Interim Results/media/Files/D/Dixon... · Dixons Retail - Q&A – Sebastian James - Group Chief Executive 17 December 2013 Page 3 Initial question about CPI chart and pricing vs peers

Interim Results

17th December 2013

Management Q&A Sessions

Transcripts

Page 1

Name of Interviewee or Programme

Q&A with

Sebastian James Group Chief Executive

Interim Results 17th December 2013

Dixons Retail - Q&A – Sebastian James - Group Chief Executive

17 December 2013 Page 3

Initial question about CPI chart and pricing vs peers not picked up...

Question

So that's white goods and small domestic appliance.

Sebastian James

Yeah, that's small domestic appliances particularly SKA … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

There's no last lurch here …

Sebastian James

We actually did it in October, SKA, so you plan it, you talk to suppliers, you work out

how the ranging is going to work, you work out what the cost is, you work out how

you're going to set it up and then you go; one day you pull the switch and bang you're

at the right price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So if you're looking at it all the time you must be - where's the big gap then?

Sebastian James

The stuff that's harder for us is letterbox items, particularly the ones that come from

Luxemburg because they've got this - I just simply have no idea what the policy reason

is but it seems they're still allowed to ship from Luxemburg and not pay any VAT so it

makes it much more difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

You can't really address that though can you, I mean?

Sebastian James

Well it's such a policy … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

You need to buy a business in Luxemburg.

Sebastian James

It's just an idiotic policy I'm confident that sooner or later - because it reduces money to

the Exchequer, takes employment out of the country and has as far as I can see

absolutely not reason or rationale at all. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

So people who buy those from you are doing so for the convenience presumably because

they just happen to be there?

Sebastian James

Well if you're buying a printer, to buy the ink - yes we might be seven points more

expensive, but it's 80p. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Your market share is well under where you would like it to be on those items because of

that difference?

Question

Do you find a lot of people buy from you as well because they think they might want to

return the product within the first year …?

Sebastian James

No, so anything that's big we're at the same price, so anything that's big. So it's really

ink and SD cards and that kind of thing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But it is a lot easier to return an item isn't it to Currys than it would be at say Amazon.

Sebastian James

Much easier. It's one reason - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

That must be a key reason people buy …?

Sebastian James

So if you think about it - buying from us, you go to our stores - hi, how are you? You

get great advice, you know my colleague will put it in the car for you, my name's Seb, if

anything goes wrong you can come back and talk to me and I'm at the same price as

Amazon, let me show you. You kind of think well why wouldn't I buy it there? Do you

see what I mean?

So our job has really been to - we see most people who are buying this stuff, our job is

to stop them leaving and buying from anywhere else. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

And if you take kitchen appliances where you've just taken it down in October, then the

sort of execution in store is you then up your presentation which you showed us on the

chart, so for next year …?

Sebastian James

We did that first in most stores and we improved the ranging, we got much more

premium stuff in, we got some buyers to support us in putting more premium stuff in.

It's a very planned activity and if you get it absolutely right it doesn't end up costing you

too much. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

You talked about introducing more sort of price comparison apps - next year …

Sebastian James

So it's not working very well, but when we go out into the library again I can scan some

of the products for you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I was just wondering when that's going to get launched, because it felt like it would be

pre-Christmas …?

Sebastian James

Spring - no it's not pre-Christmas, it's spring. So this is the app, so I want to encourage

people to check the prices in store against Amazon, against everybody else. So this app

you'll scan the barcode, I don't have a barcode here actually but you'll scan the barcode

as it were there. It will then give you our price Amazon, John Lewis, Argos, Tesco -

everybody. And I think that's the right way to go.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So if you're out of the line here how is the salesman going to handle that?

Sebastian James

My view is - and we haven't really thought about that - but my view is well - A) we aim

not to be; now clearly prices move intraday and so on. But my own feeling is if we're

five quid out, well you know we're five quid out - if we're five quid in, you know we're in.

Do you know what I mean, my own feeling is we should probably be quite robust about

that and say well here it is, yeah Amazon is five quid cheaper, John Lewis ten quid more,

Argos is fifty quid more, you know … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

You wouldn't think about doing a sort of Sainsbury and giving a five quid voucher at the

till?

Sebastian James

I don't know is the answer, we're thinking about it, but my own feeling is we need to be

reasonably robust, we have our prices, you know you make your choice and the fact is

you're getting a lot of benefit from buying it in the shop, on some occasions we're going

to be five quid more and on a 500 quid telly who cares kind of thing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And come the end of the year when you've got all the problem children away, your profit

numbers have gone up as you said in the chart, and your cash position is better - when

you come to dealing with suppliers it's presumably not quite as easy to get the begging

bowl out?

Sebastian James

Well, it's not a begging bowl, because the suppliers won't give us any money because

they like us, they give us money because what we do for them increases their

profitability. So we've worked out that for instance if a supplier pays us to train our

staff, the return on sales - the return on investment they get from that is 26 times,

which compares with a search result of 22 and a television result of 4.6. So it is the

single most effective piece of marketing they can do. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So it's not so much linked to your absolute profits?

Sebastian James

No, no it's - and in fact - so in a competitive world if LG won't do it then Samsung will,

do you what I mean, because it's the most effective part, in fact the only problem is I

haven't got any more of it. So I can sell that at quite a high price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

You've teased us I think a little bit about the future opportunities in that you said …

Sebastian James

We’re thinking quite hard about it as you can imagine - we've been taken a bit on the

hop because I hoped that we'd get two out of three of our problem children dealt with

this year and we've got all three done. And the market being absolutely relentless and

saying - okay well that's great, now what? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

Of course, yeah - it's very unforgiving. But I'm interested that you're repairing white

goods in homes which you didn't sell, so it's obviously not part of any warranty?

Sebastian James

Yeah, and the ones we sell and the ones we don't sell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Of course, but it's obviously not part of any warranty that you're selling at the start, so

how much further can you extend this idea of the relationship in the home?

Sebastian James

We're very excited about it; I mean imagine I've got a qualified gas and electrical

engineer in every postcode in every street in the country almost every day, what can we

do with that, you know if you think about it …? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Well quite a lot I would have thought.

Sebastian James

Quite a lot - you know you think about how could I have much more of a holistic view of

the home and … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And the relationship, I mean the advocacy rates are very high …

Sebastian James

And it's a long - so we've always had at Dixons a very transactional relationship with our

customers and we think we have to have a much more of a sort of you know at home

with them type of relationship, where we know you, we know what you need, we know

what's in your house, we're going to make sure you never worry about the stuff in your

home and we think that's the right thing to do. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And when might you extend this sort of range of household kit.

Sebastian James

So we're doing it all the time - so we add new services all the time, I think we're going

to make a big lurch during the course of the next year in terms of a whole range of other

things we do for the customers and I think - yeah we're really thinking about how do we

actually do a step change, which is a completely non-linear movement in this space. We

don't yet know how; we have a few different ways we can go. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

So right, that might not involve an acquisition or?

Sebastian James

It's too early to say what's involved in that. But we want to be - we want to make a real

step forward in that space over the next year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

What's stopping you - Phones4U what future do they have in this mobile connectivity …?

Sebastian James

Phones4U has been a very good relationship - it's profitable, you know we get on very

well, both of us I think recognise it doesn't really move the needle and so we're thinking

very hard together about how could we make a very radical change.

We have about a 2 to 3% market share in mobile telephony in this country, although

we've moved from zero to 20% in broadband connectivity this year. And I think our fair

share is somewhere between 10 and 20 and I'm bloody well going to get there, by hook

or by crook, I'm not quite sure how, but we have a few thoughts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And in Enfield it was very downplayed, there was - little shop in shop was there …?

Sebastian James

Yes, so we have a concession structure, which I don't think is the way forward because

we now buy, you know a phone, a tablet, a laptop, a TV, they're all connected, they're

all part of our - in fact I saw that 3G connected microwave oven at Samsung when I

went there. I'm not sure there's a real sure fire winner, but we'll see. And I think

increasingly everything will be connected, not I think as one connected home like we

were thinking about in the '90s, but as just things plugging into a cloud, everything

being plugged into the cloud.

So you can imagine your S… and your fridge and everything being accessible through

your tablet, we need to sell the whole story. And we think that the mobile providers are

excited about us doing it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Just on Dixons Travel, should we not be thinking of that as a future rollout opportunity,

just given the returns profile on that one, because you're only penetrating …?

Sebastian James

We are - what we're playing with is - the constraining factor for us has been can we

open stores in countries where we don't have operations? And so we opened - we now

have Italy where we don't have operations and we have - we've just opened Belgium

and they're doing fine, but they're not yet - the box is not yet profitable enough for me

to say that's a definite rollout opportunity. But we will - we're really working on it.



When you look around the world there are half a dozen airports that are goldmines,

Heathrow, Gatwick, Schiphol, Frankfurt and then a number across Asia and the US. We

would like to go after some of the really big overseas opportunities; we're just building

our model for a country where we don't operate at the moment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Is there any reason why you couldn't run a concession - I know concessions aren't your

big thing, but in somewhere like a duty free where you don't have to wait for a tender to

come up, or would you still have the same hurdle?

Sebastian James

We’re considering all kinds of things.

Yeah there are four global duty free players, there's much more consolidation into those

four, it's clearly an opportunity, you know we'll have to see how that goes. That won't

be probably for next year, but I think for the following year it could be interesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Is the Dutch Dixons still around?

Sebastian James

Yes it is, yes. So when you go to Holland you shop with somebody else, no, no in

Schiphol it's a company called Capi Lux which owns the travel concession, so they are

present in about 20 airports, they are a standalone business, completely standalone a

nice business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I don't know if you touched on - obviously you've tided up around - Southern Europe, I

think perhaps the conversation was going there, so when you look forward and you think

what else, and you've kind of talked around strategically what you're going to do, but do

you think of other markets when you think what else as well? Or do you see yourself as

more of a European …?

Sebastian James

I think our better opportunities lie in - I guess I have a natural resistance and maybe

because of what we've just had to do, to saying I'm going to buy somebody in another

country just because I'm cleverer than the other guy, because on the whole I'm not

cleverer than the other guys. So where we're looking at expansion is where we have

real platform advantages today. So where we've actually got something which is

different like a qualified gas engineer in every street every day.

You know if you've got one of those, I've got something that lots of people don't have

and what could I do with that, that feels much more exciting to me than saying I'm

going to go into - I don't know I'm going to go into France and buy the market leader

and hope that I'm going to do a better job than the excellent guy who's running it right

now.



I said to my Chairman, you know if ever I want to buy something just because I think

I'm smarter then you need to shoot me, because invariably that's a way of destroying

value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Especially if it's in France.

Sebastian James

Well France - I am half French, but despite that I have, I hope, a temporary allergy to it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Give it a year.

Sebastian James

So yes, does that answer your question? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

It does, yes, and how is KNOWHOW; I mean you didn't focus on KNOWHOW as a sort of

value proposition as much in this set of results?

Sebastian James

No, partly because it's more business as usual, it's doing really well, we've seen

excellent growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And how is it contributing?

Sebastian James

Well the contribution - its percentage of contribution has grown very substantially as you

can imagine because it's quite a profitable business and it's also growing. But I think

we've barely scratched the surface, honestly I think we've barely scratched the surface

of what we can do with that.

If you think about who - you know who do you go to if something breaks? In the Yellow

Pages, or online you're either going to get a cowboy, of you're going to get somebody

who's really expensive, or somebody who's not reliable, not a big brand, or the corner

shop, you know it's very hard to know what to do when something breaks. And we think

we should be absolutely everything in that and it's a big market.

How was today's presentation by the way?

Question

Very good, there's always a danger that you keep repeating the same things so it is nice

to sort of focus on a bit of an area …



Question

I think the story has just got better and better, I think you're in a really good place

today.

Sebastian James

I do too. I mean we have to be cautious about the second half, when you look at the

massive like for like growth in Q4, the massive Christmas we had last year, which I

thought crikey that's quite a mountain to climb, so we'll see how that goes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How was the Black Friday, Cyber Monday promotion weekend that we stole from the US?

Sebastian James

It was very interesting, I think that is going to become an absolutely feature of our

landscape and last year it was big, this year it was enormous, lots of pull forward and

push back I think. And I think that we need to - it's going to be as big as Easter I think

next year and will be probably the second biggest promotional period of the year,

fascinating. It's an import and it's just how we create these things. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But to import a sort of sale period before Christmas isn't exactly the kind of import we

like is it?

Sebastian James

Do you know, anything that's planned I don't mind. So Boxing Day is a very, very good

profitable week for us even though the prices are astonishingly good, because we're out

buying millions of pieces of kit off suppliers who can then run their factories cheaply, we

can pass that onto the customer - do you see what I mean - and still make money.

So anything that's planned I'm happy with, big planned promotional activity is brilliant,

we love Easter, we love Christmas we love Boxing Day. But unplanned things, so this

year I think was a little unplanned - Black Friday, none of us thought it would be as big

as it was, those are more difficult because then you're scrambling about trying to find

the right stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Asda going out with 50 quid tablets and 70 quid TVs, there's no point in trying to match

that, just leave them to it?

Question

Was that just headline news, or was it for the first five minutes that everything …

Question

I think they sold out certainly within an hour …



Sebastian James

They had very little stock, I think it was just to tweak out tail a bit and they had very

little stock. We don't react, when people haven't got stock we don't react because it's

just a gimmick. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Do you think the cheap tablets have been actually incremental?

Sebastian James

No, I think some of them are substitutional, but I think anybody who bought one will be

disappointed. Last year we saw - we had a cheap one last year, we had the BlackBerry

Playbook at a very cheap price and we saw a quarter of them come back in January.

And you have the terrible thing of waking up on Christmas morning you open this thing

and you're crestfallen that you haven't got an iPad, which is what you really wanted.

Question

My dad hates me.

Sebastian James

Exactly I got a Hudl.

Question

700,000 people will have one.

