Annual Report and Accounts 2008/09

Transcription

1 Bringing life to technology Annual Report and Accounts 2008/09

2 Contents Directors Report Business Overview 1 DSGi s Five Point Plan 6 Group at a Glance 8 Highlights 9 Chairman s Statement 10 Chief Executive s Statement Performance Review 14 Overview 16 UK & Ireland 16 UK & Ireland Electricals 18 UK Computing 20 Nordics 21 Other International 21 Southern Europe 22 Central Europe 23 e-commerce 24 Group Financial Summary 28 Corporate Responsibility Review Strategic Summary 34 Group Overview 34 The market in which the Group operates 34 Principal activities 34 Overview of products and services 35 Key Performance Indicators (KPIs) 36 Risks to achieving the Group s objectives Corporate Governance 40 Board of Directors 41 Executive Committee 42 Statutory Information 45 Corporate Governance Report 49 Audit Committee Report 50 Nominations Committee Report 51 Remuneration Report 62 Directors Responsibilities Financial Statements 63 Independent Auditors Report 64 Consolidated Income Statement 65 Consolidated Statement of Recognised Income and Expense 66 Consolidated Balance Sheet 67 Consolidated Cash Flow Statement 68 Notes to the Financial Statements 111 Independent Auditors Report on the Parent Company Financial Statements 112 Balance Sheet of the Parent Company 113 Notes to the Parent Company Financial Statements Information for Shareholders 118 Five Year Record 120 Shareholder Information 121 Index A five point plan for the renewal and transformation of the Group Cautionary statement Certain statements made in this Annual Report and Accounts are forward-looking statements. Such statements are based on current expectations and are subject to a 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. Unless otherwise required by applicable laws, regulations or accounting standards, 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. Nothing in this Annual Report and Accounts should be regarded as a profit forecast.

3 Listen 1.We are listening to our customers and delivering what they want, providing better value, choice and service. Our new FIVES selling process helps colleagues better understand our customers needs, and to help them get the most out of their products, we offer our customers an unbeatable combination of value, choice and service. DSG international plc Annual Report and Accounts 2008/09 1 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

4 Fast forward 2.We are transforming the business with new and better ranges, stores and selling processes. We are improving our stores, making them easier to navigate with more interactive product displays. Product ranges in every category are being improved to provide better choices for our customers. 2 DSG international plc Annual Report and Accounts 2008/09

5 Focus 3.We are looking at all of our businesses and focusing on winning positions. By focusing the Group on winning positions and on our customers needs, we are confident of delivering 3% to 4% return on sales over the medium term. DSG international plc Annual Report and Accounts 2008/09 3 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

6 Click 4.We are winning on the internet with over 1.2 billion of sales achieved in 2008/09 and we re still growing. DSGi is the number one electrical retailer on the internet in Europe. Going forward, we will become leaders of multi-channel retailing, giving customers a choice of online, in-store or a combination of both through reserve&collect and collect@store. 4 DSG international plc Annual Report and Accounts 2008/09

7 Reduce 5.We are reducing costs and driving efficiency. In 2008/09 we achieved 95 million of cost savings with a further 200 million identified over the next four years. One set of processes makes the business better for customers, easier for our colleagues and cheaper to operate. DSG international plc Annual Report and Accounts 2008/09 5 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

8 Directors Report: Business Overview Group at a Glance Underlying sales by division UK & Ireland 4,228.6m Nordics 1,625.2m Other International 1,565.8m e-commerce 807.4m Our brands Description Highlights UK & Ireland Electricals The UK and Ireland s biggest specialist electricals chain, combining Currys Megastores and Superstores and Currys.digital on the high street. Dixons Travel stores are based at UK airports and the Eurotunnel terminal. Ireland operates as Currys and PC World. Currys opened its flagship 55,000 sq ft Megastore and refitted a number of Superstores and Currys.digital stores. It also launched further services for customers including next-day delivery and market leading three-hour timed delivery slots. During the year, Dixons Tax Free rebranded as Dixons Travel and new format stores were introduced, including a first PC World airport store at Heathrow, Terminal 5. UK & Ireland UK Computing PC World is the UK s biggest chain of computing superstores. DSGi Business is the specialist provider of business IT solutions comprising PC World Business, Equanet, MacWarehouse and Microwarehouse. The TechGuys are the UK s largest national digital support service for customers in-store and in their homes. PC World unveiled its new store concept which helps customers get the most out of their shopping trip with numerous experience zones to try out hundreds of products throughout the store. Get Connected, a market-beating mobile broadband proposition was launched, offering the biggest range of subsidised or free laptops and netbooks. Improvements are being made to The TechGuys operations to provide improved choices and services for customers. Nordics Elkjøp is the leading electrical retailer across the Nordics. Elkjøp and Lefdal stores operate in Norway, El Giganten stores operate in Sweden and Denmark and Gigantti stores operate in Finland. At the start of the year, Elkjøp opened a new Megastore in Lørenskog in Norway. Offering customers significantly increased ranges, it has had a strong first year s trading with positive customer feedback. A further two Megastores have been opened in the Nordics during the year. Southern Europe Greece s leading electrical retailer operates as Kotsovolos and Electro World. Electro World stores also operate in Turkey. In Italy, we operate UniEuro electrical stores, some with PC City storesin-stores. PC City also operates in Spain. Greece grew market share in a challenging market and Turkey performed in line with expectations. The turnaround plan in Italy is showing progress with encouraging signs in a difficult economic environment. A store closure programme concluded ahead of schedule, and management have made significant improvements in a number of areas, including stock levels, availability and margins. In Spain, a plan to reduce costs, manage stocks and preserve cash has been implemented. Other International Central Europe Electro World stores operate in the Czech Republic, Poland and Slovakia. Operations in the Czech Republic continue to perform well despite the weak environment. The Group s first stores in Slovakia have performed in line with expectations. In May, the Group announced it had sold the operations of Electro World Hungary, confirming at the same time that Poland remains under strategic review. e-commerce PIXmania.com is a pan-european online electrical retailer. Dixons.co.uk is one of the leading UK electrical e-tailers. PIXmania performed well in most of its key markets, although sales growth was impacted by the slowing consumer environment, and sales in the UK were held back by the strength of the euro. Dixons.co.uk continues to improve its consumer proposition which will be bolstered further when it transitions to the PIXmania e-merchant platform. 6 DSG international plc Annual Report and Accounts 2008/09

