Interim Results Presentation Transcript 25 Nov 2010...Interim Results Presentation 25th November...

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Dixons Retail

Interim Results Presentation 25th November 2010

Dixons Retail - Interim Results - 25-11-10

John Browett: Good morning thank you for coming along. If I could just remind

you, because we webcast this, if you could just turn off your

mobile phones as it tends to interfere with the broadcast.

Before we start on the slides I just wanted to make a couple of

introductory remarks. I think the first thing to say is that the

Renewal and Transformation plan is working much better than

we could have expected reasonably when we started. We are

getting strong uplifts from the new stores. And what's new,

which we're going to talk to you about a bit in the presentation,

and we'll do more of this as we go forward is we're now starting

to use the Winning New Revenues principles in every single

market we operate in.

So you'll see that we're now rolling out megastores very strongly

in the Nordics, we're doing that across all the other markets as

well. And so that's a big thing.

The megastores are going particularly well. I hope you've all

now had a chance to shop them and experience them, not just

visit them on a sort of analyst thing, but actually to buy some

things from them. They have had tremendous cut through with

customers, that's why we've started the Star Wars advertising

and we'll talk a bit about that later on.

The other thing which I know you are all very keen to know is it a

shooting star - you get one big year uplift and then it fades

away. So we've to 'fess up on that and actually for the small

number of stores, and it still is only a small sample where we've

got a good data set we are on average plus 6% for the second

year versus the base estate.

Now that is the un-reformatted store, the un-reformatted stores

are trading in line with the market which is down on a like for like


basis, so there is a bit of benefit which we get from that. But

what we're not seeing is a fade at all in those stores; they're out

performing in the second year.

The key issue, and this is of course why you're all here I'm sure,

because you can read the presentation and it's all fairly

straightforward is what's the outlook? Now this is not an update

on last weeks trading or last week's deal set so we can't give

you that. But we're not expecting to have an easy Christmas.

We don't think the market is going to be strong, we think the

technology cycle is good, we're seeing very strong sales of

tablets. I've got actually here our own Advent Vega which is

very much being trailed well in the press, it's a very attractive

product. All of this kind of product is selling very well, including

3D TV and 3D TV is at a reasonable price premium in the

marketplace that has got a very attractive cut through with

customers. So all that stuff is selling well.

The background of course is that - oh and I should say one

other thing before I get into the UK and Southern Europe, is that

my comments which I'm going to make about the consumer now

are not to do with the Nordics; Nordics is still trading very

strongly indeed. So we don't see any problems with the Nordic

markets because they are in good shape economically and

therefore they trade much more like the German market, etc,

those economies look really good.

The UK and Southern Europe, clearly with all the restructuring

which is going on in the public sector a number of those

economies are - and this is not a political point, are just

rebalancing between the public and the private sector. That

does mean that people are cautious, particularly in the middle of

the market. We see the top end of the market being very strong

indeed we see evidence of that in our airport stores. But the


reality is that it's gong to be very hard for us to predict what's

going to happen at Christmas as a consequence of that softness

amongst people who are worried about their job prospects.

In that environment we think it's going to be quite competitive,

you know the problem with this market place as we've always

said to you is that although we have demonstrated over the last

two and a half years that we can actually control our gross

margin with the actions we can take with solutions selling, with

ad, sell, win, with a number of other factors we do with

improving our services business, we're taking out costs in some

of our services products. We can't actually - if our competitors

make a mistake on stock, etc, we pay of that in the marketplace

as well.

So on a one, three, or six months basis I can't warrant what will

happen. So this is a very difficult time for me to talk to you,

Christmas is late this year; it's going to be even later than last

year because it always is later than last year. So it's very

difficult to me to warrant about this stuff, so hard for me to give

an outlook, other than to say it's not going to be easy.

On the other side, not catastrophic either, we'll still be here

because the transformed stores will give us an uplift. And I think

whatever happens now with any of the businesses, which we

are running, wherever we are in Europe. The key thing is that

the self help measures which we can undertake are actually

making sure that we perform ahead of the market and therefore

your view on the market is as good as mine at this stage, it's

difficult for us to get ahead of that.

So just the more straightforward bit which was the first half

results. I'm just going to stand over here it will probably make it

a bit easier. Underlying group sales were flat, group like for like


sales, our estimation would be that's trading well ahead of the

market in most of the countries which we operate. We've grown

share across most market, there are of course individual

categories in individual markets where that might not be true.

Gross margin is up 30 basis points which we think is a very

credible performance given that we were actually very heavily

selling iPad and TVs in this sector which are on average lower

gross margin categories for us than the total. And that is very

much to do with our own strategy, as I said, around solution

selling and the work which we've been doing on our services

business. Therefore underlying EBIT was actually increasing in

that market and we got to £8.2 million.

The other thing which we also have announced and one of my

colleagues was talking about this in the papers at the weekend,

so I wanted to just give you an update on that and we'll have

another slide later on about this. We are going to continue to

press on our services business; we will relaunch the Tech Guys

as KNOWHOW in the spring of next year. And the reason why

I'm announcing the brand ahead of that is that normally the way

this is done is you actually launch the brand to consumers and

then you do all the work on the processes and the systems

underneath. We're doing it the other way around.

When you actually go into our stores you'll see all of the

KNOWHOW services and products being developed, the

improvements being made to repair times, improvements being

made to the actual service, all ahead of the actual physical

launch of the brand. Because the key thing here is that in the

end KNOWHOW is only a brand promise and the promise has to

be delivered first. So that's why we're announcing that.


But we're very excited about that we think that will have much

better cut through with customers, particularly with women who

find Tech Guys a bit too geeky and a bit alienating and it's a

superb set of services which we really want to get full value for

across the whole market.

The Renewal and Transformation plan as I've said really is

delivering extremely well. We now have 62 megastores across

the Group. This is our preferred format when we're actually

looking at new markets and every single country we operate in

now we actually have plans for where we, over time will build out

our megastores.

We've transformed 250 stores in the UK, of which 25 are

megastores. That's up from the eight or so megastores we had

last year. They are fantastic and they are trading very well.

51 stores in the Nordics have been transformed, including 19

megastores. In fact on the base estate, which we have in

Nordics we can go a little bit faster even then we can in the UK

and that's turning out to be very, very popular. We've had some

tremendous launches in Nordics. Our big store in Slependen

which is now our largest megastore in the Oslo market took £3

million on the first day of trade, 30 million NOK, which is just

incredible; a bit more, I think it was 32 million NOK.

The new formats continue to grow; we've not seen any fade in

performance as we get through into the estates. Now clearly

we're obviously doing the best first now. We said we were doing

experiments, but even when we get right into the estate we're

seeing the same results all the way through, very, very

consistent. And as I said the second year uplifts are good as

well.


Our multi-channel internet sales up are strongly at 28%. You'll

see in the results announce that we separate out - because

that's the way we run the business, the pure play. What you

don't see is also what we're doing on the internet channels

where it's associated with the store brand. And in fact Reserve

and Collect in the UK is up 53%. So as we continue to rollout

the e-merchant platform, take our learnings from Pixmania into

the whole business you'll see a big improvement there. And

there is a balancing off effect on our pure play business.

We continue to work on the process improvements and to

reduce our cost base. And that work continues and is giving us

good results.

So just talking about some of the individual countries, the UK

and Ireland, losses reduced by just over 5 million in the first half.

Like for likes obviously in the first quarter were spectacular.

That's a really good number, even taking into account the World

Cup we've solidly performed. Like for likes obviously reduced in

the second quarter because we did bring sales forward,

particularly of TVs. But again was a relatively strong

performance in what we know was a downmarket for that period.

