Group plc Annual Report & Financial Statements for period ended 29 March 2015

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STOCK CODE: PLND OPERATIONAL HIGHLIGHTS

GROUP SALES AREA 60 grew by NET NEW STORES 13.5% growing the estate in to UK & to 3.17 million sq ft 588 stores (2014: 528)

RETAIL PARK NEW STORES 350,000sq ft warehouse opened in Harlow, replacing temporary NOW TOTAL 87 (2014: 57) 200,000 sq ft Hoddesdon facility

Strong 5.3 STORE MILLION opening pipeline customers served each in place in UK week, including over and Ireland for FY2016 300,000 in Ireland

FIRST

Dealz store opened in Spain we now have 7 including 3 STORES IN MADRID on track to open 10 stores in spain in two years CONTENTS

Introduction Our History 1 Market Overview 2 Business Model 4

Strategic Report Our Group Strategy 10 Chairman’s Statement 12 Chief Executive Officer’s Review 14 Chief Financial Officer’s Review 18 Risks and Uncertainties 26 Corporate and Social Responsibility Report 28

Governance Directors’ Report 31 Our Directors 34 Our Executive Team 36 Corporate Governance 37 Governance and Nominations Committee Report 41 Audit and Risk Committee Report 42 Directors’ Remuneration Report 45

Financials Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements 62 Independent Auditor’s Report to the Members of Poundland Group plc 64 Consolidated Income Statement 66 Consolidated Statement of Other Comprehensive Income 67 Consolidated Statement of Financial Position 68 Consolidated Statement of Changes in Equity 69 Consolidated Cash Flow Statement 70 Notes to the Consolidated Financial Statements 71 Company Balance Sheet 105 Notes to the Company Financial Statements 106 OUR GOAL

At Poundland we deliver amazing value to our customers every day. We will be famous for our wide range of great products and top , offering many exciting new lines every week. Poundland will always be fun and friendly with something for everyone.

OUR VALUES

WE PUT KEEP IT CUSTOMERS SIMPLE FIRST

INDIVIDUAL RESPECT RESPONSIBILITY TEAM DELIVERY EACH OTHER

TREAT EVERY RECOGNISE £ & CELEBRATE AS YOUR OWN SUCCESS Who we are Poundland is the largest single price value general merchandise retailer in Europe by both sales and by number of stores. Poundland operates a network of 588 stores across the UK and Ireland, with a further 5 stores opened in Spain as part of a trial exercise. Stores are sited in convenient locations, typically with high footfall, across a mixture of high streets, shopping centres and parks and are all operated on a leasehold basis. What we do Poundland is a price driven, volume-led business offering an extensive range of products across 17 categories, with the average Poundland store carrying approximately 3,500 core range SKUs including over 1,000 branded products. These brands such as , Mars, Heinz, Nestle, Colgate, Coca Cola, Walkers and McVities represent an important footfall driver and together with fast moving consumer goods (“FMCG”) brands such as Cif and Fairy, make a significant contribution to our sales. Our own branded products were further enhanced in the year by the launch of our first celebrity endorsed product range, Jane Asher’s Kitchen, which has been one of our most successful launches ever. The launch of Make-up Gallery cosmetics and Purple Ivy Jewellery expanded our own range further. How we do it Poundland operates from headquarters in Willenhall, and employed on average 14,000 colleagues in the 2015 financial year. Our distribution capacity was enhanced in August with a new purpose built warehouse in Harlow in the South East of England replacing the temporary facility at Hoddesdon.

1990Opened 2002 first store Advent in International Burton-upon-Trent acquires the majority shareholding

2010 2011 Warburg Pincus The firstDealz stores open acquires the majority in the (Blanchardstown & Portlaiose) shareholding and Poundland wins Discount Retailer of the Year at the Retail Industry Awards

2014 2015 Poundland Exceeds floats on the £1 billion Stock revenue for the first time Exchange

www.poundland.com 1 MARKET OVERVIEW

Poundland operates in a dynamic and intensely competitive sector of the UK economy, general merchandise retailing. We also trade from a wide variety of retail locations across high streets, shopping centres and retail parks. Our sales of £1.1bn are generated across 17 different food and non-food product categories. This breadth of product offer means that we compete with a broad range of large and sophisticated competitors in a wide range of retailing sectors. Firstly we compete directly with the national grocery multiples (, , Sainsbury’s and ) and other large national retailers (e.g. , the Co-op, , , and Spar). Secondly we compete with specialist retailers that focus on certain segments (e.g. Boots, Superdrug and WH Smith). Lastly we compete with the newer and faster growing retailers in the value general merchandise sector (e.g. B&M, , Wilkinsons). Our recent brand launches include, Jane Asher’s Kitchen, Make Up Gallery, Purple Ivy Jewellery, The Tasty Snack Company, (indulgent and healthy snacking), ‘Millie’, our hair accessories brand, Nail Bar and most recently, Tommy Walsh’s DIY-time. These, together with our amazing value every day offer across many household necessities, create an exciting shopping environment which drives on average 5.3 million shoppers through our doors every week. We are pleased that our share of the total retail market is growing, but at just 0.3% of £334 billion, we believe that we have plenty of opportunity to grow our business as we move towards our 1,000 store target for the UK. The key trends and features of the UK value general merchandise market are listed below: • One of the fastest growing sectors within UK retail, having grown at a CAGR of approximately 15% since 2007, predominantly driven by rapid store roll out; • An established sector that continues to benefit from a structural shift in consumer behaviour towards value retailing; • Significant long-term growth potential with the market forecast by PwC to grow at a CAGR of approximately 9.3% per year between 2012 and 2017, driven by a combination of supply and demand factors, and also supported by evidence in the more mature US value general merchandise market; and • While the value general merchandise market has primarily appealed to less affluent customers, there is now an increasing penetration by a broad social economic group. While many new consumers entered the discount retail market during difficult economic times, esearr ch suggests that the majority of these customers will continue to use value retailers, even as the economy improves. Research suggests that a number of these customers are from the higher socio demographic groups. (source: PwC, ‘‘The UK Value General Merchandising Market’’, November 2013). We think that this will benefit us and the discount market as a whole, as its addressable market increases.

KPI PERFORMANCE

2015 2014 Change Underlying Number of stores 588 528 +60 Underlying Number of new stores (net) 60 70 Underlying Sales (£m) 1,111.5 997.8 +11.4% Underlying Gross margin (%) 37.1 36.9 +20bp Underlying EBITDA (£m) 59.4 54.0 +9.9% Underlying EBITDA margin (%) 5.34 5.41 -7bp Underlying profit for the period (£m) 34.0 27.3 +24.6% Operating cash flow less maintenance capex (£m)* 60.1 61.8 -2.8% Cash conversion (%)** 92.7 123.7 Operating cash flow less maintenance and expansion capex (£m)*** 44.9 47.2 -4.8% Net cash/(debt) (£m) 13.9 (4.7) +18.6m * Definded as underlying EBITDA plus/minus changes in working capital adjusted for IPO payables minus capital expenditure in stores opened in the prior period or earlier ** Defined as underlying EBITDA plus changes in working capital minus maintenance capex in the UK & Ireland divided by underlying EBITDA *** Defined as underlying EBITDA plus/minus changes in working capital adjusted for IPO payables, minus all capital expenditure in the UK and Ireland, including investment in existing stores, the roll out of new stores and investments in extensions, IT, warehouse and property.

POUNDLAND GROUP Plc 2 Annual report and financial statements for p/e 29 March 2015 VGM - Sales Revenue

8,000 VALUE 7,000 6,000 GENERAL 5,000

MERCHANDISE £m 4,000 3,000 SALES 2,000 REVENUE 1,000 0 2009 2010 2011 2012 2013 2014 2015 Forecast

VGM - UK Store Estate

3,000 VALUE 2,500 GENERAL 2,000 1,500 Sto r es MERCHANDISE 1,000 UK STORE 500 0 ESTATE 2009 2010 2011 2012 2013 2014 2015 Forecast

WORKING TOGETHER

Poundland have been working in partnership with Macmillan Cancer Support for the last 6 years. Thanks to the enthusiasm and support of colleagues and customers, over £1.3 million has been raised, which is an amazing achievement and underpins our goal and values. Store, distribution and CSC colleagues have been busy fundraising both collectively as a team and individually all year round. There have been a range of fancy dress days, tea parties in support of Macmillan’s World’s Biggest Coffee Morning, a Spook fest for Halloween and wearing Christmas jumpers over the festive period, plus lots of great individual store activities, including taking part in the ice bucket challenge. On top of all that colleagues have sold pin badges, played darts with professional player Phil ‘The Power’ Taylor, taken part in bike rides, marathons and the “24 peaks in 24 hours” challenge. Together we’ve raised over £1,300,000 The money raised will fund vital Macmillan support services, to help ensure that no one faces cancer alone. For example, £158,159 could pay for a Macmillan nurse for three years, helping people living with cancer and their families receive essential medical, practical and emotional support. Thank you to everyone involved.

www.poundland.com 3 OUR BUSINESS MODEL

SUPPLY HOW WE SOURCE PRODUCTS

We source from around 900 suppliers across the world and have an office in Hong Kong and an exclusive sourcing arrangement in India, which together provide a key competitor advantage in our sourcing of general merchandise products. No one supplier generates more than 5% of our sales. We aim to buy and sell our products responsibly – so our customers know that everything they buy is produced under fair conditions. We regularly visit (through planned and unannounced visits) suppliers to ensure the ethical and social standards Poundland aspires to are maintained and upheld. We have a clear social and ethical accountability policy, relating to employment, work conditions and product sourcing that we ask all our suppliers to comply with.

Our customer proposition is enhanced by our strong track record of product innovation and range development. We work closely with our suppliers in developing exclusive products and pack sizes. We also have strong in-house product development capabilities, offering over 50 own label brand families. During the year this range was further enhanced by the launch of our first celebrity – endorsed product range, Jane Asher’s Kitchen, which very quickly became one of our most successful launches ever.

We believe that Poundland’s own label offering in FMCG categories, as well as its strength in developing new product ranges, typically non-consumable, general merchandise products, are key differentiators versus other retailers in the UK.

POUNDLAND GROUP Plc 4 Annual report and financial statements for p/e 29 March 2015 www.poundland.com 5 OUR BUSINESS MODEL

DISTRIBUTION HOW WE MANAGE OUR DISTRIBUTION ACROSS UK, IRELAND AND SPAIN

We operate from three distribution centres, including two regional distribution centres located in the Midlands and South East England (Springvale (Bilston) and Harlow respectively), and one national distribution centre located in the Midlands (Willenhall). Almost 90% of products are delivered into one of our distribution centres before onwards distribution to our stores. A limited range of chilled food is delivered direct to stores by a third-party supplier. The Springvale, Harlow and Willenhall distribution centres have capacities of approximately 300,000 square feet, 350,000 square feet and 200,000 square feet, respectively. The regional distribution centres cater mostly for FMCG and Seasonal products and the national distribution centre caters predominantly for imported products such as DIY and Stationery.

The Harlow distribution centre is a purpose built 350,000 sq. ft. facility and opened in August replacing our temporary facility in Hoddesdon. Harlow will now serve as our main depot for South East England and will also provide initial support to the business as we trial stores in Spain. The combined distribution centres have increased our total distribution capacity so we are now able to operate approximately 750 stores in the UK, Ireland and Europe. Since opening Harlow, our distribution management team have concentrated on achieving gains in efficiency, including enhanced route efficiency and productivity through increased use of double-decker trailers.

We also have four cross-docking facilities, located in Scotland (Coatbridge), the North East of England (Spennymoor), Ireland ( ) and (Larne). The cross-docking facilities in Scotland and the North East of England are operated by our logistics partner, DHL. Northern Ireland and Ireland are serviced by AM Nexday, a transportation services company based in . We provide our own transportation services for our Harlow, Springvale and Willenhall distribution centres.

POUNDLAND GROUP Plc 6 Annual report and financial statements for p/e 29 March 2015 www.poundland.com 7 OUR BUSINESS MODEL

RETAIL OUR STORES AND PRODUCT RANGE

We have established our market-leading position in the UK by focusing on delivering amazing value to our customers every day. We believe that this is achieved by selling a wide range of great products and top brands, offering many new exciting lines each week, at a clear, consistent price point which offers our customers amazing value for money. The same commitment to delivering amazing value is met in Ireland and Spain under our Dealz brand.

We sell a wide range of products across 17 product categories including household goods, grocery, impulse and health and beauty, with all products in our stores in the UK selling for £1. Some of the most recognised consumer brands in the world are sold in our stores, including Coca Cola, Cadbury, Colgate, Heinz, Mars, McVities, Nestlé and Walkers. This branded product offering drives footfall to stores, and of the approximately 3,500 core range SKUs in our average Poundland store, over 1,000 SKUs are third-party branded. Our own label, typically higher margin brands, provide our customers with even greater choice and value.

Over the course of the year, our product offer is refreshed continuously, with around 100 new products introduced each week. This drives footfall to the stores, as our customers in the UK, Ireland and more recently, Spain love this treasure trove appeal.

We believe that the single price point in the UK provides us with a competitive advantage to other retailers as it sets a clear and consistent base for price comparison. Customers are able to compare prices on identical products across retailers knowing that at Poundland, product will always be on sale for £1.

POUNDLAND GROUP Plc 8 Annual report and financial statements for p/e 29 March 2015 www.poundland.com 9 STRATEGIC REPORT

OUR GROUP STRATEGY

1. Continued focus on delivering amazing value to our customers every day Through our long track record of profitable growth, we have demonstrated our ability to maintain and strengthen our position as the market-leading, single price value general merchandise retailer in the UK. To continue to drive our business performance, we will remain true to our goal of delivering amazing value to our customers every day.

We believe that product innovation and exclusive product ranges, including carefully selected celebrity endorsed offers, provide a key competitive advantage and therefore we remain committed to refreshing and developing our offer to meet consumer demands. We will, where appropriate, continue to focus on targeting store marketing with tailored offers and third-party promotions, vouchers and marketing activity.

2. Continued store roll out Our track record of rapid store roll out in the UK and Ireland continues, enhanced during the year by our entry into Spain, where as part of a trial project we have opened 7 stores since July (5 at the year end). We continue to identify strongly performing locations. The value general merchandise market is forecast to continue its exciting growth. We expect to remain as one of the winners in this sector. We generate pay backs from our new stores in the UK and Ireland in around one year, so it makes sense to continue to add to our store base but only in sustainable shopping venues. We believe, supported by external research conducted by the Javelin Group, that there is potential for more than 1,000 Poundland stores in the UK. In addition, we believe that there is potential for more than 70 Dealz stores in Ireland. We plan therefore to continue opening stores at similar rates as the last four years, adding approximately 60 net new stores per year, of which approximately 10% are expected to be in Ireland. We believe that there are opportunities to add stores throughout the UK and Ireland, as the Poundland and Dealz business model is robust across a wide variety of store sizes (between 1,700 and 12,000 square feet), formats (high street, shopping centre, retail park) and market demographics (22% of Poundland’s UK customers are from the affluent AB socio-demographic group, based on a survey conducted by Poundland in 2013). We remain increasingly focused on retail park stores as part of the overall new store mix.

POUNDLAND GROUP Plc 10 Annual report and financial statements for p/e 29 March 2015 3. Optimisation of existing store portfolio We will continue to seek to drive growth in both average transaction value and in number of transactions. We see opportunities to drive this through

• Continued innovation and development of our exclusive product range both with branded suppliers as well as our own brands. • Better category management and improved micro marketing.

We also expect, over the long term, as the consumer recovery builds, to sell more general merchandise products and will continue to improve our product range in these categories.

Around 130 of our stores are smaller than 4,000 square feet. While some of these stores are appropriately sized for their location and competitor set, we see opportunities to resite and/or expand around half of these stores, which should enhance both their performance and their long term sustainability.

4. Planned expansion into continental Europe After careful consideration of the findings of a detailed assessment of the expansion prospects in continental Europe, including market size, price differentials, brand overlap with the UK, supplier considerations, logistics and site availability, we entered the Spanish market in July. In addition to favourable market conditions for Dealz in Spain, we identified high interest in the concept through consumer surveys. Pricing analysis has also illustrated that Dealz pricing is competitive and sustainable. Property research has identified good levels of site availability and favourable property costs, with typical leases of ten years with short break periods (e.g. two-year break periods).

We expect to open up to 10 stores over a two-year period, which will initially be supplied from our UK distribution centres. The Spanish operations are staffed by a core local team with extensive Spanish retail experience and are supported by a UK-based senior management team. We expect that there will be significant brand and supplier overlap with the Poundland and Dealz Ireland product base. The pilot stores’ performance is being assessed carefully ahead of any further roll out in Spain or elsewhere in continental Europe. The cost of this trial remains low and we believe represents a low cost and low risk strategy to test market opportunity.

5. Format and channel development We will continue to explore new growth opportunities, such as the potential development of a transactional website to access new customers and fulfil different shopping missions, as well as developing new store formats such as a city centre format, which is a smaller store designed to operate in high footfall city centre locations with a focus on impulse and convenience purchases.

As demonstrated by our pending acquisition of Limited, we will continue to explore opportunities for consolidation as and when they arise.

www.poundland.com 11 STRATEGIC REPORT

Trading and financial performance I am pleased to announce a good year for Poundland, especially as CHAIRMAN’S it was our first full year as a public company. This has been a record year for Poundland with total sales moving over £1 billion for the STATEMENT first time, up 11.4% on the previous year and the total number of 60 Darren Shapland net new stores opened during the year in the UK & Ireland, together Chairman with our first stores in Spain, bringing the total estate to 593 at the year end. We have a strong pipeline of new stores for the current year.

Our EBIT improved by 10.8% to £44.4 million, whilst our underlying pretax profits increased by 18.6% to £43.7 million. The strength of this performance, allied to our strong future growth prospects, means that the Board has recommended its first full year dividend payment.

Further details of the Trading Performance are given in the Chief Financial Officer’s Report beginning on page 18.

Strategy We continued to roll out our strategy as outlined in the prospectus, in terms of store rollout, focus on cash and cash generation and the initial stages of our international pilot in Spain. We remain focussed on driving towards our 1,000 store target in the UK, our target of 70 stores in Ireland and learning as much as we possibly can about the opportunities to roll out the Dealz format in Europe.

POUNDLAND GROUP Plc 12 Annual report and financial statements for p/e 29 March 2015 We agreed to purchase 99p Stores Ltd for £55 million, conditional the reports from the Audit and Risk Committee, Remuneration on Competition and Markets Authority permission. We are now Committee and Governance and Nominations Committee working with them in a Phase 2 review of the acquisition, the beginning on pages 41, 42 and 45 respectively. We believe these findings of which are due in October. We are hopeful that we can Non Executives will enhance the diversity of the board and bring proceed with this acquisition because we believe that it would be a independent judgements on issues of strategy and performance as good deal for all of our stakeholders and for the consumer. we go forward as a plc.

This year will see at least another net 60 stores open in the UK & The combined experience and the insight of the Executive Directors, Ireland. We will also move towards our target for 10 stores in our the Non-Executive Directors and highly talented and experienced trial in Spain, at which point we will carefully assess the financial Executive Team will be invaluable to the Board. metrics and outlook, before taking a decision on roll out. Full details of the Directors and their memberships of the Board’s The Board and Corporate Governance standing committees can be seen on pages 34 to 35. I firmly believe that we have a high calibre team of executives, supported by strong, independent non-executives who together Our People form an experienced Board of Directors who will continue to drive I know that I speak for the whole Board when I say that I am the Group to an even more successful future. immensely proud of our management teams and colleagues across the business whether in our stores, distribution centres or the We have had a number of changes to our non-executive team Customer Support Centre, for the dedication that they have shown over the past 12 months. I took over as Chairman in July 2014, and continue to show to the Group and the great service that they following the departure of Andrew Higginson, who left with our give to our customers. best wishes, given his considerable assistance in our flotation in his role as Chairman. Trevor Bond also departed in September, after Dividend taking up a new role with Johnson & Johnson. Following these With regard to dividend, as promised in the Prospectus issued to departures, we have appointed Miles Roberts, who is currently prospective Shareholders prior to listing, the Directors announced Group Chief Executive of DS Smith plc. He has taken on the role the payment of the first dividend to be declared by the Company of Senior Independent Director and is a member of our Audit & with the interim results and this dividend was paid in January 2015. Risk, Remuneration and Governance & Nominations Committees. We also appointed Tim Jones, who is the Chief Financial Officer I am pleased to announce that the Directors have recommended at Mitchells and Butlers plc, as an Independent Non-Executive a final dividend of 3.0p, giving a total for the year of 4.5p, which Director and he is the Chairman of our Audit & Risk Committee and represents dividend cover of 3.0 times, in line with our promise in a member of our Remuneration and Governance & Nominations the prospectus to pay a dividend that would be covered between Committee. 2.5 times and 3.5 times by earnings.

Stephen Coates departed in January, after his retirement from Looking Forward Warburg Pincus LLP and more recently, Paul Best also stepped down from the Board. After almost five years on the Board, I would I think that we have had a strong first year as a public company, like to thank both Stephen and Paul for their advice over these delivering our planned opening programme, underlying profits which years. were in line with market consensus and good cash generation. Looking ahead, we will continue to manage the business tightly In March, we appointed Mary Barnard as Independent Non- while investing in clear opportunities for future growth and are Executive. Mary is currently Area President, Northern Europe at confident in making further progress in the new financial year. Mondelez International Inc.

Full details of the Committees and their duties are contained in Darren Shapland the Corporate Governance Report beginning on page 37 and Chairman 18th June 2015

www.poundland.com 13 STRATEGIC REPORT

Overview I am pleased to report that our first full year as a public company CHIEF EXECUTIVE has resulted in a record year for Poundland with good sales and profit growth, together with a strong new store opening programme. OFFICER’S REVIEW We broke through the £1 billion revenue milestone for the first time, Jim McCarthy managed our margins well, with strong cost management and Chief Executive Officer moved to a positive net cash position at the year end.

We have continued to pursue our strategy as defined at the time of our IPO last year. We expanded our presence in the UK and Ireland with the opening of 73 stores in total which, after store closures, normally associated with the end of leases and the closure of temporary stores, resulted in 60 net new stores. This took our overall estate at year end to 588 stores, with total trading space expanding by 12.2% to 3.1m sq ft.

We added a net 50 stores in the UK and, in line with our property strategy, we grew our presence in both retail parks and in the South of England. We now operate from 83 retail park stores, up from 54 last year. In Ireland, we opened 10 stores, including one retail park, taking our store estate to a total of 41 stores and our total number of retail parks to 4.

Our average basket grew by 3.7% to £4.72 during the financial year and our weekly customer numbers grew by 9.1%. We also continued to develop exceptional new product ranges, including Jane Asher’s Kitchen and Make Up Gallery, both of which outperformed our demanding expectations. Jane Asher’s Kitchen

POUNDLAND GROUP Plc 14 Annual report and financial statements for p/e 29 March 2015 is now a £10 million annualised brand and sales of Make Up Gallery supporting our business in Spain, during its trial phase. It should cosmetics have been strong since launch. We were delighted that also lead to increased efficiencies, allowing us to further improve Make Up Gallery recently won first prize in ‘The Grocer Gold’ for the instore availability and invest appropriately in our offer and service to best own label launch of the year 2015. customers.

In July, we opened our first store in Spain, ending the year with We are currently working on a new distribution centre in the North 5 stores, halfway through our planned two year 10 store pilot. West of England, as we plan to manage future growth towards our We are continuing to learn about the Spanish consumer and the long term store target for 1,000 stores in the UK and 70 stores in market itself and we will update investors on its progress once we Ireland. The new distribution centre is scheduled to open in the have moved to 10 stores and developed our understanding of the 2017 financial year. potential within this new market. Results We intend to further strengthen our market presence across all of Our performance was good, with constant currency revenue growth our markets, with additional openings during the coming year. Our of 11.8% taking us to over £1.1 billion and underlying EBITDA pipeline is especially strong for the current year and we plan to growth of around 10% to £59.4 million. We grew our like-for-like open at least 60 net new stores in the UK & Ireland. In particular, sales by 2.4%, ahead of analysts’ long term expectations and we we expect to open at least 40 net new stores in the first half of the delivered our new store opening targets, albeit rather later in the year, considerably ahead of last year’s 28, which will leave us well year than originally planned. We managed our margins well, with positioned for our important third quarter Halloween and Christmas gross margin benefiting from our increased buying power and the trading period. mix benefit from the excellent new ranges we introduced during the year. This was achieved whilst continuing to invest in our offer, as we Continued investment to support growth ensure that we continue to deliver amazing value every day to our At Poundland, we have always believed in investing ahead of value conscious customer base. Underlying pretax profits grew by growth. The continuing expansion of our retail estate within the UK, 18.6% to £43.7 million and our EPS by 24.4% to 13.56p. Ireland and Spain – together with our growth plans for the future - These good results were achieved despite the normal additional led us to invest in a third, purpose built 350,000 sq.ft. distribution costs of becoming a PLC and currency headwinds in the second centre at Harlow, which became operational in September, replacing half of the year. as planned the 200,000 sq.ft temporary facility at Hoddesdon. This new facility enables us to grow to 750 stores in the UK and is

www.poundland.com 15 STRATEGIC REPORT

CHIEF EXECUTIVE OFFICER’S REVIEW continued

Spain retailers are recording volume decline. Out of a total assortment of 3,500 skus, Poundland offers only 1,000 brands. Therefore, Our successful entry into Ireland under the Dealz brand in given our large volumes, on individual product lines, we can be September 2011 demonstrated that we could generate attractive very important to our branded suppliers, who are therefore very financial eturr ns whilst rapidly establishing a new brand in a supportive to us. different geography. Therefore, after extensive market research, we commenced a trial of our Dealz format in Spain with a low cost, low We also work hard to improve and develop our own-label ranges. risk entry. We announced that we would open 10 stores over two Our buyers source product globally. We have operated a sourcing years, as we trialled the opportunity for a value general merchandise centre in Hong Kong since 1999 and we believe that this enables concept in the Spanish market. us to continuously develop high quality own label ranges which are popular with customers. We opened our first store in Torremolinos in July 2014. Since then, we have added a further 6 stores, including 3 in Madrid. The trial We are pleased that our supplier partners across the world is progressing well. We originally planned to open 10 stores in recognise the increased demand for value and work with us to two years, but we will hit that target a little ahead of plan. We will deliver products that meet our customers’ exacting requirements. comprehensively evaluate their performance during this financial We are rapidly achieving the scale that enables further opportunity in year before making a decision on our longer term plans. value development in both branded and in our own label product.

