Dixons Retail plc

Ann ual Report and Accounts 2011/12

Dixons Retail plc Annual Report and Accounts 2011/12

Dixons Retail plc Maylands Avenue Hemel Hempstead Hertfordshire HP2 7TG United Kingdom

Tel: 0844 800 2030 www.dixonsretail.com About us

Dixons Retail plc is a specialist electrical retailer and services company which sells consumer electronics, personal computers, domestic appliances, photographic equipment, communication products and related services.

We are one of Europe’s leading specialist electrical retailing groups. We trade through over 1,200 stores and online, spanning 28 countries and we employ 36,500 people.

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Cautionary statement Designed and produced by MerchantCantos: www.merchantcantos.com Certain statements in this Annual Report and Accounts are forward looking statements. Such statements are based on Photography: current expectations and are subject to a number of risks and Dixons Retail plc Digital studio uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these Dennis Davis: Dennis Davis Photography forward looking statements. Unless otherwise required by Isaac Newman: www.isaac.uk.com applicable laws, regulations or accounting standards, we do ® not undertake any obligation to update or revise any forward Printed by Park Communications on FSC certified paper. Park is an EMAS looking statements, whether as a result of new information, certified CarbonNeutral® Company and its Environmental Management System future developments or otherwise. Nothing in this Annual is certified to ISO14001. 100% of the inks used are vegetable oil based, 95% of Report and Accounts should be regarded as a profit forecast. press chemicals are recycled for further use and, on average, 99% of any waste associated with this production will be recycled. Read the Annual Report and much more at This document is printed on Revive 50:50 Silk and Revive 100 Offset, papers containing a minimum of 50% recycled fibre and the balance 50% virgin fibre www.dixonsretail.com sourced from well managed, sustainable, FSC® certified forests. Contents

FOCUS CHOICE

12 14

EXPERTISE RELIABILITY

16 18

Directors’ report and business review Financial Statements Business Overview Performance Review 68 Independent Auditor’s Report 69 Consolidated Income Statement 02 Delivering transformation and renewal 31 Overview 70 Consolidated Statement of 04 Group at a Glance 33 UK & Ireland Comprehensive Income and Expense 06 Chairman’s Statement and 34 Northern Europe 71 Consolidated Balance Sheet Financial Highlights 35 Southern Europe 72 Consolidated Cash Flow Statement 08 Interview with the Group Chief Executive 36 PIXmania 73 Consolidated Statement of Changes 37 Group Financial Summary in Equity Strategic Summary 40 Corporate Responsibility Report 74 Notes to the Consolidated Financial Statements 11 The customer experience 120 Company Balance Sheet 12 FOCUS Corporate Governance 121 Company Cash Flow Statement 14 CHOICE 44 Board of Directors 122 Company Statement of Changes in 16 EXPERTISE 46 Chairman’s Introduction Equity 18 RELIABILITY 47 Statutory Information 123 Notes to the Company Financial Statements 20 Our Markets 49 Corporate Governance Report 21 Business Model and Strategy 52 Audit Committee Report 24 Resources 54 Nominations Committee Report 26 Looking Forward 56 Remuneration Report Shareholder Information 27 Key Performance Indicators 67 Dir ectors’ Responsibilities 132 Five Year Record 28 Principal Risks to Achieving the 134 Shareholder Information Group’s Objectives 135 Index

Annual Report and Accounts 2011/12 Dixons Retail plc 01 Directors’ Report Business Overview

Delivering transformation and renewal £8.2bn total Group sales

No.1 36,500 selling product of the year in the UK was the iPad2 colleagues employed across the Group

97 m GB of data equating to 155,000 Knowhow™ Clouds have been purchased by customers to protect their photos, music and documents

128,252 tonnes of WEEE collected and recycled in UK & Ireland and Nordics

Annual Report and Accounts 2011/12 Dixons Retail plc Business Overview

1,211

stores and online operations spanning 28 countries

7 own brands: Currys and PC World essentials, Logik, Goji, Advent, Sandstrøm and iWantit

97 % right first time deliveries increased from 88% to 97%

Annual Report and Accounts 2011/12 Dixons Retail plc 03 Directors’ Report Business Overview

Group at a Glance We are a leading European electrical retailing and services company

UK & Ireland Northern Europe For more information For more information please turn to page: 33 please turn to page: 34

www.currys.co.uk www.pcworld.co.uk www.elkjøp.no www.dixons.co.uk www.elgiganten.se www.knowhow.co.uk www.elgiganten.dk www.equanet.co.uk www.gigantti.fi www.currys.ie www.lefdal.com www.pcworld.ie www.electroworld.cz

Our brands Our brands Currys and PC World are the largest specialist Elkjøp is the leading specialist electrical retailer electrical retailing and services operators in the across the Nordics. UK and Ireland. Elkjøp and Lefdal stores operate in Norway, Knowhow™ is our market leading services brand El Giganten in Sweden and Denmark and Gigantti which puts customers at the heart of everything we do. in Finland. Dixons Travel operates in all major UK airports as In the Czech Republic and Slovakia, we operate well as Dublin, Copenhagen, Rome and Milan. under the Electroworld brand. DSGi Business provides computing products and services to business to business customers.

Highlights Highlights We are well positioned to continue to deliver world-class value, choice The Nordic management team continues to drive the Elkjøp business and service to our customers as we execute the Customer Plan. Stores forward, retaining market leader status and growing share across the are being refitted so customers can enjoy the best of both Currys and Nordics. The division continues to perform well as more stores are PC World formats under one roof. extended or refitted and Superstores are refurbished to the new We are improving the Customer Journey for each category to help Group format. customers purchase the right product with the right solution for their needs. First class customer service, a cost effective supply chain structure, strong Our multi-channel offering provides customers with the convenience of retail sites in all countries and great relationships with suppliers delivers an online together with the accessibility of stores, particularly through the excellent shopping trip for Elkjøp customers. reserve&collect facility, and grew 28% during the year. During the year, Elkjøp delivered a strong performance across all four Under the Knowhow™ brand, we offer the most comprehensive range countries with total sales up 10% with a particularly strong performance of services to customers such as delivery and installation, set-up, Cloud in Denmark. back-up and Knowhow™ Movies. The Electroworld operations in the Czech Republic and Slovakia are now Dixons Travel stores deliver a wide range of products aimed at the managed alongside the Nordic operations to benefit from the successful travelling customer. Nordic business model. An agreement was signed with Harrods to sell leading edge electrical products as well as Knowhow™ services from their iconic London store.

Underlying sales Number of stores Selling space Underlying sales Number of stores Selling space (£million) (‘000 sq ft) (£million) (‘000 sq ft) 3,834 587 7,978 2,628 315 5,038

Average selling Average employees Average selling Average employees area per store (sq ft) area per store (sq ft) 13,591 20,851 15,994 8,748

04 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 05 Business Overview

Underlying sales by division 4. 1. 1. UK & Ireland £3,834m 3. 2. Northern Europe £2,628m 3. Southern Europe £1,060m 4. PIXmania £665m

2.

Southern PIXmania For more information Europe please turn to page: 36 For more information please turn to page: 35

www.kotsovolos.gr www.unieuro.it www.electroworld.gr www.electroworld.com.tr www.pixmania.com

Our brands Our brands Kotsovolos is Greece’s leading specialist PIXmania is one of the largest pure play electrical electrical retailer. retailers in Europe operating in 26 countries. In Italy, we operate Unieuro electrical stores with some as combined 2-in-1 Unieuro and PC City stores. In Turkey, we operate the Electroworld brand with a local joint venture partner.

Highlights Highlights Despite the economic instability across Southern Europe, Unieuro’s PIXmania has experienced a difficult year with a number of factors impacting customer offer has improved and the turnaround of the business has enabled performance, some of which could not have been foreseen. The natural Unieuro to trade ahead of its competitors. In the difficult trading environment, disasters in Japan and Thailand severely limited the supply of key product further cost reduction has been identified to strengthen the business. lines in photography and digital storage. A difficult trading environment in Greece remains challenging for Kotsovolos. PIXmania has been transforming its operating model and widening its The business, however, remains the market leader and further actions product categories. PIXplace, its market place, continues to grow strongly to reduce costs in the business have limited the impact of the weak with over 1,500 active third party resellers offering over 1.5 million products sales environment. in 26 countries. PIXmania now operates 27 stores giving customers more Electroworld in Turkey continues to expand in an exciting growth market. flexibility forreserve&collect . Further investments in E-merchant, its market leading e-commerce platform for third party customers, has seen it win the Carrefour account, launched in November 2011 and more recently Celio, one of France’s largest menswear brands with a launch planned for summer 2012. It has also been streamlining processes and reducing costs.

Underlying sales Number of stores Selling space Underlying sales Number of stores Selling space (£million) (‘000 sq ft) (£million) (‘000 sq ft) 1,060 282 3,863 665 27 43

Average selling area Average employees Average selling area Average employees per store (sq ft) per store (sq ft) 13,699 5,075 1,592 1,402

04 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 05 Directors’ Report Business Overview

Chairman’s Statement John Allan

Dixons Retail has continued to make significant progress since I last reported to you. We remain relentlessly focused on two goals – continuously improving our offer to customers while at the same time strengthening our business in the long term interests of shareholders.

A key component to both is to develop and engage our people.

During the course of the year both John Browett, our Chief Executive, and Nicholas Cadbury, our Group Finance Director, chose to leave to join Apple and Premier Farnell, respectively. We are grateful to them for the contribution they made and were sorry to see them go, but one of our areas of focus has been on ensuring we were well placed in terms of senior management succession. As a result we were pleased to be able to appoint strong successors from within the Group in Sebastian James and Humphrey Singer and also to be able to appoint Katie Bickerstaffe to the Board in the new role of Chief Executive UK & Ireland.

Sebastian and Katie have led much of the successful change in the UK & Ireland business over the last four years. We are quietly confident that Sebastian’s strong management team will build on the “Dixons Retail has continued foundations that have been laid and take the Group to sustainable success over the next few years. to make significant progress. The economic environment has remained challenging in all of our We can now look to the future markets and this has held back our overall profit progress. In the UK & Ireland, Nordics and Greece where we are market leaders we with real confidence.” have continued to gain market share. We delivered another strong performance in the Nordics while in the UK & Ireland, despite a declining market, we managed to grow profitability through a strengthened customer offer, tight management of costs and careful margin management. The Italian and Greek economies have been particularly difficult and PIXmania has had to adapt its business model significantly in a rapidly changing multi-channel environment. Recognising the continuing challenges in these markets, we have impaired the goodwill of these businesses which, together with other non-underlying charges, totalled £189.6 million, therefore resulting in a pre-tax loss of £118.8 million.

Our Southern European business units and PIXmania are receiving particular focus at present and we are determined to reduce the profit drag they represent as quickly as possible.

In spite of the continuing economic and performance challenges we feel we can now look to the future with real confidence, particularly in the UK & Ireland and Northern European divisions. Having fixed many of the issues in the Group we will now ensure we complete the job and deliver a competitively superior offering. The interview

06 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 07 Business Overview

with Sebastian on the following page and which is available to view Underlying Group sales* on our corporate website, sets out some of the opportunities ahead. (£million)

We are delighted with the successful launch of our Knowhow™ brand in the UK which encompasses all of our service offerings. All of our colleagues, whether in stores, or in our service and logistic 2011/12 8,186.7 centres, have worked hard to deliver great service and to give real meaning to the brand and we have begun to broaden our offering 2010/11 8,154.4 through the launch of new services. 2009/10 8,320.0 2008/09 7,955.8 During the year the Group continued its modest support for two national charities – Lifelites and the e-Learning Foundation, which help provide access to technology for children with disabilities or EBIT* who are disadvantaged. Our colleagues have organised some great (£million) events to raise money for these charities and I would like to thank them for their efforts. In the year ahead we will review whether and how we can provide greater support and access to technology for disadvantaged children and their families. 2011/12 115.1 Andrew Lynch retired from the Board after nine years as a non- 2010/11 127.6 executive director. I would like to thank him for his considerable 2009/10 133.2 contribution as both Senior Independent Director and as Chairman 2008/09 95.3 214.3 of the Audit Committee. Tim How has taken on the role of Senior Independent Director and Jock Lennox, who joined the Board in January, has taken on the Chairmanship of the Audit Committee. Underlying profit before tax* Jock has a wealth of experience from a long and distinguished (£million) career at Ernst & Young and I am sure will add real value both to the Audit Committee and the Board.

I would particularly like to thank my non-executive colleagues for 2011/12 70.8 their tireless efforts throughout the year. The executive director 2010/11 85.3 changes led to a number of meetings and calls to which all the non-executives committed and contributed wholeheartedly. 2009/10 90.9 2008/09 70.6 In the year ahead it is likely that the economic challenges will remain and possibly in some markets intensify. However we are confident that our single-minded focus on getting the customer offer right Underlying diluted earnings per share* while continuing to improve our efficiency will position us to make (pence) the maximum possible progress.

I would like to thank all our colleagues for their successful efforts over the last year and I am sure they will work equally hard to achieve 2011/12 1.1 further success in the year ahead. 2010/11 1.6 2009/10 1.5 2008/09 1.3 John Allan Chairman *Underlying performance measures are as defined in the Performance Review.

06 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 07 Directors’ Report Business Overview

Interview with the Group Chief Executive Sebastian James

The following is taken from a video of an interview with Sebastian James that is available on our corporate website, www.dixonsretail.com. Dixons and the sector have faced some well-documented challenges in recent years. How do you see the business now?

We think we are in pretty good shape. If we think about the last year we’ve halved our net debt. We have put in place a new revolving credit facility that will give us bank support for the next three years. And we’ve got a terrific plan to drive the business forward and improve its performance and profitability in the coming years.

If we consider where we were three or four years ago we had a business where we had really lost sight of the customer in what we were trying to do. At the same time, the market was getting much more competitive. Of course, we didn’t know it then, but we were also heading into a powerful economic storm. It’s been very exciting “Above all, we need to be the and made me very proud to be part of a team that really faced those challenges and began to make proper differences, particularly for best electrical retailer who helps our customers. customers make great choices.” What are your priorities for the Group?

There are three things that emerge for me as the priorities for the Group, having visited all our businesses and understood what their issues are.

1. In every market the first and most important thing we need to do is build a sustainable position for the business, to really establish our place in the world in that market, to build this position as the place that a customer would rationally choose all the time to buy electrical goods.

2. The second thing is we have a number of businesses that are performing extremely well, and that are generating good returns. I need to tackle very hard those areas of the business which perhaps are not generating as good returns. I need to make sure that we take those businesses and find solutions that notably give them the right strategic position but also return them to profitability.

08 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 09 Business Overview

3. Thirdly, we’ve only just scratched the surface of the potential that How do you measure this? we have in learning from one another and in leveraging our scale across our Group. One example would be that we have several suppliers with whom we have significant relationships. We will look Over the last year and half we have moved our customer advocacy at how we can make these work better for the Group as a whole. in the UK, and we use a very tough measure of strong advocacy If we do these three things we can improve returns for our of ‘very likely to recommend us’, from 43% to 75%. If we use the shareholders. We need to focus very explicitly as a whole business measure that a lot of people use in the market which is ‘likely to right down the organisation on doing this. I am very committed that recommend us’ we reach 92%. the whole business begins to think about how it makes sure that While these numbers are comparable with the very best retailers in everyone is doing a great job for our customers, and that generates the UK, I will never be satisfied until we hit 100%. But this shift is a a return for our shareholders. profound change in the way customers who shop with us are talking about us, thinking about us and referring to us. We are not nearly What do you really mean by doing a great there yet. We have much more to do, but I think it’s a very powerful job for customers? signal that we have changed our approach to the world.

We also reward our colleagues in the UK on these metrics and so If I use the UK, as an interesting example, and this holds true also are explicitly rewarding them for doing a better job for customers. in Italy and Greece and in a number of the territories in which we operate, we have moved from being a business that was all about Isn’t the internet a threat to your pile it high, sell it cheap in stores into a business that really takes business model? seriously the question of ‘how do I make my customers happy?’. Our job is to take customers’ fears and anxieties and use technology to make their lives better. I genuinely believe that most of my We must be price competitive with the internet and we must be price colleagues in all of our stores and all of our home delivery vans, competitive with supermarkets, and increasingly we are, very. In fact are thinking how do I make people happier today. After all the most we are quite often cheaper than the internet. expensive thing a customer can do is choose the wrong product. We can differentiate on service, but it does of course cost more to We, of course, need to be very competitive on price. But above all provide the convenience of stores as well as service. We can afford we need to be the people who help customers make great choices. to do it because we think we’ve solved a number of very important That means taking the time, the effort to demonstrate, to display problems about how we bridge the gap in our cost between our and to understand what customers are trying to achieve when they cost structure and that of a single channel internet operator. come into our stores looking for electrical goods. The internet is a friend to us. We have a very large multi-channel How do you make sure your colleagues business in the UK, and it’s growing incredibly fast. We need to think can deliver this? about a world where a customer starts their journey online, goes to store to look at the product and to make a good choice and might end up ordering it back at home for pick up in-store. This is a quite normal transaction now. We have retrained all of our colleagues right the way through the cycle at least three times in the UK. If you took all of our colleagues So increasingly I’m not thinking is this an online or offline transaction, a year ago and you take all our staff today 85% of the people who but did the customer end up buying from me or did they end up are here today in the UK were also here a year ago. And in retail buying from somebody else? And that I think is the critical question. that’s quite a high number. We are equipping our colleagues every day to do a better job for customers.

08 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 09 Directors’ Report Business Overview

Interview with the Group Chief Executive Sebastian James

So what makes your model sustainable? Where customers might be able to go to the internet and choose a box and get it delivered, we will provide the installation, the teaching that helps them to learn how to use it, all the bits and pieces they need as well as the peace of mind that if anything goes wrong they There are four activities we can do that are key strengths of our know where we are. So these things are very important sources multi-channel service-led business model. of revenue for us. The first very important thing that we need to do is work with Thirdly, we believe that customers will reward us with a small suppliers to understand which products they would like customers premium for providing excellent service, for being there, for giving to choose. Generally speaking there is a combination of things. them peace of mind if they trust us. The customers that are happiest are the ones that buy the products that are best for them, and the products that are best for them are The final thing we need to be is very efficient. We’ve taken a huge usually the newest ones with the best technology. amount of cost out of our business over the last four years, while improving customer service, and we need to go on doing that. Suppliers also make more money out of the products that are newer, We need to be really smart about every penny that we spend and because they invest a lot of money in research and then they are able about fixing our processes, improving our systems, improving the to charge a premium for those products because they have genuine way we think about our business so that we can be efficient. differentiating benefits for the customer. With those things together we think we more than bridge the gap With the 40 million conversations a year that we have with customers, between our cost structure and the single channel internet operators. we can talk to them to explain the benefits, demonstrate the newer and better products that make customers happy and which We think we now have a business in which nearly all of the time, in suppliers want to sell. Our suppliers support us for this work nearly all of the markets, in nearly all of our stores we are providing in a number of ways. the sort of service that customers want, and are telling us they want. And we are doing that efficiently and well. I believe that’s a great The second very important thing we need to do is that when springboard and I believe that we are the best and the only show in customers come in and they say they want a piece of hardware town if you want to come and buy electrical goods and have a really such as a television what they mean is they want to do something. good experience doing so. They want to watch the game, they want to entertain the children. That’s also true for a computer, say, if they want to start a business. It’s the doing that they want to do. To do so they actually need a whole variety of other things as well as just the box.

Sebastian James Group Chief Executive

10 Dixons Retail plc Annual Report and Accounts 2011/12 Directors’ Report Strategic Summary

“Our role is shoulder to shoulder with our customers as we help them navigate the increasingly Strategic Summary complex world of technology.” Sebastian James, Group Chief Executive

FOCUS CHOICE

We listen to our customers With wide ranges and through feedback and an improved multi-channel surveys. This enables us offering, customers can buy to focus our business on the products and services delivering an unbeatable they want, how they want, combination of value, when they want. choice and service. Turn to page: 14 Turn to page: 12

EXPERTISE RELIABILITY

Through our own training Knowhow™ offers customers programmes and by working a fantastic range of services with suppliers, we ensure our including in-store help, colleagues understand the home delivery and set-up, latest technology to help after-sales advice and support customers choose the right as well as repair services. solution and get the most out of it. Turn to page: 18

Turn to page: 16

Annual Report and Accounts 2011/12 Dixons Retail plc 11 Strategic Summary Multi-channel gives more choice

Delivery, recycling & installation options

FOCUS 7,500 products in 75 % 411 a Megastore Our focus on the customer is driving Since we began the Renewal and CHOICE higher advocacy levels with 75% of Transformation plan in May 2008, those leaving our stores very likely to we have transformed or re-fitted recommend us in the UK. This is a 411 stores across the Group. This 32 percentage point increase versus year alone, we transformed 49 stores last year. across the Group which included 19 Megastores.

Customer feedback & surveys They’re interested in working out what’s right for me

The prices are great SERVICE VALUE

Customer journeys help explain technology

Peace of mind with whateverhappens They deal with queries brilliantly

Buy the right solution rst time

12 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc Multi-channel gives more choice

Delivery, recycling & installation options Strategic Summary

7,500 products in a Megastore

CHOICE

Customer feedback & surveys They’re interested in working out what’s right for me

The prices are great SERVICE VALUE

Customer journeys help explain technology

Peace of mind with whateverhappens They deal with queries brilliantly

Buy the right solution rst time

Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 13 Strategic Summary

Good, better, best Major brands CHOICE product choices & own brands 10,000 76 RANGE We offer our customers over 10,000 Knowhow™ is the new face of products to choose from online across technology and support in the UK. our UK websites and our Megastores We offer 76 different Knowhow™ stock over 7,500 different products. services to suit our customers’ individual needs.

Easy to Play tables to try Delivery nd what before buying choices to suit I’m after

The right product for you STORES ONLINE

Online or 123 in-store... it’s easy

14 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc Strategic Summary

Good, better, best Major brands CHOICE product choices & own brands

RANGE

Easy to Play tables to try Delivery nd what before buying choices to suit I’m after

The right product for you STORES ONLINE

Online or 123 in-store... it’s easy

Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 15 Strategic Summary EXPERT ISE 17,883 321,000 So far, 17,883 colleagues have Knowhow™ colleagues set up 321,000 received training in the UK to help products for our customers in-store in Guidance & support our customers buy the right solution the UK. Customers left with their product for their needs and give them the ready to use and knew how to get the proper advice they want. most of it.

Accessories to make it work better

SOLUTIONS They helped me choose the right solution

Informed advice in-store, online or over the telephone They help me get PRODUCTS my products up & running

They make things work & keep them working EXPERTS

Demos help to compare choices

Knowhow™ expertise Walk out working

16 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc EXPERT ISE Strategic Summary

Guidance & support

Accessories to make it work better

SOLUTIONS They helped me choose the right solution

Informed advice in-store, online or over the telephone They help me get PRODUCTS my products up & running

They make things work & keep them working EXPERTS

Demos help to compare choices

Knowhow™ expertise Walk out working

Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 17 Strategic Summary RELIABI LITY Remove and recycle 70,000 7 days old products for free We made over 70,000 big box product Our average repair turnaround time deliveries a week over Peak in the UK, with for laptops and TVs has decreased close to 35% of these being installations and is down from 10 days to 7 days FIX at a time to suit our customers. in the UK.

Deliver at a We’ll get you up and running time to suit and show you how it works

We repair over 800,000 laptops, desktop PCs and TVs every year

Faster repair SERVICE INSTALL times

No lemons guarantee

Next day delivery & 3-4 hour We’ll call you when time slots across the Group we’re on our way

18 Dixons Retail plc Annual Report and Accounts 2011/12 RELIABI LITY Strategic Summary Remove and recycle old products for free

FIX

Deliver at a We’ll get you up and running time to suit and show you how it works

We repair over 800,000 laptops, desktop PCs and TVs every year

Faster repair SERVICE INSTALL times

No lemons guarantee

Next day delivery & 3-4 hour We’ll call you when time slots across the Group we’re on our way

Annual Report and Accounts 2011/12 Dixons Retail plc 19 Directors’ Report Strategic Summary

Our Markets

Specialist electrical retailers are the predominant destination Innovation brings new products and products with improved for customers in the European market. Buying groups, general functionality, such as 3D and Smart TVs, Ultrabooks and Apple’s merchants and independents also have a retail presence in most iPad, in turn driving sales growth. New content, such as social European markets. The market is served by a relatively small number media, apps, digital media and cloud computing, also help to of global manufacturers supplying goods to local, regional, national drive hardware innovation and replacement. Product sales are also and international electrical retailers. driven by structural shifts such as analogue to digital and standard format to HD television. In addition, innovation drives new service The electrical retail market can be split between specialist electrical requirements such as TV installation and data backup. In this retailers, such as Dixons Retail, and general retailers which sell increasingly complex world we believe our assisted sales model is certain electrical goods as part of a wider offering, such as best placed to help customers navigate the products available and catalogue retailers, department stores, large supermarket chains to help them choose a complete solution that best meets their needs. and single channel internet retailers. The market can also be broken down into two distinct distribution channels: ‘assisted’ and Electrical products, and in particular brown goods, are predominantly ‘unassisted’. In the assisted channel, specialist retailers such as us, discretionary purchases. However, increasing penetration of digital help customers through the buying process in the form of product technology in the home drives replacement cycles as these products advice, add-on services, delivery and installation. The unassisted become less discretionary. The economic backdrop also determines channel, which includes single channel internet retailers as well whether customers buy up or down price points. Accordingly, as general retailers, tend not to offer all of these services. the electrical market tends to grow at a rate which is at or exceeding the economy during boom years. While the opposite can be true We are one of the largest specialist electrical retailing and services during a downturn, this may be influenced by new innovation companies in Europe and with leading market shares in the UK, and products. Ireland, the Nordic region and Greece we benefit from long- established and widely recognised brands. In each of our markets The current economic backdrop has led to a number of electrical there are varying numbers of specialist retailers who compete in retail operations, both store and internet based, exiting the market, the assisted market. While we do compete against general retailers, helping us gain market shares. This underpins our view that a strong this is generally limited to certain lower unit price product categories service led multi-channel operation satisfies both customer and as these operators do not offer the full range of products, assisted supplier needs while delivering a sustainable business as customer sale or associated ancillary services we are able to provide. shopping habits continue to evolve.

We do maintain a presence in the unassisted channel through The rapid innovation cycle leads to price deflation in brown goods our pure play internet businesses of PIXmania and Dixons.co.uk. and computing but also drives volume as products become more This enables us to compete directly with a large number of internet affordable and replacement cycles accelerate. For larger ticket items, retailers across Europe, it also provides useful insight into the the low frequency of purchases limits the impact of price deflation dynamics of this part of the market. on total market sales as consumers typically trade up.

The internet delivers enhanced product information and facilitates The sale of white goods is underpinned by the replacement cycle. price comparability for consumers. Whilst this creates new Due to higher costs of repair, it often makes better economic challenges, it also provides a significant opportunity. We believe that, sense for consumers to replace white goods outright rather than to over time, internet demand will polarise towards the larger retailers arrange for their repair. The sale of white goods is also driven by the with scalable distribution and systems, together with proven after dynamics of the housing market, as new construction, house sales sales service and support. In particular customers are showing an and refurbishment trigger new purchases. increasing propensity to combine the internet with stores as they consider their purchase with, for example, collect@store proving to The UK and Nordic markets have high broadband penetration and be increasingly popular where customers can order on the internet a maturing online sales platform. The increase in online penetration and collect from a convenient store at a time to suit them. provides us with the opportunity to increase both the range of goods on offer and the availability of product information. Our multi-channel approach is well placed to exploit synergies between our internet sites and stores.

20 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 21 Business Model and Strategy Building a sustainable business in an ever changing world Strategic Summary

Technology and the digitised world increasingly embed themselves into peace of mind through product support and after sales services, our customers’ lives, whether it be keeping up with friends and family as well as accessories and recycling. The conversations our through social media, online gaming, watching movies on the move, colleagues have in store with customers gives us an opportunity sharing pictures with others or across different technologies in the to explain the benefits of these solutions. Our KnowhowTM brand home, backing up precious memories in the cloud or through energy in the UK offers customers one cohesive services brand. We are efficiency. The latest technology allows our customers to do all this confident that there are increasing opportunities emerging in the and more with tablets, Smart TVs and apps. The ecosystems behind added value services market as customers become more reliant the current digital revolution, are simplifying our customers’ lives. on content, Cloud, services and technical support that enable Customers come to us not just for the enabling technology, but to them to get the most out of the products they buy. find a solution. iii. Drive our service proposition: We need to ensure that customers recognise Dixons Retail for great service. We need to Strategy be able to stand shoulder to shoulder with our customers and they The Renewal and Transformation plan continues to make significant need to know they can come to our stores and get knowledgeable improvements to our business. We have set out three strategic advice to help them buy the right product. They need to be priorities that will build on that work and improve our business confident that we will solve their problem for them quickly and for customers. This will, we believe, deliver improving returns for efficiently. If we get this right we believe that customers will be shareholders through a focus on improving Free Cash Flow prepared to pay us for this service. generation and EBIT margins of the Group: iv. Red uce costs: The scale of our operations across stores, ranges, logistics, distribution, repairs and services means that we can 1. Drive a successful and sustainable business model continually improve processes to reduce costs. Over the last five in a multi-channel world financial years the Group has removed a total of £285 million of costs and we are targeting a further £90 million of costs to be 2. Be a leader in each of the markets removed over the next two financial years. in which the Group operates 2. Be a leader in each of the markets in which 3. Align the Group to leverage consistently the Group operates pan-European scale and knowhow We have strong market positions in the UK & Ireland, Northern Europe and in Greece. In each of these markets we have seen 1. Drive a successful and sustainable business model consolidation amongst competitors and we see opportunities to in a multi-channel world improve these positions further as we implement the initiatives The way in which a customer shops is fundamentally changing. discussed above. Across the Southern European division and Our customers tell us that they want advice, to experience in PIXmania we need to set these businesses on paths that will products and to ensure they are making the right choices, make them strategically strong and profitable, and drive solutions particularly as these are often major purchases that they will own that will put them on firmer footings. for several years. The internet empowers customers with lots of information including product knowledge and price transparency. While the economic environment in Greece is very tough, Single channel internet operators have structurally lower costs Kotsovolos is a strong brand and has a leading market share. to sell products and have historically been able to offer highly We believe that this business will be able to continue to leverage competitive prices versus store based operators. We have closed its position to grow its share and manage costs aggressively. the price and cost gap dramatically in recent years and we will Our Italian business has continued to make progress against now increase our focus on four distinct activities that we believe economic headwinds and in the short term we will continue to are the key strengths of our multi-channel service based model take aggressive action on costs as well as improve the stock and will support our competitive advantage going forward: and cash position. i. Wor k closely with suppliers to harness benefits available to PIXmania has one of the largest non-food pure play platforms our business model: Suppliers want to ensure that customers in Europe and represents a valuable source of insight and not only choose their brands, but also experience the benefits of information on this segment of the market. It has expanded its the latest products they have developed to meet customers’ ranges, offering both directly and through PIXplace and it has needs. As a multi-channel operator we work with our suppliers exploited its E-merchant platform by offering hosting services to ensure we can explain the benefits of these products and to third parties, most notably Carrefour. However, its recent demonstrate them to customers in our stores and our suppliers performance has been disappointing. In the light of the changing support us in this work in a number of ways. business model facing internet operators we are reviewing much ii. Focus on complete solutions for customers: Customers buy of PIXmania’s activities to focus on those that deliver a competitive products in order to achieve something, such as watching movies, advantage going forward, such as product diversification, or to entertain the children. This does not just mean buying the multi-channel offering as an e-commerce provider for third hardware, but increasingly includes delivery, explanation and parties. Together with cost reductions we are confident that we can reduce the losses experienced in the year just finished.

20 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 21 Directors’ Report Strategic Summary

Business Model and Strategy (continued)

3. Align the Group to leverage consistently pan-European Business Model scale and knowhow Our business model enables us to offer our customers a truly The Group has many best practices in each of its business multi-channel integrated service based electrical retailing experience divisions. Some work has taken place to align these and share that delivers a sustainable business. Taking each of the component them across the Group, such as the new store formats, supplier parts in turn, it can be described as follows: relationships and to a limited degree own brands. However, there remain many opportunities to share knowledge, expertise and best Customer Insight practice across the Group. Some of these will take time, but we In order to ensure we understand what products and services our must exploit further the benefits of being a pan-European operator. customers want, how they use the products they buy from us, and what they think of the service they get from us we use extensive Delivering on these priorities will build on the improvements already customer insight. This includes discussions at customer panels, delivered by the Renewal and Transformation plan and enable the interviews, home visits and detailed surveys. We use this information Group to improve its EBIT margin going forward as well as to build our ranges, improve our stores and services and other strengthen our focus on cash generation. business decisions. This is supported by mystery shops in our Our UK & Ireland and Northern Europe divisions together delivered own and competitor stores, exit surveys and customer feedback. a 2.7% EBIT return after associated central costs in the 2011/12 During the year our UK businesses made considerable progress in financial year. We believe that a 3-4% EBIT return for these customer satisfaction metrics as we continue to improve the business. businesses, is certainly achievable. In the other businesses, returns have been disappointing and we need to focus on reducing the Multi-channel losses to support an improvement in the Group’s EBIT return. The shopping trip for customers is constantly evolving. Our objective is to provide our customers with a seamless experience where Cash is an important part of this and the Group has been cash convenience, ease of navigation and simplicity are key in attracting generative in each of the last two financial years which has enabled customers to shop with us whether it is online, in-store or a us to more than halve our net debt position to £104 million. As a combination of both. We are improving our stores making them Group we need to make the right choices as to how each of our easier to shop with, for example, improved navigation, better divisions utilise or preserve cash, whether it be determining ranges signage, playtables to allow customers to interact with products and stock held in store, managing returns and related processes, before they buy, as well as good advice on features and benefits improving working capital and stock turn. from our colleagues. We are also combining our PC World and

Customer insight

After sales Multi-channel Products service & support Sales advice Great brands Delivery & installation Easy to shop Wide range Set up & upgrade Playtables Exclusivity Help & support 2-in-1 store offering Own brand product Repair & protect reserve&collect and collect@store Seamless online / in-store experience Specialist

Value Choice Service Low cost operating model

22 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 23 Currys stores into 2-in-1 stores, which often feature a mezzanine After-Sales Services and Support level, give our customers greater access to our specialist computing Our customers need help with their products, whether it be delivery offer, combined with our market leading mixed electrical offering. and installation, help keeping their products up and running or This enables us to improve our sales densities and rent to space repair when things go wrong. Our business in the UK & Ireland sets mix. As mentioned above our websites are an integral part of the the benchmark for our services infrastructure. In May 2012 our

way in which customers choose products and we have carried out a Knowhow™ services brand celebrated a very successful first year. Strategic Summary wide range of improvements to them during the year. In recognition of how customer trends are evolving we have made it easier for our We operate the largest network of two man deliveries in the colleagues to access products and extended ranges in store. For UK with an average of 50,000 deliveries per week enabling us example, our store colleagues are rewarded for all sales in their to provide customers with the convenience of next day delivery catchment, whether it be online or in store. We are also introducing in a three hour time slot or the value of a free delivery later. pay&collect, alongside our existing collect@store service, where customers can buy products not immediately available in their local Our Knowhow™ teams in stores, in our call centre and field store for collection later. technicians can provide set up and upgrade services as well as online fix and back up services. Our market leading range of Our training programmes combined with our Product Learning help and support services ensure a customer has the backing of Centres provide our colleagues with the right tools to really expertise and support that keeps their technology up and running. understand customers’ needs and to provide them with the In the event that a customer has a problem with their product we complete solution to properly meet those needs. We will continue can fix it. For example, our state of the art repair facility in Newark, to improve the training of our colleagues and the ways in which now repairs 800,000 televisions, desktop PCs and laptops each we can really make them experts in the products we sell. year and is able to repair and return a laptop in seven days. We provide customers with a choice of support agreements such as Products ‘Premier’ services which provide customers with a loan TV, for Combining our customer insight with our market strength across example, if theirs needs to be taken away for repair. Europe we can make sure we have the right range of products in our stores to suit customers’ needs. Our scale and relationships with Through ownership of the service infrastructure we can ensure the suppliers means that we can work with them to showcase the latest quality of service delivered to customers. This, we believe, provides technology and products in our stores with areas dedicated to key us with a significant competitive advantage in meeting the needs of suppliers’ products. our customers, as well as a revenue stream not readily available to single channel online and mass market competitors. Own brand products enable us to offer customers greater choice and access to a range of products at competitive prices. We have While much of the improvement work has been focused on the defined a clear ‘good, better, best’ brand range of: Currys and UK, core elements of the business model exist in our businesses PC World Essentials; Logik; iWantit, Advent; Goji; and Sandstrøm in the Northern and Southern European divisions and we see more brands. We see particular opportunities in the area of accessories potential to develop this area. and essentials and during the year launched our very successful Sandstrøm cable range and Goji headphones. These factors combined ensure that we can offer our customers value, choice and service.

Market leading delivery Personalised hassle “Help me understand it” Peace of mind if & installation free set up Remove the frustration something goes wrong Flexible, reliable and Make it easy for of technology Always there to help get unbeatable value the customer Telephone, online and it fixed Choices to suit the customer Range of upgrades in-home support designed to maximise the performance of the products for customers

22 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 23 Directors’ Report Strategic Summary

In 2009, in the UK, we launched a comprehensive Customer Plan Resources in collaboration with our colleagues. The Customer Plan involves improving every possible aspect of the shopping trip for customers, whether that be in our exciting new stores, better ranges at great value, untangling the shopping trip for customers, helping them get their products up and working, or keeping them working as technology gets more and more embedded into daily lives.

We made huge progress last year across every aspect that we measured in the Shopping Trip. However, we must never be satisfied and we can and must make further improvements to delight customers and to outpace the competition. This year, the Customer Plan will remain our vehicle for demonstrating to the team what Our resources needs to be delivered, building on last year’s successes, introducing new work-streams and sharing our practices across Europe.

■■Customers We are focusing on building a career development framework that ■■People rewards customer centric behaviour and instils a sense of pride ■■Suppliers in our colleagues. We now provide tailor-made development ■■Distribution and Logistics programmes and support further education qualifications for our colleagues throughout the business. Our development programmes ■■Store Portfolio use modules, training workshops and a dedicated e-learning intranet ■■Intellectual Property service that helps provide the skills colleagues need to succeed at ■■Cash every level and career stage. ■■Energy We operate sophisticated tracking and measuring processes, including regular mystery shops and exit surveys, to measure Customers individual’s and store’s performance, and to ensure we reward To deliver on our strategies and to evolve them according to appropriate behaviours. Each region within the Group defines its own current requirements, we must listen effectively to customers and reward system as is appropriate to local customers’ expectations understand their needs. As a company, since 2008 we have invested and colleague behaviours. However, all these systems incentivise in comprehensive customer research programmes spanning a a combination of good customer service and contribution to a store variety of tools including exit surveys, mystery shops, focus groups or team’s performance. and effective data gathering. Suppliers Through this research, managed by our in-house Customer Insight As we build our market-leading reputation and become known not team, we have developed a clear and detailed understanding of what just for Value, Choice and Service, but also as the ‘go to’ location we are doing well and more importantly of where we can target further for all the latest technology, our relationship with suppliers becomes improvements. Customers tell us that they need us to deliver a strong ever more important. Product sourcing offices for each of the UK & combination of Value, Choice and Service across all our shopping Ireland division, Northern Europe, Italy, Greece, Turkey and PIXmania channels, and it is clear from their feedback that more and more they continually monitor current and future product cycles with existing recognise that we are doing this consistently, and moreover that we and potential suppliers. are outperforming our competitors. We will continue to deliver easier, more exciting places to shop for customers whether that be in-store, In a complex multi-channel environment, suppliers trust us with their online or a multi-channel combination of both. new product releases and stock allocations, as they appreciate the superior service and advice offered by our stores and indeed our Listening to customers extends into how we approach the sales websites, as well as the exciting environments offered by our process in-store. Our ‘FIVES’ training programme, designed to transformed stores. ensure customers leave our stores with a complete solution that is right for them, is now embedded in our colleagues’ training We work closely with suppliers of all sizes to help them deliver the programme, and this year was adapted to support the launch of our right product for customers, through the forecasting and planning end-to-end service brand Knowhow™ and its 4,000 team members. stages to ensure we deliver the right levels of stock for customers at the right time. The electrical and computing industry is characterised By maintaining our absolute focus on the customer and delivering by a number of large global manufacturers, who account for a large what they want in a retail environment that is constantly evolving, proportion of our sales. However, we also source product from we will continue to attract new customers and retain existing ones. a large number of smaller suppliers. We seek to maintain strong relationships with all of these suppliers, not just to source the right People product for customers, but also to ensure the Group can purchase Dixons Retail is an organisation spanning most of Europe, with nearly the appropriate level of stock on favourable terms. While we leverage 37,000 colleagues in over 1,200 stores, offices, call centres and the Group’s scale and buying power through an International Buying distribution centres. For our colleagues, we believe there are four team, we also maintain strong relationships at a local level. core values that constitute who we are, as individuals and as a team: ■■We love to make our customers happy Our in-house design team continues to work closely with ■■We know our stuff suppliers to develop exciting environments in-store for colleagues ■■We love to work here to demonstrate brands and products and ensure customers leave with the right products for them. ■■We deliver

24 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 25 Alongside this, we continue to refine our own-brand ranges to suit These and its other brands such as Unieuro in Italy, Electroworld all budgets and taste. Our most notable successes this year have in Turkey and Central Europe are extremely well-established and been the launch of our own Sandstrøm cables brand and the respected in their markets. The Group is also building a strong unveiling of a Goji headphone range fronted by Tinchy Stryder. service business (branded Knowhow™) in the UK, aiming to delight We also continue to embed our Currys and PC World Essentials customers while generating significant new business opportunities

ranges as key entry level products in our ‘good, better, best’ line-up. and outpacing the competition. Strategic Summary These products are designed and sourced by the Group’s teams based in the UK and Hong Kong in collaboration with manufacturers As well as our retail and service brands outlined above, we also in, for example, Asia. sell a range of own brand products such as Sandstrøm, Goji, Essentials and Advent. Each of these brands have specific target Distribution and Logistics markets defined in conjunction with our customer research findings. The Group sees distribution as one of the keys to the success of Previously, Dixons Retail had operated a much wider range of ‘own the Group in maintaining highly competitive margins and delivering brands’ but many of these had become irrelevant to outstanding, market-beating service to customers. We operate modern customer needs or to business requirements. a centralised system of distribution centres in all the countries in which we operate. This delivers significant competitive advantages, Cash including reduced operating costs, reduced supplier delivery costs, It remains the Group’s policy to maintain a strong capital base so as reduced stock volumes in store, increased flexibility as to where to to maintain investor, creditor and market confidence and to sustain the deliver and when, and easier home deliveries. future development of the business. This approach has never been more important than during the current downturn, with ‘reducing While continuing to reduce costs, we are also constantly raising costs’ having been one of the five key corporate priorities highlighted the bar, both in terms of successful delivery and installation rates, at the launch of the Renewal & Transformation plan in 2008. but also the range and quality of services we offer customers nationwide. The launch of our Knowhow™ brand was in part As we move forward under a new Group Chief Executive, our targets recognition of the huge strides we have made in this area. in the short term for the Group have been clearly laid out: we will be focusing on delivering a suitable and sustainable return on EBIT In our Nordic operations, (Jönköping, Sweden) and the UK, (Newark), as well as generating cash. we operate two of the largest distribution centres of their kind in Europe. In the UK alone we now make some 2.5 million deliveries, The Group has been cash generative in each of the last two including some 500,000 installations per year. financial years. As a Group we need to make the right choices as to how each division utilises or preserves cash whether it Store portfolio be in determining ranges and stock held in store or managing We operate a wide variety of stores to suit the local customer returns and related processes. demographics. We operate small, very popular outlets in airport locations up to ‘Megastores’ in out-of-town locations, up to 70,000 Over the last five financial years the Group has removed a total square feet. of £285 million of costs. The company is also targeting a further further £90 million to be removed over the next two financial years We constantly review our store portfolio to ensure we have the right and we have a cautious programme to reduce costs every year. store for customers in the most competitive location. As part of this ongoing review in the UK, we are currently reducing our exposure to Energy the High Street, only maintaining a presence in the most profitable Saving energy is good for the business, good for customers and locations. We are also transitioning a number of stores, where of course good for the environment. We take energy efficiency appropriate to a 2-in-1 format. These stores allow us to offer the best extremely seriously and whilst we have already made progress in of both worlds to customers, attracting new footfall and often at a number of areas, we are investing in a wider range of initiatives a lower cost. to significantly reduce our consumption going forward.

