duration: 44 mins/media/files/d/dixon... · strong performance in tvs, strong sales in tvs, laptops...

FINAL TRANSCRIPT

1/13/2011 08:00 UK Dixons Retail – Trading Statement – Analysts Call Duration: 44 mins

InterCall Transcription Document of 31 Commercial in Confidence

Contents

Corporate Participants 3

Presentation 3

Question and Answer 7

FINAL TRANSCRIPT



Corporate Participants

John Browett

DSG International Plc

Nicholas Cadbury

DSG International Plc

Presentation Operator

Thank you for standing by and welcome to the Dixons Retail Trading Statement Analysts Call.

At this time all participants are in a listen-only mode. There will be a presentation followed by

question and answer session, at which time, if you wish to ask a question, you will need to

press star one on your telephone. I must advise you this conference is being recorded today,

Thursday, 13th January 2011. I would now like to hand the conference over to your speaker

for today, John Browett. Please go ahead, Sir.

John Browett – DSG International Plc

Good morning, ladies and gentlemen. Thank you all for taking the time to call in this morning.

I’m joined by Nicholas Cadbury and David Lloyd Seed. The purpose of this conference call is

to update you on the group’s trading performance over the third quarter, that is the 12-week

period to the 8th January 2011.

There’ve been a number of well documented headwinds, impacting trading during the quarter,

particularly in the UK, Greece and Spain. In that context, the business has delivered a solid

performance. The renewal and transformation plan has ensured that despite these

headwinds, we’ve traded ahead of our competitors in all our major markets.

FINAL TRANSCRIPT



Total group sales were down 1% in local currency, with like for like sales down 2%. In the

UK, total sales were down 5% and like for like sales were down 4%. We believe we’ve

performed ahead of the market. We’re particularly pleased with the continued good

performance from the Transform Stores, which continue to significantly outperform the

market. Going into peak Christmas trading period, we had 250 stores transformed,

representing approximately 60% of our sales. These stores contributed approximately an

additional 4% to the like-for-like sales.

The Mega Stores continue to trade strongly, with 20 stores achieving over a million pounds of

sales in the first week of the sale.

Over the peak period, we saw strong demand for iPads, gaming, 3D TVs, and white goods in

the sale period, with customers responding particularly well to promotions. The anniversary

of the launch of Windows 7 last year, meant that sales of laptops were down year on year,

across the quarter, however we saw a significant growth of Apple products, such as iPads

and Macs.

The poor weather in December impacted footfall in the run up to Christmas, and we estimate

that this reduced sales in the UK by approximately 2% over the quarter. Gross margins in the

UK were flat, year on year.

AS I mentioned at our interim results in November, we were concerned by levels of stock in

the market, and we did indeed see action by other retailers to correct stock levels.

The improvements we’ve made in stock management, and reduction in service and

distribution costs enables us to remain price competitive, and grow shares without impacting

gross margins. We believe that profitability in the UK and Ireland division will now be

between 80 and 85 million in the full year.

Our Nordic operations continue to go from strength to strength, with local currency and like for

like sales both up 11%. Elf Shop [?] invested approximately 50 basis points in gross margins,

as it grew market share while also ensuring profit growth in the full year. Elf Shop performed

strongly in all of its markets, with exceptional performances in Finland and Sweden, with

strong performance in TVs, strong sales in TVs, laptops and white goods, it gained share in

all categories. Elf Shop has now refurbished 52 stores, including 19 Mega Stores. The sales

of these service stores represent approximately 25% of Elf Shop’s total sales. These stores

are delivering gross profit uplifts of 15%, versus the rest of the chain.

FINAL TRANSCRIPT



In our other international, sales were down 4% in local currency, with like-for-like sales down

5%. Despite the recent economic uncertainty in Italy, UniEuro continues to show growth in

sales, as the turnaround continues to make good progress. UniEuro remains on target to be

EBITDA break even in the full year.

The economy and consumer confidence in Greece remains challenging, and we’ve continued

to experience sales decline in this market, however Soflis [?], as market leader, has

leveraged its market position and strong supplier relationships to continue to grow its market

share. Our decision to take the Electro World brand exclusively online and transfer the stores

to the Cotsofis [?] brand has proved successful, with a reduction in costs, and complexity and

improvement in sales densities.

