Group Presentation Second quarter 2011

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Group Presentation

Second quarter 2011

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(3)

All t t t th th t t t f hi t i l f t d i thi t ti i l di ith t

Cautionary statement

● All statements other than statements of historical fact made in this presentation, including, without limitation, those regarding Dixons Retail’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Dixons Retail’s renewal and transformation plan, the roll out of “Megastores”, its focus on increasing its

presence on the web and its ongoing expansion in the Nordics and Central and Eastern Europe), are forward looking statements. Such statements are based on current expectations and are subject to a g p j number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward looking statements.

● Such forward-looking statements are based on numerous assumptions regarding Dixons Retail’s present and future business strategies and the environment in which Dixons Retail will operate in the future. Among the important factors that could cause Dixons Retail’s actual results, performance or future. Among the important factors that could cause Dixons Retail s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, the continuing impact of the economic downturn on consumer spending, the actions of its competitors, difficulty in implementing the renewal and transformation plan, stock availability from or change in the commercial relationships with third-parties whose products we sell, failure to meet debt obligations, changing technology or consumer preferences, seasonality of our business, the effects of deflationary pricing on money margins and other such risk factors Forward-looking statements should therefore pricing on money margins and other such risk factors. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this presentation. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward looking statements, whether as a result of new information, future developments or otherwise.

● The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to buy any securities or financial instruments or any advise or recommendation with respect to such securities or other financial instruments.

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Pan-European operations

UK & Ireland

Nordics

_{International}

Other

e-Commerce

Sales £4 0bn £2 1bn £1 5bn £0 9bn

Sales £4.0bn £2.1bn £1.5bn £0.9bn

Share of Group 47% 24% 18% 11%

Market position No.1 No.1

No.1 Greece

No.2 Italy, Czech No.1 Spain Computing specialist

Leading pure play internet

operator across Europe

EBIT £71.1m £97.4m (£8.3m) £11.3m

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Renewal & Transformation plan

• Announced May 2008

• Progress to date very encouraging and ahead of expectations

• Plan involves:

1. Focus on the customer

2 F

th

tf li

i

iti

(

l t )

2. Focus the portfolio on winning positions

(complete)

3. Transform the business

4 Win in the internet market

4. Win in the internet market

5. Reduce costs

Target of 3-4% EBIT return on sales

(6)

1. Focus on the customer

Service led business model

Customer insight

Store

Internet

Products

After-Sale

Support

Store

Internet

Products

_Service

Support

• Sales advice

• Multichannel

• Full range

• Scale

• Easy to shop

• Playtables

• Navigation

• Specialist

• Exclusivity

• Own brand

• Unbeatable Offer

• Higher standards

(7)

Four pillars supporting one integrated service offer

Setup/

upgrade

Help &

support

Protect

Delivery &

installation

upgrade

support

installation

● Personalised hassle free set up

● Make it easy for

● “Help me understand it” ● Market leading delivery & installation ● Peace of mind if something goes wrong

● Make it easy for the customer ● Range of upgrades designed to ● Remove the frustration of technology ● Telephone, online and in installation ● Flexible, reliable and unbeatable value ● Choices to suit wrong ● Always there to help get it fixed g

maximise the performance of the products for customers

online and in-home support

● Choices to suit the customer

(8)

2. Focus the portfolio on winning positions

UK & Ireland

• Significant upside from R&T plan

• 250 Stores refitted including 25 Megastores

–

60% of sales to date

–

Focus on dual branded stores

–

Consistent first year gross profit uplift of 20%

–

70-80 stores planned for 2011/12

–

70 80 stores planned for 2011/12

• Transformation of service infrastructure

–

Improved delivery operations

Enhanced services under KNOWHOW

–

Enhanced services under KNOWHOW

• Stable gross margins over last 3 years

• Challenging environment

Challenging environment

–

Gaining market share across all major categories

(9)

Nordics

• Significant market share gains over last 2 years

• EBIT margin of 4.6%

• Favoured operating model for the Group

–

Efficient low cost model

–

Strong customer perception

F

h

fit

–

Focus on cash gross profits

• Internet sales are growing opportunity

–

Now 6% of total sales

• Store refurbishment programme making progress

–

19 Megastores now operational

–

33 superstores in new format

–

Gross profit uplifts of 15%

24 weeks to 16 October 2010 vs. 24 weeks to 17 October 2009 For definitions see appendix