Throughout Europe, we have replicated the success of the store Over the past two years we have developed an ongoing programme refits first trialled in the UK and Nordics, delivering exciting, easy to to reduce energy consumption throughout our estate. To give some shop stores offering the latest technology to customers. We also simple examples, in the last two years in the UK alone we have: refine our Group portfolio strategy to suit local market conditions. ■■Established a dedicated energy function within the company to In the Nordics for example, we have opened a number of Elkjøp deliver our energy programme; Express High Street shops, clearly establishing ourselves as the ■■Installed low-energy lighting at nearly 200 stores within our portfolio; Norwegian market leader in mobile communication sales. ■■Installed energy-efficient building controls at a similar number In the Nordic region, Italy, Greece and Turkey we also operate a of stores; and number of franchise agreement stores. This arrangement allows ■■Trained over 11,000 colleagues in good energy saving practice. our brands to be present in a wider range of catchments, while increasing the volume of purchases and therefore buying power As a result of our various efficiency works last year we saved over of the Group. 6% in the UK on our electricity consumption, with the expectation we can make further improvements this year. Intellectual Property Dixons Retail is one of the largest electrical and computing specialist groups in Europe, and leads the market in a number of its operations, in the UK and Ireland through Currys and PC World, in the Nordics through its Elkjøp brands, in Greece through Kotsovolos, and in a number of countries online through PIXmania.

24 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 25 Directors’ Report Strategic Summary

Looking Forward “ The Group can look forward with Outpacing the competition confidence and continues to innovate the offer for customers.” Sebastian James, Group Chief Executive

The Group has made significant changes over the last four years. easy to shop with great customer service is exactly what customers Fundamental to this has been the absolute focus on doing what is are looking for when buying technology. We are continuing to apply right for the customer. During this time the basics have been fixed, our learnings from ‘Black’ to our mainstream stores. During the year the rubble has been cleared and the business streamlined, making ahead we will be rolling this format out to other High Street locations the business better for our customers, easier to operate for our and trialling a Megastore using the same principles. Our unique colleagues and cheaper to run. Decision making – driven by rigorous in-house award winning design team will continue to innovate use of customer insight – is becoming easier and quicker to execute. this format for customers including how we showcase the latest The Group can look forward with confidence. However, we cannot technology with major manufacturers. sit still and our offer for customers must continually improve. Innovations within the business will enable us to remain one step We have opened a new technology department with Harrods in their ahead of the competition and firmly focused on customer needs iconic flagship store in London. Our in-house design team delivered in every market in which we operate. a high quality retail space in keeping with the Harrods’ ethos and demonstrating how we are able to push the boundaries for electrical Across Europe, we will continue to roll out our Megastore, retailing. The new department required us to explore merchandising Superstore and High Street transformation programme, which of very high value product and Knowhow™ service offerings to meet is continuing to delight customers and deliver significantly higher the requirements of the Harrods customer demographic. These are average gross profits. useful learnings we can apply to our remaining stores and as we develop Knowhow™ further. We have developed our award-winning ‘Black’ concept store further with the opening of CurrysPCWorld Stratford next to the Olympic Knowhow™ has had a fantastic first year as our new customer-focused Park in London. Building on the ‘Black’ concept, first opened in services brand in the UK. It has helped drive customer satisfaction and Birmingham last year, this store puts more products on playtables, advocacy scores considerably. New products such as Cloud back-up further improves accessory ranges, with easier navigation and high and share, Movies and Fault & Fix for laptops have resonated well levels of service – all within an appealing environment. The success with customers as we deliver the sort of services and support they of this store demonstrates that an exciting retail environment that is have been looking for. We believe this provides us with a differentiated nationwide advantage over our competitors. In the year ahead Knowhow™ will continue to improve its current offering and the standards to which it delivers as well as innovate its product range.

As part of our programme of improvements and streamlining of our own brand ranges, we launched Sandstrøm cables during the year. These enable us to deliver a clear ‘good, better, best’ range of high quality cables at good value for money for customers. Our Goji brand has teamed up with British pop rapper, Tinchy Stryder, to launch a range of headphones and other audio products. We now have a strong range of own brands – Currys & PCWorld Essentials, Logik, Advent, iWantit, Goji and Sandstrøm – each with a clear brand identity coupled with dedicated design, sourcing and commercial teams. We will develop these brands and ranges for our business outside the UK & Ireland as we build the Group’s overall share in own brand products.

Our customers do not distinguish between our stores and our websites when choosing to shop with us and we are becoming a truly multi-channel retailer. We led the way with reserve&collect options many years ago and we are now innovating in the ways our store colleagues can help customers utilise the power of our online offering in store, for example accessing our wider product offering in any store for delivery to home or collection later. This year we will launch a pay&collect option for customers to buy whatever they see in our online range and collect it instore.

These are just some of the examples of how we are improving our business for customers and shareholders. By innovating and leading in our markets we will remain ahead of our competitors and deliver a sustainable business in a world where consumer shopping behaviours are constantly evolving.

26 Dixons Retail plc Annual Report and Accounts 2011/12 Key Performance Indicators Strategic Summary

For more information on our Corporate Responsibility KPI’s see pages 40 to 43.

Financial and operational

Definition Performance Total Growth in total underlying sales. The ability to grow sales is an important (£million) underlying measure of a brand’s appeal to customers and its competitive position. 2011/12 8,186.7 sales* 2010/11 8,154.4

Like for The Board measures like for like sales as sales in stores that have 2011/12: 2010/11: like sales been open for a full financial year both at the beginning and end of the financial period and are calculated using constant exchange rates. (3)% (2)% Customer support agreement sales are excluded from all UK like for like calculations. Operations that are subject to closure have sales excluded as of the announcement date. Stores subject to closure due to a refurbishment are excluded during the period of closure. All PIXmania pick-up store sales are included in like for like sales. Sales targets and growth are set relative to the market and expected economic conditions. Market In line with the Group’s strategy to be the leading specialist No.1 market positions in: position electrical retailer in Europe, this is an important measure of how well UK & Ireland customers are being engaged by the Group’s brands in each market. Nordics Retailing operations should be, or be capable of becoming, the number Greece one or number two specialist electrical retailer in their market, measured Czech Republic by market share. Underlying Continued growth of underlying operating profit enables the (£million) operating Group to invest in its future and provide a return for shareholders. 2011/12 115.1 profit* Targets are set relative to expected market performance. 2010/11 127.6

Underlying Continued growth of underlying profit before tax represents (£million) profit before a measure of Group performance to external investors and shareholders. 2011/12 70.8 tax* Targets are set relative to expected market performance. 2010/11 85.3

Free Cash The Group defines Free Cash Flow as net cash generated from 2011/12: 2010/11: Flow operations, less net finance costs, taxation and net capital expenditure and excluding certain discrete items such as special pension £130.3m £10.0m contributions. The management of cash usage, in particular working capital employed in the business, optimises resources available for the Group to invest in its future growth and to generate shareholder value.

Shareholder

Underlying The level of growth in EPS provides a suitable measure of the 2011/12: 2010/11: diluted financial health of the Group and its ability to deliver returns to earnings per shareholders each year. The Group targets growth in EPS 1.1p 1.6p share* (EPS) commensurate with growth in earnings.

Total This metric provides a relative performance measure over the shareholder longer term of the Group’s ability to deliver returns for shareholders. See graph on page 61 return (TSR) From 2010/11, the base which the Group used was to measure against the FTSE 250 Index (comprising FTSE 101-350 companies), excluding investment trusts, over a three year period.

*Underlying performance measures are as defined in the Performance Review.

Annual Report and Accounts 2011/12 Dixons Retail plc 27 Directors’ Report Strategic Summary

Principal Risks to Achieving the Group’s Objectives

The Group recognises that taking risks is an inherent part of doing business and that competitive advantage can be gained through effectively managing risk. We continue to develop our risk management processes, integrating risk management into business decision making. In addition, the Board and Senior Executives have invested time to identify and assess the key risks facing the business and actively manage the risks to achieving Group strategic objectives. Risk management is performed from both a top-down and a bottom-up perspective, ensuring that strategic and operational risks are appropriately addressed and mitigating activities aligned. The principal risks and uncertainties are set out below along with an illustration of what is being done to mitigate them. Risk

Examples of mitigating action 1. Economic environment The economic downturn is prolonged and volatile through 2012 and Str ategy and business planning which takes into account beyond, which could inhibit our performance and create uncertainty, varying economic scenarios particularly in the eurozone Ongoing monitoring by Finance and Senior Executives Ren ewal and Transformation plan to improve our business performance irrespective of macro economic factors Contingency management planning for economies most at risk  Greece exits from the euro, leading to a step change deterioration of Pre paring for a further, more significant reduction in market size the Greek economy and challenging the sustainability of our business through additional cost reduction initiatives Post event crisis management planning ongoing Pro fit and cash flow scenario planning to help the Group to manage the impact of a range of possible scenarios Reducing exposure to currency devaluation

2. Multi-channel business model We fail to deliver our business model through a seamless Bri ng store and online formats together by further developing multi-channel strategy that leverages the Group’s strengths our websites Int roducing pay&collect and rolling out online in-store to offer customers the full range of products regardless of their preferred location FIVES customer service training for all colleagues and product workshops to improve product knowledge Suc cessful marketing campaigns to raise the profile of multi‑channel brands Dev elopment of best practice processes to support the multi‑channel, which are rolled out across the Group

3. Changing technology / consumer preferences We do not respond quickly enough to capitalise on changes in Ong oing investment in service offerings with roll out, through customer demand for technology, content and service delivery the Customer Plan, of customer journeys to help demonstrate winning solutions Increasing investment in digital content services, e.g. Knowhow™ Movies Improvements in our range planning capability Exc iting product launches to make our stores the destination for the latest technology, e.g. 3D TVs, new iPad Con tinued focus on ensuring we have an excellent range across all price points, including own label brands

28 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 29 Strategic Summary

Risk

Examples of mitigating action 4. Competition Competitors reduce the Group’s market share and / or drive down Ren ewal and Transformation plan is improving our stores, margins in specific markets cost structure and service proposition Con tinuing development of strong multi-channel propositions and brands Ens uring our prices offer good value, including use of a customer price index Con tinuing to take money out of our cost base and leveraging Group-wide benefits where opportunities arise Building ever stronger relationships with suppliers

5. Employees We fail to attract, develop and retain the necessary talent for Gro up-wide standardised performance management our business Tal ent reviews across the business Store structures which provide a clear career path for all employees Con tinued improvements in the quality of training courses and development programmes with specialist focus on service, product, commercial and technical Bon us plans, which include a component relating to individual performance and business performance Reward strategy aligned to retain the best talent

6. Finance and treasury Our trading position suffers from a lack of availability of funding, Implementation of extended revolving credit facility fluctuations in exchange rates and interest rates and reduction in Tig ht balance sheet management with independent reviews by availability of credit funding Group Finance Strong cash management and monitoring Rigorous pre and post-investment appraisal processes Ongoing engagement with suppliers and credit insurers Innovations in, and close scrutiny of, working capital together with regular monitoring and review Detailed Group hedging policies, managed centrally and reviewed through a Group Tax and Treasury Committee Close scrutiny and management of the business portfolio  Ongoing review and optimisation of store footprint, with closures or relocations as appropriate

28 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 29 Directors’ Report Strategic Summary

Principal Risks to Achieving the Group’s Objectives (continued)

Risk

Examples of mitigating action 7. Technology infrastructure support A key system becomes unavailable for a period of time, or our Contingency plans are in place and are tested regularly IT systems do not support changing business needs and prevent Evaluation, planning and implementation analysis carried out us from leveraging business opportunities before updating or introducing new systems that have an impact on critical functions Investment in site functionality and user friendliness Development and implementation of IT strategy to further embed CRM in the business, enabling customer information to flow across all customer touchpoints Implementation of appropriate measures to secure key systems and data against malicious attack

8. Legislative, contractual, reputational and regulatory risks As a result of a change in legislation, a decision by a regulatory In-house legal teams communicate on a frequent basis and authority, exposure in our compliance activities or disputes with third legal reports are submitted to the Board parties and business partners, the Group’s business is impacted Legal teams manage issues which arise and there is Group by reputational or financial damage or a need to adapt the Group’s oversight of significant matters business and processes (relevant areas include competition, Group Ethical Conduct policy supported by annual declaration consumer rights, intellectual property, contractual obligations, of compliance by colleagues health and safety or compromise of confidential customer data) Corporate Responsibility Committee meets regularly to discuss reputational and regulatory risks and monitor mitigating action Quality checks and factory audits for own-branded product assembly Compliance Committee approves activity that may impact the terms of Group credit facilities Contact with regulatory authorities Monitoring changes in legislation / regulation

30 Dixons Retail plc Annual Report and Accounts 2011/12 Directors’ Report Performance Review

Overview

Key highlights Financial highlights ■■Group underlying total sales(1), (2) flat in the full year with ■■Total Underlying Group sales flat at £8.19 billion strong momentum in the final quarter. (2010/11 £8.15 billion). ––Group like for like sales(3) down 3% in the full year, up 5% ■■Group gross margins down 0.3% in the full year. in the final quarter. ––Gross margins flat in the UK in the full year. ––Like for like sales in the final quarter up 8% in the UK & Ireland ––Northern Europe gross margins down 0.5% in the full year and up 10% in the Nordics. but recovering to flat in the second half. Performance Review ■■Growing share across most markets, particularly in the UK ■■Total loss before tax of £118.8 million (2010/11 loss of and Northern Europe. £224.1 million), after non-underlying items(1) of £189.6 million, ■■Underlying pre-tax profit(1) of £70.8 million (2010/11 profit of which are predominantly non-cash and comprise the write £85.3 million). off of goodwill relating to Unieuro, Kotsovolos and PIXmania. ––­Good progress in UK & Ireland and Northern Europe with ■■Underlying diluted earnings per share(1) 1.1 pence (2010/11 profits up 15% and 12% respectively. earnings of 1.6 pence). Basic loss per share for continuing ––Offset by weaker performances in Southern Europe and PIXmania. operations 4.3 pence (2010/11 loss per share of 6.6 pence). ■■Strong growth in multi-channel with sales up 30% in the ■■£60 million of cost reductions delivered in the year with second half. £90 million targeted over the next two years. ■■Net debt reduced to £104.0 million from £206.8 million year on year. ■■£300 million revolving credit facility signed, extending the maturity date to June 2015. ■■On target to repay £160 million 6.125% Bonds due 15 November 2012 and associated hedge cost of approximately £65 million. ■■Customer satisfaction and advocacy measures continue to show good progress, particularly in the UK.

Annual Report and Accounts 2011/12 Dixons Retail plc 31 Directors’ Report Performance Review

Overview (continued)

Underlying sales and profit analysis

Underlying sales Underlying profit/(loss) 52 weeks 52 weeks 52 weeks 52 weeks ended ended ended ended 28 April 2012 30 April 2011 Like for like(3) 28 April 2012 30 April 2011 £million £million % change % change £million £million UK & Ireland(4) 3,833.9 3,925.3 (2)% (4)% 78.8 68.7 Northern Europe(5) 2,628.0 2,375.6 +11% +6% 113.9 102.1 Southern Europe(6) 1,059.8 1,120.0 (5)% (8)% (30.4) (18.1) PIXmania 665.0 733.5 (9)% (10)% (19.8) 3.5 Central costs (13.8) (15.8)

Total Group Retail 8,186.7 8,154.4 Flat (3)% 128.7 140.4 Property losses (13.6) (12.8) EBIT(7) 115.1 127.6 Underlying net finance costs (44.3) (42.3) Group underlying profit before tax 70.8 85.3

Notes (1) Throughout this report, references are made to ‘underlying’ performance measures. Underlying results are defined as excluding trading results from closed businesses, amortisation of acquired intangibles, net restructuring and business impairment charges and other one off non-recurring items, net fair value remeasurements of financial instruments and, where applicable, discontinued operations. These excluded items are described as ‘non-underlying’. The financial effect of these items is shown in the analyses on the face of the income statement and in note 4 to the financial statements. (2) Closed business comprises the operations of PC City Spain. (3) Like for like sales are calculated based on stores that have been open for a full financial year both at the beginning and end of the financial period and are calculated using constant exchange rates. Customer support agreement sales are excluded from all UK like for like calculations. Operations that are subject to closure have sales excluded as of the announcement date. Stores closed for refurbishment are excluded during the period of closure. All PIXmania store sales are included in like for like sales. (4) UK & Ireland comprises Currys, CurrysDigital, Dixons Travel, PC World, combined 2-in-1 Currys and PC World, Harrods concession, operations in Ireland, DSGi Business, Dixons.co.uk and KnowhowTM. Like for like sales exclude DSGi Business. (5) Northern Europe comprises the Elkjøp group, Dixons Travel Denmark and Electroworld in the Czech Republic and Slovakia. (6) Southern Europe comprises Greece (Kotsovolos), Italy (Unieuro, combined 2-in-1 Unieuro and PC City stores and Dixons Travel Italy), and Turkey (Electroworld). (7) Earnings Before Interest and Tax (EBIT) equates to underlying operating profit and is defined as underlying earnings from retail operations, after property losses, before deduction of net finance costs and tax. (8) Free Cash Flow relates to continuing operations and comprises net cash flow from operating activities before special pension contributions, less net finance costs, less income tax paid and net capital expenditure.

Business performance Underlying Group sales were flat at £8,186.7 million (2010/11 £8,154.4 million) and down 3% on a like for like basis, outperforming local markets in general. Underlying Group sales were also flat at constant exchange rates. Underlying profit before interest and tax was £115.1 million (2010/11 profit of £127.6 million). Underlying profit before tax was £70.8 million (2010/11 profit of £85.3 million). Group gross margins were down 0.3% across the full year and down 0.1% in the second half.

32 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 33 UK & Ireland

—— Profit growth of 15% —— Significant progress made in multi-channel business —— Opened Harrods technology store

Underlying sales We have analysed the store estate as we increasingly integrate (£million) online and stores and currently believe that in the UK we need 400 to 420 stores to provide the right level of service and convenience for 2011/12 3,833.9 customers. This includes approximately 40 High Street stores similar 2010/11 3,925.3 to our CurrysPCWorld Black store in the Westfield centre, Stratford with the remainder large out of town stores (Megastores and

Superstores), predominantly in the 2-in-1 format. Performance Review Underlying operating profit (£million) In May this year KnowhowTM celebrated its first anniversary after 2011/12 78.8 a successful first year growing by 40%. The added value services market is very fragmented and we are confident that we can continue 2010/11 68.7 to grow in this market. During the year KnowhowTM launched a number of new services including Fault & Fix, Cloud back up & Total sales in the UK & Ireland division were down 2% to £3,833.9 share and Movies. million (2010/11 £3,925.3 million) and like for like sales were down 4%. Like for like sales in the second half were flat, showing an improving In March we opened a store in Harrods which has had an trend with the final quarter up 8%. Underlying operating profits encouraging first three months. This is an exciting opportunity increased to £78.8 million (2010/11 £68.7 million). which provides us with some useful learnings for store design, product display, high end-high value ranges as well as extending The UK & Ireland division has performed strongly against a our KnowhowTM services. tough market. The benefits of the work under the Renewal and Transformation plan increasingly benefitted the business through The launch of the new iPad helped grow the overall computing the year with a particularly strong performance in the final quarter. market. With Ultrabooks now being released into the market and This enabled the division to grow operating profits by 15% in the further developments in operating systems, in particular the launch year putting the business on track towards a sustainable return. of Windows 8 later in the year, there is the potential for this category to continue to grow. White goods showed modest growth, but are We have made significant progress with our multi-channel business predominantly driven by the housing cycle. Technical innovation and during the year, particularly in the second half which saw growth of energy efficiency is increasingly giving customers reasons to replace 48%. Improvements to availability and processes have improved the or upgrade. The consumer electronics market was weak through experience for customers. We are planning further improvements in the year, however in televisions we believe we traded ahead of the the year ahead as we deliver a seamless experience for our customers. market, particularly in the fourth quarter with sales of large flat TVs up 25% in value. We now have 269 refurbished stores which continue to deliver average gross profit uplifts of over 20% in the first year and Dixons Travel continues to perform well. The new format now rolled maintained in the second and third years. A further 63 stores out across all of Dixons Travel’s stores delivers a better range and are expected to be reformatted in the year ahead, predominantly store experience for customers, including a focus on portable items in the 2-in-1 CurrysPCWorld format, resulting in three quarters of and accessories. sales going through new format stores by Christmas Peak this year.

32 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 33 Directors’ Report Performance Review

Northern Europe

—— Elkjøp is market leader in the Nordics —— 12% profit growth —— Highly efficient operating model

Underlying sales Northern Europe, which comprises the Elkjøp group, the (£million) Electroworld operations in the Czech Republic and Slovakia and Dixons Travel in Denmark continues to perform well. Sales 2011/12 2,628.0 grew by 8% at constant exchange rates, while in sterling, underlying 2010/11 2,375.6 sales grew by 11% to £2,628.0 million (2010/11 £2,375.6 million). Like for like sales were up 6%. Underlying operating profits were £113.9 million (2010/11 £102.1 million). Underlying operating profit (£million) Overall, Elkjøp had a very strong year, particularly in Denmark. 2011/12 113.9 Disruptive activity from businesses exiting the markets in Sweden, Norway and Denmark, as well as competitor activity, impacted 2010/11 102.1 gross margins in the first half. However, as some of these factors abated the business delivered strong gross margin growth in the final quarter, resulting in full year operating profits being up 12% year on year.

Elkjøp’s highly efficient central operating model continues to lead the way in simplicity and cost management and we are starting to adapt the model to other markets across the Group, particularly as we deliver on our three key priorities.

Elkjøp now operates 28 Megastores which continue to perform particularly well. It also has 42 reformatted Superstores.

The operations in the Czech Republic and Slovakia are now managed out of the Nordics. As a result costs have been streamlined and by investing in the customer offer Electroworld has grown strongly through the year with like for like sales up 13% and ahead of their markets.

34 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 35 Southern Europe

—— Challenging economic backdrop —— Focus on customer service —— Cost reductions

Underlying sales This division comprises operations in Italy, Greece and Turkey. (£million) Total sales were down 3% at constant exchange rates and down by 5% in sterling to £1,059.8 million (2010/11 £1,120.0 million), with 2011/12 1,059.8 like for like sales down 8%, largely as a result of the weak economic 2010/11 1,120.0 environments being experienced in Greece and Italy. Underlying operating loss was £30.4 million (2010/11 loss of £18.1 million). Performance Review Underlying operating loss Greece (£million) The economic environment in Greece remained difficult through the (30.4) 2011/12 year. Kotsovolos remains the market leader and is able to leverage its market position and strong supplier relationships to grow its market (18.1) 2010/11 share. Despite further pressure on gross margins Kotsovolos again showed robust cost management to keep losses to a minimum. The outlook remains uncertain, but with a focus on customer service and cost management we believe Kotsovolos will continue to out-perform its competitors. Italy The economic crisis deepened during the year and as a result management took action on costs, however the impact on mitigating the losses in the year was limited as the benefits of these actions began to come through later in the year. We are taking further actions on costs and working hard to improve the estate and competitiveness in the market. Encouraging progress was made in specific product segments towards the end of the year. Unieuro now operates 148 stores, with 26 in the new format and 54 being franchise operations. Turkey The Group now operates 15 stores in Turkey, as well as 15 franchise stores. Strong growth in the first half moderated as the year progressed, but total sales grew by 41% in local currency across the year while like for like sales were up 14% in a growing market. Franchising continues to offer an opportunity to roll out the Electroworld brand across Turkey, particularly in towns that are geographically spread across the country, for relatively little cost.

34 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 35 Directors’ Report Performance Review

PIXmania

—— Key product markets impacted by natural disasters —— Evolving business model

Underlying sales Total sales were £665.0 million (2010/11 £733.5 million) with like for (£million) like sales down 10%. Underlying operating loss was £19.8 million (2010/11 profit of £3.5 million). 2011/12 665.0 2010/11 733.5 PIXmania experienced a very difficult year with a number of factors impacting performance, some of which could not have been foreseen. The photography, camcorder and hard disc drive Underlying operating (loss) / profit categories have been a significant proportion of the sales mix and (£million) higher margin categories for the business. The natural disasters in (19.8) 2011/12 Japan and Thailand severely limited the supply of these products and as a result sales and profitability were impacted. Its core 2010/11 3.5 Southern European markets have been weak and PIXmania has experienced the negative impact of the shift towards multi-channel operators in our markets.

PIXmania has been evolving its business model through: ■■Steady growth in new categories underpinning its multi-specialist positioning, expanding into toys, sports goods, home furniture, beds and mattresses as well as jewellery; ■■PIXmania’s market place, PIXplace, continues to grow strongly with over 1,500 active third party resellers offering over 1.5 million products in 26 countries; ■■Extending its store network to 20 PIXmania branded stores which provide customers in major cities with a multi-channel offering; ■■Further investments in E-merchant, its market leading e-commerce platform for third party customers. Most notable of which has been for Carrefour which successfully launched in November 2011. More recently PIXmania won the Celio contract, one of France’s largest menswear brands with a launch planned for the summer 2012; and ■■Streamlining processes and reducing costs.

36 Dixons Retail plc Annual Report and Accounts 2011/12 Group Financial Summary

Financial position Working capital inflow was £15.8 million (2010/11 £40.4 million). Many of the markets in which the Group operates remain challenging. This positive inflow was despite an adverse reversal of a £30 million In spite of this the Group has delivered a robust performance timing benefit experienced at the end of the prior year relating to the against the financial priorities of profitability and strengthening the exit from Spain and the additional UK bank holiday. The continued balance sheet: strong performance largely reflects further improvements to stock Costs reduced by £60 million in the year, as part of the three year management, while continuing to improve availability, range and

£150 million cost reduction programme; promotion management. Overall Group stock levels year on year Performance Review  Completion of sale and leaseback of Swedish warehouse in June, were down 9% (5% excluding the impact of currency changes). raising £58.1 million; Net restructuring reflects the cash outflows relating to the strategic Significant headroom maintained on the Group’s revolving credit reorganisation activities as announced in this and previous years. facility (the RCF) throughout the year, with the facility unused This year these include costs of £24.3 million associated with the throughout the second half and extended to June 2015; closure of operations in Spain.  Positive Free Cash Flow before restructuring items of £174.1 million was generated; Funding Net debt was reduced to £104.0 million compared to £206.8 million At 28 April 2012 the Group had net debt of £104.0 million, compared at the end of the 2010/11 financial year; and with net debt of £206.8 million at 30 April 2011. Agreement reached with the trustee of the UK defined benefit scheme following the triennial valuation with an 11 year deficit 52 weeks 52 weeks ended ended reduction plan, with payments of £16 million made in 2011/12 28 April 2012 30 April 2011 and £20 million to be made in 2012/13. £million £million Opening net debt (206.8) (220.6) Free Cash Flow Free Cash Flow 130.3 10.0 52 weeks 52 weeks Acquisitions (1.2) – ended ended Special pension 28 April 2012 30 April 2011 £million £million contributions (16.0) (12.0) Other items (10.3) 15.8 Underlying profit before tax 70.8 85.3 Closed business loss before tax (2.9) (8.5) Other movements in net debt (27.5) 3.8 Depreciation and amortisation 138.8 139.4 Working capital 15.8 40.4 Closing net debt (104.0) (206.8) Taxation (26.8) (26.2) Capital expenditure (101.5) (223.2) Net debt is stated inclusive of restricted funds of £114.0 million Proceeds from sale of property 70.2 2.0 (2010/11 £120.3 million), which predominantly comprise funds held Other items 9.7 29.7 under trust for potential customer support agreement liabilities. Free Cash Flow before restructuring items 174.1 38.9 The improvement in net debt was due to the Free Cash Flow Net restructuring (43.8) (28.9) generated, partly offset by £16.0 million paid to the UK defined benefit pension scheme under the terms of the deficit reduction plan Free Cash Flow 130.3 10.0 (2010/11 £12.0 million). Other items predominantly comprise the impact of foreign exchange currency movements on cash balances Free Cash Flow was £130.3 million (2010/11 Free Cash Flow of held in foreign subsidiaries. The gain on other items in the prior year £10.0 million). The improved cash result arose partially from the included a £10.2 million gain arising on the notional cancellation of sale and leaseback of the Jönköping warehouse in Sweden, and interest rate swaps which were previously in a designated hedge we have continued our transformation of stores with lower levels relationship on the portion of the 2012 Bonds redeemed last year. of capital expenditure as the Group conserved cash to improve liquidity in advance of the 2012 Bond repayment due on The Group’s RCF was unutilised at 28 April 2012, and throughout the 15 November 2012. second half of the financial year.

Annual Report and Accounts 2011/12 Dixons Retail plc 37 Directors’ Report Performance Review

Group Financial Summary (continued)

Adjustments to underlying results Business impairments of £196.0 million relate to Unieuro, Underlying profit before tax is reported before net non-underlying Kotsovolos and PIXmania, and arise following consideration of the charges before tax of £189.6 million. The continuing weak consumer ongoing difficult economic environments in which these businesses environment, in particular in Southern Europe, impacted the financial operate, and the behind expectation results seen in 2011/12. performance of certain of the Group’s businesses with the outlook The charges are predominantly non-cash and include: remaining uncertain. This has resulted in the value of the goodwill ––£131.1 million relating to Unieuro, the Group’s Italian business. acquired with Unieuro, PIXmania and Kotsovolos being further The majority of this cost (£109.4 million) relates to goodwill with impaired. A further explanation of these and other items comprising the balance relating to other fixed assets, onerous lease costs the non-underlying items is set out below: and store closure costs. Following this impairment there remains £26.6 million of goodwill relating to this business; 52 weeks 52 weeks ––£36.5 million relating to Kotsovolos, the Group’s Greek business. ended ended 28 April 2012 30 April 2011 This represents full impairment of the goodwill relating to £million £million this business; and Underlying profit ––£28.4 million relating to PIXmania, representing approximately before tax 70.8 85.3 one third of the value of goodwill held at the beginning of the year. Add / (deduct) non- underlying items: Profit of £37.2 million arises on the sale (and subsequent leaseback) of the Group’s Nordic distribution centre in Jönköping, Sweden. Trading results – Closed Other items of £1.6 million comprise: business (2.8) (7.7) Amortisation of acquired ––Net costs of £3.2 million which relate to the UK riots with such intangibles (4.5) (4.5) costs of £3.5 million relating mainly to stock write offs and repair Net restructuring costs to damaged properties and are shown net of insurance charges (16.3) (17.1) recoveries received to date of £0.3 million; and Business impairments (196.0) (251.6) ––An upwards revaluation of £1.6 million (required by accounting Profit on sale of standards) of a small Nordic associate shareholding following Swedish warehouse 37.2 – the acquisition of the remaining shares in that entity. Other items (1.6) (24.9) The financing charge comprises the following elements: Financing items: ––£0.1 million of interest charges relating to the closed PC City Closed business (0.1) (0.8) operations in Spain; Net fair value ––£2.8 million of net fair value remeasurement losses on revaluation remeasurements (2.8) (2.8) of financial instruments as required by IAS 32 & 39; and Accelerated ––Accelerated amortisation of facility fees which relate to the amortisation of refinancing activities and comprise the write off of fees relating facility fees (2.7) (7.8) to the amendment of the £360 million revolving credit facility to Net 2012 Bond a £300 million revolving credit facility in May 2012. Equivalent redemption gains – 7.8 fees relating to the £300 million revolving credit facility are being Total net non- amortised into underlying results in the same manner as the underlying charges (189.6) (309.4) historical facility fees. Gains and charges in the prior year relate Loss before tax (118.8) (224.1) to the refinancing that occurred in July 2010.

Trading results from closed business relate to the former PC City operations in Spain. Amortisation of acquired intangibles of £4.5 million predominantly comprises brand names. Net restructuring charges relate to the exceptional elements of the UK business transformation (£9.7 million) and the reorganisation of the photo processing businesses in PIXmania (£6.6 million). In the UK, the costs comprise mainly accelerated depreciation charges associated with the reformat of the UK & Ireland store portfolio, onerous lease charges and redundancies. In PIXmania, charges comprise mainly onerous lease charges, redundancies and contract termination costs.

38 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 39 Property losses Pensions Underlying property losses were £13.6 million (2010/11 loss of The IAS 19 accounting deficit of the defined benefit section of £12.8 million). These comprise mainly store re-site and store asset the UK pension scheme amounted to £261.9 million compared disposal costs associated with the Renewal and Transformation to £244.0 million at 30 April 2011. The assumptions used for plan, predominantly in the UK and Nordics. determining the accounting valuation use a consistent basis to that adopted at 30 April 2011 which build from the most recent

Underlying net finance costs actuarial valuation as at 31 March 2010. Performance Review Underlying net finance costs were £44.3 million (2010/11 £42.3 million). The increase in costs was primarily due to: The deficit has increased as a result of an increase in the liabilities the effect of the higher coupon rate on the 2015 Notes, which which was greater than the increase in assets. The increase in the were issued part way through the first half of the prior year; liabilities was driven by a decrease in the discount rate applied to  higher net foreign exchange losses compared to the the liabilities (which increases their value) which has been offset in prior year; and part by a decrease in the expectation of long term inflation which has an overall limiting effect on the overall increase in the liabilities. increased Euribor and Libor interest rates during the year, affecting floating rate swap income. A full triennial actuarial valuation of the UK defined benefit pension Tax scheme as at 31 March 2010 showed a shortfall of assets compared with liabilities of £239.0 million. A ‘recovery plan’ based on this The Group’s underlying tax charge equates to an effective rate valuation commenced in 2010/11 with payments of £12.0 million of 51% (2010/11 37%). The increase in the full year tax rate reflects which rose to £16.0 million in 2011/12 and will rise to £20.0 million losses where no tax benefit has been recognised, the non- in 2012/13 and 2013/14, rising approximately annually thereafter recurrence of one off releases in the prior year of surplus tax to £35.0 million by 2020/21. The next triennial valuation is expected provisions following favourable outcomes and the increased to commence in March 2013. proportion of non-deductible items (which are comparatively fixed in amount) taken as a percentage of the reduced profit before tax figure.

38 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 39 Directors’ Report Performance Review

Corporate Responsibility Report

Dixons Retail takes its responsibility to its stakeholders and the Guidelines. Accordingly, the Committee maintains a matrix of risks environment very seriously. Good sustainability practices are good and opportunities that are specific to the business. This allows us business practices and we believe that adopting good practice in this to identify our main exposures and most significant opportunities area can help us not only to do business sustainably but to achieve and to address any issues. During the year, our priorities included our corporate objectives and fulfill our business plan. Our policies the following: in this area are designed to balance the needs of our customers, To provide a safe and healthy environment for customers, shareholders, employees and the wider community with our colleagues and visitors to our stores and other locations; commercial business objectives. To engage colleagues through the provision of rewarding workplace environments and careers, whilst assisting in the We are dedicated to reducing our carbon footprint by reducing ongoing improvement of customer service levels; energy consumption throughout our operations, minimising and recycling waste, cutting transport emissions and reducing To improve operational energy efficiency and forward planning; unnecessary packaging. We seek to source products from all To reduce our impact on the environment and to reduce costs our suppliers that meet industry standards and are as energy and raise revenue through improved waste recycling; efficient as practicable. We continue to improve the environmental The provision of safe and reliable own-brand products, achieved performance of our own brand products throughout their life-cycle as a result of our expert technical knowledge with products by systemic integration of environmental aspects at an early stage sourced from manufacturers who are audited against our in product design. ethical requirements; and To add to and promote the customer proposition in relation Corporate responsibility management framework to product reuse and recycling. The Group Finance Director, Humphrey Singer, is the Board member responsible for corporate responsibility matters. He is supported A member of the Corporate Responsibility Committee has been by the Corporate Responsibility Committee, which comprises identified as accountable for each of these priorities. senior executives from key business areas and is chaired by Helen Grantham, the Company Secretary and General Counsel. The Committee has established key performance indicators, The Committee met twice during the period under review and a which are discussed in more detail below. summary of some of the key matters discussed are listed below: Monitoring the key performance indicators; Business ethics At Dixons Retail the way we do business is important to us and Assessing the reporting structures in place and determining forms part of our corporate responsibility objectives. Our shared changes to be implemented when gathering information in values are to: respect of the key performance indicators; operate with honesty and integrity; Ongoing evaluation of the Group’s risks and opportunities and identification of areas where the Committee can enhance give outstanding service to our customers; reporting or control mechanisms already in place; respect our colleagues; Reviewing the Group Health and Safety Policy; and continually seek ways to improve performance; and Reviewing the impact of the Carbon Reduction Commitment work together to beat our competition. upon the UK business and the internal reporting mechanisms to ensure compliance. The Dixons Retail Ethical Conduct Policy applies to all employees. Sustainability review Customer services Dixons Retail operates in different countries, each with differing At Dixons Retail, we are proud to serve thousands of customers stakeholder needs. Accordingly, the Group’s corporate responsibility every year in our stores, over the telephone and online. In the tough efforts are largely organised on a local level. The Committee will be economic environment of the last few years, our customers have undertaking a review of our current initiatives during this financial looked to us to provide greater value, choice and service and we year to see how we can further improve our environmental impact have reinvigorated our business model accordingly. Our customers and how we can share best practice and reporting across all have told us what a great shopping trip feels like and we have used our businesses. this to develop our Customer Plan in a series of programmes with the objective of improving the shopping and post-shopping experience Our approach to corporate responsibility of our customers. Dixons Retail seeks to identify the risks and opportunities which are most significant to its business rather than addressing a standardised agenda, in accordance with the approach to corporate responsibility contained within the Association of British Insurer’s

40 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 41 During the period under review, these programmes have included Environment the roll out of our award winning service proposition Knowhow™, Dixons Retail recognises that it has a responsibility to manage the the continued transformation of our store portfolio, the unveiling of a impact of its business on the environment both now and in the technology department in Harrods’ flagship store in London and an future. Key areas of focus continue to be: enhanced user experience for customers on our shopping websites. energy use and emissions from stores, warehouses, distribution centres and offices;

Great customer service is key to the success of our business and Performance Review fuel emissions from the transportation of products to either stores is measured through regular mystery shopping and exit surveys as or customers’ homes; well as customer feedback received via our call centre and service colleagues. The customer satisfaction measures are combined with waste created in stores, warehouses, distribution centres key performance indicators from across operations, people and and offices; and finance to form our scorecard. This provides a balanced view of unwanted electrical equipment collected for recycling. how we are doing and is regularly reviewed by the Committee and the Board. Carbon footprint management Dixons Retail is committed to a carbon management programme, As part of our commitment to delivering customer service to which aims to reduce the Group’s carbon footprint. Along with all the highest standards, our colleagues work to ensure that our other British businesses, for the first time we reported our emissions communications with customers are clear and that the information as part of the Carbon Reduction Commitment scheme which we present them with is accurate and not misleading. We maintain launched this year and have introduced several programmes to help compliance with trading standards and legal requirements. us reduce the impact of our operations on the environment whilst Our policies and procedures integrate those standards into improving efficiency and saving costs. A significant proportion of the our daily work. cost savings made have been reinvested into the next phase of our energy management programme. Supplier relationships Many of our electrical products are sourced through major This year as part of our sustainability review we will be monitoring international brands, which have their own strong ethical and progress on our carbon footprint reduction and the key performance environmental policies in place. indicators we use to encourage change across the business. We will be reviewing our carbon management plan to see how it can provide The Group operates an Ethical Sourcing Policy based on the Social even more positive impacts in the future. Accountability 8000 criteria. Suppliers of our own brand products are audited prior to selection and rated on a traffic light basis. Energy management Once approved they remain subject to regular checks and audits. We continue to work on reducing our environmental impact and Green status on an audit indicates that a supplier meets or exceeds improve energy efficiency in our operations. As part of our ongoing all our standards. Amber status indicates that some of the standards energy reduction programme, over the last 12 months we have rolled required have not been met. Red status means that some significant out our energy reduction initiatives programme to a further 93 UK failures were identified against our Ethical Sourcing Policy standards. stores, reducing average consumption by over 15%, as well as at our UK head office. We have also continued to replace older lighting Our own brand product supplier audits are carried out with a view to systems with low energy light fittings which reduce energy use. assisting our suppliers in improving their working practices. We work This year we began installing smart energy management systems with factories where failures have been identified to improve their in all our stores, allowing us to remotely monitor and reduce our UK working practices. Where this is not possible or no improvements energy still further. are made, they will not be approved as a supplier, or will be delisted as appropriate. Over 11,000 UK Dixons Retail store colleagues have undergone energy awareness training to help them better control and reduce The results of ethical supply chain audits carried out during the their energy usage. Over the next 12 months we intend to roll out period under review are detailed below: more energy reduction and efficiency programmes, as well as reviewing and trialling several sustainable technologies in our Performance Indicators 2011/12 2010/11 stores and offices. Green 0 0 Amber 90 136 Red 51 75 Total factories audited 141 211 Delisted / Not approved 26 72

40 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 41 Directors’ Report Performance Review

Corporate Responsibility Report (continued)

Waste management We value and respect each colleague and endeavour to engage In addition to being good for the environment, managing waste in the their talents and abilities to the fullest extent. We want to be most efficient way is an opportunity for our business. Due to our work recognised as an employer of choice and aim to reward colleagues on recycling, we have been shortlisted for Retail Recycler of the Year, fairly, to provide equality of opportunity, personal development and and been nominated in the Green Business Awards 2012. We are training. Our culture supports the discovery of new and better ways pleased to report that during the year under review we recycled more of working, two-way communication and the speedy resolution of Waste Electrical and Electronic Equipment (WEEE) and generated any concerns or queries. more dry mixed recyclate than the previous year. We also recognise the need to have effective leaders in place to At Dixons Retail, we take seriously our responsibility for the electrical support our competitive edge and support colleagues. We take products that we place on the market, especially when consumers our responsibilities seriously and our leaders are engaged and no longer require their hardware. In accordance with the WEEE focused on delivery of the Customer Plan, which will make Regulations, we provide an in-store take-back service to the public. Dixons Retail better for customers, easier for colleagues and We also collect and recycle old equipment, free of charge, from our cost effective to operate. customers’ homes whilst delivering new products. We review regularly our benefits offering to colleagues to ensure Waste recycled as a percentage of total waste† these are attractive and conducive to the recruitment and retention 2011/12 2010/11 of talented people. Through a range of share plans, we encourage UK 65% 73% all colleagues to build a personal stake in the business. Nordics 95% 91% At Dixons Retail, we work to achieve high standards in employment †Not including WEEE. practices. We have a comprehensive suite of employment policies and procedures, which we review regularly to ensure we set out our Transport and distribution responsibilities and obligations to our colleagues clearly to remain Keeping our stores stocked with the thousands of products commercially focused and compliant with legislation in the UK. we sell, and delivering to our customers’ homes, means our fleet These policies include guidance on family friendly procedures of commercial vehicles is constantly transporting products around through to colleague dispute management and, of course, diversity the country. The Group seeks to reduce the environmental impact and equal opportunities. of delivering its products by efficient route planning to avoid unnecessary mileage, using rail freight where appropriate, increasing The Group’s policy on equal opportunities clearly demonstrates vehicle load and making use of empty vehicles on return journeys. our total commitment to prevent any form of discrimination in This year has seen a new fleet introduced in both our retail fleet and the workplace. To that extent, we promote an open and honest home delivery fleet. This has led to an increase in our miles per gallon environment and encourage colleagues with concerns to report and a reduction in the CO2 produced per vehicle. issues to us either directly through line managers or via the independent and confidential integrity line. Fleet carbon emissions Employee diversity Tonnes of CO2 produced 2011/12 2010/11 Colleague diversity in terms of age, gender and ethnicity remains UK home delivery fleet 8,660 7,830 a key performance indicator of ours and we report on these below: UK retail fleet 15,278 15,088

Nordics delivery fleet 11,775 11,267 2011/12 2010/11 Total 35,713 34,185 Female 32% 28% Male 68% 72% Workplace Full-time 58% 65% Our colleagues Part-time 42% 35% At Dixons Retail, we believe that our people are at the heart Ethnic minority/non-national 18% 26%† of our business and they are the key to delivering excellent customer service. We recognise the importance of listening to Aged over 50 8% 11% our colleagues as they are the face of our business and truly †Data for those countries within the Group that are either required by law or have voluntarily understand our customers and what they want from our company. recorded this information. Therefore, we want them to flourish and we are committed to providing them with development opportunities to reach their potential.