The customer response has been positive and sales are in line with 99p Stores plan. While we are confident that we will succeed in Spain, there is still work to do in developing the economic model. For example We believe that we compete on value with all retailers and we were we need to improve the proportion of general merchandise sales therefore surprised and disappointed with the Competition and within our mix and we need to increase the local product range, Markets Authority’s (CMA) decision not to allow the acquisition of but this is primarily a function of scale. In terms of product, local 99p Stores to complete after Phase 1 of its investigation without sourcing currently accounts for 20% of sales and Spanish suppliers substantial remedies. Nevertheless, we believe that the proposed are increasingly identifying the growth opportunity in working in acquisition will be good for customers and shareholders alike partnership with Dealz. and we are co-operating fully with the CMA in Phase 2 of its investigation. The CMA’s decision is expected to be announced on Suppliers 23 October. Our integration planning, subject to the CMA’s Phase 2 findings, is well advanced and the proposed acquisition could result Our customers expect us to deliver amazing value on brands, so in over 250 stores being added to our network in addition to our branded suppliers are important to us. This provides a halo effect to strong organic growth programme. our own label offer and drives strong cash returns. Colleagues Our branded sales have doubled to around £800m over the last four years, showing compound annual growth of nearly 17%. This Our achievements would not be possible without the hard work is attractive to branded suppliers, especially at a time when leading and dedication of our colleagues throughout our business. I am

POUNDLAND GROUP Plc 16 Annual report and financial statements for p/e 29 March 2015 immensely proud of their commitment and passion in delivering Poundland is well positioned to benefit from the economic recovery amazing value every day to our customers. that should drive additional discretionary spending. We expect that improved consumer confidence will work its way through to benefit We are proud of our diverse colleague base and support the the retail sector as a whole by the second half of the year. investment in meeting the development and training needs of our 14,000 colleagues through a detailed training programme, more We will continue to work hard to ensure that we offer amazing details of which are set out on page 29. value every day to our customers and continue to focus on communicating this effectively. We are committed to our proven I would like to thank Craig Bales, who has retired from the business strategy and we believe that our volume driven, price led operating after over ten years of exceptional service as Property Director. model will continue to serve both our shareholders and the His contribution to Poundland’s growth and success is greatly consumer well. appreciated by all colleagues across the Group. I wish him a long and happy retirement. We are pleased to announce that Andy We believe that the Poundland brand is still significantly under- Garbutt has joined us as Business Development Director with exploited in the UK. We will of course continue to develop our responsibility for both Group Property and Business Development. multi-price Dealz format outside the UK and to develop and learn Andy joins from Card Factory where he was Business Development from our trial in Spain. Director for five years. eW are also pleased to announce that Michelle Burton has joined us as Human Resources Director from Our strong pipeline of new stores will deliver the unique Poundland Cofey, GDF SUEZ where she held the position of Human Resources retail proposition to well over 5.5 million customers a week by the Director. end of the current financial year. We are planning to open at least 60 net new stores, including 10 Dealz stores in Ireland, and we will I am proud that our colleagues have once again demonstrated that achieve our target for 10 Dealz stores in Spain. they operate at the heart of our communities. Macmillan Cancer Care has, for the sixth consecutive year, been chosen by our We face a number of headwinds in the current financial year. The colleagues as their preferred charity. To date over £1.3 million has most significant of these is the weak Euro. It should also be noted been raised by customers and colleagues for this worthy cause. In that the first half of the last financial year was an exceptional period. our Ireland Dealz stores we support ‘Make-A-Wish’ as our chosen We generated total sales growth of 15.0%, including like-for-like charity. Make-A-Wish has one simple aim, to grant the wishes sales growth of 4.7%, as we benefited from a late Easter, fewer of children and young people living with life-threatening medical competitor openings, warm weather, soft comparables and the conditions. In due course we will choose a charity in Spain that will ‘one-off’ loom bands craze. also receive our enthusiastic support. This means that we expect the seasonally less important first half Following Admission to the London Stock Exchange in March 2014, of the current financial year to be elativelyr subdued. However, we Poundland has introduced four new employee share plans, the believe that the second half should benefit from a combination Poundland Performance Share Plan, the Poundland Restricted Share of softer sales comparables, a very strong first half opening Plan, the Poundland Company Share Option Plan and a Poundland programme of at least 40 net new stores, against 28 stores last Save As You Earn Plan. Details of the plans are contained in the year, and the annualisation of last year’s late-running new store Directors’ Remuneration Report starting on page 45. programme.

Exchange rates In summary, I believe that the year just ended has been a good one. Poundland is experienced at managing currency exposure which, We have delivered our IPO commitments and laid the foundations until recently, has largely been products sourced in Dollars. We for future growth. Looking further ahead, we believe that the hedge our exposure 12 to 18 months ahead and, over the last Poundland and Dealz brands are still under-exploited in both the UK 25 years, have traded through a wide range of exchange rates. and in Ireland, with many more years of new store opening growth. However, because of the success of Dealz in Ireland and the We also believe that the potential acquisition of 99p Stores is an commencement of the Dealz trial in Spain, we have become more outstanding one-off opportunity for us and makes sense for both exposed to the Euro, on both a transactional and a translational our consumers and for our stakeholders. In addition, we have only basis. The recent weakness of the Euro has therefore been a recently started our trial in Spain. This has got off to an encouraging challenge for us. We are working hard to minimise the risk by start, but we need to do some more work on the economic model hedging our exposure and by increasing purchases executed in before taking the decision on roll out. I expect a year of progress Euros. Over time, the latter will provide us with a natural hedging and I look forward to the future with confidence. instrument.

Outlook Jim McCarthy Structural change has occurred in shopping throughout the UK Chief Executive Officer over the last several years and Poundland has played an important 18th June 2015 part in that. Consumers across the socio-demographic spectrum now appreciate value more than ever before. Our record of growth reflects the amazing value that we are able to offer through our Poundland and Dealz retail brands. Poundland’s single price point will continue to help consumers plan their household budgets with certainty and confidence, even in improving economic conditions.

www.poundland.com 17 STRATEGIC REPORT

CHIEF FINANCIAL OFFICER’S REVIEW Nick Hateley Chief Financial Officer

Dear Shareholder I am pleased to be able to present our financial performance for the year ended 29 March 2015, our first full year as a public company. We performed strongly across all of the Key Performance Indicators (KPIs) set out in our IPO prospectus, especially in the growth of our store estate and in our strong cash flow, as the table shows.

POUNDLAND GROUP Plc 18 Annual report and financial statements for p/e 29 March 2015 Key Performance Indicator performance 2015 2014 Change Number of stores: UK & Ireland 588 528 +11.4% Number of new stores: UK & Ireland (net) 60 70 -10 Sales in UK & Ireland (£m) 1,111.5 997.8 +11.4% Gross margin (%) 37.1 36.9 up 20 bp Underlying EBITDA (£m) 59.4 54.0 +9.9% Underlying EBITDA margin (%) 5.34 5.41 down 7 bp Underlying profit for the period (£m) 34.0 27.3 +24.6% Operating cash flow less maintenance capex (£m)* 60.1 61.8 -2.8% Cash conversion (%)** 92.7 123.7 Operating cash flow less maintenance and expansion capex (£m)*** 44.9 47.2 -4.8% Net cash/(debt) (£m) 13.9 (4.7) + £18.6m

* Defined as Underlying EBITDA plus/minus changes in working capital adjusted for IPO payables, minus capital expenditure on stores opened in the prior period or earlier. ** Defined as underlying EBITDA plus changes in working capital minus maintenance capex in the UK & Ireland, divided by underlying EBITDA. *** Defined as underlying EBITDA plus/minus changes in working capital adjusted for IPO payables, minus all capital expenditure in the UK and Ireland, including investment on existing stores, the roll out of new stores and investments in extensions, IT, warehouse and property.

www.poundland.com 19 STRATEGIC REPORT

CHIEF FINANCIAL OFFICER’S REVIEW continued OTHER OPERATING METRICS

2015 2014 Growth (%) Average net store size (sq.ft.) 5,328 5,233 1.8 Average number of transactions per week (millions) 5.3 4.9 9.1 Average transaction value (£) 4.72 4.55 3.7 Underlying gross sales (£m) 1,294 1,160 11.6

The IPO prospectus also identified a number of other key operating metrics and, as the table above shows, we demonstrated good growth in these metrics in the 2015 financial year.

REVENUE Group underlying revenue was £1,111.5 million (2014: £997.8 million), which represents growth on the prior year of 11.4%, or 11.8% on a constant currency basis. This improvement was driven by contributions from both our opening programme and like-for-like sales growth. We grew like-for-like sales during the year by 2.4% on a constant currency basis (2014: 1.9%), which was driven by our continued focus on providing our customers with amazing value every day, as well as some favourable tail winds including a late Easter, the looms jewellery band craze and more favourable weather patterns in the first quarter.

Our new store opening programme was weighted to the second half of the year, with the result that the contribution from new store weeks was considerably lower than in the same period last year. However, we achieved our target to open 60 net new stores for the year as a whole and we have a strong pipeline in place for the current financial year.

We also faced some currency headwinds due to the weakening Euro, especially in the second half of the year. If current exchange rates are maintained, then this will be more of a feature in the 2016 financial year.

We recorded non-underlying revenue of £5.4 million (2014: £nil), which represents our trial in Spain. We opened 5 stores in Spain in the 2015 financial year and will move towards our target for the trial of 10 in the current financial year. We will then evaluate the performance of these stores before announcing our longer term plans.

UNDERLYING GROSS MARGIN Gross profits increased by 12.0% to £412.7 million (2014: £368.5 million) and gross margins increased by 20 basis points to 37.1 % (2014: 36.9%). This increase was primarily driven by a combination of our improved buying power, but also assisted by the improved penetration within our sales mix of our own label products, which increased from 36.6% of sales to 38.0% or to 37.5%, excluding the sale of loom bands. This was driven by having two Easter trading periods, the looms craze and our improved own label product offer, which included the launch of the highly successful Jane Asher’s Kitchen and Make Up Gallery.

These positive factors, together with an effective hedging strategy helped to limit the negative impact of the unfavourable movement in the Euro exchange rate and enabled our gross margin to rise.

POUNDLAND GROUP Plc 20 Annual report and financial statements for p/e 29 March 2015 OPERATING COSTS

Underlying operating costs (£m) Growth 2015 2014 Growth Ex PLC costs Distribution expenses 332.1 297.0 +11.8% Administrative expenses 36.3 31.5 +15.2% +7.3% Total overhead 368.4 328.5 +12.1% +11.4% Wages and salaries 163.7 144.5 +13.2% Underlying depreciation and amortisation 15.0 14.0 +7.1% Operating leases 88.5 78.5 +12.7% Other (inc. rates) 101.2 91.5 +10.6% Total overhead 368.4 328.5 +12.1% +11.4% % of sales Wages 14.7 14.5 Underlying depreciation and amortisation 1.4 1.4 Operating leases 8.0 7.9 Other (inc. rates) 9.1 9.2 Total overhead 33.1 32.9 +20 bp flat

Underlying operating costs in the financial year increased by 12.1% to £368.4 million (2014: £328.5 million). This increase in the cost base in the period was primarily a result of the greater number of stores in our estate, but also reflects the additional costs of being a listed company, which were £2.5 million in the financial year. This drove an increase in our operating costs as a percentage of sales of around 20 basis points to 33.1% (2014: 32.9%).

We also incurred extra costs due to our interpretation of an ongoing legislative process regarding average holiday pay and this increased our wage bill by £2.4 million, before mitigating involving improved labour efficiency in our stores.

In order to aid a better understanding of the underlying growth of the business, for this year only, we have included information to demonstrate the effect of the additional costs of being a PLC, which were £2.5 million. If these costs were to be excluded, then operating costs as a percentage of sales were unchanged at 32.9% (2014: 32.9%).

EBITDA AND EBIT

Reconciliation to underlying EBITDA (£m) 2015 2014 Reported EBITDA 53.5 42.8 Adjustments Costs in respect of IPO 0.3 10.0 Harlow warehouse 1.5 – Costs in respect of 99p Stores 2.0 – Spain/e-commerce 2.1 1.3 Underlying EBITDA 59.4 54.0

We report non-underlying items in our income statement to show one-off items and to allow investors to better understand the underlying performance of the business. In relation to the 2015 financial year, these included double running costs associated with our new warehouse at Harlow (£1.5 million) and strategic initiatives in launching our pilot stores in Spain (£2.1 million). In the previous financial year, we incurred costs related to our successful IPO and to strategic initiatives in ecommerce and in international development. Underlying EBITDA grew by 9.9% to £59.4 million (2014: £54.0 million), driven by good margin management and cost control.

www.poundland.com 21 STRATEGIC REPORT

CHIEF FINANCIAL OFFICER’S REVIEW continued

Growth ex PLC (£m) 2015 2014 Growth (%) costs (%) Underlying EBITDA 59.4 54.0 9.9 14.6 Underlying depreciation and amortisation 15.0 14.0 7.1 7.1 Underlying EBIT 44.4 40.0 10.8 17.1 Underlying EBITDA margin (%) 5.34 5.41 Down 7 bp Up 16 bp Underlying EBIT margin (%) 4.0 4.0 flat Up 21 bp

The table above shows underlying EBIT and movement in underlying margins. Underlying EBIT excludes brand amortisation of £1.1 million (2014: £1.1 million) from depreciation and amortisation expenses, (including charges associated with Spain) as we regard this charge as non-underlying. Underlying EBIT grew by 10.8% to £44.4 million. The underlying Group EBITDA margin fell by 7 basis points and the Group EBIT margin was flat.

Once again, these numbers are distorted by the additional costs of becoming a PLC, which were £2.5 million. Excluding these costs, the underlying growth in EBITDA and EBIT was 14.6% and 17.1% respectively and both saw underlying increases in margin.

We believe that this is a good performance, especially given the impact of adverse changes in average annual holiday pay and also the effects of the weakening Euro.

NET FINANCE COSTS In the 2015 financial year, the Group saw its underlying net finance cost educer significantly, by 78% to £0.7 million (2014: £3.2 million). This was a consequence of the Group’s good trading performance, lower financing charges elatedr to the new loan facility and high cash conversion rates.

STATUTORY PROFIT BEFORE TAX Reconciliation to underlying profit before tax (£m) 2015 2014 Reported profit before tax 36.2 21.5 Adjustments Costs in respect of IPO 0.3 10.0 Amortisation 1.1 1.1 Distribution centre 1.5 – Costs in respect of 99p Stores 2.0 – Spain/e-commerce 2.2 1.3 Net financing expense 0.3 2.9 Underlying profit before tax 43.7 36.8 Underlying profit before tax was £43.7 million, which represented an increase of 18.6% on last year (2014: £36.8 million). Statutory profit before tax increased by 68.3% to £36.2 million (2014: £21.5 million), due to a reduction in net non-underlying charges, primarily costs in the previous year associated with the Group’s stock market flotation.

TAXATION The underlying tax charge for the period was £9.7 million (2014: £9.6 million). The full year underlying effective tax rate was 22.2% (2014: 26.0%), with the reduction primarily due to the fall in UK corporation tax rates from 23% to 21%.

STATUTORY PROFIT AFTER TAX Underlying profit after tax was £34.0 million, which eprr esented an increase of 24.6% on last year (2014: £27.3 million). Statutory profit after tax increased by 104.9% to £28.4 million (2014: £13.9 million), due to a reduction in net non-underlying charges, primarily due to costs associated with the Group’s stock market flotation in the previous financial year.

POUNDLAND GROUP Plc 22 Annual report and financial statements for p/e 29 March 2015 ADJUSTED EARNINGS PER SHARE Adjusted earnings per share (p) 2015 2014 Increase (%) Basic earnings per ordinary share 11.36 5.54 105.1 Diluted earnings per ordinary share 11.34 5.54 104.7 Basic earnings per ordinary share before non-underlying items 13.58 10.90 24.6 Diluted earnings per ordinary share before non-underlying items 13.56 10.90 24.4

Underlying fully diluted earnings per share increased by 24.4% to 13.56p per share (2014: 10.90p per share). Fully diluted earnings per share increased by 104.7% to 11.34p per share (2014: 5.54p per share). The weighted average number of shares in issue during the period was 250 million and the weighted average number of fully diluted shares was 250.4 million.

IMPACT OF FOREIGN EXCHANGE Our exposure to changes in foreign exchange rates is twofold. First, we source products overseas, primarily in US Dollars but, increasingly, in Euros. This relates primarily to the sourcing of our own label products. Because we are a single price retailer, and therefore cannot pass on price increases, we seek to mitigate changing exchange rates by hedging our exposure 12 to 18 months ahead.

Our second exposure is a consequence of our growing European business, Dealz, in Ireland and in Spain. Besides the obvious translational risk, we also have transactional risk because we mostly buy in Sterling and sell in Euros, although we are making progress in sourcing products from European markets. In our 2014 financial year, the € to £ ratio averaged 1.19, whereas in our 2015 financial year, it averaged €1.27.

Over the last six months, the Euro has weakened considerably, to the extent that, if current exchange rates were to be sustained, then we are guiding that the risk to EBITDA in the 2016 financial year will be around £4 million.

CAPITAL EXPENDITURE (£m) 2015 2014 New stores 12.8 13.0 Spain 2.2 Existing stores 3.4 3.0 Other 2.3 1.6 Total 20.7 17.6 % of sales 1.9 1.8

During the 2015 financial year, we invested £20.7 million in capital expenditure, primarily related to the opening of new stores. We continued to roll out the Poundland format in the UK and the Dealz format in Ireland. We opened a total of 73 stores in the UK & Ireland in the 2015 financial year, or 60 net of closures. We also opened 5 stores in our trial in Spain.

We ended the year with 593 stores (2014: 528), including 545 Poundland stores in the UK and 48 Dealz stores, including 41 in Ireland, 2 in the and Orkney and 5 in Spain. We have a long-term target of 1,000 stores in the UK and 70 in Ireland. We plan to open 60 net new stores a year in the UK and Ireland and our pipeline is strong for the current year.

We continued to invest in our infrastructure to support our planned growth and our new purpose-built 350,000 sq. ft. distribution centre in Harlow became operational in September.

www.poundland.com 23 STRATEGIC REPORT

CHIEF FINANCIAL OFFICER’S REVIEW continued NET DEBT AND CASHFLOW

(£m) 2015 2014 EBITDA 54.7 42.8 Change in net working capital -0.9 15.8 Operating cashflow 53.8 58.6 Tax paid -10.9 -10.4 Net cash from operating activities 42.9 48.2 Capital expenditure -19.1 -16.6 Acquisition of intangible assets -0.7 -1.0 Net cash from investing activities -19.8 -17.6 Proceeds from new loan 29.3 Repayment of borrowings -28.0 -54.9 Redemption of preference shares -20.0 Dividend paid -3.8 Net financial expenses paid -0.6 -2.5 Net cash from financing activities -32.4 -48.1 Net decrease in cash and cash equivalents -9.3 -17.6 Cash and cash equivalents at start of period 25.3 42.9 Cash and cash equivalents at end of period 15.9 25.3 Other interest bearing loans and borrowings -2.0 -30.0 Net cash/(debt) 13.9 -4.7 Cash conversion* (%) 92.7 123.7

*Defined as Underlying EBITDA plus changes in working capital minus maintenance capex in the UK & Ireland divided by Underlying EBITDA

NET DEBT AND CASHFLOW Net cash at the end of the year was £13.9 million (2014: debt of £4.7 million). This is after payment of £5.3 million in costs associated with our successful stock market flotation. Operating cash flow fell slightly to £53.8 million, due to the fact that we invested working capital in both our new warehouse in Harlow and in our pilot in Spain. These latter two points also led to our cash conversion ratio falling slightly, as expected, to 92.7% (2014: 123.7%).

DIVIDEND The Directors are pleased to propose a final dividend of 3.0p, which will be paid on 2 October 2015 to shareholders whose names are on the Register of Members at the close of business on 18 September 2015. The ordinary shares will be quoted ex dividend on 17 September 2015. As set out at IPO, we have adopted a dividend policy which reflects our long-term earnings and cash flow potential, targeting a level of annual dividend cover of 2.5 to 3.5 times based on earnings. Together with the previously announced interim dividend of 1.5p per share, this would give a total dividend for the year of 4.5p and represents cover of 3.0.

FINANCIAL CALENDAR

Event Date AGM 17 September 2015 Q2 sales Early October 2015 Interim results 19 November 2015 Q3 sales Mid January 2016 Year end update Early April 2016

POUNDLAND GROUP Plc 24 Annual report and financial statements for p/e 29 March 2015 www.poundland.com 25 STRATEGIC REPORT

RISKS AND UNCERTAINTIES The tables below summarise the material financial and operational risks to the Group and how the Group seeks to mitigate them in the day-to- day running of the business. Operational Risks Explanation Mitigation The Group operates in The retail industry, including the value Poundland works extremely hard to ensure that it responds the highly competitive general merchandise retail market, is highly adequately to these multiple sources and types of competition, retail market. competitive, particularly with respect to price, including online competition whether from existing retailers or new product selection and quality, store location entrants, to ensure that competition does not have a material and design, inventory, customer service and adverse effect on the Group’s business, results of operations and advertising. The Group competes at national financial condition. and local levels with a diverse group of retailers of varying sizes and covering different product categories and geographic markets. These competitors include other single price value general merchandise retailers, multi-price value general merchandise retailers, and certain high street retailers in particular categories, such as health and beauty. The Group may not be Part of the Group’s growth strategy is to open The Group’s highly motivated and experienced property able to open profitable new stores across the UK and Ireland, and the department are constantly working to identify and secure attractive new stores on a timely Group is currently operating a low risk low cost locations for new stores, including selecting the right store formats. basis or at all. trial in Spain. The low-cost pilot started in July 2014 with our first store in Spain, If Poundland does not open new stores on a followed by a further 4 stores by the year end. timely or profitable basis, it may not realise its growth strategy. Poundland also undertakes customer surveys to keep pace with changing customer needs and trends.

The Group may not be Poundland’s growth from existing stores is Once open, our retailing colleagues ensure that they gain able to increase sales in dependent upon its ability to increase sales, experience of the new market and develop name recognition and existing stores. manage costs and improve the efficiencies identify customer demand with a view to successfully competing and effectiveness of its operations. Increases against local competition on a store-by-store basis. The Group in sales in existing stores are dependent on seeks to hire, train and retain qualified store management and factors such as competition, merchandise other high quality personnel. At the same time colleagues within sourcing and selection, store operations and our Distribution Centres and Customer Support Centre look to customer satisfaction. maintain or improve sourcing and distribution capacity, information systems and other operational system capabilities and manage additional expenses and costs. The Group’s success The success of Poundland’s business depends Poundland operates from 3 distribution centres, including 2 is dependent on its on its ability to transport goods from its 3 regional distribution centres located in the Midlands and South logistics and distribution distribution centres to its stores throughout the East England, and 1 national distribution centre located in the infrastructure. UK and Ireland in a timely and cost-effective Midlands. All products are taken to one of Poundland’s distribution manner. Any unexpected delivery delays, centres before onwards distribution to Poundland’s stores, with the such as due to severe weather or disruptions exception of a small number of products including chilled which to the national or international transportation are delivered direct to stores by the supplier or a third-party. infrastructure, or increases in transportation costs, such as due to increased fuel costs, During the year Poundland opened its new purpose built could materially adversely affect the Group’s warehouse in Harlow. The building was completed on time and business. handed over to Poundland in August 2014, enabling us to install our IT systems. First deliveries commenced in early September and Hoddesdon was decommissioned by the end of October. Harlow is now fully operational servicing just over 220 stores with a further 60 stores to be added this year. The Group’s cash flows To be successful, Poundland must maintain Poundland has been successfully maintaining sufficient inventory from operations may sufficient inventory levels to meet its levels throughout its 25 year history and continues to employ the be negatively affected customers’ demands without allowing those good habits that it has gained through this extensive experience. if it is not successful in levels to increase to an extent such that the managing its inventory costs to store and hold the goods unduly Poundland, like other retailers, experiences inventory shrinkage, and balances or level of impact its financial esults.r If Poundland is not employs measures that will reduce the problem. inventory shrinkage. successful in managing its inventory balances, In August 2014 Poundland Group appointed an experienced Head of its cash flows from operations may be Profit Protection to set about a new approach to tackling shrink and negatively affected. striving to better manage Risk. Significant investment has been made in increasing the headcount in this newly formed function (growing from 4 heads to 11), attracting Industry recognised individuals with a proven track record for delivery within a retail setting. In January 2015, all Business Managers attended a full day event dedicated to Inventory Loss and Loss Management – 12 new tools were launched across the business to help management interrogate and investigate stock discrepancies.

