Dixons Ditches Spain And Writes Off £310m

Published in Company Comment on 23 June 2011

The electronics retailer has racked up big losses in Europe.

Dixons (LSE: DXNS), the electrical retailer whose Currys and PC World brands are familiar names across British high streets, released its full-year results today.

Dixons ducks out

At the top level, Dixons' results don't look too bad for a company with 1,200 stores spread across a weakly performing Europe.

In the year to 30 April, total group sales slipped 2% to £8.5 billion from £8.3 billion, making Dixons the second-largest electrical retailer in Europe by revenue. However, like-for-like sales -- the retail industry's preferred measure of sales strength -- were down 2% in the full year, but 4% down in the second half.

On a brighter note, Dixons managed to maintain its margins, which were flat in the second half of the year and up 0.1% in the full year. Nevertheless, pre-tax profit slid 6% to £85 million from £91 million.

However, Dixons was pushed into a hefty full-year loss, thanks to huge write-downs among its European operations. In total, the retailer's balance sheet was hit by more than £309 million of impairments, including £106 million at online-photo business PIXmania, £71 million at PC City in Spain, and £53 million at Kotsovolos in Greece.

These impairments (which include the writing down of acquisition goodwill and closure costs) pushed Dixons into a total loss before tax of £224 million. Ouch!

In fairness, Dixons is not the only retailer struggling in this space. Yesterday saw Kesa Electricials (LSE: KESA) issue its latest figures and they're weren't pretty. Kesa also admitted that it may sell Comet, its main brand here in the UK.

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Positive signs

As well as tackling disappointing trading in Europe, Dixons is dealing with a few other problems.

Free cash flow -- the very lifeblood of a business -- rose to £39 million (before restructuring charges), versus £28 million in 2009/10, an uplift of 38%. Another positive was the fall in net debt to £207 million from £221 million, down 6%.

In a separate announcement, Dixons announced the departure of Nicholas Cadbury, its finance director and 18-year Dixons veteran, who is off to take the same role at fellow FTSE 250 firm Premier Farnell (LSE: PFL). He will be replaced on 1 September by Humphrey Singer, finance director of Dixons UK & Ireland.

Risky yet pricey

Despite an early fall when the market opened, Dixons shares trade at 16.7p (up 1%) as I write. This values the group at just over £600 million.

Thanks to the above write-downs, Dixons made a loss per share of 6.6p, versus a 2p loss in 2009/10. However, underlying diluted earnings per share were 1.6p against 1.5p in the prior year. There is no dividend, as the group concentrates on lowering its debt and investing in its ongoing 'Renewal & Transformation plan'.

Thus, Dixons shares trade on a price-earnings ratio of 10.4 times underlying earnings and pay no dividend. For a retailer struggling with falling sales, flat margins, European weakness and debt of more than a third of its market cap, this rating seems too high. Thus, Dixons gets the thumbs-down from me.

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4spiel 23 Jun 2011 , 2:56pm

OK Dixons is high risk . I keep 1000 bought around current price. The way I see it -I stand to lose very little -but Dixons might survive. One should not invest in too many stocks in this way of course -but are not equities always risk?

jaizan 23 Jun 2011 , 9:47pm

I would think Dixons & Kesa stand a good chance of surviving.
Most of their products don't fit though your letterbox, so on line delivery is not so convenient. This is not like HMV.
However, for my last purchase of a TV, the in store signals to some TVs were so poor I could not compare TV picture quality & the USP of the big sheds was therefore ruined.
They also need to watch prices. I drove 200m down the road to Richer Sounds and saved about £150 on my TV purchase.

DP130132 26 Jun 2011 , 2:05pm

Both Dixons and PC World, are a joke as far as we - in the Canary Islands - are concerned. These Islands are Tax free - i.e. no VAT. Retail sales tax 4%. However, their store prices here, are exactly the same as E.U. and UK.!!! Look down the road - save and laugh!!

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