terms of the balance sheet? Well I think we've done a lot really
over the last year. We've now got a renegotiating RCF currently at £225m, that does as
previously advised reduce to £200m in August and doesn't mature until June 2015. It's
a headroom only facility; we've not used it - well really materially since August of 2011.
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We drew for like five, or six, maybe seven days in October and since then we've not
used that facility at all.
And on the bond front we've obviously issued the new 2017 bond, bought back some of
the 2015, so smoothed out our maturity profile and retained some liquidity on the
balance sheet for the rainy day should that arise.
So I think in summary a quick canter through the numbers there but I think we are
delivering really on all of our financial objectives. We're improving profitability and
that's despite the headwind from PIXmania. The UK and Ireland particularly pleasing,
growth also in Northern Europe and an improving position in Greece and Italy, we're on
track to deliver to the £90m of savings over the two years. We're generating cash,
we're reducing net debt and I believe we have now a strong balance sheet.
I'll now hand back to Seb. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Priorities
Sebastian James, Chief Executive
So I wanted to now run through a little bit about the progress we're making on our core
strategic goals. And if you remember there were three that I felt were incredibly
important to this group over the next two or three years and they are these. The first is
we need to overcome once and for all the existential crisis to which we were brought by
the arrival of the internet. We think we've made amazing progress on this and I'm going
to show you later some real data that indicates the strength of our business model,
relative to single channel internet and I think it makes for very compelling reading.
Secondly we need to identify where we're going to play and where we're going to win.
And we need to find a leadership position of some sort in all of the markets in which we
play and I want to give you some updates on progress there. And finally I believe that
we have a big unrealised opportunity in this Group, which is how do we make sure that
we begin to play as a team and really leverage the benefits that come from our scale
and our power across, particularly Northern Europe.
Just to remind you of the shape of the market and this is a very interesting truth which
is that when you look at the market just under 65%, just under two thirds of the market
is currently a service led model, so either we, or John Lewis or countless independent
stores are providing service to customers in stores and having a conversation with them.
And that blue section has remained constant for nearly three years now. So a very large
proportion of the UK customer base want to go to stores that have a service based
element to them. And interestingly after 20 years of extraordinarily aggressive
competition the whole of single channel internet now only represents 12% of the UK
market and Amazon are under 5%.
Now I think these are very interesting numbers, because what - the key truth is that
although 84% of customers who are looking to buy a computer, a TV, or a washing
machine spent part of the journey online 92% of customers who buy those products are
spending part of that journey in store. And I think that's a very, very interesting
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number because it gives us the opportunity to have an extraordinarily valuable
conversation with our customers.
The question is in a world where prices are completely transparent and we must be as a
hygiene factor very close to Amazon's pricing and to single channel internet pricing, how
do we afford to do that? And we do that by four simple things. And I'll ask you just to
focus again on this conversation, how do we get value from the conversation we had
with customers. I calculated, I can't remember why actually, but I calculated that we
speak across the Group 13.2 billion words to our customers every year, not necessarily a
very useful number from an analyst model perspective. But these words I think all have
value; I think this is something we can deliver.
And we do that in four very simple ways and the first is this, if you remember suppliers
reward us for selling products that have better system economics, and those are
typically newer products. We are good at, incredibly better at, and getting better at
selling the products to customers that suppliers can make money out of, we can make
money out of and which make customers happier, that is the newest, best and most
exciting technologies. Some of them are here for you to look at and you'll see they are a
step forward from what people might have earned in the past.
Secondly we remain seven to ten times more effective at selling complete solutions to
customers, selling them the services and additional products which make a difference to
them and we're getting better at that and I'll show you some figures later.
Thirdly we need to keep containing our costs, we have a cost differential, a structural
cost differential between us and single channel internet. That needs to get tighter, it is
getting tighter, it is getting more expensive to run an internet business and it's getting
cheaper to run our business and we think that's a very important step forward.
And finally we continue to narrow the gap between our pricing and single channel
internet pricing, we are not burying our head in the sand and believing that customers
can't compare prices themselves on their smart devices. We think prices are completely
transparent and the only reason customers will buy from us is because our prices are at
or close to single channel internet pricing.
