Dixons plc plc Retail Accounts and Report Annual 2010/11 Bringing to life technology

Annual Report and Accounts 2010/11 plc

www.dixonsretail.com Tel 0844 800 2030 800 0844 Tel HP2 7TG HP2 Hertfordshire Hemel Maylands Avenue Maylands Dixons Retail plc plc Retail Dixons Dixons Retail plc is a specialist electrical retailer and services company which sells consumer electronics, personal computers, domestic appliances, photographic equipment, communication products and related services.

We are one of ’s leading specialist electrical retailing groups. We trade through over 1,200 stores and online, spanning 28 countries and we employ 38,000 people.

www.dixonsretail.com

Designed and produced by MerchantCantos www.merchantcantos.com Photography by Dennis Davis: Dennis Davis Photography and Dixons Retail plc Digital Studio. Printed at St Ives Westerham Press Ltd, ISO9001, ISO14001, FSC certified and CarbonNeutral The papers used in this report are Revive 50:50 Silk and Revive 50:50 Offset. They are produced from 50% recycled fibre from both pre- and post-consumer waste sources, together with 50% Elemental Chlorine Free fibre from well-managed forests independently certified according to the rules of the Forest Stewardship Council. The inks used are all vegetable oil based.

Dixons Retail plc Annual Report and Accounts 2010/11 01 Business Overview 02 Group at a Glance Business --

Highlights 05 Overview 04 Chairman’s Statement 05 Chief Executive’s Review 08 Strategic Summary Underlying Group sales(1) Directors’ 08 Bringing life to Strategic -- (£million) Report Summary technology 22 and 16 Business Model 2010/11 8,154.4 18 Looking Forward 2009/10 8,320.0 Business 19 Key Performance 2008/09 7,955.8 Review Indicators 20 Risks to Achieving the 2007/08 8,074.8 Group’s Objectives 2006/07 7,531.7

EBIT(4)

(£million) 23 Performance Review 23 Overview Performance -- 2010/11 127.6 Review 25 UK & 35 2009/10 133.2 26 Nordics 27 Other International 2008/09 95.3 28 Pure Play e-commerce 2007/08 214.3 29 Group Financial 2006/07 279.2 Summary 32 Corporate Responsibility Report Underlying profit before tax(1) (£million)

2010/11 85.3 36 Corporate Governance 36 Board of Directors 2009/10 90.9 Corporate -- Governance 37 Executive Committee 55 2008/09 70.6 38 Statutory Information 2007/08 228.4 40 Corporate Governance Report 2006/07 304.2 44 Audit Committee Report 45 Nominations Committee Report Underlying diluted earnings per share(1,5) 46 Remuneration Report (pence) 55 Directors’ Responsibilities 2010/11 1.6

2009/10 1.5 56 Financial Statements Financial 56 Independent Auditor’s 62  Notes to the 2008/09 1.3 -- Statements Report Consolidated Financial 119 2007/08 7.0 57 Consolidated Income Statements Statement 108 Company Balance 2006/07 9.4 58 Consolidated Statement Sheet of Comprehensive 109 Company Cash Income and Expense Flow Statement 59 Consolidated Balance 110 Company Statement of Note: References related to definitions appear on page 24. Sheet Changes in Equity 60 Consolidated Cash Flow 111 Notes to the Company Statement Financial Statements 61 Consolidated Statement of Changes in Equity 120 Shareholder Information Shareholder 120 Five Year Record Information 122 Shareholder -- Information 124 123 Index

Cautionary statement Certain statements 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.

Dixons Retail plc Annual Report and Accounts 01 2010/11

Directors’ Report Business Overview Leading European Group at a Glance electrical retailing and services company

www..co.uk www.elkjop.no www.pcworld.co.uk www..se www.dsgibusiness.com www.elgiganten.dk www.knowhow.co.uk www.gigantti.fi www.lefdal.com

UK & Ireland Nordics

For more information please go to page 25 For more information please go to page 26 Our brands Currys and PC World are the UK & Ireland’s Our brands Elkjøp is the leading specialist electrical largest specialist electrical retailing and retailer across the Nordics. services chains. Elkjøp and Lefdal stores operate in We operate from High Street stores, , El Giganten in and Superstores and Megastores. We are and Gigantti in . increasingly opening combined 2-in-1 Currys and PC World stores across all formats, bringing customers the benefits of both brands in one convenient location. stores are based at all major UK airports. KNOWHOW is our new market leading services brand.

Highlights Highlights Our Renewal and Transformation plan is working and customers Elkjøp continues to perform strongly in all of its markets and is are experiencing better store environments, improved ranges and expanding its business significantly as we grow market share increased levels of service. across the Nordic region. Elkjøp operates an efficient operating model with centralised warehousing in Sweden serving all four 250 stores have been transformed so far, 31 of which are principal markets in which it operates. With the lowest store- Megastores. based cost to sales ratio in the Group it provides the basis for the We launched KNOWHOW, our new face of service and product favoured operating model for the Group. support which puts customers at the heart of everything we do. Elkjøp is increasing its footprint through Megastores by extending This features delivery and installation, set up of equipment and or refitting existing stores as well as refurbishing superstores to upgrades, help and support as well as repairs and protection. the new Group format. During the year Elkjøp delivered strong The multi-channel offering provides customers with the performance in Norway and delivered particularly strong convenience of online shopping alongside the accessibility improvement in Denmark, Finland and Sweden. of our stores, particularly through the reserve&collect facility. Dixons Travel is expanding its brand overseas with operations now in , Rome, Milan and Dublin airports.

Underlying sales Number of stores Selling space Underlying sales Number of stores Selling space (£million) (‘000 sq ft) (£million) (‘000 sq ft) 3,816.1 642 8,187 2,268.9 285 4,223 Average selling area Average employees Average selling area Average employees per store per store (sq ft) (sq ft) 12,752 23,091 14,818 7,343

Dixons Retail plc 02 Annual Report and Accounts 2010/11 01 Business Overview Underlying sales by division Directors’ Report 1 -- Business Overview (£million) 4 05

3 1 UK & Ireland £3,816.1m 2 Nordics £2,268.9m 3 Other International £1,226.7m 4 Pure play e-commerce £842.7m 2

www..gr www..com www.unieuro.it www.dixons.co.uk www.electroworld.cz www.electroworld.gr www.electroworld.com.tr

Other International Pure play e-commerce

For more information please go to page 27 For more information please go to page 28 Our brands Kotsovolos is ’s leading specialist Our brands PIXmania is one of the largest pure play electrical retailer. electrical retailers in Europe operating in 26 countries. In Italy, we operate Unieuro electrical stores with some as combined 2-in-1 Dixons.co.uk is one of the leading UK Unieuro and PC City stores. online electrical retail brands. In the and , we operate under the brand. In , we operate the Electro World brand with a local joint venture partner.

Highlights Highlights The turnaround in Italy remains on track and the business Our pure play brands work together with our store based delivered a positive EBITDA performance in the year, the first for multi-channel brands to provide our customers with the shopping several years. trip that suits their needs. Trading conditions in Greece remain difficult, however, Kotsovolos Overall the Group continues to see strong growth in the continues to generate cash and as market leader is well multi-channel operations. positioned to gain further market share. The functionality of PIXmania’s e-merchant platform was Electro World in Central Europe is already a leading brand and is developed further for Dixons.co.uk to provide an improved online well positioned for the development of the Czech and Slovakian shopping experience. markets in the medium term. Electro World in Turkey remains a long term opportunity for the Group with our joint venture partner.

Underlying sales Number of stores Selling space Underlying sales Number of stores Selling space (£million) (‘000 sq ft) (£million) (‘000 sq ft) 1,226.7 308 4,429 842.7 17 24 Average selling area Average employees Average selling area Average employees per store per store (sq ft) (sq ft) 14,380 6,191 1,412 1,398

Dixons Retail plc Annual Report and Accounts 03 2010/11

Directors’ Report In March this year we launched the KNOWHOW brand in the UK Business Overview which encompasses all our after-sales services. KNOWHOW clearly puts the customer at the heart of everything we do and Chairman’s Statement empowers all our colleagues to focus determinedly on our customers. Our KNOWHOW distribution and repair centre in John Allan Newark is world class. The logistics, distribution, repair and services areas are far better than many of our competitors. The efficient operation illustrates how far we have progressed in getting it right for customers first time.

During the early part of the financial year we successfully issued a £150 million bond due 2015, which enabled us to repurchase just under half of the Group’s existing 2012 Bonds as well as extend the maturity of the Group’s working capital facility to 2013. This gives the Group a much more appropriate maturity profile on its debt facilities.

We have made significant progress in transforming our stores with over 360 stores now in the Group’s new format, including 65 Megastores across the Group. With a solid base of stores now transformed and significant improvements having been made to the Group’s operational processes we can now manage our capital expenditure carefully to ensure the Group has adequate capital to repay the remaining 2012 Bonds irrespective of the Delivering a better trading environment. experience for Recognising challenging conditions in some of our markets, and the ongoing business restructuring under the Renewal and customers will Transformation plan, we have reviewed the balance sheet and made impairment and other non-underlying charges totalling position the Group for £309.4 million. The additional cash impact of these charges is estimated as £39 million, of which approximately £8 million was significant progress incurred in 2010/11. when the economic This year, the Group selected two national charities to support, Lifelites and the e-Learning Foundation, which help to provide environment recovers access to technology for disadvantaged children or those with disabilities. I am very proud of our colleagues, who have organised so many fundraising activities throughout the year for both these charities as well as a number of charities local to the communities in which our stores operate.

This year we welcomed Dharmash Mistry to the Board as a non-executive director, who has substantial retail experience in consumer-facing and internet businesses.

This has been a year when the economic environment has The year ahead remains a challenging one, particularly in the UK, remained particularly challenging in many of the markets in Greece and Italy. Your Board is confident that the changes that which we operate. The Group has, however, remained focused have been, and are being, made to the Group will enable it to on delivering a better experience for customers, which will navigate the difficult environment ahead in a better shape than it position the business for significant progress when the has ever been. I would like to thank the management team led by economic environment improves. John Browett, and in addition all of our colleagues across the Group, for their persistent hard work. I am convinced that we will I am conscious that the Group has made only limited progress in emerge increasingly as a winner in the electricals and services financial returns year on year, but I can assure you that the Board is market as the economy recovers. alive to the need to improve returns for shareholders. The work under the Renewal and Transformation plan has continued which will make the business better for our customers, simpler for our colleagues to manage and cheaper to run. This has started to show encouraging developments with improvements in customer satisfaction measures; we have maintained gross margins over the last two years in the face of competitive and challenging markets; John Allan our operations in the Nordics continue to go from strength to Chairman strength with sales up eight per cent. over the last year; we have taken decisive action in Spain to close our operations in a market where we saw little opportunity for short to medium term profitable recovery; and we have reduced costs by £50 million in the year.

Dixons Retail plc 04 Annual Report and Accounts 2010/11 01 Business Overview

Directors’ Report --

Business Overview 05 They’re Chief Executive’s Review interested in working out John Browett what’s right They deal with for me queries and It’s an exciting complaints place to be brilliantly

Customer They make plan things work It’s easy and keep to shop them working

The prices I can get are good what I want Our objective is to when I want it make the business based Product Learning Centre. We have also worked with better for customers, suppliers in the UK to hold over 900 workshops, enabling our colleagues to immerse themselves in fully understanding the easier for colleagues features and benefits of a wide range of products, ensuring they can explain the exciting technology we sell to our customers. and cheaper to operate We have also introduced a new colleague scheduling tool to all our shops in the UK to better ensure colleague availability meets our customer footfall patterns. This has already improved the measure of our colleague availability to our customers’ footfall in our stores by 20%.

Our objective is to be famous for great service. Our operations in the Nordics are already famed for excellent customer service and we can take many learnings from them and make further improvements as we roll out our vision to our other businesses. Through the actions so far we have made great progress with customer satisfaction metrics improving significantly since we started the Renewal and Transformation plan. In the year ahead there is much more we can do. Our new KNOWHOW services The tough economic backdrop in many of our markets has made brand, launched in the UK at the beginning of 2011, embodies this a difficult year. Nonetheless, we have been able to balance the behavioural attitudes that deliver a fantastic experience for improving our offer for customers whilst maintaining profitability. our customers. Improved services and enhanced training plans The shopping trip we provide to customers is more competitive will give our colleagues further tools to ensure every customer and we see the impact on our business as we make our offer gets the right solution for their needs. even better. Customers come to our stores because they are looking for great new products; however, they need a complete It’s an exciting place to be solution to get the best out of the latest technology. It is our job We continue to develop our stores, making them exciting places to make sure they leave our stores with the right products and to experience technology and find the right solutions for our services to meet all their needs. Increasingly, we are seeing the customers’ needs. During the year we transformed over 130 benefits of selling services effectively, particularly with the launch stores across the Group, which included 32 Megastores. In Italy of KNOWHOW in the UK. the combined 2-in-1 format of Unieuro and PC City is now open in 19 locations and is proving to be a format that is as popular Our Customer Plan is at the heart of the business and a key with Italian customers as it is in the UK. This to me proves that element of delivering on our core purpose of bringing life to a well designed store and customer offer works across many technology, so I thought I would again lay out our progress in markets. In the Nordics we now have 20 Megastores and will the last year under the plan. As ever, our objective is to make continue to transform stores to the larger Megastore format there the business better for customers, easier for colleagues and in the years ahead. In the UK we now operate 31 Megastores cheaper to operate. and 56 combined 2-in-1 Currys and PC World superstores. We have also introduced the 2-in-1 format to the High Street with They’re interested in working out what’s great initial results. These new store formats are consistently right for me delivering gross profit uplifts of between 15% and 20% and in Our unique FIVES training programme has formed the basis of some cases higher in the first year versus the unrefurbished ensuring all our colleagues across Europe are equipped with the estate. Encouragingly they are maintaining these uplifts into the right tools to understand and meet customers’ needs. This year second year. we have continued to refine and develop FIVES training, with colleagues attending many refresher courses. Alongside this we have introduced better product learning tools under our web

Dixons Retail plc Annual Report and Accounts 05 2010/11

Directors’ Report A significant validation of the changes we are making manifested Business Overview itself in the fact that we were a key partner for Apple’s launch of the iPad in the UK. The fact that our stores are great places for Chief Executive’s Review new technology where products can be demonstrated and their continued features explained fully is why Apple chose to partner with us on this important product launch. In October 2010 we launched an exciting new advertising campaign around the Megastore format in the UK, featuring R2D2 and C3PO from the Star Wars films, which was hugely popular with customers. It is testament to the work we are doing that Lucas Films allowed their iconic Star Wars characters to be used to advertise ‘the greatest technology stores in our universe’. We have also started to implement in-store demonstrations which bring the features and benefits of kitchen appliances to life in our stores with the introduction of live kitchens.

Having integrated PIXmania’s market leading e-merchant platform into our UK sites we have now been able to improve the customer offer on both the pure play internet business of dixons.co.uk and our multi-channel businesses such as currys.co.uk and pcworld.co.uk.

We are also looking at ways to raise the bar in our store formats even higher and during the year we opened a trial store in Birmingham called Black. The aim is to trial new ways of merchandising and demonstrating high end technology products as well as integrating our new KNOWHOW services into the proposition. During 2011 we will learn from this trial and will be using the elements that customers like the most in all our store transformations. It’s easy to shop Our new store layout and improved websites make it easier than ever before for our customers to choose the right product. We have made great progress this year in helping customers choose the right product for their needs through clearer signage and better information at point of sale, helping to untangle technology for our customers.

Our reserve&collect facility is proving to be a great success with our customers, giving them the ease of the internet combined with the convenience of our stores. In the last year we have seen our multi-channel internet sales, driven by reserve&collect, rise by 13% across the Group.

In the year ahead we will make further improvements to our multi-channel offering providing customers with improved information on our websites as well as access to a wider range of products online and in-store through our websites. I can get what I want when I want it We have launched our own label brands of Currys and PC World essentials, Logik, Advent, Goji and Sandstrøm. Having had over 70 different own brands previously, this simplified our offering and gives customers a clear good-better-best range of products from which to choose.

With our partner, Phones4U, we opened 57 shop in shops, giving our customers access to the latest smartphones and networks from one of the UK’s largest mobile phone retailers.

We must ensure that we provide excellent service to our customers every time we come into contact with them. Through our ‘At home with FIVES’ training we can ensure that a customer has everything they need when we visit their homes, reducing the need for a further call out by 52%.

Having made significant progress in managing our stock in the warehouse and in-store across the Group, this year we plan to simplify processes still further which will improve availability online and in-store while freeing up more time for our colleagues to spend with customers.

As a part of the KNOWHOW rollout to our home services team we have introduced Personal Digital Assistants (PDAs) to the team which will help improve customer feedback and time management of our colleagues.

Dixons Retail plc 06 Annual Report and Accounts 2010/11 The prices are good 01 Business Overview --

Our scale across Europe means that we are continually able As you can see, the volume of work on our Renewal and 05 to give our customers the latest products at the best prices. Transformation plan is still very high. Our reward is improving We monitor prices against our competitors regularly with, for customer satisfaction and higher share in many of our markets. example, over 300,000 products checked every week in the UK, We are starting to stand out for customers and we have so we know we are offering real value to our customers every much more to deliver to make our customers’ shopping trip day. All this is backed up by our market leading price promise even better. to refund 110% of the difference if a customer finds the same product cheaper elsewhere. These achievements would not be possible without the enthusiasm, dedication and hard work of our 38,000 colleagues There are further changes we plan to make in the year ahead. across the business and I would like to thank them all for their By simplifying our promotions processes, for example, we can contribution to making Dixons Retail a great business. give customers better deals on new products by making our own brand products even better value through cost reductions and Outlook giving customers good, better and best choices across The economic backdrop remains challenging, particularly in the our ranges. We are also conscious that not all of our customers first half as we anniversary the World Cup and iPad launch. are aware of the significant value we offer compared to our However the Group is well prepared for this environment. We are competitors, so we will start to improve the communication of creating a market leading differentiated customer offer, leaving us that messaging in the year ahead. well set to emerge from the current climate ahead of the competition. They make things work and keep them working This was a significant year for our support services. We brought the majority of the service operations in house in the UK. We know we can only improve the service we offer by owning and being directly responsible for all contacts with our customers. That enabled us to launch the KNOWHOW brand bringing together the home services, distribution, contact centre and repair operations. With all these services now operating as one John Browett clear customer focused brand we have already started to see Chief Executive the benefits for our customers. I am immensely proud of our colleagues’ enthusiasm for the KNOWHOW brand, but more importantly their desire to really help customers as much as possible every step of the way through the lifecycle of the technology they use. Our turnaround times for repair products is faster, with 93% being returned at a pre-booked time. Our right first time delivery is one of the highest in the industry and our customer satisfaction levels are continually improving.

Under the KNOWHOW brand we will make further improvements to the services our customers receive by, for example, shortening the repair times even further; enabling customers to track their product while it is being repaired; and a ‘no lemons’ policy which means that, under our support agreements, if we fail to fix the product properly after three attempts a customer can request a replacement. We will also start to roll out the KNOWHOW services to our international businesses. This is a multi-year project which will require tailoring to each market, but our customers need our help with their products wherever they are, so this presents a major opportunity for our customers and our shareholders. They deal with queries and complaints brilliantly This year we consolidated our UK call centres into one location in as well as enabled many of our call centre colleagues to work from home, increasing the ability to match colleague availability with customer calls. By analysing the reasons why customers call us and providing them with better information to reduce the need to call us, we have reduced the number of calls we receive by 11%. Together with increased cross skilling we have increased the availability and ability of our colleagues to resolve customers’ issues. As a result we have seen increased customer satisfaction and reduced repeat calls. We have also made the processes for stores dealing with customers’ issues easier for our colleagues and better for our customers.

In the year ahead we will improve our systems further so that customers and their products can be identified more easily when they call. We will continue to identify the root cause of customer calls and eliminate the need for customers to call in the first place.

Dixons Retail plc Annual Report and Accounts 07 2010/11

‘‘ I love to capture the moment’’

“Point and shoot and the moment’s captured. Transferred over to my iPad 2 and my photos are ready to edit, print or upload to the internet to share with my mates. The guys at Currys helped me find the right camera, lens and memory card too. They explained how to use KNOWHOW online storage solutions where I can save my precious photos, music and videos. It’s amazing. It’s exactly what I need. Shoot, save and share!”

The Nikon D5100 Digital SLR Camera Technology at your fingertips with the Have fun taking perspective shots with the delivers crystal clear images. It boasts iPad 2. Games, maps, apps, reading, films Nikon 10.5mm SLR Fisheye Lens. The 8GB Full HD 1080p video recording options and photos have all been made faster and Kodak High Speed Memory Card means you with a 3” vari-angle LCD monitor making easier. Talk to your friends face to face can take action shots in quick succession it easy to look back at photos and films. using FaceTime and instantly upload photos and has plenty of space for storing photos and films for sharing online. Tablets are and films. revolutonising the way we interact with our digital content.

Dixons Retail plc 08 Annual Report and Accounts 2010/11 08 Strategic Summary -- 22

Dixons Retail plc Annual Report and Accounts 09 2010/11

Dixons Retail plc 10 Annual Report and Accounts 2010/11 ‘‘ We just want 08 Strategic Summary -- to have fun’’ 22

“You don’t need to use a controller with XBox Kinect™, just your body and voice. It’s magic! We jump, dance, drive and play and the Kinect™ senses it all. It’s even better when Mum and Dad or even Gran and Grandad join in. We can watch movies too. They look amazing on the 3DTV which the KNOWHOW man put on the wall. He even set up Mum and Dad’s Bose DVD home entertainment system and connected the Kinect™ to the internet. Our family has so much fun, I can’t wait for the weekends!”

Put on your 3D glasses and experience The Xbox Kinect sensor puts you into the For a premium home cinema surround sound breathtaking 3D films and TV programmes heart of the gaming action like never before. experience, connect a Bose Lifestyle® 38 on the Samsung 55” HD LED 3D Smart Your body is the game controller. You don’t DVD home entertainment system to your TV. TV with integrated Freeview. Its Smart Hub have to hold controllers or struggle with The HD viewing quality brings your films to provides access to the internet with features wires. Just jump in front of the sensor life. Audio can be shared in up to 14 rooms, and apps. Watch films through a connected and start playing. even outdoors. It can also store up to games console or stream them through 340 hours of digital music. the internet.

Dixons Retail plc Annual Report and Accounts 11 2010/11

‘‘ That’s a load off my mind’’

“A new baby boy, a football mad son, and a tap dancing daughter equates to a mountain of washing alone. I needed a large, high performance energy-efficient washing machine. The team at Currys suggested the LG Direct Drive – the answer to my prayers! It can take a huge 11kg wash load and is packed with features such as allergen sanitisation and Scrub motion – perfect for the kids’ clothes. It’s even got a Baby care wash programme and it’s so quiet. With KNOWHOW’s WHATEVER HAPPENS Kitchen Cover, I’ve got peace of mind too.”

Washing larger loads is light work with the Steam irons take the strain out of ironing, We will deliver your appliance at a time to 11kg load LG Direct Drive Washing Machine. cutting through the pile of ironing in no time. suit you and we’ll even recycle your old Inverter Technology means it effectively The ceramic soleplate and variable steam product for free. If you want us to install removes the dirt and bacteria that can settings mean you can use the GV8360 Pro it, we KNOWHOW. If it needs a minor or aggravate allergies and has an A++ rating for Express Turbo Steam Iron as a dry iron too. major repair, we’ll fix it....and if we can’t, we’ll energy efficiency. replace it. If you simply need a bit more help to get the most out of your purchase or even want an upgrade, we KNOWHOW to help you.

Dixons Retail plc 12 Annual Report and Accounts 2010/11 08 Strategic Summary -- 22

Dixons Retail plc Annual Report and Accounts 13 2010/11

Dixons Retail plc 14 Annual Report and Accounts 2010/11 ‘‘I need 08 Strategic Summary -- someone 22 with knowhow ’’

“Just bought myself a state of the art TV from Currys. Lovely stuff. Slimline LED screen, Hi Def and 3D ready to watch the footie with the lads. Trouble is, I said to the bloke who served me at Currys that I knew how to install it and set it up. Thought it would be easy. Turns out it’s pretty technical stuff and I can’t work out what goes where. I needed someone with KNOWHOW . Luckily, I called Currys and they said they will arrange for someone from the KNOWHOW team to come over and install it for me. Now all we need to worry about is keeping the beer chilled!”

Deliver & Install Set Up & Upgrade Help & Support Repair & Protect Our KNOWHOW team can Laptops, cameras, tablets, home Need data transferring to a new TV on the blink? Games console deliver and install your new networks.... we KNOWHOW to set PC, help with getting rid of a virus isn’t working quite right? We can product on a day and time to suit them up for you. If your PC needs on your laptop or help restoring repair your faulty PC, TV, games you, seven days a week. We’ll more memory or you simply missing data? We’re here to console and more in our state of even text you the night before need us to help with a software support you so you KNOWHOW the art repair lab and keep you up to remind you we’re coming. upgrade, we can visit you at home to do it next time. Or, simply call to date with its repair progress. or you can just pop into a store. us and we’ll help you 24/7 – again We KNOWHOW to fix it for you. and again.

Dixons Retail plc Annual Report and Accounts 15 2010/11

Directors’ Report Stores and internet Strategic Summary Convenience and ease of navigation are key in attracting customers to shop with us. Through the Renewal and Business Model Transformation plan (more detail of which can be found at www.dixonsretail.com) we are improving our stores, making them easier to shop with, for example, improved navigation, better signage, playtables to allow customers to interact with products before they buy, as well as good advice on features and benefits from our colleagues. We are also combining our PC World and Customers are Currys stores into 2-in-1 stores which give our customers greater access to our specialist computing offer combined with our at the heart of market leading mixed electrical offering, and enables us to improve our sales densities and rent to space mix. We favour the everything we do combined store format and we are implementing this in our stores across the Nordics and Other International businesses.

Bringing life to technology Our FIVES sales training programme combined with our Product Our customers are at the centre of an increasingly digitised world Learning Centres provides our colleagues with the right tools to which they can access and utilise in numerous different ways. really understand customers’ needs and to provide them with the Whether this be social media, online gaming, downloading complete solution to properly meet those needs. We will continue movies, sharing pictures, cloud computing or energy efficient to improve the training of our colleagues and the ways in which products, customers do not just come into our stores to buy we can help them be experts in the products we sell. products, but to find a solution to a need. It is our job to help find the right solution for our customers, ensuring they get the most Many of our customers research products online before coming out of the products they buy. As such we put our customers at in to store to buy, so ease of navigation, clear descriptions of the heart of everything we do. Our core purpose of bringing life to products and related information are important for our websites. technology embodies our belief that in this increasingly complex We are increasingly seeing customers combining the ease of the world our customers need solutions and help. From this core internet with the convenience of our stores by using our purpose we have built our customer plan which is discussed in reserve&collect service. In the UK, we have implemented the more detail in the Chief Executive’s Review on pages 5 to 7. market leading e-merchant platform from PIXmania which enables us to continually evolve and improve our online offer to As one of Europe’s leading specialist electrical retailing and ensure customers are engaged with our internet operations. services companies we operate a business model that supports delivery of our Customer Plan. Products Combining our customer insight with our market strength across Customer insight Europe we can make sure we have the right range of products In order to ensure we understand what our customers want, how in our stores to suit customers’ needs. Our scale means that they use the products they buy from us, and what they think of the we can work with suppliers to showcase the latest technology service they get from us, we use extensive customer insight. This and products in our stores, with areas dedicated to key suppliers’ includes discussions at customer panels, interviews, home visits products. This also enables us to get products exclusively in our and other research. This is supported by mystery shopping in our stores, such as the iPad on launch in 2010. own and competitors’ stores, exit surveys and customer feedback. We use this information to build our ranges, improve our stores and Own brand products enable us to offer customers a greater range services as well as help us with other business decisions. and choice of products at competitive prices. We have defined a clear good-better-best brand range of: Currys and PC World essentials; Logik; Advent; Goji; and Sandstrøm brands.

Customer insight

Store Internet Products After-sales Support service Sales advice Multi-channel Great brands Delivery & installation Easy to shop Pure play Wide range Set up & upgrade Playtables reserve&collect Exclusivity Help & support 2-in-1 store offering Specialist Own brand product Repair & protect

Value Choice Service

Low cost operating model

Dixons Retail plc 16 Annual Report and Accounts 2010/11 Directors’ Report Our low cost operating model drives continuous improvement Strategic Summary in our processes and services. This continuous improvement enables us to re-invest back into providing better value products Business Model and services to our customers. continued Direct ownership of the service infrastructure from end to end means we can ensure the best service at all touch points with our customers. We believe this gives us a unique operating After-sales services and support model for a specialist electrical retailer and a significant Many of our customers need help with their products, whether competitive advantage in meeting the needs of our customers. it be delivery and installation, keeping their products up and

running or repairing them when things go wrong. Our business While much of the improvement work has been focused on the 08 Strategic Summary in the UK & Ireland sets the benchmark for our services UK, core elements of the business model exist in our businesses -- infrastructure. In May 2011 we relaunched our services under in the Nordics and Other International divisions. Further services 22 the new KNOWHOW brand with four clear pillars of support under the KNOWHOW brand will be rolled out to these divisions for customers to choose from. over the medium term. We operate the largest network of two man deliveries in the UK Low cost operating model with around 60,000 deliveries per week enabling us to provide Dixons Retail operates in a highly competitive market. In order to customers with the convenience of next day delivery in a three hour deliver an unbeatable customer offer we need to have a low cost time slot or the value of a free delivery later. Our KNOWHOW team to sales ratio relative to the service based business we run. This in store, in our call centre and out in the field can provide set up means we have to: and upgrade services as well as online fix and back up services. Our market leading range of help and support services help ensure have sufficient scale economics in each market – usually a customer has the backing of expertise and support that keeps number one or two by market share; their technology up and running. In the event that a customer has lean business processes – minimising wasteful activity; a problem with their product we fix it. For example our state of the art repair facility in Newark repairs 600,000 laptops design our business processes end to end to minimise cost and televisions each year and is able to repair and return a and deliver a high quality of service; and laptop in six days. We offer customers a choice of support find new ways to continually improve what we do. agreements such as ‘Premier’ which provides them with a loan TV, for example, if theirs needs to be taken in for repair. We use a technique called Lean Six Sigma to re-engineer our business processes to make them better for customers, easier for colleagues to operate and therefore cheaper to run.

Through this low cost operating model we can deliver an unbeatable offer for customers meaning that they reward us with increased market share and improved returns for our shareholders.

Delivery & Recycling Computer Set up & Set up and Support Network Fault & Fix Built-in Cooker Installation Personalise Store & Protect Aerial Fault & Fix Cooker Installation Software Install & Check Virus & Spyware Removal WEH - Computing Washer and Dishwasher Operating System 24 7 Help and Advice WEH Premier -Computing Upgrade & Check Installation Store & Share WEH - TV Fridge Freezer Installation Camera Set up & Personalise PC Tune Up WEH Premier- TV TV Set Up & Demo Component Install & Check System Reset & Restore WEH - Kitchen TV Wallmount & Demo Network Set up & Secure Infinity WEH Premier - Kitchen Integrated Appliance Install Memory Install & Check Data Transfer & Check WEH - Technology Home Theatre Set Up & Data Wipe & Check Instant Replacement Demo Tablet Set up & Tutorial Data Rescue & Protect Games Console Fault Aerial Install & Tune Tablet Set up Tutorial & Internet Protection & Fix Aerial Multiroom Install and Desktop PC Fault & Fix Tune Netbook Set up Digibox Fault & Fix Freesat Setup & Demo Knowhow Appcentre Laptop Fault & Fix Freesat Install & Demo TV Fault & Fix Freesat + Install & Demo

WEH = Whateverhappens customer support agreements

Dixons Retail plc Annual Report and Accounts 17 2010/11

Directors’ Report Simplifying the shopping trip for our customers is key to helping Strategic Summary them buy the right solution as well as getting the best out of the technology they buy. This is why we created the customer Looking Forward journey in each category. We have trialled new ways of doing this in Black and elsewhere in our portfolio. We have now developed an improved customer journey around a vision which not only simplifies the technology for customers, but also helps them choose other products and services to get the complete solution. Trials of this have proved to be very successful and set the Keeping ahead of the groundwork for improved customer journeys in other categories. competition Added value services are a key differentiator in our business model (as discussed on page 17) and we will continue to innovate in this area. For example, having introduced PDAs for our delivery and installation team we are looking at other ways to use this technology, such as dynamic routing of our colleagues out in the The Group is making significant progress under the Renewal field to make sure we meet and even exceed customers’ needs, and Transformation plan. The operational processes across the the ability to provide customers with added value services while business are on a firmer foundation, the customer offer is better in their homes rather than on a second call out and use of the than it has ever been and costs are under control. data provided by the PDAs to improve processes.

Our offer for customers must continually improve. Here we set A lot of exciting things are going on, but we won’t sit still. We out just some of the innovations in the business which will enable will continue to innovate to deliver a better shopping trip for us to remain one step ahead of the competition and firmly our customers. focused on customer needs in every market in which we operate.

This year we opened an exciting new concept store called Black in Birmingham. This is a 15,000 sq ft high street store on three floors, totally new in design and positioned as the ultimate place to get up close with the most wanted gadgets around. It is a must-visit store, appealing to customers who love their brands and how their kit looks. We are using Black to conduct a variety of trials, exploring new ways of making the shopping trip and the presentation of our exciting technology and services even better for customers. A totally new store layout, department style disciplines in categories, interactive displays and new ways of merchandising are all being explored in this store. We have embedded the new KNOWHOW services brand in the store, providing areas for customers to use the services we can provide in a more interactive and relaxed environment. Our colleagues have been encouraged to explore new ways of excelling at providing high levels of services and better solutions for customers. The customer feedback has been very encouraging and we are already taking learnings from this format into the rest of the store portfolio across the Group.

Dixons Retail plc 18 Annual Report and Accounts 2010/11 For more information on our Corporate Directors’ Report Responsibility KPI’s see pages 32 to 35. Strategic Summary Key Performance Indicators 08 Strategic Summary

Financial and operational -- 22

Definition Performance Total underlying Growth in total underlying sales. The ability to grow sales is an (£million) sales important measure of a brand’s appeal to customers and its competitive position. 2010/11 8,154.4 2009/10 8,320.0 2008/09 7,955.8 Like for like The Board measures like for like sales as sales in stores that 2007/08 8,074.8 sales have been open for a full financial year both at the beginning 2010/11:2006/07 (2)% 7,531.7 and end of the financial period and are calculated using constant exchange rates. Customer support agreement sales 2009/10: +2% are excluded from all UK like for like calculations. Operations that are subject to closure have sales excluded as of the announcement date. Stores subject to a refurbishment are excluded during the period of refurbishment. All e-commerce pick-up store sales are included in like for like sales. Sales targets and growth are set relative to the market and expected economic conditions.

Market position In line with the Group’s strategy to be the leading specialist No.1 market positions in: electrical retailer in Europe, this is an important measure of how well customers are being engaged by the Group’s brands in UK & Ireland each market. Retailing operations should be, or be capable of Nordics becoming, the number one or number two specialist electrical Greece retailer in their market, measured by market share. Czech Republic

Underlying Continued growth of underlying operating profit enables (£million) the Group to invest in its future and provide a return for operating profit 2010/11 127.6 shareholders. Targets are set relative to expected market performance. 2009/10 133.2 2008/09 7,955.8 Underlying profit Continued growth of underlying profit before tax represents (£2007/08million) 8,074.8 before tax a measure of Group performance to external investors 2006/072010/11 7,531.785.3 and shareholders. Targets are set relative to expected market performance. 2009/10 90.9 2008/09 7,955.8 Free Cash Flow The Group defines Free Cash Flow as net cash generated 2007/08 8,074.8 from operations, less net finance costs, taxation and net 2010/11:2006/07 £10.0m 7,531.7 capital expenditure and excluding certain discrete items such as special pension contributions. The management of cash 2009/10: £(17.6)m 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

The level of growth in EPS provides a suitable measure of the Underlying diluted 2010/11: 1.6p earnings per share financial health of the Group and its ability to deliver returns to shareholders each year. The Group targets growth in EPS 2009/10: 1.5p (EPS) commensurate with growth in earnings.