So we were gaining share across all our major categories

across the marketplace and gross margins were improving,

which I think was a particularly good performance because the

price competition in the UK has been very fierce as people have

realised it's not quite as easy a market as they were expecting.

We have now got 51 Phones 4 U shops in our UK stores; those

are performing ahead of expectations. It looks like a very

complementary offer to what we're doing. It has been very well

accepted by our customer base and very good contract sign up

rates. So it looks like a very nice profit stream for the future and

we are announcing today we're going to do 50 more in 2011.


And also we've had a very good marketing campaign to support

the megastores and I just wanted to run through that with you.

A number of you will know one of the issues which we face is

the frequency of shopping in our stores is relatively low. And

therefore as we go through the transformation it's hard for

customers to see that Currys and PC World have changed. And

so we're now starting to do the advertising campaigns to get

people to come in and consider shopping in our business.

So far the uplifts we've had have been through higher

conversation rates and higher ARP. We now need to actually

start to encourage people, new customers into our stores and

that's what the Star Wars ad is starting to do.

VIDEO - Star Wars Advertising Campaign

John Browett: So we'll see how that goes. I mean it's interesting we've had

amazing spontaneous feedback, we'll do the brand tracking, it

takes about six months for us to get to know whether or not

these brand campaigns really work for us, but so far so good.

And you'll see more of that as we start to explain the big

transformation and get to general awareness about how Currys

and PC World have changed.

Just one other thing, which I also want to reiterate, was that in

the end ours is a service led business model. The differentiator

between us and everybody else is always our prices are great

and you know we've got the product. But the big thing, which

differentiates us, is actually how we do service. And all of our

customer research points in that direction. And it of course

helps us design the stores in terms of the navigation, making

them easy to shop and having the play tables. That all came out

of that customer research and people said that - you know


obviously our internet offer needs to be absolutely spot on,

people want a multi-channel offer, they want the navigation. But

they also want that reassurance from a specialist and they want

the website set up so that actually it shops well for electricals.

And some of the more general e-commerce retailers find it quite

hard to actually bend their site to what's necessary to make

electricals easy to shop.

So then the real thing which makes the big difference is actually

on the after sales service and support. And that's really the

heard of what we can do. We're the only people who can

operate at scale in order to make those services work in

practice. In fact our offer at the moment on services in the UK is

unbeatable, we see major ways where we can actually improve

that and that's really our plan in the future. And already today

we operate at much higher standards than anybody else. That

doesn't mean we don't get it wrong from time to time we're

always going to have a problem. We repair a million laptops

and TVs a year and so therefore it's also possible for us to lose

a TV, it's always possible for us to not get the laptop fixed in the

first rate.

But when you look at our first time fixed rates, when you look at

our turnaround times and you look at our general capability we

are now significantly ahead of the rest of the marketplace. And

it's by getting every single aspect of that shopping trip right and

the service that's how we can actually deliver on value, choice

and service, which is the plan for the whole business - not just

the UK.

So why do customers say that? When you do the research

across the general market, until customers are very, very

confident about technology they have a lot of questions and they

have a lot of needs. The reality is that all the things which we


sell, even white goods there are things which customers don't

know how to do - don't know how to use them. And there are

lots of things which they are confused about in terms of actually

what's the right product for me? Can I actually trust you the

right thing?

There's a lot of confusion still about whether or not we pay

commission, we don't pay commission so we're not actually that

in our adverts, etc. Do I need a service agreement? Explaining

what the difference is between a warranty and what we offer

which is a full service agreement so that you ring us up 24 hours

a day say if you have a computer and we can get you going

when you have a software failure.

So all of those things and that is a big part of what we're going

to do. And the really essential - the launch of KNOWHOW is to

very clearly articulate for customers the very powerful set of

services which we have. And they are encapsulated by four

pillars within the business.

So the first one is a very straightforward and basic thing, which

is delivery and installation. Just to remind you all in the UK

market we are the only people who can actually deliver and

install at the same time. I know a number of you are very - like

John Lewis a lot, John Lewis do not do installations in the UK.

Now most customers don’t actually know that, but they don't do

it, they arrange for a local guy to do it, which means you've got

to have a second person come and it's expensive.

We also deliver from seven in the morning until ten at night in

three-hour timeslots. And that service is available now online as

it is in store. Again, nobody else offers that, not nationwide, not

with the degree of accuracy which we have. And then similarly

as you go through the rest of the things, which are actually less


basic, which are actually more about the true added value

services there are a number of things which we can do.

We are the only people who have nationwide walk in Tech

Clinics which will be re-branded to KNOWHOW in time. There's

nowhere else you can go, nowhere else does that. And that is a

big, big advantage, which we have in the marketplace and it

means that in store we can offer of the service of Walk Out

Working. We'll load for you the software, etc, and all you do is

just switch it on. Now most of us who've actually bought a

laptop or a PC and haven't had it set up by somebody in the

office, when you actually get it home and have to do it yourself it

takes a lot of time. Whereas we can do it very quickly, you buy

it at the time, Walk Out Working, a fantastically popular service.

And then similarly on help and support there are lots of issue

which people have. They want to phone somebody up and

actually get it fixed. We have - you know a huge call centre with

our own people who actually are very good at giving that

service, etc. and then of course inevitably things go wrong and

then we can put you into our state of the art repair centre, which

we've shown you before.

So we've had significant service improvements over the last

year. I think this is the thing which I'm most keen to project to

customers. The service elements of this are very, very critical

indeed. It's something which only we can do, we're the only

people who've got the scale to do it and that's why we brought

the contact centre in house, that's why we spent a lot of time

reengineering the processes. And our customer offer now,

compared to three years ago is night and day difference, it is

much, much better, much better stores, much better ranges,

much better service. And that's the key thing which we're

looking at as we're going through this - through the turnaround is


are we actually delivering a better offer for customers. And then

sure as eggs is eggs over time that then converts into market

out performance.

A few words on the Nordics, I think this business is very much

underrated generally by the markets. Our Nordic business is

very strong at the moment, we are in very good shape and we're

taking a lot of market share as a consequence of what we're

doing.

The difference between the UK and Nordics is that we had a

very strong base business there. We have a very good

reputation for service, good quality stores in good locations with

a very efficient operating model. I think the surprise to us has

been that when we applied the Winning New Revenues

concepts on top of our Nordic business we thought we would get

an uplift, but because of the quality of the business in the

Nordics we thought it would only be a small uplift. So instead of

say getting a 20% uplift you might get a 10% uplift.

So our surprise we found that actually in some cases the

performance in the Nordics has been even stronger. So for

example we've opened two megastores in Finland, not in

Helsinki yet that comes next year, and they have been amongst

our most successful store launches ever. They are just

incredible and I gave you the numbers for Slependen in Oslo.

So what we're seeing here is that what's now starting to drive

our sales is the new stores and the refurbishments. And we're

very optimistic about how the Nordic business will develop over

time, especially because we don't see any of the softness in the

consumer demand which we're seeing in Southern Europe and

the UK. So it's a very strong business and it will get stronger.

And I think we're going to have to do a bit more work with the


London investor community to really show the strength of the

Nordic business and to see how well it's doing.

So therefore as we've said we've got 19 megastores now

operational, we've got 32 superstores in the new format and

very good strong gross profit uplifts, without some of the issues

which we have around the base estate in the UK, because the

base estate is trading pretty strongly in this market as well.