Sebastian James

600,000 will have them, yeah, and I think they'll be available second hand quite

inexpensively after Christmas is my guess, but I don't know - we'll see. So we decided

not to play in that ultra-cheap market, I mean in Media Markt there are bins of tablets at

€39 - you can buy them $25 landed a cheap tablet - you know with them. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I was just going to ask on the supplier contributions, I mean obviously you on a Group

level you can obviously have the conversations, with Samsung …

Sebastian James

Yes, in terms of over-riders you mean. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How does it then work between the different territories?

Sebastian James

So it depends entirely on the supplier, so some are quite European and centralised so

companies like Cannon are quite centralised and think in a much more European way, as

does Bosch, you know these are companies that think in a fairly European way. Some

companies and perhaps ones that might surprise you think in a much more territorial

way like Samsung. So Samsung is a lot of the freedom, a lot of the marketing dollars



are devolved to the individual countries and actually the European headquarters has

comparatively little of the cheque book so to speak to decide what it wants to do.

And if they think about it in different ways and actually it does sometimes flip flop from

one to the other and we react accordingly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

My understanding was previously was that Northern Europe had a better contribution

from them and I just wondering if there is an opportunity for the UK therefore to catch

up as it I suppose establishes its position?

Sebastian James

I think they're very analogous now, we have an analogous market share, we have

analogous market positions, our terms are analogous - as time goes back that's

becoming ever more true. But the reason Northern Europe is more - is slightly more

profitable is really around store density, so you've got a much more concentrated retail

market in Northern Europe than we do here and of course rents are lower per square

metre. So for example here in Kungens Kurva this is absolutely prime Swedish retail

space and this will be paying probably 60% of what we're paying over there [Guildford]

for the other side, similar quality of store.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I do have a question about the outlook, so you get a few questions - how do you actually

feel about the second half …?

Sebastian James

Yeah, the comps are very strong. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But is this what scares you or do you see also maybe a slowdown in - a reduction in

footfall or a slowdown in the overall consumer …?

Sebastian James

I think the consumer is still quite challenged, I don't think we're getting any free gifts

from the market and I'm taking a cautious stance in the second half, I hope I'm wrong.

But the combination of Easter, the timing of Easter being against us, very strong comps

last year - Comet being gone, you know all of those things together make me think - all

right, well we can't expect massive growth into the second half and nor have we planned

for it and nor indeed have the markets predicted it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

What have you planned for - because if last year someone was telling you that you were

going to make more than perhaps 10% like for like, yes you'd had an idea now that

Comet is out and now that that Comet has annualised and we go back into more

normalised numbers …?

Sebastian James

Markets are in decline we have ARP growth and we have market share growth and so we

think we can - we hope we can more than mitigate the market decline, but markets are

in decline. So you know it's quite volatile around those numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

In terms of products, in the last few years obviously the tablets have been a huge big …?

Sebastian James

They have, although it's interesting, laptops have stabilised and tablets have stabilised

and particularly non-iPad, so the iPad area is as popular has ever been and I can't get

enough. Other tablets a bit slower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I'm just thinking in terms of things like white goods, kitchen …?

Sebastian James

Oh that's all going pretty well for us. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

If housing transactions pick up do you get a slight shift in spend?

Sebastian James

It's very hard to parse between Comet, housing you know we've done on price, you

know it's very hard to say well what's what. But we've definitely seen a very good

growth in white goods. And actually I like that for a couple of reasons because if you

think about the white good area it is quite hard to make them exciting, if you've got

more customers in if you've got a lot of growth in there suppliers invest a bit more time

and effort in making them nice and you know it's got a double whammy effect, which is

why we're now doing this investment in Thurrock to make it look fantastic and see what

happens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And what's the share of white goods at the moment - it's better than it was three years

ago?

Sebastian James

In our business - Not too far, about a quarter - just under 23, 23.5% in the UK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

Do you know where it's peaked at previously?

Sebastian James

I don’t know where its absolute peak was, I mean going back five years it's probably

come down a shade, but not much it was probably 27%, or something like that at one

stage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Not as much as …

Sebastian James

Not enormous computing has always been our biggest single area, about a third of our

business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Sebastian if you take out comp and I know it's very tough to just -

Sebastian James

It's really tough. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

It is, it is I understand that, but you do have a lot of data running for quite a few years.

Do you have any estimate, if not it's fine, but do you have any estimate of, excluding

Comet what sales would have been?

Sebastian James

No I've got no idea. I mean I know that - yeah I've got no idea I can't divide it out. We

have some thoughts on it, but they're not sufficiently accurate for me to be comfortable

putting them to you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

… I don't want to take up too much of your time, but I have to ask, because the only

thing the main players - left with Dixons and there are very few of them, but online is

going to be the place to go and you can't turn it around. But I remember about a year

or two ago - it was great because suppliers are increasingly offering you exclusivity

agreements, is Samsung?

Sebastian James

There are some products that suppliers rightly say need to be demonstrated. And those

products are only available in the shops where they are demonstrated. And that's not

just us that's anybody who can demonstrate these products they have access to them. I

think the story is very different, I mean if you look at the share of pure play online over

the last couple of years it has not changed, 12% of the whole market of which half is

Amazon and half is others.



Question

It's amazing it's not growing isn't it?

Sebastian James

Well it's not that amazing, because if you think about it, you want to see the product you

can come to my store, I'm at the same price, you know where to come if it breaks down,

why on earth would you go home, order online from somebody else, wait in for the

product to arrive, not know where to send it back if it breaks, why would you do that? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I mean definitely no one's arguing with you about the value added of a retail store, but

when you're seeing John Lewis and I think even companies like Darty are posting huge

growth in their multichannel, I know Dixons is up for a multichannel award …?

Sebastian James

And we are too - well we won for the Retail, we've won about six awards this year in

multichannel, but yes we're seeing multichannel growth, but again part of my journey is

always online. Before I make a decision I think I go to the store, I look at the TVs

online, I get the reviews, I have a site that says would you like to reserve and collect,

sure, why not it's free - why wouldn't it.

Do you see what I mean, I'll reserve and collect, I'll bag that item, I'll go down and it

may well be that when I arrive in store the colleague will say, listen you've ordered this

one, shall we have a chat about whether that's the right one for you? You know which is

what's happening as it were every day in these stores.

And then you might come out of that with a completely different item, but you will have

reserved and collected, you know why wouldn't you? Do you see what I mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I mean you've got a very strong supplier statement from Google, is that being echoed

across your other suppliers, I'm assuming that now that Comet has gone especially this

has got to be one of the few actual bricks and mortar …?

Sebastian James

If you want to - I mean for Google of course they're a global corporation, but one of the

ways in which we become and make ourselves relevant to global corporations like

Samsung, Google, Apple, etc, is we say - listen let us be your thought leaders, let us be

your thought leaders in this space, Best Buy is bigger, you know it's a very big company,

quite risky sort of trial things in the US, but let us be your laboratory.

Of course we're not a charity and we need help and we need rewarding for doing that,

but the fact is that intellectual property belongs to you and you can use it anywhere in

the world. In fact the stores we built for Google here in the UK were then rolled out to

1800 Best Buy stores and that's what they got and we got a very special relationship

with Google which translates into good support and so on.



We need to stay quite nimble, we in a frozen northern suburb of Europe and as far as

the big global corporations are concerned they need to be calling us and saying - we

don't know how to solve this problem in retail can you help. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And on the product mix, I remember last year was the big shift to tablets and that had

an impact on your margins, this year I think it was this Nordic competitor that you

mentioned that had an impact …?

Sebastian James

Actually the UK and Nordics is about similar, really what's happening is that the P&L is

moving around - so supplier money is coming in in different parts of the P&L and so

you'll see our business gets better and we seem to - let's do a magic trick, the reported

gross margin comes down but then oddly our profits rise. And that is that phenomenon

in action.

And also to some extent I'm comfortable with reducing our prices closer and closer to

internet because it helps drive growth. And actually we think that's our strategy, until

we get there we can't be satisfied, so let's use the growth that we got from Comet to get

closer. And that's what we've been doing.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

It feels to me that that was a sort of holding set of results, is that fair, that you're …?

Sebastian James

How do you mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Well, as in everything is working nicely, but there's another leg to come to this

strategically.

Sebastian James

Yeah, yeah there is and as I say we're about a year ahead of where we thought we'd be,

I think the second half is scary because the comps are so tough. We want to get that

done but we are thinking like mad in particular about UK mobile, KNOWHOW, and the

Group benefits, those are the three big ones that move the needle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And UK mobile is that just about replacing Phones4U with -

Question

Is that just about renegotiating the deal with Phones4U?



Sebastian James

No, we must be, we are 23% market shareholders in electricals, more in computing,

we've got to have that as our ambition in all connected devices haven't we? So that's

not a linear journey, that's a non-linear journey I mean unless we want to spend 20

years doing it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And Car Phone claims to have some very whizzy systems and stuff to help other people

do it, could you ever imagine yourself working with Car Phone or are they just too much

of a competitor to ever work with?

Sebastian James

No I mean Car Phone are a good company, I mean Phones4U is in a sense the same - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Yes, but Car Phone is obviously offering an outsourcing service now that -

Sebastian James

Yes, Connected World Services, yes, - I'm not sure what the right answer is but we're

certainly exploring everything. So nothing is ruled out, there are two or three options

that we think are significantly more attractive than others, which are quick - but we're

just thinking about what can be done in what timeframe and how and so on, it should be

fun though. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So that's mobile, then KNOWHOW, so what is the opportunity on KNOWHOW, I mean I'm

clear on what you do, but what's the opportunity to grow that so that it makes a real

difference to a £4bn turnover business in the UK?

Sebastian James

Well if you look around the market at people who are doing post purchase point of sale

support, people are doing various kinds of home servicing who had a long term

repetitive revenue stream with customers like British Gas and others, they've built very

strong, solid powerful businesses - with the platform capability that I have exactly the

same.

In fact in some areas, you take a company like D&G who has just sold itself for a billion

pounds, sorry £750m, there's not part of that value chain that I can't do better. Do you

see what I mean? So we think there are some quite material opportunities, which have

been unexploited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

And the Group benefits - I mean are there Group benefits?

Sebastian James

There are some already - but I want to drive - you know we're going to bring our

systems closer together, and we're going to bring our processes closer together, that

means we can do much more in Brno, in our Shared Service Centre, we can do much

more exclusive brands and own label sourcing across the whole Group and we think

there are some commercial benefits that we've not begun to exploit yet.

And actually we're just starting to look at - we did a massive buy of PCs this year

together and it was a very effective thing and you'll see it in a stonking deal that we put

on on Boxing Day this year. So we can offer customers an amazing deal and still make

decent money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And how do you read the health of the UK consumer, I mean it feels quite soggy for

Christmas generally - I'm not asking about your current trading, but it's just …?

Sebastian James

No I think it's soggy out there generally actually, I think in terms of discretionary spend I

think it's soggy. I think there's a bit of housing market movement, helpful in white

goods, but it's soggy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Which makes, as you say, your second half quite challenging - with Comet out of the

game - a good Easter last year …?

Sebastian James

It'll be what it'll be, you know the point is that I don't even mind - it's not going to be

wildly off anything, the fact is - is our core business healthy? We think so. Are there

lots of things we can do? Definitely. I mean you look at that chart I showed you the

one with the profit going up, it doesn't really matter what - whether I'm plus or minus

1%, it makes not a blind bit of difference to that chart and we'll still double our PBT, or

EPS because our tax rate has come down from 55 to 35 … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But I mean arguably a lot of that's in forecast; I mean people have worked out …

Sebastian James

Sure but what may not be I think is the level of confidence because it doesn't really

make a blind bit of difference what I do it's going to turn out fine, do you know what I

mean and that is quite a nice place to be. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

And in terms of this whole area of connectivity where you think you've possibly got room

to make up, I mean what kind of things are you looking at and hoping to achieve?

Sebastian James

I'm going to talk a lot more about that in the future, but we're looking at all the options.

We're looking at all the options and we think it's a very important market, it's one we

must be in, consumers increasingly want us to be expert in that connectivity area, our

current arrangement, while we really like our partners and we - I think both of us reckon

there's much more to do and so we're really thinking about that very hard, both together

and separately. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And are you now happy with the Group structure, I mean I was just asking Jaan Ivar

about his views on Central Europe?

Sebastian James

What did he say? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

He sort of looked nervously at the microphone.

Sebastian James

So I think there might be odd bits of tidying up still to do, but mostly I think we're done. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And no interest in going into - I mean given the importance of being number one the

only way into a new market is a big acquisition?

Sebastian James

A big acquisition, I mean there are only two companies Darty - I'm a big Francophobe

right now despite being half French and so, no we don't have any plans to do that. You

know who else is there, Media Markt, Saturn, you know do you see what I mean. So

there isn't much to do.

And frankly I am always wary of acquisitions where you decide I'm going to buy the

other guy because I'm cleverer, because invariably you're not cleverer. And so I'd

rather - you know if we ever were to buy somebody it would be before we had a

platform benefit that really meant that one plus one was more than two. And you've got

to be incredibly disciplined about that, because otherwise you end up in a sort of board

management folly, most of which I've spent the last couple of years tidying up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Question

In terms of product categories going forward. I mean TVs continue to evolve, amazingly

…?

Sebastian James

But they're very cool the new ones have you see them? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

They are they're actually fantastic, very, very sexy bits of kit. But in other categories

Seb, are there other sort of similar levels of innovation and moving forward all the time?

Sebastian James

Yeah, all the time there's movement. So computing is in turmoil, you know you've got

two in ones, you've got - I think you're going to see some tablets next year where

you've got a windows laptop and you detach the screen and it becomes an Android

tablet, you know this sort of dual OS and it's very cool. It's a very interesting sort of

solving the problems that customers have.

I think the whole sort of Chrome area, this idea of cloud computing is going to develop

more and more, all of the connected home devices, wellness, wearable, so I don't know

if you've seen this thing, so that I can take a photograph. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Is this Samsung?

Sebastian James

So this is the Samsung watch, so if I take a photograph - let's see if I can get the - there

you are.