Total Shareholder This metric provides a relative performance measure over Return (TSR) the longer term of the Group’s ability to deliver returns for shareholders. For 2009/10, the base which the Group used See graph on page 50 was to outperform a bespoke weighted average index of UK and European Retailers over a three year period. From 2010/11, the base has been to measure against the FTSE 250 Index (comprising FTSE 101-350 companies), excluding investment trusts, over a three year period.

Dixons Retail plc Annual Report and Accounts 19 2010/11

Directors’ Report Strategic Summary Risks to Achieving the Group’s Objectives

Risk management is an integral part of business management and it is something that Dixons Retail takes seriously. The Group has continued to develop its approach during the past year and has taken steps to integrate risk management into business decision making. In addition, the Board and Group Executive have invested time to identify and assess the key risks facing the business. The principal risks and uncertainties are set out below along with an illustration of what is being done to mitigate them: 1.Macro-economic risks

Risk Examples of mitigating action Economic environment Risk that the economic downturn is prolonged through 2011, Ongoing monitoring by Finance and the Executive Committee, particularly in the UK including review of portfolio of the businesses Renewal and Transformation plan to improve our business performance irrespective of macro economic factors Strategy and business planning which takes into account varying economic scenarios Market specific characteristics Seasonality – A substantial proportion of revenue and operating Financial planning takes into account expected peaks and troughs profit is generated during the third financial quarter, which during the year and the business is run accordingly includes the Christmas and New Year season. Adverse trading Increasing the proportion of services related business, which offers in this relatively short period is likely to impact significantly the a regular stream of income over the course of the year full year’s results

Price deflation – Price deflation has been a common feature Effective launches of new technology as it becomes available to across most electrical goods categories for a number of years, the market primarily driven by technological advances and improved Growth of services related business to increase the number and production efficiencies value of non-product sales Improve gross profit uplifts in transformed stores Control of stock and strong management over clearance and exit routes 2.Competitor and market place risks

Risk Examples of mitigating action Competition Competitors reduce the Group’s market share and/or drive down Renewal and Transformation plan is improving our stores, cost margins in specific markets structure and service proposition Continuing development of strong online brands, notably PIXmania and Dixons.co.uk Ensuring our prices offer good value, including a customer price index Continuing to take money out of our cost base, and leveraging group-wide benefits where opportunities arise Building ever stronger relationships with suppliers

Dixons Retail plc 20 Annual Report and Accounts 2010/11 Directors’ Report Strategic Summary 08 Strategic Summary

2.Competitor and market place risks continued -- 22

Risk Examples of mitigating action Changing technology/consumer preferences Risk that we fail to capitalise on new technology or emerging Strong supplier relationships (e.g. UK launch partner of trends to maximise revenues Apple iPad) Delivery of Customer Plan to respond to identified changes in technology Store transformations to take into account emerging trends in store layouts Exciting product launches to make our stores the destination for the latest technology (e.g. 3D TVs)

Our retail brands fail to meet the expectations of customers Understanding our customers and monitoring our levels of service through mystery shopping, customer exit surveys and analysis of purchase data Continued focus on ensuring we have an excellent range across all price points, including own label brands Renewal and Transformation plan improving the quality and optimising the location of our stores across the Group FIVES customer service training for all colleagues and product workshops to improve product knowledge Implementation of the Customer Plan in the UK to improve the customer journey – a clear and focused plan at the heart of the business Innovations in service propositions and improved customer service levels across the Group Clearer and easier navigation of our e-commerce websites Legislative, contractual, reputational and regulatory risks Risk that as a result of a change in legislation, a decision by a In-house legal teams communicate on a frequent basis and legal regulatory authority, or exposure in our compliance activities, the reports are submitted to the Board Group’s business is impacted by reputational or financial damage Launch of Group Ethical Conduct policy, supported by annual or a need to adapt the Group’s business and processes (e.g. declaration of compliance by colleagues competition, consumer rights, intellectual property, contractual Monitoring changes in legislation/regulation obligations, health and safety or compromise of confidential Corporate Responsibility Committee meets regularly to discuss customer data) reputational and regulatory risks Quality checks and factory audits for own-branded product assembly Compliance Committee approves activity that may impact the terms of Group credit facilities Contact with regulatory authorities, such as in relation to the Office of Fair Trading’s (OFT) market study into extended warranties 3.Operational risks

Risk Examples of mitigating action Employees Risk that we fail to attract, develop and retain the necessary Group-wide standardised performance management talent for our business Talent reviews across the business Store structures which provide a clear career path for all employees Improved quality of training courses and development programmes with specialist focus on service, product, commercial and technical Bonus plans, which include a component relating to individual performance and business performance Reward strategy aligned to retain the best talent

Dixons Retail plc Annual Report and Accounts 21 2010/11

Directors’ Report Strategic Summary Risks to Achieving the Group’s Objectives continued

3.Operational risks continued

Risk Examples of mitigating action Systems failure and damage to property and consequential business interruption Risk that a key system becomes unavailable for a period of time Contingency plans developed that are tested regularly Evaluation, planning and implementation analysis carried out before updating or introducing new systems that have an impact on critical functions Ongoing systems implementation in key areas of the business

The Group’s ability to distribute merchandise to its stores and to Disaster recovery plans are in place sell and distribute merchandise to its customers is reliant on its Insurance is purchased to mitigate against business interruption operational infrastructure, particularly the efficient functioning of Preventative measures are constantly being updated to reduce the its distribution centres and distribution network likelihood of an incident

Project delivery Risk that a project delivering an element of our Renewal and The portfolio plan is clearly defined and is managed and governed Transformation plan does not deliver its anticipated benefits through clear processes and regular meetings Post-investment analysis and performance tracking is in place including financial and customer measures Projects under the Customer Plan are aligned to our UK budget Internet Risk we fail to build a successful internet business, both in its Execution of online strategy own right and as part of a multi-channel retailing model Investment in site functionality and user friendliness Roll-out of our e-merchant platform across our businesses Successful marketing campaigns to raise the profile of online brands 4.Financial risks

Risk Examples of mitigating action Changes in supplier credit Risk that credit insurance is no longer available to electrical and Ongoing engagement with suppliers and credit insurers computing suppliers Improvements in stock management Innovations in and close scrutiny of working capital together with regular monitoring and review Finance and treasury Risk that the Group’s exposure to exchange rate, interest rate, Detailed Group hedging policies reviewed through a separate Tax liquidity and credit risks have an adverse or unexpected impact and Treasury Committee on results, funding requirements or purchasing ability Balance sheet management and reviews Strong cash management Regular monitoring of receivables balances Strong pre and post investment appraisal processes Central control of treasury activity Pensions risk and policies Risk that the pension funding policy fails to react to or address Deficit reduction activities in place deficits, which may arise on the Group’s pension schemes Defined benefit section of UK scheme closed to future accrual

Dixons Retail plc 22 Annual Report and Accounts 2010/11 Directors’ Report Performance Review Overview

Key highlights Business highlights Margins and underlying profit before tax, at £85.3 million, Renewal and Transformation plan delivering a market leading maintained in challenging market conditions. offer for customers.

Investment in the customer offer through the Renewal and Store transformation programme on track: Transformation plan is delivering. –– 360 stores reformatted at the year end; Increasing market share across most markets and sectors, –– 70 Megastores now open with average annual sales of particularly in the UK and Nordics. £20 million; –– Over 80 Megastores across the Group, including 40 in Step change to the customer focused business model,

the UK and 25 in the Nordics will have been reformatted 23 Performance Review differentiating the offer for customers.

by Peak 2011; -- 35 Further benefits to come through rolling out refurbished and –– Newly reformatted stores continue to deliver gross profit Megastore formats, the transformation of the services offer uplifts of 20% versus the unreformatted stores in the UK through KNOWHOW, upgraded websites and a leaner and 15% in the Nordics; and operating model. –– Second year trading for reformatted stores maintained. Elkjøp performed strongly in all of its markets, gaining Financial highlights significant market share. Total underlying Group sales(1)(2) down 2% to £8,154.4 million (2009/10 £8,320.0 million) and down 1% on a constant New customer services brand KNOWHOW launched in the currency basis. UK encompassing all after sales and support services.

Total Group sales, including those from businesses to Multi-channel internet sales up 13% across the Group, reflecting be closed and closed businesses, were £8,341.8 million the continued shift of sales to the multi-channel brands. (2009/10 £8,532.5 million). Closure of loss making PC City operations in Spain ahead of plan. Group like for like sales(3) down 4% in the second half and down 2% in the full year. Cost savings on track:

Underlying Group gross margins were flat in the second half –– £50 million savings delivered in the financial year; and of the year and up 0.1% in the full year. –– £50 million of additional cost savings expected in each of the next three years. EBIT(4) of £127.6 million (2009/10 £133.2 million). Impairment and restructuring Underlying pre-tax profit(1) of £85.3 million (2009/10 £90.9 million). Recognising challenging conditions in some of our markets, and the ongoing business restructuring under the Renewal and Underlying diluted earnings per share(1) of 1.6 pence (2009/10(5) Transformation plan, we have reviewed the balance sheet and 1.5 pence). Basic loss per share for continuing operations of made impairment and other non underlying charges totalling (6.6) pence (2009/10 earnings per share of 2.0 pence). £309.4 million. The additional cash impact of these charges is estimated as £39 million, of which approximately £8 million Total loss before tax, after deducting non-underlying items of was incurred in 2010/11. The impairments primarily relate to the £(309.4) million, was £(224.1) million (2009/10 profit before tax closure of operations in Spain (£70.6 million), the impairment of £112.7 million). of acquired goodwill in relation to Kotsovolos in Greece (£53.2 million) and PIXmania (£106.3 million). Free Cash Flow(6) of £38.9 million before restructuring charges (2009/10 £28.1 million).

As at 30 April 2011 the Group had net debt of £(206.8) million (2009/10 £(220.6) million).

Rephased debt profile following issue of new 2015 Bonds and part repurchase of existing 2012 Bonds in July 2010.

Dixons Retail plc Annual Report and Accounts 23 2010/11

Directors’ Report Performance Review Overview continued

Underlying sales and profit analysis

Underlying sales Underlying profit/(loss) 52 weeks 52 weeks 52 weeks 52 weeks ended ended Currency ended ended 30 April 2011 1 May 2010 neutral (7) Like for like(3) 30 April 2011 1 May 2010 £million £million % change % change £million £million UK & Ireland(8) 3,816.1 4,013.5 (5)% (3)% 71.3 71.1

Nordics(9) 2,268.9 2,093.7 +7% +5% 105.6 97.4

Other International(10) 1,226.7 1,291.6 (2)% (5)% (21.6) (8.3)

Pure play e-commerce(11) 842.7 921.2 (5)% (5)% 0.9 11.3

Central costs – – (15.8) (19.5)

Total Group Retail 8,154.4 8,320.0 (1)% (2)% 140.4 152.0

Property losses (12.8) (18.8) EBIT 127.6 133.2

Underlying net finance costs (42.3) (42.3) Group underlying profit before tax 85.3 90.9

Notes (1) Throughout this report, references are made to underlying performance measures. Underlying results are defined as excluding trading results from the business to be closed, closed businesses, 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. (2) Business to be closed comprises PC City Spain. Closed businesses comprise the operations of PC City Sweden and Markantalo in Finland. Discontinued operations comprise operations in Poland and . (3) Like for like sales are calculated based on stores that have been open for a full financial year both at the beginning and end of the financial period and are calculated using constant exchange rates. Customer support agreement sales are excluded from all UK like for like calculations. Operations that are subject to closure have sales excluded as of the announcement date. Stores subject to a refurbishment are excluded during the period of refurbishment. All e-commerce pick-up store sales are included in like for like sales. (4) Underlying Earnings Before Interest and Tax (EBIT) equates to underlying operating profit and is defined as underlying earnings from retail operations, after property losses, before deduction of net finance costs and tax. (5) The weighted average number of shares used in the calculation of earnings per share for the period prior to the rights issue, which completed on 9 June 2009, 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 8 to the financial statements). The adjustment factor used was 1.2138. (6) Free Cash Flow relates to continuing operations and comprises net cash flow from operating activities before special pension contributions, less net finance costs, less income tax paid and net capital expenditure. (7) Currency neutral change percentage reflects the year on year growth or decline in underlying sales, calculated excluding the effect of currency movements. (8) UK & Ireland comprises Currys, CurrysDigital, Dixons Travel, PC World, operations in Ireland, DSGi Business and KNOWHOW. Like for like sales exclude DSGi Business. (9) Nordics comprises the Elkjøp group and Dixons Travel Denmark. (10) Other International comprises Greece (Kotsovolos), Italy (Unieuro, combined 2-in-1 Unieuro and PC City stores and Dixons Travel Italy), Czech Republic (Electro World), Slovakia (Electro World) and Turkey (Electro World). (11) Pure play e-commerce division comprises Dixons.co.uk and PIXmania. (12) Unless otherwise noted, throughout this statement figures relate to continuing operations, excluding the results of the business to be closed / closed businesses. Total revenue including discontinued operations and business to be closed / closed businesses was £8,341.8 million (2009/10 £8,543.4 million).

Business performance Underlying Group sales (excluding discontinued operations and the business to be closed / closed businesses) were down 2% to £8,154.4 million (2009/10 £8,320.0 million) and down 2% on a like for like basis. Underlying Group sales were down 1% at constant exchange rates. Total Group sales (including the business to be closed / closed businesses) were down 2% to £8,341.8 million (2009/10 £8,532.5 million). Group gross margins were up 0.1% across the year.

Group EBIT (underlying profit before interest and tax) was £127.6 million (2009/10 £133.2 million). Group underlying profit before tax was £85.3 million (2009/10 £90.9 million). Total loss before tax, after deducting non-underlying items of £309.4 million, was £(224.1) million (2009/10 profit before tax £112.7 million).

Dixons Retail plc 24 Annual Report and Accounts 2010/11 Directors’ Report Dixons Travel continues to go from strength to strength with all Performance Review stores now operating in the new format which allows for more customer focused ranges, with a particular focus on portable items and accessories. The demographic of its customer base in UK & Ireland airports has meant the business has been less impacted by the consumer downturn. In addition to the UK, Dixons Travel now operates in Copenhagen, Dublin, Rome and Milan airports with further opportunities in other airports across Europe.

Internet sales continue to be driven by the shift of consumers and manufacturers to multi-channel retail outlets with significant growth in reserve&collect. At the start of the financial year, the PIXmania e-merchant platform was implemented across the UK websites significantly improving the navigation, operation and customer experience. Further work to improve the offer and Profit and margins maintained extended ranges online are planned for the new financial year. despite challenging markets. Gross margins in the UK & Ireland were up throughout the year as a result of a number of factors: Performing ahead of our Improvements in stock control, enabling the business to exit competitors. the year with lower inventory levels than last year despite the very weak markets. This has included improved processes for

Launch of KNOWHOW exiting aged stock, limiting the need for excessive discounting; 23 Performance Review -- services. Introduction of better promotional planning, enabling better 35 support from suppliers, particularly as they increasingly favour multi-channel operators; and Underlying sales (£million) Cost saving initiatives in the distribution and services infrastructure. 2010/11 3,816.1 The division made good progress on the Renewal and 2009/10 4,013.5 Transformation plan through the year with 250 stores now refitted in the UK & Ireland, including 31 Megastores. The preferred format Underlying operating profit for customers and for the business is the combined 2-in-1 Currys (£million) and PC World format. All High Street and out of town Superstores will be in this format. The majority of the 70 Megastores the Group 2010/11 71.3 is targeting will also be in this format, with a small number of 2009/10 71.1 standalone Currys Megastores in larger catchments. The Group’s planned store base for the UK & Ireland is 450 stores, comprising 70 High Street stores, 310 Superstores and 70 Megastores. The portfolio will be managed to this size as existing leases expire and stores in each catchment are refitted.

The Group operates the most comprehensive end to end service offering in electrical retailing in the UK, giving the Group Total sales in the UK & Ireland were down 5% to £3,816.1 million a unique services model versus the competition. In the spring (2009/10 £4,013.5 million) and like for like sales were down 3% of 2011 the new services brand of KNOWHOW was launched. across the year. Underlying operating profit for the full year was This follows an intensive period of investment and significant flat year on year at £71.3 million (2009/10 £71.1 million). improvement in our service offering for customers. The new brand was introduced into stores in May 2011 with roll out to This is an encouraging performance in the context of a weak all stores being completed by the autumn. The KNOWHOW market. During the first half we benefitted from sales of TVs in brand provides customers with clear easily identifiable value the lead up to the World Cup. The ‘cash for goals’ promotion for money services under four distinct categories; Deliver & caught customers’ imagination and enabled the business to Install; Set up & Upgrade; Help & Support; and Repair & Protect. capture more than its market share of the uplift in sales of TVs. Through growth and continuous process improvements the The work being done under the Renewal and Transformation unit costs can be reduced, enabling further investment in the plan to improve the store environment and the shopping trip for services offer. customers was recognised by Apple when they chose us as their key partner for the launch of the iPad. Trade continued to be robust in the lead up to Christmas and in the early sale period, interrupted only by very poor weather conditions in the two week period preceding Christmas. However, like for like sales in the second half were down 7% as the consumer environment weakened in the fourth quarter. Against this environment Currys and PC World traded ahead of the competition and gained market share. During the year, white goods held up well and computing has been supported by iPads and tablets, with the new iPad 2 selling very strongly. Television sales benefitted from a strong World Cup, but have been particularly weak since January.

Dixons Retail plc Annual Report and Accounts 25 2010/11

Directors’ Report In the Nordic region, Elkjøp delivered another strong performance Performance Review with sales increasing by 7% in local currency and 8% in sterling to £2,268.9 million (2009/10 £2,093.7 million). Like for like sales were up 9% in the second half and up 5% across the year. Nordics Underlying operating profits increased by 8% to £105.6 million (2009/10 £97.4 million).

Elkjøp performed strongly in all of its markets and product categories throughout the year. In the prior year Elkjøp took the opportunity to significantly grow its market share and invested in margins. During the reported year Elkjøp consolidated its position and recovered some of this gross margin investment. New stores and extensions to Megastores were opened towards the end of the first half which, together with increased marketing, added to cost growth in the business over the Christmas Peak period. Elkjøp improved its cost position towards the end of the year Elkjøp performed strongly in and closed the year with gross margins up 0.5% year on year. all its markets. This was an important transitional year for the Elkjøp business as it established clear market leadership in all its markets. The Transitional year as Elkjøp sales and profit performances in Finland, Denmark and Sweden established clear market were strong, with particularly good profit conversion in Finland and Denmark. There is a significant opportunity to develop the leadership in all its markets. Elkjøp business further across all four markets through store Further significant refurbishments, Megastore roll outs and online. opportunity. Elkjøp operates in geographically diverse markets where scale across all four countries provides a strong competitive advantage. Elkjøp operates a centralised warehouse in Sweden Underlying sales and a low cost centralised head office operation supported by (£million) efficient local functions in each market. Each operation has high 2010/11 2,268.9 customer recognition for advice and value which enables it to 2009/10 2,093.7 deliver relatively high sales densities. As a result Elkjøp operates on a market leading cost to sales ratio of 19.5%. Competition in each of the markets in the Nordics is typically characterised as Underlying operating profit buying groups or local independent operators and a small (£million) number of local specialists which lack the scale efficiencies 2010/11 105.6 Elkjøp enjoys. 2009/10 97.4 Approximately 11% of Elkjøp’s sales are through its successful franchise operation which enables the brand to operate in smaller and less accessible catchments across the Nordics. As the franchisees purchase product from Elkjøp on a wholesale basis, franchising enables Elkjøp to benefit from increased purchasing scale.

Elkjøp has now opened 20 Megastores which have performed particularly well. It has also started a programme to refurbish existing superstores using the same format employed in the UK. These new format stores are delivering gross profit uplifts of approximately 15% versus the rest of the chain. Elkjøp expects to operate 60 Megastores across the Nordics in the medium term.

Elkjøp’s multi-channel offering grew by 34%, to 6% of sales during the year, driven by its reserve&collect service which continues to be well received by customers.

On 1 June 2011, the Group announced that it had exchanged contracts for the sale and leaseback of the Group’s Nordic distribution centre in Jönköping, Sweden. The sale and leaseback is expected to complete in June 2011 with the Group receiving SEK600 million (approximately £59 million).

Dixons Retail plc 26 Annual Report and Accounts 2010/11 Directors’ Report This division comprises operations in Italy, Greece, the Czech Performance Review Republic, Slovakia and Turkey. Total sales were down 2% at constant exchange rates and by 5% in sterling to £1,226.7 million (2009/10 £1,291.6 million). Underlying operating losses were Other International £(21.6) million (2009/10 loss of £(8.3) million). Towards the end of the financial year the Group announced that it was closing its PC City operations in Spain. The closure programme is on track, with all stores now closed and a net cash cost of closure of approximately £30 million across the 2010/11 and 2011/12 financial years. Underlying financials are reported excluding these PC City operations. Italy This comprises Unieuro, combined 2-in-1 Unieuro and PC City stores and Dixons Travel Italy operating in the airports in Rome and Milan. The business has progressed well against the Turnaround plan in Italy is turnaround plan, with a positive EBITDA delivered for the first improving performance. time in several years, ahead of plan. The turnaround plan has involved considerable work to improve the ranges in-store, as well Kotsovolos gaining share in a as availability for customers. Significant progress has been made tough market. in improving the stock turn to improve working capital, helping cash generation. Using the same Six Sigma principles as have been employed in the UK & Ireland division, Unieuro has reduced Medium term opportunities in 23 Performance Review costs. In addition the store network is being upgraded, including --

Czech Republic, Slovakia and store reformatting, again using the work done in the UK & Ireland 35 Turkey as markets develop. division, which provides a better, easier to navigate store environment for customers.

Underlying sales A strong first quarter driven by the World Cup was followed by (£million) a weaker sales environment as the business anniversaried the 2010/11 1,226.7 first stages of the regional digital switchover. The consumer 2009/10 1,291.6 environment remained subdued in the second half, but Unieuro continued to outperform the market as it benefitted from a further stage of the digital switchover. As the business becomes cash Underlying operating loss generative it will start to add Megastores as well as refurbish (£million) existing stores to the 2-in-1 Unieuro and PC City format that is 2010/11 (21.6) proving to be the favoured format for customers. The business 2009/10 (8.3) is well positioned to make further gains in the years ahead. Greece Kotsovolos is the market leading specialist electrical retailer in Greece. As a result of the economic situation in Greece the competitive environment is changing and with its strong market position Kotsovolos is increasingly being favoured by both customers and suppliers, enabling it to trade ahead of the markets, gaining two to three percentage points of share in the last six months of the financial year. However, because the market has been down approximately 25% across the financial year, it has impacted profitability. Management have partially offset this impact by reducing costs, enabling the business to deliver a positive EBITDA result in the year. The business has also focused on delivering for customers, improving its relative proposition in the market and expanding its channels in e-commerce and franchising.

During the year Kotsovolos refurbished seven stores including two Megastores, with 35% of sales now being through new format stores. Czech Republic and Slovakia Operations in the Czech Republic have performed well in their markets, despite the weak consumer environments. The Group now operates 20 stores and a multi-channel internet operation in the Czech Republic and three stores in Slovakia which are trading in line with expectations. Turkey We operate 19 stores in Turkey, including four franchises, under the Electro World brand with our local joint venture partner. These stores are based on the Group’s new large space format, providing a greater product range and exciting retail environments for customers. The business continues to deliver good sales growth as the operations there benefit from the Group’s scale, store formats, in-store service and operating model.

Dixons Retail plc Annual Report and Accounts 27 2010/11

Directors’ Report This division comprises PIXmania and dixons.co.uk. Total sales Performance Review were down 5% in local currency and down 9% in sterling at £842.7 million (2009/10 £921.2 million). Underlying operating profit was £0.9 million (2009/10 £11.3 million). The Pure play Pure play e-commerce e-commerce business forms a core and integrated part of the Group’s overall internet strategy, alongside the multi-channel operations of the other main business divisions. Internet sales across the Group represent 16% of total sales.

Several factors have reduced the sales and profits of our Pure play e-commerce operations. First, we have been making significant investments in developing the operation. We have implemented a new platform in the UK to support all of our websites, which has caused disruption while being integrated into the UK systems and trading platforms. We have also been investing in e-merchant which supplies IT services to the Group and other retailers. PIXmania traded well in its Second, while it delivered a solid performance in France, PIXmania core markets. has strong market positions in Southern Europe which have been adversely impacted by reduced consumer demand. Third, in dixons.co.uk benefits from several markets we have had increased competition from store based brands expanding their e-commerce business. Finally there the UK & Ireland operating has been a significant shift of suppliers and customers in favouring platform. multi-channel brands and away from pure play internet operators.

Investments being made in In the UK the Group operates the dixons.co.uk business alongside future e-commerce operations. the multi-channel brands of currys.co.uk and pcworld.co.uk. During the year management directed internet sales activity through the more profitable multi-channel brands, particularly as these are Underlying sales becoming the favoured route for customers and suppliers. As a (£million) pure play business dixons.co.uk competes on price and is an 2010/11 842.7 important tool in enabling management to understand and compete in the pure play electricals retail section of the market. 2009/10 921.2 The implementation of the e-merchant platform and further improvements to the offer have incurred additional costs. However, Underlying operating profit as dixons.co.uk is fulfilled from the UK & Ireland’s main warehouse (£million) and stock files, its cost to serve is relatively low. While the 2010/11 0.9 dixons.co.uk operation is now on a much stronger footing, it has 2009/10 11.3 been impacted by the weak consumer environment, impacting profitability of the Pure play e-commerce division.

PIXmania now operates a total of 17 stores. These stores, with an average space of approximately 1,400 sq ft per store, combine the ease and value of the internet and the convenience of stores to collect products. It is expected that PIXmania will open further stores as they achieve high sales densities driven by internet pricing in high footfall shopping centre locations.

PIXmania also operates PIXplace which provides a platform for third party resellers under the PIXmania brand. This also enables PIXmania to extend its offer for customers while benefitting from a charge for third party transactions.

In addition, PIXmania is able to provide its proprietary and market leading e-merchant platform and IT services to third party operators. As well as dixons.co.uk, currys.co.uk and pcworld.co.uk, PIXmania provides these services to Bouygues Telecom. The Group considers that there are further opportunities in this area over the medium term.

Dixons Retail plc 28 Annual Report and Accounts 2010/11 Directors’ Report Performance Review Group Financial Summary

Financial position 52 weeks ended 52 weeks The year has seen very challenging markets with pressure on 30 April ended sales and margins as well as cost inflation. In spite of these 2011 1 May 2010 £million £million challenges we have delivered a robust trading performance against the financial priorities of profitability and strengthening Underlying profit before tax 85.3 90.9 the balance sheet: Non underlying (charges) / gains: Group Gross Margins were up 0.1% in the year, the second Trading results – Business to year of flat or growing gross margins in a market where be closed / closed competitors have seen gross margins erode; businesses (8.5) (0.6) EBIT held at £127.6 million (2009/10 £133.2 million); Other non-underlying items: Amortisation of acquired Costs reduced by £50 million in the year and a further intangibles (4.5) (4.6) 23 Performance Review £50 million being targeted in each of the next three --

Net restructuring charges: 35 financial years; Strategic reorganisation (17.1) (5.6) Exit of loss making operations of PC City in Spain announced; Business impairments (251.6) – Completion of sale and leaseback of Swedish warehouse Other items (24.9) – expected in June, raising £59 million; Change in pension benefits – 33.4 Financing items: Rephased debt profile following issue of new 2015 Bonds and Net fair value remeasurements (2.8) (0.8) part repurchase of existing 2012 Bonds in July 2010; Accelerated amortisation of Significant headroom maintained on the Group’s revolving facility fees (7.8) – credit facility (the “RCF”) throughout the year, with the RCF Net 2012 Bond redemption extended to August 2013; gains 7.8 – Agreement in principle reached with the trustee of the UK defined Other non-underlying benefit scheme following the triennial valuation which showed a items – total (300.9) 22.4 shortfall of assets compared to liabilities of £239 million; Total net non-underlying Positive Free Cash Flow, before restructuring items, of charges to add back (309.4) 21.8 £38.9 million was generated; and (Loss) / profit before tax (224.1) 112.7 Net debt at year end of £206.8 million (2009/10 £220.6 million).

Adjustments to underlying results In April the Group announced the closure of PC City Spain, The weak consumer environment impacted the financial and in the prior year completed the closure of PC City in performance of certain of the Group’s businesses, with the Sweden and Markantalo in Finland. Trading results from the outlook in Southern Europe, in particular, remaining uncertain. business to be closed / closed businesses comprise the This has resulted in an impairment in the value of goodwill pre-tax losses from these operations, excluding closure costs acquired with PIXmania and Kotsovolos in 2006 and 2004, which are provided for separately below as part of the respectively. There is also a non-underlying charge relating to business impairment. the closure of the PC City business in Spain. Under the Renewal Amortisation of acquired intangibles of £4.5 million and Transformation plan, a number of re-organisation charges predominantly comprises brand names. continue to be incurred and as in prior years, these have also been treated as non-underlying charges. The total Strategic reorganisation costs of £17.1 million relate non-underlying charge is £309.4 million. The additional cash predominantly to the UK business transformation and primarily impact of this charge is estimated as £39 million, of which comprise redundancy costs and additional lease liabilities on a approximately £8 million was incurred in 2010/11. Further vacant head office building following the UK restructuring. details of the non-underlying charges are set out below: Business impairments include: –– costs of £70.6 million relating to the closure of PC City operations in Spain. This comprises goodwill and other asset write offs together with provisions for onerous lease costs and employee severance; –– £106.3 million impairment of goodwill acquired with PIXmania in 2006. PIXmania’s profit performance is behind that envisaged at the time of the acquisition as a result of: –– weakness in the Southern European economies in which it operates; –– investment in the e-merchant platform; –– changes in the internet retailing market, with the switch in growth to multi-channel. –– £53.2 million impairment of goodwill relating to Kotsovolos, the Group’s Greek business. Despite gaining market share during the period and remaining cash generative, this follows a period of economic difficulty and uncertainty in the Greek market; and Dixons Retail plc Annual Report and Accounts 29 2010/11

Directors’ Report Performance Review Group Financial Summary continued

–– £21.5 million impairment in respect of the Group’s 40% As previously announced, it should be noted that the year end stake in a Danish associate, F-Group. F-Group has working capital and cash position benefited due to the additional experienced a prolonged period of declining results due to bank holiday at the end of the financial year and the timing of the weak underlying Danish economic environment. trading cash flows associated with the closure of operations in Other items of £24.9 million mainly comprise: Spain. This benefit is estimated as approximately £30 million, of which approximately half was as a result of the timing of –– the impairment of capitalised development costs in respect closing the operations in Spain across the year end. The Group of the Group’s systems in the UK following the decision to continues to anticipate net closure costs of PC City Spain of defer the project in order to focus on existing process approximately £30 million. This represents an incremental cost improvements; and of £20 million. –– the write off in PIXmania of supplier receivables, dating back to 2008/09 and prior years. This write off has arisen Capital expenditure was £223.2 million (2009/10 £165.3 million), due to the implementation of new systems highlighting the up £57.9 million reflecting the increased investment associated extent of the receivables outstanding and a detailed review with the Renewal and Transformation plan, particularly in the UK of the Group’s ability to recover these balances. and Nordics.

The financing charge comprises the following elements: Other cash items of £29.7 million (2009/10 £(34.0) million) mainly –– £2.8 million of net fair value remeasurement losses on comprise the add back of non-cash costs included in profit, such revaluation of financial instruments as required by IAS 32 as pension interest, share option charges, and property loss and 39; provision charges, and in addition reflect other cash movements –– accelerated amortisation of facility fees which relate to the such as settlements of certain hedge contracts. The improvement refinancing activities and comprise the write off of fees relating year on year of £63.7 million is primarily due to the £62.2 million of to the now cancelled credit facility which were previously being hedge outflows reported in 2009/10. amortised over the life of that facility. Equivalent fees relating to the current RCF are being amortised into underlying interest in As previously disclosed, the Group has in place certain historical the same manner as the historical facility fees were; and hedging agreements. The principal outstanding agreements relate primarily to foreign exchange and interest hedges. The –– net 2012 Bond redemption gains which arise on the majority of these were put in place at the time the Group issued notional cancellation of interest rate swaps used to hedge its Bonds in 2002, and in relation to overseas investments. The the £140 million redeemed portion of the 2012 Bonds, remaining hedges at year end rates would imply a net future cash offset mainly by the redemption premium paid. outflow of approximately £65 million, primarily payable in 2012. The 2009/10 credit of £33.4 million in respect of the change in pension benefits arose from the curtailment of the defined Net restructuring and impairment mainly reflects the cash outflows benefit section of the UK pension scheme whereby this relating to the strategic reorganisation activities as announced in section was closed to future accrual on 30 April 2010. previous years. These primarily comprise lease and other property related payments and employee severance costs. Free Cash Flow Free Cash Flow, before restructuring items, at £38.9 million The Group’s priority is to ensure that cash flow is managed to meet (2009/10 £28.1 million) improved on the prior year despite the the repayment of the 6.125% Bonds due in November 2012 and significant increase in capital invested in the Renewal and associated hedge maturities. Alongside the proceeds from the sale Transformation programme. This was driven mainly through and leaseback of the warehouse in Sweden, and further cash improved working capital management and reduced hedge generation from operations, management will retain flexibility in the cash outflows. Total free cash flow after restructuring items level of capital expenditure in the 2011/12 and 2012/13 financial was £10.0 million (2009/10 outflow of £(17.6) million). years. As previously announced, capital expenditure will be limited to a maximum of £160 million in the 2011/12 financial year. To date 52 weeks 52 weeks ended ended approximately £100 million of capital has been committed for 30 April 2011 1 May 2010 2011/12, with further commitments to be reviewed against the £million £million economic environment and the Group’s performance. Underlying profit before tax 85.3 90.9 Business to be closed / closed Funding businesses loss before tax (8.5) (0.6) Net debt Depreciation and amortisation 139.4 128.6 At 30 April 2011 the Group had net debt of £(206.8) million, Working capital 40.4 39.7 compared with net debt of £(220.6) million at the end of the Taxation (26.2) (31.9) previous year. Capital expenditure (223.2) (165.3) Proceeds from sale of property(i) 2.0 0.7 Other cash items 29.7 (34.0) Free Cash Flow before restructuring items 38.9 28.1 Net restructuring and impairment(i) (ii) (28.9) (45.7) Free Cash Flow 10.0 (17.6)

(i) Proceeds from sale of property in the prior year excludes £9.0 million relating to the sale of the Group’s former warehouse in Stevenage. These sale proceeds are shown within net restructuring and impairment. (ii) Net restructuring and impairment includes £2.0 million of cash recoveries made in the current year, mainly in relation to closed businesses.

Dixons Retail plc 30 Annual Report and Accounts 2010/11 Directors’ Report Performance Review

52 weeks Lower net pension interest costs, set at the beginning of ended 52 weeks 30 April ended the financial year, largely as a result of higher asset values 2011 1 May 2010 compared to the beginning of the previous financial year; and £million £million Reduced interest income, predominantly due to one-off Opening net debt (220.6) (477.5) interest earned in the prior year relating to overpayments Free Cash Flow 10.0 (17.6) of tax in earlier years. Equity Placing and Rights Issue – 291.3 Acquisitions and disposals – (7.0) Property losses Discontinued operations (0.1) (8.6) Property losses decreased to £12.8 million (2009/10 £18.8 million Special pension contribution (12.0) (12.0) loss). They primarily relate to closure or refit of stores as part of Other items 15.9 10.8 the Renewal and Transformation plan in the UK and Nordics. In the prior year costs were also incurred in Greece through store 23 Performance Review

Other movements in net --

closures and refits, including rebranding of the Electro World 35 debt 3.8 274.5 chain to Kotsovolos. Closing net debt (206.8) (220.6) Dividends Since the start of the previous financial year, the Group has The Board believes that Dixons Retail’s existing financial improved its financial position significantly through refinancing resources should be used to invest in the Renewal and actions. In the prior year, the proceeds received from the Placing Transformation plan, which is showing encouraging signs of and Rights Issue were used to reduce debt and finance the Renewal delivering changes in the Group’s performance, as well as and Transformation plan. In July 2010 the Group rephased its debt repayment of the existing 2012 Bond due in November 2012. with the issue of £150 million 8.75% Guaranteed Notes repayable in August 2015 (the “2015 Bonds”). The net proceeds of the 2015 Subject to an assessment of whether certain conditions have been Bonds were used to repurchase £140 million of the Group’s existing met, and the progress of the Renewal and Transformation plan, the £300 million 6.125% Bonds (the “2012 Bonds”). The transaction also Board aims to resume dividend payments when appropriate, enabled the extension of the maturity of the Group’s Revolving consistent with a sustained recovery in Dixons Retail’s operational Credit Facility (RCF) to August 2013. and financial performance.

