Profile: Kevin O’Byrne, group FD DSG international

Taking a stroll along Tottenham Court Road in London’s West End is like
walking through the electrical goods equivalent of a Wild West cowboy town.
Shops selling computers, washing machines, DVD players and every other kind of
appliance imaginable crowd the street and vie for the attention and money of the
throngs that come looking for a good deal.

The competition for business is so fierce that it is commonplace to find one
store undercutting its neighbour, and that store in turn being undercut by
another. It is a cut-throat place to do business and every item sold is like
winning a showdown on the set of an old Western.

It is at the top of Tottenham Court Road, on the shop floor of PC World, that
the group finance director of DSG International, Kevin O’ Byrne agrees to meet.
For someone who not only has to deal with the demands of the unforgiving
electronic goods market, but also copes with the stress that comes with being
the finance director of a FTSE 100 company, O’Byrne looks remarkably calm and

But staying calm in a market where margins are thin, competition frenetic and
customers fickle is all part of the job description. For O’Byrne, meeting these
challenges is an exercise he thrives on.

In a difficult retail market – according to the CBI’s latest survey 40% of
the 182 retailers polled said that sales volumes were down – keeping a tight
rein on costs and margins is crucial and the role of the retail FD is more
important than ever.

The situation at DSGI, the group that owns PC World, Dixons and Currys, is no
different. For the year to the end of April 2005, annual revenues grew 7.56% to
£6.9bn. But increasing sales in a tough market remains difficult. It is
O’Byrne’s job to ensure that a stable return on capital is always achieved.

Capital discipline

‘In any business, capital discipline is important, but it becomes even more
important when trading is tough,’ he says. ‘We have focused on capital
discipline and even though trading was tough, we generated 15% more cash. Free
cash flow and a return on capital are important.’

O’Byrne adds that cutting costs has also been a key aim for DSGI, and as FD
he has led an efficiency drive that has taken costs out of the business and
improved profitability even though the price of electronic goods continues to

‘Cost management is an absolutely critical part of the business. We have
taken out £30m in costs this year and will take out an additional £20m next
year, which is what all retailers in relatively low-margin businesses just have
to do,’ he says. ‘We may be selling hi-tech products but we operate in an area
of high deflation, so maintaining our margin by becoming more efficient is
critical. It is a way of life unfortunately.’

Running businesses on an even leaner basis in the years to come is something
O’Byrne believes that he and all other retail FDs will inevitably have to drive
in the future, as the economic environment continues to weigh down on consumers’
disposable income.

Over Christmas, the busiest trading period of the year, O’Byrne says the DSGI
businesses all traded ahead of expectations, with like-for-like sales at Dixons
growing 8%, and Currys and PC World both showing growth of 3%. He warns,
however, that with the Christmas boom behind them, sales are likely to ease.

‘It remains a reasonably tough market. I think we traded well during
Christmas, but Christmas is not a normal period, so it is very difficult then to
say how you will go from there. From that we say that we remain cautious as the
consumer remains cautious,’ O’Byrne explains.

‘What has come out of the Christmas period is that once people have bought
their Christmas presents and you look at the macro environment in the UK you
still have local tax rises, energy costs going up and people going back to work
with their train fares going up. So the whole environment hasn’t really changed
from what it was in early November when you saw a quiet period. We don’t see
that the macro environment has changed.’

But as important as trimming the fat has become for retailers, O’Byrne says
it is still essential for the retail sector, both in food and non-food, to
remain innovative and continue to explore new ways to drive sales, however
challenging the market.

‘We place a huge emphasis on innovation. So while we have a strong focus on
cost control and return on capital it is absolutely critical that we have
innovation,’ says O’Byrne, who believes that a culture of innovation has helped
DSGI ride the retail storm.

‘This group has a rich heritage of innovation, whether it is starting a chain
like PC World from scratch, or growing in new geographies or developing new
formats,’ he says. ‘We are growing our online offering and we have invested
substantially in our websites. We have opened web transaction websites in
Norway, Sweden, Denmark and Ireland. We are always looking into new and better
ways to do business. Retail innovation is critical.’

Given the demands of improving efficiency and generating new ideas, managing
the increasing demands of regulation, especially the introduction of IFRS, has
proved an unwelcome distraction.

‘IFRS is difficult, isn’t it? In some cases some of the changes make sense
and it is helpful to have standards across a number of countries, so that must
make sense. But what is frustrating is that some of the rules like IAS39 still
have areas that aren’t quite clear. The lack of clarity is frustrating because
it absorbs a lot of the finance management in the industry and it involves a lot
of time with our professional advisers, which increases costs, but adds no value

‘Anything that adds cost and complexity to the business is clearly not
welcome,’ he says. ‘I would rather we were spending time focused on things like
the performance of our Greek subsidiary rather than the accounting of our Greek
subsidiary, but it looks like the rules have been made and we are going to have
to stick with them.’

Ready for anything

Whatever the challenge ahead, whether it’s regulation, competition or the
tentative consumer, O’Byrne remains confident that DSGI is well positioned for
the future.

‘If you look at market share over the last five years, we are the UK market
leader. Others have come into our market and grown their share, but not at our
expense. We continue to compete and to explore new opportunities. We have a
great deal to look forward to.’

Tottenham Court Road may be as wild as it has ever been, but Kevin O’Byrne is
still walking it with confidence, eyes steeled and guns at the ready.

The one that didn’t get away

The last 12 months have been littered with stories of FDs pushing for chief
executive positions and just missing out.

Jon Symonds, CFO of AstraZeneca, narrowly lost the race to become the
pharmaceutical group’s head while Reckitt Benckiser FD Colin Day was on the
brink of taking over as CEO of easyJet before the move fell through.

Although Kevin O’Byrne, group FD of DSG International, wasn’t quite shooting
for the top job at the beginning of this year, he did secure an appointment as
the operational head of DSGI’s computing division, which incorporates PC World,
PC City and PC World Business.

O’Byrne said he decided to take the position, which he will hold in addition
to his responsibilities as group FD, after long discussions with DSGI CEO John
Clare, who felt O’Byrne was ready to take on a new challenge.

‘I have been FD for coming up to two years and it would be really good if I
broadened my experience. I want to be more involved in the day-to-day activities
of the operation,’ O’Byrne explains.

O’Byrne will work closely with veteran retailer and managing director of the
computing division Keith Jones.

‘We are combining Keith’s retail experience with my financial and strategic
abilities. We have different business backgrounds, so we should have a broader
sort of view on things and come at it from slightly different perspectives.
Hopefully, together we can make better decisions for the business,’ O’Byrne

He is quick to add, though, that it would have been impossible for him step
into the new role without the support of the DSGI finance team. ‘We structure it
around a group controller and two divisional FDs. Around them they have got very
strong teams and I have a very good director of investor relations.

‘I have got a strong team, having been in the role a while, so they can pick
up and manage the day-to-day financial strategy and control of the business.
Without that I couldn’t have taken on this new job.’

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