POUNDLAND GROUP Plc 26 Annual report and financial statements for p/e 29 March 2015 Operational Risks Explanation Mitigation Poundland relies on Like many retailers, Poundland is dependent Poundland is proud that, on a value basis, over 80% of our third-party suppliers on being able to source suitable products from products are sourced from UK suppliers. However, whenever and needs to identify, suppliers in sufficient quantities, at sufficiently necessary, we have the ability to source and develop product on a develop and maintain low cost and in a timely manner but may not global basis. relationships with a be able to do so in such a way as to meet our significant number of needs. Poundland has good, long-term relationships with most of its qualified suppliers. suppliers which are continuing to improve as an overwhelming number of primary manufacturers supply us on a direct basis. Major manufacturers and suppliers are increasingly recognising the significant opportunity that Poundland is offering them to expand their brand reach. Economic Risks Explanation Mitigation Inflation or other factors Poundland’s current pricing strategy is Poundland has been able to profitably maintain its current UK £1 may affect Poundland’s predicated on providing a wide range of single price strategy for 25 years by managing its product range ability to keep pricing at merchandise for profitable esaler at a single (such as by introducing new higher margin branded and own label £1 in the UK and €1.49 price point of £1 in the UK or €1.49 for the vast products or discontinuing low margin products), re-engineering for the majority of its majority of products in Ireland. pack sizes, moving sources of supply to lower cost economies products in Ireland. and renegotiating with suppliers, and it will continue to apply this strategy whilst closely monitoring any factors which may affect the Group’s single price point strategy. The Group’s business Poor economic conditions in the UK, Ireland Poundland has established its market-leading position in the UK by may be adversely and globally, as well as economic factors such continuously focusing on delivering amazing value to its customers affected by economic as unemployment levels, consumer debt levels, every day and it is this focus that has allowed Poundland not conditions and other lack of available credit, fuel costs, inflation, only to survive but to grow significantly during the ecentr period factors in the UK, Ireland interest and tax rates, may adversely affect the of severe economic downturn. We believe that this was achieved and globally. disposable income of Poundland’s customers, by selling a wide range of great products and top brands, offering which could result in lower sales. many new exciting lines each week, at a price point intended to offer customers amazing value for money, and we will continue this strategy into the future. In a 2013 study prepared for the Group comparing prices on a range of 106 comparable products to UK grocery chains (Asda, Tesco and Sainsbury), Poundland was the cheapest or joint cheapest 90% of the time. The Group may be The Group pays certain suppliers overseas in The Group’s policy allows these exposures to be hedged for up subject to adverse US dollars; however, Poundland’s customers to 18 months forward in order to fix the cost in pounds sterling. fluctuations in currency pay for products in sterling in the UK and Hedging is performed through the use of foreign currency exchange rates. Euros in Ireland. Consequently, the Group bank accounts and forward foreign exchange contracts. These bears the risk of disadvantageous changes in contracts are put in place as part of the Group’s gross margin exchange rates. strategy. It enables buyers to be given targeted buying rates for products, which are set lower than the hedged rate. Employment Explanation Mitigation Risks The Group depends on The success of Poundland’s strategy depends The Group operates a remuneration policy the aim of which is to the Executive Team and on the continuing services of the Executive attract, retain and motivate high calibre senior management and to other highly qualified Team and the Group’s ability to continue focus them on the delivery of the Group’s strategic and business employees to manage its to attract, motivate and retain other highly objectives, to promote a strong and sustainable performance business and brands. qualified employees. Retention of the Executive culture, to incentivise high growth and to align the interests of Team and other highly qualified employees is Executive Directors and members of the Executive Committee with especially important in the Group’s business those of Shareholders through encouraging equity ownership. In due to the limited availability of experienced promoting these objectives the policy aims to ensure that no more and talented retail executives. than is necessary is paid and has been structured so as to adhere to the principles of good corporate governance and appropriate risk management.

www.poundland.com 27 STRATEGIC REPORT

CORPORATE AND SOCIAL RESPONSIBILITY REPORT Our Goal harvesting, LED lighting and solar heating for hot water. We are really pleased that Harlow achieved a ‘very good’ BREEAM rating as At Poundland we deliver amazing value to our customers every a result. day. We are famous for our wide range of great products and top brands, offering many exciting new lines every week. Poundland will As stated above we continually investigate and test new solutions always be fun and friendly with something for everyone. to reduce the environmental impact of our operations. We do Our values that underpin our goal are as follows: this because we believe it is right and to meet the exacting environmental requirements of our socially aware customers. We put customers first

Keep it simple We will maintain focus on lowering carbon emissions to minimise Individual responsibility team delivery annual costs under the CRC Energy Efficiency Scheme. Treat every £ as your own Recycling Respect each other We recognise the potential impact on the community of waste Recognise and celebrate success generated from our activities and seek to reduce volumes of waste The values are representative of the way we aspire to operate our by recycling wherever possible. business and our colleagues are encouraged to live these values during everyday interaction with our customers, suppliers and each All our stores and distributions sites recycle cardboard and soft other. plastics. Colleagues at CSC are also encouraged to separate their waste paper and packaging. We put our customers first and fully understand and ecogniser our responsibility to demonstrate to them that we trade fairly The overall focus on waste management has resulted in the and take our corporate and social responsibilities seriously. We recycling of 13,310.81 tonnes of cardboard, an improvement also recognise our duty to operate our business in an ethical and of 5.67% on our previous year. In addition we recycled 598.80 responsible manner, and have set our CSR strategy to focus on tonnes of plastic. By working together we recycled 3.28% more three key areas: Environment, Social Responsibility and Employee cardboard and soft plastics than over the same period last year. We Responsibility. have set more challenging targets for further reductions in energy Environmental responsibility consumption going forward. We recognise that our operations impact the environment and that We comply with UK Packaging Waste Regulations and by working this is an increasingly important issue for consumers. We actively closely with our Packaging Consultants we provide battery collection pursue policies that help us to reduce our carbon footprint and facilities throughout all our stores (WEE). This means customers can costs. We focus on four key areas; using less electricity; maximising deposit any type of portable battery into collection containers when recycling opportunities; improving fuel efficiency; and educingr visiting a store. These batteries are collected, sorted and recycled, packaging waste. We consider this key to the ongoing success of ensuring that the constituent parts are used again. our business. We provide the government with data on the weight of packaging We actively pursue policies that help us reduce the environmental waste materials (paper, glass, aluminium, steel, plastic, wood and impact of our operations and constantly seek to reduce our mixed recycling) as part of our PRN obligations. energy consumption to deliver efficiencies and meet the exacting environmental requirements of our socially aware customers. During Reducing packaging waste 2014/15 we reduced our same store emissions by 625 tonnes CO2, Primary packaging, at its most fundamental level, protects equivalent to a 1.91% reduction on a like-for-like basis. and contains the contents and communicates safety and legal requirements. While meeting all legislative requirements as a We focus on three key areas: electricity and water efficiency; minimum we also work towards a continuous reduction in the use maximising recycling opportunities and reducing packaging waste. of packaging materials, reducing size and weight through improved We consider these areas key to the ongoing success of our design and use of materials. business. Wherever possible we view packaging from our customers’ Electricity and water efficiency perceptive, i.e. can I recycle it, can I reuse it, does it have an In 2014/15 we consumed 80.1 GWh of gas and electricity across alternative use? We also demand that our suppliers provide our head office, network of stores and distribution centres. This information on the size, weight and materials content of packaging equates to emission of 41,861 tonnes of CO2. To reduce emissions on all our own brand products sold. By behaving responsibly we we give our stores details on the amount of energy they use to ensure we comply with all rules, licences, copyright requirements, enable them to manage the use through good housekeeping. codes of practice and official guidelines concerning environmental labelling and claims. We endeavour to maintain good housekeeping standards across the Group with targeted investment in energy projects that give a suitable return on investment. For example we invested in a low energy lighting scheme for our Willenhall warehouse last year and ensured the purpose built warehouse at Harlow included rain water

POUNDLAND GROUP Plc 28 Annual report and financial statements for p/e 29 March 2015 Social Responsibility Sourcing Stores, distribution centres and CSC have been busy fundraising We have strengthened our Supplier Code of Conduct and Social both collectively as a team and individually all year round. There have been a range of fancy dress days, tea parties in support Accountability process over the last few years following an of Macmillan’s World’s Biggest Coffee Morning, a Spook fest for independent audit of our processes and procedures in 2011. We Halloween and wearing Christmas jumpers over the festive period, implemented in full the recommendations identified. eW increased plus lots of great individual store activities, including taking part in the number and quality of audits of our suppliers and joined the ice bucket challenge. Sedex, the largest organisation of its kind that shares ethical trade information with its members. In our Dealz Ireland stores, our charity of the year is “Make-a-Wish” In line with our code of conduct we have commissioned a number who grant magical wishes to children and young people fighting life of independent audits of our suppliers. Continuous improvement threatening illnesses. of our ethical, moral and social processes remains one of our key priorities. Employee Responsibility We are proud that on a value basis over 80% of our products Our Colleagues are sourced through UK companies. However, where necessary, We recognise and celebrate success through various initiatives in Poundland has the ability to source and develop products on a the business. For example colleagues are rewarded for meeting global basis. Therefore, our Far East and Near East operations objectives which impact business performance and show evidence based in Hong Kong and New Delhi continue to be an important of living the Company values via an annual bonus scheme. In part of our sourcing strategy. Accordingly we have strengthened our addition we offer at 5 year intervals long service awards to our teams in both these locations, especially in the areas of new product colleagues. development, quality assurance and control. All colleagues have access to a wide range of benefits via our Our good UK vendor relationships have continued to improve during benefits platform offering discounts for colleagues and their families the period and virtually all primary manufacturers supply us direct. It to enjoy. From childcare vouchers and improved healthcare, through is pleasing that major manufacturers of branded products recognise to special discounts in leisure and lifestyle, we offer something for the significance of Poundland to consumers and the outstanding everyone. growth opportunity that we offer them to expand their brand reach. Top brands are very important to our customers and securing Our colleagues’ welfare and wellbeing is important to us and we continuity of supply through these direct channels allows us to work in partnership with the Retail Trust who offer our colleagues increase sales through improved availability and differentiate our an employee assistance program which is a free, confidential and offer from other single price competitors. During the year we have independent service to support colleagues at times of need. This once again been able to add a number of important new branded service is offered 7 days a week and 365 days a year. suppliers to our existing large portfolio of primary manufacturers. We continue to recognise the relevance of secondary and tertiary We are interested in what our colleagues have to say and use suppliers who enjoy long term relationships with our growing various means of communicating with them on a regular basis. Poundland brand. These suppliers remain important to the delivery Our colleagues are represented at the biannual JCC meetings held of our overall offer. between the Company and our union (USDAW). In addition the Code of Conduct – Social Accountability Policy Company has a whistleblowing policy which allows colleagues to All suppliers commit to achieving the standards outlined. The policy, raise any concerns in confidence. based on International Labour Organisation Core (ILO) conventions covers topics including: Local community support Our new store opening programme and expansion plans mean Child/forced labour that we are creating jobs and opportunities for over 1,000 new Health & safety colleagues annually. We work closely with local job centres and the Freedom of Association & collective bargaining DWP in helping the unemployed gain long term employment and Non-discrimination skills and qualifications to improve their employability. We take our corporate responsibility seriously and the role we play is having a Hours worked positive impact on local communities. Wage compliance Training Charity All new colleagues receive an induction programme tailored to the Poundland supports Macmillan Cancer Care’s aim to reach role they will perform. We review our training regularly to update and everyone affected by cancer. Since the partnership began in 2009, improve practice. A recent update has seen training taken out of the Poundland colleagues and customers have raised over £1.3 million, classroom and onto the shop floor. Brand new materials have been helping Macmillan to make sure people living with cancer have the introduced called ‘Conversation Cards’. These cards are relaxed, best team in their corner, every step of the way. informal and help Managers to train their colleagues on all aspects of their job. Colleagues love this new approach as it is easy, simple We have built and strengthened the partnership engagement with and practical to understand. both colleagues and customers and created awareness in the media, providing an easy and desirable way for people to support Managers now receive a ‘Management Organiser’ on day one when Macmillan. they join us, which tells them everything they need to know about

www.poundland.com 29 STRATEGIC REPORT

CORPORATE AND SOCIAL RESPONSIBILITY REPORT our business and their induction. The new induction is a structured responsibilities relating to the day to day management of Health & three month programme that new managers take responsibility for, Safety as detailed in the Corporate Health & Safety Policy. supported by a Training Manager. Whilst undertaking every effort that is ‘reasonably practicable’ We want all our people to have the right knowledge and skills so to ensure the provision of safe and healthy working conditions they can be brilliant at their jobs. We have launched a number of throughout our network, we also ensure the competence of all training programmes for our Managers, these modules run every colleagues by regular robust training methods which include three months and support our Managers to understand how we emphasis on the duty of all colleagues to exercise responsibility and manage and lead ‘The Poundland Way’. do everything they can to prevent injury to themselves and others as well as ensuring all legal requirements relating to the storage and Sharing our knowledge sale of food to members of the public are strictly maintained. We’ve also supported the charity “Think Forward” who work with at risk youths at school. Poundland has run a number of talent days to We have Health & Safety Champions to assist with ensuring our help young people understand what a career in retail is like. standards, policies and procedures are implemented across the network. They in turn are supported by dedicated professionally Health and Safety qualified Health & Safety Officers, with the team being led by a fully qualified Risk & Safety Assurance Manager. We are committed to high standards of occupational safety and health to minimise the risk of injury and ill health to all colleagues, A Group Health & Safety steering committee exists and meets on a customers, visitors and others that come into contact with the 6 monthly basis to review activity and policy in this area. The Health business. & Safety Officers eportr quarterly to the Regional Management teams and the Risk & Safety Assurance Manager on issues relating It is our policy to create, improve and implement standards of risk to the Health Safety and Welfare of colleagues, customers and and health & safety management thus leading to the reduction of visitors. risks and to ensure the Group complies with all relevant Health & Safety Legislation. A detailed Health & Safety Policy Statement is We communicate our policy standards and procedures to held at all locations and displayed on notice boards. Colleagues colleagues through handbooks, operating manuals, bulletins, notice are encouraged to ensure they understand their individual boards and training as appropriate.

POUNDLAND GROUP Plc 30 Annual report and financial statements for p/e 29 March 2015 GOVERNANCE

DIRECTORS’ REPORT The Directors present their Annual Report and Financial Statements The Directors believe that the Group’s relations with its employees for the year ended 29th March 2015 which were approved by the have been and continue to be good. The Directors also believe that Board of Directors on 18th June 2015 relations with its trade unions are good. Poundland Limited is party to a recognition agreement with the Union of Shop, Distributive and Strategic Report Allied Workers, which applies on a company-wide basis across all The Directors have presented their Strategic Report, which was offices, distribution centres and retail stores. There has been no industrial action that has affected the Group in recent years. approved by the Board of Directors on 18th June 2015, on page 10 to 30 and which contains (a) a fair review of the Group’s business The Group communicates with its colleagues, both UK based and and (b) a description of the principal risks and uncertainties elsewhere, on matters of concern to them and on more general facing the Group. The review is intended to be a balanced and matters by way of notice boards, the circulation of emails, monthly comprehensive analysis of the development and performance of updates in person and a series of annual conferences covering all the Group’s business during the financial year and the position of geographical areas in which the Group operates. The Executive the Group’s business at the end of that year. The report includes, Directors and Executive Team also visit retail and distribution to the extent necessary for an understanding of the development, sites on a regular basis throughout the year and colleagues are performance or position of the Group’s business, analysis using encouraged to raise matters of concern with them during these financial key performance indicators. visits.

As the Company is a quoted company, the Strategic Report also, The Group has a policy of giving full and fair consideration to to the extent necessary for an understanding of the development, applications for employment made by disabled persons, having performance or position of the Group’s business, includes the regard to their particular aptitudes and abilities, for continuing main trends and factors likely to affect the future development the employment of, and for arranging appropriate training for, performance and position of the Group’s business. It also includes colleagues who have become disabled persons during the period information about environmental matters, the Group’s employees when they were employed by the Group and for their training, career and social and community issues and the policies that the Group development and promotion. has in place to deal with these issues and their effectiveness. Directors The Report of the Directors should be read in conjunction with the The present Directors of the Company and their interests in the Strategic Report, and contains details of the principal activities of shares of the Company are shown on page 49. All of the Directors the Group during the year. held office throughout the financial year under eviewr except for the Going Concern following; The Board is of the opinion that there is a reasonable expectation 1. Leavers that the Company and the Group has adequate resources to Andrew Higginson served as a Director until 30th July 2014 continue in operational existence for the foreseeable future. In Trevor Bond served as a Director until 19th September 2014 arriving at this conclusion the Board has taken account of current Stephen Coates served as a Director until 31st January 2015 and anticipated trading performance, current and anticipated Paul Best and Richard Lancaster each served as a Director until levels of borrowings and the availability of borrowing facilities and 17th June 2015 exposures to and management of the financial risks detailed on pages 26 and 27. Consequently, the going concern basis has 2. Starters been used in the preparation of the Company and Group financial Miles Roberts joined the Board with effect from 30th October 2014 statements. Tim Jones joined the Board with effect from 30th October 2014 Mary Barnard joined the Board with effect from 12th March 2015. Results and Dividend The Group’s consolidated profit for the year attributable to The Directors support the principles of diversity and we are pleased Shareholders of the Company is £28.4 million. to report the current make-up of the Board as two female and six male Directors. The female representation is ahead of the current 18% achieved by FTSE 250 Companies (as reported in the latest The Company paid an interim dividend for the year ended 29th Women on Boards, Davies Review Annual Report, March 2015) March 2015 of 1.5 pence per share on 30th January 2015 to ordinary shareholders whose names appeared in the register at the The Directors are pleased to report the current composition of close of business on 16th January 2015. The Directors recommend the Executive Team also supports our principles of diversity. The that a final dividend of 3.0 pence per share be paid on 2nd October Executive Team consists of two females (Michelle Burton and Jinder 2015 to ordinary shareholders on the register at close of business Jhuti) and six males (Jim McCarthy, Nick Hateley, Tim McDonnell, on 18th September 2015. Andy Monk, Mike Gray and Andy Garbutt). Political Donations The Company has customary directors’ and officers’ indemnity The Group has not made in the past, nor does it intend to make in insurance in place in respect of each of the Executive Directors. The the future, any political donations. Company has entered into a qualifying third-party indemnity (the terms of which are in accordance with the Companies Act 2006) Employees with each of the Executive Directors. At the date of this report the Group employed 14,130 colleagues; 6,007 male and 8,123 female colleagues.

www.poundland.com 31 GOVERNANCE

DIRECTORS’ REPORT continued There have been no other changes in the make-up of the Board There are no restrictions on the transfer of ordinary shares in the between the end of the financial year and the date of this eport.r Company other than in relation to certain restrictions that are imposed from time to time by laws and regulations (for example As detailed in the Articles, at every annual general meeting all insider trading laws). In addition, pursuant to the Listing Rules of Directors at the date of any subsequent notice of Annual General the Financial Conduct Authority, Directors and certain officers and Meeting shall retire from office. Consequently, the Directors currently employees of the Group require the approval of the Company to holding office in accordance with the Articles seek re-election until deal in the ordinary shares of the Company. the Annual General Meeting to be held in September 2015. Greenhouse Gases The following reflects changes to the Executive eam;T A summary of how the Group recognises its responsibility to Retired colleagues, customers, environment (including greenhouse gas David Coxon – July 2014 emissions) and community is contained with the Corporate and Social Craig Bales – June 2015 Responsibility Report on pages 28 to 30 which forms part of this report.

Starters Substantial Shareholders Michelle Burton – Human Resources Director, (April 2015) At 18th June 2015, the following interests exceeding the 3% Andy Garbutt – Business Development Director (June 2015) disclosure threshold were recorded in the register of the Company kept in accordance with Section 808 of the Companies Act 2006. Share Capital and Shareholders Details of the Company’s Share Capital, including changes in Name % the issued Share Capital in the year under review and since the Warburg Pincus LLC 16.40 year-end up to the date of this report, are set out in Note 22 to the Kensico Capital Management Corp. 9.99 consolidated financial statements which form part of this eportr on FMR LLC 8.44 page 93. The Capital Group Companies Inc 4.76 FIL Limited 4.74 The rights and obligations attaching to the ordinary share capital AXA Investment Management 4.61 of the Company are contained within the Company’s Articles of James John McCarthy 3.87 Association which were adopted on 11 March 2014. Canada Life Asset Management 3.63 Details of awards outstanding under share-based incentive schemes are given in Note 23 to the consolidated financial statements Additional Information for Shareholders which form part of this report on page 94. Details of the share- based incentive schemes in place are provided in the Directors’ With regard to the appointment and replacement of Directors, Remuneration Report on pages 54 to 55. the Company is governed by its Articles of Association, the UK Corporate Governance Code and the Companies Act 2006 and related legislation. The Articles of Association themselves may be On a show of hands at a general meeting of the Company, every amended by special resolution of the Shareholders. holder of ordinary shares present in person or by proxy and entitled to vote shall have one vote and, on a poll, every holder of ordinary The powers of the Directors are detailed in the Corporate shares present in person or by proxy and entitled to vote, shall have Governance Report on pages 37 to 40. one vote for every ordinary share held.

The Directors will, at the 2015 Annual General Meeting, seek During the year until 13 February 2015, Warburg Pincus Funds authority to purchase the Company’s own shares within certain (Warburg Pincus Private Equity X, L.P. and Warburg Pincus X limits. Although no such purchases are planned at this time, details Partners, L.P.) held a combined shareholding of 30.4% of the are given in the Notice of the Annual General Meeting. issued ordinary share capital of the company. The Listing Rules state that any shareholder holding greater than 30% of a company’s A technical matter has arisen in respect of the interim dividend of shares is defined as a controlling shareholder and the company 1.5 pence per ordinary share paid by the Company to shareholders is required to have an agreement in place contracting all parties on the register at the close of business on 16 January 2015 on 30 to conduct transactions and relationships at arm’s length and on January 2015. It has been brought to the Directors’ attention that, normal commercial terms. The Board confirms that an appropriate although the Company had sufficient distributable profits to pay agreement was in place throughout the period and the Company the dividend, the interim accounts showing the requisite level of has complied with all the independence provisions of the Listing distributable profits that were prepared prior to such payment had Rules. After 13 February 2015, Warburg Pincus Funds shareholding inadvertently not been filed at Companies House, as equirr ed by the was reduced to 16.4%. Companies Act 2006 (the “Act”). As a result, the interim dividend was paid in technical breach of the Act. However, given that the The notice of the Annual General Meeting specifies deadlines for Company had sufficient distributable profits to make the payment exercising voting rights and appointing a proxy or proxies to vote had the interim accounts been filed at the appropriate time, the in relation to resolutions to be put to the Annual General Meeting. Directors believe that neither shareholders nor creditors would have All proxies are counted and the numbers for, against or withheld been prejudiced. The Company nevertheless wishes to address in relation to each resolution are announced and published on the the matter by way of a ratification esolutionr to be approved by Group’s website after the meeting. shareholders at the AGM. As a result of their interest in the subject matter, the Directors who are also shareholders will not vote on this resolution.

POUNDLAND GROUP Plc 32 Annual report and financial statements for p/e 29 March 2015 Change of Control Information regarding forward-looking A number of agreements take effect, alter or terminate upon a statements change of control of the Group, such as bank loan agreements and These Reports and Financial Statements include forward-looking employee share-based incentive schemes. statements. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the The Group’s main credit facilities, including the committed bank Company’s control and all of which are based on the Directors’ facilities dated 17 March 2014, contain a provision such that in the current beliefs and expectations about future events. Forward- event of a change of control, the facilities will be cancelled and all looking statements are sometimes identified by the use of forward- outstanding amounts, together with accrued interest, will become looking terminology such as ‘‘believe’’, ‘‘expects’’, ‘‘may’’, ‘‘will’’, repayable on the date falling 30 days following written notice being ‘‘could’’, ‘‘should’’, ‘‘shall’’, ‘‘risk’’, ‘‘intends’’, ‘‘estimates’’, ‘‘aims’’, given by the lenders that the facilities have been cancelled. ‘‘plans’’, ‘‘predicts’’, ‘‘continues’’, ‘‘assumes’’, ‘‘positioned’’ or ‘‘anticipates’’ or the negative thereof, other variations thereon or Annual General Meeting (“AGM”) comparable terminology. A notice convening the Company’s AGM will be issued to These forward-looking statements include all matters that are not shareholders separately. In addition to the ordinary business of an historical facts. They appear in a number of places throughout these AGM, the Directors are seeking certain other authorities, details of Reports and Financial Statements and include statements regarding which are set out in the notice. the intentions, beliefs or current expectations of the Directors or the Corporate Governance Company concerning, among other things, the results of operations, financial condition, prospects, growth, strategies (including The Statement of Compliance with the UK Corporate Governance continued store roll out plans), and dividend policy of the Company Code and description of the Group’s corporate governance and the industry in which it operates. In particular, the statements framework with the Corporate Governance Report are included on regarding the Company’s strategy and other future events or pages 37 to 40 which form part of this report. prospects are forward-looking statements. Disclosure of information to Auditors As at the date of this report, as far as each Director is aware, there is no relevant audit information of which the Group’s Auditors are unaware, and each Director has taken all the steps that ought to have been taken as a Director in order to make himself aware of any relevant audit information and to establish that the Group’s Auditors Jinder Jhuti were aware of that information. Company Secretary 18th June 2015 Auditor Resolutions to re-appoint KPMG LLP as Auditor and to authorise the Directors to determine its remuneration will be proposed at the Annual General Meeting.

www.poundland.com 33 GOVERNANCE

BOARD OF DIRECTORS

Darren Shapland James John McCarthy Nicholas Roger Miles Roberts (Independent Non- (Chief Executive Officer) Hateley (Independent Executive Chairman) (Chief Financial Officer) Non-Executive Director)

Darren joined the Board Jim joined Poundland as Nick is a Fellow of the Miles joined the Board in as Senior Independent Chief Executive Officer in Chartered Institute of October 2014 as Senior Director in February August 2006. Prior to joining Management Accountants Independent Non-Executive 2014 and was appointed Poundland, Jim was Managing and holds an MBA. Director Miles is currently Independent Non-Executive Director of Convenience, Group Chief Executive of Chairman in July 2014 J Sainsbury plc and was a Nick joined Poundland as DS Smith Plc, a leading He brings extensive retail member of the operating, Chief Financial Officer in international supplier of knowledge and broad public retail and investment boards. October 2006. He joined recycled packaging. Prior to company experience gained from J Sainsbury plc that he was CEO of McBride throughout his career, most Jim’s experience extends to where he was the Finance Plc, Europe’s leading provider recently as Chief Executive over 40 years in retail including Director of Sainsbury’s of private label household Officer of Carpetright plc. Prior ten years as Chief Executive of Convenience Stores. and personal care products. to this, Darren spent six years T&S Stores plc (operated over Miles brings plc board and at J Sainsbury plc, initially 1,200 stores and sold to Tesco Nick has 25 years’ experience international experience as Chief Financial Officer and plc), Managing Director of in finance and business to the Board. subsequently as the Group Neighbourhood Retailing (part improvement which he gained Development Director. of Next plc) and Managing at PricewaterhouseCoopers, Director of Birmingham Post Accenture and Lucas Darren is also a Non-Executive & Mail Limited’s retail estate. Industries plc. Chairman of Topps Tiles Plc and a Non-Executive Jim is also non-executive Director at Ladbrokes chairman at AIM listed plc and Wolseley plc Wynnstay Group plc.

All independent non-executive directors are members of the • Audit & Risk Committee (Chairman Tim Jones) • Governance & Nominations Committee (Chairman Grant Hearn) • Remuneration Committee (Chairman Teresa Colaianni). Darren Shapland is a member of the Governance & Nominations Committee and attends other Committee meetings at the invitation of the relevant Committee Chairman.

POUNDLAND GROUP Plc 34 Annual report and financial statements for p/e 29 March 2015 Tim Jones Teresa Colaianni Grant Hearn Mary Barnard (Independent (Independent (Independent (Independent Non-Executive Director) Non-Executive Director) Non-Executive Director) Non-Executive Director)

Tim joined the Board Tea joined the Board in Grant joined the Board in Mary joined the Board in in October 2014 as an February 2014 and Chairs the February 2014 and Chairs the March 2015 as an Independent Independent Non-Executive Remuneration Committee. Governance and Nominations Non-Executive Director. She Committee. He is the former is currently Area President, Director and as Chairman of She is Group HR Director for Chief Executive Officer of Northern Europe at Mondelez the Audit and Risk Committee. Merlin Entertainments plc, Travelodge. During his 10 International Inc, the Tim is a chartered accountant which floated on the London year career with the hotel multinational confectionery, and is currently Group Finance Stock Exchange in November business Grant also served as food and beverage Director of Mitchells and 2013. Having begun her career Executive Chairman. He has conglomerate where she is Butlers Plc. Previous positions as a European Employment a wealth of experience in the responsible for the commercial hotel and travel industry having leadership of the UK, Ireland include Group Finance lawyer in Brussels, advising previously held senior positions and Nordic markets. Prior Director of Interserve Plc, multinational companies at Hilton Group and Whitbread to that she was Senior Vice a FTSE 250 listed support on EU related affairs, she Currently Grant is an President and General services group, together with moved into Human Resources Independent Non-Executive Manager for the Pepsi-Lipton other senior finance roles and subsequently re- Director of Scandic Hotels in Partnership responsible for Scandinavia and Chairman all core business operations, both in the UK and overseas. located to London. Tea has of Jury’s Inn Hotels. including sales, marketing Tim brings extensive worked across a number of Grant brings extensive and R&D. Mary brings a knowledge of commercial industries, recently heading knowledge in the hospitality wealth of commercial retail finance with his plc up the Human Resources and leisure industry combined and international experience background and knowledge. function in Europe for Hilton with detailed boardroom to the Board with in-depth Hotels Corporation. knowledge and practice. knowledge of the retail market and customer insight.

COMPANY INFORMATION Auditors: KPMG LLP, One Snowhill, Snow Hill Queensway, Birmingham B4 6GH Financial Calendar Bankers plc 17 September 2015 – Annual General Meeting Barclays Bank plc 19 November 2015 – Interim Results. The Royal Bank of Scotland plc Each shareholder is entitled to attend and vote at the Annual General Meeting Santander UK plc Registered & Head Office Joint Brokers: J.P. Morgan Securities plc, 25 Bank Street, London E14 5JP Shore Capital Stockbrokers Limited, Bond Street House, 14 Clifford Wellmans Road, Willenhall, West Midlands WV13 2QT Street, London W1S JU Registered in England No: 8861243 Corporate Solicitors: Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HS Website: www.poundlandcorporate.com Pinsent Masons LLP, 30 Crown Place, London EC2A 4ES We encourage our Shareholders to visit our website to keep up to date on information specifically for them. Registrars: Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE

www.poundland.com 35 GOVERNANCE

OUR EXECUTIVE TEAM

Michelle Burton Michelle joined Poundland in April 2015 as Human Resources Director with responsibility for the development and delivery of the Company’s people and engagement strategies, (Human Resources spanning the full employee lifecycle. Director) Michelle has over 20 years’ of Human Resources experience spanning the retail, manufacturing, distribution and facilities management sectors and joined Poundland from Cofely, GDF SUEZ, where she held the position of Human Resources Director. Prior to that she held a number of Senior HR positions in her ten year career with J Sainsbury plc, including Head of Reward, Head of Learning and Development and HR Director for Sainsbury’s Logistics division.