The rephasing of debt maturity, coupled with actions to generate Tax funds to reduce net debt, ensures that the Group has an appropriate The Group’s tax rate on underlying profit before tax was 37% repayment profile on its debt facilities and has suitable working (2009/10: 45%). The high effective tax rate is affected by the capital facilities with sufficient headroom to enable it to continue to proportion of loss making businesses where tax benefits are execute the Renewal and Transformation plan. not fully utilised.

On 1 June 2011 the Group announced the exchange of Pensions contracts for the sale and leaseback of its Jönköping distribution At 30 April 2011, the IAS 19 accounting deficit of the defined facility for SEK600 million (approximately £59 million). Completion benefit section of the UK pension scheme amounted to of the transaction is expected in June 2011. £244.0 million (1 May 2010 £263.5 million). The assumptions used for determining the accounting valuation use a consistent The gain on other items in the current year includes a £10.2 million basis to that adopted in prior periods but build from the most gain arising on the notional cancellation of interest rate swaps, recent triennial valuation as at 31 March 2010. which were previously in a designated hedge relationship on the portion of the 2012 Bonds which has now been redeemed. The overall decrease is a result of an increase in the assets of the scheme which have continued to recover year on year. Net debt is stated inclusive of restricted funds of £120.3 million This increase has partially been offset by an overall increase in (Full Year 2009/10 £78.9 million, Interim 2010/11 £118.4 million), liabilities which are affected by a lower discount rate, reflecting which predominantly comprise funds held under trust for corporate bond yields, and the fact that liabilities are one year potential customer support agreement liabilities. As previously closer to crystallising. reported in our interim results, the increase year on year is primarily as a result of cancellation of letter of credit facilities A full triennial actuarial valuation of the UK defined benefit pension as part of the refinancing of the RCF in July 2010. scheme as at 31 March 2010 was recently completed and shows a shortfall of assets compared with liabilities of £239.0 million. This Underlying net finance costs shortfall and the associated recovery plan have been agreed in Underlying net finance costs were £(42.3) million (2009/10 principle with the trustee, with formal agreement expected shortly. £(42.3) million). Although the overall cost has remained The proposed recovery plan based on this valuation commenced unchanged year on year, there have been offsetting in 2010/11 with payments of £12 million which rise to £16 million in impacts from the following key areas: 2011/12, £20 million in 2012/13 and 2013/14 and rising thereafter to Net reductions in borrowing costs, arising from lower £35 million by 2020/21. The next triennial valuation is expected to borrowing levels following the Placing and Rights Issue in the commence in March 2013. prior year, as well as from lower borrowing and amortisation costs following the refinancing of the revolving credit facility, partly offset by increased costs resulting from the higher coupon on the 2015 Bonds;

Dixons Retail plc Annual Report and Accounts 31 2010/11

Directors’ Report Performance Review Corporate Responsibility Report

Our business has relationships with many stakeholders and A member of the Corporate Responsibility Committee has been with society at large, and we recognise that our business identified as accountable for each of these priorities. performance could be affected if we neglected these relationships. Accordingly, we take our responsibilities to our Dixons Retail operates in different countries, each with differing stakeholders seriously. We aim to have policies and procedures stakeholder needs. Accordingly, the Group’s corporate in place, which balance the expectations of our customers, responsibility efforts are largely organised on a local level. The shareholders, employees and the wider community. Corporate Responsibility Committee is aware of the good responsibility work carried out by the Group’s overseas Corporate responsibility management framework businesses and is working towards improving reporting The Group Finance Director, Nicholas Cadbury, is the Board initiatives with a view to reporting its Group-wide responsibility member responsible for corporate responsibility matters at efforts going forward. Dixons Retail. He is supported in this task by the Corporate Responsibility Committee, which comprises senior executives The Corporate Responsibility Committee has established the from key business areas and is chaired by Helen Grantham, following key performance indicators, which enables it to the Company Secretary and General Counsel. The Corporate monitor performance against the priorities that it has set: Responsibility Committee met four times during the period Colleague diversity – age, gender and ethnicity of its employees under review and a summary of some of the key matters discussed are listed below: Health and Safety – employee and customer accidents and injuries Ongoing evaluation of the Group’s risks and opportunities and Ethical supply chain audits identification of areas where the Corporate Responsibility Committee needs to enhance reporting or control Customer satisfaction mechanisms already in place; Waste electrical equipment collected and recycled Assessing the reporting structures in place and determining Business waste recycled changes to be implemented when gathering information in Group carbon emissions respect of the key performance indicators; Contributions to the community Reviewing the Group Health and Safety Policy; Reviewing the impact of the Carbon Reduction Commitment Business ethics upon the UK business and the internal reporting mechanisms The way we do business at Dixons Retail is important to us and to ensure compliance. forms a part of our corporate responsibility objectives. Our shared values are to: Our approach to corporate responsibility operate with honesty and integrity; The Group recognises that the most significant responsibility issues concern its core business activities and follows the give outstanding service to our customers; Association of British Insurer’s guidelines in its approach to respect our colleagues; corporate responsibility. Accordingly, Dixons Retail seeks to continually seek ways to improve performance; and identify the risks and opportunities which are most significant to its business rather than addressing a standardised agenda. work together to beat our competition. The Corporate Responsibility Committee maps onto a matrix the risks and opportunities that are specific to the Dixons Retail We operate an Ethical Conduct Policy, which applies to all employees. business and the retail sector. This allows us to identify our main exposures and most significant opportunities, and Customer services address how to deal with these issues. During the period At Dixons Retail, we are proud to serve thousands of customers under review, our priorities included the following: every year in our stores and online. In the tough economic environment of the last few years, our customers have looked to provide a safe and healthy environment for customers, to us to provide greater value, choice and service and we have colleagues and visitors to our stores and other locations; reinvigorated our business model accordingly. Our customers to engage colleagues through the provision of rewarding have told us what a great shopping experience feels like and we workplace environments and careers, whilst assisting in have integrated this into our Customer Plan. The Customer Plan the ongoing improvement of customer service levels; (discussed in more detail in the Chief Executive’s Review on to improve operational energy efficiency and forward planning; pages 5 to 7) is a series of programmes with the objective of improving the shopping and post-shopping experience of our to reduce our impact on the environment and to reduce costs customers. During the period under review, these programmes and raise revenue through improved waste recycling; have involved training of our store colleagues in FIVES, Dixons the provision of safe and reliable own-brand products, Retail’s five point customer engagement tool, continuing to achieved as a result of our expert technical knowledge with transform our store layouts, simplifying our shopping websites products sourced from manufacturers who are audited and increasing our product range. Great customer service is key against our ethical requirements; to the success of our business and is measured through regular to add to and promote the customer proposition in relation mystery shopping and exit surveys as well as customer feedback to product reuse and recycling; and received via our call centre and service colleagues. Key an appropriate community giving policy, which complements performance indicators on customer satisfaction are combined our interaction with the communities in which we work. on a monthly basis into a customer dashboard, which is regularly reviewed by the Corporate Responsibility Committee, as well as the Executive Committee and the Board.

Dixons Retail plc 32 Annual Report and Accounts 2010/11 Directors’ Report Performance Review

As part of our commitment to delivering customer service to Carbon footprint management the highest standards, our colleagues work to ensure that our Dixons Retail is committed to a carbon management programme, communications with customers are clear and that the information which aims to reduce the Group’s carbon footprint. As part of the we present them with is accurate and not misleading. We maintain mandatory Carbon Reduction Commitment Energy Efficiency compliance with trading standards and legal requirements. Scheme, the business has introduced programmes that have helped Our policies and procedures integrate those standards into us to reduce the impact of our operations on the environment whilst our daily work. improving efficiency and saving costs. A significant proportion of the cost savings made have been reinvested into the next phase of our Supplier relationships energy management programme. Many of our electrical products are sourced through major international brands, which have their own strong ethical and Dixons Retail is dedicated to reducing its carbon footprint environmental policies in place. by reducing energy consumption throughout its operations, 23 Performance Review

minimising and recycling waste, cutting transport emissions -- The Group operates an Ethical Sourcing Policy based on the and reducing the packaging of its products. We seek to source 35 Social Accountability 8000 criteria. Suppliers of our own brand products from all our suppliers that meet all industry standards products are audited prior to selection and rated on a traffic light and are as energy efficient as practicable. We continue to basis. Green status on an audit indicates that a supplier meets or improve the environmental performance of our own brand exceeds all our standards. Amber status indicates that some of products throughout their life-cycle by systemic integration the minimum standards required have not been met and Red of environmental aspects at an early stage in product design. status means that a supplier fails significantly to meet our Ethical Sourcing Policy standards. Our own product supplier audits are Energy management carried out with a view to assisting our suppliers in improving A substantial initiative is underway to reduce energy usage in our their working practices. Where no improvements are made, we UK stores through the implementation of an energy management will move to de-list that supplier from our supplier list. The results programme. This initiative looks at the demand from lighting, of ethical supply chain audits carried out during the period under heating, cooling and the display products in-store and optimises review are detailed below. the building management systems, where installed, to maximise efficiencies. Over 80% of our total electricity consumption is Performance Indicators 2010/11 2009/10 monitored and reported on a daily basis giving us the ability to manage our electricity consumption, reducing our environmental Green 0 6 impact as well as our costs. Dixons Retail store colleagues are Amber 136 148 currently undergoing energy awareness training to help them Red 75 51 better control and reduce their energy usage. Total factories audited 211 205 De-listed / Not approved 72 39 Waste management Reducing the impact of packaging waste and increasing the Under the Renewal and Transformation plan, we have redefined volume of material recycled is a key opportunity for the business our own brand product range. In order to ensure value and as well as good for the environment. In August 2010, we rolled out choice, this year we have significantly increased the number Dry Mixed Recyclate to all our UK stores and distribution centres. of suppliers we interact with. This has presented us with the Our primary waste contractor now recycles the plastics and challenge of an increase in the number of audits we undertake cardboard that we collect, which has resulted in an increase in our and the consequences of this increase are reflected in the table recycling rate and a corresponding reduction in our landfill waste. above, particularly with the number of suppliers classified as Red. We have worked with these factories to improve their At Dixons Retail, we take responsibility for the electrical products working practices. Where this is not possible, they have not that we place on the market seriously, especially when those been approved or have been de-listed as appropriate. products become waste. In accordance with the Waste Electrical and Electronic Equipment (WEEE) Regulations, we provide an Environment in-store and home collection take-back service to customers Dixons Retail recognises that it has a responsibility to manage enabling them to return their WEEE free of charge. the impact of its business on the environment both now and in the future. Key areas of focus continue to be: energy use and emissions from stores, warehouses, distribution centres and offices; fuel emissions from the transportation of products to either stores or customers’ homes; and waste created in stores, warehouses, distribution centres and offices.

Dixons Retail plc Annual Report and Accounts 33 2010/11

Directors’ Report Performance Review Corporate Responsibility Report continued

Waste recycled as a percentage of total waste* Employee diversity

2010/11 2009/10 2010/11 2009/10 UK 73% 67% Female 28% 33% Nordics** 91% 91% Male 72% 67% * Not including WEEE. Full-time 65% 67% ** Data for Denmark, Sweden and Norway only. Part-time 35% 33% Ethnic minority/non national 26% 27%* Transport and distribution Aged over 50 11% 7% Keeping our stores stocked with the thousands of products we sell * Data for those countries within the Group that are either required by law or voluntarily record means our fleet of commercial vehicles is constantly transporting this information. products around the country. The Group seeks to reduce the environmental impact of delivering its products by efficient route Training and development planning to avoid unnecessary mileage, using rail freight where Our personal and career development processes are designed to appropriate, increasing vehicle load and making use of empty ensure all our people have the skills to meet the requirements of vehicles on return journeys. their roles and to thereby contribute to our Customer Plan. Our store colleagues have all been trained in FIVES, our bespoke sales Fleet carbon emissions training programme, and have received further training on service

Tonnes of CO2 produced 2010/11 2009/10 under our KNOWHOW brand. Each employee has a personal appraisal and development plan, including an assessment of their UK home delivery fleet 7,830 8,250 performance together with their line manager on at least an annual UK retail fleet 15,088 15,750 basis. Nordics delivery fleet 11,267 8,942 Total 34,185 32,942 Employee communications Dixons Retail uses a variety of internal communication channels Workplace to ensure that all colleagues are kept informed of operational Our employees developments. These include regular town-hall meetings, intranet At Dixons Retail, we recognise that our people are the key to postings, executive blogs and e-mail communications. We have a delivering customer service. We value and respect them and great way of keeping our colleagues involved in the development endeavour to engage their talents and abilities to the fullest of our business by informing and consulting with them through extent. We want to be recognised as a good employer aiming to our Employee Forums. Each major business unit in the UK reward people fairly, to provide equality of opportunity, personal has its own Employee Forum composed of independently development and training. Our culture supports the discovery of elected employee representatives. The topics covered are new and better ways of working, two-way communication and wide ranging and include customer service, business efficiency the speedy resolution of any concerns or queries. and re-organisation, and performance improvement.

Pay and benefits at Dixons are attractive and conducive to the Health and Safety recruitment and retention of talented people. Through a range Dixons Retail maintains a strong commitment to health and of share plans, we encourage all employees to build a personal safety. The Group’s objective is to manage all aspects of its stake in the business. business in a safe manner and take practical measures to ensure that its activities do not harm our customers or our colleagues. At Dixons Retail, we work to achieve high standards in employment Dixons Retail operates a Health and Safety Policy and each area practices. We have a comprehensive suite of employee policies and of the business routinely carries out risk assessments and audits procedures, in which we set out our responsibilities and obligations to ensure continuous update of the Policy and adherence to it. to our colleagues. These policies include procedures covering grievance resolution, bullying and harassment, diversity and equal During the period under review, we undertook a complete review opportunities. The UK & Ireland business group’s policy on Equal of operational safety and processes with a particular emphasis Opportunities states that no employee should suffer discrimination on training and management control. Aligned with the use of in respect of disability, gender, sexual orientation, age, religious accident data and root cause analysis, this has made a belief, race, colour, nationality, marital status or any other reason. significant contribution towards the reduction of high risk/high These policies apply to the recruitment, training and career cost accidents throughout the business and a 10% reduction in development of all colleagues. Colleague diversity in terms of age, customer and employee accidents in stores. Plans are in place gender and ethnicity remains a key performance indicator of ours for further accident reduction and cost saving measures for and we report on these below. 2011/12. Our key performance indicator for health and safety issues is the number of injuries and accidents sustained by our customers and colleagues, progress against which is reported to the Corporate Responsibility Committee on a quarterly basis.

Dixons Retail plc 34 Annual Report and Accounts 2010/11 Directors’ Report Performance Review

Health and Safety: employee accidents and injuries

2010/11 2009/10 Number of accidents or injuries reported 985 945 Rate of accidents per 1,000 employees 46 41 Data for UK and Ireland.

Community Community involvement Given the difficult economic environment experienced across

Europe, the charitable activities in the UK were refocused in 2009 to 23 Performance Review

reflect lower levels of fund raising activity. The programme continues -- the theme of improving access to technology for disadvantaged and 35 disabled children, while encouraging colleagues to engage with their local communities by supporting local charities.

While colleagues can support a charity of their choice, the Group has selected two national charities that colleagues can choose to support, Lifelites and the e-Learning Foundation, who are working locally with colleagues to support their fundraising efforts.

Under the new programme our colleagues have participated in many local and national activities, including the Phone Pledge Evening for Red Nose Day at our KNOWHOW Customer Contact Centre at Sheffield where over 100 colleagues took part in raising over £118,000. Colleagues are also invited to apply for a grant from the DSG international Foundation (the Group’s registered charitable trust) to support their fund raising activities, subject to certain criteria.

Charitable donations made by the Foundation

Amount given 2010/11 £5,000 2009/10 £12,000

Key performance indicators The performance criteria reported above are largely focused on the Group’s UK and Nordic businesses. The Committee recognises that it needs to work towards extending the use and monitoring of these performance criteria throughout the rest of the Group, with a view to improving the reporting of the Group’s corporate responsibility efforts going forward.

Nicholas Cadbury Executive Director with responsibility for Corporate Responsibility

Dixons Retail plc Annual Report and Accounts 35 2010/11

Directors’ Report Corporate Governance Board of Directors

1 2 3 4

5 6 7 8

1 John Allan 5 Rita Clifton Chairman (Age 62) Independent Non-Executive Director (Age 53) Appointment to the Board: 23 June 2009 and was appointed Chairman on Appointment to the Board: 1 September 2003 2 September 2009 Committee Membership: Audit, Nominations and Remuneration Committee Membership: Nominations (Chairman) and Remuneration External Appointments: Chairman of Interbrand U.K. Limited and Populus External Appointments: Chairman of WorldPay Limited and Care UK Health Limited, Non-Executive Director of Bupa, President of the Market Research & Social Care Holdings Limited. Non-Executive Director of National Grid plc Society, Director of Henley Festival Limited, Visiting Professor at Henley and ISS A/S. Member of the University of Edinburgh Campaign Board, Management College, Trustee of the WWF and Member of the Assurance Director of Natakate Ltd and non-executive member of the Home Office and Advisory Board of BP p.l.c.’s carbon offset programme. Most recently supervisory board. she has taken up the Chairmanship of BTCV, the social enterprise group. Previous Experience: John Allan was previously Chief Executive of Exel PLC Previous Experience: Rita Clifton was formerly Vice Chairman and Executive and following its acquisition by Deutsche Post, a member of its Management Planning Director at Saatchi and Saatchi. She has had a successful 18 year Board and subsequently Chief Financial Officer of Deutsche Post. Prior to advertising career with both Saatchi and Saatchi and J Walter Thompson. this, he was a director of BET Plc. His early career was with Lever Brothers, Rita Clifton was previously a Non-Executive Director of Emap plc and a Bristol-Myers Company Ltd and Fine Fare Ltd. John Allan has extensive member of the Sustainable Development Commission. Board experience having been Chairman of Samsonite Corporation and a non-executive director of PHS Group plc, Wolseley plc, Hamleys plc, 3i plc and Connell plc. He has also served on the supervisory Boards of both 6 Prof. Dr. Utho Creusen Lufthansa AG and Deutsche Postbank. Independent Non-Executive Director (Age 55) Appointment to the Board: 1 February 2010 2 John Browett Committee Membership: Audit, Nominations and Remuneration External Appointments: Owner of Positive Leadership (a management Chief Executive (Age 47) consultancy) and co-owner of Grid-International and Alpha tecc (the German Appointment to the Board: 5 December 2007 consumer electronics chain), Non-Executive Director of M.Video (the leading Committee Membership: Executive Russian electronic retailer), Chairman of the Jury of the European Retail External Appointments: Non-Executive Director of easyJet PLC Institute, Vice-President of Modern Market-Methods Association in Germany, Previous Experience: John Browett joined the Group following a successful Advisor to Boston Consulting Group, and Honorary Professor at both career at PLC, where he held a series of senior roles including Westfälische Wilhelms-Universität Münster and the Catholic University, Operations Development Director, Chief Executive of Tesco.com and Group Eichstätt-Ingolstadt. Strategy Director. His early career was with Boston Consulting Group, where Previous Experience: Utho Creusen has extensive international retail he advised a series of retail and consumer goods clients. experience. He was previously Human Resources Director of Media-Saturn Holding GmbH (an electronics retail chain). Utho Creusen spent 22 years with 3 Nicholas Cadbury OBI AG, a leading European DIY retailer, where he rose to become a member Group Finance Director (Age 45) of its Executive Board and Chairman of OBI Franchise GmbH. Appointment to the Board: 17 July 2008 Committee Membership: Executive 7 Tim How External Appointments: None Independent Non-Executive Director (Age 60) Previous Experience: Nicholas Cadbury joined the Group in 1993 after Appointment to the Board: 8 September 2009 qualifying as a Chartered Accountant with PricewaterhouseCoopers. He has Committee Membership: Audit, Nominations and Remuneration (Chairman) extensive experience of the Group’s business and has held a range of senior External Appointments: Chairman of Rayner and Keeler Limited and Woburn positions including Group International Finance Director, Finance Director and Enterprises Limited. Non-Executive Director of Henderson Group plc and Commercial Director of PC World and Managing Director of Dixons Travel. Framlington AIM VCT plc, Director of Enotria Group Ltd, Wine and Spirit Education Trust and a Governor of the Peabody Trust. 4 Andrew Lynch Previous Experience: Tim How was formerly Chief Executive of Majestic Wine Senior Independent Non-Executive Director (Age 54) PLC, where he led the management buy-out of the business and subsequent Appointment to the Board: 20 May 2003 Alternative Investment Market (AIM) flotation. Prior to this, Tim How was Committee Membership: Audit (Chairman), Nominations and Remuneration Managing Director of Bejam Group plc. External Appointments: Chief Executive of SSP Group Previous Experience: Andrew Lynch is a former Director and Group Finance 8 Dharmash Mistry Director of Compass Group PLC. He led SSP, a food service group, through Independent Non-Executive Director (Age 40) its divestment from Compass Group PLC and was involved in the Appointment to the Board: 27 September 2010 management buy-out of Travellers Fare from British Rail prior to its acquisition Committee Membership: Audit, Nominations and Remuneration by Compass Group PLC. Andrew Lynch started his career at KPMG, after External Appointments: Partner at Balderton Capital Management (UK) LLP, which he joined Prudential Corporation plc, where he held a series of Investor Director and Board member of Sulake (Habbo Hotel), corporate finance and financial management positions. my-wardrobe.com, MOG, eWise and KupiVIP.ru. Previous Experience: Prior to joining Balderton Capital Management (UK) LLP, Dharmash Mistry was part of the executive team at Emap PLC, most recently as Group Managing Director of Emap Consumer Media and Emap Performance. Prior to this, Dharmash was at Boston Consulting Group and started his career as a Brand Manager at Procter & Gamble.

Dixons Retail plc 36 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance Executive Committee

The Executive Committee comprises the senior leaders of the Company from various business functions and regions. It is tasked with the Group Operations Director (Age 44) day-to-day management of the Company. Sebastian James joined the Group as Development Director in January 2010. Prior to this, he was Chief Executive of Synergy Steve Ager Insurance Services Limited and Strategy Director at Mothercare plc. Commercial Director (Age 51) Sebastian James started his career at Boston Consulting Group. Steve Ager joined the Group following a successful career with Tesco PLC, where he held several UK and international commercial and Mario Maiocchi buying roles. His achievements include setting up Tesco’s operations Managing Director, Southern Europe (Age 55) in Asia and Central Europe, creating the Tesco Express format and Mario Maiocchi joined the Group in February 2008 as Managing Director masterminding the Tesco Finest range. of Unieuro, the Group’s Italian business. Prior to this, he held a range of senior leadership roles including President and General Manager Katie Bickerstaffe of Metro Italia, Chief Financial Officer of Metro France and Managing Group People, Marketing and Property Director (Age 44) Director of EMI Financial Services. Katie Bickerstaffe has extensive retail experience, having joined the Group from Kwik Save where she was Managing Director. She will Steve Rosenblum be joining the Board of Scottish and Southern Energy plc as a Non- President, PIXmania (Age 37) Executive Director on 1 July 2011. Prior to joining Dixons Retail, she was Steve Rosenblum has been President of PIXmania since buying out Group Retail Director and Group HR Director of Somerfield plc. Her early the business with his brother in 2001. PIXmania became a part of the career was with Dyson, PepsiCo and Unilever. Dixons Retail Group in 2006.

John Browett Jean-Emile Rosenblum Chief Executive Vice President, PIXmania (Age 33) See Board of Directors on opposite page for biography. Jean-Emile Rosenblum has been Vice President of PIXmania since buying out the business with his brother in 2001. PIXmania became 36 Corporate Governance --

Nicholas Cadbury a part of the Dixons Retail Group in 2006. 55 Group Finance Director See Board of Directors on opposite page for biography.

Ronny Blomseth Managing Director, Nordic Region (Age 42) Ronny Blomseth has had a 20 year career with Elkjøp, Dixons Retail's Nordics business. Following various store positions, he rose through the business to hold the roles of Sales Manager at Elkjøp, Norway and subsequently Elkjøp Group Managing Director.

Helen Grantham Company Secretary and General Counsel (Age 46) Helen Grantham qualified as a Solicitor with Hammonds and then worked as an in-house lawyer with Boots. She went on to serve as Company Secretary of Chubb plc and Hepworth PLC. Helen Grantham joined the Group from William Hill PLC, where she was both Company Secretary and General Counsel.

Dixons Retail plc Annual Report and Accounts 37 2010/11

Directors’ Report Corporate Governance Statutory Information

The directors present their report and audited financial Subject to the Company’s Memorandum and Articles of statements for the 52 week period ended 30 April 2011. Association, the Companies Acts and any directions given by the Company by special resolution, the business of the Company will The Business Review, which provides a comprehensive review be managed by the Board, who may exercise all the powers of the of the development, performance and future prospects of the Company, whether relating to the management of the business of Group’s operations for the 52 weeks ended 30 April 2011, the Company or not. The powers of the Board are detailed in a includes the following: specific schedule, details of which are provided in the Corporate Business Overview, including principal activities Governance Report. Strategic Summary Directors’ responsibilities Performance Review, including Corporate Responsibility Report The directors’ responsibilities for the financial statements Corporate Governance contained within this Annual Report and the directors’ confirmations required under Disclosure and Transparency These sections are incorporated by reference and are deemed Rule 4.1.12 are set out on page 55. to form part of this report. Employees and employee share schemes Changes in composition of the Group A commentary on the Group’s role as an employer is included After having considered the Group’s options for PC City Spain, the in the Corporate Responsibility Report and details of employee Board confirmed plans to exit operations in Spain on 14 April 2011. involvement through share participation are contained in the The decision was made due to the continuing weak consumer environment and continuing losses of the business, together with Remuneration Report. the Group’s plans to focus on combined electrical and computing stores. All 34 stores and the online operations of PC City Spain will Details of the Group’s employee share plans and long-term be closed or transferred to third parties. incentive plans are contained in the Remuneration Report and note 25 to the Financial Statements. Post balance sheet events Particulars of any important events affecting the Group since 30 Share capital April 2011 are described in note 33 of the Financial Statements. The authorised and issued share capital of the Company, together with any shares issued during the period are set out in note 23 to the Financial Statements. The voting rights of all Directors Dixons Retail plc shares are identical, with each share carrying The names, biographies and dates of appointment of the the rights to one vote. Dixons Retail plc holds no ordinary shares directors serving during the period under review are provided in Treasury and did not make any market purchases of its own on page 36. shares during the period under review. The Company does not have any class of share other than its ordinary shares. In line with best practice, all directors retired and being eligible offered themselves for reappointment at the 2010 AGM. The Board has decided to follow the same procedure at the 2011 Restrictions on transfer of securities of the Company AGM and accordingly, all directors will retire and seek There are no specific restrictions on the size of a holding nor on reappointment. The Remuneration Report on page 49 provides the transfer of shares, which are both governed by the general details of applicable service agreements for executive directors provisions of the Articles of Association and prevailing legislation. and terms of appointment for non-executive directors. The Board The directors are not aware of any agreements between holders is satisfied that each director is qualified for reappointment by of the Company’s shares that may result in restrictions on the virtue of their skills, experience and contribution to the Board. transfer of securities or on voting rights.

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

Dixons Retail plc 38 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

Major shareholders As at 23 June 2011, the Company has been notified in accordance with the Financial Service Authority’s Disclosure and Transparency Rules, of the following interests in the voting rights of the Company:

Direct/indirect No. of shares % Schroders Plc Indirect 400,893,720 11.1% UBS Global Asset Management Direct and Indirect 368,082,813 10.2% Standard Life Investments Ltd Direct and Indirect 343,988,634 9.5% Capital Research & Management Company Indirect 227,424,267 6.3% Tameside MBC Greater Manchester Pension Fund Direct 219,899,644 6.1% Invesco Limited Indirect 180,788,477 5.0% Letko, Brosseau & Associates Inc. Indirect 179,918,108 5.0% Capital Group International, Inc. Indirect 175,204,174 4.9% Skagen AS Direct 148,902,954 4.1% Legal & General Group Plc Direct 115,471,857 3.2%

Issue of shares Going concern At the 2010 Annual General Meeting, shareholders approved a In considering the going concern basis for preparing the financial resolution to give the directors authority to allot shares up to an statements, the directors have considered the Company’s objectives aggregate nominal value of £30,083,043. The directors have no and strategy, risks and uncertainties in achieving its objectives present intention to issue ordinary shares, other than pursuant and its review of business performance which are all set out in the to employee share schemes. This resolution remains valid until Business Overview, Strategic Summary and Performance Review 36 Corporate Governance the conclusion of this year’s Annual General Meeting when sections of this Annual Report and Accounts. The Group’s liquidity -- a resolution will be proposed to renew these authorities. and funding arrangements are described in notes 17 and 22(f) to 55 the financial statements as well as in the funding section of the Related party transactions Performance Review and the directors consider that the Group has Details of related party transactions undertaken during the significant covenant and liquidity headroom in its borrowing facilities year are contained in note 32 to the Financial Statements. for the foreseeable future. Political and charitable donations Accordingly, after reviewing the Company’s expenditure The Group engages in various charitable activities as set out in commitments, current financial projections and expected future the Corporate Responsibility Report on page 35. During cash flows, together with the available cash resources and the period under review, the Group made donations of £211,000 undrawn committed borrowing facilities, the directors have (2009/10 £136,000) to local charities serving the communities considered that adequate resources exist for the Company to in which Dixons Retail operates. continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern At the 2010 Annual General Meeting, the shareholders of the basis in preparing the financial statements. Company adopted a resolution authorising the Board to incur political expenditure up to an aggregate amount not exceeding Corporate governance compliance £25,000 during 2010/11. Notwithstanding this, the Company The statement on compliance with the Combined Code for the made no political donations during the period (2009/10 £nil). reporting period is contained on page 40 of this report. Payment of suppliers Annual General Meeting It is the Group’s policy to agree terms of payment with its suppliers The Annual General Meeting will be held on 7 September 2011 at on a case by case basis prior to commencing trade with them. Holiday Inn - Bloomsbury, Coram Street, Russell Square, Payments are made in accordance with these terms provided London WC1N 1HT at 10.00am. The Notice of Meeting, together the supplier has complied with relevant contractual obligations. with full details of the business to be conducted, will be included Trade creditors as at 30 April 2011 represent 53 days of annual in a separate letter accompanying this report. purchases made during the period (1 May 2010 49 days). Auditors Audit information Deloitte LLP have expressed their willingness to be reappointed So far as each person who is a director at the date of approving as auditors of the Company. Upon the recommendation of the this report is aware, there is no relevant audit information, being Audit Committee, resolutions to reappoint them as auditors and information needed by the auditors in connection with their to authorise the directors to determine their remuneration will be report, of which the auditors are unaware. Having made proposed at the forthcoming Annual General Meeting. enquiries of fellow directors, each director has taken all the steps that he/she is obliged to take as a director in order to make himself/herself aware of any relevant audit information and to establish that the auditors are aware of that information. This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Helen Grantham Company Secretary 23 June 2011

Dixons Retail plc Annual Report and Accounts 39 2010/11

Directors’ Report Corporate Governance Corporate Governance Report

Introduction The Board has a formal schedule of matters reserved for its The Board recognises the importance of good corporate decision. This schedule is reviewed periodically and includes, governance and maintains high standards of corporate but is not limited to, the following matters: governance for which the directors are collectively accountable approval of Group strategy and the annual budget; to shareholders. The Board confirms that during the 52 weeks ended 30 April 2011, and as at the date of this Annual Report, oversight of the Group’s operations and review of the Company has been in compliance with the Code provisions its performance; set out in Section 1 of the UK Financial Reporting Council’s 2008 changes relating to the Company’s share capital or Combined Code on Corporate Governance (the “Code”), which corporate structure; continues to apply for this financial year. This report together with communications with shareholders including approval of the Statutory Information on pages 38 to 39, the Audit Committee the Interim Statement, Annual Report and Accounts Report on page 44, the Nominations Committee Report on page (including the review of critical accounting policies and 45, and the Remuneration Report on pages 46 to 54 provides judgements and assessment of going concern) and other details of how the Company has applied the principles and major public announcements; complied with the provisions of the Code. maintaining and monitoring the Group’s system of internal control and risk management; The UK Corporate Governance Code was published on 28 May 2010 (the “New Code”). The New Code applies to the approval of major capital expenditure, material acquisitions Company for the financial year commencing 1 May 2011. The and divestments and material contracts; and Board has identified two principles which it has voluntarily the appointment and remuneration of the external auditors chosen to adopt in advance of the requirement to do so. All on the recommendation of the Audit Committee. directors stood for re-election at the Company’s Annual General Meeting (AGM) in 2010 and will also all stand for re-election at Helen Grantham, the Company Secretary and General Counsel, the AGM in 2011. In addition, the Board has decided that the acts as Secretary to the Board and its Committees. She is also performance evaluation for 2011/12 will be facilitated by an responsible for ensuring that correct Board procedures are followed external service provider. and advises the Board on legal and corporate governance matters. All directors have access to the advice and services of the Company The Board Secretary and may also take independent professional advice at the As at 30 April 2011 and the date of this report, the Board of expense of the Company in the furtherance of their duties. The Directors was made up of eight members, comprising the appointment and removal of the Company Secretary is one of the Chairman, two executive directors and five non-executive matters reserved for the Board. directors. All of the non-executive directors are considered by the Board to be independent and each brings their own senior level The Board meets regularly during the year and during the of experience. The Chairman was deemed to be independent 52 weeks ended 30 April 2011, 13 meetings were held including nine on appointment. scheduled meetings and four ad-hoc meetings convened to deal with specific matters requiring Board consideration or approval. The division of responsibility between the Chairman and Chief Due to the ad-hoc meetings being called at short notice, not all the Executive is formally defined, set out in writing and reviewed by directors were available to attend due to other commitments. The the Board on a regular basis. The Chairman is responsible for the Board also held a Strategy Day during the period. overall operation, leadership and governance of the Board. The Chief Executive is responsible for the executive management of the Group’s business and for implementing the Group’s strategic and commercial objectives.

Andrew Lynch, as the Senior Independent Director, supports the Chairman and is available for approach or representation from shareholders who feel they are unable to raise issues with the Chairman. He also discusses, on an individual basis, the performance of the Chairman with each director and provides feedback on these discussions to the Chairman.

Dixons Retail plc 40 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

Board and committee attendance The table below shows attendance at scheduled Board and Committee meetings during the 52 weeks ended 30 April 2011, expressed as the number of meetings attended compared to the number entitled to attend.