In terms of other international, Italy the turn around plan is about

a year ahead of plan. We're very pleased by the performance

there. We expect to be EBITDA break even this year if not

slightly better, which is as I said one year ahead of target. We

are actually gaining share in a very difficult market. Italy is not

particularly easier than anywhere else in Southern Europe it's a

little bit better than say Greece or Spain, but it's still a tough

market. And again, very strong acceptance of our new concept

stores.

We've opened, as you know one megastore in Rome in

Muratella. We opened today our second megastore, which is in

Milan, and we have been doing some Winning New Revenue

refurbishments now that we've got the basics right in Italy. And

again they're getting strong uplifts. So another example of how

we're using one universal format across the whole group.

I suppose our most challenging markets at the moment are

Greece and Spain. And you know in both of those markets,

which we think we're doing well relative to the pieces. But the

reality is in Greece there has been a fundamental shock to

customer confidence. That did hold back our profits a little bit in

the first half, but we have been able to go into the Greek

business and actually make some quite fundamental changes


there which have taken out quite a lot of cost out of the

structure.

So you'll have seen n the announcement that we have made

Electro World just an online brand and we've converted four of

the Electro World stores, we closed a couple of stores, but

we've converted the core of the Electro World stores into

Kotsovolos megastores. That has worked better than we

expected, it allows us to take a very significant chunk out of the

cost base as we're only now supporting one store brand and we

expect to do well in this market relative to the competitors and

still make money.

But it's just a little bit disappointing because this obviously was a

very profitable business for us in the past, we will still continue to

make profits and we'll have to wait for the up tick. The good

news of course is it is squeezing out competitor stores and

probably, as some of you know Expert is in that market and is

largely insolvent and that actually is giving us some

opportunities.

Spain the computing specialist position in Spain we're still

getting cut through with that. Again, a very difficult market, it

won't be made easier by what's going on in the financial markets

at the moment. But again we're on track there to be break even

in the next 18 to 24 months. It's 32 stores; it's not a significant

number of stores in the context of the whole group so we can

manage through the tough times in Spain.

The Czech Republic and Slovakia I think we're a bit more

optimistic about. The markets there are starting to come back,

there is plenty of consumer expenditure available, it's just that

people are holding onto their money, they want to just see that

for sure their export led businesses are going to come out.


We've improved the performance over the summer; we have

done better there. Losses have been reduced in the first half

and again where we have refurbished stores, we're actually

making good progress. So we've done our stores in Prague,

three stores in Prague they've performed very well, again in line

with our experience outside in the other markets and so we're

happy with that.

And then in Turkey, a brand new business, still going well. The

Turkish economy has actually come through the recession very

well. We're very pleased by the results there and we've actually

had some very, very good recent openings, including a

megastore at Terme. They rang up in huge excitement because

they got to very, very high numbers on their first day and then

we told them about the results in Slependen and they said

they'd have to reset their targets. But it was a really wonderful

result; I think they thought that they'd got to the top of the tree,

but not quite. So that has been good.

And then lastly and not least e-commerce and before we get into

the performance of the pure play businesses, one thing I wanted

to say is that e-commerce is now 16% of our total sales and is

still growing as a proportion of total sales across the Group.

And the reason for that is that like for like in our multi-channel

business has been very strong. We're up 28% multi-channel

across the whole group. What we report to you separately is the

pure play business; it's because of Pixmania and because of

dixons.co.uk. And these are also driving quite high unit growth,

but there has been a switch away from pure play into multi-

channel across the whole of Europe, particularly for the

heartland categories where the multi-channel retailers are

stronger, like TVs, like washing machines, etc.


And therefore although we're happy with the performance of

dixons.co.uk we look at the whole business rather than actually

the specific channel. And in a sense that's actually good news

for us because our multi-channel internet operations are more

profitable than pure play. Pure play you have to be very, very

hard on price, because that's the reason people are buying.

And that's the customer base you're going through the people

who really want to get the lowest possible price and are very,

very confident about what they buy.

The multi-channel retailers do well because people want that

reassurance that they're buying from a mainstream brand and if

something goes wrong they can get back into the stores and get

it sorted out. And they tend to be people who are less confident,

not about shopping online, but less confident about technology,

which is 90% of the population. And that's why that's working

well.

The other thing is that you'll also see that we've made some -

that the profits are down within e-commerce, that's nothing to do

with the underlying gross margin performance in those

businesses, or the cost performance associated with that. It's

entirely to do with the investments we're making in order to re-

platform the UK business, or e-commerce business in general.

So we've made very significant investments in Dixons.

We've also been focused on rolling out e-merchant and

developing e-merchant so that it can support the UK and other

retailers and that of course in an e-commerce business - there's

a certain amount of research which is done on that, or

development work which is expensed. And then we've also

been developing Pixplace within Pixmania across France. And

the GMV, or the gross merchandise value on that is growing


incredibly strongly. But at the start of that you have to invest in

the platform before you get the returns.

So nothing to be worried about there and all the investments

which we're making will give us future growth. But at the

moment the numbers are slightly down for Dixons and flat

across - or flat to slightly up for Pixmania.

So I'm not going to hand over to Nicolas who is going to take

you through the numbers.

Nicolas Cadbury: Good morning everybody. The underlying profit before tax

improved by £3 million to £8.2 million for the first half. And this

was driven by the like for like improvement and also for the 30

basis point improvement in our margin, also the cost saving

programme.

Over the last eight months we've done an awful lot really to

strengthen the financial position of Dixons Retail. We started

the year by closing down the defined benefit pension scheme in

April 2010 which really reduced the volatility to future ongoing

liabilities. We've made sure that we manage our capital

expenditure and our working capital to make sure that we

remain focused on cash generation.

We've re-phased the company's debts by issuing £150 million of

bonds in July this year and also extended the maturity of our

bank facility as well. And we've also, right the way through the

year we've maintained £200 to £300 million worth of head room

on our banking facility to make sure that we give our third parties

confidence in our liquidity going forwards.


The next slide here just looks at the sales and I'm not going to

go through these this is really just for reference because I think

John has been through those individually.

The third slide is looking at profits by division. The underlying

losses before tax improved £10 million to £7.9 million and non-

underlying charges reduced further to only £3.5 million. The UK

losses improved by £5.3 million driven by the 2% like for like

growth and also by the margins improvements which are in line

with those of the Group. The margin has improved despite the

kind of adverse mix of iPads and the higher promotional effect

on TVs. And that's due to the reduction in the service and

distribution costs, but also because our stock quality is so much

better through the improvements we have in stock management.

And because we've got less aged stock in the business it means

we have to do less discounting. And also the suppliers give us

more promotional money to promote the products that they

wanted to promote rather than promoting products that you

actually have to clear through; so good progress there.

In the Nordics, the Nordics showed a strengthening through the

half in the second quarter with like for likes of plus 1% in the

half, versus flat for the first quarter. We also recovered some of

our margin through the year and in the half we've improved by

about 70 basis points - the margin. And the result of that has

improved our profitability by £6 million to £45 million for the year.

Other international which comprises Italy, Greece, Spain, Turkey

and Central Europe saw losses of £12.2 million which were £4.5

million higher than last year. As we said earlier we made good

improvements in Italy and also in Central Europe in reducing the

losses. But despite growing market share in Greece the

economy was against us there and our losses did increase.


On e-commerce saw a flat like for like and losses were £0.8

million as invested in the channels that were described earlier.

Property losses are at £5.7 million and this is principally relating

to the refit programme where we write off the net book value, but

also the closure of six out of town stores as we consolidate and

also 16 high street stores in the UK. And then we've also

refitted a number of stores across the rest of the portfolio,

particularly in Nordic where we've taken asset write-downs.

