Dixons ready to wield axe on Silo: Write-offs of up to pounds 350m to be incurred unless US chain comes good in six months

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The Independent Online
DIXONS Group has set a six- month deadline to improve Silo, its disastrous US electrical retail chain, or rid itself of the embarrassing loss-maker at a cost in write-offs of up to pounds 350m.

Senior management at Dixons, whose shares ended the week 12p down at 200p after it reported disappointing annual results, say they have severed the 'emotional tie' with Silo and will wield the hatchet if need be.

They have also quietly restructured Dixons, artificially inflating its distributable reserves by pounds 250m to ensure it can pay a dividend next year, even if it were to make the huge Silo write-off.

The details of the restructuring will be revealed in the annual report, due shortly, which will also show Dixons maintained its pounds 25,000 annual donation to the Conservative Party, despite its dissatisfaction with government handling of crime.

The January deadline gives Silo the all-important Christmas period in which to come good. The next six months will also be enough to gauge the impact of store closures, an experimental larger format and new YES facia, the revised customer proposition and the slimmed down distribution.

Robert Shrager, corporate finance director, said it should be clear by then whether to persevere with Silo or 'take other action'. That could mean selling it, reducing it or closing part of it.

He dismissed a report in the Financial Times last week that a rights issue was unavoidable.

Institutional shareholders, although disappointed by Silo, seem prepared to wait till the turn of the year, although there is speculation that Prudential Corporation, with a 6 per cent holding, is becoming impatient.

One institution said it had planned to give Dixons until the end of the year to show signs of progress at Silo. It hopes another six months may give the group time to add some value to Silo, improving the chances of selling parts.

However, none of the institutions contacted had any complaints about Stanley Kalms, the powerful chairman and - in all but name - chief executive. The dual role tends to come under the microscope when a company gets into trouble.

Dixons paid pounds 210m for Philadelphia-based Silo in 1987 and quickly ran into trouble with the chain, which had over-expanded into recession. By 1991, Silo was losing pounds 16.9m and the deficit widened to pounds 22.4m in 1992. There was also a pounds 36.2m exceptional cost for closing 56 stores.

Dixons has tried to inject its own systems, management and buying skills into the group, with little success. In February, Robert Sirkis, the American president, was replaced by Peter Morris, formerly the Dixons property director.

Some analysts question whether Dixons could afford to rid itself of Silo. It would have to take a pounds 200m hit through the profit and loss account on goodwill previously written off. Another pounds 100m- pounds 150m of further asset write-offs might be necessary.

John Richards, the stores analyst with NatWest Securities, is less gloomy, rating Dixons shares a buy. The actual cash cost of closing Silo could be less than pounds 100m, he predicts. And the core UK chains of Dixons and Currys continue to prosper.

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