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|
Argos Retail Group (ARG) had another successful
year, with sales up 9% and profit up 20%, generating a 0.5% improvement
in the operating margin.
The highlight of the year under review was Argos’
performance (sales up 13% on a like-for-like basis). Profits at UK Home
Shopping grew significantly while it continued to reduce marketing spend
on unprofitable customers. Profits also rose in European Home Shopping.
The major investment of £20m in Financial Services, which has been taken
through the profit and loss account, has started to build a valuable long-term
business, with over 625,000 Argos store card holders at the year end.
 |
Argos Retail Group |
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|
|
|
|
Sales
|
|
Operating
profit |
|
|
|
|
|
|
|
|
|
2002 |
2001 |
|
2002 |
2001 |
|
12 months to 31 March |
£m |
£m |
|
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argos |
2,847 |
2,387 |
|
204.0 |
160.8 |
|
Home Shopping - |
|
|
|
|
|
| |
UK & Ireland |
1,533 |
1,540 |
|
33.1 |
25.1 |
| |
Financial Services |
11 |
- |
|
(4.8) |
4.5 |
| |
Home Shopping - |
|
|
|
|
|
| |
Continental Europe |
238 |
322 |
|
22.4 |
21.7 |
|
|
|
|
|
|
|
|
Total |
4,629 |
4,250 |
|
254.7 |
212.1 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
|
5.5% |
5.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argos
Argos had an excellent year, increasing sales by 19%
and profit by 27%, generating a half point improvement in the operating
margin. This performance was aided by strong consumer demand in the UK,
which is expected to moderate in the current year. However, we are confident
that Argos will continue to perform well in its markets as it pursues
a programme of growth initiatives, aimed at improving choice, value and
convenience for its customers.
Excluding Argos Additions and jungle.com, Argos’ sales increased by 17%,
or 13% on a like-for-like basis. Argos grew share in all its major categories,
with particularly strong performances from furniture, consumer electronics
and electricals. Gross margins remained firm, helped by better buying
and direct importing, which now accounts for 17% of sales (up from 12%
two years ago). In the core chain, costs as a percentage of sales fell
despite continued revenue investment, particularly in the supply chain
programme.
|
Argos |
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|
|
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|
|
|
|
|
|
|
2002 |
2001 |
|
|
|
|
12 months to 31 March |
£m |
£m |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales* |
2,847 |
2,387 |
|
|
19% |
| |
Operating profit* |
204.0 |
160.8 |
|
|
27% |
| |
Operating margin |
7.2% |
6.7% |
|
|
|
|
|
|
|
|
|
|
|
*includes Argos Additions
and jungle.com |
As previously outlined, Argos has a clear strategy for growth and has
made good progress this year against its objectives:
-
|
it will increase the planned rate of store openings
to about 35 per annum. At 31 March 2002, Argos had 490 stores,
an increase of 18 in the year. Planned new stores for the current
year should contribute about 4% to sales growth;
|
| - |
it will refurbish all remaining small stores by March
2004. To date, 175 store refurbishments have been completed. Sales
uplifts provide a good return on investment, while customers benefit
from greater convenience as in-store processes are improved;
|
| - |
it will further enhance choice for customers by extending
the range of products and services offered to them. The current
Spring/Summer catalogue has over 9,200 lines, a 7% increase on the
same catalogue last year. The Autumn/Winter 2002 catalogue, launching
in August, will have over 11,000 lines;
|
| - |
it is investing £120m over four years in its
supply chain. In the year to March 2002 Argos has initiated its
supply chain programme, by starting to build its new central and direct
import warehouse, by opening the ARG Hong Kong buying office and implementing
the first part of the new IT and software systems, improving stock
and sales planning and forecasting. The full supply chain programme
will yield benefits of about £50m per annum to invest in supporting
margin or improving its value proposition. Pricing in the Spring/Summer
2002 catalogue on re-included lines was 2% below last year; and
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| - |
it will grow capacity and improve customer service
in Argos Direct, the delivery to home operation. Sales via Argos
Direct grew by 50% compared to last year. It accounted for 16% of
Argos’ sales – up from 12% last year. Preparation for the
construction of the new Argos Direct warehouse has started, with completion
planned before the end of the currentfinancial year. |
Following national rollout in January, sales at Argos Additions
were £130m, up from £55m last year. The customer base has grown in line
with expectations but average spend per customer has lagged, leading to
further refinement of the offer in terms of product, credit and marketing
to drive sales and profits.
Jungle.com re-launched its website in February 2002 and completed the
installation of new enterprise-wide systems in Autumn 2001. Despite cutting
costs in personnel, overheads and IT, jungle.com made an operating loss
in the full year, against a background of weak demand and pricing for
computer products.
Home Shopping UK and Ireland
UK Home Shopping has made further progress this year
in creating a smaller, but more profitable agency business, while developing
low risk opportunities in the growing direct market.