In Spain, PC City performed in line with the market, which continues to suffer from low

consumer confidence. The Prada [?] continues to be minimised losses and cash outflow,

while improving the customer proposition.

The Czech Republic, Slovakia and the Turkish business all performed in line with our

expectations.

Sales in the Pure Play e-commerce division, which comprises the Pure Play Internet

operations of Dixons.co.uk and Pixmania were down 7% in local currency, and reflects three

factors. First, the continuation of the trends we saw earlier in the year, with customers

transferring purchases, particularly of higher value items to our multi-channel brands of

Curries and PC World. Multi-channel sales across the group grew by 8% and in the UK,

reserve and collect sales were up 20%, as customers continue to look to engage with the

convenience of both the Internet and our stores.

Secondly, as we improve the store operations and our stock management processes, we’ve

been rebalancing the mix of stocks held in stores versus the warehouse, particularly over the

peak period, so while we have the highest levels of shelf availability in our stores, we have

some instances of stock not being available at our distribution warehouse, for direct sales

through the Internet.

Finally, we had an issue with our Internet site in the UK in the key trading days after

Christmas. They struggled to cope with the high level of demand, leading to periods of

unavailability. While it’s difficult to determine the exact impact, we estimate the sales in the

UK across stores and the Internet reduced by approximately 1% over the quarter because of

this.

FINAL TRANSCRIPT



Now we’re out of peak trading period, we’ll be returning the business of implementing the

process and operational improvements in the business that we are confident, and we are

confident that the last two issues will be resolved.

We’re making good progress with our store transformation and portfolio management, and

are managing assets in a more cost effective way. As such, we now expect full year property

costs to be £15 million.

While the group’s performance over peak has been robust in the face of many headwinds,

overall it’s been slightly behind expectations. We now expect full year profits to be around the

lower end of forecast, and in the range of £100 to 110 million. We continue to be cash flow

focused throughout the year and have low utilisation of our £360 million revolving credit

facility. We currently have facilities in cash available of approximately 600 million.

Our renew on transformation plan [?]ensures the business, particularly in the Transform

Stores, trades ahead of its markets. With peak now behind us, we will continue to work to

transform the business and remain confident that the group will return its 3-4% EBIT return on

sales in the medium term.

Ladies and gentlemen, that ends the form part of this call. I would now like you to open up for

questions.

FINAL TRANSCRIPT



Questions and Answers

Operator

We will now begin the question and answer session. If you wish to ask a question, please

press star one on your telephone and wait for your name to be announced. If you wish to

cancel your request, please press the hash key. Your first question comes from Karen

Howland from Barclays. Please ask your question.

Karen Howland – Barclays

Good morning. I’m having trouble, kind of, jiving your statement as far as the gross profit

uplifts being up 20%, and the UK business like for like being down 4%, and gross margins

being flat. Presumably, I mean, I think almost all of the renewal and transformation products,

or the vast majority of them have been done in the UK, and I think you said that this equates

to about 60% of the sales there. How do I get those numbers to actually jive?


Well, obviously we’ve got some stores which are now second year, so we don’t obviously

have the 20% gain in the second year.

Karen Howland

Are those still up 6%?


They have been up versus the rest of the estate, although at Christmas trading period, they

slightly let up slightly less for this trading period because at peak times we think the like for

like effect, well sorry, we know the like for like effect is lower. Overall, the like for like effect of

the Transform Stores in the quarter was plus four, and so the base stores were actually lower

FINAL TRANSCRIPT



than that, and we think that actually reflects where, when you actually, sort of, work out all the

numbers, is where roughly the market is at the moment.

Karen Howland

As far as what the base stores were doing?


Yes.

Karen Howland

Okay.


But, the issue that we’ve had, I mean, let’s be clear, the trading period we’ve just been in has

been a very tough period. We were lapping the Windows 7 launch for last year, and in

addition to that, customers were very cautious, given the statements being made about public

sector employment, so it was quite a tough run, particularly October, November, and then we

actually had quite a strong Christmas trade, so that’s the…you know, so there’s a lot of things

going on in these numbers, and net net, that’s why we’re sort of, I think this is a solid

performance in what we would describe as quite a tough market.