I'll do one for you, you get people at a slightly odd angle and then that's copying itself

onto my phone, it takes a minute or two to do it so it will then be on here and I think

then send this on. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And how far off is Google Glass or things like that - I know it's in some sort of beta test

because it had …

Sebastian James

I've tried it it's quite fun, it's not quite there yet - but I think it will be, I had a lot of fun

with it when we were in California

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

END

Q&A with

Humphrey Singer Group Finance Director

Steve Ager Group Commercial Director


Dixons Retail - Q&A – Humphrey Singer – Group Finance Director &

Steve Ager – Group Commercial Director


Question

I have a question about the UK actually. I don’t know whether it's true or not, but from

the outside it's quite hard to predict your sales. We don’t have a sort of full category

understanding, so I can't do category by category, and obviously it's hard to look back at

the last six months and project that forward because you've got Comet impact, in the

first quarter the like to like - sort of half of that was Comet’s, that scored three

percentage points for Comet's effect and so in the second quarter of that 3% this is still

...?

Humphrey Singer

Didn't we say seven, I seem to remember? Seven out of the 14 was Comet. So that will

roll forward through the first half of this year, but obviously now, we've got past it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Seven and 14.

Humphrey Singer

Yeah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But that means that accelerates in the second quarter?

Humphrey Singer

No I think that was the fourth quarter number. Sorry, which is the first time we gave

the guidance. So I think roughly half of the growth that we were looking for. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And when you look at the category weighted market, what was that growing at in the

first …?

Humphrey Singer

So we don’t really do as you know, specific category by category growth numbers, what

we can say is that white goods has been very strong. And I think that … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Double digits, single digits?

Humphrey Singer

Double digit. A lot of that is Comet, because they were predominantly white goods.

Some of it's our pricing. So you saw on the wiggly lines versus AO.com we're now as

good, if not better. And we made a big shift on small kitchen appliances in the autumn

time, so that’s driven quite a lot as well.




And then who knows, maybe housing in some bits of the UK has added a little bit. It's

very hard to pass it all out. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I was asking about the market rather than your proposed category performance. More

what the market will be when you weight it by your sales.

Steve Ager

The overall market, if you look at the markets that we operate in, this year were down

about 5%, and that’s been the case each year, it's been down about five, mainly driven

by reductions in average retail price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So this is UK specific?

Steve Ager

UK. So if you look at the markets we operate in, those markets are down every year,

it's about 5%. Most of that is average retail price. It's not volume department. So we

have to fill that performance … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Humphrey Singer

So we've been going completely against the market with our average prices doing up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Steve Ager

So that’s why the customer journeys and our Experts Love so important because you've

got this drag effect for pricing, pulling average value down each year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Boring question Humphrey, what's the tax rates?

Humphrey Singer

35. Sorry I should’ve mentioned that. It's in the hand-outs, in the accounts, so 35%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And beyond next year?

Humphrey Singer

Well it will come down a bit probably over the next few years. So sort of the normalised

level. There’s always going to be an element of disallowable expenditure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

What's the normalised level in Europe?

Humphrey Singer

Well they have a late 20s rate. Again it varies by country, so Nordics and others being a

bit higher, the UK of course coming down inextricably year by year. So we've had a

good step forward from 52 last year, to 35 now. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So obviously Comet's gone, is the offer against - your offer is very different from that of

the small independents?

Steve Ager

Yes so what you tend to have is the small independents or either specialist consumer

electronic stores, often branded Panasonic or Sony or what have you. And that part of

the market, those guys are declining quickly, so if you go down Tottenham Court Road,

the number of those specialist stores have declined. Because if you look at the product

categories like cameras and those small electrical products, those are the categories that

are shrinking.

Still a very large independent sector in kitchens and that tends to be people that are

selling top end sort of fitted kitchens, and a part of that would be the appliances that go

with those products.

So the bit that we’re starting now to attack is that market, the part that Sebastian was

talking about in terms of owning the kitchen is really to say, ‘How do we get more share

of that category?’

Because that category actually, with the interest in sort of the kitchen becoming the

main room within the home, people are investing and spending more money on their

home. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How much of your 12% like for like in this half would you put down to being Comet?

Humphrey Singer

So I think we were talking maybe just before you joined. Of the fourth quarter growth

of 14, we said about half was Comet; I think that’s broadly the shape through to the

point at the end of the second quarter where Comet disappeared. It's quite hard

because in reality, particularly as we anniversary it, you can see that Comet is struggling

from quite early. And indeed by the time you get to December of course, it's completely

gone.

Steve Ager

So today last year was the last of the Comet stores that closed




Humphrey Singer

Yes, but in reality even a month ago, you could always see that they were hardly trading

as you'd expect them to. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How much longer should we expect these property losses to continue? I take the point

that they don’t continue forever.

Humphrey Singer

No, and I think what we said is a few more years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I guess what I'm asking for is what a few more years is …?

Humphrey Singer

Yeah. Well part of my reluctance in giving a precise answer is I don’t know what the

property market’s going to do. My hope is, but I'm not planning for it, is that it gets a

bit easier and that the cost per store of the exit starts to come down, but you need some

demand, you need some retailers wanting that space, or some other people wanting that

space.

So right now some of the stores are quite expensive to exit. Others like the high streets

are cheap and easy so you get to the end of the lease, you pay a bit of delapse and it's

50, 100 grand and you're out.

So it's going to go on for a while longer, whatever it is, 458 I think is the number,

including Harrods. We need to get to 380 to 400. It's probably nearer the bottom of

that range than the top so there's a bit to go. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

What are you planning on rent reviews at the moment when they're coming through?

Humphrey Singer

So everybody who’s on the high street, you can get some extraordinary deals. The

trouble is they don’t want to be there anymore. Broadly, out of town, one of our

inheritances was generally pretty decent real estate, but nevertheless, finding other

retailers who want the larger space; there are some, B&M is expanding, Poundland,

some of those kind of people, but Dunelm, you know them as well as I do, but … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

But they don’t want to pay a lot of rent those guys?

Humphrey Singer

Well they want to pay market rents and those are different to what they were you know

five, 10, 15 years ago. So it's quite a tricky one to precisely predict. And then of course

the exact timing of when you come out, so that’s why sometimes we guide to a number

and then suddenly it's not that number, either up or down actually, it's just because of

the deals not coming through. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But is that sort of 15 to 25 million driving this – is it that number that’s managing – are

you having to manage your exits to hit that number?

Humphrey Singer

Well it's partly affordability, but also let’s say the UK team, if they didn’t have to pay for

it, would love overnight to go to 380 with the perfect estate.

If you went to the market and said, ‘I want to get rid of 100 properties tomorrow’, you'd

pay through the nose for it. So actually me putting a constraint on how much we spend

every year is probably the right answer anyway in terms of economic. And because if

you predict that eventually the market might get a bit easier, why wouldn’t you wait?

And these stores aren’t unprofitable, it's just that there's a cost opportunity to make

more money. So there are very, very few where you'd actually very urgently need to

get out. They're quite tricky decisions sometimes actually, particularly on the high street

where you make 50 grand a year, and you have to bite the bullet and say, ‘Now I'm

going to pick up most of those sales in a superstore that’s nearby and I'm just going to

get out, simpler, cheaper, easier to run’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

You talk about dividends versus bonds - Have you had any discussions at all about where

which comes first? Are the bonds are just going to run off, because then you've got -

you know potentially …?

Humphrey Singer

Yes, the bonds will just run off, unless somebody came up with a really economically

sensible way to exit early, which I've not yet seen, particularly with where they're

trading, and then I think as part of the mix, including repaying bonds, we will hope to

return to dividends, so I'm not saying necessarily we’re waiting all the way out to 2017,

I'm saying the Board will want to have clear visibility and plans that show how we do all

these things. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

And one of the biggest determinants is obviously the pension triennial review?

Humphrey Singer

Well it is, yeah, one of the trustees is standing here with me...

So probably we won't be saying a lot right now. And the Chairman of the Trustee’s there

as well. So we're in the midst of our - he's trying to get us to negotiate in front of him.

So yes, we’re in the middle of those conversations. I hope to conclude those, I think we

both do, in the spring. Last time round, three years ago, I think it took a year didn’t it

before we finally concluded?

Trustee

We went almost the full 15 months.

Humphrey Singer

Yeah. So, touch wood we’ll get there quicker. And it's also a very odd time, I don’t

think Geoff [Budd, the Trustee] will disagree, the discount rates globally are at very,

very low levels and that necessarily means all deficits are inflated. So we have to look

at these things, I think in the long term. But I'm in danger of drifting into negotiations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How long can you run the business on capex below depreciation?

Humphrey Singer

I think there's a long time that you can do that. I think I'm quite mindful not to create

the problems that we inherited of under investment. I don’t think I'm doing that at the

moment actually. Although we keep it tight, and no doubt there are some projects

which people would say, ‘Oh I'd love to do that’, I think we’re funding the things that we

need to fund. And if you look at the stores, they don’t strike me as being under invested

in. Actually the mix is now going to be less on that customer facing stuff and more, well

not on store facing, but online, so I think where we need to invest more is in IT and in

particular how it manifests itself in the website.

Because as Seb said, I think we’re behind the leading edge internet experience. But

then also in the back office, there's more that we need to do there. But I think we can

still live with the number that’s beneath. Because we’re not talking massively below

depreciation. It's still a hefty amount of money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

In terms of your suppliers and the new commercial arrangements, you're specifically

saying and have been saying for a while now, that you've been getting benefits below

the traditional gross margin, could you elaborate in terms of some of the areas that is

and to what extent you maybe did offset the nominal gross margin 60 bps in H1?

Steve Ager

Initially the main investment if you look at the stores is a lot of shop in shop areas and

things like that where suppliers have been investing in our real estate. And investing in

online as well in similar sort of activity, shop in shops, etc.

Increasingly what they're investing in is in the colleague in terms of this whole challenge

that they have with average retail price decline, in terms of training, with their own retail

colleagues, in to some of our stores, so giving us support. We have about sort of nine

million hours of our retail of supplier colleagues in the stores.

Now what that nine million hours of …

Humphrey Singer

Not pounds, hours.

Steve Ager

Hours - that's quite a lot. And I think the reality is what they see is this market’s

incredibly competitive. The way they make money is to sell up through the range, and

to be honest, we’re the only ones really left with John Lewis that can really work that

magic. So increasingly that’s what they're investing in.

Our challenge is to make sure that that’s then aligned with what we’re trying to deliver

for customers. Because you can go too far with this and effectively your store becomes

a Samsung store or an Apple store or whatever.

But that’s generally what they're trying to do, trying to work with us to make the cake

for them bigger in our business and investing in those costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

What's your best view of offset?

Humphrey Singer

We’re not disclosing the precise number. It's an amount, it's still the largest quantity

that Steve and his team bring in is above the line.

Steve Ager

That’s right.

Humphrey Singer

And there is a chunk that’s now below the line. One of the reasons I'm not keen to

disclose it is it's quite volatile because it depends on exactly the deals he strikes which

might or might not be above or below that line, so it's a fairly random sort of line in the

sand that’s drawn.




Question

If I was Samsung and you came to me two years ago, I totally get why they're helping

you out, but there comes a point when they say, ‘Well you're making enough money’.

Humphrey Singer

This is Geoff’s great theory, which we completely refute of course but we'll keep going.

Steve Ager

I think the challenge these guys have got, it depends on which categories they are in so

you can't apply it.

So Samsung in white goods are tiny, so they want to grow their white goods business,

it's a five year plan, they’ve got 4% of the market, they want to be the biggest player.

So they are investing in lots and lots in our estate to drive that.

On phones, very little because we aren’t very big in the phone business. In TV the

market’s reached maturity, and it's just a replacement market. What they're now

invested in is ultra-high definition TV. How did we get that going? Because that’s the

profit stream. And what it tends to be is we’re the ones that get that market going for

them initially, so they’ll invest, and then generally when we've built a market then they

will spread that in to the total market.

So it depends with Samsung, and all suppliers, where there are …

Humphrey Singer

It's not a charity; they only do it where they see returns from their investment. They

don’t collude and they don’t get to a point where they say, ‘Hold on a minute, these

Dixons lot are making too much money’, they purely do it based on, ‘If I get a better

return I'll invest money to drive ARP’ or whatever it is they're seeking to do.

So what we have to do and what your job is really is to make us forever valuable to

those suppliers and then they’ll put the money there. And in that sense there's no limit

to how much they would put in. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Can you talk about where you're deficient online relative to your competitors, where the

catch-up will be?

Humphrey Singer

You should really ask Jeremy behind me because he is the expert but I think, and mine

is more of a layperson’s view, but if you went on to some of our competitors’ websites,

AO is an example, I would say that’s a cleaner, easier experience, and we recognise that

and it needs to get better.

Steve Ager

Simpler for customers, better context, just a better operating customer experience.

So there's some headroom for us. There's an opportunity for us.




Humphrey Singer

Yes, absolutely, it's an opportunity. And we've marked ourselves down, you might like

to contrast other areas about our marking on that chart where we were doing the ticks,

but clearly we think we've got opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Back to the supplier support, is there a limit to how much of the store you actually want

to allocate to store areas? And are you there on some of your bigger stores?

Steve Ager

Yes. So generally we’re not looking to invest any more, it's just really focusing on the

areas that we feel are strategic.

What we’re tending to find is for us, and for suppliers, they're moving more and more in

to wanting to invest in the colleagues. And if anything that’s a bit of a challenge for us

because we want those colleagues to be independent, but we also like the support and

input that they have in terms of the selling model. And the big way of doing that is

really going through the customer journeys and our Experts Love. So more products

being exclusive to us, only sold in our stores, more training on selling those products.

More ARP evolution, so it's a win for us and it's a win for the suppliers.

Humphrey Singer

It's interesting, some of the feedback we got – you weren't at Aylesbury were you? So,

some of the feedback we got there was actually it's a more subtle understated shop in

shop experience, it looks a bit more like just a Dixons store and a bit less - like just a

whole series of shop in shop. So I think these things evolve all the time as we get more

sophisticated.