Audit Nominations Remuneration Board Committee Committee Committee John Allan 9 of 9 – 4 of 4 4 of 4 John Browett 9 of 9 – – – Nicholas Cadbury 9 of 9 – – – Rita Clifton 9 of 9 4 of 4 4 of 4 4 of 4 Prof. Dr. Utho Creusen 8 of 9 3 of 4 4 of 4 3 of 4 Tim How 8 of 9 4 of 4 4 of 4 4 of 4 Andrew Lynch 9 of 9 4 of 4 4 of 4 4 of 4 Dharmash Mistry* 5 of 5 2 of 2 1 of 1 3 of 3 *appointed on 27 September 2010

Committees of the Board The Board holds meetings at a variety of Group business locations The Board has four main Committees; the Executive, Audit, to help all Board members gain a deeper understanding of the Nominations and Remuneration Committees. Individual reports business. This also provides senior managers from across the on the work of the Audit, Nominations and Remuneration Group with the opportunity to present to the Board as well as to Committees and their membership are set out on pages meet the directors on more informal occasions. All directors are 44 to 54. encouraged to attend external seminars relevant to the retail

industry and corporate governance matters in order to refresh 36 Corporate Governance

Dixons Retail is dependent on its senior management to and update their knowledge. The Board also receives bi-monthly -- operate its business and execute its strategies. Dixons Retail updates on legal and corporate governance matters. 55 has a decentralised management structure with many high-level management decisions delegated to regional or New directors appointed to the Board receive a tailored induction country management. programme into the Group together with guidance and training appropriate to their level of previous experience. Each director is The Executive Committee is the key management committee and given the opportunity to meet with the Executive Committee, other is chaired by the Chief Executive. In addition it comprises the members of senior management and store colleagues, and to visit Group Finance Director, the Commercial Director, the Group the Group’s sites both in the UK and overseas in order to familiarise People, Marketing and Property Director, the Group Operations themselves with the Group’s businesses and the markets in which Director, the Company Secretary and General Counsel, the they operate. New directors are also encouraged to meet with the Managing Directors of the Nordics and Southern Europe and the Group’s auditors and other advisors. President and Vice-President of PIXmania. Biographical details of the Executive Committee are provided on page 37. The Committee Board evaluation meets on a four to six weekly basis and is responsible for reviewing During the year the Board undertook a formal evaluation of the and making recommendations to the Board on: performance of the Board, its committees and of individual director performance. The evaluation was conducted internally by the formulation and implementation of the Group’s strategy; Chairman with the assistance of the Company Secretary. Each capital expenditure and investment budgets; director held a one-to-one meeting with the Company Secretary who summarised the discussions on an anonymous basis for the delivery of financial results and other business performance Chairman who then held a further one-to-one meeting with each objectives; director to review the feedback, individual director performance optimal utilisation of business opportunities; and and any necessary training and development needs. Key issues risks arising from competitive and economic changes. and action areas are then reported to and monitored by the Board. Each Committee also considered a detailed questionnaire relating Board information and development to the areas of responsibility for that particular Committee and The Chairman is responsible for ensuring that all directors are feedback provided. Following the review in 2010/11, the Board properly briefed on issues arising at Board meetings and that they agreed that the balance of skills and experience was felt to be have full and timely access to relevant information. The quality and appropriate. The Board also agreed that the evaluation process supply of information provided to the Board is reviewed as part of in 2011/12 would be conducted with the assistance of an external the Board evaluation exercise. The Chairman also holds occasional service provider. meetings with the non-executive directors without the executive directors being present to discuss, amongst other matters, corporate strategy and performance and the performance of the executive team. There is frequent contact between directors outside formal meetings to progress the Group’s business and to promote open communication and team working.

Dixons Retail plc Annual Report and Accounts 41 2010/11

Directors’ Report Corporate Governance Corporate Governance Report continued

Authorisation of conflicts of interest local management at each business unit and in those functions The Company has procedures in place to identify, authorise and of the Group requiring greater overview has responsibility for manage conflicts of interest and these procedures have operated identification and evaluation of significant risks to their business effectively during the year. Authorisation of conflicts is handled by areas together with design of mitigating controls; and the Board and the Audit Committee reviews them on an annual post completion assessments are carried out following basis. A register of directors’ conflicts is maintained. major acquisitions.

Internal control The Group’s approach to managing risk is reviewed regularly to The Board has overall responsibility for the Group’s system of identify ways in which it can be improved. internal control and for reviewing its effectiveness, whilst senior management is responsible and accountable for internal control There are clear processes for monitoring the system of internal and effective risk management at an operational level. control and reporting any significant corrective control weaknesses, together with corrective action. These include reports to the Audit The Board confirms that the Group has established and Committee from assurance providers, periodic certification from maintained a process for identifying, evaluating and managing the business units, reviews by Group and regional management, significant risks faced by the Group and this has been in place whistleblowing facilities and independent assurance from both throughout the 52 weeks ended 30 April 2011, up to the date of internal and external audit. Some of these are described in more approval of the financial statements, and accords with the Turnbull detail below. guidance and the Code. This process is designed to manage rather than eliminate the risk of failure to achieve the Company’s Internal audit business objectives and can only provide reasonable and not The Internal Audit department is fully independent of business absolute assurance against material misstatement or loss. operations and has a Group-wide mandate. Its work is driven by a risk-based methodology ensuring that the controls to mitigate Certain of the Board’s responsibilities have been delegated to the the Group’s key risks are audited on a regular basis. Its plans are Audit Committee, which has reviewed the effectiveness of the approved by the Audit Committee, which also receives regular system of internal control (including financial, operational and reports on its findings and progress of related actions. The compliance controls) and risk management. The Audit Committee department also works with the businesses to promote and has ensured that any required remedial action has or is being further develop effective risk management within their taken. This has included a review of the proposed actions and operations. The Group Director for Internal Audit and Risk revised processes to address historical weaknesses in controls Management attends all Audit Committee meetings. over supplier receivables in PIXmania, which gave rise to a significant write-off during the period. External auditors The external auditors provide further independent observations The system of internal control and the process for managing risk of certain elements of the internal financial controls as part of include the following elements: their audit of the financial statements. Their findings are presented to the Audit Committee with updates on progress discussion and approval by the Board of the Group’s strategic against the recommendations being made throughout the year. direction, plans and objectives and the risks to achieving them; the Board and management committees meet regularly to Whistleblowing policy monitor progress against the targets set out in the Group’s The Group operates a whistleblowing policy and has a budget and strategic five year plan; confidential helpline operated by a third party. This can be used the defined levels of authority established by the Board ensure to report, anonymously if so wished, on matters of concern to that significant decisions are taken at an appropriate level; employees. This can range from unethical behaviour, such as fraud, to practices that might endanger the health of customers each business function has established procedures and and employees. controls to minimise the risk of fraud and to safeguard the Group’s assets; Bribery Act appropriate controls and procedures have been established The Bribery Act is due to come into force on 1 July 2011. The over the security of data held on, and functionality provided Group has taken steps to enhance policies and procedures that by, the Group’s business systems. These include disaster it deems will be adequate to meet the requirements of the Act recovery arrangements; and will help to prevent individuals associated with the Group the Group appoints individuals who are of a calibre to enable from committing acts of bribery. them to discharge the duties and responsibilities of the roles assigned to them; the Group has implemented appropriate strategies to deal with each significant risk that has been identified. These strategies include insurance, treasury statements and common standards of internal control;

Dixons Retail plc 42 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

Relations with shareholders The Company is committed to effective communication with all shareholders, whether institutional investors, private or employee shareholders. The Company reports formally to shareholders when its full year and half year results are published. These results are posted on the Company’s corporate website www.dixonsretail.com. Regular trading updates are also posted on the Company’s website. Formal notification of the Company’s AGM is sent to shareholders at least 20 working days in advance of the meeting. The directors, including the respective Chairmen of the Audit, Remuneration and Nominations Committees, are available for questions formally during the AGM and informally afterwards. Details of the 2011 AGM are set out in the Notice of Meeting accompanying this Annual Report.

Effective two-way communication with institutional investors, brokers and analysts is established through regular presentations and meetings in the UK and overseas, usually by the Chief Executive, Group Finance Director and Group Communications Director. The Chairman holds occasional meetings with major shareholders to discuss matters of mutual interest including corporate strategy and governance. Where appropriate, the Chairman of the Remuneration Committee communicates with major shareholders to canvass 36 Corporate Governance opinion when deciding remuneration policy. The Senior Independent --

Director and other non-executive directors are also available to 55 attend meetings with major shareholders if requested. Matters arising from these presentations and meetings are communicated to the Board. The Board receives an Investor Relations report at each of its scheduled meetings.

Dixons Retail plc Annual Report and Accounts 43 2010/11

Directors’ Report Corporate Governance Audit Committee Report

Membership and process Attendance at meetings The Committee comprises Andrew Lynch (as Chairman), Rita The Chairman of the Board, Chief Executive, Group Finance Clifton, Prof. Dr. Utho Creusen, Tim How and Dharmash Mistry, Director, Group Financial Controller, Group Chief Accountant, all of whom are independent non-executive directors. Dharmash Director of Internal Audit and Risk, Deputy Company Secretary Mistry was appointed to the Committee on 27 September 2010. and external auditors were invited by the Chairman of the Committee to attend all meetings of the Committee. The Group The biographical details of the members of the Committee are Treasurer and Group Tax Director also attended meetings at the set out on page 36. The Board is satisfied that the Chairman of Committee’s request. Each time the Committee convenes, it also the Committee meets the requirement for recent and relevant meets with external auditors without the presence of management. financial experience. The Company Secretary acts as Secretary to the Committee. In undertaking its duties, the Committee has access to the services of the Group Finance Director and the Company The Committee met on four occasions during the period under Secretary, as well as access to external professional advice. review, and the members’ attendance record is set out on page 41. The Chairman of the Committee reports the Committee’s Key matters considered deliberations to the following Board meeting and the minutes During the period, the Committee reviewed the following: of each meeting of the Committee are circulated to all members significant issues arising from reports of both the internal and of the Board. external audits; Role measures adopted to ensure compliance with the Group’s The Committee assists the Board to fulfil its oversight credit facilities; responsibilities. Its primary functions are to: systems and controls in place at PIXmania following the monitor the integrity of the financial statements and any formal identification of historical under-estimated purchase accruals; announcements relating to the Group’s financial performance; the working capital position of the Group and the review critical accounting policies and financial reporting management of its cash flow; judgements; the carrying value of certain assets in the Group; review the integrity of the Group’s system of internal control tax matters; and risk management; recommendations from the Nominations Committee monitor and review the effectiveness of the Group’s internal concerning the composition of the Committee; audit function; a review of the Committee’s performance and terms of reference; review and approve the annual audit plan of both the internal the role and resources of Internal Audit; and external audit functions including principal areas of focus; a review of the Group’s Delegation of Authority Policy; review the Group’s risk and insurance programmes; developments in corporate governance; and carry out an annual assessment of the external auditors, the annual audit fee, which is set out in note 3 to the Financial review and monitor their independence and objectivity taking Statements, with due regard to the balance between audit into consideration relevant UK professional and regulatory and non-audit fees and the policy for approval of non-audit requirements, assess the effectiveness of the external audit fees paid to the Group’s auditors. process, approve the external auditors’ remuneration and terms of engagement and make recommendations in respect of their reappointment or removal; External auditors The Committee, having considered the policies and review the directors’ conflicts of interest register and to agree procedures applied by the Group and the internal policies and any amendments to previously approved conflicts; representations of Deloitte LLP, including the regular rotation review regularly the Group’s policy on the supply of non-audit of audit partner, remains satisfied with the auditors’ objectivity services by the external auditors, such that relevant ethical and independence and the effectiveness of the audit process. guidance regarding the provision of non-audit services, when Accordingly, the Committee has recommended to the Board that taken as a proportion of the audit fee, is considered in addition a resolution for their reappointment be proposed at the AGM. to the nature of such services in order to preserve the external auditors’ independence and objectivity; and monitor the results and effectiveness of arrangements under which employees can raise in confidence issues of concern relating to financial matters and internal controls.

The terms of reference for the Committee are reviewed annually by the Committee and then by the Board. A copy of the terms Andrew Lynch of reference is available on the Group’s corporate website. Chairman of the Audit Committee 23 June 2011

Dixons Retail plc 44 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance Nominations Committee Report

Membership and process The Nominations Committee keeps itself abreast of best practice The Committee comprises John Allan (as Chairman), Rita Clifton, through a combination of private research and briefing by internal and Prof. Dr. Utho Creusen, Tim How, Andrew Lynch and Dharmash external advisors on key developments relevant to the Company. Mistry, all of whom are non-executive directors. Dharmash Mistry was appointed to the Committee on 27 September 2010. In considering the appointment of Dharmash Mistry as a non-executive director, the Committee engaged the services The biographical details of the members of the Committee are of The Zygos Partnership, an external agency, to assist with set out on page 36. The Company Secretary acts as Secretary the search process. The search process involved meeting with to the Committee. potential candidates, taking up references and assessing their skills, experience and suitable fit with the Board. The Committee met on four occasions during the period under review, and the members’ attendance record is set out on page The terms of reference of the Nominations Committee were 41. The Chairman of the Committee reports the Committee’s updated during the year in line with guidance issued by the Institute deliberations to the following Board meeting and the minutes of Chartered Secretaries and Administrators. In doing so, it was of each meeting of the Committee are circulated to all members resolved that succession planning for senior executives (other than of the Board. Board members) continue to be dealt with by the full Board. Role The Board and the Nominations Committee are mindful of the The principal duties of the Committee are to: fact that the Company has a number of long-serving directors and is looking at succession and refreshment in this context. keep under review the structure, size and composition of In line with Lord Davis’ recent Report on Women on Boards, the Board and its principal committees and to recommend the diversity of our Board will also be reviewed. changes deemed necessary; to be responsible for the succession planning for Board In line with best practice, each director will retire this year and 36 Corporate Governance --

members, in particular, the Chairman and Chief Executive; offer themselves for re-election by shareholders at the 2011 55 to identify, evaluate and nominate candidates to fill vacancies AGM. The Committee considers it appropriate that each of on the Board; and them be re-elected because of their individual experience and knowledge within the retail sector and wider management to make recommendations to the Board regarding the and industry experience. After performance evaluation, it was continuation in office of a director upon the expiry of any concluded that each director continues to be effective and specified terms of appointment. committed to their role. The terms of reference for the Committee are reviewed annually The executive directors’ service contracts and non-executive by the Committee. A copy of the terms of reference is available directors’ letters of appointment are available for inspection on the Group’s corporate website. by prior arrangement during normal business hours at the Company’s registered office. They will also be available for Key matters considered inspection at the venue, prior to the AGM, details of which During the year, the principal matters considered by the Committee are contained in the Notice of Meeting. were as follows: consideration of the succession planning process for the directors; an evaluation of the size, composition and structure of the Board and its Committees; John Allan the appointment of Dharmash Mistry to the Board and its Chairman of the Nominations Committee Committees; and 23 June 2011 a review of the Committee’s performance and terms of reference.

Dixons Retail plc Annual Report and Accounts 45 2010/11

Directors’ Report Corporate Governance Remuneration Report

This report, approved by the Board, has been prepared in In implementing this policy, the Remuneration Committee takes accordance with the Companies Act 2006, Schedule 8 of the account of information and surveys from internal and independent Large and Medium sized Companies and Groups (Accounts and sources and the remuneration paid for comparable positions Reports) Regulations 2008 (“Schedule 8”) and the Listing Rules in other companies. It reviews data and surveys provided by of the Financial Services Authority. This report is divided into remuneration consultants and market research companies with two sections: particular reference to the scale and composition of the total remuneration policy (not subject to audit and as set out in remuneration packages payable to people with like responsibilities, sections (I) to (VI)) which details the role of the Committee, qualifications, skills and experience in businesses of similar size the principles of remuneration and other matters; and and structure. remuneration review (audited and as set out in sections (VII) to In setting the remuneration of the directors and senior management, (XI)) which details directors’ and former directors’ emoluments, the Committee takes into account the economic environment and share awards, share options and pension arrangements. financial performance of the Group, along with pay and employment conditions of employees elsewhere in the Group. The purpose of this report is to inform shareholders of the Company’s policies on directors’ remuneration for the financial Executive directors period ended 30 April 2011 and, so far as practicable, for The objectives of the remuneration policy are to: subsequent years as well; and to provide details of the remuneration of individual directors as determined by the ensure that the remuneration structure motivates the directors Remuneration Committee. Shareholders will be asked to and senior management to succeed and appropriately approve the report at the AGM on 7 September 2011. rewards them for their contribution to the attainment of the Group’s short and long term results; Remuneration policy (not subject to audit) maintain, particularly through reward schemes based on performance, a competitive package of pay and benefits (I) Role of the Remuneration Committee which provides the motivation for future achievement; The Board has delegated to the Remuneration Committee responsibility for determining policy in relation to, and approval of, facilitate the building and retention of a high calibre and remuneration packages for senior management. This includes focused team which will work effectively to achieve the the terms and conditions of employment of each of the executive Group’s longer term strategic objectives; directors of the Company and for other senior management of align the directors’ interests with those of shareholders by the Group; and policy in relation to the operation of the Group’s offering participation in schemes which provide opportunities share-based employee incentive schemes. to build shareholdings in the Company; and facilitate effective succession planning. The membership of the Committee currently comprises the five independent non-executive directors and the Chairman of The Committee is satisfied that the incentive structure for senior the Company. Their biographies and qualifications are set out management does not raise governance risks by inadvertently on page 36. Dharmash Mistry joined the Committee upon his motivating irresponsible or reckless behaviour. appointment to the Board on 27 September 2010. The Chairman has joined the Committee in accordance with the provision of In deciding the appropriate remuneration strategy for 2011/12 the the Combined Code permitting a company Chairman to be a Remuneration Committee has taken into account the Company’s member, but not Chairman, of the Remuneration Committee. performance over the last year which despite the continued The remaining members of the Committee served throughout delivery of the Renewal and Transformation plan has been affected the period under review. The Committee’s terms of reference are by a marked deterioration in consumer confidence across a shown on the corporate responsibility section of the corporate number of the Group’s markets, particularly in the UK & Ireland. website. The Committee met four times during the period, and the members’ attendance record is set out on page 41. For 2011/12 the Committee has reviewed its long term remuneration arrangements in light of the fall in the Company’s share price. The Chief Executive, the Group Finance Director and the Group In doing so it has also taken into account heightened external People, Marketing and Property Director attended meetings of interest in the senior management population and the need to the Committee by invitation in an advisory capacity. Meetings are ensure they are appropriately incentivised and ‘locked in’ to the also attended by the Company Secretary (who acts as secretary Company to deliver the Renewal and Transformation plan. to the Committee) and by the Group Reward Director. As a result for 2011/12 the Committee has decided to simplify its Nobody attends any part of a meeting at which their own previous approach of granting share options under the Executive remuneration is discussed. During the period under review the Share Option Plan (ESOP) and awards under the Performance Committee obtained advice from Hewitt New Bridge Street Share Plan (PSP). Therefore, for 2011/12 the Remuneration (a subsidiary of Aon Hewitt Limited) (HNBS) for which they Committee proposes to deliver long-term incentive awards via received fees of £60,000. HNBS provided no other services the less dilutive PSP awards only. to the Company. It is proposed that 50% of the PSP awards to executive directors (II) Remuneration principles will be based on relative Total Shareholder Return (TSR) and the In setting its policies, the Committee has regard to several factors remaining 50% of the award on achieving earnings per share including the benefits arrangements which apply below senior targets. This is to address concerns that the change in award management level and competitor benchmarking. mechanism de-emphasises earnings per share as, to date, the primary performance condition for PSP awards has been a relative total shareholder return condition.

Dixons Retail plc 46 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

In determining the quantum of awards for 2011, the Committee For 2010/11, no bonus was payable in respect of performance has also taken into account falls in the Company’s share price against the Group operating profit or Group Free Cash Flow to ensure awards remain appropriate and proportionate. targets. In respect of their performance against personal objectives, bonuses of £122,409 and £62,118 were awarded to These changes have been made to ensure that the remuneration the Chief Executive and the Group Finance Director, respectively. structure motivates and rewards the directors for their contribution to the attainment of the Group’s long term results as well as For 2011/12 there will be no change in the existing bonus ensuring that the long-term incentive provision is appropriate in potential for the executive directors; 100% of salary for the Chief terms of share dilution and cost. PSP awards were felt to better Executive and 85% of salary for the Group Finance Director. The achieve this as they instil a greater sense of longer term ownership bonus paid will be dependent on underlying Group operating compared to share options. During 2011/12, the Committee profit (55% of bonus), Group Free Cash Flow (25% of bonus) and will consider whether this approach should be adopted for achievement of personal objectives (20% of bonus). When setting future years. the objectives of the executive directors, the Committee has considered corporate performance on environmental and (a) Base salaries social governance matters; the Committee is satisfied that the As a general policy, base salaries reflect the Committee’s remuneration structure put in place for the executive directors assessment of the mid-market rate for relevant positions and does not raise environmental and social governance risks by levels of responsibility and the individual executive’s experience, inadvertently motivating irresponsible behaviour. performance and value to the business. The Committee also assesses pay and employment conditions of employees of the Bonus targets for 2011/12 have been set at levels using Group when determining the executive directors’ remuneration. benchmarks that reflect both internal business objectives and external expectations and the Committee is satisfied that the For the period under review, an increase to base salaries across targets are sufficiently challenging relative to underlying Group the whole UK work force of 1.5% was applied. This policy was also operating profit performance in 2010/11. 36 Corporate Governance -- applied to the executive directors. For 2011/12 the Committee has 55 approved an overall increase to base salaries across the whole UK (ii) Long Term Incentive Plan (LTIP) and Performance work force of 2% with individual increases varying between 0% Share Plan (PSP) and 4% based on individual performance. This policy will also be Starting in 2009/10, the Company awarded incentives under a applied to both the executive directors. new plan (the PSP), which replaced the Long Term Incentive Plan (LTIP). The rules of the PSP permit awards to be made over Accordingly, the Chief Executive’s salary will be increased by shares worth up to 100% of salary per annum (200% of salary 2.75% to £698,750 and the Group Finance Director’s salary in exceptional circumstances). by 2.75% to £417,200 for 2011/12. As explained earlier in this report, for 2011/12 it is intended that (b) Performance-related remuneration executive directors only receive PSP awards. These will have The performance based elements of remuneration are designed a face value of 100% of salary determined by reference to the to drive performance and to strengthen the alignment between share price averaged over the period 1 April 2011 to 30 June the interests of the Company’s shareholders and its senior 2011. This compares to PSP awards in 2010/11 with a face value management, whilst encouraging management retention. The of 87% of salary and share option grants with a face value of components of performance-related remuneration are as follows: 174% of salary.

(i) Annual cash bonus In determining the level of award the Remuneration Committee During 2010/11, performance based remuneration for the executive was conscious that awarding the executive directors the same directors comprised an annual cash bonus plan based on the value of shares as in 2010/11 might result in a significant increase achievement of the Group’s targets and personal objectives. in the number of shares awarded. Accordingly, the Committee determined that the number of shares awarded should be based For 2010/11 the maximum potential bonus for the Chief Executive on awarding the same number of shares as in 2010/11, but with was 100% of basic salary and for the Group Finance Director was an appropriate reduction to recognise the award of full value 85% of basic salary. Payment was dependent on underlying Group shares compared to share options. operating profit (55% of bonus), Group Free Cash Flow (25% of bonus) and achievement of personal objectives (20% of bonus), which included an element related to non-financial objectives.

Dixons Retail plc Annual Report and Accounts 47 2010/11

Directors’ Report Corporate Governance Remuneration Report continued

It is proposed that for awards to be made to the executive The Remuneration Committee is aware of, and supports, the ABI directors in 2011/12, vesting of 50% of the awards will be subject guidelines regarding dilution and regularly monitors compliance to relative TSR performance and 50% of the awards will be with these requirements. The Remuneration Committee included subject to achieving specified levels of EPS for the year ending provisions in the scheme rules adopted at the 2008 AGM which 3 May 2014. limit the number of newly issued shares which can be granted to 10% of the issued share capital in 10 years under all employee For 2011/12 TSR performance will continue to be measured share schemes and 5% for the executive directors and senior relative to the constituents of the FTSE 250 Index (comprising management under the discretionary share plans. FTSE 101-350 companies), excluding investment trusts, at the start of the performance period. Full vesting will occur for upper As at the date of this report, the Company’s usage of shares quartile performance reducing on a straight-line basis to 25% against the limits detailed above in respect of all employees in of the award at median. No award will vest for below median the all employee schemes was 6.64% of the issued capital and in performance. Additionally, prior to vesting the Remuneration respect of grants to executive directors and senior management Committee will satisfy itself that the TSR performance achieved under the discretionary plans was 1.82% of issued capital. Shares reasonably reflects the underlying financial performance of the relating to a portion of the potential obligations are held in a trust Group and reserves the right to vary awards accordingly. (the Trust) and if required, it is the Committee’s intention to make purchases of shares, taking into account the number of awards The 2011/12 EPS targets will be set at the time of grant and vesting and those options to be satisfied either from the Trust or by will incorporate the same vesting schedule as for share option new issue together with the likelihood of any performance targets grants in prior years for equivalent levels of performance, which being met and also potential lapsing of awards when employees are shown on page 54 of this report. leave the Group.

Details of awards made in 2009/10 and 2010/11 to Nicholas (c) Taxable benefits Cadbury and John Browett are contained in section (IX) of Each of the executive directors receives a cash payment in lieu of this report. a company car and is a member of the non-contributory Dixons medical expenses plan which provides benefits similar to those (iii) Share option plans applicable in comparable companies. The Remuneration Committee approves the basis on which options are granted to executive directors and other employees Further information on employee costs and those relating to under the Company’s discretionary share option schemes and senior management is given in notes 6 and 32, respectively, other performance plans. Options have normally been granted to the Financial Statements. annually to the executive directors under the Group’s ESOP. The plan permits making an award with a market value on the date of (d) Pensions and related benefits grant of not more than twice the recipient’s basic salary. However, Until 30 April 2010 Nicholas Cadbury accrued benefits under the in exceptional circumstances (for instance to facilitate recruitment defined benefit section of the Dixons Retirement & Employee or to retain key executives) this limit can be exceeded. As in Security Scheme (DRESS). This is a funded, HMRC registered previous years, executive directors were granted share options contributory pension scheme which provides a pension at during the year, details of which are shown in section (X) of this a normal retirement age of 65 accrued at a rate of 1/60th report. The Remuneration Committee does not intend to grant of pensionable salary per annum up to a maximum of share options under the ESOP in 2011/12. 40 years. Part of this pension may be exchanged for cash at the date of retirement. Following a consultation with affected Executive directors and senior management are also entitled employees across the UK, the Group closed the defined benefit to participate in the Sharesave plan on the same conditions as section of DRESS to future accrual for all active members effective other employees. The Company will be inviting UK employees 30 April 2010. As a result, since that date Nicholas Cadbury has to participate in a Sharesave plan in July 2011. accrued pension benefits within the defined contribution section of DRESS (pensionbuilder) with a Company contribution of 20% of All share options, other than those under the Sharesave scheme, salary. Membership of the defined benefit section of DRESS are exercisable between three and ten years from the date of provides the option for the provision of dependants’ pensions and grant and for those options subject to a performance target, only also an insured lump sum on death in service. The insured lump if the Committee determines that the performance conditions sum is four times basic salary, however, for a period of two years have been met. Such determination is made once EPS figures commencing on 1 May 2010 this was increased to six times in are known for the relevant financial year. Since 2004, targets recognition of the fact that members’ individual defined benefit are tested only once. All share options lapse on the earlier of ten accounts under the defined contribution section of DRESS will be years from the date of grant or, where performance conditions relatively small during this period. This two year provision applies apply, on the date on which the Remuneration Committee equally to all members of the defined benefit section of DRESS determines that the performance conditions have not been met. who were transferred to the defined contribution section.

(iv) Dilution Notwithstanding the abolition of the statutory earnings cap for A combination of both newly issued shares and shares bought in pension purposes on 6 April 2006, an equivalent cap, adjusted the market are to be used to satisfy awards under the Group’s annually for inflation, was introduced for the purposes of employee share incentive arrangements.

Dixons Retail plc 48 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

DRESS. From 2 May 2010 the cap was £123,600 and from (IV) Non-executive directors 1 May 2011 it will be £129,600. Nicholas Cadbury is also Non-executive directors are normally appointed for three year provided with a salary supplement at the annual rate of 30% terms, although appointments vary depending on length of of the difference between his basic salary and the scheme service and succession planning considerations. earnings cap as set by the Company from time to time. Their current terms expire as follows: John Browett has chosen not to become a member of any Date Dixons Retail pension plan. However, he receives a contribution of 32.1% of basic salary to fund his own retirement arrangements. John Allan 1 Jul 2012 John Browett is also entitled to receive life assurance cover equal Prof. Dr. Utho Creusen 1 Feb 2013 to four times basic salary and personal accident cover at the level Rita Clifton 1 Sep 2012 of £2,000,000. Tim How 7 Sep 2012 Andrew Lynch 24 May 2012 New externally recruited executive directors will be offered Dharmash Mistry 26 Sep 2013 membership of pensionbuilder and the Remuneration Committee may exercise its discretion regarding the level of award of any The remuneration of non-executive directors is determined by salary supplement or enhanced contributions. the Board upon the recommendation of the Chief Executive and the Group Finance Director. (e) Service agreements John Browett and Nicholas Cadbury have service agreements John Allan’s fee is £254,000 per annum. The other non-executive with Dixons Retail plc which may be terminated at any time by directors receive a fee of £49,000 per annum or euro equivalent. 12 months’ notice. Service agreements contain neither a liquidated The fee is reviewed annually and is due to be reviewed later in 2011. damages nor a change of control clause. It is the Company’s policy to ensure that any payments made to a director in the The Chairmen of the Audit and Remuneration Committees receive 36 Corporate Governance -- event of the early termination of a service agreement reflect the an additional fee of £10,000 per annum. Andrew Lynch has been 55 circumstances giving rise to termination and, where considered designated Senior Independent Director for which he receives a appropriate, the obligation of the outgoing director to mitigate his further fee of £5,000 per annum. Non-executive directors derive loss. Accordingly, consideration is given to making compensation no other benefits from their office and are not eligible to participate payments in instalments and is conditional on the leaver’s in the Group’s pension scheme. It is Company policy not to grant employment and earnings status. share options to non-executive directors or to require part of their fees to be paid in the form of shares. The service agreements of the executive directors who served during the financial period were entered into on the following dates: Letters of appointment of the non-executive directors are available on application to the Company Secretary.

Date (V) Directors’ share interests John Browett 6 Jun 2007 The Committee implemented a policy in the 2008/09 financial Nicholas Cadbury 13 Apr 2009 year of encouraging executive directors to build shareholdings in the Company. The policy is that executive directors are required The service agreements of the directors are available for to retain 50% of the net of tax out-turn from the vesting of future inspection at the registered office of the Company during normal awards or share options under the Company’s share plans until business hours on each business day. a shareholding with a minimum value equivalent to their basic salary is achieved. (f) External directorships Executive directors are permitted to accept non-executive directorships in external companies and to retain the fees which Unrestricted beneficial and they receive in such roles. Normally only one such appointment family interests 30 April 2011 1 May 2010* will be authorised for each director. John Browett is a non- Executive directors executive director of easyJet plc and was paid a fee at the rate John Browett 737,519 214,285 of £55,000 per annum. Nicholas Cadbury 40,625 40,625 Non-executive directors (III) Wider senior executive remuneration policy John Allan 271,428 271,428 All senior executives participate in an annual cash bonus plan Rita Clifton 24,903 24,903 which rewards executives for the delivery of operating profit Prof. Dr. Utho Creusen 97,071 – and Free Cash Flow targets and the achievement of personal Tim How 80,000 80,000 objectives. The top 90 executives plus other eligible employees Andrew Lynch 181,428 81,428 including Regional and Store Managers are also conditionally Dharmash Mistry – – awarded shares. This helps to retain key executives and ensure * or date of appointment if later. that there is alignment with shareholders’ interests. The Company also offers all UK & Ireland employees (including In addition to the share interests disclosed above, John Allan holds executive directors and senior management) the opportunity to £479,000 6.125% 2012 Guaranteed Bonds (the 2012 Bonds) and participate in the Sharesave plan. The Company will be inviting £502,000 8.75% 2015 Guaranteed Notes (the 2015 Notes) issued employees to participate in a Sharesave plan in July 2011. by the Company. Andrew Lynch also holds £50,000 of the 2015 Notes. Full details of the 2012 Bonds and the 2015 Notes are shown in note 17 to the Financial Statements.

Dixons Retail plc Annual Report and Accounts 49 2010/11

Directors’ Report Corporate Governance Remuneration Report continued

There were no changes in the Directors’ restricted or unrestricted £ share interests between 30 April 2011 and the date of this report. 140 (VI) Total Shareholder Return (TSR) 120 The graph set out on this page shows the Company’s 100 performance measured by TSR on a holding of £100 in the Company’s shares over the five years since 30 April 2006 80 measured against the same amount invested in the FTSE 350 Index. The other points plotted are the values at intervening 60 financial year ends. 40 This index has been selected as the Company has been a constituent of it throughout the five year period shown. 20 0 29 April 28 April 3 May 2 May 1 May 30 April 2006 2007 2008 2009 2010 2011 Dixons Retail plc FTSE 350

Remuneration review (audited) (VII) Directors’ remuneration The following table shows an analysis of the emoluments of individual directors:

52 weeks 52 weeks ended ended Basic salary Pension Cash Taxable 30 April 2011 Basic salary Pension Cash Taxable 1 May 2010 and fees contributions bonus benefits Total and fees contributions bonus benefits Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive John Browett(1) 676 217(2) 122 15 1,030 670(1) 215(2) 670 15 1,570 Nicholas Cadbury(1) 404 84(3) 62 14 564 400(1) 83(3) 340 16 839 1,080 301 184 29 1,594 1,070 298 1,010 31 2,409 Non-executive Current directors John Allan 253 – – – 253 184(4) – – – 184 Rita Clifton 49 – – – 49 48 – – – 48 Prof. Dr. Utho Creusen 49 – – – 49 12(5) – – – 12 Tim How 59 – – – 59 31(6) – – – 31 Andrew Lynch 64 – – – 64 63 – – – 63 Dharmash Mistry(7) 29 – – – 29 – – – – – Former directors Sir John Collins(8) – – – – – 125 – – – 125 Count Emmanuel d’André(9) – – – – – 16 – – – 16 John Whybrow(10) – – – – – 53 – – – 53 503 – – – 503 532 – – – 532

1,583 301 184 29 2,097 1,602 298 1,010 31 2,941 (1) John Browett and Nicholas Cadbury elected to take up the opportunity to sacrifice a portion of their salaries under the Reward Sacrifice Scheme. Amounts sacrificed were £116,000 (2009/10 £52,000) for John Browett and £nil (2009/10 £40,000) for Nicholas Cadbury making their basic salaries after the sacrificed amounts £560,000 and £404,000, respectively (2009/10 £618,000 and £360,000, respectively). (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) Nicholas Cadbury’s pension contributions represent 30% of the difference between his basic salary and the scheme earnings cap set by the Company. (4) Amounts shown relate to John Allan’s period in office as a director (23 June 2009 to 1 May 2010). (5) Amounts shown relate to Prof. Dr. Utho Creusen’s period in office as a director (1 February 2010 to 1 May 2010). (6) Amounts shown relate to Tim How’s period in office as a director (9 September 2009 to 1 May 2010). (7) Amounts shown relate to Dharmash Mistry’s period in office as a director (27 September 2010 to 30 April 2011). (8) Sir John Collins retired as a director with effect from 2 September 2009. (9) Count Emmanuel d’André retired as a director with effect from 2 September 2009. (10) John Whybrow retired as a director with effect from 31 March 2010.

Dixons Retail plc 50 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

(VIII) Directors’ pensions Gross Transfer Transfer increase in value of value of Accrued Accrued accrued accrued accrued Change in pension as at pension as at pension during benefits as at benefits as at transfer 30 April 2011 1 May 2010 the period 30 April 2011 1 May 2010 value £’000 £’000 £’000 £’000 £’000 £’000 Nicholas Cadbury 37 37 – 312 284 28

Accrued pension shown is that payable at normal retirement age (65). As described above, on 30 April 2010 the defined benefit section of the pension scheme, of which Nicholas Cadbury is a member, was closed to future accrual. Accordingly, no further contributions have been made to this section of the scheme and no further increases in accrued pension have occurred since this date.

The transfer value as at 30 April 2011 has been calculated in accordance with the Government regulations on the calculation of transfer values, ‘Occupational Pensions Schemes (Transfer Values) (Amendment) Regulations 2008’. (IX) Directors’ LTIP, PSP and Reward Share awards The directors’ restricted beneficial interests shown in the table below represent the maximum number of shares which may vest under the LTIP, PSP or Retention and Recruitment plan. Details of the LTIP and PSP, including performance conditions, are described in section (II)(b)(ii), above.

