Bringing life to technology

Annual Report and Accounts 2008/09 Contents

Directors’ Report Financial Statements

Business Overview Strategic Summary 63 Independent Auditors’ Report 1 DSGi’s Five Point Plan 34 Group Overview 64 Consolidated Income Statement 6 Group at a Glance 34 The market in which the 65 Consolidated Statement of 8 Highlights Group operates Recognised Income and Expense 9 Chairman’s Statement 34 Principal activities 66 Consolidated Balance Sheet 10 Chief Executive’s Statement 34 Overview of products 67 Consolidated Cash Flow Statement and services 68 Notes to the Financial Statements Performance Review 35 Key Performance Indicators 111 Independent Auditors’ Report on the 14 Overview (KPIs) Parent Company Financial Statements 16 UK & 36 Risks to achieving the 112 Balance Sheet of the Parent Company 16 UK & Ireland Electricals Group’s objectives 113 Notes to the Parent Company 18 UK Computing Financial Statements 20 Nordics Corporate Governance 21 Other International 40 Board of Directors 21 Southern 41 Executive Committee Information for Shareholders 22 Central Europe 42 Statutory Information 23 e-commerce 45 Corporate Governance Report 118 Five Year Record 24 Group Financial Summary 49 Audit Committee Report 120 Shareholder Information 28 Corporate Responsibility Review 50 Nominations Committee Report 121 Index 51 Remuneration Report 62 Directors’ Responsibilities

A five point plan for the renewal and transformation of the Group

Cautionary statement Certain statements made in this Annual Report and Accounts are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Nothing in this Annual Report and Accounts should be regarded as a profit forecast. Business Overview Listen 1.We are listening to our customers and delivering

what they want, providing Performance Review better value, choice and service.

Our new ‘FIVES’ selling process helps Strategic Summary colleagues better understand our customers’ needs, and to help them get the most out of their products, we offer our customers an unbeatable combination of value, choice and service. Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 1 Fast forward 2.We are transforming the business with new and better ranges, stores and selling processes.

We are improving our stores, making them easier to navigate with more interactive product displays. Product ranges in every category are being improved to provide better choices for our customers.

2 DSG international plc Annual Report and Accounts 2008/09 Business Overview Performance Review Strategic Summary

Focus Corporate Governance 3.We are looking at all of our businesses and focusing on winning positions. Financial Statements

By focusing the Group on winning positions and on our customers’ needs, we are confident of delivering 3% to 4% return on sales over the medium term. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 3 Click 4.We are winning on the internet with over £1.2 billion of sales achieved in 2008/09 and we’re still growing.

DSGi is the number one electrical retailer on the internet in Europe. Going forward, we will become leaders of multi-channel retailing, giving customers a choice of online, in-store or a combination of both through reserve&collect and collect@store.

4 DSG international plc Annual Report and Accounts 2008/09 Business Overview Reduce 5.We are reducing costs and driving efficiency. In 2008/09

we achieved £95 million of cost Performance Review savings with a further £200 million identified over the next four years.

One set of processes makes the Strategic Summary business better for customers, easier for our colleagues and cheaper to operate. Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 5 Directors’ Report: Business Overview Group at a Glance

Underlying sales by division ■ UK & Ireland £4,228.6m ■ Nordics £1,625.2m ■ Other International £1,565.8m ■ e-commerce £807.4m

Our brandsDescription Highlights

The UK and Ireland’s biggest specialist opened its flagship 55,000 sq ft Megastore and refitted a number electricals chain, combining Currys of Superstores and Currys.digital stores. It also launched further services Megastores and Superstores and for customers including next-day delivery and market leading three-hour Currys.digital on the high street. timed delivery slots. Travel stores are based at UK airports During the year, Dixons Tax Free rebranded as and new and the Eurotunnel terminal. format stores were introduced, including a first PC World airport store Ireland operates as Currys and at Heathrow, Terminal 5. PC World. UK & Ireland Electricals UK & Ireland

PC World is the UK’s biggest chain of PC World unveiled its new store concept which helps customers get computing superstores. DSGi Business the most out of their shopping trip with numerous ‘experience zones’ is the specialist provider of business to try out hundreds of products throughout the store. ‘Get Connected’, IT solutions comprising PC World a market-beating mobile broadband proposition was launched, offering the Business, Equanet, MacWarehouse biggest range of subsidised or free laptops and netbooks. Improvements and Microwarehouse. The TechGuys are being made to The TechGuys operations to provide improved choices are the UK’s largest national digital and services for customers. support service for customers in-store and in their homes. UK Computing UK & Ireland

Elkjøp is the leading electrical retailer At the start of the year, Elkjøp opened a new Megastore in Lørenskog across the Nordics. in Norway. Offering customers significantly increased ranges, it has had a strong first year’s trading with positive customer feedback. A further Elkjøp and Lefdal stores operate in two Megastores have been opened in the Nordics during the year. Norway, El Giganten stores operate in and Denmark and Gigantti stores operate in Finland. Nordics

Greece’s leading electrical retailer grew market share in a challenging market and performed operates as and in line with expectations. The turnaround plan in Italy is showing progress . Electro World with encouraging signs in a difficult economic environment. A store closure stores also operate in Turkey. programme concluded ahead of schedule, and management have made significant improvements in a number of areas, including stock levels, In Italy, we operate UniEuro electrical availability and margins. In Spain, a plan to reduce costs, manage stocks stores, some with PC City ‘stores- and preserve cash has been implemented. in-stores’. PC City also operates in Spain. Southern Europe

Electro World stores operate in the Operations in the continue to perform well despite the weak Czech Republic, Poland and . environment. The Group’s first stores in Slovakia have performed in line with expectations. In May, the Group announced it had sold the operations of Electro World Hungary, confirming at the same time that Poland remains under strategic review. Central Europe Other International

PIXmania.com is a pan-European performed well in most of its key markets, although sales growth online electrical retailer. was impacted by the slowing consumer environment, and sales in the UK were held back by the strength of the euro. Dixons.co.uk is one of the leading UK electrical e-tailers. Dixons.co.uk continues to improve its consumer proposition which will be bolstered further when it transitions to the PIXmania e-merchant platform. e-commerce

6 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Countries we operate in Performance Review Stores and online presence Online presence only Stores only

Average selling Website Underlying sales Stores Selling space area per store Employees £million ’000 sq ft sq ft www.currys.co.uk 2,657.8 551 5,317 9,650

22,978 Strategic Summary

www.pcworld.co.uk www.pcwb.co.uk 1,570.8 161 2,545 15,807 www.thetechguys.com

www.elkjop.no Corporate Governance www..se 1,625.2 247 3,562 14,421 5,966 www.elgiganten.dk www.gigantti.fi www.lefdal.com

www.kotsovolos.gr www.unieuro.it 1,405.4 325 4,593 14,132 6,802 www.pccity.es www.electroworld.gr Financial Statements www.electroworld.cz www.electroworld.pl 160.4 29 755 26,034 1,358

www.pixmania.com www.dixons.co.uk 807.4 – – – 1,213 Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 7 Directors’ Report: Business Overview Highlights

Underlying Group sales* £million Underlying profit before tax* £million

2008/09 8,227.0 2008/09 50.5

2007/08 8,338.6 2007/08 225.6

2006/07 7,834.5 2006/07 307.9

2005/06 6,888.2 2005/06 321.7

2004/05 6,392.1 2004/05 298.6

Underlying diluted earnings per share* Pence Dividends per share Pence

2008/09 0.7 2008/09 n/a

2007/08 7.2 2007/08 5.45

2006/07 9.6 2006/07 8.87

2005/06 10.2 2005/06 8.45

2004/05 9.3 2004/05 8.05

*Underlying results exclude the trading results of businesses to be closed, impact of amortisation of acquired intangibles, net restructuring and business impairment charges, other one-off non-recurring items, profit on sale of investments, net fair value remeasurements of financial instruments and, where applicable, discontinued operations.

8 DSG international plc Annual Report and Accounts 2008/09 Business Overview Chairman’s Statement

Well placed to deliver the Renewal and Performance Review Transformation plan

Sir John Collins

John Allan and Sir John Collins

Extraordinary times call for extraordinary effort, initiative plan and our determination to serve the customer better Strategic Summary and resilience. These qualities have been delivered by is at the core of everything we are doing, in our stores, on John Browett and his executive in the financial year 2008/09. our websites, and in our infrastructure and back office. Our intention is that the changes which we are making will improve After settling into the Company I asked John Browett DSGi’s competitiveness during the downturn and put the whether he could see a way of returning DSGi to greatness. Group in a stronger position to benefit from recovery in the He replied: “Yes, I can, providing we don’t find ourselves in a future. Your Board believes that technological innovation and deep recession.” “Don’t worry” I assured him, “there could be new product development in electronics and computing, together some cyclical downturn in the economy but I don’t see why with the replacement cycle in white goods, will continue to it should be more than that.” The Chairman’s crystal ball had make this a sector with attractive long term prospects. clearly ceased to function! The DSG Foundation support for the Switched on Communities John Browett has led his team in the design of the ‘Renewal programme came to an end this year and I wish the four and Transformation plan’ for the Group which provides a practical charities supported through that programme the very best Corporate Governance template for improvement in virtually every aspect of our for the future. The Foundation’s focus going forward will be business, with one overriding priority – serving the customer in supporting the fundraising efforts of our colleagues in better. The extent to which we have undergone change in top stores in engaging with their local communities. management and are now doing so in store design, layout and processes, internet operations, buying, distribution, systems Nicholas Cadbury, who was appointed Finance Director and reward is radical if not revolutionary. It is being done with on 14 August 2008, and the Finance team have done an a very high level of support and commitment from employees outstanding job in leading the refinancing of the Group. across Europe who believe it is the right thing to do. The A very special thank you goes to Nicholas and his team positive aspect of a severe economic downturn is not only as it does to Helen Grantham and her legal team. that it fosters the strengths associated with survival, but also We are delighted that John Allan has agreed to be our that any ‘blockers’ to improving performance are swept away. Chairman and we give him a very warm welcome. I have The importance of completing all these changes and, in every confidence that John has the skills and experience

particular, rolling out our new store formats with a more needed at Board level to ensure the successful completion Financial Statements customer-focused business model, coupled with the Group’s of the Renewal and Transformation plan. reduced earnings, called for refinancing. The success of our Our thanks go to Count Emmanuel d’André who has served recent Placing and Rights Issue together with renewed credit us well as a non-executive director. His experience and facilities from our banks calls for me to thank our shareholders knowledge of Continental Europe has been of particular value, and banks for their faith in what we are doing. My thanks also as well as being an excellent colleague. He will retire at the AGM. to our advisers, whose support was excellent. I wish you all well. Your Board is ever conscious of the need to recover the share price and in due course, when affordable, reinstate a dividend. The reduction in our market capitalisation in the past year was painful and demanded the actions we are sharing with you in

this report. Economic recovery is unlikely in the short term and Information for Shareholders therefore we cannot promise immediate earnings improvement. We have found an extremely able Chief Executive whose retail skills are exactly what is needed for today’s environment. He Sir John Collins is well on the way to building the team needed to execute our Chairman

DSG international plc Annual Report and Accounts 2008/09 9 Directors’ Report: Business Overview Chief Executive’s Statement

Since joining the business 18 months ago we have been going through a period of intense activity as we deliver on the Renewal and Transformation plan.

John Browett

Our five point plan for the renewal and transformation of the Group

Focus Transform Focus on Win on the Reduce on the the stores winning internet costs customer positions

Our last financial year has been one of significant change for 1 Focus on the customer: better value, choice the Group. We have taken wide-ranging actions to reorganise, and service restructure, renew and transform the business. Many changes have been made to make our shopping trip better for customers, including: The Renewal and Transformation plan was drawn up following extensive and in-depth customer research. We have listened to ■ putting over 20,000 colleagues in the UK through a customers about what they want. comprehensive service programme. This provides better service in our stores and helps customers choose the most We are improving the business for our customers by delivering suitable mix of products, services, and accessories to meet an unbeatable combination of value, choice and service. We their needs; are improving our store formats, providing better service in- store, selling complete solutions, delivering at more convenient ■ improving the delivery, repair and after-sales service, for times and improving our technical and after-sales service. example through the introduction of Currys’ next-day delivery in three-hour time slots; The Placing and Rights Issue received strong support from shareholders. It was well received by suppliers. We now ■ enhancements to The TechGuys support services business, have the resources and flexibility to deliver our Renewal and resulting in an increase in the annual sales of services in Transformation plan. This is an update on each of the five PC World; points of the plan. ■ improvements to our repair service. For example, customers’ TVs are now being repaired within 8 days on average rather than 21 days previously. Further enhancements to this service will follow. We carried out approximately 110,000 flat panel television and over 330,000 laptop repairs in the UK during the year; ■ improvements to product ranges in our UK and Italian stores in order to provide wider and clearer choices of products at competitive prices; and ■ new incentive and remuneration schemes for UK store colleagues to support better customer service and team work.

10 DSG international plc Annual Report and Accounts 2008/09 Business Overview

2 Transform the stores: better service, wider product start. A further 4 Currys Megastores are planned for the new range, easier navigation and up to date environment financial year; As at 20 June 2009, in the UK, the following new format ■ 41 PC World superstores have now been reformatted. stores had been opened: The changes to the PC World format have been less

■ 30 Currys Superstores which have delivered average gross significant than compared to the Currys stores but they Performance Review profit uplifts of between 23% and 57% versus the rest of the have generated an average gross profit uplift of 11% versus chain, ahead of management’s expectations. There are the rest of the chain. Further improvements are being made plans to refurbish a further 58 Currys Superstores in the to the new PC World stores and we believe that further year ahead; improvements to the gross profit uplifts can be achieved; ■ 5 Currys.digital stores which have delivered average ■ 1 trial Currys and PC World 2-in-1 store in Weybridge, gross profit uplifts of 31% versus the rest of the chain. Surrey, has been opened. By incorporating a mezzanine As we have previously stated we intend to focus into an existing Currys store, the PC World brand has Currys.digital in approximately 100 core locations across been introduced into a catchment where no PC World the UK. The remaining Currys.digital stores will be closed existed before. This new format has exceeded expectations as their leases come to an end. The average lease length generating an average uplift to gross profit of 65% compared of the Currys.digital stores is approximately four years; to the store prior to its refit. Further trials of these 2-in-1 stores are planned this year; ■ 2 Currys Megastores. This is a unique new concept to the Strategic Summary UK providing the largest range of electrical products under ■ we are sharing best practice across our international one roof in the UK. The first Megastore at Junction 9 in businesses and learnings from new formats are being Birmingham opened in October and is, at 55,000 sq ft, introduced across the Group; the UK’s largest electrical store. In its opening weekend ■ our first new format Megastore was opened in Lørenskog it generated sales of £2.3 million, exceeding expectations, in on 5 May 2008 followed by 3 further Megastores and is expected to generate approximately £30 million of in Sweden and Norway; and sales per annum. It has delivered average gross profit uplift of 65% versus the rest of the chain. On 4 June the second ■ superstores in Greece, Italy, Ireland and the Nordics are Currys Megastore opened in New Malden, , a new being reformatted utilising the latest formats from the UK, site of 37,000 sq ft which has got off to a very encouraging with strong early results. Corporate Governance

Currys Megastore, ‘J9’, Birmingham Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 11 Directors’ Report: Business Overview Chief Executive’s Statement continued

On the basis of the gross profit uplifts achieved to date, In Central Europe, the operations in Hungary have been sold. and taking into account the investment and costs involved The core operations in the Czech Republic and Slovakia in reformatting stores, we plan to roll out these renewed continue to perform well in their markets and remain as part formats across the UK, to capture the benefits of a better of the Group. We will restructure the central office operations shopping trip as rapidly and effectively as possible. based in the Czech Republic to meet the needs of customers in these two countries better. The operations in Poland remain The average cash payback of the total investment spent under review. on reformatting stores in the UK & Ireland is targeted to be three to four years, which is equivalent to a cash return on 4 Win on the internet investment of 25% to 33%. We achieved over £1.2 billion of sales over the internet across Europe in the financial year. Our objective is to achieve a return During the new financial year we plan to reformat in total, of 2% to 3% per annum on internet sales in the medium term. 15 Currys.digital stores, 75 Currys Superstores, 20 PC World stores, open 5 further Currys Megastores and trial 5 further The PIXmania e-merchant platform is a leading internet 2-in-1 combined Currys and PC World stores in the UK. sales engine for electrical and computing products in Europe. In the Nordics we are planning to open up to 10 Megastores To leverage e-merchant, we expect to roll out this platform across the region as well as refurbish 15 to 20 Superstores. in the UK during the course of the 2009/10 financial year. This will provide customers with improved functionality, 3 Focus on winning positions easier navigation, better product information and accessory We have market-leading electrical and computing retail attachment. In addition, system changes have been made so operations in the UK & Ireland, the Nordic region and that PIXmania can benefit from access to the Group’s logistics Greece as well as the strong and growing internet presence infrastructure, particularly in the UK, enabling it to reduce its in Europe. We will exploit the potential of all of these cross-border stock and pricing risk on sales of products. businesses over the coming years. Additionally, we have introduced a programme to reduce losses and turn around We will continue to exploit our successful reserve&collect and the operations in Italy, Spain and Central Europe. collect@store options for customers in the UK and Europe. During the year and in line with our strategy, we closed 5 Reduce costs PC City in Sweden and Markantalo in Finland as they were We are using the step change programme to simplify our loss-making chains. business operations. We are changing our operations to make them better for customers, easier for colleagues and therefore In Italy, following a strategic review, the first stage of a cheaper to operate. comprehensive turnaround plan has been completed. We have closed stores, reduced costs, improved stock turn Cost savings of £95 million were achieved in the 2008/09 and integrated PC City within UniEuro. We expect to invest financial year. There remains significant opportunity for approximately €60 million to €75 million of cash in total over productivity improvements within the Group and we plan to the next three financial years to achieve profitability in Italy. deliver £200 million in cost savings over the next four years. There are efficiency initiatives in logistics, services, head office The strategic review of PC City in Spain concluded that we administration and in-store processes. The changes also needed to restructure the business to reduce costs and improve the number of deliveries and repairs that are done to minimise cash outflow until the Spanish market recovers. right first time. Process improvement initiatives have already As a result, 11 stores have been closed and the remaining contributed to reductions in levels of stock held by the Group 33 stores will be reformatted utilising the principles of the of between 15% and 20% year on year. new store formats in the UK. Having made these changes we believe underlying cash losses in Spain will be materially reduced over the next two years.

Highlights

Accelerating the Training of over Delivering an Cost savings of store transformation 20,000 colleagues unbeatable and £95 million achieved programme to deliver in our new service compelling combination this year, with a further exciting new stores and selling process, of value, choice and £200 million targeted with excellent returns ‘FIVES’ in the UK service for customers over the next four years

12 DSG international plc Annual Report and Accounts 2008/09 Business Overview

There is an opportunity to reduce working capital by approximately £80 million to £130 million over the medium term. This will be achieved by improving forecasting and ordering accuracy; allocation of store stock; in-store fulfilment; and a new clearance policy incorporating dynamic pricing. Performance Review Outlook The difficult economic backdrop across Europe and reduction in consumer spending, particularly on discretionary products, has been well publicised. We expect these conditions to continue throughout the coming year in many of our markets. We are well prepared for this environment and continue to focus on managing costs, margins, stock turn and cash flow, alongside the Renewal and Transformation plan. With the improvements to our business we are well positioned to emerge from the recession with a more compelling offer for customers and are confident of our medium term target of achieving a 3% to 4% return on sales. Strategic Summary

John Browett Chief Executive Corporate Governance

Currys.digital, Bluewater Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 13 Directors’ Report: Performance Review Overview

Financial Renewal and Transformation ■ total underlying Group sales down 1% to £8,227.0 million ■ intense activity on the five point Renewal and Transformation (2007/08 £8,338.6 million);(1) (2) plan throughout the year to improve profitability and competitiveness by offering an unbeatable combination ■ Group sales, including those from businesses to be closed, of value, choice and service for our customers; down 1% to £8,364.6 million (2007/08 £8,488.0 million); ■ rapid progress on the store transformation programme: ■ Group like for like sales(3) down 9%; − 63 stores reformatted at the year end in the UK ■ underlying Group sales down 8% at constant exchange rates; and Nordics; ■ underlying Group gross margins up 0.2% in the second − further 19 stores reformatted in the UK to date, half, down 0.1% in the full year; including one new Megastore; ■ underlying Retail profit(4) of £95.5 million (2007/08 − additional 101 reformatted stores to be opened during £219.9 million); the year in the UK, including four Currys Megastores; ■ underlying pre-tax profit(5) of £50.5 million (2007/08 − successful new Megastore format in the Nordics being £225.6 million) (excluding operations of PC City Sweden, rolled out with a further three open at the year end; and Markantalo in Finland and Electro World in Hungary); − trial of the new store concept in Ireland, Spain, Greece ■ underlying diluted earnings per share of 0.7p and Italy now commenced. (2007/08 7.2p);(7) ■ reformatted stores continue to perform well, delivering ■ total loss before tax after deducting net non-underlying gross profit uplifts of between 11% and 65% versus the charges of £190.9 million was £(140.4) million (2007/08 rest of the chains; loss £(184.1) million). Basic loss per share for continuing operations (9.2)p (2007/08 (11.5)p); ■ UK-wide training of colleagues of five step selling process with greater emphasis on service, connectivity, delivery, ■ as at 2 May 2009 the Group had net debt of £477.5 million installation and repair in a world of converging technology; (excluding net proceeds of £293.6 million from equity issue); and ■ ‘Get Connected’ programme in PC World replicated in Currys to provide mobile broadband with the widest range ■ successful refinancing completed through the equity issue of free or subsidised laptops; and amendments to the £400 million revolving credit facility and £75 million letter of credit facilities. ■ successful launch of further services for customers including next-day delivery and market-leading timed delivery slots; ■ e-commerce division profits doubled to £15 million; ■ turnaround plan in Italy showing progress with 46 stores closed ahead of plan, improving margin trends and 22 PC City implants; ■ portfolio review has resulted in the closing of loss making standalone PC City stores in Sweden and Markantalo in Finland as well as the sale of Electro World in Hungary; and ■ good progress on the step change programme: − costs reduced by £95 million in the 2008/09 financial year; − £200 million of further cost reductions identified over the next four years; and − initiatives under way to reduce working capital by £80 million to £130 million.

Successful refinancing Renewal and completed Transformation plan making good progress

14 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Business performance

Underlying sales and profit analysis Underlying sales(1) Underlying profit / (loss)(5)

52 weeks 53 weeks 52 weeks 53 weeks Performance Review ended ended ended ended 2 May 2009 3 May 2008 Like for like(3) 2 May 2009 3 May 2008 Note £million £million % change £million £million

UK & Ireland Electricals 9 2,657.8 2,927.0 (10)% 17.7 93.5 UK Computing 10 1,570.8 1,818.7 (13)% 41.0 63.2 UK & Ireland 4,228.6 4,745.7 (11)% 58.7 156.7

Nordics 11 1,625.2 1,469.3 (7)% 76.1 97.7

Southern Europe 12 1,405.4 1,325.7 (13)% (19.4) (14.8) Central Europe 13 160.4 145.6 n/a (9.9) (2.8) Other International 1,565.8 1,471.3 n/a (29.3) (17.6) Strategic Summary

e-commerce 14 807.4 652.3 7% 15.0 7.5

Central costs – – (25.0) (24.4) Total Group Retail 8,227.0 8,338.6 (9)% 95.5 219.9

Underlying net finance (charges) / income (26.9) 13.0 Property losses (18.1) (7.3) Group underlying profit before tax 50.5 225.6

Notes (1) Underlying Group sales exclude sales from businesses to be closed and discontinued operations. Sales for the 53 weeks ended 2008 have been re-presented to reflect this exclusion.

Businesses to be closed comprise the operations of PC City in Sweden and Markantalo in Finland. Discontinued operations in 2008/09 comprises Hungary, while in 2007/08 comprised Corporate Governance Hungary, and Genesis. (2) Sales in 2008/09 were based on a 52 week year, compared to 53 weeks in 2007/08. On a consistent 52 week basis, underlying Group sales were down 1% and total Group sales were down 1%. (3) Like for like sales are calculated based on stores that have been open for a full financial year both at the commencement and end of the financial period. Customer support agreement sales are excluded from all UK like for like calculations to remove the distorting effect of the introduction of pay-as-you-go customer support agreements. Operations that are subject to closure have sales excluded as of the announcement date. Stores subject to a refurbishment are excluded during the period of refurbishment. (4) Underlying Retail profit is underlying profit before tax, net finance (charges) / income and net property losses. (5) Throughout this statement, references are made to ‘underlying’ performance measures. Underlying results are defined as excluding trading results from businesses to be closed, the amortisation of acquired intangibles, net restructuring and business impairment charges and other one-off non-recurring items, profit on sale of investments, 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. (6) Free Cash Flow relates to continuing operations and comprises net cash flow from operating activities before special pension contributions, plus net finance income, less income tax paid and net capital expenditure. (7) The weighted average number of shares used in the calculation of earnings per share for both 2008/09 and 2007/08 has been multiplied by an adjustment factor to reflect the bonus element of the shares issued under the terms of the rights issue (as described in note 35 to the financial statements). The adjustment factor used was 1.2138. (8) Unless otherwise noted, figures relate to continuing operations, excluding the results of businesses to be closed. Total revenue including discontinued operations and businesses to

be closed was £8,415.1 million (2007/08 £8,556.8 million). Financial Statements (9) UK & Ireland Electricals comprises Currys, Currys.digital and Dixons Travel as well as the operations in Ireland. (10) UK Computing comprises PC World, DSGi Business and The TechGuys. Like for like sales are for PC World only. (11) Nordics comprise the Elkjøp Group, and no longer include the results of PC City Sweden and Markantalo which are now classified as businesses to be closed within non-underlying items. (12) Southern Europe comprises Greece (Kotsovolos and Electro World), Italy (UniEuro), Spain (PC City Spain) and Turkey (Electro World). (13) Central Europe comprises Electro World operations in the Czech Republic, Poland and Slovakia and no longer includes the results of the discontinued operation Electro World Hungary. Central Europe results are excluded from like for like comparisons as the number of stores trading is insufficient for a meaningful like for like comparison to be made. (14) e-commerce division comprises PIXmania and Dixons.co.uk. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 15 Directors’ Report: Performance Review UK & Ireland

Total sales in the UK & Ireland division were down UK & Ireland Electricals 11% to £4,228.6 million (2007/08 £4,745.7 million) and like for like sales were down 11%. Underlying This division comprises Currys, Currys.digital and operating profit was £58.7 million (2007/08 Dixons Travel in the UK and Currys and PC World in £156.7 million). Ireland. Total sales were down 9% at £2,657.8 million (2007/08 £2,927.0 million) with like for like sales down 10%. Underlying operating profit was £17.7 million UK & Ireland (2007/08 £93.5 million). Underlying sales £million

2008/09 4,228.6 Underlying sales £million

2007/08 4,745.7 2008/09 2,657.8 2007/08 2,927.0 Underlying operating profit £million

2008/09 58.7 Underlying operating profit £million

2007/08 156.7 2008/09 17.7 2007/08 93.5

Samsung LED TV 7000 A completely new range of televisions with amazing picture quality utilising the latest LED technology.

16 DSG international plc Annual Report and Accounts 2008/09 Business Overview Business Overview

Currys and Currys.digital experienced difficult trading In Ireland the economic environment remains very tough, conditions throughout the year as the consumer environment impacting sales and margins. However, management are deteriorated. In July 2008, Currys introduced a programme to taking the necessary actions to focus on cash management. reduce prices on televisions to bring them more into line with The market leading position and efficient structure that the the internet. In the first half of the year, Currys also executed Group operates in Ireland outperforms its competitors. During Performance Review a programme to reduce stock levels, particularly older stock. the year, Dixons stores in Ireland were rebranded Currys in These two actions, together with an increased mix into small order to reduce costs and align the business with that of brown and technology products, impacted gross margins in the UK. the first half of the year. A very tough market in the lead-up During the year, Dixons Tax Free rebranded as Dixons Travel. to the important Christmas period was followed by a better The new format stores introduced with the opening of the than expected sales period. Following the Christmas trading new Terminal 5 at Heathrow are being rolled out across the period, gross margins improved as management continued rest of the airport stores. These new formats incorporate to focus on in-store service, costs and cash generation. many of the same customer benefits as the reformatted White goods have been particularly hit by the slowdown Currys.digital and Currys Superstores with playtables and in the housing market, but have shown signs of stability in improved ranges. In June, Dixons Travel opened its second the latter part of the year. Computing products, particularly accessories store, ADD+, in Stansted Airport. Despite the laptops and netbooks have shown strong volume growth in weaker economic environment the Dixons Travel stores are the second half of the year. With good stock control, careful performing well. Strategic Summary cost and cash management, improving customer service as well as the benefits of the Renewal and Transformation plan, Currys and Currys.digital are well placed to operate prudently through the recession and capitalise on any improvement in consumer demand. LG Steam Direct Drive washing machine Innovative designs incorporating new steam cleaning technology for everyday life. It includes a practical 9kg load capacity and energy saving feature.

Currys Superstore, Watford Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 17 Directors’ Report: Performance Review UK & Ireland continued

UK Computing PC World was trading against a strong comparative period in the first half of the year as laptop overstocks were cleared UK Computing comprises PC World, DSGi Business and as the year progressed was also impacted by the weaker and The TechGuys. Total sales were down 14% at consumer environment. However, careful margin and stock £1,570.8 million (2007/08 £1,818.7 million) with like for management as well as a number of initiatives described like sales down 13%. Underlying operating profit was below have limited the impact of the weaker sales £41.0 million (2007/08 £63.2 million). environment on profit performance. PC World extended its range of connectivity solutions. Underlying sales £million ‘Get Connected’, the market-beating mobile broadband 2008/09 1,570.8 proposition, offers the biggest range of subsidised or free laptops and netbooks in the UK, tailored to suit customers’ 2007/08 1,818.7 needs. A number of the new format store teams are trialling a dedicated zone to demonstrate connectivity solutions for Underlying operating profit £million the household. Netbooks are now established as a new 2008/09 41.0 product range and PC World has swiftly established clear 2007/08 63.2 market leadership in this new area. The PC World store refurbishment has progressed well, with 41 stores (25% of the PC World portfolio) converted in time for Christmas trading.

DELL inspiron laptop Attractive, stylish and popular. Part of the widest range of laptops available in the UK.

18 DSG international plc Annual Report and Accounts 2008/09 Business Overview Business Overview

The TechGuys continues to be a valued differentiator providing service and expertise to customers. The TechGuys service desk is now operational in all PC World stores and has been incorporated in the Currys Megastores and some trial Currys stores. Improvements are being made to The TechGuys Performance Review operations to provide improved choices and services for customers with new propositions planned to be rolled out during the course of the year. The Group expects to innovate further with other subscription products and service offers for customers. DSGi Business sales were £325.8 million (2007/08 £397.0 million). It continued to perform in line with expectations in a challenging environment. DSGi Business is making good progress with its transformation programme to deliver an efficient, customer-focused organisation which will be even more competitive going forward. Customers are already benefiting from a more specialist solution, tailored to their needs. Strategic Summary

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PC World, Stevenage Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 19 Directors’ Report: Performance Review Nordics

In the Nordic region, Elkjøp saw sales decline 1% at Sales performance was impacted as the effects of the constant exchange rates, while in sterling, sales grew global financial crisis spread more widely across Europe by 11% to £1,625.2 million (2007/08 £1,469.3 million). during the year. The businesses have performed well Like for like sales were down 7%. Underlying operating relative to the overall markets in the Nordic region, gaining profits were £76.1 million (2007/08 £97.7 million). Nordic market share, especially in Denmark, where customers region results are stated excluding the businesses to be are recognising the strong value proposition. Management closed of PC City in Sweden and Markantalo in Finland. are taking the necessary actions to manage the business appropriately, focusing on margin, costs, stock and capital. At the start of the year, Elkjøp opened a new Megastore Nordics in Lørenskog (near Oslo) in Norway. Offering customers Underlying sales £million significantly increased ranges, it has had a strong first year’s 2008/09 1,625.2 trading with positive customer feedback and a further three 2007/08 1,469.3 Megastores have been opened across the Nordics from which initial results have also been promising. Underlying operating profit £million Elkjøp’s multi-channel offering continued to grow in all 2008/09 76.1 markets with a 48% increase in online sales. It introduced

2007/08 97.7 a reserve&collect service in August 2008 in most of its operations, which has been well received by customers. In March 2009, management also announced that it would close the loss making operations of PC City in Sweden and Markantalo in Finland.

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El Giganten, Kungens Kurva, Sweden

20 DSG international plc Annual Report and Accounts 2008/09 Business Overview Other International Business Overview

within the year, impacting the total sales performance. Other International Store trials continue to perform ahead of expectations and the Underlying sales £million integrated PC City ‘store-in-stores’ are delivering significant 2008/09 1,565.8 sales uplifts in the computing category. Management have significantly improved availability in-store, with plans for further 2007/08 1,471.3 Performance Review improvements in place, they have reduced stock and margins have shown good progress across the year. Underlying operating loss £million

2008/09 (29.3) Following the strategic review, the Group is focused on the turnaround plan under the new management team. 2007/08 (17.6) As a result of the improvements being delivered, the Group is confident in the long term prospects for UniEuro, however, the weak consumer environment will impact overall performance in the short term. Management estimate that approximately Southern Europe €60 million to €75 million of cash in total over the next three financial years will be required before the Italian business can This division comprises operations in Italy, Greece, achieve profitability. Spain and Turkey. Total sales declined by 10% at Greece constant exchange rates and grew by 6% in sterling Strategic Summary Kotsovolos total sales were down 3% at constant exchange to £1,405.4 million (2007/08 £1,325.7 million), with like rates and up 15% in sterling at £405.7 million (2007/08 for like sales down 13%. Underlying operating loss £354.1 million). was £(19.4) million (2007/08 loss of £(14.8) million). During the first half, Kotsovolos and Electro World were Italy trading against tough comparables in the prior year which, Total sales for UniEuro in Italy were down 17% at constant together with a weak consumer environment across the exchange rates and down 1% in sterling to £722.5 million year, has held back total sales. However, as Greece’s leading (2007/08 £732.6 million). specialist electrical retailer, Kotsovolos and Electro World The turnaround plan in Italy continues to make good are growing market share. Careful management of costs, progress with some encouraging signs in a difficult economic cash and stock have limited the effects of the weakening environment. The two year store closure programme has environment on bottom line performance.

been completed ahead of schedule with 46 stores closed Corporate Governance

Integrated UniEuro and PC City, Assago, Italy Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 21 Directors’ Report: Performance Review Other International continued

On 29 December 2008, the Group acquired a further 10% Central Europe interest in Kotsovolos for a cash consideration of €28.1 million (£27.5 million) following the exercise of a put option by Fourlis In Central Europe, Electro World saw sales decline Holdings SA. The consideration was calculated in accordance by 15% at constant exchange rates, growing by 10% with the pricing formula agreed at the time that the Group in sterling to £160.4 million (2007/08 £145.6 million). acquired a controlling interest in Kotsovolos in September Underlying operating losses were £(9.9) million (2007/08 2004. This acquisition takes the Group’s total interest in £(2.8) million). Central Europe results are stated excluding Kotsovolos to 99% of the issued share capital. the operations in Hungary, which have been sold. Spain Operations in the Czech Republic continue to perform well, PC City sales in Spain were down 13% at constant despite the weak consumer environment. During the year exchange rates and up 3% in sterling at £224.3 million the Group opened its first stores in Slovakia and these have (2007/08 £217.4 million). An extremely tough economic performed in line with expectations. environment has impacted consumer demand. Management are implementing a plan to reduce costs, manage stocks and On 19 May the Group announced that it had sold the preserve cash. As at 9 May 2009, 11 stores had been closed operations of Electro World in Hungary for a consideration and management believe that losses will be materially reduced of €1. The sale involved the transfer of all nine stores, as well as position the business better for when the Spanish operations and employees to the purchaser, EW Electro economy recovers. Retail Ltd. The important operations in the Czech Republic and Slovakia, which continue to perform well in their markets, Turkey remain as part of the Group. Management is planning to The Group now operates eight stores in Turkey under restructure the central office operations based in the Czech the Electro World brand with its local joint venture partner. Republic to meet the needs of customers in these two countries These new stores are based on the Group’s new large space better. The operations in Poland remain under review. format, providing a greater product range and exciting retail environment for customers. Initial results from these stores have been positive with further stores planned.

Kotsovolos, Thessaloniki, Greece

22 DSG international plc Annual Report and Accounts 2008/09 Business Overview e-commerce Business Overview

This division comprises PIXmania.com and Dixons.co.uk. PIXmania performed well in most of its core markets, although Total sales for the e-commerce division were £807.4 million sales growth has been impacted by the slowing consumer (2007/08 £652.3 million). Underlying operating profit was environment, particularly in the UK, France and Spain. Its £15.0 million (2007/08 £7.5 million). overall performance was held back by lower sales in the UK due to the strength of the euro making the business less price Performance Review competitive. Improvements to logistics and better integration e-commerce into the Group’s European buying network will reduce this Underlying sales £million issue over time. In its core euro trading markets, PIXmania’s 2008/09 807.4 sales were up 15%. Overall gross margins continued to make progress. 2007/08 652.3 Dixons.co.uk continues to improve its customer proposition Underlying operating profit £million which will be bolstered further when it transitions onto the

2008/09 15.0 PIXmania e-merchant platform during the course of the 2009/10 financial year. 2007/08 7.5 Strategic Summary

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well as HD video clips. Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 23 Directors’ Report: Performance Review Group Financial Summary

The Group delivered underlying profit before tax of £50.5 million ■ in March the Group announced the closure of standalone (2007/08 £225.6 million). Underlying diluted earnings per stores of PC City in Sweden and Markantalo in Finland share, after adjusting for the effects of the Rights Issue was which were completed by 20 May 2009. These have been 0.7p (2007/08 7.2p). After taking account of non-underlying classified as businesses to be closed; adjustments, total Group loss before tax was £(140.4) million ■ amortisation of acquired intangibles of £4.9 million (2007/08 loss £(184.1) million). predominantly comprises brand names, with the year Underlying profit before tax is reported before non-underlying on year change being affected by currency movements; charges of £190.9 million. A further explanation of these ■ strategic reorganisation costs of £59.1 million relate to charges is shown below: the UK business transformation which primarily comprises: Adjustments to underlying results asset impairments associated with the reformat of the

52 weeks 53 weeks UK store portfolio; reorganisation costs of the Service ended ended infrastructure; and headcount reductions which have 2 May 2009 3 May 2008 £million £million predominantly been incurred in the UK retail support centre. The prior year amounts related mainly to the Loss before tax (140.4) (184.1) reformat of the UK store portfolio; Add back non-underlying items: ■ Pre-tax losses from businesses to be closed 14.1 15.9 the turnaround plan announced for Italy in the prior year has made significant progress. The planned store closures Other non-underlying items have been achieved in a faster timeframe than originally Amortisation of acquired intangibles 4.9 4.4 expected and also at lower cost. This has resulted in the release of surplus lease and employee severance provisions Net restructuring charges: Strategic reorganisation 59.1 29.5 in the current financial year; Distribution network reorganisation ■ other business impairments comprise the closure and PC City France closure – (8.8) costs of the PC City Sweden and Markantalo stores; 59.1 20.7 the closure costs of 11 stores and impairment charges Business impairments: in PC City Spain in connection with the restructuring of Italian operations (18.8) 341.3 this business; the impairment of Polish stores following Other businesses 126.1 22.9 a disappointing performance in this market; and the impairment of Currys.digital and certain Currys High Street 107.3 364.2 stores as the closure programme of those non-core stores, Other items – Buncefield release (1.9) – identified last financial year, is implemented; ■ Financing items: the Buncefield release relates partly to a settlement received Profit on sale of investments – (1.7) from the oil companies’ insurers together with a related Net fair value remeasurements 7.4 6.2 release of surplus provision originally set up following the explosion at the oil storage depot near the Group’s UK 7.4 4.5 retail support centre in December 2005; and Other non-underlying items – total 176.8 393.8 ■ the financing charge of £7.4 million relates to net fair value remeasurement losses on revaluation of financial Total net non-underlying charges to add back 190.9 409.7 instruments as required by IAS 32 and 39. The main component of the net charge is a £5.9 million revaluation Underlying profit before tax 50.5 225.6 of the Kotsovolos put option up to the exercise date of 29 December 2008 and arose mainly as a result of foreign exchange movements between sterling and the euro.