Steve Ager

Yeah if you went to Best Buy – Best Buy are going through the same process - so they

go massive, so if you went back four years ago when we opened up Junction 9, the first

mega stores, huge amounts of supplier areas in the stores and now that’s really come

back to the key areas like Apple, Samsung, those sorts of things. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Is it therefore competition, so in the key areas, there's a limit in the number of supplier

let areas, for example in computing, so are you at the point yet where suppliers are

competing for these allocations?

Steve Ager

So computing, Apple led the way, Google have come in, now Microsoft. Have said well

we need to do something about controlling our environment. So there's a huge sort of

investment plan …

Humphrey Singer

Which I think is healthy by the way. In a sense addresses the Geoff Ruddle arguments

around the limit to the amount that suppliers we will put in. Actually they're competing,




they're not colluding, to buy our, whatever it was, nine million hours we have a year of

colleagues’ time or the square footage that they can have visibility in a store.

So it's a scarce resource which I want them to compete for. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

If they provide the resource in the store, does that mean they're unable to offer any

other service outside of their dedicated papal category?

Steve Ager

So what we do is we train them in our process of selling, we don’t allow them to

transact, so they hand over to one of our colleagues for the transaction. And we have

strict rules that they can't sell away from the competitor product.

So what tends to happen is we’ll take a customer through the journey on TV, and then

they’ll say, ‘But I'm really interested in the Samsung 8000’, ‘Right, okay, well why don’t

we hand you over to this Samsung expert?’ or, ‘I'm interested in OLED’, ‘Well we’ll hand

you over to this LG expert who can really demonstrate this product’.

And then we pick the sale back up from that colleague. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So the LG expert will start that process and …

Humphrey Singer

Not always.

Steve Ager

Not always, but often there's a hand-off to say, ‘Okay, you're really interested in

something that’s very specialist, let me hand you over to one of these colleagues’, and

then pick up the transaction.

Humphrey Singer

And of course a lot of where we get money from them is actually training our own

colleagues, so not just where they put their colleagues in to our store, but where they

actually just train our colleagues, and I don’t know what the proportions are now

between those two ways in which they do it.

Steve Ager

The majority is investment in training.

Humphrey Singer

In training our people.

Steve Ager

So we – the stores that – we've got Apple shop in shops, 140 which have got Apple

employees in the Apple shop in shops, and then the rest of the estate, which looks

exactly like that they are our employees trained by Apple and accredited by Apple.




So that’s the way it generally works. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And in order of importance, Apple, Samsung are the two largest suppliers' relationships?

Humphrey Singer

Well I don’t know, largest? Samsung is probably the largest. But there are some other

big relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Do you effectively get charged then by Samsung?

Humphrey Singer

No I don’t think they ever do they just discreetly show what they pay for credit

insurance. No. It's also pretty small actually what they pay. That’s one of the problems

with that market in a way, I think it's quite cheap insurance for them relative to other

investments they make, so the Far Eastern lot in particular have a great appetite for it

but then find themselves dependent on their outsourced credit decisions, to Atradius or

COFACE or whoever they're with. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

As your balance sheet improves, it's less likely to take trade insurance and therefore you

would be able to buy these …? Three or four years ago they must have all been

thinking, ‘Look at the credit before swaps on this, we need insurance’, it would've been

expensive, why should we bear all the cost?

Humphrey Singer

No. I think it depends on which supplier you're talking about. So there's a spread

interestingly where North Americans are much more self-insurance, self-dependent, they

have their own credit teams. Apple in particular has recruited a whole load of ex

banking credit people who are in-house people who talk to me regularly. So they’ve

never really been that dependent on credit insurance, although they will take it out

where they see a need for it. But if they want to make their own decisions they will.

The Europeans are somewhere in between the two extremes.

Steve Ager

And Asian suppliers just do it?

Humphrey Singer

Asian suppliers just have a policy; the bank in Korea has said once upon a time, ‘Thou

shalt have’, so they just do it that way. And you're right the specifics of Dixons are now

much more favourable than they were but they will still have a policy of credit insurance.




Question

Yes exactly, they’ll still do it but the cost is a lot less. I wonder whether there was any

benefit in your buying terms from having a balance sheet which is healthier …?

Humphrey Singer

Well I'm not party too - I think where the opportunity comes for us is maybe over time

reducing the amount of head room that we have. Because I think Samsung, and I'm not

party to the specifics of their relationship with their credit insurer, but they buy across all

suppliers, so actually Dixons specifically being better doesn't necessarily feature in a

change in their pricing. And I don’t think they're insuring just for Dixons and then

another – they're doing – insure us for our business that we do, probably globally, and

so Dixons within that is a small piece.

Where it will make a difference is I think that we might not need to have as much head

room over time in our facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Well exactly - You mean your revolver which …

Humphrey Singer

Correct yes.

Steve Ager

There might be times where we could use it.

Humphrey Singer

Yes, maybe even come to be more flat - we’re not there yet by the way. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

But I thought there were insurers who insisted that that facility was in place?

Steve Ager

No.

Question

Who insists that that facility is in place?

Steve Ager

It's the suppliers.

Humphrey Singer

Me. Only based on my judgement around what head room do I need for banks,

suppliers, credit insurers and any other interested parties to remain comfortable.

There's no agreement, ‘Thou shalt have X million of head room’, we just know over time

where they're comfortable and where they're not comfortable.

And they would never commit to a specific number either. I'm just saying over time I

think that could start to move. Does that make sense?




Question

Yeah it does, I just imagined that the supplier wouldn’t be bearing the costs of the

insurance.

Humphrey Singer

Well they are. That’s their choice to insure or not insure, and they would never – it's in

the round isn't it, the prices they charge and some of the commercial arrangements they

come to, they’ve got millions of things going on, I also think it's probably in different

hands isn't it? The guys that you trade with have probably not got anything to do with –

it's not country by country.

Steve Ager

Yeah it's in Group hands in Korea or Japan. And you never know you've got a problem

until you get a problem. The guys that we deal with go, ‘It's nothing to do with me, it's

them’

Question

No more tellies for you.

Steve Ager

That's it, ‘No more tellies for you’.

Humphrey Singer

Yes.

Question

That would be a bit unfortunate.

Humphrey Singer

‘Can we speak to your finance director very quickly’. Yes. ‘Or else you've got no more

supply’. I'm glad to say that hasn’t happened to us for a long time but there were some

dark days.

Question

If it was going to happen it would've happened.

Humphrey Singer

Yes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

You said you need to repay the bonds, would you have room in your chats with the

bankers to maybe double your RCF, so that you do have the headroom? Given that you

don’t use the RCF at this point, just to give you the extra room that probably repaying

the bonds will take out, then you save on interest?

Humphrey Singer

No I think if we stick with our plans then I can see us being able to repay the bonds,

reduce the size of the RCF, return to dividends, do all the things that we need to do,

keep the pension scheme happy, etc, and that's what we’re trying to do.




And at the moment I feel like we’re on track to do that. So I don’t need – in fact I want

a smaller facility with the banks, not a bigger one I think. We need to generate the cash

over the next couple of years to repay the bonds.

If there's a way of doing it quicker, economically, well, I'm interested but I can't see any

of those opportunities right now because they're really expensive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

So it's not as if you need this 250 plus, 200, 450 of that just to beef up their …

Humphrey Singer

No, the components of it are you need headroom, as we were just talking about, to keep

the suppliers and the credit insurers and others happy, and then with the cash that we’re

generating we want to repay those bonds and not refinance them, and do all the other

things we want to do. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How big do you think the RCF needs to be eventually? Is it nearer the 150 mark rather

than the 200?

Humphrey Singer

I think it will come down. Precisely what number we get to is partly how much appetite

is there amongst the banking community, at what price? You can get quite a lot if you

want, but you'll pay for it.

So there's a sweet spot there between the price, the term of the facility, the Ts & Cs that

go with it, and the quantum. And we need to find that sweet spot that gives us enough

liquidity, but also doesn't tie us up in knots with banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And on restricted fund, what's happened here, is that likely to open up at some point?

Or could you open it up?

Humphrey Singer

We've not started – it's a choice, but what you've got to make sure is that you're

comfortable with removing that fund, and I think there is a good argument for that. I

think we are a much stronger company, and that’s something that we should look at.

Because it's quite a large amount of money.

But as of today we've not done anything. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

When banks have bigger ratios, do they factor that out?

Humphrey Singer

Some do, some don’t. Rating agencies typically take it out. So if you did something in

that area for them it would be an upside. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Your interest charge guidance for the year, if you look at the restated number in the last

year, and look at the first half number this year, I appreciate ….. but it still feels very

second half weighted.

Humphrey Singer

Yes, there is a re-fi that we’ll probably do with the banks in the second half, so that’s

one component. And there is this FX which I'm never certain what that’s going to end

up being, and that can swing it. So we might do a bit better. But I'm comfortable with

where the guidance is at the moment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Just on the Nordic market, I think Sebastian said 4.2 is natural level for the Nordic …

Humphrey Singer

He said that’s where we were last year, three to four is our guidance, and obviously the

Nordics’ has been north of that range. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Historically.

Humphrey Singer

Which is why we’re not uncomfortable with the fact that this year it might move back a

little bit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

And you've got a mix drag on that presumably?

Humphrey Singer

There's a bit of mix, there's a bit of actually better pricing for customers. In Nordics in

particular there's quite a lot of competition, obviously with Expert, that was more

pronounced in the first quarter than it was the second quarter, but these things ebb and

flow, and I'm sure in the third quarter, Expert will be back. Why wouldn’t you? It's

Christmas. If you're going to have a go, that’s the time to do it. So we’ll see. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

So the idea is to keep the Nordic fairly steady over time, and the UK will hopefully drift

up from natural operating …

Humphrey Singer

Well the UK is moving up quite sharply. And the Nordics, we said, is likely to move back

a little bit because the battle … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Unless Expert go bust or something.

Humphrey Singer

Well that would be nice wouldn’t it? That would be a Comet moment wouldn’t it. I think

these take longer don’t they. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

They'll lose money again this year.

Steve Ager

Yeah, they will I think so, but they're playing - it's a long play isn't it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Humphrey Singer

I think so. They are private equity so they don’t have forever, and they don’t have

pockets that are inexhaustible. So we just need to make their lives really difficult

through Christmas and then get them to do all their maths in the spring and go, ‘My god

that cost us a fortune, we've lost share, where’s this going to end?’ in death ultimately

so … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Are you already seeing an easier market Sweden now that they've gone out of there?

Humphrey Singer

We definitely got some benefit, all of us, but Media Markt is quite a formidable

competitor in Sweden. And they show no signs at the moment of giving up or not losing

a shed load of money.

Steve Ager

They've not given up anywhere. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

What about pure online players?

Humphrey Singer

Komplett is a reasonably strong player. Amazon we don’t have yet, maybe one day.

But Komplett are quite a decent outfit. So it's not as if there isn't online competition,

pure play online. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Is there a big difference in margins between these Nordic countries, Denmark and

Sweden?

Humphrey Singer

Yes we've never really disclosed too much but Norway is our heartland, let’s put it that

way, it's the business where we started. It's a strong economy. Although actually

people’s economic predictions macro wise for Norway are just coming off a bit at the

moment. And they’ve had this devaluation of the currency recently which is costing us a

bit actually. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Although will it help - I was thinking it might help the working capital.

Humphrey Singer

There's a translation issue for us which is probably one of the bigger factors, but yes,

just makes the reporting number worse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

How are you planning to finance your activities when the bonds mature?

Humphrey Singer

So we’ll generate enough cash in our plans to repay those bonds, that’s always been the

plan, notwithstanding anything else. So that will be it then we’ll have paid off the bonds

and there will be no financial gearing

Question

So you won't need any Bonds.

Humphrey Singer

No. And we’ve been really clear over the last few years that plan A, notwithstanding

other things going on, is that we wouldn’t refinance those bonds and we’ll just allow

them to fall due and we’ll pay them off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .




Question

So you're not planning to get some debt …?

Humphrey Singer

No I think we’ll always probably have a revolver, working capital facility that’s head

room only. I suspect it will be smaller than it is currently so we have 200 million at the

moment. We've had a much larger facility in the past; it’ll probably get smaller in the

future. But probably unused. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

What's the main driver on the improvement in working capital?

Humphrey Singer

So we’re continuing to drive stock turns, particularly in the UK, so we've made really

good progress. It's Steve’s team that drives this. But we've seen quite a big

improvement in stock turns over the last few years. So we’re managing to sell more

with less stock basically.

It's a constant battle. So other metrics within working capital have been quite constant.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

I think 18 months ago we all knew that you had all these things to sort out, and I think

PIXmania we heard about earlier this year, and there was a plan, and I think sort of I

feel like Turkey and Italy have sort of happened below the radar - it's kind of just must

ado about nothing …?

Humphrey Singer

Two years that took to do, Italy, if I remember, there was a meeting we had with Rhone

Capital, it was probably Seb’s second day in the job. And two years later we just finally

get it done. It's a huge result for us because although the losses in Italy, it got to be

quite small, that had the potential of being a problem, as it had been in the past for us.

So, very pleased to exit. And I think it's in a better shape actually, it's twice the size,

you know, it's got Italian owners, Italian backing. Should be interesting for us actually,

it’ll give Media I think a bloody nose in Italy so … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

END

Q&A with

Katie Bickerstaffe UK & Ireland Chief Executive

&

Jeremy Fennel UK & I Multichannel and Travel Director


Dixons Retail - Q&A – Katie Bickerstaffe - UK&I Chief Executive &

Jeremy Fennell – UK&I Multichannel & Travel Director


Question

That advertising with Apple, I mean I saw that advert, I thought it was brilliant. Are you

going to do that with other suppliers? I mean has Samsung has turned around to you

and said what’s going on here?