The underlying finance charge reduced by £7 million and I'll

come and talk about that in the next slide. And we had non-

underlying items of £3.5 million. These were predominately

relating to the acceleration of depreciation where we know we're

going to refit a store we accelerate the depreciation and also the

write off of historical bank charges when we refinanced again

this year.

As I just said the financing charges improved by £7 million and

were 16 year on year. And this was really due to four key

factors. If you remember last year - the first two periods of last

year we actually hadn't received the proceeds from the rights

issues. So we had two periods in the half where we had

considerably higher borrowings than we did this year.

We've also got lower borrowing costs, we just refinanced

recently and by doing that we also have been able to reduce

some of the commitment fees that we have in there for the year.

We've also got lower amortisation costs as we refinanced quite

a few times in 2000 and 2009 and because we have refinanced

again in 2010 we've written all those amortisation costs and you

saw those going through the non-underlying charges. And lastly

the full year net pension charge is estimated to be about £5.6

million for this year where it was £8 million last year, so some

improvements there.


You'll see that's offset for the rest of the year slightly due to the

fact that we've raised the additional bond of £150 million.

The next slide shows the free cash flow, in the half we had

positive free cash flow of £11.4 million. It's still early in the year

but we're encouraged by this performance, particularly because

we've increased our capital expenditure on the Renewal and

Transformation programme, the capital expenditure was up £47

million year on year to £112 million. Capital expenditure for the

full year this year and also for next year 2011/'12 is as we've

already announced last year is expected to be around about

£210 million. Thereafter we're going to revert back to a capital

expenditure which is more in line with depreciation and at which

point the Group expects to convert a much higher percentage of

its profits into cash.

Working capital, inflow was £99 million and this really reflects

the normal cyclical increase in activity at this time of year, but

also the continuing improvements we've had with our working

capital, particularly our net to paid days stock.

The net restructuring and impairment charges were £12.8 million

outflow and these really relate to the reorganisation that we

announced back in 2009. And these predominantly relate to

property payments, property closures and severance payments

as we reorganise the portfolio of the estate and also the service

and distribution business in the UK. The cash outflow on

restructuring for the full year is expected to be around about £30

million and that compares to £46 million last year and that will

continue to decrease the year after.

The net debt for the interim was £215 million and that compares

to £220 million for the full year. This number is inclusive of the


£118 million worth of restricted funds, which principally relate to

funds held in trust for the customer service agreement liabilities.

And lastly over the last 18 months as we've said we've done a

lot to really improve the financial position of the company. In

2009 we did the rights issue and the proceeds of that we used to

reduce our debt and also to finance the Renewal and

Transformation programme. This year in July we raised - as you

can see £150 million worth of guaranteed notes which are

repayable in August 2015 and the proceeds of these were used

to payback £140 million of the existing £300 million debt that we

had that matured in 2012.

By doing this transaction we were also able to extend the

maturity of the £360 million bank facility out into August 2013.

So we're left with a nice kind of profile of debt repayment which

we should be able to pay for through normal operating cash flow

and support it if need be by the sale of our warehouse in

Sweden.

So we're left with a significant amount of headroom also on our

facility, which allows confidence to our stakeholder, but also

enough headroom to now make sure that we can execute the

Renewal and Transformation programme.

I'm now gong to hand back to John who is just going to give a

final summary.

John Browett: Yes and we'll then open it up to questions of course. So just to

reiterate the points which we've been making through. The

Renewal and Transformation plan is working, the most critical

thing of course is that it works for customers. We see it in the

sales, but the feedback we get from customers is fantastic. That

is not just a UK phenomenon, it's something, which we now can


apply across the whole of the Group, and the consistency in the

uplifts actually gives us real hope for that. Because one of the

things which we're looking for as an international group are the

things which we can universally apply to every single market.

And that seems to be around the format, the way in which we go

to market, the selling model and the services which are attached

to all of that.

So that is a big part of actually the benefits of being part of an

international group. And of course now what we're starting to

see is that people are actually feeding onto that model and so

therefore we get learnings which we then apply across markets.

The product pipeline continues to be very strong. It's a real

shame that we've got consumer expenditure under pressure

from the remnants of the recession, etc, and from the fears

which people have around unemployment, because actually the

reality is there's lots of great stuff to buy in our stores. And

whether or not that's the new green technology on white goods,

or tablet PCs, or 3D there's plenty in our stores to buy and it's a

very strong cycle.

Customer satisfaction is improving. That doesn't mean we don't

get it wrong from time to time but we know objectively know that

we benchmark amongst the best in the UK and we're doing

much better in a number of our overseas markets as well.

We of course are cautious about the short term outlook, we can't

warrant for you what's going to happen over peak trading. We

don't think it's going to be easy, we don't think it's going to be

easy from a sales, nor from our margin perspective because of

the way in which a number of our competitors are holding stock

into the marketplace.


However, it always feels like that at this time of year and so I'll

never get a retailer - in fact I remember saying this years ago

because we had lots of people saying well what's the outlook

going to be and everything else and everybody was getting very

excited about the prospects. And it's impossible for me as a

retailer to stand in front of you at this time of year and actually

look confident, retailers aren't that way and if they are appearing

confident then they're putting a brave face on it. It's always a

wall of worry and Christmas gets later every year.

Having said that because we know that underlying plan is

working and because we know the self help which we can do

outside of what happens with the market conditions is working,

then we're confident still about the returns of 3 to 4% in the

medium term. Thank you. So that's now the end of the formal

presentations and so we'll now just switch to questions.

Who'd like to go first?

Assad Malic, Credit Suisse: Just two questions. Coming back to the UK margin performance

and obviously appreciating the comments you're making about

the Christmas outlook. It does feel like - I mean can you

comment on whether - clearly the gross margin performance to

date has been ahead of your plans. So does it feel like there's a

bit more in the armoury to be a bit more competitive on price if

you have to? That's the first question.

John Browett: Yes, I mean where that margin uplift came from was actually

from the services business and from solution selling. So if you

look at our attachment rates in the UK they are ahead of where

they've been historically and that's because the 5 selling

process is working and that has continued strongly into the

second half and we expect that to be a big feature of the

business going forwards.


I think - you're right that is what offsets the pressure which we

get in product margin. But my own caution on all of that is that

when we have the normal price scuffles around new categories

or where people are overstocked of course the differences are

quite large. And so therefore it is quite hard for us to manage

those things. The benefits which we're getting from the other

aspects which we're doing are in the region of - can be in the

region of 100 basis points say we can move up or down, plus or

minus 50 say from what we can do ourselves.

As you know in this marketplace there are periods where you go

through price wars where product margins move dramatically.

Now I'm not saying that's going to happen so no panic here. But

I'm just saying is that there's only a limited amount we can do to

control that. And you're right we do use it to actually

compensate for the underlying pressure on product margin.

Assad Malic, Credit Suisse: But presumably the competitor pressure is more on the lower

end, is that right?

John Browett: It is at the lower end, but it's also - you do see because on

premium product the amounts of money are quite high. So what

you're looking at - if you're buying a 3D television and you're

spending £1500 you are going to shop around. I mean I think

it's a myth to say that premium customers don't shop. I mean all

of you are premium customers by definition and when you buy

your holidays, when you buy your cars, when you buy your white

goods, when you buy anything because you're actually going to

be spending quite a lot of money you are going to shop around.

So we see pressure actually quite evenly across the

marketplace and it depends what's going on this particular

week.


Assad Malic, Credit Suisse: Thanks, just the second question just moving onto e-commerce.