42 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 43 Training and development Health and Safety: employee accidents and injuries In the UK our personal and career development processes are 2011/12 2010/11 designed to ensure all our people have the skills to meet the Number of accidents or injuries reported 869 1016 requirements of their roles and to thereby contribute to our Customer Rate of accidents per 1,000 employees 42 53 Plan. All colleagues on joining the business attend Go Live, the Group induction programme, and are assigned a unique training Data for UK and Ireland.

plan for their role. Our learning options include face to face and Performance Review e-Learning, all deployed via our learning management system – Community The Edge. Our store colleagues have all been trained in FIVES, Community involvement our bespoke sales training programme, and have received further Our fundraising programme, Switched on Communities, continues training on service under our Knowhow™ brand. Each person the theme of improving access to technology for disadvantaged has a personal appraisal and development plan, including an and disabled children, while encouraging colleagues to engage assessment of their performance together with their line manager with their local communities by supporting local charities. Under the on at least a bi-annual basis. programme our Knowhow™ Distribution and Repair Centre have, through fundraising activities, raised over £24,000 for various local Employee communications and national charities. Dixons in the UK has a comprehensive engagement programme which is underpinned by a full colleague survey. Our people are our The Group continues to support Lifelites and the e-Learning brand, so it is important to us to hear the voice of our colleagues Foundation, who work locally with colleagues to support their and keep them engaged in the development of our business through fundraising efforts. In the year ahead, the Group intends to review its executive blogs and employee forums. We continue to keep the charitable programmes to better align its objectives with colleagues’ customer at the heart of the business by constantly engaging charitable choices. colleagues. We bring life to technology through regular supplier events and continuously improving our multiple communication Colleagues are encouraged to support charities of their choice streams, which include regular town hall meetings, online open and are invited to apply for a grant from The DSG international discussions, sharing of best practice and regular Q&A sessions Foundation (the Foundation), the Group’s registered charitable directly with the Chief Executive UK & Ireland. trust, to support their fundraising activities, subject to certain criteria. The charitable donations made by the Foundation in 2011/12 Health and Safety were £5,000 (2010/11 £5,000). It is the policy of the Group to comply with relevant Health and Safety and Fire Safety legislation and take all reasonably practicable steps In the Nordics the Elkjøp Group raised a total of NOK 5.8 million to ensure the health, safety and welfare of all employees, visitors and in support of the Norwegian Red Cross for their project Water for members of the public who are or may be affected by our activities. Life. This was through a combination of fundraising activities by colleagues and donations by the Elkjøp Group. Dixons Retail engenders a positive health and safety culture throughout the business, taking measures to maintain a safe Key performance indicators environment for our customers and colleagues. A comprehensive The performance criteria reported above are largely focused on safety management system is operated throughout the business to the Group’s UK & Ireland and Northern European businesses which ensure legislative requirements and best practice are adhered to. represent 79% of Group turnover in the period. The Committee recognises that it needs to work towards extending the use and Throughout the past year we have reviewed health and safety monitoring of these performance criteria throughout the rest of standards across the Group and concentrated on reducing the Group, with a view to improving the reporting of the Group’s high risk/high cost accidents. This has culminated in reducing corporate responsibility efforts going forward. employee accidents in the UK by 14% and a reduction of 21% in the rate per thousand employees. We anticipate that continued root cause analysis of accidents and focused action plans are expected to see a further significant reduction in accidents in the coming year. Health and Safety performance is reviewed by the Committee quarterly. The Group Health and Safety Policy is reviewed and approved by the Board annually and was last reviewed in May 2012 Humphrey Singer and signed by the Group Chief Executive. Executive Director with responsibility for Corporate Responsibility

42 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 43 Directors’ Report Corporate Governance

Board of Directors

1 2 3

4 5 6

7 8 9

At 21 June 2012 Committee Membership Audit Nominations Remuneration John Allan ü† ü Rita Clifton ü ü ü Prof. Dr. Utho Creusen ü ü ü Tim How ü ü ü† Jock Lennox ü† ü ü Dharmash Mistry ü ü ü †Denotes the chair of the committee

44 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 45 1 John Allan CBE, Chairman 6 Jock Lennox, Independent Non-Executive Director John Allan (63) joined the Board on 23 June 2009 and was appointed Jock Lennox (55) joined the Board on 10 January 2012. He is chairman Chairman on 2 September 2009. He is chairman of the Nominations of the Audit Committee and is also a member of the Nominations and Committee and a member of the Remuneration Committee. He is also the Remuneration Committees. Jock is a Chartered Accountant and has chairman of WorldPay Limited and Care UK Health & Social Care Holdings extensive accounting and finance experience having worked for over Limited and senior advisor to Deutsche Bank UK and Alix Partners. He is 30 years for Ernst & Young (20 years as a partner) where he led a number a non-executive member of the Home Office Supervisory Board, chairman of relationships with international clients and held a number of leadership of the DHL UK Foundation and a regent of the University of Edinburgh. positions in the UK and globally. Jock retired from Ernst & Young in 2009 He was previously chief executive of Exel plc and, following its acquisition by and subsequently has acted as a non-executive director of a number of Deutsche Post, a member of its management board and subsequently chief companies and was until recently a council member of the Institute of financial officer of Deutsche Post. Prior to this, he was a director of BET Plc. Chartered Accountants of Scotland. He is currently a trustee of the Tall Ships His early career was with Lever Brothers, Bristol-Myers Company Ltd and Youth Trust and non-executive director and chairman of the Audit Committee Fine Fare Ltd. He has extensive board experience having been chairman of A&J Mucklow Group plc, Enquest plc, Hill and Smith Holdings plc and of Samsonite Corporation and a non-executive director of PHS Group plc, Oxford Instruments plc. ISS A/S, National Grid plc, Wolseley plc, Hamleys plc, 3i plc and Connell plc. He has also served on the supervisory boards of both Lufthansa AG and 7 Rita Clifton, Independent Non-Executive Director Deutsche Postbank. Rita Clifton (54) joined the Board on 1 September 2003. She is a member of the Audit, Nominations and Remuneration Committees. She is chairman 2 Sebastian James, Group Chief Executive of Interbrand UK Limited, Populus Limited and TCV social enterprise group, Sebastian James (46) joined the Board on 20 February 2012. Sebastian non-executive director of Bupa, president of the Market Research Society, joined the Group in April 2008 and held various roles before his appointment director of Henley Festival Limited, visiting professor at Henley Management

to the Board including Group Operations Director. He is chairman of INK College, trustee of the WWF and member of the Assurance and Advisory Corporate Governance Publishing (Holdings) Limited. Prior to joining the Group he was chief Board of BP’s carbon offset programme. She was formerly vice chairman and executive of Synergy Insurance Services Limited, a private equity backed executive planning director at Saatchi and Saatchi. She has had a successful insurance company. He has wide retail experience and was strategy director 18 year advertising career with both Saatchi and Saatchi and J Walter responsible for developing and implementing the turnaround strategy at Thompson. She was previously a non-executive director of Emap plc and Mothercare plc in 2003. He started his career at The Boston Consulting a member of the Government’s Sustainable Development Commission. Group having completed an MBA at INSEAD and an MA at Oxford University. 8 Prof. Dr. Utho Creusen, Independent Non-Executive Director 3 Humphrey Singer, Group Finance Director Utho Creusen (56) joined the Board on 1 February 2010. He is a member Humphrey Singer (46) joined the Board on 1 July 2011. Humphrey joined of the Audit, Nominations and Remuneration Committees. He is owner Dixons Retail in 2007. He has held various finance roles since then, including of Positive Leadership (a management consultancy) and co-owner of finance director of Currys, group financial controller and finance director Grid-International, non-executive director of M.Video (the leading Russian of the UK & Ireland division. Prior to joining Dixons Retail, Humphrey was electronic retailer), chairman of the Jury of the European Retail Institute, finance director of Coca Cola Enterprises (UK) Ltd and prior to that also held vice-president of Modern Market-Methods Association in Germany, advisor a number of finance roles at Coca Cola Enterprises (UK) Ltd and Cadbury to Boston Consulting Group, and honorary professor at both Westfälische Schweppes plc. Wilhelms-Universität Münster and the Catholic University, Eichstätt-Ingolstadt. He has extensive international retail experience and was previously human 4 Katie Bickerstaffe, Chief Executive UK & Ireland resources director of Media-Saturn Holding GmbH (an electronics retail chain) Katie Bickerstaffe (45) joined the Board on 20 February 2012. She joined the and co-owner of Alpha tecc (the German consumer electronics chain). Group as director of marketing, people and property in June 2008. In addition He spent 22 years with OBI AG, a leading European DIY retailer, where to her executive position she is also a non-executive director of Scottish he rose to become a member of its executive board and chairman of OBI and Southern Energy plc. Previously, Katie was managing director of Kwik Franchise GmbH. Save Ltd and group retail director and group HR director at Somerfield plc. Her earlier career included roles at Dyson Ltd, PepsiCo Inc. and Unilever PLC. 9 Dharmash Mistry, Independent Non-Executive Director Dharmash Mistry (41) joined the Board on 27 September 2010. He is a 5 Tim How, Senior Independent Director member of the Audit, Nominations and Remuneration Committees. He is Tim How (61) joined the Board on 8 September 2009. He took on the role a partner at Balderton Capital Management (UK) LLP, investor director and of Senior Independent Director on 9 May 2012 and he is chairman of the board member of MOG, eWise, KupiVIP.ru, Achica Limited and non-executive Remuneration Committee and a member of both the Audit and Nominations director of Hargreaves Landsdown plc. He was formerly investor director Committees. He is chairman of Rayner and Keeler Limited and Woburn and board member of Sulake (Habbo Hotel), my-wardrobe.com and a board Enterprises Limited, non-executive director of Henderson Group plc, Downing director of Lovefilm. Prior to joining Balderton Capital, he was part of the Income VCT 4 plc and Peabody Capital plc, director of Enotria Group Ltd, executive team at Emap plc, as group managing director of Emap Consumer Wine and Spirit Education Trust and a governor of the Peabody Trust. He was Media and Emap Performance. Prior to this, he was at Boston Consulting formerly chief executive of Majestic Wine plc, where he led the management Group and started his career as a brand manager at Procter & Gamble. buy-out of the business and subsequent Alternative Investment Market (AIM) flotation. Prior to this, Tim How was managing director of Bejam Group plc.

44 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 45 Directors’ Report Corporate Governance

Chairman’s Introduction “In 2011/12 our first externally John Allan facilitated Board effectiveness review was undertaken.”

It has been a busy year in the Corporate Governance world, one in The Board believes that it has the right management team in which corporate governance and executive pay issues have been at place to move the business forward. As such the Remuneration the forefront of public attention. Your Board keeps itself fully abreast Committee has worked hard on designing this year’s remuneration of developments and, where they consider appropriate, apply them strategy in order to incentivise and motivate the new management to the running of the Group in order to adopt best practice in the team to deliver the Group’s priorities. The decision was taken to work fields of corporate governance and executive pay. within the current long term incentive plans already in place and, for this year only, a one off award of 200% of salary will be made under Effective governance is at the core of any well run business and at the Performance Share Plan and also a grant of options under the Dixons Retail, we strive to embed governance principles in the day Executive Share Option Plan. We have consulted with our major to day operation of the business. The non-executive directors work shareholders in finalising this year’s long term incentive proposals in partnership with the executive in the spirit of collaboration. We and have taken on board input provided. More information on this believe governance is not just about compliance, but how we work can be found in the Remuneration Report. together to challenge, interrogate and support each other to ensure effective decision making and implementation, leadership and The Board welcomes the recommendations of the Davies Report on accountability in all aspects of our business. gender diversity and is committed to developing a diverse workforce and equal opportunity for all. We are absolutely committed to It has been a year of change for the Board. After almost nine years opportunity and diversity in the Boardroom and senior management Andrew Lynch stepped down from the Board on 9 May 2012. team. However, we are not supportive of specific quotas, preferring We were pleased to announce that his role as Chairman of the instead to make appointments based on merit. During the year we Audit Committee would be taken by Jock Lennox. Jock was a senior have appointed an additional female director, Katie Bickerstaffe, and audit partner at Ernst & Young (EY) where he led a number of major currently the Board has two female directors (22%) and 25% of its multinational client relationships, reporting to and advising the boards senior management are women. on a range of complex audits, financial restructurings and corporate transactions. Jock held a number of leadership positions at EY in The Board engaged the services of Independent Board Evaluation the UK and globally. Jock retired from EY in 2009, since then he to lead our first externally facilitated Board effectiveness review. The has been chairing the Audit Committees of a number of UK listed review was performed in a spirit of openness with the directors being companies. Jock, therefore, has the recent and relevant financial fully engaged in the process. The Board has been pleased with the experience to perform this role and from which the Group will benefit. results and in particular, that its corporate governance practices were seen to be a strength. Some improvements were also identified, In addition to the changes above, John Browett, as Chief Executive, many of which we have already begun to address. More details and Nicholas Cadbury, as Group Finance Director, both left during can be found on page 50. the year. It is a testament to the strength and breadth of talent within the business that both replacements, Sebastian James and We are committed to effective shareholder communication. Humphrey Singer, were promoted from within the Group, as was the A key aspect of this is the Annual General Meeting (AGM) which third executive director appointed during the year, Katie Bickerstaffe. will again be held at the Holiday Inn London-Bloomsbury, on These internal appointments have enabled continuity of leadership. 6 September. This meeting enables us to answer any questions In the light of the Board changes outlined above, we have identified you may have on strategy or how we have run the Group during the the need to refocus our attention on succession planning in order to year. In line with the Code, all of the Directors will again be offering secure and develop the future leaders of the Group. themselves for re-election or election at the meeting and the Board has no hesitation in recommending their election.

John Allan Chairman

46 Dixons Retail plc Annual Report and Accounts 2011/2012 Statutory Information

The directors present their report and audited financial statements Subject to the Company’s Memorandum and Articles of Association, for the 52 week period ended 28 April 2012. the Companies Acts and any directions given by the Company by special resolution, the business of the Company will be managed The Business Review, which provides a comprehensive review by the Board, who may exercise all the powers of the Company, of the development, performance and future prospects of the whether relating to the management of the business of the Company Group’s operations for the 52 weeks ended 28 April 2012, or not. The matters reserved for the Board are detailed in a specific includes the following: schedule, details of which are reviewed annually and provided in the Business Overview, including principal activities; Corporate Governance Report. Strategic Summary; Performance Review, including Corporate Responsibility Report; and Directors’ responsibilities The directors’ responsibilities for the financial statements contained Corporate Governance. within this Annual Report and the directors’ confirmations required These sections are incorporated by reference and are deemed under Disclosure and Transparency Rule 4.1.12 are set out on page 67. to form part of this report. Employees and employee share schemes Changes in composition of the Group A commentary on the Group’s role as an employer is included As announced in the 2010/11 Annual Report, all 34 stores and in the Corporate Responsibility Report and details of employee online operations of PC City Spain were closed or transferred to involvement through share participation are contained in the third parties during the year with the last store closing in June 2011. Remuneration Report. Corporate Governance Post balance sheet events Details of the Group’s employee share plans and long-term incentive Particulars of any important events affecting the Group since plans are contained in the Remuneration Report and note 25 to the 28 April 2012 are described in note 32 to the Financial Statements. Financial Statements. Directors Share capital The names, biographies and dates of appointment of the Board The Company’s only class of share is ordinary shares. The authorised of directors are provided on page 45. and issued share capital of the Company, together with any shares issued during the period are set out in note 23 to the Financial In line with best practice and the UK Corporate Governance Code Statements. The voting rights of all Dixons Retail plc shares are (the Code), all directors will retire and offer themselves for re-election identical, with each share carrying the right to one vote. holds no at the 2012 AGM. The Remuneration Report on pages 60 and 61 shares in Treasury and did not make any market Dixons Retail plc provides details of applicable service agreements for executive purchases of its own shares during the period under review. directors and terms of appointment for non-executive directors. The Board is satisfied that each director is qualified for reappointment Restrictions on transfer of securities of the Company by virtue of their skills, experience and contribution to the Board. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions During the year, no director had any material interest in any contract of the Articles of Association and prevailing legislation. The directors of significance to the Group’s business. Their interests, including are not aware of any agreements between holders of the Company’s those of any connected persons, in the shares of the Company are shares that may result in restrictions on the transfer of securities or outlined in sections (IV), (VIII) and (IX) of the Remuneration Report. on voting rights.

With regard to the appointment and replacement of directors, No person has any special rights of control over the Company’s the Company is governed by its Articles of Association, the Code, share capital and all issued shares are fully paid. the Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. Change of control – significant agreements The Company does not have any significant agreements which In accordance with the Company’s Articles of Association and to the contain change of control clauses other than for its borrowings. extent permitted by law, the Company may indemnify its directors Further details are disclosed in note 17 to the Financial Statements. out of its own funds to cover liabilities incurred as a result of their office. The Group has purchased directors’ and officers’ liability In addition, provisions under the rules of the Company’s share insurance cover for any claim brought against directors or officers incentive schemes may cause options and awards granted under for wrongful acts in connection with their positions. The insurance these schemes to vest and become exercisable in the event of a provided does not extend to claims arising from fraud or dishonesty. change of control.

Annual Report and Accounts 2011/12 Dixons Retail plc 47 Directors’ Report Corporate Governance

Statutory Information (continued)

Major shareholders Going concern As at 20 June 2012, the Company has been notified in accordance In considering the going concern basis for preparing the financial with the Financial Service Authority’s Disclosure and Transparency statements, the directors have considered the Company’s objectives Rules, of the following interests in the voting rights of the Company: and strategy, risks and uncertainties in achieving its objectives and its review of business performance which are all set out in the Direct / indirect No. of shares % Business Overview, Strategic Summary and Performance Review Schroders Plc Indirect 487,888,849 13.51% sections of this Annual Report and Accounts. The Group’s liquidity and funding arrangements are described in notes 17 and 22(f) UBS Global Asset Direct and Management Indirect 400,763,593 11.10% to the financial statements as well as in the funding section of the Performance Review and the directors consider that the Group has Tameside MBC Greater Manchester Pension Fund Direct 256,990,933 7.12% significant covenant and liquidity headroom in its borrowing facilities for the foreseeable future. Direct and Standard Life Investments Ltd Indirect 244,603,053 6.78% Accordingly, after reviewing the Company’s expenditure commitments, Invesco Limited Indirect 180,788,477 5.00% current financial projections and expected future cash flows, together Letko, Brosseau & Associates Inc. Indirect 179,918,108 4.98% with the available cash resources and undrawn committed borrowing Capital Research & facilities, the directors have considered that adequate resources Management Company Indirect 175,071,032 4.85% exist for the Company to continue in operational existence for the Skagen AS Direct 148,902,954 4.12% foreseeable future. Accordingly, the directors continue to adopt Norges Bank Direct 144,441,267 4.00% the going concern basis in preparing the financial statements. Legal & General Group Plc Direct 115,471,857 3.19% Corporate governance compliance Capital Group International, Inc. Indirect 108,285,949 3.00% The statement on compliance with the Financial Reporting Council’s Issue of shares UK Corporate Governance Code (the Code) for the reporting period is contained on page 49 of this report. At the 2011 AGM, shareholders approved a resolution to give the directors authority to allot shares up to an aggregate nominal value of Audit information £30,085,950. The directors have no present intention to issue ordinary So far as each person who is a director at the date of approving shares, other than obligations under employee share schemes. This this report is aware, there is no relevant audit information, being resolution remains valid until the conclusion of this year’s AGM when information needed by the auditors in connection with their report, a resolution will be proposed to renew the authority. of which the auditors are unaware. Having made enquiries of fellow Related party transactions directors, each director has taken all the steps that he / she is obliged to take as a director in order to make himself / herself aware Details of related party transactions undertaken during the year of any relevant audit information and to establish that the auditors are are contained in note 31 to the Financial Statements. aware of that information. This information is given and should be Political and charitable donations interpreted in accordance with the provisions of Section 418 of the The Group engages in various charitable activities as set out in Companies Act 2006. the Corporate Responsibility Report on page 43. During the period Auditors under review, the Group made donations of £657,000 (2010/11 Deloitte LLP have expressed their willingness to be reappointed £211,000) to local charities serving the communities in which the as auditors of the Company. Upon the recommendation of the Group operates. Audit Committee, resolutions to reappoint them as auditors and At the 2011 AGM, the shareholders of the Company adopted a to authorise the directors to determine their remuneration will be resolution authorising the Board to incur political expenditure up proposed at the forthcoming AGM. to an aggregate amount not exceeding £25,000 during 2011/12. Notwithstanding this, the Company made no political donations Annual General Meeting during the period (2010/11 £nil). The Company has no present The AGM will be held on 6 September 2012 at Holiday Inn London intention to make political donations but a resolution will be – Bloomsbury, Coram Street, Russell Square, London WC1N 1HT presented to the 2012 AGM to renew this authority. at 10.30am. The Notice of Meeting, together with full details of the business to be conducted, are included as a separate document. Payment of suppliers It is the Group’s policy to agree terms of payment with its suppliers on a case by case basis prior to commencing trade with them. Payments are made in accordance with these terms provided the supplier has complied with relevant contractual obligations. Helen Grantham Trade creditors as at 28 April 2012 represent 54 days of annual Company Secretary purchases made during the period (30 April 2011 53 days). 21 June 2012

48 Dixons Retail plc Annual Report and Accounts 2011/12 Corporate Governance Report John Allan

Corporate Governance Report approval of major capital expenditure, material acquisitions and The Board confirms that during the 52 weeks ended 28 April 2012, divestments and material contracts; and and as at the date of this Annual Report, the Company has been appointment and remuneration of the external auditors on the in compliance with the Code, which applied to the Company recommendation of the Audit Committee. for the first time this financial year. This report together with the Statutory Information, the Audit Committee Report, the Nominations Helen Grantham, the Company Secretary and General Counsel, Committee Report, and the Remuneration Report provides details acts as Secretary to the Board and its Committees. She is also of how the Company has applied the principles and complied with responsible for ensuring that correct Board procedures are followed the provisions of the Code. and advises the Board on legal and corporate governance matters. All directors have access to the advice and services of the Company The Board Secretary and may also take independent professional advice As at 28 April 2012, the Board of Directors was made up of ten at the expense of the Company in furtherance of their duties. members, comprising the Chairman, three executive directors and The appointment and removal of the Company Secretary is six non-executive directors. Since that date, Andrew Lynch has one of the matters reserved for the Board. resigned from the Board on 9 May 2012, as previously announced. The Board has reconfirmed that all the non-executive directors Board attendance continue to be considered as independent and each brings their The Board held a separate strategy day in addition to meeting on own senior level of experience. The Board has especially considered 12 occasions during the year under review, nine of which were the independence of Rita Clifton who has been on the Board for just scheduled Board meetings and three were ad-hoc meetings to

under nine years at the date of this report and has concluded that approve specific matters. Due to the ad-hoc board meetings being Corporate Governance she continues to be independent in character and judgement. called at short notice, not all directors were able to attend, and the The Chairman was deemed to be independent on appointment. table below shows attendance at scheduled Board meetings only during the 52 weeks ended 28 April 2012. The division of responsibility between the Chairman and the Group Chief Executive is formally defined, set out in writing and reviewed Member Attendance by the Board on a regular basis. The Chairman is responsible for John Allan 9 of 9 the overall operation, leadership and governance of the Board. Sebastian James(1) 2 of 2 The Group Chief Executive is responsible for the executive (2) management of the Group’s business and for implementing Humphrey Singer 7 of 7 the Group’s strategic and commercial objectives. Katie Bickerstaffe(1) (7) 1 of 2 Rita Clifton 9 of 9 Andrew Lynch performed the role of Senior Independent Director during the period under review and until his resignation on 9 May Prof. Dr. Utho Creusen 9 of 9 2012, at which point Tim How took over the role. As such Tim Tim How 9 of 9 How now supports the Chairman and is available for approach or Dharmash Mistry 9 of 9 representation from shareholders who feel they are unable to raise Jock Lennox(3) 3 of 3 issues with the Chairman directly. The Senior Independent Director Former directors also discusses, on an individual basis, the performance of the (4) Chairman with each director and provides feedback on these John Browett 7 of 7 discussions to the Chairman. The role of the Senior Independent Nicholas Cadbury(5) 3 of 3 Director is clearly defined and set out in writing. Andrew Lynch(6) (8) 8 of 9 (1) appointed to the Board 20 February 2012 The Board has a formal schedule of matters reserved for its decision. (2) appointed to the Board 1 July 2011 This schedule was reviewed during the year and includes, but is not (3) appointed to the Board 10 January 2012 limited to: (4) resigned from the Board on 20 February 2012 (5) resigned from the Board on 1 September 2011  approval of Group strategy and the annual budget; (6) resigned from the Board on 9 May 2012 overseeing the Group’s operations and review of its performance; (7) Katie Bickerstaffe was unable to attend one Board meeting due to a prior commitment made before her appointment. changes relating to the Company’s share capital or (8) Andrew Lynch was unable to attend one Board meeting due to a prior commitment. corporate structure; communications with shareholders including approval of the Interim Committees of the Board Statement, Annual Report and Accounts (including the review The Board has three main committees: Audit, Nominations and of critical accounting policies and judgements and assessment Remuneration. Individual reports on the work of these committees of going concern) and other major public announcements; and their membership and attendance are set out on pages 52 to 66. maintainance and monitoring the Group’s system of internal control and risk management;

Annual Report and Accounts 2011/12 Dixons Retail plc 49 Directors’ Report Corporate Governance

Corporate Governance Report (continued)

Dixons Retail is dependent on its senior management to operate its areas of improvement such as Board materials (including presentation business and execute its strategies. Dixons Retail has a decentralised and volume of papers) and succession planning. Since the review, management structure with many high-level management decisions the Group has implemented some new guidelines in the production delegated to regional or country management. of board papers and has begun to use an electronic board portal. Further improvements will be made in the coming year. Board information and development The Chairman is responsible for ensuring that all directors are Certain aspects of evaluation continued to be done internally. properly briefed on issues arising at Board meetings and that they Each committee performed a self evaluation of its performance have full and timely access to relevant information. The quality and on the basis of a detailed questionnaire relating to the areas of supply of information provided to the Board is reviewed as part responsibility for that particular committee and provided feedback of the Board evaluation exercise. The Chairman also holds regular to the Board. Key issues and action areas were then reported to, meetings with the non-executive directors without the executive and monitored by, the Board. directors being present to discuss, amongst other matters, corporate strategy, business performance and the performance of the Authorisation of conflicts of interest executive team. There is frequent contact between directors outside The Company has procedures in place to identify, authorise and formal meetings to progress the Group’s business and to promote manage conflicts of interest and these procedures have operated open communication and team working. effectively during the year. Authorisation of conflicts is handled by the Board and the Audit Committee reviews them on an annual basis. The Board holds meetings at a variety of Group business locations A register of directors’ conflicts is maintained. to help all Board members gain a deeper understanding of the business. This also provides senior management from across the Internal control Group with the opportunity to present to the Board as well as to The Board has overall responsibility for the Group’s system of internal meet the directors on more informal occasions. All directors are control and for reviewing its effectiveness, whilst senior management encouraged to attend external seminars relevant to the retail industry is responsible and accountable for internal control and effective risk and corporate governance matters in order to refresh and update management at an operational level. their knowledge. The Board also receives bi-monthly updates on legal and corporate governance matters. The Board confirms that the Group has established and maintained a process for identifying, evaluating and managing the significant New directors appointed to the Board receive a tailored induction risks faced by the Group and this has been in place throughout the programme together with guidance and training as appropriate 52 weeks ended 28 April 2012, up to the date of approval of the to their level of previous experience. Each director is given the financial statements, and accords with the Turnbull guidance and the opportunity to meet with the members of senior management Code. This process is designed to manage rather than eliminate the and store colleagues, and to visit the Group’s sites both in the UK risk of failure to achieve business objectives and can only provide and overseas in order to familiarise themselves with the Group’s reasonable, but not absolute assurance against material businesses and the markets in which they operate. New directors misstatement or loss. are also encouraged to meet with the Group’s auditors and other advisors. Certain of the Board’s responsibilities have been delegated to the Audit Committee, which has reviewed the effectiveness of the Board evaluation system of internal control (including material financial, operational During the year, in accordance with the Code, the Board undertook and compliance controls) and risk management for the year under its first externally facilitated performance evaluation. The external review. The Audit Committee has ensured that any required remedial evaluation was carried out by Independent Board Evaluation, who action has or is being taken. This has included regular reporting have no other connection to the Company, and it included the and presentations from PIXmania management on the progress in performance of the Board, its committees and of individual directors. resolving historical issues arising from weaknesses in controls over The process was that each director, and certain members of the supplier receivables. The system of internal control and the process senior management team, were interviewed in depth by Independent for managing risk include the following elements: Board Evaluation without other Board members present. Two Board meetings were observed, John Browett’s final Board meeting Discussion and approval by the Board of the Group’s strategic and the first meeting following Sebastian James’s appointment. direction, plans and objectives, and the risks to achieving them; A number of committee meetings were also attended. The review’s The Board and management committees meet regularly to monitor findings were then discussed with the Chairman prior to being progress against the targets set out in the Group’s budget and presented to the Board. strategic five year plan; The defined levels of authority established by the Board ensure The results of the evaluation were well received by the Directors. that significant decisions are taken at an appropriate level, Certain strengths were identified such as corporate governance supported by a group wide delegation of authority process; practices and relationships with shareholders, in addition to several

50 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 51 Each business function has established procedures and controls Whistleblowing policy to minimise the risk of fraud and to safeguard the Group’s assets; The Group operates a whistleblowing policy and has a confidential Policies, procedures and governance structures to ensure capital helpline operated by a third party. This can be used to report, investment is appropriately approved and subsequently monitored; anonymously if so wished, on matters of concern to employees. Policies, controls and procedures have been established over the This can range from unethical behaviour, such as fraud, to practices security of data held on, and functionality provided by, the Group’s that might endanger the health of customers and colleagues. business systems. These include disaster recovery arrangements; Business continuity plan; Bribery Act The Bribery Act came into force on 1 July 2011. As a result, the The Group appoints individuals who are of a calibre to enable them Group has reviewed and enhanced its policies and procedures to to discharge the duties and responsibilities of the roles assigned help prevent individuals associated with the Group from committing to them to minimise operational risk; acts of bribery. These policies and procedures include training for The Group has implemented appropriate strategies to deal with individuals to ensure awareness of acts that might be construed as each significant risk that has been identified. These strategies contravening the new regulations. The Group’s Anti-Bribery Policy include insurance, treasury policies and operational framework, is included on the Investors section of the corporate website. and common standards of internal control; All employees in subsidiaries within the Group have the opportunity Relations with shareholders to make confidential disclosures about suspected impropriety or The Company is committed to effective communication with all of wrongdoing to a hotline run and monitored by a third party; its members, whether institutional investors, private or employee

Policies and procedures covering financial reporting; shareholders. The Company reports formally to shareholders when Corporate Governance Local management at each business unit and in those functions its full year and half year results are published. These results are of the Group requiring greater overview have responsibility for posted on the investor section of the Company’s corporate website. identification and evaluation of significant risks to their business Regular trading updates are also posted on the corporate website areas together with design of mitigating controls; and in addition to RNS announcements and other press releases made by the Company. In accordance with the Listing Rules, formal The Company Code of Ethics. notification of the Company’s AGM is sent to shareholders at least 20 The Group’s approach to managing risk is reviewed regularly working days in advance of the meeting. The directors, including the to identify ways in which it can be improved. respective Chairmen of the Audit, Remuneration and Nominations Committees, are available for questions formally during the AGM There are clear processes for monitoring the system of internal control and informally afterwards. The AGM of the Company is due to take and reporting any significant corrective control weaknesses, together place on 6 September 2012 at the Holiday Inn London - Bloomsbury, with corrective action. These include reports to the Audit Committee Coram Street, London WC1N 1HT. Further details of the AGM are from assurance providers, periodic certification from business units, set out in the Notice of Meeting accompanying this Annual Report. reviews by Group and regional management, whistleblowing facilities and independent assurance from both internal and external audit. Effective two-way communication with institutional investors, The latter of these are described in more detail below. brokers and analysts is established through regular presentations and meetings in the UK and overseas, usually by the Group Chief Executive, Internal audit Group Finance Director and Investor Relations & Corporate Affairs The Internal Audit department is fully independent of business Director. The Chairman holds occasional meetings with major operations and has a group-wide mandate. Its work is driven by shareholders to discuss matters of mutual interest including corporate a risk-based methodology ensuring that the controls to mitigate strategy and governance. Where appropriate, the Chairman of the the Group’s key risks are audited on a regular basis. Third parties Remuneration Committee communicates with major shareholders may be engaged to support audit work as appropriate. Its plans to canvass opinion when deciding remuneration policy. The Senior are approved by the Audit Committee, which also receives reports Independent Director and the other non-executive directors are also on its findings and progress of related actions at each meeting. available to attend meetings with major shareholders if requested. The department also works with the businesses to promote and Matters arising from these presentations and meetings are further develop effective risk management within their operations. communicated to the Board. The Board receives an investor relations The Group Director for Internal Audit and Risk Management report at each of its scheduled meetings, as well as a detailed annual attends all Audit Committee meetings. review of the perception of the Company amongst stakeholders. External auditors The external auditors provide further independent observations of certain elements of the internal financial controls as part of their audit of the financial statements. Their findings are presented to the Audit John Allan Committee with updates on progress against the recommendations Chairman being made throughout the year. 21 June 2012

50 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 51 Directors’ Report Corporate Governance

Audit Committee Report “Our Audit Committee monitors Jock Lennox and reviews the Company’s risk and financial management and its systems of internal control.”

Audit Committee Role Reports to the Dixons Retail plc Board The Committee assists the Board to fulfil its oversight Main Objective: To assist the Board in fulfilling its obligations related responsibilities. Its primary functions are to: to the Company’s financial management and reporting and internal monitor the integrity of the financial statements and any formal control systems. announcements relating to the Group’s financial performance; review critical accounting policies and financial reporting Chairman: Jock Lennox judgements; Number of meetings: 4 review the integrity of the Group’s system of internal control

Member Attendance and risk management; Jock Lennox(1) 1 of 1 monitor and review the effectiveness of the Group’s internal audit function; Rita Clifton 4 of 4 review and approve the annual audit plan of both the internal Prof. Dr. Utho Creusen 4 of 4 and external audit functions including principal areas of focus; Tim How 4 of 4 review the Group’s risk and insurance programmes; Dharmash Mistry 4 of 4 carry out an annual assessment of the external auditors, review and Former director monitor their independence and objectivity taking into consideration Andrew Lynch(2) 4 of 4 relevant UK professional and regulatory requirements, assess the effectiveness of the external audit process, approve the external (1) Appointed 10 January 2012 and appointed Chairman of Audit Committee 9 May 2012 (2) Resigned as a Director and Chairman of Audit Committee 9 May 2012 auditors’ remuneration and terms of engagement and make recommendations in respect of their reappointment or removal; Membership and meetings review the directors’ conflicts of interest register and to agree any amendments to previously approved conflicts; During the year under review the Committee comprised of Andrew Lynch (as Chairman) (resigned 9 May 2012), Rita Clifton, Prof. Dr. Utho review regularly the Group’s policy and quantum in respect of the Creusen, Tim How, Dharmash Mistry and Jock Lennox (appointed supply of non-audit services by the external auditors, such that as Committee member on 10 January 2012 and Chairman on relevant ethical guidance regarding the provision of non-audit 9 May 2012), all of whom are independent non-executive directors. services, when taken as a proportion of the audit fee, is considered The remaining members served throughout the period under review. in addition to the nature of such services in order to preserve the external auditors’ independence and objectivity; and The biographical details of the current members of the Committee monitor the results and effectiveness of arrangements under are set out on page 45. The Board is satisfied that the Chairman which employees can raise in confidence issues of concern of the Committee meets the requirement for recent and relevant relating to financial matters and internal controls. financial experience. The Company Secretary and General Counsel acts as Secretary to the Committee. The terms of reference for the Committee are reviewed annually by the Committee and then by the Board. A copy of the terms The Committee met on four occasions during the period, and the of reference is available on the Group’s corporate website. members’ attendance record is shown above. The Committee’s deliberations are reported by its Chairman to the following Board Attendance at meetings meeting and the minutes of each meeting are circulated to all The Chairman of the Board, Group Chief Executive, Group Finance members of the Board. Director, Group Financial Controller, Group Chief Accountant and Head of Tax, Director of Internal Audit and Risk, Company Secretary and General Counsel, Deputy Company Secretary and external auditors were invited by the Chairman of the Committee to attend meetings during the year. The Group Treasurer also attended some meetings at the Committee’s request. Each time the Committee convenes, it meets with external auditors without the presence of management.

In undertaking its duties, the Committee has access to the services of the Group Finance Director and the Company Secretary and General Counsel, as well as access to external professional advice.

52 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 53 Key matters considered External auditors During the period, the Committee reviewed the following: The Committee, having considered the policies and procedures Significant issues arising from reports of both the internal and applied by the Group and the internal policies and representations of external audits; Deloitte LLP, including the regular rotation of audit partner, remains Systems and controls in place at PIXmania following the identification satisfied with the auditors’ objectivity and independence and the in prior years of historical under-estimated purchase accruals; the effectiveness of the audit process. Accordingly, the Committee has PIXmania Finance Director attended a meeting to personally brief recommended to the Board that a resolution for their reappointment the Committee on the improvement plan and progress made, which be proposed at the AGM. is being closely monitored by Group Finance and Internal Audit; The policies and procedures and related training developed in response to the Bribery Act 2011; Progress towards achievement of PCI (Payment Card Industry) Jock Lennox Standard compliance; Chairman of the Audit Committee The working capital position of the Group and the management 21 June 2012 of its cash flow; The approach to developing risk management and the proposed plan of action for the year; Monitoring compliance activity in relation to the terms of the Group’s financing; Corporate Governance The carrying value of certain assets in the Group, including goodwill; Tax matters, including the approach to the Senior Accounting Officer sign off; A review of the Committee’s performance and terms of reference; The effectiveness and resources of Internal Audit; Developments in corporate governance; The annual audit fee, which is set out in note 3 to the Financial Statements, with due regard to the balance between audit and non-audit fees and the policy for approval of non-audit fees paid to the Group’s auditors; A review of the Group’s policy on the use of the auditors for non-audit services; A review of the Board Chairman’s expenses; and A review of the annual calendar and meeting agenda.

An external review of the Committee was undertaken during the period as part of the main externally facilitated review of the Board.

Policy on the use of the auditors for non-audit services The Audit Committee has approved a policy for the use of external auditors for non-audit purposes. The policy requires that the auditors should not be asked to perform any other services, unless a specific reason exists for why they should perform such work, such as a statutory requirement, for confidentiality reasons or for their historical knowledge. The policy specifically excludes the external auditors from performing services which would impair their independence or put them in a position where they would be auditing their own work, such as bookkeeping or internal audit.

52 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 53 Directors’ Report Corporate Governance

Nominations Committee Report “ We have a formal rigorous and John Allan transparent process for the appointment of new directors which was followed during the year.”

Nominations Committee Role Reports to the Dixons Retail plc Board The principal duties of the Committee are to: Main Objective: To monitor the size and composition of the Board Review the structure, size and composition of the Board and its and its committees and ensure a formal, rigorous and transparent principal Committees and to recommend changes as necessary; procedure for the appointment of new directors and to plan Review the leadership needs of the organisation, both executive for succession. and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively; Chairman: John Allan Number of Meetings: 5 Be responsible for the succession planning for Board members, in particular the Chairman and the Group Chief Executive; Member Attendance Identify, evaluate and nominate candidates to fill vacancies John Allan 5 of 5 on the Board; and Rita Clifton 5 of 5 Make recommendations to the Board regarding the continuation Utho Creusen 5 of 5 in office of a director upon the expiry of any specified terms of appointment. Tim How 5 of 5 Dharmash Mistry 4 of 5 The terms of reference for the Committee are reviewed annually Jock Lennox(1) 3 of 3 by the Committee and are available on the Corporate Governance Former director section of the Group’s website. (2) Andrew Lynch 5 of 5 Key matters considered (1) Appointed 10 January 2012 During the year, the principal matters considered by the Committee (2) Resigned 9 May 2012 were as follows: The appointment of Humphrey Singer, Sebastian James and Membership and process Katie Bickerstaffe as executive directors and the appointment During the year under review the Committee comprised of of Jock Lennox as non-executive director to the Board; John Allan (as Chairman), Rita Clifton, Prof. Dr. Utho Creusen, Consideration of the succession planning process for the directors Tim How, Dharmash Mistry, Andrew Lynch (resigned 9 May 2012) following the Board changes that had taken place during the year; and Jock Lennox (appointed 10 January 2012), all of whom are An evaluation of the size, composition and structure of the Board non-executive directors. The remaining members served throughout and its Committees; and the period under review. A review of the Committee’s performance and terms of reference. The biographical details of the members of the Committee are The Nominations Committee keeps itself up to date on best practice set out on page 45. The Company Secretary and General Counsel through a combination of private research in addition to briefing acts as Secretary to the Committee. by internal and external advisors on key developments relevant The Committee met on five occasions during the period and to the Company. the members’ attendance record at meetings is shown above. Appointments to the Board The Committee’s deliberations are reported by its chairman to The Committee has a formal, rigorous and transparent procedure the following Board meeting and the minutes of each meeting for the appointment of new directors to the Board which it followed are circulated to all members of the Board. in relation to director appointments during the year. It is the policy of the Committee that appointments are made on merit, against objective criteria and with due regard for the benefits of diversity and the leadership needs of the Company. For the executive appointments made during the year, the Committee met to identify any potential internal candidates through the use of external evaluations and benchmarking. They were satisfied that the candidates were suitable against objective criteria for appointment to the Board.