Andy Garbutt Andy joined Poundland in June 2015 as Business Development Director, with responsibility for the effective management and development of the UK and European property portfolio, the (Business Development development of new markets in Europe and also specific business development projects. Director) Prior to joining Poundland, Andy worked at Card Factory for five years as Corporate Development Director, responsible for developing the store portfolio, consumer research and the Card Factory website. Before Card Factory he spent 10 years as Retail and Leisure Director at PwC, with a focus on commercial and operational due diligence in the UK and continental Europe.

Mike Gray Mike joined Poundland in 2003 as Senior Controller with responsibility for developing IT capability. (IT Director) Appointed to the Board of Poundland Limited in March 2012 Mike is responsible for IT Strategy and the ongoing development and management of all aspects of IT. Mike has over 25 years’ IT experience spanning travel and retail sectors. Prior to joining Poundland, Mike was Head of IT Services for TUI UK Limited.

Tim McDonnell Tim joined Poundland in August 2006 as Regional Manager with responsibility for Retail Operations in the north of the country. Prior to that, Tim worked for and Somerfield Stores Ltd for (Retail Operations over 20 years holding a number of roles in both Retail Operations and Human Resources. He was Director) a Regional Director at Somerfield prior to joining Poundland.

Andy joined Poundland in 2009 as Supply Chain Director. He now has responsibility for the Andy Monk entire supply chain where his priorities are managing the distribution of stock around the Group, (Supply Chain optimising the level of stock holding through the supply chain whilst improving the availability Director) of stock on the shelf in stores. Prior to joining Poundland, Andy was Distribution Director for Somerfield Stores Ltd where he rationalised their network by consolidating the former Kwik Save and Somerfield networks. He has 30 years’ experience in distribution and has held a wide number of Development and Operational roles within own-account and third-party logistics companies. He also gained international experience whilst working for Tibbett and Britten in North America.

Jinder Jhuti Jinder joined Poundland in 2006 as Sole Counsel and Assistant Company Secretary and was appointed to the Executive Team in January 2014. Jinder is responsible for managing legal risk, (Company Secretary corporate compliance, insurance and health and safety. She has over 25 years’ experience in and General Counsel) the legal sector. Prior to joining Poundland Jinder worked in-house at Alliance & Leicester (now Santander Bank) and Barclays Bank plc in addition to having worked in private practice.

POUNDLAND GROUP Plc 36 Annual report and financial statements for p/e 29 March 2015 STATEMENT OF CORPORATE GOVERNANCE The following sections explain how the Company applies the Company, its promoters, its management or its subsidiaries, which main principles set out in the UK Corporate Governance Code, in the judgement of the Board may affect their independence of September 2012 issued by the Financial Reporting Council (the judgement. “2012 Code”), as required by the Listing Rules of the Financial Conduct Authority and meets the relevant information provisions The UK Corporate Governance Code recommends that at least of the Disclosure and Transparency Rules of the Financial Conduct half the Board of Directors of a UK-listed company, excluding the Authority. Chairman, should comprise Non-Executive Directors determined by the board to be independent in character and judgement and The Board and its Role free from relationships or circumstances which may affect, or could appear to affect, the directors’ judgement. The Board is collectively responsible to its shareholders for the future success of the Company. It is committed to the highest Following the retirement of Stephen Coates in January 2015 and standards of corporate governance. Subject to the Company’s Paul Best in June 2015 as Non-Executive Directors (representing Articles of Association and the Companies Act, the business of the the Company’s principal shareholder, Warburg Pincus Funds) Company is managed by the Board of Directors who may exercise the Company now complies with this recommendation of the UK and manage all of the powers of the Company. The Board’s main Corporate Governance Code. Warburg Pincus Funds have entered responsibilities are set out below. The Board delegates certain into a Relationship Agreement with the Company under the terms matters to the three Committees of the Board. of which, for as long as they and their associates control in excess of 15% of the votes able to be cast, they are entitled to appoint one Other than as set out below the Company has complied, and Non-Executive Director. They currently control 16.4% of the voting intends to continue to comply, with the requirements of the UK rights of the Company. Corporate Governance Code.

The Directors believe that the terms of the Relationship Agreement The Board has a schedule of matters which are reserved for its own will enable Poundland to carry on its business independently of consideration, which includes: Warburg Pincus Funds.

• The overall management of the Company and the Group and Diversity the approval of long-term objectives and commercial strategy; Poundland supports the principles of diversity in its Board • Changes relating to the capital structure of the Company; and senior management team. Currently the Board consists • Approval of financial eporting,r dividend policy and significant of 8 directors, split between two female and 6 male directors, changes in accounting policies and practices; representing 25% female representation. The Board are pleased • Ensuring the maintenance of a sound system of internal control to note this is ahead of the current 18% achieved by FTSE 250 and risk management; Companies as reported in the latest Women on Boards Davies • Major capital projects and corporate actions, acquisitions, Review Annual report (March 2015). disposals or material joint ventures; The Group Executive Team consists of 8 members. Following the • Ensuring a satisfactory dialogue with Shareholders based on a appointment of Michelle Burton, this now consists of two female mutual understanding of objectives; members and 6 male members. • Board membership and senior appointments within the Group; • Remuneration of Board members and Executive Team; and Conflicts of Interest • Approval of the Group’s principal professional advisors. There are no potential conflicts of interest between any duties owed by the Directors or Senior Management, the Company and their private interests or other duties. The Board has delegated a number of these responsibilities to standing committees of the Board, as detailed below, and also to the Executive management of the Group having first approved the Committees of the Board terms of reference of those committees and the authority limits of Certain aspects of the Board’s duties and responsibilities have management and receives regular reports in respect of all delegated been delegated to appropriately constituted committees to ensure authorities. compliance with the regulatory requirement. As envisaged by the UK Corporate Governance Code, the Board has established an Audit The Board comprises eight members, including two Executive and Risk Committee, a Governance and Nominations Committee Directors and six Non-Executive Directors (including the Chairman). and a Remuneration Committee. If the need should arise, the Board For the purposes of the UK Corporate Governance Code, the may set up additional committees. Board regards Darren Shapland, the Chairman, as independent on his appointment and regards the following as independent Non- Executive Directors; Miles Roberts, Tea Colaianni, Grant Hearn, Tim Jones and Mary Barnard. Miles Roberts is the Company’s Senior Independent Director.

Independence is determined by ensuring that, apart from receiving their fees for acting as Directors, Non-Executive Directors do not have any other material relationship or transactions with the

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STATEMENT OF CORPORATE GOVERNANCE continued Audit and Risk Committee In addition, the Committee will be responsible for ensuring that the Company complies with, and where possible exceeds, all laws and The Audit and Risk Committee’s role is to assist the Board with regulations to do with the good and ethical governance of corporate the discharge of its responsibilities in relation to financial eporting,r entities and that all such matters are kept under constant review and including reviewing the Group’s annual and half year financial relevant mitigating actions are taken if required. statements and accounting policies, internal and external audits and controls, reviewing and monitoring the scope of the annual audit and Remuneration Committee the extent of the non-audit work undertaken by external auditors, advising on the appointment of external auditors and reviewing the The Remuneration Committee recommends the Group’s policy on effectiveness of the internal audit, internal controls, whistleblowing executive remuneration, determines the levels of remuneration for and fraud systems in place within the Group. The Audit and Risk Executive Directors and the Chairman and other senior executives Committee will normally meet not less than three times a year. and prepares an Annual Remuneration Report for approval by the Shareholders at the Annual General Meeting. The Remuneration The Audit and Risk Committee is chaired by Tim Jones and its Committee will normally meet not less than three times a year. other members are Miles Roberts, Tea Colaianni, Grant Hearn and Mary Barnard. Meetings are also attended by the Chairman, CEO, The Remuneration Committee is chaired by Tea Colaianni and its CFO and Head of Profit Protection & Audit, all at the invitation of other members are Miles Roberts, Tim Jones, Grant Hearn and the Committee Chairman. The UK Corporate Governance Code Mary Barnard. The Chairman, CEO and Trading Board HR Director recommends that all members of the Audit and Risk Committee be also attend on the invitation of the Committee Chairman. The UK Non-Executive Directors, independent in character and judgement Corporate Governance Code recommends that all members of the and free from any relationship or circumstance which may, could Remuneration Committee be Non-Executive Directors, independent or would be likely to, or appear to, affect their judgement and that in character and judgement and free from any relationship or one such member has recent and relevant financial experience. The circumstance which may, could or would be likely to, or appear Board considers that the Company complies with the requirements to, affect their judgement. The Board considers that the Group of the UK Corporate Governance Code in this respect. complies with the requirements of the UK Corporate Governance Code in this respect. Governance and Nominations Committee Since the time of its inauguration, the Committee has employed The Governance and Nominations Committee assists the Board external advisors, New Bridge Street, a consulting agency which in reviewing the structure, size and composition of the Board, specialises in executive remuneration, to advise and assist in reviewing succession plans for the Directors, including the Chairman formulating and introducing a sustainable remuneration policy. and Chief Executive Officer and other senior executives and ensuring legal and regulatory compliance in respect of corporate governance. The Governance and Nominations Committee will normally meet not less than twice a year.

The Governance and Nominations Committee is chaired by Grant Hearn and its other members are Miles Roberts, Tea Colaianni, Tim Jones, Mary Barnard and Darren Shapland. Meetings are also attended by the CEO, at the invitation of the Committee Chairman.

The UK Corporate Governance Code recommends that a majority of the Governance and Nominations Committee be Non-Executive Directors, independent in character and judgement and free from any relationship or circumstance which may, could or would be likely to, or appear to, affect their judgement. The Board considers that the Company complies with the requirements of the UK Corporate Governance Code in this respect.

When the Board wishes to appoint a Director, the Committee will take the lead in the process and, after taking due account of the balance of skills, knowledge, experience, independence and diversity on the Board, will prepare a description of the role, required capabilities and expected time commitment and, using external agencies if appropriate, will identify suitable candidates for consideration by the Board as a whole.

The Committee will also make recommendations to the Board regarding the make-up of Board Committees, whether to reappoint Directors at the end of their term of office and make recommendations about the re-election of Directors put forward for retirement by rotation in accordance with the articles of association of the Company. The Committee will also consider the diversity of the Board.

POUNDLAND GROUP Plc 38 Annual report and financial statements for p/e 29 March 2015 Director’s Attendance Chart The Board of Directors The schedule below details meetings for the financial year ended 29 Respondents were positive regarding the terms of reference of March 2015: the Board and the right composition of directors and skills and experience. Governance and The administration of operation of the Board was generally positive. Audit and Risk Nominations Remuneration The frequency of meetings was deemed good and availability of Director Board Committee Committee Committee resources and information to enable the Board to undertake its role Jim McCarthy 8/8 – – – also received a positive response. Whilst induction on appointment Nick Hateley 8/8 – – – was good, matters such as training and ongoing education were Richard areas identified for improvement. Whilst all responses were very Lancaster 8/8 – – – positive on the role of the board since the IPO, everyone felt its effectiveness could be improved. All responses believed this would Darren evolve over time, aided by the experience of the more recently Shapland 8/8 – 5/5 3/3 appointed non-executive directors. Miles Roberts 4/4 2/2 1/1 1/1 Tea Colaianni 6/8 2/4 4/5 4/4 The Audit and Risk Committee Grant Hearn 8/8 4/4 5/5 4/4 The objectives and terms of the Committee, membership, Mary Barnard 1/1 – 1/1 – attendance and frequency of meetings were thought to be acceptable. More training and supporting information for meetings Tim Jones 2/4 2/2 1/1 0/1 was proposed. The role and workings of the Committee were Andrew thought to be good, in terms of meeting its remit, the volume of Higginson 2/2 – – 2/3 work and the efficient management of the Committee’s time. The Trevor Bond 3/3 2/2 2/2 2/3 identification and management of risk equirr ed more work, but Stephen members accepted the role of the Committee in this respect was Coates 7/8 – – – evolving. Paul Best 7/8 – 4/5 – The Governance and Nominations Committee Responses were positive in terms of the Committee’s mandate, composition and frequency of meetings. It was felt that the Before his appointment as Chairman at the end of July 2014, Committee was transparent in the nomination process and Darren Shapland as Senior Independent NED was a member of all engaging all members in the process. Generally it was felt the three committees. From the start of the reporting period until his effectiveness of the Committee could be improved, even though appointment, Mr Shapland’s attendance at Committee meetings members accepted this was the first year and the Committee was was: still in its infancy.

• Audit & Risk Committee – 1/1 The Remuneration Committee • Governance & Nominations Committee – 2/2 The responses were positive in terms of the Committee’s mandate • Remuneration Committee – 3/3 and composition. It was felt that the Committee was effectively achieving its objectives. The number of meetings each year was Mr Shapland remains a member of the Governance & Nominations deemed to be sufficient; attendance and commitment of members Committee. was positive and support from external advisers (NBS) well received.

Tea Colaianni missed two Board meetings, one due to personal In summary all responses agreed that the three Committees had reasons (which also prevented her attending meetings of the Audit been effective during their first year and this would continue to & Risk and Governance & Nominations Committee as a newly improve as the Committees evolved. appointed director, held on the same day), and the other due to diary conflicts. Tim Jones also missed two Board meetings due to The Chairman diary conflicts as a newly appointed Director. A review process was conducted internally, undertaken by Miles Audit and Risk Committee and Governance and Nominations Roberts, Senior INED, based on a questionnaire and discussion with Committee meetings have been held since the year end. each Director. Details were discussed with the Chairman, together with any agreed actions. Board Performance Evaluation There was a general positive response on the role and effectiveness In 2015 an internal Board evaluation was undertaken its purpose of the Chairman. Directors were particularly impressed by his being to measure the degree of effectiveness of the Board and knowledge of the industry given the many years he has worked in its three committees. In addition a review of the Chairman’s closely aligned companies. performance was conducted by Miles Roberts, the Senior Independent Non-Executive Director. Time commitment and general availability were considered to be excellent as was the considerable amount of time he spends in A summary of the findings following the eviewr are as follows; the business and with the Executive and Executive management

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STATEMENT OF CORPORATE GOVERNANCE continued team. Everyone had agreed that this was critical given the significant by the Group and the effectiveness of related controls has been changes the Company had been through and would continue to established. The key elements are: experience as part of its growth strategy. • a comprehensive system of reporting from executives identifying performance against budget, analysis of variances, major The overall view was that the Chairman enabled and promoted business issues, key performance indicators and regular good discussions on a wide range of issues. The meetings were forecasting; inclusive with no single Director or the Chairman dominating. • well defined policies governing appraisal and approval of capital expenditure and treasury operations; and Shareholder Communication • reviews of key business risks and of management’s controls and The Board believes that it is important to explain business plans to mitigate these risks. developments and financial esultsr to all of the Company’s stakeholders, including Shareholders and also to understand any During the financial period to 29 March 2015 and up to the date concerns that Shareholders may have. The principal communication of this report, the Audit and Risk Committee and management media used to impart information, including financial esults,r are considered the Company’s Risk Register and its alignment with the news releases, investor presentations and visits and Company Company’s strategic objectives, reporting the findings to the Board. publications. The Board considered the key risks and relevant mitigating actions and determined that they were acceptable for a retail business The Company will also communicate with its Shareholders through of the size and complexity as that operated by the Company. the Annual General Meeting at which the Board will give an account More information on the key risks and uncertainties faced by the of the progress during the preceding year, review current issues Company are shown on pages 26 to 27. and provide Shareholders the opportunity to ask questions of the Chairman, the Chief Executive Officer, other Executive Directors Whistleblowing Policy and the Chairs of the Board’s standing committees who will all be in The Company has a duty to conduct its affairs in an open and attendance. responsible way. We are committed to high standards of corporate governance and compliance with legislation and appropriate codes In addition, the Company will consult with its larger Shareholders of practice. By knowing about any wrong doing or malpractice at an on any issue on which it considers it appropriate to do so or where early stage, we stand a good chance of taking the necessary steps it needs to canvass views before taking any particular course of to stop it. We have a policy in place which is designed to encourage action. colleagues to identify such situations and report them without fear of repercussions or recriminations provided that they are acting in Finally two ‘Roadshows’ are held each year following the good faith. announcement of our full year and interim results. Shareholders are invited to attend and meet with the CEO, CFO and Head of Investor The policy sets out how any concerns may be raised and response Relations. can be expected from the Company and in what timescales.

Our Chairman is always available to answer individual shareholder External Auditors’ Independence Statement enquiries and to meet shareholders if requested. Professional ethical standards require KPMG LLP (“KPMG”) to Internal Controls and Risk Management communicate to the Company as part of planning all significant facts and matters, including those related to the provision of Overall responsibility for the system of internal control, reviewing non-audit services and the safeguards put in place that, in their its effectiveness and ensuring that there is a process to identify, professional judgement, may reasonably be thought to bear on evaluate and manage any significant risks that may affect the KPMG’s independence and the objectivity of the audit partner and achievement of the Company’s strategic objectives lies with the audit team. Board. KPMG have confirmed that they are satisfied that their general The Board and the Audit and Risk Committee have reviewed the procedures support their independence and objectivity. effectiveness of the Group’s internal control and risk management systems in accordance with the UK Corporate Governance Code for UK Corporate Governance Code the period ended 29 March 2015 and up to the date of approving – Compliance Statement the Annual Report and Financial Statements. The internal control and risk management system is designed to manage, rather than The UK Corporate Governance Code published by the Financial eliminate, the risk of failing to achieve business objectives and Reporting Council in September 2012 (“the Code”) applies to the can provide only reasonable, and not absolute, assurance against Company and is available on the FRC website at www.frc.org. uk/ material misstatement or loss. Our-Work/Publications/Corporate-Governance/UK-Corporate- Governance-Code-September-2012.pdf. The Financial Conduct The Group’s Executive Team principally reviews the effectiveness of Authority requires that certain compliance statements are made in controls operating within the business. relation to the Code. This report addresses these requirements. For the period from 31 March 2014 to 29 March 2015 the Company The assessment and control of risk are considered by the Board complied with the provisions of the Code, as applicable, except to be fundamental to achieving corporate objectives. An ongoing where stated. process of identifying and evaluating the significant risks faced

POUNDLAND GROUP Plc 40 Annual report and financial statements for p/e 29 March 2015 GOVERNANCE AND NOMINATIONS COMMITTEE REPORT Dear Shareholder, This resulted in a vacancy for the Senior Independent Non-Executive I am pleased to present to you, on behalf of the Board of Directors, Director position. The Committee instructed an external recruitment the report of the Governance and Nominations Committee for the company to consider candidates and, following an extensive financial year ending 29th March 2015. exercise, Miles Roberts was duly recommended to the Board and his appointment was subsequently approved in October 2014. ROLE AND PURPOSE The Governance and Nominations Committee was established by a The second followed the resignation of Trevor Bond due to his new resolution of the Board of Directors on 27th February 2014 to assist role at Johnson & Johnson. The Committee consulted with the the Board in:- external recruitment company to select candidates for the Chair of the Audit & Risk Committee. Pursuant to a detailed process 1. reviewing the structure, size and composition of the Board, the Committee recommended, and the Board approved, the 2. reviewing succession plans for the Directors, including the appointment of Tim Jones in October 2014 Chairman and Chief Executive Officer and other senior executives As part of the Committee’s commitment to complying with the 3. ensuring legal and regulatory compliance in respect of good Code, a further recruitment search was instigated to appoint an corporate governance, and additional independent non-executive director. The Committee 4. evaluation of the balance of skills, experience, diversity and considered a number of candidates before recommending to the independence on the Board. Board and the Board approving, the appointment of Mary Barnard in March 2015. The Committee will also make recommendations to the Board regarding the make-up of Board Committees, whether to We believe that the Board has achieved an appropriate level of reappoint Directors at the end of their term of office and make Independence with the appointment of the independent non- recommendations about the re-election of Directors put forward for executive directors referred to above. retirement by rotation. The Committee will also consider the diversity of the Board and recommend changes as appropriate. Diversity In addition the appointment of Mary Barnard improves the MEMBERSHIP AND MEETINGS representation of female directors on the Board. The Board now Membership of the Governance and Nominations Committee consists of 8 directors, split between 2 female and 6 male directors, together with appointment dates, is set out below representing 25% female representation. Further details are provided in the Statement of Corporate Governance. Committee Member membership since Grant Hearn (Chairman) 27th February, 2014 During the year the Committee has commenced a comprehensive Tea Colaianni 27th February, 2014 succession plan. Plans have been completed for the Executive Darren Shapland 27th February, 2014 Directors and also the next layer of management, the Executive Miles Roberts 30th October, 2014 Team. Work has now begun on succession plans for the next level Tim Jones 30th October, 2014 of senior management. Mary Barnard 12th March 2015 Grant Hearn Composition of the Governance and Nominations Committee Chairman of Governance & Nominations Committee changed on 19th September 2014 with the resignation of Trevor 18th June 2015 Bond (who had been a member since February 2014) and on 30th October with the appointment of Miles Roberts, Tim Jones and on 12th March 2015 with the appointment of Mary Barnard. Paul Best resigned as a member on 17th June 2015.

The biography of each member of the Governance and Nominations Committee is set out on pages 34 to 35.

In addition the Chief Executive Officer attends on the invitation of the Committee Chairman. The Company Secretary provides legal and secretarial support to the Committee.

The Governance and Nominations Committee met 5 times during the year, details of attendance by members are shown on page 39.

OPERATIONAL REVIEW Apart from its role in advising the Board on regulatory and compliance matters during the year, the Committee has concentrated on two additional specific matters following the resignation of Andrew Higginson as Chairman. The first after a review by the Committee was the recommendation to appointment Darren Shapland as Chairman in July 2014.

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AUDIT AND RISK COMMITTEE REPORT Dear Shareholder, on the areas of significant judgement or audit risk in the financial I am pleased to present to you, on behalf of the Board, the report statements. of the Audit and Risk Committee for the period ending 29th March 2015 During the year the Committee has specifically;

ROLE AND PURPOSE 1. Considered the half year and full year financial esults,r The Audit and Risk Committee was established by a resolution of 2. Considered the scope and cost of the external audit, the Board of Directors on 27th February 2014 to assist the Board 3. Approved internal foreign exchange and surplus funds in:- investment policies, 4. Instigated the establishment of an internal audit function within 1. its responsibilities in respect of financial eporting,r including the Profit Protection and Audit Team and, reviewing annual and half-year results; 5. Undertaken a review of risks and uncertainties facing the 2. advising on the independence and appointment of the external business. auditors; 3. reviewing its obligations in the areas of risk management; Based on their performance during this financial year, the Committee 4. reviewing the external auditor’s management letter on internal will be recommending KPMG LLP (“KPMG”) be reappointed at the financial controls; AGM. 5. reviewing and monitoring the scope of the annual audit and the extent of the non-audit work undertaken by the external The first trading year for the Group as a listed entity has been an auditors. exciting and very busy time for colleagues across the business who have succeeded in coping with all the additional demands MEMBERSHIP AND MEETINGS associated with becoming a public listed company whilst maintaining adequate controls and “business as usual”. It is pleasing All members of the Committee are Independent Non- Executive to see the continued commitment of our colleagues to the business Directors, free from any relationship or circumstance which may and in particular our customers to whom we strive to provide affect their judgement and at least one such member has recent amazing value every day. and relevant financial experience.

The make-up of the Committee together with appointment dates, is set out below Tim Jones Chairman of the Audit & Risk Committee Committee member Membership since 18th June 2015 Tim Jones (Chairman) 30th October 2014 Grant Hearn 27th February 2014 Tea Colaianni 27th February 2014 Miles Roberts 30th October 2014 Mary Barnard 12th March 2015

During the year composition of the Committee changed on 19th September 2014 with the resignation of the existing Committee Chairman Trevor Bond and subsequently with the appointment of Tim Jones (as chairman) and Miles Roberts (both on 30th October 2014) and Mary Barnard on 12th March 2015.

Darren Shapland was a member of the Committee until his appointment as Chairman in July.

The biography of each member of the Audit and Risk Committee is set out on pages 34 to 35.

The Chairman, Chief Executive Officer and Chief Financial Officer attend meetings on the invitation of the Committee and the Head of Profit Protection & Audit advises the Committee on the identification and evaluation of risks and uncertainties.

The Audit and Risk Committee met 4 times during the year, details of attendance by members are shown on page 39.

The Committee routinely looks at the significant accounting treatments adopted by the Group and at the year-end focuses

POUNDLAND GROUP Plc 42 Annual report and financial statements for p/e 29 March 2015 Significant issues considered by the Audit and During the year the Committee reviewed these judgements which Risk Committee are described further in the relevant accounting policies and detailed notes to the financial statements. Following discussion with both management and the external auditors, the Committee determined that the key accounting The auditors reported to the Committee any misstatements judgements included in the Group’s financial statements included, that they had found in the course of their work and no material but were not limited to: adjustments were required.

Significant risk Corresponding action taken by the After reviewing the presentations and reports from management Committee to address these concerns considered by and consulting where necessary with the auditors, the Committee the Committee was satisfied that the financial statements appropriately addressed in relation to the critical judgements and key estimates both in respect of the the financial statements amounts reported and disclosures. valuation of Management prepared an analysis and Internal control environment inventory explanation of movements in inventory and inventory provisions, which was reviewed in The Committee confirmed that it was satisfied that the auditors had conjunction with the results of a data analytics fulfilled their esponsibilitiesr with due diligence and professionalism. exercise performed by KPMG over inventory held at warehouse. The Committee concluded that inventory values were fairly stated in the Following the appointment of a new Head of Loss Prevention the balance sheet. incumbent Loss Prevention team were evaluated and roles were changed to ensure focus around key risk KPI’s. The team has been rebranded to ‘Profit Protection & Audit’ and is managed by Terry Significant Corresponding action taken by the Poole, former head of Profit Protection Group at Sainsbury’s. Terry judgements Committee to address these concerns considered by has over 25 years’ experience, including international experience, the Committee in the loss prevention and risk management field. Other members in relation to of the team include an experienced Stock Integrity Manager with the financial a wealth of knowledge in stock management systems; a new statements Operational Auditor who is an ex business manager who has been recognition of Recognition of rebates and supplier income with the Group over 8 years and a new Senior Auditor who is a rebates and inevitably involves some element of judgement member of the Chartered Institute of Internal Auditors. Over the supplier income as to future volumes as many agreements are next year the scope and programme of work for this team will be not coterminous with the group’s accounting developed. year end. Management prepared an analysis of income, detailing movement by type and as a proportion of total sales. This was considered The Board is responsible for the Group’s systems of internal alongside the amount uncollected as at the control and risk management and for reviewing their effectiveness. reporting sheet date. The Committee concluded The Committee has considered the process by which the Group that the amounts recognised were appropriate approaches risk management and is satisfied that the Group has valuation of The group balance sheet contains significant systems and procedures in place to identify, evaluate and manage intangible value with respect to goodwill and intangible all material risks to the business. assets assets. The key assumptions used to underpin these values were considered, including projected cashflows extracted from the Group These systems and procedures are designed to manage rather budget and corporate plan, along with the than eliminate risk of failure, to achieve business objectives. They sensitivity of available headroom to these can only provide reasonable, and not absolute, assurance against key assumptions. The Committee concluded material misstatement or loss. Similarly the Committee is satisfied that a sensible and reasoned approach had been taken to preparing the calculations and that this process has been in place for the year under review and that there were no immediate indications of up to the date of approval of the Annual Report and Financial impairment. Statements and that the process will be regularly reviewed by the treatment of In order to assist investors with a better Board. non-underlying understanding of performance, the financial items statements include presentation of the underlying performance of the business. Assessing external audit effectiveness Amounts excluded from underlying performance The Committee oversees the Group’s relationship with the external include non-recurring project costs, an auditor. The Committee’s meeting agenda includes sessions with international trial of operations in Spain, brand amortisation and the ineffective element of the auditor without management present with the purpose of derivative hedges. The Committee reviewed understanding the auditor’s views on the control and governance the basis and consistency of calculating and environment and management’s effectiveness within it. reporting adjustments to underlying performance and concluded that they were appropriate To fulfil its esponsibilitiesr in respect of the independence and effectiveness of the external auditor, the Committee reviewed:

• The terms, areas of responsibility, duties and scope of work of the external auditor as set out in the engagement letter;

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AUDIT AND RISK COMMITTEE REPORT continued • The audit work plan for the Group; prior year, were of the opinion that KPMG were uniquely placed • The detailed findings of the audit, including a discussion of any to undertake the considerable amount of work that was required major issues that arose during the audit; to complete that process within the timescales required. In the • Confirmation from KPMG of its independence and objectivity; current year, KPMG have also supported the Company in the • The audit fee and the extent of non-audit services provided acquisition of 99p Stores Limited, which is currently undergoing a during the year. Phase 2 referral by the CMA. This has led to a short term increase in the amount of work undertaken by KPMG in the current and The external auditors are appointed by Shareholders to provide an proceeding financial years. Full details are given in Note 8 to the opinion on the financial statements and certain other disclosures Financial Statements on page 82. prepared by the Directors. KPMG acted as the external auditors to Poundland throughout the year. The Committee is satisfied that the overall levels of audit- elatedr and non-audit fees, and the nature of services provided, are not The principle followed with regard to non-audit services is that the such as to compromise the objectivity and independence of the auditors may not provide a service which: external auditors.