In 2008 under the Retention and Recruitment plan a limited number of senior executives below Board level received an award of Reward Shares whereby no performance conditions applied, but, other than in the event of death or change of control, shares will only be released in the event that the relevant individuals remain with the Group for a three year period. The Reward Shares were considered necessary to ensure that those executives key to delivering the targets were appropriately incentivised and ‘locked in’ 36 Corporate Governance --

to the Company for three years. The vesting date for the 2008 award of Reward Shares is 4 July 2011. 55

End of Market price Awarded in Vested in Lapsed in performance on award At 2 May 2010 the period the period the period At 30 April 2011 period Vesting date John Browett LTIP 2007/08(1) 115.50p 1,068,870 – (1,068,870) – – N/A Dec 2010 2007/08(2) 115.50p 1,525,108 – – (1,525,108) – Apr 2010 Dec 2010 2008/09 38.50p 761,236 – – – 761,236(3) Apr 2011 Jul 2011 PSP 2009/10 25.22p 664,155 – – – 664,155 May 2012 Jul 2012 2010/11 27.59p – 1,914,286 – – 1,914,286 May 2013 Jul 2013 4,019,369 1,914,286 (1,068,870) (1,525,108) 3,339,677 Nicholas Cadbury LTIP 2007/08 163.70p 59,595 – – (59,595) – Apr 2010 Jun 2010 2008/09 38.50p 204,511 – – – 204,511(3) Apr 2011 Jul 2011 PSP 2009/10 25.22p 396,511 – – – 396,511 May 2012 Jul 2012 2010/11 27.59p – 1,142,857 – – 1,142,857 May 2013 Jul 2013 Reward Shares(4) 2008/09 38.50p 153,383 – – – 153,383 N/A Jul 2011 814,000 1,142,857 – (59,595) 1,897,262 (1) The award of these 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. This one off award of shares was made in compensation of the significant value of share awards and bonus entitlement John Browett was forfeiting upon joining the Company and was not subject to any performance conditions. The release of these shares was dependent on John Browett remaining in employment until the vesting date, 6 December 2010. The share price on the date of vesting was 25.55p and the number of shares actually released was calculated net of any applicable tax deductions. (2) The standard LTIP made to John Browett on 6 December 2007 failed to meet its performance condition and therefore lapsed. (3) Vesting of the 2008/09 LTIP award was dependent on the Company’s TSR performance as outlined below over the three financial periods ended 2 May 2009, 1 May 2010 and 30 April 2011. Since 30 April 2011, the Remuneration Committee has reviewed this performance condition and has determined that it has not been met. Accordingly, these awards have now lapsed. (4) The award was made prior to Nicholas Cadbury joining the Board.

Dixons Retail plc Annual Report and Accounts 51 2010/11

Directors’ Report Corporate Governance Remuneration Report continued

For 2008/09 LTIP awards and 2009/10 PSP awards TSR performance is compared to that of a bespoke weighted index comprising UK and European retailers. This group comprised:

Brown (N) Group(1) HMV Group(1) Kesa Electricals Praktiker Group(1) Home Retail Group Kingfisher PPR Debenhams Inchcape Marks and Spencer Group Sports Direct International Game Group(1) Signet Group Metro Group Tesco Jelmoli(2) Next WH Smith Group(1) (1) 2009/10 award only. (2) 2008/09 award only.

All companies have equal weighting within the group other than Kesa Electricals and Metro Group, who have greater competitive relevance and therefore have double weighting. Under this condition full vesting occurs for performance equivalent to the upper quartile over the three year performance period, reducing to 25% of an award vesting for performance equivalent to median (with no vesting below this level). Vesting between these targets will occur on a straight-line basis.

PSP awards made in 2010/11 are subject to TSR performance relative to the constituents of the FTSE 250 Index (comprising FTSE 101-350 companies), excluding investment trusts, at the start of the performance period. Full vesting will occur for upper quartile performance reducing on a straight-line basis to 25% of the award at median. No award vests for below median performance. Additionally, awards made to the executive directors contain an EPS (defined on page 19) underpin requiring total EPS growth of RPI plus 2% per annum for the performance period.

The status of the provisional awards under the LTIP and PSP are reviewed regularly and as at the last review in May 2011, the status of the awards as at 30 April 2011 is as follows:

Period in which provisional award made Status Award if status maintained 2008/09 TSR below index – lapsed* No award 2009/10 TSR below index No award 2010/11 TSR below median No award

* lapsing occurred subsequent to the period end following review by the Remuneration Committee.

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.

Dixons Retail plc 52 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance

(X) Directors’ share options Awarded in Lapsed in Date from which Expiry of the Date of Grant Exercise Price At 2 May 2010 the period the period At 30 April 2011 first exercisable Exercise Period John Browett Discretionary(1) 6 Dec 2007 83.26p 1,561,372 – – 1,561,372(2) 6 Dec 2010 5 Dec 2017 11 Jul 2008 27.63p 3,045,866 – – 3,045,866(2) 11 Jul 2011 11 Jul 2018 23 Jul 2009 23.95p 2,656,622 – – 2,656,622 23 Jul 2012 23 Jul 2019 3 Aug 2010 27.59p – 3,828,571 – 3,828,571 3 Aug 2013 3 Aug 2020 Reward Sacrifice(3) 28 Sep 2009 28.43p 1,992,466 – – 1,992,466 28 Sep 2012 27 Sep 2019 Sharesave(1), (4) 24 Jul 2009 18.32p 24,768 – – 24,768 1 Oct 2012 31 Mar 2013 3 Aug 2010 20.23p – 12,100 – 12,100 1 Oct 2013 31 Mar 2014 9,281,094 3,840,671 – 13,121,765 Nicholas Cadbury Discretionary(1) 17 Jul 2000 201.44p 22,339 – (22,339) – 17 Jul 2003 17 Jul 2010 23 Jul 2001 170.45p 35,200 – – 35,200 23 Jul 2004 23 Jul 2011 22 Jul 2002 118.80p 60,605 – – 60,605 22 Jul 2005 22 Jul 2012 2 Jul 2007 118.40p 114,020 – (114,020) – 2 Jul 2010 2 Jul 2017 11 Jul 2008 27.63p 767,148 – – 767,148 11 Jul 2011 11 Jul 2018 14 Aug 2008 41.84p 1,066,599 – – 1,066,599(2) 14 Aug 2011 14 Aug 2018 23 Jul 2009 23.95p 1,586,043 – – 1,586,043 23 Jul 2012 23 Jul 2019 3 Aug 2010 27.59p – 2,285,714 – 2,285,714 3 Aug 2013 3 Aug 2020 Reward Sacrifice(3) 28 Sep 2009 28.43p 475,813 – – 475,813 28 Sep 2012 27 Sep 2019 (1), (4) Sharesave 24 Jul 2009 18.32p 24,768 – – 24,768 1 Oct 2012 31 Mar 2013 36 Corporate Governance

3 Aug 2010 20.23p – 12,100 – 12,100 1 Oct 2013 31 Mar 2014 -- 55 4,152,535 2,297,814 (136,359) 6,313,990 (1) Discretionary and Sharesave options are granted for nil consideration. (2) Options granted on 6 December 2007 and 11 July 2008 for John Browett and 14 August 2008 for Nicholas Cadbury have EPS performance conditions for which the performance period ended on 30 April 2011. Since that date, the Remuneration Committee has reviewed this performance condition and has determined that it has not been met. Accordingly, these options have now lapsed. (3) The Reward Sacrifice Scheme was approved by shareholders at the 2009 AGM. Under this scheme the executive directors sacrificed a portion of their salary in return for receiving non-performance related market value share options of an ‘equivalent’ fair value to the sacrificed salary. (4) 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.

The share price on 30 April 2011 was 14.41p and closing prices ranged between 11.80p and 31.70p during the year.

Dixons Retail plc Annual Report and Accounts 53 2010/11

Directors’ Report Corporate Governance Remuneration Report continued

Options are exercisable between three and ten years from the date of grant, subject to the performance conditions being met. The following table summarises the performance conditions applicable to the executive directors’ and senior management’s discretionary options (excluding Reward Sacrifice Options which do not have a performance condition) outstanding as at 30 April 2011.

Performance conditions Re-testing Grants made before 1 Jul 2003 The market price on the date of exercise is at least 20% higher than the During the life option price, assuming exercise takes place between three and four of the option years after the date of grant. For later exercises, the rate of share growth is adjusted in line with the 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 between Over the three year performance period, EPS growth is equal to or greater No re-testing 11 Oct 2004 and 11 Jul 2008 than 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 between Over the three year performance period, EPS growth is equal to or No re-testing 12 Jul 2008 and 23 Jul 2009 greater than 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. Grants made between 25% of the options vest for an EPS in 2011/12 of 2p. 100% of the options No re-testing 23 Jul 2009 and 7 Dec 2009 vest for an EPS in 2011/12 of 4p, options will vest on a straight-line basis between 25% and 100% of the award. Grants made between 25% of the options vest for an EPS in 2012/13 of 4p. 100% of the options No re-testing 3 Aug 2010 and 10 Dec 2010 vest for an EPS in 2012/13 of 6p, options will vest on a straight-line basis between 25% and 100% of the award.

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 cash settled performance share plans 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 2008/09, 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 for those employees below the top three management grades at the date of grant. In 2009/10 and 2010/11 share options were granted to other employees in the UK and overseas including all store managers on the basis of management grade; these options were granted with the same performance conditions as the executive directors. (XI) Former executive director Pursuant to an agreement dated 1 October 2002, Lord Kalms, the former Chairman, was appointed President of the Company for an initial period ending on 16 September 2012. He received £31,564 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 £29,699 comprising membership of the Group’s medical expenses plan and a car in addition to office facilities. He is not eligible to participate in discretionary share schemes or in any bonus arrangements.

Approved by the Board and signed on its behalf by

Tim How Chairman of the Remuneration Committee 23 June 2011

Dixons Retail plc 54 Annual Report and Accounts 2010/11 Directors’ Report Corporate Governance Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and The directors are responsible for maintaining adequate accounting the financial statements in accordance with applicable law and records and sufficient internal controls to safeguard the assets of regulations. English company law requires the directors to prepare the Company and to take reasonable steps for the prevention and financial statements for each financial year and under that law, the detection of fraud or any other irregularities and for the preparation directors have prepared the Group and the Company financial of a directors’ report and directors’ remuneration report which statements in accordance with International Financial Reporting comply with the requirements of the Companies Act 2006 and, Standards (IFRS) as adopted by the European Union. as regards the Group financial statements, Article 4 of the IAS Regulation. The directors are responsible for the maintenance and The financial statements are required by law to give a true and integrity of the corporate and financial information included on the fair view of the state of affairs of the Group and the Company Company’s website. Legislation in the governing and of the profit or loss of the Group for the period. In preparing the preparation and dissemination of financial statements may the financial statements, the directors are also required to: differ from legislation in other jurisdictions.

properly select and apply accounting policies; Each of the directors confirm that to the best of their knowledge: present information, including accounting policies, in a manner that provides relevant, reliable, comparable and the Group and Company financial statements give a true and understandable information; and fair view of the assets, liabilities, financial position and profit / (loss) of the Group and Company, respectively; and provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable users to understand the business and financial review contained in this Annual the impact of particular transactions, other events and conditions Report includes a fair review of the development and on the financial position and financial performance. performance of the business and the position of the Group and Company together with a description of the principal risks

In preparing both the Group and the Company financial and uncertainties they face. 36 Corporate Governance statements, suitable accounting policies have been used and -- applied consistently, and reasonable and prudent judgements and By Order of the Board 55 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 Statutory Information section of the Directors’ Report and Business Review.

John Browett Nicholas Cadbury Chief Executive Group Finance Director 23 June 2011 23 June 2011

Dixons Retail plc Annual Report and Accounts 55 2010/11

Financial Statements Independent Auditor’s Report

We have audited the consolidated and the company financial IFRSs issued by the IASB statements of Dixons Retail plc for the 52 weeks ended 30 April As explained in note 1.1 to the Group financial statements, the 2011 which comprise the consolidated income statement, the Group and Company in addition to complying with its legal consolidated statement of comprehensive income and expense, obligation to apply IFRSs as adopted by the European Union, the consolidated and company balance sheets, the consolidated has also applied IFRSs as issued by the International Accounting and company cash flow statements, the consolidated and Standards Board (IASB). In our opinion the financial statements company statement of changes in equity and the related notes 1 comply with IFRSs as issued by the IASB. to 33 and C1 to C16. The financial reporting framework that has been applied in their preparation is applicable law and Other matters prescribed by the Companies Act 2006 International Financial Reporting Standards (IFRSs) as adopted In our opinion: by the European Union and as regards the Company financial the information given in the Directors’ Report for the financial statements as applied in accordance with the provisions of the year for which the financial statements are prepared is Companies Act 2006. consistent with the financial statements; and This report is made solely to the Company’s members, as a the part of the Remuneration Report to be audited has been body, in accordance with Chapter 3 of Part 16 of the Companies properly prepared in accordance with the Companies Act 2006. Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required Matters on which we are required to report by exception to state to them in an auditor’s report and for no other purpose. We have nothing to report upon in respect of the following: To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Under the Companies Act 2006 we are required to report to you Company’s members as a body, for our audit work, for this if, in our opinion: report, or for the opinions we have formed. adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been Respective responsibilities of directors and auditors received from branches visited by us; or As explained more fully in the Statement of Directors’ Responsibilities, the Company financial statements and the part of the the directors are responsible for the preparation of the financial Directors’ Remuneration Report to be audited are not in statements and for being satisfied that they give a true and fair view. agreement with the accounting records and returns; or Our responsibility is to audit and express an opinion on the financial certain disclosures of directors’ remuneration specified by law statements in accordance with applicable law and International are not made; and Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards we have not received all the information and explanations we for Auditors. require for our audit. Scope of the audit of the financial statements Under the Listing Rules we are required to review: An audit involves obtaining evidence about the amounts and the directors’ statement contained within the Directors’ Report disclosures in the financial statements sufficient to give reasonable and Business Review in relation to going concern; assurance that the financial statements are free from material the part of the Corporate Governance Statement relating to misstatement, whether caused by fraud or error. This includes an the company’s compliance with the nine provisions of the assessment of: whether the accounting policies are appropriate to June 2008 Combined Code specified for our review; and the Group’s and the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness certain elements of the report to shareholders by the Board of significant accounting estimates made by the directors; and the on directors’ remuneration. overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material inconsistencies, we consider the implications for our report. Nicola Mitchell FCA (Senior Statutory Auditor) Opinions for and on behalf of Deloitte LLP Financial statements Chartered Accountants and Statutory Auditor In our opinion the financial statements: London, United Kingdom give a true and fair view of the state of the Group’s and of the 23 June 2011 Company’s affairs as at 30 April 2011 and of the Group’s loss for the 52 weeks then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 and as regards the Group financial statements, Article 4 of the IAS Regulation.

Dixons Retail plc 56 Annual Report and Accounts 2010/11 Financial Statements Consolidated Income Statement

52 weeks ended 30 April 2011 52 weeks ended 1 May 2010

Non-underlying * Non-underlying * Business to Business be closed / to be closed Underlying* closed** Other Total Underlying* businesses** Other Total Note £million £million £million £million £million £million £million £million Continuing operations Revenue 2,3 8,154.4 187.4 – 8,341.8 8,320.0 212.5 – 8,532.5 Profit / (loss) from operations before associates 128.0 (7.7) (298.1) (177.8) 131.6 (0.2) 23.2 154.6 Share of post-tax results of associates 12 (0.4) – – (0.4) 1.6 – – 1.6

Operating profit / (loss) 2,3 127.6 (7.7) (298.1) (178.2) 133.2 (0.2) 23.2 156.2

Finance income 58.9 – 12.5 71.4 58.2 – 1.1 59.3 Finance costs (101.2) (0.8) (15.3) (117.3) (100.5) (0.4) (1.9) (102.8)

Net finance costs 5 (42.3) (0.8) (2.8) (45.9) (42.3) (0.4) (0.8) (43.5)

Profit / (loss) before tax 85.3 (8.5) (300.9) (224.1) 90.9 (0.6) 22.4 112.7

Income tax (expense) / credit 7 (31.4) – 12.3 (19.1) (40.7) 0.1 (6.1) (46.7) Profit / (loss) after tax – continuing operations 53.9 (8.5) (288.6) (243.2) 50.2 (0.5) 16.3 66.0 Loss after tax – discontinued operations 28 – – (2.1) (2.1) – – (8.7) (8.7)

Profit / (loss) for the period 53.9 (8.5) (290.7) (245.3) 50.2 (0.5) 7.6 57.3

Attributable to: 56 Financial Statements

Equity shareholders of the parent -- company 58.8 (8.5) (289.3) (239.0) 52.7 (0.5) 7.6 59.8 119 Non-controlling interests (4.9) – (1.4) (6.3) (2.5) – – (2.5) 53.9 (8.5) (290.7) (245.3) 50.2 (0.5) 7.6 57.3

(Loss) / earnings per share (pence) 8 Basic – total (6.6)p 1.7p Diluted – total (6.6)p 1.7p Basic – continuing operations (6.6)p 2.0p Diluted – continuing operations (6.6)p 1.9p Underlying earnings per share (pence) 1,8 Basic – continuing operations 1.6p 1.5p Diluted – continuing operations 1.6p 1.5p

Underlying profit and earnings per share measures exclude the trading results of business to be closed / closed businesses, 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 28. Business to be closed / closed businesses comprise PC City Spain for which plans for its closure were announced on 14 April 2011 and Markantalo and PC City Sweden whereby these store ** based businesses were closed on 10 May 2009 and 20 May 2009, respectively. These operations do not meet the definition of discontinued operations as stipulated by IFRS 5 and accordingly the disclosures within non-underlying items differ from those for applicable discontinued operations.

Dixons Retail plc Annual Report and Accounts 57 2010/11

Financial Statements Consolidated Statement of Comprehensive Income and Expense

52 weeks 52 weeks ended ended 30 April 2011 1 May 2010 Note £million £million (Loss) / profit for the period (245.3) 57.3

Actuarial gains/(losses) on defined benefit pension schemes – UK 21 13.1 (156.0) – Nordics (0.3) 1.5 Cash flow hedges 22 Fair value remeasurement losses (8.0) (18.4) Losses transferred to carrying amount of inventories 7.4 15.1 Losses / (gains) transferred to income statement (within cost of sales) 6.7 (3.8) Net investment hedges 22 Fair value remeasurement (losses) / gains (4.9) 2.7 Investments Fair value remeasurement gains 0.2 0.8 Tax on items taken directly to equity (8.5) 44.2 Currency translation movements 31.7 45.3 Net income / (expense) recognised directly in equity 37.4 (68.6)

Total comprehensive expense for the period (207.9) (11.3)

Attributable to: Equity shareholders of the parent company (201.2) (8.9) Non-controlling interests (6.7) (2.4) (207.9) (11.3)

Dixons Retail plc 58 Annual Report and Accounts 2010/11 Financial Statements Consolidated Balance Sheet

30 April 2011 1 May 2010 Note £million £million Non-current assets Goodwill 9 970.8 1,116.5 Intangible assets 10 113.1 130.7 Property, plant & equipment 11 583.7 541.0 Investments in associates 12 3.4 26.4 Trade and other receivables 14 49.6 58.0 Deferred tax assets 7 163.4 169.4 1,884.0 2,042.0 Current assets Inventories 13 960.9 972.6 Trade and other receivables 14 383.2 395.1 Income tax receivable 4.1 1.9 Short term investments 15 10.5 8.5 Cash and cash equivalents 16 334.7 295.7 1,693.4 1,673.8 Total assets 3,577.4 3,715.8

Current liabilities Bank overdrafts 17 (5.6) (4.9) Borrowings 17 (130.0) (98.5) Obligations under finance leases 18 (3.1) (2.4) Trade and other payables 19 (1,644.2) (1,605.9) Income tax payable (48.5) (47.0) Provisions 20 (44.4) (22.3) (1,875.8) (1,781.0) Net current liabilities (182.4) (107.2)

Non-current liabilities Borrowings 17 (315.3) (321.4) 56 Financial Statements Obligations under finance leases 18 (98.0) (97.6) --

Retirement benefit obligations 21 (247.3) (266.8) 119 Other payables 19 (331.0) (325.7) Deferred tax liabilities 7 (17.6) (18.7) Provisions 20 (15.9) (29.5) (1,025.1) (1,059.7) Total liabilities (2,900.9) (2,840.7) Net assets 676.5 875.1

Capital and reserves Called up share capital 23 90.3 90.2 Share premium account 169.5 169.4 Other reserves 23 (537.7) (537.5) Retained earnings 931.4 1,124.4

Equity attributable to equity holders of the parent company 653.5 846.5 Equity non-controlling interests 23.0 28.6 Total equity 676.5 875.1

The financial statements were approved by the directors on 23 June 2011 and signed on their behalf by:

John Browett Nicholas Cadbury Chief Executive Group Finance Director

Dixons Retail plc Annual Report and Accounts 59 2010/11

Financial Statements Consolidated Cash Flow Statement

52 weeks 52 weeks ended ended 30 April 2011 1 May 2010 Note £million £million Operating activities – continuing operations Cash generated from operations 26 292.8 270.3 Special contributions to defined benefit pension scheme * 21 (12.0) (12.0) Income tax paid (26.2) (31.9) Net cash flows from operating activities * 254.6 226.4 Investing activities – continuing operations Purchase of property, plant & equipment and other intangibles (223.2) (165.3) Purchase of subsidiaries * 27 – (7.0) Interest received 17.9 25.5 (Increase) / decrease in short term investments * (1.8) 1.3 Disposals of property, plant & equipment and other intangibles 2.0 9.7 Dividend received from associate * 1.1 4.0 Net cash flows from investing activities (204.0) (131.8) Financing activities – continuing operations Issue of ordinary share capital 0.2 291.3 Additions to finance leases 2.4 – Capital element of finance lease payments (1.5) (1.7) Interest element of finance lease payments (7.0) (7.1) Increase / (decrease) in borrowings due within one year * 31.8 (151.6) Increase in borrowings due after more than one year 5.4 – Interest paid (46.3) (118.8) Investment from minority shareholder * 1.1 5.0 Net cash flows from financing activities (13.9) 17.1

Increase / (decrease) in cash and cash equivalents (i) Continuing operations 36.7 111.7 Discontinued operations 28 (0.1) (8.6) 36.6 103.1

Cash and cash equivalents at beginning of period (i) 26 290.8 187.8 Currency translation differences 1.7 (0.1)

Cash and cash equivalents at end of period (i) 26 329.1 290.8

Free Cash Flow (ii) 10.0 (17.6)

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

Dixons Retail plc 60 Annual Report and Accounts 2010/11 Financial Statements Consolidated Statement of Changes in Equity

Share Share Other Retained Non-controlling capital premium reserves earnings Sub-total interests Total equity £million £million £million £million £million £million £million At 3 May 2009 44.3 169.4 (534.9) 880.1 558.9 26.0 584.9

Profit for the period – – – 57.3 57.3 – 57.3 Other comprehensive income and expense recognised directly in equity – – (2.6) (63.6) (66.2) (2.4) (68.6) Total comprehensive income and expense for the period – – (2.6) (6.3) (8.9) (2.4) (11.3)

Non-controlling interests – increase in capital – – – – – 5.0 5.0 Placing and Rights Issue 45.9 – 245.4 – 291.3 – 291.3 Transfers – – (245.4) 245.4 – – – Share-based payments – – – 4.9 4.9 – 4.9 Tax on share-based payments – – – 0.3 0.3 – 0.3 At 1 May 2010 90.2 169.4 (537.5) 1,124.4 846.5 28.6 875.1

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

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

Non-controlling interests (minority interests) comprise shareholdings in Pixmania S.A.S. (PIXmania), Electro World Iç ve Dis Ticaret AS (Electro World Turkey) and Dixons South-East Europe A.E.V.E. (Kotsovolos). 56 Financial Statements -- 119

Dixons Retail plc Annual Report and Accounts 61 2010/11

Financial Statements Notes to the Consolidated Financial Statements

1 Accounting policies Neither has had an impact on either the net results or net assets 1.1 Basis of preparation of the Group for the current or preceding periods, however, may The consolidated financial statements have been prepared in impact acquisitions in the future. Other new standards, amendments accordance with International Financial Reporting Standards to standards and IFRIC interpretations are effective for the Group (IFRS) as adopted by the EU, IFRS issued by the International during the current financial period but are either not relevant or have Accounting Standards Board and those parts of the Companies had no impact on the Group’s results or net assets. Act 2006 applicable to those companies reporting under IFRS, and have been prepared on a going concern basis as disclosed The principal accounting policies are set out below: in the going concern statement in the Statutory Information section of the Directors’ Report on page 39. 1.2 Accounting convention and basis of consolidation The consolidated financial statements incorporate the financial The Group’s income statement and segmental analysis identify statements of the Company and entities controlled by the separately underlying performance measures and non-underlying Company. Control is achieved where the Company has the power items. Underlying performance measures reflect an adjustment to to control the financial and operating policies of an entity so as to total performance measures to exclude the impact of business to obtain benefits from its activities. The results of subsidiaries be closed / closed businesses and other non-underlying items. acquired are included from the date on which power to control Underlying performance measures comprise profits and losses passes. The net assets of subsidiaries acquired are recorded at incurred as part of the day-to-day ongoing retail activities of the their fair values. The results of subsidiaries disposed of are Company and include profits and losses incurred on the disposal included up to the effective date of disposal. and closure of owned or leased properties that occur as part of the Group’s annual retail churn. The profits or losses incurred on Associates are accounted for using the equity method of disposal or closure of owned or leased properties as part of a one accounting from the date on which the power to exercise off restructuring programme are excluded from underlying significant influence passes. performance measures and are therefore included, among other items, within non-underlying items as described below. The All intra-group transactions, balances, income and expenses are directors consider ‘underlying’ performance measures to be a eliminated on consolidation. more accurate reflection of the ongoing trading performance of the Group and believe that these measures provide additional useful 1.3 Revenue information for shareholders on the Group’s performance and are Revenue comprises sales of goods and services excluding sales consistent with how business performance is measured internally. taxes. Revenue from sales of goods is recognised at the point of sale or, where later, upon delivery to the customer and is stated net Non-underlying items comprise trading results of business to be of returns. Revenue earned from customer support agreements closed / closed businesses, amortisation of acquired intangibles, is recognised as such over the life of the agreement by reference net restructuring and business impairment charges and other to the stage of completion of the transaction at the balance one off, non-recurring items, profit on sale of investments, fair sheet date. value remeasurements of financial instruments and, where applicable, discontinued operations. Business to be closed / 1.4 Other income, including non-operating income closed businesses are those which do not meet the definition of Other income, which is incidental to the Group’s principal activities discontinued operations as stipulated by IFRS 5. Items excluded of selling goods and services and accordingly is not recorded as from underlying results can evolve from one financial year to the part of revenue, is recognised when the Group obtains the right next depending on the nature of re-organisation or one-off type to consideration by performance of its contractual obligations. activities described above. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Underlying performance measures may not be directly Dividend income from investments is recognised when the right to comparable with other similarly titled measures or ‘adjusted’ receive payment has been established. revenue or profit measures used by other companies.

The following new accounting pronouncements became applicable during the period: IFRS 3 Revised – Business Combinations IAS 27 – Revised Consolidated and Separate Financial Statements

Dixons Retail plc 62 Annual Report and Accounts 2010/11 Financial Statements

1.5 Discontinued operations 1.7 Translation of foreign currencies A discontinued operation is a component of the Group which Transactions in foreign currencies are initially recorded at the rate represents a significant separate line of business which has been of exchange prevailing at the transaction date. Monetary assets sold. Classification as a discontinued operation occurs upon and liabilities denominated in foreign currencies are retranslated at disposal or earlier if beneficial title and risk has transferred to the the rates of exchange ruling at the balance sheet date. Exchange purchaser and in the case of a business acquired exclusively with gains and losses arising on settlement or retranslation of monetary a view to subsequent disposal, on the date of acquisition. assets and liabilities are included in the income statement.

Where the sale of a component of the Group is considered highly Assets and liabilities of overseas subsidiaries are translated at the probable and the business is available for immediate sale in its rate of exchange ruling at the balance sheet date. The results of present condition, it is classified as held for sale. Assets and overseas subsidiary undertakings are translated into sterling at the liabilities held for sale are measured at the lower of carrying average rates of exchange during the period. Exchange differences amount and fair value less costs to sell. resulting from the translation of the results and balance sheets of overseas subsidiary undertakings are charged or credited directly 1.6 Leases to retained earnings. Such translation differences become Leases are classified as finance leases whenever the terms of recognised in the income statement in the period in which the the lease transfer substantially all the risks and rewards of subsidiary undertaking is disposed. ownership to the lessee. The determination of the classification of property leases is made by reference to the land and buildings As the cumulative translation differences for all foreign subsidiaries elements separately. All leases not classified as finance leases were deemed to be zero at the transition date to IFRS on 2 May are operating leases. 2004, upon disposal of a foreign subsidiary, any gain or loss arising will include only those foreign exchange gains or losses attributable Finance leases to periods after that date. Assets held under finance leases are capitalised at their fair value on acquisition or, if lower, at the present value of the minimum 1.8 Goodwill lease payments, each determined at the inception of the lease and On acquisition of a subsidiary or associate, the fair value of the depreciated over their estimated useful lives or the lease term if consideration is allocated between the identifiable net tangible shorter. The corresponding obligation to the lessor is included in and intangible assets / liabilities on a fair value basis, with any the balance sheet as a liability. Lease payments are apportioned excess consideration representing goodwill. Goodwill in respect between finance charges and reduction of the lease obligation. of subsidiaries is capitalised as goodwill on the balance sheet; Finance charges are charged to the income statement over the goodwill relating to associates is capitalised in investments in period of the lease in proportion to the capital element outstanding. associates as part of the carrying value of the associate.

Operating leases Goodwill is not amortised, but instead is reviewed annually for Rentals payable under operating property leases are charged to impairment. Any impairment is recognised immediately in the 56 Financial Statements income statement and is not subsequently reversed. -- the income statement on a straight-line basis over the fixed term of 119 the lease. At the end of the fixed term of leases, rental payments are reset to market rates, typically on an upwards only basis. On disposal of a subsidiary or associate the attributable amount of goodwill is included in the determination of the gain or loss Benefits received and receivable as an incentive to enter into an on disposal. operating lease are also spread on a straight-line basis over the lease term. 1.9 Intangible assets Acquired intangibles Where a lease forms part of a separate cash generating unit Acquired intangibles comprise brands and customer lists (CGU), such as a store or group of stores, and business purchased as part of acquisitions of businesses and are indicators exist which could lead to the conclusion that the capitalised and amortised over their useful economic lives on a carrying value of the CGU is not supportable, the recoverable straight-line basis. Acquired intangibles are stated at cost less amount of the CGU is determined by calculating its value in use. accumulated amortisation and, where appropriate, provision for The value in use is calculated by applying discounted cash flow impairment in value or estimated loss on disposal. Amortisation modelling to management’s projection of future profitability. If an is provided to write off the cost of assets on a straight-line basis impairment of a CGU has been identified such that the value in between three and 30 years. use is negative and a lease exists in that CGU, a provision for the onerous portion of the lease is made equal to the lower of the outstanding lease commitment and the negative present value of the CGU.

Dixons Retail plc Annual Report and Accounts 63 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

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

Dixons Retail plc 64 Annual Report and Accounts 2010/11 Financial Statements

1.12 Taxation 1.15 Borrowings and other financial liabilities Current taxation The Group’s financial liabilities are those which involve a Current taxation is the expected tax payable on the taxable contractual obligation to deliver cash to external parties at a income for the period, using prevailing tax rates and adjusted future date. Financial liabilities comprise all items shown in notes for any tax payable in respect of previous periods. 17, 18 and 19 with the exception of other taxation and social security, deferred income from customer support agreements, Deferred taxation other deferred income and other non-financial creditors. Under Deferred tax liabilities are recognised for all taxable temporary the classifications stipulated by IAS 39, borrowings, finance lease differences and deferred tax assets are recognised to the extent obligations and trade and other payables (excluding derivative that it is probable that taxable profits will be available against financial liabilities) are classified as ‘financial liabilities measured which deductible temporary differences can be utilised. Such at amortised cost’. Derivative financial instruments, which are assets and liabilities are not recognised if the temporary described further in note 1.16 below, are classified as ‘held for difference arises from goodwill or from the initial recognition trading unless designated in a hedge relationship’. (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor Borrowings the accounting profit. Borrowings are initially recorded at the consideration received less directly attributable transaction costs. Transaction costs are Deferred tax liabilities are recognised for taxable temporary amortised through the income statement using the effective differences arising on investments in subsidiaries, except where interest method and the unamortised balance is included as part the Group is able to control the reversal of the temporary difference of the related borrowing at the balance sheet date. A fair value and it is probable that the temporary difference will not reverse in adjustment is made to the borrowing where hedge accounting, the foreseeable future. No provision is made for tax which would as described in note 1.16 below, has been applied. have been payable on the distribution of retained profits of overseas subsidiaries or associated undertakings where it has Trade and other payables been determined that these profits will not be distributed in the Trade and other payables (excluding derivative financial liabilities) foreseeable future. are recorded at cost. Derivative financial instruments, which includes put options over equity held by minority shareholders, Deferred tax assets and liabilities are offset against each other are initially recorded at fair value and then subsequently when they relate to income taxes levied by the same tax remeasured to fair value at each balance sheet date and are held jurisdiction and when the Group intends to settle its current tax within assets or liabilities as appropriate. Gains and losses arising assets and liabilities on a net basis. from revaluation at the balance sheet date are recognised in the income statement unless the derivatives are designated as Deferred tax is charged or credited in the income statement, hedges and such hedges are proved to be effective. except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 1.16 Derivative financial instruments and hedge accounting 56 Financial Statements --

Derivative financial instruments held by the Group are initially 119 Deferred tax is measured at the average tax rates that are recognised in the balance sheet at fair value within assets or expected to apply in the periods in which the timing differences liabilities as appropriate and then subsequently remeasured to are expected to reverse, based on tax rates and laws that have fair value at each balance sheet date. Gains and losses arising been enacted, or substantially enacted by the balance sheet from revaluation at the balance sheet date are recognised in the date. Deferred tax balances are not discounted. income statement unless the derivatives are designated as hedges and such hedges are proved to be effective. 1.13 Inventories Inventories are stated at the lower of average cost and net Derivatives are classified as non-current assets or liabilities where realisable value. Cost comprises direct purchase cost and those a hedge relationship is identified and the remaining maturity of overheads that have been incurred in bringing the inventories to the hedged item is greater than 12 months from the balance their present location and condition, both types of cost being sheet date. Derivatives are classified as current assets or measured using a weighted average cost formula. Net realisable liabilities in all other circumstances. value represents the estimated selling price less all estimated and directly attributable costs of completion and costs to be incurred Fair values are derived from market values. The fair value of in marketing, selling and distribution. financial instruments traded in active markets is based on quoted market prices at the balance sheet date. 1.14 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, bank overdrafts and short term highly liquid deposits with a maturity of three months or less and which are subject to an insignificant risk of changes in value. Bank overdrafts, which form part of cash and cash equivalents for the purpose of the cash flow statement, are shown under current liabilities.

