LOSSES and provisions for its unprofitable US business Silo were

responsible for a drop in annual profit at Dixons, the electrical

retailer, from a restated #50.1m to #33.5m.

Dixons lost #22.4m in the US last year and has set aside #36.2m in an

exceptional provision to cover restructuring of Silo. This will cover

the costs associated with the closure of more than 45 stores.

The extent of the problems in the US business took the City by

surprise, prompting many analysts to downgrade their profit forecasts

for the current year. Dixons' shares short circuited, dropping 15p to

195p. Although there is thought to be scope to transfer much of the

success of the UK business into the US it is likely to take some time

before this is translated into success in profit terms. Once again

another UK retailer has tried to run before they can walk in America.

The poor US performance overshadowed the fact that the UK business is

going from strength to strength. The move of the Curry's business to

larger out-of town superstores is proving very successful. It was

Dixons' best performing trading format with sales up 15% last year. This

enabled overall group sales to advance by 10% to #1323.9m. UK retailing

profit before tax and interest was #77.6m compared with #71.9m

previously.

The retail profit included a contribution of #700,000 -- down from

#1.7m -- from Supasnaps which was sold in April and #200,000 profit from

PC World Group which was acquired in February. PC World's sales through

its four London-based superstores were #16.5m. Dixons intends to expand

PC World nationwide with three new stores due to open in three cities

outside London in the current year.

For the first time in three years, there was significant growth in the

electricals market, with a particularly marked advance in white goods.

Sales of computers and computer games hardware and software in Dixons

increased substantially, notably over Christmas.

Although there are signs of a recovery in demand in the UK electrical

retailing market this is often at the expense of margins. This confirms

analysts' concerns about the state of the market. Mark Josefson at

brokers Panmure Gordon pointed out that Scottish retailer Clydesdale was

expected to come to market earlier this year but abandoned the issue.

The reason given was that although sales were in line with expectations,

profits were down because of the impact of heavy discounting.

With margin pressure being felt throughout the UK retail industry,

this upset from Dixons is likely to focus attention once more on the

increased competitive pressures in the marketplace for all sorts of

goods. Indeed Dixons' chairman Stanley Kalms said that while the groups'

like-for-like sales since the year-end on May 1 are ahead of last year,

gross margins are under pressure. This is also the case in the Silo

business.

Mr Kalms said the main challenges for the group were to maintain the

progress in the UK.