European specialist electrical retailing group DSG international Plc (DSGI.L) Thursday announced preliminary results for fiscal 2009, reporting a narrower loss. Underlying earnings fell sharply, hurt by declining sales as recession continued to grip consumer demand. The company also warned of the same recessionary trend to continue in many of its markets in fiscal 2010, but still expects to achieve its medium-term target of 3%-4% return on sales.
Full-year results
For the 52 weeks ended May 2, 2009, loss was GBP 219.3 million, narrower than the GBP 259.7 million posted for the 53 weeks ended May 3, 2008.
Full year loss attributable to equity shareholders of the parent company narrowed to GBP 219.4 million or 10.2 pence per share from GBP 260.8 million or 11.9 pence per share last year.
Meanwhile, on an underlying basis, loss attributable to equity shareholders plunged to GBP 16.1 million or 0.7 pence per share from GBP 157.3 million or 7.2 pence per share in fiscal 2008.
Underlying results exclude trading results from businesses to be closed, the amortisation of acquired intangibles, net restructuring and business impairment charges and other one-off items.
Businesses to be closed comprise Markantalo in Finland and PCC City in Sweden, as earlier announced. Discontinued operations in fiscal 2009 comprised of Electro World in Hungary, which the company disposed off in May this year to EW Electro Retail Ltd. Net restructuring charges relate mainly to the renewal and transformation of the UK business and the reorganization of its service offering.
Loss from discontinued operations came wider at GBP 22.1 million versus previous year's loss of GBP 9.6 million.
Loss after tax from continuing operations dropped to GBP 197.2 million or 9.2 pence a share from the year-ago loss of GBP 250.1 million or GBP 11.5 pence a share. Underlying loss from continuing operations amounted to GBP 16.2 million, significantly below prior-year's GBP 158.4 million.
Loss before tax narrowed to GBP 140.4 million from GBP 184.1 million in the fiscal year 2008, after deducting net non-underlying charges of GBP 190.9 million. Underlying pre-tax profit, however, dropped to GBP 50.5 million from GBP 225.6 million in the prior year, after excluding operations of PC City, Markantalo, and Electro World.
Group annual revenue from continuing operations totaled GBP 8.36 billion, down 1% from the GBP 8.49 billion reported last year. Sales in fiscal 2009 were based on a 52 week year, while in fiscal 2008, was based on a 53 week year.
Underlying revenues, which exclude sales from businesses to be closed and discontinued operations, declined 1% to GBP 8.23 billion from GBP 8.34 billion in the prior year. Group like for like sales were down 9%.
Segmental results
DSG reports its business performance in four divisions, namely UK & Ireland, Nordics, Other International, and E-Commerce.
Total sales in the UK & Ireland division were down 11% at GBP 4.229 billion and like-for-like sales were down 11%. Underlying operating profit plunged to GBP 58.7 million year-over-year.
Within this, the UK & Ireland Electricals section, which consists of Currys, Currys.digital, Dixons Travel and the Irish business, reported a 9% decline in total sales, with like-for-like sales down 10%.
UK Computing, which consists of PC World, DSGi Business, and The TechGuys, reported a total sales decline of 14%, with like-for-like sales down 13%.
In the Nordics region, the Elkjøp group reported a 1% sales decline at constant exchange rates, but an 11% sales growth in sterling terms at GBP 1.625 billion. Like-for-like sales were down 7%. Underlying operating profits decreased to GBP 76.1 million.
In the Other International division, Southern Europe, consisting of its operations in Italy, Greece, Spain, and Turkey, reported a total sales decline of 10% at constant exchange rates but a 6% sales increase in sterling terms at GBP 1.405 billion. Like-for-like sales declined 13% and underlying operating loss widened to GBP 19.4 million.
In Central Europe, Electro World reported a 15% sales decline at constant exchange rates and 10% sales growth in sterling terms at GBP 160.4 million. Underlying operating loss widened to GBP 9.9 million.
The E-commerce division, primarily comprising PIXmania and Dixons.co.uk and engaged in on-line retail sales, posted higher total sales at GBP 807.4 million. Underlying operating profit doubled to GBP 15.0 million from last year.
DSGI Renewal & Transformation plan
In the first year of implementation of its 5-point plan undertaken during the year to improve profitability and competitiveness, Chief Executive John Browett remarked, "Following our successful rights issue and placing, we now have the resources and flexibility to deliver on our plan at a faster pace."
On April 30, the Group had announced a Placing and Rights Issue to raise gross proceeds of GBP 310.6 million, and thereafter on June 9 had completed the receipt of proceeds.
The company reported that under the store transformation program, among other achievements, 63 stores were reformatted at the year end in the UK and Nordics. Further 19 stores were reformatted in the UK till date, and an additional 101 reformatted stores are to be opened during the year in the UK.
The company further reported good progress on the step change program, with costs being reduced by GBP 95 million in fiscal 2009, further cost reductions of GBP 200 million being identified for over the next four years, and initiatives underway to cut working capital by GBP 80 million-GBP 130 million.
Dividends
DSG noted that the GBP 400 million Revolving Credit Facility and GBP 75 million Letter of Credit Facilities, amended on April 30 along with the capital raising, forbid dividend payments for fiscal years 2009 and 2010. Under these agreements, dividend payments have been allowed to be resumed, subject to certain conditions, in fiscal 2011.
Outlook
Looking ahead, the Group sees the current difficult economic conditions and its impact to continue in many of its markets across Europe throughout fiscal 2010.
Browett commented, "We are well positioned to emerge from the recession with a compelling offer for customers. We remain confident of our medium term target of achieving a 3%-4% return on sales."
DSGI.L is currently trading on the LSE at 24.25 pence, up 0.50 pence, or 2.11% on day, with a volume of 7.23 million shares. For the 52-wk trading period, shares have been trading in the range of 8.75 - 69.00 pence.
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