Katie Bickerstaffe

Well I think there's two things. First of all we’re the first retailer in Europe that they’ve

gone into partnership with to do that, not on the phone space, but first of all. Secondly

all of the other suppliers are now saying we would like that. And at the moment we’re in

the midst of re-pitching our advertising, our own advertising. And we’re at the final

stage of the agency pitch; we’ll make the decision in January.

So I suspect we’ll move over time from less trade driving to more brand building. And

that’s brand building, advertising. And use the trade driving would be online search

effectively, to drive the search trend. So I suspect that will work very well for us. And

other suppliers are starting to ask us the question. We’ve got our supplier conference

tonight, and I think quite a lot of the suppliers will be coming up to us and going, how do

we get the chance to do that, which will be really good news for us.

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Question

This is another part of the P&L where supplier support …?

Seem to be ...

Katie Bickerstaffe

Yeah, they do. They support a lot of our advertising, in all the channels actually which

has been very good for us, and it’s part of another way to get funding effectively.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Where else in the P&L would it be evident, their support?

Katie Bickerstaffe

So they support us, broadly investing in the store state. So you know you saw the

Google shop in shop that Peter showed, you've got the Apple shop in shop, you've got

the Windows and that execution that Seb had on the photo.

Jeremy Fennell

People in stores.

Katie Bickerstaffe

People in stores, training investment, some of the online activity, customer journey

investment, and above the line support. So lots and lots of areas actually which is - and

I think, you know, it is a partnership genuinely, and I think there's lots more opportunity

there. Interestingly particularly in the development of colleagues because I think

suppliers recognise now it’s the colleagues’ ability to sell up through the range.




And customer journeys have been very interesting because it enables us to sell the top

end product through the range, you’re not just selling entry price point, you’re selling all

the way through the range. And the way you do that is by the way you lay it out in

store, but also the way the colleague has the conversation, or indeed the way you lay

the products out online in the multichannel space. So that’s worked well for us.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Okay, so you’re managing to sell it online as well as in store?

Jeremy Fennell

Yeah, very much so. And the dwell time that we have online is in many cases greater

than we have in the stores. But the combination, the switch over between the two

works ideally because 80% of the people that come into the store have been on the

website before they get there, which means they’re already semi-educated if you like,

and understand what the difference is between an LED and an LCD, or an i5 and i3

laptop, which means that it’s easier for the colleague to have a conversation.

And then the content that we’ve got online is increasingly the same as what we’ve got in

store, which makes the conversation transition easier when you understand that the

customer has already been halfway through the journey already. But online our average

ticket price is higher in most cases than it is in the stores, as a result of people engaging

with the content.

Katie Bickerstaffe

It’s also quite interesting when you look at where people consider the purchase. So

they’re considering, depending on what they’re buying they’re considering three months

out because it’s a major purchase. Not if they’re suddenly replacing something, their

washing machine has broken they’re considering in about a ten minute window, but

they’re considering quite early on. And I think one of the things that we’re looking at for

next year is how do we start to influence those decisions in a different way, much earlier

in that decision making process? Because you help people to trade up through the range

much earlier on. And I think that’s worth quite a lot of money. And again I think that’s

a way we can work in partnership with suppliers going forward which is quite exciting.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Speaking of white, is white growing as a proportion of the mix?

Katie Bickerstaffe

Yes

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Question

So is that, the 60 basis points or so across the group gross margin, is that sort of the

underlying UK number with grey increasing, so your lower gross margin offset by white?

Katie Bickerstaffe

So essentially what you've got is you've got an increasing mix in white goods. And white

goods have an increasing cube size and increased home delivery. Because you’re

shifting bigger boxes, and generally you’re shifting them to people’s houses, though

surprisingly lots of people take them home. So you’re seeing that mix change across.

Comet had an enormous white goods business, and I think we’ve benefited hugely from

their white goods business. They had a not insignificant CE business, and we’ve

certainly seen the benefit in our CE, particularly large screen TV sales. They didn’t really

have a computing business.

So we’ve seen sort of some - I guess we’ve got a combination. We’ve got large white

goods sales. We’ve also got a big mix into tablets from laptop computing. But I suspect

it might move back into laptop computing when people realise they can’t run their lives

and their kids can’t do their homework on a tablet. You can do so much, but I think over

time I wonder if that satisfaction level with the tablets will change. Be interesting to

see.

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Question

How are you dealing now - I know we spoke about 18 months ago and you were saying

that you were struggling to figure out how to incentivise your in store staff when

someone had done the multichannel, buy it online and then pick it up in store, make

sure they’re getting all the add ons.

Katie Bickerstaffe

So we attribute it to the postcode to the store. So every sale, we are channel agnostic

for the store colleague so any sale is a sale. And they get credited; the store gets

credited with the revenue that comes from online within their cash return.

Jeremy Fennell

Whether you reserve and collect or pay and collect or transact in store or transact in

home for delivery, even if you don’t touch in store, then the colleague and the store are

attributed the sale by postcode area. And the engagement that that’s given us, there

are many, many retailers that haven’t done it yet, it is one big piece of work because it’s

just a huge postcode spreadsheet, I’ll be honest with you it’s nothing too clever, and it

attributes them the sale.

And every retailer should do it because what it means is everybody is engaged in both

channels. For example, overnight email capture rate in store went from 7% to over

40%, overnight when we did it, and that was without us even asking. Because the

colleague goes, ah I’ll take your email address, then you go - then Jeremy emails you

with an associated offer, and if you buy it then I get attributed that sale as well. And so

the whole thing became rather self fulfilling.




Katie Bickerstaffe

It’s also really important when we launched online in store, what we did was we

effectively opened up everything that sits in Newark, in our warehouse. So historically if

you were in, I don’t know, Guildford is a bad example because it’s a megastore with

maximum range, but if you were in, let me pick a store, you were in Bluewater, we’ve

got a limited range. We’ve got probably 2,500 SKUs in that store, and in Newark we’ve

got nearly 10,000 SKUs.

So you come in as a customer, and there is this specific product that you want, we can

get it delivered to Bluewater the next day or delivered to your home the next day. And

the colleague is incentivised to go, well you know we don’t actually sell that in this store,

but I can get it to you tomorrow. And I think it would have been really hard for us to

launch that successfully, because I think originally colleagues saw online as their

competitor. And for me, I'm king of channel agnostic, I just want you to get the product

that you want, and I want to be able to give you access to all those products in store.

And the second thing that we’ve done is we’ve introduced something called Trade Place,

which opens up a much broader range in white goods to start with, to the customer. So

we have the 10,000 SKUs in Newark, and then we’ve thousands of other SKUs that are

held by suppliers that you can also order as a customer, which means I'm not holding

the stock which is quite handy.

Jeremy Fennell

For space reasons, for cash reasons, and also because it gives you access to be able to

sell an extended range. And then you realise very quickly what the quick sellers are,

and you can switch our your slow sellers to a fast mover from the supply direct range,

and bring that into the warehouse and drop out the slow seller back to Tradeplace.

And on white goods it’s particularly important because of the size of the goods which

means you've got a huge cost, high average retail profits, and also because a lot of

customers are coming in and saying I’d like to have a pink one or I’d like to have a blue

one or a red one or whatever, and you just don’t want to stock those lines. But equally

you don’t want to turn that customer away, and so you can serve them in any case. And

it increases average ticket price because invariably a lot of those products are of the

higher end, things like Rangemaster cookers and integrated products, are at the higher

end of the product mix. So it’s been good business for us, and we’re planning to roll

that out into other categories as well.

Katie Bickerstaffe

And it stops you holding stock that doesn’t turn. Because someone else is holding the

stock, and then we look and again okay we’re selling loads of this now in that channel,

we now need to take control of that stock ourselves. So we’ll say to the supplier we’re

selling loads of that, we’ll now have it in Newark, and some of the other stuff we go

that’s in ….. now, let’s move it into Trade Place. And I think we’ll look at that, certainly

we’ve got plans to look at that for small kitchen appliances as well. And then we’ll roll it

out across the rest of the business.

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Question

So it’s just in white goods at the moment. And when did that start?

Jeremy Fennell

It’s just in large white goods at the moment.

12 months ago. But it’s been building.

Katie Bickerstaffe

And it ticks all boxes. It reduces your cash tied up, it helps you manage the cube

through the warehouse, it gives customers great availability of an extended range. And

that’s really good. And the next critical piece for us is to reduce the delivery time. So it

takes us about three days to turn that stock, and to get it from the supplier to cross

dock it and to get it out to customers. So I’d really like to be able to get them within 24

hours. So we’ve got some systems development work to do.

And I think that coupled with some of the work we’re starting on ranging by store, so

currently I can’t range by store. I can grade by store but I can’t range by store, so I've

got sort of a kitchen aid in Wigan that no one is buying, and I have got not enough

kitchen aid in Weybridge. So when I can do that and do Trade Place, I think there's

going to be enormous cash benefits because I won’t have stranded stock tied, and I’ll be

able to turn the stock even quicker than we’re turning it now. So from a working capital

standpoint there's quite a lot of more opportunity there for us which is good, really good.

Exciting.

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Question

Stepping back to the kind of brand relationships, I guess we saw some examples there

of how you’re working and partnering with the likes of Google and Apple. Obviously the

two that were chosen there, is that replicated across all the brands and how do you think

about focusing your energies on different brands to try and partner with them, the likes

of Samsung etc?

Katie Bickerstaffe

It depends. It varies by category to be honest. I think the most important thing is that

we maintain the relationship with the customer. And Seb talked about CRM. The first

thing is the customer comes to us to have the conversation, and to the customer we’re

agnostic in terms of the brand. So that’s very important and we’ve very clear in all the

discussions with the supply chain. You know when you walk into a Currys, PC World,

you walk into a Currys PC World and then there are some brands within the store. And

then we selectively pick which brands we want to work with. That may be based on

range, it’s based on the relationship, it’s based on the return we get, it’s based on how

do we partner with them. There are a whole series of things, or market trends.

So there are some very, very big brands like Apple that we continue to work with. But

there are other smaller, innovative brands. So you know, Beats have come from

nowhere to having significant market share. You know, three years ago they were




nowhere, now I think everybody wanders around with their sort of Beats headphones on.

And they’re a great example, we partnered with them really early.

Jeremy Fennell

We had a session here six months ago, probably less than that, four or five months ago

where we brought the top 25 suppliers into here, and did an extended presentation

about multichannel, how we would like them to work with us in store, how we’d like to

work with them online, and how the whole thing comes together. So a bit like I was

saying to you earlier on about the integrated journeys. So you don’t end up with one

shopping experience on the web and then another one in the store.

And we used that session to bring them all together, and then take them individually into

different rooms, took over the whole place almost, and then set them down with right

here are the ten objectives that we’ve got to work with you on, bring your marketing

director, bring your digital marketing guys, and work through this is exactly what we

want to work with you on. And it ranges from find me a load of images and content for

your products on my website please, to let’s go all the way through the line, like Apple,

Samsung and put displays in the stores.

But the priorities for me on our websites are to make sure that you get the best

shopping experience, and then in the stores training wise and making sure that the

colleagues have got the best possible product training to go alongside the sales training.

Katie Bickerstaffe

And suppliers vary in terms of level of sophistication.

Jeremy Fennell

And understanding.

Katie Bickerstaffe

You've got some who are very sophisticated. You've got others who just think it’s a sort

of traditional, kind of you’re in a shop and they want to be impressed, at one end. And

then you've got the others who are right out there, you know Google would be a great

example of that where we’ve got a very good relationship across all the channels. It just

varies.

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Question

Yeah, and therefore how much they’re willing to with yourselves.

Jeremy Fennell

Sure.

Katie Bickerstaffe

Yes.

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Question

The new sort of kitchen appliance setup for next year, you’re introducing it.

Katie Bickerstaffe

Yes, week 48 that’s coming in.

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Question

Is that very heavily supplier sort of supported?

Katie Bickerstaffe

Yes. So we have - I've got a series of sort of strategic projects for the business. We

split them into two. For the UK we split them into making our current business better,

and there's a great big list of those, things like the portfolio. So getting our estate down

to the level we want, investing in the stores and the way we want them to be, whatever

you've seen in terms of format development.

And then we have some future opportunities. And one of those we call In the Kitchen,

and there are two elements to that. One is how do I get our white goods range away in

a way that is more exciting for customers and gets them to trade up through the range

more? And we think what we’ve done in Thurrock, which I mean we’ve got a fly through

of it somewhere actually which I think I'm showing later on at the supplier conference,

but I think what we’ve planned for Thurrock, we’ll do that. I think the customers will -

one of the targets is how do you get the ATV up. So we’ll see, time will tell. That

launches in about six weeks time, eight weeks time so we’ll see how that goes.

But the second thing that we’ve done is we’ve looked at some products that are beyond,

sort of an arm’s reach beyond the cooker. So we did some work last year with, it sounds

ridiculous, with things like sets of pots and pans and we sold loads. We sell a lot of

kitchen accessories in the Nordics very successfully, so we’re going to trial some of that

in Thurrock as well.

Now some of it will go wrong and that’s okay, because I like people to innovate and have

a go, and I don’t really mind if some of it sits in the warehouse and it doesn’t sell. It

doesn’t matter; it’s peanuts in the scheme of things. It’s very high margin. We do it

successfully in the Nordics and we’re going to have a go in Thurrock. We’ve done it in a

couple of stores on a trial basis and it’s worked very well for us, so we’ll have a look at

that. But the plan is get the ATV up, we’ve had some supplier support for it, and we’re

laying the store out in a very different way. But the critical piece is, is it scaleable? I

don’t know if you any of you have been to Thurrock, the megastore in Thurrock is huge.

So one of the critical things we’ve said to the format team is you need to make that

scaleable, and it is scaleable. And it’s actually not that expensive. And what we’re

trying to work out is which of the elements of it work, and which of the elements don’t

work so we can then roll those out.




Question

Are there a few sort of key suppliers in the appliance side for kitchens?