54 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 55 With regard to the appointment of Jock Lennox as non-executive Re-election director, the Committee engaged the services of the Zygos The Company has determined that in line with its previous practice Partnership, an independent firm specialising in non-executive and in accordance with the UK Corporate Governance Code, all recruitment, who were asked to assist with the search for a suitable directors should seek election or re-election at the 2012 AGM. candidate as against a summary of requirements for the candidate Each of the directors being proposed for election or re-election are which was put together by the Committee in conjunction with the being unanimously recommended by the other members of the Chairman. A formal and objective process then took place which Board. This recommendation was considered appropriate due involved the potential candidate meeting with the Chairman and to the directors’ individual experience and knowledge and wider the Board, suitable references being obtained and an objective management and industry experience. The annual performance assessment of the candidates’ skills and experience which evaluation concluded that each director continued to be effective are matched with the needs of the business. and committed to their role and the independent non-executive directors were re-affirmed by the Board to be independent in The Board and the Nominations Committee were mindful of the fact character and judgement. that the Board had comprised certain long-serving directors and reviewed its succession planning with the progressive refreshing The executive directors’ service contracts and non-executive of the Board in mind. As part of this programme on 9 May 2012, directors’ letters of appointment are available for inspection by Andrew Lynch retired from the Board having served just under prior arrangement, during normal business hours, at the Company’s nine years as a director and was replaced by Jock Lennox. registered office. They will also be available for inspection at the venue, prior to the AGM, details of which are contained in the

Terms of reference Notice of Meeting. Corporate Governance The terms of reference of the Nominations Committee were reviewed during the year and re-approved. Whilst the Committee is responsible for succession planning in relation to directors of the Board it continues to be Company policy that succession planning for senior executives (other than Board members) be dealt with by John Allan the Board as a whole. Chairman of the Nominations Committee 21 June 2012 Diversity The Board acknowledges the Davies Report on Women on Boards, and recognises the importance of diversity, including, but not restricted to, gender diversity on the Board and in its senior management team. The Board recognises the important role that diversity plays in achieving the right mix of skills, knowledge and experience in order to help the organisation reach its potential. However, the Board is not supportive of specific quotas, believing that individuals should be appointed on merit. The Board is, however, committed to increasing boardroom and senior management diversity as suitable candidates present themselves for appointment. The Committee monitors gender diversity and currently 22% (two out of nine) of the Company’s Board are female and 25% of the Group’s senior management team are women.

54 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 55 Directors’ Report Corporate Governance

Remuneration Report “Our remuneration policy aims Tim How to attract and retain executive directors who are adequately and appropriately incentivised to deliver our business objectives.”

Remuneration Committee Membership and attendance Reports to the Dixons Retail plc Board The membership of the Committee currently comprises the five Main objective: To determine and agree remuneration policy for independent non-executive directors and the Chairman of the executive directors and senior management and to monitor and Company. Their biographies and qualifications are set out on page report on it. 45. Jock Lennox joined the Committee upon his appointment to the Board on 10 January 2012 and following the year end Andrew Chairman: Tim How Lynch left the Committee on 9 May 2012 when he resigned from the Number of meetings: 6 Board. The remaining members served throughout the period under review. In line with the Code, the Chairman is a member of the Member Attendance Committee but is not its Chairman; the Committee Chairman is Tim How 6 of 6 Tim How. The Committee’s terms of reference are shown on the John Allan 6 of 6 Investors section of the corporate website. The Committee met six Rita Clifton 6 of 6 times during the period; the members’ attendance record is shown Prof. Dr. Utho Creusen 6 of 6 in the table opposite. Any additional matters between scheduled Jock Lennox(1) 3 of 3 meetings that require consideration are dealt with either at ad-hoc meetings or through discussions with the Chairman and other Dharmash Mistry 5 of 6 members of the Committee. Former Director Andrew Lynch(2) 6 of 6 The Group Chief Executive, the Group Finance Director and the (1) Appointed: 10 January 2012 Chief Executive UK & Ireland attended meetings of the Committee (2) Resigned: 9 May 2012 by invitation and in an advisory capacity only. Meetings are also attended by the Company Secretary and General Counsel (who acts This report has been prepared in accordance with the Companies as Committee Secretary) and by the Head of Group Reward. Act 2006, Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 (Schedule 8) No executive participates in discussions about their own remuneration. and the Listing Rules of the Financial Services Authority. This report is divided into two sections: Advice The Committee keeps itself fully informed with best practice in the ■■Remuneration policy (not subject to audit) and as set out in field of executive remuneration and it seeks advice from internal sections (I) to (V) which details the role of the Committee, the and external advisors as appropriate. principles of remuneration and other matters; and ■■Remuneration review (audited) and as set out in sections (VI) to (X) The Committee has retained the services of New Bridge Street which details directors’ and former directors’ emoluments, share (NBS), a subsidiary of Aon Hewitt Limited, as their external advisor awards, share options and pension arrangements. throughout the year. Fees paid to NBS were £64,000 (2010/11: £60,000) both of which represent a full year’s appointment. The purpose of this report is to inform shareholders of the NBS provided no other services to the Company. Company’s policies on directors’ remuneration for the financial period ended 28 April 2012 and so far as practicable, the policy for (II) Remuneration principles subsequent years; and to provide details of the remuneration of The Company’s remuneration policy is designed to attract and individual directors as determined by the Remuneration Committee. retain an appropriate level of executive leadership capability at Shareholders will be asked to approve the report at the AGM on executive director and senior management level. The Group’s 6 September 2012. incentive policy is designed to adequately incentivise management to achieve the Company’s strategic objectives. With the Remuneration policy (not subject to audit) appointment of three new executive directors since the last annual report, their retention and ensuring that they are motivated to drive the business forward, is a priority for the Company and is important (I) Role of the Remuneration Committee in delivering shareholder value and company performance. Our Role remuneration policy has necessarily been adjusted to reflect this. The Board has delegated to the Remuneration Committee In developing its policy the Committee has regard to: responsibility for determining policy in relation to the remuneration ■■The performance, roles and responsibilities of each individual director; packages for directors and senior management. This delegation ■■Arrangements which apply below senior management level, includes the terms and conditions of employment of each of the including average base salary increases; executive directors and other senior management in addition to the operation of the Group’s share-based employee incentive schemes. ■■Information and surveys from internal and independent sources; and ■■The economic environment and financial performance of the Group.

56 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 57 The Committee acknowledges the ABI and NAPF remuneration In order to encourage superior performance, these awards will have guidance and believes that whilst benchmarking is a useful tool a face value of 200% of salary for the PSP and 75% of salary for the for establishing a point of reference for like salaries available in ESOP. Whilst this compares to just PSP awards in 2011/12 with a face the marketplace, it does not simply use this information to apply a value of 100%, the awards will be subject to stringent performance median to its salary recommendations. Competitor benchmarking conditions and are designed to drive performance and improvements has not been used this year when reviewing salaries for executive in shareholder value. directors but it has been used in some cases where roles and responsibilities have changed significantly. The Committee is also Cash bonus mindful of the potential multiplying effect that increasing base For the cash bonus earned in 2012/13, there will be no change in salaries can have on overall remuneration packages. the existing bonus potential for the executive directors which shall remain 100% of salary for the Group Chief Executive and 85% of Remuneration objectives in respect of executive directors salary for the Group Finance Director and Chief Executive UK The objectives of the remuneration policy are to: & Ireland. The bonus paid will depend upon underlying Group ■■facilitate the building and retention of a high calibre and focused operating profit (55% of bonus), Group Free Cash Flow (25% of team which will work effectively to achieve the Group’s longer bonus) and achievement of measureable personal objectives (20% term strategic objectives; of bonus). Bonus targets for 2012/13 have been set at levels using ■■ensure that the remuneration structure motivates the directors benchmarks that reflect both internal business objectives and and senior management to succeed and appropriately rewards external expectations and the Committee is satisfied that the targets them for their contribution to the attainment of the Group’s short are sufficiently challenging relative to company performance in

and long term results; 2011/12 and are also satisfied that the targets will not encourage Corporate Governance irresponsible behaviour. The Committee has for the first time this ■■maintain, via an appropriate level of base salary and incentive year included a clawback in its cash bonus and will include such structure, a competitive package of pay and benefits which a clause in its future share scheme arrangements. provides the motivation for future achievement; ■■align the directors’ interests with those of shareholders by offering participation in reward schemes which provide PSP award opportunities to build shareholdings in the Company; and The 200% of salary award under the PSP will vest based on share ■■avoid reward for failure. price performance as outlined in the table below and subject to the the EPS underpin referred to below: 2012/13 Performance Related Remuneration Policy Percentage of Introduction Share price award to vest In formulating the remuneration strategy for 2012/13 the 25p 25% Remuneration Committee is cognisant of the recent organisational 25p – 35p 25% – 100% restructure at Board level. There has been a new executive director 35p 100% team during the financial year, alongside reorganised management teams below Board level. In order to drive performance over the The total number of shares capable of vesting will be determined medium term the Remuneration Committee will again be offering at the end of the three year performance period. If up to 75% of a cash bonus, the payment of which will be subject to stretching the award is deemed to vest then the shares will be issued to performance targets. However, the Remuneration Committee is the participants following determination. If more than 75% of the aware of the need to ensure that the executives are appropriately award vests, then there will be a partial vesting of 75% following ‘locked in’ and incentivised to deliver a step change in the determination and anything over 75% will be released on the Company’s earnings and share price performance. fourth anniversary of the award subject to continued employment. To achieve this the Remuneration Committee believes that For any part of the award to vest the EPS underpin will require the it is imperative that the long term incentive awards for 2012/13 average EPS growth of the Company to achieve RPI+5% per annum are simple, transparent and focused on absolute improvement over the performance period and the Remuneration Committee in the Company’s performance with suitable underpins. to consider that the financial performance of the Group supports Accordingly, for 2012/13 it is proposed that awards are made under vesting. In order to address the dilution effect of the share awards, the Performance Share Plan (PSP) and the Executive Share Option the number of shares awarded will be calculated with reference to Plan (ESOP) as a one-off exceptional award year. Both awards at a share price of 17.5p which is marginally above the three month executive director level will be subject to challenging performance average to the 19 June 2012. The percentage of awards that will targets which will deliver significant value to shareholders if met. vest will be determined with reference to a three month average share price to the end of the performance period.

56 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 57 Directors’ Report Corporate Governance

Remuneration Report (continued)

ESOP award base salaries across the Group are also taken into account when The 75% salary award under the ESOP will vest based on EPS determining any increase for the directors, although this may be performance for the 2014/15 financial year as follows: adjusted based on the assessed performance of the executive over the previous year in line with the Group’s performance review Percentage of EPS award to vest process. The potential multiplier effect of base salary increases is taken into consideration when making base salary adjustments. 2.5p 25% 2.5p – 3.5p 25% – 100% The Committee has approved an overall increase to base salaries 3.5p 100% across the whole UK workforce of 2% with individual increases varying between 1% and 4% based on individual performance. No option will be exercisable until the fifth anniversary of the date The Committee has decided that as the salaries for each of the of grant. executive directors remain appropriate and no increase is to be applied to the base salaries of any of the executive directors. As with the PSP award, the number of options granted will be Accordingly, the salary for the Group Chief Executive, the Group calculated with reference to a share price of 17.5p. Finance Director and the Chief Executive UK & Ireland are Guidelines of Responsible Investment Disclosure £600,000, £360,000 and £400,000, respectively. The salaries In line with the ABI Guidelines on Responsible Investment Disclosure, of the Group Chief Executive and Group Finance Director the Committee is satisfied that the incentive structure and targets are approximately 15% below those of their predecessors. shown above for executive directors do not raise any environmental, (b) Performance-related remuneration social or governance risks by inadvertently motivating irresponsible The performance-related elements of remuneration are designed or reckless behaviour. Details of prior awards made under these to drive Company performance and to strengthen the alignment plans to the executive directors and those made under the Group’s between the interests of the Company’s shareholders and its other share plans are shown later in this Report. senior management, whilst encouraging management retention. Pay Mix No aspect of performance-related remuneration is pensionable and The chart below shows the average mix of executive director pay the components of performance-related remuneration are as follows: under certain vesting scenarios, scenario 1 shows no vesting of cash bonus or long term incentives (PSP and ESOP) (LTI) awards, scenario (i) Annual cash bonus 2 shows the pay mix if 25% of the LTIs vest and 50% of the cash During 2011/12, performance-related remuneration for the current bonus and scenario 3 shows the pay mix on 100% vesting of the cash executive directors included an annual cash bonus plan based bonus and LTI awards. PSP awards have been included based on on the achievement of the Group’s targets (80%) and personal the face value of the award when granted, a notional gain in the share objectives (20%). All personal targets are set at the beginning of options has been determined based on a compound annual increase the year and they can relate to the achievement of either business in share price of 15% and 30% for scenarios 2 and 3, respectively. objectives or more general personal development targets. For 2011/12 the maximum potential bonus for the Group Chief Executive and the Group Finance Director (both from appointment) Breakdown of Package and, for the Chief Executive UK & Ireland was 100%, 85% and 85% % of Total of base salary respectively. The maximum potential bonus for the Scenario 1 100 Group targets, the percentage of maximum bonus paid, and the details of the performance achieved is set out below: Scenario 2 49 22 29 % maximum % bonus Scenario 3 bonus opportunity Achieved 21 19 60 opportunity paid £million Group underlying operating profit 55 21 115.1 Salary Bonus PSP & ESOP Adjusted Free Cash Flow* 25 25 72.2

*Comprises Free Cash Flow adjusted to exclude the proceeds from the sale of Jönköping. Remuneration Components 2011/12 Sebastian James, Humphrey Singer and Katie Bickerstaffe were (a) Fixed remuneration – base salary paid £23,077, £44,135 and £13,077, respectively in respect of their As a general policy the Remuneration Committee sets base salaries personal objectives. For 2011/12 therefore, cash bonuses were at a level sufficient to attract and retain executive directors with awarded to the Group Chief Executive, Group Finance Director and the appropriate experience and knowledge to drive the business the Chief Executive UK & Ireland of £79,419, £146,152 and £43,304, forward. Any salary that is offered is adjusted based on the respectively. The figures shown above for all directors are shown for individual executive’s experience, performance and value to the the period since appointment to the Board. When considering the business. This assessment takes into account external information bonus awards the Committee was satisfied that targets had been met. and advice provided to the Committee by NBS. Increases in

58 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 59 The former executive directors, John Browett and Nicholas Cadbury, Reward Sacrifice Scheme forfeited their annual bonus upon resignation and did not receive In 2009 certain executives were offered the choice to sacrifice part a payment in respect of this bonus scheme. of their salary for a share award. For every £1 of salary sacrificed a £3 face value of share options was received. The shares would (ii) Discretionary Share Plans vest after a three year retention period with no further performance Releases of shares to the directors under any of the following plans conditions. 60 executives decided to participate with 11,902,439 may be satisfied by shares held in the Group’s Employee Share share options being granted to the applicants at an exercise price Ownership Trust (the Trust), further details of which are shown in of 28.43p. Given the sacrifice of base salary necessary to participate note 24 to the Financial Statements. in this scheme, leavers are able to keep their share option award on leaving, with the number of options being pro-rated for the portion Performance Share Plan of the retention period for which they were employed. This rule The first grant was made under this scheme in December 2008. applied in the cases of John Browett and Nicholas Cadbury who In 2011/12 the Company awarded long term incentives solely left during the year. under the PSP, the rules of which permit awards to be made over shares worth up to 100% of salary per annum (200% of salary in Retention and Recruitment Share Plan exceptional circumstances). This share plan was primarily used as a retention tool with a grant being made in July 2008 to retain and motivate key executives PSP awards made to the directors in 2011/12 were subject to two below Board level at the time of grant, including Sebastian James, individual performance measures: Humphrey Singer and Katie Bickerstaffe. Those awards were not

subject to any performance criteria other than continued service Corporate Governance ■■50% of the award is subject to Total Shareholder Return (TSR) and they therefore vested in July 2011 and were released to performance relative to the constituents of the FTSE 250 Index participants. The awards were considered necessary to ensure that (comprising FTSE 101-350 companies, excluding investment these executives key to delivering the targets were appropriately trusts), at the start of the performance period. Full vesting will incentivised and ‘locked in’ for a three year period. Details relating occur for upper quartile performance reducing on a straight line to the release of those shares to the directors are shown in basis to 25% of this part of the award at median. No award vests section (viii). for below median performance; and ■■50% of the award is subject to the underlying diluted EPS of the The plan is now mainly used to recruit key individuals into the Company at the end of the performance period. 25% of this part of Company where they are losing the benefit of share options the award would vest for an EPS of 2p and full vesting would occur or awards from previous employers. In 2011/12 619,813 shares at an EPS of 4p with straight line vesting between the two results. (2010/11 749,211 shares) were awarded to four participants. Executive directors will not receive awards under this plan. In line with other employees of their management grade, and prior to joining the Board, Sebastian James and Katie Bickerstaffe Long Term Incentive Plan (LTIP) both received awards in 2011/12 with no performance conditions. Under the LTIP, participants were provisionally awarded shares These awards along with all other outstanding director share awards in the Company which vest after a three year vesting period, are shown in the table in section (VIII) of this report. subject to Remuneration Committee approval and satisfaction of performance conditions. The performance target for executive Executive Share Option Plan directors under this scheme required that the Company obtain at The Remuneration Committee approves the basis on which options least a median TSR ranking in a peer comparator group as detailed are granted to executive directors and other employees under the in section (VIII). At median performance 25% of the award would vest Company’s discretionary share option schemes. and 100% would vest for upper quartile performance with straight line vesting in between. Prior to 2011/12 options were granted annually to the executive directors under the ESOP. The plan permits making an award with The last grant made under this scheme was in July 2008. This grant a market value on the date of grant of not more than 200% of the did not reach its performance target and therefore lapsed in full in recipient’s basic salary. However, in exceptional circumstances (for July 2011. There are no awards outstanding under this scheme and instance to facilitate recruitment or to retain key executives) this limit at the date of this report no further grants are expected to be made. can be exceeded. No share options were granted to executive directors under the ESOP in 2011/12. (iii) All Employee Share Plans Sharesave Plan (SAYE) Options are generally exercisable between three and ten years from Executive directors are also entitled to participate in the SAYE the date of grant, subject to the performance conditions being met. on the same basis as other employees. The Company will again The performance conditions applicable to the executive directors’ be inviting UK employees to participate in a SAYE grant in 2012. discretionary share options that remain unvested at 28 April 2012 During the year 2,518 employees applied to join the Company’s are shown in the table in section (IX). sharesave plan (2010/11 3,317) and options were granted over 22.1 million shares (2010/11 30.3 million).

58 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 59 Directors’ Report Corporate Governance

Remuneration Report (continued)

Outstanding performance criteria review – all schemes (c) Taxable benefits The status of the provisional awards and options under the Each of the executive directors receives a cash payment in lieu of a outstanding share plans are reviewed regularly and at the last company car and is a member of the non-contributory Dixons Retail review in June 2012, the status of the awards and options as medical expenses plan which provides benefits similar to those at 28 April 2012 was as follows: applicable in comparable companies. Further information on taxable Period in benefits relating to senior management is given in note 31 to the which Award Financial Statements. provisional if status award made Scheme Outcome of test Status maintained 2009/10 PSP TSR below median lapsed† No award (d) Pensions and related benefits All current executive directors are members of the defined contribution 2010/11 PSP TSR below median No award section of the Company’s pension scheme (“pensionbuilder”). 2011/12 PSP TSR below median No award The Company’s contribution for each executive director is 20% up 2011/12 PSP EPS below target No award to the earnings cap (which is currently £137,400). The Company has 2009/10 ESOP EPS below target lapsed† No award agreed to provide each director with a salary supplement above 2010/11 ESOP EPS below target No award the earnings cap. Sebastian James, Humphrey Singer and Katie †Lapsing occurred subsequent to the year end following review by the Remuneration Bickerstaffe all have a 20% salary supplement for the remainder of Committee. their salary over and above the earnings cap. Transitional arrangements The full performance criteria relating to the current serving directors have been in place from a previous benefit package for Katie are shown in the footnotes to the tables in section (VIII) and (IX) or for Bickerstaffe and these are noted in more detail along with the amount 2011/12 in the narrative in section (II)b(ii). the Company has contributed in respect of pension for all of the executive directors in the main remuneration table in section (VI). At the end of the performance period for both the PSP and the ESOP, the awards will vest subject to the Committee determining (e) Service agreements that the performance conditions have been met. Such determination Sebastian James, Humphrey Singer and Katie Bickerstaffe have is made once EPS figures are known for the relevant financial year. service agreements with Dixons Retail plc which may be terminated There is no re-testing of performance conditions. All share at any time by 12 months’ notice by the Company and six months’ options lapse on the earlier of ten years from the date of grant or, notice by the Director. Service agreements contain neither a liquidated where performance conditions apply, on the date on which the damages nor a change of control clause. It is the Company’s policy to Remuneration Committee determines that the performance ensure that any payments made to a director in the event of the early conditions have not been met. termination of a service agreement reflect the circumstances giving rise to termination and, where considered appropriate, the obligation of Dilution the outgoing director to mitigate his loss. Accordingly, consideration is A combination of both newly issued shares and shares bought in the given to making compensation payments in instalments and payments market are to be used to satisfy awards under the Group’s employee being conditional on the leaver’s employment and earnings status. share incentive arrangements. The service agreements of the executive directors who served during The Remuneration Committee is aware of, and supports, the ABI the financial period were entered into on the following dates: guidelines regarding dilution and regularly monitors compliance Date with these requirements. The Remuneration Committee included provisions in the scheme rules adopted at the 2008 AGM which limit Sebastian James 29 Mar 2012 the number of newly issued shares which can be granted to 10% Humphrey Singer 2 Sep 2011 of the issued share capital in ten years under all of the Company’s Katie Bickerstaffe 29 Mar 2012 share schemes and 5% for the executive directors and senior Former directors management under discretionary share schemes. John Browett (resigned 20 February 2012) 6 Jun 2007 Nicholas Cadbury (resigned 1 September 2011) 13 Apr 2009 At the date of this report, the Company’s usage of shares against the limits detailed above in respect of all the Company’s share schemes The service agreements of the directors are available for inspection was 4.97% of the issued capital. This includes 1.61% in respect at the registered office of the Company during normal business of grants to executive directors and senior management under hours on each business day. discretionary share schemes. Shares relating to a portion of the potential obligations are held in the Trust for the benefit of participants (f) External directorships of the share schemes and, if required, it is the Committee’s intention Executive directors are permitted to accept non-executive to make purchases of shares. Any decision to do so will take into directorships in external companies and to retain the fees which account the number of awards vesting and those options to be they receive in such roles. No more than one non-executive satisfied either from the Trust or by new issue, together with the directorship in a FTSE350 company will be authorised for each likelihood of any performance targets being met and any potential director. Katie Bickerstaffe was appointed as a non-executive lapsing of awards when employees leave the Group.

60 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 61 director of Scottish and Southern Energy plc on 1 July 2011 and (IV) Directors’ share interests is paid a fee of £54,000 per annum. Sebastian James is Chairman The Company has a policy of encouraging directors to build of Ink Publishing (Holdings) Limited and is paid a fee of £12,000 shareholdings in the Company. Executive directors are required per annum. to retain 50% of the net of tax outturn from the vesting of future (g) Former Directors awards under the Company’s share plans until a shareholding with a minimum value equivalent to their base salary is achieved. John Browett was Chief Executive for the year under review until 20 February 2012 and Nicholas Cadbury was Group Finance Director Unrestricted beneficial and family interests 28 April 2012 30 April 2011† for the year under review until 1 September 2011. Their share awards Executive directors and options lapsed upon leaving apart from their reward sacrifice Sebastian James 109,072 109,072 options. Their share grants under this scheme were pro-rated Humphrey Singer 55,627 – based on the proportion of the vesting period they were employed Katie Bickerstaffe 171,789 171,789 by the Company. No payments were made to them on cessation of employment. Non-executive directors John Allan 921,428 271,428 (III) Non-executive directors Rita Clifton 63,190 24,903 Non-executive directors are normally appointed for three year Prof. Dr. Utho Creusen 97,071 97,071 terms, although appointments vary depending on length of service and succession planning considerations. Rita Clifton’s term of Tim How 80,000 80,000 appointment was extended by one year due to her length of service. Jock Lennox 75,000 –

Dharmash Mistry 173,626 – Corporate Governance Their current terms expire as follows: Former director Date Andrew Lynch (resigned 9 May 2012) 181,428 181,428 John Allan 2 Sep 2015 †Date of appointment if later. Prof. Dr. Utho Creusen 1 Feb 2016 Rita Clifton 1 Sep 2013 There were no changes in the directors’ restricted or unrestricted Tim How 7 Sep 2015 share interests between 28 April 2012 and the date of this report. In addition to the share interests disclosed above, John Allan holds Jock Lennox 10 Jan 2015 £528,000 6.125% 2012 Guaranteed Bonds (the 2012 Bonds) and Dharmash Mistry 26 Sep 2013 £556,000 8.75% 2015 Guaranteed Notes (the 2015 Notes) issued Former director by the Company. Andrew Lynch also holds £50,000 of the 2015 Andrew Lynch (resigned 9 May 2012) 24 May 2012 Notes. Full details of the 2012 Bonds and the 2015 Notes are shown in note 17 to the Financial Statements. Letters of appointment for the non-executive directors are available on application to the Company Secretary and will also be available (V) Total Shareholder Return (TSR) at the Company’s AGM. The remuneration of non-executive directors The graph below shows the Company’s performance measured is determined by the Board upon the recommendation of the Group by TSR on a holding of £100 in the Company’s shares over the Chief Executive and the Group Finance Director. The Chairman is five years since 28 April 2007 measured against the same amount not involved in the setting of his own salary which is dealt with by invested in the FTSE 250 Index (excluding investment trusts). the Remuneration Committee without his participation. The other points plotted are values at intervening financial year ends. John Allan’s fee is £259,000 per annum. The other non-executive This index has been selected as the Company’s most recent PSP directors receive a fee of £50,000 per annum or euro equivalent. award uses this index as its TSR comparator group.

The fee is reviewed annually and is due to be reviewed later in 2012. £ The chairmen of the Audit and Remuneration Committees receive 140

an additional fee of £10,000 per annum. Andrew Lynch was Senior 120 Independent Director for the year under review for which he received a further fee of £5,000 per annum. From 9 May 2012, following the 100

resignation of Andrew Lynch from the Board, Tim How accepted 80 the role of Senior Independent Director and will therefore receive this fee going forward. Non-executive directors derive no other benefits 60

from their office and are not eligible to participate in the Dixons Retail 40 pension scheme. It is company policy not to grant share options or share awards to non-executive directors or to require part of their 20

fees to be paid in the form of shares. 0 28 Apr 2007 3 May 2008 2 May 2009 1 May 2010 30 Apr 2011 28 Apr 2012

Dixons Retail plc FTSE 250

60 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 61 Directors’ Report Corporate Governance

Remuneration Report (continued)

Remuneration review (audited)

(VI) Directors’ remuneration The following table shows an analysis of the emoluments of individual directors:

2011/12 2010/11 Basic salary Pension Cash Taxable Basic salary Pension Taxable and fees contributions bonus benefits Total and fees contributions Cash bonus benefits Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Current directors Sebastian James(1) 114 23(3),(4) 79 2 218 ––––– Humphrey Singer(1) 264 52(3),(4) 146 11 473 ––––– Katie Bickerstaffe(1) 76 30(3),(4) 43 2 151 ––––– Former directors John Browett(1), (2) 561 180(5),(4) – 12 753 676 217(5) 122 15 1,030 Nicholas Cadbury(1) 137 38(3),(4) – 4 179 404 84(3) 62 14 564 1,152 323 268 31 1,774 1,080 301 184 29 1,594 Non-executive Current directors John Allan 258 – – – 258 253 – – – 253 Rita Clifton 50 – – – 50 49 – – – 49 Prof. Dr. Utho Creusen 50 – – – 50 49 – – – 49 Tim How 60 – – – 60 59 – – – 59 Jock Lennox(1) 15 – – – 15 ––––– Dharmash Mistry 50 – – – 50 29(1) – – – 29 Former directors Andrew Lynch(6) 65 – – – 65 64 – – – 64 548 – – – 548 503 – – – 503

1,700 323 268 31 2,322 1,583 301 184 29 2,097

(1) Basic salary and fees relate to periods in office as a directors. 2011/12 Sebastian James: 20 February 2012 to 28 April 2012, Humphrey Singer: 1 July 2011 to 28 April 2012, Katie Bickerstaffe: 20 February 2012 to 28 April 2012, Jock Lennox: 10 January 2012 to 28 April 2012, John Browett: 1 May 2011 to 20 February 2012, Nicholas Cadbury: 1 May 2011 to 1 September 2011. 2010/11 Dharmash Mistry 27 September 2010 to 30 April 2011. The annual salaries for the Group Chief Executive, the Group Finance Director and the Chief Executive UK & Ireland are £600,000, £360,000 and £400,000, respectively. (2) John Browett elected to take up the opportunity to sacrifice a portion of his salary under the Reward Sacrifice Scheme. For 2011/12 no amounts were sacrificed (2010/11 £116,000 making his base salary after the sacrificed amounts £560,000). (3) Pension contributions comprise the Company’s contribution together with an additional amount applied to the difference between basic salary and the scheme earnings cap set by the Company. This additional amount was 20% for Sebastian James, Humphrey Singer and Katie Bickerstaffe and 30% for Nicholas Cadbury. (4) A transitional arrangement from Katie Bickerstaffe’s previous pension arrangements of 30% above the scheme earnings cap to her new package as an executive director of 20% above the scheme earnings cap has been operating since her appointment. This arrangement resulted in compensating payments of £19,000. (5) John Browett’s pension contribution payable to him represented an amount calculated as a percentage (32.1%) of basic salary to fund his own retirement arrangements. (6) Andrew Lynch resigned with effect from 9 May 2012.

62 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 63 (VII) Directors’ pensions No directors accrued benefits under a defined benefit pension scheme. Nicholas Cadbury was a member of the defined benefit section of the UK pension scheme which was closed to future accrual on 30 April 2010. His accrued pension at his date of resignation on 1 September 2011 was £37,000 (2010/11 £37,000) and the transfer value of his accrued benefits was £322,000 (2010/11 £312,000), representing an increase of £10,000 from 30 April 2011.

Further details of the directors’ pension arrangement are shown in section (II)(d). (VIII) Directors’ LTIP, PSP and Reward Share awards The directors’ restricted beneficial interests shown in the table below represent the maximum number of shares which may vest under the LTIP, PSP or Retention and Recruitment Plan. Further details of the LTIP and PSP are described in section (II)(b)(ii), above.

Reference At Awarded Vested Lapsed At End of Market market 1 May in the in the in the 28 April performance Vesting price on price(1) 2011(2) period period period 2012 period date grant date Current directors Sebastian James PSP 2009/10(3), (5) 25.22p 237,906 – – – 237,906 Apr 2012 Jul 2012 24.75p (3), (6)

2010/11 27.59p 500,000 – – – 500,000 Apr 2013 Aug 2013 27.56p Corporate Governance 2011/12(3), (8) 15.99p 1,555,191 – – – 1,555,191 N/A Aug 2014 13.44p 2,293,097 – – – 2,293,097 Humphrey Singer LTIP 2008/09(3), (4) 38.50p 154,520 – – (154,520) – Apr 2011 Jul 2011 28.41p PSP 2011/12(7) 15.99p – 1,876,173 – – 1,876,173 May 2014 Aug 2014 13.44p Reward Shares 2008/09(9) 38.50p 115,889 – (115,889) – – N/A Jul 2011 28.41p 270,409 1,876,173 (115,889) (154,520) 1,876,173 Katie Bickerstaffe PSP 2009/10(3), (5) 25.22p 249,802 – – – 249,802 Apr 2012 Jul 2012 24.75p 2010/11(3), (6) 27.59p 405,406 – – – 405,406 Apr 2013 Aug 2013 27.56p 2011/12(3), (8) 15.99p 1,260,967 – – – 1,260,967 N/A Aug 2014 13.44p 1,916,175 – – – 1,916,175

62 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 63 Directors’ Report Corporate Governance

Remuneration Report (continued)

Reference At Awarded Vested Lapsed or At End of Market market 1 May in the in the forfeited in 28 April performance Vesting price on price(1) 2011(2) period period the period(10) 2012 period date grant date Former directors John Browett LTIP 2008/09(4) 38.50p 761,236 – – (761,236) – Apr 2011 Jul 2011 28.41p PSP 2009/10(5) 25.22p 664,155 – – (664,155) – Apr 2012 Jul 2012 24.75p 2010/11(6) 27.59p 1,914,286 – –(1,914,286) – Apr 2013 Aug 2013 27.56p 2011/12 (7) 15.99p – 4,252,971 –(4,252,971) – May 2014 Aug 2014 13.44p 3,339,677 4,252,971 –(7,592,648) –

Nicholas Cadbury LTIP 2008/09(4) 38.50p 204,511 – – (204,511) – Apr 2011 Jul 2011 28.41p PSP 2009/10(5) 25.22p 396,511 – – (396,511) – Apr 2012 Jul 2012 24.75p 2010/11(6) 27.59p 1,142,857 – – (1,142,857) – Apr 2013 Aug 2013 27.56p Reward Shares 2008/09(9) 38.50p 153,383 – – (153,383) – N/A Jul 2011 28.41p 1,897,262 – –(1,897,262) –

(1) The number of LTIP and PSP shares granted was usually calculated by reference to the share price averaged over a specified period prior to the date of the award. (2) Date of appointment, if later. (3) Award made prior to joining the Board. (4) The 2008/09 LTIP award failed to meet its performance condition and has therefore lapsed. (5) The 2009/10 PSP award was dependent on the Company’s TSR performance as outlined below over the three financial periods ended 1 May 2010, 30 April 2011 and 28 April 2012. Since 28 April 2012, the Remuneration Committee has reviewed this performance condition and has determined that it has not been met. Accordingly, these awards have now lapsed. For 2009/10 PSP awards the TSR performance is compared to that of a bespoke weighted index comprising UK and European retailers. This group comprised: Brown (N) Group, Carphone Warehouse Group, Debenhams, Game Group, Kesa Electricals, Kingfisher, Marks and Spencer Group, Metro Group, HMV Group, Home Retail Group, Inchcape, Signet Group, Praktiker, PPR, Sports Direct International, Tesco, Halfords, Next and WH Smith Group. All companies had equal weighting within the group other than Kesa Electricals and Metro Group, who have greater competitive relevance and therefore have double weighting. Under this condition full vesting occurs for performance equivalent to the upper quartile over the three-year performance period, reducing to 25% of an award vesting for performance equivalent to median (with no vesting below this level). Vesting between these targets will occur on a straight-line basis. (6) PSP awards made in 2010/11 were subject to TSR performance relative to the FTSE 250 Index (comprising FTSE 101-350 companies), excluding investment trusts, at the start of the performance period. Full vesting would occur for upper quartile performance with 25% vesting for median performance with straight line vesting between the two. No award vests for below median performance. Additionally, awards made to John Browett and Nicholas Cadbury who at the time were executive directors contained an EPS underpin requiring total EPS growth of RPI plus 2% per annum for the performance period. (7) PSP awards made in 2011/12 to Humphrey Singer and John Browett were subject to both TSR and EPS performance conditions (defined on page 59). (8) Awards made prior to joining the Board with no performance condition other than continued service during the three year vesting period. (9) Reward Shares were issued to participants on 4 July 2011 and the mid market value on the date of release was 15.80p. (10) Awards for the former directors were forfeited upon them ceasing to be employees.

64 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 65 (IX) Directors’ share options

At Awarded Lapsed or At Date from Expiry of Date of Exercise 1 May in the forfeited in 28 April which first the exercise grant price 2011(1) period the period(9) 2012 exercisable period Current directors Sebastian James Discretionary(2) 23 Jul 2009(4) 23.95p 1,189,532 – – 1,189,532 23 Jul 2012 22 Jul 2019 3 Aug 2010(8) 27.59p 3,000,000 – – 3,000,000 3 Aug 2013 2 Aug 2020 4,189,532 – – 4,189,532 Humphrey Singer Discretionary(2) 11 Jul 2008 27.63p 386,415 – – 386,415 11 Jul 2011 10 Jul 2018 23 Jul 2009(4) 23.95p 300,000 – – 300,000 23 Jul 2012 22 Jul 2019 3 Aug 2010(8) 27.59p 300,000 – – 300,000 3 Aug 2013 2 Aug 2020 Reward Sacrifice(5) 28 Sep 2009 28.43p 101,110 – – 101,110 28 Sep 2012 27 Sep 2019 Sharesave(2), (6) 24 Jul 2009 18.32p 24,768 – – 24,768 1 Oct 2012 31 Mar 2013 3 Aug 2010 20.23p 12,100 – – 12,100 1 Oct 2013 31 Mar 2014 22 Jul 2011 13.01p – 9,711 – 9,711 1 Oct 2014 31 Mar 2015 Corporate Governance 1,124,393 9,711 – 1,134,104 Katie Bickerstaffe Discretionary(2) 23 Jul 2009(4) 23.95p 1,249,009 – – 1,249,009 23 Jul 2012 22 Jul 2019 3 Aug 2010(8) 27.59p 2,432,434 – – 2,432,434 3 Aug 2013 2 Aug 2020 Reward Sacrifice(5) 28 Sep 2009 28.43p 299,762 – – 299,762 28 Sep 2012 27 Sep 2019 Sharesave(2), (6) 24 Jul 2009 18.32p 24,768 – – 24,768 1 Oct 2012 31 Mar 2013 3 Aug 2010 20.23p 12,100 – – 12,100 1 Oct 2013 31 Mar 2014 22 Jul 2011 13.01p – 9,711 – 9,711 1 Oct 2014 31 Mar 2015 4,018,073 9,711 – 4,027,784 Former directors John Browett Discretionary(2) 6 Dec 2007(3) 83.26p 1,561,372 – (1,561,372) – 6 Dec 2010 5 Dec 2017 11 Jul 2008(3) 27.63p 3,045,866 – (3,045,866) – 11 Jul 2011 10 Jul 2018 23 Jul 2009(4) 23.95p 2,656,622 – (2,656,622) – 23 Jul 2012 22 Jul 2019 3 Aug 2010(8) 27.59p 3,828,571 – (3,828,571) – 3 Aug 2013 2 Aug 2020 Reward Sacrifice(5) 28 Sep 2009 28.43p 1,992,466 – (664,156) 1,328,310(7) 28 Sep 2012 27 Sep 2019 Sharesave(2), (6) 24 Jul 2009 18.32p 24,768 – (24,768) – 1 Oct 2012 31 Mar 2013 3 Aug 2010 20.23p 12,100 – (12,100) – 1 Oct 2013 31 Mar 2014 22 Jul 2011 13.01p – 9,711 (9,711) – 1 Oct 2014 31 Mar 2015 13,121,765 9,711 (11,803,166) 1,328,310

64 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 65 Directors’ Report Corporate Governance

Remuneration Report (continued)

At Awarded Lapsed or At Date from Expiry of Date of Exercise 1 May in the forfeited in 28 April which first the exercise grant price 2011(1) period the period(9) 2012 exercisable period Nicholas Cadbury Discretionary(2) 23 Jul 2001 170.45p 35,200 – (35,200) – 23 Jul 2004 22 Jul 2011 22 Jul 2002 118.80p 60,605 – (60,605) – 22 Jul 2005 21 Jul 2012 11 Jul 2008 27.63p 767,148 – (767,148) – 11 Jul 2011 10 Jul 2018 14 Aug 2008(3) 41.84p 1,066,599 – (1,066,599) – 14 Aug 2011 13 Aug 2018 23 Jul 2009(4) 23.95p 1,586,043 – (1,586,043) – 23 Jul 2012 22 Jul 2019 3 Aug 2010(8) 27.59p 2,285,714 – (2,285,714) – 3 Aug 2013 2 Aug 2020 Reward Sacrifice(5) 28 Sep 2009 28.43p 475,813 – (317,209) 158,604(7) 28 Sep 2012 27 Sep 2019 Sharesave(2), (6) 24 Jul 2009 18.32p 24,768 – (24,768) – 1 Oct 2012 31 Mar 2013 3 Aug 2010 20.23p 12,100 – (12,100) – 1 Oct 2013 31 Mar 2014 6,313,990 – (6,155,386) 158,604

(1) Date of appointment, if later. (2) Discretionary and Sharesave options are granted for nil consideration. (3) Options granted on 6 December 2007 and 11 July 2008 for John Browett and 14 August 2008 for Nicholas Cadbury had EPS performance conditions for which the performance period ended 30 April 2011. Accordingly, these options have now lapsed. (4) Opt ions granted on 23 July 2009 have EPS performance conditions for which the performance period ended on 28 April 2012. Since that date, the Remuneration Committee has reviewed this performance condition and has determined that the conditions have not been met. Accordingly, these options have now lapsed. (5) The Reward Sacrifice Scheme was approved by shareholders at the 2009 AGM. Under this scheme the executive directors and certain members of senior management (including the current executive directors who were part of senior management at the time of grant) were given the opportunity to sacrifice a portion of their salary in return for receiving non-performance related market value share options of an ‘equivalent’ fair value to the sacrificed salary. (6) Options granted under the Sharesave Scheme are exercisable in the six month period following the date of maturity of the savings contracts which have terms of three years. (7) Reward Sacrifice shares were earned in proportion to the number of full year’s service completed during the three year period following the grant of these awards. Accordingly, upon resignation from the Board, John Browett had earned two thirds of his potential entitlement and Nicholas Cadbury had earned one third of his potential entitlement. (8) Opt ions granted on 3 August 2010 are subject to an EPS performance condition. 25% of the options vest for EPS in 2012/13 of 4p. 100% of the options vest for EPS in 2012/13 of 6p, options will vest on a straight line basis between 25% and 100% of the award. (9) Options for the former directors lapsed upon them ceasing to be employees, other than as set out in note 7 above.

The share price on 28 April 2012 was 18.04p and closing prices ranged between 9.36p and 19.91p during the year. (X) Former executive director Pursuant to an agreement dated 1 October 2002, Lord Kalms, the former Chairman, was appointed President of the Company for an initial period ending on 16 September 2012. He received £32,895 for his services as President during the year. His remuneration is subject to annual review in line with RPI. He was provided with benefits amounting to £35,647 comprising membership of the non-contributory Dixons Retail medical expenses plan and a car in addition to office facilities. He is not eligible to participate in discretionary share schemes or in any bonus arrangements.