• Places them in a position to audit their own work. KPMG has been appointed as auditors of Poundland Group plc for • Creates a mutuality of interest. the last two reporting periods ended 30th March 2014 and 29th • Results in the auditors developing close personal relationships March 2015. The Group will be giving consideration to the timing of with Poundland employees. the next formal tender in light of the Code, the recent Competition • Results in the auditors functioning as a manager or employee of Commission and EU recommendations on audit tendering and Poundland. rotation. • Puts the auditors in the role of advocate for Poundland. The Group has no contractual arrangements (for example, within Over the next year the Committee will be formulating a formal borrowing arrangements) that restrict its choice of auditor. policy, with built in levels of authority, to control the awarding of non- audit work to the Company’s external auditor.

Under normal circumstances non-audit services are subject to market tender or tests and are awarded to the most appropriate Tim Jones provider. However because of their extensive working knowledge Chairman of the Audit & Risk Committee of the Poundland Group, the Board at the time of the IPO in the 18th June 2015

POUNDLAND GROUP Plc 44 Annual report and financial statements for p/e 29 March 2015 DIRECTORS’ REMUNERATION REPORT Dear Shareholder, Performance and reward for 2014/15 As Chair of the Remuneration Committee (the ‘Committee’), and The Company performed well in the year to 29 March 2015, on behalf of the Board, I am pleased to present the Directors’ with both growth and profit performance in line with consensus Remuneration Report for the year ended 29th March 2015. forecasts. Any bonus payment is self-funding and, as such, this year’s underlying Profit After axT (PAT) achievement of £33.95m did The Directors’ Remuneration Report has been prepared in not trigger payment of bonuses. accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended. Approach for 2015/16 The Report is in two parts: The Committee will continue to operate within the remuneration • First, the Annual Report on Remuneration, which sets out how policy approved by shareholders in September 2014. The key the policy is being implemented by the Committee and; highlights of how we intend to apply this for 2015/16 are: • As an appendix, the Remuneration Policy which was • With effect from 1 April 2015, the salaries of the Executive approved by shareholders at the Annual General Meeting on Directors were increased by 2%, which is in line with the 19 September 2014, is restated here for clarity and ease of average increase awarded to the broader workforce to date; reference. • The annual bonus plan will continue to be based primarily on a Profit After axT (PAT) pool approach, with a proportion The “Illustrations of application of remuneration policy” within the of the pool being subject to strategic targets (80% PAT and Remuneration Policy have been updated to reflect the new salaries 20% strategic objectives for Executive Directors). Reflecting and the bonus arrangements for 2015/16. However, other than this our budgets for 2015/16, the pay-out scale has been the Remuneration Policy is unchanged. adjusted slightly so as to pay 50% of maximum bonus for the achievement of target in line with budget; This letter, which recaps our remuneration philosophy principles, • Awards will be made in June 2015 under the Performance sets out the key work of the Committee during the year and the Share Plan (PSP) at 150% of salary for the CEO and 125% of context against which the Committee’s decisions were made, salary for the other Executive Directors. Awards will also be together with the Annual Report on Remuneration, which will be made to other senior colleagues at this time. The Committee subject to an advisory vote at the AGM on 17th September 2015. has decided that underlying Earnings per Share (EPS) remains Objectives of the Remuneration Policy the most appropriate single performance target. Under the PSP, the Remuneration Committee sets the target growth The Policy approved by shareholders in September 2014 is range at the time of each award. Market conditions, consensus designed to: forecasts and internal business plans inform that for this award, • attract, retain and motivate high calibre senior management and the EPS growth range will require compound annual growth to focus them on the delivery of the Company’s strategic and over three financial years of at least 11% p.a. rising to 19% business objectives; p.a. for full vesting. This range has been set on a ‘business • promote a strong and sustainable performance culture; as usual’ assumption for our core business. At the time of • incentivise high growth; writing, there are two key areas of strategy that are yet to be • align the interests of Executive Directors and members of determined, namely (i) the outcome of the Competition and the Executive Committee with those of shareholders through Markets Authority (CMA) review of the proposed 99p Stores encouraging equity ownership; transaction; and (ii) the conclusion of the Spanish trial. These • be simple and constructed taking into account best practice initiatives will shape the direction of the Company’s further guidelines for UK listed companies; and expansion plans. The Committee recognises that these may • encourage widespread equity ownership by colleagues through have a material impact on our performance, and so intends the operation of several tailored share plans, including an all- to review the targets once the outcome of these is known. It employee SAYE plan. reserves the right to make changes to the target range if our internal plans and consensus forecasts change materially as Overview of the work of the Committee during a result of either or both the acquisition or the Spanish rollout 2014/15 proceeding. In the event that changes are made, the new As a result of the considerable work undertaken to develop the targets would be set taking into account the principles applied Company’s Remuneration Policy in advance of Admission, during when the original targets were set, so as to ensure that they are 2014/15 the business conducted by the Committee related primarily no less challenging than the original targets were at the time of to the implementation of the approved policy. being set. Should changes arise from the review these will be communicated to major shareholders as appropriate. One of our key activities was a detailed review of how we • Further awards will be made under the Company Share Option operate our policy against the backdrop of insight into the UK plc Plan (CSOP) to eligible colleagues, and a second Save As You remuneration landscape. This review took particular account of the Earn (SAYE) launch is planned for later in the year. market insights derived from the 2014 AGM season (the first since the introduction of the new reporting legislation), the changes to Shareholder feedback the Corporate Governance Code in 2014, and the most up to date The Committee is mindful of on going developments in executive views of shareholders and their representative bodies. The outputs remuneration best practice and the views of our shareholders and of this review, as regards their application to the remuneration policy actively welcomes any feedback on our remuneration policy and its for the Executive Directors, are set out below under the paragraph implementation. entitled “approach for 2015/16”. We believe that our policy continues to deliver a robust link between In support of our objective to encourage widespread share reward and performance and is aligned with our strategic goals. We ownership, in November, the Company launched the first grant hope you will support our remuneration report at this year’s AGM. under the Sharesave (“SAYE”) scheme, which resulted in a take up from over 10% of the total eligible workforce. Tea Colaianni Chair of the Remuneration Committee 18th June 2015

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DIRECTORS’ REMUNERATION REPORT continued Implementation of the remuneration policy for the Performance share plan year ending 27th March 2016 It is proposed that PSP awards will be made in June 2015 at the A summary of how the Directors’ Remuneration Policy will be following levels: applied during the year ending 27th March 2016 is set out below: % of salary Base salary Jim McCarthy 150% Nick Hateley 125% The Executive Directors’ salaries were reviewed during early 2015 Richard Lancaster 125% and increased by 2%. This compares with the average salary increase provided to employees of 2%. For 2015 awards performance will be based on EPS and measured The current salaries are as follows: over three years. The Committee has considered the Group’s business plan together with external consensus forecasts, and the From 1 April 2015 On IPO target range will be as follows: Jim McCarthy £448,800 £440,000 % of award Compound % PSP Nick Hateley £331,500 £325,000 Performance subject to annual growth award which Richard Lancaster £331,500 £325,000 condition condition in EPS will vest

Pension and benefits compound annual 100% <11% 0% The Committee intends that the implementation of its policy in growth in adjusted 11% 25% relation to pension and benefits will be in line with the disclosed earnings per share 16% 50% policy on page 53 of this report. Jim McCarthy has continued to 19% or above 100% receive a 15% cash payment in lieu of pension contributions rather Pro-rata vesting between the than a contribution into a pension plan. above points

Annual bonus The above EPS range has been set on a ‘business as usual’ The maximum annual bonus for the year ending 27th March 2016 assumption for our core business. At the time of writing, there are will be 100% of salary for all Executive Directors. Awards are two key areas of strategy that are yet to be determined, namely (i) determined based on a combination of both financial esults,r being the outcome of the Competition and Markets Authority (CMA) review underlying Group Profit After axT (PAT), and strategic/personal of the proposed 99p Stores transaction; and (ii) the conclusion of performance. the Spanish trial. These initiatives will shape the direction of the Company’s further expansion plans. The Committee recognises A bonus pool is to be determined by reference to PAT achievement, that these may have a material impact on our performance, and so with a sliding scale of performance to be set around budget as intends to review the targets once the outcome of these is known. follows: It reserves the right to make changes to the target range if our Provisional bonus pool as a % internal plans and consensus forecasts change materially as a result of maximum entitlement (with of either or both the acquisition or the Spanish rollout proceeding. Underlying PAT performance straight line between) Less than threshold 0% In the event that changes are made, the new targets would be set Threshold 20% taking into account the principles applied when the original targets were set, so as to ensure that they are no less challenging than the Budget 50% original targets were at the time of being set. Should changes arise Stretch and above 100% from the review these will be communicated to major shareholders Any bonus award comprises a maximum of 80% for achievement as appropriate. of Profit After axT (PAT) targets and up to a further 20% for the achievement of strategic objectives. Awards will be self-funding and Fees for Chairman and Non-Executive Directors clawback provisions apply. Non-Executive Directors’ remuneration is set by the Board with account taken of the time and responsibility involved in each role, The specific AP T targets and breakdown of the strategic objectives including where applicable the Chairmanship of Board Committees. for the 2015/16 year are considered commercially sensitive. A summary of current fees is shown below: However, the Committee intends to disclose these retrospectively in Chairman £200,000 next year’s Directors’ Remuneration Report to the extent that they Non-Executive Director base fee £45,000 do not remain commercially sensitive. Additional fees: Senior Independent Director £10,000 Audit, Remuneration and Governance & Nominations Committee Chairman £ 5,000

POUNDLAND GROUP Plc 46 Annual report and financial statements for p/e 29 March 2015 Remuneration received by Directors for the year ended 29 March 2015 - audited Directors’ remuneration for the year ended 29 March 2015 was as follows:

Salary & Long-Term £000 Fees Benefits (1) Pension (2) Annual Bonus Incentives Total Executive J McCarthy 2015 440 22 66 Nil Nil 528 2014 400 22 59 Nil Nil 482 N Hateley 2015 325 14 49 Nil Nil 388 2014 233 16 36 Nil Nil 284 R Lancaster 2015 325 16 49 Nil Nil 390 2014 320 17 48 Nil Nil 386

Non-Executive A Higginson (3) 2015 67 Nil Nil 67 2014 128 Nil Nil 128 P Best 2015 Nil Nil Nil Nil 2014 Nil Nil Nil Nil S Coates (4) 2015 Nil Nil Nil Nil 2014 Nil Nil Nil Nil D Shapland (5) 2015 153 Nil Nil 161 2014 6 Nil Nil 6 T Bond (6) 2015 25 Nil Nil 29 2014 6 Nil Nil 6 T Colaianni (7) 2015 50 Nil Nil 50 2014 6 Nil Nil 6 G Hearn (7) 2015 50 Nil Nil 50 2014 6 Nil Nil 6 M Roberts (8) 2015 23 Nil Nil 23 T Jones (8) 2015 21 Nil Nil 21 M Barnard (9) 2015 2 Nil Nil 2

Notes 1. Benefits include: Car allowance/car, medical insurance, fuel. 2. This comprises a 15% of salary contribution to the Company’s Money Purchase Pension (cash equivalent for J McCarthy). 3. Resigned as Chairman on 29 July 2014. 4. Resigned 31 January 2015. 5. Appointed as NED on 18 February 2014. Became Chairman on 29 July 2014. 6. Appointed on 18 February 2014, resigned on 19 September 2014. 7. Appointed on 18 February 2014. 8. Appointed on 30 October 2014. 9. Appointed on 12 March 2015.

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DIRECTORS’ REMUNERATION REPORT continued

Annual bonus for the year ended 29 March 2015 The Group performed well in the year to 29 March 2015, with both growth and profit performance in line with consensus forecasts. Any bonus payment is self-funding and, as such, this year’s underlying Profit After axT (PAT) achievement of £33.95m did not trigger payment of bonuses to colleagues.

Performance share awards made during the year – audited No awards were made to Executive Directors in the year.

Executive Director share awards and share options – audited The following table sets out details of the PSP and savings related share options held by, or granted to, each Executive Director during the year:

At 30 At 29 Market price of Date from March Granted March Exercise Date of each share at which Expiry 2014 number 2015 price grant date of grant exercisable date Scheme J McCarthy 220,000 — 220,000 — 17/03/2014 £3.75 Mar 17 Sep-17 PSP1 — 7,200 7,200 £2.50 05/09/2014 £3.24 Nov-17 May-18 SAYE 220,000 7,200 227,200 N Hateley 135,417 — 135,417 — 17/03/2014 £3.75 Mar 17 Sep-17 PSP1 — 7,200 7,200 £2.50 05/09/2014 £3.24 Nov-17 May-18 SAYE 135,417 7,200 142,617 R Lancaster 135,417 — 135,417 — 17/03/2014 £3.75 Mar 17 Sep-17 PSP1 — 7,200 7,200 £2.50 05/09/2014 £3.24 Nov-17 May-18 SAYE 135,417 7,200 142,617

No shares were exercised or lapsed in the year 1 The number of shares comprising the IPO awards was determined based on the Admission share price of £3.00. The performance condition attached to this award requires compound annual growth in EPS of 19% (25% vests), to 26% (50% vests) to 30% or above (100% vests) with pro-rata vesting between the points.

POUNDLAND GROUP Plc 48 Annual report and financial statements for p/e 29 March 2015 Directors’ shareholding and share interests – audited Share ownership plays a key role in the alignment of our executives with the interests of Shareholders. Our Executive Directors are expected to build up and maintain a 100% (150% for the CEO) of salary shareholding in Poundland. Where an Executive does not meet this guideline then they are required to retain at least 50% of the net of tax vested shares under the Company’s share plans until the guideline is met. The current ownership of the Executive Directors significantly exceeds the equirr ement.

The table below sets out the number of shares held or potentially held by Directors (including their connected persons where relevant) as at 29 March 2015. Number of Target Percentage Beneficially awards held shareholding of salary held owned under the PSP Beneficially guideline in shares as shares at conditional on Outstanding owned shares at (as a % of at 29 March Director 30 March 20141 performance option awards 29 March 2015 salary) 2015 J McCarthy 9,668,249 220,000 7,200 9,668,249 150% 8482% N Hateley 4,207,378 135,417 7,200 4,207,378 100% 4997% R Lancaster 1,111,413 135,417 7,200 1,111,413 100% 1320%

D Shapland – – – 27,500 N/A N/A T Colaianni – – – 15,723 N/A N/A G Hearn – – – 10,000 N/A N/A

M Roberts – – – – N/A N/A T Jones – – – – N/A N/A M Barnard - - - - N/A N/A 1. Includes shares owned by connected persons. Only beneficially owned shares count towards the shareholding guideline.

Total pension entitlements – audited During the year under review the Executive Directors received pension contributions of 15% of salary into defined contribution arrangements (or cash equivalent). Details of the value of pension contributions received in the year under review are provided in the ‘Pensions’ column of the ‘Remuneration received by Directors’ table.

Performance graph The graph below illustrates the Company’s Total Shareholder Return (TSR) performance relative to the constituents of the FTSE 250 index (excluding investment companies) of which the Company is a constituent, from the start of conditional share dealing on 11 March 2014. The graph shows performance of a hypothetical £100 invested and its performance over that period.

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DIRECTORS’ REMUNERATION REPORT continued Change in Chief Executive Officer’s remuneration The table below sets out total remuneration for the Chief Executive Officer for the years 2013 to 2015 inclusive, together with the percentage of maximum annual bonus awarded in that year. No share awards were held by the Chief Executive Officer prior to Admission.

2015 2014 2013 CEO total remuneration £527,745 £481,655 £476,374 Annual bonus (% of maximum) % Nil % Nil % Nil Share award (% of maximum) N/A N/A N/A

Notes 1. No long-term incentive plan in place prior to Admission and no eligibility for a vesting under the PSP until 2017.

Percentage increase in the remuneration of the Chief Executive Officer The table below shows the percentage change in the Chief Executive Officer’s salary, benefits and annual bonus between the financial year ended 30 March 2014 and 29 March 2015, compared to that of the total amounts for all colleagues of the Group for each of these elements of pay.

Element of remuneration % change Salary Chief Executive Officer 0% Average per employee 2.04% Benefits Chief Executive Officer 0% Average per employee 0% Annual bonus Chief Executive Officer 0% Average per employee -375%

Relative importance of the spend on pay The following table shows the Company’s actual spend on pay for all employees compared to distributions to Shareholders and underlying profit after tax (PAT) performance, which is shown as it is considered to be the key indicator of the Company’s growth, and is the primary metric used to measure performance under the bonus plan.

Total spend on pay 2015 2014 % Change Total Spend on Pay £165.2m £144.5m 14.3% Distributions to shareholders by way of dividend and share buyback £11.250m £20m1 -44% Underlying Revenue £1,111.5m £997.8m 11.4% Profit after tax £34.0m £27.3m 24.5%

1. The distribution to shareholders by way of a dividend and share buyback in 2014 was made under the previous private equity group structure. Poundland Group Holdings Limited returned £20 million to Shareholders in September 2013.

POUNDLAND GROUP Plc 50 Annual report and financial statements for p/e 29 March 2015 External directorships Jim McCarthy is the non-executive Chairman of Wynnstay Group PLC. He was paid fees of £49,000 in the year to 31 October 2014, and his total fee for the year to 31 October 2015 will be £49,000.

Membership of the Remuneration Committee The Remuneration Committee comprises 5 independent Non-Executive Directors. Their attendance at Committee meetings was as follows:

Number of meetings attended out Name Role of maximum number Tea Colaianni Committee Chair 4/4 Andrew Higginson Former Member Invitee 2/3 Trevor Bond Former Member 2/3 Grant Hearn Committee Member 4/4 Miles Roberts Committee Member 1/1 Tim Jones Committee Member 0/1 *Darren Shapland Committee Member 3/3 Invitee 1/1 Mary Barnard Committee Member 0/0

In addition to the members of the Committee, the Company Chairman, Chief Executive Officer, Human Resource Director and Company Secretary may also attend some meetings by invitation. No person is present when matters directly relating to their own remuneration are being discussed.

*Prior to his appointment as Chairman in July 2014, Darren Shapland was the Senior Independent Non-Executive Director of the Company and, as a former member of the Remuneration Committee attended the three meetings of the Committee held during this time. Following his appointment he attended the one meeting held since, at the invitation of the Committee Chairman.

In 2014/15 the meetings of the Committee covered the following key areas:

• Approving the Directors’ Remuneration Report 2014; • Approval of grants under SAYE; • The annual review of all Executive Directors’ and senior managers’ remuneration and approving any salary increases in the context of the workforce remuneration review; • Considering external market developments and best practice in remuneration and critiquing the implementation of the current policy against these; and • Setting targets for 2015/16 variable pay awards.

External advisors The Remuneration Committee has access to independent advice where it considers it appropriate. The Committee has appointed New Bridge Street (NBS), part of Aon plc as its external executive remuneration provider. Neither NBS nor Aon provide any other services to the Company.

The Committee is satisfied that the advice eceivedr from NBS in relation to executive remuneration matters during the year was objective and independent. NBS is a member of the Remuneration Consultants Group and abides by the Remuneration Consultants Group Code of Conduct, which requires its advice to be objective and impartial. The fees paid to NBS for providing advice in relation to executive remuneration over the financial year under eviewr was £66k, the majority of which related to the preparation of our first Directors’ Remuneration Report, and the roll out of our share plan awards.

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DIRECTORS’ REMUNERATION REPORT continued

Statement of Shareholder voting At last years’ AGM, the Directors’ Remuneration Report received the following votes from shareholders: Approve the Directors’ Approve the Remuneration Report Remuneration Policy Total number Total number of votes % of votes cast of votes % of votes cast For 219,237,030 99.88 201,580,555 91.83 Against 268,952 0.12 17,925,151 8.17 Total votes cast (excluding votes withheld) 219,505,982 100 219,505,706 100 Votes withheld 2,351 2,627 Total votes cast (including votes withheld) 219,508,333 219,508,333

Votes withheld are not included in the final proxy figures as they are not recognised as a vote in law. At the AGM of the Company to be held on 17th September 2015, one resolution approving the annual statement and Annual Report on Remuneration will be proposed as an ordinary resolution.

Approval This Directors’ Remuneration Report, including both the Annual Remuneration Report and associated Remuneration Policy appendix have been approved by the Board of Directors. Signed on behalf of the Board of Directors.

Tea Colaianni Chairman of the Remuneration Committee 18 June 2015

POUNDLAND GROUP Plc 52 Annual report and financial statements for p/e 29 March 2015 APPENDIX - REMUNERATION POLICY

Remuneration Policy Report How the views of Shareholders and colleagues Policy overview are taken into account The Remuneration Committee has responsibility for determining The Committee does not formally consult directly with employees remuneration for the Chairman, Executive Directors and other Senior on executive pay but does receive periodic updates from the Group Executives. The Committee’s terms of reference are available on the Human Resources Director in relation to salary and bonus reviews Company’s website. across the Group. As set out in the policy table overleaf, in setting remuneration for the Executive Directors, the Committee takes note On Admission in March 2014, a new remuneration policy was of the overall approach to reward for employees in the Company adopted by the Remuneration Committee; it was approved by and salary increases will ordinarily be (in percentage of salary terms) shareholders on 19 September 2014 and took formal effect from in line with those of the wider workforce. Thus, the Committee is that date. The Committee designed this policy with close regard to satisfied that the decisions made in elationr to Executive Directors’ market practice in other UK listed companies pay are made with an appropriate understanding of the wider and the Retail Sector, so as to ensure that the arrangements are workforce. appropriately competitive and structured in line with best practice. However, the policy also retains some of the key elements which The Committee offered our largest Shareholders the opportunity helped to drive the Company’s success prior to IPO, such as to discuss our remuneration policy prior to the publication of the effective cost control and simplicity in pay structures. 2014 report. In addition, we will consider any Shareholder feedback received in relation to the AGM. The aim of the remuneration policy is to attract, retain and motivate high calibre senior management and to focus them on the delivery This, plus any additional feedback received from time to time, will of the Company’s strategic and business objectives, to promote be considered as part of the Committee’s annual review of the a strong and sustainable performance culture, incentivise high remuneration policy. growth and to align the interests of Executive Directors and the Executive Team with those of Shareholders through encouraging The Committee will seek to engage with Shareholders and their equity ownership with shareholding guidelines. In promoting these representative bodies when it is proposed that any material changes objectives the policy aims to be simple in design, transparent and are to be made to the remuneration policy. Details of votes cast for understandable both to participants and Shareholders, ensure and against the resolutions to approve the Remuneration Report are that no more than is necessary is paid and has been structured so provided in the Annual Report on Remuneration. as to adhere to the principles of good corporate governance and appropriate risk management. The remuneration policy for Executive Directors The total remuneration package is structured so that variable A further aim of the remuneration policy is to encourage widespread elements (annual bonus and long-term incentives) make up a share ownership by colleagues throughout the Group, and in significant proportion of the package, with the emphasis on variable support of this objective we have adopted several new share plans pay focused on long-term incentives. The table summarises the which are designed with close regard to the various recipient groups key aspects of the Company’s remuneration policy for Executive to ensure optimal benefit delivery. Directors.

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Element Purpose and link to strategy Salary To recruit and reward executives of a suitable calibre for the role and duties required.

Recognises individual’s experience, responsibility and performance.

Benefits To provide market competitive benefits to ensure the wellbeing of employees.

Pension To provide retirement planning to employees.

Annual bonus To incentivise and reward individuals for the achievement of pre-defined, Committee approved, annual financial and operational objectives which are closely linked to the Corporate strategy.

Poundland Performance Share Plan ('PSP') To incentivise and recognise execution of the business strategy over the longer term.

Rewards strong financial performance over a sustained period.

Poundland Sharesave Plan (SAYE) All employees including Executive Directors are encouraged to become shareholders through the operation of an all-employee share plan.

Share ownership guidelines To increase alignment between executives and shareholders.

Notes A description of how the Company intends to implement the policy set out in this table for 2015/16 is set out in the Annual Report on Remuneration.

POUNDLAND GROUP Plc 54 Annual report and financial statements for p/e 29 March 2015 Operation and performance conditions Maximum Salaries are normally reviewed annually with changes effective from 1st April taking There is no prescribed maximum annual increase. into account: The Committee is guided by the average annual • Personal performance increase of the workforce. Higher increases may be awarded at the discretion of the Remuneration • Company performance Committee, for example (but not limited to): in • Individual’s experience response to acute retention issues, following the • Increases elsewhere in the Company appointment of a new executive to bring that executive’s package in line with market over a Hence, whilst there are no performance conditions on salaries being paid, personal number of years or in response to market factors. and company performance is one factor considered by the Committee when determining annual increases. Salaries are set with reference to similar roles in FTSE 250 companies of a similar size and complexity. The Committee considers the impact of any salary increase on the total Total cost of benefits capped at £25,000 for the remuneration package. Chief Executive and £17,500 for the other Executive The Company currently provides: Directors, which may be exceeded in exceptional • Car allowance/car circumstances if the cost of a particular benefit • Family medical insurance were to significantly increase. This cap excludes any • Life assurance relocation costs which may be required for a new • Dependent pension insurance hire. • Income protection insurance • Medical health check • Other ancillary benefits, including elocationr expenses (as required) Executive Directors are also entitled to 30 days’ leave per annum, plus bank and public holidays.