The comments that you're making about multi-channel growth

and obviously the flat performance within the pure online sales,

how much of that is indicative of - is there a change with the

manufacturers in terms of supply of certain product to the pure

plays versus the physical store retailers?

John Browett: Yeah there is, so at the moment most of the manufacturers in

Europe, particularly those who actually sell high end product are

introducing new distribution agreements where they are

restricting supply - sometimes completely to the pure play e-

commerce businesses. So - I mean this is not a new thing to

the market, I mean Apple have been doing this for years - with

the exception of iPod. And Miele have done - took big action

three years ago in order to make this work.

But what we're now seeing is that most of the consumer

electronic companies and most of the white goods players are

actually running the same strategy. And that means for example

on 3D TV you really can only buy the product in people who've

got stores to spilt and quite rightly so because that product does

need to be actually seen and you do need to actually compare -

you know Panasonic versus Sharp versus Sony versus

Samsung and LG in order to actually see which one you want to

buy and the manufacturers recognise that now.

Assad Malic, Credit Suisse: Thank you.

John Bailey, SG Securities: Could you then maybe extend a bit on the Nordic which

apparently we all underrate and don't really understand. I mean

in terms of the gross margin outlook and the space opportunities

there, both in the near term and maybe further out as well?


John Browett: Yes, I think one of the things which is interesting is that in

aggregate it's 25 million people, there's no reason why we can't

actually significantly grow our high shares there already. If you

look at other retail markets with across Nordics you'll see that

there are people who've got much higher shares than we have.

And what we've realised now with the megastores and with the

refurbishment which we can do of the superstores and the multi-

channel offer which we can bring to the market place and the

work we can do on services is that although we have an

incredibly strong business and we can actually grow it very

strongly over time.

And so I think you'll see a bit of that in the second half, but over

time the real thing is to actually now start rolling out the new

portfolio. I think we should probably do an update next year on

that specifically. We've talked about internally maybe even

actually doing an analyst trip where we actually go to the

Nordics and we lay out for you what the market opportunity is

and actually show you what we can do with our store portfolio.

Because in fact we can expand the store base and we can

expand our penetration of the local markets.

So for me this is not …

John Bailey, SG Securities: What sort of rate of physical expansion are we perhaps looking

at?

Nicholas Cadbury: So we've opened up about 5% new space in the last year

overall.

John Bailey, SG Securities: And are we expecting that to accelerate.


Nicholas Cadbury: I think what you're going to see is you're going to see more re-

sites, so closing down of smaller stores and opening bigger

megastores because that's where they're really working there.

John Browett: That's where we're getting real …

Nicholas Cadbury: Particularly in Sweden, Finland and Demark.

John Browett: So I think 5% space growth for a few years is a good base

assumption for the moment. That's certainly what we're

approving through our Capital Committee. I think the big

opportunity though for us is to actually - believe it or not is to

actually improve the sales densities yet more in the Nordics by

actually opening these new extra special stores. So again, I

think we've got quite a bit - and I think we should really explain

that story more fully to the market.

Nicholas Cadbury: One of the big benefits we've had in the Nordics though is we're

the only retailer who really operates centrally across those four

countries. So in a recession for a supplier you're the lowest cost

to market and therefore you just automatically become the

favoured route to market for suppliers. So we've had

tremendous supplier support and by doing that you can give the

best value to your customers as well and no one else has been

able to get that model.

John Bailey, SG Securities: So is the gross margin - up what 70 basis points in H1 what can

we read?

Nicholas Cadbury: Well that's recovering from last year, so it's a recovery because

it was down last year so it's a recovery. Again, we're going to be

competitive in that market so we don't like to give too much

about where margins are going to go …


John Browett: I think you should meet our trading team there, they're quite

strong and so they'll continue to trade the business very

aggressively. What they of course are always looking at is can

they expand the gross profit - the quantum gross profit. And you

saw that last year they saw an opportunity to dramatically

expand their quantum gross profit in that marketplace through

their existing estate and we think there are periods of time

where we should do that again in the future.

The great thing about the Nordic markets is we've got some,

with the exception of Media Mart in Sweden the reality is we've

got quite weak competitors. These people are sub scale, they

don't have our cost advantages and they don't have the format

advantages which we have. So in a sense there's an

opportunity here for us to really push on. I mean that's why

we've had the market share growth we've had in Finland,

Denmark and now Sweden. So that's the opportunity.

Rod Whitehead: A couple of questions, on the fact that you're doing a lot more of

the megastores and transformations in the Nordics, does that

have an impact on how the property losses are going to

continue through the years. I mean I think before you've talked

about £20 million for two or three years, should that number …

Nicholas Cadbury: That's where we are at the moment.

John Browett: That includes the Nordic piece.

Rod Whitehead: So does that mean that starts to come down after 2011/'12 or

after the … ?

Nicholas Cadbury: I think you're looking at about three years of it and then it comes

down after that.


Rod Whitehead: Three years including this year?

Nicholas Cadbury: Including this year.

Rod Whitehead: Okay, and secondly just on the UK market you said it's been

down, could you give us a bit more flesh on that? I mean clearly

it is a difficult environment, but then 2008 and 2009 wasn't

exactly a party either. So which particular areas … ?

John Browett: Yeah, we lived through the party so we know what it was like. I

mean I think there are certain - I mean if I was to characterise it,

computing has been strong all the way through. And so for us

one of the reasons why the UK business, despite you know,

some of the sort of more - what I would describe as more

hysterical notes, the reason why our UK business has done well

historically is because we've actually got a very good, strong

computing business and computing grew all the way through the

recession. Completely against the form book, that was not what

happened that last time we had a big recession and it's because

computing has now become an absolutely critical part of

people's everyday lives. You can't - as a teenager you don't

exist unless you're on Facebook. I mean it's that kind of - you

know it's now deeply into - it's a utility for people not a nice to

have.

White goods has gone through the normal cycle which you'd

expect to have with housing and therefore it was very poor in

'08, '09, it recovered a little bit last year and it's pretty flat. So

the issue - was always and always is going to be consumer

electronics. And we've had a strong first half because of the

World Cup and that boosted TV sales, particularly the type of

TVs that we sell, because you know to watch that small white

ball on a green screen people worked out you need a good

quality TV. That's the whole point of buying a large screen TV.


So therefore it's not about OME, entry price point, zip down to

the supermarkets to get a big screen. You've actually got to go

and buy something which actually works.

So that's the tension which is now in the marketplace and that’s

the big question mark over this Christmas, which is, how is

consumer electronics going to trade? And you know - and of

course the other thing is that computing, you know people can

see that so people have actually rushed out and tried to attack

that market.

So that's really what we're saying, is you know how does that

occur, how does that play out as we play out through

Christmas? And I'm afraid your view is as good as mine at this

stage. And I mean we've got our own - you know we're cautious

and we're conservative about how we run the business, but it's

very difficult for us to judge what's going to happen over this

peak period.

Nicholas Cadbury: Given what we've done with our refit programme through we're

pretty sure we'll be growing market share off the back of that

though.

Simon Owen, Liberum Capital: Firstly Nick on the financials, can you just talk us through your

thoughts on working capital and interest for the full year, are you

going to be able to see a reasonable sized working capital

inflow, or do you think the outflows over the past couple of years

have kind of nailed down and will stay?

Nicholas Cadbury: Yeah we had an inflow last year so we turned it round last year.

It's early in the year, I mean it depends on how we do on our

stock management and our creditor day management, and so

it's early in the year. We are forecasting to have a cash flow


inflow on working capital, so you're talking in the tens, not in the

hundreds. But we are forecasting that.