Approved by the Board and signed on its behalf by

Tim How Chairman of the Remuneration Committee 21 June 2012

66 Dixons Retail plc Annual Report and Accounts 2011/12 Directors’ Responsibilities

The directors are responsible for preparing the Annual Report The directors are responsible for maintaining adequate accounting and the financial statements in accordance with applicable law and records and sufficient internal controls to safeguard the assets of regulations. English company law requires the directors to prepare the Company and to take reasonable steps for the prevention and financial statements for each financial year and under that law, the detection of fraud or any other irregularities and for the preparation directors have prepared the Group and the Company financial of a directors’ report and directors’ remuneration report which statements in accordance with International Financial Reporting comply with the requirements of the Companies Act 2006 and, Standards (IFRS) as adopted by the European Union. as regards the Group financial statements, Article 4 of the IAS Regulation. The directors are responsible for the maintenance and The financial statements are required by law to give a true and fair integrity of the corporate and financial information included on the view of the state of affairs of the Group and the Company and of the Company’s website. Legislation in the UK governing the preparation profit or loss of the Group for the period. In preparing the financial and dissemination of financial statements may differ from legislation statements, the directors are also required to: in other jurisdictions. ■■Properly select and apply accounting policies; ■■Present information, including accounting policies, in a manner Each of the directors confirm that to the best of their knowledge: that provides relevant, reliable, comparable and understandable ■■The Group and Company financial statements give a true and fair information; and view of the assets, liabilities, financial position and profit / (loss) of ■■Provide additional disclosures when compliance with the specific the Group and Company, respectively; and requirements of IFRS is insufficient to enable users to understand ■■The business and financial review contained in this Annual Report the impact of particular transactions, other events and conditions and Accounts includes a fair review of the development and on the financial position and financial performance. performance of the business and the position of the Group and Corporate Governance Company together with a description of the principal risks and In preparing both the Group and the Company financial statements, uncertainties they face. suitable accounting policies have been used and applied consistently, and reasonable and prudent judgements and estimates have been By Order of the Board made. Applicable accounting standards have been followed. The financial statements have been prepared on the going concern basis as disclosed in the Statutory Information section of the Directors’ Report and Business Review.

Sebastian James Humphrey Singer Group Chief Executive Group Finance Director 21 June 2012 21 June 2012

Annual Report and Accounts 2011/12 Dixons Retail plc 67 Financial Statements

Independent Auditor’s Report

We have audited the consolidated and the company financial IFRSs issued by the IASB statements of Dixons Retail plc for the 52 weeks ended 28 April 2012 As explained in notes 1.1 and C1 to the Group and Company which comprise the consolidated income statement, the consolidated financial statements, respectively, the Group and Company in statement of comprehensive income and expense, the consolidated addition to complying with its legal obligation to apply IFRSs as and company balance sheets, the consolidated and company adopted by the European Union, has also applied IFRSs as issued cash flow statements, the consolidated and company statement by the International Accounting Standards Board (IASB). In our of changes in equity and the related notes 1 to 32 and C1 to C16. opinion the financial statements comply with IFRSs as issued The financial reporting framework that has been applied in their by the IASB. preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as Other matters prescribed by the Companies Act 2006 regards the Company financial statements as applied in accordance In our opinion: with the provisions of the Companies Act 2006. ■■the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent This report is made solely to the Company’s members, as a body, with the financial statements; and in accordance with Chapter 3 of Part 16 of the Companies Act 2006. ■■the part of the Remuneration Report to be audited has been properly Our audit work has been undertaken so that we might state to the prepared in accordance with the Companies Act 2006. Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent Matters on which we are required to report by exception permitted by law, we do not accept or assume responsibility to We have nothing to report upon in respect of the following: anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we Under the Companies Act 2006 we are required to report to you if, have formed. in our opinion: Respective responsibilities of directors and auditors ■■adequate accounting records have not been kept by the Company, As explained more fully in the Statement of Directors’ Responsibilities, or returns adequate for our audit have not been received from the directors are responsible for the preparation of the financial branches visited by us; or statements and for being satisfied that they give a true and fair view. ■■the Company financial statements and the part of the Directors’ Our responsibility is to audit and express an opinion on the financial Remuneration Report to be audited are not in agreement with statements in accordance with applicable law and International the accounting records and returns; or Standards on Auditing (UK and Ireland). Those standards require ■■certain disclosures of directors’ remuneration specified by law us to comply with the Auditing Practices Board’s Ethical Standards are not made; or for Auditors. ■■we have not received all the information and explanations we require for our audit. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and Under the Listing Rules we are required to review: disclosures in the financial statements sufficient to give reasonable ■■the directors’ statement contained within the Directors’ Report assurance that the financial statements are free from material and Business Review in relation to going concern; misstatement, whether caused by fraud or error. This includes an ■■the part of the Corporate Governance Statement relating to assessment of: whether the accounting policies are appropriate the company’s compliance with the nine provisions of the UK to the Group’s and the Company’s circumstances and have been Corporate Governance Code specified for our review; and consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the ■■certain elements of the report to shareholders by the Board overall presentation of the financial statements. In addition, we read on directors’ remuneration. all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material inconsistencies, we consider the implications for our report. Nicola Mitchell FCA (Senior Statutory Auditor) Opinions for and on behalf of Deloitte LLP Financial statements Chartered Accountants and Statutory Auditor In our opinion the financial statements: London, United Kingdom ■■give a true and fair view of the state of the Group’s and of the 21 June 2012 Company’s affairs as at 28 April 2012 and of the Group’s loss for the 52 weeks then ended; ■■have been properly prepared in accordance with IFRSs as adopted by the European Union; and ■■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.

68 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 69 Consolidated Income Statement

52 weeks ended 28 April 2012 52 weeks ended 30 April 2011

Non-underlying* Non-underlying * Closed Closed Underlying* business** Other Total Underlying* business** Other Total Note £million £million £million £million £million £million £million £million Continuing operations

Revenue 2,3 8,186.7 6.5 – 8,193.2 8,154.4 187.4 – 8,341.8 Profit / (loss) from operations before associates 114.5 (2.8) (181.2) (69.5) 128.0 (7.7) (298.1) (177.8) Share of post-tax results of associates 12 0.6 – – 0.6 (0.4) – – (0.4)

Operating profit / (loss) 2,3 115.1 (2.8) (181.2) (68.9) 127.6 (7.7) (298.1) (178.2)

Finance income 57.2 – 6.3 63.5 58.9 – 12.5 71.4 Finance costs (101.5) (0.1) (11.8) (113.4) (101.2) (0.8) (15.3) (117.3)

Net finance costs 5 (44.3) (0.1) (5.5) (49.9) (42.3) (0.8) (2.8) (45.9)

Profit / (loss) before tax 70.8 (2.9) (186.7) (118.8) 85.3 (8.5) (300.9) (224.1)

Income tax (expense) / credit 7 (36.4) – (7.7) (44.1) (31.4) – 12.3 (19.1) Profit / (loss) after tax – continuing operations 34.4 (2.9) (194.4) (162.9) 53.9 (8.5) (288.6) (243.2) Loss after tax – discontinued operations 27 –––– – – (2.1) (2.1)

Profit / (loss) for the period 34.4 (2.9) (194.4) (162.9) 53.9 (8.5) (290.7) (245.3)

Attributable to: Equity shareholders of the parent company 41.3 (2.9) (192.7) (154.3) 58.8 (8.5) (289.3) (239.0) Non-controlling interests (6.9) – (1.7) (8.6) (4.9) – (1.4) (6.3) Financial Statements 34.4 (2.9) (194.4) (162.9) 53.9 (8.5) (290.7) (245.3)

Loss per share (pence) 8 Basic – total (4.3)p (6.6)p Diluted – total (4.3)p (6.6)p Basic – continuing operations (4.3)p (6.6)p Diluted – continuing operations (4.3)p (6.6)p Underlying earnings per share (pence) 1,8 Basic – continuing operations 1.1p 1.6p Diluted – continuing operations 1.1p 1.6p

Underlying profit and earnings per share measures exclude the trading results of closed businesses, amortisation of acquired intangibles, net restructuring and business impairment charges and * other one off, non-recurring items, fair value remeasurements of financial instruments and, where applicable, discontinued operations. Such excluded items are described as ‘Non-underlying’. Further information on these items is shown in notes 1, 4, 5, 7 and 27. Closed business relates to the operations of PC City Spain which were closed in June 2011. This closed business does not meet the definition of discontinued operations as stipulated by IFRS ** 5 and accordingly the disclosures within non-underlying items differ from those for applicable discontinued operations.

68 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 69 Financial Statements

Consolidated Statement of Comprehensive Income and Expense

52 weeks 52 weeks ended ended 28 April 2012 30 April 2011 Note £million £million Loss for the period (162.9) (245.3)

Actuarial (losses) / gains on defined benefit pension schemes – UK 21 (28.2) 13.1 – Overseas (1.9) (0.3) Cash flow hedges 22 Fair value remeasurement gains / (losses) 3.3 (8.0) Losses transferred to carrying amount of inventories 4.7 7.4 (Gains) / losses transferred to income statement (within cost of sales) (5.3) 6.7 Net investment hedges 22 Fair value remeasurement gains / (losses) 15.6 (4.9) Investments Fair value remeasurement (losses) / gains (0.1) 0.2 Tax on items taken directly to equity 1.0 (8.5) Currency translation movements (93.8) 31.7 Net (expense) / income recognised directly in equity (104.7) 37.4

Total comprehensive expense for the period (267.6) (207.9)

Attributable to: Equity shareholders of the parent company (257.2) (201.2) Non-controlling interests (10.4) (6.7) (267.6) (207.9)

70 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 71 Consolidated Balance Sheet

28 April 2012 30 April 2011 Note £million £million Non-current assets Goodwill 9 740.7 970.8 Intangible assets 10 98.1 113.1 Property, plant & equipment 11 480.4 583.7 Investments in associates 12 3.5 3.4 Trade and other receivables 14 23.6 49.6 Deferred tax assets 7 155.2 163.4 1,501.5 1,884.0 Current assets Inventories 13 874.2 960.9 Trade and other receivables 14 343.9 383.2 Income tax receivable 2.7 4.1 Short term investments 15 7.3 10.5 Cash and cash equivalents 16 316.8 334.7 1,544.9 1,693.4 Total assets 3,046.4 3,577.4

Current liabilities Bank overdrafts 17 (15.8) (5.6) Borrowings 17 (162.5) (130.0) Obligations under finance leases 18 (3.1) (3.1) Trade and other payables 19 (1,579.0) (1,644.2) Income tax payable (55.7) (48.5) Provisions 20 (18.6) (44.4) (1,834.7) (1,875.8) Net current liabilities (289.8) (182.4)

Non-current liabilities Borrowings 17 (147.8) (315.3) Obligations under finance leases 18 (98.9) (98.0) Retirement benefit obligations 21 (266.0) (247.3) Other payables 19 (255.2) (331.0) Deferred tax liabilities 7 (20.2) (17.6) Provisions 20 (19.6) (15.9) Financial Statements (807.7) (1,025.1) Total liabilities (2,642.4) (2,900.9) Net assets 404.0 676.5

Capital and reserves Called up share capital 23 90.3 90.3 Share premium account 169.5 169.5 Other reserves 23 (521.0) (537.7) Retained earnings 652.6 931.4

Equity attributable to equity holders of the parent company 391.4 653.5 Equity non-controlling interests 12.6 23.0 Total equity 404.0 676.5

The financial statements were approved by the directors on 21 June 2012 and signed on their behalf by:

Sebastian James Humphrey Singer Group Chief Executive Group Finance Director

70 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 71 Financial Statements

Consolidated Cash Flow Statement

52 weeks 52 weeks ended ended 28 April 2012 30 April 2011 Note £million £million Operating activities – continuing operations Cash generated from operations 26 231.3 292.8 Special contributions to defined benefit pension scheme * 21 (16.0) (12.0) Income tax paid (26.8) (26.2) Net cash flows from operating activities * 188.5 254.6 Investing activities – continuing operations Purchase of property, plant & equipment and other intangibles (101.5) (223.2) Purchase of subsidiaries * (1.2) – Interest received 12.6 17.9 Decrease / (increase) in short term investments * 3.1 (1.8) Disposals of property, plant & equipment and other intangibles 70.2 2.0 Dividend received from associate * – 1.1 Net cash flows from investing activities (16.8) (204.0) Financing activities – continuing operations Issue of ordinary share capital – 0.2 Additions to finance leases 2.8 2.4 Capital element of finance lease payments (4.4) (1.5) Interest element of finance lease payments (6.4) (7.0) (Decrease) / increase in borrowings due within one year * (130.0) 31.8 Increase in borrowings due after more than one year – 5.4 Interest paid (49.1) (46.3) Investment from minority shareholder * – 1.1 Net cash flows from financing activities (187.1) (13.9)

(Decrease) / increase in cash and cash equivalents (i) Continuing operations (15.4) 36.7 Discontinued operations 27 (1.5) (0.1) (16.9) 36.6

Cash and cash equivalents at beginning of period (i) 26 329.1 290.8 Currency translation differences (11.2) 1.7

Cash and cash equivalents at end of period (i) 26 301.0 329.1

Free Cash Flow (ii) 130.3 10.0

(i) For the purposes of this cash flow statement, cash and cash equivalents comprise those items disclosed as ‘cash and cash equivalents’ on the face of the balance sheet, less overdrafts, which are classified within current liabilities on the face of the balance sheet. A reconciliation to the balance sheet amounts is shown in note 26. (ii) Free Cash Flow comprises those items marked and comprises cash generated from / (utilised by) continuing operations before special pension contributions, less net finance expense, less income tax paid and net capital expenditure. The* directors consider that ‘Free Cash Flow’ provides additional useful information to shareholders in respect of cash generation and is consistent with how business performance is measured internally.

72 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 73 Consolidated Statement of Changes in Equity

Non- Share Share Other Retained controlling capital premium reserves earnings Sub-total interests Total equity £million £million £million £million £million £million £million At 2 May 2010 90.2 169.4 (537.5) 1,124.4 846.5 28.6 875.1

Loss for the period – – – (245.3) (245.3) – (245.3) Other comprehensive income and expense recognised directly in equity – – (0.2) 44.3 44.1 (6.7) 37.4 Total comprehensive income and expense for the period – – (0.2) (201.0) (201.2) (6.7) (207.9)

Non-controlling interests – increase in capital – – – – – 1.1 1.1 Ordinary shares issued 0.1 0.1 – – 0.2 – 0.2 Share-based payments – – – 8.6 8.6 – 8.6 Tax on share-based payments – – – (0.6) (0.6) – (0.6) At 30 April 2011 90.3 169.5 (537.7) 931.4 653.5 23.0 676.5

Loss for the period – – – (162.9) (162.9) – (162.9) Other comprehensive income and expense recognised directly in equity – – 16.7 (111.0) (94.3) (10.4) (104.7) Total comprehensive income and expense for the period – – 16.7 (273.9) (257.2) (10.4) (267.6)

Share-based payments – – – (4.9) (4.9) – (4.9) At 28 April 2012 90.3 169.5 (521.0) 652.6 391.4 12.6 404.0

Non-controlling interests (minority interests) comprise shareholdings in Pixmania S.A.S. (PIXmania), Electroworld Iç ve Dis Ticaret AS (Electroworld Turkey) and Dixons South-East Europe A.E.V.E. (Kotsovolos). Financial Statements

72 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 73 Financial Statements

Notes to the Consolidated Financial Statements

1 Accounting policies The principal accounting policies are set out below: 1.1 Basis of preparation The consolidated financial statements have been prepared in 1.2 Accounting convention and basis of consolidation accordance with International Financial Reporting Standards (IFRS) The consolidated financial statements incorporate the financial as adopted by the EU, IFRS issued by the International Accounting statements of the Company and entities controlled by the Company. Standards Board and those parts of the Companies Act 2006 Control is achieved where the Company has the power to control the applicable to those companies reporting under IFRS, and have financial and operating policies of an entity so as to obtain benefits been prepared on a going concern basis as disclosed in the going from its activities. The results of subsidiaries acquired are included concern statement in the Statutory Information section of the from the date on which power to control passes. The net assets of Directors’ Report on page 48. subsidiaries acquired are recorded at their fair values. The results of subsidiaries disposed of are included up to the effective date The Group’s income statement and segmental analysis identify of disposal. separately underlying performance measures and non-underlying items. Underlying performance measures reflect an adjustment to Associates are accounted for using the equity method of total performance measures to exclude the impact of closed accounting from the date on which the power to exercise businesses and other non-underlying items. Underlying performance significant influence passes. measures comprise profits and losses incurred as part of the day-to-day ongoing retail activities of the Company and include profits All intra-group transactions, balances, income and expenses are and losses incurred on the disposal and closure of owned or leased eliminated on consolidation. properties that occur as part of the Group’s annual retail churn. 1.3 Revenue The profits or losses incurred on disposal or closure of owned or Revenue comprises sales of goods and services excluding sales leased properties as part of a one off restructuring programme are taxes. Revenue from sales of goods is recognised at the point of excluded from underlying performance measures and are therefore sale or, where later, upon delivery to the customer and is stated net included, among other items, within non-underlying items as of returns. Revenue earned from customer support agreements described below. The directors consider ‘underlying’ performance is recognised as such over the life of the agreement by reference measures to be a more accurate reflection of the ongoing trading to the stage of completion of the transaction at the balance performance of the Group and believe that these measures provide sheet date. additional useful information for shareholders on the Group’s performance and are consistent with how business performance 1.4 Other income, including non-operating income is measured internally. Other income, which is incidental to the Group’s principal activities of selling goods and services and accordingly is not recorded as Non-underlying items comprise trading results of closed businesses, part of revenue, is recognised when the Group obtains the right amortisation of acquired intangibles, net restructuring and business to consideration by performance of its contractual obligations. impairment charges and other one off, non-recurring items, profit Interest income is accrued on a time basis, by reference to the on sale of investments, fair value remeasurements of financial principal outstanding and at the effective interest rate applicable. instruments and, where applicable, discontinued operations. Dividend income from investments is recognised when the right Closed businesses are those which do not meet the definition of to receive payment has been established. discontinued operations as stipulated by IFRS 5. Items excluded from underlying results can evolve from one financial year to the 1.5 Discontinued operations next depending on the nature of re-organisation or one-off type A discontinued operation is a component of the Group which activities described above. represents a significant separate line of business which has been sold. Classification as a discontinued operation occurs upon Underlying performance measures may not be directly comparable disposal or earlier if beneficial title and risk has transferred to the with other similarly titled measures or ‘adjusted’ revenue or profit purchaser and in the case of a business acquired exclusively with measures used by other companies. a view to subsequent disposal, on the date of acquisition. There are no new accounting standards, amendments to standards or Where the sale of a component of the Group is considered highly IFRIC interpretations which are effective for the Group for the first time probable and the business is available for immediate sale in its during the current financial period which have had an impact on the present condition, it is classified as held for sale. Assets and liabilities Group’s results or net assets. held for sale are measured at the lower of carrying amount and fair value less costs to sell.

74 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 75 1.6 Leases 1.7 Translation of foreign currencies Leases are classified as finance leases whenever the terms of the Transactions in foreign currencies are initially recorded at the rate lease transfer substantially all the risks and rewards of ownership to of exchange prevailing at the transaction date. Monetary assets and the lessee. The determination of the classification of property leases liabilities denominated in foreign currencies are retranslated at the is made by reference to the land and buildings elements separately. rates of exchange ruling at the balance sheet date. Exchange gains All leases not classified as finance leases are operating leases. and losses arising on settlement or retranslation of monetary assets and liabilities are included in the income statement. Finance leases Assets held under finance leases are capitalised at their fair value Assets and liabilities of overseas subsidiaries are translated at the rate on acquisition or, if lower, at the present value of the minimum lease of exchange ruling at the balance sheet date. The results of overseas payments, each determined at the inception of the lease and subsidiary undertakings are translated into sterling at the average depreciated over their estimated useful lives or the lease term if rates of exchange during the period. Exchange differences resulting shorter. The corresponding obligation to the lessor is included in from the translation of the results and balance sheets of overseas the balance sheet as a liability. Lease payments are apportioned subsidiary undertakings are charged or credited directly to retained between finance charges and reduction of the lease obligation. earnings. Such translation differences become recognised in the Finance charges are charged to the income statement over the income statement in the period in which the subsidiary undertaking period of the lease in proportion to the capital element outstanding. is disposed.

Operating leases As the cumulative translation differences for all foreign subsidiaries Rentals payable under operating property leases are charged to were deemed to be zero at the transition date to IFRS on 2 May 2004, the income statement on a straight line basis over the fixed term upon disposal of a foreign subsidiary, any gain or loss arising will of the lease. At the end of the fixed term of leases, rental payments include only those foreign exchange gains or losses attributable are reset to market rates, typically on an upwards only basis. to periods after that date.

Benefits received and receivable as an incentive to enter into an 1.8 Goodwill operating lease are also spread on a straight line basis over the On acquisition of a subsidiary or associate, the fair value of the lease term. consideration is allocated between the identifiable net tangible and intangible assets / liabilities on a fair value basis, with any Where a lease forms part of a separate cash generating unit (CGU), excess consideration representing goodwill. Goodwill in respect such as a store or group of stores, and business indicators exist of subsidiaries is capitalised as goodwill on the balance sheet; which could lead to the conclusion that the carrying value of the goodwill relating to associates is capitalised in investments in CGU is not supportable, the recoverable amount of the CGU associates as part of the carrying value of the associate. is determined by calculating its value in use. The value in use is calculated by applying discounted cash flow modelling to Goodwill is not amortised, but instead is reviewed annually for management’s projection of future profitability. If an impairment impairment. Any impairment is recognised immediately in the of a CGU has been identified such that the value in use is negative income statement and is not subsequently reversed. and a lease exists in that CGU, a provision for the onerous portion of the lease is made equal to the lower of the outstanding lease On disposal of a subsidiary or associate the attributable amount of goodwill is included in the determination of the gain or loss commitment and the negative present value of the CGU. Financial Statements on disposal. 1.9 Intangible assets Acquired intangibles Acquired intangibles comprise brands and customer lists purchased as part of acquisitions of businesses and are capitalised and amortised over their useful economic lives on a straight line basis. Acquired intangibles are stated at cost less accumulated amortisation and, where appropriate, provision for impairment in value or estimated loss on disposal. Amortisation is provided to write off the cost of assets on a straight line basis between three and 30 years.

74 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 75 Financial Statements

Notes to the Consolidated Financial Statements (continued)

1 Accounting policies (continued) 1.11 Investments and other financial assets Other intangible assets: computer software The Group’s financial assets comprise cash and cash equivalents, Computer software is capitalised on the basis of the costs short term investments and those receivables which involve incurred both to acquire and bring into use the specific software. a contractual right to receive cash from external parties. Amortisation is provided to write off the cost of assets on a straight Financial assets comprise all items shown in notes 14, 15 and line basis over their estimated useful lives of between three and 16 with the exception of prepayments. Under the classifications seven years. Costs associated with developing or maintaining stipulated by IAS 39, short term investments and trade and other computer software are recognised as an expense as incurred receivables (excluding derivative financial assets) are classified as unless they increase the future economic benefits of the asset, ‘available for sale’ and ‘loans and receivables’, respectively. in which case they are capitalised. Cash and cash equivalents and derivative financial instruments, which are further described in notes 1.14 and 1.16, are classified Internally generated computer software is capitalised at cost if the as ‘loans and receivables’ and ‘held for trading unless designated project is technically and commercially feasible and the economic in a hedge relationship’, respectively. benefits which are expected to be generated exceed one year. The expenditure capitalised includes the cost of materials, direct All purchases and sales of investments and other financial assets labour and an appropriate proportion of overheads. Subsequent are recognised on the date that the Group becomes committed to expenditure is capitalised only when it increases the future make such purchase or sale (‘the trade date’). economic benefits embodied in the specific asset to which it relates Amortisation is provided to write off the cost of assets Investment in associates on a straight line basis between three and seven years. Associates are accounted for using the equity method of accounting from the date on which the power to exercise significant influence Computer software is stated at cost less accumulated amortisation passes and are stated net of any impairment charges. and, where appropriate, provision for impairment in value or estimated loss on disposal. Short term investments Investments are initially measured at fair value and then subsequently 1.10 Property, plant & equipment remeasured to fair value at each balance sheet date owing to Property, plant & equipment are stated at cost less accumulated occasional sales of such investments. The fair value of unlisted depreciation and, where appropriate, provision for impairment in investments is estimated either by comparing recent arm’s length value or estimated loss on disposal. Depreciation is provided to write transactions or by using discounted cash flow analysis or other off the cost of the assets by equal instalments over their estimated modelling techniques. Gains and losses arising from revaluation at useful lives. The rates used are: the balance sheet date are recognised directly in equity. For unlisted investments a significant or prolonged decline in the fair value of the Short leasehold property – over the term of the lease investment below its cost is considered evidence of impairment. Freehold and long 2 leasehold buildings – between 1 /3% and 2½% per annum To the extent that any fair value losses are deemed permanent, Fixtures, fittings such impairment is recognised in the income statement. Upon sale 1 and equipment – between 10% and 33 /3% per annum or impairment of the investments, any cumulative gains or losses held in equity are transferred to the income statement. No depreciation is provided on freehold and long leasehold land or on assets in the course of construction. Trade and other receivables Trade and other receivables (excluding derivative financial Property, plant & equipment are assessed on an ongoing basis assets) are recorded at cost less an allowance for estimated to determine whether circumstances exist that could lead to irrecoverable amounts and any other adjustments required to align the conclusion that the net book value is not supportable. cost to fair value. The carrying amount of trade receivables is Where assets are to be taken out of use, an impairment charge reduced through the use of a provision account. A provision for bad is levied. Where useful lives of assets are shortened, an estimate and doubtful debts is made for specific receivables when there is is made of their new lives and an accelerated depreciation charge objective evidence that the Group will not be able to collect all of the is levied. Where the property, plant & equipment form part of a amounts due under the original terms of the invoice. Receivables separate cash generating unit (CGU), such as a store or group that are not assessed individually for impairment are assessed for of stores, and business indicators exist which could lead to the impairment on a collective basis using ageing analysis to determine conclusions that the net book value is not supportable, the the required provision. Bad debts are written off when identified. recoverable amount of the CGU is determined by calculating its value in use. The value in use is calculated by applying discounted cash flow modelling to management’s projection of future profitability and any impairment is determined by comparing the net book value with the value in use.

76 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 77 1.12 Taxation 1.15 Borrowings and other financial liabilities Current taxation The Group’s financial liabilities are those which involve a contractual Current taxation is the expected tax payable on the taxable income obligation to deliver cash to external parties at a future date. for the period, using prevailing tax rates and adjusted for any tax Financial liabilities comprise all items shown in notes 17, 18 and 19 payable in respect of previous periods. with the exception of other taxation and social security, deferred income from customer support agreements, other deferred income Deferred taxation and other non-financial creditors. Under the classifications stipulated Deferred tax liabilities are recognised for all taxable temporary by IAS 39, borrowings, finance lease obligations and trade and other differences and deferred tax assets are recognised to the extent payables (excluding derivative financial liabilities) are classified as that it is probable that taxable profits will be available against which ‘financial liabilities measured at amortised cost’. Derivative financial deductible temporary differences can be utilised. Such assets and instruments, which are described further in note 1.16 below, are liabilities are not recognised if the temporary difference arises from classified as ‘held for trading unless designated in a hedge relationship’. goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that Borrowings affects neither the tax profit nor the accounting profit. Borrowings are initially recorded at the consideration received less directly attributable transaction costs. Transaction costs are Deferred tax liabilities are recognised for taxable temporary amortised through the income statement using the effective interest differences arising on investments in subsidiaries, except where method and the unamortised balance is included as part of the the Group is able to control the reversal of the temporary difference related borrowing at the balance sheet date. A fair value adjustment and it is probable that the temporary difference will not reverse in is made to the borrowing where hedge accounting, as described in the foreseeable future. No provision is made for tax which would note 1.16 below, has been applied. have been payable on the distribution of retained profits of overseas subsidiaries or associated undertakings where it has Trade and other payables been determined that these profits will not be distributed in the Trade and other payables (excluding derivative financial liabilities) foreseeable future. are recorded at cost. Derivative financial instruments, which includes put options over equity held by minority shareholders, are initially Deferred tax assets and liabilities are offset against each other when recorded at fair value and then subsequently remeasured to fair value they relate to income taxes levied by the same tax jurisdiction and at each balance sheet date and are held within assets or liabilities as when the Group intends to settle its current tax assets and liabilities appropriate. Gains and losses arising from revaluation at the balance on a net basis. sheet date are recognised in the income statement unless the derivatives are designated as hedges and such hedges are proved Deferred tax is charged or credited in the income statement, to be effective. except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 1.16 Derivative financial instruments and hedge accounting Derivative financial instruments held by the Group are initially Deferred tax is measured at the average tax rates that are expected recognised in the balance sheet at fair value within assets or liabilities to apply in the periods in which the timing differences are expected as appropriate and then subsequently remeasured to fair value at to reverse, based on tax rates and laws that have been enacted, each balance sheet date. Gains and losses arising from revaluation or substantially enacted by the balance sheet date. Deferred tax at the balance sheet date are recognised in the income statement Financial Statements balances are not discounted. unless the derivatives are designated as hedges and such hedges are proved to be effective. 1.13 Inventories Inventories are stated at the lower of average cost and net realisable Derivatives are classified as non-current assets or liabilities where value. Cost comprises direct purchase cost and those overheads a hedge relationship is identified and the remaining maturity of the that have been incurred in bringing the inventories to their present hedged item is greater than 12 months from the balance sheet location and condition, both types of cost being measured using a date. Derivatives are classified as current assets or liabilities in weighted average cost formula. Net realisable value represents the all other circumstances. estimated selling price less all estimated and directly attributable costs of completion and costs to be incurred in marketing, selling Fair values are derived from market values. The fair value of financial and distribution. instruments traded in active markets is based on quoted market prices at the balance sheet date. 1.14 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, bank overdrafts and short term highly liquid deposits with a maturity of three months or less and which are subject to an insignificant risk of changes in value. Bank overdrafts, which form part of cash and cash equivalents for the purpose of the cash flow statement, are shown under current liabilities.

76 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 77 Financial Statements

Notes to the Consolidated Financial Statements (continued)

1 Accounting policies (continued) Derivative financial instruments that qualify for such cash flow Hedge accounting hedging are initially recognised on the balance sheet with gains The Group’s activities expose it primarily to the financial risks and losses relating to the remeasurement of the effective portion associated with changes in interest rates and foreign currency of the hedge being deferred in equity. To the extent that such items exchange rates. The Group uses derivative financial instruments such are ineffectively hedged, gains or losses relating to the ineffective as interest rate swaps, options, cross currency swaps and forward portion are recognised in the income statement. Amounts taken to currency contracts to hedge these risks. The Group does not use equity are transferred to the income statement when the hedged derivative financial instruments for speculative purposes. transaction affects profit or loss (i.e. when a purchase or sale is made). For inventory purchases, the associated gains or losses Where hedge accounting is to be applied, the Group formally on the derivative that had previously been recognised in equity are designates and documents the hedge relationship to which included in the initial measurement of inventory. For sales, the gains the Group wishes to apply hedge accounting and the risk or losses on the derivative that had previously been recognised in management objective and strategy for undertaking the hedge. equity are included in the income statement in the period in which the sale is made. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer meets the Net investment hedges criteria for hedge accounting. The Group uses cross currency forward contracts and cross currency swaps to hedge its currency risk on the translation of net investments The accounting treatment of derivatives that qualify for hedge in foreign entities. Gains and losses arising on the retranslation of the accounting is dependent on how they are designated. The different investments and the related derivatives are recognised in equity. designations and accounting treatments are explained below: However, this is on the basis that the hedging requirements of IAS 39 are met and the hedging relationship is effective. To the extent that Fair value hedges such items are ineffectively hedged, gains or losses relating to the The Group uses interest rate swaps to hedge the exposure to ineffective portion are recognised within the income statement. changes in the fair value of recognised assets and liabilities. 1.17 Retirement benefit obligations Derivative financial instruments that meet the ‘fair value’ hedging Company contributions to defined contribution pension schemes requirements are recognised in the balance sheet at fair value with and contributions made to state pension schemes for certain corresponding fair value movements recognised within finance overseas employees are charged to the income statement on income / costs in the income statement. For an effective fair value an accruals basis as contributions become payable. hedge, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding entry For defined benefit pension schemes, the regular service cost in the income statement. To the extent that the designated hedge of providing retirement benefits to employees during the period, relationship is effective, such amounts in the income statement offset together with the cost of any benefits relating to past service is each other. As a result, only the ineffective element of any designated charged to operating results in the period. A credit representing the hedging relationship impacts the income statement. If the hedge no expected return on assets of the retirement benefit schemes during longer meets the criteria for hedge accounting, the adjustment to the the period is included within other finance income. This is based on carrying amount of the hedged item for which the effective interest the market value of the assets of the schemes at the start of the method is used, is amortised to the income statement over the financial period. A charge is included within other finance costs, period to maturity. representing the expected increase in the liabilities of the retirement benefit schemes during the period. The difference between the Cash flow hedges market value of the assets and the present value of the accrued The Group uses forward foreign exchange contracts to hedge the pension liabilities is shown as an asset or liability in the balance foreign currency exposure on inventory ordered and purchased and sheet. Differences between the actual and expected returns on certain sales of inventory. It is Group policy to hedge between 80% assets during the period are recognised in the consolidated and 100% of committed purchase orders and sales. At any point statement of comprehensive income and expense, together in time the Group also hedges up to 80% of its estimated foreign with differences arising from changes in actuarial assumptions. currency exposure in respect of forecast purchases and sales for the subsequent 12 months. Orders and purchases as well as sales 1.18 Share-based payments are each considered to be separately hedged transactions. The Group issues equity settled share-based payments to certain employees which are measured at fair value at the date of grant. This fair value is expensed in the income statement on a straight line basis over the vesting period, based on an estimate of the number of shares that will eventually vest as adjusted for any non-market conditions.

A liability equal to the portion of services received from employees is recognised at the current fair value determined at each balance sheet date for cash settled share-based payments.

78 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 79 1.19 Estimates, judgements and critical accounting policies Goodwill, intangible assets and property, plant & equipment The preparation of financial statements in conformity with generally impairment reviews accepted accounting principles requires management to make Goodwill is required to be valued annually to assess the requirement estimates and assumptions that affect the reported amounts of for potential impairment. Other assets are assessed on an ongoing assets and liabilities and the disclosure of contingent assets and basis to determine whether circumstances exist that could lead to the liabilities. Significant items subject to such assumptions and conclusion that the net book value of such assets is not supportable. estimates include the useful lives of assets; the measurement and Impairment testing on goodwill is carried out in accordance with recognition of provisions; the recognition of deferred tax assets; and the methodology described in note 9. Such calculations require liabilities for potential corporation tax. Actual results could differ from judgement relating to the appropriate discount factors and long term these estimates and any subsequent changes are accounted for growth prevalent in a particular market as well as short and medium with an effect on income at the time such updated information term business plans. The directors draw upon experience as well as becomes available. The most critical accounting policies in external resources in making these judgements. determining the financial condition and results of the Group are those requiring the greatest degree of subjective or complex judgements. In assessing impairment of intangible assets and property, plant and These relate to revenue recognition, inventory valuation, onerous equipment, discounted cash flow methods are used as described lease costs, the valuation of goodwill, acquired intangible assets and in note 1.10. Judgement is required in determining the appropriate property, plant & equipment, share-based payments, post-retirement discount factors as well as the short and medium term business benefits and taxation, and are set out below. plans. As for goodwill, the directors draw upon experience and external resources in making these judgements. Revenue recognition Revenue earned from the sale of customer support agreements is Share-based payments recognised over the term of the contracts when the Group obtains The charge for share-based payments is calculated by estimating the right to consideration as a result of performance of its contractual the fair value of the award at the date of grant using either the obligations. Revenue in any one year is therefore recognised to Binomial or Black Scholes option pricing model or the Monte Carlo match the proportion of the expected costs of fulfilling the Group’s simulation. The option valuation models used require highly total obligations under the agreements. An estimate of the degree subjective assumptions to be made including the future volatility of performance of these contractual obligations is determined by of the Company’s share price, expected dividend yields, risk-free reference to extensive historical claims data. Reliance on historical interest rates, expected staff turnover and the likelihood of non- data assumes that current and future experience will follow past market vesting conditions being met. The directors draw upon trends. The directors consider that the quantity and quality of data a variety of external sources to aid in the determination of the available provides an appropriate proxy for current trends. appropriate data to use in such calculations. Inventory valuation Defined benefit pension schemes Inventories are valued at the lower of average cost and net realisable The surplus or deficit in the UK defined benefit scheme that is value. Cost comprises direct purchase cost and those overheads recognised through the consolidated statement of comprehensive that have been incurred in bringing the inventories to their present income and expense is subject to a number of assumptions and location and condition, both types of cost being measures using a uncertainties. The calculated liabilities of the scheme are based on weighted average cost formula. Net realisable value represents the assumptions regarding salary increases, inflation rates, discount

estimated selling price less all estimated and directly attributable rates, the long term expected return on the scheme’s assets and Financial Statements costs of completion and costs to be incurred in the marketing, selling member longevity. Such assumptions are based on actuarial and distribution. Net realisable value includes, where necessary, advice and are benchmarked against similar pension schemes. provisions for slow moving and damaged inventory. The provision represents the difference between the cost of stock and its Taxation estimated net realisable value, based on ageing. Calculation of these Tax laws that apply to the Group’s businesses may be amended provisions requires judgements to be made which include forecast by the relevant authorities, for example as a result of changes in consumer demand, the promotional, competitive and economic fiscal circumstances or priorities. Such potential amendments environment and inventory loss trends. and their application to the Group are monitored regularly and the requirement for recognition of any liabilities assessed where Provisions and accruals for onerous leases necessary. The Group is subject to income taxes in a number If the Group vacates a store or other property prior to the expiry of of different jurisdictions and judgement is required in determining the related lease, or a lease forms part of a separate CGU whereby the appropriate provision for transactions where the ultimate tax the carrying value of that CGU is not considered supportable, it determination is uncertain. In such circumstances, the Group records a provision or accrual for the expected lease payments that recognises liabilities for anticipated taxes due based on best the Group will incur prior to assignment or sublease of the property. information available and where the anticipated liability is probable Such a calculation requires a judgement as to the timing and and estimable. Where the final outcome of such matters differs from duration of the expected vacant periods and the amount and timing the amounts initially recorded, any differences will impact the income of future potential sublease income. When making these judgements, tax and deferred tax provisions in the period to which such the directors consider a number of factors, including the landlord, determination is made. Where the potential liabilities are not the location and condition of the property, the terms of the lease, considered probable, the amount at risk is disclosed unless the specific marketplace demand and the economic environment. an adverse outcome is considered remote.

78 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 79 Financial Statements

Notes to the Consolidated Financial Statements (continued)

1 Accounting policies (continued) 2 Segmental analysis Deferred tax is recognised on taxable losses based on the expected The Group’s operating segments have been determined based ability to utilise such losses. This ability takes account of the business on the information reported to the Board. This information is plans for the relevant companies, potential uncertainties around the predominantly based on geographical areas which are either longer term aspects of these business plans, any expiry of taxable managed separately or have similar trading characteristics such benefits and potential future volatility in the local tax regimes. that they can be aggregated together into one segment and, in the case of PIXmania, as a business area with geographical territories 1.20 New accounting standards and interpretations aggregated. Accounting policies for each operating segment are During the period, the following new standards, and amendments the same as those for the Group as described in note 1. The Group to existing standards, which are applicable to the Group were evaluates each operating segment based on underlying operating published, but do not become effective until 2013/14: profits which excludes those items described in note 1.1. ■■IFRS 9 Financial Instruments. This standard is the first step in the process to replace IAS 39, ‘Financial instruments: recognition and All segments are involved in the multi-channel sale of high technology measurement’. IFRS 9 introduces new requirements for classifying consumer electronics, personal computers, domestic appliances, and measuring financial assets and is likely to affect the Group’s photographic equipment, communication products and related accounting for its financial assets. financial and after-sales services. The principal categories of customer are retail, business to business (B2B) and online. ■■Amendment to IAS 19 Employee Benefits. The amendment replaces interest cost and expected return on plan assets with The Group’s reportable segments have been identified as follows: a net interest amount that is calculated by applying the discount rate to the net defined benefit liability. This will impact the Group’s ■■UK & Ireland comprises electrical and computing retail chains as interest income in respect of its defined benefit pension scheme. well as B2B activities and Dixons.co.uk, a pure play online retailer. The division is engaged predominantly in multi-channel retail sales, ■■IFRS 13 Fair Value Measurement. This standard aims to improve associated peripherals and services and related financial and after consistency and reduce complexity by providing a precise definition sales services and also in business to business sales of computer of fair value and a single source of fair value measurement and hardware and software. disclosure requirements for use across IFRSs. ■■Northern Europe operates in Norway, Sweden, Finland, Denmark, IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure the Czech Republic, Slovakia, Iceland, Greenland and the Faroe of Interests in Other Entities will also become effective for the Group Islands. The division engages in multi-channel retail sales and for 2013/14. At the present time these new standards are not provides related product support services to its customers. It expected to have any material effect, however may impact also engages in B2B sales of computer hardware, software and acquisitions in the future. services. Across the region, the division operates a successful franchise business, typically in smaller markets. Certain other amendments to existing standards and interpretations ■■Southern Europe comprises operations in Italy, Greece, Turkey and were issued during the period which either do not apply to the Group the closed business in Spain which is excluded from underlying or are not expected to have any material effect. results. The division engages in retail sales (including multi-channel sales in some countries) and provides related product support services to its customers in all of its markets. It also engages in B2B sales of computer hardware, software and services in Italy and Greece and has franchise operations in Italy, Greece and Turkey. ■■PIXmania is a pure play online retailer and operates in 26 countries across Europe.

During the period, management responsibility for Dixons.co.uk was transferred from the Pure play e-commerce division (now renamed PIXmania) to UK & Ireland. In addition, management responsibility for the Central European operations was transferred from the Other International division (now renamed Southern Europe) to the Northern Europe division. Comparative figures have been restated to reflect these changes in responsibility, together with a realignment of central assets and liabilities to reflect how these assets and liabilities are managed.

Closed business relates to PC City Spain which was closed in June 2011. Owing to its closure rather than disposal, this operation does not meet the definition of discontinued operations as stipulated by IFRS 5.

80 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 81 (a) Income statement 2011/12 Inter- External segmental Total Underlying Total revenue revenue revenue profit / (loss) profit / (loss) £million £million £million £million £million UK & Ireland 3,833.9 50.5 3,884.4 78.8 65.7 Northern Europe 2,628.0 28.6 2,656.6 113.3 152.1 Southern Europe 1,066.3 0.3 1,066.6 (30.4) (201.6) PIXmania 665.0 6.0 671.0 (19.8) (58.2) Eliminations – (85.4) (85.4) – – 8,193.2 – 8,193.2 141.9 (42.0) Share of post-tax results of associates 0.6 0.6 Operating profit / (loss) before central costs and property losses 142.5 (41.4) Central costs (13.8) (14.0) Property losses (13.6) (13.5) Operating profit / (loss) 115.1 (68.9) Finance income 57.2 63.5 Finance costs (101.5) (113.4) Profit / (loss) before tax for the period 70.8 (118.8)

External revenue for Southern Europe includes £6.5 million relating to the closed business. Reconciliation of underlying profit / (loss) to total profit / (loss) 2011/12 Other non- Amortisation Net Business underlying Underlying Closed of acquired restructuring impairment financing Total profit / (loss) business intangibles charges charges Other items items profit / (loss) £million £million £million £million £million £million £million £million UK & Ireland 78.8 – (0.4) (9.5) – (3.2) – 65.7 Northern Europe 113.3 – – – – 38.8 – 152.1 Southern Europe (30.4) (2.9) (0.7) – (167.6) – – (201.6) PIXmania (19.8) – (3.4) (6.6) (28.4) – – (58.2) 141.9 (2.9) (4.5) (16.1) (196.0) 35.6 – (42.0) Share of post-tax results of associates 0.6 – – – – – – 0.6

Operating profit / (loss) before Financial Statements central costs and property losses 142.5 (2.9) (4.5) (16.1) (196.0) 35.6 – (41.4) Central costs (13.8) – – (0.2) – – – (14.0) Property losses (13.6) 0.1 – – – – – (13.5) Operating profit / (loss) 115.1 (2.8) (4.5) (16.3) (196.0) 35.6 – (68.9) Finance income 57.2 – – – – – 6.3 63.5 Finance costs (101.5) (0.1) – – – – (11.8) (113.4) Profit / (loss) before tax for the period 70.8 (2.9) (4.5) (16.3) (196.0) 35.6 (5.5) (118.8)

Share of post-tax results of associates relates to Northern Europe.