24 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Free Cash Flow Capital expenditure was £141.8 million (2007/08 £165.7 million), Free Cash Flow was £(412.6) million (2007/08 £91.6 million down £23.9 million due to a reduction in store openings Free Cash Flow). and postponement of the One Group programme. Cash generated from the sale of property was £10.8 million 52 weeks 53 weeks ended ended (2007/08 £41.5 million), as previously announced this was Performance Review 2 May 2009 3 May 2008 lower than anticipated due to the decision to delay the sale £million £million and leaseback of the Group’s Swedish distribution centre. Underlying profit before tax 50.5 225.6 Businesses to be closed loss before tax (14.1) (15.9) Other net spend of £65.8 million includes £83.3 million of Depreciation and amortisation 135.7 137.1 revaluation settlements primarily on currency hedges taken Working capital (287.5) 8.6 out in previous years against certain overseas assets and Taxation (35.7) (53.1) intercompany balances (2007/08 £29.5 million). As previously Capital expenditure(i) (141.8) (165.7) announced this was approximately £30 million higher than Sale of freehold property(ii) 10.8 41.5 anticipated due to the significant further movements in foreign Other cash items (65.8) (48.9) exchange rates during the year. Free Cash Flow before restructuring items (347.9) 129.2 Net restructuring and impairment reflects the cash outflows Net restructuring and impairment(ii) (64.7) (37.6) relating to the strategic reorganisation and business Free Cash Flow (412.6) 91.6 impairment activities. These predominantly comprise lease Strategic Summary and other property related payments and employee severance (i) Capital expenditure in the prior year excludes £7.1 million (shown within net restructuring and impairment costs) relating to the restructuring of distribution assets in the UK. costs, less the disposal proceeds from the sale of the (ii) Sale of freehold property in the prior year excludes £10.0 million of sale proceeds relating Stevenage site. to PC City France, and in the current year excludes £18.0 million of sale proceeds relating to the sale of the Group’s former warehouse in Stevenage. These sale proceeds are Funding shown within net restructuring and impairment costs. Net funds The cash utilisation was primarily due to working capital At 2 May 2009 the Group had net debt of £477.5 million, outflows, reduced profitability, restructuring costs and compared with net funds of £50.1 million in the previous year. cash costs associated with the Group’s hedging activities. The Group’s net (debt) / funds include restricted funds of The working capital outflows were primarily due to: £67.6 million (2007/08 £66.5 million) which predominantly comprise funds held under trust for potential customer ■ structural changes in the trade supplier credit environment support agreement liabilities.

which have limited the Group’s ability in the 2008/09 Corporate Governance 52 weeks ended 53 weeks ended financial year to repeat historical deferrals of payments 2 May 2009 3 May 2008 due to suppliers of between approximately £130 million to £million £million £150 million that previously occurred over its prior financial Opening net funds 50.1 224.9 year end; Free Cash Flow (412.6) 91.6 ■ one-off early settlement payments to trade suppliers Dividends (60.3) (160.8) Share buyback programme – (100.0) of approximately £50 million to assist them in managing Acquisitions and disposals (27.6) (19.7) their credit risk; Discontinued operations (13.2) (5.0) ■ increase in debtors as a result of the ‘Get Connected’ Special pension contribution (12.0) – programme; and Other items (1.9) 19.1 Other movements in net funds (115.0) (266.4) ■ continued unwinding of the Customer Services Agreement creditors as a result of the change in mix from term to Closing net (debt) / funds (477.5) 50.1 monthly payment contracts. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 25 Directors’ Report: Performance Review Group Financial Summary continued

Movements in net funds include £60.3 million dividend payments Underlying net finance costs (being the final 2007/08 dividend), £27.6 million acquisition Underlying net finance costs were £(26.9) million (2007/08 costs primarily representing the additional 10% of Kotsovolos £13.0 million income). The movement year on year was driven acquired on 29 December 2008, and £13.2 million representing by three key areas: the net cash utilisation of the discontinued operations in ■ interest cost increases driven by higher borrowings, the cost Hungary. The £12.0 million special pension contribution was of refinancing, and lower interest rates on cash on deposit; made in accordance with the agreement with the trustee of the UK defined benefit pension scheme to reduce the pension ■ losses on earnings related hedges due to the weakening deficit, with further amounts of £12.0 million being payable of the pound against the Norwegian krone and the euro, annually until December 2012. Other items include the impact offsetting the gains on the translation of earnings included on net funds of revaluing the 2012 Bond, offset by the in retail profit; and revaluation of net funds held in foreign currencies and capital ■ higher pension interest due to increased discount rates contributions made by our Turkish joint venture partner. on liabilities and lower earnings on assets. It should be noted that the restricted funds balance has Dividends reduced by less than was originally expected as a result The Board believes that the Group’s existing financial of the cancellation of a £50 million letter of credit facility in resources should be used to invest in the Renewal and December 2008 which necessitated additional funds to be Transformation plan, which is showing early and encouraging placed in trust. Furthermore, management expect the amount signs of delivering changes in the Group’s performance, and of restricted funds to increase during 2009/10 by approximately to ensure liquidity. £20 million as a result of the amendments made to the Group’s remaining £75 million letter of credit facility. The Revolving Credit Facility and Letter of Credit Facilities, amended at the time of the refinancing, prohibit payments of On 30 April 2009 the Group announced that it had reached dividends to shareholders in respect of the 2008/09 financial agreement with its lending banks to amend its £400 million year and the 2009/10 financial year. The same agreements Revolving Credit Facility and its £75 million Letter of Credit allow the Company, subject to certain conditions, to pay a Facility, as well as raising £310.6 million by way of an equity dividend in respect of the 2010/11 financial year. Placing and Rights Issue. The equity Placing and Rights Issue was approved by shareholders on 18 May 2009. The Subject to the above, the Board aims to resume dividend receipt of net proceeds of approximately £293.6 million was payments when possible and appropriate, consistent with a completed on 9 June 2009 and, as required by the amended sustained recovery in the Group’s operational and financial facilities, have been used to reduce the drawings on these performance. facilities. Tax Property losses The Group’s tax rate on underlying profit before tax was Property losses increased to £18.1 million (2007/08 67.9% (2007/08 29.8%). The increase in the tax rate reflects £7.3 million loss), as the provision to cover the potential an increased proportion of loss making businesses where tax cost of sub-leasing or assigning our non-trading stores in benefits are not fully recognised. the UK was increased to reflect the deterioration in the UK As announced on 27 February 2009, the Group had property market. been in dispute with HMRC regarding settlement of certain intra-group trading arrangements as well as certain other matters. The Group reached an agreement in principle with HMRC regarding the settlement which was subsequently confirmed on 4 June 2009. The settlement amount exceeded the provision already held in the balance sheet and as a result an additional non-underlying income tax charge of £52.7 million has been recorded.

26 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Consolidated balance sheet Consolidated net assets at 2 May 2009 decreased to £584.9 million from £853.5 million. The main movements comprised £16.2 million generated from underlying post-tax profits which was more than offset by non-underlying post-tax Performance Review charges of £235.5 million which included £22.1 million post-tax loss on discontinued operations, all of which are set out in the consolidated income statement on page 64. Net assets were further decreased by actuarial losses of £114.3 million on the UK defined benefit pension scheme and adverse movements on derivative contracts of £73.4 million although these movements were largely offset by foreign exchange movements of £122.5 million and related tax effects of £53.2 million, all of which affected reserves directly. The increased stake in Kotsovolos following the exercise of a put option, further increased net assets by £17.5 million. These movements were offset by dividend payments of £60.7 million. Strategic Summary Pensions At 2 May 2009, the IAS 19 accounting deficit of the UK defined benefit pension scheme amounted to £148.8 million (3 May 2008 £51.0 million). The assumptions used for determining the accounting valuation use a consistent basis to that adopted in prior periods. The increased deficit is largely due to a significant decrease in the value of the scheme’s assets, which reflects current market conditions but has been partly offset by an increase in the discount rate applied to the liabilities (in accordance with accounting standards) which again reflects the current market conditions. The actuarial deficit of £61.0 million (measured as at 5 April Corporate Governance 2007) is being addressed by special cash contributions of £12 million per annum which are payable in two equal tranches of £6 million in June and December each year until December 2012. Over recent years, the Group has implemented a number of changes to pension arrangements in order to address the deficit over the longer term. The defined benefit section of the UK pension scheme was closed to new entrants on 1 September 2002. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 27 Directors’ Report: Performance Review Corporate Responsibility Review

CR management framework

DSGi takes its responsibilities to The Group Finance Director, Nicholas Cadbury, is the executive its stakeholders seriously, aiming director with responsibility for Corporate Responsibility (CR) matters. The Group has also appointed a Corporate to have policies and procedures Responsibility Committee (CR Committee), which is chaired by the Company Secretary and General Counsel and also in place which balance the comprises other senior executives who have responsibility for risk management, logistics, supply chain, UK operations, expectations of our customers, Group communications, human resources, marketing and shareholders, employees and property. The CR Committee’s remit is, in consultation with the Board, to set the direction for the Group’s CR efforts and the wider community. initiatives, agree action plans prepared to realise the opportunities and mitigate the risks identified and track progress on actions Set out in this review is a description of how we assess through an agreed set of key performance indicators (KPIs). and act upon social, environmental and ethical issues The Board considers CR matters, including relevant risks relevant to our business together with details of how and opportunities, at least annually. Minutes of meetings of we measure our performance in this area and examples the CR Committee are circulated to the Board and Executive of some of the action we have taken during the period Committee, so they can keep up to date with the action under review. Our goal is to achieve continuous being taken in this area and any issues which arise. improvement over time. The CR Committee met four times during the period under review and a summary of key matters discussed is listed below: ■ evaluation of the Group’s risks and opportunities and identification of areas where the CR Committee needs to enhance reporting or control mechanisms already in place; ■ re-evaluation of the CR KPIs of the Company, to align with the wider business interests of the Group and with those of stakeholders; ■ evaluation of the CR Committee membership and realigning the membership to have CR Committee members with accountability for each of the KPIs; and ‘FIVES’ is our bespoke customer service ■ assessing the reporting structures in place and determining training programme. Since launching FIVES we have seen our customer satisfaction changes to be implemented when gathering information in rates improve. respect of the KPIs.

This report covers the following six areas:

Page ■ CR management framework 28 ■ Identification of risks and opportunities 29 ■ Workplace 30 ■ Marketplace 31 ■ Environment 32 ■ Community 33

28 DSG international plc Annual Report and Accounts 2008/09 Business Overview

■ Identification of risks and opportunities engagement of employees through the provision of rewarding workplace environments and careers, assisting The last 12 months have been a period of significant challenge in the ongoing improvement of customer service levels; to the Group as the global recession has impacted on ■ the provision of safe and reliable own-brand products, consumers and the business. During the period under review achieved as a result of our expert technical knowledge, Performance Review the Renewal and Transformation plan, unveiled in May 2008, with products sourced from manufacturers who are has been rolled out across the UK and is being implemented audited against our ethical requirements; and within the wider Group as appropriate. The CR Committee ■ reviewed the CR objectives in light of the plan and has an appropriate community giving policy, which endeavoured to align the CR agenda with meeting the five complements our interaction with the communities aims of the plan. in which we work. Risk management A member of the CR Committee has been identified as During 2008 the CR Committee carried out a review of the accountable for each of the priorities together with individuals risks and opportunities for the Group in the CR area which outside of the CR Committee who have responsibility for the was subsequently approved by the Board. The aim of the relevant area. review was to ensure our CR focus is on the most appropriate KPIs matters to the evolving business. Following the review of the risks and opportunities referred Strategic Summary The review considered both short and long term risks and to above, the Group also reviewed the KPIs which were opportunities and their potential operational and value impact being monitored in the CR area and agreed a revised set on the business and resulted in an agreed set of priorities of KPIs to enable the Group to monitor performance against which are: the priorities it had set. ■ to improve operational energy efficiency and forward The environment related KPIs have been established in planning; line with the DEFRA document ‘Key Performance Indicators: Reporting Guidelines for UK Business’ and with the five ■ to reduce our impact on the environment, and to raise stated aims of the BRC initiative ‘A Better Retailing Climate’. revenue and reduce costs, through improved waste recycling; The Group’s largest business is its retail business in the UK & Ireland and the Group is collecting all of the KPIs listed ■ to add to and promote the customer proposition in below in respect of the UK business. Data for other countries relation to product reuse and recycling; is collected where available and the intention is to extend Corporate Governance ■ the provision of a safe and healthy environment for collection of data for all of the KPIs to the wider Group over time. customers, employees and visitors to our sites; Financial Statements

Our agreed KPIs are as follows: 1. Staff diversity – age, gender and ethnicity of employees 2. Health and Safety – employee accidents and injuries 3. Performance on ethical supply chain audits 4. Customer satisfaction 5. Waste electrical equipment collected and recycled from customers 6. Business waste recycled Information for Shareholders 7. Group carbon emissions 8. Contributions to the community

DSG international plc Annual Report and Accounts 2008/09 29 Directors’ Report: Performance Review Corporate Responsibility Review continued

Workplace Retail Academies programme has been extended to cover each of the UK brands. This assists in the delivery of vital With approximately 40,000 employees, our employees are training across the UK. FIVES training is also a key factor in our greatest asset and we are committed to high standards measuring customer satisfaction, which is discussed below. of employment practice. We aim to reward individuals fairly Diversity and are committed to providing equality of opportunity, We value our colleagues and their right to be treated with training and development and a safe workplace, in addition respect. We are committed to treating our employees equally to developing initiatives which encourage innovation. and fairly and we actively pursue a diversity policy. The Policies UK & Ireland’s policy on Equal Opportunities states that no The Group has a comprehensive set of human resources employee should suffer discrimination in respect of disability, policies, which cover matters such as reward recognition, gender, sexual orientation, age, religious belief, race, colour, health and wellbeing, promotion and development and nationality, marital status or for any other reason. This policy working policies. The aim of these policies is to set out applies to the recruitment, training and career development of our responsibilities and obligations to our employees, all colleagues. The policy is communicated to all employees whilst demonstrating our commitment to be an employer via the HR intranet site and is reviewed regularly to ensure its of choice. These policies, given the location of our stores efficacy. Additionally, the Group keeps records of the ethnic and subsequently employees, are normally communicated origins of new and existing employees and recruitment and via our intranet site. The policies are regularly reviewed and promotion decisions. comply with current regulation. Health and Safety Training and development The Group has implemented a Health and Safety policy We seek to promote career development with our colleagues across all of its operations which meets at least the minimum regardless of location. The Group provides its employees with legal requirements of the countries in which it operates and access to relevant training and development schemes through emphasises the principles of good safety management. Each in-house training and is committed to undertaking formal jurisdiction has a framework within which the Group fulfils its performance and development reviews on a regular basis. obligations and assists our colleagues in maintaining a healthy and safe work environment. During the past 12 months we have launched our bespoke customer service training programme in the UK, ‘FIVES’, and Within the UK & Ireland, regular Health and Safety audits over 20,000 colleagues have received training on it. FIVES is are carried out on the stores, warehouses and offices of the based on the principle of understanding our customers’ needs Group. Each location has a nominated individual responsible completely, giving them solutions and helping them to make for Health and Safety and for ensuring a safe environment for superb choices. FIVES gives us easy-to-use tools to explore our colleagues. Through active reviews of policy and focused our customers’ needs and give them a consistently fantastic risk assessment and monitoring, the number of reported experience – wherever they shop. Building upon the success accidents has decreased over the last three financial years, of the PC World Retail Academies which has coached over making the working environment for our colleagues safer 8,000 colleagues on FIVES and Winning New Revenues, the and decreasing costs to the business accordingly.

Staff diversity: age, gender and ethnicity of employees Health and Safety: employee accidents and injuries

2008/09* 2008/09 2007/08 2006/07 Female 33% Number of accidents Male 67% or injuries reported 1,298 1,556 2,146 Full time 52% Rate of accidents per Part time 48% 1,000 employees 48.89 55.21 –* Ethnic minority / non-national 10% Aged over 50 6% Average number of employees** 38,460

Data for the Group. Data for the UK & Ireland. *The method of recording information on staff diversity has changed. As a result, *Data not available. comparative information on a consistent basis is not available. **Full time equivalents, excluding employees related to discontinued operations.

30 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Communication Customer satisfaction The Group places considerable value on the involvement Customers are at the heart of everything we do and this of its employees and is committed to providing effective year we have agreed a new CR KPI, relating to customer communication on matters which may affect our colleagues satisfaction. Our performance in this area is measured and on the development and performance of the business. across a number of interfaces, including our stores, service, Performance Review This communication takes the form of Group-wide initiatives, after-sales, internet and technical support departments. such as John Browett’s weekly diary (a feedback forum We have based our assessment of the level of customer where colleagues can ask John Browett and other executives satisfaction on research from customer feedback from questions directly about the business), together with local mystery shopping activities based around our FIVES initiatives for communicating within individual businesses, training programme. Most recently, we have been carrying including updates from business directors, daily store out customer exit surveys, to measure customer satisfaction meetings and divisional heads of business blogs. with stores, service, pricing and range. Our primary aim under the Renewal and Transformation plan is to focus on Marketplace the customer and to deliver an unbeatable combination of value, choice and service. Monitoring customer satisfaction The Group is both a customer and a supplier; the Group is not just about ensuring that the customer receives excellent seeks to ensure that the high quality, choice and service service, but also drives the range and merchandising available we demand from our suppliers is delivered to our customers. to customers, the layout of the store and the quality of goods Strategic Summary We take the lessons learnt from our experiences and adapt available. The programme is designed to focus the store on them to make sure we deliver a great customer experience. delivering a great ‘shopping trip experience’. FIVES training is designed to empower colleagues to deliver great service; Ethical Sourcing it encourages our colleagues and gives them confidence Our focus on the need to supply products from businesses when dealing with the customer. that meet the requirements of our Ethical Sourcing policy remains strong. In order to ensure compliance with our policy, Where stores are not delivering high customer satisfaction we audit all new factories and reassess existing factories on scores, members of the Retail Academy team can assist in a two to three year cycle. Additionally, our sourcing team will ensuring FIVES training has been implemented appropriately. carry out random spot checks on suppliers to ensure ongoing Performance, and as a consequence customer satisfaction, compliance. Ethical Sourcing forms part of the curriculum typically increases. All our store managers are measured and within our online buyer training tool, which was introduced rewarded on delivery of excellence in customer service – it is during the period under review. a key measure of the business. Corporate Governance The current performance information relating to customer satisfaction has been collated since the beginning of 2009 and comparative data is not available. The Committee will monitor this KPI and would aim to provide data externally over time. Financial Statements

Performance on ethical supply chain audits

2008/09 2007/08 2006/07 Meets requirements 22 20 14 Minor improvements required 66 66 51 Major corrective action required 5 53 Delisted 4 83 Total factories audited 97 99 71 Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 31 Directors’ Report: Performance Review Corporate Responsibility Review continued

Environment 4. Engaging in the public policy debate and support the Government in meeting its climate change goals. We seek to minimise the environmental impact and carbon 5. Reporting our achievements transparently and consistently. footprint associated with our operations and stores. To do this we look at initiatives to improve our energy and transport Full details of the initiative can be found on the BRC website efficiency and by focusing on reducing both our, and our at www.brc.org.uk customers’, waste. Waste recycled During the past year we have seen a considerable amount The Group is committed to reducing the impact of packaging of preparation taking place for forthcoming legislation due waste associated with its products. This ambition includes to come into effect in the short to mid term. For example, minimising packaging and also increasing the volume of the Regulation, Evaluation & Authorisation of Chemical materials recycled through its activities. Substances (REACH) Directive is being phased in over a In response to the introduction of the Waste Electrical three year period from June 2008 to implement new controls and Electronic Equipment Directive (WEEE), the Group also regarding the use of chemical substances. We have been in continues to offer various routes for the collection of end of touch with all of our suppliers regarding the implementation life electrical goods. We continue to offer the UK’s first and and their compliance with the regulations. This approach is only free in-store and home collection recycling service as enabling us to identify knowledge gaps in the supply chain part of our standard customer service. This scheme is run and also helping us to understand any downstream implications within our existing carbon footprint and has proved to be of the changes that need to be made. popular with our customers. There are a number of projects under way relating to This service is the subject of ongoing communication with the energy consumption of electrical products. We have store colleagues and continuing education of customers, been actively contributing to the debate in this area, with through refreshing our point of sale materials on this service the aim of thoroughly understanding the requirements and across the UK. their associated implementation time lines but also with an ambition to influence the outcome. We are keen to ensure that During the year the CR Committee agreed to set a new KPI legislators understand the market and its supply chain and to monitor the amount of business waste recycled throughout also, of course, the consumer as regulations are implemented. the Group. Reporting has commenced in this area and the CR Committee will be reviewing performance in the year ahead. Additionally, during the year, the CR Committee signed up to the British Retail Consortium initiative ‘A Better Retailing Group carbon emissions Climate’. This initiative has five stated aims which the CR The Group is also taking action to reduce its carbon footprint, Committee has agreed to implement across the UK & Ireland in particular, relating to the carbon emissions derived from and then the wider Group. our buildings and fleet. The reduction in carbon emissions from our business has the benefit of both driving down These aims are: costs as well as reducing the environmental impact. The CR 1. Reducing the direct environmental impact of our business. Committee has also agreed KPIs in this area which it monitors on a regular basis. 2. Managing our climate risks. Throughout the period under review, the Group’s Property 3. Helping our customers, staff and suppliers to reduce their team have looked at ways of reducing the costs incurred to environmental impacts and vulnerabilities. the Group through the operation of our buildings. This has also

Waste recycled UK fleet carbon emissions

2008/09 2007/08 2006/07 2008/09 2007/08 Reduction Waste recycled as a percentage Litres 5,472,117 6,863,327 (1,391,210) of total waste in the UK* 53% 40% 17% Gallons 1,203,721 1,509,751 (306,030)

Tonnes of CO2 13,844 17,364 (3,520)

Data for the UK. Data for the UK. *Not including WEEE.

32 DSG international plc Annual Report and Accounts 2008/09 Business Overview Business Overview

led to a review of the energy efficiency of the buildings, the All pupils have access to and are using shared online energy sources used to power the buildings and the carbon resources, email and, in some cases, live communications. footprint of the property portfolio. The information relating to Following the launch of the project the local authority also carbon emissions from buildings has only been collated since decided to support Bitterne Manor as a ‘pathfinder’ school the beginning of 2009 and comparative data is not available. to encourage others to follow suit. Performance Review The CR Committee will monitor this KPI during the coming In the coming year we are planning to continue our focus year and would aim to provide data externally over time. on community activities that bring real benefit to local The Group has an ongoing programme to look at ways of communities through the use of technology.

reducing the environmental impact, and associated cost, of Operating Review Contributions to the community the UK fleet which includes continual monitoring and review Our level of charitable giving, as reported below, includes of fuel efficiency levels. In driving efficiencies in this area, the significant donations to our partner charities from the DSGi UK team has reduced the carbon emissions year on year and Foundation (the Foundation), as well as store and employee will continue to review this element proactively going forward. grants and charity badge sales. During the period, the Company made a donation of Community £200,000 to the Foundation for charitable activities. The figures shown in the table below for contributions to the The end of this financial year sees the conclusion of the three community include donations made by the Foundation and Strategic Summary year Switched on Communities campaign working in partnership include charitable donations made by employees, the sale with AbilityNet, Eco-Schools, the e-Learning Foundation of charitable products in our stores and other fundraising and Foyer Federation. The campaign to increase access to activities carried out by our colleagues. technology and training has been a great success and also a great shared learning experience for all those involved. Looking ahead to 2009/10, the business plans to continue along the Switched on Communities theme, encouraging Over 18,000 individuals have benefited from the Switched stores to engage locally with charitable organisations that on Communities partnership with AbilityNet this year. These share our ambition to improve access to technology. individuals have benefited in a variety of ways, for example, Information and guidelines for colleagues will be made from using an online assessment tool, one-to-one assessments available through our intranets. on how to ensure their IT equipment best meets their needs or using factsheets available on frequently raised issues. This reporting period has seen a full scale review of our CR

activities, and we feel confident that we have agreed and Corporate Governance Bitterne Manor Primary School, situated in a diverse community embarked upon an appropriate path, considering the current in Southampton, was awarded a grant via the e-Learning tough financial climate and issues important to the business. Foundation’s link with the Switched on Communities campaign. The school wanted to get all its pupils up to the same level in terms of ICT skills, but realised there were dramatic differences in home access amongst families. Bitterne Manor has had support from its local PC World Store and, through the project, pupils at Bitterne Manor have been provided with a learning package (for example, a laptop with a range Nicholas Cadbury of educational software) to use both at home and school. Executive Director with responsibility for CR Financial Statements

Contributions to the community

Year Amount given 2008/09 £854,944 2007/08 £1,228,000 2006/07 £1,141,276 2005/06 £1,205,866 2004/05 £1,113,886 2003/04 £1,143,452 Information for Shareholders

UK, Greece, Turkey and Nordics data only. The figures above include donations made by the Foundation and include charitable donations made by employees, the sale of charitable products in our stores and other fundraising activities carried out by our colleagues.

DSG international plc Annual Report and Accounts 2008/09 33 Directors’ Report: Strategic Summary Group Overview

The long term objectives of the Group are described in the ■ the e-commerce division is engaged in pure-play internet Chief Executive’s Statement on pages 10 to 13. retail sales, primarily through the PIXmania brand which operates in 26 countries across Europe and the Dixons.co.uk brand in the UK. The market in which the Group operates

The European market for electrical goods and related services Overview of products and services sold by the Group is estimated to be in excess of £130 billion per annum. It is highly competitive and is characterised by a Products relatively small number of global manufacturers supplying The principal products sold by the Group are categorised goods to local, regional and national and international as brown goods, white goods, computing products and electrical retailers. mobile phones. Specialist electrical retailers are the predominant destination for Brown goods include: vision products, such as televisions customers. Buying groups, general merchants and independents and DVD players; audio products, such as stereos and MP3 also have a retail presence in most European markets. players; imaging products, such as cameras and camcorders; gaming products, such as games consoles and related The internet delivers enhanced product information and facilitates essentials and accessories. price comparability for consumers. Whilst this creates new challenges in terms of margin maintenance, it also provides White goods include: major domestic appliances such as a significant opportunity. The Group believes that over time washing machines and dryers, refrigerators, freezers as well internet demand will polarise towards the larger retailers with as gas and electric cookers; and small domestic appliances scaleable distribution and systems, together with proven after- such as microwave ovens, vacuum cleaners, kettles, coffee sales service and support. makers, toasters, irons and breadmakers. Computing products include desktop computers, laptop Principal activities computers, netbooks, printers and a wide range of related essentials and accessories. DSGi is a specialist electrical and computing retailer which Mobile phones include prepaid and contract mobile phones, sells consumer electronics, personal computers, domestic mobile broadband modems and related accessories. appliances, photographic equipment and communication products. It is a multi-channel retailer, selling products in Brown goods, computing products and mobile phones are stores, over the internet and by phone and provides product generally characterised by rapid technological advances that support services to its customers. It also undertakes business offer major improvements in quality, functionality, interactivity to business (B2B) sales and services. and design. White goods tend to benefit from innovation, fashion and improved design and are typically heavily The Group is organised into four divisions: UK & Ireland, dependent on the replacement cycle in most markets. Nordics, Other International and e-commerce. Each division offers a full range of the Group’s products and services. In addition to selling third party branded products, the Group sells a number of own-branded products such The activities of each division are described as follows: as Advent in computing. ■ the UK & Ireland division comprises UK & Ireland Services Electricals and UK Computing. Both UK & Ireland Electricals The Group offers a broad range of product support services. and UK Computing engage in multi-channel retail sales The most important of these, which represent a substantial and provide product support services to their customers. proportion of the revenue from support services provided by In addition, UK Computing also engages in B2B sales the Group, are customer support agreements for repairs and of computer hardware, software and services; protection against breakage, fault and accidental damage, ■ the Nordics division, which operates primarily in Norway, and after-sales support for products bought from the Group. Sweden, Finland and Denmark, engages in multi-channel In addition, the Group provides a range of technical support, retail sales and provides related product support services repair, installation and other services, predominantly in relation to its customers. It also engages in B2B sales of computer to computing products. The Group also offers a range of hardware, software and services and has franchise home delivery and installation services for its products, operations across the Nordic region; including deliveries within specified time frames, collection of customers’ old appliances, gas appliance installation and ■ the Other International division comprises operations in television installation and set-up. In the UK these services Southern Europe (Italy, Greece, Spain, Cyprus and Turkey) are provided through a network of customer service centres; and Central Europe (the Czech Republic, Poland and The TechGuys clinics in PC World stores; laptop and TV repair Slovakia). The Other International division engages in retail centres; and a dedicated The TechGuys telephone support sales (including multi-channel sales in some countries) and team. The Group also has arrangements with a number of provides related product support services to its customers. third parties for the repair of products purchased at DSGi It also engages in B2B sales of computer hardware, stores, particularly white goods. software and services in Italy, Spain and Greece and has franchise operations in Italy, Greece and Cyprus; and

34 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Key Performance Indicators (KPIs)

The successful delivery of the Group’s strategic objective is monitored by the Board through KPIs and the periodic review of Group operations. Performance Review Financial and operational Definition Total sales Growth in total sales Like for like sales The ability to grow sales in stores in the Group is an important measure of a brand’s appeal to customers and its competitive position. The Board measures like for like sales as sales in stores that have been open for a full financial year both at the commencement and end of the financial period. Customer support agreement sales are excluded from all UK like for like calculations to remove the distorting effect of the introduction of pay-as-you-go agreements. Sales targets and growth are set relative to the market and expected economic conditions.

Market position In line with the Group’s strategy to be the leading specialist electrical retailer in Europe, this is an important measure of how well customers are being engaged by the Group’s brands in each market. Retailing operations should be, or be capable of becoming, the number one or number two specialist

electrical retailer in that market, measured by market share. Strategic Summary

Underlying operating profit Continued growth of underlying operating profit enables the Group to invest in its future and provide a return for shareholders. Targets are set relative to expected market performance.

Underlying profit before tax Continued growth of underlying profit before tax represents a measure of total Group performance to external investors and shareholders. Targets are set relative to expected market performance.

Free Cash Flow The Group defines Free Cash Flow as net cash generated from operations, plus net finance income, less taxation and net capital expenditure and excluding certain discrete items such as special pension 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 Definition Corporate Governance Underlying diluted The level of growth in underlying diluted earnings per share (EPS) provides a suitable measure of earnings per share the overall financial health of the Group and its ability to deliver returns to shareholders each year. The Group targets growth in EPS at fixed increments over the annual Retail Prices Index (RPI).

Total Shareholder Return (TSR) This metric provides a relative performance measure over the longer term of the Group’s ability to deliver returns for shareholders. The Group seeks to outperform the FTSE 350 index over a three year period.

Corporate Responsibility KPIs 5. Waste electrical equipment collected and recycled from customers We have reviewed during the year the KPIs which the Group 6. Business waste recycled monitors in the Corporate Responsibility (CR) area and the CR 7. Group carbon emissions Committee has agreed to monitor the following KPIs on an ongoing 8. Contributions to the community basis, initially concentrating on monitoring in the Group’s biggest Financial Statements business in the UK and via the Group’s central buying function. Details are set out in the Corporate Responsibility Review The plan would be to extend monitoring of the KPIs to the other on pages 28 to 33. Group businesses over time, these are: KPIs are monitored by the CR Committee on behalf of the Board 1. Staff diversity – age, gender and ethnicity of employees and the Board considers Corporate Responsibility issues on an 2. Health and safety – employee accidents and injuries annual basis. The CR Committee assists the Board in identifying 3. Performance on ethical supply chain audits risks to achieving the Group’s objectives and mitigating action. 4. Customer satisfaction Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 35 Directors’ Report: Strategic Summary Risks to achieving the Group’s objectives

The Corporate Governance Report on pages 45 to 48 forecasting or unfavourable economic conditions) could describes the processes through which the directors assess, have a disproportionately adverse effect on the Group’s manage and mitigate risk. The Board reviews regularly the financial performance or results of operations for the year. risks faced by the Group. The directors consider that the Competition major risks to achieving the Group’s objectives are those The Group operates in a highly competitive environment. set out below. The Board recognises that the profile of risks There are few barriers to new entrants to markets for the changes constantly and additional risks not presently known, sale of electrical goods. Businesses therefore join and leave or that are currently deemed immaterial, may also impact on the market and / or expand or reduce their product ranges in attainment of the Group’s business objectives. response to competitive forces. Different channels to market (i) Macroeconomic factors have different cost structures and different appeal to customers. Economic environment The Group continuously monitors the activities of its competitors The Group’s operating and financial performance is influenced and potential competitors in each of its markets and takes by the economic conditions in each of the countries in which appropriate action in terms of, for example, its product and it operates. The economic environment impacts on consumer service offering and pricing to maintain and strengthen its spending on electrical and computing goods in many ways. position. The Group actively manages its brands through Consumer confidence is an important influence on spending advertising, promotions and enhancing the retail experience on electrical and computing goods, which is largely discretionary. with the goal of ensuring the Group’s stores are seen as the Unemployment levels, interest rates, consumer debt levels, primary destination for electrical goods. availability of credit, costs of food, fuel and energy, taxation and many other factors influence consumer confidence and Market margin pressure customer spending decisions. In addition, house moves and The level of margins in electrical retailing is governed by home improvements, which are influenced by the economic a combination of the market and buying prices. Consumer environment, impact on consumer spending on domestic demand, manufacturer supply, competition from store appliances. and internet channels, regulation and taxation all impact on margins. The Group is focused on protecting margins The Group recognises that the current difficult economic through maximising its international buying scale, maintaining climate may affect individual countries and regions, which an efficient supply chain and placing continued emphasis has resulted in a general reduction in consumer confidence on strong selling skills. The Group actively manages its cost and spending. Management therefore monitors economic structures to mitigate the impact of product margin erosion. metrics and works closely with suppliers to adjust forecasts of demand. Stock orders are realigned and, where possible, Price deflation selling capacity and support services are flexed in response Price deflation has been a common feature across most to changing expectations. electrical goods categories for a number of years, primarily driven by improving efficiencies in production throughout Meeting customers’ needs the life cycle of a product. The Group works closely with its What differentiates specialist electrical retailers is the wide suppliers to bring products to the mass market to meet the range of products stocked and the provision of services increased sales volume driven by price deflation. Where the that customers want, in a convenient location with staff effect of price deflation is not countered by an increase in that provide excellent service at competitive prices. Giving sales volumes, the importance of strong cost and expense outstanding service is a key ingredient of the Group’s management, as well as stock management, in maintaining Renewal and Transformation plan. or growing money margins, is increased. Regular surveys of customer satisfaction are conducted (ii) Store portfolio across all stores. The results are used to assess store Quality and location of store portfolio performance and to drive high standards across each chain. The quality and location of the Group’s store portfolio is Customer feedback is used to shape our ranges and to a key contributor to the Group’s performance and growth understand where the Group can be more responsive to strategy. The Group principally operates from large out of customers’ needs. town stores in convenient locations that are accessible to Seasonality substantial numbers of customers. The Group continually The Group’s business is highly seasonal, with a substantial reviews its store portfolio in both the UK and overseas proportion of its revenue and operating profit generated and its business is dependent on identifying and securing during its third financial quarter, which includes the Christmas favourable new sites, reformatting existing stores at an and New Year season. In addition, in Southern Europe, hot acceptable return on investment and assigning, sub-leasing summer periods encourage sales of air conditioning units or terminating lease obligations at an acceptable cost where and, accordingly, this forms a second peak period of trading. it no longer wishes to operate. Any factors negatively affecting the Group during, in The Group will continue to actively manage its store portfolio particular, the third financial quarter of any year (including to optimise the location, size and costs of each of its stores. adverse weather, product sourcing issues, incorrect stock In areas where the population catchment is lower, franchising

36 DSG international plc Annual Report and Accounts 2008/09 Business Overview

of the Group’s brands offers the potential for market growth. insurers to those suppliers. The Placing and Rights Issue The Group has franchised brands in Norway (Elkjøp), Italy and refinancing announced on 30 April 2009 has provided (UniEuro), Sweden (El Giganten), Greece (Kotsovolos), the Group with a stronger financial base to provide comfort Cyprus (Kotsovolos), Finland (Gigantti), Iceland (Elko), to the Group’s suppliers and their credit insurers with regard Greenland (Pisiffik) and the Faroe Islands (El Ding). to the Group’s working capital position. Performance Review (iii) Employees (v) Entering new markets The Group is dependent on its senior management to The Group enters new markets by introducing new types operate its business and execute its strategies. It has a of business in the countries where it already operates (for decentralised management structure with many high-level example, the development of its product support services management responsibilities devolved to regional or country business, The TechGuys, in the UK) and by launching management. The Group has a strong reputation for developing its existing businesses in new countries (such as Turkey). retail leaders with entrepreneurial spirit. All retailers also Expansion can be through acquisition or the establishment face the challenge to attract, develop and retain the right of new businesses. As with store openings, the entry into calibre of staff for their business. Through the Group’s retail new markets results in increased revenue, but also results reputation, development and incentive programmes and in upfront or start-up costs to the Group. the career opportunities afforded by its size and diversity The Group has utilised its considerable experience of of operations, the Board believes that the Group is well developing new retail chains through both start-ups and placed to build on its success. A review of the long term Strategic Summary acquisitions. Start-ups usually commence with a small incentive arrangements used to retain employees has been number of stores, which involves relatively smaller upfront carried out by the Remuneration Committee and is discussed costs, with a larger roll-out if the start-up proves successful on pages 53 to 55. (such as Electro World in Turkey). (iv) Supply of product and product life cycles The Group’s growth through acquisition has been either in Responding to changing technology or consumer stages (such as the acquisition of Kotsovolos in Greece) or as preferences outright purchases in a single stage (such as the acquisition of The Group’s success largely depends on its ability to the Elkjøp Group). anticipate and introduce new products, services and technologies to consumers, as well as on the frequency (vi) Treasury risks and policies of such introductions, the level of consumer acceptance Treasury operations are managed centrally within of new products, and the related impact on the demand for policies approved by the Board and are subject to existing products, services and technologies. Some electrical periodic independent internal and external reviews. Group Corporate Governance and computing products sold by the Group are subject to Treasury reports regularly to the Audit Committee and the rapid technological change, which shortens their life cycle Tax & Treasury Committee. The major treasury risks to which and may negatively impact sales of existing stock by the the Group is exposed relate to market risks (movements in Group as consumers may elect to purchase newer products foreign exchange and interest rates), liquidity risk and credit or defer their decision to purchase once technological risk. Areas where risks are most likely to occur are evaluated changes have been announced. regularly. The Group uses financial instruments and derivatives to manage these risks in accordance with defined policies. As new technologies become more widely recognised Throughout the period under review, in accordance with and valued by consumers and sales volumes and availability Group policy, no speculative use of derivatives, foreign increase, these types of products have historically tended exchange or other instruments was permitted. to suffer a level of price deflation. Careful management is required by the Group to avoid a decrease in the value of its The Group’s accounting policies in relation to derivatives

inventory and the risk of stock obsolescence when products are set out in note 1.16 to the financial statements. Financial Statements are superseded by those that have newer or more popular Exchange rate risk technology or design, which could lead to a write-off or The Group is exposed to exchange movements on recognised write-down of stock. assets and liabilities, overseas earnings and translated values Responding to changes in the credit insurance market of foreign currency assets and liabilities. The Group’s principal It is important for the Group to be able to source the electrical translation currency exposures are the euro and Norwegian and computing goods it requires from its suppliers. Suppliers krone. Taking into account the cost of hedging, the Group’s in the electrical goods and computing products market policy is to match, in whole or in part, currency earnings with have traditionally taken out credit insurance to protect their related currency costs and currency assets with currency receivables against the risk of bad debt. However, as a result liabilities through the use of appropriate hedging instruments. of the current economic downturn, many credit insurers have The Group is also exposed to certain transactional currency reduced or withdrawn the availability of insurance to electrical Information for Shareholders exposures. Such exposures arise from purchases in currencies and computing product suppliers, which may impact on the other than in the functional currency of the entity. The Group’s Group’s working capital. The management team engages in principal transactional currency exposures are the US dollar discussions with its suppliers and, in some cases, the credit and euro. It is Group policy to minimise the currency exposures