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Other International

Greece

Italy

•

Challenging market conditions

•

Turnaround ahead of plan

•

Cost reduction programme in place to

preserve profitability

– Converted Electro World stores to Kotsovolos Megastores

•

First half loss significantly reduced

•

EBITDA breakeven for the full year

– 1 Year ahead of target

•

Gaining share in a difficult market

•

7 Megastores operational

•

Market share growth

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Other International

CE & Turkey

• Strong position in Czech Republic

Spain

•

Announced plan to exit store operations

• Developing business in Slovakia

• Refocused since disposal of Hungary and Poland

• In Turkey 16 stores opened, focusing on Istanbul Izmir and Ankara

Announced plan to exit store operations

•

£5m loss eliminated in 2010/11 FY

•

£30m cash exit cost

Istanbul, Izmir and Ankara

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3. Transform the business

(13)

New Currys Superstore Format, Watford

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4. Win in the internet market

Customers and suppliers want multichannel retailers

Customers

• Online research tool

Suppliers

• Enables range display

• Convenience

• Touch, feel & look of products

g

p y

• In store experience

Demonstration of prod cts

in store important for choice

• Collect@store

• Reassurance and service

• Demonstration of products

• Sell up to higher value/quality

• Reassurance and service

• Well-known brand

• Availability and pricing

• Colleague training

• Solution selling

• After sales options eg delivery,

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4. Win in the internet market

Internet is a growing opportunity for Dixons Retail

• Internet sales 16% of Group

• Sales growth into multichannel

Multichannel driven by Reserve& Collect

–

Multichannel driven by Reserve& Collect

–

Pure play brands driving higher unit growth

–

Integrated operating model

• e-commerce investing in the platform

–

e-merchant

–

PIXplace

–

PIXplace

–

Underlying infrastructure

–

Relaunch of UK internet sites

24 weeks to 16 October 2010 vs. 24 weeks to 17 October 2009 For definitions see appendix

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5. Reduce costs

Reduce costs

• Organisation simplification and process improvements

−

£150m targeted over next 3 years

• Stock Management

−

Stock turn improvements

−

Buying – local and Group

Cost savings

−

Reductions in aged stock and returns

• Store operating costs

St ff

t i

Scale efficiency _{Product & Services}Pricing

−

Staff rostering

−

Optimise store footprint

−

From 600 to 450 stores

−

Mezzanines

Sales growth

−

Energy efficiencies

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5. Reduce costs

Reduce costs cont’d

• Central functions

−

Removal of duplication

−

Brno – central services

−

Call centre diagnostics

−

Advertising

Base plan

Example flex plan

Cost base

£1.8bn

Inflation at 2%

+£35m

Cost savings

-£50m

-£70m

Net investment in

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Flexibility in capex plans

• Over 350 stores transformed to date, including 60 Megastores

−

Core base providing cash and profit momentum

• Complete balance as soon as practical

• However, retain flexibility to respond to consumer environment

2010/11

2011/12

2012/13

2013/14

Maintenance

£40m

Renewal &

Transformation

£170m

£40m to £120m

£40m to £110m £100m to £150m

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Cash and facilities profile

£360m RCF Post-peak stock payments Pre-Christmas stock

s

pective

£310m Bonds £54m transfer from

LC to cash _{Christmas peak}

Back to school promotions

D

ebt per

s

D

v

e

Cash

erspecti

v

Drawings on £360m RCF

Equity p

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Bond and RCF profile

700 400 500 600 700 £360m RCF 100 200 300 £160m 2012 Bond £150m 2015 Bond

• Bond

repayments:-0 2010 2011 2012 2013 2014 2015 2016 2017

−

£160m principal plus £55m net hedge cost due November 2012

−

£150m principal due August 2015

£360m RCF working capital facility due August 2013

• £360m RCF working capital facility due August 2013

−

Renegotiate prior to 2012 Bond repayment

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Flexibility to meet capital commitments

Cash generation

Cash requirements

Profits

+£m

Profits

-£m

Capex flex

+£50m to +£150m

Pension fund

-£6m to - £8m

Working capital +£10m to +£40m

Bond repayment -£160m principal

-£55m hedge cost

Warehouse

+£55m to +£60m

(22)

Credit profile

• Investment grade business profile

−

Large scale

−

Market leading positions

−

Geographic diversification

g p

−

Efficient infrastructure

• Strong liquidity position

• Low on-balance sheet debt

• Cash generation and flexibility to meet Bond repayments

• Rating agency metrics adjust for operating leases (c.£3bn)

−

Store leases are an important driver behind our business model

−

Lease maturity profile provides flexibility

−

High quality property portfolio

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Summary

R

l & T

f

ti

l

i

ki

• Renewal & Transformation plan is working

• Business is improving operationally

• Strong consistent uplifts in new store formats across Europe

• Gross margins stable over last 3 years

• Customer satisfaction is improving

• Growing market shares

• Cautious about short term outlook

• Significant opportunity for profit improvement

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Financial recovery

Revenues

EBITDA

£m

PBT

£m

Free

cash

flow

235.8 133.3 ‐340.0 28.1 50 150 250 £m 312.6 230.5 200 300 £m ‐150 ‐50 06/07 07/08 08/09 09/10 56.1 90.5 100 – Creditor deferral