9 Countries we operate in Stores and online presence Online presence only Stores only Average selling Website Underlying sales Stores Selling space area per store Employees 000 sq ft sq ft 2, ,317 9,650 1, ,545 15,807 22,978 1, ,562 14,421 5,966 1, ,593 14,132 6, ,034 1, ,213 DSG international plc Annual Report and Accounts 2008/09 7 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

10 Directors Report: Business Overview Highlights Underlying Group sales* 2008/09 8, /08 8, /07 7, /06 6, /05 6,392.1 Underlying profit before tax* 2008/ / / / / Underlying diluted earnings per share* Pence 2008/ / / / / Dividends per share Pence 2008/09 n/a 2007/ / / / *Underlying results exclude the trading results of businesses to be closed, impact of amortisation of acquired intangibles, net restructuring and business impairment charges, other one-off non-recurring items, profit on sale of investments, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. 8 DSG international plc Annual Report and Accounts 2008/09

11 Chairman s Statement Extraordinary times call for extraordinary effort, initiative and resilience. These qualities have been delivered by John Browett and his executive in the financial year 2008/09. After settling into the Company I asked John Browett whether he could see a way of returning DSGi to greatness. He replied: Yes, I can, providing we don t find ourselves in a deep recession. Don t worry I assured him, there could be some cyclical downturn in the economy but I don t see why it should be more than that. The Chairman s crystal ball had clearly ceased to function! John Browett has led his team in the design of the Renewal and Transformation plan for the Group which provides a practical template for improvement in virtually every aspect of our business, with one overriding priority serving the customer better. The extent to which we have undergone change in top management and are now doing so in store design, layout and processes, internet operations, buying, distribution, systems and reward is radical if not revolutionary. It is being done with a very high level of support and commitment from employees across Europe who believe it is the right thing to do. The positive aspect of a severe economic downturn is not only that it fosters the strengths associated with survival, but also that any blockers to improving performance are swept away. The importance of completing all these changes and, in particular, rolling out our new store formats with a more customer-focused business model, coupled with the Group s reduced earnings, called for refinancing. The success of our recent Placing and Rights Issue together with renewed credit facilities from our banks calls for me to thank our shareholders and banks for their faith in what we are doing. My thanks also to our advisers, whose support was excellent. Your Board is ever conscious of the need to recover the share price and in due course, when affordable, reinstate a dividend. The reduction in our market capitalisation in the past year was painful and demanded the actions we are sharing with you in this report. Economic recovery is unlikely in the short term and therefore we cannot promise immediate earnings improvement. We have found an extremely able Chief Executive whose retail skills are exactly what is needed for today s environment. He is well on the way to building the team needed to execute our plan and our determination to serve the customer better is at the core of everything we are doing, in our stores, on our websites, and in our infrastructure and back office. Our intention is that the changes which we are making will improve DSGi s competitiveness during the downturn and put the Group in a stronger position to benefit from recovery in the future. Your Board believes that technological innovation and new product development in electronics and computing, together with the replacement cycle in white goods, will continue to make this a sector with attractive long term prospects. The DSG Foundation support for the Switched on Communities programme came to an end this year and I wish the four charities supported through that programme the very best for the future. The Foundation s focus going forward will be in supporting the fundraising efforts of our colleagues in stores in engaging with their local communities. Nicholas Cadbury, who was appointed Finance Director on 14 August 2008, and the Finance team have done an outstanding job in leading the refinancing of the Group. A very special thank you goes to Nicholas and his team as it does to Helen Grantham and her legal team. We are delighted that John Allan has agreed to be our Chairman and we give him a very warm welcome. I have every confidence that John has the skills and experience needed at Board level to ensure the successful completion of the Renewal and Transformation plan. Our thanks go to Count Emmanuel d André who has served us well as a non-executive director. His retail experience and knowledge of Continental Europe has been of particular value, as well as being an excellent colleague. He will retire at the AGM. I wish you all well. Sir John Collins Chairman Well placed to deliver the Renewal and Transformation plan Sir John Collins John Allan and Sir John Collins DSG international plc Annual Report and Accounts 2008/09 9 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

