PR 36/2004 Strictly embargoed. For release after 07.00 hours 23 June 2004 DIXONS GROUP plc PRELIMINARY AUDITED RESULTS FOR THE 52 WEEKS ENDED 1 MAY 2004 Dixons Group plc, Europe’s leading specialist electrical retailer, today announces preliminary full year results. - Turnover up 13% to £6.5 billion (2002/03 53 weeks restated(3): £5.8 billion) - Group like for like sales(1) up 3%; UK like for like sales up 2% and international up 4% - Pre-tax profit (excluding goodwill amortisation and exceptional items(2)) up 11% to £331.6 million (2002/03 53 weeks restated(3): £298.4 million) - Pre-tax profit (including goodwill amortisation and exceptional items(2)) up 33% to £366.2 million (2002/03 53 weeks restated(3): £275.7 million) - Adjusted diluted EPS(2) up 11% to 12.3 pence (2002/03 53 weeks restated(3): 11.1 pence) - Basic EPS up 36% to 14.4 pence (2002/03 53 weeks restated(3): 10.6 pence) - Proposed final dividend of 5.660 pence (2002/03: 5.145 pence), making total dividends for the period of 7.320 pence per share (2002/03: 6.655 pence), an increase of 10% - £200 million share repurchase programme - Continued store expansion to create 2,000 new jobs across Europe, 1,000 in the UK, this financial year NOTES (1) 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. (2) Throughout this statement, references are made to ‘underlying’ and ‘adjusted’ performance measures. Underlying earnings are stated before discontinued operations, goodwill amortisation and exceptional items. The financial effect of these items is shown in separate columns in the profit and loss account on page 14 and the notes thereto, which provide a reconciliation between underlying and statutory amounts. Adjusted diluted earnings per share are based on underlying profits and can be reconciled to the statutory equivalent in note 6. (3) 2002/03 figures have been restated to reflect the effect of the adoption of Application Note G to FRS 5, which is further described in note 1. John Clare, Group Chief Executive commented: “The Group made good progress during the year. Sales and profits were up and we recorded a strong performance in our four largest chains - Currys, PC World, Elkjøp and UniEuro. Our investment businesses are progressing well and we agreed the roll-out of PC City in Spain. In the second half, we implemented the first steps of our improvement plan for the Dixons chain. Full year dividends have been increased by 10%. Following the disposal of Wanadoo shares and the sale of Codic International, a strong balance sheet enables us to announce a £200 million share buy back programme. The new financial year has started in line with our expectations. It is too early to extrapolate this trend for the year as a whole, but I believe the Group is well placed for a year of further progress.” RESULTS AND DIVIDENDS The Group’s total results and underlying results - which exclude discontinued operations (Codic International SA), Group goodwill amortisation and exceptional items - are as follows: Total results Underlying results* £ million % increase £ million % increase Turnover 6,492 13% 6,458 13% Profit before tax (before goodwill amortisation & exceptional items) 331.6 11% 329.3 16% Goodwill amortisation (4.2) 5% Exceptional items 38.8 - Profit before tax 366.2 33% Pence % increase Pence % increase Basic EPS 14.4 36% Adjusted diluted EPS 12.3 11% * Excluding discontinued operations, goodwill amortisation and exceptional items. Group turnover for the 52 weeks ended 1 May 2004 increased by 13% to £6,492 million (2002/03 53 weeks restated: £5,758 million) reflecting sales growth in both the UK and international divisions and the consolidation of UniEuro for the full year. Excluding UniEuro, sales growth was 7%. Group like for like sales were 3% higher. Profit before tax (excluding goodwill amortisation and exceptional items) grew by 11% to £331.6 million (2002/03 53 weeks restated: £298.4 million). Underlying profit before tax (excluding discontinued operations, goodwill amortisation and exceptional items) grew by 16% to £329.3 million (2002/03 53 weeks restated: £282.9 million). Adjusted diluted earnings per share were 12.3 pence (2002/03 53 weeks restated: 11.1 pence), an increase of 11%. The lower rate of growth in earnings per share relative to profit growth largely reflects an increase in the effective rate of taxation. Included in profit before tax are property profits of £7.0 million (2002/03 53 weeks: £9.8 million) arising in the UK Retail division and £1.0 million (2002/03 53 weeks: nil) arising in Elkjøp. The Directors have proposed a final dividend of 5.660 pence per share (2002/03: 5.145 pence), an increase of 10%, payable on 30 September 2004 to shareholders