Karen Howland

Right, and then if I look at your other international, I mean, if I…the total gross margin was

down 20 basis points [?]. The UK was flat, Nordic was up strong, other international had to

be down pretty substantially?


FINAL TRANSCRIPT



Nordics was down 50 basis points this margin.

Karen Howland

Sorry, down 50 basis points? I thought it was up 50 basis points.


No, down.

Karen Howland

Okay, then never mind that question. And, then I was just wondering what the profit in

Greece, I know previously you’ve talked about how you are the only profitable electronics

retailer in Greece. I was wondering if that can still be said, and is the case?


Yes, I think so. You know, there’s still a little bit of time to go in Greece and it’s a very hairy

set of markets out there. We think again the market might be down as much as 25%, so

that’s not easy. So, yes, but we expect to be just profitable.

Karen Howland

Okay, great, thanks very much.

Operator

Your next question comes from Geoff Lowery, from Redburn Partner, please ask your

question.

FINAL TRANSCRIPT



Geoff Lowery - Redburn Partners

Yes, hi team. Two questions please. Firstly, in terms of the UK market, can you talk about

your view on TV volumes for the year ahead? Quite striking that some of the market data

seems to be talking about double digit negative for virtually every month over the last six,

which feels more like a trend than a cycle.

And, secondly, in terms of your three to 4% long term margin target, are you anymore

comfortable about when you think you might achieve that, or talking about when you might

achieve that?


Well, on the TV, you’re absolutely dead right about that. The market for TVs has been very

poor in the run up to Christmas, and we’ve heard from our industry sources that it was poor in

sales, and I think some people in the markets are now admitting that they’ve had trouble with

TVs.

We’ve actually had quite a strong performance on TVs during this period. In fact, over the

sort of, Christmas and sale period, we were up both in units and value, and the reason we’ve

been able to beat the market in that, is that we’ve had very strong sales of 3D TVs, and also

we, as you come towards the end of the recession, what we’re seeing is the middle of the

market is coming back, so I stood on the shop floor, selling TVs at Christmas, because I quite

like doing that, and particularly in sales, and what you saw in previous years was that the

middle of the market had basically gone down to entry price point, and to actually unbranded

TVs, because people needed a new TV, but they were worried about spending money on it.

The top of the market never actually declined, it was always there, and what we saw at

Christmas, and this is a little bit outdated, but we see is now in the numbers, is that the

premium or the mid market TVs, and that’s the large screen, between £600 and 1,000 came

back quite strongly. In fact, we sold out.

So, I think there’s quite a lot of dynamics going on. I think this may be the end of the, sort of,

cheap OEM TVs. I think people are now starting to realise that they actually do get much

better value for money when they’re actually buying branded product.

FINAL TRANSCRIPT



In terms of our long term market targets, etc, I mean obviously we’re always a bit cautious,

because it depends on when we actually see the cyclical upturn, but I think, you know, I think

even the most cynical and hardened view of the market would say that we are going to get

growth back in UK consumer expenditure, as the economy comes back, so you know, we’re

not far away from that at the moment, but it’s very hard for us to pin a time on it, because it is,

we are, as ever always slightly dependent on what goes on in the market.

Geoff Lowery

Perfect, thank you.

Operator

Thank you, your next question comes from Simon Irwin, from Liberum Capital, please ask

your question.

Simon Irwin – Liberum Capital

Morning chaps. Only one question, which is on guidance, which is with, now that you’re

through peak, can you give us some idea about what that new pretax number means for year

end debt?

Nicholas Cadbury – DSG International Plc

Yes, it’s still early in the year. I mean, just, of interest, right the way through the year, we’ve

already been tracking the same cash flow as last year, despite the higher Capex, and it’s

really subject to the daily, you know, the daily and the weekly fluctuations, and it’s particularly

hard for this year end, because we’ve got so many bank holidays at the year end, and just

kind of getting that, you know, we’re still planning our stock intake. So, we expect to be

slightly better or similar to last year’s net debt figure.

Simon Irwin

FINAL TRANSCRIPT



Can you remind me what that was?

Nicholas Cadbury– DSG International Plc


20 [?].

Simon Irwin

Right, and does that include a positive or a negative contribution from working capital?


We expect small positive.

Simon Irwin

Small positive? Fantastic, okay, thank you very much.