12 Directors Report: Business Overview Chief Executive s Statement Since joining the business 18 months ago we have been going through a period of intense activity as we deliver on the Renewal and Transformation plan. John Browett Our five point plan for the renewal and transformation of the Group Focus on the customer Transform the stores Focus on winning positions Win on the internet Reduce costs Our last financial year has been one of significant change for the Group. We have taken wide-ranging actions to reorganise, restructure, renew and transform the business. The Renewal and Transformation plan was drawn up following extensive and in-depth customer research. We have listened to customers about what they want. We are improving the business for our customers by delivering an unbeatable combination of value, choice and service. We are improving our store formats, providing better service instore, selling complete solutions, delivering at more convenient times and improving our technical and after-sales service. The Placing and Rights Issue received strong support from shareholders. It was well received by suppliers. We now have the resources and flexibility to deliver our Renewal and Transformation plan. This is an update on each of the five points of the plan. 1 Focus on the customer: better value, choice and service Many changes have been made to make our shopping trip better for customers, including: putting over 20,000 colleagues in the UK through a comprehensive service programme. This provides better service in our stores and helps customers choose the most suitable mix of products, services, and accessories to meet their needs; improving the delivery, repair and after-sales service, for example through the introduction of Currys next-day delivery in three-hour time slots; enhancements to The TechGuys support services business, resulting in an increase in the annual sales of services in PC World; improvements to our repair service. For example, customers TVs are now being repaired within 8 days on average rather than 21 days previously. Further enhancements to this service will follow. We carried out approximately 110,000 flat panel television and over 330,000 laptop repairs in the UK during the year; improvements to product ranges in our UK and Italian stores in order to provide wider and clearer choices of products at competitive prices; and new incentive and remuneration schemes for UK store colleagues to support better customer service and team work. 10 DSG international plc Annual Report and Accounts 2008/09

13 2 Transform the stores: better service, wider product range, easier navigation and up to date environment As at 20 June 2009, in the UK, the following new format stores had been opened: 30 Currys Superstores which have delivered average gross profit uplifts of between 23% and 57% versus the rest of the chain, ahead of management s expectations. There are plans to refurbish a further 58 Currys Superstores in the year ahead; 5 Currys.digital stores which have delivered average gross profit uplifts of 31% versus the rest of the chain. As we have previously stated we intend to focus Currys.digital in approximately 100 core locations across the UK. The remaining Currys.digital stores will be closed as their leases come to an end. The average lease length of the Currys.digital stores is approximately four years; 2 Currys Megastores. This is a unique new concept to the UK providing the largest range of electrical products under one roof in the UK. The first Megastore at Junction 9 in Birmingham opened in October and is, at 55,000 sq ft, the UK s largest electrical store. In its opening weekend it generated sales of 2.3 million, exceeding expectations, and is expected to generate approximately 30 million of sales per annum. It has delivered average gross profit uplift of 65% versus the rest of the chain. On 4 June the second Currys Megastore opened in New Malden, London, a new site of 37,000 sq ft which has got off to a very encouraging start. A further 4 Currys Megastores are planned for the new financial year; 41 PC World superstores have now been reformatted. The changes to the PC World format have been less significant than compared to the Currys stores but they have generated an average gross profit uplift of 11% versus the rest of the chain. Further improvements are being made to the new PC World stores and we believe that further improvements to the gross profit uplifts can be achieved; 1 trial Currys and PC World 2-in-1 store in Weybridge, Surrey, has been opened. By incorporating a mezzanine into an existing Currys store, the PC World brand has been introduced into a catchment where no PC World existed before. This new format has exceeded expectations generating an average uplift to gross profit of 65% compared to the store prior to its refit. Further trials of these 2-in-1 stores are planned this year; we are sharing best practice across our international businesses and learnings from new formats are being introduced across the Group; our first new format Megastore was opened in Lørenskog in Oslo on 5 May 2008 followed by 3 further Megastores in Sweden and Norway; and superstores in Greece, Italy, Ireland and the Nordics are being reformatted utilising the latest formats from the UK, with strong early results. Currys Megastore, J9, Birmingham DSG international plc Annual Report and Accounts 2008/09 11 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