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Cash generative and low level of structural debt

£ million 09/10

Underlying profit before tax 90.5 Depreciation & amortisation 128 6

Opening net debt (477.5)

Equity issue 291.3

£ million 09/10

Depreciation & amortisation 128.6

Working Capital 39.7

Tax (31.9)

Capital expenditure (165.3)

Free Cash Flow (pre restructuring costs) 28.1

Restructuring items (45.7) Acquisitions & disposals (7.0)

Other (33.5)

Free Cash Flow (pre restructuring costs) 28.1

Discontinued operations (8.6) Special pension contribution (12.0)

Other items 10.8

Closing net debt (220.6)

•

£28.1m Free Cash Flow

(pre restructuring costs)

•

Improved Working Capital

St k t 12%

Closing net debt (220.6)

•

Net Debt significantly reduced

− Strong focus on cash management £291 3m equity issue proceeds

− Stock turn +12% year on year

− Strong supplier support

•

Capex focused on investment in Renewal

and Transformation programme

− £291.3m equity issue proceeds

•

Net debt : EBITDA down from 2.2x to 0.8x

•

Fixed Charge Cover up from 6.0x to 8.7x

p g

(28)

Plan built around the customer

• Customer plan drives

decision making

• Detailed plans to deliver on

Detailed plans to deliver on

each principle

• Continuous improvement of

the shopping trip for

customers

(29)

New formats delivering improved shopping trip

ATV change of new formats vs control Currys PC World Golden Families Aug-10 Golden Families Quality Seekers

Home Movers Jan-09

Dec-09

Tech Fans

Change in average transaction value amongst key customer segments in the

reformatted stores versus unreformatted stores Based on mystery shopping surveys of UK stores

0% 20% 40% 60% 80% 100% Excellent Good Average Poor

Grassroots

Mystery Shopping

Greet

Engage

Solution

Tailor

Result

Di

R t il

Dixons

Retail

Score

79.6% 48.4% 87.3% 74.9% 83.8%

%pts var to

competition

+16.6% (14.4%) +19.9% +16.7% +28.4%

(30)

Electrical market outlook is positive

•Innovation brings

new products and improved

•Rapid innovation

cycle leads to deflation in brown

•UK and Nordic

markets have high broadband •New construction, repair and maintenance drive a •Electricals are predominantly discretionary Product Innovation /

New Categories Price Deflation Online Penetration Housing Market Economic Growth

functionality, e.g. 3D TVs, Apple iPads

•New content drives

hardware innovation and proliferation e.g. social media, apps,

and grey goods but drives volume

•Low frequency of

purchases limits price deflation impact on total market sales

penetration and maturing online sales platform •Opportunity to increase range of goods and proportion of white goods sales •Consumer sentiment influenced by state of housing market •Majority of white purchases •However, increasing penetration of digital technology in the home drives replacement cycles pp cloud computing •Sales driven by

structural shifts e.g. analogue to digital, standard format to HD

– i.e. consumers trade up

•Lower price points

drive faster replacement cycles and proliferation of g availability of product information •Provides opportunity for multichannel retailing and increases synergies Majority of white goods market is replacement and not reliant on housing transactions p y as these products become less discretionary •Economic backdrop will determine whether customers •Innovation drives new service requirements e.g. data backup, TV installation p products y g

between internet and store-based retailing

buy up or down price points

•Market tends to grow

at a rate at or exceeding economy during boom years, du g boo yea s, but same is generally true during a

(31)

Full category coverage

Products

Key brands

Products

Key brands

White goods Major Appliances

Refrigeration Laundry Cooking Accessories Small Appliances Kitchen appliances Personal care Accessories

Miele Bosch Hoover Indesit Zanussi Kenwood Braun Samsung Hotpoint Whirlpool Dyson Rangemaster LG Philips Siemens

Accessories p

DeLonghi Krups

Brown Goods Vision

Televisions

(plasma, 3DTV, large screen, portable)

Blue ray and DVD players S Audio MP3 players DAB radio Speakers Samsung LG Panasonic Matsui Canon Nikon Olympus Bose Sony Kef Toshiba Sharp Surround sound systems

Accessories

Photography

Digital cameras

(point and shoot to SLRs)

Video cameras p Component systems Accessories Communication Fixed line 3G connectivity

Lumix Apple Roberts Logik Pure JVC

Video cameras

Accessories Mobile phones (Phones 4U)