DSG international plc Annual Report and Accounts 2008/09 37 Directors’ Report: Strategic Summary Risks to achieving the Group’s objectives continued

on such purchases through the use of appropriate hedging exposure is equal to the book value of receivables. Sales to instruments such as forward exchange contracts. Such retail customers are made predominantly in cash or via major contracts are designed to cover exposures ranging from credit cards. It is Group policy that all customers who wish to one month to one year. trade on credit terms are subject to credit verification procedures. New credit customers are assessed using an external rating Interest rate risk report which is used to establish a credit limit. Such limits are The principal interest rate risks of the Group arise in respect reviewed periodically on both a proactive and reactive basis, of sterling cash, investments and borrowings, hedged internal for example, when a customer wishes to place an order in Norwegian krone liabilities and euro borrowings. Potential excess of their existing credit limit. Receivable balances are exposure to interest rate movements is mitigated by the monitored regularly with the result that the Group’s exposure Group’s policy to match to the extent possible the profile of to bad debts is not significant. Management therefore believe interest payments with that of its interest receipts. Taking into that there is no further credit risk provision required in excess account the cost of hedging, further mitigation is achieved of the normal provision for doubtful receivables. with interest based credit commissions received and through the use of interest based hedging instruments. Such matching Capital risk management is evaluated regularly to ensure that risks are minimised. It is the Group’s policy to maintain a strong capital base so as to maintain investor, creditor and market confidence and Liquidity risk to sustain the future development of the business. The Group It is Group policy to maintain a balance of funds, borrowings, is subject to certain externally imposed capital requirements committed bank and other facilities sufficient to meet anticipated in the form of banking covenants involving borrowing ratios short term and long term financial requirements. In applying which it met throughout the period. this policy the Group continuously monitors forecast and actual cash flows against the maturity profiles of financial The Board has delegated responsibility for routine capital assets and liabilities. Uncommitted facilities are also maintained expenditure to a Capital Committee, which has approval and used if available on advantageous terms. It is Group responsibility for: Group long term and budgeted capital treasury policy to ensure that a specific level of committed spend, setting capital assessment criteria, new store facilities is always available based on forecast working capital approval, subsidiary company funding, business capital requirements. acquisitions, business disposals and contingent liabilities such as guarantees. The Committee also approves routine Cash forecasts identifying the Group’s liquidity requirements statutory and internal delegated powers of authority in relation are produced and are stress tested for different scenarios to capital expenditure. including, but not limited to, reasonably possible decreases in profit margins and increases in interest rates on the Group’s The Group considers the manner in which funds are borrowing facilities and the weakening of sterling against other distributed to shareholders by assessing the performance of functional currencies within the Group. the business, the level of available net funds and the short to medium term strategic plans concerning future capital spend Credit risk as well as the need to meet banking covenants and borrowing The Group’s exposure to credit risk on liquid funds, investments ratios. Such assessment will influence the level of dividends (mainly bank deposits and floating rate notes) and derivative payable as well as consideration from time to time of market financial instruments arises from the risk of non-performance purchases of the Group’s own shares. of counterparties, with a maximum exposure equal to the book value of these assets. The Group limits its exposure to The Group monitors available net funds on a regular basis credit risk through application of Group treasury policy which and this is affected by Free Cash Flow, one of the Group’s restricts counterparties to those with a minimum Moody’s key performance indicators (see page 35). long term credit rating of Aa3, bank financial strength rating (vii) Pension risk and policies of C and short term credit rating of P1. In the prior period, The principal pension scheme operated by the Group is the policy on investment restricted counterparties to those the UK defined benefit scheme. with a minimum Moody’s long term credit rating of Aa3, short term credit rating of P1 and bank financial strength rating This scheme is subject to risks regarding the relative amount of B-. The Group also has policies that limit the amount of of the scheme’s assets, which is affected by the value of credit exposure to any single financial institution. The Group investments held by the scheme and the returns derived continuously reviews the credit quality of counterparties, the from such investments, as compared to its liabilities, which limits placed on individual credit exposures and categories of are affected by changes in life expectancy, inflation and future investments. The Group does not anticipate non-performance salary increases. In the short term, the difference between the of counterparties and believes it is not subject to material value of liabilities and assets may vary significantly, potentially concentration of credit risk given the policies in place. resulting in an increased deficit having to be recognised on the Group’s balance sheet. In the current overall volatile market The Group’s receivable balances comprise a large number environment, there is an increased risk that large deficits may of individually small amounts from unrelated customers, arise on the Group’s pension schemes and that overall deficits of spread across diverse industries and geographical areas. the UK defined benefit scheme in particular may increase further. Concentration of risk is therefore limited and maximum

38 DSG international plc Annual Report and Accounts 2008/09 Business Overview

In recent years, the pension trustee, in consultation with The Group regularly reviews and assesses these risks, takes the Company, has implemented changes to the scheme’s action to mitigate the likelihood and cost of potential incidents investment strategy to mitigate the volatility of liabilities and and has insurance in place to cover material exposures. to diversify investment risk. Business continuity plans are in place to respond to major disruption to the business. (viii) Systems failure Performance Review In common with other large businesses, the Group relies (xi) Legislative, reputational and regulatory risks heavily on its information technology systems to enable its The Group is subject to a range of legal and regulatory customers to purchase products in store, online and over requirements originating from the UK and the European the phone as well as record and process transactions and Union, particularly in the areas of consumer protection, manage its operations. These systems provide information product safety, competition, extended warranties, health regarding most aspects of financial and operational and safety, taxation, the environment, labour and employment performance, including sales and stock information and, practices and transportation. given the number of transactions that are completed and Compliance with these laws and regulations may result in the importance of the efficient management of stock, it significant costs for the Group and changes in such laws is vital to maintain continuous operation of the computer and regulations or the policies regarding enforcement may hardware and software systems. Notwithstanding efforts have an adverse impact on the Group in terms of cost, to prevent an information technology failure or disruption, changes to business practices or restrictions on activities. the Group’s systems may be vulnerable to damage or Strategic Summary In addition, legal, regulatory and other developments affecting interruption from fire, telecommunications failures, floods, the countries in which the Group operates may have a material physical or electronic break-ins, computer viruses, power adverse effect on the Group’s business. The Group engages outages and other malfunctions or disruptions. with governmental bodies in the UK and Europe through trade The Group has developed emergency procedures that are associations such as the CBI and British Retail Consortium, regularly tested. The Group carries out evaluation, planning or directly, where it considers it appropriate to do so. and implementation analysis before updating or introducing Tax laws that apply to the Group’s businesses may be new systems that have an impact on critical functions. amended by the relevant authorities, for example, as a result (ix) Outsourcing / insourcing of changes in fiscal circumstances or priorities. Such potential The Group outsources a proportion of its UK call handling, amendments and their application to the Group are regularly IT and HR services including payroll. While these contracts monitored and, if relevant, appropriate actions taken to ensure produce significant cost savings, the Group recognises ongoing efficiency. Corporate Governance the increased dependency on third parties, in particular the Social, environmental and ethical risks that might impact on relationships with its IT partner, HCL, and its payroll provider, the Group’s reputation are annually monitored by the Board. Northgate, to deliver core activities and has put in place appropriate service level agreements within the contracts. (xii) Customers’ confidential information The Group is bringing the operations of its outsourced call The Group must comply with restrictions on the use of centres in Nottingham and Sheffield in-house on 10 July 2009. customer data and ensure that confidential information The Group recognises the risk of failing to properly integrate (including financial and personal data) is transmitted in a these services back into the operations and is managing this secure manner over public networks. Controls have been put process closely. in place to ensure the confidentiality, availability and integrity of customer and company data. They are under constant review (x) Damage to property and consequential business to ensure we prevent a successful attack from computer interruption programmes that attempt to penetrate the network security The Group operates from a large number of sites, all of

and misappropriate confidential information. However, due to Financial Statements which are subject to the risks of fire, weather and water advances in these programmes, computing capabilities and damage and in some cases are subject to earthquake and other developments, there is no guarantee that the Group’s other specific risks. The Group also operates from a small security measures will be sufficient to prevent breaches. number of distribution and administrative sites, all of which are subject to the risks of fire, weather and water damage and, in some cases, earthquakes. The Group’s ability to distribute merchandise to its stores and to sell and distribute merchandise to its customers is reliant on its operational infrastructure, particularly the efficient functioning of its distribution centres and distribution network. Failures or unavailability of such infrastructure (caused, for example,

by fire, structural damage, natural disaster, industrial action Information for Shareholders or terrorist activity) could result in disruptions to the Group’s ability to deliver products to its stores or its customers.

DSG international plc Annual Report and Accounts 2008/09 39 Directors’ Report: Corporate Governance Board of Directors

1234

5678

1 Sir John Collins 5 Count Emmanuel d’André Chairman ▲■ Non-Executive Director ●▲◆ Sir John Collins (67) joined the Board in September 2001 as Deputy Count Emmanuel d’André (72) joined the Board in February 2002. He is a Chairman and was appointed Chairman in September 2002. He is also member of the strategic committee of Ernst & Young France. He is Chairman a director of Rothschild Continuation Holdings AG. He joined Shell in of the Royaumont Foundation, and the Créativallée Association. His previous 1964 and was Chairman and Chief Executive of Shell UK, 1990 to 1993. positions have included membership of the advisory committee of Banque de He was Chief Executive of Vestey Group from 1993 to 2001. Previous France, Chairman and CEO of Trois Suisses International Group, Chief Executive appointments include Chairman of National Power plc, Chairman of Cantab of Lapaud International, senior consultant with Arthur D. Little, Paris, Development Pharmaceuticals, a non-executive director of NM Rothschild & Sons Limited, Director of the Express Group and international manager of Camping Gaz. The Peninsular and Oriental Steam Navigation Company plc, BSkyB, Stoll He is a non-executive director of La Mondiale, the Holder Group and Praxis. Moss Theatres and the London Symphony Orchestra. Sir John has also served He was previously a non-executive director of Auchan Group, and Sidel. as Chairman of the Advisory Committee on Business and the Environment, He will retire from the Board of DSG international plc in September 2009. Chairman of the DTI/DEFRA’s Sustainable Energy Policy Advisory Board, 6 Rita Clifton President of the Energy Institute, Chairman of the DTI’s Energy Advisory Non-Executive Director ●▲■◆ Panel and as a governor of Wellington College. He is Chairman of the Rita Clifton (51) joined the Board in September 2003. She is Chairman of Group’s Nominations Committee. Sir John has announced that he will be Interbrand, non-executive Chairman of Populus Ltd, the opinion pollster to stepping down as Chairman of DSG international plc in September 2009. The Times, and was non-executive director of Emap plc prior to its sale in 2 John Allan 2008. She previously spent 18 years in the advertising industry, including Non-Executive Director ▲■◆ positions with Saatchi & Saatchi and J Walter Thompson. She has been a John Allan (60) joined the Board on 23 June 2009. He was previously member of the UK Government’s Sustainable Development Commission, is CFO of Deutsche Post, having been appointed to the Management Board a Trustee of WWF (World Wide Fund for Nature) and is on the Assurance and following its acquisition of Exel plc in December 2005 where he had been Advisory board for BP’s carbon offset programme ‘targetneutral’. She is also Chief Executive since September 1994. John started his career in marketing, a Visiting Professor at Henley Management College and has recently been at Lever Brothers, moving to Bristol-Myers Company Ltd and then Fine Fare appointed President of the Market Research Society. Ltd. He joined BET plc in 1985 and was appointed to the board in 1987. He 7 Andrew Lynch FCA is a member of the Supervisory Boards of both Lufthansa AG and Deutsche Non-Executive Director ●▲■◆ Postbank and a member of the University of Edinburgh Campaign Board. Andrew Lynch (52) joined the Board in May 2003. He is Chairman of the Audit John was previously Chairman of Samsonite Corporation and a non-executive Committee and the Board’s designated Senior Independent Director. Andrew director of PHS Group plc, Wolseley plc, Hamleys plc and Connell plc. is Chief Executive Officer of SSP, the travel concessions catering company He will be appointed Chairman of the Board of DSG international plc in formerly part of Compass Group plc. He was a director of Compass Group from September 2009. 1997 to 2005 where he held the position of Group Finance Director from 1997 to 3 John Browett 2003 and Chief Executive Officer of SSP from 2003. His earlier career included Chief Executive corporate finance and financial management positions with Prudential Corporation John Browett (45) joined the Group as Chief Executive in December 2007. plc and KPMG. He is a Fellow of the Institute of Chartered Accountants. He is also a non-executive director of easyJet plc. He was formerly Operations 8 John Whybrow Development Director at Tesco, responsible for the design and improvement Non-Executive Director ●▲■◆ of the Tesco operating model. Prior to this, he was CEO of Tesco.com, Group John Whybrow (62) joined the Board in June 2003. He is Chairman of the Strategy Director, and held a senior position at Boston Consulting Group, Remuneration Committee. He is Chairman of Wolseley plc, having been a where he worked with a variety of clients specialising in consumer goods and non-executive director between 1997 and 2002, and is also Chairman of retail. A graduate of Cambridge University, he has an MBA from the Wharton Petworth Cottage Nursing Home. He was Chairman of CSR plc between Business School. 2004 and 2007. He joined Philips in 1970, becoming President of Philips 4 Nicholas Cadbury Lighting NV and Executive Vice President of Royal Philips Electronics BV. Group Finance Director He received the Polish Order of Merit in 2002. Nicholas Cadbury (43) was appointed to the Board on 17 July 2008 and took over the role of Group Finance Director on 14 August 2008. Nicholas joined the Group in 1993 and has held various roles including Finance Director and ● Member of the Audit Committee Commercial Director of PC World, Managing Director of Dixons Tax Free, ▲ Member of the Nominations Committee and, most recently, International Finance Director. He qualified as a chartered ■ Member of the Remuneration Committee accountant with Price Waterhouse. ◆ Independent non-executive director

40 DSG international plc Annual Report and Accounts 2008/09 Business Overview Executive Committee

The Executive Committee is an international, cross functional executive team responsible for the implementation of strategy and the day to day management of the Group’s business.

Steve Ager Keith Jones Performance Review Commercial Director Group Retail Director Steve Ager (49) joined the Group in October 2008 from Tesco, where he Keith Jones (44) was appointed as Group Retail Director (UK) in January held a number of commercial and buying roles both in the UK and globally. 2009. Prior to this he held the position of Managing Director, PC World. While at Tesco, Steve set up operations in Asia and Central Europe; he was He has also held the positions of Managing Director PC City Europe and responsible for the creation of the Tesco Express format and he masterminded Managing Director PC City Spain when the Ei System chain of stores was the Tesco Finest range. purchased by the Group. His previous role was as Managing Director of the Group’s airport trading business. Keith completed a full time International Katie Bickerstaffe MBA at Manchester Business School and held various senior retail positions Group Director – Marketing, People & Property including roles at B&Q and Virgin. He spent the early part of his career with Katie Bickerstaffe (42) joined the Group as Director of Marketing, People & Currys and Dixons Stores Group in the 1980s. Property in June 2008. She was previously Managing Director of Kwik Save, and Group Retail Director and Group HR Director at Somerfield. Her earlier Andrew Milliken career included roles at Dyson, PepsiCo and Unilever. Transformation Director Andrew Milliken (38) was appointed Transformation Director in January 2009. Ronny Blomseth He joined the Group in 2002 as Corporate Development Director, moving Managing Director – Nordics to Managing Director of Airport Retail in 2004. He spent his early career Ronny Blomseth (40) was appointed as Nordics Managing Director with The Boston Consulting Group and BBC Worldwide, and holds an MBA Strategic Summary in January 2009. Prior to this he was Managing Director, Elkjøp Nordic. from INSEAD. He has worked for Elkjøp for 20 years, having previously held positions as Managing Director and Sales Manager in Elkjøp Norway and various Jean-Emile Rosenblum positions in different stores for eight years. Prior to this, Ronny completed Internet Managing Director a full time Economics degree at the Norwegian School of Management. Jean-Emile Rosenblum (30) was appointed Internet Managing Director in January 2009. He has been Vice President of PIXmania since buying John Browett out the business with his brother and investment fund support in 2001. Chief Executive PIXmania was acquired by the Group in 2006. Jean-Emile Rosenblum See page 40. holds a Bachelor’s degree in Commerce from ISG, Paris. Nicholas Cadbury Steve Rosenblum Group Finance Director Internet Managing Director See page 40. Steve Rosenblum (35) was appointed Internet Managing Director in January Helen Grantham 2009. He was previously Divisional Director, e-commerce division, and joined Company Secretary & General Counsel the Executive Committee in January 2007. He has been CEO of PIXmania Helen Grantham (44) is the Group’s Company Secretary & General Counsel. since buying out the business with his brother and investment fund support She joined the Group in 2007 from William Hill plc, where she was Company in 2001. PIXmania was acquired by the Group in 2006. Steve holds a Corporate Governance Secretary and General Counsel. She has also served as Company Secretary Bachelor’s degree in Commerce from Concordia University, Montreal, at Chubb plc and Hepworth plc. Earlier in her career she was an in-house Canada. lawyer at Boots, and qualified as a solicitor with Hammonds. Fernando de Vicente International Managing Director Services Director Fernando de Vicente (42) was appointed as International Managing Director Sebastian James (42) was appointed Services Director in January 2009 in January 2009. Prior to this he was Managing Director for DSGi South-East having previously managed the Currys Transformation Programme as Group Europe. He joined the Group in June 2001 as Finance Director of PC City Development Director from April 2008. Prior to working at the Group he Spain and became Managing Director of PC City Spain in January 2003 and was Chief Executive of Synergy Insurance Services Limited, a private equity was appointed as Managing Director for Kotsovolos in July 2006. Previously, backed insurance company. He has wide retail experience as Strategy he held a number of senior financial positions including Finance Director Director responsible for developing and implementing the turnaround for Electrolux and Dole Food España. He studied Business and Economics strategy at Mothercare plc. He started his career at The Boston Consulting Studies at the Universidad Complutense in Madrid and has an IESE MBA. Group having completed an MBA at INSEAD. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 41 Directors’ Report: Corporate Governance Statutory Information

The Directors’ Report is set out on pages 1 to 62. The Performance Review contained therein, which can be found on pages 14 to 33, is based on many of the principles contained in the best practice statement ‘Reporting Statement: Operating and Financial Review’ issued by the Accounting Standards Board (ASB). Reference to information that fulfils the business review requirements of section 417 of the Companies Act 2006 together with other disclosures required in the Directors’ Report are set out below:

Section of Directors’ Report Page Appointment and retirement of directors Statutory Information 43 Auditors and disclosure of information to auditors Statutory Information 44 Business performance Performance Review 14-27 Charitable donations Corporate Responsibility Review 33 Chairman’s Statement Business Overview 9 Chief Executive’s Statement Business Overview 10-13 Conflicts of interest Statutory Information 43 Directors Board of Directors / Statutory Information 40 / 43 Directors’ Responsibilities Directors’ Responsibilities 62 Directors’ and officers’ liability insurance Statutory Information 43 Dividends Statutory Information 44 Employees (including diversity and equal opportunities) Corporate Responsibility Review 30-31 Environmental matters Corporate Responsibility Review 32-33 Essential contracts Strategic Summary – Outsourcing 39 Factors likely to affect future performance Chief Executive’s Statement – Outlook 13 Financial position at end of the year Performance Review 24-27 Going concern Statutory Information 44 Key Performance Indicators Strategic Summary 35 Objectives and strategy of the Group Chief Executive’s Statement 10-13 Payment of suppliers Statutory Information 44 Political donations Statutory Information 44 Principal activities Strategic Summary 34 Principal risks and uncertainties Strategic Summary 36-39 Share capital structure Statutory Information 42 Social and community issues Corporate Responsibility Review 33 Substantial share interests Statutory Information 43

Pages 1 to 62, together with any sections of this Annual Report and Accounts which have been incorporated by reference, comprise a directors’ report which has been drawn up and presented in accordance with and in reliance upon applicable company law in England and Wales. The liabilities of the directors in connection with that report shall be subject to the limitations and restrictions provided by such law.

Share capital at a subscription price of 14p following the period end. Details of the Company’s share capital and changes to the The first two resolutions remain valid until the conclusion issued share capital during the period, including share options of the next AGM on 2 September 2009. exercised, are given in note 23(a) to the financial statements. As part of the announcement of the now completed Placing At the AGM on 3 September 2008, shareholders approved and Rights Issue, the directors made a profit forecast (the a resolution for the Company to make purchases of its own Profit Forecast). As required by Listing Rule 9.2.18R, this shares to a maximum number of 177 million ordinary shares. forecast information is reproduced as follows whereby the This resolution remains valid until the conclusion of this year’s directors forecast that the Group’s underlying profit before AGM. No shares were purchased by the Company following tax would be not less than £42 million and underlying profit the AGM and until the date of publication of this report. before tax less losses before tax from businesses to be closed On 30 April 2009, the Group announced its plans to raise (Markantalo and PC City Sweden) would be not less than an additional £310.6 million via a Placing and Rights Issue £30 million. Furthermore, the directors also forecast that the of shares. At the EGM on 18 May 2009, shareholders Group would have losses before tax from businesses to be considered three resolutions necessary to proceed with closed and net non-underlying charges of £195 million to this equity raising and approved the resolutions; granting £215 million over the same period. authority to allot shares up to a maximum of 1,837,458,762 The actual figures reported in the Group’s income statement new ordinary shares; granting authority for the disapplication show underlying profit before tax of £50.5 million, underlying of pre-emption rights in respect of the new shares; and profit before tax less losses before tax from businesses to be approving the placing and listing of the new shares on the closed (Markantalo and PC City Sweden) of £36.4 million as . The Company issued 333,333,333 well as losses before tax from businesses to be closed and shares via a placing at a subscription price of 30p per placing net non-underlying charges before tax of £190.9 million. share and a further 1,504,125,429 shares via the Rights Issue

42 DSG international plc Annual Report and Accounts 2008/09 Business Overview

The actual underlying profit before tax and the underlying appointment as Chairman designate was made after a search profit before tax less losses before tax from businesses to led by the Senior Independent Director with the assistance of be closed are consistent with the statement made in the the other non-executive directors and The Zygos Partnership, Profit Forecast but are improved by a significant margin an external search firm. The Board considers that John Allan owing to the treatment of the Group’s Hungarian business is a highly-regarded executive with a strong track record. He Performance Review which was sold on 18 May 2009 and which has consequently brings to the Group a wealth of large multinational company been treated as a discontinued operation such that its trading experience from areas including marketing, service, and losses before tax of £4.6 million have now been excluded corporate management. from the measures stated in the Profit Forecast. Concerning Count Emmanuel d’André will retire from the Board following the losses before tax from businesses to be closed and net the AGM on 2 September 2009. non-underlying charges before tax, the figures in the Profit Forecast included charges to impair the Group’s Hungarian The interests of the directors in the share capital of the business of £16.9 million. For the same reasons as described Company are shown in the Remuneration Report on page 57. above, these charges before tax, together with the post-tax No director had any beneficial interests in the shares of any losses of the business have now been disclosed separately subsidiary undertaking or in any contract or arrangement as discontinued operations. Had this business not been (apart from contracts of service) to which the Company or disposed and these impairment charges remained as part any subsidiary was a party during or at the end of the of net non-underlying charges before tax, the actual figures financial period. Strategic Summary would have been within the range stated in the Profit Forecast. All of the Company’s share plans contain provisions relating Substantial share interests to a change of control. Outstanding awards and options In accordance with the Disclosure and Transparency Rules, would normally vest and become exercisable on a change of DTR5 we have received notification as at 25 June 2009 of the control, subject to the satisfaction of performance conditions following interests in voting rights of 3% or more in the issued where applicable. share capital of the Company: Directors’ and officers’ liability insurance Percentage of issued Pursuant to Article 159 of the Memorandum and Articles share capital at 25 June 2009 of Association, the directors, secretary and other officers of the Company are entitled to be indemnified by the Company Schroder Plc 11.55% out of its own funds against liabilities arising from the conduct Standard Life Investments Ltd 11.17% of the Group’s business to the extent permitted by law. The

Capital Research and Management Company 7.78% Corporate Governance Group has purchased appropriate directors’ and officers’ UBS Global Asset Management* 6.40% Legal & General Group Plc 5.28% insurance cover which in general terms indemnifies individual directors’ and officers’ personal legal liability and costs for *Includes Tameside MBC which has a holding of 3.11%. claims arising out of actions taken in connection with the Group’s business. Directors The names of the directors in office at the date of this report, Conflicts of interest their biographical details and other information, are shown The Articles of Association were amended at the 2008 on page 40. All of the directors served throughout the period, AGM with effect from 1 October 2008 to permit the Board except for John Allan and Nicholas Cadbury who were to consider and, if appropriate, to authorise situations where a appointed on 23 June 2009 and 17 July 2008 respectively. director has an interest that conflicts, or may possibly conflict Kevin O’Byrne served from the start of the period until his with the interests of the Company. resignation from the Board on 14 August 2008. The Board has a formal system in place for directors to In accordance with the Articles of Association, Rita Clifton declare conflicts to be considered for authorisation by those Financial Statements and John Browett will retire by rotation at the AGM and, directors who have no interest in the matter being considered. being eligible, will offer themselves for reappointment. Rita In deciding whether to authorise a conflict and potential Clifton was appointed a non-executive director, pursuant conflict those directors deciding the matter are requested to to a letter dated 1 September 2003 and her term of office act in the way they consider would be most likely to promote has subsequently been extended for two additional three the success of the Company and may impose limits and year terms. The Board is satisfied that the directors retiring conditions when giving authorisation. by rotation are qualified for reappointment by virtue of their The Board has delegated responsibility to the Audit skills, experience and contributions to the Board. Committee to review on an annual basis the conflicts John Allan was appointed to the Board on 23 June 2009 previously authorised by the Board and to consider whether and, in accordance with the Articles of Association, will retire any authority provided should remain in place, whether any at the first AGM following his appointment. He has a letter terms and conditions should be imposed or amended and Information for Shareholders of appointment with DSG international plc which is available whether such authority should be revoked and to make from the Company Secretary upon request. John Allan’s such recommendations to the Board accordingly.

DSG international plc Annual Report and Accounts 2008/09 43 Directors’ Report: Corporate Governance Statutory Information continued

Corporate activity After reviewing the Group’s expenditure commitments, current On 29 December 2008, following the exercise of a put financial projections and expected future cash flows, together option held by Fourlis Holdings SA, the main minority with the available cash resources and undrawn committed shareholder of DSGi South-East Europe A.E.V.E. (formerly borrowing facilities the directors have considered that P. Kotsovolos S.A. (Kotsovolos)), the Group acquired a adequate resources exist for the Group to continue in further 10% stake in Kotsovolos for cash consideration operational existence for the foreseeable future. Accordingly, of €28.1 million (£27.5 million). The acquisition increases the directors continue to adopt the going concern basis in the Group’s total interest in Kotsovolos to 99.2%. preparing the financial statements. On 19 May 2009 the Group announced the sale of Political donations Electro World Hungary to EW Electro Retail Ltd for a The Company made no payments (2008/09 £nil) which consideration of €1. The sale saw the transfer of all nine constituted EU Political Expenditure. A resolution to authorise stores, operations and employees to EW Electro Retail Ltd. the directors to incur EU Political Expenditure in the coming year to an aggregate amount not exceeding £25,000 will be Dividends proposed at the forthcoming AGM. A final dividend of 3.43p per share in respect of the 3 May 2008 financial period was paid on 26 September 2008 to shareholders Payment of suppliers on the register at the close of business on 15 August 2008. It is the Group’s policy to agree terms of payment with its Total dividends paid to shareholders on 26 September 2008 in suppliers. Payments are made in accordance with these respect of the 3 May 2008 financial period were £60.7 million. terms provided that the supplier has complied with all the relevant contractual obligations. Trade creditors at 2 May No dividend will be paid for the year ended 2 May 2009. 2009 represent 50 days of annual purchases made during Going concern the period (3 May 2008 51 days). In considering the going concern basis for preparing the Auditors and disclosure of information to auditors financial statements, the directors have considered the Group’s On 1 December 2008, Deloitte & Touche LLP changed its objectives and strategy, risks to achieving its objectives name to Deloitte LLP. Deloitte LLP are willing to continue (including treasury risks) and its review of business performance in office as auditors to the Company. Resolutions for their which are all set out in the Directors’ Report and Business reappointment and to authorise the directors to agree their Review section of the Annual Report and Accounts. remuneration will be proposed at the forthcoming AGM. Over the course of 2008/09, the current difficult consumer In accordance with the provisions of Section 418 of the and retail environment has placed significant pressure on Companies Act 2006, each of the directors at the date the Group’s revenue, profits, cash flows and overall liquidity. of approval of this report confirms that to their knowledge This together with the cost of restructuring the Group, higher and belief, and having made appropriate enquiries of other finance costs and pressures on working capital due to officers of the Group: structural changes to the credit environment, has contributed to an increase in the Group’s indebtedness. The continued ■ so far as they are aware, there is no relevant audit information uncertainty over the economic outlook has made it necessary of which the Company’s auditors are unaware; and for the Group to take steps to improve the capital structure ■ they have taken all the steps that they ought to have taken of the Group to sustain the business through the current as a director to make themselves aware of any relevant economic cycle. For these reasons, on 30 April 2009 and audit information and to establish that the Company’s as described in note 35 to the financial statements, the auditors are aware of that information. Group announced a Placing and Rights Issue to raise gross proceeds of £310.6 million as well as agreeing with its lending Annual General Meeting banks to amend terms of the Revolving Credit Facility and The AGM will be held on 2 September 2009 at the Watford Letter of Credit Facility Agreements. Further details of the Colosseum, Rickmansworth Road, Watford WD17 3EX at Group’s liquidity and funding arrangements are described 10.30am. Notice of the meeting, together with full details in notes 17 and 22(f) to the financial statements. The Placing and an explanation of the business to be considered, is and Rights Issue completed on 9 June 2009 and its proceeds given in a separate letter accompanying this report. have significantly improved the Group’s liquidity position since By Order of the Board 2 May 2009. In conjunction with applying the Group’s policies in relation to liquidity risk (as described in the section on risks to achieving the Group’s objectives referred to above), the directors believe that these amendments will provide Helen Grantham the Group with significant covenant and liquidity headroom Company Secretary under these facilities for the foreseeable future. 25 June 2009

44 DSG international plc Annual Report and Accounts 2008/09 Directors’ Report: Corporate Governance Business Overview Corporate Governance Report

The Board recognises the importance of good corporate The schedule of matters reserved for the Board includes: governance and maintains high standards of corporate ■ approval of the interim statement and annual report and governance for which the directors are collectively accountable accounts (including the review of critical accounting policies to shareholders. Sound governance is central to achieving the and accounting judgements and an assessment of the directors’ prime objective of maximising shareholder value and Company’s position and prospects); Performance Review comprises, principally, the processes by which the Group is directed and managed, risks are identified and controlled and ■ approval of the interim and final dividends; effective accountability is assured. ■ the appointment and remuneration of the external auditors; The directors consider that the Company has throughout the ■ communication with shareholders, including approval of all period complied with the provisions set out in Section 1 of circulars, prospectuses and major public announcements; the Combined Code. ■ changes relating to the Company’s capital structure and Combined Code the Memorandum and Articles of Association; The following statement, together with the Remuneration Report on pages 51 to 61, the Audit Committee Report on ■ the appointment, removal and remuneration of directors page 49 and the Nominations Committee Report on page 50, and the Company Secretary; explains how the Group has throughout the period applied ■ the terms of reference of Board committees, the Chairman the principles set out in Section 1 of the Combined Code and the executive directors; Strategic Summary on Corporate Governance issued by the Financial Reporting Council in June 2006 (the Combined Code). ■ approval of the Group’s strategy and annual budget; Board of Directors ■ review of Group performance; As at the date of this report, the Board comprises a ■ maintaining and monitoring the Group’s system of internal non-executive Chairman, the Chairman designate, who control and risk management; is considered to be independent upon appointment, four non-executive directors considered by the Board to be ■ approval of major capital expenditure or disposals, material independent and two executive directors. Andrew Lynch contracts, material acquisitions and divestments; and fulfilled the role of the Senior Independent Director ■ changes to retirement benefits schemes, employee share throughout the year. plans and long term incentive programmes. The Chairman announced at the 2008 AGM his plan to retire as Chairman and from the Board at the 2009 AGM. The Board, with the assistance of the Nominations Committee, Corporate Governance The Senior Independent Director led the search for an conducted an annual assessment of the Board, committees additional director to assume the position of Chairman and individual director performance between April and July 2008 having considered the current Chairman’s performance with and reviewed the performance of the non-executive directors, the other non-executive directors and having established the Board and its committees again later in the year. During an appropriate role description. This process culminated both of these reviews, the Board concluded that the balance in the appointment of John Allan as a director. John Allan of skills and experience of the Board and its committees will assume the role of Chairman after the 2009 AGM. was appropriate for the requirements of the Group. However, it was decided that to facilitate succession planning the Board The Chairman ensures that the Board has full and timely should undertake a search for an additional non-executive access to all relevant information and holds occasional director in addition to the Chairman designate. The new meetings with the non-executive directors without the Chairman plans to evaluate the performance of the executive executive directors being present to discuss, amongst directors in early 2010 once he has had an opportunity to other matters, corporate strategy and performance. Financial Statements work with the Board for a period of time. There is frequent contact between directors outside formal meetings to progress the Group’s business and A corporate governance framework has been approved by the to promote open communication and team working. Board defining the role and responsibilities of the constituent elements of the Group’s management structure. This enables The Articles of Association require one third of the Board not the Board to plan, execute, control and monitor the Group’s otherwise subject to reappointment by shareholders to retire activities so as to achieve its strategic objectives. by rotation each year and ensure that over a three year period each director is subject to reappointment by shareholders in All directors have access to the services of the Company general meeting. Details of the directors retiring by rotation at Secretary and may take independent professional advice the AGM on 2 September 2009 are set out in the Statutory at the Company’s expense in the furtherance of their duties. Information on page 43, with detailed biographies of the On appointment, each director receives a tailored induction

Board members shown on page 40. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 45 Directors’ Report: Corporate Governance Corporate Governance Report continued

programme into the Group together with guidance and Chairman’s Executive training appropriate to their level of previous experience. Members Committee Committee Non-executive directors are encouraged to meet members Sir John Collins Chairman of senior management regularly, to undertake visits to all John Browett ✔ Chairman parts of the Group, particularly developing businesses, Nicholas Cadbury ✔✔ and to attend external seminars on corporate governance Steve Ager ✔ matters. All directors are kept informed of changes in relevant Katie Bickerstaffe ✔✔ ✔ legislation and changes in commercial and financial risks. Ronny Blomseth Helen Grantham ✔ The Board met 14 times during the period including eight Sebastian James ✔ scheduled meetings and six ad hoc meetings convened to Keith Jones ✔ deal with the Placing and Rights Issue announced on 30 April Andrew Milliken ✔ ✔ 2009 and other procedural matters. Jean-Emile Rosenblum Steve Rosenblum ✔ Meetings attended during period Fernando de Vicente ✔ Members Scheduled Ad hoc Sir John Collins (Chairman) 8 4 All Board committees operate within written terms of reference John Browett 8 6 approved by the Board, which are available on request from Nicholas Cadbury* 5 6 the Company Secretary. The Board receives and reviews Rita Clifton 8 3 minutes of their meetings and those of the Executive and Count Emmanuel d’André 7 1 Chairman’s Committees. The Company Secretary is the Andrew Lynch 8 2 secretary to the Chairman’s and Executive Committees. John Whybrow 8 3 The Executive Committee is responsible for the implementation *Appointed 17 July 2008. of strategy and the day to day management of the Group’s business. Individuals from the Committee attend Board Due to the ad hoc meetings being called at short notice, meetings at the request of the Chairman to report on areas not all the directors were available to attend meetings due within their executive responsibilities. to other commitments. The Chairman’s Committee is a forum for the Chairman to The Board’s normal practice has been to hold meetings both in monitor and review the development and implementation of the UK and in Europe, enabling, in particular, the non-executive strategy and business / market developments and to report directors to gain first hand experience of markets in which the appropriately to the Board. Group operates and giving local management direct access to members of the Board. During the 2008/09 financial year all Relations with shareholders and other stakeholders meetings have been held in the UK. It is planned for 2009/10 The Board attaches considerable importance to the to return to the Board’s normal practice of holding a number maintenance of constructive relationships with shareholders of meetings at overseas business locations. There were and its other stakeholders. Relationships with suppliers, meetings of the non-executive directors during the period employees and the community are further discussed in the without the executive directors being present and meetings Corporate Responsibility Review on pages 28 to 33. Effective between the Senior Independent Director and the other two way communication with institutional investors and non-executive directors without the Chairman being present. analysts is established through regular presentations and meetings in the UK and overseas, usually by the Chief Board committees Executive, Group Finance Director and Group The Board has established a number of committees to which Communications Director. it has delegated specific responsibilities. The trading divisions are managed by separate executive committees. Separate The Chairman holds occasional meetings with major reports from the Audit, Nominations and Remuneration shareholders to discuss matters of mutual interest including Committees, including details of membership and terms corporate strategy and governance. Where appropriate, the of reference, are set out on pages 49 to 61. Chairman of the Remuneration Committee communicates with major shareholders to canvas opinion when deciding The Group has also established an Executive Committee and remuneration policy. Matters arising from these presentations a Chairman’s Committee. Membership of the Committees is and meetings are communicated to the Board. Presentations detailed below. Further information relating to the Executive are conducted in accordance with the Financial Services Committee members can be found on page 41.

46 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Authority’s Disclosure Rules on the dissemination of inside Responsibility and accountability information to ensure the protection of such information The Board has overall responsibility for the Group’s system of that has not already been made available generally to the internal control, for reviewing its effectiveness and the Group’s Company’s shareholders. The Board receives and reviews approach to risk management. an investor relations report at each of its meetings. The Senior The Board delegates to executive management the day to Performance Review Independent Director is available to discuss with shareholders day responsibility for identifying, evaluating and managing the any major issues that cannot be resolved through normal risks facing the Group’s operations, and for implementing and channels. Non-executive directors are offered the opportunity maintaining internal control systems that manage those risks to attend meetings with major shareholders. in an efficient and effective manner, appropriate to their nature The AGM provides an opportunity to communicate directly and scale. with shareholders. The chairmen of the Audit, Remuneration Senior management is responsible and accountable for and Nominations Committees are available at the meeting internal control and risk management and for ensuring to answer questions from shareholders. Notice of the AGM compliance with the Group’s policies and procedures. and related documents are mailed to shareholders at least 20 working days before the meeting. Separate resolutions Inherent limitations and continuous improvement are proposed on each substantially different issue. The notice In determining its policies on internal control, the Board has is contained in an accompanying letter. regard to the materiality of the relevant risks, the likelihood of

losses occurring and the costs of control. The directors are Strategic Summary In addition to the interim and annual reports, shareholders aware that the inherent limitations in any system of control can obtain information about the Group from the corporate means that risk cannot be totally eliminated. It follows that website. the Group’s system of internal control is designed to manage Pension schemes and mitigate, rather than remove, the risk of failure to achieve The Group operates a number of defined contribution and business objectives and can only provide reasonable but not defined benefit pension schemes. The principal scheme, absolute assurance against material misstatement or loss. which operates in the UK, comprises a funded defined benefit The Group’s approach to managing and monitoring internal section and a defined contribution section. A corporate control and risk assessment is reviewed regularly to identify trustee holds the assets of the scheme separately from those ways in which it can be improved and further embedded of the Group. There are six directors of the trustee company: throughout the Group’s operations. Where significant two have been nominated by the Group, two have been weaknesses are identified, these are investigated fully using selected from amongst the scheme membership and two are Corporate Governance appropriate internal resources and, where deemed necessary, independent directors. Asset management is delegated to a engaging external expertise. Detailed plans are drawn to number of independent companies whose performance is remedy the weaknesses and progress is monitored on an monitored by a specialist performance measurement service. ongoing basis. The scheme’s accounts are audited annually by Nexia Smith & Williamson, who are not auditors to any Group companies. In light of the issues that have emerged in other companies Members of the scheme receive an annual statement of their and industry sectors in the past 12 months, a review of the accrued benefits and a copy of the trustee’s annual report. Group’s approach to the management of risks is currently underway to see if any lessons can be learned. Further information about pensions is given in note 21 to the financial statements. Control environment and control activities In addition to the corporate governance structure described Internal control above, the Group’s system of internal control and processes In accordance with the guidance of the Turnbull working for managing risk comprise the following main elements: party set out in ‘Internal Control: Revised Guidance for Financial Statements Directors on the Combined Code’, the Group has established ■ the Board and management committees meet regularly and maintained a process for identifying, evaluating and to monitor progress against the targets set out in the managing the significant risks faced by the Group, for Group’s budget and strategic three year plan and to reviewing the effectiveness of the system of internal control consider the quarterly reforecasts of the Group’s expected and for confirming that action has been taken to remedy any financial period end position. Financial and non-financial significant failings or weaknesses that have been identified. performance reports are produced daily, weekly and This process, which is reviewed periodically by the Board, four-weekly to facilitate this review process; was in place throughout the 52 weeks ended 2 May 2009 and to the date of approval of the financial statements. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 47 Directors’ Report: Corporate Governance Corporate Governance Report continued

■ the defined lines of authority established by the Board Assurance and monitoring ensure that significant decisions are taken at an appropriate Senior management under the direction of the Board is level. These include requirements for the approval and responsible for maintaining the appropriate internal control control of both capital and operating expenditure, treasury systems and for managing risk at an operational level. The operations and cash management. The procedures in Board conducts an annual evaluation of the management of respect of delegated authority have been enhanced during risk and the processes of internal control and has established a the year and revised authorities have been issued, notably monitoring framework consisting of the functions set out below: in respect of contracts and commitments. Details on the Audit Committee schedule of matters reserved for the Board are shown The Audit Committee seeks ongoing assurance that the on page 45; control environment and activities described above are ■ each business function has established procedures and operating effectively and reports regularly to the Board. The controls to minimise the risk of fraud and to safeguard Audit Committee’s review of the effectiveness of the internal the Group’s assets; controls is formally reported to the Board on an annual basis. ■ appropriate controls and procedures have been established Internal audit over the security of data held on, and functionality provided The Internal Audit department is fully independent of business by, the Group’s business systems. These include disaster operations and has a Group-wide mandate. Its work is driven recovery arrangements. The computer systems are by a risk-based methodology ensuring that the controls periodically tested and reviewed by both internal and to mitigate the Group’s key risks are audited on a regular external audit functions; basis. Its plans are approved by the Audit Committee, which also receives regular reports on its findings and progress of ■ the Group appoints individuals who are of a calibre to related actions. The function also works with the business to enable them to discharge the duties and responsibilities promote and further develop effective risk management within of the roles assigned to them. Established performance their operations. review and development mechanisms exist to identify key objectives and areas for improvement for each member External audit of staff. Succession planning forms an integral part of The external auditors provide further independent human resources management; observations on certain elements of the internal financial controls as part of their audit of the financial statements ■ Group Treasury operates within established and and their findings are presented to the Audit Committee. documented policies and procedures. The policies are described in the Directors’ Report on pages 37 and 38 Corporate Responsibility (CR) and are reviewed and approved annually by the Board The Group operates a CR Committee, which was chaired or one of its Committees; by the Company Secretary from 31 May 2008. During the period the Committee met on four occasions. The ■ the Group’s programme of insurance covers the material Group Finance Director is the Board member with specific risks to the Group’s assets and business and is reviewed responsibility for social, environmental, ethical and other annually by the Audit Committee; CR related matters. The CR Committee assists the Board ■ management at each business unit and in those functions in identifying reputational and other risks arising from the of the Group requiring greater overview, has responsibility conduct of the Group’s businesses. It makes recommendations for identification and evaluation of significant risks to their on measurement tools and audit procedures and reports on business areas together with design of mitigating controls. the effectiveness of systems for managing CR related matters. They are supported in this role by the Internal Audit and Corporate website Risk Management functions; Further information relating to corporate governance including ■ all entities within the Group are required to adhere to terms of reference for Board committees, full schedule of common standards of internal control and corporate matters reserved for the Board, and corporate responsibility governance, which are specified in documented may be found on the corporate responsibility section of the guidance; and corporate website (www.dsgiplc.com/cr). ■ post completion assessments are carried out following major acquisitions.