registered on 27 August 2004. EXCEPTIONAL ITEMS Net exceptional items for the year comprise four items as follows: - On 24 November 2003, the Group sold 48.4 million shares in Wanadoo S.A., generating an exceptional gain of €63.1 million (£44.0 million). - At various dates during the second half of the financial period, a further 27.8 million shares in Wanadoo S.A. were transferred to bondholders exercising their rights under the 1% Exchangeable Bonds 2004. Gains of €53.9 million (£35.6 million) arose from these exchanges. - On 28 April 2004, the Group announced its decision to close 106 under-performing Dixons stores, representing around 2% of the Group’s trading space. The costs associated with the closure programme are now expected to be £44.0 million and have been provided for as an exceptional charge in the period. The total costs are £4.0 million lower than the original estimate announced as part of the Group’s pre-close statement mainly as a result of lower than anticipated store disposal costs. - On 30 April 2004, the Group sold £3.2 million of intangible assets owned by Genesis Communications and held at nil book value. EXTENDED WARRANTY & SERVICE CONTRACT ACCOUNTING POLICY CHANGE During the year an amendment to FRS 5 ‘Reporting the substance of transactions’: Revenue Recognition (“Application Note G”) was issued. This requires the Group to spread the revenue arising from the sale of extended warranty and service contracts over the life of the agreements. The effect of the change is to decrease sales by £1.4 million in 2003/04 and by £2.1 million in 2002/03. Operating profit is increased by £0.8 million in 2003/04 and decreased by £2.9 million in 2002/03. The change results in revenues relating to extended warranty and service contract sales being included in deferred income and released to the profit and loss account over the life of the agreements. Claim costs are now charged to the profit and loss account as they are incurred. The effect on brought forward reserves is a reduction of £357.5 million. Shareholders’ funds at 1 May 2004 are £1.4 billion. Total sales and operating profit have been reported using this new accounting policy. DISCONTINUED OPERATIONS – EUROPEAN PROPERTY On 8 December 2003, the Group disposed of its European property development business, Codic International SA for €33.3 million cash. As part of the transaction, the purchasers also assumed €41.8m of net debt. POST BALANCE SHEET EVENT Since the year end, the Group has acquired the UK operations of Micro Warehouse for £20.7 million. The business trades in the UK under four brands: MicroWarehouse, MacWarehouse, Inmac and Technomatic. The acquired operations will be integrated into PC World Business during 2004/05. The acquisition is expected to add approximately £100 million of sales to PC World Business and to be earnings enhancing in the 2005/06 financial year. DIVISIONAL PERFORMANCE UK RETAIL The UK Retail division made an operating profit before goodwill amortisation of £254.2 million (2002/03 53 weeks restated: £238.0 million), an increase of 7%. Turnover increased by 4% to £4,698 million (2002/03 53 weeks restated: £4,525 million). The effect of the 53rd week in the prior year was to reduce year on year total sales growth by 1 percentage point. Like for like sales grew by 2%. Gross margins increased by 0.1 percentage points compared with the prior year. Better supplier terms and improved accessory attachment rates contributed to margin improvement, although benefits were partially offset by a lower mix of service contract sales during the year. The division’s overall cost to sales ratio was flat year on year. Improvements in payroll and central department cost ratios were more than offset by rental inflation and increased investment in television advertising. The Group also began the rollout of new branch systems and has developed new supply chain management processes. These are expected to deliver significant future productivity improvements. PRODUCT MARKETS AND MARKET SHARE The UK Retail division’s product markets grew in value terms by 2% overall. The brown goods market grew by 3% with strong growth in new technology products including plasma & LCD TVs, DVD players and digital photography. Growth in these categories was partially offset by lower sales of games consoles, VCRs and 35mm photography. The white goods market grew by 2% with strong growth in large white appliances, particularly refrigeration. The overall computing market grew by 2%. The PC hardware market fell by 2%, where strong unit volume growth was more than offset by price deflation, although there was continued strong growth in both the PC peripheral and PC accessory markets.