Dixons Retail plc Annual Report and Accounts 65 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

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

Dixons Retail plc 66 Annual Report and Accounts 2010/11 Financial Statements

1.18 Share-based payments Provisions and accruals for onerous leases The Group issues equity settled share-based payments to If the Group vacates a store or other property prior to the expiry certain employees which are measured at fair value at the date of of the related lease, or a lease forms part of a separate CGU grant. This fair value is expensed in the income statement on a whereby the carrying value of that CGU is not considered straight-line basis over the vesting period, based on an estimate supportable, it records a provision or accrual for the expected of the number of shares that will eventually vest as adjusted for lease payments that the Group will incur prior to assignment or any non-market conditions. sublease of the property. Such a calculation requires a judgement as to the timing and duration of the expected vacant A liability equal to the portion of services received from periods and the amount and timing of future potential sublease employees is recognised at the current fair value determined at income. When making these judgements, the directors consider each balance sheet date for cash settled share-based payments. a number of factors, including the landlord, the location and condition of the property, the terms of the lease, the specific 1.19 Estimates, judgements and critical accounting policies marketplace demand and the economic environment. The preparation of financial statements in conformity with generally accepted accounting principles requires management Goodwill, property, plant & equipment and associate to make estimates and assumptions that affect the reported impairment reviews amounts of assets and liabilities and the disclosure of contingent Goodwill is required to be valued annually to assess the assets and liabilities. Significant items subject to such requirement for potential impairment. Other assets are assessed assumptions and estimates include the useful lives of assets; the on an ongoing basis to determine whether circumstances exist measurement and recognition of provisions; the recognition of that could lead to the conclusion that the net book value of such deferred tax assets; and liabilities for potential corporation tax. assets is not supportable. Impairment testing on goodwill and Actual results could differ from these estimates and any associates is carried out in accordance with the methodology subsequent changes are accounted for with an effect on income described in note 9. Such calculations require judgement relating at the time such updated information becomes available. The to the appropriate discount factors and long term growth most critical accounting policies in determining the financial prevalent in a particular market as well as short and medium term condition and results of the Group are those requiring the business plans. The directors draw upon experience as well as greatest degree of subjective or complex judgements. These external resources in making these judgements. relate to revenue recognition, inventory valuation, onerous lease costs, the valuation of goodwill, acquired intangible assets and In assessing impairment of property, plant and equipment, property, plant & equipment, share-based payments, post- discounted cash flow methods are used as described in note retirement benefits and taxation, and are set out below. 1.10. Judgement is required in determining the appropriate discount factors as well as the short and medium term business Revenue recognition plans. As for goodwill, the directors draw upon experience and Revenue earned from the sale of customer support agreements external resources in making these judgements. is recognised over the term of the contracts when the Group 56 Financial Statements -- obtains the right to consideration as a result of performance of Share-based payments 119 its contractual obligations. Revenue in any one year is therefore The charge for share-based payments is calculated by estimating recognised to match the proportion of the expected costs of the fair value of the award at the date of grant using either the fulfilling the Group’s total obligations under the agreements. An Binomial or Black-Scholes option pricing model or the Monte estimate of the degree of performance of these contractual Carlo simulation. The option valuation models used require highly obligations is determined by reference to extensive historical subjective assumptions to be made including the future volatility claims data. Reliance on historical data assumes that current of the Company’s share price, expected dividend yields, risk-free and future experience will follow past trends. The directors interest rates and expected staff turnover. The directors draw consider that the quantity and quality of data available provides upon a variety of external sources to aid in the determination of an appropriate proxy for current trends. the appropriate data to use in such calculations.

Inventory valuation Defined benefit pension schemes Inventories are valued at the lower of average cost and net The surplus or deficit in the UK defined benefit scheme that is realisable value. Cost comprises direct purchase cost and those recognised through the statement of recognised income and overheads that have been incurred in bringing the inventories to expense is subject to a number of assumptions and uncertainties. their present location and condition, both types of cost being The calculated liabilities of the scheme are based on assumptions measures using a weighted average cost formula. Net realisable regarding salary increases, inflation rates, discount rates, the value represents the estimated selling price less all estimated and long term expected return on the scheme’s assets and member directly attributable costs of completion and costs to be incurred longevity. Such assumptions are based on actuarial advice and in the marketing, selling and distribution. Net realisable value are benchmarked against similar pension schemes. includes, where necessary, provisions for slow moving and damaged inventory. The provision represents the difference between the cost of stock and its estimated net realisable value, based on ageing. Calculation of these provisions requires judgements to be made which include forecast consumer demand, the promotional, competitive and economic environment and inventory loss trends.

Dixons Retail plc Annual Report and Accounts 67 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

1 Accounting policies continued 2 Segmental analysis Taxation The Group’s operating segments have been determined based Tax laws that apply to the Group’s businesses may be amended on the information reported to the Board. This information is by the relevant authorities, for example as a result of changes in predominantly based on geographical areas which are either fiscal circumstances or priorities. Such potential amendments managed separately or have similar trading characteristics such and their application to the Group are monitored regularly and that they can be aggregated together into one segment and in the requirement for recognition of any liabilities assessed where the case of e-commerce, as a business area with geographical necessary. The Group is subject to income taxes in a number of territories aggregated. Accounting policies for each operating different jurisdictions and judgement is required in determining segment are the same as those for the Group as described in the appropriate provision for transactions where the ultimate tax note 1. The Group evaluates each operating segment based on determination is uncertain. In such circumstances, the Group underlying operating profits which excludes those items recognises liabilities for anticipated taxes due based on best described in note 1.1. information available and where the anticipated liability is probable and estimable. Where the final outcome of such All segments are involved in the multi-channel sale of high matters differs from the amounts initially recorded, any technology consumer electronics, personal computers, domestic differences will impact the income tax and deferred tax appliances, photographic equipment, communication products provisions in the period to which such determination is made. and related financial and after-sales services. The principal Where the potential liabilities are not considered probable, the categories of customer are retail, business to business and online. amount at risk is disclosed unless an adverse outcome is considered remote. During 2009/10, the Group disposed of its operations in Hungary and Poland, both of which have been classified as discontinued Deferred tax is recognised on taxable losses based on the operations. Further information is provided in note 28. expected ability to utilise such losses. This ability takes account of the business plans for the relevant companies, potential The Group’s reportable segments have been identified as follows: uncertainties around the longer term aspects of these business UK & Ireland comprises electrical and computing retail chains plans, any expiry of taxable benefits and potential future volatility as well as business to business (B2B) activities. The division is in the local tax regimes. engaged predominantly in multi-channel retail sales, associated peripherals and services and related financial and 1.20 New accounting standards and interpretations after sales services and also in business to business sales of During the period, the following new standards, and computer hardware and software. amendments to existing standards, which are applicable to the Nordics operates in Norway, Sweden, Finland, Denmark, Group were published, but do not become effective until future , Greenland and the . The division accounting periods: engages in multi-channel retail sales and provided related product support services to its customers. It also engages in The following will become effective for 2011/12: B2B sales of computer hardware, software and services. IAS 24 Related Party Disclosures. IAS 24 Revised clarifies Across the region, the division operates a successful franchise and simplifies the definition of a related party and also business, typically in smaller markets. requires disclosure of any transactions between subsidiaries Other International comprises operations in Italy, Greece, the and associates. Czech Republic, Slovakia, Turkey and the business to be closed in Spain which is excluded from underlying results. The The following will become effective for 2013/14: Other International division engages in retail sales (including IFRS 9 Financial Instruments. This standard is the first step multi-channel sales in some countries) and provides related in the process to replace IAS 39, ‘Financial instruments: product support services to its customers in all of its markets. recognition and measurement’. IFRS 9 introduces new It also engages in B2B sales of computer hardware, software requirements for classifying and measuring financial assets and and services in Italy, Spain and Greece and has franchise is likely to affect the Group’s accounting for its financial assets. operations in Italy, Greece, the Czech Republic and Turkey. Pure play e-commerce comprises pure play online retailers Certain other amendments to existing standards and and operates in all of the countries in which the other divisions interpretations were issued during the period which either operate and across Europe. do not apply to the Group or are not expected to have any material effect. Business to be closed / closed businesses comprise PC City Spain whereby its closure was announced on 14 April 2011 and Markantalo and PC City Sweden whereby these store operations were closed on 10 May 2009 and 20 May 2009, respectively. Owing to their closure rather than disposal, these operations do not meet the definition of discontinued operations as stipulated by IFRS 5.

Dixons Retail plc 68 Annual Report and Accounts 2010/11 Financial Statements

(a) Income statement 2010/11 Inter- External segmental Underlying Total revenue revenue Revenue profit / (loss) profit / (loss) £million £million £million £million £million UK & Ireland 3,816.1 57.8 3,873.9 71.3 50.4 Nordics 2,268.9 3.8 2,272.7 106.0 85.3 Other International 1,414.1 0.6 1,414.7 (21.6) (153.8) Pure play e-commerce 842.7 5.0 847.7 0.9 (120.8) Eliminations – (67.2) (67.2) – – 8,341.8 – 8,341.8 156.6 (138.9) Share of post-tax results of associates (0.4) (0.4) Operating profit / (loss) before central costs and property losses 156.2 (139.3) Central costs (15.8) (26.1) Property losses (12.8) (12.8) Operating profit / (loss) 127.6 (178.2) Finance income 58.9 71.4 Finance costs (101.2) (117.3) Profit / (loss) before tax for the period 85.3 (224.1)

External revenue for Other International includes £187.4 million relating to business to be closed.

Reconciliation of underlying profit / (loss) to total profit / (loss) 2010/11 Other non- Amortisation Net Business underlying Underlying Business of acquired restructuring impairment financing Total profit / (loss) to be closed intangibles charges charges Other items items profit / (loss) £million £million £million £million £million £million £million £million UK & Ireland 71.3 – (0.4) (5.6) – (14.9) – 50.4 Nordics 106.0 – – – (21.5) 0.8 – 85.3 Other International (21.6) (7.7) (0.7) – (123.8) – – (153.8) Pure play e-commerce 0.9 – (3.4) – (106.3) (12.0) – (120.8) 56 Financial Statements

156.6 (7.7) (4.5) (5.6) (251.6) (26.1) – (138.9) -- Share of post-tax results of associates (0.4) – – – – – – (0.4) 119 Operating profit / (loss) before central costs and property losses 156.2 (7.7) (4.5) (5.6) (251.6) (26.1) – (139.3) Central costs (15.8) – – (11.5) – 1.2 – (26.1) Property losses (12.8) – – – – – – (12.8) Operating profit / (loss) 127.6 (7.7) (4.5) (17.1) (251.6) (24.9) – (178.2) Finance income 58.9 – – – – – 12.5 71.4 Finance costs (101.2) (0.8) – – – – (15.3) (117.3) Profit / (loss) before tax for the period 85.3 (8.5) (4.5) (17.1) (251.6) (24.9) (2.8) (224.1)

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

Dixons Retail plc Annual Report and Accounts 69 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

2 Segmental analysis continued 2009/10 External Inter-segmental Underlying Total revenue revenue Revenue profit / (loss) profit / (loss) £million £million £million £million £million UK & Ireland 4,013.5 101.7 4,115.2 71.1 93.7 Nordics 2,094.6 1.7 2,096.3 95.8 95.6 Other International 1,503.2 1.5 1,504.7 (8.3) (9.0) Pure play e-commerce 921.2 3.8 925.0 11.3 7.9 Eliminations – (108.7) (108.7) – – 8,532.5 – 8,532.5 169.9 188.2 Share of post-tax results of associates 1.6 1.6 Operating profit before central costs and property losses 171.5 189.8 Central costs (19.5) (14.8) Property losses (18.8) (18.8) Operating profit 133.2 156.2 Finance income 58.2 59.3 Finance costs (100.5) (102.8) Profit before tax for the period 90.9 112.7

External revenue for the Nordics and Other International includes £0.9 million and £211.6 million relating to closed businesses and the business to be closed, respectively.

Reconciliation of underlying profit / (loss) to total profit / (loss) 2009/10 Business to be closed / Amortisation Net Change in Net fair value Underlying closed of acquired restructuring pension remeasure- Total profit / (loss) businesses intangibles charges benefits ments profit / (loss) £million £million £million £million £million £million £million UK & Ireland 71.1 – (0.5) (5.6) 28.7 – 93.7 Nordics 95.8 (0.2) – – – – 95.6 Other International (8.3) – (0.7) – – – (9.0) Pure play e-commerce 11.3 – (3.4) – – – 7.9 169.9 (0.2) (4.6) (5.6) 28.7 – 188.2 Share of post-tax results of associates 1.6 – – – – – 1.6 Operating profit / (loss) before central costs and property losses 171.5 (0.2) (4.6) (5.6) 28.7 – 189.8 Central costs (19.5) – – – 4.7 – (14.8) Property losses (18.8) – – – – – (18.8) Operating profit / (loss) 133.2 (0.2) (4.6) (5.6) 33.4 – 156.2 Finance income 58.2 – – – – 1.1 59.3 Finance costs (100.5) (0.4) – – – (1.9) (102.8) Profit / (loss) before tax for the period 90.9 (0.6) (4.6) (5.6) 33.4 (0.8) 112.7

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

Dixons Retail plc 70 Annual Report and Accounts 2010/11 Financial Statements

(b) Geographical analysis Revenues are allocated to countries according to the entity’s country of domicile. Revenue generated by the UK business was £3,800.9 million (2009/10 £4,028.2 million). Revenue by destination is not materially different to that shown by domicile. Revenue from discontinued operations is shown in note 28.

Non-current assets comprise property, plant & equipment, goodwill, intangible assets, investments in associates and non-current trade and other receivables. Non-current assets held by the UK, Italy and PIXmania were £402.0 million (2010 £327.4 million), £185.3 million (2010 £180.8 million), and £135.5 million (2010 £236.7 million), respectively. Non-current assets held by the Nordics were £814.4 million (2010 £799.3 million) and predominantly comprised goodwill (as disclosed in note 9) which has not been allocated to individual countries. (c) Balance sheet 2010/11 Segment Investment Total Segment assets in associates segment assets liabilities Net assets £million £million £million £million £million UK & Ireland 1,989.3 – 1,989.3 (1,227.3) 762.0 Nordics 1,132.2 3.4 1,135.6 (502.6) 633.0 Other International 563.5 – 563.5 (1,402.2) (838.7) Pure play e-commerce 278.3 – 278.3 (358.3) (80.0) Central 1,861.0 – 1,861.0 (1,657.8) 203.2 Eliminations (2,250.3) – (2,250.3) 2,250.3 – Continuing operations 3,574.0 3.4 3,577.4 (2,897.9) 679.5 Discontinued operations – – – (3.0) (3.0) 3,574.0 3.4 3,577.4 (2,900.9) 676.5

2009/10 Total Segment Investment segment Segment assets in associates assets liabilities Net assets £million £million £million £million £million UK & Ireland 1,543.1 – 1,543.1 (1,087.4) 455.7 Nordics 1,054.3 26.4 1,080.7 (467.2) 613.5 Other International 696.8 – 696.8 (1,351.6) (654.8) Pure play e-commerce 373.3 – 373.3 (335.3) 38.0 Central 1,411.3 – 1,411.3 (987.5) 423.8 56 Financial Statements

Eliminations (1,389.4) – (1,389.4) 1,389.4 – -- 119 Continuing operations 3,689.4 26.4 3,715.8 (2,839.6) 876.2 Discontinued operations – – – (1.1) (1.1) 3,689.4 26.4 3,715.8 (2,840.7) 875.1

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

Dixons Retail plc Annual Report and Accounts 71 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

2 Segmental analysis continued (d) Other information 2010/11

Capital expenditure Property, Intangible plant & Share-based assets equipment Depreciation Amortisation payments £million £million £million £million £million UK & Ireland 14.1 118.9 65.2 13.8 3.9 Nordics 4.6 40.5 24.8 4.5 0.9 Other International 2.8 28.7 24.0 2.9 1.3 Pure play e-commerce 2.9 6.0 4.5 6.1 0.1 Central – – 0.2 – 1.8 Continuing operations 24.4 194.1 118.7 27.3 8.0 Discontinued operations – – – – – 24.4 194.1 118.7 27.3 8.0

2009/10

Capital expenditure Property, Intangible plant & Share-based assets equipment Depreciation Amortisation payments £million £million £million £million £million UK & Ireland 7.3 95.8 58.7 15.5 3.2 Nordics 2.6 29.9 21.1 4.7 0.6 Other International 2.8 26.6 21.4 3.8 0.6 Pure play e-commerce 1.4 2.4 3.0 6.1 0.1 Central – 5.4 1.6 0.6 1.2 Continuing operations 14.1 160.1 105.8 30.7 5.7 Discontinued operations – – 0.1 – – 14.1 160.1 105.9 30.7 5.7

3 Revenue and operating profit / (loss)

2010/11 2009/10

Non-underlying Non-underlying Business to be Business closed / closed Underlying to be closed Other Total Underlying businesses Other Total £million £million £million £million £million £million £million £million Revenue 8,154.4 187.4 – 8,341.8 8,320.0 212.5 – 8,532.5 Cost of sales (7,579.4) (185.3) (83.8) (7,848.5) (7,682.1) (202.9) (5.6) (7,890.6) Gross profit / (loss) 575.0 2.1 (83.8) 493.3 637.9 9.6 (5.6) 641.9 Distribution costs (186.2) (3.6) (2.1) (191.9) (182.8) (3.9) – (186.7) Administrative expenses (247.2) (6.2) (212.2) (465.6) (303.9) (5.9) 28.8 (281.0) Other operating charge (13.6) – – (13.6) (19.6) – – (19.6) Profit / (loss) from operations before associates 128.0 (7.7) (298.1) (177.8) 131.6 (0.2) 23.2 154.6 Share of post-tax results of associates (0.4) – – (0.4) 1.6 – – 1.6 Total operating profit / (loss) 127.6 (7.7) (298.1) (178.2) 133.2 (0.2) 23.2 156.2

Non-underlying items comprise amortisation of acquired intangibles of £4.5 million (2009/10 £4.6 million), included within administrative expenses, 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 £12.5 million, £2.4 million and £7.5 million, respectively (2009/10 £14.2 million, £2.8 million and £8.6 million, respectively).

Dixons Retail plc 72 Annual Report and Accounts 2010/11 Financial Statements

2010/11 2009/10 Business to be Business closed / closed Underlying to be closed Total Underlying businesses Total £million £million £million £million £million £million Sale of goods 7,689.7 172.9 7,862.6 7,815.1 196.5 8,011.6 Revenue from services 464.7 14.5 479.2 504.9 16.0 520.9 8,154.4 187.4 8,341.8 8,320.0 212.5 8,532.5

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

2010/11 2009/10 Business to be closed / Business closed Underlying to be closed Total Underlying businesses Total £million £million £million £million £million £million Inventories recognised as an expense 6,204.1 153.0 6,357.1 6,039.8 157.6 6,197.4 Cost of inventory write-down 25.4 0.4 25.8 35.2 0.5 35.7 Rentals paid under operating leases: Plant and machinery 8.5 – 8.5 5.5 – 5.5 Property – non-contingent rent 359.4 10.1 369.5 357.8 7.9 365.7 Property – contingent rent 5.4 – 5.4 13.4 0.1 13.5 Rentals received under operating leases: Property – subleases (7.3) – (7.3) (5.5) – (5.5)

2010/11 2009/10 £million £million Auditors’ remuneration Audit services – Group financial statements 0.5 0.5 – Subsidiary financial statements 0.6 0.7 Total audit fees 1.1 1.2 Non audit services pursuant to legislation 0.2 0.2 Corporate finance services – 0.1

Other – 0.1 56 Financial Statements --

Total fees paid to the auditors 1.3 1.6 119

Dixons Retail plc Annual Report and Accounts 73 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

4 Non-underlying items 2010/11 2009/10 Business to be Business closed / closed to be closed Other Total businesses Other Total Note £million £million £million £million £million £million Included in operating profit / (loss): Business to be closed / closed businesses (i) (7.7) – (7.7) (0.2) – (0.2) Amortisation of acquired intangibles – (4.5) (4.5) – (4.6) (4.6) Net restructuring charges (ii) – (17.1) (17.1) – (5.6) (5.6) Business impairment charges (iii) – (251.6) (251.6) – – – Change in pension benefits (iv) – – – – 33.4 33.4 Other items (v) – (24.9) (24.9) – – –

(7.7) (298.1) (305.8) (0.2) 23.2 23.0 Included in net finance costs: Business to be closed (i) (0.8) – (0.8) (0.4) – (0.4) Net fair value remeasurements of financial instruments (vi) – (2.8) (2.8) – (0.8) (0.8) Accelerated amortisation of facility fees (vii) – (7.8) (7.8) – – – Net 2012 Bond redemption gains (viii) – 7.8 7.8 – – – (0.8) (2.8) (3.6) (0.4) (0.8) (1.2) Total impact on profit / (loss) before tax (8.5) (300.9) (309.4) (0.6) 22.4 21.8 Included in income tax expense: Business to be closed / closed businesses – – – 0.1 – 0.1 Other non-underlying items – 12.3 12.3 – (6.1) (6.1) – 12.3 12.3 0.1 (6.1) (6.0)

Total impact on profit / (loss) after tax (8.5) (288.6) (297.1) (0.5) 16.3 15.8

(i) Business to be closed / closed businesses: comprises the operating activities of PC City Spain whereby its closure was announced on 14 April 2011 and Markantalo and PC City Sweden which were closed on 10 May 2009 and 20 May 2009, respectively. (ii) Net restructuring charges – strategic reorganisation: 2010/11 2009/10 £million £million Asset impairments (1.6) (3.3) Property charges (7.4) (2.3) Other charges (8.1) – (17.1) (5.6)

Net restructuring charges relate predominantly to the renewal and transformation of the UK & Ireland business which has been focused mainly on the reformatting and re-organisation of the UK & Ireland store portfolio and the reorganisation of the service offering. 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 arise from restructuring initiatives which commenced in 2007/08. Such impairments comprise incremental accelerated depreciation charges associated with the economic useful life of these assets being shortened. Property charges comprise onerous lease costs and charges related to vacating properties. Other charges predominantly comprise employee severance.

(iii) Net business impairment charges:

Goodwill Other assets Property Other impairment impairment charges charges Total £million £milion £million £million £million Business to be closed (15.1) (31.8) (6.1) (17.6) (70.6) PIXmania (106.3) – – – (106.3) Greek business (53.2) – – – (53.2) Associate – (21.5) – – (21.5) (174.6) (53.3) (6.1) (17.6) (251.6)

Dixons Retail plc 74 Annual Report and Accounts 2010/11 Financial Statements

Business to be closed relates to PC City Spain following the announcement of the closure of the store operations of this business and comprises the full impairment of goodwill as well as other asset impairments which include other intangible assets, property, plant & equipment and inventory. Property charges comprise onerous lease costs and charges related to vacating properties. Other charges relate predominantly to employee severance.

PIXmania: Weakness in the Southern European economies, investment in developing new web platforms and changes in the internet retailing market have caused profit performance to be behind that envisaged at the time of the acquisition of the business and this has therefore led to an impairment to the goodwill being charged as described further in note 9.

Greek business: Following an extended period of economic difficulty and the expectation that a full recovery will be prolonged, an impairment to the goodwill has been charged as described further in note 9.

Associate: Relates to a long period of decline in the results of F-Group leading to the conclusion that the carrying value of the investment (which incorporates prior year dividends received) is impaired. Further information is provided in note 12.

(iv) The change in pension benefits in 2009/10 arose from the closure to future accrual of the defined benefit section of the UK pension scheme which occurred on 30 April 2010.

(v) Other items comprise the following:

2010/11 2009/10 £million £million Impairment of other intangibles work in progress (14.9) – Exceptional supplier balance write offs (12.0) – Credits in respect of prior restructurings 2.0 – (24.9) –

Write off of other intangibles work in progress relates to capitalised system costs in the UK from 2008 following the decision to defer the project in order to focus on existing process improvements. This has caused the conclusion that the as yet unamortised work in progress is impaired.

The exceptional supplier balance write offs relate to supplier receivables in PIXmania, dating back to 2008/09 and prior years. This write off has arisen due to the culmination of a reconciliation process following the implementation of new systems highlighting the extent of the receivables outstanding and a detailed review of the Group’s ability to recover these balances. 56 Financial Statements Owing to historical nature of the origin of the amounts, coupled with their only recent quantification, the write off has been --

treated as a non-underlying item. 119

Credits relate mainly to closed businesses and represent cash recoveries from third parties which due to their contingent nature had not previously been recognised.

(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 are prepared). Such a treatment is a form of revaluation gain or loss created by an assumption that the derivatives will be settled before their maturity.

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) On 12 May 2010, the Group signed a new £360 million Revolving Credit Facility (the £360 million Facility) which came into effect on 9 July 2010 when the Group’s pre-existing £400 million Sterling Committed Facility (the £400 million Facility) was cancelled. This cancellation triggered the acceleration of the amortisation of fees from the £400 million Facility which would otherwise have been charged evenly over the period to the pre-existing facility’s maturity in October 2011.

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

Dixons Retail plc Annual Report and Accounts 75 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

5 Net finance costs 2010/11 2009/10 Note £million £million

Bank and other interest receivable (ii) 14.2 20.6 Expected return on pension scheme assets 44.7 37.6 Fair value remeasurement gains on financial instruments (iv) 2.3 1.1 2012 Bond redemption gains * 10.2 – Finance income * 71.4 59.3

6.125% Guaranteed Bonds 2012 interest and related charges (12.0) (18.3) 8.75% Guaranteed Notes 2015 interest and related charges (9.8) – Bank loans, overdrafts and other interest payable: Non-underlying: business to be closed (0.8) (0.4) Underlying * (iii) (22.0) (29.5) Finance lease interest payable (7.1) (7.1) Interest on pension scheme liabilities (50.3) (45.6) Fair value remeasurement losses on financial instruments (iv) (5.1) (1.9) Accelerated amortisation of facility fees * (7.8) – 2012 Bond redemption costs * (2.4) – Finance costs * (117.3) (102.8)

Total net finance costs – continuing operations (45.9) (43.5)

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

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

(ii) Bank and other interest receivable comprise:

2010/11 2009/10 £million £million Interest on cash and cash equivalents and short term investments 2.1 2.6 Interest on overpayments of tax in prior periods – 6.2 Remeasurement of financial instruments on an accruals basis 12.1 11.8 14.2 20.6

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

2010/11 2009/10 £million million Interest on bank loans and overdrafts (14.8) (21.8) Exchange losses (3.8) (4.6) Remeasurement of financial instruments on an accruals basis (3.4) (3.1) (22.0) (29.5)

Included within remeasurement of financial instruments on an accruals basis are exchange losses of £1.2 million (2009/10 gains of £16.9 million) which is a natural offset for a £1.2 million gain (2009/10 £16.9 million charge) arising from financial instruments not in a formal designated hedging relationship under the rules stipulated by IAS 39.

Included within the remeasurement of financial instruments is a £3.4 million charge (2009/10 £3.1 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 losses of £3.4 million (2009/10 £0.7 million) which are not in a designated hedging relationship under the rules stipulated by IAS 39.

(v) Interest income of £2.1 million (2009/10 £2.6 million) and expense of £58.5 million (2009/10 £52.2 million) is included within net finance costs relating to financial assets and liabilities, respectively not held at fair value through the Income Statement.

Dixons Retail plc 76 Annual Report and Accounts 2010/11 Financial Statements

6 Employees Staff costs for the period were:

2010/11 2009/10 £million £million Wages and salaries 745.1 724.9 Social security costs 113.2 109.3 Other pension costs 17.4 15.4 875.7 849.6

In addition to the above other pension costs, a non-underlying curtailment gain of £nil (2009/10 £33.4 million) was incurred as described in note 4.

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

2010/11 2009/10 Number Number Re-presented UK & Ireland 23,091 23,885 Nordics 7,343 7,296 Other International 7,569 7,573 Pure play e-commerce 1,398 1,413 Corporate centre and shared services 332 251 Continuing operations 39,733 40,418 Discontinued operations – 170 39,733 40,588

7 Tax (a) Income tax expense 2010/11 2009/10 £million £million Current tax UK corporation tax at 27.83% (ii) (2009/10 28%) 0.1 0.4 Double tax relief (0.1) (0.4) 56 Financial Statements – – --

Overseas taxation – underlying 22.7 25.0 119 Adjustment in respect of earlier periods: UK corporation tax – underlying – (1.8) Overseas taxation – underlying (0.2) 1.3 22.5 24.5 Deferred tax Current period – underlying 18.9 18.0 – non-underlying: business to be closed / closed businesses – (0.1) – non-underlying items: other * (12.3) 6.1 Adjustment in respect of earlier periods: * UK corporation tax – underlying (2.0) (6.0) Overseas taxation – underlying (8.0) 4.2 (3.4) 22.2

Income tax expense – continuing operations 19.1 46.7

Underlying income tax expense – continuing operations (i) 31.4 40.7 (i) Underlying income tax expense excludes those items marked *. Tax relating to discontinued operations is included in note 28. (ii) The UK corporation tax rate for the period was 28% for the period up to 31 March 2011 and 26% thereafter.

Dixons Retail plc Annual Report and Accounts 77 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

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

2010/11 2009/10 Note £million £million (Loss) / profit before tax – continuing operations (224.1) 112.7 Loss before tax – discontinued operations 28 (2.1) (8.7) (226.2) 104.0

Tax on (loss) / profit at UK statutory rate of 27.83% (2009/10 28%) (63.0) 29.1 Non-qualifying depreciation 3.3 1.9 Differences in effective overseas taxation rates (1.0) 3.5 Non deductible charges 1.9 1.6 Non taxable losses on property disposals 1.1 1.2 Non taxable other gains – underlying – (0.2) Non deductible losses – non-underlying 71.4 (0.1) Overseas deferred tax not recognised – continuing operations 3.7 5.3 – discontinued operations – 0.8 Adjustment in respect of earlier periods – underlying (10.2) (2.3) Non deductible loss on discontinued operations 1.0 1.6 Effect of change in UK statutory tax rate 6.0 – Other differences 4.9 4.3 Income tax expense – total 19.1 46.7

Income tax attributable to discontinued operations 28 – – Income tax expense – continuing operations 19.1 46.7

The effective tax rate on underlying earnings of 37% (2009/10 45%) has fallen due to decreases in effective UK and overseas tax rates, and unrecognised losses starting to form a lower proportion of net profits. The Group has total unrecognised deferred tax assets relating to tax losses of £126.1 million (2009/10 £105.8 million) of which £0.9 million (2009/10 £0.9 million) have no time restriction over when they can be utilised. The Group has unrecognised deferred tax assets relating to time restricted tax losses of £125.2 million (2009/10 £104.5 million) for which the weighted average period over which they can be utilised is five years (2009/10 five years). (b) Deferred tax Accelerated Retirement Losses Other capital benefit carried timing allowances obligations forward differences Total £million £million £million £million £million At 3 May 2009 18.4 45.2 29.9 34.1 127.6 Credited / (charged) to income statement 14.6 (13.5) (2.1) (21.2) (22.2) Acquisitions 0.2 – – 0.1 0.3 Credited directly to equity – 43.2 – 1.3 44.5 Currency retranslation (0.2) 0.1 (0.3) 0.9 0.5 At 1 May 2010 33.0 75.0 27.5 15.2 150.7 Credited / (charged) to income statement 14.0 (3.2) (3.6) (3.8) 3.4 Charged directly to equity – (7.0) – (2.1) (9.1) Currency retranslation 0.2 – 0.4 0.2 0.8 At 30 April 2011 47.2 64.8 24.3 9.5 145.8

Dixons Retail plc 78 Annual Report and Accounts 2010/11 Financial Statements

Summary of assets and liabilities as disclosed:

2011 2010 £million £million Deferred tax assets 163.4 169.4 Deferred tax liabilities (17.6) (18.7) 145.8 150.7

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

2010/11 2009/10 £million £million Actuarial losses on defined benefit pension schemes (7.0) 43.2 Net losses on revaluation of cash flow hedges (1.9) 2.0 Net gains on hedges of net investments 0.4 (0.8) Unrealised gains on investments – (0.2) (Charged) / credited to comprehensive expense (8.5) 44.2 Share-based payments (0.6) 0.3 (9.1) 44.5

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

As a result of share disposals, allowable losses have been incurred which are available for offset against certain future chargeable gains. A deferred tax asset has not been recognised in respect of these losses as it is considered that there is insufficient evidence that chargeable gains will arise. The deferred tax asset not recognised, measured at the standard rate of 26%, is not less than £327.0 million (2009/10 £352.0 million). Where permitted, certain deferred tax assets and liabilities have been offset for financial reporting purposes. 56 Financial Statements -- 119

Dixons Retail plc Annual Report and Accounts 79 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

8 Earnings per share 2010/11 2009/10 Note £million £million Basic and diluted earnings Total (continuing and discontinued operations) (239.0) 59.8 Discontinued operations – loss after tax 28 2.1 8.7 Continuing operations (236.9) 68.5

Adjustments Business to be closed / closed businesses 8.5 0.6 Amortisation of acquired intangibles 4.5 4.6 Net restructuring charges 17.1 5.6 Business impairment charges 251.6 – Other items 24.9 – Change in pension benefits – (33.4) Net fair value remeasurements of financial instruments 2.8 0.8 Accelerated amortisation of facility fees 7.8 – 2012 Bond redemption gains (7.8) – 309.4 (21.8) Attributable to non-controlling interests (3.6) – Attributable to equity shareholders of the parent company 305.8 (21.8)

Tax on adjustments (12.3) 6.0 Attributable to non-controlling interests 2.2 – Tax on adjustments attributable to equity shareholders of the parent company (10.1) 6.0

Total adjustments (net of taxation) 295.7 (15.8)

Underlying basic and diluted earnings 58.8 52.7

Million Million Basic weighted average number of shares 3,606.6 3,495.6 Employee share option and ownership schemes 12.3 23.9 Diluted weighted average number of shares 3,618.9 3,519.5

Pence Pence Basic (loss) / earnings per share Total (continuing and discontinued operations) (6.6) 1.7 Discontinued operations – 0.3 Continuing operations (6.6) 2.0 Adjustments (net of taxation) 8.2 (0.5) Underlying basic earnings per share 1.6 1.5

Diluted (loss) / earnings per share Total (continuing and discontinued operations) (6.6) 1.7 Discontinued operations – 0.2 Continuing operations (6.6) 1.9 Adjustments (net of taxation) 8.2 (0.4) Underlying diluted earnings per share 1.6 1.5

The weighted average number of shares used in the calculation for earnings per share information for the periods prior to the rights issue, which completed on 9 June 2009, has been multiplied by an adjustment factor to reflect the bonus element in the shares issued under the terms of the rights issue. The adjustment factor used was 1.2138.

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

Dixons Retail plc 80 Annual Report and Accounts 2010/11 Financial Statements

9 Goodwill 2011 2010 £million £million Cost At beginning of period 1,516.5 1,502.7 Additions 2.6 7.3 Disposals (15.1) (28.7) Currency retranslation 34.1 35.2 At end of period 1,538.1 1,516.5 Impairment At beginning of period 400.0 433.6 Non-underlying impairment 174.6 – Disposals (15.1) (28.1) Currency retranslation 7.8 (5.5) At end of period 567.3 400.0

Net book value at the end of period 970.8 1,116.5 (a) Carrying value The carrying value of goodwill is made up of the following businesses: 2011 2010 £million £million Elkjøp Nordic AS (Elkjøp) 686.6 667.4 Unieuro S.p.A. (Unieuro) 146.9 144.3 PIXmania S.A.S. (PIXmania) 80.8 181.7 Dixons South East Europe A.E.V.E (Kotsovolos) 39.4 91.2 Others 17.1 31.9 970.8 1,116.5

The non-underlying impairment charges which form part of non-underlying operating profit comprise: PIXmania: £106.3 million – For PIXmania, weakness in the European economy combined with lower than anticipated profitability in 2010/11 has caused the directors to revise their five year projections;

Kotsovolos in Greece: £53.2 million – In the case of Kotsovolos, weakness in the Greek economy highlighted by poor trading in 56 Financial Statements --

the current period, coupled with management’s expectations that economic recovery may be prolonged, has caused the 119 directors to revise projections for the five year period referred to below significantly downwards when compared to prior periods thereby giving rise to an impairment charge; and the business to be closed (PC City Spain): £15.1 million – In the case of PC City Spain, the impairment arises as a result of the closure of the store operations of this business which was announced on 14 April 2011 with the amount representing the entire goodwill attributable to this business.

Further details of these charges is shown in note 4 and the methodology used in their calculation is set out below. Disposals relate to the business to be closed (2009/10 mainly related to closed businesses) resulting from there being no ongoing business attaching to the goodwill.

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

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

Dixons Retail plc Annual Report and Accounts 81 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

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

Key assumptions used in determining the five year projections comprise the growth in sales and costs over this period. These, when combined, accordingly drive the resulting profit margins and the profit in year five of the projections which is in turn used to calculate the terminal value in the VIU calculation. Historical amounts for 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.