But what's very encouraging is that when we do that we are still more profitable than
the single channel and that makes us an extremely robust and long term business
model.
This year we rolled out - remember I spoke to you about customer journeys in TVs
where we curate our 140 TV range down to the five or six televisions that suit that
customer having had a conversation by travelling through this journey. And then we
say to them, the product that we would choose if it was us buying today is this one. And
that is how we do it, we always have that product in stock and that has made a dramatic
different to the extent to which we're able to sell premium TVs to people. And when
we've done surveys the customers who bought those premium TVs have expressed more
satisfaction then those customers who chose cheaper models and I think that's a really
fantastic triple win, because we win, the supplier wins, and the customer wins and I
think that's a big step forward.
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And we've rolled out that customer journey mentality to - laundry and we've rolled it out
into our imaging products and we've also rolled out our experts love notion into
computing and it's had some quite significant impacts on average revenue per product.
The computing hardware and laundry are both quite new, so this is full year to date and
we've seen - in TVs we're seeing a consistent 12% average revenue per product
increase, which is huge in our business. But much more importantly those are the
products on which the system economics are much more attractive. So we're excited
about the success of this and we intend to continue driving this process and driving the
process by which customers get to choose better quality products and we get to be
rewarded for doing so.
Another good example of how suppliers are helping us is because they know that we're
the only place where you can sell the better quality products. To give you an example
on the Windows 8 launch worldwide Microsoft have selected 15 computers which they
think are worthy of special endorsement for displaying their Windows 8 products. Of
those 15, six are exclusive to us. Now I think that's a very impressive endorsement of
what we're doing. I'm just going to show - I don't often do an ad but I'm going to do
one now.
If you're looking for a computer this is the one to buy, this is the HP MVX2 it's a very
beautiful Windows 8 computer, you know, sort of full Windows 8, full touch screen, but
what is particularly exciting about it, really good power, powerful enough to build those
complicated models that all of you do, but also that separates into a tablet, fully
functioning Windows 8 tablet. It has two batteries; this one drains first so that your
tablet is always charged. I think it's a brilliant machine, 800 quid. In store next week.
But I think what's exciting to me is that all of these manufacturers, Microsoft, Intel, are
all supporting us to carry these lines exclusively because they know that we're the only
place which will really get customers excited about these kinds of products, you need to
show it to really like it. And it's not just in computing, we're getting exclusivity from all
of our suppliers in all ranges. So some of the most exciting products on the market, I'm
not sure I'd necessarily put the - washing machine into that category, but some of the
exciting products in the market are exclusive to us.
This Samsung Wi Fi camera is an Android camera, so the screen on it is like a mobile
phone. And you can do anything you want with the pictures, you can edit them on site,
you can deliver them to Facebook you can do whatever you want. Not quite so good of
course if your children are taking photographs of you in the bath to find they're suddenly
posted on Facebook unexpectedly.
And then some of the popular TVs, interestingly 55 inch TVs have quadrupled, people
are buying enormous TVs this year. This LG top end 55 inch TV is exclusive to us and
we're seeing exclusive lines right across the board. And that is a growing phenomenon
not a shrinking one. And we think that's exciting for our business model.
Secondly, solutions - we've made really good further progress on selling complete
solutions. Solutions is the lifeblood of our business, not just because we make more
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margin out of selling but also because customers who go home without buying these
additional products are actually unhappy about the product they bought.
We launched a product last year which was Cloud Backup and Share, we'll have a million
customers by Christmas using our cloud services and we're on average to a laptop
attaching two units for every laptop that we sell. This is something that single channel
internet players cannot do and do it much, much less effectively than we do.
The same is true of large screen TVs, we're selling home theatre kits, we're selling
cabling, we're selling services, we're selling installation. These services are actually
making customers happy. They get home and they can really achieve the goals they
came into our store to achieve and I think that is our duty and that is our responsibility
and that is also how we make money where single channel internet does not.