48 DSG international plc Annual Report and Accounts 2008/09 Business Overview Audit Committee Report

Membership and meetings ■ review regularly the Group’s policy on the supply of non- The current membership of the Committee, whose biographies audit services by the external auditors taking into account and qualifications are set out on page 40, is set out in the table relevant ethical guidance regarding the provision of non- below and comprises the four independent non-executive audit services, to approve the qualifying services and the directors (excluding the Chairman designate). All Committee level of non-audit fees and to monitor the services provided. members served throughout the period. The Committee In this respect, the level of fees paid for non-audit services Performance Review was scheduled to meet four times during the period in June, when taken as a proportion of the audit fee is considered in September, November and April in advance of key internal addition to the nature of such services in order to preserve and external reporting dates and had an additional meeting the external auditors’ independence and objectivity; and to facilitate the Placing and Rights Issue announced on ■ 30 April 2009. The Committee has a formal schedule of monitor the results and effectiveness of arrangements under matters to be considered over the course of the year which which employees can raise in confidence issues of concern are allocated across the four scheduled meetings. The relating to financial matters and internal controls agendas may be supplemented by specific meetings when (Whistleblowing). required and through informal discussions with the Chairman The full terms of reference of the Audit Committee are available and other members of the Committee. on the corporate responsibility section of the corporate website.

Meetings attended Key matters considered Members during period In addition to executing the responsibilities described above, Strategic Summary Andrew Lynch (Chairman) 5 the key matters considered by the Committee during the Rita Clifton 5 period included: Count Emmanuel d’André 4 ■ John Whybrow 5 significant issues arising from reports from both the internal and external audits; The Chairman has recent and relevant financial experience. ■ the review of the internal controls of PIXmania, noting that The Company Secretary acted as secretary to the Committee there was an improvement in controls within PIXmania; during the period. ■ the carrying value of certain assets in the Group; Representatives of the external auditors, the Group Finance ■ adopting revised terms of reference to include the annual Director, the Group Financial Controller, the Group Chief review of directors’ conflicts of interest; Accountant and the Group Director of Internal Audit and Risk Management were invited to attend each meeting to ensure ■ a review of working capital of the Group in connection with Corporate Governance that Committee members were fully informed and fully the Placing and Rights Issue and the profit forecast supported in carrying out their duties. Part of each meeting contained within the related prospectus and engaging the was held between the members of the Committee and the external auditor to assist the Group with these areas; external auditors in private. ■ a review of the tax position of the Group in respect of the Role of the Committee transfer pricing case and the subsequent accounting The Board has delegated to the Audit Committee responsibility to: treatment of the settlement reached with HMRC; and ■ monitor the integrity of the financial statements and any formal ■ the annual audit fee with particular regard to the balance announcements relating to the Group’s financial performance; between audit and non-audit fees. The pre-approval policy for non-audit work has been carefully monitored throughout ■ review critical accounting policies and financial reporting the period and helps to ensure that engagements which judgements; might compromise auditor independence are not assigned ■ review the integrity of the Group’s system of internal control to Deloitte LLP, noting that this policy has been working well and risk management; and remained appropriate. The Committee also noted that Financial Statements there had been a significant increase in fees paid to the ■ monitor and review the effectiveness of the Group’s internal auditor in connection with work undertaken on the Placing audit function; and Rights Issue, the refinancing of the Group’s debt ■ the annual audit plan of both the internal and external audit facilities and actual and potential disposal activity and which functions including the principal areas of focus; had been pre-approved in line with the policy. ■ review the Group’s risk and insurance programmes; The Committee, having considered the policies and procedures applied by the Group and the internal policies and representations ■ review and monitor the external auditors’ independence and of Deloitte LLP, including the regular rotation of audit partner, objectivity taking into consideration relevant UK professional remains satisfied with the auditors’ objectivity and independence and regulatory requirements, assess the effectiveness of the and the effectiveness of the audit process. Accordingly, the external audit process, approve the external auditors’

Committee has recommended to the Board that a resolution Information for Shareholders remuneration and terms of engagement and make for their reappointment be proposed at the AGM. recommendations in respect of their reappointment or removal; ■ review the directors’ conflicts of interest register and to agree any amendments to previously approved conflicts; Andrew Lynch FCA Chairman of the Audit Committee

DSG international plc Annual Report and Accounts 2008/09 49 Directors’ Report: Corporate Governance Nominations Committee Report

Membership and meetings ■ further consideration of succession planning in relation to The membership of the Committee during the period, whose Board members and senior executives within the Group; biographies and qualifications are set out on page 40, is set ■ the evaluation of the Board undertaken during the year out in the table below and comprised the four independent which confirmed the Committee’s opinion that the Board’s non-executive directors and the Chairman. All the Committee size, composition and structure and the present Board members served throughout the period. The Committee met Committee structure were appropriate to the present twice during the period and additionally on an ad hoc basis as needs of the Group. The Committee is also satisfied required to facilitate the recruitment of the Chairman designate. that the present structure offers strong leadership for Meetings attended the Company, but does not concentrate authority in Members during period one or two key individuals. As part of the evaluation, Sir John Collins (Chairman) 2 the Committee benchmarked the Board against a peer Rita Clifton 2 group of companies; Count Emmanuel d’André 2 ■ Andrew Lynch 2 the evaluation of the time commitment required from John Whybrow 2 each non-executive director and the Chairman in fulfilling their respective roles, recognising the need for availability The Company Secretary is secretary of the Committee. outside the scheduled Board timetable; John Allan joined the Committee following his appointment ■ review of the Committee’s terms of reference following to the Board on 23 June 2009. changes arising from the Companies Act 2006 and other Role of the Committee relevant legislation; The Committee’s principal roles and responsibilities are: ■ consideration of the terms of appointment of Rita Clifton, ■ to keep under review the structure, size and composition of Andrew Lynch and John Whybrow and the recommendation the Board and its principal committees and to recommend to the Board that those terms be extended for a further changes deemed necessary; period of three years; and ■ ■ to identify, evaluate and nominate to the Board candidates a review of the policy for external appointments for both for appointment to the Board; non-executive and executive directors following changes implemented by the Companies Act 2006 for recommendation ■ to be responsible for succession planning for Board members, to the Board. in particular, the Chairman and Chief Executive; and The Committee is satisfied that the Board keeps abreast of ■ to make recommendations to the Board for the continuation developments within the industry through a mixture of private or otherwise of a director in office upon the expiry of any research and presentations from internal and external advisors specified term of appointment. on key areas of importance to the Company. No member of the Committee participates in discussions The Committee is satisfied that the directors retiring in or decisions concerning their own appointment to the Board. accordance with the Articles of Association at the forthcoming The Committee’s full terms of reference are on the corporate AGM (John Browett, Rita Clifton and John Allan) are properly responsibility section of the corporate website. qualified for reappointment by virtue of their skills and Key matters considered experience and their contribution of guidance and time The principal matters considered by the Committee during to the Board’s deliberations. the period included the following: Following the announcement that Count Emmanuel d’André ■ the recruitment of an additional director to assume the will be retiring at the AGM in September 2009, the Committee position of Chairman following the announcement that has begun the search for an additional non-executive director Sir John Collins will retire at the AGM in September 2009. and details regarding this process will be reported in the The recruitment process was led by the Senior Independent Committee’s report in 2010. Director, Andrew Lynch, with the assistance of the recruitment consultancy The Zygos Partnership. The Committee believes John Allan is independent in character and judgement on appointment and meets the independence criteria as set out in the Combined Code. Sir John Collins was not involved in the selection and approval of the Chairman designate; Sir John Collins ■ the appointment of Nicholas Cadbury as Group Finance Chairman of the Nominations Committee Director;

50 DSG international plc Annual Report and Accounts 2008/09 Directors’ Report: Corporate Governance Business Overview Remuneration Report

This report, approved by the Board, has been prepared in The Chief Executive and the Group Director – Marketing, accordance with the requirements of Directors’ Remuneration People & Property attended meetings of the Committee Report Regulations 2002, the relevant schedules of the by invitation in an advisory capacity. Meetings are attended Companies Acts and the Listing Rules of the Financial by the Company Secretary (who acts as secretary to Services Authority. This report is divided into two sections: the Committee) and by the Group Reward Director and Performance Review occasionally by representatives from the Group’s external ■ remuneration policy (not audited) which details the role remuneration advisors, Hewitt New Bridge Street (HNBS). of the Committee, the principles of remuneration and Nobody attends any part of a meeting at which their own other matters; and remuneration is discussed. ■ remuneration review (audited) which details directors’ During the period under review the Committee obtained and former directors’ emoluments, share awards and advice from HNBS for which they received fees of £113,000. options and pension arrangements. HNBS provided no other services to the Company and has The purpose of this report is to inform shareholders of the no other connections with the Company or its officers. Company’s policies on directors’ remuneration applicable (ii) Remuneration principles to the two financial periods up to 2 May 2009 and, so far In setting its policies, the Committee has regard to several as practicable, for subsequent years as well; and to provide factors including the benefits arrangements which apply below details of the remuneration of individual directors as determined senior management level and competitor benchmarking. by the Remuneration Committee. Shareholders will be asked Strategic Summary to approve the report at the AGM on 2 September 2009. In implementing this policy, the Remuneration Committee takes account of information and surveys from internal and independent sources and the remuneration paid for Remuneration policy comparable positions in other companies. It reviews data and surveys provided by remuneration consultants and (i) Role of the Remuneration Committee market research companies with particular reference to the The Board has delegated to the Remuneration Committee scale and composition of the total remuneration packages responsibility for determining policy in relation to, and approval payable to people with like responsibilities, qualifications, skills of, remuneration packages for senior management. This and experience in businesses of similar size and structure. includes the terms and conditions of employment of each of the executive directors of the Company and for other senior In setting the remuneration of the directors and senior management of the Group; and policy in relation to the operation management, the Committee takes into account the economic of the Group’s share-based employee incentive schemes. environment and financial performance of the Group, along Corporate Governance with pay and employment conditions of employees elsewhere The membership of the Committee during the period under in the Group. For the financial year 2009/10 the Committee review, whose biographies and qualifications are set out on has approved a decision to freeze the pay of all UK employees page 40, is set out in the table below and comprises three except that in exceptional circumstances pay increases may independent non-executive directors and the Chairman of be provided to individuals whose base salary is considerably the Company. All the Committee members served throughout behind the market or to those individuals who are performing both the period under review and the prior period, except for above expectation. This policy has also been applied to both the Company Chairman who joined the Committee in January the directors and other senior management. 2008. The Chairman has joined the Committee in accordance with the provision of the Combined Code permitting a Executive directors company Chairman to be a member, but not Chairman, The objectives of the remuneration policy are to: of the Remuneration Committee. The Committee’s terms of ■ ensure that the remuneration structure motivates reference are shown on the corporate responsibility section Financial Statements the directors and senior management to succeed and of the corporate website. The Committee met five times appropriately rewards them for their contribution to the during the period. Following his appointment to the Board attainment of the Group’s short and longer term results; on 23 June 2009, John Allan has also joined the Committee. ■ maintain, particularly through reward schemes based on Meetings attended Members during period performance, a competitive package of pay and benefits which provides the motivation for future achievement; John Whybrow (Chairman) 5 Sir John Collins 5 ■ facilitate the building and retention of a high calibre and Rita Clifton 5 focused team which will work effectively to achieve the Andrew Lynch 5 Group’s longer term strategic objectives; ■ align the directors’ interests with those of shareholders by offering participation in schemes which provide opportunities Information for Shareholders to build shareholdings in the Company; and ■ facilitate effective succession planning.

DSG international plc Annual Report and Accounts 2008/09 51 Directors’ Report: Corporate Governance Remuneration Report continued

The Committee is satisfied that the incentive structure for (a) Base salaries senior management does not raise governance risks by As a general policy, base salaries reflect the Committee’s inadvertently motivating irresponsible or reckless behaviour. assessment of the mid-market rate for relevant positions and levels of responsibility and the individual executive’s During the previous financial period, the Remuneration experience, performance and value to the business. The Committee reviewed the remuneration policy. The Committee Committee also assesses pay and employment conditions decided that the fundamental structure of the incentive design of employees of the Group when determining the executive for executive directors should remain unchanged; changes directors’ remuneration. were needed, however, mainly in the area of the Group’s short and long term incentive arrangements, particularly with regard The Chief Executive’s salary remains unchanged for 2009/10 to ensuring appropriate performance conditions were in place at £670,000. The Finance Director’s salary will be increased by and changes to reflect good corporate governance. These £25,000 to £400,000 to reflect the fact that he is performing changes were approved at the AGM held in 2008. above expectations in his new role and that his salary on promotion was below market levels and anticipated increases During the period under review, the Committee has again as he developed in the role. reviewed the remuneration of the executive directors and senior management and has concluded that the fundamental (b) Performance-related remuneration structure remains sound, although attention should be The performance-based elements of remuneration are designed given to addressing the balance between fixed and variable to drive performance and to strengthen the alignment between elements. The Committee therefore felt it was necessary the interests of the Company’s shareholders and its senior to review 2009/10 remuneration arrangements for senior management, whilst encouraging management retention. management so that, whilst remaining consistent with the The components of performance-related remuneration are remuneration policy objectives outlined above, the revised as follows: arrangements better reflected the current position of the (i) Annual cash bonus Company and the strategic challenges that it faces. During 2007/08 and 2008/09, performance-based remuneration To this end the base salary will be generally frozen at current for the executive directors comprised an annual cash bonus levels, in line with Company policy. Bonus targets will be made plan based on the achievement of the Group’s targets and, for more stretching at maximum levels with a lower proportion 2008/09, personal objectives. In the case of other participating payable at target (budget) levels recognising the reduction in executives below Board level, divisional and business unit Company profitability. Share incentives will retain the same targets were applied. performance measures with appropriate targets being set For 2007/08, the maximum bonus payable to Kevin O’Byrne prior to grant reflecting the task ahead. and John Clare was 100% of basic salary. In the case of both The number of shares awarded under the Executive Share of the executive directors, the bonus performance measures Option and Performance Share plan will be granted at a were based on Controllable Earnings and the achievement higher level than last year, although the face value will be lower of Free Cash Flow targets whereby Controllable Earnings given the lower market share price which has been affected represented 80% of the bonus opportunity and Free Cash by both the current economic environment and the Placing Flow comprised 20% of the bonus opportunity. Free Cash and Rights Issue. Overall, the total expected value of the Flow is defined in the consolidated financial statements on remuneration package will be similar to that of 2008/09. the cash flow statement. The maximum potential bonus for members of the Executive Committee was 85% of basic In addition, the Committee will be consulting with leading salary and for other participating senior management was institutional shareholders and their representative bodies 80% of basic salary. For 2007/08 the performance targets with a view to offering the senior executive population were not met and accordingly neither John Clare nor Kevin the opportunity to receive a lower salary in 2009/10 whilst O’Byrne were paid a performance-related bonus. John receiving an additional grant of share options. In this way, Browett’s bonus arrangements upon joining are discussed the remuneration package would be rebalanced, lowering below in section (g). fixed pay and raising variable pay. If this proceeds then it will be the subject of a separate vote at the forthcoming AGM For 2008/09 the maximum potential bonus for the Chief and full details will be provided with the Notice of Meeting. Executive was 100% of basic salary and 85% for the Finance Director. Payment was dependent on underlying Group It is currently anticipated that these proposals will apply for operating profit (60% of bonus), Group Free Cash Flow (20% the 2009/10 financial year only and will be reviewed by the of bonus) and achievement of personal objectives (20% of Committee next year. bonus), which included an element related to non-financial

52 DSG international plc Annual Report and Accounts 2008/09 Business Overview

objectives. For 2008/09 the maximum potential bonus for The number of shares awarded was calculated by reference members of the Executive Committee was 85% of basic to basic salary at the date of grant. The maximum award of salary and for other participating senior management was shares was equivalent to 50% of basic salary in the case of 80% of basic salary. Although there is an entitlement under the executive directors, 45% for the members of the Executive the personal objectives element of the bonus plan, the Committee and 40% for other participating executives. Prior Performance Review executive directors have volunteered not to receive any to vesting, the Remuneration Committee satisfied itself that bonus for the 2008/09 financial year. This offer has been the TSR performance achieved reasonably reflected the accepted by the Remuneration Committee. financial performance of the Group and reserved the right to vary awards accordingly. For 2009/10, there will be no change in the existing bonus potential for the executive directors – 100% of salary for the At the AGM on 3 September 2008, shareholder approval was Chief Executive and 85% of salary for the Finance Director. given to establish a new incentive plan called the Performance The bonus will be dependent on underlying Group operating Share Plan (PSP), which replaced the LTIP. The performance profit (55% of bonus), Group Free Cash Flow (25% of bonus) targets for the PSP continued to be based upon Total and achievement of personal objectives (20% of bonus), which Shareholder Return (TSR) (as it aligns management interests will include an element related to non-financial objectives. with those of the shareholders), however, the Committee believed that the constituents of the FTSE 100 Index were Bonus targets for 2009/10 have been set using benchmarks no longer the most appropriate benchmark of performance. that reflect both internal business objectives and external Accordingly, for the annual awards made in 2008/09, TSR Strategic Summary expectations. In light of the reduced level of profitability for performance was compared to that of a bespoke weighted 2008/09 compared to previous years, the bonus payment index comprising UK and European retailers Debenhams, scale for 2009/10 will be 70% of the maximum available for Inchcape, Signet Group, Group, Kesa Electricals, achieving performance in line with budget compared to 90% Marks & Spencer, Sports Direct International, Home Retail for 2008/09. The stretch target at which a full payment will Group, Kingfisher, Next, Tesco, PPR, Metro Group, Jelmoli be made will be more demanding relative to the budget than and Praktiker. All companies had equal weighting within the in 2008/09.The Committee is satisfied that the targets are group other than Kesa and Metro Group, who have greater challenging. Before approving bonus payments, the Committee competitive relevance and therefore have double weighting. will confirm that awards reflect genuine improvement in the Group’s underlying financial performance. The annual awards made in July 2008 under the LTIP contained provisions consistent with the PSP in terms Any bonus paid to the Chief Executive or the Finance Director of the comparator group referred to above. The 2008/09 as detailed above will not be pensionable. Corporate Governance awards made to participating executives were made in line (ii) Long Term Incentive Plan (LTIP) and Performance Share with previous practice, with awards granted up to 50% of Plan (PSP) salary. For 2008/09, 25% of an award vests for performance For awards made prior to June 2008 under the LTIP, equivalent to median (nothing below) with full vesting occurring performance has been measured in terms of the Total for performance equivalent to the upper quartile over the three Shareholder Return (TSR) achieved by the Company over year performance period. Vesting between these targets will a three year period relative to the companies comprising occur on a straight-line basis. In the event of an individual the FTSE 100 Index at the start of the performance period. leaving as a Good Leaver and on a change of control the TSR data is collated by HNBS to calculate the extent to following provisions apply: which the performance condition has been met. ■ in the event of a participant leaving the Group as a Good Vesting of shares was subject to the achievement of the Leaver, awards will be capable of vesting, at the normal following performance targets: vesting date (except in the event of death), subject to

satisfaction of the TSR performance condition. Awards Financial Statements ■ no shares would vest if TSR performance was below will be pro-rated to reflect the shortened service during the median for the comparator group; and the performance period; and ■ for performance in the upper quartile, 100% would ■ in the event of a change of control, awards will only vest vest, for median performance 40% would vest and for to the extent that the Remuneration Committee determines performance between the median and upper quartile the that performance warrants it and awards will be pro-rated number of shares was calculated using a sliding scale. unless the Committee determines that it is inappropriate to Any shares which vest cannot be released within close periods. do so. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 53 Directors’ Report: Corporate Governance Remuneration Report continued

Good Leaver circumstances relate to a participant leaving In 2008/09, a very small number of executives received an the Group under compassionate circumstances, including exceptional grant of share options worth 300% of salary, those leaving due to retirement, ill-health, injury, disability with other senior management receiving options with a value or redundancy. of 200% of salary, based upon a three month average share price preceding the date of grant. For 2008/09, the Chief Awards granted under the PSP in December 2008 mirror Executive received an award of 200% of salary as originally the provisions detailed above for the LTIP. Details of awards agreed upon joining. Upon his appointment the Group made in 2008/09 to Nicholas Cadbury and John Browett Finance Director received a further grant of options to bring are contained in section (iii) on page 59. his annual grant of options to a value of 200% of his new The number of shares planned to be awarded under the PSP salary. In order to incentivise junior management to develop in 2009/10 will be higher than those awarded in 2008/09 with a stronger ownership culture in the Group, a grant of share the total face value of the award being reduced reflecting the options was made to this population in 2008 but at a lower lower share price. The PSP will continue to use TSR achieved value level. by the Company over a three year period relative to an index A limited number of senior executives below Board level of comparator companies at the start of the performance also received awards in 2008 under the Retention and period. The comparator group for 2009/10 will be broadly the Recruitment Plan (Reward Shares) as reported in the 2007/08 same as for the 2008/09 awards with the exclusion of Jelmoli Remuneration Report whereby no performance condition and the inclusion of others to be agreed by the Committee. applied but, other than in the event of death or on change All companies will have equal weighting within the group other of control, shares will only be released in the event that the than Kesa and Metro Group, who have greater relevance relevant individuals remain with the Group for a three year and will, therefore, have double weighting. Prior to vesting, period. The Reward Share awards ranged between 30% the Remuneration Committee will satisfy itself that the TSR and 50% of salary. Reward Shares were not granted to performance achieved reasonably reflects the financial executive directors. performance of the Group and reserves the right to vary awards accordingly. Both the exceptional share option grant and Reward Shares were considered necessary to ensure that those executives (iii) Share Option and Reward Share plans key to delivering the targets were appropriately incentivised The Remuneration Committee approves the basis on which and ‘locked in’ to the Company for three years. In the event options are granted to executive directors and other employees of a change of control, awards under the Share Option Plan under the Company’s discretionary share option schemes and will only vest to the extent that the Committee determines that other performance plans. performance warrants it and awards will be pro-rated unless Options are normally granted annually to executive directors the Committee determines that it is inappropriate to do so. and to senior management under the Group’s Executive The options granted in 2008/09 to the Group’s most senior Share Option Scheme (ESOS). The scheme permits making executives (those in the top three management grades at an award with a market value on the date of grant of not more that time) were subject to performance conditions which than twice the recipient’s basic salary. However, in exceptional are detailed below: circumstances (for instance to facilitate recruitment or to retain key executives) this limit can be exceeded. Executive directors Grant level EPS hurdles and senior management are also entitled to participate in the 100% of salary RPI plus 4% per annum Sharesave plan on the same conditions as other employees. 100%-200% of salary RPI plus 4%-7% per annum* The Company will be inviting employees to participate in a 200%-300% of salary RPI plus 7%-10% per annum* Sharesave plan in early July 2009. *Awards will vest on a straight-line basis as detailed on page 60. For 2007/08, Kevin O’Byrne received a grant of share options with a value of 200% of salary and, on joining, In 2008/09, share options were granted to other employees the Chief Executive received a grant of share options with in the UK and overseas on the basis of management grade, a value of 200% of salary. Both awards were subject to including regional and store managers. To maximise the value EPS performance conditions and were measured over of the options, no performance conditions were applied to three financial years. The performance period for the award awards made to employees below the top three management made to Kevin O’Byrne (which has now lapsed, following grades. These awards were granted at a level of up to 150% him leaving the Group) commenced on 29 April 2007; and of salary. The average award made to employees was the performance period for the award made to the Chief approximately 30% of salary. Executive commenced on 4 May 2008.

54 DSG international plc Annual Report and Accounts 2008/09 Business Overview

All the awards granted in 2008/09 were subject to the Good As at the date of this report, the Company’s usage of shares Leaver provisions detailed below: against the limits detailed above in respect of all employee schemes was 3.03%; and was 1.17% in respect of grants Time of leaving Pro rata rate of options to executive directors and senior management under the Good Leaver < first anniversary discretionary plans. of date of grant Lapse in full Performance Review Good Leaver between first The Group has an established employee trust which it uses 1 2 and second anniversary ⁄3 exercisable, ⁄3 lapse to hold existing shares and the Committee’s intention is to Good Leaver between second make purchases, if required, of shares taking into account the 2 1 and third anniversary ⁄3 exercisable, ⁄3 lapse portion of awards and options to be satisfied by new issue, All other circumstances Lapse in full the likelihood of any performance targets being met and also potential lapsing of awards when employees leave the Group. At the AGM on 3 September 2008, shareholder approval was given to establish a new share option scheme which is called (v) Placing and Rights Issue the Executive Share Option Plan (ESOP), which replaced the Following the Placing and Rights Issue, the Committee previous scheme. The ESOP contains provisions consistent has agreed, subject to receiving permission from HMRC, to with the annual awards made in July 2008 for Good Leavers adjust the approved share options awarded in prior years, to and the maximum award levels as detailed above. reflect the dilutive effect of the Rights Issue and to adjust the current options and awards accordingly. This HMRC specified Strategic Summary It is planned to grant share options in 2009/10 under the adjustment will be applied to all awards. ESOP to the top 90 executives, and eligible Regional and Store Managers. Awards granted to the executive directors Following the adjustments referred to above, of the shares and the Executive Committee will be subject to an EPS target currently under option detailed in (iv), approximately 1.59% with 25% vesting at the threshold level of performance. of the issued share capital would relate to grants made to the executive directors and senior management under The awards will contain provisions for Good Leavers discretionary plans and approximately 4.11% would relate consistent with the 2008 awards as detailed above. to all schemes for all employee schemes. All share options, other than those under the Sharesave scheme, Further information on share-based payments is set out are exercisable between three and 10 years from the date of in note 26 to the financial statements. grant and, for those options subject to a performance target, if the Committee determines that the performance conditions (c) Taxable benefits have been met. Such determination is made following Each of the executive directors is entitled to the use of Corporate Governance presentation of the calculation which is performed once a company car with related benefits or cash payments in EPS figures are known for the relevant financial year and lieu and is a member of the non-contributory DSGi medical targets, since 2004, are tested only once. All share options expenses plan which provides benefits similar to those lapse on the earlier of 10 years from the date of grant or, applicable in comparable companies. where performance conditions apply, on the date on which Further information on employee costs and those relating to the Remuneration Committee determines that the performance senior management is given in notes 6 and 33, respectively, conditions have not been met. to the financial statements. (iv) Dilution (d) Pensions and related benefit A combination of both newly issued shares and shares Nicholas Cadbury accrues benefits under the defined bought in the market are to be used to satisfy awards benefit section of the DSGi Retirement & Employee Security under the Group’s employee share incentive agreements. Scheme (DRESS). This is a funded, HMRC registered

The Remuneration Committee is aware of, and supports, contributory pension scheme which provides a pension at Financial Statements the ABI guidelines regarding dilution and regularly monitors a normal retirement age of 65 accrued at a rate of 1/60th of compliance with these requirements. The Remuneration pensionable salary per annum up to a maximum of 40 years. Committee included provisions in the scheme rules adopted Part of this pension may be exchanged for cash at the date at the 2008 AGM which limit the number of newly issued of retirement. Membership of the scheme also confers shares which can be granted to 10% of the issued share dependants’ pensions and insured lump sums on death in capital in 10 years under all employee share schemes and service (equal to four times basic salary). Notwithstanding 5% for the executive directors and senior management the abolition of the statutory earnings cap for pension under the discretionary share plans. purposes on 6 April 2006, an equivalent cap, adjusted annually for inflation, was introduced for the purposes of DRESS. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 55 Directors’ Report: Corporate Governance Remuneration Report continued

From 4 May 2008 this was £117,600 and from 3 May 2009 is The service agreements of the continuing directors are £123,600. Nicholas Cadbury is provided with a salary supplement available for inspection at the registered office of the Company at the annual rate of 30% of the difference between his basic during normal business hours on each business day. salary and the scheme earnings cap as set by the Company (f) External directorships from time to time. A similar salary supplement arrangement for Executive directors are permitted to accept non-executive pension purposes applies to three other senior executives. directorships in external companies and to retain the fees John Browett has chosen not to become a member of any which they receive in such roles. Normally only one such DSGi pension plan. However, he receives a contribution of appointment will be authorised for each director. John Browett 32.1% of basic salary to fund his own retirement arrangements. is a non-executive director of easyJet plc and was paid a fee John Browett is also entitled to receive life assurance cover at the rate of £45,000 per annum. equal to four times basic salary and personal accident cover (g) Recruitment of John Browett in the prior financial year at the level of £2,000,000. On 31 May 2007, John Clare announced his intention to Prior to leaving the Group, Kevin O’Byrne and John Clare retire from the Board at the 2007 AGM. The Nominations accrued benefits under the senior executive defined benefit Committee undertook a search for a new Chief Executive section of DRESS which provides a pension at normal which culminated in the recruitment of John Browett. In retirement age of 60. Part of this pension is exchangeable order to facilitate his recruitment, and in compensation of for cash at the date of retirement. Membership of the scheme the significant value of share awards and bonus entitlement also conferred dependants’ pensions and an insured lump John Browett was forfeiting upon joining the Company, the sum on death in service. In respect of the scheme earnings Remuneration Committee agreed the following incentive cap described above, Kevin O’Byrne received a salary arrangements: supplement equivalent to the contributions which would ■ on joining, an award of shares with a value of 200% otherwise have been paid by the Company to DRESS on of salary under the LTIP, which will vest after the third that part of his pensionable salary which exceeded the anniversary of appointment in December 2010 subject to scheme earnings cap. the Company’s Total Shareholder Return (TSR) performance New externally recruited executive directors will be offered relative to the constituents of the FTSE 100 Index over the membership of the money purchase section of DRESS and three year period starting on 5 December 2007. Vesting is in the Remuneration Committee may exercise its discretion line with LTIP grants prior to June 2008 (which are referred regarding the level of award of any salary supplement or to in section (b)(ii) above); enhanced contributions. ■ a grant of options under the share option scheme with a (e) Service agreements value of 200% of salary, which will be exercisable subject to John Browett and Nicholas Cadbury have service agreements achieving earnings per share (EPS) growth over the three with DSG international plc which may be terminated at any financial years commencing 4 May 2008. These options time by 12 months’ notice. Service agreements contain cannot be exercised until after the preliminary announcement neither a liquidated damages nor a change of control clause. of results for the 2010/11 financial year. Where EPS growth It is the Company’s policy to ensure that any payments made is 3% per annum, half of the options will become exercisable to a director in the event of the early termination of a service increasing on a straight-line basis to full vesting for EPS agreement reflect the circumstances giving rise to termination growth of 5% per annum; and, where considered appropriate, the obligation of the ■ on joining, a ‘one-off’ award of 200% of salary under the outgoing director to mitigate his loss. Accordingly, consideration LTIP, which will vest on 6 December 2010 subject, in most is given to making compensation payments in instalments and circumstances, to John Browett remaining in employment is conditional on the leaver’s employment and earnings status. with the Group at that time; and The service agreements of the executive directors who ■ a ‘one-off’ guaranteed bonus for 2007/08 of £600,000 served during the financial period were entered into on which was paid in August 2008. the following dates:

Date John Browett 6 June 2007 Kevin O’Byrne (resigned 14 August 2008) 16 July 2004 Nicholas Cadbury 13 April 2009

56 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(iii) Non-executive directors Following the Placing and Rights Issue on 18 May 2009, each Non-executive directors are normally appointed for three of the directors took their full rights to new ordinary shares. year terms, although appointments vary depending on As of 25 June 2009, the holdings of ordinary shares of length of service and succession planning considerations. the directors who held office at the end of the period are Their current terms expire as follows: detailed below. Performance Review

Date Number of shares acquired Total holding Sir John Collins 3 September 2009 under the following the Rights Issue Rights Issue Count Emmanuel d’André 3 September 2009 Rita Clifton 1 September 2012 Executive directors Andrew Lynch 24 May 2012 John Browett 89,285 214,285 John Whybrow 24 May 2012 Nicholas Cadbury 16,927 40,625 Non-executive directors The remuneration of non-executive directors is determined by Sir John Collins 21,791 52,299 the Board upon the recommendation of the Chief Executive Count Emmanuel d’André 1,021 2,451 and the Group Finance Director. Rita Clifton 1,785 4,285 Sir John Collins’ fee is £330,000 per annum; he is also Andrew Lynch 21,428 51,428 John Whybrow 71,428 171,428 provided with the use of a car and related benefits and is a Strategic Summary member of the Group’s medical expenses plan. The other Total 223,665 536,801 non-executive directors receive a fee of £48,000 per annum or euro equivalent. The fee is normally reviewed bi-annually There were no changes in directors’ restricted or unrestricted and is due to be reviewed in 2010. share interest between 2 May 2009 and the date of this report except as detailed above. The Chairmen of the Audit and Remuneration Committees receive an additional fee of £10,000 per annum. Andrew The mid-market price of an ordinary share on 2 May 2009 Lynch has been designated Senior Independent Director was 41.25p. The highest and lowest mid-market prices for which he receives a further fee of £5,000 per annum. during the period were 74.50p and 9.49p, respectively. Non-executive directors derive no other benefits from their Total Shareholder Return (TSR) office and are not eligible to participate in the Group’s pension The graph set out below shows the Company’s performance scheme. It is Company policy not to grant share options to measured by TSR on a holding of £100 in the Company’s non-executive directors or to require part of their fees to be shares over the five years since 1 May 2004, measured against Corporate Governance paid in the form of shares. the same amount invested in the FTSE 350 Index. The other points plotted are the values at intervening financial year ends. Letters of appointment of the non-executive directors are available on application to the Company Secretary. £ (iv) Directors’ share interests 200 The Committee implemented a policy in the 2008/09 financial year of encouraging executive directors to build shareholdings 150 in the Company. The policy is that executive directors are required to retain 50% of the net of tax out-turn from the vesting of future awards or share options under the Company’s 100 share plans until a shareholding with a minimum value equivalent to their basic salary is achieved. 50 Financial Statements

Unrestricted beneficial and family interests 2 May 2009 3 May 2008 Executive directors 0 1 May 30 Apr 29 Apr 28 Apr 3 May 2 May John Browett 125,000 – 2004 2005 2006 2007 2008 2009 Nicholas Cadbury 23,698 23,698 DSG international plc FTSE 350 index Non-executive directors Sir John Collins 30,508 30,508 Source: Thomson Financial. Count Emmanuel d’André 1,430 1,350 This index has been selected as the Company has been Rita Clifton 2,500 2,500 Andrew Lynch 30,000 10,000 a constituent of it throughout the five year period shown. John Whybrow 100,000 100,000 Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 57 Directors’ Report: Corporate Governance Remuneration Report continued

Remuneration review

This part of the report is subject to audit. (i) Directors’ remuneration The following table shows an analysis of the emoluments of individual directors:

52 weeks 53 weeks Basic ended Basic ended salary Pension Cash Taxable 2 May 2009 salary Pension Cash Taxable 3 May 2008 and fees contributions bonus benefits Total and fees contributions bonus benefits Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Current directors John Browett(1) 670 215(2) – 15 900 275 88(2) 600(3) 7 970 Nicholas Cadbury(4) 338 58(5) – 16 412 ––––– Former directors Kevin O’Byrne 152 35(6) – 5 192 489 115(6) 75(7) 15 694 John Clare – ––––269 – – 15 284 1,160 308 – 36 1,504 1,033 203 675 37 1,948

Non-executive Current directors Sir John Collins 327 – – 2 329 319 – – 2 321 Count Emmanuel d’André 47 – – – 47 46 – – – 46 Rita Clifton 47 – – – 47 46 – – – 46 Andrew Lynch 62 – – – 62 60 – – – 60 John Whybrow 57 – – – 57 55 – – – 55 540 – – 2 542 526 – – 2 528 1,700 308 – 38 2,046 1,559 203 675 39 2,476

1 Amounts for the 53 weeks ended 3 May 2008 relate to John Browett’s period in office as a director (5 December 2007 to 3 May 2008). 2 John Browett’s pension contribution payable to him represented an amount calculated as a percentage of basic salary to fund his own retirement arrangements. 3 John Browett’s cash bonus relates to the ‘one-off’ guaranteed bonus described above in section (g). 4 Amounts shown relate to Nicholas Cadbury’s period in office as a director (17 July 2008 to 2 May 2009). 5 Nicholas Cadbury’s pension contributions represent 30% of the difference between his basic salary and the scheme earnings cap set by the Company. 6 Kevin O’Byrne’s pension contributions represented amounts which would have been payable to DRESS had his pensionable salary not been subject to an earnings cap. 7 Kevin O’ Byrne’s cash bonus relates to a ‘one-off’ discretionary payment in respect of the additional responsibility he assumed during the period between John Clare’s departure and John Browett joining the Group. (ii) Directors’ pensions

Increase Gross in accrued Transfer Transfer increase pension value of value of Change in Accrued Accrued in accrued during the accrued accrued transfer pension pension pension period, benefits benefits values less as at as at during the net of as at as at members’ 2 May 2009 17 July 2008* period inflation 2 May 2009 17 July 2008* contributions £’000 £’000 £’000 £’000 £’000 £’000 £’000 Nicholas Cadbury 34 31 31212 113 92

*Represents the date of appointment as a director. Accrued pension shown is that payable at normal retirement age (65). The transfer value as at 17 July 2008 has been calculated in accordance with Guidance Note GN 11 ‘Retirement Benefit Schemes – Transfer Values’ published by the Institute of Actuaries and the Faculty of Actuaries and adopted by the Board for Actuarial Standards with effect from 6 April 2007. The transfer value as at 2 May 2009 has been calculated in accordance with the amended Government regulations on the calculation of transfer values, ‘Occupational Pensions Schemes (Transfer Values) (Amendment) Regulations 2008’, which came into force on 1 October 2008 replacing the previous professional guidance. The recalculation has led to an increase in the transfer value as detailed above. The difference between the transfer values at the beginning and end of the period also includes the effect of factors beyond the control of the Company and the directors, such as stock market movements.