Operator

Thank you. Your next question comes from Rod Whitehead, from Deutsche Bank, please ask

your question.

Rod Whitehead – Deutsche Bank

Good morning, thanks for that helpful guidance on the divisional performance. The one you

didn’t comment on was other international, and I’m just wondering whether that’s, kind of, the

loss would be as much as 25 million there, given what you’ve said? And, whether the losses

in Spain are close to double digit, or whether that would be too excessive?

FINAL TRANSCRIPT



And, secondly, on cost savings, your 50 million, presumably, what kind of amounts are you

looking at in the UK, because the profit increase you’re looking at for the UK is quite

impressive, given the like for likes?


Yes, just on the other international, yes, you’re around about right on the number you just,

you quoted. We’re still expecting to make a profit, as John said, in Greece, which is

impressive, I think, which is a good performance, and I think you mentioned double digits for

Spain? We won’t be, it won’t be that bad, no, so we’re down, you know, single digits in both

Greece and in Spain.

Rod Whitehead

So, that, I mean, that would mean that Central Europe and Turkey are also materially worse

than last year?


Central Europe is pretty flat if not a little bit better, actually, and year on year, in Turkey, it’s

still investment and that again, it’s high single digits.


And, we’re still likely, we’ve still got big store openings there, and you know, it’s still an

investment country, and we’re still at very early stages in Turkey, so that’s absolutely on plan,

but the plan was to actually have bigger losses this year, because we’re still investing in that

market.


And, then you’ve got small, single digit losses in Italy.

FINAL TRANSCRIPT



Rod Whitehead

Okay, thank you, and the UK cost savings?


Yes, the UK, I mean, the reason why, I mean look, we’ve said to the market obviously

repeatedly that one of the things which we’re doing is reengineering the business processes

to make them better for customers, easier for us to operate, and therefore cheaper, and you

know, that is about a £50 million gain. Now, some of that goes to the gross margin, because

it impacts our distribution and service costs, but it also is the fixed costs within the business,

and so what we’re able to do with that work is to manage a period like this, and I think this is

the contrast to, you know, when we first came to the recession. We didn’t really have those

programmes rolling fast enough, and now we actually do, so that’s the reason why we’re able

to manage to a reasonable profit number in what is quite a tough market.

Rod Whitehead

Sorry, so does that mean, like you know, 30, 40 million of the cost savings would actually be

going through the UK operating cost line?


Yes, so that’s the sort of, I mean, the scale of it, it’s that order of magnitude. Now, some of it

is then spent on doing the store transformation, because we’ve got the cost of that, which we

did the biggest programme we’ve ever done, and although, you know, obviously there’s a lot

of capital costs in that, there’s also operating expenditure costs, and that was up year on

year, so we’ve got to manage. What we’re doing with the, sort of, the big cost savings which

we make in the UK, through the reengineering processes, is to manage the margin, through

the reduction and the distribution of our service costs, to make the transformation costs, to

cover the transformation costs, cover inflation, etc, and then the little bit left over is the bit

which allows us to still improve profitability, even though we have this period of tough trading.

FINAL TRANSCRIPT



Rod Whitehead

Thank you.

Operator

Thank you, your next question comes from Nick Bubb, from Arden, please ask your question.

Nick Bubb – Arden

Yes, morning guys. Considering Rod’s line of questioning, you’ve given the UK profit

guidance for year, any guidance on Nordic’s profit for the full year, and Pure Play profits?

Presumably Nordic will make the 100, 110 pretax that the group will make, as it were?


Yes, that’s right, that’s about right, yes.

Nick Bubb

And, Pure Play?


High single digits.

Nick Bubb

Sorry, low?


FINAL TRANSCRIPT



High single digits.

Nick Bubb

Profit or loss?


Profit.

Nick Bubb

Profit, okay, and there was no snow in the Nordics, no incident disruption?


Nordics is entirely different. I mean, we have this on our weekly conference call, and as we

said to our Nordic colleagues, the difference between Sweden and the UK, where Sweden

actually got quite a lot of snow in the run up to Christmas, is that they’re prepared and we’re

not prepared, and so although you actually have a day, a glitch, the Swedes have got snow

tyres on their cars, and they’re quite used to going out, and they’ve got a lot of snow clouds,

so they’re quite used to going out in that, and so for us, as you know in the UK, it’s not that we

can’t cope with snow as a nation. It’s that it just, we’re, it’s not economic to be ready for that

kind of dumping of snow. It happens too rarely, whereas in Sweden, it happens every year,

and they know and they can plan for it.