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

The values attributed to these assumptions is as follows:

2011 2010 Compound Compound Growth rate Compound Compound Growth rate annual growth annual growth beyond five Pre-tax annual growth annual growth beyond five Pre-tax in sales in costs years discount rate in sales in costs years discount rate Elkjøp 4.3% 4.4% 2.6% 11.7% 6.4% 6.3% 3.0% 10.9% Unieuro 11.8% 11.1% 0.9% 12.5% 9.8% 8.7% 1.0% 12.3% PIXmania 8.7% 8.3% 1.8% 12.7% 14.2% 13.5% 1.8% 13.0% Kotsovolos 1.8% 0.9% 2.0% 11.7% 1.9% 1.6% 2.1% 12.1%

(c) Sensitivities A sensitivity analysis had been performed on each of the base case assumptions used for assessing the goodwill with other variables held constant. Consideration of sensitivities to key assumptions can evolve from one financial year to the next. For 2010/11, the presentation of sensitivities to the compound annual growth rate in sales and costs represents such a change from the sensitivity to the operating profit in year five of the five year projections which was presented in 2009/10. The directors have concluded that in the case of Elkjøp there are no reasonably possible changes in any key assumption which would cause the carrying amount of goodwill to exceed its value in use. In the case of Unieuro, despite the continuing success of the turnaround referred to in the Performance Review section of the Directors’ Report, it is reasonably possible that a change in a key assumption could occur. Similarly, in the case of PIXmania and Kotsovolos, it is also reasonably possible that a change in a key assumption could occur and because the value in use equals the respective carrying value after impairment, any adverse change in a key assumption would, in isolation, cause a further impairment loss to be recognised. The following sensitivities are therefore presented, which are calculated leaving all other variables constant: decrease in the compound annual growth rate in sales; increase in the compound annual growth rate in costs; decrease in the growth rate beyond five years; and increase in the pre-tax discount rate.

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

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

Dixons Retail plc 82 Annual Report and Accounts 2010/11 Financial Statements

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

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

2010

Change required for surplus of value in use over carrying value to erode to £nil Surplus of value Decrease in Increase in Decrease in Decrease in in use over compound compound compound growth rate Increase in carrying value annual growth annual growth annual growth in beyond five post-tax £million in sales in costs sales and costs years discount rate Unieuro 13.1 (0.03)% 0.03% (1.9)% (1.0)%† 0.6% PIXmania 30.0 (0.08)% 0.08% (2.4)% (1.8)% 1.1% Kotsovolos 16.9 (0.09)% 0.09% (2.2)% (1.7)% 1.1%

† The sensitivity to a decrease in the growth rate beyond five years of (1.0)% for 2009/10 represents a correction from the figure of (1.9)% which was previously disclosed in the 2009/10 financial statements.

10 Intangible assets Other intangibles Software Software Acquired (externally (internally intangibles acquired) generated) Sub-total Total £million £million £million £million £million Cost At 3 May 2009 88.1 133.4 67.1 200.5 288.6 Additions – – 14.1 14.1 14.1 Disposals – (14.0) (11.3) (25.3) (25.3) Currency retranslation (0.8) 1.6 (0.2) 1.4 0.6

At 1 May 2010 87.3 121.0 69.7 190.7 278.0 56 Financial Statements

Additions – 19.2 5.2 24.4 24.4 -- Disposals – (2.0) (0.7) (2.7) (2.7) 119 Currency retranslation 1.5 1.2 0.4 1.6 3.1 At 30 April 2011 88.8 139.4 74.6 214.0 302.8

Amortisation At 3 May 2009 26.1 69.5 44.6 114.1 140.2 Charge for the period – regular 4.6 15.1 10.7 25.8 30.4 – accelerated – 0.3 – 0.3 0.3 Disposals – (13.6) (11.2) (24.8) (24.8) Currency retranslation 0.4 0.9 (0.1) 0.8 1.2 At 1 May 2010 31.1 72.2 44.0 116.2 147.3 Charge for the period – regular 4.5 12.6 10.1 22.7 27.2 – accelerated – 0.1 – 0.1 0.1 Non-underlying impairment – 15.6 – 15.6 15.6 Disposals – (1.7) (0.7) (2.4) (2.4) Currency retranslation 0.7 1.0 0.2 1.2 1.9 At 30 April 2011 36.3 99.8 53.6 153.4 189.7 Net book value At 30 April 2011 52.5 39.6 21.0 60.6 113.1

At 1 May 2010 56.2 48.8 25.7 74.5 130.7

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

Included within the carrying amount of brand names are £32.8 million and £16.5 million (2009 £35.4 million and £17.0 million) relating to the euro denominated PIXmania and Kotsovolos brand names, respectively and for which the remaining life of these assets is 10 years and 23 years, respectively. Included in net book value of other intangibles are assets under construction of £18.6 million (2009/10 £26.8 million).

Dixons Retail plc Annual Report and Accounts 83 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

11 Property, plant & equipment 2011 2010

Fixtures, Fixtures, Land and fittings and Land and fittings and buildings equipment Total buildings equipment Total £million £million £million £million £million £million Cost At beginning of period 205.8 1,250.0 1,455.8 205.0 1,207.0 1,412.0 Additions 4.9 189.2 194.1 0.3 159.8 160.1 Acquisitions – – – – 0.8 0.8 Disposals (4.8) (127.8) (132.6) (1.3) (124.8) (126.1) Currency retranslation 3.7 16.5 20.2 1.8 7.2 9.0 At end of period 209.6 1,327.9 1,537.5 205.8 1,250.0 1,455.8

Depreciation At beginning of period 57.8 857.0 914.8 49.4 873.0 922.4 Charge for the period – regular 7.7 109.0 116.7 8.2 94.7 102.9 – accelerated – 2.0 2.0 – 3.0 3.0 Non-underlying impairment – 25.0 25.0 – – – Disposals (2.3) (115.6) (117.9) (0.4) (119.0) (119.4) Currency retranslation 1.2 12.0 13.2 0.6 5.3 5.9 At end of period 64.4 889.4 953.8 57.8 857.0 914.8

Net book value at end of period 145.2 438.5 583.7 148.0 393.0 541.0

Included in net book value Land not depreciated 19.7 – 19.7 16.2 – 16.2 Assets in the course of construction 0.1 9.7 9.8 0.5 5.9 6.4 Assets held under finance leases 67.9 3.3 71.2 71.4 1.9 73.3

2009/10 depreciation comprised £105.8 million and £0.1 million relating to continuing and discontinued operations, respectively.

£2.4 million of additions related to finance leases (2009/10 £nil). The leased assets are pledged as security for the related finance lease liabilities.

In 2009/10 £1.3 million of disposals of fixtures and fittings related to the disposal of Poland as described in note 28. 12 Investments in associates 2011 2010 £million £million At beginning of period 26.4 29.8 Share of (loss) / profit after tax (0.4) 1.6 Acquisitions – 0.6 Disposals – (1.9) Non-underlying impairment (21.5) – Dividends (1.1) (4.2) Currency retranslation – 0.5 At end of period 3.4 26.4

Comprising: F-Group (40%) 2.9 25.8 Other 0.5 0.6 3.4 26.4

Dixons Retail plc 84 Annual Report and Accounts 2010/11 Financial Statements

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

2010/11 2009/10 £million £million Income statement Revenue 227.7 227.6 (Loss) / profit after tax (1.7) 5.9

2011 2010 £million £million Balance sheet Assets 68.1 61.4 Liabilities (35.9) (25.2) Net assets 32.2 36.2

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

Investments in other associates comprise shareholdings in several different enterprises in the Nordic region, none of which are significant. 13 Inventories 2011 2010 £million £million Finished goods and goods for resale 1,002.5 1,017.5 Provision for obsolete and slow moving goods (41.6) (44.9) 960.9 972.6

14 Trade and other receivables 2011 2010 Current Non-current Current Non-current Note £million £million £million £million 56 Financial Statements --

Trade debtors 243.7 9.4 259.6 7.2 119 Provision for bad and doubtful debts (24.2) (1.7) (28.0) (0.2) 219.5 7.7 231.6 7.0 Derivative financial instruments 22 3.5 18.3 3.0 25.0 Other debtors 68.3 12.7 61.1 9.9 Prepayments 60.6 2.8 57.7 5.0 Accrued income 31.3 8.1 41.7 11.1 383.2 49.6 395.1 58.0

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 £347.6 million (2010 £362.4 million). The carrying amount of trade and other receivables approximates fair value with no concentration of credit risk.

Dixons Retail plc Annual Report and Accounts 85 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

14 Trade and other receivables continued 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:

2011 2010 £million £million Up to six months past due 42.9 42.4 Six to 12 months past due 0.8 5.0 Over 12 months past due 1.7 5.9 45.4 53.3

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

2011 2010 £million £million At beginning of period 28.2 26.1 Charge for the year 9.4 17.8 Utilisation of provision (11.8) (16.1) Currency retranslation 0.1 0.4 At end of period 25.9 28.2

The Group does not hold any collateral as security over receivables balances. 15 Short term investments 2011 2010 £million £million Floating rate notes 2.6 3.2 Money market deposits 7.9 5.3 10.5 8.5

Floating rate notes have a nominal value of £3.1 million (2010 £3.8 million) and have an average expected maturity of 9.5 years (2010 2.6 years). Money market deposits are made for varying periods of 90 to 180 days with an average maturity of 90 days (2010 104 days). The carrying amount of money market deposits approximates their fair value.

Short term investments include £7.4 million (2010 £nil) which, together with certain cash and cash equivalents, are held under trust to fund customer support agreement liabilities as disclosed in note 26. 16 Cash and cash equivalents 2011 2010 £million £million Cash at bank 195.3 161.3 Money market deposits 139.4 134.4 334.7 295.7

Cash at bank earns interest at floating rates based either on daily bank deposit rates or central bank lending rates. Money market deposits are made for varying periods of up to 90 days with an average maturity of 31 days (2010 18 days). The carrying amount of money market deposits approximates their fair value.

Dixons Retail plc 86 Annual Report and Accounts 2010/11 Financial Statements

17 Borrowings 2011 2010 £million £million Current Bank overdrafts 5.6 4.9 Other borrowing 130.0 98.5 135.6 103.4 Non-current 6.125% Guaranteed Bonds 2012 168.2 321.4 8.75% Guaranteed Notes 2015 147.1 – 315.3 321.4

Bank overdrafts are repayable on demand.

On 12 May 2010, the Group signed a new revolving credit facility agreement (the New Facility) for £360 million. The £360 million Facility came into effect on 9 July 2010 at which time it replaced the previous £400 million Sterling Committed Facility (the Old Facility) which was cancelled. The terms and covenants attaching to the New Facility are substantially the same as that for the Old Facility except that the guarantee structure comprises UK and Irish companies only, thereby aligning it more closely to the arrangements under the 6.125% Guaranteed Bonds 2012 (the 2012 Bonds). In the event of a change of control, the syndicated banks have the option to terminate the £360 million Facility.

Current borrowings include £130.0 million which was drawn down under the New Facility (2010 £95.0 million under the Old Facility) at a weighted average effective yield of 4.35% (2010 4.30%). These borrowings have an average maturity of five days (2010 nine days) and are eligible for renewal under the terms of the £360 million Facility. The New Facility has a maturity date of August 2013.

At 30 April 2011, the available undrawn amount of the New Facility was £230 million (2010 £305 million under the Old Facility). The carrying amount of current borrowings and overdrafts approximates their fair value.

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

The remaining 2012 Bonds are denominated in sterling with a nominal value of £160 million, paying interest annually, are unsecured, 56 Financial Statements --

are guaranteed by DSG Retail Limited, a subsidiary undertaking, and are listed on the . Unless previously 119 redeemed or purchased and cancelled they will be redeemed at par on 15 November 2012. The 2012 Bonds may be redeemed in whole or in part at their principal amount plus accrued interest by providing 30 to 60 days’ notice to the bondholder. The 2012 Bonds may also be purchased in the open market by any company within the Group. In either circumstance, the 2012 Bonds and any unmatured coupons will be cancelled and may not be re-issued or re-sold. In the event of a change of control, if the rating of the Bonds were to have fallen below a specified level, bondholders would have the right to redemption. The value of the 2012 Bonds excludes accrued interest of £4.5 million (2010 £8.4 million), included in trade and other payables.

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

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

Dixons Retail plc Annual Report and Accounts 87 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

18 Obligations under finance leases 2011 2010 Present value Present value of minimum Minimum of minimum Minimum lease lease lease lease payments payments payments payments £million £million £million £million Amounts due: Within one year 9.4 8.5 8.3 7.1 In more than one year and not more than five years 33.7 28.5 33.8 26.1 In more than five years 132.9 64.1 139.7 66.8 176.0 101.1 181.8 100.0 Less future finance charges (74.9) – (81.8) – Present value of lease obligations 101.1 101.1 100.0 100.0 Less amounts due within one year (3.1) (3.1) (2.4) (2.4) Amounts due after more than one year 98.0 98.0 97.6 97.6

The majority of finance leases relate to properties in the UK where obligations are denominated in sterling and lease terms vary between 14 and 25 years. The effective borrowing rate on individual leases ranged between 4.57% and 8.15% (2010 between 4.57% and 8.15%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The total value of minimum sub-lease payments expected to be received under non-cancellable sub-leases was £2.7 million (2010 £nil).

The fair value of the Group’s lease obligations approximates their carrying amount. 19 Trade and other payables 2011 2010 Current Non-current Current Non-current Note £million £million £million £million Trade creditors 1,055.3 5.2 1,001.4 6.5 Other taxation and social security 132.6 – 103.2 – Derivative financial instruments 22 6.5 78.9 9.6 74.8 Other creditors 61.1 16.0 53.8 15.8 Accruals 236.4 81.5 293.7 73.1 Deferred income – customer support agreements 122.3 148.6 133.2 153.5 Deferred income – other 30.0 0.8 11.0 2.0 1,644.2 331.0 1,605.9 325.7

Included in other creditors and accruals is £61.0 million (2010 £66.1 million) relating to other non-financial liabilities. The total financial liabilities included in trade and other payables are £1,394.5 million (2010 £1,378.2 million). The carrying amount of trade and other payables approximates their fair value.

Dixons Retail plc 88 Annual Report and Accounts 2010/11 Financial Statements

20 Provisions 2011 2010 Property Severance Property Severance related and other Total related and other Total £million £million £million £million £million £million At beginning of period 45.8 6.0 51.8 91.9 20.6 112.5 Additions 13.5 25.7 39.2 2.3 – 2.3 Utilisation (21.0) (9.9) (30.9) (41.3) (14.2) (55.5) Disposals – – – (6.1) – (6.1) Currency retranslation 0.1 0.1 0.2 (1.0) (0.4) (1.4) At end of period 38.4 21.9 60.3 45.8 6.0 51.8

Analysed as: Current 22.5 21.9 44.4 16.3 6.0 22.3 Non-current 15.9 – 15.9 29.5 – 29.5 38.4 21.9 60.3 45.8 6.0 51.8

Additions during the period relate to restructuring charges which are described further in note 4. Property related provisions mainly comprise onerous lease contracts. In 2009/10 disposals and £0.8 million of utilisation related to the Group’s Polish operations which were disposed of in that period.

Of the amounts included within non-current liabilities remaining at 30 April 2011, the majority are expected to be utilised within the next four years. 21 Retirement and other post-employment benefit obligations 2011 2010 Note £million £million

Retirement benefit obligations – UK 21 (b) – (d) (244.0) (263.5) – Nordics (3.3) (3.3) (247.3) (266.8)

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 56 Financial Statements --

trustee administered fund. The scheme is valued by a qualified actuary at least every three years and contributions are assessed in 119 accordance with the actuary’s advice so as to spread the pension cost over the normal expected service lives of members. Since 1 September 2002, the defined benefit section of the scheme has been closed to new entrants and on 30 April 2010 was closed to future accrual with automatic entry into the defined contribution section being offered to those active members of the defined benefit section at that time. Membership of the defined contribution section is offered to eligible employees.

In the 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 £0.8 million (2009/10 £1.0 million) with the remaining movements relating to the benefits paid in the period, actuarial gains / (losses) and currency retranslation.

In other territories, the Group also provides other post-employment benefits which are largely governed by statute, in particular in Italy and Greece. These benefits are unfunded. (a) Defined contribution pension schemes The pension charge in respect of defined contribution schemes was £12.3 million (2009/10 £5.5 million).

Dixons Retail plc Annual Report and Accounts 89 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

21 Retirement and other post-employment benefit obligationscontinued (b) UK Defined benefit pension scheme – actuarial valuation and assumptions A full actuarial valuation of the scheme was last carried out as at 31 March 2010 and showed a shortfall of assets compared with liabilities of £239.0 million. This shortfall and the associated ‘recovery plan’ have been agreed in principle with the trustee of the scheme with formal agreement expected shortly. The proposed recovery plan based on this valuation commenced in 2010/11 with special contributions of £12.0 million which rise to £16.0 million in 2011/12, £20.0 million for 2012/13 and 2013/14 and rising approximately annually thereafter to £35.0 million by 2020/21. The next triennial valuation will be as at 31 March 2013. The Group’s regular contribution rate for 2009/10 was 12.4%, which ceased on 30 April 2010 following the closure of the scheme to future accrual as described above.

The principal actuarial assumptions as at 31 March 2010 were:

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

At 31 March 2010, the market value of the scheme’s investments was £672.0 million and, based on the above assumptions, the value of the assets was sufficient to cover 74% of the benefits accrued to members with the liabilities amounting to £911.0 million. (c) UK Defined benefit pension scheme – IAS 19 The following summarises the components of net benefit expense recognised in the consolidated income statement, the funded status and amounts recognised in the consolidated balance sheet. The methodologies set out in IAS 19 are different from those used by the scheme actuaries in determining funding arrangements.

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

Rates per annum 2011 2010 Discount rate 5.4% 5.5% Rate of increase in pensionable salaries n/a 3.6% Rate of increase in pensions in payment / deferred pensions (pre / post April 2006 accrual) 3.3% / 2.2% 3.5% / 2.3% Inflation 3.4% 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 31 March 2010. In particular, post-retirement mortality has been assumed to follow the standard mortality tables “S1” All Pensioners tables, based on the experience of Self-Administered Pension Schemes (SAPS) from 2000 to 2006 with medium cohort improvements up to 2009 and multipliers of 105% for males and 110% for females. In addition, an allowance has been made for future improvements in longevity by using the new CMI 2009 Core projections with a long term rate of improvement of 1.5% per annum for men and 1.0% per annum for women. Applying such tables results in an average expected longevity of between 87.2 years and 89.5 years for men and between 88.6 years and 90.2 years for women (2010 between 87.1 years and 87.9 years for men and between 90 years and 90.7 years for women) for those becoming 65 at the measurement date.

(ii) Amounts recognised in consolidated income statement

2010/11 2009/10 £million £million Current service cost (charged to underlying operating profit) – (4.7) Non-underlying curtailment – 33.4 Total operating credit – 28.7

Expected return on plan assets 44.7 37.6 Interest cost on benefit obligations (50.3) (45.6) Net other finance costs (5.6) (8.0)

Total (charged) / credited to profit before tax (5.6) 20.7

Dixons Retail plc 90 Annual Report and Accounts 2010/11 Financial Statements

Other than the payments under the recovery plan, the Group does not expect to make any further contributions to its UK defined benefit pension scheme in 2011/12.

The curtailment in 2009/10 arose from the closure to future accrual of the scheme which occurred on 30 April 2010. The effect of the closure meant that all active members of the scheme became treated as if they were deferred members. The effect of the closure is that these members are no longer entitled to future salary increases other than in line with inflation. This amounted to a change in benefits accruing to these members and resulted in a one off reduction in the ultimate liabilities in respect of these individuals.

(iii) Amounts recognised in the consolidated balance sheet 2011 2010 2009 2008 2007 £million £million £million £million £million Present value of defined benefit obligations (949.7) (929.4) (693.3) (740.7) (726.7) Fair value of plan assets 705.7 665.9 544.5 689.7 688.3 Net obligation (244.0) (263.5) (148.8) (51.0) (38.4)

Changes in the present value of the defined benefit obligation:

2011 2010 £million £million Opening obligation 929.4 693.3 Current service cost – 4.7 Employee contributions – 4.8 Interest cost 50.3 45.6 Actuarial (gains) / losses (3.7) 241.4 Benefits paid (26.3) (27.0) Curtailment gain – (33.4) Closing obligation 949.7 929.4

Changes in the fair value of the scheme assets:

2011 2010 £million £million Opening fair value 665.9 544.5

Expected return 44.7 37.6 56 Financial Statements

Employer contributions – regular – 8.6 -- – special 12.0 12.0 119 Employee contributions – 4.8 Actuarial gain 9.4 85.4 Benefits paid (26.3) (27.0) Closing fair value 705.7 665.9

Dixons Retail plc Annual Report and Accounts 91 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

21 Retirement and other post-employment benefit obligationscontinued Analysis of scheme assets:

2011 2010 % of fair value % of fair value Long term of total Long term of total expected rate scheme expected rate scheme of return £million assets of return £million assets Equities 7.3% 471.8 67% 8.1% 400.2 60% Property 5.8% 33.3 5% 6.4% 30.6 5% Bonds / gilts 4.3% 185.7 26% 4.6% 222.4 33% Cash 3.4% 14.9 2% 4.0% 12.7 2% 705.7 665.9

The overall expected rate of return on assets is determined based on the market prices prevailing at the balance sheet date, applicable to the period over which the obligation is to be settled. Actual return on the scheme assets was a gain of £54.1 million (2009/10 gain of £123.0 million). The actual return on other post-employment benefit scheme assets was not significant.

(iv) Experience adjustments recognised in the consolidated statement of comprehensive income and expense: 2011 2010 2009 2008 2007 £million £million £million £million £million Gain / (loss) on scheme liabilities 3.7 (241.4) 81.8 17.0 25.0 Effect of change in valuation methodology – – – – 18.8 Gain / (loss) from actual less expected return on assets 9.4 85.4 (196.1) (41.7) 1.9 Actuarial gains / (losses) 13.1 (156.0) (114.3) (24.7) 45.7

Cumulative actuarial (loss) / gain (248.4) (261.5) (105.5) 8.8 33.5

(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 2011/12 income statement and the balance sheet. The main assumptions are the discount rate, the rate of inflation and the assumed mortality rate. The following table provides an estimate of the potential impacts of each of these variables if applied to the current period consolidated income statement and balance sheet.

Net finance costs Net deficit 2010/11 2009/10 2011 2010 Positive / (negative) effect: £million £million £million £million Discount rate: 0.25% increase 0.3 0.5 49.6 52.5 Inflation rate: 0.25% increase* (2.4) (2.5) (42.9) (45.3) Mortality rate: 1 year increase (1.4) (1.9) (25.4) (33.4)

* The increase in scheme benefits provided to members on retirement is subject to an inflation cap. (e) Other post-employment benefits – IAS 19 The Group offers other post-employment benefits to employees in overseas locations. At 30 April 2011 the net obligation in relation to these benefits was £11.6 million (2010 £11.5 million). The net movement in the obligation comprises a charge to operating profit of £4.3 million (2009/10 £4.2 million) with the remaining movements relating to the benefits paid in the period and currency retranslation.

Dixons Retail plc 92 Annual Report and Accounts 2010/11 Financial Statements

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

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

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

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

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

Liquidity risk It is Group policy to maintain a balance of funds, borrowings, committed bank and other facilities sufficient to meet anticipated short term and long term financial requirements. In applying this policy the Group continuously monitors forecast and actual cash flows against the maturity profiles of financial assets and liabilities. Uncommitted facilities are used if available on advantageous terms. It is Group treasury policy to ensure that a specific level of committed facilities is always available based on forecast working capital requirements. 56 Financial Statements -- 119 Cash forecasts identifying the Group’s liquidity requirements are produced and are stress tested for different scenarios including, but not limited to, reasonably possible decreases in profit margins and increases in interest rates on the Group’s borrowing facilities and the weakening of sterling against other functional currencies within the Group.

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

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

Dixons Retail plc Annual Report and Accounts 93 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

22 Financial instruments continued Capital risk management It is the Group’s policy to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Group is subject to certain externally imposed capital requirements in the form of banking covenants involving borrowing ratios which it met throughout the period.

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

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

The Group monitors available net funds on a regular basis and this is affected by Free Cash Flow, one of the Group’s key performance indicators as defined further in the Strategic Summary section of the Directors’ Report. (b) Fair values of financial assets and liabilities For receivables and payables classified as financial assets and liabilities in accordance with IAS 32, fair value is estimated to be equivalent to book value. These values are shown in notes 14 and 19, respectively. The categories of financial assets and liabilities and their related accounting policy are set out in notes 1.11 and 1.15.

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

The fair value of the 2012 Bonds is £154.4 million (2010 £297.0 million). The 2012 Bonds are carried at amortised cost, plus a fair value adjustment, as a result of the fair value hedge discussed below. Excluded from the fair value is £4.5 million (2010 £8.4 million) of accrued interest which is included in trade and other payables.

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

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

Fair values of derivatives by designation 2011

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

2010

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 – 25.0 – – 25.0 Manage the currency exposure of: Financial assets and liabilities 1.6 – (1.2) – 0.4 Net investments in overseas subsidiaries – – – (74.8) (74.8) Future transactions occurring within one year 1.4 – (8.4) – (7.0) Total derivatives 3.0 25.0 (9.6) (74.8) (56.4)

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

Dixons Retail plc 94 Annual Report and Accounts 2010/11 Financial Statements

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

At 30 April 2011 the Group had interest rate swaps designated as fair value hedges for the 2012 Bonds with a notional amount of £125 million (2010 £250 million) whereby it receives a fixed interest rate of 6.125% and pays a floating rate of interest based on LIBOR.

At 30 April 2011 the Group also had interest rate swaps in place with a notional amount of £125 million (2010 £nil) whereby the Group receives a fixed interest rate of 6.125% and pays a floating rate of interest based on LIBOR, and which act as a hedge for the 2015 Notes until August 2012. These swaps are not designated as hedges under IAS 39.

In order to provide a hedge against certain euro denominated fixed asset investments and to finance working capital £200 million (2010 £200 million) has been swapped into floating rate euro borrowings bearing interest based on EURIBOR.

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

Cash flow hedges At 30 April 2011 the Group had forward foreign exchange contracts in place with a notional value of £415.5 million (2010 £435.6 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 £0.9 million loss (2009/10 £7.0 million loss). In respect of contracts which matured during the period, losses of £7.4 million and losses of £6.7 million have been transferred out of equity into inventory and out of equity into operating profit, respectively (2009/10 losses of £15.1 million and gains of £3.8 million).

Hedge ineffectiveness of £0.2 million loss was recorded in the income statement (2009/10 £0.9 million loss).

Fair value hedges As mentioned above the Group had interest rate swaps in place for the 2012 Bonds whereby it receives a fixed interest rate of 6.125% and pays a floating rate of interest based on LIBOR. The interest rate swaps are used to hedge the exposure to changes in the fair value of £125 million (2010 £250 million) of the 2012 Bonds and have the same critical terms. The fair value of interest rate swaps entered into as fair value hedges is an asset of £9.9 million (2010 an asset of £25.0 million).

A fair value loss on the interest rate swaps of £1.3 million (2009/10 loss of £1.2 million) has been recognised in the income statement and offset by an equivalent fair value gain on the 2012 Bonds. Hedge ineffectiveness of £0.4 million loss was recorded in the income 56 Financial Statements --

statement (2010 £nil). 119

Hedge of net investments in foreign operations At 30 April 2011 the Group had forward foreign exchange contracts and cross currency swaps in place with a notional value of £200 million (2010 £200 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 £78.9 million loss (2009/10 £74.8 million loss).

No hedge ineffectiveness was recorded in the income statement (2009/10 £nil).

Dixons Retail plc Annual Report and Accounts 95 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

22 Financial instruments continued (d) Interest rate profile of financial assets and financial liabilities by currency The following table sets out the interest rate exposure of the financial assets and liabilities of the Group. The financial instruments not included in the table are non-interest bearing and are therefore not subject to interest rate risk.

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

Net borrowings (158.5) (80.9) 32.6 (206.8)

2010 Other Sterling Euro currencies Total £million £million £million £million Cash and cash equivalents and short term investments: Floating rate 83.7 117.9 25.0 226.6 Fixed rate 67.4 2.6 7.6 77.6 151.1 120.5 32.6 304.2 Borrowings: Floating rate (148.6) (219.1) – (367.7) Fixed rate (53.6) – (3.5) (57.1) Obligations under finance leases: Fixed rate (98.0) (2.0) – (100.0) (300.2) (221.1) (3.5) (524.8)

Net borrowings (149.1) (100.6) 29.1 (220.6)

Floating rate cash and cash equivalents and short term investments relates to cash at bank and floating rate notes. Cash at bank earns interest at floating rates based either on daily bank deposit rates or central bank lending rates. Floating rate notes have an effective yield of 1.07% (2010 1.00%).

Fixed rate cash and cash equivalents, and, short term investments are predominantly money market deposits (as shown in note 16) and earn interest at an average effective rate of 0.64% (2010 0.54%).

Floating rate borrowings include bank overdrafts and fixed rate bonds after taking into account the effect of interest rates swaps entered into by the Group. The weighted average effective interest rate on bank overdrafts approximates 1.5% (2010 1.5%). The Group’s interest rate swaps (which relate to the 2012 Bonds and the 2015 Notes) have a nominal value of £250 million (2010 £250 million), receive fixed interest rates of 6.125% (2009/10 6.125%) and pay floating rates of LIBOR plus margins which range from 1.59% to 2.03% (2009/10 1.59% to 3.35%). Currency swaps with a nominal value of £200 million (2010 £200 million) receive LIBOR plus a margin and pay EURIBOR plus a margin. The sterling floating rates ranged from 1.59% to 2.03% in the year (2009/10 1.59% to 3.04%) and the euro floating rates ranged from 1.74% to 2.14% (2009/10 1.73% to 3.04%). Other swaps which matured in the prior period exchanged Norwegian krone and sterling at fixed interest rates of 5.06% and 5.67%.

The other major component of floating rate borrowings is drawings under the New Facility (2009/10 the Old Facility). Interest on drawn amounts on the New Facility is payable at LIBOR plus a margin of 3.75%. The commitment fee on undrawn amounts is 1.875%. A utilisation fee of 0.25% is payable on drawings greater than £120 million but less than £240 million and a rate of 0.5% on drawings greater than £240 million. The terms of the Old Facility were similar, but with a utilisation fee of 0.5% payable on drawings greater than £200 million but less than £300 million and 1.5% payable on drawings greater than £300 million. Both the New Facility and the Old Facility are described further in note 17.

Dixons Retail plc 96 Annual Report and Accounts 2010/11 Financial Statements

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

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

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. (e) Sensitivity analysis The following analysis, required by IFRS 7, shows the sensitivity of profit before tax and total equity to changes in specified market variables on monetary assets and liabilities and derivative financial instruments as listed below. As a consequence, the sensitivity reflects the position as at 30 April 2011 and 1 May 2010, 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 cashflow hedges and net investment hedges. The table below shows the Group’s sensitivity to a reasonably possible change in the Group’s key currencies of US dollar, euro and Norwegian krone with other variables held constant. A 10% decrease would have an equal and opposite effect.

2011 2010 Effect on Effect on underlying Effect on underlying Effect on profit before total equity profit before total equity tax increase / increase / tax increase / Increase / (decrease) (decrease) (decrease) (decrease) £million £million £million £million Change in exchange rates: US dollar + 10% (0.1) 2.1 (1.2) 2.1 Euro + 10% (9.5) (7.9) (2.5) (1.0) Norwegian krone + 10% (4.9) (25.6) (0.8) (24.0)

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

profit before tax and equity by £4.1 million (2009/10 a £4.3 million decrease in profit before tax and equity). 56 Financial Statements --

The following assumptions were made in calculating the sensitivity analysis: 119 the balance of borrowings, investments and the derivative portfolio are all held constant for the whole year. all net investment, fair value and cash flow hedges are assumed to be highly effective. the effect of changes in interest rates on fixed rate bonds is calculated after taking into account the effect of interest rate swaps. In combination these financial instruments are floating in nature. changes in the carrying value of derivative financial instruments designated as net investment hedges arising from movements in interest rates are recorded in the income statement. The impact of movements in exchange rates is recorded directly in equity. changes in the carrying value of derivative financial instruments that are not in hedging relationships arising from movements in interest rates and exchange rates only affect the income statement to the extent that they are not offset by changes in an underlying transaction.

Dixons Retail plc Annual Report and Accounts 97 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

22 Financial instruments continued (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.

2011

Contractual undiscounted cash flows In more than one year but Within not more than In more than Carrying one year five years five years Total value £million £million £million £million £million Non derivative financial liabilities Bank overdrafts (5.6) – – (5.6) (5.6) Other borrowings (131.6) – – (131.6) (130.0) Trade and other payables (1,327.4) (37.0) (20.7) (1,385.1) (1,394.5) 6.125% Guaranteed Bonds 2012 (9.8) (169.8) – (179.6) (168.2) 8.75% Guaranteed Notes 2015 (13.1) (195.9) – (209.0) (147.1) (1,487.5) (402.7) (20.7) (1,910.9) (1,845.4) Derivative contracts Inflows 1,072.0 464.6 – 1,536.6 1,532.4 Outflows (1,068.4) (535.5) – (1,603.9) (1,596.0) 3.6 (70.9) – (67.3) (63.6)

2010

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 (4.9) – – (4.9) (4.9) Other borrowings (98.6) – – (98.6) (98.5) Trade and other payables (1,317.5) (30.1) (22.1) (1,369.7) (1,378.2) 6.125% Guaranteed Bonds 2012 (18.4) (337.0) – (355.4) (321.4) (1,439.4) (367.1) (22.1) (1,828.6) (1,803.0) Derivative contracts Inflows 892.0 242.7 – 1,134.7 1,135.9 Outflows (889.5) (301.9) – (1,191.4) (1,192.3) 2.5 (59.2) – (56.7) (56.4)

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

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

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

Dixons Retail plc 98 Annual Report and Accounts 2010/11 Financial Statements

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

During the period 412,642 shares (2009/10 36,403) were issued in respect of options exercised under employee share option and ownership schemes.

On 9 June 2009 the Group completed a Placing and Rights Issue which raised gross proceeds of £310.6 million, of which £100 million was raised by the Placing. The Placing comprised in aggregate 333,333,333 Placing Shares available for subscription at an issue price of 30 pence per Placing Share. The Rights Issue was made on the basis of 5 new shares for each 7 eligible shares at 14 pence per new share and comprised 1,504,125,429 shares. Aggregate issue costs of the Placing and Rights Issue were £19.3 million. (b) Other reserves Capital Merger redemption Investment Hedging Revaluation reserve reserve in own shares reserve reserve Total £million £million £million £million £million £million At 3 May 2009 (386.1) 5.0 (2.3) (148.5) (3.0) (534.9) Other comprehensive income and expense recognised directly in equity – – – (3.2) 0.6 (2.6) Placing and Rights Issue 245.4 – – – – 245.4 Transfer (245.4) – – – – (245.4) At 1 May 2010 (386.1) 5.0 (2.3) (151.7) (2.4) (537.5) Other comprehensive income and expense recognised directly in equity – – – (0.3) 0.1 (0.2) At 30 April 2011 (386.1) 5.0 (2.3) (152.0) (2.3) (537.7)

The balance shown on the merger reserve arose on the group reconstruction which occurred during 1999/00. The group reconstruction took the form of introducing a new parent company above the existing group and the merger reserve represents the difference between the capital structure of the new parent company and that of the former parent company. 56 Financial Statements -- 119 The Placing and Rights Issue was effected through a structure which resulted in a merger reserve arising under section 612 of the Companies Act 2006. Following receipt of the cash proceeds through the structure, the excess of the net proceeds over the nominal value of the share capital issued was transferred from the merger reserve to retained earnings.

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 24. The 2,948,718 shares held at 30 April 2011 had a market value of £0.4 million (2010 3,579,476 shares held had a market value of £1.2 million) and their nominal value was £0.1 million (2010 £0.1 million). (c) Cumulative foreign exchange reserves within retained earnings Included within retained earnings are exchange differences resulting from the translation of the results and balance sheets of overseas subsidiary undertakings, which have been charged or credited directly to equity. The following table shows a reconciliation of such amounts.

2011 2010 £million £million At beginning of period 333.9 288.7 Currency translation movements 32.1 43.4 Cumulative foreign exchange differences transferred to income statement on disposals – 1.8 At end of period 366.0 333.9

Dixons Retail plc Annual Report and Accounts 99 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

24 Employee share ownership trusts Halifax EES Trustees International Limited is the trustee of an employee share ownership trust (the Trust). At 30 April 2011, the Trust 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) share schemes. Details of the LTIP, PSP and Reward Shares are given in the Remuneration Report in section (II) (b) (ii) of the Remuneration Report. The number of shares held by the Trust is shown in the table below.