58 DSG international plc Annual Report and Accounts 2008/09 Business Overview Business Overview

(iii) Directors’ LTIP awards The directors’ restricted beneficial interests shown in the table below represent the maximum number of shares which may vest under the LTIP or Retention and Recruitment plan. Details of the LTIP, including performance conditions for the awards made during 2007/08, are described in section (b)(ii) of this report. Details of the Retention and Recruitment plan are described in section (b)(iii) of this report. Performance Review

Awarded Released Lapsed End of Market price At in the in the in the At performance period on award 4 May 2008* period period period 2 May 2009** and vesting date John Browett LTIP 2007/08 115.50p 1,125,541 – – – 1,125,541 December 2010 2007/08 115.50p 788,834(1) – – – 788,834 December 2010(2) 2008/09 38.50p – 561,798 – – 561,798 July 2011 1,914,375 561,798 – – 2,476,173

Nicholas Cadbury LTIP 2006/07 183.75p 38,095 – – – 38,095 May 2009(3) 2007/08 163.70p 43,982 – – – 43,982 April 2010 Strategic Summary 2008/09 38.50p – 150,931 – – 150,931 July 2007 Retention and Recruitment plan 2008/09 38.50p – 113,198 – – 113,198 July 2011 82,077 264,129 – – 346,206

*Date of appointment, if later. Corporate Governance **The above figures show the awards as originally granted. The awards will be adjusted to reflect the dilutive effect of the Placing and Rights Issue. 1 The award of 788,834 shares was made on 6 December 2007. The quantum of shares awarded was calculated using the mid-market value of the shares on 6 June 2007, the date on which John Browett accepted the offer of employment with the Group. 2 The release of these shares, in most circumstances, is dependent on John Browett remaining in employment until the vesting date, 6 December 2010. These shares may vest on an earlier date in certain circumstances. 3 Following the period end, the Remuneration Committee reviewed the TSR performance condition associated with the awards made to Nicholas Cadbury in the 2006/07 financial period and determined that the target had not been met. Accordingly, these awards have now lapsed. Corporate Governance The status of the provisional awards under the LTIP are reviewed regularly and as at the last review the status of the awards as at the date of this report is as follows:

Financial period in which provisional award made Status Award if status maintained 2007/08 TSR below median No award 2008/09 TSR below median No award

The ‘one-off’ LTIP award made to John Browett upon joining the Group is not subject to performance conditions. It is intended that any releases of shares under the LTIP will be satisfied by shares held in trust by Halifax EES Trustees International Limited, the trustee of the employee share ownership trust (the Trust). Vesting of the shares provisionally awarded under the LTIP in 2007/08 and 2008/09 occurs in June 2010 and July 2011, respectively, subject to the attainment of performance targets. The shares provisionally awarded under the LTIP in 2006/07 did not vest as they did not satisfy the performance targets. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 59 Directors’ Report: Corporate Governance Remuneration Report continued

(iv) Directors’ share options

At Granted Exercised Lapsed At Exercise 4 May 2008* in period in period in period 3 May 2009** Date of grant price John Browett Discretionary(1) 1,152,073 – – – 1,152,073 6 December 2007(2) 112.84p – 2,247,191 – – 2,247,191 11 July 2008 37.45p 1,152,073 2,247,191 – – 3,399,264

Nicholas Cadbury Discretionary(1) 11,948 – – – 11,948 19 July 1999 334.75p 16,484 – – – 16,484 17 July 2000 273.00p 25,974 – – – 25,974 23 July 2001 231.00p 44,720 – – – 44,720 22 July 2002 161.00p 84,133 – – – 84,133 25 July 2007 160.46p – 565,990 – – 565,990 11 July 2008 37.45p – 787,064 – – 787,064 14 August 2008 56.70p Sharesave(3) 3,503 – – – 3,503 26 February 2007 134.88p 186,762 1,353,054 – – 1,539,816

*Date of appointment, if later. **The above figures show the awards as originally granted. The awards will be adjusted to reflect the dilutive effect of the Placing and Rights Issue. 1 Options are exercisable between three and 10 years from the date of grant, subject to the performance conditions being met. The conditions upon which discretionary options may be exercised are summarised below. 2 The performance period for this award made to John Browett commenced on 4 May 2008. 3 Options granted under the Sharesave Scheme are exercisable in the six month period following the date of maturity of a three year or five year savings contract. Options may be exercised earlier by Good Leavers, subject to performance conditions being satisfied. The following table summarises the terms applicable to the executive directors’ and senior management options outstanding as at 2 May 2009:

Performance conditions Re-testing Grants made before 1 July 2003 The market price on the date of exercise is at least 20% higher than the option During the life price, assuming exercise takes place between three and four years after the of the option date of grant. For later exercises, the rate of share growth is adjusted in line with Retail Price Index (RPI). Exercise is also conditional upon EPS having increased by not less than 3% above the annual RPI over any consecutive period of three years during the life of the option.

Grants made after 11 October 2004 Over the three year performance period, EPS growth is equal to or greater than No re-testing annual RPI plus 5% per annum. Where EPS growth is between annual RPI plus 3% and RPI plus 5%, options will vest on a straight-line basis between 50% and 100% of the award.

Grants made after 11 July 2008 Over the three year performance period, EPS growth is equal to or greater than No re-testing annual RPI plus 4% per annum. For an award of 200% of salary where EPS growth is between annual RPI plus 4% and RPI plus 7% per annum, options will vest on a straight-line basis between 50% and 100% of the award. For an award of 300% of salary where EPS growth is between annual RPI plus 4% and RPI plus 10% per annum, options will vest on a straight-line basis between 33% and 100% of the award.

Options granted to the directors and senior management between 1 July 2003 and 11 October 2004 have now lapsed. Prior to 2005/06, share options were granted to other employees in the UK and overseas on the basis of management grade and to employees with more than three years’ service. Since 2005/06 and until 2007/08, employees below executive level have either participated in a cash settled performance share plan or in a few selected cases have been granted share options, both of which were linked in most cases to the attainment of three year EPS targets. In 2008, share options were granted to other employees in the UK and overseas on the basis of management grade; these options were granted with no performance conditions below the top three management grades at the date of grant.

60 DSG international plc Annual Report and Accounts 2008/09 Business Overview Business Overview

(v) Former directors 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 £31,000 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 £36,000 comprising membership of the Group’s medical expenses plan, a car and related benefits and with office facilities. On 30 May 2008, Lord Kalms voluntarily Performance Review lapsed his remaining rights attaching to approved share options unexercised at the date of his retirement from the Board. He is no longer eligible to participate in discretionary share schemes or in any bonus arrangements. John Clare retired from the Board on 5 September 2007. In accordance with the rules of the LTIP and Share Option Schemes, all awards granted to John Clare have now lapsed. Kevin O’Byrne resigned from his position with the Board on 14 August 2008. In accordance with the rules of the LTIP and Share Option Schemes, all awards granted to Kevin O’Byrne lapsed upon his resignation. Throughout the period under review, Kevin O’Byrne was a non-executive director of Land Securities Group plc and was paid an annual fee of £55,000. Approved by the Board on 25 June 2009 and signed on its behalf by Strategic Summary

John Whybrow Chairman of the Remuneration Committee Corporate Governance Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 61 Directors’ Report: Corporate Governance Directors’ Responsibilities

The directors are responsible for preparing the Annual Report The directors are responsible for maintaining adequate and the financial statements in accordance with applicable law accounting records and sufficient internal controls to safeguard and regulations. They are required to prepare accounts for the the assets of the Company and to take reasonable steps for Group in accordance with International Financial Reporting the prevention and detection of fraud or any other irregularities Standards (IFRSs) as adopted by the European Union and and for the preparation of a Directors’ Report and directors’ have chosen to prepare unconsolidated company financial Remuneration Report which comply with the requirements statements in accordance with Generally of the Companies Act 2006. The directors are responsible Accepted Accounting Practice (UK GAAP). for the maintenance and integrity of the corporate and financial information included on the Company’s website. In the case of the consolidated IFRSs financial statements, Legislation in the United Kingdom governing the preparation International Accounting Standard 1 requires that financial and dissemination of financial statements may differ from statements present fairly for each financial year the Group’s legislation in other jurisdictions. financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, Responsibility statement other events and conditions in accordance with the definitions We confirm to the best of our knowledge: and recognition criteria for assets, liabilities, income and ■ the Group and unconsolidated Company financial statements expenses set out in the International Accounting Standards give a true and fair view of the assets, liabilities, financial position Board’s ‘Framework for the preparation and Presentation and loss of the Group and Company, respectively; and of Financial Statements’. In almost all circumstances, a fair presentation will be achieved by compliance with all applicable ■ the Performance Review includes a fair review of the IFRSs. The directors are also required to: development and performance of the business and the position of the Group together with a description of the ■ properly select and apply accounting policies; principal risks and uncertainties they face. ■ present information, including accounting policies, in a By Order of the Board manner that provides relevant, reliable, comparable and understandable information; and ■ provide additional disclosures when compliance with the specific requirements of IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the financial position and financial performance. John Browett Nicholas Cadbury In the case of the unconsolidated Company financial statements Chief Executive Group Finance Director prepared under UK GAAP, the directors are required by UK 25 June 2009 25 June 2009 company law to prepare financial statements which give a true and fair view of the state of affairs of the Company for each financial period as at the end of that financial period and of the profit or loss of the Company for that period. In preparing both the consolidated Group financial statements and the unconsolidated Company financial statements, suitable accounting policies have been used and applied consistently, and reasonable and prudent judgements and estimates have been made. Applicable accounting standards have been followed. The financial statements have been prepared on the going concern basis as disclosed in the Directors’ Report.

62 DSG international plc Annual Report and Accounts 2008/09 Financial Statements Business Overview Independent Auditors’ Report

We have audited the Group financial statements of DSG IFRSs issued by the IASB international plc for the 52 weeks ended 2 May 2009 As explained in note 1.1 to the Group financial statements, which comprise the consolidated income statement, the the Group in addition to complying with its legal obligation consolidated statement of recognised income and expense, to apply IFRSs as adopted by the European Union, has also the consolidated balance sheet, the consolidated cash applied IFRSs as issued by the International Accounting Performance Review flow statement and the related notes 1 to 35. The financial Standards Board (IASB). In our opinion the Group financial reporting framework that has been applied in their preparation statements comply with IFRSs as issued by the IASB. is applicable law and International Financial Reporting Other matters prescribed by the Companies Act 2006 Standards (IFRSs) as adopted by the European Union. In our opinion: This report is made solely to the Company’s members, ■ the information given in the Directors’ Report for the financial as a body, in accordance with sections 495 and 496 of the period for which the financial statements are prepared is Companies Act 2006. Our audit work has been undertaken so consistent with the Group financial statements; and that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for ■ the part of the Remuneration Report to be audited has no other purpose. To the fullest extent permitted by law, we been properly prepared in accordance with the Companies do not accept or assume responsibility to anyone other than Act 2006. the Company and the Company’s members as a body, for our Matters on which we are required to report by exception audit work, for this report, or for the opinions we have formed. Strategic Summary We have nothing to report upon in respect of the following: Respective responsibilities of directors and auditors Under the Companies Act 2006 we are required to report to you if, in our opinion: As explained more fully in the Directors’ Responsibilities, ■ certain disclosures of directors’ remuneration specified by law are not made; or the directors are responsible for the preparation of the Group ■ we have not received all the information and explanations we require for our financial statements and for being satisfied that they give audit; or a true and fair view. Our responsibility is to audit the Group ■ the part of the directors’ Remuneration Report to be audited is not in financial statements in accordance with applicable law and agreement with the accounting records and returns. International Standards on Auditing (UK and Ireland). Those Under the Listing Rules we are required to review: standards require us to comply with the Auditing Practices ■ the directors’ statement contained within the Directors’ Report in relation to Board’s (APB’s) Ethical Standards for Auditors. going concern; or Scope of the audit of the financial statements ■ the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the 2006 Combined Code specified An audit involves obtaining evidence about the amounts Corporate Governance for our review. and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are Other matter free from material misstatement, whether caused by fraud or We have reported separately on the parent company financial error. This includes an assessment of: whether the accounting statements of DSG international plc for the 52 weeks ended policies are appropriate to the Group’s circumstances and 2 May 2009. have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinions Financial statements In our opinion the Group financial statements: Peter O’Donoghue FCA Financial Statements ■ give a true and fair view of the state of the Group’s affairs as (Senior Statutory Auditor) for and on behalf of Deloitte LLP at 2 May 2009 and of its loss for the 52 weeks then ended; Chartered Accountants and Statutory Auditors ■ have been properly prepared in accordance with IFRSs as London, United Kingdom adopted by the European Union; and 25 June 2009 ■ have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 63 Financial Statements Consolidated Income Statement

52 weeks ended 2 May 2009 53 weeks ended 3 May 2008 Re-presented† Non-underlying* Non-underlying* Businesses Businesses Underlying* to be closed** Other Total Underlying* to be closed** Other Total Note £million £million £million £million £million £million £million £million Continuing operations Revenue 2, 3 8,227.0 137.6 – 8,364.6 8,338.6 149.4 – 8,488.0 (Loss) / profit from operations before associates 73.8 (12.2) (169.4) (107.8) 206.4 (14.3) (389.3) (197.2) Share of post-tax results of associates 12 3.6 – – 3.6 6.2 – – 6.2

Operating (loss) / profit 2, 3 77.4 (12.2) (169.4) (104.2) 212.6 (14.3) (389.3) (191.0)

Profit on sale of investment ––––– – 1.7 1.7 Finance income 69.6 – 32.2 101.8 93.9 – 11.8 105.7 Finance costs (96.5) (1.9) (39.6) (138.0) (80.9) (1.6) (18.0) (100.5)

Net finance (costs) / income 5 (26.9) (1.9) (7.4) (36.2) 13.0 (1.6) (4.5) 6.9

(Loss) / profit before tax 50.5 (14.1) (176.8) (140.4) 225.6 (15.9) (393.8) (184.1)

Income tax expense 7 (34.3) 2.7 (25.2) (56.8) (67.2) 4.2 (3.0) (66.0) (Loss) / profit after tax – continuing operations 16.2 (11.4) (202.0) (197.2) 158.4 (11.7) (396.8) (250.1) Loss after tax – discontinued operations 29 – – (22.1) (22.1) – – (9.6) (9.6)

(Loss) / profit for the period 16.2 (11.4) (224.1) (219.3) 158.4 (11.7) (406.4) (259.7)

Attributable to: Equity shareholders of the parent company 16.1 (11.4) (224.1) (219.4) 157.3 (11.7) (406.4) (260.8) Minority interests 0.1 – – 0.1 1.1 – – 1.1 16.2 (11.4) (224.1) (219.3) 158.4 (11.7) (406.4) (259.7)

Loss per share (pence) 8 Basic – total (10.2)p (11.9)p Diluted – total (10.2)p (11.9)p Basic – continuing operations (9.2)p (11.5)p Diluted – continuing operations (9.2)p (11.5)p

Underlying earnings per share (pence) 1, 8 Basic – continuing operations 0.7p 7.2p Diluted – continuing operations 0.7p 7.2p

† Underlying figures for the 53 weeks ended 3 May 2008 have been re-presented to exclude the trading results of businesses to be closed whereby such closures were announced in 2008/09 and the results of discontinued operations. * ‘Underlying’ profit and earnings per share measures exclude the trading results of businesses to be closed, impact of amortisation of acquired intangibles, net restructuring and business impairment charges and other one-off, non-recurring items, profit on sale of investments, 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 29. ** Businesses to be closed comprises Markantalo and PC City Sweden whereby their closures were announced on 31 March 2009 and 23 March 2009, respectively. Owing to their closure rather than disposal, these operations do not meet the definition of discontinued operations as stipulated by IFRS 5 and accordingly the disclosures made above differ from those for discontinued operations.

64 DSG international plc Annual Report and Accounts 2008/09 Business Overview Consolidated Statement of Recognised Income and Expense

52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 Note £million £million Loss for the period (219.3) (259.7)

Actuarial losses on defined benefit pension schemes – UK 21 (114.3) (24.7) Performance Review – Nordics 21 (2.1) – Cash flow hedges: 22 Fair value remeasurement gains 42.6 4.7 Gains transferred to carrying amount of inventories (27.4) (11.5) (Gains) / losses transferred to income statement (13.4) 6.4 Net investment hedges: 22 Fair value remeasurement losses (74.3) (125.3) Investments: 22 Fair value remeasurement losses (0.9) (0.9) Tax on items taken directly to equity 53.2 42.4 Currency translation movements 122.5 166.9 Net (expense) / income recognised directly in equity (14.1) 58.0 Strategic Summary

Total recognised expense for the period 23 (233.4) (201.7)

Attributable to: Equity shareholders of the parent company (236.9) (205.2) Minority interests 3.5 3.5 (233.4) (201.7) Corporate Governance Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 65 Financial Statements Consolidated Balance Sheet

2 May 2009 3 May 2008 Note £million £million Non-current assets Goodwill 9 1,069.1 984.3 Intangible assets 10 148.4 143.9 Property, plant & equipment 11 489.6 531.3 Investments in associates 12 29.8 29.3 Trade and other receivables 14 68.5 49.8 Deferred tax assets 7 150.3 75.6 1,955.7 1,814.2 Current assets Inventories 13 971.9 1,093.1 Trade and other receivables 14 508.2 442.9 Income tax receivable 8.3 58.8 Short term investments 15 9.0 82.0 Cash and cash equivalents 16 192.6 365.8 1,690.0 2,042.6 Assets held for sale 29 13.2 – Total assets 3,658.9 3,856.8 Current liabilities Bank overdrafts 17 (4.8) (2.1) Borrowings 17 (250.1) (0.2) Obligations under finance leases 18 (2.8) (1.5) Trade and other payables 19 (1,664.5) (2,040.1) Income tax payable (58.0) (30.0) Provisions 20 (72.1) (46.2) (2,052.3) (2,120.1) Net current liabilities (362.3) (77.5) Non-current liabilities Borrowings 17 (322.5) (294.6) Obligations under finance leases 18 (98.9) (99.3) Retirement benefit obligations 21 (153.0) (54.0) Other payables 19 (369.8) (365.4) Deferred tax liabilities 7 (22.7) (18.8) Provisions 20 (40.4) (51.1) (1,007.3) (883.2) Liabilities directly associated with assets classified as held for sale 29 (14.4) – Total liabilities (3,074.0) (3,003.3) Net assets 584.9 853.5

Capital and reserves 23 Called up share capital 44.3 44.3 Share premium account 169.4 169.4 Other reserves (534.9) (502.9) Retained earnings 880.1 1,115.9 Equity attributable to equity holders of the parent company 558.9 826.7 Equity minority interests 26.0 26.8 Total equity 584.9 853.5

The financial statements were approved by the directors on 25 June 2009 and signed on their behalf by:

John Browett Nicholas Cadbury Chief Executive Group Finance Director

66 DSG international plc Annual Report and Accounts 2008/09 Business Overview Consolidated Cash Flow Statement

52 weeks ended 53 weeks ended 2 May 2009 3 May 2008 Note £million £million Operating activities – continuing operations Cash (utilised by) / generated from operations 27 (151.0) 301.0

Special contributions to defined benefit pension scheme * 21 (12.0) – Performance Review Income tax paid * (35.7) (53.1) Net cash flows from operating activities (198.7) 247.9 Investing activities – continuing operations Purchase of property, plant & equipment and other intangibles (141.8) (172.8) Purchase of subsidiaries * 28 (27.6) (22.5) Sale of investment – 1.7 Interest received 20.9 28.7 Decrease in short term investments * 73.3 103.1 Disposals of property, plant & equipment and other intangibles 28.8 51.5 Dividend received from associate * 4.9 2.3 Proceeds from sale of discontinued operations 29 – 1.1 Strategic Summary Net cash flows from investing activities (41.5) (6.9) Financing activities – continuing operations Issue of ordinary share capital – 3.2 Purchase of own shares – (100.0) Additions to finance leases 2.4 – Capital element of finance lease payments (1.7) (1.7) Interest element of finance lease payments (6.9) (7.1) Increase / (decrease) in borrowings due within one year * 249.9 (3.1) Decrease in borrowings due after more than one year (0.1) (2.2) Interest paid (126.9) (56.6) Investment from minority shareholder * 5.7 6.1

Equity dividends paid (60.3) (160.8) Corporate Governance Net cash flows from financing activities 62.1 (322.2)

Decrease in cash and cash equivalents (i) Continuing operations (178.1) (81.2) Discontinued operations 29 (13.2) (5.0) (191.3) (86.2) Cash and cash equivalents at beginning of period (i) 27 363.7 434.8 Currency translation differences 15.4 15.1

Cash and cash equivalents at end of period (i) 27 187.8 363.7

Free Cash Flow (ii) (412.6) 91.6 Financial Statements (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 27. (ii) Free Cash Flow comprises those items marked and comprises cash generated from continuing operations before special pension contributions, plus net finance income, 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. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 67 Financial Statements Notes to the Financial Statements

1 Accounting policies The principal accounting policies are set out below: 1.1 Basis of preparation 1.2 Accounting convention and basis of consolidation The consolidated financial statements have been prepared in The consolidated financial statements incorporate the financial accordance with International Financial Reporting Standards statements of the Company and entities controlled by the (IFRSs) as adopted by the EU, IFRSs issued by the International Company. Control is achieved where the Company has the Accounting Standards Board and those parts of the Companies power to control the financial and operating policies of an Act 2006 applicable to those companies reporting under entity so as to obtain benefits from its activities. The results IFRSs, and have been prepared on a going concern basis of subsidiaries acquired are included from the date on which as disclosed in the going concern statement on page 44. power to control passes. The net assets of subsidiaries The Group’s income statement and segmental analysis acquired are recorded at their fair values. The results of identify separately underlying performance measures and subsidiaries disposed of are included up to the effective non-underlying items. Underlying performance measures date of disposal. reflect an adjustment to total performance measures to Associates are accounted for using the equity method of exclude the impact of businesses to be closed and other accounting from the date on which the power to exercise non-underlying items. Underlying performance measures significant influence passes. 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 and losses incurred on the disposal and closure of owned are eliminated on consolidation. or leased properties that occur as part of the Group’s annual 1.3 Revenue retail churn. The profits or losses incurred on disposal or Revenue comprises sales of goods and services excluding closure of owned or leased properties as part of a one-off sales taxes. Revenue from sales of goods is recognised at restructuring programme are excluded from underlying the point of sale or, where later, upon delivery to the customer performance measures and are therefore included, among and is stated net of returns. Revenue earned from customer other items, within non-underlying items as described below. support agreements is recognised as such over the life of The directors consider ‘underlying’ performance measures the agreement by reference to the stage of completion of to be a more accurate reflection of the ongoing trading the transaction at the balance sheet date. performance of the Group and believe that these measures provide additional useful information for shareholders on the 1.4 Other income, including non-operating income Group’s performance and are consistent with how business Other income which is incidental to the Group’s principal performance is measured internally. activities of selling goods and services and accordingly is not recorded as part of revenue, is recognised when the Non-underlying items comprise trading results of businesses Group obtains the right to consideration by performance to be closed, amortisation of acquired intangibles, net of its contractual obligations. Interest income is accrued on restructuring and business impairment charges and other a time basis, by reference to the principal outstanding and one-off, non-recurring items, profit on sale of investments, at the effective interest rate applicable. Dividend income from fair value remeasurements of financial instruments and, investments is recognised when the right to receive payment where applicable, discontinued operations. Items excluded has been established. from underlying results can evolve from one financial year to the next depending on the nature of reorganisation or one-off 1.5 Discontinued operations type activities described above and for 2008/09, trading A discontinued operation is a component of the Group results from businesses to be closed represents such an which represents a significant separate line of business item. Prior year comparatives have been re-presented to which has been sold. Classification as a discontinued exclude them from underlying results. A reconciliation of operation occurs upon disposal or earlier if beneficial title underlying profit to total loss is shown in note 2. Businesses and risk has transferred to the purchaser and in the case to be closed are defined as businesses whose closure was of a business acquired exclusively with a view to subsequent announced prior to the year end date and do not meet the disposal, on the date of acquisition. definition of discontinued operations as stipulated by IFRS 5. Where the sale of a component of the Group is considered Underlying performance measures and non-underlying highly probable and the business is available for immediate performance measures may not be directly comparable sale in its present condition, it is classified as held for sale. with other similarly titled measures or ‘adjusted’ revenue Assets and liabilities held for sale are measured at the lower or profit measures used by other companies. of carrying amount and fair value less costs to sell. During the period, the Group elected to adopt IFRS 8 1.6 Leases ‘Operating Segments’ in advance of its effective date. IFRS 8 Leases are classified as finance leases whenever the terms requires operating segments to be identified based on internal of the lease transfer substantially all the risks and rewards of reporting to the chief operating decision maker and also ownership to the lessee. The determination of the classification amends certain disclosure requirements. Prior year comparatives of property leases is made by reference to the land and have been re-presented to reflect this change. buildings elements separately. All leases not classified as finance leases are operating leases.

68 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Finance leases 1.8 Goodwill Assets held under finance leases are capitalised at their fair On acquisition of a subsidiary or associate, the fair value value on acquisition or, if lower, at the present value of the of the consideration is allocated between the identifiable net minimum lease payments, each determined at the inception tangible and intangible assets / liabilities on a fair value basis, of the lease and depreciated over their estimated useful lives with any excess consideration representing goodwill. Goodwill Performance Review or the lease term if shorter. The corresponding obligation in respect of subsidiaries is capitalised as goodwill on the to the lessor is included in the balance sheet as a liability. balance sheet; goodwill relating to associates is capitalised Lease payments are apportioned between finance charges in investments in associates as part of the carrying value of and reduction of the lease obligation. Finance charges are the associate. charged to the income statement over the period of the Goodwill is not amortised, but instead is reviewed annually lease in proportion to the capital element outstanding. for impairment. Any impairment is recognised immediately Operating leases in the income statement and is not subsequently reversed. Rentals payable under operating property leases are charged On disposal of a subsidiary or associate the attributable to the income statement on a straight-line basis over the fixed amount of goodwill is included in the determination of the term of the lease. At the end of the fixed term of leases, rental gain or loss on disposal. payments are reset to market rates, typically on an upwards only basis. 1.9 Intangible assets

Acquired intangibles Strategic Summary Benefits received and receivable as an incentive to enter into Acquired intangibles comprise brands and customer lists an operating lease are also spread on a straight-line basis purchased as part of acquisitions of businesses and are over the lease term. capitalised and amortised over their useful economic lives Where a lease forms part of a separate cash generating unit on a straight-line basis. Acquired intangibles are stated at (CGU), such as a store or group of stores, and business cost less accumulated amortisation and, where appropriate, indicators exist which could lead to the conclusion that the provision for impairment in value or estimated loss on carrying value of the CGU is not supportable, the recoverable disposal. Amortisation is provided to write off the cost of amount of the CGU is determined by calculating its value in assets on a straight-line basis between three and 30 years. use. The value in use is calculated by applying discounted Other intangible assets: computer software cash flow modelling to management’s projection of future Computer software is capitalised on the basis of the profitability. If an impairment of a CGU has been identified costs incurred both to acquire and bring into use the such that the value in use is negative and a lease exists in Corporate Governance specific software. Amortisation is provided to write off the that CGU, a provision for the onerous portion of the lease is cost of assets on a straight-line basis over their estimated made equal to the lower of the outstanding lease commitment economic useful lives of between three and seven years. and the negative present value of the CGU. Costs associated with developing or maintaining computer 1.7 Translation of foreign currencies software are recognised as an expense as incurred unless Transactions in foreign currencies are initially recorded at the they increase the future economic benefits of the asset, rate of exchange prevailing at the transaction date. Monetary in which case they are capitalised. assets and liabilities denominated in foreign currencies are Internally generated computer software is capitalised at cost retranslated at the rates of exchange ruling at the balance if the project is technically and commercially feasible and sheet date. Exchange gains and losses arising on settlement the economic benefits which are expected to be generated or retranslation of monetary assets and liabilities are included exceed one year. The expenditure capitalised includes the in the income statement. cost of materials, direct labour and an appropriate proportion

Assets and liabilities of overseas subsidiaries are translated of overheads. Subsequent expenditure is capitalised only Financial Statements at the rate of exchange ruling at the balance sheet date. The when it increases the future economic benefits embodied in results of overseas subsidiary undertakings are translated the specific asset to which it relates. Amortisation is provided into sterling at the average rates of exchange during the to write off the cost of assets on a straight-line basis between period. Exchange differences resulting from the translation three and seven years. of the results and balance sheets of overseas subsidiary Computer software is stated at cost less accumulated undertakings are charged or credited directly to retained amortisation and, where appropriate, provision for earnings. Such translation differences become recognised impairment in value or estimated loss on disposal. in the income statement in the period in which the subsidiary undertaking is disposed. As the cumulative translation differences for all foreign

subsidiaries were deemed to be zero at the transition Information for Shareholders date to IFRS on 2 May 2004, upon disposal of a foreign subsidiary, any gain or loss arising will include only those foreign exchange gains or losses attributable to periods after that date.

DSG international plc Annual Report and Accounts 2008/09 69 Financial Statements Notes to the Financial Statements continued

1 Accounting policies continued Short term investments 1.10 Property, plant & equipment Investments are initially measured at fair value and then Property, plant & equipment are stated at cost less subsequently remeasured to fair value at each balance accumulated depreciation and, where appropriate, provision sheet date owing to occasional sales of such investments. for impairment in value or estimated loss on disposal. The fair value of unlisted investments is estimated either Depreciation is provided to write off the cost of the assets by comparing recent arm’s length transactions or by using by equal instalments over their estimated useful lives. The discounted cash flow analysis or other modelling techniques. rates used are: Gains and losses arising from revaluation at the balance sheet date are recognised directly in equity. For unlisted Short leasehold property – over the term of the lease investments a significant or prolonged decline in the fair 2 1 Freehold and long – between 1 ⁄3% and 2 ⁄2% per annum value of the investment below its cost is considered leasehold buildings evidence of impairment. 1 Fixtures, fittings – between 10% and 33 ⁄3% per annum and equipment To the extent that any fair value losses are deemed permanent, such impairment is recognised in the income No depreciation is provided on freehold and long leasehold statement. Upon sale or impairment of the investments, land or on assets in the course of construction. any cumulative gains or losses held in equity are transferred Property, plant & equipment are assessed on an ongoing to the income statement. basis to determine whether circumstances exist that Trade and other receivables could lead to the conclusion that the carrying value is not Trade and other receivables (excluding derivative financial supportable. Where assets are to be taken out of use, an assets) are recorded at cost less an allowance for estimated impairment charge is levied. Where assets’ useful lives are irrecoverable amounts and any other adjustments required shortened, an estimate is made of their new lives and an to align cost to fair value. The carrying amount of trade accelerated depreciation charge is levied. Where the property, receivables is reduced through the use of a provision plant & equipment form part of a separate cash generating account. A provision for bad and doubtful debts is made unit (CGU), such as a store or group of stores, and business for specific receivables when there is objective evidence indicators exist which could lead to the conclusions that the that the Group will not be able to collect all of the amounts carrying value is not supportable, the recoverable amount of due under the original terms of the invoice. Receivables that the CGU is determined by calculating its value in use. The are not assessed individually for impairment are assessed value in use is calculated by applying discounted cash flow for impairment on a collective basis using ageing analysis modelling to management’s projection of future profitability to determine the required provision. Bad debts are written and any impairment is determined by comparing the carrying off when identified. value with the value in use. 1.12 Taxation 1.11 Investments and other financial assets Current taxation The Group’s financial assets comprise cash and cash Current taxation is the expected tax payable on the taxable equivalents, short term investments and those receivables income for the period, using prevailing tax rates and adjusted which involve a contractual right to receive cash from external for any tax payable in respect of previous periods. parties. Financial assets comprise all items shown in notes 14, 15 and 16 with the exception of prepayments. Under the Deferred taxation classifications stipulated by IAS 39, short term investments Deferred tax liabilities are recognised for all taxable temporary and trade and other receivables, (excluding derivative financial differences and deferred tax assets are recognised to the assets) are classified as ‘available for sale’ and ‘loans and extent that it is probable that taxable profits will be available receivables’, respectively. Cash and cash equivalents and against which deductible temporary differences can be derivative financial instruments, which are further described in utilised. Such assets and liabilities are not recognised if the notes 1.14 and 1.16, are classified as ‘loans and receivables’ temporary difference arises from goodwill or from the initial and ‘held for trading unless designated in a hedge recognition (other than in a business combination) of other relationship’, respectively. assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Investment in associates Associates are accounted for using the equity method of Deferred tax liabilities are recognised for taxable temporary accounting from the date on which the power to exercise differences arising on investments in subsidiaries, except significant influence passes. All purchases and sales of where the Group is able to control the reversal of the investments and other financial assets are recognised on temporary difference and it is probable that the temporary the date that the Group becomes committed to make such difference will not reverse in the foreseeable future. No purchase or sale (the trade date). provision is made for tax which would have been payable on the distribution of retained profits of overseas subsidiaries or associated undertakings, unless the distribution of such earnings has been accrued in the balance sheet.

70 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Deferred tax assets and liabilities are offset against each Trade and other payables other when they relate to income taxes levied by the same Trade and other payables (excluding derivative financial tax jurisdiction and when the Group intends to settle its liabilities) are recorded at cost. Derivative financial instruments, current tax assets and liabilities on a net basis. which includes put options over equity held by minority shareholders, are initially recorded at fair value and then Deferred tax is charged or credited in the income statement, Performance Review subsequently remeasured to fair value at each balance sheet except when it relates to items charged or credited directly to date and are held within assets or liabilities as appropriate. equity, in which case the deferred tax is also dealt with in equity. Gains and losses arising from revaluation at the balance Deferred tax is measured at the average tax rates that sheet date are recognised in the income statement unless are expected to apply in the periods in which the timing the derivatives are designated as hedges and such hedges differences are expected to reverse, based on tax rates and are proved to be effective. laws that have been enacted, or substantially enacted by the 1.16 Derivative financial instruments and balance sheet date. Deferred tax balances are not discounted. hedge accounting 1.13 Inventories Derivative financial instruments held by the Group are initially Inventories are stated at the lower of average cost and recognised in the balance sheet at fair value within assets or net realisable value. Cost comprises direct purchase cost liabilities as appropriate and then subsequently remeasured to and those overheads that have been incurred in bringing fair value at each balance sheet date. Gains and losses arising the inventories to their present location and condition, both from revaluation at the balance sheet date are recognised in Strategic Summary types of cost being measured using a weighted average the income statement unless the derivatives are designated cost formula. Net realisable value represents the estimated as hedges and such hedges are proved to be effective. selling price less all estimated and directly attributable costs Derivatives are classified as non-current assets or liabilities of completion and costs to be incurred in marketing, selling where a hedge relationship is identified and the remaining and distribution. maturity of the hedged item is greater than 12 months from 1.14 Cash and cash equivalents the balance sheet date. Derivatives are classified as current Cash and cash equivalents comprise cash at bank and in assets or liabilities in all other circumstances. hand, bank overdrafts and short term highly liquid deposits Fair values are derived from market values. The fair value with a maturity of three months or less and which are subject of financial instruments traded in active markets is based to an insignificant risk of changes in value. Bank overdrafts, on quoted market prices at the balance sheet date. which form part of cash and cash equivalents for the purpose of the cash flow statement are shown under current liabilities. Hedge accounting Corporate Governance The Group’s activities expose it primarily to the financial 1.15 Borrowings and other financial liabilities risks associated with changes in interest rates and foreign The Group’s financial liabilities are those which involve a currency exchange rates. The Group uses derivative financial contractual obligation to deliver cash to external parties at instruments such as interest rate swaps, options, cross a future date. Financial liabilities comprise all items shown currency swaps and forward currency contracts to hedge in notes 17, 18 and 19 with the exception of other taxation these risks. The Group does not use derivative financial and social security, deferred income from customer support instruments for speculative purposes. agreements, other deferred income and other non-financial creditors. Under the classifications stipulated by IAS 39, Where hedge accounting is to be applied, the Group formally borrowings, finance lease obligations and trade and other designates and documents the hedge relationship to which payables (excluding derivative financial liabilities) are classified the Group wishes to apply hedge accounting and the risk as ‘financial liabilities measured at amortised cost’. Derivative management objective and strategy for undertaking the hedge.

financial instruments, which are described further in note 1.16 Financial Statements Hedge accounting is discontinued when the hedging below, are classified as ‘held for trading unless designated instrument expires or is sold, terminated or exercised, in a hedge relationship’. or no longer meets the criteria for hedge accounting. Borrowings The accounting treatment of derivatives that qualify for Borrowings are initially recorded at the consideration hedge accounting is dependent on how they are designated. received less directly attributable transaction costs. The different designations and accounting treatments are Transaction costs are amortised through the income explained below: statement using the effective interest method and the unamortised balance is included as part of the related borrowing at the balance sheet date. A fair value adjustment is made to the borrowing where hedge accounting, as

described in note 1.16 below, has been applied. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 71 Financial Statements Notes to the Financial Statements continued

1 Accounting policies continued 1.17 Retirement benefit obligations Fair value hedges Company contributions to defined contribution pension The Group uses interest rate swaps to hedge the exposure schemes and contributions made to state pension schemes to changes in the fair value of recognised assets and liabilities. for certain overseas employees are charged to the income statement on an accruals basis as contributions become Derivative financial instruments that meet the ‘fair value’ payable. hedging requirements are recognised in the balance sheet at fair value with corresponding fair value movements recognised For defined benefit pension schemes, the regular service within finance income / costs in the income statement. For cost of providing retirement benefits to employees during an effective fair value hedge, the hedged item is adjusted the period, together with the cost of any benefits relating for changes in fair value attributable to the risk being hedged to past service is charged to operating profit in the period. with the corresponding entry in the income statement. To A credit representing the expected return on assets of the the extent that the designated hedge relationship is effective, retirement benefit schemes during the year is included within such amounts in the income statement offset each other. other finance income. This is based on the market value of As a result, only the ineffective element of any designated the assets of the schemes at the start of the financial period. hedging relationship impacts the income statement. If the A charge is included within other finance costs, representing hedge no longer meets the criteria for hedge accounting, the expected increase in the liabilities of the retirement benefit the adjustment to the carrying amount of the hedged item schemes during the period. The difference between the for which the effective interest method is used, is amortised market value of the assets and the present value of the to the income statement over the period to maturity. accrued pension liabilities is shown as an asset or liability in the balance sheet. Differences between the actual and Cash flow hedges expected returns on assets during the period are recognised The Group uses forward foreign exchange contracts to in the statement of recognised income and expense, together hedge the foreign currency exposure on inventory ordered with differences arising from changes in actuarial assumptions. and purchased and certain sales of inventory. It is Group policy to hedge between 80% and 100% of committed 1.18 Share-based payments purchase orders and sales. At any point in time the Group The Group issues equity-settled share-based payments also hedges up to 80% of its estimated foreign currency to certain employees which are measured at fair value at exposure in respect of forecast purchases and sales for the the date of grant. This fair value is expensed in the income subsequent 12 months. Orders and purchases as well as statement on a straight-line basis over the vesting period, sales are each considered to be separate hedge transactions. based on an estimate of the number of shares that will eventually vest as adjusted for any non-market conditions. Derivative financial instruments that qualify for such cash flow hedging are initially recognised on the balance sheet A liability equal to the portion of services received with gains and losses relating to the remeasurement of the from employees is recognised at the current fair value effective portion of the hedge being deferred in equity. To determined at each balance sheet date for cash-settled the extent that such items are ineffectively hedged, gains or share-based payments. losses relating to the ineffective portion are recognised in the 1.19 Estimates, judgements and critical income statement. Amounts taken to equity are transferred accounting policies to the income statement when the hedged transaction affects The preparation of financial statements in conformity with profit or loss (i.e. when a purchase or sale is made). For generally accepted accounting principles requires management inventory purchases, the associated gains or losses on the to make estimates and assumptions that affect the reported derivative that had previously been recognised in equity are amounts of assets and liabilities and the disclosure of included in the initial measurement of inventory. For sales, contingent assets and liabilities. Significant items subject to the gains or losses on the derivative that had previously been such assumptions and estimates include the useful lives of recognised in equity are included in the income statement assets; the measurement and recognition of provisions; the in the period in which the sale is made. recognition of deferred tax assets; and liabilities for potential Net investment hedges corporation tax. Actual results could differ from these The Group uses currency forward contracts and currency estimates and any subsequent changes are accounted for swaps to hedge its currency risk on the translation of net with an effect on income at the time such updated information investments in foreign entities. Gains and losses arising on becomes available. The most critical accounting policies in the retranslation of the investments and the related derivatives determining the financial condition and results of the Group are recognised in equity. However, this is on the basis that are those requiring the greatest degree of subjective or the hedging requirements of IAS 39 are met and the hedging complex judgements. These relate to revenue recognition, relationship is effective. To the extent that such items are inventory valuation, lease costs, the valuation of goodwill ineffectively hedged, gains or losses relating to the ineffective and acquired intangible assets, share-based payments, portion are recognised within the income statement. post-retirement benefits and taxation, and are set out below.