Directors may participate in a defined contribution plan, or elect to eceiver cash in 15% of salary lieu of all or some of such benefit. The annual bonus is based predominantly on stretching financial and operational The maximum bonus opportunity will not exceed objectives as set and assessed by the Committee on an annual basis. 150% of salary, although a lower maximum may be A bonus pool is to be determined by financial measures (e.g. underlying profit operated. after tax). This pool will then be divided among participants using a mix of financial measures and strategic/personal objectives. Financial measures will represent the At a threshold level of performance, no more than majority of the bonus. 20% of bonus will become payable, rising to 100% Details of the performance targets set for the year under review and performance of bonus being payable for meeting all financial and against them is provided in the Annual Remuneration Report. strategic targets in full. Any bonus paid up to 100% of salary is paid entirely in cash. Any bonus in excess of 100% of salary will be paid in shares and deferred for three years. Clawback/malus provisions apply in the event of material misstatement of results, an error in the calculation of bonus outcome or in instances of individual gross misconduct.

PSP awards may take the form of nil-cost options or conditional share awards. Plan Limits: Awards normally vest after three years subject to performance and continued 200% of salary (normal limit) service. 300% of salary (exceptional limit – e.g. recruitment Awards vest based on three year performance against a range of challenging EPS or retention) targets set and assessed by the Committee. The targets for each award will be set 25% of the award vests for achieving threshold out in the Annual Report on Remuneration. performance 100% of the award vests for achieving maximum The awards can be reduced (via clawback and/or malus) at the discretion of the performance Committee within three years of vesting in the event of a misstatement of the results, an error in determining the extent to which performance targets were met or in instances of individual gross misconduct. A dividend equivalent provision allows the Committee to pay dividends on vested shares (in cash or shares) at the time of vesting and may assume the reinvestment of dividends. HMRC approved plan under which regular monthly savings are made over a 3 or 5 Maximum permitted savings based on HMRC limits year period and can be used to fund the exercise of an option, where the exercise from time to time. price is discounted by up to 20%. Provides tax advantages to UK employees, with Executive Directors eligible to participate on a similar basis to other employees. A similar plan is also available to Irish employees. Executive Directors are required to retain 50% of the net of tax vested PSP shares At least 150% of salary for the Chief Executive until the guideline level is met. and at least 100% of salary for other Executive Directors, or such higher level as the Committee may determine from time to time.

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POUNDLAND GROUP Plc 56 Annual report and financial statements for p/e 29 March 2015 How the Remuneration Committee operates the Awards granted prior to the effective date variable pay policy In approving this Directors’ Remuneration Policy, authority is given The Committee operates the share plans in accordance with their to the Company to honour any commitments entered into with respective rules, the Listing Rules and HMRC requirements where Directors. Details of any such payments will be set out in the Annual relevant. The Committee, consistent with market practice, retains Report on Remuneration as they arise. discretion over a number of areas relating to the operation and administration of certain plans, including: Remuneration policy for other employees The policy described above applies specifically to the Company’s • Who participates in the plans; Executive Directors and is designed with regard to the policy for • When to make awards and payments; employees across the Company as a whole. Overall there is more • How to determine the size of an award, a payment, or when emphasis on variable pay for the Executive Directors; however the and how much of an award should vest; Company is committed to promoting widespread share ownership. • The testing of a performance condition over a shortened perfor- On IPO it made a number of awards under the Poundland Company mance period; Share Option Plan (CSOP) and the Poundland Restricted Share Plan • How to deal with a change of control or restructuring of the (RSP), to selected managers. Executive Directors are not eligible to Group; participate in these plans. • Whether a participant is a good/bad leaver for incentive plan purposes, what proportion of an award vests at the original The RSP provides for the grant of share awards which vest after vesting date or whether and what proportion of an award may three years subject only to continued employment. Under the CSOP, vest at the time of leaving; the Board may grant eligible employees share options at a price • How and whether an award may be adjusted in certain circum- not less than the market value of a share on the date of grant. In stances (e.g. for a rights issue, a corporate restructuring or for the UK the first £30,000 of CSOP share options held at any time special dividends); by an individual will be granted as an HMRC approved option. The • Whether to enforce an additional 2 year holding period on PSP share options normally vest after three years, subject to continued awards post vesting; and employment, but without further performance conditions. • What the weighting measures and targets should be for the annual bonus plan and PSP from year to year. More specifically, on IPO, awards were made to 55 senior managers under the RSP and around 550 management grade employees The Committee also retains the discretion within the policy to adjust (including approximately 400 Store Managers) under the CSOP. existing targets and/or set different measures for the annual bonus Awards may be made in future at the Committee’s discretion but and for the PSP if events happen that cause it to determine that the there is no proposal for regular annual grants. In general, differences targets are no longer appropriate and amendment is required so arise in quantum and structure of remuneration for various they can achieve their original intended purpose and provided the categories of employees in the Group from the development of new targets are not materially less difficult to satisfy. remuneration arrangements that are market competitive. However, our underlying remuneration philosophy is consistent across the Any use of the above discretions would, where relevant, be whole company. explained in the Annual Report on Remuneration and may, as ap- propriate, be the subject of consultation with the Company’s major shareholders.

Choice of performance measures for Executive Directors’ awards The choice of the performance conditions applicable to the annual bonus plan, being a primary financial performance target with additional strategic metrics specific to each Executive Director reflect the principle that the bonus plan should be self-funding, appropriately challenging and tied to both the delivery of profit growth and strategic/ personal objectives.

EPS was selected by the Committee as the sole performance condition applicable to the PSP on the basis that it rewards the delivery of the Company’s objective of delivering significant growth in profits. The Committee will eviewr the performance scales applying to each award prior to each grant.

The Company’s ethos of ensuring that costs are carefully controlled is reflected in both the annual bonus and PSP, which are designed to be self-funding.

In line with HMRC regulations for such schemes, the SAYE does not operate performance conditions.

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APPENDIX - REMUNERATION POLICY continued Illustrations of application of remuneration policy The chart below illustrates how the composition of the Executive Directors’ remuneration packages varies at different levels of performance in 2015/16 based on policy, both as a percentage of total remuneration opportunity and as a total value:

Notes: • Value of benefits as per the single figure table • The on-target bonus is taken to be 50% of the current operating maximum bonus opportunity of 100% of salary • The on-target level of vesting under the PSP is taken to be 50% of the face value of the award at grant • The maximum value of the PSP is taken to be 100% of the face value of the award at grant using the current grant policy of 150% for Mr McCarthy and 125% for Messrs Hateley and Lancaster • No share price appreciation has been assumed for the PSP award

Service contracts and payments for loss of office The service contracts for the Executive Directors are terminable by either the Company or the Executive Director on twelve months’ notice and make provision for early termination by way of payment of a cash sum. Payment in lieu of notice can be paid either as a lump sum or in equal monthly instalments over the notice period. The Company may also pay reasonable legal costs in respect of any compromise settlement.

There has been no payment for loss of office in the year ended 29 March 2015 (30 March 2014: £nil) Provision Detailed terms Notice period 12 months Termination payments 118% of salary comprising: • 100% of salary • 15% in respect of pension contributions • 3% in respect of other benefits Change of control There are no enhanced provisions on a change of control.

POUNDLAND GROUP Plc 58 Annual report and financial statements for p/e 29 March 2015 Annual bonus on termination Approach to recruitment and promotions There is no automatic or contractual right to bonus payment. At the The recruitment package for a new Director would be set discretion of the Committee, in certain circumstances a pro-rata in accordance with the terms of the Company’s approved bonus may become payable at the normal payment date for the remuneration policy. Currently, this would facilitate an annual bonus period of employment and based on full year performance. Where payment of no more than 150% of salary and policy PSP award the Committee decides to make a payment, the rationale will be fully of up to 200% of salary (other than in exceptional circumstances disclosed in the Annual Report on Remuneration. where up to 300% of salary may be made).

PSP on termination On recruitment, salary policy may (but need not necessarily) be Share-based awards are outside of service contracts. The set to below the normal market rate, with phased increases as the default treatment is that any outstanding awards would lapse executive gains experience. The rate of salary should be set so as to on termination. However, under the Rules of the PSP, in certain reflect the individual’s experience and skills. prescribed circumstances, such as death, disability, injury, redundancy or other circumstances at the discretion of the In addition, on recruitment the Company may compensate for Committee, ‘good leaver’ status can be applied. In determining amounts foregone from a previous employer (using Listing Rule whether an Executive Director should be treated as a good leaver 9.4.2) taking into account the quantum foregone, the extent to the Committee will take into account the performance of the which performance conditions apply, the form of award and the time individual and the reasons for their departure and in the event of this left to vesting. determination being made will set out its rationale in the following Annual Report on Remuneration. For an internal appointment, any variable pay element awarded in respect of their prior role should be allowed to pay out broadly In circumstances where an Executive Director is treated as a good according to its terms. Any other ongoing remuneration obligations leaver, awards will ordinarily vest on a time pro-rata basis subject to existing prior to appointment may continue, provided that they are the satisfaction of the relevant performance criteria with the balance put to shareholders for approval at the earliest opportunity. of the awards lapsing. The Committee retains discretion to decide not to pro-rate, to alter the basis of time pro-rating, and to alter the For all appointments, the Committee may agree that the Company date on which performance is calculated, if it feels such decisions will meet certain appropriate relocation costs. are appropriate in particular circumstances. However, if the time pro-rating is varied from the default position under the PSP Rules, Policy on external appointments an explanation will be set out in the following Annual Report on Subject to Board approval, Executive Directors are permitted to take Remuneration. Performance conditions will always apply to awards on non-executive positions with other companies and to retain their for good leavers, although the Committee may determine that it is fees in respect of such positions. Details of outside Directorships appropriate to assess performance over a different period than the held by the Executive Directors and any fees that they received are default three year period. provided in the Annual Report on Remuneration.

Service contracts are available for inspection at the Company’s registered office.

www.poundland.com 59 GOVERNANCE

APPENDIX - REMUNERATION POLICY continued

The remuneration policy for the Chairman and Non-Executive Directors The Company Chairman’s fee is determined by the Committee (other than the Company Chairman himself). The fees for the Non-Executive Directors are reviewed by the Board, excluding the Non-Executive Directors.

The table summarises the key aspects of the remuneration policy for the Chairman and Non-Executive Directors: Element Purpose and link to strategy Operation Maximum opportunity Fees To attract and retain the high- Fees are reviewed annually and approved by There is no prescribed calibre Chairman and Non- the Board upon a recommendation from the maximum annual increase. Executive Directors by offering a Chairman and Executive Directors (in the case of The Committee is guided by market competitive fee level. the Non- Executives) and from the Remuneration the general increase in the Committee in the case of the Chairman, with Non-Executive market but reference to market levels in comparably sized on occasions may need to FTSE companies and reflect time commitments recognise, for example, change and responsibilities for each role. in responsibility and/or time commitments. Fees are paid in cash and are not performance related.

Letters of appointment All Non-Executive Directors have letters of appointment with the Company for an initial period of three years, subject to annual re- appointment at the AGM. The appointment letters for the Non-Executive Directors provide that no compensation is payable on termination. The Chairman is entitled to a notice period of 3 months.

Letters of appointment are available for inspection at the Company’s registered office.

Approach to recruitment For the appointment of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved remuneration policy in force at that time.

POUNDLAND GROUP Plc 60 Annual report and financial statements for p/e 29 March 2015 Poundland Group plc Consolidated Financial Statements Registered number 08861243

Contents Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements 62 Independent Auditor’s Report to the Members of Poundland Group Plc 64 Consolidated Income Statement 66 Consolidated Statement of Other Comprehensive Income 67 Consolidated Statement of Financial Position 68 Consolidated Statement of Changes in Equity 69 Consolidated Cash Flow Statement 70 Notes to the consolidated financial statements 71 Company Balance Sheet 105 Notes to the Company financial statements 106

www.poundland.com 61 FINANCIALS

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; • for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general esponsibilityr for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Directors’ Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; • the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy; and • the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.

Approved by order of the board

Darren Shapland Chairman 18th June 2015

POUNDLAND GROUP Plc 62 Annual report and financial statements for p/e 29 March 2015 www.poundland.com 63 FINANCIALS

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF POUNDLAND GROUP PLC ONLY

Opinions and conclusions arising from our audit 1. Our opinion on the financial statements is unmodified

We have audited the financial statements of Poundland Group plc for the 52 weeks ended 29 March 2015 set out on pages 66 to 109. In our opinion:

• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 29 March 2015 and of the Group’s profit for the 52 weeks then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with UK Accounting Standards; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

2. Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risk of material misstatement that had the greatest effect on our audit was as follows.

Carrying value of inventory (£113.3 million)

Refer to page 43 (Audit and Risk Committee Report), page 74 (accounting policy) and page 90 (financial disclosures).

• The risk – The Group holds a significant amount of inventory across a broad and diverse product range. Changes in consumer tastes and demands may mean that it cannot be sold or that sales prices are discounted to less than the current inventory carrying value. Estimating the future demand for, and hence the net realisable value of, these products is inherently subjective. • Our response – Our audit procedures in this area included testing the design and effectiveness of the Group’s controls over the identification of slow moving or obsolete products and obtaining an understanding of the Group’s process for measuring the amount of provision required. We critically assessed the Group’s provision for those identified slow moving and obsolete products by assessing: the ageing of inventory; product lines with a cost in excess of expected net selling price; the level of expected price discounting and the level of discounting activity in previous years. Furthermore, we performed analysis over the stock provision held at the period end as a percentage of stock and compared this to our expectations based on our knowledge of the business.

We also considered the adequacy of the Group’s disclosures (see Note 30) about the degree of estimation involved in arriving at the provision.

3. Our application of materiality and an overview of the scope of our audit

The materiality for the Group financial statements as a whole was set at £6 million. This has been determined with eferr ence to a benchmark of Group Total Revenue (of which it represents 0.5%).

We report to the Audit and Risk Committee any corrected and uncorrected identified misstatements exceeding £0.3 million, in addition to other identified misstatements that warranted eportingr on qualitative grounds.

The Group audit team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was performed using the materiality levels set out above and covered 100% of total Group revenue, total Group profit before tax and total Group assets.

4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified

In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements ear prepared is consistent with the financial statements.

POUNDLAND GROUP Plc 64 Annual report and financial statements for p/e 29 March 2015 5. We have nothing to report in respect of the matters on which we are required to report by exception

Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

• we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; or • the Audit and Risk Committee Report does not appropriately address matters communicated by us to the Audit and Risk Committee.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• the directors’ statement, set out on page 31, in relation to going concern; and • the part of the Corporate Governance Statement on page 37 relating to the company’s compliance with the ten provisions of the 2012 UK Corporate Governance Code specified for our eviewr .

We have nothing to report in respect of the above responsibilities.

Scope of report and responsibilities

As explained more fully in the Directors’ Responsibilities Statement set out on page 62, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.

Graham Neale (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants One Snowhill Snow Hill Queensway Birmingham 18th June 2015

www.poundland.com 65 FINANCIALS

CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 29 MARCH 2015

52 weeks 2015 52 weeks 2014 Non- Non- Underlying Underlying Underlying (note 7) Total Underlying (note 7) Total Note £’000 £’000 £’000 £’000 £’000 £’000 Revenue 6 1,111,526 5,420 1,116,946 997,803 – 997,803 Cost of sales (698,801) – (698,801) (629,279) – (629,279)

Gross profit 412,725 – 412,725 368,524 – 368,524 Distribution costs (332,050) (7,527) (339,577) (296,979) – (296,979) Administrative expenses (36,303) (5,060) (41,363) (31,500) (12,343) (43,843)

Operating profit 8,9 44,372 (7,167) 37,205 40,045 (12,343) 27,702 Financial income 10 74 – 74 252 – 252 Financial expenses 10 (791) (337) (1,128) (3,488) (2,982) (6,470)

Net financing expense (717) (337) (1,054) (3,236) (2,982) (6,218)

Profit before tax 43,655 (7,504) 36,151 36,809 (15,325) 21,484 Taxation 11 (9,704) 1,950 (7,754) (9,556) 1,932 (7,624)

Profit for the period 33,951 (5,554) 28,397 27,253 (13,393) 13,860

Earnings per share - basic 3 13.58p 11.36p 5.20p (1.82)p - diluted 3 13.56p 11.34p 5.20p (1.82)p

Adjusted earnings per share - basic 3 13.58p 11.36p 10.90p 5.54p - diluted 3 13.56p 11.34p 10.90p 5.54p

All activities were continuing throughout the current and the preceding period. The accounting policy for non-underlying items is explained in note 1.19. For further details of current period items, see note 7. The notes on pages 71 to 104 form part of these financial statements.

POUNDLAND GROUP Plc 66 Annual report and financial statements for p/e 29 March 2015 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE PERIOD ENDED 29 MARCH 2015

52 weeks 2015 52 weeks 2014 Non- Non- Underlying Underlying Total Underlying Underlying Total Note £’000 £’000 £’000 £’000 £’000 £’000 Profit for the period 33,951 (5,554) 28,397 27,253 (13,393) 13,860 Other comprehensive income Items that are or may be recycled subsequently to the income statement Foreign currency translation differences – foreign operations – 67 67 – (47) (47) Effective portion of changes in fair value of cash flow hedges – 22,874 22,874 – (14,154) (14,154) Net change in fair value of cash flow hedges recycled to the income statement – (5,079) (5,079) – 3,791 3,791 Income tax on items that are or may be recycled subsequently to the income statement 11 – (3,559) (3,559) – 2,203 2,203 – 14,303 14,303 – (8,207) (8,207) Other comprehensive income for the period, net of income tax – 14,303 14,303 – (8,207) (8,207) Total comprehensive income attributable to equity holders of the parent 33,951 8,749 42,700 27,253 (21,600) 5,653

www.poundland.com 67 FINANCIALS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 29 MARCH 2015

29 March 2015 30 March 2014 Note £’000 £’000 Non-current assets Property, plant and equipment 12 47,118 41,607 Intangible assets and goodwill 13 182,568 183,711 Trade and other receivables 18 428 425 Other financial assets 14 451 – Deferred tax asset 16 686 645

Total non-current assets 231,251 226,388

Current assets Inventories 17 113,314 89,561 Other financial assets 14 11,550 519 Tax receivable 821 365 Trade and other receivables 18 25,796 24,960 Cash and cash equivalents 15,932 25,268

Total current assets 167,413 140,673

Total assets 398,664 367,061

Current liabilities Trade and other payables 20 (144,140) (120,571) Tax payable (3,255) (3,807) Provisions 21 (523) (787) Other financial liabilities 15 (574) (5,110)

Total current liabilities (148,492) (130,275)

Non-current liabilities Other interest-bearing loans and borrowings 19 (2,000) (30,000) Other payables 20 (19,794) (18,617) Provisions 21 (138) (138) Other financial liabilities 15 (117) (1,556) Deferred tax liabilities 16 (1,450) –

Total non-current liabilities (23,499) (50,311)

Total liabilities (171,991) (180,586)

Net assets 226,673 186,475

Equity attributable to equity holders of the parent Share capital 22 2,550 425,050 Merger reserve (259,642) (259,642) Reserves 9,454 (4,849) Retained earnings 474,311 25,916

Total equity 226,673 186,475 The notes on pages 71 to 104 form part of these financial statements. These financial statements were approved by the Board of Directors on 18th June 2015 and were signed on its behalf by:

NR Hateley Director 18th June 2015 Registered number: 08861243

POUNDLAND GROUP Plc 68 Annual report and financial statements for p/e 29 March 2015 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 30 MARCH 2014

Capital Cash flow Share Share Merger redemption Translation hedge Retained Total capital premium reserve reserve reserve reserve earnings equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 April 2013 152,474 – – 12,739 9 3,349 32,012 200,583 Total comprehensive income for the period Profit for the period – – – – – – 13,860 13,860 Other comprehensive income – – – – (47) (8,160) – (8,207) Total comprehensive income for the period – – – – (47) (8,160) 13,860 5,653 Transactions with owners recorded directly in equity Redemption of preference share capital - (subsidiary) (14,564) – – 14,564 – – (20,000) (20,000) Issue of shares - (subsidiary) 97 48 – – – – – 145 Capital transaction - subsidiary share capital restructure and share for share exchange 286,993 (48) (259,642) (27,303) – – – – Issue of shares - Poundland Group plc 50 – – – – – – 50 Share based payment transactions – – – – – – 44 44 Total transactions with owners 272,576 – (259,642) (12,739) – – (19,956) (19,761) Balance at 30 March 2014 425,050 – (259,642) – (38) (4,811) 25,916 186,475

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 29 MARCH 2015

Capital Cash flow Share Share Merger redemption Translation hedge Retained Total capital premium reserve reserve reserve reserve earnings equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 31 March 2014 425,050 – (259,642) – (38) (4,811) 25,916 186,475 Total comprehensive income for the period Profit for the period – – – – – – 28,397 28,397 Other comprehensive income – – – – 67 14,236 - 14,303 Total comprehensive income for the period – – – – 67 14,236 28,397 42,700 Transactions with owners recorded directly in equity Court approved reduction in share capital (422,500) – – – – – 422,500 – Dividends paid – – – – – – (3,750) (3,750) Share based payment transactions – – – – – – 1,248 1,248 Total transactions with owners (422,500) – – – – – 419,998 (2,502) Balance at 29 March 2015 2,550 – (259,642) – 29 9,425 474,311 226,673

www.poundland.com 69 FINANCIALS

CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 29 MARCH 2015

52 weeks 2015 52 weeks 2014 Note £’000 £’000 Cash flows from operating activities Profit for the period, before non-underlying items 33,951 27,253 Costs in respect of IPO 7 (263) (9,954) Other non-underlying items 7 (5,291) (3,439)

Profit for the period 28,397 13,860 Adjustments for: Depreciation and amortisation 12,13 16,283 15,096 Financial income 10 (74) (252) Financial expense 10 1,128 6,470 Equity settled share based payment transactions 23 1,248 44 Taxation 11 7,754 7,624 54,736 42,842

Increase in trade and other receivables (837) (3,645) Increase in inventories (23,753) (8,557) Increase in trade and other payables excluding IPO costs 29,216 22,537 (Decrease)/increase in provisions (570) 422 (Decrease)/increase in payable in respect of IPO costs (5,012) 5,012 53,780 58,611

Tax paid (10,912) (10,409)

Net cash from operating activities 42,868 48,202

Costs in respect of IPO 5,275 4,942

Net cash from operating activities before IPO costs 48,143 53,144

Cash flows from investing activities Acquisition of property, plant and equipment (19,112) (16,563) Acquisition of other intangible assets (708) (1,062)

Net cash from investing activities (19,820) (17,625)

Cash flows from financing activities Proceeds from new loan – 29,268 Repayment of borrowings 19 (28,000) (54,914) Redemption of preference shares – subsidiary – (20,000) Net financial expense paid (634) (2,524) Dividends paid (3,750) –

Net cash from financing activities (32,384) (48,170)

Net decrease in cash and cash equivalents (9,336) (17,593) Cash and cash equivalents at start of period 25,268 42,861 Effects of exchange rate changes on cash held – –

Cash and cash equivalents at end of period 15,932 25,268

Other interest bearing loans and borrowings (2,000) (30,000) Net funds/(debt) 13,932 (4,732)

POUNDLAND GROUP Plc 70 Annual report and financial statements for p/e 29 March 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Basis of preparation and significant accounting policies

Poundland Group plc (the “Company”) is a company incorporated and domiciled in the . The Company was incorporated on 24 January 2014.

The Group financial statements consolidate those of the Company and its subsidiaries (together eferrr ed to as the “Group”).

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”).

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements.

Judgements made by the Directors in the application of these accounting policies, that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next period are discussed in note 30.

1.1 Measurement convention

The financial statements are prepared on the historical cost basis except where Adopted IFRSs require an alternative treatment. The principal variations relate to financial instruments.

1.2 Going concern

The Group financial statements are prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has sufficient financialesour r ces, together with a strong ongoing trading performance. On 17 March 2014, the Group entered into a new revolving credit and working capital facility of £55 million with a syndicate of banks. The former and new borrowing facilities contain financial covenants which have been met throughout both periods. The Group’s forecasts and projections show that the new facility provides adequate headroom for its current and future anticipated cash requirements.

1.3 Basis of consolidation

On 17 March 2014, the Company obtained control of the entire share capital of Poundland Group Holdings Limited via a share for share exchange. There were no changes in rights or proportion of control exercised as a result of this transaction.

Although the share for share exchange resulted in a change of legal ownership, in substance these financial statements eflectr the continuation of the pre-existing group, headed by Poundland Group Holdings Limited.

Both the current and the prior period statement of financial position eflectr the share capital structure of Poundland Group plc and the merger reserve arising as a result of the share for share exchange transaction. The prior period consolidated statement of changes in equity on page 69 explains the impact of the share for share exchange in more detail.

The income statement presented for the prior period includes the results prior to 17 March 2014 when the group was headed by Poundland Group Holdings Limited. For details of the impact on earnings per share, see 1.20.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

www.poundland.com 71 FINANCIALS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

1 Basis of preparation and significant accounting policies (continued) 1.4 Foreign currency

Transactions in foreign currencies are translated to the functional currency of the Group at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated income statement with the exception of differences on transactions that are subject to effective cash flow hedges, which are recognised in other comprehensive income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction, except for differences arising on qualifying cash flow hedges which are recognised in other comprehensive income.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency, sterling, at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rate ruling at the dates of the transactions.

Exchange differences arising from the translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve.

1.5 Classification of financial instruments issued by the oupGr

Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

(a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and

(b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital exclude amounts in relation to those shares.

1.6 Financial Instruments

Financial Assets

The Group’s financial assets include cash and cash equivalents and trade and other eceivables.r All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument.

i) Trade receivables

Trade receivables are recognised and carried at original invoice amount less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows, and is ecognisedr in the income statement in administrative expenses.

ii) Cash and cash equivalents

Cash and cash equivalents includes cash in hand and deposits held at call with banks. For the purpose of the consolidated cash flow statement, cash and cash equivalents includes bank overdrafts in addition to the definition above.

POUNDLAND GROUP Plc 72 Annual report and financial statements for p/e 29 March 2015 1 Basis of preparation and significant accounting policies (continued) 1.6 Financial Instruments (continued)

Financial Liabilities

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

The Group’s financial liabilities comprise trade and other payables and borrowings. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. i) Bank borrowings

Term loans are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Financial expenses comprise interest expense on borrowings and the ineffective portion of the changes in the fair value of cashflow hedges. ii) Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. iii) Derivative financial instruments and hedge accounting

Derivative financial instruments (comprising foreign currency forward contracts and commodity hedges) are used to manage risks arising from changes in foreign currency exchange rates (relating to the purchase of overseas sourced products), interest rates and fuel price fluctuations. The Group does not hold or issue derivative financial instruments for speculative trading purposes. The Group uses the derivatives to hedge highly probable forecast transactions and therefore the instruments are designated as cash flow hedges.

Derivatives are recognised at fair value on the date a contract is entered into and are subsequently remeasured at their fair value. The effective element of any gain or loss from remeasuring the derivative instrument is recognised directly in the cash flow hedge eserve.r

The associated cumulative gain or loss is reclassified from the statement of changes in equity and recognised in the income statement in the same period or periods during which the hedged transaction affects the income statement. Any element of the remeasurement of the derivative instrument that does not meet the criteria for an effective hedge is recognised immediately in the income statement within financial income or financial expenses.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is recognised immediately in the income statement.

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than twelve months, or as a current asset or liability, if the remaining maturity of the hedged item is less than twelve months from the reporting date.

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1 Basis of preparation and significant accounting policies (continued) 1.7 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, and net of capital contributions received.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Depreciation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

Short leasehold property (less than 50 years) over the term of the lease Fixtures and equipment 3-25 years (dependent upon length of lease)

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

1.8 Business combinations

Business combinations are accounted for using the acquisition method at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the fair value of the existing equity interest in the acquiree: less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Costs relating to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

1.9 Intangible assets and goodwill

Goodwill

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but tested annually for impairment.