Nick Bubb

Sure, okay thanks.

Operator

FINAL TRANSCRIPT



Thank you, your next question comes from Adam Cochrane from UBS, please ask your

question.

Adam Cochrane – UBS

Good morning, guys. Two questions really. First of all on Spain, can you talk about the

market there and are you changing your plans with regards to Spain, given the market’s got a

bit worse?

And, then secondly you talked about running out of a little bit of stock on the Internet, or

transferring it to the retail platform instead, is there sort of, any chance that you were a little bit

tight on stocks throughout the season and could have sold a bit more if it was available?


Okay, so on Spain, the market was very poor in December, and I think, you know, if I had

been a Spanish consumer, if I was reading about what the markets were going to do to my

country, I might have slowed down my spending a bit, so that’s just a one-off.

You know, the reality is the Spanish economy is doing actually okay, because of course their

export businesses have actually picked up, you know. They’re expecting, I’m sure, this year a

flood of people from Germany and Northern Europe, who are feeling better about the world

who come on holiday, etcetera, so I’m not worried about the Spanish economy to such an

extent that we have to do something drastic. However, we are operating the business in a

difficult environment, and therefore we’re taking all the actions you’d expect to conserve cash,

and to minimise the impact on profitability.

We are getting quite good uplifts though from the work which we’re doing on refurbishing

stores there, so we’ll continue to do that, so we’ll continue to invest a little bit in the Spanish

market, so because we know that when Spain comes back to normal state, that is a profitable

business, and it’s just been a long, hard recession for the Spanish market, as the property

bubble there deflates and is dealt with.

In terms of stock in the UK, one of the biggest things which is going on in the UK is to

transform the way in which our stock and supply chain works. Now, on the whole, that’s been

FINAL TRANSCRIPT



very successful, and you will have seen, this year, the stores in a much better availability

position all the way through, and we have also, what you can’t see is what’s in the back

rooms, but if you were to walk around the back rooms of our stores today, you’d see virtually

nothing, so we’ve actually managed the stock quite well.

In part of doing that, I don’t think we quite got right the stock available for home delivery, and

that’s just something which, you know, happens from time to time, as you make these

adjustments because we’re running the business in a different way. Now, we’ve worked out

what we did wrong in that, and we know how to fix it, so we’ll just progressively improve that

over time, but I think that was a little bit of an own goal, and it did depress our online sales

somewhat, particularly on the Pure Play.

One of the reasons why reserve and collect was strong was that the stock was available in

store, and that’s not necessarily a bad thing at Christmas, so net, net, net we’ve got a bit

more work to do on actually getting our availability perfect, both in store and online.

Adam Cochrane

Could I just clarify, on the online, you mentioned that the system was overloaded for a good

reason, with too many customers, and did you say that that was about 1% impact on online

sales, you estimated?


1% actually in the UK over the period.

Adam Cochrane

UK overall?


Yes, it was a bit of a hit, I have to say. I mean, I think it cost us about £15 million in sales, so

that’s not, now it’s a bit difficult for us to estimate, because the reality is that, you know, some

FINAL TRANSCRIPT



of those sales would have been picked up in store, but you have to say that we had given our

competitors an easy run on that.

We did test the systems properly for the period. We’ve now identified what the component

issue was. I don’t want to get into the technicalities of it, unless people are really interested,

but it was a slight glitch on the new platform. We don’t expect that to be repeated in the

future.

Adam Cochrane

I’m glad I’m not in his shoes, thank you.


Yes. It was quite exciting, I can tell you.

Operator

Thank you, your next question comes from John Baille, from SG, please ask your question.

John Baille – SG

Good morning, sorry or even from SG. Maybe by recommendation I will be moving on? But,

yes, looking forward to 2011, and thinking of the transformation programme, I mean, will you

continue with the pace of transformation and the investment levels, and the mega stores,

given the more difficult market background, or is it going to be a little bit of scaling back the

pace of change?