72 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Revenue recognition In assessing impairment of intangible assets and property, Revenue earned from the sale of customer support agreements plant & equipment, discounted cash flow methods are is recognised over the term of the contracts when the Group used as described in note 1.10. Judgement is required in obtains the right to consideration as a result of performance determining the appropriate discount factors as well as the of its contractual obligations. Revenue in any one year is short and medium term business plans. As for goodwill, the Performance Review therefore recognised to match the proportion of the expected directors draw upon experience and external resources in costs of fulfilling the Group’s total obligations under the making these judgements. agreements. An estimate of the degree of performance of Share-based payments these contractual obligations is determined by reference to The charge for share-based payments is calculated by extensive historical claims data. Reliance on historical data estimating the fair value of the award at the date of grant assumes that current and future experience will follow past using either the binomial option pricing model or the Monte trends. The directors consider that the quantity and quality of Carlo simulation. The option valuation models used require data available provides an appropriate proxy for current trends. highly subjective assumptions to be made including the future Inventory valuation volatility of the Company’s share price, expected dividend Inventories are valued at the lower of average cost and yields, risk-free interest rates and expected staff turnover. net realisable value. Cost comprises direct purchase cost The directors draw upon a variety of external sources to aid and those overheads that have been incurred in bringing in the determination of the appropriate data to use in such the inventories to their present location and condition, both calculations. Strategic Summary types of cost being measures using a weighted average Defined benefit pension schemes cost formula. Net realisable value represents the estimated The surplus or deficit in defined benefit schemes that is selling price less all estimated and directly attributable costs recognised through the statement of recognised income of completion and costs to be incurred in the marketing, and expense is subject to a number of assumptions and selling and distribution. Net realisable value includes, where uncertainties. The calculated liabilities of the scheme are necessary, provisions for slow moving and damaged inventory. based on assumptions regarding salary increases, inflation The provision represents the difference between the cost rates, discount rates, the long term expected return on the of stock and its estimated net realisable value, based on scheme’s assets and member longevity. Such assumptions ageing. Calculation of these provisions requires judgements are based on actuarial advice and are benchmarked against to be made which include forecast consumer demand, the similar pension schemes. promotional, competitive and economic environment and inventory loss trends. Taxation Corporate Governance Tax laws that apply to the Group’s businesses may be Provisions and accruals for onerous leases amended by the relevant authorities, for example as a result If the Group vacates a store or other property prior to of changes in fiscal circumstances or priorities. Such potential the expiry of the related lease, or a lease forms part of a amendments and their application to the Group are regularly separate CGU whereby the carrying value of that CGU is monitored and the requirement for recognition of any liabilities not considered supportable, it records a provision or accrual assessed where necessary. The Group is subject to income for the expected lease payments that the Group will incur taxes in a number of different jurisdictions and judgement prior to assignment or sublease of the property. Such a is required in determining the appropriate provision for calculation requires a judgement as to the timing and duration transactions where the ultimate tax determination is uncertain. of the expected vacancy periods and the amount and timing In such circumstances, the Group recognises liabilities for of future potential sublease income. When making these anticipated taxes due based on best information available judgements, the directors consider a number of factors, and where the anticipated liability is probable and estimable. including the landlord, the location and condition of the

Where the final outcome of such matters differs from the Financial Statements property, the terms of the lease, the specific marketplace amounts initially recorded, any differences will impact the demand and the economic environment. income tax and deferred tax provisions in the period to which Goodwill, intangible assets and property, plant & such determination is made. Where the potential liabilities are equipment impairment reviews not considered probable, the amount at risk is disclosed Goodwill is required to be valued annually to assess the unless an adverse outcome is considered remote. requirement for potential impairment. Other assets are Deferred tax is recognised on taxable losses based on assessed on an ongoing basis to determine whether the expected ability to utilise such losses. This ability takes circumstances exist that could lead to the conclusion account of the business plans for the relevant companies, that the carrying value of such assets is not supportable. potential uncertainties around the longer term aspects of Impairment testing on goodwill is carried out in accordance these business plans, any expiry of taxable benefits and with the analyses described in note 9. Such calculations

potential future volatility in the local tax regimes. Information for Shareholders require judgement relating to the appropriate discount factors and long term growth prevalent in a particular market as well as short and medium term business plans. The directors draw upon experience as well as external resources in making these judgements.

DSG international plc Annual Report and Accounts 2008/09 73 Financial Statements Notes to the Financial Statements continued

1 Accounting policies continued 2 Segmental analysis 1.20 New accounting standards and interpretations The Group’s operating segments have been determined During the period, the following new standards, and based on the information reported to the Board. This amendments to existing standards, which are applicable information is predominantly based on geographical areas to the Group were published, but do not become effective which are either managed separately or have similar trading until future accounting periods. characteristics such that they can be aggregated together into one segment and in the case of e-commerce, as a business The following are effective for the financial year ending area with geographical territories aggregated. Accounting 1 May 2010: policies for each operating segment are the same as those ■ IAS 1 ‘Revised Presentation of Financial Statements’. for the Group as described in note 1. The Group evaluates This revises the presentation of non-owner changes each operating segment based on underlying operating in equity and introduces a statement of comprehensive profits which excludes those items described in note 1.1. income. It is not expected to have an impact on the On 18 May 2009 the Group disposed of its operations in net results, net assets or disclosures of the Group; Hungary to EW Electro Retail Limited for consideration of ■ IAS 23 ‘Revised Borrowing Costs’. This removes the option €1 and, accordingly, has classified its assets and liabilities of immediately recognising as an expense borrowing costs as held for sale owing to the sale being highly probable that relate to assets that take a substantial time to prepare under the definitions stipulated in IFRS 5 ‘Non-current Assets for use. It requires an entity to capitalise borrowing costs as Held for Sale and Discontinued Operations’. As a result of part of the costs of such assets. It is not expected that this the sale, the business has been classified as discontinued will have a material impact on the net results or net assets and the prior periods have been re-presented on a consistent of the Group; and basis. Hungary was previously shown within the Other International division. ■ Amendment to IFRS 2 ‘Share-based Payments: Vesting Conditions and Cancellations’. This restricts the definition All segments are involved in the multi-channel sale of high of vesting conditions to include service and performance technology consumer electronics, personal computers, conditions only. All other features are not vesting conditions domestic appliances, photographic equipment, communication and must be reflected in the grant date fair value. It specifies products and related financial and after-sales services. The that all cancellations should receive the same accounting principal categories of customer are retail, business to treatment. This is expected to impact the accounting for business and online. Save As You Earn (SAYE) share plans, for example. It is The Group’s reportable segments have been identified as effective for periods beginning on or after 1 January 2009. UK & Ireland, Nordics, Other International and e-commerce. The Group is currently assessing the impact of this amendment on the Group’s net results and net assets. ■ the UK & Ireland division comprises UK & Ireland Electricals (which consists of Currys, Currys.digital, Dixons Travel and The following is effective for the financial year ending the Irish business) and UK Computing (which consists of 30 April 2011: PC World and DSGi Business), both of which are engaged ■ IFRS 3 ‘Revised Business Combinations’ and IAS 27 predominantly in retail sales with the latter also engaging ‘Revised Consolidated and Separate Financial Statements’. in business to business sales of computer hardware and IFRS 3 Revised introduces a number of changes in the software, associated peripherals and services and related accounting for business combinations that will impact financial and after-sales services; the amount of goodwill recognised, the reported results ■ the Nordics division comprises the Elkjøp Group which in the period that an acquisition occurs and the future operates in Norway, Sweden, Finland, Denmark, Iceland, reported results. IAS 27 Revised requires that a change Greenland and the Faroe Islands. The Nordics division in the ownership interest of a subsidiary is accounted for engages predominantly in retail sales; as an equity transaction. These changes must be applied prospectively and will affect future acquisitions and ■ the Other International division comprises operations in transactions with minority interests. The revised standards Central and Southern Europe. Central Europe comprises are effective for periods beginning on or after 1 July 2009. Electro World, operating in the Czech Republic, Poland and It is not expected that this will have a material impact on Slovakia whilst Southern Europe operates in Italy, Greece, the net results or net assets of the Group, however, it may Spain and Turkey. The Other International division engages impact acquisitions in the future. predominantly in retail sales; and Certain other amendments to existing standards and ■ the e-commerce division, primarily comprising PIXmania interpretations were issued during the period which either and Dixons.co.uk, is engaged in online retail sales and do not apply to the Group or are not expected to have any operates in all of the countries in which the other divisions material effect. operate and across Europe.

74 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Businesses to be closed comprise Markantalo and PC City Sweden whereby their closures were announced on 31 March 2009 and 23 March 2009, respectively. Owing to their closure rather than disposal, these operations do not meet the definition of discontinued operations as stipulated by IFRS 5. Their results have been shown as businesses to be closed and prior year comparatives have been re-presented on a consistent basis. Both businesses were previously shown within underlying results as part of the Nordics division. Performance Review (a) Income statement 52 weeks ended 2 May 2009 External Intersegmental Underlying Total revenue revenue Revenue profit / (loss) (loss) / profit £million £million £million £million £million UK & Ireland 4,228.6 84.2 4,312.8 58.7 (17.0) Nordics 1,762.8 1.1 1,763.9 72.5 14.2 Other International 1,565.8 2.3 1,568.1 (29.3) (59.4) e-commerce 807.4 0.4 807.8 15.0 11.7 Eliminations – (88.0) (88.0) – – 8,364.6 – 8,364.6 116.9 (50.5) Share of post-tax result of associates 3.6 3.6

Operating profit / (loss) before central costs and property losses 120.5 (46.9) Strategic Summary Central costs (25.0) (39.2) Property losses (18.1) (18.1) Operating profit / (loss) 77.4 (104.2) Finance income 69.6 101.8 Finance costs (96.5) (138.0) Profit / (loss) before tax for the period 50.5 (140.4)

External revenue for the Nordics includes £137.6 million relating to businesses to be closed. Reconciliation of underlying profit / (loss) to total (loss) / profit 52 weeks ended 2 May 2009 Amortisation Business Corporate Governance Underlying Businesses of acquired Restructuring impairment Net fair value Total profit / (loss) to be closed intangibles and other charges remeasurements (loss) / profit £million £million £million £million £million £million £million UK & Ireland 58.7 – (0.4) (43.0) (32.3) – (17.0) Nordics 72.5 (12.2) (0.5) – (45.6) – 14.2 Other International (29.3) – (0.7) – (29.4) – (59.4) e-commerce 15.0 – (3.3) – – – 11.7 116.9 (12.2) (4.9) (43.0) (107.3) – (50.5) Share of post-tax result of associates 3.6–––––3.6 Operating profit / (loss) before central costs and property losses 120.5 (12.2) (4.9) (43.0) (107.3) – (46.9) Central costs (25.0) – – (14.2) – – (39.2) Property losses (18.1) –––––(18.1) Financial Statements Operating profit / (loss) 77.4 (12.2) (4.9) (57.2) (107.3) – (104.2) Finance income 69.6 ––––32.2 101.8 Finance costs (96.5) (1.9) – – – (39.6) (138.0) Profit / (loss) before tax for the period 50.5 (14.1) (4.9) (57.2) (107.3) (7.4) (140.4)

Share of post-tax result of associates relates to the Nordics. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 75 Financial Statements Notes to the Financial Statements continued

2 Segmental analysis continued (a) Income statement 53 weeks ended 3 May 2008 Re-presented External Intersegmental Underlying Total revenue revenue Revenue profit / (loss) profit / (loss) £million £million £million £million £million UK & Ireland 4,745.7 34.7 4,780.4 156.7 144.8 Nordics 1,618.7 1.4 1,620.1 91.5 56.2 Other International 1,471.3 3.5 1,474.8 (17.6) (360.8) e-commerce 652.3 1.9 654.2 7.5 4.7 Eliminations – (41.5) (41.5) – – 8,488.0 – 8,488.0 238.1 (155.1) Share of post-tax result of associates 6.2 6.2 Operating profit / (loss) before central costs and property losses 244.3 (148.9) Central costs (24.4) (34.8) Property losses (7.3) (7.3) Operating profit / (loss) 212.6 (191.0) Profit on sale of investment – 1.7 Finance income 93.9 105.7 Finance costs (80.9) (100.5) Profit / (loss) before tax for the period 225.6 (184.1)

External revenue for the Nordics includes £149.4 million relating to businesses to be closed. Reconciliation of underlying profit / (loss) to total profit / (loss) 53 weeks ended 3 May 2008 Re-presented Amortisation Net Business Underlying Businesses of acquired restructuring impairment Net fair value Profit on sale Total profit / (loss) to be closed intangibles charges charges remeasurements of investment (loss) / profit £million £million £million £million £million £million £million £million UK & Ireland 156.7 – (0.6) (11.3) – – – 144.8 Nordics 91.5 (14.3) (0.5) (0.6) (19.9) – – 56.2 Other International (17.6) – (0.5) 1.6 (344.3) – – (360.8) e-commerce 7.5 – (2.8) ––––4.7 238.1 (14.3) (4.4) (10.3) (364.2) – – (155.1) Share of post-tax result of associates 6.2 ––––––6.2 Operating profit / (loss) before central costs and property losses 244.3 (14.3) (4.4) (10.3) (364.2) – – (148.9) Central costs (24.4) – – (10.4) – – – (34.8) Property losses (7.3) ––––––(7.3) Operating profit / (loss) 212.6 (14.3) (4.4) (20.7) (364.2) – – (191.0) Profit on sale of investment ––––––1.71.7 Finance income 93.9 ––––11.8 – 105.7 Finance costs (80.9) (1.6) – – – (18.0) – (100.5) Profit / (loss) before tax for the period 225.6 (15.9) (4.4) (20.7) (364.2) (6.2) 1.7 (184.1)

Share of post-tax result of associates relates to the Nordics.

76 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(b) Geographical analysis Revenues are allocated to countries according to the entities’ country of domicile. Revenue generated by the UK business was £4,086.8 million (2007/08 £4,598.3 million). Revenue by destination is not materially different to that shown by domicile. Revenue from discontinued operations is shown in note 29.

Non-current assets comprise property, plant & equipment, goodwill, intangible assets, investments in associates and trade Performance Review and other receivables due in greater than one year. Non-current assets held by the UK, Italy and PIXmania were £290.9 million (2007/08 £330.7 million), £184.5 million (2007/08 £163.6 million), and £251.7 million (2007/08 £222.3 million), respectively. Non-current assets held by the Nordics were £738.2 million (2007/08 £730.2 million) and predominantly comprises goodwill (as disclosed in note 9) which has not been allocated to individual countries. (c) Balance sheet 52 weeks ended 2 May 2009 Segment Investment Total Segment assets in associates segment assets liabilities Net assets £million £million £million £million £million UK & Ireland 3,386.7 – 3,386.7 (3,003.0) 383.7 Nordics 998.3 29.8 1,028.1 (515.1) 513.0 Other International 684.7 – 684.7 (1,391.4) (706.7)

e-commerce 387.0 – 387.0 (346.3) 40.7 Strategic Summary Central 3,038.5 – 3,038.5 (2,683.1) 355.4 Eliminations (4,879.3) – (4,879.3) 4,879.3 – Continuing operations 3,615.9 29.8 3,645.7 (3,059.6) 586.1 Discontinued operations 13.2 – 13.2 (14.4) (1.2) 3,629.1 29.8 3,658.9 (3,074.0) 584.9

53 weeks ended 3 May 2008 Re-presented Segment Investment Total Segment assets in associates segment assets liabilities Net assets £million £million £million £million £million UK & Ireland 3,090.3 – 3,090.3 (2,673.1) 417.2 Corporate Governance Nordics 991.8 29.3 1,021.1 (571.4) 449.7 Other International 718.4 – 718.4 (1,311.4) (593.0) e-commerce 321.3 – 321.3 (294.6) 26.7 Central 2,799.1 – 2,799.1 (2,251.0) 548.1 Eliminations (4,114.7) – (4,114.7) 4,114.7 – Continuing operations 3,806.2 29.3 3,835.5 (2,986.8) 848.7 Discontinued operations 21.3 – 21.3 (16.5) 4.8 3,827.5 29.3 3,856.8 (3,003.3) 853.5

Central assets and liabilities predominantly comprise intersegment balances, cash & cash equivalents, borrowings, net retirement benefit obligations, derivative financial instruments and tax assets and liabilities. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 77 Financial Statements Notes to the Financial Statements continued

2 Segmental analysis continued (d) Other information 52 weeks ended 2 May 2009 Capital expenditure Intangible Property, plant Share-based assets & equipment Depreciation Amortisation payment charge £million £million £million £million £million UK & Ireland 7.8 46.4 72.8 15.7 1.0 Nordics 4.9 20.9 20.8 5.0 – Other International 2.2 29.3 25.6 3.1 0.2 e-commerce 1.9 3.9 2.4 4.8 – Central 15.1 4.6 1.2 0.4 0.6 Continuing operations 31.9 105.1 122.8 29.0 1.8 Discontinued operations 0.1 0.1 1.0 0.1 – 32.0 105.2 123.8 29.1 1.8

53 weeks ended 3 May 2008 Re-presented Capital expenditure Intangible Property, plant Share-based assets & equipment Depreciation Amortisation payment credit £million £million £million £million £million UK & Ireland 7.5 31.7 76.3 15.4 (2.5) Nordics 5.0 31.9 16.6 3.1 (0.5) Other International 3.8 50.1 23.3 2.4 (0.5) e-commerce 4.3 3.0 2.2 5.4 – Central 26.4 0.2 2.3 4.1 (0.9) Continuing operations 47.0 116.9 120.7 30.4 (4.4) Discontinued operations 0.1 1.9 1.2 0.1 – 47.1 118.8 121.9 30.5 (4.4)

3 Revenue and operating (loss) / profit 52 weeks ended 2 May 2009 53 weeks ended 3 May 2008 Re-presented Non-underlying Non-underlying Businesses Businesses Underlying to be closed Other Total Underlying to be closed Other Total £million £million £million £million £million £million £million £million Revenue 8,227.0 137.6 – 8,364.6 8,338.6 149.4 – 8,488.0 Cost of sales (7,652.4) (149.8) (132.6) (7,934.8) (7,712.9) (163.7) (125.7) (8,002.3) Gross profit / (loss) 574.6 (12.2) (132.6) 429.8 625.7 (14.3) (125.7) 485.7 Distribution costs (205.4) – – (205.4) (178.7) – 6.7 (172.0) Administrative expenses (275.4) – (36.8) (312.2) (232.5) – (270.3) (502.8) Other operating charge (20.0) – – (20.0) (8.1) – – (8.1) (Loss) / profit from operations before associates 73.8 (12.2) (169.4) (107.8) 206.4 (14.3) (389.3) (197.2) Share of post-tax results of associates 3.6 – – 3.6 6.2 – – 6.2 Total operating (loss) / profit 77.4 (12.2) (169.4) (104.2) 212.6 (14.3) (389.3) (191.0)

Non-underlying items comprise amortisation of acquired intangibles of £4.9 million, included within administrative expenses (2007/08 £4.4 million), net restructuring and business impairment charges and other one-off items. 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 £14.5 million, £2.8 million and £6.9 million, respectively (2007/08 £15.2 million, £2.9 million and £8.0 million, respectively).

78 DSG international plc Annual Report and Accounts 2008/09 Business Overview

52 weeks ended 2 May 2009 53 weeks ended 3 May 2008 Re-presented Businesses Businesses Underlying to be closed Total Underlying to be closed Total £million £million £million £million £million £million Sale of goods 7,699.2 136.8 7,836.0 7,826.0 148.5 7,974.5 Performance Review Revenue from services 527.8 0.8 528.6 512.6 0.9 513.5 8,227.0 137.6 8,364.6 8,338.6 149.4 8,488.0

Revenue from services predominantly comprises those relating to customer support agreements, delivery and installation, product repairs and product support. 52 weeks ended 2 May 2009 53 weeks ended 3 May 2008 Re-presented Businesses Businesses Underlying to be closed Total Underlying to be closed Total £million £million £million £million £million £million Inventories recognised as an expense 5,995.5 101.9 6,097.4 6,030.1 117.8 6,147.9 Cost of inventory write-down 31.8 6.5 38.3 55.7 1.1 56.8 Rentals paid under operating leases: Plant and machinery 7.7 0.1 7.8 8.3 0.1 8.4 Strategic Summary Property – non-contingent rent 351.1 5.1 356.2 332.1 2.1 334.2 – contingent rent 11.8 – 11.8 16.9 – 16.9 Rentals received under operating leases: Property – subleases 10.7 – 10.7 11.7 – 11.7

52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Auditors’ remuneration: Audit services – Group financial statements 0.5 0.4 – subsidiary financial statements 0.8 0.7 Corporate Governance Total audit fees 1.3 1.1 Non-audit services pursuant to legislation 0.1 0.2 Corporate finance services – in capacity as auditors 1.2 – – other 2.7 – Tax services 0.7 0.3 Total fees paid to the auditors 6.0 1.6

Auditors’ remuneration in respect of corporate finance services comprises those activities carried out in the capacity as reporting accountants in respect of the Placing and Rights Issue are described in note 35. Other corporate finance services which relate to businesses disposed, aborted disposals together with fees associated with the refinancing are described in note 17. Fees in respect of corporate finance services for disposal of businesses has been charged against costs of disposal. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 79 Financial Statements Notes to the Financial Statements continued

4 Non-underlying items 52 weeks ended 2 May 2009 53 weeks ended 3 May 2008 Re-presented Businesses Businesses to be closed Other Total to be closed Other Total Note £million £million £million £million £million £million Included in operating profit: Businesses to be closed (i) (12.2) – (12.2) (14.3) – (14.3) Amortisation of acquired intangibles – (4.9) (4.9) – (4.4) (4.4) Net restructuring charges (ii) – (59.1) (59.1) – (20.7) (20.7) Net business impairment charges (iii) – (107.3) (107.3) – (364.2) (364.2) Other items (iv) – 1.9 1.9 ––– (12.2) (169.4) (181.6) (14.3) (389.3) (403.6) Included in net finance charges: Businesses to be closed (1.9) – (1.9) (1.6) – (1.6) Profit on sale of investment (v) –––– 1.7 1.7 Net fair value remeasurements of financial instruments (vi) – (7.4) (7.4) – (6.2) (6.2) (1.9) (7.4) (9.3) (1.6) (4.5) (6.1) Total impact on (loss) / profit before tax (14.1) (176.8) (190.9) (15.9) (393.8) (409.7) Included in income tax expense: Businesses to be closed 2.7 – 2.7 4.2 – 4.2 HMRC settlement (vii) – (52.7) (52.7) ––– Other non-underlying items – 27.5 27.5 – (3.0) (3.0) 2.7 (25.2) (22.5) 4.2 (3.0) 1.2 Total impact on (loss) / profit after tax (11.4) (202.0) (213.4) (11.7) (396.8) (408.5)

Notes: (i) Businesses to be closed: Comprises the operating activities of PC City Sweden and Markantalo whereby the announcement of the closure of these chains of stores was announced on 23 March 2009 and 31 March 2009, respectively. The chains were subsequently closed on 10 May 2009 and 20 May 2009, respectively. (ii) Net restructuring charges: Property Property (charges) / Asset Other disposal gains credit impairments charges Total £million £million £million £million £million 52 weeks ended 2 May 2009 Strategic reorganisation – (3.9) (13.6) (41.6) (59.1)

53 weeks ended 3 May 2008 Strategic reorganisation – (0.7) (21.8) (7.0) (29.5) Distribution network transformation 12.3 (5.6) – – 6.7 PC City France closure 3.3 2.1 – (3.3) 2.1 15.6 (4.2) (21.8) (10.3) (20.7)

Net restructuring charges relate predominantly to the renewal and transformation of the UK business which has been focused mainly on the reformatting of the UK store portfolio and the reorganisation of the service offering. Property (charges) / credit comprise onerous lease costs and charges related to vacating properties. Asset impairments relate to intangible assets and items of property, plant & equipment which are to be eliminated from the business over a shorter period than their current useful expected lives and inventories. Impairments relating to intangible assets and property, plant & equipment comprise a combination of asset write offs and incremental accelerated depreciation charges associated with the economic useful life of these assets being shortened and for which incremental charges of £5.3 million (2007/08 £17.7 million) are expected to be incurred, spread over the next three financial periods. Other charges predominantly comprise employee severance and contract termination costs.

80 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(iii) Net business impairment charges: Property Other Goodwill Other asset credit / credit / impairment impairment (charges) (charges) Total £million £million £million £million £million

52 weeks ended 2 May 2009 Performance Review Italian business – – 12.4 6.4 18.8 Other businesses (10.2) (48.0) (58.9) (9.0) (126.1) (10.2) (48.0) (46.5) (2.6) (107.3)

53 weeks ended 3 May 2008 Italian business (246.2) (30.2) (51.9) (13.0) (341.3) Other businesses (15.7) (3.4) (3.8) – (22.9) (261.9) (33.6) (55.7) (13.0) (364.2)

The Italian business impairment credit relates to the reversal of charges incurred in prior periods whereby either liabilities have settled at lower amounts than those originally provided or in respect of properties which the Group has been able

to exit earlier than previously expected. Strategic Summary Other business impairments comprise businesses in the Nordics, Spain and Poland as well as stores in underperforming locations in the UK High Street. Goodwill impairment relates to the full write off of Markantalo in Finland following the announcement of the closure of this business. Other asset impairments comprise the brand name associated with Markantalo, other intangible assets, property, plant & equipment and inventory. Such impairments relate to assets in individual underperforming businesses whereby either the whole business is to be closed or which result from impairment reviews of certain businesses whereby either individual stores have been deemed impaired or are to be closed. Property charges comprise onerous lease costs and charges related to vacating properties. Property credits relate to onerous provisions set up in prior periods where such provisions have been determined to be no longer required. Other charges relate predominantly to employee severance. (iv) Other items relate to releases of unutilised provisions and settlement income received for claims for damages incurred following the Buncefield explosion in December 2005 and for which exceptional charges were incurred in the 2005/06 financial year.

(v) Profit on sale of investments: For 2007/08, related to the sale of a small minority shareholding which had been held at £nil Corporate Governance in the balance sheet. (vi) 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 is prepared). Also included within this amount are remeasurement losses relating to put options predominantly held by minority shareholders. Such a treatment is a form of revaluation gain or loss created by an assumption that the derivatives will be settled before their maturity. Such 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.

(vii) As announced on 27 February 2009, the Group has been in dispute with HMRC regarding settlement of certain intra-group Financial Statements trading arrangements in the years 1997 to 2005 as well as certain other matters. The Group reached an agreement in principle with HMRC regarding the settlement which was subsequently confirmed on 4 June 2009. The settlement amount exceeded the provision already held in the balance sheet and as a result a non-underlying income tax charge of £52.7 million has been recorded. The key elements of the agreement are such that a small proportion of the liability is not currently payable and the remainder has been offset against the income tax receivable which the Group held on its balance sheet such that no cash payment has been made in respect of this offset. The amount has been treated as non-underlying owing to its one-off non-recurring nature. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 81 Financial Statements Notes to the Financial Statements continued

5 Net finance income 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 Re-presented Note £million £million Profit on sale of investments * – 1.7 Bank and other interest receivable (ii) 21.8 45.7 Expected return on pension scheme assets 47.8 48.2 Fair value remeasurement gains on financial instruments * (iv) 32.2 11.8 Finance income 101.8 105.7

6.125% Guaranteed Bonds 2012 interest and related charges (18.3) (18.7) Bank loans, overdrafts and other interest payable: Underlying (iii) (24.1) (15.0) Businesses to be closed (1.9) (1.6) Finance lease interest payable * (6.9) (7.1) Interest on pension scheme liabilities (47.2) (40.1) Fair value remeasurement losses on financial instruments * (iv) (39.6) (18.0) Finance costs (138.0) (100.5)

Total net finance (costs) / income – continuing operations (36.2) 6.9

Underlying total net finance (costs) / income – continuing operations (i) (26.9) 13.0

(i) Underlying total net finance (costs) / income excludes items marked . See note 4 for a description of such items. Businesses to be closed comprise interest on bank loans and overdrafts. * (ii) Included within bank and other interest receivable are: 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Interest on cash and cash equivalents and short term investments 8.2 25.8 Exchange gains 10.2 – Remeasurement of financial instruments on an accruals basis 3.4 19.9 21.8 45.7

Included within the remeasurement of financial instruments are exchange gains of £5.1 million (2007/08 losses of £76.1 million) which is a natural offset for a £5.1 million charge (2007/08 £56.2 million charge) arising from financial instruments not in a formal designated hedging relationship under the rules stipulated by IAS 39. (iii) Included within bank loans, overdrafts and other interest payable are: 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Interest on bank loans and overdrafts (13.5) (4.1) Exchange losses – (2.6) Remeasurement of financial instruments on an accruals basis (10.6) (8.3) (24.1) (15.0)

Included within the remeasurement of financial instruments, is a £8.2 million charge (2007/08 £5.2 million charge) which is not in a designated hedging relationship under the rules stipulated by IAS 39. (iv) Fair value remeasurement gains and losses include gains of £4.2 million (2007/08 £5.9 million) and losses £11.5 million (2007/08 £12.4 million) which are not in a designated hedging relationship under the rules stipulated by IAS 39. (v) Interest income of £8.2 million (2007/08 £25.8 million) and cost of £30.9 million (2007/08 £31.9 million) is included within net finance (costs) / income relating to assets and liabilities respectively not held at fair value through the income statement.

82 DSG international plc Annual Report and Accounts 2008/09 Business Overview

6 Employees Staff costs for the period were: 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Performance Review Wages and salaries 647.9 685.7 Social security costs 86.3 95.2 Other pension costs 17.3 20.4 751.5 801.3

The average number of employees, including part time employees, was: Number Number Re-presented UK & Ireland 22,978 25,612 Nordics 5,966 5,874 Other International 8,160 7,368 e-commerce 1,213 1,365

Corporate centre and shared services 143 130 Strategic Summary Continuing operations 38,460 40,349 Discontinued operations 414 381 38,874 40,730

7 Taxation (a) Income tax expense 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Current tax Corporate Governance UK corporation tax at 28% (2007/08 29.84%) 0.2 (0.2) Credit in respect of non-underlying items * – (3.6) 0.2 (3.8) Double tax relief (0.2) (0.1) – (3.9) Overseas taxation – underlying 24.2 36.9 – businesses to be closed (1.1) (3.8) Credit in respect of non-underlying items * (3.1) – Adjustment in respect of earlier periods: * UK corporation tax – underlying 6.8 (16.1) – non-underlying 52.7 – Overseas taxation * (5.3) 2.9 Financial Statements 74.2 16.0 Deferred tax Current period – underlying 9.6 30.0 – businesses to be closed (2.5) (0.4) (Credit) / charge in respect of non-underlying items * (24.4) 6.6 Adjustment in respect of earlier periods: * UK corporation tax – underlying 1.6 9.3 Overseas taxation – underlying (2.6) 4.5 – businesses to be closed * 0.9 – (17.4) 50.0 Information for Shareholders Income tax expense – continuing operations 56.8 66.0

Underlying income tax expense – continuing operations 34.3 67.2

Underlying income tax expense excludes those items marked . The UK corporation tax rate for the 53 weeks ended 3 May 2008 was 30% for the period up to 31 March 2008 and 28% thereafter.* Tax relating to discontinued operations is included in note 29.

DSG international plc Annual Report and Accounts 2008/09 83 Financial Statements Notes to the Financial Statements continued

7 Taxation continued (a) Income tax expense continued As announced on 27 February 2009, the Group has been in dispute with HMRC regarding settlement of certain historical intra- group trading arrangements in the years 1997 to 2005 as well as certain other matters. The Group reached an agreement in principle with HMRC regarding the settlement which was subsequently confirmed on 4 June 2009. The settlement amount exceeded the provision already held in the balance sheet and therefore a non-underlying income tax charge of £52.7 million has been recorded in current tax. This charge is in addition to the tax effects applied to the net non-underlying charges before tax described in note 4 and has been treated as non-underlying owing to its one-off non-recurring nature. A reconciliation of the notional to the actual income tax expense is set out below: 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 Re-presented Note £million £million Loss before tax – continuing operations (140.4) (184.1) – discontinued operations 29 (22.1) (7.8) (162.5) (191.9)

Tax on loss at UK statutory rate of 28% (2007/08 29.84%) (45.5) (57.3) Non-qualifying depreciation 2.9 11.0 Differences in effective overseas taxation rates 3.7 (25.2) Non-deductible charges 2.6 (3.9) Non-taxable gains on property disposals 2.4 (1.8) Non-taxable other gains – underlying (0.3) (5.0) Non-deductible losses – non-underlying 8.9 127.5 Overseas deferred tax not recognised – continuing operations 19.2 17.6 – discontinued operations 1.6 2.6 Adjustment in respect of earlier periods – underlying 0.5 0.6 – non-underlying 53.6 – Non-deductible loss on discontinued operations 4.6 0.5 Other differences 2.6 1.2 Income tax expense – total 56.8 67.8 Expense attributable to discontinued operations 29 – (1.8) Income tax expense – continuing operations 56.8 66.0

The effective tax rate on underlying earnings of 68% (2007/08 30%) is expected to fall in future periods due mainly to unrecognised losses starting to form a lower proportion of net profits / (losses). The Group has total unrecognised deferred tax assets relating to tax losses of £96.3 million (2007/08 £57.1 million), of which £8.8 million (2007/08 £13.9 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 £87.5 million (2007/08 £43.2 million) for which the weighted average period over which they can be utilised is five years (2007/08 six years). In the 53 weeks ended 3 May 2008 the effect on the income statement of changes in tax rates resulted in an adjustment to deferred tax asset carrying values of £6.2 million which predominantly related to the UK and Italy.

84 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(b) Deferred tax Accelerated Retirement Losses Other capital benefit carried timing allowances obligations forward differences Total £million £million £million £million £million At 28 April 2007 (3.1) 21.4 18.2 26.8 63.3 Charged to income statement (0.8) (7.2) 5.2 (47.2) (50.0) Performance Review Credited directly to equity – 6.9 – 32.9 39.8 Currency retranslation – – 2.5 1.2 3.7 At 3 May 2008 (3.9) 21.1 25.9 13.7 56.8 Charged to income statement 22.3 (8.5) 0.5 3.1 17.4 Credited directly to equity – 32.6 – 20.8 53.4 Currency retranslation – – 3.5 (3.5) – At 2 May 2009 18.4 45.2 29.9 34.1 127.6

Summary of assets and liabilities as disclosed: 2009 2008 £million £million

Deferred taxation assets 150.3 75.6 Strategic Summary Deferred taxation liabilities (22.7) (18.8) 127.6 56.8

Analysis of deferred tax relating to items credited / (charged) directly to equity in the period: 2009 2008 £million £million Actuarial losses on defined benefit pension schemes 32.6 6.9 Share-based payments 0.2 (2.6) Net (gains) / losses on revaluation of cash flow hedges (0.5) 0.1 Unrealised losses on investments 0.3 0.3 Net losses on hedges of net investments 20.8 35.1 Corporate Governance 53.4 39.8

The recognition of trading losses carried forward is considered supportable due to the ability to offset losses against future profits. The Group has provided deferred tax of £0.8 million (2007/08 £0.4 million) in relation to temporary differences associated with investments in subsidiaries and the income tax consequences of paying dividends. In all other cases, the Group has determined that the undistributed profits of its subsidiaries will not be distributed in the foreseeable future. The deferred tax which has not been recognised for the taxes which would be payable on the undistributed earnings of the Group’s investment in subsidiaries is £27.8 million (2007/08 £27.3 million). 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 28%, is not less than £352.0 million (2007/08 £351.3 million). Where applicable, certain deferred tax assets and liabilities have been offset for financial Financial Statements reporting purposes. (c) Amounts charged to equity Aggregate current and deferred tax credited / (charged) to equity: 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 Note £million £million Current tax – share-based payments – (3.1) Deferred tax – share-based payments 7(b) 0.2 (2.6) – other items 7(b) 53.2 42.4 53.4 36.7 Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 85 Financial Statements Notes to the Financial Statements continued

8 (Loss) / earnings per share 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 Re-presented Note £million £million Basic and diluted (loss) / earnings Total (continuing and discontinued operations) (219.4) (260.8) Discontinued operations – loss after tax 29 22.1 9.6 Continuing operations (197.3) (251.2)

Adjustments Businesses to be closed 14.1 15.9 Amortisation of acquired intangibles 4.9 4.4 Net restructuring charges 59.1 20.7 Business impairment charges 107.3 364.2 Other items (1.9) – Profit on sale of investment – (1.7) Net fair value remeasurements of financial instruments 7.4 6.2 190.9 409.7 Tax on adjustments Businesses to be closed (2.7) (4.2) HMRC settlement 52.7 – Other non-underlying items (27.5) 3.0 22.5 (1.2) Total adjustments (net of taxation) 213.4 408.5

Underlying basic and diluted earnings 16.1 157.3

Million Million Basic weighted average number of shares 2,148.7 2,184.6 Employee share option and ownership schemes 3.1 5.8 Diluted weighted average number of shares 2,151.8 2,190.4

Pence Pence Basic (loss) / earnings per share Total (continuing and discontinued operations) (10.2) (11.9) Discontinued operations 1.0 0.4 Continuing operations (9.2) (11.5) Adjustments (net of taxation) 9.9 18.7 Underlying basic earnings per share 0.7 7.2

Diluted (loss) / earnings per share Total (continuing and discontinued operations) (10.2) (11.9) Discontinued operations 1.0 0.4 Continuing operations (9.2) (11.5) Adjustments (net of taxation) 9.9 18.7 Underlying diluted earnings per share 0.7 7.2

The weighted average number of shares used in the calculation for earnings per share information for all years presented in these financial statements has been multiplied by an adjustment factor to reflect the bonus element in the shares issued under the terms of the Rights Issue (as described in note 35). The adjustment factor used was 1.2138. Basic and diluted (loss) / earnings per share are based on the loss 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.

86 DSG international plc Annual Report and Accounts 2008/09 Business Overview

9 Goodwill 2009 2008 £million £million Cost At beginning of period 1,358.2 1,155.2 Additions 17.7 12.8 Performance Review Disposals (0.2) – Currency retranslation 127.0 190.2 At end of period 1,502.7 1,358.2 Impairment At the beginning of the period 373.9 98.1 Impairment charges 10.3 261.9 Currency retranslation 49.4 13.9 At end of period 433.6 373.9 Net book value at the end of period 1,069.1 984.3

Additions in the period relate mainly to the exercise of a put option held by a minority shareholder in Kotsovolos as described Strategic Summary further in note 23 and which resulted in a further 10% of Kotsovolos being acquired. As required by IFRS 3, goodwill is subject to annual impairment reviews. These reviews are carried out using the following criteria. An amount of goodwill is attributed to each specific acquisition. Such acquisitions are determined to be a cash generating unit (CGU) as determined by IAS 36 ‘Impairment of Assets’. The recoverable amount of each CGU is determined based on calculating its value in use. The value in use 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). The value in use is compared to the carrying amount in order to determine whether impairment has occurred. The impairment charge in the current year relates to Markantalo (2007/08 predominantly UniEuro and Markantalo) and arises as a result of the closure of this business which was announced on 31 March 2009. Corporate Governance The most significant components of goodwill relate to Elkjøp Nordic AS (Elkjøp), UniEuro S.p.A. (UniEuro) and PIXmania S.A.S. (PIXmania, formerly FotoVista S.A.S.). In addition to management’s five year projections, the key assumptions used in calculating value in use as well as the carrying values are: 2009 2008 Key assumptions for 2009 Key assumptions for 2008 Growth rate Pre-tax risk Carrying Growth rate Pre-tax risk Carrying beyond adjusted value beyond adjusted value five years discount rate £million five years discount rate £million Elkjøp 3.0% 11.0% 610.8 2.5% 11.4% 585.5 UniEuro 1.2% 12.3% 147.3 1.2% 12.7% 129.0 PIXmania 2.1% 13.2% 185.6 2.3% 13.7% 162.5

The growth rate beyond five years is based on 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 with a risk premium Financial Statements reflecting the relative risks in the markets in which the businesses operate. The five year projections, which have been approved by management, have been prepared using strategic plans which incorporate the relative performance of competitors and knowledge of the current market together with management’s views on the future achievable growth in market share, impact of the Renewal and Transformation plan and profitability over the longer term. In forming these views, management draws on past experience as a measure to forecast future performance. Key assumptions used in determining the forecasts comprise sales, costs and margins. Historical amounts for both the businesses under impairment review as well as from other parts of the Group are used to generate the values attributed to these assumptions. Achievable growth in market share takes into account the anticipated success of store offerings versus competitors as well as internal and external competitor intelligence. Sensitivities

A sensitivity analysis had been performed on the base case assumptions used for assessing the goodwill. The directors have Information for Shareholders concluded that in the case of Elkjøp there are no reasonably possible changes in key assumptions 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 key assumptions could occur over the course of the next financial period.

DSG international plc Annual Report and Accounts 2008/09 87 Financial Statements Notes to the Financial Statements continued

9 Goodwill continued UniEuro In respect of management’s five year projections, a decrease of 5% in the compound annual growth rate in pre-tax profits over this five year period would cause the current headroom of £5.6 million to erode by £2.3 million. A decrease in the growth rate beyond five years of 0.1% and an increase in the pre-tax adjusted discount rate of 0.1% would cause the headroom to erode by £1.5 million and £2.1 million, respectively. PIXmania In respect of management’s five year projections, a 1% decrease in compound annual growth rate in pre-tax profits over this five year period would cause the current headroom of £46.7 million to erode by £7.5 million. A decrease in the growth rate beyond five years of 0.1% and an increase in the pre-tax adjusted discount rate of 0.1% would cause the headroom to erode by £2.1 million and £3.3 million, respectively.