Katie Bickerstaffe

No, it’s all of them. I mean Indesit, a significant share of our volume. Beko we do a lot

of work with. We do a lot of work with all of them. BSH is significant as well. And that’s

changing over time. So originally if I go back, you'll know this better than me, four or

five years ago we sold a lot of low end white goods, sort of a lot of Beko. And as we put

the customer journeys in, as we’ve done Trade Place, we’re seeing our business shift

now. So we’re much more in the sort of mid to top end which has been really

interesting.

Jeremy Fennell

More integrated, and more Rangemaster, more range style cooking are the two big ones,

they have grown that.

Katie Bickerstaffe

It’s been really good.

Jeremy Fennell

The other thing around the extended ranges and the new ranges is that it gives you

more frequency and more traffic. So you put them into the stores in order to attach and

increase average transaction value. When I look at it from a traffic driving perspective,

if I've got people searching for pots and pans or kitchen accessories, then if that drives

more traffic to the website that gives me more frequency to work with and more people

to work with as well.

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Question

So range drives the frequency.

Katie Bickerstaffe

It does.

Jeremy Fennell

So range drives frequency and relevance, and gives me more opportunities to talk to the

customer. And the same for stores as well.

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Question

You know your pricing chart that you've shown, regularly.

Katie Bickerstaffe

Thank you, that’s handy. I've got it in here, I know it, it’s like the back of my hand,

yeah. So I look at it on a weekly basis.

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Question

What exactly do you kind of define within this? I presume you don’t include delivery

costs. Do you kind of compare out of warranty?

Katie Bickerstaffe

No. So what we do is we have a basket of a like for like product comparison, and in that

basket we’ve got about 3,000 lines. So we will take, I’ll take an example, you would

take a standard Beko washing machine that was available in all channels, and we would

go here is a standard Beko washing machine, this is its price across all areas of the

market, how do we benchmark against that. And that’s how we measure it on a like for

like product basis.

We have an advantage that we have a lot of exclusive products that are only available to

us, where you cannot compare them. And a lot of our accessories you also can’t

compare because we’re all sourcing them from different locations. But earlier on this

year, and I think Seb referred to it in his presentation, we made two decisions. The first

was to go to a 100 versus appliances online, on all MDA categories which we’ve now

done. And the second was we went to 100 versus Amazon on small kitchen appliances.

And we did that about six weeks ago. So it’s very good for Christmas.

Jeremy Fennell

And the answer to your delivery point is that delivery is free, and that’s an unfortunate

hygiene factor in our business. And so our challenge is how do you add value into the

delivery proposition such that the customers are prepared to pay for it? Hence delivery

and installation, hence gas installations, hence same day delivery, next day delivery.

Katie Bickerstaffe

Hourly slots etc.

Jeremy Fennell

And we remain very competitive on that, just as we do on products because it’s the

hygiene factor.

Katie Bickerstaffe

And we trade that like easyJet would trade plane seats. You know if you want it

tomorrow at 8 o’clock in the morning, you’re kind of scrapping it out with a load of other

customers in that postcode, and we charge accordingly.

Jeremy Fennell

Hence you can get your Christmas present on Christmas Eve if you order it on Christmas

Eve. Same day delivery.

Katie Bickerstaffe

I might not leave it that long just in case.

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Question

On your customer satisfaction, you get 83% now which is fantastic. Are you able, of the

17%, to glean what are the key reasons, customer reasons for doing that, and what are

you doing to address that?

Katie Bickerstaffe

Yes, so it’s poor Alan who runs our retail operation, not only is he having sort of live

performance appraisal going on in front of you all, but - so he's got a target for this

year, for the end of the year. I don’t know if we’ll get there, it’s a very stretching target.

His target was 85%, okay, top box.

So what we do is we have a very detailed report of every single area of the business, all

of the customer metrics that we see as a management team, every month we look at it.

We have ten stores where we’ve put the happy or not system from the Nordics in, and

interestingly the two things correlate. And if you’re a colleague, you can’t keep standing

there pressing the button, because it knows you’re doing it. So it’s quite interesting. So

what’s been interesting is the data we use with the agency that do all our customer stuff

correlates with the data that you get from the happy or not buttons, which is very

interesting. So the two things are the same.

The second thing about the happy or not buttons that is interesting is it gives you real

time data on an hourly basis. So for instance, if you have a bad reading at a certain

time of day, you go okay why have I got that bad reading at that time of day. Oh well,

it was because, I don’t know, six people are on lunch break. And it allows you, in a real

time environment, to amend your operation accordingly which is quite clever. So I

suspect the overall ratings will go up because we can tactically trade it during the day,

because there are - you know this business isn’t like food retail there isn’t a consistent -

you know there's a very different footfall.

The second thing is that we break the data down on a store by store, region by region

basis. So we do have 100 stores that have got 100%. And I know every single store

that’s an outlier, and it’s part of the four sets of metrics that we use to drive the store

performance. So the other critical piece is that the colleague bonus, the first gate you

have to hit is the customer gate. So even if you've hit all the profit targets, all the

online, in store targets, all the others targets in the store, nothing gets paid unless

you've hit the customer metric. So the real outlying stores, nobody is getting a bonus.

So it’s kind of in their interests to make sure the customer metrics are right. And we’re

very clear of each performance indicator and how we need to improve it. And we do that

not just for stores, we do that for home delivery, we do that for online experience, we do

that across the piece, so the customer contact centre, everywhere. Because I think it’s

incredibly important when you’re a specialist to get that right. And it’s sort of public

humiliation. You know, we all see, so we’ll see your customer stats for online as a

management team, we’ll see the store management team as well.

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Question

Seb mentioned that in a year’s time the UK websites will all look very different.

Katie Bickerstaffe

Yes.

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Question

What do you think are the major improvements you need to do to …?

Jeremy Fennell

The two questions are linked though, because it comes back to David’s question about

what’s driving customers to be unsatisfied with it at the moment. And it’s very

important to focus on the customer and the multichannel customer, because the

temptation is to go and look at other websites and say why haven’t we got that, why

haven’t we got what they’ve got. And the reality is that our customer, a multichannel

customer, a less frequent customer, is looking for a more specialist level of engagement

in a world where they know we’ve got stores. And so they’re not necessarily asking for

the same things as they’re asking for of Amazon or Tesco or any other retailer for

example. So you start there.

And in the last 18 months our priority has been around making it more multichannel, so

hence online, in store, reserve and collect, pay and collect, Trade Place and all of this,

development which has been around accessing more products at more locations for the

customer and the colleague, in order to improve the conversation that we can have,

whilst also increasing propensity to charge for delivery, increasing some of our own

metrics around attachment and average transaction value, which is about customer,

about the content, about understanding of what a good product is versus a bad product,

rather than just have two TVs. So that’s been where we’ve been.

Where we go to next is what we call user experience, or UX, which is some of the

simplification of payment pages, delivery pages, checkout pages. So now that we’ve got

you in a space where you can shop our site and browse our site quite comfortably, how

do we improve navigation? How do we improve product association? How do we then

get you into the basket, through entering your details, through payment pages, through

delivery pages and out to the other side of the website? And that’s our priority for the

next 12 months. And you'll see a marked change in that really from the second quarter

of the year.

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Question

Are the dropout baskets still an issue? Or are you seeing a ….

Jeremy Fennell

It’s always an issue when you get 3.5 million people a week.




Question

You’re trending, helping to reduce -

Jeremy Fennell

No, no problem, and actually improved as a result of pricing, as a result of delivery

availability, as a result of range.

Katie Bickerstaffe

Range as well, range availability.

Jeremy Fennell

So a lot of the metrics that you track in retail stores are the same things that impact

your line, and vice versa.

Katie Bickerstaffe

Same thing. And it’s very helpful because the guys have the same set of metrics. So

what’s footfall? What’s finger fall? What’s conversion? How many of those people are

you converting? What are they spending? What other things are they buying? How

many of them are walking out with nothing?

Jeremy Fennell

It’s incredibly digital though because if I do get basket dropout then I can see exactly

where it comes through. And I think we've shown in previous sessions, we’ve shown the

funnel, where people come in, how I get from 3 million to X number of people that

actually exit and buy.

So we’re all over those details and increasing the number of analysts we’re putting on

those details on a weekly and monthly basis, and we look at them every day. Got them

in my pocket actually. It’s rather disturbing to your social life, particularly at this time of

year. But if you know exactly what’s happening all the way through the funnel, then you

can get back to Steve and the commercial team and tell them what’s happening at the

category level, even at a product level. Suddenly people aren’t buying this and here’s

where they’re dropping out.

Katie Bickerstaffe

It’s a really good predictor of stores as well. So the Black Friday weekend is a great

example of that. We went multichannel with our Black Friday weekend. And I can’t tell

you how it went because I'm not allowed to, but we used what was happening online on

the Thursday, you could see what was going to happen. So Jeremy with his phone in his

pocket was going this is happening, that’s happening, the other’s happening, which

allowed you to then marshal the resources in the right way in all the channels, including

the home delivery channel because they have to line up behind, clearly, everything that

you do because a lot of that stuff is going to people’s houses. And whether that’s courier

or us.

Jeremy Fennell

These are the metrics that we’re using around today, around conversion, revenue,

reservations into the stores, and looking at that versus yesterday versus last week

versus last year, on an hourly basis.




Katie Bickerstaffe

And we have the same thing for the shops.

Jeremy Fennell

This is so I can have a look because I'm hooked on it. But the guys in the stores are -

sorry the guys back in the office are doing something productive with that data, and

feeding into what decisions we should take proactively to improve the numbers.

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Question

Okay. Is there any websites, retailers or otherwise, that you sort of look at, at the

moment, in best in class at what they do?

Jeremy Fennell

Absolutely, yeah. And actually rather than it be a personal opinion level, it’s at a score

level, at a benchmark score level. In fact I took Marie and Katie through a piece of work

last week that says here’s what we score versus every other retailer that we position

ourselves against, at an aggregate level. But the important thing is here’s where we

score, and here’s where our priorities are.

So for example, Amazon score best in class when it comes to checkout. You can almost

buy things by accident. But when it comes to browsing and looking for a product, they

score very badly because they’re not really interested in you doing that. They assume

you’re going to enter in at the product level because that’s what you've searched for.

They’re really goal hangers that are going to convert the sale based on you having done

your research everywhere else. Fine for them, no good for me.

John Lewis will score very well at the top end of the funnel around brand credibility, and

walking into the - browsing different categories, but actually do less well on the

multichannel side of things, and could do better there. So we’ve got the score by stage

of the funnel, by we call it a UCMS, universe category market segment, product page

level. And then we say, right where do we want to be. So we want to be really good at

navigation. We want to be really good at helping you out. Yes, we want to be good at

checkout and completion, but it’s not as important to us as it is to others. And so we set

our priorities based on where we want to end up and where customers actually use us.

Hence Sebastian now knows that we’ve got a long list of things to get on with.

Katie Bickerstaffe

But also we’ve got control of our platform from February. So of course the platform was

in France, and we’re migrating it over to the UK. Well it’s the UK and Brno where we’ve

got our shared service centre, which will allow us really to - historically we would have

done things in partnership with our French business, and sometimes Pixmania would

have wanted to do some things which would have held us back, and vice versa. And

now we just go, you know what, we want to do these things in this order, on you go.

Which is actually incredibly liberating I think for both of us, and for our business it’s

incredibly liberating to be in control of that.

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Question

What’s your sort of medium/long term view of how far online goes in your categories?

Because the growth rate seems to be stable, versus some of the other online categories.

Jeremy Fennell

It depends by product area. And it’s no secret that some of the small box categories like

photography, cameras, stuff that goes in the post, stuff where Amazon founded a lot of

their business, has been very powerful. The big box categories less so, so TV, major

domestic appliances, that kind of stuff we see taking off far slower when it comes to

online penetration.

Katie Bickerstaffe

Because you've got it in your house. It’s sitting in your lounge for the next four years,

you kind of need to go and have a look. And if you’re on the money, you go and you

have a look and you go, oh I’ll just buy it then, because it’s there, and also if it goes

wrong I know I can come back and go and sort of stand in a shop.

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Question

So you think these things aren’t going to do well like small products did? You’re still

going to make - makes sense.

Katie Bickerstaffe

No. You’ve also got to a lot of them, they’re getting more and more complex, you've got

to deliver them and install them. You know the days of just kind of sticking a telly on a

stand in the corner of your kitchen has sort of gone. If you’re going - you’re doing smart

TV, these TVs and you need sound, it’s complex.

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Question

You've probably been asked this question before, but in terms of the pricing action that

you’re doing, what are you seeing for more sort of store based players? Because I mean

it looks like they’ve had to keep cut prices themselves a little bit as well, I guess without

some of the supplier funding.

What are you sort of seeing in the market at the moment for that …?

Katie Bickerstaffe

It’s quite interesting. I think we’ve chosen to position ourselves up against a broad

competitor set, both bricks and mortar and clicks only. So we benchmark our price

index against two competitors. We benchmark against Amazon as you saw in the graph.

We benchmark our big box against Appliances Online. We, last week, were 14%

cheaper than Argos, as an example.

And so what they increasingly do is discount very heavily through commercial activity.

So really go high, low, high, low. I fundamentally believe that customers, increasingly in

the multichannel age, know consistent good value for money, and are sort of slightly




befuddled by high, low, well we’re doing price establishment, going to get more and

more expensive and then we’ll drop the prices. I think they’re getting increasingly

befuddled by that. So actually more - so I think it’s quite important that we play quite a

straight bat on this, and I think some of our competitors are trying to figure out what

they’re going to do. And we do that by getting our customer journeys in place, getting

our ATV up by selling up through the range.

But if I use Argos as an example, and this isn’t badmouthing Argos because a lot of

things they do are very, very good, but if I think about their model, you’re reserving

online and collecting in store, or you’re looking through increasingly disappearing

catalogues, and there's been a bit of a riot about that in the store. You don’t have the

range displayed, you don’t have options, you don’t have sales colleagues in that store

able to say to you well okay you've come in to buy that one, but that one has got a

much better picture or a much better, you know, it’s a much better product or it’s much

more reliable or whatever. So it’s quite difficult for them. So they end up in a place

where they’ll have to work out a way to fund that investment in pricing, and we can fund

the investment in pricing through selling up through the range, and through suppliers

seeing that we can sell up through the range. So I think it’s quite - they’re in quite an

interesting situation.