As expected, sales for UK Home Shopping as a whole were down 1% on last
year. Agency sales, which accounted for 80% of the total, were reduced
by a further 2%. The active agency customer base fell, as planned, to
2.8m, with average spend per agency customer up 7% year on year. The main
direct catalogues include Marshall Ward, Abound and Style Plus. Sales
through these direct titles increased by 17% in the year, led by more
seasonal and promotional catalogues from Marshall Ward and the successful
launch of Abound in August 2001.
Operating profit grew by about a third to £33.1m. Gross margins were unchanged
on last year. Further cost savings totalling about £30m were made during
the year in areas such as marketing, logistics, call centres and supply
chain, in line with our plans to reduce annual fixed costs by £80m in
total over the three years to March 2003.
In the current financial year, in spite of a further planned reduction
in agency sales, profit at UK Home Shopping will be underpinned by further
cost savings and growing sales from direct catalogues.
|
Home Shopping UK and
Ireland |
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
2001 |
|
|
|
|
12 months to 31 March |
£m |
£m |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
1,533 |
1,540 |
|
|
(1%) |
| |
Operating profit |
33.1 |
25.1 |
|
|
32% |
| |
Operating margin |
2.2% |
1.6% |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
As previously indicated, about £20m was invested through
the profit and loss account during the year, primarily in the launch of
the Argos store card. This has progressed well. At 31 March 2002, there
were over 625,000 account holders, of which about 460,000 were active.
Balances outstanding were £105m and over 5% of Argos’ total sales were
financed during the year on the card. Argos personal loans were launched
as planned in February 2002. Revenue investment spend on the development
of Argos personal loans and the further growth of the Argos store card
is expected to be about £15-20m in the year to March 2003.
Profit increased from the remaining parts of Financial Services, including
insurance and personal loans to Home Shopping customers, despite the decline
in their numbers.
|
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
|
2001 |
|
12 months to 31 March |
£m |
|
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales* |
10.7 |
|
|
|
|
| |
Operating (loss/)profit |
(4.8) |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
*Sales represent interest
income, fees and commissions relating to the Argos store card |
Home Shopping Continental Europe
Following the disposal of our Austrian and Swiss home shopping businesses,
which together generated sales of £94m in the year to March 2001 (2002:
nil), Wehkamp now accounts for over 80% of European Home Shopping sales
and profits. In the year to March 2002, sales in euros at Wehkamp increased
by 5%, driven by a strong performance in branded clothing and publicity
around Wehkamp’s 50th birthday. Sales and profits in Halens, the Scandinavian
operation, were slightly down, as the market remained highly competitive.
|
Home Shopping Continental
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
2001 |
|
|
Underlying |
|
12 months to 31 March |
£m |
£m |
|
|
change* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
238 |
322 |
|
|
5% |
| |
Operating profit |
22.4 |
21.7 |
|
|
0% |
|
Operating margin |
9.4% |
6.7% |
|
|
|
|
|
|
|
|
|
|
|
*at constant exchange
rates, excluding disposals |
e-commerce
Across ARG,
e-commerce sales continued to grow strongly to £164m, compared to £78m
in the previous year. 3% of Argos’ sales were over the Internet, while
12% of Wehkamp’s sales were through its website.
Reality
During the year to March 2002, Reality made further
progress in reducing costs for ARG and generating third party business.
Sales growth for external customers in the core logistics and call centre
activities was over 10% in the year. Total reported sales to external
customers grew by 3% as Reality withdrew from some non-core, unprofitable
businesses such as vehicle servicing. In addition, there was a marked
slowdown in market demand for web design services, where Reality has reduced
costs significantly. The outstanding goodwill of £23m relating to the
acquisition of Reality Solutions in May 2000 was written off at the end
of the year.
As previously stated, Reality is reporting into ARG from 1 April 2002,
with Experian International taking responsibility for call centre and
related activities, serving predominantly external financial services
clients. As already announced, further cost efficiency programmes have
identified over 300 redundancies, mainly in managerial and administrative
positions. A £4m charge, associated with the cost of these redundancies,
has been taken against Reality’s operating profit in the year to March
2002.
From 1 April 2002, Reality’s external sales will be included in two divisions.
The external logistics sales will be reported as a separate line under
ARG, with the call centre and related activities sales becoming part of
Experian International’s Outsourcing business. For the year to March 2002,
the split on this basis would have been £74m of external logistics sales
within ARG and £23m in Experian International Outsourcing. The majority
of the profit would have been included within ARG, predominantly in Home
Shopping.
|
Reality |
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
2001 |
|
|
|
|
12 months to 31 March |
£m |
£m |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
97 |
93 |
|
|
3% |
| |
Sales to ARG |
374 |
383 |
|
|
(2%) |
|
|
|
|
|
|
|
| |
Top sales |
471 |
476 |
|
|
(1%) |
|
|
|
|
|
|
|
| |
Operating profit* |
0.5 |
5.1 |
|
|
|
| |
Operating margin** |
0.5% |
5.5% |
|
|
|
|
|
|
|
|
|
|
|
*after charging £4m
of restructuring charges in 2002 (2001: nil)
**operating profit as % of sales to external customers |
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