DSG International, the owner of Dixons, Curry's and PC World, has gone into exclusive talks with O2 to sell its 60 per cent stake in struggling phones chain The Link for about £30 million in cash.

Confirmation of the sales talks, which value The Link at £50 million, came as Britain's largest electricals retailer reported a 9 per cent fall in annual pre-tax profits to £302.9 million.

Last year DSG, which has been hit by the slump in high street trading, generated annual profits of £332.5 million - down by 8 per cent on the previous year.

Because of the sales talks with O2, DSG did not disclose figures for profits at The Link, in which O2 already holds a stake of 40 per cent inherited about four years ago.

But last month, in an otherwise extremely upbeat trading statement, it reported that sales at the embattled chain slumped 21 per cent over the year and 25 per cent on a comparable, same-store basis.

Sources close to the sales process said DSG was comfortable with the price tag for its stake in The Link, which has been struggling to improve sales in the face of fierce competition and its owner's lack of associated telecoms services.

They argued that The Link had plenty of capacity to generate profits, but would sit more comfortably within a wider telecoms group that is capable of slotting it into other offerings such as broadband and the provision of internet services.

Just yesterday, O2 entered the broadband market by buying provider Be for £50 million.

John Clare, DSG's chief executive, said: "The competitive landscape for mobile phones, initially a retail market, has changed significantly and has become a market in which the profit opportunities can best by leveraged by the networks and telecom services providers.

"The sale of The Link will enable us to focus on our core multi-channel electrical and computing formats as we pursue our leadership ambitions across Europe."

For the group, like for like sales were flat over the year, although the international businesses performed well and DSG made cost savings of £32 million. It is targeting savings of £25 million this year.

DSG, which is rebranding Dixons as an internet-only "Currys.digital" business, said its store expansion plans for other outlets should create 3,000 jobs over the next 12 months.

The dividend was set at 6.53p a share.

Shares in DSG closed last night at 193.25p, valuing the retailer at more than £3.5 billion.

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