And it's also true in laundry, we will install 1.6 million pieces of white goods this year,
that is an amazing trust the customers are doing, they let us into their homes to spend
between 20 minutes and an hour installing pieces of kit in their homes and trusting our
knowledge and expertise and that is a growing business and we're excited about that.
One other example and we try to keep innovating, so now have a product called Show
How; this is a picture of our new Solihull store which is very comfy. And Show How is a
product where you buy a half hour or a one hour tutorial from our staff on how to use
your product. So Windows 8 is quite a different interface, half an hour with it, we'll show
you the power of it and how very exciting a product that is. We sold last week 1100
lessons, I think that's amazing for a new product, I think it's a real step forward, it's
totally proprietary. If you want this product you have to buy it from us, you know we
continue to drive forward, where we can build proprietary shells around these branded
goods so that people are actively choosing us to buy these products and we're making
good progress.
And increasingly we're talking less about, you know - cor blimey you can buy a washing
machine for 299 and more about buy the complete package, buy the service, you know
buy what we are all about. So for instance this is a classic TV price ad and we've
changed our graphic presentation, but above all we're talking about service, we're
talking about what you came to do and how we can make that happen. We had a bit of
fun with Barack Obama's campaign, but again this is a high copy ad talking about what it
is that we can do for you as a business. And I'm just going to run a short reel which is
our latest computing advert just for you to have a quick look at. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video played . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
So fans of Poirot will recognise David Suchet's voice doing the voice overs there. But I
think it gives you a real good picture of how our mentality has changed from being a
price and product, stack it high, sell it cheap and do a not very good job in store, to a
Dixons Retail - Results Presentation 29th November 2012
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total fixation and focus on the service that we provide which gives us permission to have
the conversation which generates the value. And that is our story in a nutshell.
I'm pleased to say we continue to make progress on driving forward our strong
advocacy, we use strong advocacy - quite a tough measure, are you strongly - highly
likely to recommend is the question we ask questions. We're running at 75% - the
general trend is forwards, I see no reason this can't go on to 80 and beyond. This
benchmarks with the best retailers in the UK, but we are therefore happy with it, but not
satisfied and we will continue to drive this forward so that we can be measurably better
than anybody else, either in our sector globally or in the UK in any sector.
And our price has improved over the last, certainly three years and even during the
course of even this year, very dramatically improved against our competition. We are
determined that in a price transparent world, no customer will come to us and say I'm
not buying from you because of price. We don't think that means necessarily we always
need to be at exactly single channel internet pricing, but by goodness we have to be
close. And we have got very close and we are getting closer every day.
The top line is a well-known, US based, non-taxpaying retailer in the UK, and the second
line is a white goods specialist retailer where you'll see that we've actually come and
matched - pretty much matched those prices and we think that makes a huge difference.
As a result I think customers increasingly are choosing us more and more and more.
The other lines I don't want to say who they are but one of them is orange and stops,
so.
This is another example of our pricing, this is last Friday, David took the bestselling lines
in the key TV sizes and just pulled up as customers will do on their smart phones in our
stores, just pulled up the prices, Amazon prices and our pricing and ran them next to
each other. And what I think is very interesting here are two things, firstly I think that's
a pretty good result. You know we've been fighting and fighting to - you know if you
look at it in the context of our gross margin performance I think the ability to get within
this of single channel internet is proving more and more that our model really works.
And secondly the other thing that's interesting is that the best products on here, the
Samsung 8000 series in 40 inch and the LG 760 in 42 inch are not available from
Amazon. These premium products, these manufacturers are saying - I do not want the
internet to sell these products, I want them to be demonstrated and shown in store.
And I will give them exclusively to the companies that will do that for me and we are
that company. So I think this is a very interesting slide.
I said at the beginning that I would show real data indicating how our model stacks up
against single channel internet. And this is I think quite a complicated slide so I'll just
explain it briefly. You have the online margin position, so we have a pretty good sense
of what single channel internet online looks like and that is the margin that they will get
- I've used computing by the way which is a good category for us. And then this is the
money that we get from exclusivity, from supplier contributions because of the
demonstrations we do, from marketing contributions because we have a store estate,
from having in store exposure, etc, this is a margin which is not available to online.