14 Directors Report: Business Overview Chief Executive s Statement continued On the basis of the gross profit uplifts achieved to date, and taking into account the investment and costs involved in reformatting stores, we plan to roll out these renewed formats across the UK, to capture the benefits of a better shopping trip as rapidly and effectively as possible. The average cash payback of the total investment spent on reformatting stores in the UK & Ireland is targeted to be three to four years, which is equivalent to a cash return on investment of 25% to 33%. During the new financial year we plan to reformat in total, 15 Currys.digital stores, 75 Currys Superstores, 20 PC World stores, open 5 further Currys Megastores and trial 5 further 2-in-1 combined Currys and PC World stores in the UK. In the Nordics we are planning to open up to 10 Megastores across the region as well as refurbish 15 to 20 Superstores. 3 Focus on winning positions We have market-leading electrical and computing retail operations in the UK & Ireland, the Nordic region and Greece as well as the strong and growing internet presence in Europe. We will exploit the potential of all of these businesses over the coming years. Additionally, we have introduced a programme to reduce losses and turn around the operations in Italy, Spain and Central Europe. During the year and in line with our strategy, we closed PC City in Sweden and Markantalo in Finland as they were loss-making chains. In Italy, following a strategic review, the first stage of a comprehensive turnaround plan has been completed. We have closed stores, reduced costs, improved stock turn and integrated PC City within UniEuro. We expect to invest approximately 60 million to 75 million of cash in total over the next three financial years to achieve profitability in Italy. The strategic review of PC City in Spain concluded that we needed to restructure the business to reduce costs and to minimise cash outflow until the Spanish market recovers. As a result, 11 stores have been closed and the remaining 33 stores will be reformatted utilising the principles of the new store formats in the UK. Having made these changes we believe underlying cash losses in Spain will be materially reduced over the next two years. In Central Europe, the operations in Hungary have been sold. The core operations in the Czech Republic and Slovakia continue to perform well in their markets and remain as part of the Group. We will restructure the central office operations based in the Czech Republic to meet the needs of customers in these two countries better. The operations in Poland remain under review. 4 Win on the internet We achieved over 1.2 billion of sales over the internet across Europe in the financial year. Our objective is to achieve a return of 2% to 3% per annum on internet sales in the medium term. The PIXmania e-merchant platform is a leading internet sales engine for electrical and computing products in Europe. To leverage e-merchant, we expect to roll out this platform in the UK during the course of the 2009/10 financial year. This will provide customers with improved functionality, easier navigation, better product information and accessory attachment. In addition, system changes have been made so that PIXmania can benefit from access to the Group s logistics infrastructure, particularly in the UK, enabling it to reduce its cross-border stock and pricing risk on sales of products. We will continue to exploit our successful reserve&collect and collect@store options for customers in the UK and Europe. 5 Reduce costs We are using the step change programme to simplify our business operations. We are changing our operations to make them better for customers, easier for colleagues and therefore cheaper to operate. Cost savings of 95 million were achieved in the 2008/09 financial year. There remains significant opportunity for productivity improvements within the Group and we plan to deliver 200 million in cost savings over the next four years. There are efficiency initiatives in logistics, services, head office administration and in-store processes. The changes also improve the number of deliveries and repairs that are done right first time. Process improvement initiatives have already contributed to reductions in levels of stock held by the Group of between 15% and 20% year on year. Highlights Accelerating the store transformation programme to deliver exciting new stores with excellent returns Training of over 20,000 colleagues in our new service and selling process, FIVES in the UK Delivering an unbeatable and compelling combination of value, choice and service for customers Cost savings of 95 million achieved this year, with a further 200 million targeted over the next four years 12 DSG international plc Annual Report and Accounts 2008/09

15 There is an opportunity to reduce working capital by approximately 80 million to 130 million over the medium term. This will be achieved by improving forecasting and ordering accuracy; allocation of store stock; in-store fulfilment; and a new clearance policy incorporating dynamic pricing. Outlook The difficult economic backdrop across Europe and reduction in consumer spending, particularly on discretionary products, has been well publicised. We expect these conditions to continue throughout the coming year in many of our markets. We are well prepared for this environment and continue to focus on managing costs, margins, stock turn and cash flow, alongside the Renewal and Transformation plan. With the improvements to our business we are well positioned to emerge from the recession with a more compelling offer for customers and are confident of our medium term target of achieving a 3% to 4% return on sales. John Browett Chief Executive Currys.digital, Bluewater DSG international plc Annual Report and Accounts 2008/09 13 Business Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

