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Chairman’s Statement
Results and Dividends
Profit on ordinary activities before taxation
for the 28 weeks ended 13 November
1999 was £299.4 million (1998/99
£68.9 million). Diluted earnings per
Ordinary share were 56.7 pence (11.3
pence).
The exceptional credit of £215.5 million
mainly relates to the profit arising from the
sale of approximately 20 per cent of
Freeserve. Excluding the exceptional profit
and the loss incurred by Freeserve, the
underlying profit before tax increased by
14 per cent to £92.5 million (£81.4
million).
Despite the positive operating performance,
adjusted diluted earnings per
share, which exclude exceptional items,
fell slightly to 12.8 pence (13.2 pence),
reflecting the Group's share of Freeserve
losses and an increase in the Group's
effective tax rate.
The directors have declared an interim
dividend of 4.20 pence per Ordinary share
(3.50 pence), an increase of 20 per cent,
payable on 6 March 2000 to shareholders
registered on 4 February 2000.
Retail
The Retail division made an operating
profit before exceptional items of £71.5
million (£63.1 million), an increase of 13
per cent. Total sales in the period
increased by 18 per cent to £1,676 million
(£1,426 million), with like for like sales 8
per cent higher than in the first 28 weeks
of 1998/99.
New technology and price deflation were
the key factors affecting the consumer
e l e c t ronics market. Mobile phones,
w i d e s c reen televisions and digital
products including camcorders, minidisc
and DVD players enjoyed strong growth.
H o w e v e r, markets such as games
consoles and VCRs suff e red fro m
particularly heavy price deflation that was
not fully offset by volume growth.
Retail gross margin declined by 0.7
p e rcentage points reflecting aggre s s i v e
pricing action and the growth of lower
margin areas of the business such as PC
World Business.
The continuing downward pre s s u re on
margins was partially offset by a reduction
in costs as a proportion of sales. The
reduction of 0.5 percentage points
reflected improved operating efficiencies
and the benefits of leveraging the Group's
costs against the higher sales base. Retail
rents remain a source of cost inflation,
although there is some evidence that
rents are moderating on new leases.
Dixons sales, at £368 million (£334
million), were up 10 per cent overall and 7
per cent like for like. Sales of new
technology products were strong, although
the decline in the games console market,
which fell by 25 per cent over the period,
had an adverse effect. Eight stores were
opened in the period and a further two
were resited. A new concept store was
trialled with an improved layout and
product merchandising designed for easier
shopping for the customer and more
efficient management. Initial results are
encouraging.
Currys sales were £688 million (£629
million), an increase of 9 per cent in total
and 4 per cent like for like. Currys gained
market share in the period with particularly
s t rong perf o rmances in domestic
appliances and widescreen televisions.
Exclusive brands allow Currys to offer the
widest available range of pro d u c t s
supported by a market leading service
proposition. This was further enhanced by
the availability of next day delivery, seven
days a week on some 2,000 product lines.
In June, Currys piloted a range of fitted
kitchens in four stores, offering the
consumer a wide range of quality kitchens
in conjunction with the widest selection of
appliances in the UK. The trial stores have
achieved good sales levels. As a result,
kitchens have been rolled out to a further
20 stores with further expansion planned.
Currys continued to increase both the
number of stores (7 Superstores opened
during the period) and the size of stores,
with 3 stores extended and a further 5
resited into larger units.
PC World sales, at £454 million (£362
million), increased by 26 per cent overall
and 8 per cent like for like. PC World's
growth in sales and market share reflects
its combination of market beating prices,
the widest product range and an unrivalled
service proposition. PC Health Check has
been introduced into all stores, offering
customers the opportunity to have their PC
performance optimised and upgraded. A
further 11 new Superstores were opened.
Of these, 3 were in a new format of around
12,000 square feet designed for smaller
markets. Their success confirms PC
World's potential to expand its store base
into smaller towns.
Despite a cautious business market
ahead of the millennium, PC Wo r l d
Business continued to achieve stro n g
growth with sales up 35 per cent at £53
million.
The Link sales were £125 million (£71
million), an increase of 77 per cent in total
and 43 per cent on a like for like basis. 20
new stores were opened, taking the total
to 195. The Link benefited from the strong
growth in pre-pay mobile phones. There is
now a vast combination of handsets,
tariffs and networks available, reinforcing
the need for a specialist communications
store. To assist the customer, The Link
has installed, EasyLink, an advanced
computer facility that, on the basis of each
customer's individual re q u i re m e n t s ,
recommends the most appro p r i a t e
selection of tariff, network and handset.
E-commerce
The Group continues to develop its e-
commerce strategy. Total on-line sales in
the first half, although a very small
proportion of turnover, were six times
higher than the same period last year. This
t rend accelerated over the Christmas
period.
@jakarta, the Group's combined 'bricks
and mortar' and e-commerce games and
s o f t w a re retailer successfully launched
its transactional web site
(www.jakarta.co.uk). In November, the site
was incorporated within the games
channel on Freeserve, supported by an
extensive advertising campaign.
Downloadable software was also made
available shortly thereafter.
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