Dixons Retail - Results Presentation 29th November 2012
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This is the extra products that we sell relative to single channel online in terms of
services, protection and additional products; this is the margin that we get from it.
Interestingly if you look at the margin that an online players gets, by the time we've
added the supplier contributions and the solutions we're already nearly three times as
high. And it's a fascinating thing to do. And then we do not have go and pay for pay
per click customer acquisition costs. And so that's another advantage that we have
relative to single channel internet.
We what do have to pay for is our colleagues in store, we have to pay for of course their
wages and their training and their uniforms and so on and we have to pay landlords and
we have to pay for heat and light. But what's interesting is that when you tot it all up
our model is significantly advantaged in terms of the margins that we make from every
sale of computer relative to single channel internet players. And this is unexpected; this
is the truth of our business model strategy. Computing is probably our best category,
but as a group as a whole it's still true and I think that's a very exciting step forward.
We haven't had historic real data collected in this way before so I thought I'd share it
with you.
In terms of market leadership turning to our second point which is that we need to
decide where we're going to play and we need to win where we play. In nearly all of our
markets we are already market leader, in nearly all of our markets we are consolidating
that position and we're driving our market leadership forward and we think that's a very
exciting and good place to be, because market leadership makes you relevant to
suppliers and unlocks permission to talk to the customer and the supplier benefits that
you derive from that.
There are some areas where we're not, so in Italy we are the number three player. I
think I've said before that I consider us to be too small and we need to think very hard
about how we consolidate our strategic position. We have time to do that now that
we've stopped the bleeding in the Italian business and I think that that is now important
that we think intelligently about solutions to that territory.
In Turkey we are much too small and I anticipate that there will be consolidation in that
market and we'll have to see how that plays out. And PIXmania is not really relevant
because we're operating in a whole load of countries, but we clearly do not have a
market leadership position in PIXmania and it's interesting that those are the three
territories that we really need to focus on in terms of finding ways to play where we win.
We're starting at last to align our businesses by at least beginning to share intellectual
property, so KNOWHOW is a good example; we launched KNOWHOW under the No
Problem name in Italy that's the one that researched best. But you can see that all of
the collateral and all of the presentation and branding is identically the same, the suite
of services is just the same.
And we did a test in Denmark which has launched well and we're now going to roll it out,
in fact this brought me so much pleasure, somewhat to the surprise of the easyJet staff,
I brought it home of Denmark, for those of you who are Killing fans you'll be able to
translate it. But this is our KNOWHOW poster, exactly the same as we would see in the
Dixons Retail - Results Presentation 29th November 2012
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UK but in Danish and we will begin to see this rolled out right across our Nordic business
over the course of this year.
And I think this is really exciting, when we think of the cost of developing and promoting
KNOWHOW in the UK and what we learnt from doing that, the ability to roll that out
much quicker and much more cheaply - thank you my lovely assistant - is a real step
forward. And that's just one example of the sort of intellectual property that we're able
to copy from territory to territory without spending and investing again in learning
everything from scratch.
Also when we last met I talked about the first ever computing deal what we did last
Christmas for an HP computer for Boxing Day, this year we have a great swath of
products that we're buying right across Europe to put into our Christmas deals. And
increasingly we're beginning to think about all of our big deal events in terms of pan-
European buying. And our international buying generally is beginning to move forward
to start inviting more suppliers into this club. And we're finding really quite a lot of
acceptance of joining our pan-European club and we think that's only going to move
forward as the months and years go by.
So to summarise we are very pleased with the UK and Northern Europe's results for
these six months and they are improving profitability and we think that's entirely a good
thing. We have taken and are taking extremely decisive action in PIXmania, we
recognise that that is - and I recognise that is one of the areas that we must sort out
over the coming year or so. And we have a business which has got very strong cash
generation and we've done some extremely good work and particularly Humphrey and
his team have done some extremely good work in organising and tidying up the balance
sheet so that we could feel completely comfortable about our balance sheet and liquidity
position going forward.