16 Directors Report: Performance Review Overview Financial total underlying Group sales down 1% to 8,227.0 million (1) (2) (2007/08 8,338.6 million); Group sales, including those from businesses to be closed, down 1% to 8,364.6 million (2007/08 8,488.0 million); Group like for like sales (3) down 9%; underlying Group sales down 8% at constant exchange rates; underlying Group gross margins up 0.2% in the second half, down 0.1% in the full year; underlying Retail profit (4) of 95.5 million (2007/ million); underlying pre-tax profit (5) of 50.5 million (2007/ million) (excluding operations of PC City Sweden, Markantalo in Finland and Electro World in Hungary); underlying diluted earnings per share of 0.7p (2007/08 7.2p); (7) total loss before tax after deducting net non-underlying charges of million was (140.4) million (2007/08 loss (184.1) million). Basic loss per share for continuing operations (9.2)p (2007/08 (11.5)p); as at 2 May 2009 the Group had net debt of million (excluding net proceeds of million from equity issue); and successful refinancing completed through the equity issue and amendments to the 400 million revolving credit facility and 75 million letter of credit facilities. Renewal and Transformation intense activity on the five point Renewal and Transformation plan throughout the year to improve profitability and competitiveness by offering an unbeatable combination of value, choice and service for our customers; rapid progress on the store transformation programme: 63 stores reformatted at the year end in the UK and Nordics; further 19 stores reformatted in the UK to date, including one new Megastore; additional 101 reformatted stores to be opened during the year in the UK, including four Currys Megastores; successful new Megastore format in the Nordics being rolled out with a further three open at the year end; and trial of the new store concept in Ireland, Spain, Greece and Italy now commenced. reformatted stores continue to perform well, delivering gross profit uplifts of between 11% and 65% versus the rest of the chains; UK-wide training of colleagues of five step selling process with greater emphasis on service, connectivity, delivery, installation and repair in a world of converging technology; Get Connected programme in PC World replicated in Currys to provide mobile broadband with the widest range of free or subsidised laptops; successful launch of further services for customers including next-day delivery and market-leading timed delivery slots; e-commerce division profits doubled to 15 million; turnaround plan in Italy showing progress with 46 stores closed ahead of plan, improving margin trends and 22 PC City implants; portfolio review has resulted in the closing of loss making standalone PC City stores in Sweden and Markantalo in Finland as well as the sale of Electro World in Hungary; and good progress on the step change programme: costs reduced by 95 million in the 2008/09 financial year; 200 million of further cost reductions identified over the next four years; and initiatives under way to reduce working capital by 80 million to 130 million. Successful refinancing completed Renewal and Transformation plan making good progress 14 DSG international plc Annual Report and Accounts 2008/09

17 Business performance Underlying sales and profit analysis Underlying sales (1) Underlying profit / (loss) (5) 52 weeks 53 weeks 52 weeks 53 weeks ended ended ended ended 2 May May 2008 Like for like (3) 2 May May 2008 Note % change UK & Ireland Electricals 9 2, ,927.0 (10)% UK Computing 10 1, ,818.7 (13)% UK & Ireland 4, ,745.7 (11)% Nordics 11 1, ,469.3 (7)% Business Overview Performance Review Southern Europe 12 1, ,325.7 (13)% (19.4) (14.8) Central Europe n/a (9.9) (2.8) Other International 1, ,471.3 n/a (29.3) (17.6) e-commerce % Central costs (25.0) (24.4) Total Group Retail 8, ,338.6 (9)% Underlying net finance (charges) / income (26.9) 13.0 Property losses (18.1) (7.3) Group underlying profit before tax Notes (1) Underlying Group sales exclude sales from businesses to be closed and discontinued operations. Sales for the 53 weeks ended 2008 have been re-presented to reflect this exclusion. Businesses to be closed comprise the operations of PC City in Sweden and Markantalo in Finland. Discontinued operations in 2008/09 comprises Hungary, while in 2007/08 comprised Hungary, The Link and Genesis. (2) Sales in 2008/09 were based on a 52 week year, compared to 53 weeks in 2007/08. On a consistent 52 week basis, underlying Group sales were down 1% and total Group sales were down 1%. (3) 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. Customer support agreement sales are excluded from all UK like for like calculations to remove the distorting effect of the introduction of pay-as-you-go customer support agreements. Operations that are subject to closure have sales excluded as of the announcement date. Stores subject to a refurbishment are excluded during the period of refurbishment. (4) Underlying Retail profit is underlying profit before tax, net finance (charges) / income and net property losses. (5) Throughout this statement, references are made to underlying performance measures. Underlying results are defined as excluding trading results from businesses to be closed, the amortisation of acquired intangibles, net restructuring and business impairment charges and other one-off non-recurring items, profit on sale of investments, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. These excluded items are described as non-underlying. The financial effect of these items is shown in the analyses on the face of the income statement and in note 4 to the financial statements. (6) Free Cash Flow relates to continuing operations and comprises net cash flow from operating activities before special pension contributions, plus net finance income, less income tax paid and net capital expenditure. (7) The weighted average number of shares used in the calculation of earnings per share for both 2008/09 and 2007/08 has been multiplied by an adjustment factor to reflect the bonus element of the shares issued under the terms of the rights issue (as described in note 35 to the financial statements). The adjustment factor used was (8) Unless otherwise noted, figures relate to continuing operations, excluding the results of businesses to be closed. Total revenue including discontinued operations and businesses to be closed was 8,415.1 million (2007/08 8,556.8 million). (9) UK & Ireland Electricals comprises Currys, Currys.digital and Dixons Travel as well as the operations in Ireland. (10) UK Computing comprises PC World, DSGi Business and The TechGuys. Like for like sales are for PC World only. (11) Nordics comprise the Elkjøp Group, and no longer include the results of PC City Sweden and Markantalo which are now classified as businesses to be closed within non-underlying items. (12) Southern Europe comprises Greece (Kotsovolos and Electro World), Italy (UniEuro), Spain (PC City Spain) and Turkey (Electro World). (13) Central Europe comprises Electro World operations in the Czech Republic, Poland and Slovakia and no longer includes the results of the discontinued operation Electro World Hungary. Central Europe results are excluded from like for like comparisons as the number of stores trading is insufficient for a meaningful like for like comparison to be made. (14) e-commerce division comprises PIXmania and Dixons.co.uk. DSG international plc Annual Report and Accounts 2008/09 15 Strategic Summary Corporate Governance Financial Statements Information for Shareholders