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Question

If you made your launch of your price sort of app in spring next year, would you then

price match if you are more expensive?

Katie Bickerstaffe

Yes, well we do price match anyway. So we have a price match policy. So if you’re out

shopping and you go into, I don’t know, our store is next to a JLP say, and you come

back in and say, well listen, you know, I saw this in JLP and it was five quid cheaper, we

price match. So we’re doing that anyway.

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Question

Would you do it online as well? So would you price match to Amazon?

Katie Bickerstaffe

In the store?

Question

Yeah.

Katie Bickerstaffe

Currently we don’t price match to Amazon in the store, because the offer we’re putting

in front of the customer is different.

Question

So that’s the difference.




Katie Bickerstaffe

There's a difference because you’re standing with it in front of you, you’re taking it home

today and you can bring it back to a shop when it goes wrong.

Question

But the reality is you’d expect to be on balance, at the same price anyway as Amazon I

guess, on the major products.

Katie Bickerstaffe

On the major product categories we are. So I was just saying to some of the other

guys, we match Amazon on all small kitchen appliances this year; we made a decision to

do that. We are at Amazon prices on compact cameras. There's a few categories where

we’re at Amazon pricing. I’d love us to be able to afford to get there across everything,

and eventually, you know, no doubt we will. But don’t forget many of our products are

exclusive. You know over 50% of our range in some categories is exclusive to us. So

that’s - and in some cases it’s more than 50%. So accessories etc. would be, you know,

95% exclusive to us.

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Question

Does all the Experts Love stuff; does that tend to be mainly exclusive product?

Katie Bickerstaffe

Yes. But we tend, in most cases, in fact I can’t think of a case where an Our Experts

Love product hasn’t been exclusive to us.

Jeremy Fennell

No, they all are.

Katie Bickerstaffe

They all have exclusive features and benefits that are unique to us, regardless of which

channel you shop in, they’re unique to our business which is quite helpful.

Jeremy Fennell

And that’s about working with partners to generate a product that’s either the same but

for a lower price because of the volume and scale that we’re buying, or more likely is the

same price as a market model but has got additional features to it that we can negotiate

in because A, of the scale and volume that we’re buying it at, and B, our propensity to

up sell to it which benefits both us and the partner, the supplier, who want to increase

average ticket prices as well.

So whether it be through design, whether it be through capability of the product specs,

speeds and feeds, whatever, it’s about being able to talk a customer knowledgeably

about why that product is better for them, and why it’s better value for them as well,

which serves two purposes.

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Question

In the multichannel, given that you are reducing stores, and we heard Sebastian go out

and say eventually we want to get to the 380, 400, from 458, how do you manage these

store closures, and how long will it take?

Katie Bickerstaffe

It’s a really difficult question to answer. So we started, I think when I started with the

business we had 768 shops, had quite a few. And every year we try and get out as

many as we can. Now we are in a situation where there isn’t a huge demand for retail

space, and as you know all of our portfolio is leasehold. And many of those leases are

long because we’re kind of dealing with the sins of our fathers from a while ago, when

there was a lot of sale and leaseback activity taking place.

So we have a plan of how to get there, and a lot of it comes down to how much property

loss we’re prepared to carry every year. So I have a discussion at the start of the year

when we’re agreeing the UK and Ireland budget, and I say I’d really like to do this. And

Seb and Humphrey will go, you can have that much to spend. And then it’s up to me to

try and get as many stores gone, either through reassigning the leases or doing a deal

with a landlord or whatever, to get us down to the estate that we want to be.

Broadly 380 stores allows you to be, excluding areas such as Inverness and Cornwall,

about a 20 minute drive away for 90% of the customers in the UK. And I think that’s

important for two reasons. One, it’s important to have the offer in their catchment

within a reasonable drive distance. We’ve done a lot of experiments of closing stores

sort of in a town between two towns, to see if people drive and they do.

But the second reason is actually a multichannel reason, because customers are

frustrated with having to wait in for couriers and deliveries. So it gives them somewhere

where they can, you know reserve and collect and nip in and get it, we can say well it

will be in the store for you tomorrow. It’s so much easier, someone can pick that up on

their way back from work and go in at 7 o’clock at night, rather than thinking I've got to

take a day off and sit in.

So you know, it’s not a direct answer to your question. It’s very difficult to exit the

property portfolio. We have been very successful so far. We have a series of deals lined

up which will take us to roughly Humphrey’s level, and the majority of that property loss

is UK and Ireland property loss for this year. And next year we’ve got deals lined up to

cover a similar level ish of property loss next year as well. So, you know, I've got sight

of all of those coming through.

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Question

So it could be a similar kind of store closures property loss being taken.

Katie Bickerstaffe

And the reason we know it works for us is we’re coming out of two stores and we’re

putting the offer into one. So we’re only paying rent on one space. But I also only have

one stock file. So if I have a PC World and a Currys next to each other at the moment, I

have two stocks of TVs, two stocks of computers, two teams, two sets of overhead costs,

two electricity bills. And what we’ve found is that we can take the same number of sales

in one store, smaller square footage, lower rent, one stock file, less complexity, one set

of people to deliver to, not two, one vehicle going, and the majority of the sales.

Jeremy Fennell

And the majority of the sales.

Katie Bickerstaffe

Customers like it, because they, ooh I can get the whole range under one store. So

we’re really - our ability to exit the property portfolio is controlled by how much property

loss can we have over time. And strategically it’s the right thing to do.

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END

Q&A with

Jaan Ivar Semlitsch MD Northern Europe


Dixons Retail Q&A Jaan Ivar Semlitsch, MD, Northern Europe


Question

So the tough competition has been quite tough for you ?

Jaan Ivar Semlitsch

Not really. It's - I would say the market's a tough economic environment, and that's

driving less growth; while in Sweden we see good growth, and Finland and Norway as

well.

So I think you do see some pressure on the market, due to more competition, but in

terms of market share, we're actually gaining share. So when we look at our first half

statistics for all Nordic markets, for all categories, we've actually increased our market

share. So from that point of view it's not really related to Expert at all.

So they have opened a couple of new stores in Norway, so there there is some effect,

but in the total picture, there is no effect. So - and we know that this private equity

owner has limited cash. So it's not a MediaMarkt situation; it's a private equity player

with limited cash.

So - we are quite confident about the future of our business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Question

Is there anybody else who might be weaker than even Expert ...

Jaan Ivar Semlitsch

Yes, it's a very good question. It's Euronics in Norway. They are in a very weak

financial position, and their two biggest dealers they will actually go over to us in spring

next year, and then they're left with only small stores in rural areas. But it's still a one

billion NOK revenue base they have, so some capacity could go up to the markets from

Euronics, I would say.

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Question

Is Euronics one company or is it a number of franchisees?

Jaan Ivar Semlitsch

It's a number of franchisees owning this chain office together, and this chain office now

is financially very weak, and some of the franchisees who are independent dealers will

have problems continuing on their own basically.

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Question

[Inaudible] ... being franchisees or - okay.

Jaan Ivar Semlitsch

Yes. So we have - the two biggest Euronics dealers, they have signed contract with us

and they will enter into our business April next year, and one of the big Expert dealers

has actually signed up with us and joined us some months ago. So we think also that's

somewhere Expert dealers will actually go over to us.

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Question

How much of Expert then is franchised?

Jaan Ivar Semlitsch

Quite a lot. I would say, in terms of total revenue base, 70% is franchised and 30%

would be their own stores.

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Question

Why is that even interesting for a private equity firm to be involved in ...

Jaan Ivar Semlitsch

I'm probably not the right person to answer, but ...

Laughter

Well they exited Sweden. No, from my point of view though, we have better prices, we

have a bigger assortment, we have better locations, we have a better movie channel

offer, we have better people, we have more resources. So - yes, so from that point of

view, it's perhaps not easy to see it. Having said that, he entered at a very low price, so

I think he - I think the goal of this private equity firm is to get out within two, three

years. That's my view, but again -

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Question

Do they get a dowry for getting a reasonable - because otherwise it doesn't make sense.

Jaan Ivar Semlitsch

They had to, from what I read, they had to pay to get into the business, yes. So they

have 50%, and then there is the Williams family, which is a shipping family, and they

own the other 50%. So this shipping family had 100% and bought Expert five, six years

ago. And then this private equity firm came in with 50% two years ago.

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Question

What would Expert's share be in Norway and Denmark?

Jaan Ivar Semlitsch

In Norway it would be around 20% and roughly the same in Denmark. And in Finland it

would be 16, 17%.

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Question

Why exit from Sweden; was it just performance related?

Jaan Ivar Semlitsch

Yes. Big losses and they didn't have any mother ship pack guarantees, so -

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Question

It's very different dynamics in the other markets -

Jaan Ivar Semlitsch

- Well you could say with MediaMarkt in Sweden it's somewhat more intense

competition. But the competitive landscape in Denmark is quite tough, so you know,

they could also be a combat case, but who knows. But we see our market shares - when

we got our MDA white goods market share figures for this first half, we had to

recalculate because they were so good in terms of gaining markets share. But they were

correct. So it's for sure not us losing any market share.

You see some pressure on the market, but we think, as long as we drive growth and

continue that, then that's the right approach - by not letting the competitors get any

oxygen basically.

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Question

So those percentages you quote must be specialist - specialist market share?

Jaan Ivar Semlitsch

Yes, yes.

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Question

And what would your numbers be on those ... ?

Jaan Ivar Semlitsch

The official figures will be 35% in Norway and 30% in Denmark.

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Question

And Finland?

Jaan Ivar Semlitsch

Ah, Finland would be 30% roughly. But it's very - very hard in terms of what can define

- in some areas we have a higher market share, like within the MDA and flat TV area.

So -

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Question

You have quite a big share of the mobile phone market?

Jaan Ivar Semlitsch

Yeah, we do. We do, and across all markets actually. And that's also one of the

categories growing - growing with very good numbers. So in terms of telecom, it's

basically the operators and us in the market now. And all the operators would like to be

part of our offering. So it's a very confident situation in terms of telecom.

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Question

Is online not as big or competitive or dynamic in Scandinavia?

Jaan Ivar Semlitsch

No, I think, first of all the internet penetration is extremely high in Scandinavia, and

many online competitors. But me, I would say rather medium sized competitors. We

don't have Amazon in the same way as in the UK, although you can also buy from

Amazon in Scandinavia.

But we see our online share growing every month, because we come from a quite low

position, but now as we have developed our online offer quite a lot. It's good growth for

online as well.

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Question

What's your online share?

Jaan Ivar Semlitsch

It's approximately 14% of our total sales, but I think it will increase to 20 - 25% in the

next two to three years.

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Question

How much of that is pick up from store?

Jaan Ivar Semlitsch

It's 34%, that's collect at store. And now during the first half, the collect at store share

also increases, because the customer finds it quite convenient to order online and pick it

up at our stores.

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Question

How are your prices? So we see a lot of data, the UK prices vs online. Do you price

compared to Komplett or somebody else?

Jaan Ivar Semlitsch

We are best in terms of prices.

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Question

Even against the online - ?

Jaan Ivar Semlitsch

Yes. And if you take our price perception surveys, by market, which we do every month,

it's I think bigger markets we have in terms of price perception - which is bigger than

the actual price difference.

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Question

So you give sort of a free trial period, bring it back after 28 days -

Jaan Ivar Semlitsch

30 days. And that we market, we will market even more, because it gives comfort to

the customer that he can actually - and you can deliver it even if you don't have, you

know, your boxes with you. If you only bring your flat TV and not all the wrapping, it's

okay - as long as you have the receipt.

So it's very convenient to go back in 27 days and return the flat TV or -

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Question

You don't give them another - I don't like that one so much; how about that one over

there for another 27 days?

Jaan Ivar Semlitsch

No, but to us, if our customer comes back and returns - it's really inspired from IKEA,

because 20 years ago IKEA didn't offer that, but then they changed the mind set of, you

know, customer service. And normally when a customer comes back, he or she wants to

buy something extra as well. So it's a good set up really.

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Question

How's the market backdrop in - how's the overall market growth?

Jaan Ivar Semlitsch

The overall market growth in the Nordics now is rather flat, so with our 3% growth or

the 7% in terms of Fx, it's quite good. I would say per market, in terms of market

growth, the Danish market is down, the Swedish market is up. Norway is rather flat,

small growth. And Finland is a bit down in terms of the market. So from that

perspective we're quite confident with the market share figures.

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Question

You are still opening stores; you're not [Inaudible few words] what's happening?

Jaan Ivar Semlitsch

We will open a couple more stores in Denmark, because there we see some

opportunities. In Norway we get dealers to us from competitors in smaller areas where

we don't cannibalise to our existing business.

In Sweden we have reopened - refurbished some stores. We see great benefits by

refurbishing in Sweden without adding additional space.

In Finland we'll open a big store downtown, because we also see a trend of customers in

addition to the big box facilities, also to have a downtown set up. So in Finland we'll

open a big store downtown in Helsinki next year.

But it's not a massive store expansion because the method is solid. And we see the

online growth and that working.

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Question

How many stores are you thinking - ?

Jaan Ivar Semlitsch

I think it will be very much at the same level as we see today.



Question

Do you see any scope to go into any of the neighbouring - ?

Jaan Ivar Semlitsch

I think the most realistic option would be Estonia in the Baltics, but being served out of

Helsinki. So from a cost perspective it would just be to add another store from the

Finnish operation. But it's not on the plan for next year, but could be in '15, '16 to have

a big store in Estonia combined with a solid internet offer.

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Question

Back on Expert, what is your best understanding of how they run their business? Maybe

I missed that at the beginning. Do they pile in certain SKUs and then sell them in bulk

at a lower price? And at your best estimates, if there are any, how much money do you

think they have behind them?