Other intangible assets

Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill ear systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Brand 20 years Trademarks 5 years Software 3 years

1.10 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and other costs in bringing them to their existing location and condition.

POUNDLAND GROUP Plc 74 Annual report and financial statements for p/e 29 March 2015 1 Basis of preparation and significant accounting policies (continued) 1.11 Impairment excluding inventories and deferred tax assets

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each eportingr date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the income statement.

Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, (“CGU”). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of CGUs are allocated first to educer the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the units on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.12 Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the oupGr pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement in the periods during which services are rendered by employees.

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1 Basis of preparation and significant accounting policies (continued) 1.12 Employee benefits (continued)

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payment transactions

The Group operates a number of equity settled share based compensation plans.

The grant date fair value of share-based payment awards made to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted.

The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non market performance conditions at the vesting date, measured at the grant date fair value of the award.

At each reporting date, the group revises its estimates of the number of share incentives which are expected to vest. The impact of the revision of original estimates is recognised in the income statement with a corresponding adjustment to equity.

1.13 Provisions

A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will beequir r ed to settle the obligation.

1.14 Revenue recognition

Revenue comprises the fair value of goods sold to external customers, net of value added tax and promotional discounts. Revenue is recognised on the sale of goods when the significant risks and ewarr ds of ownership of the goods have passed to the customer and the amount of revenue can be measured reliably.

1.15 Supplier Income

Rebate income Rebate income consists of income generated from volume related rebate agreements and other supplier funding received on an ad hoc basis for in store promotional activity. The income received is recognised as a deduction from cost of sales.

Volume related income is recognised based on the expected entitlement at the reporting date based on agreed and documented contractual terms. Where the contractual period is not yet complete, the Group will estimate expected purchase volumes taking into account current performance levels to assess the probability of achieving contractual target volumes.

Other supplier funding is recognised as invoiced to the suppliers, subject to satisfaction of any related performance conditions. To minimise the risk arising from estimation, supplier confirmations are obtained at the reporting date prior to amounts being invoiced.

Promotional funding Promotional pricing income relates to income received from suppliers to invest in the customer offer. It is considered an adjustment to the core cost price of a product and as such is recognised as reduction in the purchase price of a product. Timing of invoicing of amounts due is agreed on an individual basis with each supplier.

Uncollected commercial income at the reporting date is presented within the financial statements as follows Trade payables – it is common practice for the Group to net income due from suppliers against amounts owing to that supplier. Any outstanding invoiced commercial income relating to these suppliers at the reporting date will be included within trade payables.

Trade receivables – where there is no practice of netting commercial income from amounts owed to the supplier, the Group will present amounts due within trade receivables. Where commercial income is earned but not invoiced to the supplier at the reporting date, the amount due is included within prepayments and accrued income.

POUNDLAND GROUP Plc 76 Annual report and financial statements for p/e 29 March 2015 1 Basis of preparation and significant accounting policies (continued) 1.16 Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense (i.e. on a straight line basis over the life of the lease).

1.17 Financial income and expenses

Financial expenses comprise interest payable and the ineffective portion of changes in the fair value of cash flow hedges that are recognised in the income statement. Financial income comprises interest receivable on funds invested and the ineffective portion of changes in the fair value of cash flow hedges.

Interest income and interest payable is recognised in the income statement as it accrues, using the effective interest method.

1.18 Taxation

Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the income statement and statement of other comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial eportingr purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future profits will be available against which the temporary difference can be utilised.

1.19 Non underlying items

Non underlying items are those items that are unusual because of their size, nature or incidence. The Directors consider that these items should be separately identified within their elevantr income statement category to enable a full understanding of the Group’s results.

1.20 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For diluted EPS, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.

As explained in the basis of consolidation accounting policy, the Group’s financial statements eflectr the continuation of the pre-existing group headed by Poundland Group Holdings Limited. That company had preference shares, the holders of which were entitled to a cumulative dividend at the discretion of the Directors. In accordance with IAS 33, for the comparative period, the accrued preference share dividend has been deducted from profit for the period to compute the earnings attributable to ordinary shareholders. The conversion factor applied in the share reorganisation has been applied to calculate the number of ordinary shares of Poundland Group Holdings Limited used to compute the weighted average number of ordinary shares for the comparative period. In this way the impact of the preference shares has been excluded from both earnings and the weighted average number of shares.

As a precursor to the share for share exchange, the preference shares in Poundland Group Holdings Limited were converted to ordinary shares and any entitlement to a dividend on these shares was forfeited. For the periods reported, the Group has chosen to present an adjusted EPS calculation to aid comparability and to provide a consistent measure of performance, by excluding the impact of the preference shares from both earnings and the weighted average number of shares. For this adjusted measure, in both reported periods, the weighted average number of shares is based on the share capital structure of Poundland Group plc and assumes that this structure was in place from 1 April 2013 (i.e. the beginning of the prior period).

For both EPS measures (statutory and adjusted), the Group has also presented an alternative version with profit adjusted for non underlying items.

A reconciliation of the adjusted and alternative measure to the statutory measure required by IFRS is given in note 3.

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1 Basis of preparation and significant accounting policies (continued) 1.21 Adopted IFRS not yet applied

Amendments to a number of standards under the annual improvements project to IFRS have been endorsed by the EU but not yet adopted. None of these amendments are expected to have a material impact on the Group’s financial statements.

1.22 Reserves

Cash flow reserve

The cash flow hedge eserver represents the effective portion of cash flow hedges where the contract has not yet expired. The reserve is stated net of the associated tax. On expiry of the contract, the effective portion is recycled to the income statement.

Translation reserve

The translation reserve represents the cumulative translation differences for foreign operations.

Merger reserve

The merger reserve arises on consolidation as a result of the share for share exchange on 17 March 2014. It represents the difference between the nominal value of shares issued by Poundland Group plc in this transaction and the share capital and reserves of Poundland Group Holdings Limited.

2 Operating segment

The Group has one reportable segment, discount retailing of a variety of products.

The Chief Operating Decision Maker (“CODM”) is the Board of Directors. Internal management reports are reviewed by the CODM on a monthly basis. Key measures used to evaluate performance are Revenue and EBITDA. Management believes that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions.

All material operations of the reportable segment are carried out in the United Kingdom and the Republic of Ireland and all material non-current assets are located in the United Kingdom and the Republic of Ireland. The Group’s revenue is driven by the consolidation of individually small value transactions and, as a result, Group revenue is not reliant on a major customer or group of customers. All revenue is generated from external customers.

POUNDLAND GROUP Plc 78 Annual report and financial statements for p/e 29 March 2015 3 Earnings per share

Statutory earnings per share 52 weeks 52 weeks 2015 2014 No of shares No of shares Weighted average number of ordinary shares in issue, being weighted average number of shares for calculating basic earnings per share 250,000,000 190,792,314 Effect of share options on issue 387,303 917 Weighted average number of ordinary shares for calculating diluted earnings per share 250,387,303 190,793,231

52 weeks 52 weeks 2015 2014 £’000 £’000 Profit for the period 28,397 13,860 Non-accrued preference share dividends – (11,891) Premium paid on preference share capital redeemed – (5,436) Basic earnings attributable to ordinary equity shareholders 28,397 (3,467)

Non-underlying items (see note 7) Operating profit and finance costs 7,504 15,325 Tax on non-underlying items (1,950) (1,932) Underlying earnings before non-underlying items 33,951 9,926

Earnings per share is calculated as follows: 52 weeks 52 weeks 2015 2014 p p Basic earnings per ordinary share 11.36 (1.82) Diluted earnings per ordinary share 11.34 (1.82)

Basic earnings per ordinary share before non-underlying items 13.58 5.20 Diluted earnings per ordinary share before non-underlying items 13.56 5.20

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3 Earnings per share (continued) Adjusted earnings per share

52 weeks 52 weeks 2015 2014 No of shares No of shares Weighted average number of ordinary shares in issue, being weighted average number of shares for calculating basic earnings per share 250,000,000 250,000,000 Effect of share options on issue 387,303 917 Weighted average number of ordinary shares for calculating diluted earnings per share 250,387,303 250,000,917

52 weeks 52 weeks 2015 2014 £’000 £’000 Profit for the period, being basic earnings attributable to ordinary equity Shareholders 28,397 13,860 Non-underlying items (see note 7) Operating profit and finance costs 7,504 15,325 Tax on non-underlying items (1,950) (1,932) Underlying earnings before non-underlying items 33,951 27,253

Earnings per share is calculated as follows:

52 weeks 52 weeks 2015 2014 p p Basic earnings per ordinary share 11.36 5.54 Diluted earnings per ordinary share 11.34 5.54

Basic earnings per ordinary share before non-underlying items 13.58 10.90 Diluted earnings per ordinary share before non-underlying items 13.56 10.90

4 Dividends

52 weeks 52 weeks 2015 2015 2014 2014 Pence per share £’000 Pence per share £’000 Amounts recognised as distributions to owners in the financial period: Current financial period interim dividend 1.5 3,750 – – Dividends paid to equity holders in the financial period 1.5 3,750 – – After the reporting date, a final dividend of 3 pence per share was proposed by the Directors in respect of the period ended 29 March 2015, resulting in a total final proposed dividend of £7,500,000 (2014: £Nil). The proposed final dividend has not been included as a liability at 29 March 2015.

POUNDLAND GROUP Plc 80 Annual report and financial statements for p/e 29 March 2015 5 Reconciliation of adjusted profit measure (EBITDA)

The Directors consider EBITDA to be a more consistent measure of operating performance. Operating profit is adjusted to exclude the impact of finance costs, taxation, amortisation and depreciation.

Underlying EBITDA excludes the impact of those distribution costs and administrative expenses which do not contribute to current trading activities. The Directors consider that this measure more fairly reflects actual operating performance.

52 weeks 52 weeks 2015 2014 £’000 £’000 Operating profit 37,205 27,702 Exclude: Amortisation 1,851 1,857 Depreciation 14,432 13,239 EBITDA 53,488 42,798 Exclude: Non-underlying items excluding brand amortisation, depreciation, financial expenses and taxation 5,871 11,231

Underlying EBITDA 59,359 54,029

6 Revenue

52 weeks 52 weeks 2015 2014 £’000 £’000 Sale of goods 1,116,946 997,803

Total revenues 1,116,946 997,803

7 Non-underlying items

In the period ended 29 March 2015, the Group incurred £2,242,000 of net cost related to strategic initiatives (international expansion) (2014: £1,277,000). These costs relate to the new store trial in Spain, which was announced in February 2014 and is planned to continue until the end of FY2016. Included within these costs are the revenue and profit generated by the five stores that opened in the period. Total revenue of £5,420,000 has been generated. Once costs of distribution from the UK distribution centres, and store operating expenses have been included, these stores generated a small positive contribution to Group operating profit. Additionally set up costs, including the costs incurred prior to stores opening for trade, have been incurred to support the trial.

The Group incurred £1,541,000 (2014: £Nil) of one off costs relating to the relocation of the distribution facility in the South East of England, together with the costs to dispose of the existing temporary facility.

On the acquisition of Poundland Holdings Limited in June 2010, the Group recognised an intangible asset relating to the Poundland brand. This is being amortised over 20 years and the amortisation expense is presented as a non-underlying item (£1,112,000, 2014: £1,112,000).

The Group incurred further fees relating to its listing of £263,000 (2014: £9,954,000). It also incurred fees of £2,009,000 (2014: £Nil) relating to the proposed acquisition of 99p Stores Limited.

The ineffective portion of foreign exchange hedging contracts is recognised as a financial expense and disclosed as a non-underlying item (£337,000, 2014: £1,000).

The associated tax implications of the above items are presented as a non-underlying item (£1,950,000, 2014: £1,932,000).

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7 Non-underlying items (continued)

52 weeks 52 weeks 2015 2014 £’000 £’000

Revenue Strategic initiatives 5,420 – 5,420 –

Distribution Expenses Relocation of distribution facility in the South East (1,541) – Strategic initiatives (5,986) – (7,527) –

Administrative Expenses Amortisation expense (brand) (1,112) (1,112) Strategic initiatives (1,676) (1,277) Costs in respect of the IPO (263) (9,954) Costs in respect of proposed acquisition of 99p Stores Ltd (2,009) – (5,060) (12,343)

Financial income and expense Financial Instruments (337) (1) Bank fees – refinancing – (2,981) (337) (2,982)

Taxation Non-underlying items impact 1,351 1,390 Adjustments for prior periods 599 – Intangible assets – change in tax rate – 542 1,950 1,932 Total non-underlying items (5,554) (13,393)

8 Auditor’s remuneration

52 weeks 52 weeks 2015 2014 £’000 £’000 Fees payable for the audit of the Company’s financial statements 26 26 Amounts receivable by the Company’s auditor and its associates in respect of: Audit of financial statements of subsidiaries of the Company 136 97 Audit related assurance services 29 198 Taxation compliance services 90 78 Taxation advisory services 115 188 Other non-audit services 327 1,006 The Group incurred an unusually high level of non-audit fees in both the current and prior financial periods. These have been presented as non-underlying items in both periods (see note 7).

Included within other non-audit services for the period ended 29 March 2015 are fees relating to the proposed acquisition of 99p Stores Limited and included within taxation advisory services are residual fees related to the IPO. For the period ended 30 March 2014, other non- audit services included corporate finance transaction services fees incurred as part of the IPO process and audit related assurance services included fees in relation to the nine month period audit undertaken as part of the IPO process.

For the period ended 29 March 2015, the Group incurred fees in respect of the Group’s half year interim report. These are included within audit related assurance services.

POUNDLAND GROUP Plc 82 Annual report and financial statements for p/e 29 March 2015 9 Staff numbers and costs

The average number of persons employed by the Group (including Directors) during the period, analysed by category, was as follows:

Number of employees

52 weeks 52 weeks 2015 2014 Administration 390 378 Selling and distribution 13,833 12,451 14,223 12,829

The aggregate payroll costs of these persons were as follows:

52 weeks 52 weeks 2015 2014 £’000 £’000 Wages and salaries 154,252 136,110 Social security costs 8,307 7,128 Equity settled share based payment transactions 1,248 44 Contributions to defined contribution plans 1,441 1,266 165,248 144,548

Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 45 to 60.

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10 Financial income and expense

52 weeks 52 weeks 2015 2014 £’000 £’000 Financial income Interest income on unimpaired financial assets 74 252

Total financial income 74 252

Financial expense Interest expense on financial liabilities measured at amortised cost 791 3,432 Non-underlying fees associated with refinancing (note 7) – 2,981 Net change in fair value of interest rate swap cash flow hedges ecycledr from equity – 56 Ineffective portion of changes in fair value of cash flow hedges 337 1

Total financial expense 1,128 6,470

11 Taxation

Recognised in the income statement 52 weeks 52 weeks 2015 2014 £’000 £’000 Current taxation Corporation tax charge for the period 10,876 9,371 Adjustments for prior periods (972) 186 9,904 9,557 Deferred tax income Origination and reversal of temporary differences (2,136) (1,766) Change in tax rate 113 (107) Adjustment for prior periods (127) (60) (2,150) (1,933)

Total tax charge for the period 7,754 7,624

POUNDLAND GROUP Plc 84 Annual report and financial statements for p/e 29 March 2015 11 Taxation (continued)

The tax charge is reconciled with the standard rates of UK corporation tax as follows: 52 weeks 52 weeks 2015 2014 £’000 £’000 Profit before tax 36,151 21,484

UK corporation tax at standard rate of 21% (52 weeks 2014: 23%) 7,592 4,941

Factors affecting the charge for the period: Depreciation on expenditure not eligible for tax relief 437 316 Disallowable expenses 1,156 2,608 Adjustments in respect of prior periods (1,099) 126 Impact of overseas tax rates (449) (260) Impact of reduction in tax rate on deferred tax balance 113 (107) Others 4 – Total tax charge for the period 7,754 7,624

Recognised in other comprehensive income

52 weeks 52 weeks 2015 2014 £’000 £’000 Effective portion of changes in fair value of cash flow hedges (4,575) 3,071 Net change in fair value of cash flow hedges ecycledr to profit or loss 1,016 (868) (3,559) 2,203

Factors that may affect future current and total tax charges

A reduction in the UK corporation tax rate to 21% (effective from 1 April 2014) was substantively enacted on 2 July 2013. A further reduction to 20% (effective 1 April 2015) was also substantively enacted on 2 July 2013. This will reduce the Group’s future current tax charge accordingly. The deferred tax liability at 29 March 2015 has been calculated based on the rate of 20% substantively enacted at the reporting date (30 March 2014 asset calculated at 20%).

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12 Property, plant and equipment

Short leasehold Fixtures and property equipment Total £’000 £’000 £’000 Cost Balance at 1 April 2013 8,140 56,421 64,561 Additions 825 15,738 16,563 Disposals 129 (591) (462)

Balance at 30 March 2014 9,094 71,568 80,662

Balance at 31 March 2014 9,094 71,568 80,662 Additions 5,133 14,810 19,943 Disposals (739) (662) (1,401) Transfer between categories 15,899 (15,899) –

Balance at 29 March 2015 29,387 69,817 99,204

Depreciation and impairment Balance at 1 April 2013 7,019 19,259 26,278 Depreciation charge for the period 2,591 10,648 13,239 Disposals 129 (591) (462)

Balance at 30 March 2014 9,739 29,316 39,055

Balance at 31 March 2014 9,739 29,316 39,055 Depreciation charge for the period 4,169 10,263 14,432 Disposals (739) (662) (1,401) Transfer between categories 8,279 (8,279) –

Balance at 29 March 2015 21,448 30,638 52,086

Net book value

At 30 March 2014 (645) 42,252 41,607

At 29 March 2015 7,939 39,179 47,118

The Directors have reconsidered the presentation of capital contributions and consider that it is more appropriate to allocate them against the type of actual expenditure incurred rather than including the full amount within short leasehold property.

POUNDLAND GROUP Plc 86 Annual report and financial statements for p/e 29 March 2015 13 Intangible assets

Goodwill Trademarks Software Brand Total £’000 £’000 £’000 £’000 £’000 Cost Balance at 1 April 2013 163,856 56 3,006 22,300 189,218 Additions – externally purchased – 31 1,031 – 1,062

Balance at 30 March 2014 163,856 87 4,037 22,300 190,280

Balance at 30 March 2014 163,856 87 4,037 22,300 190,280 Additions – externally purchased – 28 680 – 708 Disposals – – (5) – (5)

Balance at 29 March 2015 163,856 115 4,712 22,300 190,983

Amortisation Balance at 1 April 2013 – 7 1,592 3,113 4,712 Amortisation for the period – 15 730 1,112 1,857

Balance at 30 March 2014 – 22 2,322 4,225 6,569

Balance at 30 March 2014 – 22 2,322 4,225 6,569 Amortisation for the period – 21 718 1,112 1,851 Disposals – – (5) – (5)

Balance at 29 March 2015 – 43 3,035 5,337 8,415

Net book value

At 30 March 2014 163,856 65 1,715 18,075 183,711

At 29 March 2015 163,856 72 1,677 16,963 182,568

Amortisation

Amortisation is recognised in distribution and administrative expenses in the income statement as follows:

52 weeks 52 weeks 2015 2014 £’000 £’000 Distribution costs 249 296 Administrative expenses 1,602 1,561 1,851 1,857

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13 Intangible assets (continued)

Impairment testing

Goodwill of £163.9 million arising on the acquisition of Poundland Holdings Limited in June 2010 is allocated to the Group’s one reportable segment. For impairment testing purposes, goodwill has been allocated to a group of cash generating units (CGUs) comprising the Group’s one operating segment. This represents the lowest level within the Group at which goodwill is monitored for internal management purposes.

Goodwill is not amortised, but tested annually for impairment on the basis of value in use calculations using discounted cash flows. As the value in use exceeded the carrying value for the cash generating units, no impairment loss was recognised in the period.

In assessing the value in use, the four year business plan was used to provide cash flow projections to the period ended March 2019. The cash flow projections are subject to key assumptions in respect of discount rates, achievement of future revenue and EBITDA growth. The Directors have reviewed and approved the assumptions inherent in the model as part of the annual budget process using historic experience and considering economic and business risks facing the Group.

In assessing the Group’s value in use a pre-tax discount rate of 12.1% (2014: 13.7%) has been applied to the group of CGUs.

The calculated value in use significantly exceeded the carrying value of goodwill and no further sensitivity calculations were necessary to conclude there was no impairment.

14 Other financial assets 29 March 30 March 2015 2014 £’000 £’000

Non-current Derivative financial assets 451 –

Current Derivative financial assets 11,550 519

15 Other financial liabilities

29 March 30 March 2015 2014 £’000 £’000

Non-current Derivative financial liabilities 117 1,556

Current Derivative financial liabilities 574 5,110

POUNDLAND GROUP Plc 88 Annual report and financial statements for p/e 29 March 2015 16 Deferred tax assets and liabilities Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets 29 March 30 March 2015 2014 £’000 £’000 Deferred tax assets (686) (645)

Net deferred tax assets (686) (645)

Liabilities

29 March 30 March 2015 2014 £’000 £’000 Deferred tax liabilities 1,450 –

Net deferred tax liabilities 1,450 –

Recognised in Recognised in other the income comprehensive statement income 1 April 2013 (credit)/charge (credit)/charge 30 March 2014 £’000 £’000 £’000 £’000 Property, plant and equipment (205) (1,132) – (1,337) Intangible assets 4,412 (797) – 3,615 Inventories (130) 30 – (100) Other financial assets 1,061 (20) (937) 104 Trade and other payables (1,527) (52) – (1,579) Tax value of losses carried forward (29) 14 – (15) Other financial liabilities (91) 24 (1,266) (1,333) 3,491 (1,933) (2,203) (645)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

16 Deferred tax assets and liabilities (continued)

Recognised in Recognised in other the income comprehensive statement income 31 March 2014 (credit)/charge (credit)/charge 29 March 2015 Deferred tax liability £’000 £’000 £’000 £’000 Property, plant and equipment (1,337) (1,007) – (2,344) Intangible assets 3,615 (222) – 3,393 Inventories (100) – – (100) Other financial assets 104 (1,158) 3,455 2,401 Trade and other payables (1,579) (183) – (1,762) Tax value of losses carried forward (15) 15 – – Other financial liabilities (1,333) 1,091 104 (138) (645) (1,464) 3,559 1,450

Recognised in Recognised in other the income comprehensive statement income 31 March 2014 (credit)/charge (credit)/charge 29 March 2015 Deferred tax asset £’000 £’000 £’000 £’000 Tax value of losses carried forward – (686) – (686) – (686) – (686)

No deferred tax liability has been recognised in respect of £207,000 (2014: £156,000) of undistributed earnings of overseas subsidiaries since such distributions would not be taxable.

17 Inventories

29 March 30 March 2015 2014 £’000 £’000

Finished goods 105,474 82,779 Goods in transit 7,840 6,782 113,314 89,561

All inventories are expected to be sold within 12 months of the reporting date.

During the period £0.6 million (2014: £0.3 million) was recognised as an expense in cost of sales in respect of the write down of inventory to net realisable value.

No unutilised provisions were reversed in the period. Inventories recognised as cost of sales in the period amounted to £698.8 million (2014: £629.3 million)

POUNDLAND GROUP Plc 90 Annual report and financial statements for p/e 29 March 2015 18 Trade and other receivables

29 March 30 March 2015 2014 £’000 £’000 Other receivables due from related parties (Note 28) 50 50 Trade receivables 4,662 2,872 Other taxation and social security – 291 Prepayments and accrued income 21,512 22,172 26,224 25,385 Non-current 428 425 Current 25,796 24,960

19 Other interest-bearing loans and borrowings

The contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost are described below. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 24.

The Group’s previous debt facility came into effect in August 2010. It consisted of two term loans and a six year working capital and revolving credit facility of £25 million, held by one of the Company’s subsidiary undertakings, Poundland Holdings Limited. The term loans were repaid in full on 17 March 2014.

On 17 March 2014, the Group entered into a new banking facility consisting of a revolving credit and working capital facility of £55.0 million. This is held by Poundland Holdings Limited. The Group utilised £30.0 million of the revolving credit facility, together with cash generated from operating activities, to repay the term debt in full in March 2014. At 29 March 2015, the outstanding balance is £2.0 million.

29 March 2015 30 March 2014 Carrying Carrying Year of Face value amount Face value amount maturity £’000 £’000 £’000 £’000 Revolver 2019 2,000 2,000 30,000 30,000 Total 2,000 2,000 30,000 30,000

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19 Other interest-bearing loans and borrowings (continued)

The Group had the following undrawn committed borrowing facilities available at the reporting date in respect of which all conditions precedent have been met:

29 March 30 March 2015 2014 £’000 £’000

Expiring between two and five years 48,097 23,500

The facility relates to the Group’s revolving credit and working capital facility, which incurs commitment fees at market rates.

20 Trade and other payables

29 March 30 March 2015 2014 £’000 £’000

Current Trade payables 82,298 62,482 Other taxation and social security payable 14,247 12,498 Other payables 5,341 4,794 Accruals and deferred income 42,254 40,797 144,140 120,571 Non-current Accruals and deferred income 19,794 18,617

163,934 139,188

21 Provisions

Property related

29 March 30 March 2015 2014 £’000 £’000

At beginning of period 925 504 Provisions made during the period 734 809 Provisions utilised during the period (832) (62) Provisions reversed during the period (166) (326) At end of period 661 925

Non-current 138 138 Current 523 787 661 925

Property related provisions consist of costs associated with vacant properties and outstanding rent reviews.

POUNDLAND GROUP Plc 92 Annual report and financial statements for p/e 29 March 2015 21 Provisions (continued)

A provision for vacant properties is recognised when the Group’s unavoidable costs of meeting its contractual obligations are higher than the expected benefits to be derived from it. The effect of discounting is not considered material.

A rent review provision is recognised when there are additional obligations expected as a result of a rent review. The provision is based on the Directors’ best estimate of the amount at which the review will be settled.

22 Share Capital 29 March 30 March 2015 2014 £’000 £’000

250,000,000 ordinary shares of £0.01(2014: £1.70) 2,500 425,000 49,999 Preference shares of £1 each 50 50 2,550 425,050

The table below sumarises the movements in share capital during the period ended 29 March 2015. £’000 Balance at 30 March 2014 425,050 Court approved reduction in share capital (422,500) Balance at 29 March 2015 2,550

On 14 May 2014 the Company reduced its share capital, via a court approved process. The nominal value of each share was reduced from £1.70 to 1p. Following the reduction, the nominal value of ordinary share capital is £2.5 million.

This event was disclosed in the initial public offering pathfinder prospectus.

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22 Share Capital (continued) Rights attached to shares Ordinary shares

The rights attaching to the Ordinary Shares are uniform in all respects and form a single class for all purposes, including with respect to voting and for all dividends and other distributions thereafter declared, made or paid on the Ordinary Share capital of the Company.

Subject to any rights and restrictions attached to any shares, on a show of hands every Shareholder who is present in person shall have one vote and on a poll every Shareholder present in person or by proxy shall have one vote per Ordinary Share.

Except as provided by the rights and restrictions attached to any class of shares, Shareholders are under general law entitled to participate in any surplus assets in a winding up in proportion to their shareholdings.

Subject to the provisions of the Act, rights attached to any class of shares (unless otherwise provided by the terms of allotment of the shares of that class) may be varied or abrogated with the written consent of the holders of three-quarters in nominal value of the issued shares of the class, or the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class.

Preference shares Preference shares entitle their holder to receive notice of and to attend and speak at general meetings of the Company. Preference shares do not entitle their holder to vote at general meetings of the Company.