We continue to plan prudently, I don't think the market is going to do us any favours, I
know it's not going to do us any favours in Southern Europe or France and in the UK we
seem to be bumping along, I always tell my teams, you know we've got to make our
own luck because I don’t think we're going to see an material change for some
considerable time. But it's been an encouraging start to the year, you know we're not
unhappy with it, we're never satisfied, but we're not unhappy with it.
I think that's it, any questions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Questions and Answers
Charlie Muir Sands, Deutsche Bank
A number of questions on PIXmania if I may. Firstly, can you clarify that the cost
savings you're talking about trying to implement in PIXmania sit within the £90m
programme, or are they in addition, because this … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
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Which £90m programme? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
The two year £90m programme? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charlie Muir Sands, Deutsche Bank
The two year £90m cost saving programme, because I think it's only been more recently
that you've started to say that that's what you're going to be doing there? On the
scaling back of categories and countries, can you give us an idea as to what proportion
of the sales base that would represent? Then, sorry I didn't quite catch it, but are you
saying that you estimate the cash restructuring costs to be £30m to £40m? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
Yes, so just on the last one first, £30m to £40m is the restructuring cost for the entire
Group, there are some other costs in Italy and the UK that we'd expect, but the majority
of that £30m to £40m estimate is PIXmania. I think you should consider that the
PIXmania costs are largely part of the £90m that we've talked about. But I guess we'll
see how that goes really. I mean we're right in the middle of negotiating if you like that
social plan and what it will cost and we'll come back with better guidance when the
process is complete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
And then in terms of the sales, it's less than 20% of the total sales within the categories
and the countries that we're exiting, that's why we are exiting them. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charlie Muir Sands, Deutsche Bank
Sorry, if I could have one follow up, you obviously showed some quite impressive charts
on how much you've managed to narrow the pricing gap in particular on certain product
categories versus single channel internet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
That was actually all categories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charlie Muir Sands, Deutsche Bank
How close do you think you are before you'll be able to expand your price promise to the
internet as well? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
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That's a very good question, I'm not sure that a price promise is the right vehicle; I
think we now live in a price transparent world. And what I think the next step will be
and I think it will be quite a bold step would be for us to allow customers to view our
code for the product and see price comparison and to be completely open about what
other players' prices are.
Sometimes I will want to say to customers, yeah no we're ten quid more for a 500 quid
telly, but you know, you know where I live and if something goes wrong I'm here for
you. And I think that's something the customers are overwhelmingly prepared to pay
for. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charlie Muir Sands, Deutsche Bank
Thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Excuse me, I sound like I'm in a diving bell, it's because my children have given me a
cold so I apologise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eithne O'Leary, Oriel
That's all right. I'm afraid PIXmania again, the decision to close the store it seems a bit
at odds with what you're saying about multichannel for the rest of the Group, or Omni-
channel for the rest of the Group, are they in the wrong place, are they the wrong size,
what's the problem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
You've got to be a proper multichannel. PIXmania stores represented about 7% of their
overall turnover, it was an internet business and it had a few small shops. That's not a
multichannel player, a multichannel player needs to have stores that have a proper
display, a proper range and are within reach of the customer. And to get to that place is
inconceivable from a standing start.