Computing Laptops Netbooks Printers

Desktops iPads/Tablets

Keyboards, Mice, webcams

Advent HP Sony Dell Apple Kodak Logitech Microsoft Norton Samsung Nintendo Asus

Games consoles Accessories

Samsung Nintendo Asus Packard Bell WD Toshiba Acer Netgear Belkin

Services TechGuys Delivery

Set up

Installation Help & Support Repair & Fix

(32)

Market leading specialist electrical retailer

Specialists Mass Merchants Independents Pure Play Internet

s

Currys PC World

Comet

Best Buy Argos_Tesco John Lewis_Asda Richer Sounds_Sevenoaks PIXmania_{Dixons co uk}

Key Brand s PC World Elkjøp UniEuro Electro World K t l Best Buy Jessops Media Markt OnOff SIBA E t Tesco Carrefour Auchan Sevenoaks

Many small family owned shops Dixons.co.uk Amazon Dabs.com CDiscount Asda Sainsbury’s Corte Inglés istics Kotsovolos PC City Expert Darty Wide range Assisted sale Edited range

Non-assisted sale Limited range_{Assisted sale} _{Limited help}Wide range

Character

Help & Support Specialisation

Value

Limited help & support Entry Price Point

Value

Assisted sale High level of service

Lower value

Limited help No service

Value

(33)

Potential of dual-branded Stores

• Provides access to the PC World brand in

existing Currys markets

• Exploits different customer offering

– 18% overlap between Currys and PC World customers

• Greater stock efficiency, with one consolidated

range to display

B t f b th

ld i

ll

k

l d

• Best of both worlds in colleague knowledge

and selling skills

– Clear branding of different expertise across the store

• Tech Guys service centre in store

Tech Guys service centre in store

• Opportunity to consolidate two stores in

smaller catchments

– Pragmatic approach to propertyg pp p p y

– Long term reduction in costs

• 15,000ft

2

to 35,000ft

2

(34)

• Currys and 2 in 1 formats

Megastores operate enhanced model

• Currys and 2-in-1 formats

• 35,000 – 55,000ft

2

– average rent of £22 - £28 per ft2

• c £100m+ catchment

• c.£100m+ catchment

• Range dominance

– Many more branded supplier concessions

– Premium executions

(e.g. hifi studio, coffee area, live kitchen)

• Business structure

– Top calibre Store Director remunerated in line with store performance

store performance

– Department Managers with greater scope for product specialists

• Stock management key

F t d f t l i h t

– Fast-paced, frequent replenishment

– Stock disciplines

(35)

Improving the product range

4 3 1 2 4 5 BRANDS £800.00 £850.00 11 4 1 5 11 15 SKUS 4 3 1 2 4 5 BRANDS £650.00 £700.00 £750.00 £500.00 £550.00 £600.00 £350.00 £400.00 £450.00 £250.00 £300.00

(36)

Technology cycle

• Technology cycle is stronger than ever

Hardware Content

T h l

i

t f

l

li

• Technology is part of peoples lives

• Content is increasingly personalising

usage

• Multiple devices for multiple uses

• New products, wider ranges, faster

New products, wider ranges, faster

replacement cycles

• Increasing product efficiency

• Supplier relationships enable Dixons

(37)

Currys/PC World 2-in-1 Superstore, Hemel Hempstead

(38)

(39)

New Megastore Format, J9 Birmingham

(40)

(41)

Notes & Definitions

1. Underlying results are defined as excluding trading results from closed businesses, the amortisation of acquired intangibles, net restructuring and business impairment charges and other one off items, profit on sale of investments, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. Discontinued operations comprise Hungary and Poland. Closed businesses comprise the operations of PC City in Sweden and Markantalo in Finland

comprise the operations of PC City in Sweden and Markantalo in Finland.

2. Like for like sales are calculated based on stores that have been open for a full financial year both at the commencement and end of the financial period, and are calculated using constant exchange rates. Customer support agreement sales are excluded from all UK like for like calculations. Operations that are subject to closure have sales excluded as of the announcement date Stores subject to a are subject to closure have sales excluded as of the announcement date. Stores subject to a refurbishment are excluded during the period of refurbishment.

3. The change in total sales for the Group excludes discontinued operations and closed businesses from the comparative period. No equivalent sales applied to the current period.

4. UK & Ireland comprises Currys, CurrysDigital, PC World, DSGi Business and TechGuys and Dixons Travel as well as the operations in Ireland. Like for like sales exclude DSGi Business and TechGuys

5. Nordics comprise the Elkjøp Group, and no longer include the results of PC City Sweden and Markantalo which are now classified as closed businesses within non-underlying items.y g

6. Other International comprises Greece (Kotsovolos), Italy (UniEuro and PC City Italy), Spain (PC City Spain) and Electro World in Turkey, Czech Republic and Slovakia. The Discontinued Operations of Electro World Hungary and Poland are no longer included.