Now, we’re not changing the programme in any way. We’re actually on our original plan. We

did obviously this year we had a super human effort in order to get, you know, 25 Mega

Stores open for the UK, etcetera, and you know, we’ve been very hard on that, but the reality

FINAL TRANSCRIPT



is that particularly for the Two in One [?] and the Mega Stores, we’re going as fast as we can,

because the payback on those opportunities is so quick, that you really want to do them.

It…so this year, our programme won’t be quite so big, but that’s what we had planned

anyway. We’re now through the big, I think, just written down…


We’re doubling the number of mega stores during this year, from 25 to around 50.

John Baille

50 trading by December 2011?


That’s right, and what we’re finding is that is our most potent format.

John Baille

And, how many Two in One’s would you expect to have by December 2011?


Good question, I can’t remember the numbers.


I’ve got that, I can come back to you with that, John.


FINAL TRANSCRIPT



Can we give you that offline?


We’re doing a little under 100 stores this year before Christmas, so it’s about 75% of our

sales.

John Baille

Okay, thank you.

Operator

Thank you, your next question comes from Assad Malic, from Credit Suisse, please ask your

question.

Assad Malic – Credit Suisse

Morning guys, it’s Assad Malic here. Just one question really around online and the sort of

comments that you’re making around this transition, from some of the premium product into

store, I’m just thinking, I mean, is that something you’re seeing across the market and also

what do you see in terms of pricing trends? You know, in terms of the, sort of, entry level

pricing online versus in store?

And, I guess the last point on that really being, you know, one of the things that you’ve

spoken about in the past is building a, sort of, more powerful, sort of online piece. Has this

sort of, changed that sort of strategy going forward?


Well, I think there are a number of different things going on in the marketplace, and you know,

again it’s a bit difficult for me to give a commentary so far, because we’re still in the wash up

FINAL TRANSCRIPT



after Christmas in terms of what actually happened. I think there are three trends which we

saw.

First was to do with the mass merchants. I think we saw that they had quite a difficult time on

TV in the run up to Christmas, and in the sales periods, and I think that’s partly because, as I

said, I think the big focus of customers on entry price point OEM, you know, so non-branded

products has shifted, and I think the customers are more interested in higher quality, branded

products, so that’s one trend which is going on.

The second trend which we saw, which was a delight for us, because it’s really what we, you

know, we revel in, which is that people were starting to buy the more premium end of the

market. We saw it particularly strongly on 3D TV, where we’ve had a very strong Christmas

relative to the rest of the market, and also people are now starting to buy the LED branded

product, rather than LCD, and again, I think that’s brought life back to the middle of the

market, and then the third piece of it is this whole thing about online versus offline.

Now, I think on TVs, we believe that we’ve now got that working pretty well, because we’ve

changed our price positioning quite dramatically on TVs over the last couple of years,

therefore, you know, our offers in store are very strong, and what we’re seeing is that

customers would much prefer to come into a store to buy a TV, to look at the picture quality

than buy online, and so therefore that’s why you’re seeing some of the trends under that.

Now, it’s quite a complicated set of things, because you’ve got a set of things which are

economic, a set of things which are to do with technology, and a set of things to do with

actually how we’re trading the business.

Assad Malic

Sure, so if you compared the change in average transaction value in store versus online, how

do you think that’s panned over the period?


Gosh, that’s a good question. I haven’t actually done that analysis yet. What we know in

general is that large screen TVs, we were able to actually get the average selling price up

over this period, just the sale and Christmas period. I haven’t done the analysis of online

FINAL TRANSCRIPT



versus store, and I’ll tell you part of the reason we do that, is that we don’t actually think of the

customers as segmented in that way. We don’t think about online customers versus store

customers, because our main brands, Curry’s and PC World, it’s one customer. They don’t

see, they don’t think of the world in that way. They’re just shopping with Curry’s and PC

World.

Assad Malic

Thank you, guys.

Operator

Thank you, once again, if you wish to ask a question, please press star one on your

telephone and wait for your name to be announced. If you wish to cancel your request,

please press the hash key.

Your next question comes from Michael Brown, from Martin Currie, please ask your question.

Michael Brown – Martin Currie

Hello, good morning gentlemen, can you just make a brief comment on Irish trading, please?