The rights attached to the Preference Shares may be waived, varied or abrogated with the consent in writing of the holders of at least 50% in nominal value of the Preference shares in issue. To the extent that such a waiver, variation or abrogation of any of the rights attached to the Preference shares adversely affects one group of Preference shares, such waiver, variation or abrogation must be approved by or on behalf of the holders of at least 50% in nominal value of the Preference shares in each respective group.

Except as provided by the rights and restrictions attached to any class of shares, the holders of the Company’s shares are under general law entitled to participate in any surplus assets in a winding up in proportion to their shareholdings, provided that the assets of the Company available for distribution among the members shall be applied in paying to the Preference Shareholders in proportion to the number of Preference Shares held by each of them, in priority to any payment to the holders of any Ordinary Shares in the Company, the issue price per Preference Share.

23 Share based payments The Group operates four share award plans, all of which are equity settled.

The Performance Share Plan (PSP) The PSP was adopted by the directors on 27 February 2014. All colleagues of the Group are eligible to participate in the PSP at the discretion of the Remuneration Committee. The first issue of awards was made on 17 March 2014. All awards were granted for nil consideration. Further awards were made on 4 July 2014.

A summary of the rules for this scheme and the related performance conditions are set out in the Directors’ Remuneration report.

The Restricted Stock Plan (RSP) The RSP was adopted by the Directors on 27 February 2014. Awards over ordinary shares are granted subject only to continued employment. There are no performance conditions attached to the award. All colleagues of the Group (other than Executive Directors and members of the Executive Committee) are eligible to participate in the RSP at the discretion of the Remuneration Committee.

Initial RSP awards were made on 17 March 2014 with further awards being made on 4 July 2014. Other than these awards, the intention is that RSP awards will only be made in special or unusual circumstances. All awards were granted for nil consideration. The RSP awards will usually vest three years after the date of grant. Vested share awards will be released to participants automatically within 30 days of the vesting date.

POUNDLAND GROUP Plc 94 Annual report and financial statements for p/e 29 March 2015 23 Share based payments (continued) The Company Share Option Plan (CSOP) The CSOP was adopted by the directors on 27 February 2014. Under the CSOP, the Directors may grant to eligible colleagues options to acquire Ordinary Shares at an exercise price which may not be less than the market value of an Ordinary Share on the date of grant.

All colleagues of the Group are eligible to participate in the CSOP at the discretion of the Directors.

The CSOP options may be subject to performance conditions. However, the initial award made on 18 March 2014 together with awards made on 4 July 2014, did not have any related performance conditions. All awards were granted for nil consideration.

A CSOP option will normally only be exercisable from the third anniversary of the date of grant and when all conditions applying to it have been satisfied. No dividends are paid on shares awarded.

The number and weighted average exercise prices of share based payment awards are as follows:

For the period ended 29 March 2015

PSP RSP CSOP Weighted Weighted Weighted average Number of average Number of average Number of exercise Options exercise Options exercise Options price (£) (‘000) price (£) (‘000) price (£) (‘000)

Outstanding at 30 March 2014 – 1,248 – 293 3.75 946 Granted during the period – 32 – 3 3.42 60

Outstanding at 29 March 2015 – 1,280 – 296 3.73 1,006

The fair value of services received in return for share options granted are measured by reference to the fair value of the share options granted.

The PSP and RSP awards are valued at 100% of the share price at the date of grant.

The fair value of CSOP awards granted during the period is measured using the Black-Scholes valuation model. Measurements inputs and assumptions are as follows:

29 March 30 March 2015 2014

Share price at grant date £3.38 £3.75 Fair value at grant date 81.97p 92.48p Exercise price £3.42 £3.75 Expected volatility 31.7% 32.5% Option life (years) 10 10 Expected life (years) 4 4 Expected dividend yield 1.08% 1.09% Risk-free interest rate (based on national government bonds) 1.6% 1.3%

As the Company has recently listed, there is a restricted history of share price movements. The expected volatility is therefore a proxy volatility figure, which has been derived as the average volatility of FTSE 250 companies within the General Retailers sector over the four years prior to grant date (i.e. the period equivalent to the expected term).

The risk free rate is equivalent to the prevailing UK Gilts rate at grant date, which is commensurate with the expected term. CSOP awards are granted under a service condition. This is not taken into account in the grant date fair value measurement of the services received. The share based payments expense has been calculated using recent colleague turnover levels.

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23 Share based payments (continued)

Save As You Earn (SAYE)

The Group operates a savings related share option scheme which was open to all UK and Republic of Ireland colleagues with more than three months’ continuous service as at 13 August 2014. This is an approved HMRC Scheme and was established during the period and adopted by the directors on 27 February 2014. Under the SAYE scheme, participants remaining in the Group’s employment at the end of the three-year savings period are entitled to use their savings to purchase shares in the Group at a stated exercise price. Under restricted circumstances colleagues leaving for certain reasons are able to use their savings to purchase shares within six months of their leaving.

At 29 March 2015, colleagues held 1,207 three-year savings contracts with options over 1.3 million shares. A reconciliation of options movements is shown below:

2015 Weighted average Number of options exercise price £’000 £ Outstanding at beginning of period – – Granted 1,377 2.50 Forfeited (80) 2.50 Outstanding at end of period 1,297 2.50

The weighted average remaining contractual life of share options outstanding at 29 March 2015 was 2.6 years. Details of options at 29 March 2015 are set out below:

Date of grant Date of expiry Exercise price (£) Options outstanding 5 September 2014 1 November 2017 2.50 1,297

Options granted during the year were valued using the Black-Scholes option-pricing model. No performance conditions were included in the fair value calculations. The fair value per option granted during the year and the assumptions used in the calculation are as follows:

29 March 2015 Share price at grant date £3.24 Fair value at grant date 102.7p Exercise price £2.50 Expected volatility 30.1% Option life (years) 3.4 Expected dividend yield 1.13% Risk-free interest rate (based on national government bands) 1.3%

As the Company has recently listed, there is a restricted history of share price movements. The expected volatility is therefore a proxy volatility figure, which has been derived as the average volatility of FTSE 250 companies within the General Retailers sector over the three years prior to grant date (i.e. the period equivalent to the expected term).

The resulting fair value is expensed over the service period of three years on the assumption that, dependent upon the grade of the colleague, between 5 and 15 per cent of options will be cancelled over the service period as colleagues leave the SAYE scheme.

The total expense for share based payments recognised in the period is as follows:

52 weeks 52 weeks 2015 2014 £’000 £’000 Equity settled share based payment expense 1,248 44

POUNDLAND GROUP Plc 96 Annual report and financial statements for p/e 29 March 2015 24 Financial instruments and related disclosures

Financial risk management

The Directors have overall responsibility for the oversight of the Group’s risk management framework. A formal process for reviewing and managing risk in the business has been developed. A register of strategic and operational risk is maintained and reviewed by the Directors, who also monitor the status of agreed actions to mitigate key risks.

Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligation. This risk arises from the Group’s foreign exchange, interest rate and commodity hedging agreements with its banking counterparties. The Group only deals with credit with Banks in the Banking Syndicate or with Banks who are creditworthy, and monitors the creditworthiness of these counterparties using publicly available information.

As the principal business of the Group is cash sales, the Group trade receivables are small. The carrying amount of financial assets ecorr ded in the financial statements eprr esents the Group’s maximum exposure to credit risk and any associated impairments are immaterial.

Group policy is that surplus funds are placed on deposit with counterparties, who are either party to the Group’s Banking syndicate, or who are creditworthy counterparties with a minimum of A-3 short-term credit rating.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is sufficient cash or working capital facilities to meet the cash requirements of the Group for the current Business Plan.

The risk is measured by review of forecast liquidity each month to determine whether there are sufficient credit facilities to meet forecast requirements and by monitoring covenants on a regular basis to ensure there are no expected significant breaches, which would lead to an “Event of Default”. Cash flow forecasts are submitted monthly to the Directors. These continue to demonstrate the strong cash generating ability of the business and its ability to operate within existing agreed banking facilities. There have been no breaches of covenants during the reported periods.

The Group has a £55.0 million Revolving Credit and Working Capital facility to support short and medium term liquidity.

Market risk

Market risk is the risk that changes in the market prices, such as foreign exchange rates and interest rates will affect the Group’s income. The Group’s exposure to market risk predominantly relates to interest and currency risk, although the Group does hedge fuel used by its fleet of vehicles in the distribution of product to stores.

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Notes to the consolidated financial statements continued

24 Financial instruments and related disclosures (continued)

Interest rate risk

The Group’s revolving credit facility incurs variable interest rate charges linked to LIBOR plus a margin dependent on the Group’s net debt ratio. The Group’s policy aims to manage the interest cost of the Group within the constraints of its financial covenants and Business Plan.

The Group currently has no interest rate hedge in place.

The Group continues to monitor the interest rate swap market and future cash flows to decide on the appropriateness of any future interest rate hedges.

Foreign currency risk

The Group has a significant transaction exposure with increasing, direct sourced purchases from its suppliers in the Far East, with most of the trade being in US dollars. In addition to this, the Group is exposed to transaction risk on the translation of surplus Euro balances, generated by the Republic of Ireland branch, and to a lesser extent, its Spanish subsidiary, into sterling. The Group’s policy allows these exposures to be hedged for up to 18 months forward in order to fix the cost in sterling. Hedging is performed through the use of foreign currency bank accounts and forward foreign exchange contracts.

The Group does not hedge either economic exposure or the translation exposure arising from the profits, assets and liabilities of non-sterling businesses whilst they remain immaterial.

The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows:

29 March 2015 30 March 2014 USD Euro USD Euro £’000 £’000 £’000 £’000

Cash and cash equivalents 189 1,507 1,301 2,898 Trade and other payables 44 (3,469) 1,617 (3,027)

233 (1,962) 2,918 (129)

Pension liability risk

The Group has no association with any defined benefit pension scheme and therefore carries no deferred, current or future liabilities in respect of such a scheme. The Group operates a number of Group Personal Pension Plans for its colleagues.

Capital risk management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to optimise returns to its Shareholders. The Board’s policy is to retain a strong capital base so as to maintain investor, creditor, and market confidence and to sustain future growth. The Directors regularly monitor the level of capital in the Group to ensure that this can be achieved.

POUNDLAND GROUP Plc 98 Annual report and financial statements for p/e 29 March 2015 24 Financial instruments and related disclosures (continued)

Fair value disclosures

The fair value of each class of financial assets and liabilities is the carrying amount, based on the following assumptions:

Trade receivables, trade payables, The fair value approximates to the carrying value because of the short term deposits and borrowings short maturity of these instruments.

Long term borrowings The fair value of bank loans and other loans approximates to the carrying value reported in the statement of financial position.

Forward currency contracts The fair value is determined using the market forward rates at the reporting date and the outright contract rate.

Fair value hierarchy

Financial instruments carried at fair value should be measured with reference to the following levels:

Level 1: quoted prices in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

All financial instruments carried at fair value have been measured using a Level 2 valuation method.

The fair value and carrying value of financial assets and liabilities are as follows:

29 March 2015 30 March 2014 £’000 £’000 Carrying Fair Carrying Fair value value value value Cash and cash equivalents 15,932 15,932 25,268 25,268 Trade and other receivables 25,796 25,796 24,960 24,960 Derivative contracts used for hedging (assets) 12,001 12,001 519 519

Total financial assets 53,729 53,729 50,747 50,747

Trade and other payables (163,934) (163,934) (139,188) (139,188) Borrowings at amortised cost (2,000) (2,000) (30,000) (30,000) Derivative contracts used for hedging (liabilities) (691) (691) (6,666) (6,666)

Total financial liabilities (166,625) (166,625) (175,854) (175,854)

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24 Financial instruments and related disclosures (continued)

Financial instruments sensitivity analysis

In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on its earnings. At the end of each reporting period, the effect of hypothetical changes in interest and currency rates are as follows:

Interest rate sensitivity analysis

The table below shows the Group’s sensitivity to interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank borrowings which attract interest at floating rates) if interest rates were to change by +/- 1%. The impact on the results in the income statement and statement of other comprehensive income and equity would be:

29 March 2015 30 March 2014 Increase/(decrease) Increase/(decrease) in equity in equity £’000 £’000 +1 % movement in interest rates 139 (47) -1 % movement in interest rates (139) 47

Foreign exchange rate sensitivity analysis

The table below shows the Group’s sensitivity to foreign exchange rates for its US dollar financial instruments, the major currency in which the Group’s derivatives are denominated:

29 March 2015 30 March 2014 Increase/(decrease) Increase/(decrease) in equity in equity £’000 £’000 10% appreciation of the US dollar 11,898 13,257 10% depreciation of the US dollar (9,733) (10,847)

A strengthening/weakening of sterling, as indicated, against the US dollar at the reporting date would have increased/(decreased) the cash flow hedge eserver and retained earnings by the amounts shown above. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.

There are no material movements in the income statement for the period. The movement in equity relates to the fair value movements on the Group’s forward contracts that are used to hedge future inventory purchases.

Contractual cash flows

The contractual maturity of bank borrowings excluding the impact of netting agreements is shown below:

29 March 2015 30 March 2014 £’000 £’000 Due in less than one year – – Expiring between one and two years – – Expiring between two and five years 2,000 30,000

Contractual cash flows 2,000 30,000

Carrying amount 2,000 30,000

POUNDLAND GROUP Plc 100 Annual report and financial statements for p/e 29 March 2015 24 Financial instruments and related disclosures (continued)

The following table provides an analysis of the anticipated contractual cash flows for the Group’s derivative contracts:

USD

29 March 2015 30 March 2014 Payable Receivable Payable Receivable £’000 £’000 £’000 £’000 Due in less than one year (95,027) 104,228 (96,036) 90,160 Expiring between one and two years (14,392) 14,787 (29,876) 28,852

Contractual cash flows (109,419) 119,015 (125,912) 119,012

Fair value – 9,693 (6,574) –

Euro

29 March 2015 30 March 2014 Payable Receivable Payable Receivable £’000 £’000 £’000 £’000 Due in less than one year (33,120) 35,306 (19,013) 19,562 Expiring between one and two years (2,947) 2,884 – – Contractual cash flows (36,067) 38,190 (19,013) 19,562

Fair value – 2,123 – 519

Fuel hedge

29 March 2015 30 March 2014 Payable Receivable Payable Receivable £’000 £’000 £’000 £’000 Due in less than one year (506) – (92) –

Contractual cash flows (506) – (92) –

Fair value (506) – (92) –

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

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25 Operating leases

Non-cancellable operating lease rentals are payable as follows:

Other Land and Buildings 29 March 30 March 29 March 30 March 2015 2014 2015 2014 £’000 £’000 £’000 £’000

Less than one year 4,555 4,285 88,084 78,278 Between one and five years 6,051 5,894 309,922 283,338 More than five years – – 236,718 229,585 10,606 10,179 634,724 591,201

The Group leases a number of stores and warehouses under operating leases of varying lengths, for which incentives/premia are received/ paid under the relevant lease agreements.

During the year £89.0 million was recognised as an expense in the income statement in respect of operating leases (2014: £78.5 million).

26 Commitments

Capital commitments for which no provision has been made in the financial statements of the Group were as follows:

29 March 30 March 2015 2014 £’000 £’000

Contracted 3,271 1,986

27 Contingencies

The Company and certain subsidiaries within the Group, namely Poundland Holdings Limited and Poundland Limited, are party to cross guarantees given for bank loans and overdrafts amounting to £6,903,000 (2014: £31,500,000).

POUNDLAND GROUP Plc 102 Annual report and financial statements for p/e 29 March 2015 28 Related parties

Transactions with key management personnel

Directors of Poundland Group plc control 6.02% of the voting shares of the Company (30 March 2014: 6.57%).

The compensation of key management personnel (including the Directors) is as follows:

29 March 30 March 2015 2014 £’000 £’000

Key management personnel emoluments 2,707 2,334 Company contributions to money purchase pension schemes 227 228 Amounts receivable under long term incentive schemes 375 15 3,309 2,577 In the prior period, in December 2013, loans were advanced to certain Directors of the Group’s subsidiary companies. No interest was payable on these loans. All loans were repaid during the prior period, on 17 March 2014. At 29 March 2015, £Nil (2014: £Nil) was outstanding.

At 29 March 2015, £50,000 (2014: £50,000) is owed to the Company by Warburg Pincus Private Equity X, L.P. in respect of its initial share capital. This balance is included within trade and other receivables (note 18).

29 Subsidiary undertakings

The Company has the following investments in subsidiaries: Country of incorporation Class of Ownership shares held 29 March 2015 % Poundland Group Holdings Limited* Investment company Great Britain Ordinary 100 Poundland Value Retailing Limited Investment company Great Britain Ordinary 100 Poundland Retail Limited Investment company Great Britain Ordinary 100 Poundland Holdings Limited Investment company Great Britain Ordinary 100 Poundland Willenhall Limited Investment company Great Britain Ordinary 100 Poundland Trustee Limited Trustee Great Britain Ordinary 100 Poundland Limited Single price value retailer Great Britain Ordinary 100 M&O Business Systems Limited Dormant Great Britain Ordinary 100 Bargain Limited Dormant Great Britain Ordinary 100 Homes & More Limited Dormant Great Britain Ordinary 100 Poundland Stores Limited Dormant Great Britain Ordinary 100 Poundland International Limited Investment company Great Britain Ordinary 100 Sheptonview Limited Dormant Great Britain Ordinary 100 Poundland Far East Limited Product sourcing Hong Kong Ordinary 100 Dealz Espana SL Value retailer Spain Ordinary 100 Dealz Retailing Ireland Limited Dormant Republic of Ireland Ordinary 100

These subsidiaries are included within these consolidated financial statements.

*Directly held subsidiary. All other subsidiaries are held indirectly.

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30 Accounting estimates and judgements

The preparation of the consolidated financial statements equirr es the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods impacted.

The key judgements and estimates employed in the financial statements are considered below.

Allowances against the carrying amount of inventories

The Group provides against the carrying amount of inventories for inventory lines based on expected demand for its products to ensure that inventory is stated at the lower of cost and net realisable value. Judgement is required in respect of assessing future demand and promotional offers.

Impairment of goodwill

On an annual basis, the Group is required to perform an impairment review to assess whether the carrying value of goodwill is less than its recoverable amount. Recoverable amount is based on a calculation of expected future cash flows, which include estimates of future performance. Details of assumptions used in the impairment of goodwill are detailed in note 13.

Provisions

Provisions are made using the Directors’ best estimates of future cash flows based on the current level of information available to them. Actual cash flows will be dependent on future events. For details of assumptions see note 21.

Depreciation and amortisation

Judgement is required in assessing the useful economic lives of tangible fixed assets and intangible assets. These assumptions are based on the Directors’ best estimate of the life of the asset and its residual value at the end of its economic life.

Valuation of other intangible assets

The assessment of fair value in a business combination requires the recognition and measurement of the identifiable assets, liabilities and contingent liabilities in the acquired business. The key judgements required are the identification of intangible assets meeting the ecognitionr criteria of IAS 38 and their attributable fair values. The key assumptions in relation to the brand valuation are the Directors’ best estimate of its life and the royalty and discount rate used in its valuation.

Deferred taxation

The Group recognises deferred tax assets and liabilities based upon future taxable income and the expected recoverability of the balance. The estimate will include assumptions regarding future income streams of the Group and the future movement in corporation tax rates in the respective jurisdictions.

POUNDLAND GROUP Plc 104 Annual report and financial statements for p/e 29 March 2015 COMPANY BALANCE SHEET AT 29 MARCH 2015

29 March 2015 30 March 2014 Note £’000 £’000 £’000 £’000 Fixed assets Investments 426,292 425,044 5 Current assets Debtors 6 528 917 Cash 1 4,480

529 5,397

Creditors: amounts falling due within one year 7 (10,066) (13,836)

Net current liabilities (9,537) (8,439)

Total assets less current liabilities, being net assets 416,755 416,605

Capital and reserves Called up share capital 8 2,550 425,050 Profit and loss account 9 414,205 (8,445)

Shareholders’ funds 10 416,755 416,605

The notes on pages 106 to 109 form part of these financial statements. These financial statements were approved by the board of directors on 18th June 2015 and were signed on its behalf by:

NR Hateley Director 18th June 2015 Registered number: 08861243

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NOTES TO THE COMPANY FINANCIAL STATEMENTS

1 Accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements.

The Company was incorporated on 24 January 2014. On 14 February 2014, the Company was registered as a public limited company. On 17 March 2014, its shares were listed on the London Stock Exchange.

On 14 May 2014 the Company reduced its share capital in a court approved process. The nominal value of each share was reduced from £1.70 to 1p.

Basis of preparation

The financial statements have been prepared on a going concern basis and in accordance with all UK applicable accounting standards and under the historic cost convention

No profit or loss account is presented for the Company as permitted by Section 408 of the Companies Act 2006. The Company profit for the period was £2,652,000 (2014: £8,489,000 loss). Dividends of £3,750,000 (2014:£Nil) were paid in the period. A final dividend of 3p per share is proposed for those shareholders whose names are on the Register of members at the close of business on 18 September 2015.

Going concern

The Company financial statements are prepared on a going concern basis. The Company heads a Group which the Directors believe has adequate resources to continue in operational existence for the foreseeable future. Banking facilities were agreed on 17 March 2014 and the Group’s forecast and projections show this facility provides adequate headroom for its current and future anticipated cash requirements.

Share based payments

Where the Company grants options over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity.

Investments

Shares in subsidiary undertakings are stated at cost less any provision for impairment where in the opinion of the Directors there has been a diminution in the value of the investment.

Cash flow

Under FRS 1 (revised 1996) the Company is exempt from the requirement to prepare a cash flow statement as a consolidated cash flow has been included in the Poundland Group plc consolidated financial statements.

Dividends on shares presented within Shareholders’ funds

Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements.

2 Fees payable to the Auditors

Auditor’s remuneration is detailed in note 8 to the Group financial statements.

3 Staff numbers and costs

The Company has no employees other than the Directors. Full details of the Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 45 to 60.

4 Dividends

For details of dividends, see Note 4 in the Group financial statements.

POUNDLAND GROUP Plc 106 Annual report and financial statements for p/e 29 March 2015 5 Investments in subsidiaries Investment in subsidiary undertakings £’000 At beginning of period 425,044 Equity settled share based payments 1,248 At end of period 426,292

The Company has the following investments in subsidiaries: Ownership 29 March Class of 2015 Country of incorporation shares held % Poundland Group Holdings Limited* Investment company Great Britain Ordinary 100 Poundland Value Retailing Limited Investment company Great Britain Ordinary 100 Poundland Retail Limited Investment company Great Britain Ordinary 100 Poundland Holdings Limited Investment company Great Britain Ordinary 100 Poundland Willenhall Limited Investment company Great Britain Ordinary 100 Poundland Trustee Limited Trustee Great Britain Ordinary 100 Poundland Limited Single price value retailer Great Britain Ordinary 100 M&O Business Systems Limited Dormant Great Britain Ordinary 100 Bargain Limited Dormant Great Britain Ordinary 100 Homes & More Limited Dormant Great Britain Ordinary 100 Poundland Stores Limited Dormant Great Britain Ordinary 100 Poundland International Limited Investment company Great Britain Ordinary 100 Sheptonview Limited Dormant Great Britain Ordinary 100 Poundland Far East Limited Product sourcing Hong Kong Ordinary 100 Dealz Espana SL Value retailer Spain Ordinary 100 Dealz Retailing Ireland Limited Dormant Republic of Ireland Ordinary 100 * Directly owned subsidiary. All other subsidiaries are held indirectly.

6 Debtors 29 March 30 March 2015 2014 £’000 £’000

Group relief 478 3 Amounts owed by Warburg Pincus Private Equity X, L.P. 50 50 Other taxation and social security – 239 Amounts owed by Group undertakings – 625 528 917

www.poundland.com 107 FINANCIALS

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

7 Creditors: Amounts falling due within one year

29 March 30 March 2015 2014 £’000 £’000

Accruals and deferred income – 4,647 Amounts owed to group undertakings 10,066 9,189 10,066 13,836

8 Called up share capital 29 March 30 March 2015 2014 £’000 £’000 Allotted and called up 250,000,000 ordinary shares of £0.01 (2014: £1.70) each 2,500 425,000 49,999 preference shares of £1 each 50 50 2,550 425,050

On 14 May 2014 the Company reduced its share capital, via a court approved process. The nominal value of each share was reduced from £1.70 to 1p. Following the reduction, the nominal value of ordinary share capital is £2.5 million.

This event was disclosed in the initial public offering pathfinder prospectus.

Rights attached to shares

Ordinary shares

The rights attaching to the Ordinary Shares are uniform in all respects and form a single class for all purposes, including with respect to voting and for all dividends and other distributions thereafter declared, made or paid on the Ordinary Share capital of the Company.

Subject to any rights and restrictions attached to any shares, on a show of hands every Shareholder who is present in person shall have one vote and on a poll every Shareholder present in person or by proxy shall have one vote per Ordinary Share.

Except as provided by the rights and restrictions attached to any class of shares, Shareholders are under general law entitled to participate in any surplus assets in a winding up in proportion to their shareholdings.

Subject to the provisions of the Act, rights attached to any class of shares (unless otherwise provided by the terms of allotment of the shares of that class) may be varied or abrogated with the written consent of the holders of three-quarters in nominal value of the issued shares of the class, or the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class.

Preference shares

Preference Shares entitle their holder to receive notice of and to attend and speak at general meetings of the Company. Preference Shares do not entitle their holder to vote at general meetings of the Company.

The rights attached to the preference shares may be waived, varied or abrogated with the consent in writing of the holders of at least 50% in nominal value of the Preference Shares in issue. To the extent that such a waiver, variation or abrogation of any of the rights attached to the Preference Shares adversely affects one group of Preference Shares, such waiver, variation or abrogation must be approved by or on behalf of the holders of at least 50% in nominal value of the Preference Shares in each respective group.

POUNDLAND GROUP Plc 108 Annual report and financial statements for p/e 29 March 2015 8 Called up share capital (continued)

Except as provided by the rights and restrictions attached to any class of shares, the holders of the Company’s shares will under general law be entitled to participate in any surplus assets in a winding up in proportion to their shareholdings, provided that the assets of the Company available for distribution among the members shall be applied in paying to the preference Shareholders in proportion to the number of Preference shares held by each of them, in priority to any payment to the holders of any Ordinary Shares in the Company, the issue price per Preference share.

9 Reserves Profit and Loss account £’000

At beginning of period (8,445) Profit for the financial period 2,652 Dividends payable (3,750) Equity settled share based payments 1,248 Court approved reduction in share capital 422,500 At end of period 414,205

10 Reconciliation of movements in Shareholders’ funds 29 March 30 March 2015 2014 £’000 £’000

Opening shareholders’ funds 416,605 – Profit /(loss) for the financial period 2,652 (8,489) New shares issued – 425,050 Dividends payable (3,750) – Equity settled share based payments 1,248 44 Closing Shareholders’ funds and net addition to Shareholders’ funds 416,755 416,605

11 Contingent liabilities

The Company is party to cross guarantees given for bank loans, overdrafts, duty and letter of credit guarantees of Poundland Holdings Limited and certain fellow group companies amounting to £6,903,000 (2014: 31,500,000).

12 Transactions with related parties

The Company has taken advantage of the exemption conferred by paragraph 3(c) of FRS 8 ‘Related Party Transactions’ not to disclose transactions with other Group companies.

www.poundland.com 109

Poundland Group plc

Registered Office: Wellmans Road, Willenhall, West Midlands, WV13 2QT

Registered in England.

Company No: 08861243