10 Intangible assets Software Software Acquired (externally (internally Sub-total intangibles acquired) generated) other intangibles Total £million £million £million £million £million Cost At 29 April 2007 70.4 81.2 78.0 159.2 229.6 Additions – 39.3 7.8 47.1 47.1 Disposals – (11.2) (22.0) (33.2) (33.2) Currency retranslation 8.2 0.5 3.9 4.4 12.6 At 3 May 2008 78.6 109.8 67.7 177.5 256.1 Additions – 30.9 1.1 32.0 32.0 Disposals – (9.0) (3.1) (12.1) (12.1) Transfers to assets held for sale – (0.3) – (0.3) (0.3) Currency retranslation 9.5 2.0 1.4 3.4 12.9 At 2 May 2009 88.1 133.4 67.1 200.5 288.6 Amortisation At 29 April 2007 7.9 54.7 39.3 94.0 101.9 Charge for the period – regular 4.4 15.1 10.3 25.4 29.8 – accelerated – 0.7 – 0.7 0.7 Non-underlying impairment – 3.3 6.6 9.9 9.9 Disposals – (11.2) (21.5) (32.7) (32.7) Currency retranslation 0.7 0.2 1.7 1.9 2.6 At 3 May 2008 13.0 62.8 36.4 99.2 112.2 Charge for the period – regular 4.9 14.0 9.5 23.5 28.4 – accelerated – 0.5 0.2 0.7 0.7 Non-underlying impairment 6.6 – – – 6.6 Disposals – (8.8) (2.1) (10.9) (10.9) Transfers to assets held for sale – (0.3) – (0.3) (0.3) Currency retranslation 1.6 1.3 0.6 1.9 3.5 At 2 May 2009 26.1 69.5 44.6 114.1 140.2 Carrying amount At 2 May 2009 62.0 63.9 22.5 86.4 148.4

At 3 May 2008 65.6 47.0 31.3 78.3 143.9

Acquired intangibles predominantly comprise brand names. Amortisation of intangibles comprises £29.0 million and £0.1 million (2007/08 £30.4 million and £0.1 million) relating to continuing and discontinued operations, respectively. Non-underlying impairment of acquired intangibles relates to the Markantalo brand as shown in note 4. Included within the carrying amount of brand names is £39.4 million and £18.0 million (3 May 2008 £37.3 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 12 years and 25 years, respectively.

88 DSG international plc Annual Report and Accounts 2008/09 Business Overview

11 Property, plant & equipment 2009 2008 Fixtures, Fixtures, Land and fittings and Land and fittings and buildings equipment Total buildings equipment Total £million £million £million £million £million £million Performance Review Cost At beginning of period 207.4 1,173.1 1,380.5 237.2 1,114.2 1,351.4 Additions 0.7 104.5 105.2 1.2 117.6 118.8 Disposals (6.3) (98.8) (105.1) (37.9) (108.5) (146.4) Transfers to assets held for sale – (12.9) (12.9) ––– Currency retranslation 3.2 41.1 44.3 6.9 49.8 56.7 At end of period 205.0 1,207.0 1,412.0 207.4 1,173.1 1,380.5 Depreciation At beginning of period 43.1 806.1 849.2 39.0 731.8 770.8 Charge for the period – regular 7.7 105.5 113.2 9.4 103.5 112.9 – accelerated – 10.6 10.6 – 9.0 9.0 Non-underlying impairment – 37.2 37.2 – 28.3 28.3 Strategic Summary Disposals (2.8) (92.4) (95.2) (5.0) (86.7) (91.7) Transfers to assets held for sale – (12.9) (12.9) ––– Currency retranslation 1.4 18.9 20.3 (0.3) 20.2 19.9 At end of period 49.4 873.0 922.4 43.1 806.1 849.2 Carrying amount at end of period 155.6 334.0 489.6 164.3 367.0 531.3

Included in carrying amount Land not depreciated 16.0 – 16.0 19.0 – 19.0 Assets in the course of construction 0.5 39.7 40.2 4.9 31.2 36.1 Assets held under finance leases 74.9 3.2 78.1 85.6 1.4 87.0

Non-underlying impairment includes £4.0 million relating to the Group’s Hungarian operations which have been transferred Corporate Governance to assets held for sale as described in note 29. Depreciation charged in the period comprises £122.8 million and £1.0 million (2007/08 £120.7 million and £1.2 million) relating to continuing and discontinued operations respectively. There were additions of £2.4 million to finance leases during the year (2007/08 none). The leased assets are pledged as security for the related finance lease liabilities.

12 Investments in associates 2009 2008 £million £million At beginning of period 29.3 21.8 Share of profit after tax 3.6 6.2 Dividends (4.9) (2.3)

Currency retranslation 1.8 3.6 Financial Statements 29.8 29.3

Comprising: F-Group (40%) 28.0 26.0 Other 1.8 3.3 29.8 29.3 Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 89 Financial Statements Notes to the 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 are as follows: 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Income statement Revenue 203.4 219.1 Profit after tax 7.9 14.2

2009 2008 £million £million Balance sheet Assets 67.5 59.1 Liabilities (26.6) (20.5) Net assets 40.9 38.6

Other associated undertakings comprise shareholdings in several different enterprises in the Nordic region, none of which are significant.

13 Inventories 2009 2008 Note £million £million Finished goods and goods for resale 1,038.3 1,165.7 Provision for obsolete and slow moving goods (56.0) (62.4) Non-underlying impairment 4 (10.4) (10.2) 971.9 1,093.1

14 Trade and other receivables 2009 2008 Current Non-current Current Non-current Note £million £million £million £million Trade debtors 293.2 13.8 276.8 5.8 Provision for bad and doubtful debts (24.0) (2.1) (25.1) – 269.2 11.7 251.7 5.8 Derivative financial instruments 22 4.5 30.3 7.4 0.5 Other debtors 103.9 22.8 50.4 32.7 Prepayments 66.4 3.7 55.0 1.8 Accrued income 64.2 – 78.4 9.0 508.2 68.5 442.9 49.8

The majority of trade and other receivables are non-interest bearing and are generally on 30 to 90 day terms. The balance comprises both business to business receivables and consumer credit receivables with no material individual balances. The total financial assets included within trade and other receivables are £497.9 million (3 May 2008 £453.1 million). The carrying amount of trade and other receivables approximates fair value with no concentration of credit risk. Included in other debtors is £9.0 million (3 May 2008 £18.0 million) which is secured by bank guarantee. Also included in other debtors is £11.7 million (3 May 2008 £nil) relating to a Norwegian VAT debtor which is the subject of a dispute but is not provided against as described further in note 31.

90 DSG international plc Annual Report and Accounts 2008/09 Business Overview

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: 2009 2008 £million £million Up to six months past due 79.4 64.2 Six to 12 months past due 6.0 14.0 Performance Review Over 12 months past due 5.7 2.0 91.1 80.2

Movements on the provision for bad and doubtful debts are as follows: 2009 2008 £million £million At beginning of period 25.1 15.6 Charge for the year 15.7 21.7 Utilisation of provision (16.0) (12.2) Currency retranslation 1.3 – At end of period 26.1 25.1 Strategic Summary The Group does not hold any collateral as security over the receivables balances.

15 Short term investments 2009 2008 £million £million Floating rate notes 9.0 64.0 Commercial paper – 18.0 9.0 82.0

Floating rate notes have a nominal value of £10.4 million (3 May 2008 £63.7 million), an effective yield of 1.88%, (3 May 2008 6.02%) and have an average expected maturity of 1.5 years (3 May 2008 0.9 years). Corporate Governance In 2007/08, commercial paper had an average maturity 53 days and an average effective yield of 6.01%. The carrying amount of commercial paper approximated its fair value. Short term investments include amounts which, together with certain cash and cash equivalents, are held under trust to fund customer support agreement liabilities as disclosed in note 27.

16 Cash and cash equivalents 2009 2008 £million £million Cash at bank 88.0 225.1 Money market deposits 104.6 140.7 192.6 365.8 Financial Statements 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 16 days (3 May 2008 22 days) and earn interest at an average effective rate of 1.04% (3 May 2008 4.44%). The carrying amount of money market deposits approximates their fair value. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 91 Financial Statements Notes to the Financial Statements continued

17 Borrowings 2009 2008 £million £million Current Bank overdrafts 4.8 2.1 Other borrowings 250.1 0.2 254.9 2.3

Non-current 6.125% Guaranteed Bonds 2012 322.4 294.6 Other borrowings 0.1 – 322.5 294.6

Bank overdrafts are repayable on demand. The weighted average effective interest rate on bank overdrafts approximates 3.7% (3 May 2008 5.0%). Current borrowings include £250 million (3 May 2008 £nil million) which has been drawn down under the £400 million sterling committed facility (the Facility) at a weighted average effective yield of 4.88%. These borrowings have an average maturity of 62 days and are eligible for renewal under the terms of the Facility. The Facility has a maturity date of October 2011. On 30 April 2009, the terms of the Facility were revised such that interest margin was increased, additional guarantees are required to be given by certain subsidiaries within the Group, the financial covenants were amended, and a new capital expenditure covenant added. In addition, mandatory prepayment events, representations, other financial covenants, events of default and conditions on the payment of dividends have also been included. Interest on drawn amounts from this date is payable at LIBOR plus a margin of 3.75%. The commitment fee on undrawn amounts is 1.875%. A utilisation fee of 0.5% is payable on drawings greater than £200 million but less than £300 million and a rate of 1.5% on drawings greater than £300 million. At 2 May 2009 and 3 May 2008 the available undrawn amount of the Facility, which expires after more than one year but no more than five years, was £150.0 million and £400 million, respectively. In the 53 weeks ending 3 May 2008, other borrowings included bank loans, which had a weighted average effective yield of 1.94% and an average maturity of 0.5 years. The carrying amount of current borrowings and overdrafts approximates their fair value. The 6.125% Guaranteed Bonds 2012 (the Bonds) are denominated in sterling with a nominal value of £300 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 Bonds may be redeemed in whole or in part at their principal amount plus accrued interest by DSG international plc by providing 30 to 60 days’ notice to the bondholder. The Bonds may also be purchased in the open market by any company within the Group. In either circumstance, the Bonds and any unmatured coupons will be cancelled and may not be re-issued or re-sold. The value of the Bonds excludes accrued interest of £8.4 million (3 May 2008 £8.6 million), included in trade and other payables. Further details of the Bonds are included in note 22.

92 DSG international plc Annual Report and Accounts 2008/09 Business Overview

18 Obligations under finance leases 2009 2008 Present value Present value Minimum of minimum Minimum of minimum lease payments lease payments lease payments lease payments £million £million £million £million Performance Review Amounts payable under finance leases: Within one year 10.0 8.6 8.3 7.8 In more than one year and not more than five years 33.9 25.2 32.5 26.2 In more than five years 167.6 67.9 176.1 66.8 211.5 101.7 216.9 100.8 Less future finance charges (109.8) – (116.1) – Present value of lease obligations 101.7 101.7 100.8 100.8 Less amounts due within one year (2.8) (2.8) (1.5) (1.5) Amounts due after more than one year 98.9 98.9 99.3 99.3

The majority of finance leases relate to properties in the UK where obligations are denominated in sterling and lease terms vary between 16 and 27 years. The effective borrowing rate on individual leases ranged between 5.61% and 8.34% (3 May 2008 Strategic Summary between 5.61% and 8.34%). 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 at 2 May 2009 was £0.8 million (3 May 2008 £0.8 million). The fair value of the Group’s lease obligations approximates their carrying amount.

19 Trade and other payables 2009 2008 Current Non-current Current Non-current Note £million £million £million £million

Trade creditors 988.7 – 1,191.9 – Corporate Governance Other taxation and social security 100.2 – 91.7 – Derivative financial instruments 22 38.4 104.0 75.6 75.3 Other creditors 120.8 2.3 188.9 15.1 Accruals 193.4 84.8 280.2 71.4 Deferred income – customer support agreements 162.2 175.0 192.5 200.9 Deferred income – other 60.8 3.7 19.3 2.7 1,664.5 369.8 2,040.1 365.4

Included in other creditors and accruals is £nil relating to put options (3 May 2008 £22.8 million) and £97.4 million (3 May 2008 £120.2 million) relating to other non-financial liabilities. The total financial liabilities included in trade and other payables is £1,292.6 million (3 May 2008 £1,604.5 million). The carrying amount of trade and other payables approximates their fair value. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 93 Financial Statements Notes to the Financial Statements continued

20 Provisions 2009 2008 Property Severance Property Severance related and other Total related and other Total £million £million £million £million £million £million At beginning of period 80.3 17.0 97.3 33.2 17.9 51.1 Additions 74.6 51.0 125.6 63.5 20.1 83.6 Utilisation (46.1) (39.8) (85.9) (16.5) (20.7) (37.2) Credited to income statement – non-underlying (12.4) (7.5) (19.9) (1.1) (1.0) (2.1) Transfers to liabilities directly associated with assets held for sale (10.1) (1.1) (11.2) ––– Currency retranslation 5.6 1.0 6.6 1.2 0.7 1.9 At end of period 91.9 20.6 112.5 80.3 17.0 97.3

Analysed as: Current 51.5 20.6 72.1 29.2 17.0 46.2 Non-current 40.4 – 40.4 51.1 – 51.1 91.9 20.6 112.5 80.3 17.0 97.3

Additions during the period relate to restructuring and business impairment charges which are described further in note 4. The majority of additions during the year relate to costs associated with the impairment of the Group’s Italian business. Property related provisions mainly comprise onerous lease contracts. Included in utilisation is £3.2 million relating to the Group’s Hungarian operations which have been treated as discontinued. Of the amounts included within non-current provisions at 2 May 2009, the majority are expected to be utilised within the next five years.

21 Retirement and other post-employment benefit obligations 2009 2008 Note £million £million

Retirement benefit obligations – UK 21(b)-(d) (148.8) (51.0) – Nordics (4.2) (3.0) (153.0) (54.0)

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. Membership of the defined contribution section is offered to eligible employees. In the Nordic region, 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 £0.9 million (2007/08 £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 £5.4 million (2007/08 £5.1 million).

94 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(b) UK defined benefit pension scheme – actuarial valuation and assumptions A full actuarial valuation of the scheme was last carried out as at 5 April 2007 using the projected unit method and has been used to determine the level of funding to the scheme. The Group’s contribution rate for the period ended 2 May 2009, agreed in consultation with the trustees’ actuaries, was 12.5% per annum of pensionable salaries (2007/08 12.6%) with the reduction representing a change in the mix of contributions between different sections of the scheme. The contribution rate for future Performance Review periods is currently planned to remain at this level, however a ‘recovery plan’ has been agreed with the trustee whereby the Company makes twice yearly contributions of £6.0 million which commenced in June 2008 and end in December 2012. Since April 2007, the scheme has operated on a career average revalued earnings arrangement where benefits are earned for each year of pensionable service as opposed to being calculated with reference to salary near to date of retirement. The principal actuarial assumptions as at 5 April 2007 used for determining costs and contributions were: Rate per annum Discount rate for accrued benefits – pre retirement 6.6% – post-retirement 5.2% Rate of increase in pensionable salaries – up to April 2010 3.5% – thereafter 4.5% Rate of increase to pensions – Guaranteed Minimum Pension 3.0% – pension in excess of Guaranteed Minimum Pension 2.5-3.75%

Inflation 3.0% Strategic Summary Expected return on assets 6.5%

At 5 April 2007, the market value of the scheme’s investments was £688 million and, based on the above assumptions, the value of the assets was sufficient to cover 92% of the benefits accrued to members after allowing for expected future increases in earnings. The value of liabilities exceeded assets by £61.0 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 2009 2008 Corporate Governance Rates per annum Discount rate 6.7% 6.5% Rate of increase in pensionable salaries – up to April 2010 3.8% 4.1% – thereafter 4.3% 5.1% Rate of increase in pensions in payment / deferred pensions 3.3% 3.6% Inflation 3.3% 3.6%

The Group uses certain demographic assumptions when calculating scheme obligations which are those underlying the last formal actuarial valuation of the scheme as at 5 April 2007. In particular, post-retirement mortality has been assumed to follow the standard tables PA92 projected to calendar year 2008 in line with the ‘medium cohort’ factors set out in CMI working paper 1: ‘interim basis for adjusting the “92” series mortality projections for cohort effects’, with an allowance for future mortality improvement in line with medium cohort projection factors. Such tables represent an average expected longevity of 87 years

for men and 89.9 years for women (3 May 2008 85.2 years for men and 88.3 years for women) for those becoming 65 at the Financial Statements measurement date and an extra one year of longevity for both men and women becoming 65 in 15 years’ time. (ii) Amounts recognised in income statement 2009 2008 £million £million Current service cost (charged to underlying operating profit) (6.3) (9.3) Expected return on plan assets 47.8 48.2 Interest cost on benefit obligations (47.2) (40.1) Net other finance income 0.6 8.1 Total charged to profit before tax (5.7) (1.2) Information for Shareholders Excluding contributions relating to the recovery plan described in (b) above, the Group expects to make regular contributions of £8.0 million to its UK defined benefit pension scheme in 2009/10.

DSG international plc Annual Report and Accounts 2008/09 95 Financial Statements Notes to the Financial Statements continued

21 Retirement and other post-employment benefit obligations continued (iii) Amounts recognised in the balance sheet 2009 2008 2007 2006 2005 £million £million £million £million £million Present value of defined benefit obligations (693.3) (740.7) (726.7) (732.5) (642.1) Fair value of plan assets 544.5 689.7 688.3 590.8 455.6 Net obligation (148.8) (51.0) (38.4) (141.7) (186.5)

Changes in the present value of the defined benefit obligation: 2009 2008 £million £million Opening obligation 740.7 726.7 Current service cost 6.3 9.3 Employee contributions 5.7 7.4 Interest cost 47.2 40.1 Actuarial gains (81.8) (17.0) Benefits paid (24.8) (25.8) Closing obligation 693.3 740.7

Changes in the fair value of the scheme assets: 2009 2008 £million £million Opening fair value 689.7 688.3 Expected return 47.8 48.2 Employer contributions – regular 10.2 13.3 – special 12.0 – Employee contributions 5.7 7.4 Actuarial loss (196.1) (41.7) Benefits paid (24.8) (25.8) Closing fair value 544.5 689.7

Analysis of plan assets: 2 May 2009 3 May 2008 Long term % of fair value Long term % of fair value expected rate of total expected rate of total of return £million scheme assets of return £million scheme assets Equities 8.5% 293.5 54% 8.1% 409.8 59% Property 6.7% 33.8 6% 6.4% 34.9 5% Bonds / gilts 4.9% 192.8 35% 4.9% 212.4 31% Cash 3.5% 24.4 5% 5.1% 32.6 5% 544.5 689.7

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 UK defined benefit pension plan assets was a loss of £148.3 million (2007/08 gain of £6.5 million). The actual return on other post-employment benefit scheme assets was not significant.

96 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(iv) Experience adjustments recognised in the consolidated statement of recognised income and expense: 2009 2008 2007 2006 2005 £million £million £million £million £million Gain / (loss) on scheme liabilities 81.8 17.0 25.0 (45.6) (52.6)

Effect of change in valuation methodology – – 18.8 – – Performance Review (Loss) / gain from actual less expected return on assets (196.1) (41.7) 1.9 92.7 (6.7) Actuarial (losses) / gains (114.3) (24.7) 45.7 47.1 (59.3)

Cumulative actuarial (loss) / gain (105.5) 8.8 33.5 (12.2) (59.3)

(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 2009/10 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. Underlying profit before tax Net deficit 2009 2008 2009 2008

£million £million £million £million Strategic Summary Positive / (negative) effect Discount rate – 0.25% increase 1.4 1.8 38.0 41.8 Inflation rate – 0.25% increase* (2.6) (2.5) (32.6) (30.6) Mortality rate – 1 year increase (1.3) (2.2) (14.5) (25.8) *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 2 May 2009 the net obligation in relation to these benefits was £12.3 million (3 May 2008 £12.4 million). The net movement in the obligation comprises a charge to operating profit of £4.7 million (3 May 2008 £4.0 million) with the remaining movements relating to the benefits paid in the period and currency retranslation. Corporate Governance 22 Financial instruments (a) Financial risk management objectives and policies A statement of the financial risk management objectives and policies is contained in the Strategic Summary section of the Directors’ Report under the sub-section entitled ‘Treasury risks and policies’ and forms part of these 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 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 Bonds is £216.1 million (3 May 2008 £262.9 million). The Bonds are carried at amortised cost, plus a fair Financial Statements value adjustment, as a result of the fair value hedge discussed below. Excluded from the fair value is £8.4 million (3 May 2008 £8.6 million) of accrued interest which is included in trade and other payables. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 97 Financial Statements Notes to the Financial Statements continued

22 Financial instruments continued Fair values of derivatives by designation 2009 Trade and other receivables Trade and other payables Current Non-current Current Non-current Total Derivatives held to: £million £million £million £million £million Hedge fair value interest rate risk – 30.3 – – 30.3 Manage the currency exposure of: Financial assets and liabilities 2.6 – (12.6) – (10.0) Net investments in overseas subsidiaries – – (24.1) (104.0) (128.1) Future transactions occurring within one year 1.9 – (1.7) – 0.2 Total derivatives 4.5 30.3 (38.4) (104.0) (107.6)

2008 Trade and other receivables Trade and other payables Current Non-current Current Non-current Total Derivatives held to: £million £million £million £million £million Hedge fair value interest rate risk – 0.5 – (0.6) (0.1) Manage the currency exposure of: Financial assets and liabilities 5.2 – (41.5) (0.1) (36.4) Net investments in overseas subsidiaries – – (30.3) (74.6) (104.9) Future transactions occurring within one year 2.2 – (3.8) – (1.6) Total derivatives 7.4 0.5 (75.6) (75.3) (143.0)

Included in derivative financial instruments are forward foreign currency contracts, options, interest rate swaps and currency swaps. The Group’s interest rate swaps have a nominal value of £300 million, receive fixed interest rates of 6.125% (2007/08 6.125%) and pay floating rates of LIBOR plus a margin which ranged from 3.04% to 7.13% (2007/08 6.52% to 7.37%). Currency swaps with a nominal value of £250 million receive LIBOR plus a margin and pay EURIBOR plus a margin. The sterling floating rates ranged from 3.04% to 6.82% in the year (2007/08 6.52% to 7.37%) and the euro floating rates ranged from 3.03% to 6.63% (2007/08 4.89% to 6.24%). Other swaps exchanged Norwegian krone and sterling at fixed interest rates of 5.06% and 5.67% (2007/08 3.46% and 5.99%). (c) Hedging activities The Group manages exposures that arise on purchases and sales denominated in foreign currencies by entering predominantly into forward foreign exchange currency contracts. It also uses swaps and options to manage its interest rate and foreign exchange translation exposure. The Group designates financial instruments as hedges under IAS 39 as follows: Cash flow hedges At 2 May 2009 the Group had forward foreign exchange contracts in place with a notional value of £72.7 million (3 May 2008 £351.5 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 £0.2 million gain (2007/08 £1.5 million loss). In respect of contracts which matured during the period, gains of £27.4 million and gains of £13.4 million have been transferred out of equity into inventory and out of equity into operating profit, respectively (2007/08 gains of £11.5 million and losses of £6.4 million, respectively). Hedge ineffectiveness of £3.0 million gain was recorded in the income statement (2007/08 £nil). Fair value hedges At 2 May 2009 and 3 May 2008 the Group had interest rate swaps in place for the 6.125% Guaranteed Bonds with a notional amount of £300 million whereby it receives a fixed interest rate of 6.125%. Of this, £250 million (€390 million notional value) has been swapped into floating rate euro borrowings bearing interest based on EURIBOR and the remaining £50 million into floating rate borrowings bearing interest based on LIBOR. The swaps are used to hedge the exposure to changes in the fair value of the Bonds and have the same critical terms. The fair value of interest rate swaps entered into as fair value hedges is an asset of £30.3 million (3 May 2008 a liability of £0.1 million). A fair value loss on the interest rate swaps of £28.0 million (2007/08 loss of £5.6 million) has been recognised in the income statement and offset by an equivalent fair value gain on the Bonds.

98 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Hedge of net investments in foreign operations At 2 May 2009 the Group had forward foreign exchange contracts and cross currency swaps in place with a notional value of £374.0 million (3 May 2008 £858.1 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 Performance Review £128.1 million loss (2007/08 £104.9 million loss). No hedge ineffectiveness was recorded in the income statement (2007/08 £nil). (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. 2009 Other Sterling Euro US dollar currencies Total £million £million £million £million £million Cash and cash equivalents and short term investments: Floating rate 36.8 75.8 0.4 (17.8) 95.2 Fixed rate 82.2 22.3 – 1.9 106.4

119.0 98.1 0.4 (15.9) 201.6 Strategic Summary Borrowings: Floating rate (303.7) (269.4) – (4.3) (577.4) Obligations under finance leases: Fixed rate (98.9) (2.8) – – (101.7) (402.6) (272.2) – (4.3) (679.1) Net (borrowings) / funds (283.6) (174.1) 0.4 (20.2) (477.5)

2008 Other Sterling Euro US dollar currencies Total £million £million £million £million £million Corporate Governance Cash and cash equivalents and short term investments: Floating rate 140.8 84.3 61.3 29.2 315.6 Fixed rate 75.3 55.2 – 1.7 132.2 216.1 139.5 61.3 30.9 447.8 Borrowings: Floating rate (49.1) (247.3) – (0.5) (296.9) Obligations under finance leases: Fixed rate (99.3) (1.5) – – (100.8) (148.4) (248.8) – (0.5) (397.7) Net funds / (borrowings) 67.7 (109.3) 61.3 30.4 50.1 Financial Statements 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. Fixed rate cash and short term investments are predominantly money market deposits (as shown in note 16). Floating rate borrowings include fixed rate bonds after taking into account the effect of interest rates swaps entered into by the Group. Bonds with a nominal value of £50 million bear interest at rates based on LIBOR. Bonds with a nominal value of £250 million (€390 million) bear interest at rates based on EURIBOR. The latter provide a hedge against certain euro denominated fixed asset investments and to finance working capital. The other major component of floating rate borrowings are drawings under the £400 million sterling committed facility (as shown in note 17). Amounts in respect of other currencies for cash and cash equivalents and short term investments relate to funds held within

subsidiary companies, operating in the Nordic region and Central Europe. The negative balance as at 2 May 2009 has arisen Information for Shareholders in a multi-currency pooled facility and is offset by positive euro balances.

DSG international plc Annual Report and Accounts 2008/09 99 Financial Statements Notes to the Financial Statements continued

22 Financial instruments continued (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 2 May 2009 and 3 May 2008 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 and euro, with other variables held constant. A 10% decrease would have an equal and opposite effect. 2009 2008 Effect on underlying Effect on underlying profit before tax Effect on total equity profit before tax Effect on total equity decrease increase / (decrease) increase / (decrease) increase / (decrease) £million £million £million £million Change in exchange rates: US dollar + 10% (0.2) 3.8 0.4 14.8 Euro + 10% (2.1) (37.5) (1.2) (41.5)

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 table below shows the sensitivity to a reasonably possible change in interest rates (uniform across all currencies), with other variables held constant. A 1% increase in interest rates would decrease profit before tax by £7.2 million and have £nil impact on equity (2007/08 a £1.8 million decrease in profit before tax and a £0.5 million increase in equity). A 1% decrease would have an equal and opposite effect. 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; and ■ 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. (f) Liquidity risk The table below analyses 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 table includes both principal and interest flows. 2009 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 (4.8) – – (4.8) (4.8) Other borrowings (252.1) – – (252.1) (250.2) Trade and other payables (1,244.1) (11.3) (27.6) (1,283.0) (1,292.6) 6.125% Guaranteed Bonds 2012 (18.4) (355.4) – (373.8) (322.4) (1,519.4) (366.7) (27.6) (1,913.7) (1,870.0) Derivatives Derivative contracts – inflows 1,150.1 632.3 – 1,782.4 1.453.0 – outflows (1,178.0) (716.9) – (1,894.9) (1,560.6) (27.9) (84.6) – (112.5) (107.6)

100 DSG international plc Annual Report and Accounts 2008/09 Business Overview

2008 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 Performance Review Non-derivative financial liabilities Bank overdrafts (2.1) – – (2.1) (2.1) Other borrowings (0.2) – – (0.2) (0.2) Trade and other payables (1,602.5) (1.8) (14.5) (1,618.8) (1,627.3) 6.125% Guaranteed Bonds 2012 (18.4) (373.8) – (392.2) (294.6) (1,623.2) (375.6) (14.5) (2,013.3) (1,924.2) Derivatives Derivative contracts – inflows 1,217.7 455.0 – 1,672.7 1,600.6 – outflows (1,291.7) (529.1) – (1,820.8) (1,743.6) (74.0) (74.1) – (148.1) (143.0) Strategic Summary The carrying value of trade and other payables includes accrued interest on the bond of £8.4 million (3 May 2008 £8.6 million) and interest on other borrowings of £1.5 million (3 May 2008 £nil million). Over the course of 2008/09, the current difficult consumer and retail environment has placed significant pressure on the Group’s revenue, profits, cash flows and overall liquidity. This, together with the cost of restructuring the Group, higher finance costs and pressures on working capital due to structural changes to the credit environment, has contributed to an increase in the Group’s indebtedness. The continued uncertainty over the economic outlook has made it necessary for the Group to take steps to improve the capital structure of the Group to sustain the business through the current economic cycle. For these reasons, on 30 April 2009 and as described in note 35, the Group announced a Placing and Rights Issue to raise gross proceeds of £310.6 million as well as agreeing with its lending banks to amend terms of the Facility and Letter of Credit Facility Agreements. The key elements of the revised terms of the Facility are described further in note 17. The Placing and Rights Issue completed on 9 June 2009 and its proceeds have significantly improved the Group’s liquidity position since 2 May 2009. In conjunction with applying the Group’s policies in relation to liquidity risk as referred to in note 22(a) the directors believe that Corporate Governance these amendments will provide it with significant covenant and liquidity headroom under these facilities for the foreseeable future. Included in note 17 are details of committed facilities, which are also maintained and used if available on advantageous terms. (g) Credit risk The Group’s exposure to credit risk is discussed in the Directors’ Report.

23 Share capital and reserves (a) Called up share capital 2009 2008 £million £million Authorised 4,980,252,496 (3 May 2008 4,980,252,496) ordinary shares of 2.5p each 124.5 124.5

Allotted and fully paid Financial Statements 1,772,442,268 (3 May 2008 1,772,442,268) ordinary shares of 2.5p each 44.3 44.3

During the period, no shares (2007/08 2,911,826 shares) were issued in respect of options exercised under employee share option and ownership schemes. In the prior period, 73,174,062 of the Company’s own shares were purchased for cancellation in the open market for an aggregate consideration of £100.0 million. These shares were cancelled and their nominal value transferred to the capital redemption reserve. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 101 Financial Statements Notes to the Financial Statements continued

23 Share capital and reserves continued (b) Reconciliation of movements in equity Share Share Other Retained Minority Total capital premium reserves earnings Sub-total interests equity £million £million £million £million £million £million £million At 29 April 2007 46.1 166.2 (420.8) 1,490.2 1,281.7 22.6 1,304.3 Total recognised income and expense for the period – – (91.1) (114.1) (205.2) 3.5 (201.7) Equity dividends paid – – – (160.3) (160.3) – (160.3) Minority interests – increase in capital –––––6.16.1 Transfers – – (8.4) 8.4 – – – Put option exercised – – 15.6 – 15.6 (5.4) 10.2 Share-based payments – – – (2.6) (2.6) – (2.6) Tax on share-based payments – – – (5.7) (5.7) – (5.7) Purchase and cancellation of own shares (1.8) – 1.8 (100.0) (100.0) – (100.0) Ordinary shares issued – employee options – 3.2 – – 3.2 – 3.2 At 3 May 2008 44.3 169.4 (502.9) 1,115.9 826.7 26.8 853.5 Total recognised income and expense for the period – – (52.8) (184.1) (236.9) 3.5 (233.4) Equity dividends paid – – – (60.7) (60.7) – (60.7) Minority interests – increase in capital –––––5.75.7 Transfers – – (6.7) 6.7 – – – Put option exercised – – 27.5 – 27.5 (10.0) 17.5 Share-based payments – – – 2.1 2.1 – 2.1 Tax on share-based payments – – – 0.2 0.2 – 0.2 At 2 May 2009 44.3 169.4 (534.9) 880.1 558.9 26.0 584.9

Minority interests comprise shareholdings in DSGi South-East Europe A.E.V.E. (Kotsovolos), PIXmania and ElectroWorld Iç ve Dis Ticaret AS (Electro World Turkey). On 29 December 2008 the Group acquired a further 10% of Kotsovolos, following the exercise of a put option held by the main minority shareholder, Fourlis Holdings SA, for a total consideration of €28.1 million (£27.5 million) which together with previously acquired shares, brought its stake in Kotsovolos to 99.2%. Included in other reserves is a reduction of £27.5 million (2007/08 £15.6 million) relating to the exercise of this put option. (c) Other reserves Capital Merger redemption Investment Hedging Revaluation reserve reserve in own shares reserve reserve Total £million £million £million £million £million £million At 29 April 2007 (386.1) 3.2 (2.3) (5.8) (29.8) (420.8) Total recognised income and expense for the period – – – (90.5) (0.6) (91.1) Transfers ––––(8.4) (8.4) Put option exercised ––––15.6 15.6 Purchase and cancellation of own shares – 1.8 – – – 1.8 At 3 May 2008 (386.1) 5.0 (2.3) (96.3) (23.2) (502.9) Total recognised income and expense for the period – – – (52.2) (0.6) (52.8) Transfers ––––(6.7) (6.7) Put option exercised ––––27.5 27.5 At 2 May 2009 (386.1) 5.0 (2.3) (148.5) (3.0) (534.9)

The merger reserve arose on the Group reconstruction which occurred during 1999/2000. 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 Halifax EES Trustees International Limited, further details of which are given in note 25. The 2,233,063 shares held at 2 May 2009 had a market value of £0.9 million (3 May 2008 2,233,063 shares held had a market value of £1.5 million) and their nominal value was £0.1 million (3 May 2008 £0.1 million).

102 DSG international plc Annual Report and Accounts 2008/09 Business Overview

24 Dividends paid 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 Per share £million £million Amounts recognised as distributions to equity shareholders Performance Review in the period – on ordinary shares of 2.5p each Final dividend for 2006/07 6.85p – 126.4 Interim dividend for 2007/08 2.02p – 36.6 Final dividend for 2007/08 3.43p 60.7 – 60.7 163.0

25 Employee share ownership trusts Halifax EES Trustees International Limited is the trustee of a number of employee share ownership trusts (the Trusts). At 2 May 2009, the Trusts 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 Plan (Reward Shares). Details of the LTIP and PSP are given in the Remuneration Report in section (b) (ii) and for the Reward Shares in section (b) (iii). Movements in the number of shares held by the Trusts is shown in the table below. Strategic Summary The Company’s aim is to hedge its obligations under the above plans by buying shares through the Trusts to meet the anticipated future liability. The anticipated liability is regularly reassessed 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 Trusts 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 Trusts which have not vested unconditionally. 2009 2008 Number Number Investment in own shares At beginning of period and end of the period 2,233,063 2,233,063

Halifax EES Trustees International Limited has waived all dividends except for a total payment of 1p at the time each dividend Corporate Governance is paid. The mid-market price of a share as at 2 May 2009 was 41.25p (3 May 2008 69.25p).

26 Share-based payments 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Amounts charged / (credited) to operating profit Share-based payments – equity settled (i) 2.1 (2.6) – cash settled (ii) (0.3) (1.8) 1.8 (4.4)

(i) Equity settled Share option plans Financial Statements Employee Share Option Scheme (ESOS) and Executive Share Option Plan (ESOP) Options are normally granted annually to executive directors and other senior executives. The ESOS and ESOP permit making awards with a market value on the date of grant of not more than twice the recipient’s salary. Options are also granted to other employees in the UK and overseas on the basis of management grade. Vesting of options is based upon remaining in service with the Group over a three year period subject to certain conditions for Good Leavers. Depending on grade, vesting is also dependent on the level of growth in underlying diluted earnings per share (EPS) over a three year period, with the ability to exercise the options 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 Information for Shareholders is conditional upon employees remaining employed by the Group for the full term of the plan subject to certain conditions for Good Leavers as described in the Remuneration Report in section (b) (ii). Employees can choose to withdraw their contributions in full from the plan at any time, together with any interest earned.

DSG international plc Annual Report and Accounts 2008/09 103 Financial Statements Notes to the Financial Statements continued

26 Share-based payments continued Details of equity settled share option plans outstanding during the year are as follows: 2009 2008 Weighted Weighted average average Note Number exercise price Number exercise price At beginning of period 67,313,571 £1.38 91,155,973 £1.73 Granted during the period (i) 90,141,170 £0.36 34,965,540 £0.90 Forfeited during the period (56,487,809) £0.97 (55,149,302) £1.66 Exercised during the period (ii) ––(2,911,826) £1.15 Expired during the period (747,696) £1.33 (746,814) £1.45

At end of period (iii), (iv) 100,219,236 £0.70 67,313,571 £1.38

No options were exercisable at the end of either period. 2009 2008 (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 – £1.63 (iii) weighted average remaining contractual life for options outstanding 4.6 years 3.7 years (iv) range of exercise prices for options outstanding £0.13-£3.35 £0.60-£3.35

The fair value of equity settled share option plans and cash settled share-based payments (described in (ii) below) 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 model used for the periods ended 2 May 2009 and 3 May 2008 based on information prevailing at the date of grant. 2009 2008 Dividend yield 9.5% 5.1-8.1% Historical and expected volatility 41.0% 22.7-35.3% Risk-free interest rate 4.9% 4.4-5.7% Expected remaining life of options 3.5 years 3.3-5.3 years Weighted average share price £0.39 £0.93

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’ LTIP, PSP and Reward shares LTIP and PSP shares are provisionally awarded to executive directors, members of the Executive Committee and other participating senior executives and are based upon performance measured in terms of the Total Shareholder Return (TSR) achieved by the Company. Prior to 2008/09, TSR performance was based on performance over a three year period relative to the companies comprising the FTSE 100 Index. From 2008/09, TSR performance has been based on a bespoke weighted index comprising UK and European retailers. Reward shares were granted to a limited number of executives in July 2008 and do not have any performance conditions. Details of other equity settled share-based payments outstanding during the year are as follows: 2009 2008 Note Number Number At beginning of period 7,647,103 5,212,509 Provisionally awarded during the period (i) 14,505,067 4,154,212 Forfeited during the period (4,774,210) (232,986) Expired during the period (3,429,493) (1,486,632)

At end of period (ii) 13,948,467 7,647,103

Exercisable at end of period 204,866 99,344

104 DSG international plc Annual Report and Accounts 2008/09 Business Overview

2009 2008 (i) weighted average fair value of awards awarded during the period £0.18 £0.31 (ii) weighted average remaining contractual life for awards outstanding 1.6 years 1.5 years

The fair value of such equity settled share-based payments granted is estimated as at the date of grant using either the binomial Performance Review option pricing model or Monte Carlo simulation 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 2 May 2009 and 3 May 2008 based on information prevailing at the date of grant. 2009 2008 Dividend yield 9.5% 5.0-6.2% Historical and expected volatility 42.5% 23.1-26.0% Risk-free interest rate 5.1% 4.4-5.8% Expected life of awards 3.0 years 3.0 years Weighted average share price £0.39 £0.90

Further information concerning share-based incentive plans specific to directors is included in the Remuneration Report in sections (b) (ii) and (iii). Strategic Summary (ii) Cash settled Awards are granted to employees annually on the basis of a monetary amount determined by grade and length of service. Employees must remain in employment until the vesting date which occurs on the third anniversary of the date of grant subject to certain conditions for Good Leavers as described in the Remuneration Report in section (b) (ii). The vesting of such share-based payments for employees above a certain grade is determined based on the level of growth in EPS over a three year period. Such awards are settled in cash which is calculated based on the share price at the exercise date. The fair value of cash settled share- based payment plans is estimated as at the date of grant using the binomial option pricing model taking into account the terms and conditions upon which the instruments were granted. No cash settled awards had vested at 2 May 2009 (3 May 2008 none). 2009 2008 £million £million Amount included within trade and other payables relating to cash settled share-based payments 0.2 1.0 Corporate Governance (iii) Additional SAYE, ESOS and ESOP information During the period the 90,141,170 options under the employee share option scheme were granted to 3,192 employees at exercise prices ranging between £0.13 and £0.57. At 2 May 2009, options outstanding for accounting purposes amounted to 100,219,236 shares (3 May 2008 67,313,571) analysed as follows: SAYE ESOS & ESOP Exercise price Exercise price Date of grant Pence Number Date of grant Pence Number 3 Mar 2004 118.82 833,802 19 Jul 1999 334.75 3,075,720 2 Mar 2005 128.52 492,611 17 Jul 2000 273.00 2,353,878 27 Feb 2006 140.32 862,906 5 Feb 2001 269.00 12,566 26 Feb 2007 134.88 1,642,690 23 Jul 2001 231.00 3,360,773 26 Feb 2008 60.36 13,307,722 15 Feb 2002 228.00 14,150

22 Jul 2002 161.00 3,274,167 Financial Statements 7 Feb 2003 102.45 30,000 8 Oct 2007 140.06 428,387 6 Dec 2007 112.84 1,152,073 11 Jul 2008 37.45 62,915,975 1 Aug 2008 56.70 787,064 16 Dec 2008 12.50-14.70 5,674,752 17,139,731 83,079,505

Options granted under the ESOS and ESOP can vest between three to 10 years subject to performance conditions, where applicable, being met. The performance conditions applicable to these schemes are set out in section b (iii) of

the Remuneration Report. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 105 Financial Statements Notes to the Financial Statements continued

27 Notes to the cash flow statement (a) Reconciliation of operating loss to net cash flows from operating activities 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Operating loss (125.7) (194.9) Operating loss – discontinued operations 21.5 3.9 Operating loss – continuing operations (104.2) (191.0) Amortisation of acquired intangibles 4.9 4.4 Amortisation of other intangibles 23.5 25.4 Depreciation 112.2 111.7 Share-based payment charge / (credit) 1.8 (4.4) Share of post-tax results of associates (3.6) (6.2) Loss on disposal of property, plant & equipment 19.9 8.1 Profit on disposal of property, plant & equipment arising from restructuring – (15.6) Additions to non-underlying – provisions 92.9 79.9 – impairment and accelerated depreciation / amortisation 71.8 317.3 Utilisation of non-underlying provisions (82.7) (37.2) Operating cash flows before movements in working capital 136.5 292.4 Movements in working capital: Decrease in inventories 167.4 1.3 Increase in trade and other receivables (58.6) (7.8) (Decrease) / increase in trade and other payables (396.3) 15.1 (287.5) 8.6 Cash (utilised by) / generated from operations – continuing operations (151.0) 301.0

(b) Analysis of net funds / (debt) Other non-cash Currency 4 May 2008 Cash flow movements translation 2 May 2009 £million £million £million £million £million

Cash and cash equivalents (i) 365.8 (188.8) – 15.6 192.6 Bank overdrafts (2.1) (2.5) – (0.2) (4.8) 363.7 (191.3) – 15.4 187.8

Short term investments 82.0 (73.3) (0.9) 1.2 9.0

Borrowings due within one year (0.2) (249.9) – – (250.1) Borrowings due after more than one year (294.6) 0.1 (28.0) – (322.5) Obligations under finance leases (100.8) 1.7 (2.4) (0.2) (101.7) (395.6) (248.1) (30.4) (0.2) (674.3) Net funds / (debt) 50.1 (512.7) (31.3) 16.4 (477.5)

106 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Other non-cash Currency 29 April 2007 Cash flow movements translation 3 May 2008 £million £million £million £million £million

Cash and cash equivalents (i) 440.5 (89.8) – 15.1 365.8 Bank overdrafts (5.7) 3.6 – – (2.1) Performance Review 434.8 (86.2) – 15.1 363.7

Short term investments 185.9 (103.1) (1.2) 0.4 82.0

Borrowings due within one year (2.9) 3.1 – (0.4) (0.2) Borrowings due after more than one year (290.4) 2.2 (6.1) (0.3) (294.6) Obligations under finance leases (102.5) 1.7 – – (100.8) (395.8) 7.0 (6.1) (0.7) (395.6) Net funds 224.9 (182.3) (7.3) 14.8 50.1

Restricted funds, which predominantly comprise funds held under trust to fund customer support agreements were £67.6 million (3 May 2008 £66.5 million). Net debt excluding amounts held under trust to fund potential customer support agreement liabilities Strategic Summary totalled £545.1 million (3 May 2008 £16.4 million). (i) Cash and cash equivalents are represented 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 represented 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).

