Dixons unveils £1bn push into Russia

CONSUMER electricals group Dixons is to move into Russia in a hugely ambitious £1bn move that could transform its growth prospects. The company has signed a long-term co-operation agreement with leading Russian retailer Eldorado Group, potentially worth $1.9bn (£1bn), that gives it the rights to take over the entire business by 2010.

Founded 10 years ago, Eldorado has an estimated 22% share of the electrical goods market in Russia and is the country's largest retailer. It has 610 stores across the country and the Ukraine, encompassing 235,000 square metres of selling space. Sales last year reached £1.3bn, up 83% on the previous year.

Under the terms of the agreement Dixons will have the exclusive right, but not the obligation, to take full control of Eldorado within five years. But this is subject to it exercising an option to acquire an initial 10% stake before 2008.

Dixons chief executive John Clare said the deal would give the company time to familiarise itself with the Russian market before committing the group financially. He added: 'This is a great opportunity for Dixons and is consistent with our growth strategy. Russia is a market with enormous potential and Eldorado is the ideal strategic partner. This agreement has the potential to bring substantial benefits to the shareholders, employees and customers of both businesses.'

The agreement is the first tangible sign of Dixons' search for new growth opportunities. Two months ago the company admitted that consumer spending over Christmas had been disappointing as demand for 'big-ticket' items fell. The company insists it is still on course to achieve analysts' forecasts of around £345m of pre-tax profits for the full year despite uncertainty over consumer attitudes in the UK.

Despite the company's robust outlook, analysts have been broadly pessimistic on Dixons' prospects. Most believe that with electricals such as plasma TV screens clearly a discretionary purchase, the group is vulnerable to any further downturn in consumer sentiment.

Reports at the weekend claimed that the company is considering selling its mobile phones retail business, The Link, following poor trading over Christmas. The Link, which has nearly 300 stores, is also 40% owned by 02 and both companies can block a sale to rivals.