18 Directors Report: Performance Review UK & Ireland Total sales in the UK & Ireland division were down 11% to 4,228.6 million (2007/08 4,745.7 million) and like for like sales were down 11%. Underlying operating profit was 58.7 million (2007/ million). UK & Ireland Underlying sales 2008/09 4, /08 4,745.7 Underlying operating profit 2008/ / UK & Ireland Electricals This division comprises Currys, Currys.digital and Dixons Travel in the UK and Currys and PC World in Ireland. Total sales were down 9% at 2,657.8 million (2007/08 2,927.0 million) with like for like sales down 10%. Underlying operating profit was 17.7 million (2007/ million). Underlying sales 2008/09 2, /08 2,927.0 Underlying operating profit 2008/ / Samsung LED TV 7000 A completely new range of televisions with amazing picture quality utilising the latest LED technology. 16 DSG international plc Annual Report and Accounts 2008/09

19 Currys and Currys.digital experienced difficult trading conditions throughout the year as the consumer environment deteriorated. In July 2008, Currys introduced a programme to reduce prices on televisions to bring them more into line with the internet. In the first half of the year, Currys also executed a programme to reduce stock levels, particularly older stock. These two actions, together with an increased mix into small brown and technology products, impacted gross margins in the first half of the year. A very tough market in the lead-up to the important Christmas period was followed by a better than expected sales period. Following the Christmas trading period, gross margins improved as management continued to focus on in-store service, costs and cash generation. White goods have been particularly hit by the slowdown in the housing market, but have shown signs of stability in the latter part of the year. Computing products, particularly laptops and netbooks have shown strong volume growth in the second half of the year. With good stock control, careful cost and cash management, improving customer service as well as the benefits of the Renewal and Transformation plan, Currys and Currys.digital are well placed to operate prudently through the recession and capitalise on any improvement in consumer demand. In Ireland the economic environment remains very tough, impacting sales and margins. However, management are taking the necessary actions to focus on cash management. The market leading position and efficient structure that the Group operates in Ireland outperforms its competitors. During the year, Dixons stores in Ireland were rebranded Currys in order to reduce costs and align the business with that of the UK. During the year, Dixons Tax Free rebranded as Dixons Travel. The new format stores introduced with the opening of the new Terminal 5 at Heathrow are being rolled out across the rest of the airport stores. These new formats incorporate many of the same customer benefits as the reformatted Currys.digital and Currys Superstores with playtables and improved ranges. In June, Dixons Travel opened its second accessories store, ADD+, in Stansted Airport. Despite the weaker economic environment the Dixons Travel stores are performing well. LG Steam Direct Drive washing machine Innovative designs incorporating new steam cleaning technology for everyday life. It includes a practical 9kg load capacity and energy saving feature. Currys Superstore, Watford DSG international plc Annual Report and Accounts 2008/09 17 Business Business Overview Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

20 Directors Report: Performance Review UK & Ireland continued UK Computing UK Computing comprises PC World, DSGi Business and The TechGuys. Total sales were down 14% at 1,570.8 million (2007/08 1,818.7 million) with like for like sales down 13%. Underlying operating profit was 41.0 million (2007/ million). Underlying sales 2008/09 1, /08 1,818.7 Underlying operating profit 2008/ / PC World was trading against a strong comparative period in the first half of the year as laptop overstocks were cleared and as the year progressed was also impacted by the weaker consumer environment. However, careful margin and stock management as well as a number of initiatives described below have limited the impact of the weaker sales environment on profit performance. PC World extended its range of connectivity solutions. Get Connected, the market-beating mobile broadband proposition, offers the biggest range of subsidised or free laptops and netbooks in the UK, tailored to suit customers needs. A number of the new format store teams are trialling a dedicated zone to demonstrate connectivity solutions for the household. Netbooks are now established as a new product range and PC World has swiftly established clear market leadership in this new area. The PC World store refurbishment has progressed well, with 41 stores (25% of the PC World portfolio) converted in time for Christmas trading. DELL inspiron laptop Attractive, stylish and popular. Part of the widest range of laptops available in the UK. 18 DSG international plc Annual Report and Accounts 2008/09