80 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 81 Financial Statements

Notes to the Consolidated Financial Statements (continued)

2 Segmental analysis (continued) 2010/11 External Inter-segmental Total Underlying Total revenue revenue revenue profit / (loss) profit / (loss) £million £million £million £million £million UK & Ireland 3,925.3 57.8 3,983.1 68.7 47.8 Northern Europe 2,375.6 4.0 2,379.6 102.5 81.8 Southern Europe 1,307.4 0.4 1,307.8 (18.1) (150.3) PIXmania 733.5 5.0 738.5 3.5 (118.2) Eliminations – (67.2) (67.2) – – 8,341.8 – 8,341.8 156.6 (138.9) Share of post-tax results of associates (0.4) (0.4) Operating profit / (loss) before central costs and property losses 156.2 (139.3) Central costs (15.8) (26.1) Property losses (12.8) (12.8) Operating profit / (loss) 127.6 (178.2) Finance income 58.9 71.4 Finance costs (101.2) (117.3) Profit / (loss) before tax for the period 85.3 (224.1)

External revenue for Southern Europe includes £187.4 million relating to the closed business.

Reconciliation of underlying profit / (loss) to total profit / (loss) 2010/11 Amortisation of Net Business Other Underlying Closed acquired restructuring impairment non-underlying Total profit / (loss) business intangibles charges charges Other items financing items profit / (loss) £million £million £million £million £million £million £million £million UK & Ireland 68.7 – (0.4) (5.6) – (14.9) – 47.8 Northern Europe 102.5 – – – (21.5) 0.8 – 81.8 Southern Europe (18.1) (7.7) (0.7) – (123.8) – – (150.3) PIXmania 3.5 – (3.4) – (106.3) (12.0) – (118.2) 156.6 (7.7) (4.5) (5.6) (251.6) (26.1) – (138.9) Share of post-tax results of associates (0.4) – – – – – – (0.4) Operating profit / (loss) before central costs and property losses 156.2 (7.7) (4.5) (5.6) (251.6) (26.1) – (139.3) Central costs (15.8) – – (11.5) – 1.2 – (26.1) Property losses (12.8) – – – – – – (12.8) Operating profit / (loss) 127.6 (7.7) (4.5) (17.1) (251.6) (24.9) – (178.2) Finance income 58.9 – – – – – 12.5 71.4 Finance costs (101.2) (0.8) – – – – (15.3) (117.3) Profit / (loss) before tax for the period 85.3 (8.5) (4.5) (17.1) (251.6) (24.9) (2.8) (224.1)

Share of post-tax results of associates relates to Northern Europe. (b) Geographical analysis Revenues are allocated to countries according to the entity’s country of domicile. Revenue generated by the UK business was £3,704.7 million (2010/11 £3,800.9 million). Revenue by destination is not materially different to that shown by domicile. There was no revenue from discontinued operations (2010/11 none).

Non-current assets comprise property, plant & equipment, goodwill, intangible assets, investments in associates and non-current trade and other receivables. Non-current assets held by the UK, Italy and PIXmania were £367.6 million (2011 £402.0 million), £53.2 million (2011 £185.3 million), and £93.0 million (2011 £135.5 million), respectively. Non-current assets held by Northern Europe were £749.3 million (2011 £823.9 million) and predominantly comprised goodwill (as disclosed in note 9) which has not been allocated to individual countries.

82 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 83 (c) Balance sheet 2012 Segment Investment Total Segment assets in associates segment assets liabilities Net assets £million £million £million £million £million UK & Ireland 1,750.8 – 1,750.8 (1,173.7) 577.1 Northern Europe 1,130.2 3.5 1,133.7 (383.4) 750.3 Southern Europe 376.3 – 376.3 (409.6) (33.3) PIXmania 187.9 – 187.9 (117.7) 70.2 Central 661.0 – 661.0 (1,619.8) (958.8) Eliminations (1,063.3) – (1,063.3) 1,063.3 – Continuing operations 3,042.9 3.5 3,046.4 (2,640.9) 405.5 Discontinued operations – – – (1.5) (1.5) 3,042.9 3.5 3,046.4 (2,642.4) 404.0

2011 Segment Investment Total Segment assets in associates segment assets liabilities Net assets £million £million £million £million £million UK & Ireland 1,730.9 – 1,730.9 (1,205.3) 525.6 Northern Europe 1,195.7 3.4 1,199.1 (343.9) 855.2 Southern Europe 626.4 – 626.4 (633.6) (7.2) PIXmania 263.7 – 263.7 (122.6) 141.1 Central 936.1 – 936.1 (1,771.3) (835.2) Eliminations (1,178.8) – (1,178.8) 1,178.8 – Continuing operations 3,574.0 3.4 3,577.4 (2,897.9) 679.5 Discontinued operations – – – (3.0) (3.0) 3,574.0 3.4 3,577.4 (2,900.9) 676.5

Central assets and liabilities predominantly comprise intersegment balances, cash and cash equivalents, borrowings, net retirement benefit obligations, derivative financial instruments and tax assets and liabilities.

(d) Other information 2011/12 Capital expenditure Property, Intangible plant & Share-based assets equipment Depreciation Amortisation payments £million £million £million £million £million

UK & Ireland 1.8 46.8 72.2 10.6 (1.0) Financial Statements Northern Europe 5.1 22.5 28.5 4.4 (1.2) Southern Europe 2.0 7.5 18.3 2.0 (1.1) PIXmania 4.3 3.8 4.4 5.9 – Central – 0.2 0.4 – (1.4) Continuing operations 13.2 80.8 123.8 22.9 (4.7) Discontinued operations – – – – – 13.2 80.8 123.8 22.9 (4.7)

2010/11 Capital expenditure Property, Intangible plant & Share-based assets equipment Depreciation Amortisation payments £million £million £million £million £million UK & Ireland 14.3 118.9 65.3 14.4 3.9 Northern Europe 4.6 43.5 27.1 4.6 1.1 Southern Europe 2.8 25.7 21.7 2.8 1.1 PIXmania 2.7 6.0 4.4 5.5 0.1 Central – – 0.2 – 1.8 Continuing operations 24.4 194.1 118.7 27.3 8.0 Discontinued operations – – – – – 24.4 194.1 118.7 27.3 8.0

82 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 83 Financial Statements

Notes to the Consolidated Financial Statements (continued)

3 Revenue and operating profit / (loss) 2011/12 2010/11 Non-underlying Non-underlying Closed Closed Underlying business Other Total Underlying business Other Total £million £million £million £million £million £million £million £million Revenue 8,186.7 6.5 – 8,193.2 8,154.4 187.4 – 8,341.8 Cost of sales (7,643.3) (8.8) (14.4) (7,666.5) (7,579.4) (185.3) (83.8) (7,848.5) Gross profit / (loss) 543.4 (2.3) (14.4) 526.7 575.0 2.1 (83.8) 493.3 Distribution costs (163.1) (0.2) – (163.3) (186.2) (3.6) (2.1) (191.9) Administrative expenses (252.2) (0.4) (166.8) (419.4) (247.2) (6.2) (212.2) (465.6) Other operating (charge) / income (13.6) 0.1 – (13.5) (13.6) – – (13.6) Profit / (loss) from operations before associates 114.5 (2.8) (181.2) (69.5) 128.0 (7.7) (298.1) (177.8) Share of post-tax results of associates 0.6 – – 0.6 (0.4) – – (0.4) Total operating profit / (loss) 115.1 (2.8) (181.2) (68.9) 127.6 (7.7) (298.1) (178.2)

Non-underlying items comprise amortisation of acquired intangibles of £4.5 million (2010/11 £4.5 million), included within administrative expenses. Such items are described further in note 4. Included within underlying cost of sales, distribution costs and administrative expenses is amortisation of other intangibles of £9.8 million, £1.6 million and £7.0 million, respectively (2010/11 £12.5 million, £2.4 million and £7.0 million, respectively).

2011/12 2010/11 Closed Closed Underlying business Total Underlying business Total £million £million £million £million £million £million Sale of goods 7,714.4 3.8 7,718.2 7,689.7 172.9 7,862.6 Revenue from services 472.3 2.7 475.0 464.7 14.5 479.2 8,186.7 6.5 8,193.2 8,154.4 187.4 8,341.8

Revenue from services predominantly comprises those relating to customer support agreements, delivery and installation, product repairs and product support.

2011/12 2010/11 Closed Closed Underlying business Total Underlying business Total £million £million £million £million £million £million Inventories recognised as an expense 6,033.4 3.9 6,037.3 6,204.1 153.0 6,357.1 Cost of inventory write-down 26.5 – 26.5 25.4 0.4 25.8 Rentals paid under operating leases: Plant and machinery 10.6 – 10.6 8.5 – 8.5 Property – non-contingent rent 362.4 0.6 363.0 359.4 10.1 369.5 Property – contingent rent 13.3 – 13.3 5.4 – 5.4 Rentals received under operating leases: Property – subleases (5.0) – (5.0) (7.3) – (7.3)

2011/12 2010/11 £million £million Auditor’s remuneration Audit services – Group financial statements 0.5 0.5 – Subsidiary financial statements 0.6 0.6 Total audit fees 1.1 1.1 Non-audit services pursuant to legislation 0.2 0.2 Other 0.2 – Total fees paid to the auditor 1.5 1.3

84 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 85 4 Non-underlying items 2011/12 2010/11 Closed Closed business Other Total business Other Total Note £million £million £million £million £million £million Included in operating profit / (loss): Closed business (i) (2.8) – (2.8) (7.7) – (7.7) Amortisation of acquired intangibles – (4.5) (4.5) – (4.5) (4.5) Net restructuring charges (ii) – (16.3) (16.3) – (17.1) (17.1) Business impairment charges (iii) – (196.0) (196.0) – (251.6) (251.6) Other items (iv) – 35.6 35.6 – (24.9) (24.9)

(2.8) (181.2) (184.0) (7.7) (298.1) (305.8) Included in net finance costs: Closed business (i) (0.1) – (0.1) (0.8) – (0.8) Net fair value remeasurements of financial instruments (v) – (2.8) (2.8) – (2.8) (2.8) Accelerated amortisation of facility fees (vi) – (2.7) (2.7) – (7.8) (7.8) Net 2012 Bond redemption gains (vii) – – – – 7.8 7.8 (0.1) (5.5) (5.6) (0.8) (2.8) (3.6)

Total impact on profit / (loss) before tax (2.9) (186.7) (189.6) (8.5) (300.9) (309.4) Included in income tax expense: Closed business – – – – – – Tax on other non-underlying items – 8.3 8.3 – 12.3 12.3 Non-underlying: tax specific items (viii) – (16.0) (16.0) – – – – (7.7) (7.7) – 12.3 12.3

Total impact on profit / (loss) after tax (2.9) (194.4) (197.3) (8.5) (288.6) (297.1)

(i) Clo sed business: comprises the operating activities of PC City Spain which were closed in June 2011.

(ii) Net restructuring charges – strategic reorganisation: 2011/12 2010/11 £million £million Asset impairments (8.8) (1.6) Property charges (2.9) (7.4) Financial Statements Other charges (4.6) (8.1) (16.3) (17.1)

Net restructuring charges relate predominantly to the renewal and transformation of the UK & Ireland business which has been focused mainly on the reformatting and reorganisation of the UK & Ireland store portfolio and the reorganisation of the service offering as well as, for 2011/12, a reorganisation of the PIXmania photo processing operations.

In the UK, asset impairments relate mainly to items of property, plant & equipment, some of which comprise incremental accelerated depreciation charges which arose from restructuring initiatives which commenced in 2007/08. Property charges comprise onerous lease costs and charges related to vacating properties. Other charges predominantly comprise employee severance.

The PIXmania restructuring charges amount to £6.6 million which relate to the closure and ensuing reorganisation of its photo processing operations. The charge comprises £1.7 million for asset impairments, £1.7 million for onerous property charges and £3.2 million of other charges.

84 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 85 Financial Statements

Notes to the Consolidated Financial Statements (continued)

4 Non-underlying items (continued) (iii) Business impairment charges:

2011/12 Goodwill Other assets Property Other impairment impairment charges charges Total £million £million £million £million £million Italian business (109.4) (5.6) (15.1) (1.0) (131.1) PIXmania (28.4) – – – (28.4) Greek business (36.5) – – – (36.5) (174.3) (5.6) (15.1) (1.0) (196.0)

2010/11 Goodwill Other assets Property Other impairment impairment charges charges Total £million £million £million £million £million Closed business (15.1) (31.8) (6.1) (17.6) (70.6) PIXmania (106.3) – – – (106.3) Greek business (53.2) – – – (53.2) Associate – (21.5) – – (21.5) (174.6) (53.3) (6.1) (17.6) (251.6)

2011/12: ■■Italian business: The current increased macro-economic uncertainties, which have contributed to further weakness in the Italian economy which was particularly evident over the Peak trading period, together with an expectation that growth in the Italian economy will be significantly less than previously forecast, have led to an impairment to the goodwill of Unieuro which is described further in note 9, as well as impairment charges to property, plant & equipment and property charges comprising onerous lease costs. ■■PIXmania and Greek business: Continuing weakness in the Southern European economies in which PIXmania operates, which includes Greece, and which was again particularly evident over the Peak trading period, together with further delays to economic recovery now anticipated, has resulted in profit performance continuing to fall further behind that envisaged in the prior period’s forecasts. This has therefore led to an impairment to the goodwill in these businesses.

2010/11: ■■The closed business relates to PC City Spain following the closure of these operations in June 2011 and comprised the full impairment of goodwill as well as other tangible and intangible asset impairments. Property charges comprised onerous lease costs and charges related to vacating properties. Other charges related predominantly to employee severance. ■■PIXmania: Weakness in the Southern European economies, investment in developing new web platforms and changes in the internet retailing market caused profit performance to be behind that envisaged at the time of the acquisition of the business and this therefore led to an impairment to the goodwill. ■■Greek business: Following an extended period of economic difficulty and the expectation that a full recovery will be prolonged, an impairment to the goodwill was recognised. ■■Associate: Relates to a long period of decline in the results of F-Group leading to the conclusion that the carrying value of the investment (which incorporates prior year dividends received) was impaired. Further information is provided in note 12.

(iv) Other items comprise the following:

2011/12 2010/11 £million £million Profit on disposal of property 37.2 – UK Riot related net costs (3.2) – Revaluation of associate shares 1.6 – Impairment of other intangibles work in progress – (14.9) Exceptional supplier balance write offs – (12.0) Credits in respect of prior restructurings – 2.0 35.6 (24.9)

86 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 87 2011/12: ■■Profit on disposal of property relates to the sale and leaseback of the Group’s Nordic distribution centre in Jönköping in Sweden. The sale completed on 23 June 2011 for SEK 602 million (£58.1 million). Owing to the size of the gain as well as the significance of the property in relation to the Group’s operations, the profit has been treated as a non-underlying item. ■■UK Riot related net costs comprise mainly inventory write offs and reinstatement costs together with certain other incremental costs arising from the riots which occurred in August 2011 and which amounted to £3.5 million. These amounts have been offset by insurance recoveries received to date of £0.3 million, with further insurance claims outstanding. ■■Revaluation of associate shares: Relates to gain arising on the revaluation of a previous small associate shareholding following the acquisition of the remaining shares during the period.

2010/11: ■■Impairment of other intangibles work in progress related to capitalised system costs in the UK from 2008 following the decision to defer the project in order to focus on existing process improvements. ■■The exceptional supplier balance write offs related to supplier receivables in PIXmania dating back to 2008/09 and prior years. This write off arose due to the culmination of a reconciliation process following the implementation of new systems highlighting the extent of the receivables outstanding and a detailed review of the Group’s ability to recover these balances. ■■Credits related mainly to closed businesses and represent cash recoveries from third parties which due to their contingent nature had not previously been recognised.

(v) Net fair value remeasurement gains and losses on revaluation of financial instruments: Items excluded from underlying finance income and expense represent the gains and losses arising from the revaluation of derivative financial instruments under methodologies stipulated by IAS 39 compared with those on an accruals basis (the basis upon which all other items in the financial statements are prepared). Such a treatment is a form of revaluation gain or loss created by an assumption that the derivatives will be settled before their maturity.

Suc h gains and losses are unrealised and in the directors’ view also conflict with both the commercial reasons for entering into such arrangements as well as Group Treasury policy whereby early settlement in the majority of cases would amount to speculative use of derivatives.

(vi) 201 1/12: On 24 May 2012, the Group signed an amendment and restatement agreement implementing a revised revolving facility agreement (the New Facility) for £300 million. The renegotiation of this facility has triggered the acceleration of the amortisation of fees for the £360 million revolving credit facility (the £360 million Facility) which would otherwise have been charged evenly over the period to the pre-existing facility’s maturity in August 2013.

201 0/11: On 12 May 2010, the Group signed a new £360 million revolving credit facility (the £360 million Facility) which came into effect on 9 July 2010 when the Group’s pre-existing £400 million sterling committed facility (the £400 million Facility) was cancelled. This cancellation triggered the acceleration of the amortisation of fees from the £400 million Facility which would otherwise have been charged evenly over the period to the pre-existing facility’s maturity in October 2011. Financial Statements

(vii) 2010/11: On 23 July 2010, the Group conditionally accepted tenders to repurchase £140 million in nominal amount of its £300 million 6.125% Guaranteed Bonds due November 2012 (the 2012 Bonds), subject to the successful completion of appropriate financing to fund the repurchase. This repurchase was financed by a new issue of £150 million 8.75% Guaranteed Notes due 3 August 2015 and for which proceeds were received on 30 July 2010. As a result of the repurchase, charges relating to the acceleration of the amortisation of fees from the 2012 Bonds which would otherwise have been charged evenly over the period to the 2012 Bonds’ maturity in November 2012 has occurred together with a redemption premium. These have been more than offset by gains arising on the notional cancellation of interest rate swaps which were in place on the portion of the 2012 Bonds which have now been redeemed.

(viii) 2011/12: Tax specific non-underlying items comprise adjustments in respect of prior years which relate mainly to the recognition and remeasurement of deferred tax liabilities on historical acquisitions in the Northern Europe division for which differences between the tax written down value and the book value of goodwill from acquisition have been identified and for which IAS 12 requires such recognition. Because these items relate to historical acquisitions from prior years and the liabilities created will not give rise to any actual payment of tax either in the current or future periods in any of the jurisdictions in which the Group operates, the ensuing charge required to create the liability has been treated as non-underlying. The liability which has been recorded and which arises due to accounting standard requirements, is expected to remain for the foreseeable future.

86 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 87 Financial Statements

Notes to the Consolidated Financial Statements (continued)

5 Net finance costs 2011/12 2010/11 Note £million £million

Bank and other interest receivable (ii) 12.4 14.2 Expected return on pension scheme assets 44.8 44.7 Fair value remeasurement gains on financial instruments (iv) 6.3 2.3 2012 Bond redemption gains * – 10.2 Finance income * 63.5 71.4

6.125% Guaranteed Bonds 2012 interest and related charges (9.3) (12.0) 8.75% Guaranteed Notes 2015 interest and related charges (14.0) (9.8) Bank loans, overdrafts and other interest payable: Non-underlying: closed business (0.1) (0.8) Underlying * (iii) (21.3) (22.0) Finance lease interest payable (6.4) (7.1) Interest on pension scheme liabilities (50.5) (50.3) Fair value remeasurement losses on financial instruments (iv) (9.1) (5.1) Accelerated amortisation of facility fees * (2.7) (7.8) 2012 Bond redemption costs * – (2.4) Finance costs * (113.4) (117.3)

Total net finance costs – continuing operations (49.9) (45.9)

Underlying total net finance costs – continuing operations (i) (44.3) (42.3)

(i) Underlying total net finance costs exclude items marked . See note 4 for a description of such items. Net finance costs for the closed business comprise interest on bank loans and overdrafts.*

(ii) Bank and other interest receivable comprise:

2011/12 2010/11 £million £million Interest on cash and cash equivalents and short term investments 2.1 2.1 Derivative interest income 10.3 12.1 12.4 14.2

Derivative interest income includes amounts relating to the remeasurement of financial instruments on an accruals basis. Included within derivative interest income is income of £5.3 million (2010/11 £4.2 million) from financial instruments not in a designated hedging relationship under the rules stipulated by IAS 39.

(iii) Bank loans, overdrafts and other interest payable comprise:

2011/12 2010/11 £million £million Interest on bank loans and overdrafts (11.4) (14.8) Exchange losses (5.3) (3.8) Derivative interest expense (4.6) (3.4) (21.3) (22.0)

Included within exchange losses are losses of £11.9 million (2010/11 losses of £1.2 million) which is a natural offset for gains arising from financial instruments not in a formal designated hedging relationship under the rules stipulated by IAS 39.

Derivative interest expense includes amounts relating to the remeasurement of financial instruments on an accruals basis. Included within derivative interest expense is a £4.6 million charge (2010/11 £3.4 million) from financial instruments not in a designated hedging relationship under the rules stipulated by IAS 39.

(iv) Fair value remeasurement gains and losses on financial instruments include losses of £3.4 million (2010/11 £3.4 million) which are not in a designated hedging relationship under the rules stipulated by IAS 39.

(v) Interest income of £2.1 million (2010/11 £2.1 million) and expense of £36.0 million (2010/11 £58.5 million) is included within net finance costs relating to financial assets and liabilities, respectively not held at fair value through the Income Statement.

88 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 89 6 Employees Staff costs for the period were:

2011/12 2010/11 £million £million Wages and salaries 719.9 745.1 Social security costs 105.2 113.2 Other pension costs 17.0 17.4 842.1 875.7

The average number of employees, including part time employees, was:

2011/12 2010/11 Number Number UK & Ireland 20,851 23,091 Northern Europe 8,748 8,154 Southern Europe 5,214 6,758 PIXmania 1,402 1,398 Corporate centre and shared services 370 332 Continuing operations 36,585 39,733

The average number of employees for Southern Europe includes 139 (2010/11 1,378) relating to the closed business.

7 Tax (a) Income tax expense 2011/12 2010/11 £million £million Current tax UK corporation tax at 25.85%(ii) (2010/11 27.83%) – 0.1 Double tax relief – (0.1) – – Overseas taxation – underlying 29.1 22.7 Adjustment in respect of earlier periods: UK corporation tax – underlying – – Overseas taxation – underlying 4.4 (0.2) – non-underlying: tax specific * 4.1 – 37.6 22.5 Financial Statements Deferred tax Current period – underlying 8.7 18.9 – non-underlying: closed business – – – non-underlying: other * (8.3) (12.3) Adjustment in respect of earlier periods: * UK corporation tax – underlying (1.7) (2.0) – non-underlying: tax specific 2.5 – Overseas taxation – underlying * (4.1) (8.0) – non-underlying: tax specific 9.4 – * 6.5 (3.4)

Income tax expense – continuing operations 44.1 19.1

Underlying income tax expense – continuing operations (i) 36.4 31.4 (i) Underlying income tax expense excludes those items marked *. Further information on these items is shown in note 4. (ii) The UK corporation tax rate for the period was 26% for the period up to 31 March 2012 and 24% thereafter (2010/11 28% for the period up to 31 March 2011 and 26% thereafter).

88 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 89 Financial Statements

Notes to the Consolidated Financial Statements (continued)

7 Tax (continued) A reconciliation of the notional to the actual income tax expense is set out below:

2011/12 2010/11 Note £million £million Loss before tax – continuing operations (118.8) (224.1) Loss before tax – discontinued operations 27 – (2.1) (118.8) (226.2)

Tax on loss at UK statutory rate of 25.85% (2010/11 27.83%) (30.7) (63.0) Non-qualifying depreciation 3.0 3.3 Differences in effective overseas taxation rates (0.3) (1.0) Non-deductible charges 1.0 1.9 Non-taxable (gains) / losses on property disposals (9.8) 1.1 Non-deductible losses – non-underlying: other 50.3 71.4 Overseas deferred tax not recognised – underlying 6.2 3.7 – non-underlying: closed business 1.7 – Adjustment in respect of earlier periods – underlying (1.4) (10.2) – non-underlying: tax specific 16.0 – Non-deductible loss on discontinued operations – 1.0 Effect of change in UK statutory tax rate 4.1 6.0 Other differences 4.0 4.9 Income tax expense – total 44.1 19.1

Income tax attributable to discontinued operations 27 – – Income tax expense – continuing operations 44.1 19.1

The effective tax rate on underlying earnings of 51% (2010/11 37%) is expected to fall in future periods due mainly to unrecognised losses and non-deductible items starting to form a lower proportion of net profits. The Group has total unrecognised deferred tax assets relating to tax losses of £128.6 million (2010/11 £126.1 million) of which £76.9 million (2010/11 £0.9 million) have no time restriction over when they can be utilised. The Group has unrecognised deferred tax assets relating to time restricted tax losses of £51.7 million (2010/11 £125.2 million) for which the weighted average period over which they can be utilised is seven years (2010/11 five years). (b) Deferred tax Accelerated Retirement Losses Other capital benefit carried timing allowances obligations forward differences Total £million £million £million £million £million At 2 May 2010 33.0 75.0 27.5 15.2 150.7 Credited / (charged) to income statement 14.0 (3.2) (3.6) (3.8) 3.4 Charged directly to equity – (7.0) – (2.1) (9.1) Currency retranslation 0.2 – 0.4 0.2 0.8 At 30 April 2011 47.2 64.8 24.3 9.5 145.8 Credited / (charged) to income statement (13.4) (2.6) 10.1 (0.6) (6.5) Charged directly to equity – 2.5 – (1.5) 1.0 Disposals – – (3.6) – (3.6) Currency retranslation (0.9) (0.2) (0.7) 0.1 (1.7) At 28 April 2012 32.9 64.5 30.1 7.5 135.0

90 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 91 Summary of assets and liabilities as disclosed:

2012 2011 £million £million Deferred tax assets 155.2 163.4 Deferred tax liabilities (20.2) (17.6) 135.0 145.8

Analysis of deferred tax relating to items credited / (charged) directly to equity in the period:

2011/12 2010/11 £million £million Actuarial losses / (gains) on defined benefit pension schemes 2.5 (7.0) Net losses on revaluation of cash flow hedges (0.6) (1.9) Net (gains) / losses on hedges of net investments (0.9) 0.4 Charged to comprehensive expense 1.0 (8.5) Share-based payments – (0.6) 1.0 (9.1)

The recognition of trading losses carried forward is considered supportable due to the ability to offset losses against future profits.

As a result of share disposals, allowable losses have been incurred which are available for offset against certain future chargeable gains. A deferred tax asset has not been recognised in respect of these losses as it is considered that there is insufficient evidence that chargeable gains will arise. The deferred tax asset not recognised, measured at the standard rate of 24% (2011 26%), is not less than £301.8 million (2011 £327.0 million). Where permitted, certain deferred tax assets and liabilities have been offset for financial reporting purposes. Financial Statements

90 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 91 Financial Statements

Notes to the Consolidated Financial Statements (continued)

8 Earnings per share 2011/12 2010/11 Note £million £million Basic and diluted loss Total (continuing and discontinued operations) (154.3) (239.0) Discontinued operations – loss after tax 27 – 2.1 Continuing operations (154.3) (236.9)

Adjustments (non-underlying) Closed business 2.9 8.5 Amortisation of acquired intangibles 4.5 4.5 Net restructuring charges 16.3 17.1 Business impairment charges 196.0 251.6 Other items (35.6) 24.9 Net fair value remeasurements of financial instruments 2.8 2.8 Accelerated amortisation of facility fees 2.7 7.8 2012 Bond redemption gains – (7.8) 189.6 309.4 Attributable to non-controlling interests (2.5) (3.6) Attributable to equity shareholders of the parent company 187.1 305.8

Tax on adjustments (8.3) (12.3) Tax specific non-underlying items 16.0 – Attributable to non-controlling interests 0.8 2.2 Tax on adjustments attributable to equity shareholders of the parent company 8.5 (10.1)

Total adjustments (net of taxation) 195.6 295.7

Underlying basic and diluted earnings 41.3 58.8

Million Million Basic weighted average number of shares 3,608.7 3,606.6 Employee share option and ownership schemes 11.5 12.3 Diluted weighted average number of shares 3,620.2 3,618.9

Pence Pence Basic (loss) / earnings per share Total (continuing and discontinued operations) (4.3) (6.6) Discontinued operations – – Continuing operations (4.3) (6.6) Adjustments (net of taxation) 5.4 8.2 Underlying basic earnings per share 1.1 1.6

Diluted (loss) / earnings per share Total (continuing and discontinued operations) (4.3) (6.6) Discontinued operations – – Continuing operations (4.3) (6.6) Adjustments (net of taxation) 5.4 8.2 Underlying diluted earnings per share 1.1 1.6

Basic and diluted earnings per share are based on the profit for the period attributable to equity shareholders. Underlying earnings per share are presented in order to show the underlying performance of the Group. Adjustments used to determine underlying earnings are described further in note 4.

92 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 93 9 Goodwill 2012 2011 £million £million Cost At beginning of period 1,538.1 1,516.5 Additions 5.1 2.6 Disposals (0.2) (15.1) Currency retranslation (99.2) 34.1 At end of period 1,443.8 1,538.1 Impairment At beginning of period 567.3 400.0 Non-underlying impairment 174.3 174.6 Disposals – (15.1) Currency retranslation (38.5) 7.8 At end of period 703.1 567.3

Net book value at the end of period 740.7 970.8

(a) Carrying value The carrying value of goodwill is made up of the following businesses: 2012 2011 £million £million Elkjøp Nordic AS (Elkjøp) 650.9 686.6 Unieuro S.p.A. (Unieuro) 26.6 146.9 PIXmania S.A.S. (PIXmania) 46.1 80.8 Dixons South East Europe A.E.V.E. (Kotsovolos) – 39.4 Others 17.1 17.1 740.7 970.8

The non-underlying impairment charges, which form part of non-underlying operating profit, comprise: 2012 2011 £million £million Unieuro 109.4 – PIXmania 28.4 106.3 Kotsovolos 36.5 53.2 Closed business – 15.1 Financial Statements 174.3 174.6

2011/12: For all three businesses impaired, increasing weaknesses in the Southern European economies which were particularly evident over the peak trading period, together with the ensuing expectations that the achievability of targets will be considerably less than previously forecast and recovery may be prolonged, has caused the directors to revise projections for the five year period referred to below significantly downwards when compared to previous periods, thereby giving rise to impairment charges.

The revised projections for Unieuro incorporate management’s actions on costs as well as improving the estate and competitiveness in the market. In respect of PIXmania, as described in the performance review section of this Annual Report and Accounts, this business has been evolving its business model through growth in new product categories, its E-merchant e-commerce platform, as well as other initiatives. Such actions are considered by management, through the impairment modelling described below, to appropriately support the remaining carrying value of the goodwill for Unieuro and PIXmania.

The projections for Kotsovolos demonstrate a robust market position, however, the uncertainty concerning the outlook for the economy in Greece has supressed the projections such that the remaining value of goodwill has been impaired down to £nil.

2010/11: The disposal related to the closed business resulting from there being no ongoing business attaching to the goodwill.

Further details of these charges is shown in note 4 and the methodology used in their calculation is set out below.

92 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 93 Financial Statements

Notes to the Consolidated Financial Statements (continued)

9 Goodwill (continued)

(b) Impairment testing As required by IAS 36, goodwill is subject to annual impairment reviews. These reviews are carried out using the following criteria: ■■business acquisitions generate an attributed amount of goodwill; ■■the manner in which these businesses are run and managed is used to determine the ‘Cash Generating Unit’ (CGU) grouping as defined in IAS 36 ‘Impairment of Assets’; ■■the recoverable amount of each CGU group is determined based on calculating its value in use (VIU); ■■the VIU is calculated by applying discounted cash flow modelling to management’s own projections covering a five year period; ■■cash flows beyond the five year period are extrapolated using a long term growth rate equivalent to the relevant market’s Gross Domestic Product (GDP); and ■■the VIU is then compared to the carrying amount in order to determine whether impairment has occurred.

The key assumptions used in calculating value in use are: ■■management’s five year projections; ■■the growth rate beyond five years; and ■■the pre-tax adjusted discount rate.

The five year projections, which have been approved by management, have been prepared using risk adjusted strategic plans which have regard to the relative performance of competitors and knowledge of the current market together with management’s views on the future achievable growth in market share and impact of the committed initiatives under the Renewal and Transformation plan (which includes upgrade of the store network). The cash flows which derive from these five year projections include ongoing capital expenditure required to develop and upgrade the store network in order to maintain and operate the businesses and to compete in their markets. In forming the five year projections, management draws on past experience as a measure to forecast future performance.

Key assumptions used in determining the five year projections comprise the growth in sales and costs over this period. The compound annual growth rate in sales and costs can rise as well as fall year on year depending not only on the year five targets, but also on the current financial year base. These targets, when combined, accordingly drive the resulting profit margins and the profit in year five of the projections which is in turn used to calculate the terminal value in the VIU calculation. Historical amounts for the businesses under impairment review as well as from other parts of the Group are used to generate the values attributed to these assumptions.

The growth rate beyond five years is based on the GDP for the territories in which these businesses operate. The discount rates applied to cash flows are based on the Group’s weighted average cost of capital having regard to the strategic five year plans themselves already being risk adjusted to take account of specific risks in the relevant market or region.

The values attributed to these assumptions are as follows:

2012 2011 Compound Compound Growth rate Compound Compound Growth rate annual growth annual growth beyond five Pre-tax annual growth in annual growth in beyond five Pre-tax in sales in costs years discount rate sales costs years discount rate Elkjøp 6.1% 6.1% 2.5% 11.4% 4.3% 4.4% 2.6% 11.7% Unieuro 6.9% 6.0% 1.5% 11.8% 11.8% 11.1% 0.9% 12.5% PIXmania 10.5% 9.4% 2.0% 11.1% 8.7% 8.3% 1.8% 12.7% Kotsovolos 3.1% 1.8% 1.5% 10.7% 1.8% 0.9% 2.0% 11.7%

94 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 95 (c) Sensitivities A sensitivity analysis had been performed on each of the base case assumptions used for assessing the goodwill with other variables held constant. Consideration of sensitivities to key assumptions can evolve from one financial year to the next.

The directors have concluded that in the case of Elkjøp there are no reasonably possible changes in any key assumption which would cause the carrying amount of goodwill to exceed its value in use. In the case of Unieuro and PIXmania it is reasonably possible that a change in a key assumption could occur and because the value in use equals the respective carrying value after impairment, any adverse change in a key assumption would, in isolation, cause a further impairment loss to be recognised. The following sensitivities are therefore presented, which are calculated independently, leaving all other variables constant: ■■decrease in the compound annual growth rate in sales; ■■increase in the compound annual growth rate in costs; ■■decrease in the growth rate beyond five years; and ■■increase in the pre-tax discount rate.

In addition to the above, a further sensitivity is presented which shows the effect of a decrease in the compound annual growth rate in sales combined with an equivalent reduction in the compound annual growth rate in costs in order to reflect how sales and costs are interconnected.

2012 Amount of further impairment determined by further changes in key assumptions Decrease in Surplus of Decrease in Increase in compound Decrease in value in use compound compound annual growth growth rate Increase in over carrying annual growth annual growth in sales and beyond five pre-tax value in sales in costs costs years discount rate Percentage change (0.05)% 0.05% (1.0)% (0.1)% 0.5%

£million £million £million £million £million £million Unieuro – 17.0 16.9 3.0 0.9 5.6 PIXmania – 18.7 18.5 4.4 1.2 7.9

2011 Change required for surplus of value in use over carrying value to erode to £nil Surplus of value Decrease in Increase in Decrease in Decrease in in use over compound compound compound growth rate Increase in carrying value annual growth in annual growth in annual growth in beyond five pre-tax £million sales costs sales and costs years discount rate Unieuro 20.5 (0.05)% 0.05% (2.8)% (1.7)% 1.1%

2011 Financial Statements Amount of further impairment determined by further changes in key assumptions Decrease in Increase in Decrease in Decrease in Surplus of value compound compound compound growth rate Increase in in use over annual growth annual growth annual growth in beyond five pre-tax carrying value in sales in costs sales and costs years discount rate Percentage change (0.05)% 0.05% (1.0)% (0.1)% 0.5%

£million £million £million £million £million £million PIXmania – 17.7 17.7 6.7 1.0 7.1 Kotsovolos – 8.3 8.2 4.0 0.8 5.5

94 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 95 Financial Statements

Notes to the Consolidated Financial Statements (continued)

10 Intangible assets Other intangibles Software Software Acquired (externally (internally intangibles acquired) generated) Sub-total Total £million £million £million £million £million Cost At 2 May 2010 87.3 121.0 69.7 190.7 278.0 Additions – 19.2 5.2 24.4 24.4 Disposals – (2.0) (0.7) (2.7) (2.7) Currency retranslation 1.5 1.2 0.4 1.6 3.1 At 30 April 2011 88.8 139.4 74.6 214.0 302.8 Additions – 9.5 3.7 13.2 13.2 Disposals – (3.8) (1.8) (5.6) (5.6) Currency retranslation (6.5) (3.5) (1.2) (4.7) (11.2) At 28 April 2012 82.3 141.6 75.3 216.9 299.2

Amortisation At 2 May 2010 31.1 72.2 44.0 116.2 147.3 Charge for the period – regular 4.5 12.6 10.1 22.7 27.2 – accelerated – 0.1 – 0.1 0.1 Non-underlying impairment – 15.6 – 15.6 15.6 Disposals – (1.7) (0.7) (2.4) (2.4) Currency retranslation 0.7 1.0 0.2 1.2 1.9 At 30 April 2011 36.3 99.8 53.6 153.4 189.7 Charge for the period – regular 4.5 10.4 8.0 18.4 22.9 Disposals – (3.8) (1.6) (5.4) (5.4) Currency retranslation (2.5) (2.7) (0.9) (3.6) (6.1) At 28 April 2012 38.3 103.7 59.1 162.8 201.1 Net book value At 28 April 2012 44.0 37.9 16.2 54.1 98.1

At 30 April 2011 52.5 39.6 21.0 60.6 113.1

Acquired intangibles predominantly comprise brand names. Amortisation of intangibles relates to continuing operations.

Included within the carrying amount of brand names are £27.2 million and £14.6 million (2011 £32.8 million and £16.5 million) relating to the euro denominated PIXmania and Kotsovolos brand names, respectively and for which the remaining life of these assets is nine years and 22 years, respectively. Included in net book value of other intangibles are assets under construction of £15.8 million (2011 £18.6 million).

96 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 97 11 Property, plant & equipment 2012 2011

Fixtures, Fixtures, Land and fittings and Land and fittings and buildings equipment Total buildings equipment Total £million £million £million £million £million £million Cost At beginning of period 209.6 1,327.9 1,537.5 205.8 1,250.0 1,455.8 Additions 2.1 78.7 80.8 4.9 189.2 194.1 Disposals (56.9) (166.0) (222.9) (4.8) (127.8) (132.6) Currency retranslation (1.7) (38.4) (40.1) 3.7 16.5 20.2 At end of period 153.1 1,202.2 1,355.3 209.6 1,327.9 1,537.5

Depreciation At beginning of period 64.4 889.4 953.8 57.8 857.0 914.8 Charge for the period – regular 5.8 114.6 120.4 7.7 109.0 116.7 – accelerated – 3.4 3.4 – 2.0 2.0 Non-underlying impairment 3.7 6.4 10.1 – 25.0 25.0 Reclassification 13.3 (13.3) – Disposals (29.7) (160.2) (189.9) (2.3) (115.6) (117.9) Currency retranslation (0.1) (22.8) (22.9) 1.2 12.0 13.2 At end of period 57.4 817.5 874.9 64.4 889.4 953.8

Net book value at end of period 95.7 384.7 480.4 145.2 438.5 583.7

Included in net book value Land not depreciated 9.5 – 9.5 19.7 – 19.7 Assets in the course of construction – 14.5 14.5 0.1 9.7 9.8 Assets held under finance leases 69.8 4.8 74.6 74.2 3.3 77.5

£4.8 million of additions related to finance leases (2010/11 £2.4 million). Legal title for these leased assets remains with the lessor. Assets disclosed as held under finance leases for 2011 have been restated from those disclosed in the 2010/11 accounts, however, such disclosure has had no other impact on the financial statements.

12 Investments in associates 2012 2011 £million £million Financial Statements At beginning of period 3.4 26.4 Share of profit / (loss) after tax 0.6 (0.4) Acquisitions 0.1 – Transfer of associate to subsidiary undertakings (0.5) – Non-underlying impairment – (21.5) Dividends – (1.1) Currency retranslation (0.1) – At end of period 3.5 3.4

Comprising: F-Group (40%) 2.7 2.9 Other 0.8 0.5 3.5 3.4

The transfer of associate to subsidiary undertakings relates to a previous small associate shareholding which became a subsidiary following the acquisition of the remaining shares during the period.

96 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 97 Financial Statements

Notes to the Consolidated Financial Statements (continued)

12 Investments in associates (continued) The Group’s share of post-tax results of associates is recorded as a single line in the income statement within operating results. Additional information for selected income statement and balance sheet headings for F-Group, which is incorporated in Denmark, and to which the Group’s share of 40% is applied are as follows:

2011/12 2010/11 £million £million Income statement Revenue 221.4 227.7 Profit / (loss) after tax 0.9 (1.7)

2012 2011 £million £million Balance sheet Assets 58.3 68.1 Liabilities (27.9) (35.9) Net assets 30.4 32.2

In 2010/11 the non-underlying impairment related to continued weakness in the results of F-Group which gave rise to a revision in expectations of future profitability such that the directors concluded that an impairment charge was required. The impairment was calculated by comparing the carrying value of the investment with the Group’s share of the value in use, which was calculated using principles described in note 9 and using a pre-tax discount rate of 12.2%.

Investments in other associates comprise shareholdings in several different enterprises in the Nordic region, none of which are significant.

13 Inventories 2012 2011 £million £million Finished goods and goods for resale 908.6 1,002.5 Provision for obsolete and slow moving goods (34.4) (41.6) 874.2 960.9

14 Trade and other receivables 2012 2011 Current Non-current Current Non-current Note £million £million £million £million Trade debtors 220.4 5.7 243.7 9.4 Provision for bad and doubtful debts (24.8) – (24.2) (1.7) 195.6 5.7 219.5 7.7 Derivative financial instruments 22 13.0 – 3.5 18.3 Other debtors 47.2 16.9 68.3 12.7 Prepayments 65.4 1.0 60.6 2.8 Accrued income 22.7 – 31.3 8.1 343.9 23.6 383.2 49.6

The majority of trade and other receivables are non-interest bearing and are generally on 30 to 90 day terms. The balance comprises both B2B receivables and consumer credit receivables with no material individual balances. The total financial assets included within trade and other receivables are £301.1 million (2011 £369.4 million). The carrying amount of trade and other receivables approximates fair value with no concentration of credit risk.

98 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 99 The Group’s trade debtors included the following amounts which are past due at the end of the period and for which the Group has not provided for owing to the amounts being considered recoverable:

2012 2011 £million £million Up to six months past due 34.1 42.9 Six to 12 months past due 1.3 0.8 Over 12 months past due – 1.7 35.4 45.4

Movements on the provision for bad and doubtful debts are as follows:

2012 2011 £million £million At beginning of period 25.9 28.2 Charge for the year 6.5 9.4 Utilisation of provision (6.5) (11.8) Currency retranslation (1.1) 0.1 At end of period 24.8 25.9

The Group does not hold any collateral as security over receivables balances.