And so it was an interesting experiment to see whether with a few stores you could - a
few small stores you could get to that place, those stores are not profitable and they're
not delivering these four benefits that are so critical to our business model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chris Chaviaras, Barclays
Two questions, the first one is on PIXmania again I'm afraid. Can you remind us what
the cost base is on PIXmania? And also you talked about closing the stores, but that is
kind of the good scenario, it will take time due to the French legislation, how much time
do you think? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Sebastian James, Chief Executive
Do you want to talk about the cost base and I'll talk about the timeframe? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
Yeah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
So we launched the social plan about a month ago, the average social plan time,
assuming all goes well is between four and six months, four is quite punchy, we think
that the average, the overall average of six months is about the time it will take us. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
So on the cost base I'm not sure we'll give a very precise number, but let's say we've
got 1300 employees in France, another probably hundred in Brno, so it's quite a sizable
operation predominantly in France. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chris Chaviaras, Barclays
Okay, that's fair. And my second one is in the Nordics, given Expert now has exited the
Swedish market, should we expect the same kind of trend in terms of the disruption in
the beginning and the gains as … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
No it's finished, so Expert is out, some stores have been taken over by other players,
small players, they're not causing us much worry, the stock is gone. So the disruption is
not an issue. The capacity has definitely come out with Expert's departure, but Media
Markt had two or three years ago signed deals for new stores for this year which they've
opened. So there is a new Media Markt space opening, the good news is that Media
Markt have announced that they no longer seeking to open any more new stores. But
the timeframe in property in the Nordic countries is so long that they've had a tail of
deals they signed a while back. So overall the market remains pretty competitive and
we still have principal competitor in place, nevertheless it's good to have capacity out. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chris Chaviaras, Barclays
Thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geoff Lowery, Redburn
Thank you, two questions please. Firstly in terms of exclusive product, can you talk to
us about what percentage of your Group or UK business exclusive product you think
Dixons Retail - Results Presentation 29th November 2012
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represents at the moment on annualised basis? And the second question, good job on
the balance sheet, when do you think you can make material progress in reducing your
net finance charge in the P&L? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
So exclusive product, we have two sources of exclusive product, one is the exclusive
brands that we own and operate, which represent just under 10% of our business and
growing. And we have the exclusive products coming from suppliers, that's highly
variable across the year. So I don't want to give you a number which won't make sense
from one month to the next. But it's growing and it is - and some exclusivities are for a
short time and some for a long time. But it's a growing proportion of our overall … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geoff Lowery, Redburn
Double digit, single digit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Double digit yeah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
So on the finance charges I think it's always a balance isn't it between liquidity and
deleveraging and we clearly did a bond in September, there's an on cost from doing that
and so we erred on the side of caution if you like and liquidity. It remains our goal, you
know, to eliminate our on balance sheet debt and that hasn't changed. And so as those
bonds come up for paying off we're going to pay them off and we've now got an RCF
that we're not drawing on, so there's no debt there. That's still our intention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geoff Lowery, Redburn
An ultra anoraky one, when you look at your Group tax rate, if you just had Northern
Europe and the UK central overhead, what's a sort of normalised tax rate for the Group? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
That's definitely a techy question, there will always be an element of items that are
disallowable and they're relatively fixed actually in size. I mean overtime if you
eliminated all those losses in the Southern European countries you'd come down to a
rate that's probably in the 30s, so you're never going to get down to the actual headline
tax rate of - 24 going down to 23 in the UK, but it's that kind of order of magnitude. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Early 30s.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
Early 30s, yeah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nick Hawkins, Cenkos
Could you give us an idea of what percentage of Comet sales you think you might be
able to pick up? And secondly which is the greatest strategic priority, is it to move to
the 3 to 4% margin, or to take the windfall you're going to get from these sales and
invest it in closing, narrowing the price gap with Amazon? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Yes, so let me not answer the first question first. We won't want to guide with any
degree of precision on how much of Comet's sales we're going to get right now. We will
do that; we will be able to give a much clearer picture as we come towards the end of
this year. At the moment it's extremely turbulent so we have got no data and as a sort
of data junkie I prefer to give you real numbers.