Actually, it was reasonably okay. Very hard in October, November and especially when the

government was passing the budget process. I’m just having a quick look at the numbers.

But, it is a little bit worse than the UK, but nothing catastrophic, 1 or 2%. We think we actually

out traded the market quite strongly in Ireland, to be fair.

Michael Brown

And, profitability?

FINAL TRANSCRIPT




Yes, it’s fine, because it’s run off the UK supply chain and engine, so therefore it’s reasonable

go, and again, we’ve been able to adjust some of the cost base in Ireland, and the way in

which we run that business.


Year to date, our like for like’s up in Ireland.

Michael Brown

Great, thanks.

Operator

Thank you. Your next question comes from the line of Adam Cochrane from UBS, please ask

your question.

Andy Hughes

It’s Andy Hughes on here, good morning guys. Just looking at your new guidance range, I

mean, if we take the mid point, where we’re looking at probably growth of about 15%. I was

just looking into next year, why you think you could do a bit more than 15% growth next year,

and if you can, where the big gains would be, because I suppose if that is the case, or if you

can’t do more than 15%, then presumably there’s a bigger impact on year two forecasts than

year one?


FINAL TRANSCRIPT



Well, I think for next year, you’ve got more of the stores transformed into the new format by

the next year, so by next Christmas, we’ll have around about 75% of the stores going through

in a transformed format, so you get a full force of that. I think we’re seeing considerable

headwinds this year. I mean, the economy has been, you know, the market has been very

tough this year. We’re expecting the first half to be tough, but we’re expecting the second half

to be a little bit easier, from a market point of view for next year, so that should go in your

favour as well.


And, I think that’s just generally, Andy, that you know, if you look at most of the markets which

we operate in, it’s difficult to see, given the world economy is growing, that you would actually

be going to negative markets again next year, so particularly in the second half, you’d expect

some kind of recovery. You know, if we continue to have consumer expenditure down in the

second half of 2011, then of course it’s very difficult, but we’ll manage.


Yes, and we still see further growth in the Nordics as well, so I think we’ve shown over the

last two years that there is growth still, particularly in Sweden, Finland and Denmark, and we

still see that continuing over the next year as well, and then by next year as well, we’ve got

the next charge of cost savings as well to come through.

Andy Hughes

Can I just check on the cash, or the debt figure at the year end? Was it 220 was the figure?


We finished last year at 220, and it’s always, kind of, you’re open to daily and weekly

fluctuations here, but we expect to be roughly the same or a little bit better this year.

Andy Hughes

FINAL TRANSCRIPT



Right, and into next year, would you expect to…?


And then to come down next year.


Yes, we’d expect to start generating cash next year.

Andy Hughes

That would be with Capex at just over 200 million?


Around about that, yes.

Andy Hughes

Okay, good, thank you.

Operator

Thank you. Your next question comes from Luca Solca, from Bernstein, please ask your

question.

Luca Solca – Bernstein

FINAL TRANSCRIPT



Yes, good morning. I was just wondering, as you say that 75% of your stores will be

transformed by next Christmas, if you could possibly remind us where you stand on the other

items in your improvement agenda, on cost savings and so on?

And, the other question connected to this, when you look at the performance gap between

where you stand now and the 3-4%, which is the goal, how much are you expecting to come

from yourself and efforts, and how much do you expect to come from the market coming back

to a normalised demand level?


I think we’ve learned over the years now to rely on the market too much, so we’re obviously

working extremely hard in the background to do that, and I think, joking aside, we do need a

little bit of help from the market, but we’ve also got significant work which we can do

ourselves, so if you look at our total agenda, you know, we haven’t run out of ideas in terms of

improving the cost base of the business. We still expect that to kick in circa 50 million a year

every year, across the group, and a lot of that is in the UK, so that continues, and we don’t

see an end to that. We keep on finding opportunities to actually make the business leaner

and fitter.

In terms of the other things as well, you know, we still have not had some of the benefits

which we should get out of the work we’ve been doing on service and distribution, on the e-

commerce business as well, so you know, there’s been a lot of, in the background, work on

systems processes, the platforms which we operate, etcetera, and I think, you know,

eventually you’ll start to see that driving the business forward. That’s why we’re confident

about being able to actually get the improvement coming through eventually.