15 Short term investments 2012 2011 £million £million Floating rate notes 2.3 2.6 Money market deposits 5.0 7.9 7.3 10.5

Floating rate notes have a nominal value of £2.8 million (2011 £3.1 million) and have an average expected maturity of 12.9 years (2011 9.5 years). Money market deposits are made for varying periods of 90 to 180 days with an average maturity of 118 days (2011 90 days). The carrying amount of money market deposits approximates their fair value.

Short term investments include £nil (2011 £7.4 million) which, together with certain cash and cash equivalents, are held under trust to fund customer support agreement liabilities as disclosed in note 26.

16 Cash and cash equivalents 2012 2011 Financial Statements £million £million Cash at bank 199.3 195.3 Money market deposits 117.5 139.4 316.8 334.7

Cash at bank earns interest at floating rates based either on daily bank deposit rates or central bank lending rates. Money market deposits are made for varying periods of up to 90 days with an average maturity of 17 days (2011 31 days). The carrying amount of money market deposits approximates their fair value.

98 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 99 Financial Statements

Notes to the Consolidated Financial Statements (continued)

17 Borrowings 2012 2011 £million £million Current Bank overdrafts 15.8 5.6 6.125% Guaranteed Bonds 2012 162.5 – Other borrowing – 130.0 178.3 135.6 Non-current 6.125% Guaranteed Bonds 2012 – 168.2 8.75% Guaranteed Notes 2015 147.8 147.1 147.8 315.3

Bank overdrafts are repayable on demand.

At 28 April 2012 there were no drawings under the £360 million revolving credit facility (the £360 million Facility) (2011 £130.0 million at a weighted average effective yield of 4.35% with an average maturity of five days). The £360 million Facility has a maturity date of August 2013, however, this will be affected by a new revolving facility agreement which is discussed further below. The £360 million Facility is described further in note 22(d). The available undrawn amount of the £360 million Facility was £360 million (2011 £230 million). The carrying amount of current borrowings and overdrafts approximates their fair value.

On 24 May 2012, the Group signed an amendment and restatement agreement implementing a revised revolving facility agreement (the New Facility) for £300 million. The New Facility, which has a maturity date of 30 June 2015, amends the £360 million Facility and the terms and covenants attaching to the New Facility are substantially the same as that for the £360 million Facility. The New Facility will reduce in size over its life to £200 million by September 2014, further information on which is provided in note 32.

The 6.125% Guaranteed Bonds 2012 (the 2012 Bonds) are denominated in sterling with a nominal value of £160 million, paying interest annually, are unsecured, are guaranteed by DSG Retail Limited, a subsidiary undertaking, and are listed on the London Stock Exchange. Unless previously redeemed or purchased and cancelled they will be redeemed at par on 15 November 2012. The 2012 Bonds may be redeemed in whole or in part at their principal amount plus accrued interest by providing 30 to 60 days’ notice to the bondholder. The 2012 Bonds may also be purchased in the open market by any company within the Group. In either circumstance, the 2012 Bonds and any unmatured coupons will be cancelled and may not be re-issued or re-sold. In the event of a change of control, if the rating of the 2012 Bonds were to have fallen below a specified level, bondholders would have the right to redemption. The value of the 2012 Bonds excludes accrued interest of £4.4 million (2011 £4.5 million), included in trade and other payables.

The 8.75% Guaranteed Notes 2015 (the 2015 Notes) are denominated in sterling with a nominal value of £150 million, paying interest semi-annually, and are guaranteed by a number of UK and Irish subsidiary undertakings of the Group, including DSG Retail Limited. The 2015 Notes are listed on the London Stock Exchange. Unless previously redeemed or purchased and cancelled the 2015 Notes will be redeemed at par on 3 August 2015. The 2015 Notes may be redeemed in whole or in part at their principal amount plus accrued interest by providing 30 to 60 days’ notice to the Noteholders. The 2015 Notes may also be purchased in the open market by any company within the Group. In either circumstance, the 2015 Notes and any unmatured coupons will be cancelled and may not be re-issued or re-sold. In the event of a specific change of control event, each Noteholder has an option to require Dixons Retail plc to redeem or, at the option of Dixons Retail plc, purchase (or procure the purchase of) any of the 2015 Notes held by such Noteholder at a cash price equal to 101% of their principal amount together with interest accrued. The value of the 2015 Notes excludes accrued interest of £3.2 million (2011 £3.2 million), included in trade and other payables.

Further information concerning fair value, hedging and ensuing interest rate and currency profiles relating to the 2012 Bonds and the 2015 Notes is included in note 22.

100 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 101 18 Obligations under finance leases 2012 2011 Present value Present value of minimum of minimum Minimum lease lease Minimum lease lease payments payments payments payments £million £million £million £million Amounts due: Within one year 10.1 9.2 9.4 8.5 In more than one year and not more than five years 34.8 28.2 33.7 28.5 In more than five years 139.7 64.6 132.9 64.1 184.6 102.0 176.0 101.1 Less future finance charges (82.6) – (74.9) – Present value of lease obligations 102.0 102.0 101.1 101.1 Less amounts due within one year (3.1) (3.1) (3.1) (3.1) Amounts due after more than one year 98.9 98.9 98.0 98.0

The majority of finance leases relate to properties in the UK where obligations are denominated in sterling and lease terms vary between 13 and 24 years. The effective borrowing rate on individual leases ranged between 5.51% and 8.15% (2011 between 4.57% and 8.15%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The total value of minimum sub-lease payments expected to be received under non-cancellable sub-leases was £nil (2011 £2.7 million).

The fair value of the Group’s lease obligations approximates their carrying amount.

19 Trade and other payables 2012 2011 Current Non-current Current Non-current Note £million £million £million £million Trade creditors 961.1 – 1,055.3 5.2 Other taxation and social security 133.5 – 132.6 – Derivative financial instruments 22 67.2 – 6.5 78.9 Other creditors 36.5 21.8 61.1 16.0 Accruals 230.2 83.6 236.4 81.5 Deferred income – customer support agreements 120.5 147.0 122.3 148.6 Deferred income – other 30.0 2.8 30.0 0.8

1,579.0 255.2 1,644.2 331.0 Financial Statements

Included in other creditors and accruals is £60.4 million (2011 £61.0 million) relating to other non-financial liabilities. The total financial liabilities included in trade and other payables are £1,340.0 million (2011 £1,479.9 million). The carrying amount of trade and other payables approximates their fair value.

100 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 101 Financial Statements

Notes to the Consolidated Financial Statements (continued)

20 Provisions 2012 2011 Property Severance Property Severance related and other Total related and other Total £million £million £million £million £million £million At beginning of period 38.4 21.9 60.3 45.8 6.0 51.8 Additions 17.5 5.5 23.0 13.5 25.7 39.2 Utilisation (23.6) (20.2) (43.8) (21.0) (9.9) (30.9) Currency retranslation (1.2) (0.1) (1.3) 0.1 0.1 0.2 At end of period 31.1 7.1 38.2 38.4 21.9 60.3

Analysed as: Current 11.5 7.1 18.6 22.5 21.9 44.4 Non-current 19.6 – 19.6 15.9 – 15.9 31.1 7.1 38.2 38.4 21.9 60.3

Additions during the period relate to restructuring and business impairment charges which are described further in note 4. Property related provisions mainly comprise onerous lease contracts.

Of the amounts included within non-current liabilities remaining at 28 April 2012, the majority are expected to be utilised within the next five years.

21 Retirement and other post-employment benefit obligations 2012 2011 £million £million

Retirement benefit obligations – UK 21 (b) – (d) (261.9) (244.0) – Northern Europe (4.1) (3.3) (266.0) (247.3)

The Group operates a number of defined contribution and defined benefit pension schemes.

The principal scheme which operates in the UK includes a funded defined benefit section whose assets are held in a separate trustee administered fund. The scheme is valued by a qualified actuary at least every three years and contributions are assessed in accordance with the actuary’s advice so as to spread the pension cost over the normal expected service lives of members. Since 1 September 2002, the defined benefit section of the scheme has been closed to new entrants and on 30 April 2010 was closed to future accrual with automatic entry into the defined contribution section being offered to those active members of the defined benefit section at that time. Membership of the defined contribution section is offered to eligible employees.

In the Northern Europe division, the Group operates two funded secured defined benefit pension schemes with assets held by a life insurance company as well as an unsecured pension arrangement. In addition, contributions are made to a state pension scheme. The net movement in the obligation comprises a charge to operating profit of £0.6 million (2010/11 £0.8 million) with the remaining movements relating to the benefits paid in the period, actuarial gains / (losses) and currency retranslation.

In other territories, the Group also provides other post-employment benefits which are largely governed by statute, in particular in Italy and Greece. These benefits are unfunded.

(a) Defined contribution pension schemes The pension charge in respect of defined contribution schemes was £12.6 million (2010/11 £12.3 million).

102 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 103 (b) UK Defined benefit pension scheme – actuarial valuation and assumptions A full actuarial valuation of the scheme was last carried out as at 31 March 2010 and showed a shortfall of assets compared with liabilities of £239.0 million. A ‘recovery plan’ based on this valuation has been agreed with the trustee and commenced in 2010/11 with special contributions of £12.0 million, which rose to £16.0 million in 2011/12 and will rise to £20.0 million for 2012/13 and 2013/14, rising approximately annually thereafter to £35.0 million by 2020/21. The next triennial valuation will be as at 31 March 2013.

The principal actuarial assumptions as at 31 March 2010 were:

Rate per annum Discount rate for accrued benefits – Pre retirement 6.4% – Post-retirement 5.1% – 5.3% Rate of increase to pensions – Guaranteed Minimum Pension 0% – 2.8% – Pension in excess of Guaranteed Minimum Pension 2.4% – 4.1% Inflation 3.7% Expected return on assets 6.6%

At 31 March 2010, the market value of the scheme’s investments was £672.0 million and, based on the above assumptions, the value of the assets was sufficient to cover 74% of the benefits accrued to members with the liabilities amounting to £911.0 million.

(c) UK Defined benefit pension scheme – IAS 19 The following summarises the components of net benefit expense recognised in the consolidated income statement, the funded status and amounts recognised in the consolidated balance sheet. The methodologies set out in IAS 19 are different from those used by the scheme actuaries in determining funding arrangements.

(i) Principal assumptions adopted The assumptions used in calculating the expenses and obligations are set by the directors after consultation with the independent actuaries.

Rates per annum 2012 2011 Discount rate 5.2% 5.4% Rate of increase in pensions in payment / deferred pensions (pre / post April 2006 accrual) 3.1% / 2.1% 3.3% / 2.2% Inflation 3.2% 3.4%

The Group uses certain demographic assumptions when calculating scheme obligations which are those underlying the last formal actuarial valuation of the scheme as at 31 March 2010. In particular, post-retirement mortality has been assumed to follow the standard mortality tables ‘S1’ All Pensioners tables published by the CMI, based on the experience of Self-Administered Pension Schemes (‘SAPS’) from 2000 to 2006 with medium cohort improvements up to 2009 and multipliers of 105% for males and 110% for females. In addition, an allowance has been made for future improvements in longevity by using the new CMI 2009 Core projections with a long term rate of Financial Statements improvement of 1.5% per annum for men and 1.0% per annum for women. Applying such tables results in an average expected longevity of between 87.1 years and 88.7 years for men and between 88.5 years and 89.6 years for women (2011 between 86.9 years and 88.6 years for men and between 88.4 years and 89.6 years for women) for those becoming 65 at the measurement date.

(ii) Amounts recognised in consolidated income statement 2011/12 2010/11 £million £million Expected return on plan assets 44.8 44.7 Interest cost on benefit obligations (50.5) (50.3) Net other finance costs (5.7) (5.6)

Other than the payments under the recovery plan, the Group does not expect to make any further contributions to its UK defined benefit pension scheme in 2012/13.

102 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 103 Financial Statements

Notes to the Consolidated Financial Statements (continued)

21 Retirement and other post-employment benefit obligations( continued) (iii) Amounts recognised in the consolidated balance sheet 2012 2011 2010 2009 2008 £million £million £million £million £million Present value of defined benefit obligations (991.8) (949.7) (929.4) (693.3) (740.7) Fair value of plan assets 729.9 705.7 665.9 544.5 689.7 Net obligation (261.9) (244.0) (263.5) (148.8) (51.0)

Changes in the present value of the defined benefit obligation:

2012 2011 £million £million Opening obligation 949.7 929.4 Interest cost 50.5 50.3 Actuarial loss / (gain) 24.6 (3.7) Benefits paid (33.0) (26.3) Closing obligation 991.8 949.7

Changes in the fair value of the scheme assets:

2012 2011 £million £million Opening fair value 705.7 665.9 Expected return 44.8 44.7 Employer special contributions 16.0 12.0 Actuarial (loss) / gain (3.6) 9.4 Benefits paid (33.0) (26.3) Closing fair value 729.9 705.7

104 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 105 Analysis of scheme assets:

2012 2011 % of fair value % of fair value of Long term of total Long term total expected rate scheme expected rate of scheme of return £million assets return £million assets Equities (UK / Overseas) 7.0% / 7.6% 481.7 66.0% 7.3% / 7.3% 471.8 66.9% Property 5.2% 32.9 4.5% 5.8% 33.3 4.7% Bonds / gilts 3.4% 205.8 28.2% 4.3% 185.7 26.3% Cash 3.2% 9.5 1.3% 3.4% 14.9 2.1% 729.9 705.7

The overall expected rate of return on assets is determined based on the market prices prevailing at the balance sheet date, applicable to the period over which the obligation is to be settled. Actual return on the scheme assets was a gain of £41.2 million (2010/11 gain of £54.1 million). The actual return on other post-employment benefit scheme assets was not significant.

(iv) Experience adjustments recognised in the consolidated statement of comprehensive income and expense: 2012 2011 2010 2009 2008 £million £million £million £million £million (Loss) / gain on scheme liabilities (24.6) 3.7 (241.4) 81.8 17.0 (Loss) / gain from actual less expected return on assets (3.6) 9.4 85.4 (196.1) (41.7) Actuarial (losses) / gains (28.2) 13.1 (156.0) (114.3) (24.7)

Cumulative actuarial (loss) / gain (276.6) (248.4) (261.5) (105.5) 8.8

(d) Sensitivities The value of the UK defined benefit pension scheme assets is sensitive to market conditions, particularly equity values. Changes in assumptions used for determining retirement benefit costs and liabilities may have a material impact on the 2012/13 income statement and the balance sheet. The main assumptions are the discount rate, the rate of inflation and the assumed mortality rate. The following table provides an estimate of the potential impacts of each of these variables if applied to the current period consolidated income statement and balance sheet.

Net finance costs Net deficit 2011/12 2010/11 2012 2011 Positive / (negative) effect: £million £million £million £million Discount rate: 0.25% increase 0.2 0.3 53.3 49.6 †

Inflation rate: 0.25% increase (2.4) (2.4) (47.6) (42.9) Financial Statements Mortality rate: 1 year increase (1.3) (1.4) (25.8) (25.4)

†The increase in scheme benefits provided to members on retirement is subject to an inflation cap.

(e) Other post-employment benefits – IAS 19 The Group offers other post-employment benefits to employees in overseas locations. At 28 April 2012 the net obligation in relation to these benefits was £11.1 million (2011 £11.6 million). The net movement in the obligation comprises a charge to operating profit of £3.8 million (2010/11 £4.3 million) with the remaining movements relating to the benefits paid in the period and currency retranslation.

104 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 105 Financial Statements

Notes to the Consolidated Financial Statements (continued)

22 Financial instruments (a) Financial risk management objectives and policies Treasury operations are managed centrally within policies approved by the Board and are subject to periodic independent internal and external reviews. Group Treasury reports regularly to the Audit Committee and the Tax & Treasury Committee. The major treasury risks to which the Group is exposed relate to market risks (movements in foreign exchange and interest rates), liquidity risk and credit risk. Areas where risks are most likely to occur are evaluated regularly. The Group uses financial instruments and derivatives to manage these risks in accordance with defined policies. Throughout the period under review, in accordance with Group policy, no speculative use of derivatives, foreign exchange or other instruments was permitted.

The Group’s accounting policies in relation to derivatives are set out in note 1.16.

Exchange rate risk The Group is exposed to exchange movements on recognised assets and liabilities, overseas earnings and translated values of foreign currency assets and liabilities. The Group’s principal translation currency exposures are the euro and Norwegian krone. Taking into account the cost of hedging, the Group’s policy is to match, in whole or in part, currency earnings with related currency costs and currency assets with currency liabilities through the use of appropriate hedging instruments.

The Group is also exposed to certain transactional currency exposures. Such exposures arise from purchases in currencies other than in the functional currency of the entity. The Group’s principal transactional currency exposures are the US dollar and euro. It is Group policy to minimise the currency exposures on such purchases through the use of appropriate hedging instruments such as forward exchange contracts. Such contracts are designed to cover exposures ranging from one month to one year.

Interest rate risk The principal interest rate risks of the Group arise in respect of sterling cash, investments and euro and sterling borrowings. Potential exposure to interest rate movements is mitigated by the Group’s policy to match to the extent possible the profile of interest payments with that of its interest receipts. Taking into account the cost of hedging, further mitigation is achieved with interest based credit commissions received and through the use of interest based hedging instruments. Such matching is evaluated regularly to ensure that risks are minimised.

Liquidity risk It is Group policy to maintain a balance of funds, borrowings, committed bank and other facilities sufficient to meet anticipated short term and long term financial requirements. In applying this policy the Group continuously monitors forecast and actual cash flows against the maturity profiles of financial assets and liabilities. Uncommitted facilities are used if available on advantageous terms. It is Group treasury policy to ensure that a specific level of committed facilities is always available based on forecast working capital requirements.

Cash forecasts identifying the Group’s liquidity requirements are produced and are stress tested for different scenarios including, but not limited to, reasonably possible decreases in profit margins and increases in interest rates on the Group’s borrowing facilities and the weakening of sterling against other functional currencies within the Group.

Credit risk The Group’s exposure to credit risk on liquid funds, investments (mainly bank deposits and floating rate notes) and derivative financial instruments arises from the risk of non-performance of counterparties, with a maximum exposure equal to the book value of these assets. The Group limits its exposure to credit risk through application of Group treasury policy which restricts exposure to counterparties to those with a minimum Moody’s long term credit rating below A1, bank financial strength rating below C and short term credit rating below P1. The Group also has policies that limit the amount of credit exposure to any single financial institution. The Group continuously reviews the credit quality of counterparties, the limits placed on individual credit exposures and categories of investments. The Group does not anticipate non-performance of counterparties and believes it is not subject to material concentration of credit risk given the policies in place.

The Group’s receivable balances comprise a large number of individually small amounts from unrelated customers, spread across diverse industries and geographical areas. Concentration of risk is therefore limited and maximum exposure is equal to the book value of receivables. Sales to retail customers are made predominantly in cash or via major credit cards. It is Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. New credit customers are assessed using an external rating report which is used to establish a credit limit. Such limits are reviewed periodically on both a proactive and reactive basis, for example, when a customer wishes to place an order in excess of their existing credit limit. Receivable balances are monitored regularly with the result that the Group’s exposure to bad debts is not significant. Management therefore believe that there is no further credit risk provision required in excess of the normal provision for doubtful receivables.

106 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 107 Capital risk management It is the Group’s policy to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Group is subject to certain externally imposed capital requirements in the form of banking covenants involving borrowing ratios which it met throughout the period.

The Board has delegated responsibility for routine capital expenditure to a Capital Committee, which has approval responsibility for: Group long term and budgeted capital spend, setting capital assessment criteria, new store capital approval, subsidiary company funding, business acquisitions, business disposals and contingent liabilities such as guarantees. The Committee also approves routine statutory and internal delegated powers of authority in relation to capital expenditure.

The Group considers the manner in which funds are distributed to shareholders by assessing the performance of the business, the level of available net funds and the short to medium term strategic plans concerning future capital spend as well as the need to meet banking covenants and borrowing ratios. Such assessment will influence the level of dividends payable as well as consideration from time to time of market purchases of the Group’s own shares.

The Group monitors available net funds on a regular basis and this is affected by Free Cash Flow, one of the Group’s key performance indicators as defined further in the Strategic Summary section of the Directors’ Report.

(b) Fair values of financial assets and liabilities For receivables and payables classified as financial assets and liabilities in accordance with IAS 32, fair value is estimated to be equivalent to book value. These values are shown in notes 14 and 19, respectively. The categories of financial assets and liabilities and their related accounting policy are set out in notes 1.11 and 1.15.

For those financial assets and liabilities which bear either a floating rate of interest or no interest, fair value is estimated to be equivalent to book value. These values are shown in note 22(d).

The fair value of the 2012 Bonds is £160.4 million (2011 £154.4 million). The 2012 Bonds are carried at amortised cost, plus a fair value adjustment, as a result of the fair value hedge discussed below. Excluded from the fair value is £4.4 million (2011 £4.5 million) of accrued interest which is included in trade and other payables.

The fair value of the 2015 Notes is £147.4 million (2011 £129.8 million). The 2015 Notes are carried at amortised cost. Excluded from the fair value is £3.2 million (2011 £3.2 million) of accrued interest which is included in trade and other payables.

Fair value of derivatives is predominantly determined using observable market data such as interest rates and foreign exchange rates. As such, derivatives are classified as ‘Level 2’ under the requirements of IFRS 7 ‘Financial Instruments: Disclosures’.

Fair values of derivatives by designation 2012 Financial Statements Trade and other receivables Trade and other payables Current Non-current Current Non-current Total Derivatives held to: £million £million £million £million £million Hedge interest rate risk 9.0 – – – 9.0 Manage the currency exposure of: Financial assets and liabilities 1.5 – (3.9) – (2.4) Net investments in overseas subsidiaries – – (62.6) – (62.6) Future transactions occurring within one year 2.5 – (0.7) – 1.8 Total derivatives 13.0 – (67.2) – (54.2)

2011

Trade and other receivables Trade and other payables Current Non-current Current Non-current Total Derivatives held to: £million £million £million £million £million Hedge interest rate risk – 18.3 – – 18.3 Manage the currency exposure of: Financial assets and liabilities 0.6 – (2.4) – (1.8) Net investments in overseas subsidiaries – – – (78.9) (78.9) Future transactions occurring within one year 2.9 – (4.1) – (1.2) Total derivatives 3.5 18.3 (6.5) (78.9) (63.6)

Included in derivative financial instruments are forward foreign currency contracts, options, interest rate swaps and currency swaps.

106 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 107 Financial Statements

Notes to the Consolidated Financial Statements (continued)

22 Financial instruments (continued) (c) Hedging activities The Group manages exposures that arise on purchases and sales denominated in foreign currencies predominantly by entering into forward foreign exchange currency contracts. It also uses swaps and options to manage its interest rate and foreign exchange translation exposure.

At 28 April 2012 the Group had interest rate swaps designated as fair value hedges for the 2012 Bonds with a notional amount of £125 million (2011 £125 million) whereby it receives a fixed interest rate of 6.125% and pays a floating rate of interest based on LIBOR.

At 28 April 2012 the Group also had interest rate swaps in place with a notional amount of £125 million (2011 £125 million) whereby the Group receives a fixed interest rate of 6.125% and pays a floating rate of interest based on LIBOR, and which act as a hedge for the 2015 Notes until August 2012. These swaps are not designated as hedges under IAS 39.

In order to provide a hedge against certain euro denominated fixed asset investments and to finance working capital £200 million (2011 £200 million) has been swapped into floating rate euro borrowings bearing interest based on EURIBOR. During the year forward foreign exchange contracts have been entered into which have reduced the hedge against euro denominated fixed asset investments to €100 million at 28 April 2012.

The Group designates financial instruments as hedges under IAS 39 as follows:

Cash flow hedges At 28 April 2012 the Group had forward foreign exchange contracts in place with a notional value of £415.5 million (2011 £415.5 million) that are designated and effective as cash flow hedges. These contracts are expected to cover exposures ranging from one month to one year. The fair value of these currency derivatives which have been deferred in equity amounts to a £3.3 million gain (2010/11 £8.0 million loss). In respect of contracts which matured during the period, losses of £4.7 million and gains of £5.3 million have been transferred out of equity into inventory and out of equity into operating profit, respectively (2010/11 losses of £7.4 million and losses of £6.7 million).

Hedge ineffectiveness of £0.2 million gain was recorded in the income statement (2010/11 £0.2 million loss).

Fair value hedges As mentioned above the Group had interest rate swaps in place for the 2012 Bonds whereby it receives a fixed interest rate of 6.125% and pays a floating rate of interest based on LIBOR. The interest rate swaps are used to hedge the exposure to changes in the fair value of £125 million (2011 £125 million) of the 2012 Bonds and have the same critical terms. The fair value of interest rate swaps entered into as fair value hedges is an asset of £5.3 million (2011 an asset of £9.9 million).

A fair value loss on the interest rate swaps of £4.4 million (2010/11 loss of £1.3 million) has been recognised in the income statement and offset by an equivalent fair value gain on the 2012 Bonds. Hedge ineffectiveness of £0.6 million gain was recorded in the income statement (2011 £0.4 million loss).

Hedge of net investments in foreign operations At 28 April 2012 the Group had forward foreign exchange contracts and cross currency swaps in place which mature in November 2012 with a notional value of €100 million (2011 €312 million) which have been designated as a hedge of the net investments in foreign operations. Gains and losses on the retranslation of these derivatives are transferred to equity to offset any gains or losses on translation of the net investments in the foreign operations. The fair value of currency derivatives entered into as net investment hedges is a £62.6 million loss (2010/11 £78.9 million loss).

No hedge ineffectiveness was recorded in the income statement (2010/11 £nil).

108 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 109 (d) Interest rate profile of financial assets and financial liabilities by currency The following table sets out the interest rate exposure of the financial assets and liabilities of the Group. The financial instruments not included in the table are non-interest bearing and are therefore not subject to interest rate risk.

2012 Other Sterling Euro US dollar currencies Total £million £million £million £million £million Cash and cash equivalents and short term investments: Floating rate 106.2 35.9 33.7 27.7 203.5 Fixed rate 111.0 4.2 – 5.4 120.6 217.2 40.1 33.7 33.1 324.1 Borrowings: Floating rate (50.0) (206.6) – (9.4) (266.0) Fixed rate (60.1) – – – (60.1) Obligations under finance leases: Fixed rate (97.5) (3.2) – (1.3) (102.0) (207.6) (209.8) – (10.7) (428.1)

Net debt 9.6 (169.7) 33.7 22.4 (104.0)

2011 Other Sterling Euro US dollar currencies Total £million £million £million £million £million Cash and cash equivalents and short term investments: Floating rate 59.5 126.4 – 29.9 215.8 Fixed rate 121.5 3.9 – 4.0 129.4 181.0 130.3 – 33.9 345.2 Borrowings: Floating rate (180.9) (209.0) – – (389.9) Fixed rate (61.0) – – – (61.0) Obligations under finance leases: Fixed rate (97.6) (2.2) – (1.3) (101.1) (339.5) (211.2) – (1.3) (552.0) Financial Statements Net debt (158.5) (80.9) – 32.6 (206.8)

Floating rate cash and cash equivalents and short term investments relates to cash at bank and floating rate notes. Cash at bank earns interest at floating rates based either on daily bank deposit rates or central bank lending rates. Floating rate notes have an effective yield of 1.19% (2011 1.07%).

Fixed rate cash and cash equivalents, and, short term investments are predominantly money market deposits (as shown in note 16) and earn interest at an average effective rate of 0.80% (2011 0.64%).

Floating rate borrowings include bank overdrafts and fixed rate bonds after taking into account the effect of interest rates swaps entered into by the Group. The weighted average effective interest rate on bank overdrafts approximates 9.9% (2011 1.5%). The Group’s interest rate swaps (which relate to the 2012 Bonds and the 2015 Notes) have a nominal value of £250 million (2011 £250 million), receive fixed interest rates of 6.125% (2010/11 6.125%) and pay floating rates of LIBOR plus margins which range from 1.76% to 2.37% (2010/11 1.59% to 2.03%). Currency swaps with a nominal value of £200 million (2011 £200 million) receive LIBOR plus a margin and pay EURIBOR plus a margin. The sterling floating rates ranged from 1.78% to 2.06% in the year (2010/11 1.59% to 2.03%) and the euro floating rates ranged from 2.13% to 2.62% (2010/11 1.74% to 2.14%).

The other major component of floating rate borrowings is drawings under the £360 million Facility. Interest on drawn amounts on the £360 million Facility is payable at LIBOR plus a margin of 3.75%. The commitment fee on undrawn amounts is 1.6875%. A utilisation fee of 0.25% is payable on drawings greater than one third of the maximum but less than two thirds of the maximum and a rate of 0.5% on drawings greater than two thirds of the maximum. The £360 million Facility is guaranteed by a number of UK and Irish subsidiary undertakings of the Group, including DSG Retail Limited. In the event of a change of control, the syndicated banks have the option to terminate the £360 million Facility. The terms of the New Facility are similar and further information on both the £360 million Facility and the New Facility are shown in note 17.

108 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 109 Financial Statements

Notes to the Consolidated Financial Statements (continued)

22 Financial instruments (continued) Sterling fixed rate borrowings relate to £50 million of the 2012 Bonds whereby the remainder have been swapped into floating rate borrowings as described in note 22(c).

Amounts in respect of other currencies relate to funds held within subsidiary companies, operating in the Nordic region and Central Europe.

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.

(e) Sensitivity analysis The following analysis, required by IFRS 7, shows the sensitivity of profit before tax and total equity to changes in specified market variables on monetary assets and liabilities and derivative financial instruments as listed below. As a consequence, the sensitivity reflects the position as at 28 April 2012 and 30 April 2011, and is not necessarily representative of actual or future outcomes.

Changes in exchange rates affect the Group’s profit before tax due to changes in the value of monetary assets and liabilities and derivative financial instruments. Changes in exchange rates affect the Group’s total equity due to changes in the fair value of derivatives designated as cash flow hedges and net investment hedges. The table below shows the Group’s sensitivity to a reasonably possible change in the Group’s key currencies of US dollar, euro and Norwegian krone with other variables held constant. A 10% decrease would have an equal and opposite effect.

2012 2011 Effect on Effect on underlying Effect on underlying Effect on profit before total equity profit before total equity tax increase / increase / tax increase / increase / (decrease) (decrease) (decrease) (decrease) £million £million £million £million Change in exchange rates: US dollar + 10% 0.9 3.5 (0.1) 2.1 Euro + 10% (11.8) 5.8 (9.5) (7.9) Norwegian krone + 10% (0.2) (10.2) (4.9) (25.6)

Changes in interest rates affect the Group’s profit before tax, mainly due to the impact of floating rate borrowings, cash and derivative financial instruments. The Group’s principal floating rate interest rate exposures are based on LIBOR and EURIBOR. The numbers below shows the sensitivity to a reasonably possible change in interest rates (uniform across all currencies), with other variables held constant. A 1% decrease would have an equal and opposite effect. A 1% increase in interest rates would decrease profit before tax and equity by £2.3 million (2010/11 a £4.1 million decrease in profit before tax and equity).

The following assumptions were made in calculating the sensitivity analysis: ■■The balance of borrowings, investments and the derivative portfolio are all held constant for the whole year. ■■All net investment, fair value and cash flow hedges are assumed to be highly effective. ■■The effect of changes in interest rates on fixed rate bonds is calculated after taking into account the effect of interest rate swaps. In combination these financial instruments are floating in nature. ■■Changes in the carrying value of derivative financial instruments designated as net investment hedges arising from movements in interest rates are recorded in the income statement. The impact of movements in exchange rates is recorded directly in equity. ■■Changes in the carrying value of derivative financial instruments that are not in hedging relationships arising from movements in interest rates and exchange rates only affect the income statement to the extent that they are not offset by changes in an underlying transaction.

110 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 111 (f) Liquidity risk The tables below analyse the Group’s contractual undiscounted cash flows payable under financial liabilities (excluding finance lease liabilities, which are shown in note 18) and derivative assets and liabilities into their maturity groupings. The tables include both principal and interest flows.

2012

Contractual undiscounted cash flows In more than one year but Within not more than In more than Carrying one year five years five years Total value £million £million £million £million £million Non derivative financial liabilities: Bank overdrafts (15.8) – – (15.8) (15.8) Trade and other payables (1,206.0) (36.3) (22.9) (1,265.2) (1,272.8) 6.125% Guaranteed Bonds 2012 (169.8) – – (169.8) (162.5) 8.75% Guaranteed Notes 2015 (13.1) (182.9) – (196.0) (147.8) (1,404.7) (219.2) (22.9) (1,646.8) (1,598.9) Derivative contracts: Inflows 1,471.3 – – 1,471.3 1,466.8 Outflows (1,526.9) – – (1,526.9) (1,521.0) (55.6) – – (55.6) (54.2)

2011

Contractual undiscounted cash flows In more than one year but Within not more than In more than Carrying one year five years five years Total value £million £million £million £million £million Non derivative financial liabilities: Bank overdrafts (5.6) – – (5.6) (5.6) Other borrowings (131.6) – – (131.6) (130.0) Trade and other payables (1,327.4) (37.0) (20.7) (1,385.1) (1,394.5) 6.125% Guaranteed Bonds 2012 (9.8) (169.8) – (179.6) (168.2) 8.75% Guaranteed Notes 2015 (13.1) (195.9) – (209.0) (147.1) (1,487.5) (402.7) (20.7) (1,910.9) (1,845.4)

Derivative contracts: Financial Statements Inflows 1,072.0 464.6 – 1,536.6 1,532.4 Outflows (1,068.4) (535.5) – (1,603.9) (1,596.0) 3.6 (70.9) – (67.3) (63.6)

The carrying value of trade and other payables includes accrued interest on the 2012 Bonds of £4.4 million (2011 £4.5 million), interest on the 2015 Notes of £3.2 million (2011 £3.2 million) and interest on other borrowings of £nil (2011 £0.1 million).

The Group reviews regularly its available cash resources and undrawn committed borrowing facilities required to fulfil its objectives and strategy. Cash flow forecasts are prepared covering a five year period and these are updated annually. Shorter term forecasts are reviewed and monitored on a regular basis in varying degrees of granularity including, in some cases, daily review. These forecasts are used in determining both the level of borrowings required for funding purposes as well as planning for repayments of borrowings either at their maturity or sooner where practical. An appropriate level of headroom is maintained to provide against unexpected outflows or an unforeseen downturn in trading.

Further details of committed borrowing facilities are shown in note 17.

110 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 111 Financial Statements

Notes to the Consolidated Financial Statements (continued)

23 Share capital and reserves (a) Called up share capital 2012 2011 £million £million Authorised 4,980,252,496 (2011 4,980,252,496) ordinary shares of 2.5p each 124.5 124.5 Allotted and fully paid 3,610,386,607 (2011 3,610,350,075) ordinary shares of 2.5p each 90.3 90.3

During the period 36,532 shares (2010/11 412,642) were issued in respect of options exercised under employee share option and ownership schemes.

(b) Other reserves Capital Merger redemption Investment Hedging Revaluation reserve reserve in own shares reserve reserve Total £million £million £million £million £million £million At 2 May 2010 (386.1) 5.0 (2.3) (151.7) (2.4) (537.5) Other comprehensive income and expense recognised directly in equity – – – (0.3) 0.1 (0.2) At 30 April 2011 (386.1) 5.0 (2.3) (152.0) (2.3) (537.7) Other comprehensive income and expense recognised directly in equity – – – 16.8 (0.1) 16.7 At 28 April 2012 (386.1) 5.0 (2.3) (135.2) (2.4) (521.0)

The balance shown on the merger reserve arose on the group reconstruction which occurred during 1999/00. The group reconstruction took the form of introducing a new parent company above the existing group and the merger reserve represents the difference between the capital structure of the new parent company and that of the former parent company.

Own shares held by the Group represent shares in the Company held by Dixons Retail Employee Share Trust (the Trust), further details of which are given in note 24. The 1,470,419 shares held at 28 April 2012 had a market value of £0.3 million (2011 2,948,718 shares held had a market value of £0.4 million) and their nominal value was £0.1 million (2011 £0.1 million).

(c) Cumulative foreign exchange reserves within retained earnings Included within retained earnings are exchange differences resulting from the translation of the results and balance sheets of overseas subsidiary undertakings, which have been charged or credited directly to equity. The following table shows a reconciliation of such amounts:

2012 2011 £million £million At beginning of period 366.0 333.9 Currency translation movements (92.0) 32.1 At end of period 274.0 366.0

112 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 113 24 Employee share ownership trusts During the year the trustee of Dixons Retail Employee Share Trust (the Trust) changed from Halifax EES Trustees International Limited to Sanne Trust Company Limited.

Historically the Trust has held shares in the Company for the purposes of satisfying potential awards to specified executive directors and senior employees under the Long Term Incentive Plan (LTIP), Performance Share Plan (PSP) and Retention and Recruitment Share Plan (Reward Shares) share schemes. Details of the LTIP, PSP and Reward Shares are given in the Remuneration Report in section (II) (b) (ii) of the Remuneration Report. The number of shares held by the Trust, which are shown in the table below, remain held for potential awards under outstanding plans.

The Company’s aim has been to hedge in part its obligations under the LTIP, PSP and Reward Shares by buying shares through the Trust to meet the anticipated future liability. The anticipated liability is re-assessed regularly during the relevant performance period and additional shares are purchased when required to meet an increase in this liability. The costs of funding and administering the Trust are charged to the income statement in the period to which they relate. Shareholders’ funds are reduced by the net book value of shares held in the Trust which have not vested unconditionally.

2012 2011 Number Number Investment in own shares 1,470,419 2,948,718

Sanne Trust Company Limited has waived all dividends except for a total payment of 1 penny at the time any dividend is paid. The mid-market price of a share as at 28 April 2012 was 18.0 pence (2011 14.4 pence).

25 Share-based payments 2011/12 2010/11 Note £million £million Amounts (credited) / charged to operating profit Share-based payments – equity settled (a) (4.7) 8.6 – cash settled (b) – (0.6) (4.7) 8.0

(a) Equity settled Share option plans Employee Share Option Scheme (ESOS) and Executive Share Option Plan (ESOP) Options have historically been granted annually to executive directors and other senior executives. In September 2008, the Group adopted a new share option plan (ESOP) which replaced the existing ESOS. Options granted after this date have only been granted under the new ESOP. The ESOS and ESOP permit making awards with a market value on the date of grant of not more than twice the recipients’ salary and three

times in exceptional circumstances. Options are also granted to other employees in the UK and overseas on the basis of management grade. Financial Statements Vesting of options is based upon remaining in service with the Group over a three year period, unless specific circumstances apply to a participant as determined by the Remuneration Committee. Depending on grade, vesting is also dependent on the level of growth in underlying diluted earnings per share (EPS) over a three year period. Options may be exercised up to seven years after the vesting date.

Save As You Earn (SAYE) The Group offers to all of its UK and Irish employees, having completed the relevant period of service, share-based savings plans whereby amounts may be contributed up to a specified limit per plan and per employee. Three year and five year plans have been offered annually, with exercise prices set at a 20% discount to the market share price on the date of grant. Exercise is conditional upon employees remaining employed by the Group for the full term of the plan unless specific circumstances apply to a participant as determined by the Remuneration Committee. Employees can choose to withdraw their contributions in full from the plan at any time, together with any interest earned.

112 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 113 Financial Statements

Notes to the Consolidated Financial Statements (continued)

25 Share-based payments (continued) Details of equity settled share option plans outstanding during the year are as follows:

2011/12 2010/11 Weighted average Weighted average Note Number exercise price Number exercise price At beginning of period 306,913,017 £0.28 236,377,764 £0.31 Granted during the period (i) 22,931,718 £0.13 106,073,741 £0.25 Forfeited during the period (74,916,680) £0.25 (32,658,128) £0.35 Exercised during the period (ii) (36,532) £0.11 (412,642) £0.18 Lapsed during the period (21,515,422) £0.51 (2,467,718) £2.01

At end of period (iii),(iv) 233,376,101 £0.25 306,913,017 £0.28

48,782,982 options were exercisable at 28 April 2012 (2011 none).

2012 2011 (i) weighted average fair value of options granted during the period £0.07 £0.16 (ii) weighted average share price at the date of exercise £0.19 £0.24 (iii) weighted average remaining contractual life for options outstanding 5.9 years 6.4 years (iv) range of exercise prices for options outstanding £0.09 – £1.19 £0.09 – £1.70

The fair value of equity settled share option plans granted is estimated as at the date of grant using the Binomial or Black Scholes option pricing models taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the models used for the periods ended 28 April 2012 and 30 April 2011 based on information prevailing at the date of grant.

2012 2011 Dividend yield 0% 0% Historical and expected volatility 79.0% – 80.0% 86.2% – 87.5% Risk-free interest rate 1.0% – 1.1% 1.5% – 1.6% Expected remaining life of options 3.25 – 4.0 years 3.0 – 3.25 years Weighted average share price £0.13 £0.28

The expected remaining life of the options is based on historical data and is not necessarily indicative of the actual exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends. Actual outcome may differ from this assumption.

Other equity settled share plans Executive directors’ and senior executives’ PSP, ESOP, Reward Sacrifice, Retention and Recruitment Share Plan and LTIP Up to 2010/11, LTIP and PSP shares were provisionally awarded to executive directors and certain other participating senior executives and were based upon performance measured in terms of the Total Shareholder Return (TSR) achieved by the Company. For 2008/09 and 2009/10 TSR performance has been based on a bespoke weighted index comprising UK and European retailers. For 2010/11 onwards, TSR performance has been based on constituents of the FTSE 250 Index (comprising FTSE 101-350 companies) excluding investment trusts.

During 2011/12, PSP shares were provisionally awarded to executive directors and other senior executives instead of the ESOP options which had been granted in previous years. Vesting of these awards is based upon remaining in service with the Group over a three year period. For awards to executive directors, vesting is also dependent on the level of EPS achieved at the end of a three year period and TSR performance on the same terms as the 2010/11 awards.

114 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 115 Details of LTIP and PSP equity settled share-based payments outstanding during the year are as follows:

2012 2011 Note Number Number At beginning of period 15,588,155 13,662,455 Provisionally awarded during the period (i) 41,652,660 6,798,796 Forfeited during the period (11,203,400) (1,409,300) Vested during the period – (1,068,870) Expired during the period (6,454,354) (2,394,926)

At end of period (ii) 39,583,061 15,588,155

Outstanding awards vested at end of period 99,344 99,344

2012 2011 (i) weighted average fair value of awards awarded during the period £0.13 £0.20 (ii) weighted average remaining contractual life for awards outstanding 2.1 years 1.3 years

Reward Sacrifice options were offered to senior executives in September 2009 and do not have any performance conditions. 11,902,442 options were granted at a fair value of £0.15. During the year, 803,421 (2010/11 529,259) options lapsed. The number outstanding at the end of the period is 9,832,330 (2010/11 10,635,751).

Reward Shares were granted to a limited number of executives in July 2008, August 2011 and February 2012 and do not have any performance conditions. During the period 619,813 (2010/11 none) Reward Shares were granted, 1,222,178 (2010/11 451,194) Reward Shares lapsed and 4,314,618 (2010/11 none) Reward Shares vested. The number outstanding at the end of the period is 334,915 (2010/11 5,251,898).

The fair value of such other equity settled share-based payments granted is estimated as at the date of grant using the option pricing models listed below as well as taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the models used for the periods ended 28 April 2012 and 30 April 2011 based on information prevailing at the date of grant.