We continue to make good progress on stock turn and we've got

kind of the lowest level of aged stock in the business I think I

remember in my time in the business overall. We've also started

to see a little bit of improvement in creditor days going in our

favour as well. And that's more about technical, how you

process them and creditor limits kind of easing a bit due to our

financial performance as well. So I'm not expecting a huge

inflow from it but there will be something.

On the interest line, you know again you've seen a big reduction

in the first half. We're estimating it to be around about £40

million for the full year. Unfortunately you can't just double it

because we did raise the bond in July and that's at a slightly

higher coupon rate than the previous bond.

Simon Owen, Liberum Capital: And just within the UK business you talked about computing

being strong, can you just talk us through the difference that

you're seeing with your PC World formats and what you're

seeing through the stores as a whole. I mean are you

cannibalising your PC World - the standalones for the better

performance in the megastores?

John Browett: Well I think ever since I joined the business we've stopped

looking at PC World as being the computing business because

there has been now a move from that as the only place you buy

a computer now it being available everywhere. So what we

have lost on PC World at the margin we have more than gained

in Currys. And that's why in fact we've actually moved to the

two in one stores, that's why it's Currys PC World, that's why

we've got two in one advertising, that's why you see every single

store which we now open, with a few very odd exceptions where


we opened very big stand alone PC Worlds in the really core

markets. That's why we're Currys PC World.

So we trade it now as one category and in fact I don't actually

look at the numbers for PC World versus Currys every week on

computing, we just look at one category. So there has been

quite a big switch there.

PC World is still strong where we have our very large stores in

big destinations and where we've refurbished them. So if you

go to Staples Corner, Croydon, Leicester Fosse Park, the very

big shopping centres you'll see we have standalone PC Worlds

which still continue to trade very strongly with very high sales

density. But we've got to offer something extra special in those

locations and we're doing some work around that to make that

effective. And that may be in the end probably 10, 15 locations.

The reality is that where we are getting the biggest cut through

on computing is when we are refurbishing the stores into two in

one and actually we're under penetrated, because before we

started this journey PC World couldn't access every part of the

country. So for example in Hemel Hempstead which is okay

close to the office so it's a special store, we have actually now

opened that as a Currys PC World and of course the computing

sales have just taken off. And that actually was giving - for one

of our competitors we were giving a free ride, they were actually

doing well on computing where we didn't have that offer.

Because actually the Currys offer traditionally was quite small

and limited.

So for us computing has been good because we're not bringing

PC World to many more catchments and that's the opportunity.


Simon Owen, Liberum Capital: You inferred that you won't lose market share at Christmas, is

that a kind of trading intention?

John Browett: I think we have to be very clear with all our competitors around

this, which is that this is - we are the market leader and if you

think that electricals and computing it's a nice easy business

which you can expand in you've got another think coming. And

so therefore it's very important that people realise, as Marks and

Spencer have realised, as I think a number of other people have

realised that they're just not going to get the return on space

they want out of this business.

And you know I think in the past it's not been possible for us to

do that. But we are now ready. We have got very strong stores

with a fantastic customer offer. In fact our offer is unbeatable.

There is nobody else who can do what we can do in this

marketplace. And therefore it's time for us to be very clear and

assert our authority of this market. And that I think is going to

cause some competitive tension. But you know that is the

nature of this market. It has always been that way for computing

and electrical.

Geoff Lowery, Redburn: A couple of small ones first. What would your best guess on full

year EBIT number from other Europe be?

Nicholas Cadbury: We're not giving - I'd love to give you an outlook but we're not

going to.

Geoff Lowery, Redburn: In terms of the 62 megastores what would they contribute on an

annualised basis to Group turnover?

John Browett: That's a good question, a reasonable question.


Geoff Lowery, Redburn: I'll let you think about that and ask a third one. In terms of your

long term EBIT margin of 3 to 4% …

John Browett: Look you can do the calculations very straightforwardly; the

megastores are doing between 20 and 25 million euros a year

on average.

Geoff Lowery, Redburn: Okay, in terms of your long term EBIT margin of 3 to 4%, given

your comments about the economics in the Nordics, what do

you think that business looks like within your 3 to 4% scenario?

Nicholas Cadbury: As a percentage you mean?

Geoff Lowery, Redburn: As a margin percentage?

John Browett: Return on sales what do we expect.

Nicholas Cadbury: Do we get in that one, well historically it's been higher than the 3

to 4% historically and it was last year as well. And I think there's

a good chance you can maintain it there. What we do find

though as we've discussed we still there's a lot of sales growth

to go in the Nordic markets. And I guess it's going to be

balancing how fast we push that sales growth getting that

margin going forwards.

Geoff Lowery, Redburn: But you don't see it as a 6, 7% margin business?

Nicholas Cadbury: No, no I think once you get up there you allow the competition to

come in.

John Browett: At 7%, the problem with going to a 7% margin, which you see

non-food retailers do all the time. You create too much of a

price umbrella for people to try and then come in and

underneath you and it attracts too much. So our view is much


that you go for volume in those situations rather than actually try

and squeeze out an extra 1% of margin. You've got a far better

chance of actually adding another 10% to sales, or worse

putting yourself at risk of encouraging somebody to come in

underneath you. But that doesn't mean that we don't see

Nordics making over 5%. I think that would be a reasonable

return for them in their markets.

Adam Cochrane, UBS: Another one on the Nordics, clearly we're all desperate to know

following what you've said. You said that the Nordics is pretty

strong, but you did a 1% like for like taking market share, so that

implies the market - you know what can you tell us about the

Nordic market overall and why is your comment that it's so

strong given those numbers?

John Browett: Well if you remember from last year the like for like numbers for

the first half for last year in Nordics were …

Nicholas Cadbury: Plus 9.

John Browett: Exceptional, so 10% two year like for like in the first half in the

Nordic markets which we estimate over the same period are

probably down 10% is frankly an extraordinary performance.

And if you remember when we were entering the credit crunch

and all of the issues which we had in the marketplace, people

were saying, oh no, no the Nordics is going to be just as bad

and everything else. We have massively out performed in the

marketplace.

Now I'm not making market predications but what we're seeing

is that the Nordic market looks like it's decoupled itself, as

Germany seems to have decouples itself from some of the

problems which you've got in Southern Europe and maybe a bit

in the UK.


So from my perspective it's just we're now on a stronger base,

we've now got a number of those competitors in those

marketplaces are in serious trouble and therefore the

opportunity for us is to continue to take market share in those

markets.

Now I'm not going to say it's easy, we're not promising all of that

but it's a different place from where we are in some of our other

locations.

Nicholas Cadbury: Because the Nordic economies if you look at them are doing

well but the consumer there remembers the 1990s and the bank

- and they continue to be cautious there. So we do think the

market is still continuing to be down.

Geoff Lowery, Redburn: Okay thanks.

Andy Hughes, UBS: Can I ask a couple of questions on e-commerce, just where you

think it is now as a percentage of the market and how you would

break that down between Amazon, other pure plays and multi-

channel?

John Browett: Yeah it’s good. So I think across Europe we’d say about 15%.

Slightly higher in some markets like the UK, slightly lower

actually funnily enough in southern Europe, low, places like Italy

it’s quite low. And what we’re seeing there is that there is

essentially the sort of Mom and Pop pure plays I would describe

it, actually Mom and Pop is probably right but the sort of medium

sized pure plays are really struggling. They’re struggling to get

product and they’re struggling to actually make their economics

work.


