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The Group believes that software is a
category in which on-line sales will capture
a large share of the market. It is less clear
how many customers will be willing to
purchase other products without seeing
them and obtaining appropriate advice and
after sales back up. However, e-commerce
will take a share of traditional retail sales
within an expanding retail market.
Customers will use the net to assist in
making product decisions and for after
sales service information.
The Group aims to be a market leader both
in ‘bricks and mortar’ retailing and e-
commerce. It will exploit the opportunities
to provide enhanced customer service and
i n c rease market share through both
mediums. The Group expects to invest in
excess of £30 million over the next two
years in developing its e-commerc e
activities. The Group's expertise, marketleading
brands and links with Freeserve
give it a unique position to cre a t e
additional profit streams from e-
commerce.
Elkjøp
Shortly after the end of the half-year, the
Group acquired, for £444 million, Elkjøp
ASA, the leading consumer electronics
retailer in the Nordic region. Elkjøp is a
profitable and fast growing company with
over 150 stores in 5 countries. We
believe that this growth can be further
enhanced as part of the Dixons Group.
The acquisition represents a significant
step in the Group's European expansion
strategy.
Freeserve
Freeserve strengthened its position as the
UK's leading internet company. By the end
of the period it had 1.575 million active
users, an increase of almost 400,000
since the beginning of the financial year.
Total minutes on-line in the first half were
4.1 billion. In line with Fre e s e rv e ' s
strategy of building on its position as the
UK's largest ISP to become the UK's
leading internet portal, page impressions
increased to 110 million in November, an
increase of 72 per cent from the beginning
of the half year. Total revenue was £7.2
million, an increase of 184 per cent on the
second half of last year. In line with
expectations, advertising and e-commerce
have now grown to 50 per cent of total
revenue.
On 26 July 1999, the Group made an
Initial Public Offering of a minority interest
in Freeserve. Approximately 20 per cent
of the shares were made available in the
offer, with Dixons retaining 80 per cent. Of
the £242 million raised net of fees and
stamp duty, £123 million went directly to
F re e s e rve to fund its growth and
investment plans.
European Property
The European Property division made an
operating profit of £6.3 million (£4.0
million) on sales of £39 million (£29
million). The 58 per cent increase in
profits on lower operating assets reflects
the success of the re-focus of activity into
Belgium, Luxembourg and France, where
Codic has a strong record of successful
projects.
Financial position
At the end of the period, net funds,
excluding amounts held under trust to
fund extended warranty liabilities and
funds held by Fre e s e rve, were £403
million (£32 million). The increase on last
year reflects the funds raised for Dixons
Group plc from the flotation of Freeserve
together with cash generated fro m
operations. Working capital was tightly
managed, with average stock weeks cover
falling by 14 per cent, whilst stock
availability improved.
Net interest receivable increased to £16.1
million (£14.3 million), reflecting the
higher cash balances, largely offset by
lower year on year interest rates.
On 13 December 1999, the Group paid a
special interim dividend of 7.5 pence per
Ordinary share. In order to qualify for this
dividend, over 75 per cent of the holders
of the Convertible Pre f e rence share s
elected to convert their holdings into
O rd i n a ry shares. The balance has
subsequently been converted resulting in
the total conversion of 177 million
C o n v e rtible Pre f e rence shares into 47
million Ordinary shares.
It was announced on 28 June 1999 that,
following the flotation of Freeserve, Dixons
was considering a corporate restructuring
to give greater strategic and financial
flexibility and a capital structure more
appropriate to its needs. It has now been
decided to proceed. As part of the
restructuring, the Board intends to return
25 pence per Ord i n a ry share to
shareholders, equivalent to £121 million
in aggregate. There will also be a share
split.
Year 2000
The extensive programme, started in
1997, to ensure that the Group's systems
and operations were Year 2000 compliant
has cost approximately £10 million. No
material problems or failures were
identified over the New Year period.
Christmas trading
Over the Christmas period, the growth of
digital technology and lower prices
ensured sales remained strong, although
there was a further reduction in gross
margins. Retail sales for the first eight
weeks of the second half to 8 January
2000 increased by 15 per cent in total and
5 per cent on a like for like basis.
Maylands Avenue Sir Stanley Kalms
Hemel Hempstead
Chairman
Hertfordshire HP2 7TG 12 January 2000
4 Dixons Group plc
Dixons Group plc 5