21 The TechGuys continues to be a valued differentiator providing service and expertise to customers. The TechGuys service desk is now operational in all PC World stores and has been incorporated in the Currys Megastores and some trial Currys stores. Improvements are being made to The TechGuys operations to provide improved choices and services for customers with new propositions planned to be rolled out during the course of the year. The Group expects to innovate further with other subscription products and service offers for customers. DSGi Business sales were million (2007/ million). It continued to perform in line with expectations in a challenging environment. DSGi Business is making good progress with its transformation programme to deliver an efficient, customer-focused organisation which will be even more competitive going forward. Customers are already benefiting from a more specialist solution, tailored to their needs. Squeezebox Duet Media streaming products help customers enjoy music, pictures and video in any room in their home by accessing files stored on their computer. PC World, Stevenage DSG international plc Annual Report and Accounts 2008/09 19 Business Business Overview Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

22 Directors Report: Performance Review Nordics In the Nordic region, Elkjøp saw sales decline 1% at constant exchange rates, while in sterling, sales grew by 11% to 1,625.2 million (2007/08 1,469.3 million). Like for like sales were down 7%. Underlying operating profits were 76.1 million (2007/ million). Nordic region results are stated excluding the businesses to be closed of PC City in Sweden and Markantalo in Finland. Nordics Underlying sales 2008/09 1, /08 1,469.3 Underlying operating profit 2008/ / Sales performance was impacted as the effects of the global financial crisis spread more widely across Europe during the year. The businesses have performed well relative to the overall markets in the Nordic region, gaining market share, especially in Denmark, where customers are recognising the strong value proposition. Management are taking the necessary actions to manage the business appropriately, focusing on margin, costs, stock and capital. At the start of the year, Elkjøp opened a new Megastore in Lørenskog (near Oslo) in Norway. Offering customers significantly increased ranges, it has had a strong first year s trading with positive customer feedback and a further three Megastores have been opened across the Nordics from which initial results have also been promising. Elkjøp s multi-channel offering continued to grow in all markets with a 48% increase in online sales. It introduced a reserve&collect service in August 2008 in most of its operations, which has been well received by customers. In March 2009, management also announced that it would close the loss making operations of PC City in Sweden and Markantalo in Finland. Bose SoundDock portable ipod speaker High quality sound, portability and connectivity make this a popular product with customers. El Giganten, Kungens Kurva, Sweden 20 DSG international plc Annual Report and Accounts 2008/09

23 Other International Other International Underlying sales 2008/09 1, /08 1,471.3 Underlying operating loss 2008/09 (29.3) 2007/08 (17.6) Southern Europe This division comprises operations in Italy, Greece, Spain and Turkey. Total sales declined by 10% at constant exchange rates and grew by 6% in sterling to 1,405.4 million (2007/08 1,325.7 million), with like for like sales down 13%. Underlying operating loss was (19.4) million (2007/08 loss of (14.8) million). Italy Total sales for UniEuro in Italy were down 17% at constant exchange rates and down 1% in sterling to million (2007/ million). The turnaround plan in Italy continues to make good progress with some encouraging signs in a difficult economic environment. The two year store closure programme has been completed ahead of schedule with 46 stores closed within the year, impacting the total sales performance. Store trials continue to perform ahead of expectations and the integrated PC City store-in-stores are delivering significant sales uplifts in the computing category. Management have significantly improved availability in-store, with plans for further improvements in place, they have reduced stock and margins have shown good progress across the year. Following the strategic review, the Group is focused on the turnaround plan under the new management team. As a result of the improvements being delivered, the Group is confident in the long term prospects for UniEuro, however, the weak consumer environment will impact overall performance in the short term. Management estimate that approximately 60 million to 75 million of cash in total over the next three financial years will be required before the Italian business can achieve profitability. Greece Kotsovolos total sales were down 3% at constant exchange rates and up 15% in sterling at million (2007/ million). During the first half, Kotsovolos and Electro World were trading against tough comparables in the prior year which, together with a weak consumer environment across the year, has held back total sales. However, as Greece s leading specialist electrical retailer, Kotsovolos and Electro World are growing market share. Careful management of costs, cash and stock have limited the effects of the weakening environment on bottom line performance. Integrated UniEuro and PC City, Assago, Italy DSG international plc Annual Report and Accounts 2008/09 21 Business Business Overview Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