Luca Solca

You would say that you’re three quarters of the way on the restructuring and improvement

plan, or halfway?


FINAL TRANSCRIPT



I think, I mean, I’ve done lots of work like this over the years, most notably my previous

employer, and the reality is, Luca, that if you do this work well, there’s always something

which you want to do, so for us, it’s a never ending improvement process, and I think that’s

the big shift which we put the business on, which is that we don’t ever run the business in a

static, stable state. We’re always pushing for how can we improve the offer for customers?

How can we actually make the processes leaner and easier to operate, therefore cheaper,

and that is now actually just the standard space, so we’ve actually got the business now in the

expectation, when they come up for budgeting, that costs come down and that we’ve got to

find ways to drive revenues and growth profit up.

Luca Solca

Right, thank you very much.

Operator

Thank you, your next question comes from Ramona Tipnis, from Shore Capital, please ask

your question.

Roman Tipnis – Shore Capital

Morning guys, just one question really. You mentioned that actually multi-channel was up 8%

over the quarter, I was wondering if you could give us an idea as to what percentage of sales

multi-channel currently is?


I think in the UK, it’s…


I think it’s around 5%, Ramona, but could we just come back to you precisely on that?

FINAL TRANSCRIPT



Ramona Tipnis

That would be fine, thank you.

Operator

Thank you, your next question comes from Chris Walker, from Nomura, please ask your

question.

Chris Walker – Nomura

Morning guys, I just wanted you to comment on the outlook for the product cycle really going

forward…


Hang on, Chris.

Nicholas Cadbury– DSG International Plc

It was 9% over the peak period.


Over the peak period, we’re 9% on reserve and collect.

Can I just say that this, I know you’ve got to move onto others this morning, so I have to make

this the last question, but okay.

Chris Walker

FINAL TRANSCRIPT



Yes, I was just wondering about the product pipeline, going forward? Obviously you’ve just

had the consumer electronics show in Las Vegas, so I’m just wondering what the key

products coming out of that were, and how they will help you maybe annualise strong iPad

sales, for example, this year?


No, I think that’s a good question. I think there were three things we saw at the CES, which

were really impressive. The first one is, and this is a longer term trend thing, but very

important for everybody to get to grips with, the revolutions which are going on in screen

technology are going to continue for the next five years. It looks like we are actually going to

get LED TV eventually and we are eventually going to get, and this is a longer term thing. It’s

not in your shops next week, we are actually going to get 3D without glasses at some point.

So, and what we saw there was, I mean, Sharp showed a 70 inch full LED backlit TV screen.

There was a 75 inch LED screen from Samsung, and the next Samsung has come with no

borders. I mean, there’s some very, very significant improvements in screen technology

coming through and I think that will underpin the business, especially as in our opinion, 3D is

going to be a big reason for people to buy TV.

The second thing which we saw, we were offered, I think, at the show, over 100 tablets. We

think this is a new category, probably only ten or 15 of those will sell in any kind of volume,

but I think that is a good opportunity, and that will come, I think, quite strongly in the second

half, in terms of gifting.

There are some substitutional effects with laptops, etc, but we believe that tablets is going to

be a big part of the market overall, and then I think the third thing to say is that the

continuation of what people call the convergence trend is still happening, and again that

improves the quality of the products which we sell, and again it’s driving customers into our

stores, and they need help and service on that, so I think those three trends are big things for

our business going forwards.

Chris Walker

Great, and I guess the new Black concept in Birmingham, any learning over the peak period

to help you sell these products going forward?

FINAL TRANSCRIPT




Interestingly, Black is a future store for us and we’re now dissecting what we’ve learned from

it, and I think there’s some very promising things, but I think we’d like to give an update to the

market about that later, when we’ve had a chance to really think through, but very interesting

and very promising, particularly around premium product.

Chris Walker

Great, thanks John.

Operator

Thank you.


Sorry, I think we’ve got to finish the call there, so I think we’ve got to get around to the next

one, so thank you very much for attending. If there are any further questions today, please

get in contact through David Lloyd Seed [?], cheers.

Operator

Thank you, that does conclude our conference for today, thank you for participating. You may

all disconnect.

duration: 44 mins/media/files/d/dixon... · strong performance in tvs, strong sales in tvs, laptops...

Documents