Jaan Ivar Semlitsch

Oh, it's hard for me to tell, but they have announced also this year that they will lose

money. I think their plan was to make money this year, but they will not. And I - it's

not easy for them to open a new store and get the traffic they would like to have.

Because if you take - the store will be smaller than our store, the prices will not be as

good, their assortment will be not as broad and the location will be not as good. So from

a consumer point of view, why should you go to an Expert store and not the Elkjøp

store.

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Question

What's their sort of annualised sales at the moment?

Jaan Ivar Semlitsch

In Expert? If you take - in Norway I think it would be 8 - just thinking in terms of

pounds, it would be £700 million in Norway, and it would be £400 million in Denmark

and £250 million in Finland, roughly. But they've published their accounts. They've

published their 2012 accounts in June '13 and their 2013 accounts will come for June

14th. And then you will get more accurate figures.

But their annual report is quite detailed, actually, so you will get figures by market quite

detailed. Also on the cost side. So if you'd like to get more information around Expert, I

would recommend you to get their annual report translated. And there you will actually

see that in Denmark last year, they had a profit of 2 million Danish krone. But you

know, that's zero, basically. And with a tougher competitive environment in Denmark,

and us gaining share, and the internet online players gaining share, I think they will

have a tough time in the market.

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Question

So you said there might be some other people who feel weak. Who would you put in

that category?

Jaan Ivar Semlitsch

In terms of competitors, yeah. Yeah, good question. SIBA Norway, they only have two

stores left, so I think they will exit. Euronics in Norway, they will have a tough time. In

Denmark you have some very small players that I think will exit. The same in Finland

really.

In Sweden we are gaining a lot of market share within MDA against the competitor called

Elon, which is an independent white goods chain. And now we have done more within

kitchen, and doing more with washing and some Electrolux, we're taking share from Elon

in Sweden. So - and yeah, let's see what will happen with Expert. So far I'm -

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Question

What about the non-specialists? Are the sort of grocery retailers doing more or doing

less?

Jaan Ivar Semlitsch

No, they're doing less. Coop in Denmark, they have exited grocery or non-food retailing.

Binka (?) is still a bit aggressive in the market which is .... the new head of Binka (?) he

arrived from Tesco and - he has a different experience probably in - . In Norway a

company called Smart Club, which is part of Coop, exited the non-food business, so no I

think within grocery retailing we'll see less competition.

Must also mention that Sony, we have had Sony centres in the Nordics, and they have

exited their business.

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Another Questioner

Was that a franchise or - ?

Jaan Ivar Semlitsch

That was a combination. So I, you know, I guess a lot of questions around Expert. I

actually see more competition against online retailers and less against the medium sized

and the small established players. I see that, you know, Expert, Euronics, Elon,

MediaMarkt are much better than that and will gain market share. And we have to be

prepared for the future to make sure we have the future price perception, as we have,

against the pure players.

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Question

So if we were to do the same chart that we see all the time about the pricing of us in the

UK against Currys in the UK, how would Elkjøp be doing against its online competitors?

Jaan Ivar Semlitsch

Ah we would have better prices in my mind, and the business surveys we do. And in

terms of perception, the gap would be greater because sometimes we run campaigns at

very low prices and really good prices.

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Question

So there's no need for any price reinvestment?

Jaan Ivar Semlitsch

No, I think that's been invested for the last 50 ....., to be honest. It's - the whole basis

for Elkjøp is to have the lowest prices.

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Question

So why is the gross margin falling then?

Jaan Ivar Semlitsch

I think we see a category mix in terms of more tablets and we also see flat TV as an

overall market pressure, I would say. So it's really related to the category mix and

perhaps sometimes we do now somewhat more aggressive campaigns to make sure we

continue our ..... on track. Yeah.

But it's really related to category mix. Computing in our area is 30% of our business

and out of that tablets would be - it has increased quite a lot.

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Question

Is tablets now the majority of computing?

Jaan Ivar Semlitsch

No, it's around 40%. But it comes from a base of 10%. Having said that, we like the

tablets because it creates traffic and it creates additional revenue, but it puts the

pressure on the margin mix. Yeah.

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Question

I think Seb (?) also said that you'd seen a very strong sales uplift in services. What

proportion of the sales base is - ?

Jaan Ivar Semlitsch

Right now it's around 10%, but we think that will continue to increase and it will offset

some of the margin pressure you see as an overall market trend or category mix trend.

So we've actually seen the Knowhow, or the services share increasing without having

introduced Knowhow in all the stores, but it's just a focus in the business.

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Question

Is that like UK still where it's still a majority related to customer support agreements or

is it much more diverse?

Jaan Ivar Semlitsch

It's very much the same, but in also the UK set up. In our set up we do installation of

your TV at home, so it's more than just support agreements around your computer or

insurance around your battery. We also do, you know, home video reinstallation, take

the old TV back, and we're doing more and more of that. Especially Norway, people are

willing to pay a lot for that.

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Question

[Inaudible]

Jaan Ivar Semlitsch

No, it's - one could think that because of the category mix and the market pressure, it's

has declined. But it's actually increased because the smartphones are more expensive

than before and we also see that people are buying more now 55" TV than 40" TV, and

that's actually increasing the average price. So for that point of view, it's - the average

transaction now in our business is increasing and the conversion rate is increasing.

We see that the number of footfall is declining, but it's not because they're not visiting

our stores, it's because they do more research online here. So they might visit our

stores now two to three times before they buy than four to five times before. So - but

that reduced footfall we are offsetting with increased online growth and increased

conversion rate and transaction value now.

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Question

And in the Nordics, what sort of percentage of your business is being done online?

Jaan Ivar Semlitsch

14%.

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Question

And how much of that is being collected in store?

Jaan Ivar Semlitsch

33%, so - and that's increasing. I think it will increase to 40%, the collect at store. And

I think our online share of our whole business with be 25% in a four years perspective.

And that's the way it should be because that's our fair share of the market at least, so it

could even increase to 30%.

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Question

What's the shape of the Nordic consumer [inaudible] of the market? How do you feel

about - I talked to our Nordic banks analyst who said, people are a little bit worried

about house prices -

Jaan Ivar Semlitsch

Yeah. In Sweden, it's very optimistic. In Denmark I feel it's less optimistic among the

consumers. The export industry is doing very well, but the consumers are saving a bit

more than they did before.

In Finland I - it's also a bit of a psych - psychology [inaudible] by Microsoft, and perhaps

things are less confident than they used to be. And in Norway it's a very strong

economy but the NOK has weakened a bit because of some ... increased unemployment

rate and people are saving a bit more in Norway.

Having said that, I think the government will inject more oil if there is a sign that it will

be a shift. But I would say - in general in the Nordics it's a bit softer than it was a

couple of years ago.

What we are seeing in our statistics is that when people get more price conscious, we

actually gain more share because people then really would go to the company with the

best prices and where you trust the company. So it creates some opportunities as well.

And I think in terms of Norway overall, it's a very strong economy, so you're really

talking about some marginal differences there. I would say among the four markets,

Denmark is where I see consumers being a bit reluctant, or a bit different, than a couple

of years ago.

But there are mixed signals as well. Some .... this report and there's this report -

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Question

How much of your time do you spend on the Central European side? I mean, is it just

one of those things, it's just been lumped with you for reporting purposes - ?

Jaan Ivar Semlitsch

Oh, our results there - we would like to see better results in Central Europe, especially

because we can see that we're not number one there, and that creates more challenges

in terms of buying prices, in terms of logistics, in terms of campaigns. So I think Central

Europe is where I'd like to see better progress and better results.

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Question

Do you see them as a core business or something where you're just having to look after

it in terms of -

Jaan Ivar Semlitsch

To put it that way, I think the overall strategy of focusing on the markets where we're

number one, that's the right strategy. Yeah.

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Question

How are you? Nice to see you.

Jaan Ivar Semlitsch

Yeah, yeah. Nice to meet you, nice to see you.

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Question

Where are your flagship stores?

Jaan Ivar Semlitsch

One of the flagship stores we have, it's in Kungens Kurva, it's in Stockholm - 10 minutes'

drive from downtown.

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Question

Oh great.

Jaan Ivar Semlitsch

It's a very good store. It will trade around £35 million.

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Question

[Inaudible]

Jaan Ivar Semlitsch

Yeah, and we also have online offer, you know. So very strong online offer and

increasing quite a lot. So, no, I feel confident now with our multi-channel offer that we

have very good growth online.

And of course, but the last week before Christmas in the Nordics, people don't buy online

because of the logistics. You are not sure whether you can have it in time. So the last

delivery date now for all of my players would be 18th December, actually on Wednesday

- and same for us.

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Question

One of the things which I heard was Amazon's been pushing to the Nordics, which we're

all kind of hoping is throwing down the road. Do you see any more competition

[inaudible] ?

Jaan Ivar Semlitsch

Er - I would say we, you know, there is a lot of talk about Amazon, but actually with the

high internet penetration we have and with lots of good players already in the Nordics,

and some of them quite aggressive, it's - I think we would manage Amazon very well,

because we are used to online competitors and, you know, the Danish online players,

they are close to Germany and they - we're young, I feel we're used to competition. You

can order from Amazon today in the Nordics, although it's delivered from the UK or the

US. So it's not that good service.

I think it wouldn't be a wild thing if Amazon officially entered the Nordics. So we will

manage that if they decide to enter. I think they will have a hard time, though, because

with the foreign markets, logistics, their geographical set up, four different languages,

still a limited amount of people - I think they will probably find more attractive markets -

from their perspective.

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Question

That's an interesting thing because one thing I've noticed in the different between the

Continent and the UK is that consumers in electrical stores are a lot more likely to buy

goods like kitchens and so on. So I can see why you guys are trialling it here. But is

that because there's not the same competition in department stores or DIY stores in the

Nordics or is it just a different consumer attitude to where you go to buy these things?

Jaan Ivar Semlitsch

Yeah, I think first of all Elkjøp is a very strong brand, so people really trust Elkjøp. And

kitchens in our business has actually been around for close to five years. But from a

very slow start, we're building the comfort, building the brand. And we own our kitchen

business now, so we have control of the supply chain, and when we tested this out and

we did some campaigns a year ago, it really took off.



And in many areas, you don't have an IKEA, and if you have a local dealer, he's the only

one selling kitchens in that city. So you have less professional kitchen competition than

you might have in the UK. Because in the Nordics, it's really just IKEA and then many

sort of smaller, standalone companies. So there is some opportunities from the

competitive or the competition point of view.

And then just because we see kitchen and MDA becoming more and more integrated. So

if you are to be a relevant player also within MDA, we think that kitchen is important. So

our hit rate on MDA when we sell a kitchen is close to 90%. So the profit base - one

thing is the kitchen profit base, but the real profit base is coming from the MDA and

sales related to the kitchen sales.

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Question

Are you finding a lot of people are taking those up or - ?

Jaan Ivar Semlitsch

Yeah, yeah. And so now we're rolling out kitchen in more and more stores. But it really

has to be - you really have to dedicate knowledgeable staff to it, not working on other

departments, because it's a different way of working and you really have to fix the

logistics so that the consumer gets the delivery on time.

So five years ago there were too many complications, too many delays, and that's fixed

now.

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Question

Actually the supply chain [Inaudible]. That must be a nightmare

Jaan Ivar Semlitsch

But our new Head of Kitchen now, he comes from IKEA. He actually has a PhD within

kitchen. So he was running the production facilities in the Nordics for IKEA.

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Question

There's no actual production there, I don't believe.

Jaan Ivar Semlitsch

No, we're more or less are putting it all together. You know, right now we have more

than enough to deliver in the Nordics, so I think if the UK would like to do it, we need to

increase capacity because we have increased quite a lot. So we would be sure that we

could deliver without delays if we were to deliver into the UK.

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Question

That's interesting, so actually sourcing for the UK from -

Jaan Ivar Semlitsch

Yeah, because it's in Brno kitchen centre in the Czech Republic.

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Question

Oh I see, purely for the kitchens.

Jaan Ivar Semlitsch

Yeah, exactly. Exactly. So because of the low costs -

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Question

[Inaudible]

Jaan Ivar Semlitsch

So since we have our Central Europe ... business where we have our warehouse for

Central Europe, we have added the kitchen warehouse for the kitchen business. And

one thing is the labour costs, but they're very accurate, the Czechs. They're doing a

very good job. Very little sick leave, so it works very well with our kitchen centre there.

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Question

Correct me if I'm wrong, but I think the Nordic business is the most cash generative

[Inaudible]. Obviously it's all Nordic currencies, so how do you plan and manage the

..... constant pressure from HQ to sweep the funds back. I'm just wondering whether

you've got any plans to kind of increase your cost base ... or something, in order to be

able to manage this effective to both of you. Fx swaps against you ..... P&L, that must

happen every year - ?

Jaan Ivar Semlitsch

Yeah, well normally that's very -

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Question

And it can go in your favour as well -

Jaan Ivar Semlitsch

Yeah, but the NOK has weakened against the euro by - I think it's 15% of last 12

months. So normally we wouldn't see variations like this, normally it would just be a

neutral effect really. So if you have big fluctuations within a very limited time period,

you get those effects, even though we are hedged.

So - and it's a lag effect by taking that to the consumer. So - yeah.



Question

Your competitor, I've forgotten the name of them again - the one you're skirmishing with

- Expert. How long do you think your skirmish with them may last? A couple of years?

Jaan Ivar Semlitsch

I think [Inaudible] in terms of our possible common case. They're for sure not gaining

any market share.

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Question

You know you must be hurting them?

Jaan Ivar Semlitsch

Yeah, yeah. And our price perception is so great compared to them, and our

assortment, our concept, location, people. But of course they are better than they were

a year, two years ago. But they have a high cost base and they're not getting their

market share.

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END

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Interim Results/media/Files/D/Dixon... · Dixons Retail - Q&A – Sebastian James - Group Chief Executive 17 December 2013 Page 3 Initial question about CPI chart and pricing vs peers