24 Directors Report: Performance Review Other International continued On 29 December 2008, the Group acquired a further 10% interest in Kotsovolos for a cash consideration of 28.1 million ( 27.5 million) following the exercise of a put option by Fourlis Holdings SA. The consideration was calculated in accordance with the pricing formula agreed at the time that the Group acquired a controlling interest in Kotsovolos in September This acquisition takes the Group s total interest in Kotsovolos to 99% of the issued share capital. Spain PC City sales in Spain were down 13% at constant exchange rates and up 3% in sterling at million (2007/ million). An extremely tough economic environment has impacted consumer demand. Management are implementing a plan to reduce costs, manage stocks and preserve cash. As at 9 May 2009, 11 stores had been closed and management believe that losses will be materially reduced as well as position the business better for when the Spanish economy recovers. Turkey The Group now operates eight stores in Turkey under the Electro World brand with its local joint venture partner. These new stores are based on the Group s new large space format, providing a greater product range and exciting retail environment for customers. Initial results from these stores have been positive with further stores planned. Central Europe In Central Europe, Electro World saw sales decline by 15% at constant exchange rates, growing by 10% in sterling to million (2007/ million). Underlying operating losses were (9.9) million (2007/08 (2.8) million). Central Europe results are stated excluding the operations in Hungary, which have been sold. Operations in the Czech Republic continue to perform well, despite the weak consumer environment. During the year the Group opened its first stores in Slovakia and these have performed in line with expectations. On 19 May the Group announced that it had sold the operations of Electro World in Hungary for a consideration of 1. The sale involved the transfer of all nine stores, operations and employees to the purchaser, EW Electro Retail Ltd. The important operations in the Czech Republic and Slovakia, which continue to perform well in their markets, remain as part of the Group. Management is planning to restructure the central office operations based in the Czech Republic to meet the needs of customers in these two countries better. The operations in Poland remain under review. Kotsovolos, Thessaloniki, Greece 22 DSG international plc Annual Report and Accounts 2008/09

25 e-commerce This division comprises PIXmania.com and Dixons.co.uk. Total sales for the e-commerce division were million (2007/ million). Underlying operating profit was 15.0 million (2007/ million). e-commerce Underlying sales 2008/ / Underlying operating profit 2008/ / PIXmania performed well in most of its core markets, although sales growth has been impacted by the slowing consumer environment, particularly in the UK, France and Spain. Its overall performance was held back by lower sales in the UK due to the strength of the euro making the business less price competitive. Improvements to logistics and better integration into the Group s European buying network will reduce this issue over time. In its core euro trading markets, PIXmania s sales were up 15%. Overall gross margins continued to make progress. Dixons.co.uk continues to improve its customer proposition which will be bolstered further when it transitions onto the PIXmania e-merchant platform during the course of the 2009/10 financial year. Nikon D5000 Digital SLR camera With its 12.3 million pixels picture resolution, this digital SLR camera is more than capable of shooting crisp, highly-detailed images as well as HD video clips. DSG international plc Annual Report and Accounts 2008/09 23 Business Business Overview Overview Performance Review Strategic Summary Corporate Governance Financial Statements Information for Shareholders

26 Directors Report: Performance Review Group Financial Summary The Group delivered underlying profit before tax of 50.5 million (2007/ million). Underlying diluted earnings per share, after adjusting for the effects of the Rights Issue was 0.7p (2007/08 7.2p). After taking account of non-underlying adjustments, total Group loss before tax was (140.4) million (2007/08 loss (184.1) million). Underlying profit before tax is reported before non-underlying charges of million. A further explanation of these charges is shown below: Adjustments to underlying results 52 weeks 53 weeks ended ended 2 May May 2008 Loss before tax (140.4) (184.1) Add back non-underlying items: Pre-tax losses from businesses to be closed Other non-underlying items Amortisation of acquired intangibles Net restructuring charges: Strategic reorganisation Distribution network reorganisation and PC City France closure (8.8) Business impairments: Italian operations (18.8) Other businesses Other items Buncefield release (1.9) Financing items: Profit on sale of investments (1.7) Net fair value remeasurements Other non-underlying items total Total net non-underlying charges to add back Underlying profit before tax in March the Group announced the closure of standalone stores of PC City in Sweden and Markantalo in Finland which were completed by 20 May These have been classified as businesses to be closed; amortisation of acquired intangibles of 4.9 million predominantly comprises brand names, with the year on year change being affected by currency movements; strategic reorganisation costs of 59.1 million relate to the UK business transformation which primarily comprises: asset impairments associated with the reformat of the UK store portfolio; reorganisation costs of the Service infrastructure; and headcount reductions which have predominantly been incurred in the UK retail support centre. The prior year amounts related mainly to the reformat of the UK store portfolio; the turnaround plan announced for Italy in the prior year has made significant progress. The planned store closures have been achieved in a faster timeframe than originally expected and also at lower cost. This has resulted in the release of surplus lease and employee severance provisions in the current financial year; other business impairments comprise the closure costs of the PC City Sweden and Markantalo stores; the closure costs of 11 stores and impairment charges in PC City Spain in connection with the restructuring of this business; the impairment of Polish stores following a disappointing performance in this market; and the impairment of Currys.digital and certain Currys High Street stores as the closure programme of those non-core stores, identified last financial year, is implemented; the Buncefield release relates partly to a settlement received from the oil companies insurers together with a related release of surplus provision originally set up following the explosion at the oil storage depot near the Group s UK retail support centre in December 2005; and the financing charge of 7.4 million relates to net fair value remeasurement losses on revaluation of financial instruments as required by IAS 32 and 39. The main component of the net charge is a 5.9 million revaluation of the Kotsovolos put option up to the exercise date of 29 December 2008 and arose mainly as a result of foreign exchange movements between sterling and the euro. 24 DSG international plc Annual Report and Accounts 2008/09