28 Acquisitions No significant acquisitions were made other than the exercise of a put option by a minority shareholder as described in note 23(b). Cash consideration paid for acquisitions was made up as follows: 52 weeks 53 weeks ended ended

2 May 2009 3 May 2008 Corporate Governance £million £million Total consideration paid for current period acquisitions 27.6 15.6 Deferred and contingent consideration for prior period acquisitions – 6.9 27.6 22.5

29 Discontinued operations and assets held for sale On 19 May 2009 the Group disposed of its operations in Hungary to EW Electro Retail Limited for consideration of €1 and accordingly has classified its assets and liabilities as held for sale as at 2 May 2009 owing to the sale being highly probable under the definitions stipulated in IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. As a result of the sale, the business has been classified as discontinued and the prior periods have been re-presented on a consistent basis.

(a) Assets held for sale Financial Statements The major classes of assets and liabilities at 2 May 2009 were as follows: £million Inventories 6.9 Cash and cash equivalents 5.0 Other assets 1.3 Total assets held for sale 13.2 Current liabilities (3.2) Provisions (11.2) Liabilities directly associated with assets classified as held for sale (14.4)

Net liabilities held for sale (1.2) Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 107 Financial Statements Notes to the Financial Statements continued

29 Discontinued operations and assets held for sale continued (b) Loss after tax – discontinued operations 52 weeks 53 weeks ended ended 2 May 2009 3 May 2008 £million £million Loss after tax from discontinued operations (22.1) (6.1) Net loss on disposals – (3.5) Loss after tax – discontinued operations (22.1) (9.6)

The loss after tax from discontinued operations relates to Hungary (2007/08 Hungary, The Link and Genesis). 52 weeks ended 53 weeks ended 2 May 2009 3 May 2008 The Link Hungary Hungary and Genesis Total £million £million £million £million Revenue 50.5 57.9 10.9 68.8 Expenses (72.0) (66.2) (6.5) (72.7) Operating (loss) / profit (21.5) (8.3) 4.4 (3.9) Finance costs (0.6) (0.4) – (0.4) (Loss) / profit before tax (22.1) (8.7) 4.4 (4.3) Income tax expense – – (1.8) (1.8) (Loss) / profit after tax from discontinued operations (22.1) (8.7) 2.6 (6.1) Loss on disposal of discontinued operations – – (3.5) (3.5) Tax on loss on disposal – ––– Loss for the period (22.1) (8.7) (0.9) (9.6)

All losses were attributable to the equity shareholders of the Company. The operating loss for Hungary in 2008/09 comprises £4.6 million (2007/08 £4.0 million) relating to trading losses and £16.9 million (2007/08 £4.3 million) relating to non-underlying business impairment charges, which in turn comprises £4.1 million relating to impairment of assets and £12.8 million relating to provisions for onerous leases. (c) Cash flows from discontinued operations 52 weeks ended 53 weeks ended 2 May 2009 3 May 2008 The Link Hungary Hungary and Genesis Total £million £million £million £million Operating activities (12.4) (5.9) 3.3 (2.6) Investing activities (0.2) (2.0) – (2.0) Financing activities (0.6) (0.4) – (0.4) (13.2) (8.3) 3.3 (5.0)

Cash flows from investing activities relate to interest received and capital expenditure. Cash flows from financing activities relate to interest paid. Proceeds from the sale of discontinued operations in the consolidated cash flow statement of £1.1 million in the 53 weeks ended 3 May 2008 related to the deferred consideration received following the sale of Genesis in 2006/07.

30 Capital commitments 2009 2008 £million £million Contracted for but not provided for in the accounts 12.9 5.4

108 DSG international plc Annual Report and Accounts 2008/09 Business Overview

31 Contingent liabilities 2009 2008 £million £million Guarantees 75.0 117.8 Other 14.2 14.8 Performance Review 89.2 132.6

Guarantees comprise potential obligations to financial institutions in respect of activities undertaken in the normal course of business and relate to amounts utilised under letter of credit facilities. 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. The Norwegian tax authorities have issued an assessment for the years 2002 to 2006 against certain Norwegian companies in the Group for VAT on third party insurance and credit services sold to customers whereby the Group’s Norwegian companies acted as an intermediary. The Group is contesting the assessment on several grounds and intends to proceed with court action if the decision from the Norwegian tax authorities is adverse. In accordance with Norwegian regulations, in order to contest the assessment, the Group has been required to make a full prepayment for the amount in question and accordingly has recorded a receivable on its balance sheet of £11.7 million. The Group has obtained independent external expert advice concerning the assessment and based on this advice believes that it has a strong likelihood of succeeding. It is therefore considered recoverable. Strategic Summary

32 Operating lease commitments 2009 2008 Land and Other Land and Other buildings assets buildings assets £million £million £million £million Total undiscounted future committed payments due: Within one year 395.3 7.0 369.9 6.4 Between two and five years 1,379.1 3.4 1,315.3 8.8 After five years 1,908.8 – 2,084.2 – 3,683.2 10.4 3,769.4 15.2

Operating lease commitments represent rentals payable for retail, distribution and office properties, as well as vehicles, Corporate Governance 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 businesses to be closed. In addition, at 2 May 2009 £22.7 million (3 May 2008 £27.4 million) related to Hungary which was disposed of on 19 May 2009. Further details of the disposal are described in note 29. Total future minimum sub-lease payments expected to be received under non-cancellable sub-leases at 2 May 2009 was £47.0 million (3 May 2008 £48.3 million).

33 Related party transactions Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed.

During the period, via the Group’s registered charitable trust, the DSG International Foundation (the Foundation), charitable Financial Statements donations of £600,000 (2007/08 £1,043,000) were made. The Company made charitable donations of £200,000 (2007/08 £400,000) to The DSG international Foundation. 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, members of the Executive Committee, together with close family members and companies controlled by them, own 22.0% 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 €258,000 (£217,000) (2007/08 €258,000 (£184,000)). Steve Rosenblum and Jean-Emile Rosenblum together hold call options over additional shares in PIXmania representing 16.8% of its share capital. The options can be exercised from 30 April 2011 and are subject to the achievement of targets related to earnings and certain capitalisation values of the PIXmania business. In addition to the call options, Steve Rosenblum and Jean-Emile Rosenblum have certain exit rights in relation to their holdings in PIXmania. Information for Shareholders Steve Rosenblum and Jean-Emile Rosenblum own one building, and previously owned a second building that was disposed of in July 2007, both of which are occupied and leased by Group undertakings. During the period ended 2 May 2009, total rental payments of €597,000 (£502,000) (2007/08 €1,550,000 (£1,105,000)) were charged in relation to these properties.

DSG international plc Annual Report and Accounts 2008/09 109 Financial Statements Notes to the Financial Statements continued

33 Related party transactions continued Remuneration of directors and key management personnel The remuneration of non-executive directors, executive directors, and members of the Executive Committee, 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 the parts of the directors’ Remuneration Report which are described as having been audited. 2009 2008 £million £million Short term employee benefits 6.6 5.6 Post-employment benefits – 0.1 Termination benefits 1.0 – Share-based payment 0.4 0.1

34 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 whose results or financial position, in the opinion of the directors, principally affect the consolidated financial statements of the Group at 2 May 2009: Coverplan Insurance Services Limited ElectroWorld Iç ve Dis Ticaret AS – Turkey (60%) DSG international Holdings Limited* El-Giganten AB – Sweden DSG international Insurance Services Limited – Isle of Man El-Giganten AS – Denmark DSG Retail Ireland Limited – Ireland Elkjøp Nordic AS – Norway DSG Retail Limited Gigantti OY – Finland DSGi South-East Europe A.E.V.E. – Greece (99.2%) Pixmania S.A.S. – France (76.9%) Electro World Polska sp.zo.o – Poland PC City Spain S.A.U. – Spain Electro World s.r.o. – Czech Republic UniEuro S.p.A. – Italy *A direct subsidiary undertaking of DSG international plc and a holding company Unless otherwise indicated, principal subsidiary undertakings are engaged in retail activities and are wholly-owned and incorporated in Great Britain.

35 Post-balance sheet events On 30 April 2009 the Group announced a Placing and Rights Issue to raise gross proceeds of £310.6 million, of which £100 million was to be raised by the Placing. The Placing comprised in aggregate 333,333,333 Placing Shares available for subscription at an issue price of 30p per Placing Share. The Rights Issue was made on the basis of five new shares for each seven eligible shares at 14p per new share. The Placing and Rights Issue were both approved by shareholders on 18 May 2009 and the receipt of proceeds was completed on 9 June 2009. Also on 30 April 2009 the Group announced that it had revised the terms of its £400 million revolving credit facility (The Facility) and Letter of Credit facility agreements (the Letters of Credit) which were effective immediately (subject to completion of the Placing and Rights Issue but which has now completed). The key elements of the revised terms are shown in note 17. The expiry date of the Facility remains unchanged at 13 October 2011. The final maturity date of the Letters of Credit is now 31 December 2010. On 19 May 2009 the Group disposed of its operations in Hungary to EW Electro Retail Ltd for consideration of €1. Further details are provided in note 29. On 16 June 2009, following the exercise of a put option by the majority shareholder of a Nordic associated undertaking, the Group acquired full control of this entity for consideration of NOK 111 million (£11 million).

110 DSG international plc Annual Report and Accounts 2008/09 Business Overview Independent Auditors’ Report on the Parent Company Financial Statements

To the members of DSG international plc Opinions We have audited the parent company financial statements Financial statements of DSG international plc for the 52 weeks ended 2 May 2009 In our opinion the parent company financial statements: which comprise the parent company balance sheet and the ■ give a true and fair view of the state of the parent related notes (a) to (n). The financial reporting framework that company’s affairs as at 2 May 2009; Performance Review has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom ■ have been properly prepared in accordance with Generally Accepted Accounting Practice (UK GAAP)). UK GAAP; and This report is made solely to the Company’s members, as a ■ have been prepared in accordance with the requirements body, in accordance with sections 495, 496 and 497 of the of the Companies Act 2006. Companies Act 2006. Our audit work has been undertaken so Other matters prescribed by the Companies Act 2006 that we might state to the Company’s members those matters In our opinion the information given in the Directors’ Report we are required to state to them in an auditors’ report and for for the financial period for which the financial statements are no other purpose. To the fullest extent permitted by law, we prepared is consistent with the parent company financial do not accept or assume responsibility to anyone other than statements. the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Matters on which we are required to report by exception

We have nothing to report upon in respect of the following: Strategic Summary Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities, Under the Companies Act 2006 we are required to report to you if in our opinion: the directors are responsible for the preparation of the parent ■ adequate accounting records have not been kept by the parent company; or company financial statements and for being satisfied that ■ the financial statements are not in agreement with accounting records and they give a true and fair view. Our responsibility is to audit returns; or the parent company financial statements in accordance with ■ we have not received all the information and explanations we require for applicable law and International Standards on Auditing (UK our audit. and Ireland). Those standards require us to comply with the Other matter Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. We have reported separately on the Group financial statements Scope of the audit of the financial statements of DSG international plc for the year ended 2 May 2009 and An audit involves obtaining evidence about the amounts on the information in the Directors’ Remuneration Report that is described as having been audited. and disclosures in the financial statements sufficient to give Corporate Governance reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Peter O’Donoghue FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom 25 June 2009 Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 111 Financial Statements Balance Sheet of the Parent Company

2 May 2009 3 May 2008 Note £million £million Fixed assets Tangible assets c – 0.1 Investments d 1,718.8 1,716.7 1,718.8 1,716.8 Current assets Debtors e 53.9 30.7 Short term investments – 22.8 Cash at bank and in hand – 17.8 53.9 71.3 Creditors – falling due within one year Bank overdrafts f (359.9) – Borrowings f (250.0) – Other creditors g (216.9) (754.5) (826.8) (754.5) Net current liabilities (772.9) (683.2) Total assets less current liabilities 945.9 1,033.6 Creditors – falling due after more than one year Borrowings h (320.1) (289.5) 625.8 744.1

Capital and reserves k Called up share capital 44.3 44.3 Share premium account 169.4 169.4 Investment in own shares (2.3) (2.3) Capital reserves 5.0 5.0 Profit and loss account 409.4 527.7 Equity shareholders’ funds 625.8 744.1

The financial statements were approved by the directors on 25 June 2009 and signed on their behalf.

John Browett Nicholas Cadbury Chief Executive Group Finance Director

112 DSG international plc Annual Report and Accounts 2008/09 Business Overview Notes to the Parent Company Financial Statements

(a) Accounting policies (vi) Tangible fixed assets The unconsolidated financial statements for the Company have Tangible fixed assets are stated at cost less accumulated been prepared in accordance with UK law and applicable UK depreciation and, where appropriate, provision for impairment GAAP accounting standards and on a going concern basis or estimated loss on disposal. Depreciation is provided to write off the cost of the assets by equal instalments over their as described on page 44. Accounting policies have been Performance Review consistently applied throughout the current and preceding estimated useful lives. The rates used are: periods. The principal accounting policies are set out below: Fixtures, fittings and equipment – between 10% and 33% (i) Accounting convention per annum. The financial statements are prepared under the historical cost (vii) Investments convention as modified by the revaluation of certain derivative Investments held as fixed assets are stated at cost, less any financial instruments to fair value. provision for impairment in value. The Company has taken advantage of the exemption in FRS 29 (viii) Taxation ‘Financial Instruments: Disclosures’ and has not disclosed Current taxation information required by that standard, as the consolidated Current taxation is the expected tax payable on the taxable financial statements for DSG international plc, in which the income for the period, using prevailing tax rates and adjusted Company is included, provide equivalent disclosures for the for any tax payable in respect of previous years.

Group under IFRS 7 ‘Financial Instruments: Disclosures’. Strategic Summary Deferred taxation (ii) Change in presentation of financial information Deferred tax is provided for in full on all timing differences FRS 8 (Amended) provides an exemption for disclosures which have not reversed at the balance sheet date. No of transactions between two or more members of a group, provision is made for tax which would become payable on provided that all subsidiaries which are party to the transaction the distribution of retained profits of overseas subsidiaries are wholly-owned by the DSG international plc Group. Previously or associated undertakings, unless the distribution of such an exemption was available for 90% owned subsidiaries. earnings has been accrued in the balance sheet. Deferred (iii) Operating leases tax assets are only recognised to the extent that they are Rentals payable under property leases are charged to the regarded as more likely than not that they will be recovered. profit and loss account in equal instalments up to each market Deferred tax balances are not discounted. rent review date throughout the lease term. Rentals payable (ix) Borrowings under leases for plant and machinery are charged to the profit Borrowings are initially recorded at the consideration received Corporate Governance and loss account in equal instalments over the total lease term. less directly attributable transaction costs. (iv) Share-based payments Transaction costs are amortised through the profit and loss The Company issues equity settled share-based payments account using the effective interest method and the unamortised to certain employees which are measured at fair value at the balance is included as part of the related borrowing at the date of grant. This fair value is expensed in the profit and loss balance sheet date. A fair value adjustment is made to the account on a straight-line basis over the vesting period, based borrowing where hedge accounting has been applied. on an estimate of the number of shares that will eventually vest as adjusted for any non-market conditions. (x) Post-retirement benefits The expected cost of providing pensions under the defined A liability equal to the portion of services received from benefit pension scheme arrangements, as calculated employees is recognised at the current fair value determined at periodically by qualified actuaries, is charged to the profit each balance sheet date for cash settled share-based payments. and loss account so as to spread the pension cost over the

Where the Company has granted rights to its equity to normal expected service lives of members in such a way that Financial Statements employees of subsidiary undertakings in relation to equity the pension cost is a substantially level percentage of current settled share-based payment arrangements the contribution and expected future pensionable payroll. to the subsidiary undertakings is recognised as an additional It is not practical to allocate the underlying assets and liabilities investment. of the defined benefit section to individual companies, on a (v) Translation of foreign currencies consistent and reasonable basis. Therefore, following full Monetary assets and liabilities denominated in foreign implementation of FRS 17, the Company has accounted for currencies are retranslated at the rates of exchange ruling at its contributions to the defined benefit section of the scheme the balance sheet date. Exchange gains and losses arising as if it were a defined contribution scheme. on settlement or retranslation of monetary assets and liabilities The Company’s contributions to the defined contribution are included in the profit and loss account. section of the pension scheme are charged to the profit and loss account on an accruals basis as they become payable. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 113 Financial Statements Notes to the Parent Company Financial Statements continued

(a) Accounting policies continued Fair value hedges (xi) Derivative financial instruments (derivatives) The Company uses interest rate swaps to hedge the exposure Derivatives are classified as current assets or liabilities when to changes in the fair value of recognised liabilities. they are deemed to be held for trading. Derivatives are Derivative financial instruments that meet the ‘fair value’ classified as non-current assets or liabilities where a hedge hedging requirements are recognised in the balance sheet at relationship is identified and the remaining maturity of the fair value with corresponding fair value movements recognised hedged item is greater than 12 months from the balance within interest in the profit and loss account. For an effective sheet date. fair value hedge, the hedged item is adjusted for changes Fair values are derived from market values. The fair value in fair value attributable to the risk being hedged with the of financial instruments traded in active markets is based corresponding entry in the profit and loss account. To the on quoted market prices at the balance sheet date. extent that the designated hedge relationship is fully effective, the amounts in the profit and loss account offset each other. Hedge accounting As a result, only the ineffective element of any designated The Company’s activities expose it primarily to the financial hedging relationship impacts the profit and loss account. risks associated with changes in interest rates. The Company If the hedge no longer meets the criteria for hedge accounting, uses derivative financial instruments such as interest rate the adjustment to the carrying amount of the hedged item for swaps to hedge these risks. The Company does not use which the effective interest method is used, is amortised to derivative financial instruments for speculative purposes. the profit and loss account over the period to maturity. Where hedge accounting is to be applied, the Company (xii) Cash flow statement formally designates and documents the hedge relationship to As permitted by FRS 1 (Revised 1996) ‘Cash Flow Statements’, which the Company wishes to apply hedge accounting and the Company has not prepared a cash flow statement because the risk management objective and strategy for undertaking it has already produced a consolidated cash flow statement the hedge. which is publicly available. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer meets the criteria for hedge accounting. The accounting treatment of derivatives that qualify for hedge accounting is dependent on how they are designated. The designations and accounting treatments applicable to the Company are explained below:

(b) 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 (2007/08 £0.1 million).

(c) Tangible fixed assets Fixtures, fittings and equipment £million Cost At 3 May 2008 and 2 May 2009 0.5 Depreciation At 4 May 2008 0.4 Charge for the period 0.1 At 2 May 2009 0.5 Net book value At 2 May 2009 –

At 3 May 2008 0.1

114 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(d) Fixed asset investments Subsidiary undertakings £million At 4 May 2008 1,716.7

Movement in the period 2.1 Performance Review At 2 May 2009 1,718.8

Details of the principal subsidiary undertakings are set out in note 34 to the consolidated financial statements.

(e) Debtors 2009 2008 £million £million Amounts due from subsidiary undertakings 14.7 11.6 Deferred taxation asset – 1.0 Other debtors 30.1 17.0 Prepayments and accrued income 9.1 1.1

53.9 30.7 Strategic Summary

(f) Bank overdrafts and borrowings Bank overdrafts are subject to a pooling arrangement with other Group companies and are repayable on demand. Current borrowings comprise £250 million (3 May 2008 £nil) which has been drawn down under the £400 million sterling committed facility (the Facility) at a weighted average effective yield of 4.88%. These borrowings have an average maturity of 62 days and are eligible for renewal under the terms of the Facility. The Facility has a maturity date of October 2011. On 30 April 2009, the terms of the Facility were revised such that interest margin was increased, additional guarantees are required to be given by certain subsidiaries within the Group, the financial covenants were amended, and a new capital expenditure covenant added. In addition, mandatory prepayment events, representations, other financial covenants, events of default and conditions on the payment of dividends have also been included. Interest on drawn amounts from this date is payable at LIBOR Corporate Governance plus a margin of 3.75%. The commitment fee on undrawn amounts is 1.875%. A utilisation fee of 0.5% is payable on drawings greater than £200 million but less than £300 million and a rate of 1.5% on drawings greater than £300 million. At 2 May 2009 and 3 May 2008 the available undrawn amount of the Facility, which expires after more than one year but no more than five years, was £149.9 million and £400 million, respectively.

(g) Creditors – falling due within one year 2009 2008 £million £million Amounts due to subsidiary undertakings 202.3 741.0 Accruals and deferred income 14.6 13.5 216.9 754.5 Financial Statements (h) Creditors – falling due after more than one year 2009 2008 £million £million Borrowings 6.125% Guaranteed Bonds 2012 320.1 289.5

The sterling denominated 6.125% Guaranteed Bonds 2012 (the Bonds), which 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. Further details are included in notes 17 and 22 of the consolidated financial statements. Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 115 Financial Statements Notes to the Parent Company Financial Statements continued

(i) Deferred taxation asset £million At 4 May 2008 1.0 Movement in the period (1.0) At 2 May 2009 –

Deferred taxation assets are included within debtors in note (e).

(j) Contingent liabilities 2009 2008 £million £million Guarantees 75.0 117.8 Other 1.8 14.1 76.8 131.9

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

(k) Shareholders’ funds and share capital Shareholders’ funds Share Capital Profit Share premium Investment redemption and loss capital account in own shares reserve account Total £million £million £million £million £million £million At 4 May 2008 44.3 169.4 (2.3) 5.0 527.7 744.1 Loss for the period ––––(59.7) (59.7) Equity dividends paid ––––(60.7) (60.7) Share-based payments ––––2.12.1 At 2 May 2009 44.3 169.4 (2.3) 5.0 409.4 625.8

As permitted by section 408 of the Companies Act 2006, no profit and loss account for the Company is included in these financial statements. Own shares held by the Group and the Company represent shares in the Company held by Halifax EES Trustees International Limited, further details of which are given in note 24. The 2,233,063 shares held at 2 May 2009 had a market value of £0.9 million (3 May 2008 2,233,063 shares held had a market value of £1.5 million) and their nominal value was £0.1 million (3 May 2008 £0.1 million). Reconciliation of movements in shareholders’ funds 2009 2008 £million £million Opening equity shareholders’ funds 744.1 876.2 (Loss) / profit for the period (59.7) 127.6 Equity dividends (60.7) (160.3) Purchase and cancellation of own shares – (100.0) Capital contribution for share-based payments 2.1 (2.2) Share-based payments – (0.4) Ordinary shares issued – 3.2 Net reductions to equity shareholders’ funds (118.3) (132.1) Closing equity shareholders’ funds 625.8 744.1

Called up share capital 2009 2008 £million £million Authorised 4,980,252,496 (3 May 2008 4,980,252,496) ordinary shares of 2.5p each 124.5 124.5 Allotted and fully paid 1,772,442,268 (3 May 2008 1,772,442,268) ordinary shares of 2.5p each 44.3 44.3

During the period, no shares (2007/08 2,911,826 shares) were issued in respect of options exercised under employee share option schemes.

116 DSG international plc Annual Report and Accounts 2008/09 Business Overview

(l) Post-retirement benefits DSG international plc 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. Performance Review The last valuation was carried out as at 5 April 2007, using the projected unit method and has been used to determine the level of funding to the scheme. The last actuarial valuation of the defined benefit section showed the value of assets to be sufficient to cover 92% of the benefits accrued to members after allowing for expected future increases in earnings. At 2 May 2009, the valuation of the defined benefit section for the purposes of FRS 17 showed a gross pension deficit of £148.8 million (3 May 2008 £51.0 million). Further particulars of the scheme are disclosed in note 21 to the consolidated financial statements, which although presented under IAS 19 ‘Employment Benefits’ show figures and disclosures equivalent to those applicable under FRS 17. Since 1 September 2002, the defined benefit section of the pension scheme has been closed to new entrants. Membership of the defined contribution section is now offered to eligible employees.

(m) Related parties The Company has applied the exemption allowed by FRS 8 (Amended) ‘Related Party Disclosures’ regarding disclosure of Strategic Summary transactions with other undertakings which are wholly-owned members of the DSG international plc Group. Material transactions, entered into in the ordinary course of business, with members of the DSG international plc Group which are not wholly-owned are disclosed below as well as the Group’s percentage holding. 2008/09 2007/08 Amounts Amounts Recharges to owed by Recharges to owed by / (to) related party related party related party related party £’000 £’000 £’000 £’000 DSGi South-East Europe A.E.V.E. (99.2%) 14.2 14.2 –– Pixmania S.A.S. (76.9%) 104.5 104.5 ––

(n) Post-balance sheet events Corporate Governance On 30 April 2009 the Group announced a Placing and Rights Issue to raise gross proceeds of £310.6 million, of which £100 million was to be raised by the Placing. The Placing comprised in aggregate 333,333,333 Placing Shares available for subscription at an issue price of 30p per Placing Share. The Rights Issue was made on the basis of five new shares for each seven eligible shares at 14p per new share. The Placing and Rights Issue were both approved by shareholders on 18 May 2009 and the receipt of proceeds was completed on 9 June 2009. Also on 30 April 2009 the Group announced that it had revised the terms of its £400 million revolving credit facility (The Facility) and Letter of Credit facility agreements (the Letters of Credit) which were effective immediately (subject to completion of the Placing and Rights Issue but which has now completed). The key elements of the revised terms are shown in note 17. The expiry date of the Facility remains unchanged at 13 October 2011. The final maturity date of the Letters of Credit is now 31 December 2010. Financial Statements Information for Shareholders

DSG international plc Annual Report and Accounts 2008/09 117 Information for Shareholders Five Year Record

Consolidated income statement 2008/09 2007/08(1) 2006/07(1) 2005/06(1) 2004/05(1) Re-presented Re-presented Re-presented Re-presented £million £million £million £million £million Underlying revenue(2) 8,227.0 8,338.6 7,834.5 6,888.2 6,392.1 Percentage change (1.3)% 6.4% 13.7% 7.8% Underlying operating profit(2) 77.4 212.6 286.2 295.1 270.3 Underlying net finance (costs)/income(2) (26.9) 13.0 21.7 26.6 28.3 Underlying profit before tax(2) 50.5 225.6 307.9 321.7 298.6 Percentage change (77.6)% (26.7)% (4.3)% 7.7% Businesses to be closed (14.1) (15.9) (5.5) (5.8) (2.5) Acquired intangible amortisation (4.9) (4.4) (4.7) (1.8) (1.1) Net restructuring costs and business impairment charges (59.1) (20.7) (55.4) (22.4) (15.4) Business impairment charges (107.3) (364.2) (115.1) – – Other items 1.9 – – (4.1) – Effect of changes in pension benefits – – 4.7 – – Profit on sale of investment – 1.7 – 2.9 16.3 Net fair value remeasurements (7.4) (6.2) (10.5) 10.3 – (Loss) / profit before tax – continuing operations (140.4) (184.1) 121.4 300.8 295.9 Income tax expense (56.8) (66.0) (77.3) (88.2) (73.2) (Loss) / profit after tax – continuing operations (197.2) (250.1) 44.1 212.6 222.7 (Loss) / profit after tax – discontinued operations (22.1) (9.6) (41.7) (0.9) 23.3 (Loss) / profit for the period (219.3) (259.7) 2.4 211.7 246.0

Underlying diluted earnings per share (pence)(2) 0.7p 7.2p 9.6p 10.2p 9.3p Percentage change (90.3)% (25.0)% (5.9)% 9.7% Dividends per ordinary share (pence) – 5.45p 8.87p 8.45p 8.05p Percentage change (100)% (38.6)% 5.0% 5.0%

Consolidated cash flow 2008/09 2007/08 2006/07 2005/06 2004/05 Re-presented Re-presented Re-presented Re-presented £million £million £million £million £million Underlying profit before tax(2) 50.5 225.6 307.9 321.7 298.6 Businesses to be closed profit before tax (14.1) (15.9) (5.5) (5.8) (2.5) Depreciation and amortisation 135.7 137.1 137.4 131.1 127.9 Working capital movements (287.5) 8.6 (15.8) 15.7 41.6 Taxation (35.7) (53.1) (100.8) (85.0) (84.0) Net capital expenditure (131.0) (124.2) (109.7) (80.7) (106.2) Other (65.8) (48.9) 15.9 (33.6)(3) 14.4(3) Free Cash Flow before restructuring items(4) (347.9) 129.2 229.4 263.4 289.8 Net restructuring and other one-off items (64.7) (37.6) (63.6) 33.9 – Free Cash Flow(4) (412.6) 91.6 165.8 297.3 289.8

Unrestricted net (borrowings) / funds(5) Closing net (borrowings) / funds (477.5) 50.1 224.9 439.6 495.8 Less restricted funds (67.6) (66.5) (111.2) (193.5) (312.3) Unrestricted net (borrowings) / funds (545.1) (16.4) 113.7 246.1 183.5

118 DSG international plc Annual Report and Accounts 2008/09 Business Overview

Consolidated Balance Sheet 2009 2008 2007 2006 2005 £million £million £million £million £million Non-current assets Goodwill 1,069.1 984.3 1,057.1 1,087.6 1,004.2 Intangible assets 148.4 143.9 127.7 109.7 107.8 Performance Review Tangible assets 489.6 531.3 580.6 641.4 600.4 Other non-current assets 248.6 154.7 144.2 187.0 194.1 1,955.7 1,814.2 1,909.6 2,025.7 1,906.5 Current assets Inventories 971.9 1,093.1 1,030.6 873.4 811.3 Other current assets 516.5 501.7 409.9 370.4 375.2 Short term investments 9.0 82.0 185.9 232.6 306.5 Cash and cash equivalents 192.6 365.8 440.5 617.5 704.5 1,690.0 2,042.6 2,066.9 2,093.9 2,197.5 Assets held for sale 13.2 –––– Strategic Summary Total assets 3,658.9 3,856.8 3,976.5 4,119.6 4,104.0

Current liabilities Bank overdrafts (4.8) (2.1) (5.7) – (107.1) Other borrowings (250.1) (0.2) (2.9) (8.8) (34.7) Obligations under finance leases (2.8) (1.5) (1.0) (0.5) (0.4) Other current liabilities (1,722.5) (2,070.1) (1,827.1) (1,712.1) (1,481.3) Provisions (72.1) (46.2) (32.7) (27.7) (7.0) (2,052.3) (2,120.1) (1,869.4) (1,749.1) (1,630.5) Net current (liabilities) / assets (362.3) (77.5) 197.5 344.8 567.0

Non-current liabilities Corporate Governance Borrowings (322.5) (294.6) (290.4) (301.1) (317.9) Obligations under finance leases (98.9) (99.3) (101.5) (100.1) (55.1) Retirement benefit obligations (153.0) (54.0) (38.4) (141.7) (186.5) Other non-current liabilities (392.5) (384.2) (354.1) (393.1) (455.3) Provisions (40.4) (51.1) (18.4) (10.8) (7.7) (1,007.3) (883.2) (802.8) (946.8) (1,022.5) Liabilities directly associated with assets classified as held for sale (14.4) –––– Total liabilities (3,074.0) (3,003.3) (2,672.2) (2,695.9) (2,653.0) Net assets 584.9 853.5 1,304.3 1,423.7 1,451.0 Financial Statements Equity shareholders’ funds 558.9 826.7 1,281.7 1,414.4 1,408.7 Equity minority interests 26.0 26.8 22.6 9.3 42.3 Total equity 584.9 853.5 1,304.3 1,423.7 1,451.0 Notes: (1) Underlying figures for the 53 weeks ended 3 May 2008 and all previous periods have been re-presented to exclude the trading results of businesses to be closed whereby such closures were announced in 2008/09 and the results of discontinued operations. (2) Underlying figures exclude the effects of trading results of businesses to be closed, acquired intangible amortisation, exceptional asset impairments, net restructuring charges and business impairment 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. (3) Net cash generated from operations includes dividend payments to minority shareholders. (4) Free Cash Flow relates to continuing operations and comprises net cash flow generated from operations before special pension contributions plus net finance income, less income tax and net capital expenditure. (5) Unrestricted net funds / (borrowings) comprise cash and cash equivalents, short term investments and borrowings and exclude restricted funds which relate principally to those in respect Information for Shareholders of customer support agreement liabilities.

DSG international plc Annual Report and Accounts 2008/09 119 Information for Shareholders Shareholder Information

Registered office Dividend payments made in foreign currencies Maylands Avenue, Hemel Hempstead, Hertfordshire Our Registrars are now able to convert dividends to certain HP2 7TG. Registered No. 3847921. www.dsgiplc.com foreign currencies payable through the Bank of New York. More details are available by contacting the Registrars on Registrars and transfer office +44 (0)20 8639 3405 or by visiting their website, Registrars Limited, Northern House, Woodsome Park, www.capitaregistrars.com/international Fenay Bridge, Huddersfield, West Yorkshire HD8 0GA. Tel: 0871 664 0300 (calls cost 10p per minute plus network CREST extras). If calling from abroad the number is +44 20 8639 3399. The Company’s shares are traded on CREST. CREST is The website address is www.capitaregistrars.com a voluntary system which enables shareholders to hold and transfer their shareholdings electronically rather than Joint brokers by paper. Shareholders holding shares in this way can opt Citigroup Global Markets, JP Morgan Cazenove. to receive their dividends through the CREST system. Shareholder enquiries Unsolicited mail Shareholders can access shareholding details over the internet. The Company is obliged to make its share register available to The web address for our Registrars’ site is shown above. As third parties on payment of a prescribed fee. This may result in well as checking name, address and shareholding details in shareholders receiving unsolicited mail. If you wish to limit the the Shareholder Help section, you can download change of receipt of unsolicited mail you should write to: address, dividend mandate and stock transfer forms. This is a secure site and you will need to register first. Please follow The Mailing Preference Service, FREEPOST 22, the simple instructions on the website. So that the system can London W1E 7ER or register on their website at validate your enquiries an Investor Code is required. This is a www.mpsonline.org numerical account number and can be found on both your ShareGift share certificate and your dividend tax counterfoil. The Orr Mackintosh Foundation operates a charity share Share dealing service donation scheme for shareholders with small parcels of Online and telephone share dealing services are available shares whose value makes it uneconomic to sell them. through our Registrars, providing easy access and simple Details of the scheme are available on the ShareGift internet to use services. There is no need to pre-register and the site, www.sharegift.org 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. In order to deal via these facilities you will need Alternative format your Investor Code (see above) as well as stating your surname, full postcode and date of birth. Details of the online If you would like this Annual Report dealing service are available on www.capitadeal.com and the telephone dealing service is on 0871 664 0454 (calls cost and Accounts or any other shareholder 10p per minute plus network extras). Lines are open Monday documentation in an alternative to Friday 8.00am to 4.30pm. format, please send a request to Cazenove operates a postal share dealing service for private investors who wish to buy or sell the Company’s shares. [email protected] Details are available from Cazenove. Tel: 020 7155 5328. If you wish to receive hard copies of all documents in the Dividend mandate future please contact Capita Registrars and they will record If you wish your dividends to be paid directly into a bank or this preference against your name on the share register. You building society account you should contact the Registrars can contact Capita Registrars, Shareholder Administration for a dividend mandate form or download one from the Support, 34 Beckenham Road, Beckenham, Kent BR3 9ZA. Registrars’ website shown above. This method of payment reduces the risk of delay or loss of dividend cheques in the post and ensures that your account is credited on the dividend payment date.

120 DSG international plc Annual Report and Accounts 2008/09 Index

Page Page Accounting policies 68-74 Intangible assets 88 Accounting estimates & judgements 72, 73 IFRS 68 Acquired intangibles 88 Inventories 71, 73, 90 Acquisitions 107 Key Performance Indicators 29, 35 Amortisation 88 Associates 89, 90 Long Term Incentive Plan (LTIP) 53, 54, 59, 104 Auditor’s Remuneration 79 Market/Marketplace 31, 34 Balance Sheet 27, 66 Merger reserve 102 Borrowings and borrowing facilities 92 Non-underlying items and definition 24, 80, 81 Brands 6, 88 Operating lease charges / commitments 79, 109 Capital commitments 108 Capital expenditure 67, 89 Pensions 27, 94-97 Cash and cash equivalents 91 Performance Share Plan (PSP) 53, 54, 104 Community 33 Placing and Rights Issue 42, 110 Contingent liabilities 109 Post balance sheet events 110 Cost of sales 78 Property losses 26 Provisions 94 Deferred tax 85 Depreciation 89 Reward shares 54 Directors’ emoluments 58 Related party transactions 109 Directors’ interests 57, 59, 60 Renewal and Transformation plan 9, 10-13, 14 Directors’ report index 42 Rights Issue 42, 110 Disposals 107, 108, 110 Segmental analysis 74-78 Dividends 26, 103 Selling space 7 Earnings/loss per share 86 Share-based payments 103-105 Employees 30, 31, 83 Share capital 101 Employee numbers 7, 83 Share options 54-55, 103-105 Environment 32 Share premium 102 Short term investments 91 Finance costs/income 26, 82 Store numbers 7 Finance leases 93 Subsidiary undertakings 110 Financial instruments 97-101 Five point plan 1-5, 10-13 Tax 26, 83-85 Free Cash Flow 25, 67 Total Shareholder Return (TSR) 57 Funding 25, 26, 92 Trade & other payables 93 Trade & other receivables 90, 91 Going concern 44 Treasury policy 37, 38 Goodwill 87, 88 Underlying definition 68 Health and Safety 30 Hedging reserve 102 Workplace 30, 31

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DSG international plc Annual Report and Accounts 2008/09 121 Maylands Avenue Hemel Hempstead Hertfordshire HP2 7TG

Tel 0844 800 2030 www.dsgiplc.com