There's a few facts I can tell you, Comet last year was £1.2bn of UK sales, some of that
was B2B and some of that has been lost through this year through their like for like
declines. We have a 19.8 - just under 19.8% market share, depending on how you
define it, and I will be disappointed if we don't get more than our fair share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nick Hawkins, Cenkos
And the strategic priorities? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Oh sorry, and the strategic priorities, I think we are in a business as usual place. If
Comet's customers choose to come to us and improve our densities that will help us to
drive our business, I don't think those two things are incompatible. I think that as we -
what we have found and you'll see through our profit performance is what we've found is
as we've driven prices down our profits have improved. So I don't really see a fight
between those two priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geoff Ruddell, Morgan Stanley
Just to give us an update on exactly how multichannel you are at the moment could you
just explain, or give us an update on what proportion of Currys sales are being ordered
online and also what proportion of those are being picked up from store? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
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Yes, so if we take Currys and PC World together because we don't really think of them
separately we are running at about 17% throughout - about 18% for the full year, about
17% so far, it will be more over Christmas, it goes up as high as 25 we think this
Christmas. And that is roughly 60/40 collect in store versus home delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geoff Ruddell, Morgan Stanley
Great thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matthew Taylor, Numis
I know you don't like talking about individual categories too much, but I wonder if you
can talk a little bit about your computing business, in terms of materiality and what your
view is of it sort of medium term as it becomes sort of less PCs and more tablets,
perhaps more sold on subscriptions and things like that? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Yes, I think it's a really good question. I think my plan is probably to talk a little bit
more about that in a bit more detail as we come to next summer. But you're absolutely
right to highlight one of the key challenges and opportunities for us is the seismic shift
that we're seeing in computing where we're seeing a shift towards convergence into
devices, various devices, smart phone and tablet in particular where lots of different
pieces of kit are now moving into those two or three pieces of equipment. And how do
we operate that and how do we make that work in our favour and we think we have
some answers to that.
And then the second is virtualisation where a lot of the services that we used to buy as
hardware are now being sold as software, and how do we make sure that we get our
own share of that.
What's interesting is we're having some quite encouraging conversations with suppliers
because the fundamental truth about our business is that we see suppliers shouting on
billboards and on TV about the wonders of their ecosystem, their Windows 8, or the
Google Chrome, or the IOS6. But we are the only people who can whisper in the
customers' ear. And that ability to sell customers into an ecosystem and sell their future
revenue streams to a supplier we think is a valuable asset and one that we can
monetise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assad Malic, Citi
Just one question really on supplier benefits that you've been seeing. Can you quantify
whether that's still increasing in terms of the gross margin benefit you're getting and
secondly when would you expect that to sort of annualise out? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
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Page 21
It's still increasing but of course we're spending some of it on keeping our prices tight,
so the model works as a whole. So you know we work on the supplier side, the solutions
side, and the pricing side all at the same time and then you end up with a net result,
which hopefully is increased profitability. I don't want to parcel it into the three bits; I
think that's difficult to do. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assad Malic, Citi
But in terms of the price gap narrowing that we've seen, you're incurring that over the
last 12 months, is the plan to actually end up being cheaper than your competitors over
time, or do you think you stop once you get to that sort of one or two percent? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Yes, so we always believe that there is room for a small premium that we get from a
customer in return from knowing where we live and we think that we're not quite there
but we're very, very close. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
It varies a bit by category. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Yeah it does vary by category, so on an iPad I need to be at exactly the same price, but
there are some products where customers are saying actually - particularly large TVs for
instance, customers saying, you know what I'm pleased that you're here so I can come
and talk to you if something goes wrong. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assad Malic, Citi
Thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andy Hughes, UBS
You made some good progress on your cash flow and balance sheet as you were saying
in the presentation. Are you saying that's the same thing as you don't feel cash
constrained in any way. So if I said to you someone dumped £100m in your cash - in
your plc. bank account what would be your priorities for spending that money? Would it
be putting a bit more back into stock, or capex, or buying a few Comet stores, or
speeding up restructuring, what would be the priorities? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Sorting out the problems would be what I would spend it on. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dixons Retail - Results Presentation 29th November 2012
Page 22
Andy Hughes, UBS
So if you had more cash you could move faster, is that what you're saying? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
If we had unlimited cash and nobody worried about return on capital, sure. But what I
want to do is to try and do it as intelligently as possible so we maximise return for our
investors and I think there are cleverer solutions than the most blunt ones. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andy Hughes, UBS