2011/12 2010/11 Plan PSP Reward Shares PSP Option pricing model Monte Carlo Black Scholes Monte Carlo Dividend yield 0% 0% 0% Historical and expected volatility 71.6% N/A 87.5% Financial Statements Risk-free interest rate 1.0% N/A 1.5% Expected life of awards 3.0 years 1.0 – 2.0 years 3.0 years Weighted average share price £0.13 £0.14 £0.28

Further information concerning share-based incentive plans specific to directors is included in the unaudited section of the Remuneration Report in sections (II) (b) (ii) and (iii).

(b) Cash settled Historical awards were granted to employees on the basis of a monetary amount determined by grade and length of service. Employees had to remain in employment until the vesting date which occured on the third anniversary of the date of grant unless specific circumstances applied to a participant as determined by the Remuneration Committee. The vesting of such share-based payments for employees above a certain grade was determined based on the level of growth in EPS over a three year period. Such awards were settled in cash which was calculated based on the share price at the exercise date. The fair value of cash settled share-based payment plans was estimated at each balance sheet date using the Binomial option pricing model taking into account the terms and conditions upon which the instruments were granted. All remaining awards had either vested or lapsed as at 28 April 2012. No outstanding cash settled awards had vested at 30 April 2011.

2012 2011 £million £million Amount included within trade and other payables relating to cash settled share-based payments – 0.2

114 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 115 Financial Statements

Notes to the Consolidated Financial Statements (continued)

25 Share-based payments (continued) (c) Additional SAYE, ESOS, ESOP, LTIP and PSP information During the period 22,931,718 options under the employee share option schemes were granted to 2,519 employees at exercise prices ranging between £0.12 and £0.13. In addition, 41,652,660 PSP shares were provisionally granted to 1,414 employees. At 28 April 2012 options outstanding for accounting purposes amounted to 233,376,101 shares (2011 306,913,017) and LTIP and PSP shares outstanding amounted to 39,583,061 shares (2011 15,588,155), analysed as follows:

SAYE ESOS & ESOP LTIP & PSP Exercise price Exercise price Date of grant Pence Number Date of grant Pence Number Date of grant Number 26 Feb 2007 99.52 216,455 22 Jul 2002 118.80 2,618,654 16 Aug 2002 18,548 26 Feb 2008 44.54 1,157,461 7 Feb 2003 75.59 40,660 21 Aug 2003 25,654 23 Jul 2009 18.32 24,770,605 11 Jul 2008 27.63 43,000,005 23 Jul 2004 55,142 3 Aug 2010 20.23 16,290,660 16 Dec 2008 9.20 – 10.85 6,225,823 23 Jul 2009 1,645,478 22 Jul 2011 13.01 19,798,473 23 Jul 2009 23.95 46,868,641 3 Aug 2010 3,466,050 28 Sep 2009 28.43 9,832,330 3 Aug 2011 33,592,545 7 Dec 2009 36.88 3,043,330 8 Dec 2011 779,644 3 Aug 2010 27.59 54,899,559 8 Dec 2010 25.51 3,750,000 8 Dec 2011 11.53 863,445 62,233,654 171,142,447 39,583,061

Options granted under the ESOS and ESOP can vest between three to ten years subject to performance conditions, where applicable, being met. PSP shares vest after three years subject to performance conditions, where applicable, being met. The performance conditions applicable to these schemes are set out in sections (II) (b) (ii) and (iii) of the unaudited section of the Remuneration Report.

26 Notes to the cash flow statement (a) Reconciliation of operating loss to net cash inflow from operating activities 2011/12 2010/11 £million £million Operating loss (68.9) (180.3) Operating loss – discontinued operations – 2.1 Operating loss – continuing operations (68.9) (178.2) Amortisation of acquired intangibles 4.5 4.5 Amortisation of other intangibles 18.4 22.7 Depreciation 120.4 116.7 Share-based payment (credit) / charge (4.7) 8.0 Share of post-tax results of associates (0.6) 0.4 Loss on disposal of property, plant & equipment 13.5 13.6 Profit on disposal of Jönköping (37.2) – Increase in non-underlying provisions 23.0 39.2 Non-underlying impairments, other charges and accelerated depreciation / amortisation 190.9 256.4 Utilisation of non-underlying provisions (43.8) (30.9) Operating cash flows before movements in working capital 215.5 252.4

Movements in working capital: Decrease in inventories 41.3 16.2 Decrease in trade and other receivables 29.6 9.1 (Decrease) / increase in trade and other payables (55.1) 15.1 15.8 40.4

Cash generated from operations – continuing operations 231.3 292.8

116 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 117 (b) Analysis of net debt Other non-cash Currency 1 May 2011 Cash flow movements translation 28 April 2012 £million £million £million £million £million Cash and cash equivalents† 334.7 (6.9) – (11.0) 316.8 Bank overdrafts (5.6) (10.0) – (0.2) (15.8) 329.1 (16.9) – (11.2) 301.0

Short term investments 10.5 (3.1) (0.1) – 7.3

Borrowings due within one year (130.0) 130.0 (162.5) – (162.5) Borrowings due after more than one year (315.3) – 167.5 – (147.8) Obligations under finance leases (101.1) 1.6 (2.0) (0.5) (102.0) (546.4) 131.6 3.0 (0.5) (412.3)

Net debt (206.8) 111.6 2.9 (11.7) (104.0)

Other non-cash Currency 2 May 2010 Cash flow movements translation 30 April 2011 £million £million £million £million £million Cash and cash equivalents† 295.7 37.3 – 1.7 334.7 Bank overdrafts (4.9) (0.7) – – (5.6) 290.8 36.6 – 1.7 329.1

Short term investments 8.5 1.8 0.2 – 10.5

Borrowings due within one year (98.5) (31.8) – 0.3 (130.0) Borrowings due after more than one year (321.4) (5.4) 11.5 – (315.3) Obligations under finance leases (100.0) 1.5 (2.4) (0.2) (101.1) (519.9) (35.7) 9.1 0.1 (546.4)

Net debt (220.6) 2.7 9.3 1.8 (206.8) Financial Statements Restricted funds, which predominantly comprise funds held under trust to fund potential customer support agreement liabilities were £114.0 million (2011 £120.3 million). Net debt excluding restricted funds totalled £218.0 million (2011 £327.1 million).

†Cash and cash equivalents are presented as a single class of assets on the face of the consolidated balance sheet. For the purposes of the consolidated cash flow, cash and cash equivalents comprise those amounts presented on the consolidated balance sheet as cash and cash equivalents, less bank overdrafts (which are disclosed separately on the consolidated balance sheet and as disclosed in note 17).

116 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 117 Financial Statements

Notes to the Consolidated Financial Statements (continued)

27 Discontinued operations (a) Loss after tax – discontinued operations 2011/12 2010/11 £million £million Loss after tax – discontinued operations – (2.1)

2010/11: The loss after tax from discontinued operations relates to charges in respect of the Group’s former operations in Hungary, which were disposed of on 19 May 2009 to EW Electro Retail Limited for consideration of €1.

2011/12 2010/11 Hungary Hungary £million £million Expenses – (2.1) Operating loss and loss before tax – (2.1) Income tax expense – – Loss after tax from discontinued operations – (2.1)

All losses were attributable to the equity shareholders of the Company.

(b) Cash flows from discontinued operations 2011/12 2010/11 £million £million Operating activities (1.5) (0.1)

28 Capital commitments 2012 2011 £million £million Contracted for but not provided for in the accounts 27.3 28.9

29 Contingent liabilities 2012 2011 £million £million Contingent liabilities 4.3 4.0

In addition to the figures shown in the table above, contingent liabilities also exist in respect of lease covenants relating to premises assigned to third parties.

30 Operating lease commitments 2012 2011 Land and Other Land and Other buildings assets buildings assets £million £million £million £million Total undiscounted future committed payments due: Within one year 364.5 8.8 379.0 8.9 Between two and five years 1,265.2 8.5 1,286.3 8.9 After five years 1,417.5 – 1,479.4 – 3,047.2 17.3 3,144.7 17.8

Operating lease commitments represent rentals payable for retail, distribution and office properties, as well as vehicles, equipment and office equipment. Contingent rentals are payable on certain retail store leases based on store revenues.

The above figures include committed payments under onerous lease contracts for which provisions or accruals exist on the balance sheet, including those for closed businesses.

Total future minimum sub-lease payments expected to be received under non-cancellable sub-leases was £28.3 million (2011 £34.5 million).

118 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 119 31 Related party transactions Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed.

Transactions between Group undertakings and associates comprised sales of goods of £17.1 million (2010/11 £16.8 million) and purchase of logistic services of £4.1 million (2010/11 £3.9 million).

The Group via its registered charitable trust, the DSG international Foundation (the Foundation), made charitable donations of £5,000 (2010/11 £5,000). The Company made no charitable donations to the Foundation during the period (2010/11 £nil). The Company is the sole benefactor of the Foundation, the principal beneficiaries of which are concerned with education, community affairs, health and disabilities, heritage and the environment.

Steve Rosenblum and Jean-Emile Rosenblum, the President and Vice President of PIXmania respectively and previously both members of the Senior Executive management team, together with close family members and companies controlled by them, own 21.9% of PIXmania, a company controlled by the Group. In connection with their management roles with respect to PIXmania, Steve Rosenblum and Jean- Emile Rosenblum received management fees of €260,000 (£223,000) (2010/11 €260,000 (£221,000)). Steve Rosenblum and Jean-Emile Rosenblum together have certain exit rights exercisable between July 2011 and July 2013 in relation to their holdings in PIXmania.

Steve Rosenblum and Jean-Emile Rosenblum own buildings which are occupied and leased by PIXmania. During 2011/12 total rental payments of €706,000 (£605,000) (2010/11 €653,000 (£553,000)) were charged in relation to these properties.

Remuneration of directors and key management personnel The remuneration of non-executive directors, executive directors, and members of the senior management team, who are the key management personnel of the Group, is set out below. Further information about individual directors’ remuneration, share interests, share options, pensions and other entitlements, which form part of these financial statements, is given in sections (VI) to (X) of the directors’ Remuneration Report which are described as having been audited.

2012 2011 £million £million Short term employee benefits 5.9 5.1 Termination benefits – 0.2 Share-based payment (1.7) 2.2

32 Post balance sheet event On 24 May 2012, the Group signed an amendment and restatement agreement implementing a revised revolving credit facility agreement (the New Facility) for £300 million. The New Facility, which has a maturity date of 30 June 2015, replaces the £360 million Facility and the terms and covenants attaching to the New Facility are substantially the same as that for the £360 million Facility, although some small

relaxation to the financial covenants has been incorporated. The New Facility will reduce in size to £200 million by September 2014. Financial Statements The New Facility is also discussed in notes 17 and 22.

118 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 119 Financial Statements

Company Balance Sheet

28 April 2012 30 April 2011 1 May 2010 Note £million £million £million Non-current assets Investments C3 1,727.6 1,732.3 1,723.7 Property, plant & equipment C4 – – – 1,727.6 1,732.3 1,723.7

Current assets Trade and other receivables C5 11.7 36.5 53.0 Cash and cash equivalents C6 72.9 10.3 80.7 84.6 46.8 133.7 Total assets 1,812.2 1,779.1 1,857.4

Current liabilities Bank overdrafts C7 (86.0) (78.4) – Borrowings C7 (162.3) (130.0) (95.0) Trade and other payables C8 (381.2) (264.5) (462.9) (629.5) (472.9) (557.9) Net current liabilities (544.9) (426.1) (424.2)

Non-current liabilities Borrowings C7 (147.8) (314.3) (319.7) (147.8) (314.3) (319.7) Total liabilities (777.3) (787.2) (877.6) Net assets 1,034.9 991.9 979.8

Capital and reserves Called up share capital C9 90.3 90.3 90.2 Share premium account 169.5 169.5 169.4 Investment in own shares (2.3) (2.3) (2.3) Capital redemption reserve 5.0 5.0 5.0 Profit and loss account 772.4 729.4 717.5 Equity shareholders’ funds 1,034.9 991.9 979.8

The financial statements were approved by the directors on 21 June 2012 and signed on their behalf by:

Sebastian James Humphrey Singer Group Chief Executive Group Finance Director 21 June 2012 21 June 2012

120 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 121 Company Cash Flow Statement

52 weeks 52 weeks ended ended 28 April 2012 30 April 2011 Note £million £million Operating activities Cash utilised by operations C10 125.6 (195.4) Net cash flows from operating activities 125.6 (195.4)

Investing activities Dividend received 100.0 50.0 Interest received 10.8 16.0 Net cash flows from investing activities 110.8 66.0

Financing activities Issue of ordinary share capital – 0.2 (Decrease) / increase in borrowings due within one year (130.0) 35.0 Increase in borrowings due after more than one year – 5.4 Interest paid (51.4) (60.0) Net cash flows from financing activities (181.4) (19.4)

† Increase / (decrease) in cash and cash equivalents C10 55.0 (148.8) † Cash and cash equivalents at beginning of period C10 (68.1) 80.7 † Cash and cash equivalents at end of period C10 (13.1) (68.1)

†For the purposes of this cash flow statement, cash and cash equivalents comprise those items disclosed as ‘cash and cash equivalents’ on the face of the balance sheet, less overdrafts, which are classified within current liabilities on the face of the balance sheet. A reconciliation to the balance sheet amounts is shown in note C10. Financial Statements

120 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 121 Financial Statements

Company Statement of Changes in Equity

Capital Share Share redemption Investment in Retained capital premium reserve own shares earnings Total equity £million £million £million £million £million £million At 2 May 2010 90.2 169.4 5.0 (2.3) 717.5 979.8 Profit for the period – – – – 3.3 3.3 Ordinary shares issued 0.1 0.1 – – – 0.2 Share-based payments – – – – 8.6 8.6 At 30 April 2011 90.3 169.5 5.0 (2.3) 729.4 991.9 Profit for the period – – – – 47.7 47.7 Share-based payments – – – – (4.7) (4.7) At 28 April 2012 90.3 169.5 5.0 (2.3) 772.4 1,034.9

As permitted by section 408 of the Companies Act 2006, no income statement for the Company is included in these financial statements.

Own shares held by the Company represent shares in the Company held by Dixons Retail Employee Share Trust, further details of which are given in notes 23(b) and 24 to the Group financial statements.

122 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 123 Notes to the Company Financial Statements

C1 Accounting policies The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, IFRSs issued by the International Accounting Standards Board and those parts of the Companies Act 2006 applicable to those companies reporting under IFRSs. Accounting policies have been consistently applied throughout the current and preceding periods.

After making due enquiry, on the basis of current financial projections, the directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

The Company’s accounting policies in relation to operating leases, share-based payments, translation of foreign currencies, property, plant & equipment, taxation and derivative financial instruments are set out in note 1 to the Group financial statements. Other accounting policies which are specific to the Company are set out below.

(a) Share-based payments Where the Company has granted rights to its equity to employees of subsidiary undertakings in relation to equity-settled, share-based payment arrangements the contribution to the subsidiary undertakings is recognised as an additional investment.

(b) Investments Investments are stated at cost, less any provision for impairment in value.

(c) Post-retirement benefits It is not practical to allocate the underlying assets and liabilities of the defined benefit section of the pension scheme to the Company on a consistent and reasonable basis. The Company has therefore accounted for its contributions to the defined benefit section of the scheme as if it were a defined contribution scheme.

The Company’s contributions to the defined contribution section of the pension scheme are charged to the income statement on an accruals basis as they become payable.

C2 Directors’ and auditors’ remuneration Details of directors’ remuneration, share interests, share options, pensions and other entitlements, which form part of these financial statements, are given in the parts of the directors’ Remuneration Report which are described as having been audited. Fees paid to the auditors in respect of their audit of the Company were £0.1 million (2010/11 £0.1 million). Financial Statements

122 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 123 Financial Statements

Notes to the Company Financial Statements (continued)

C3 Investments Investments in subsidiary undertakings 2012 2011 £million £million Cost At beginning of period 1,732.3 1,723.7 Movement in the period (4.7) 8.6 At end of period 1,727.6 1,732.3

Details of the principal subsidiary undertakings are set out in note C15.

C4 Property, plant & equipment Fixtures, fittings and equipment 2012 2011 £million £million Cost At beginning and end of period 0.5 0.5

Depreciation At beginning and end of period 0.5 0.5

Net book value At beginning and end of period – –

C5 Trade and other receivables 2012 2011 2010 £million £million £million

Amounts due from subsidiary undertakings 0.2 11.8 15.7 Derivative financial instruments 9.0 18.3 25.0 Other debtors 0.5 0.1 0.1 Prepayments 2.0 6.3 9.1 Accrued income – – 3.1 11.7 36.5 53.0

Further information on derivative financial instruments is provided in note C12.

The majority of other receivables are non-interest bearing and are generally on 60 day terms. The total financial assets included within trade and other receivables are £9.7 million (2011 £30.2 million and 2010 £43.9 million). The carrying amount of trade and other receivables approximates fair value. There were no past due or impaired balances at the end of the period (2011 and 2010 £nil).

C6 Cash and cash equivalents 2012 2011 2010 £million £million £million Cash at bank – – 80.7 Money market deposits 72.9 10.3 – 72.9 10.3 80.7

Cash at bank earns interest at floating rates based either on daily bank deposit rates or central bank lending rates.

124 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 125 C7 Borrowings and overdrafts 2012 2011 2010 £million £million £million Current Bank overdrafts 86.0 78.4 – 6.125% Guaranteed Bonds 2012 162.3 – – Other borrowing – 130.0 95.0 248.3 208.4 95.0

2012 2011 2010 £million £million £million Non-current 6.125% Guaranteed Bonds 2012 – 167.2 319.7 8.75% Guaranteed Notes 2015 147.8 147.1 – 147.8 314.3 319.7

Bank overdrafts are subject to a pooling arrangement with other Group companies and are repayable on demand.

Other borrowings represent amounts which have been drawn down under the £360 million Facility (2011 the £360 million Facility, 2010 the £400 million Facility which was in place prior to 12 May 2010).

On 23 July 2010, tenders were conditionally accepted to repurchase £140 million in nominal amount of the £300 million 2012 Bonds, subject to the successful completion of appropriate financing to fund the repurchase. This repurchase was financed by a new issue of £150 million 8.75% Guaranteed Notes due 3 August 2015 (the 2015 Notes) and for which proceeds were received on 30 July 2010.

On 24 May 2012, the Company signed an amendment and restatement agreement implementing a revised revolving credit facility agreement (the New Facility) for £300 million, further information on which is provided in note C16.

Further details on the £360 million Facility, the 2012 Bonds and the 2015 Notes are provided in notes 17 and 22 to the Group financial statements.

C8 Trade and other payables 2012 2011 2010 £million £million £million Amounts due to subsidiary undertakings 365.2 250.5 446.6 Accruals 16.0 14.0 16.3

381.2 264.5 462.9 Financial Statements

The total shown equals the total financial liabilities. The carrying amount of trade and other payables approximates their fair value.

C9 Share capital Called up share capital 2012 2011 2010 £million £million £million Authorised 4,980,252,496 (2011 and 2010 4,980,252,496) ordinary shares of 2.5p each 124.5 124.5 124.5 Allotted and fully paid 3,610,386,607 (2010 3,610,350,075, 2010 3,609,937,433) ordinary shares of 2.5p each 90.3 90.3 90.2

During the period 36,532 shares (2010/11 412,642) were issued in respect of options exercised under employee share option schemes.

124 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 125 Financial Statements

Notes to the Company Financial Statements (continued)

C10 Notes to the cash flow statement (a) Reconciliation of operating loss to net cash outflow from operating activities 2011/12 2010/11 £million £million Operating loss (5.6) (3.2) Operating cash flows before movements in working capital (5.6) (3.2) Movements in working capital: Decrease in trade and other receivables 15.5 6.7 Increase / (decrease) in trade and other payables 115.7 (198.9) 131.2 (192.2)

Cash generated from operations 125.6 (195.4)

(b) Analysis of net debt Other non-cash 1 May 2011 Cash flow movements 28 April 2012 £million £million £million £million Cash and cash equivalents† 10.3 62.6 – 72.9 Bank overdrafts (78.4) (7.6) – (86.0) (68.1) 55.0 – (13.1)

Borrowings due within one year (130.0) 130.0 (162.3) (162.3) Borrowings due after more than one year (314.3) – 166.5 (147.8) (444.3) 130.0 4.2 (310.1)

Net debt (512.4) 185.0 4.2 (323.2)

Other non-cash 2 May 2010 Cash flow movements 30 April 2011 £million £million £million £million Cash and cash equivalents† 80.7 (70.4) – 10.3 Bank overdrafts – (78.4) – (78.4) 80.7 (148.8) – (68.1)

Borrowings due within one year (95.0) (35.0) – (130.0) Borrowings due after more than one year (319.7) (5.4) 10.8 (314.3) (414.7) (40.4) 10.8 (444.3)

Net debt (334.0) (189.2) 10.8 (512.4)

†Cash and cash equivalents are represented as a single class of assets on the face of the balance sheet. For the purposes of the cash flow, cash and cash equivalents comprise those amounts represented on the balance sheet as cash and cash equivalents, less bank overdrafts (which are disclosed separately on the balance sheet and as disclosed in note C7).

126 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 127 C11 Post-retirement benefits The Company maintains a pension scheme for eligible employees in the UK comprising both a defined benefit and defined contribution section. The defined benefit section is a funded scheme with assets held in a separate trustee administered fund. The scheme is valued by a qualified actuary at least every three years and contributions are assessed in accordance with the advice of independent qualified actuaries so as to spread the pension cost over the normal expected service lives of members. Since 1 September 2002, the defined benefit section of the scheme has been closed to new entrants and on 30 April 2010 was closed to future accrual with automatic entry into the defined contribution section being offered to those active members of the defined benefit section at that time. Membership of the defined contribution section is offered to all eligible employees.

A full actuarial valuation of the scheme was last carried out as at 31 March 2010 and showed a shortfall of assets compared with liabilities of £239.0 million. The ‘recovery plan’ based on this valuation commenced in 2010/11 with special contributions of £12.0 million, which rose to £16.0 million in 2011/12 and will rise to £20.0 million for 2012/13 and 2013/14, rising approximately annually thereafter to £35.0 million by 2020/21. The next triennial valuation will be as at 31 March 2013.

At 31 March 2010, the market value of the scheme’s investments was £672.0 million and, based on the above assumptions, the value of the assets was sufficient to cover 74% of the benefits accrued to members with the liabilities amounting to £911.0 million. The valuation of the defined benefit section for the purposes of IAS 19 showed a gross pension deficit (before deferred tax) of £261.9 million (2011 £244.0 million and 2010 £263.5 million). Further particulars of the scheme are disclosed in note 21 to the Group financial statements.

C12 Financial instruments (a) Financial risk management objectives and policies The Company is exposed to liquidity, interest rate, exchange, credit and capital risks and adopts the same approach to the management of these risks as the Group as set out in the Directors’ Report and in note 22 to the Group financial statements.

(b) Fair values of financial assets and liabilities For receivables and payables classified as financial assets and liabilities in accordance with IAS 32, fair value is estimated to be equivalent to book value. These values are shown in notes C5 and C8, respectively. The categories of financial assets and liabilities and their related accounting policy are set out in notes 1.11 and 1.15 to the Group financial statements.

For those financial assets and liabilities which bear either a floating rate of interest or no interest, fair value is estimated to be equivalent to book value. These values are shown in note C12 (d).

Included in trade and other receivables is £9.0 million (2011 £18.3 million and 2010 £25.0 million) relating to interest rate swaps held to hedge fair value interest rate risk. See note C12 (c) for further details.

The Company uses swaps to manage its interest rate exposure. Further details on the Company’s interest rate swaps are included in note 22(d) to the Group financial statements.

(c) Hedging activities Financial Statements The Company manages exposures that arise on interest rates by entering into interest rate swaps. Further information on fair value hedging is set out in note 22(c) to the Group financial statements.

126 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 127 Financial Statements

Notes to the Company Financial Statements (continued)

C12 Financial instruments (continued) (d) Interest rate profile of financial assets and financial liabilities by currency The following table sets out the interest rate exposure of the financial assets and liabilities of the Company.

2012 Sterling Other Total £million £million £million Cash and cash equivalents: Floating rate 72.9 – 72.9 Borrowings: Fixed rate (60.0) – (60.0) Floating rate (336.1) – (336.1) (396.1) – (396.1) Net borrowings (323.2) – (323.2)

2011 Sterling Other Total £million £million £million Cash and cash equivalents: Floating rate 10.3 – 10.3 Borrowings: Fixed rate (60.9) – (60.9) Floating rate (461.8) – (461.8) (522.7) – (522.7) Net borrowings (512.4) – (512.4)

2010 Sterling Other Total £million £million £million Cash and cash equivalents: Floating rate 80.3 0.4 80.7 Borrowings: Fixed rate (53.3) – (53.3) Floating rate (361.4) – (361.4) (414.7) – (414.7) Net borrowings (334.4) 0.4 (334.0)

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.

Floating rate cash and cash equivalents relate to money market deposits (as shown in note C6).

Fixed rate borrowings comprise the unhedged part of the 2012 Bonds and the 2015 Notes. Floating rate borrowings include bank overdrafts and fixed rate bonds after taking into account the effect of interest rates swaps entered into by the Company and drawings under the £360 million Facility (2011 the £360 million Facility, 2010 the £400 million Facility). The weighted average effective interest rate on bank overdrafts approximated 1.5% (2010/11 1.5%). Further details on fixed and floating rate borrowings are shown in notes 17 and 22 to the Group financial statements.

128 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 129 (e) Sensitivity analysis The following analysis, required by IFRS 7, shows the sensitivity of profit before tax and total equity to changes in interest rates on derivative financial instruments and certain monetary items. The sensitivity analysis reflects the position as at 28 April 2012 and 30 April 2011 respectively, and is not necessarily representative of actual or future outcomes.

Changes in interest rates affect the Company’s loss before tax, mainly due to the impact of floating rate borrowings, cash and derivative financial instruments. The Company’s principal floating rate interest rate exposures are based on LIBOR. The following sensitivity analysis shows a reasonably possible change in interest rates (uniform across all currencies), with other variables held constant and the corresponding decrease would have an equal and opposite effect. A 1% increase in interest rates would have a negative effect on profit before tax and equity of £6.1 million (2010/11 a £5.9 million negative effect on profit before tax and equity). Assumptions used in calculating the sensitivity analysis are set out in note 22(e) to the Group financial statements.

(f) Liquidity Risk The table below analyses the Company’s contractual undiscounted cash flows payable under financial liabilities and derivative assets into their maturity groupings. The table includes both principal and interest flows.

2012 Contractual undiscounted cash flows In more than one year but Within not more than Carrying one year five years Total value £million £million £million £million Non-derivative financial liabilities: Bank overdrafts (86.0) – (86.0) (86.0) Trade and other payables (373.5) – (373.5) (381.1) 6.125% Guaranteed Bonds 2012 (169.8) – (169.8) (162.3) 8.75% Guaranteed Notes 2015 (13.1) (182.9) (196.0) (147.8) (642.4) (182.9) (825.3) (777.2) Derivative contracts: Inflows 263.4 – 263.4 263.4 Outflows (254.4) – (254.4) (254.4) 9.0 – 9.0 9.0

2011 Contractual undiscounted cash flows In more than one year but not Financial Statements Within more than five Carrying one year years Total value £million £million £million £million Non-derivative financial liabilities: Bank overdrafts (78.4) – (78.4) (78.4) Borrowings (131.6) – (131.6) (130.0) Trade and other payables (255.2) – (255.2) (264.5) 6.125% Guaranteed Bonds 2012 (9.8) (169.8) (179.6) (167.2) 8.75% Guaranteed Notes 2015 (13.1) (195.9) (209.0) (147.1) (488.1) (365.7) (853.8) (787.2) Derivative contracts: Inflows 16.1 262.6 278.7 278.4 Outflows (5.8) (254.4) (260.2) (260.1) 10.3 8.2 18.5 18.3

128 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 129 Financial Statements

Notes to the Company Financial Statements (continued)

C12 Financial instruments (continued) 2010 Contractual undiscounted cash flows In more than one year but Within not more than Carrying one year five years Total value £million £million £million £million Non-derivative financial liabilities: Borrowings (95.0) – (95.0) (95.0) Trade and other payables (454.0) – (454.0) (462.9) 6.125% Guaranteed Bonds 2012 (18.4) (337.1) (355.5) (319.7) (567.4) (337.1) (904.5) (877.6) Derivative contracts: Inflows 15.3 30.6 45.9 44.8 Outflows (5.0) (15.4) (20.4) (19.8) 10.3 15.2 25.5 25.0

The carrying value of trade and other payables includes accrued interest on the 2012 Bonds of £4.4 million (2011 £4.5 million and 2010 £8.4 million), accrued interest of £3.2 million on the 2015 Notes (2011 £3.2 million and 2010 £nil) and accrued interest on other borrowings of £nil (2011 £0.1 million and 2010 £0.4 million).

(g) Credit risk The Company’s exposure to credit risk is discussed in note 22 (a) to the Group financial statements. The Company’s receivable balances mainly consist of amounts due from subsidiary undertakings. Further information on the Company’s exposure to significant concentration of credit risk on receivables from subsidiary undertakings is set out in note C14.

C13 Contingent liabilities 2012 2011 2010 £million £million £million Guarantees – – 54.5 Other 2.3 3.1 2.8 2.3 3.1 57.3

Guarantees comprise potential obligations to financial institutions in respect of activities undertaken in the normal course of business.

C14 Related parties During the period the Company entered into transactions, in the ordinary course of business, with other related parties as follows:

2011/12 2010/11 £million £million Subsidiary undertakings: Recharge of costs 12.1 12.9 Interest paid (7.8) (6.9) Dividends received 100.0 50.0

Recharge of costs relates to management charges for services provided to other Group companies.

Included within amounts repayable to subsidiaries are loans of £351.0 million (2011 £234.2 million and 2010 £431.3 million) with maturity of one month but renewable on a rolling basis and bear interest at 4.25% (2010/11 4.25%). The Company also has fixed loans of £14.2 million (2011 £14.2 million and 2010 £14.2 million) which have no maturity date and bear no interest.

130 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 131 C15 Principal subsidiary undertakings The directors consider that to give full particulars of all Group undertakings would lead to a statement of excessive length. A full list of Group undertakings is attached to the latest annual return. The following information relates to those subsidiary undertakings, all of which are engaged in retail activities, whose results or financial position, in the opinion of the directors, principally affect the consolidated financial statements of the Group at 28 April 2012:

DSG international Holdings Limited – UK† El-Giganten AS – Denmark DSG Retail Ireland Limited – Ireland Elkjøp Nordic AS – Norway DSG Retail Limited – UK Gigantti OY – Finland Dixons South-East Europe A.E.V.E. – Greece (99.2%) PIXmania S.A.S. – France (77.1%) Electro World s.r.o. – Czech Republic Electro World lç ve Dıs¸ Ticaret A.S¸ – Turkey (60%) Unieuro S.p.A. – Italy El-Giganten AB – Sweden

†A direct subsidiary undertaking of Dixons Retail plc and a holding company.

Unless otherwise indicated, principal subsidiary undertakings are wholly-owned. All Group undertakings operate in their country of incorporation.

C16 Post-balance sheet event On 24 May 2012, the Company signed an amendment and restatement agreement implementing a revised revolving facility agreement (the New Facility) for £300 million. The New Facility, which has a maturity date of 30 June 2015, replaces the £360 million Facility and the terms and covenants attaching to the New Facility are substantially the same as that for the £360 million Facility, although some small relaxation to the financial covenants has been incorporated. The New Facility will reduce in size to £200 million by September 2014. The New Facility is also discussed in notes 17 and 22 to the Group Financial Statements. Financial Statements

130 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 131 Shareholder Information

Five Year Record

Consolidated income statement 2011/12 2010/11 2009/10 2008/09 2007/08 £million £million £million £million £million Underlying revenue(1) 8,186.7 8,154.4 8,320.0 7,955.8 8,074.8 Percentage change 0.4% (2.0)% 4.6% (1.5)% 7.2% Underlying operating profit / EBIT(2) 115.1 127.6 133.2 95.3 214.3 Underlying net finance (costs) / income(1) (44.3) (42.3) (42.3) (24.7) 14.1 Underlying profit before tax(1) 70.8 85.3 90.9 70.6 228.4 Percentage change (17.0)% (6.2)% 28.8% (69.1)% (24.9)% Closed businesses (2.9) (8.5) (0.6) (28.6) (13.8) Acquired intangible amortisation (4.5) (4.5) (4.6) (4.9) (4.4) Net restructuring charges (16.3) (17.1) (5.6) (59.1) (20.7) Business impairment charges (196.0) (251.6) – (96.1) (364.2) Other items 32.9 (24.9) – 1.9 – Changes in pension benefits – – 33.4 – – Profit on sale of investment – – – – 1.7 Net fair value remeasurements (2.8) (2.8) (0.8) (7.4) (6.2) (Loss) / profit before tax – continuing operations (118.8) (224.1) 112.7 (123.6) (179.2) Income tax expense (44.1) (19.1) (46.7) (56.8) (66.0) (Loss) / profit after tax – continuing operations (162.9) (243.2) 66.0 (180.4) (245.2) Loss after tax – discontinued operations – (2.1) (8.7) (38.9) (14.5) (Loss) / profit for the period (162.9) (245.3) 57.3 (219.3) (259.7)

Underlying diluted earnings per share (pence)(1) 1.1p 1.6p 1.5p 1.3p 7.0p Percentage change (31.3)% 6.7% 15.4% (81.4)% (25.5)%

Consolidated cash flow 2011/12 2010/11 2009/10 2008/09 2007/08 £million £million £million £million £million Underlying profit before tax(1) 70.8 85.3 90.9 70.6 228.4 Closed businesses loss before tax (2.9) (8.5) (0.6) (28.6) (13.8) Depreciation and amortisation 138.8 139.4 128.6 134.7 136.2 Working capital movements 15.8 40.4 39.7 (285.4) 8.1 Taxation (26.8) (26.2) (31.9) (35.7) (53.1) Net capital expenditure (31.3) (221.2) (164.6) (129.9) (123.6) Other 9.7 29.7 (34.0) (65.7) (48.9) Free Cash Flow before restructuring items(3) 174.1 38.9 28.1 (340.0) 133.3 Net restructuring and other one-off items (43.8) (28.9) (45.7) (64.2) (37.6) Free Cash Flow(4) 130.3 10.0 (17.6) (404.2) 95.7

Closing net (debt) / funds (104.0) (206.8) (220.6) (477.5) 50.1 Less restricted funds(5) (114.0) (120.3) (78.9) (67.6) (66.5) Unrestricted net debt(5) (218.0) (327.1) (299.5) (545.1) (16.4)

132 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 133 Consolidated balance sheet 2012 2011 2010 2009 2008 £million £million £million £million £million Non-current assets Goodwill 740.7 970.8 1,116.5 1,069.1 984.3 Intangible assets 98.1 113.1 130.7 148.4 143.9 Tangible assets 480.4 583.7 541.0 489.6 531.3 Other non-current assets 182.3 216.4 253.8 248.6 154.7 1,501.5 1,884.0 2,042.0 1,955.7 1,814.2 Current assets Inventories 874.2 960.9 972.6 971.9 1,093.1 Other current assets 346.6 387.3 397.0 516.5 501.7 Short term investments 7.3 10.5 8.5 9.0 82.0 Cash and cash equivalents 316.8 334.7 295.7 192.6 365.8 1,544.9 1,693.4 1,673.8 1,690.0 2,042.6 Assets held for sale – – – 13.2 – Total assets 3,046.4 3,577.4 3,715.8 3,658.9 3,856.8

Current liabilities Bank overdrafts (15.8) (5.6) (4.9) (4.8) (2.1) Other borrowings (162.5) (130.0) (98.5) (250.1) (0.2) Obligations under finance leases (3.1) (3.1) (2.4) (2.8) (1.5) Other current liabilities (1,634.7) (1,692.7) (1,652.9) (1,722.5) (2,070.1) Provisions (18.6) (44.4) (22.3) (72.1) (46.2) (1,834.7) (1,875.8) (1,781.0) (2,052.3) (2,120.1) Net current liabilities (289.8) (182.4) (107.2) (362.3) (77.5) Non-current liabilities Borrowings (147.8) (315.3) (321.4) (322.5) (294.6) Obligations under finance leases (98.9) (98.0) (97.6) (98.9) (99.3) Retirement benefit obligations (266.0) (247.3) (266.8) (153.0) (54.0) Other non-current liabilities (275.4) (348.6) (344.4) (392.5) (384.2) Provisions (19.6) (15.9) (29.5) (40.4) (51.1) (807.7) (1,025.1) (1,059.7) (1,007.3) (883.2) Liabilities associated with assets classified as held for sale – – – (14.4) – Total liabilities (2,642.4) (2,900.9) (2,840.7) (3,074.0) (3,003.3)

Net assets 404.0 676.5 875.1 584.9 853.5

Equity shareholders’ funds 391.4 653.5 846.5 558.9 826.7 Equity non-controlling interests 12.6 23.0 28.6 26.0 26.8 Total equity 404.0 676.5 875.1 584.9 853.5

Notes: (1) Underlying figures exclude the effects of trading results of closed businesses, amortisation of acquired intangibles, net restructuring and business impairment charges and other one-off, non-recurring items, profits on sale of investments and net fair value remeasurements of financial instruments, and where applicable, discontinued operations.

(2) EBIT equates to underlying operating profit. Shareholder Information (3) Free Cash Flow before restructuring items includes dividend payments to non-controlling interests (minority shareholders). (4) Fre e Cash Flow relates to continuing operations and comprises net cash flow generated from operations before special pension contributions, less net finance expense, less income tax and net capital expenditure. (5) Unrestricted net debt comprise cash and cash equivalents, short term investments and borrowings and exclude restricted funds which predominantly comprise funds held under trust to fund potential customer support agreement liabilities.

132 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 133 Shareholder Information

Shareholder Information

Registered office Unsolicited mail Maylands Avenue, Hemel Hempstead, Hertfordshire HP2 7TG UK The Company is obliged to make its share register available to (United Kingdom). Registered No. 3847921. www.dixonsretail.com third parties on payment of a prescribed fee. This may result in shareholders receiving unsolicited mail. If you wish to limit the Registrars and transfer office receipt of unsolicited mail you should write to: The Mailing Capita Registrars Limited, The Registry, 34 Beckenham Road, Preference Service, FREEPOST 22, London W1E 7ER or register Beckenham, Kent BR3 4TU. Tel: 0871 664 0300 (calls cost on their website at www.mpsonline.org.uk 10p per minute plus network extras; lines are open 8.30am – 5.30pm Monday to Friday). If calling from abroad the ShareGift number is +44 20 8639 3399. The website address is The Orr Mackintosh Foundation operates a charity share donation www.capitaregistrars.com scheme for shareholders with small parcels of shares whose value makes it uneconomic to sell them. Details of the scheme are Joint brokers available on the ShareGift internet site, www.sharegift.org Citigroup Global Markets, JP Morgan Cazenove. Financial calendar Shareholder enquiries Annual General Meeting 6 September 2012 Shareholders can access shareholding details over the internet via our Registrar’s secure portal at www.capitashareportal.com. 2012/13 Interim results announcement 29 November 2012 As well as checking name, address and shareholding details in 2012/13 Interim statement publication January 2013 the Shareholder Help section, you can download change of address, dividend mandate and stock transfer forms. This is a secure site and you will need to register first. Please follow the simple instructions on the website. So that the system can validate your enquiries an Investor Code is required. This is a numerical account number and can be found on your share certificate.

Share dealing service Alternative Format Online and telephone share dealing services are available to If you would like this Annual shareholders through our Registrars, providing easy access and simple to use services. There is no need to preregister and the Report and Accounts or any facilities allow you to trade in ‘real time’ and at a known price which will be given to you at the time you give your instruction. other shareholder documentation In order to deal via these facilities you will need your Investor in an alternative format, Code (see above) as well as stating your surname, full post code and date of birth. Details of the online dealing service are available please send a request to on www.capitadeal.com and the telephone dealing service is corporate.affairs dixonsretail.com on 0871 664 0454 (calls cost 10p per minute plus network extras). @ Lines are open Monday to Friday 8am to 4.30pm. or telephone 00 44 (0)844 800 2030

134 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 135 Index

A F R Accounting policies 74-80 Finance costs / income 88 Related party transactions 119 Accounting estimates Finance leases 101 Resources 24-25 and judgements 79-80 Financial instruments 106-111 Remuneration Report 56-66 Acquired intangibles 96 Five Year Record 132-133 Retention and Recruitment Amortisation 83, 96 Free Cash Flow 37, 72 Share Plan 59, 114-115 Associates 97-98 Funding 37, 100, 117 Reward Sacrifice Scheme 59, 114-115 Audit Committee Report 52-53 Risk factors 28-30 Auditor’s remuneration 84 G Auditor’s report 68 Going concern 48 S Goodwill 93-95 Segmental analysis 80-83 B Selling space 04-05 Balance Sheet (Consolidated) 71 H Share-based payments 113-116 Board of directors 44-45 Health and Safety 43 Share capital 112 Borrowings and borrowing facilities 100 Shareholder information 132-134 Brands 04-05, 96 I Short term investments 99 Business Model 22-23 Impairment 85-86, 93-95 Sharesave plan 59, 113-114, 116 Income statement (Consolidated) 69 Statement of changes in C Intangible assets 96 Equity (Consolidated) 73 Capital commitments 118 Inventories 98 Statement of comprehensive income and expense (Consolidated) 70 Capital expenditure 83, 96-97 Strategy 21-22 Cash and cash equivalents 72, 99, 117 K Store numbers 04-05 Cash flow statement (Consolidated) 72 Key Performance Indicators 27 Subsidiary undertakings 131 Charitable donations 48 Community 43 L T Contingent liabilities 118 LTIP / Long Term Incentive Plan 59 Tax 89-91 Corporate Governance Report 49-51 Looking Forward 26 TSR (Total Shareholder Return) 27, 61 Trade & other payables 101 D M Trade & other receivables 98-99 Deferred tax 90-91 Markets 20 Treasury policy 106-107 Depreciation 83, 97 Directors’ remuneration 62 N U Directors’ interests 61, 63-66 Nominations Committee Report 54-55 Underlying definition 74 Discontinued operations 118 Non-underlying items 74, 81-82, 85-87

E O Earnings / loss per share 92 Operating lease charges 84 Employee numbers 04-05, 89 Operating lease commitments 118 Employees 42-43, 89 Environment 41-42 P Executive Share Pensions 39, 60, 63, 102-105 Option Plan 59, 113-114, 116 PSP / Performance Share Plan 59, 114-116 Post balance sheet events 119 Property losses 39, 81-82

Property, plant & equipment 97 Shareholder Information Provisions 102

134 Dixons Retail plc Annual Report and Accounts 2011/12 Annual Report and Accounts 2011/12 Dixons Retail plc 135 Shareholder Information

Notes

136 Dixons Retail plc Annual Report and Accounts 2011/12 About us

Dixons Retail plc is a specialist electrical retailer and services company which sells consumer electronics, personal computers, domestic appliances, photographic equipment, communication products and related services.

We are one of Europe’s leading specialist electrical retailing groups. We trade through over 1,200 stores and online, spanning 28 countries and we employ 36,500 people.

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Ann ual Report and Accounts 2011/12

Dixons Retail plc Annual Report and Accounts 2011/12

Dixons Retail plc Maylands Avenue Hemel Hempstead Hertfordshire HP2 7TG United Kingdom

Tel: 0844 800 2030 www.dixonsretail.com