So there's sort of general truism in e-commerce which is it’s

easy to get to sort of £100 to £150 million of turnover, or €200

million of turnover, but as you get past that, as you start to get

into a bigger business it becomes increasingly hard. Part of that

is because you can no longer just sort of use distributors and

wholesalers to get the product, you have to have a direct

relationship with the manufacturers, manufacturers don’t see e-

commerce businesses as actually bringing particular value to

the marketplace, and therefore they won’t get the strong

support. And when they’ve got choices to make around stock

which is in constraint they’re going to always put that into the

places where they’re actually going to be pushing forward their

brand values or bringing people up through the ranges, etc. So

that's sort of one factor.

The second factor is that the reality is as e-commerce

businesses mature the costs of actually buying the search terms

and everything else becomes more expensive. And so therefore

it tends to be - it’s a bit of a winner takes all. So therefore what

you’re seeing is Amazon is taking share essentially from the

other pure plays and you’re seeing the multi-channel retailers

who actually don’t need to advertise on search or whatever can

basically just get their business as well. So you’re seeing a

squeezing of the sort of mid sized e-commerce players across

Europe and that's a general thing. Happened particularly in the

UK but it’s also happening in other markets as well.

Andy Hughes, UBS: Okay so in terms of what that does to perhaps your gross

margin trend, I mean it doesn’t actually help. It may stop it

getting worse but if it’s Amazon just taking share from other pure

plays you won’t see a recovery in the gross margin impact that

pure plays had when they first grew?


John Browett: I wouldn’t go that far. You know Amazon have their own trouble

don’t they so if you think about their business they’ve got three

problems, they’ve got e-books which they’re obviously in the

vanguard for themselves, they’ve got the digitisation of music

and the digitisation of films. And that's not just people

downloading films; it’s the fact that people are now actually

using on demand etc. And that's just going to become a bigger

and bigger part of the market.

So the core categories, which they built their business around,

are disappearing fast and you’re all analysts, you can have your

own views about how quickly that’s going to come. Amazon are

desperately trying to actually replace all of those things with

other categories which is why you see them doing the work in

clothing, footwear and a number of other categories. And I

would do the same thing if I were them.

In electricals and computing they’re clearly making a big play on

that but at the moment they’re not actually living real economics

because they’re actually trying to recover their growth, etc. And

so therefore they’re having to run very fast to stand still. So we’ll

see what happens over time with that business when they

actually have to make real margins on some of the product

categories which they’re in.

Andy Hughes, UBS: And just a couple of Nordic questions as well. You mentioned

that competitors were …

John Browett: Sorry by the way it’s our fault, it’s we haven’t communicated to

you, not that you have ignored us - ignored our business.

Andy Hughes, UBS: Yeah I mean in that vein a couple of questions - well the first

one was going to be if you haven’t communicated it particularly

well have you thought about a partial IPO of that business and


you could do a nice big road show and a nice prospectus for us

all to read.

John Browett: Yes. No. And I think there's a serious point about this which is

that - I mean I came from somebody who did international

retailing expansion and we do international retailing. There is

huge advantage to the Group of having an international scope

and the reason for that is that whenever I am actually in an

individual country there are ideas, there are best practices, there

are things which we see as a consequence of operating in all of

these markets, which make each of the individual countries

stronger.

So if you think about the development of the megastores. The

megastores actually started in the Nordics. The first megastore

we built was in Lørenskog, the second one was in Junction Nine

and then the third one was …. in Sweden. And then the fourth

one was in - I mean not quite, there's not quite this sequence,

the fourth one was - early on was in Muratella. As we’ve

actually had all the management teams work on that megastore

it has got better.

So the store, I mean we’ve actually now gone in and now refitted

Junction Nine so you can’t see where we started but that store is

- the megastores we open now are significantly better than our

first version of it. And it’s because essentially we’re now

opening in different things and you get different views, etc.

around it. And we also are able to hone it against different

competitors because we compete against Darty, Kaser, a

number of other local - sorry Darty, Media Mart, etc. We

compete against a lot of local competitors and they all have

great ideas as well which we can incorporate into our business.


So one of the rationales for actually operating as an integrated

international business is that your best practice is going to be

better. And in retail any edge you can get is the difference

between success and failure as you know, it’s a thin margin

business our game. It’s just about can you just be better than

everybody else. Similarly the selling model which we have

came out of the Nordics. Stock management though on the

other side we’re using all the expertise we’ve learnt the hard

way in the UK now across the whole of the Group. So I think it’s

a very good logic for international retail. Now we have to

produce the returns in each of the countries in order to prove

that for you, but to me the Nordics is absolutely a critical

component of that going forward.

And the second argument I would make for you in terms of that

is that the reality is we’ve got a lot more growth and a lot more

profit to come out of the Nordic markets by rolling out what we

know. And this is not exactly the time you’d give that up in an

IPO; we really want that in the Group.

Andy Hughes, UBS: Would any of your struggling competitors be of interest or is that

really past now if they wouldn’t add anything to your megastore

rollouts?

John Browett: In the Nordics?

Andy Hughes, UBS: In the Nordics yeah.

John Browett: No I think Nordics we don’t see anything which we’d want.

Nicholas Cadbury: The only upside there is we do have a franchise network and it’s

an opportunity to expand that.

Andy Hughes, UBS: Thank you.


Chris Javieras,

Barclays Capital: I've got two questions, first question on e-commerce. Could you

please tell us what the investment was in absolute terms

because you mentioned that there is nothing wrong in the

underlying profit? And if you took the cost as a one off or you

are depreciating that so we’re going to see some more of these

costs coming in the coming years?

And my second question is on the Christmas trading. My sense

is that you've become a bit more cautious since the last time you

updated us but that may be my sense. If yes what is it that has

made you incrementally more cautious? And if no, what has

made you incrementally positive?

John Browett: Well can I take the second one first and then Nick maybe can

quickly think about how much we’ve invested in the e-commerce

because I don’t think we look at it quite that way. I think this

happened to me last year, is that if you speak to any retailer in

mid November with four weeks to go for Christmas and then

you've got the four weeks after Christmas where we make quite

a lot of money they are going to appear a bit what we’d describe

as nervous. So I'm never going to be able to stand up in front

of, you know, probably our eight weeks of most critical trade

saying it’s all going fantastically well and it’s going to be

absolutely brilliant, that's never going to happen because who

knows. You know you’re always going to have that famous

Christmas where it doesn’t quite work out as you had expected

and planned.

Yeah I think you’re right though in your general point that as the

year has gone on it has been quite tough and you know the

recession for us has been a bit unrelenting. Now part of that is

because the nature of a computing and electricals business is


that you have the great joy of leading into a recession and then

lagging out of the recession. So the turning points for us are

actually quite important.

Now before you all get sort of panicky about it there is, when

you look at the data, a bonus period where customers then rush

back into the stores and actually catch up for the fact that you've

lagged and led into the recession. So that is what you’re seeing,

all you’re seeing is the normal nervousness of any retailer going

into their critical trading period, nothing more.

Chris Javieras,

Barclays Capital: So nothing fundamentally has changed your view?

John Browett: I mean it’s - you know I could talk about last week’s trade in,

gosh pick a market, you know, Greece or whatever - exactly, oh

Ireland, last week’s trade in Ireland wasn’t good, are you

surprised? Does that …

Nicholas Cadbury: Finland was fantastic.

John Browett: But Finland and Sweden were great.

Laughter

John Browett: Nick.