Thanks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rod Whitehead, Deutsche Bank
Just on the problems in Southern Europe, 9% negative like for likes despite Greece being
positive, so it must have been mid-teens negative for Turkey and Italy, are those equally
bad, are they still getting worse? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
It's tough down there, and I think that we are very focused on making sure that we cut
our cloth to match our sales base. I think the Italian market is tough. It's a bit weird as
well because it has a good month and it has a bad month, so I wouldn't like to predict
where it's going to end up this year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
It's been tougher for Turkey in terms of the actual numbers, so your blended average
there wouldn’t be as bad as that for Italy and that's partly 'cos Turkey in the first half of
last year was growing at like 25% you know the comps were particularly tough for
Turkey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
In Turkey, the market has continued to grow slowly but the amount of space in electrical
retail has exploded and so like for likes are really tough in Turkey. And there are ten
national chains in Turkey, which we think is sort of eight too many. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rod Whitehead, Deutsche Bank
How quickly do you think that you could realistically see consolidation in Turkey? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Dixons Retail - Results Presentation 29th November 2012
Page 23
I think there'll be some this year and some next year and I think within five years it'll
shake it into its final position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rod Whitehead, Deutsche Bank
Thanks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Simon Bowler, Exane
Just one quick question, I think you've set out before your plans for and view of where
you'd like the UK store estate to get to. I'm just wondering post the departure of Comet
whether there's anything on that front at all? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
No, we think it's the same number. And actually thankfully that is the answer because
the real valuable thing to us is density - more conversation that's what's valuable. We
are on nearly all the same parks as Comet, we've just had a very disciplined
conversation actually in our capex committee where for five years I have wanted to take
the corner of store that Comet currently occupies in New Malden and make it part of our
store, for five years I've wanted to do this. And we were in the capital committee and at
last we had the opportunity and we looked at it and very dispassionately we decided we
didn't need the space. So it's going to Topps Tiles, I'm miserable about it, but there it
is. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Simon Bowler, Exane
You're going to get more signage though right? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
You'll get more signage, we'll get more signage, I'll have to make do with that. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Question
Could I just ask one other question, you picked me up on the point about Currys and PC
World, will the PC World brand still be around in five years' time, particularly as nobody
will be buying PCs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Well Carphone Warehouse is still with us I suppose; the answer is PC World has almost
100% consideration for computing purchases of all sorts. You have to be quite brave to
rethink that. I think that the brand architecture in the UK is quite complicated at the
moment and we are thinking about what the right long term solution is. But I wouldn't
expect anything immediately.
Dixons Retail - Results Presentation 29th November 2012
Page 24
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andy Wade, Numis
Just looking at the chart on page 29, the profit bridge you draw between the online and
store, I just wondered is this to scale in the sense that the margin benefit you get from
suppliers is equivalent to your rent rates and depreciation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Yes, it's to scale, it's to scale so yes that's about right, it only takes a very small
percentage of sales to match our rent, rates and deprecation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andy Wade, Numis
Thanks that was it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Otherwise we couldn't survive. The model is very robust. That section also includes the
small premium that we continue to charge, so that's our commercial benefit if you like. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Question
Now you're half way through the year I wonder if you could just tighten up the £90m
cost saves over two years is it still a roughly 50/50 spilt? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
Half and half. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Question
Secondly in PIXmania obviously the margins were down, but was the gross margin also
still heavily down year on year? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
Yes, so PIXmania's gross margin is - well do you want to? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
Yeah, no they were both the trading so the product sales on the website, but also we
had a particular issue with a contract we had with Bouygues Telecom which we lost
towards the end of last year which was very high margin. So what you've got is a rather
complicated mix of trading of electrical on the website and the margins which are
Dixons Retail - Results Presentation 29th November 2012
Page 25
multiply higher from selling the merchant technology. So you can get some big shifts as
a result of that. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Question
Finally on the bonds if you had the cash are they callable at par or at premium or could
you repay them quicker if you had the cash flow to do that? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Humphrey Singer, Group Finance Director
I think we'd have to have a consultation with the banks before we did that, so no is the
answer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sebastian James, Chief Executive
We have been thinking about what we'll do when we have lots of money and there are
one or two alternatives including thinking about our long suffering shareholders, etc, so
it won't be so long now.
Any other thoughts or questions? Thank you very much, thank you so much for coming
this morning. Thank you.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
END
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