Nicholas Cadbury: Just on the CAPEX expenditure, I mean we purchased the

Pixmania platform in 2006 and probably it would have helped to

decide what point you want to try and get to, I mean Pixmania

we spend about between 5 and 7 million of capital every year on

making sure the Pixmania platform is kind of the state of the art

and keeping that developed.


When we were putting Pixmania into the UK that cost us just

over about £10 million to do. It was a little bit higher than normal

when you’re rolling it out because it was the first time we were

integrating Pixmania into not only into our own e-commerce

platforms in the UK but also into the stores as well so we could

do reserve and collect as well so it was a little bit higher.

John Browett: And the other thing to say in Pixmania is that we can’t capitalise

everything and it would be the wrong thing to do to capitalise

everything we do in the business. There is also a significant

amount of research expenditure which we also do because you

can’t really say that you've built an asset, it’s just in the normal

course of business you'll always be spending that on improving

your websites, etc.

Nicholas Cadbury: One of the reasons the profit was down this year was because

we spend kind of £2 or £3 million extra on research and

developing and trialing different things in the marketplace,

particularly on Pixplace and e-merchant development.

Male: Can I just ask a follow up on Spain? You don’t really seem that

committed to the kind of pure PC World type of model. Spain

doesn’t look like a great market. Why do you carry on with that

or why do you not change it into a kind of broader electrical

retailer?

John Browett: Well I think there are three reasons for that. First of all we

actually made good money in Spain before the market went soft

etc. So prima facie there's no reason to do that. The second

issue is that in fact customers like the offer have in Spain and

when you look at our market shares we’ve actually held and

actually increased market share through quite difficult trading.

And then the third thing which is that there are opportunities for


us to continue to develop PC World but to develop it in a slightly

different way and that's what we’re working on.

And I think if anything my ambivalence about PC World as a

standalone format is not that I don’t think it can work, it’s just I

think there are some other ways which you can make it work

better. If you think about the UK we will continue to have

standalone PC World stores, it’s not - nothing wrong with that,

it’s just a question of how many of those can you do. And the

question then is how do you use the PC World model in other

ways in the Spanish market to be effective? So you know we’re

looking at online, we’re looking at work with other retailers, etc.

So that's the only thing which we - at the moment we are still

working on that. We have no firm plans; we have no tests or

trials going on so I can’t talk about that. But I don’t want at the

other side for you to be surprised that we are trying some

different things in Spain to get traction there.

Male: Can I sneak in a question too? In the UK your sales were down

1% when your like for likes were up 2% but space was actually

up year on year. So what was the cause of that? And just

secondly on Pixmania, I mean you've mentioned Amazon taking

share from other pure play retailers. Do you think that's what

happening with Pixmania?

John Browett: Okay so just taking the Pixmania one second. No we don’t

actually think that's true. Pixmania is very strong in Southern

Europe and so therefore unfortunately we’re not as strong in

places like Germany, and we actually did have a relationship in

Germany with a retailer which we had to stop because it was -

this is on what they call Pixpro which was a core customer, we

didn’t like the credit risk which we were running with that

customer so we stopped the business.


So it’s more to do - when you actually look at their individual

performance by market they look like they’re doing actually

okay, particularly in France where they look like they’re

outperforming their competitors there. So we don’t see any

evidence of that particularly. They of course, as Amazon have,

have been impacted by the selective distribution agreements

which people have put into those marketplaces but there's

nothing untoward with that.

I think the nice thing about Pixmania is that Pixmania is at a

scale now where it’s actually burst through to the other side

where it’s actually a big enough business to sustain in its own

right. And it’s the people who have got, you know, a couple of

hundred million euros of sales who have really struggled as

we’ve gone through this phase.

And then on the like for like numbers, I mean it’s a …

Nicholas Cadbury: Yeah you've got positive like for like, the actual total sales were

less than like for like and that's partly because you've closed

some stores on the high street and six out of town stores as

well, but also because of the disruption as you’re going through

all the refit programmes and the 80 stores that we’ve had going

through the year. So that's brought your total sales down

overall. So the actual kind of ground floor space is actually less

than it was a year ago. We’ve then put mezzanines in above

but most of those were kind of being transformed through the

years. They don’t really add to - because the disruption doesn’t

help your sales.

Male: So it’s not the DSGi business that's dragging the …


John Browett: Well DSGi business is not trading well either but that's because

we are actually going to a more profitable core of the business.

So there are you know a number of individual factors but the

actual - that's why the numbers are quite - I mean it’s quite close

in the overall.

Nicholas Cadbury: That has a drag of about 1% I think overall.

Chris Walker,

Nomura: Just two quick questions. First one your store uplifts. Obviously

as you evolve the stores and you change those refits going

forward, are you seeing a change in the shape of the uplift

actually coming through category by category? And is that uplift

similar in say, the Nordics or is it very different over there?

John Browett: Well we’ve actually - to be fair we’ve not had enough time series

data to get the complete data for across the whole of the group.

In the UK what we’re seeing is that we’ve had incredibly strong

uplift from computing. We had good results out of consumer

electronics and okay results out of white goods. But you can

imagine that - and that's partly because in many of the stores

we’ve actually compressed the space which white goods and

SDA are in.

What we’re now doing is where we haven’t had the same results

as the best performing categories we’re going in and tweaking

those areas in order to improve their performance, because

what we’ve found is that, and there's a very simple example,

when we first did the stores we had a problem with printing. And

so actually printing sales went down and including ink sales.

And all we did was then look at the store, ask customers what

was going on. We’ve repositioned printers now to the front of

the store with ink on the walls and actually are now getting very


good increases. So our belief is that there is still a degree of

optimisation yet to come from trading the new categories.

I mean just to give you another example, or certain categories -

just to give you another example, when we’ve changed the

format in the store we’ve also changed where the hotspots are.

So we’ve been used to trading a racetrack, a different type of

thing, we actually now need to do some research on have we

got the hotspots right? Have we actually managed to get that

right? So we’re doing all that space age stuff with people with

glasses on to see where they actually look in a store because

we think there's more to do there.

So at the moment all we’ve done is that they’re working so well

we’re just in rollout mode, but there is a period where we’re

actually starting to optimise the format and actually try and get

the full benefits out of that which will come in the future.

Nicholas Cadbury: They’re better showcases for new technology. So every time a

bit of new technology comes out you see a bigger uplift in that

new technology so it’s doing better on things like Kinect games,

better on iPad, it’s doing better on bridge cameras. Just every

time you bring out a new technology you just see a bit of a step

up in those.

Chris Walker,

Nomura: And I guess related to that your core stores. You mentioned

they were more performing in line with the market. What have

you actually done in those core stores and is there more you

can actually do to benefit from …?

John Browett: Well that was the discussion we had yesterday at trading.

We’ve done a little bit of work. I mean what the core stores

have benefited from has been the staff training, new services,


better ranges, etc. but our view is it’s not enough and so we’re

going to do a bit of work on what we can do.

Now we’ve got to be a bit careful because 60% of the sales are

now going through refurbished stores and the programme of

work will probably get us to 75% of sales next year. So we’ve

got to be a bit careful we don’t actually end up trying to - circa

75% before I get sort hung on a particular number. We’ve got to

do a little bit of work to work out how we’re going to manage the

base estate as we get through because it will take us another

two maybe three years to get through all the stores in the UK

and get to the final portfolio. So we’ve got to work out how we

do that.

Okay well if I think there are no further questions then Nick,

David and I are available for questions today. Thank you very

much for coming along.

END

Interim Results Presentation Transcript 25 Nov 2010...Interim Results Presentation 25th November...

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Transcript of Interim Results Presentation Transcript 25 Nov 2010...Interim Results Presentation 25th November...