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

2011 2010 Number Number Investment in own shares 2,948,718 3,579,476

Halifax EES Trustees International Limited has waived all dividends except for a total payment of 1 penny at the time each dividend is paid. The mid-market price of a share as at 30 April 2011 was 14.4 pence (2010 33.1 pence). 25 Share-based payments 2010/11 2009/10 Note £million £million Amounts charged / (credited) to operating profit Share-based payments – equity settled (a) 8.6 4.8 – cash settled (b) (0.6) 0.9 8.0 5.7

(a) Equity settled Following the Placing and Rights Issue, the exercise price and the number of outstanding equity settled share-based payments were adjusted to reflect the dilutive effect of the Rights Issue.

Share option plans Employee Share Option Scheme (ESOS) and Executive Share Option Plan (ESOP) Options are normally granted annually to executive directors and other senior executives. In September 2008, the Group adopted a new share option plan (ESOP) which replaced the existing ESOS. Options granted after this date have only been granted under the new ESOP. The ESOS and ESOP permit making awards with a market value on the date of grant of not more than twice the recipients’ salary. 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, unless specific circumstances apply to a participant as determined by the Remuneration Committee. Depending on grade, vesting is also dependent on the level of growth in underlying diluted earnings per share (EPS) over a three year period. Options may be exercised up to seven years after the vesting date.

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

Dixons Retail plc 100 Annual Report and Accounts 2010/11 Financial Statements

Details of equity settled share option plans outstanding during the year are as follows:

2010/11 2009/10 Weighted average Weighted average Note Number exercise price Number exercise price At beginning of period 236,377,764 £0.31 100,219,236 £0.70 Adjustment for Placing & Rights Issue – – 34,516,309 – Granted during the period (i) 106,073,741 £0.25 137,783,431 £0.22 Forfeited during the period (32,658,128) £0.35 (33,028,107) £0.49 Exercised during the period (ii) (412,642) £0.18 (37,385) £0.18 Expired during the period (2,467,718) £2.01 (3,075,720) £3.35

At end of period (iii),(iv) 306,913,017 £0.28 236,377,764 £0.31

No options were exercisable at 30 April 2011 (2010 none).

2011 2010 (i) weighted average fair value of options granted during the period £0.16 £0.13 (ii) weighted average share price at the date of exercise £0.24 £0.36 (iii) weighted average remaining contractual life for options outstanding 6.4 years 5.8 years (iv) range of exercise prices for options outstanding £0.09 – £1.70 £0.09 – £2.01

The fair value of equity settled share option plans granted is estimated as at the date of grant using the Binomial or Black-Scholes option pricing models taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the models used for the periods ended 30 April 2011 and 1 May 2010 based on information prevailing at the date of grant.

2011 2010 Dividend yield 0% 0% Historical and expected volatility 86.2% – 87.5% 78.3% – 81.2% Risk-free interest rate 1.5% – 1.6% 2.6% – 2.7% Expected remaining life of options 3.0 – 3.25 years 3.0 years Weighted average share price £0.28 £0.25

The expected remaining life of the options is based on historical data and is not necessarily indicative of the actual exercise patterns 56 Financial Statements 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. 119

Other equity settled share plans Executive directors’ and senior executives’ LTIP, PSP, Reward Sacrifice 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. For 2008/09 and 2009/10 TSR performance has been based on a bespoke weighted index comprising UK and European retailers. For 2010/11 onwards, TSR performance has been based on constituents of the FTSE 250 Index (comprising FTSE 101-350 companies) excluding investment trusts.

Dixons Retail plc Annual Report and Accounts 101 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

25 Share-based payments continued Details of LTIP and PSP equity settled share-based payments outstanding during the year are as follows:

2011 2010 Note Number Number At beginning of period 13,662,455 9,133,540 Adjustment for Placing and Rights Issue – 3,219,430 Provisionally awarded during the period (i) 6,798,796 3,290,663 Forfeited during the period (1,409,300) (1,981,178) Vested during the period (1,068,870) – Expired during the period (2,394,926) –

At end of period (ii) 15,588,155 13,662,455

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

2011 2010 (i) weighted average fair value of awards awarded during the period £0.20 £0.12 (ii) weighted average remaining contractual life for awards outstanding 1.3 years 1.3 years

Reward Sacrifice options were offered to the senior executives in September 2009 and do not have any performance conditions. 11,902,442 options were granted at a fair value of £0.15. During the year, 529,259 (2009/10 737,432) options lapsed. The number outstanding at the end of the period is 10,635,751 (2009/10 11,165,010).

Reward Shares were granted to a limited number of executives in July 2008 and do not have any performance conditions. During 2009/10 an adjustment of 1,709,273 was made to the number of Reward Shares outstanding as a result of the Placing and Rights Issue. During the current period 451,194 (2009/10 821,108) Reward Shares lapsed. The number outstanding at the end of the period is 5,251,898 (2009/10 5,703,092).

The fair value of such other equity settled share-based payments granted is estimated as at the date of grant using the option pricing models listed below as well as taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the models used for the periods ended 30 April 2011 and 1 May 2010 based on information prevailing at the date of grant.

2010/11 2009/10 Reward Plan PSP PSP Sacrifice Option pricing model Monte Carlo Monte Carlo Binomial Dividend yield 0% 0% 0% Historical and expected volatility 87.5% 81.2% 76.3% Risk-free interest rate 1.5% 2.6% 2.2% Expected life of awards 3.0 years 3.0 years 3.0 years Weighted average share price £0.28 £0.25 £0.27

Further information concerning share-based incentive plans specific to directors is included in the Remuneration Report in sections (II) (b) (ii) and (iii). (b) Cash settled Historical awards have been granted to employees 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 unless specific circumstances apply to a participant as determined by the Remuneration Committee. 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 outstanding cash settled awards had vested at 30 April 2011 (2010 none).

2011 2010 £million £million Amount included within trade and other payables relating to cash settled share-based payments 0.2 1.0

Dixons Retail plc 102 Annual Report and Accounts 2010/11 Financial Statements

(c) Additional SAYE, ESOS and ESOP information During the period the 106,073,741 options under the employee share option scheme were granted to 4,794 employees at exercise prices ranging between £0.20 and £0.28. At 30 April 2011 options outstanding for accounting purposes amounted to 306,913,017 shares (2010 236,377,764) analysed as follows:

SAYE ESOS & ESOP Exercise price Exercise price Date of grant Pence Number Date of grant Pence Number 27 Feb 2006 103.54 169,717 23 Jul 2001 170.45 2,992,310 26 Feb 2007 99.52 229,280 15 Feb 2002 168.23 18,494 26 Feb 2008 44.54 5,273,045 22 Jul 2002 118.80 3,146,477 23 Jul 2009 18.32 38,561,829 7 Feb 2003 75.59 40,660 3 Aug 2010 20.23 25,898,414 11 Jul 2008 27.63 73,573,135 14 Aug 2008 41.84 1,066,599 16 Dec 2008 9.20 – 10.85 6,792,000 23 Jul 2009 23.95 58,929,520 28 Sep 2009 28.43 11,902,439 07 Dec 2009 36.88 3,908,333 3 Aug 2010 27.59 70,590,765 8 Dec 2010 25.51 3,820,000 70,132,285 236,780,732

Options granted under the ESOS and ESOP can vest between three to ten years subject to performance conditions, where applicable, being met. The performance conditions applicable to these schemes are set out in section (II)(b) (iii) of the unaudited section of the Remuneration Report. 26 Notes to the cash flow statement (a) Reconciliation of operating profit to net cash inflow from operating activities 2010/11 2009/10 £million £million Operating (loss) / profit (180.3) 153.2 Operating loss – discontinued operations 2.1 3.0 Operating (loss) / profit – continuing operations (178.2) 156.2 Amortisation of acquired intangibles 4.5 4.6 Amortisation of other intangibles 22.7 25.8 56 Financial Statements --

Depreciation 116.7 102.8 119 Share-based payment charge 8.0 5.7 Share of post-tax results of associates 0.4 (1.6) Loss on disposal of property, plant & equipment 13.6 19.6 Increase in non-underlying provisions 39.2 2.3 Impairment and accelerated depreciation / amortisation 238.8 3.3 Other non-underlying impairments and charges 17.6 – Change in pension benefits – (33.4) Utilisation of non-underlying provisions (30.9) (54.7) Operating cash flows before movements in working capital 252.4 230.6

Movements in working capital: Decrease in inventories 16.2 14.1 Decrease in trade and other receivables 9.1 117.6 Increase / (decrease) in trade and other payables 15.1 (92.0) 40.4 39.7

Cash generated from operations – continuing operations 292.8 270.3

Dixons Retail plc Annual Report and Accounts 103 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

26 Notes to the cash flow statementcontinued (b) Analysis of net debt

Other non-cash Currency 2 May 2010 Cash flow movements translation 30 April 2011 £million £million £million £million £million

Cash and cash equivalents† 295.7 37.3 – 1.7 334.7 Bank overdrafts (4.9) (0.7) – – (5.6) 290.8 36.6 – 1.7 329.1

Short term investments 8.5 1.8 0.2 – 10.5

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

Net debt (220.6) 2.7 9.3 1.8 (206.8)

Other non-cash Currency 3 May 2009 Cash flow movements translation 1 May 2010 £million £million £million £million £million Cash and cash equivalents† 192.6 102.8 – 0.3 295.7 Bank overdrafts (4.8) 0.3 – (0.4) (4.9) 187.8 103.1 – (0.1) 290.8

Short term investments 9.0 (1.3) 0.8 – 8.5

Borrowings due within one year (250.1) 151.6 – – (98.5) Borrowings due after more than one year (322.5) – 1.1 – (321.4) Obligations under finance leases (101.7) 1.7 – – (100.0) (674.3) 153.3 1.1 – (519.9)

Net debt (477.5) 255.1 1.9 (0.1) (220.6)

Restricted funds, which predominantly comprise funds held under trust to fund potential customer support agreement liabilities were £120.3 million (2010 £78.9 million). Net debt excluding restricted funds totalled £327.1 million (2010 £299.5 million).

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

Dixons Retail plc 104 Annual Report and Accounts 2010/11 Financial Statements

27 Acquisitions No significant acquisitions were made during the period. The acquisition in 2009/10 related to the exercise of a put option by a majority shareholder in an associated undertaking.

2009/10 £million Total consideration paid for prior period acquisitions 10.6 Less: cash acquired (3.6) Total consideration, net of cash acquired 7.0

28 Discontinued operations On 19 May 2009 the Group disposed of its operations in Hungary to EW Electro Retail Limited for consideration of €1.

On 1 September 2009 the Group disposed of its operations in Poland to IDMSA Brokerage House, working with Mix Electronics S.A., for consideration of €1.

Loss after tax and cash flows from discontinued operations related to Hungary and Poland. (a) Net loss on disposals The total net assets disposed were as follows:

2009/10 Hungary Poland Total £million £million £million Inventories 6.9 8.0 14.9 Cash and cash equivalents 5.0 1.2 6.2 Other assets 1.3 2.4 3.7 Current trade and other payables (3.2) (3.5) (6.7) Provisions (11.2) (6.1) (17.3) Net assets disposed (1.2) 2.0 0.8 Loss on disposals (1.0) (4.7) (5.7) (2.2) (2.7) (4.9)

Consideration – – – 56 Financial Statements --

Disposal fees and exit costs (1.2) (1.9) (3.1) 119 Cumulative foreign exchange differences transferred from equity (1.0) (0.8) (1.8) Consideration and costs (2.2) (2.7) (4.9)

Disposal fees mainly comprised fees payables to advisors. Exit costs mainly comprised asset write downs and impairments, together with associated termination costs.

Dixons Retail plc Annual Report and Accounts 105 2010/11

Financial Statements

Notes to the Consolidated Financial Statements continued

28 Discontinued operations continued (b) Loss after tax – discontinued operations 2010/11 2009/10 £million £million Loss after tax from discontinued operations (2.1) (3.0) Net loss on disposals – (5.7) Loss after tax – discontinued operations (2.1) (8.7)

The loss after tax from discontinued operations relates to Hungary (2009/10 Hungary and Poland).

2010/11 2009/10 Hungary Hungary Poland Total £million £million £million £million Revenue – – 10.9 10.9 Expenses (2.1) – (13.9) (13.9) Operating loss (2.1) – (3.0) (3.0) Finance costs – – – – Loss before tax (2.1) – (3.0) (3.0) Income tax expense – – – – Loss after tax from discontinued operations (2.1) – (3.0) (3.0) Loss on disposal of discontinued operations – (1.0) (4.7) (5.7) Tax on loss on disposal – – – – Loss for the period (2.1) (1.0) (7.7) (8.7)

All losses were attributable to the equity shareholders of the Company. (c) Cash flows from discontinued operations 2010/11 2009/10 £million £million Operating activities (0.1) (8.6)

29 Capital commitments 2011 2010 £million £million Contracted for but not provided for in the accounts 28.9 21.1

30 Contingent liabilities 2011 2010 £million £million Guarantees – 54.5 Other 4.0 8.1 4.0 62.6

Guarantees in 2009/10 comprised potential obligations to financial institutions in respect of activities undertaken in the normal course of business and related 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.

Dixons Retail plc 106 Annual Report and Accounts 2010/11 Financial Statements

31 Operating lease commitments 2011 2010 Land and Other Land and Other buildings assets buildings assets £million £million £million £million Total undiscounted future committed payments due: Within one year 379.0 8.9 381.7 8.7 Between two and five years 1,286.3 8.9 1,314.3 8.3 After five years 1,479.4 – 1,636.7 – 3,144.7 17.8 3,332.7 17.0

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

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

Total future minimum sub-lease payments expected to be received under non-cancellable sub-leases was £34.5 million (2010 £32.5 million). 32 Related party transactions Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed.

The Group via its registered charitable trust, the DSG international Foundation (the Foundation) made charitable donations of £5,000 (2009/10 £12,000). The Company made no charitable donations to the Foundation during the period (2009/10 £nil). The Company is the sole benefactor of the Foundation, the principal beneficiaries of which are concerned with education, community affairs, health and disabilities, heritage and the environment.

Steve Rosenblum and Jean-Emile Rosenblum, members of the Executive Committee, together with close family members and companies controlled by them, own 21.9% of PIXmania, a company controlled by the Group. In connection with their management roles with respect to PIXmania, Steve Rosenblum and Jean-Emile Rosenblum received management fees of €260,000 (£221,000) (2009/10 €258,000 (£228,000)). Steve Rosenblum and Jean-Emile Rosenblum together hold call options over additional shares in PIXmania representing 16.8% of the share capital held by the Group. The options can be exercised from 30 April 2011 and are subject to certain conditions including the achievement of targets related to earnings and certain capitalisation values of the 56 Financial Statements PIXmania business. In addition to the call options, Steve Rosenblum and Jean-Emile Rosenblum have certain exit rights exercisable -- between July 2011 and July 2013 in relation to their holdings in PIXmania. 119

Steve Rosenblum and Jean-Emile Rosenblum own a building which is occupied and leased by PIXmania. During 2010/11 total rental payments of €653,000 (£553,000) (2009/10 €645,000 (£570,000)) were charged in relation to this property. 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 sections (VI) to (X) of the directors’ Remuneration Report which are described as having been audited.

2011 2010 £million £million Short term employee benefits 5.1 7.9 Termination benefits 0.2 – Share-based payment 2.2 0.9

33 Post balance sheet event On 1 June 2011, the Group announced that it had exchanged contracts with a syndicate of investors advised by Ness, Risan and Partners AS for the sale and leaseback of the Group’s Nordic distribution centre in Jönköping, Sweden. The sale and leaseback is expected to complete in June 2011 and the total cash consideration receivable on completion is expected to be approximately SEK600 million (£59 million). The estimated book value of the property as at 30 May 2011 was SEK214.5 million (approximately £21 million). The proceeds of the sale will be used for general corporate purposes, including offsetting drawings on the Group’s New Facility and for repayment of the 2012 Bonds.

Dixons Retail plc Annual Report and Accounts 107 2010/11

Financial Statements Company Balance Sheet

30 April 2011 1 May 2010 2 May 2009 Note £million £million £million Non-current assets Investments C3 1,732.3 1,723.7 1,718.8 Property, plant & equipment C4 – – – 1,732.3 1,723.7 1,718.8

Current assets Trade and other receivables C5 36.5 53.0 53.9 Cash and cash equivalents C6 10.3 80.7 – 46.8 133.7 53.9 Total assets 1,779.1 1,857.4 1,772.7

Current liabilities Bank overdrafts C7 (78.4) – (359.9) Borrowings C7 (130.0) (95.0) (250.0) Trade and other payables C8 (264.5) (462.9) (216.9) (472.9) (557.9) (826.8) Net current liabilities (426.1) (424.2) (772.9)

Non-current liabilities Borrowings C7 (314.3) (319.7) (320.1) (314.3) (319.7) (320.1) Total liabilities (787.2) (877.6) (1,146.9) Net assets 991.9 979.8 625.8

Capital and reserves Called up share capital C9 90.3 90.2 44.3 Share premium account 169.5 169.4 169.4 Investment in own shares (2.3) (2.3) (2.3) Capital reserves 5.0 5.0 5.0 Profit and loss account 729.4 717.5 409.4 Equity shareholders’ funds 991.9 979.8 625.8

The financial statements were approved by the directors on 23 June 2011 and signed on their behalf by:

John Browett Nicholas Cadbury Chief Executive Group Finance Director

Dixons Retail plc 108 Annual Report and Accounts 2010/11 Financial Statements Company Cash Flow Statement

52 weeks 52 weeks ended ended 30 April 2011 1 May 2010 Note £million £million Operating activities Cash (utilised by) / generated from operations C10 (195.4) 243.3 Income tax received – 1.2 Net cash flows from operating activities (195.4) 244.5

Investing activities Dividend received 50.0 100.0 Interest received 16.0 20.4 Net cash flows from investing activities 66.0 120.4

Financing activities Issue of ordinary share capital 0.2 291.3 Increase / (decrease) in borrowings due within one year 35.0 (155.0) Increase in borrowings due after more than one year 5.4 – Interest paid (60.0) (60.6) Net cash flows from financing activities (19.4) 75.7

† (Decrease) / increase in cash and cash equivalents C10 (148.8) 440.6 † Cash and cash equivalents at beginning of period C10 80.7 (359.9) † Cash and cash equivalents at end of period C10 (68.1) 80.7

† For the purposes of this cash flow statement, cash and cash equivalents comprise those items disclosed as “cash and cash equivalents” on the face of the balance sheet, less overdrafts, which are classified within current liabilities on the face of the balance sheet. A reconciliation to the balance sheet amounts is shown in note C10. 56 Financial Statements -- 119

Dixons Retail plc Annual Report and Accounts 109 2010/11

Financial Statements Company Statement of Changes in Equity

Capital Share Share Merger redemption Investment in Retained capital premium reserve reserve own shares earnings Total equity £million £million £million £million £million £million £million At 3 May 2009 44.3 169.4 – 5.0 (2.3) 409.4 625.8 Profit for the period – – – – – 57.8 57.8 Placing and Rights Issue 45.9 – 245.4 – – – 291.3 Transfer – – (245.4) – – 245.4 – Share-based payments – – – – – 4.9 4.9 At 1 May 2010 90.2 169.4 – 5.0 (2.3) 717.5 979.8 Profit for the period – – – – – 3.3 3.3 Ordinary shares issued 0.1 0.1 – – – – 0.2 Share-based payments – – – – – 8.6 8.6 At 30 April 2011 90.3 169.5 – 5.0 (2.3) 729.4 991.9

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

On 9 June 2009, the Company completed a Placing and Rights Issue, further details of which are shown in note C9. The Placing and Rights Issue was effected through a structure which resulted in a merger reserve arising under section 612 of the Companies Act 2006. Following receipt of the cash proceeds through the structure, the excess of the net proceeds over the nominal value of the share capital issued was transferred from the merger reserve to retained earnings.

Own shares held by the Company represent shares in the Company held by Halifax EES Trustees International Limited, further details of which are given in notes 23(b) and 24 to the Group financial statements.

Dixons Retail plc 110 Annual Report and Accounts 2010/11 Financial Statements Notes to the Company Financial Statements

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

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

The Company’s accounting policies in relation to operating leases, share-based payments, translation of foreign currencies, property, plant and equipment, taxation and derivative financial instruments are set out in note 1 to the Group financial statements. Other accounting policies which are specific to the Company are set out below. (a) Share-based payments Where the Company has granted rights to its equity to employees of subsidiary undertakings in relation to equity settled share- based payment arrangements the contribution to the subsidiary undertakings is recognised as an additional investment. (b) Investments Investments are stated at cost, less any provision for impairment in value. (c) Post-retirement benefits It is not practical to allocate the underlying assets and liabilities of the defined benefit section of the pension scheme to the Company on a consistent and reasonable basis. The Company has therefore accounted for its contributions to the defined benefit section of the scheme as if it were a defined contribution scheme.

The Company’s contributions to the defined contribution section of the pension scheme are charged to the income statement on an accruals basis as they become payable. C2 Directors’ and auditors’ remuneration Details of directors’ remuneration, share interests, share options, pensions and other entitlements, which form part of these financial statements, are given in the parts of the directors’ Remuneration Report which are described as having been audited. Fees paid to the auditors in respect of their audit of the Company were £0.1 million (2009/10 £0.1 million). 56 Financial Statements -- 119

Dixons Retail plc Annual Report and Accounts 111 2010/11

Financial Statements

Notes to the Company Financial Statements continued

C3 Investments Investments in subsidiary undertakings 2011 2010 £million £million Cost At beginning of period 1,723.7 1,718.8 Movement in the period 8.6 4.9 At end of period 1,732.3 1,723.7

Details of the principal subsidiary undertakings are set out in note C15. C4 Property, plant & equipment Fixtures, fittings and equipment 2011 2010 £million £million Cost At beginning and end of period 0.5 0.5

Depreciation At beginning and end of period 0.5 0.5

Net book value At beginning and end of period – –

C5 Trade and other receivables 2011 2010 2009 £million £million £million

Amounts due from subsidiary undertakings 11.8 15.7 13.9 Derivative financial instruments 18.3 25.0 30.3 Other debtors 0.1 0.1 0.6 Prepayments 6.3 9.1 9.1 Accrued income – 3.1 – 36.5 53.0 53.9

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

The majority of other receivables are non-interest bearing and are generally on 60 day terms. The total financial assets included within trade and other receivables are £11.9 million (2010 £18.9 million and 2009 £14.5 million). The carrying amount of trade and other receivables approximates fair value. There were no past due or impaired balances at the end of the period (2010 and 2009 £nil). C6 Cash and cash equivalents 2011 2010 2009 £million £million £million Cash at bank – 80.7 – Money market deposits 10.3 – – 10.3 80.7 –

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

Dixons Retail plc 112 Annual Report and Accounts 2010/11 Financial Statements

C7 Borrowings and overdrafts 2011 2010 2009 £million £million £million Current Bank overdrafts 78.4 – 359.9 Borrowings 130.0 95.0 250.0 208.4 95.0 609.9

2011 2010 2009 £million £million £million Non-current 6.125% Guaranteed Bonds 2012 167.2 319.7 320.1 8.75% Guaranteed Notes 2015 147.1 – – 314.3 319.7 320.1

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

Current borrowings represent amounts which have been drawn down under the £360 million sterling committed facility (the £360 million Facility) (2010 and 2009 the £400 million sterling committed facility).

On 23 July 2010, tenders were conditionally accepted to repurchase £140 million in nominal amount of the £300 million 6.125% Guaranteed Bonds due November 2012 (the 2012 Bonds), subject to the successful completion of appropriate financing to fund the repurchase. This repurchase was financed by a new issue of £150 million 8.75% Guaranteed Notes due 3 August 2015 (the 2015 Notes) and for which proceeds were received on 30 July 2010.

Further details on the £360 million Facility, the 2012 Bonds and the 2015 Notes are provided in notes 17 and 22 of the Group financial statements. C8 Trade and other payables 2011 2010 2009 £million £million £million Amounts due to subsidiary undertakings 250.5 446.6 202.3 Accruals 14.0 16.3 14.6 264.5 462.9 216.9 56 Financial Statements -- 119

The total shown equals the total financial liabilities. The carrying amount of trade and other payables approximates their fair value. C9 Share capital Called up share capital 2011 2010 2009 £million £million £million Authorised 4,980,252,496 (2010 and 2009 4,980,252,496) ordinary shares of 2.5p each 124.5 124.5 124.5 Allotted and fully paid 3,610,350,075 (2010 3,609,937,433, 2009 1,772,442,268) ordinary shares of 2.5p each 90.3 90.2 44.3

During the period 412,642 shares (2009/10 36,403) were issued in respect of options exercised under employee share option schemes.

On 9 June 2009 the Group completed a Placing and Rights Issue which raised gross proceeds of £310.6 million and for which further details are provided in note 23(a) of the Group financial statements.

Dixons Retail plc Annual Report and Accounts 113 2010/11

Financial Statements

Notes to the Company Financial Statements continued

C10 Notes to the cash flow statement (a) Reconciliation of operating loss to net cash (outflow) / inflow from operating activities 2010/11 2009/10 £million £million Operating loss (3.2) (7.6) Operating cash flows before movements in working capital (3.2) (7.6)

Movements in working capital: Decrease in trade and other receivables 6.7 2.3 (Decrease) / increase in trade and other payables (198.9) 248.6 (192.2) 250.9

Cash generated from operations (195.4) 243.3

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

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

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

Other non-cash 3 May 2009 Cash flow movements 1 May 2010 £million £million £million £million Cash and cash equivalents† – 80.7 – 80.7 Bank overdrafts (359.9) 359.9 – – (359.9) 440.6 – 80.7

Borrowings due within one year (250.0) 155.0 – (95.0) Borrowings due after more than one year (320.1) – 0.4 (319.7) (570.1) 155.0 0.4 (414.7)

Net debt (930.0) 595.6 0.4 (334.0)

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

Dixons Retail plc 114 Annual Report and Accounts 2010/11 Financial Statements

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

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

At 31 March 2010, the market value of the scheme’s investments was £672.0 million and, based on the above assumptions, the value of the assets was sufficient to cover 74% of the benefits accrued to members with the liabilities amounting to £911.0 million. The valuation of the defined benefit section for the purposes of IAS 19 showed a gross pension deficit (before deferred tax) of £244.0 million (2010 £263.5 million and 2009 £148.8 million). Further particulars of the scheme are disclosed in note 21 to the Group financial statements. C12 Financial instruments (a) Financial risk management objectives and policies The Company is exposed to liquidity, interest rate, exchange, credit and capital risks and adopts the same approach to the management of these risks as the Group as set out in the Directors’ Report and in note 22 to the Group financial statements. (b) Fair values of financial assets and liabilities For receivables and payables classified as financial assets and liabilities in accordance with IAS 32, fair value is estimated to be equivalent to book value. These values are shown in notes C5 and C8, respectively. The categories of financial assets and liabilities and their related accounting policy are set out in notes 1.11 and 1.15 to the Group financial statements.

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

Included in trade and other receivables is £18.3 million (2010 £25.0 million and 2009 £30.3 million) relating to interest rate swaps held to hedge fair value interest rate risk. See note C12 (c) for further details. 56 Financial Statements -- 119 The Company uses swaps to manage its interest rate exposure. Further details on the Company’s interest rate swaps are included in note 22(d) to the Group financial statements. (c) Hedging activities The Company manages exposures that arise on interest rates by entering into interest rate swaps. Further information on fair value hedging is set out in note 22(c) to the Group financial statements.

Dixons Retail plc Annual Report and Accounts 115 2010/11

Financial Statements

Notes to the Company Financial Statements continued

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

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

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

2009 Sterling Other Total £million £million £million Borrowings: Floating rate (930.0) – (930.0) Net borrowings (930.0) – (930.0)

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

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

Fixed rate borrowings comprise the unhedged part of the 2012 Bonds and the 2015 Notes. Floating rate borrowings include bank overdrafts and fixed rate bonds after taking into account the effect of interest rates swaps entered into by the Company and drawings under the £360 million Facility (2010 and 2009 the Old Facility). The weighted average effective interest rate on bank overdrafts approximated 1.5% (2009/10 1.5%). Further details on fixed and floating rate borrowings are shown in notes 17 and 22 to the Group financial statements.

Dixons Retail plc 116 Annual Report and Accounts 2010/11 Financial Statements

(e) Sensitivity analysis The following analysis, required by IFRS 7, shows the sensitivity of profit before tax and total equity to changes in interest rates on derivative financial instruments and certain monetary items. The sensitivity analysis reflects the position as at 30 April 2011 and 1 May 2010 respectively, and is not necessarily representative of actual or future outcomes.

Changes in interest rates affect the Company’s loss before tax, mainly due to the impact of floating rate borrowings, cash and derivative financial instruments. The Company’s principal floating rate interest rate exposures are based on LIBOR. The following sensitivity analysis shows a reasonably possible change in interest rates (uniform across all currencies), with other variables held constant and the corresponding decrease would have an equal and opposite effect. A 1% increase in interest rates would have a negative effect on profit before tax and equity of £5.9 million (2009/10 a £6.7 million negative effect on profit before tax and equity). Assumptions used in calculating the sensitivity analysis are set out in note 22(e) to the Group financial statements. (f) Liquidity Risk The table below analyses the Company’s contractual undiscounted cash flows payable under financial liabilities and derivative assets into their maturity groupings. The table includes both principal and interest flows.

2011

Contractual undiscounted cash flows In more than one year but Within not more than Carrying one year five years Total value £million £million £million £million Non derivative financial liabilities Bank overdrafts (78.4) – (78.4) (78.4) Borrowings (131.6) – (131.6) (130.0) Trade and other payables (255.2) – (255.2) (264.5) 6.125% Guaranteed Bonds 2012 (9.8) (169.8) (179.6) (167.2) 8.75% Guaranteed Notes 2015 (13.1) (195.9) (209.0) (147.1) (488.1) (365.7) (853.8) (787.2) Derivative contracts Inflows 16.1 262.6 278.7 278.4 Outflows (5.8) (254.4) (260.2) (260.1) 10.3 8.2 18.5 18.3 56 Financial Statements --

2010 119

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

Dixons Retail plc Annual Report and Accounts 117 2010/11

Financial Statements

Notes to the Company Financial Statements continued

C12 Financial instruments continued 2009

Contractual undiscounted cash flows In more than one year but Within not more than Carrying one year five years Total value £million £million £million £million Non derivative financial liabilities Bank overdrafts (359.9) – (359.9) (359.9) Borrowings (252.1) – (252.1) (250.0) Trade and other payables (206.4) – (206.4) (216.9) 6.125% Guaranteed Bonds 2012 (18.4) (355.5) (373.9) (320.1) (836.8) (355.5) (1,192.3) (1,146.9) Derivative contracts Inflows 15.3 45.9 61.2 70.1 Outflows (9.3) (27.8) (37.1) (39.8) 6.0 18.1 24.1 30.3

The carrying value of trade and other payables includes accrued interest on the 2012 Bonds of £4.5 million (2010 £8.4 million and 2009 £8.4 million), accrued interest of £3.2 million on the 2015 Notes (2010 £nil and 2009 £nil) and accrued interest on other borrowings of £0.1 million (2010 £0.4 million and 2009 £1.5 million). (g) Credit risk The Company’s exposure to credit risk is discussed in note 22 (a) to the Group financial statements. The Company’s receivable balances mainly consist of amounts due from subsidiary undertakings. Further information on the Company’s exposure to significant concentration of credit risk on receivables from subsidiary undertakings is set out in note C14. C13 Contingent liabilities 2011 2010 2009 £million £million £million Guarantees – 54.5 75.0 Other 3.1 2.8 1.8 3.1 57.3 76.8

Guarantees comprise potential obligations to financial institutions in respect of activities undertaken in the normal course of business. C14 Related parties During the period the Company entered into transactions, in the ordinary course of business, with other related parties as follows:

2010/11 2009/10 £million £million Subsidiary undertakings: Recharge of costs 12.9 10.1 Interest paid (6.9) (2.1) Dividends received 50.0 100.0

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

Included within amounts repayable to subsidiaries are loans of £234.2 million (2010 £431.3 million and 2009 £177.7 million) with maturity of one month but renewable on a rolling basis and bear interest at 4.25% (2009/10 rates between 1.5% and 4.25%). The Company also has fixed loans of £14.2 million (2010 £14.2 million and 2009 £20.8 million) which have no maturity date and bear no interest.

Dixons Retail plc 118 Annual Report and Accounts 2010/11 Financial Statements

C15 Principal subsidiary undertakings The directors consider that to give full particulars of all group undertakings would lead to a statement of excessive length. A full list of group undertakings is attached to the latest annual return. The following information relates to those subsidiary undertakings, all of which are engaged in retail activities, whose results or financial position, in the opinion of the directors, principally affect the consolidated financial statements of the Group at 30 April 2011:

DSG international Holdings Limited – UK* El-Giganten AS – Denmark DSG Retail Ireland Limited – Ireland Elkjøp Nordic AS – Norway DSG Retail Limited – UK Gigantti OY – Finland Dixons South-East Europe A.E.V.E. – Greece (99.2%) PIXmania S.A.S. – France (77.1%) Electro World s.r.o. – Czech Republic PC City Spain S.A.U. – Spain Electro World lç ve Dıs¸ Ticaret A.S¸ – Turkey (60%) Unieuro S.p.A. – Italy El-Giganten AB – Sweden * A direct subsidiary undertaking of Dixons Retail plc and a holding company Unless otherwise indicated, principal subsidiary undertakings are wholly-owned. All Group undertakings operate in their country of incorporation. C16 Post balance sheet event On 1 June 2011, the Company announced that the Group had exchanged contracts with a syndicate of investors advised by Ness, Risan and Partners AS for the sale and leaseback of the Group’s Nordic distribution centre in Jönköping, Sweden. The sale and leaseback is expected to complete in June 2011 and the total cash consideration receivable on completion is expected to be approximately SEK600 million (£59 million). The estimated book value of the property as at 30 May 2011 was SEK214.5 million (approximately £21 million). The proceeds of the sale will be used for general corporate purposes, including offsetting drawings on the Company’s New Facility and for repayment of the 2012 Bonds. 56 Financial Statements -- 119

Dixons Retail plc Annual Report and Accounts 119 2010/11

Shareholder Information Five Year Record

Consolidated income statement 2010/11 2009/10 2008/09 2007/08 2006/07 £million £million £million £million £million Underlying revenue(1) 8,154.4 8,320.0 7,955.8 8,074.8 7,531.7 Percentage change (2.0)% 4.6% (1.5)% 7.2% Underlying operating profit / EBIT(2) 127.6 133.2 95.3 214.3 279.2 Underlying net finance (costs) / income(1) (42.3) (42.3) (24.7) 14.1 25.0 Underlying profit before tax(1) 85.3 90.9 70.6 228.4 304.2 Percentage change (6.2)% 28.8% (69.1)% (24.9)% Business to be closed / closed businesses (8.5) (0.6) (28.6) (13.8) 2.9 Acquired intangible amortisation (4.5) (4.6) (4.9) (4.4) (4.7) Net restructuring charges (17.1) (5.6) (59.1) (20.7) (55.4) Business impairment charges (251.6) – (96.1) (364.2) (115.1) Other items (24.9) – 1.9 – – Changes in pension benefits – 33.4 – – 4.7 Profit on sale of investment – – – 1.7 – Net fair value remeasurements (2.8) (0.8) (7.4) (6.2) (10.5) (Loss) / profit before tax – continuing operations (224.1) 112.7 (123.6) (179.2) 126.1 Income tax expense (19.1) (46.7) (56.8) (66.0) (77.3) (Loss) / profit after tax – continuing operations (243.2) 66.0 (180.4) (245.2) 48.8 (Loss) / profit after tax – discontinued operations (2.1) (8.7) (38.9) (14.5) (46.4) (Loss) / profit for the period (245.3) 57.3 (219.3) (259.7) 2.4

Underlying diluted earnings per share (pence)(1) 1.6p 1.5p 1.3p 7.0p 9.4pp Percentage change 6.7% 15.4% (81.4)% (25.5)% Dividends per ordinary share (pence) – – – 5.45p 8.87p

Consolidated cash flow 2010/11 2009/10 2008/09 2007/08 2006/07 £million £million £million £million £million Underlying profit before tax(1) 85.3 90.9 70.6 228.4 304.2 Business to be closed / closed businesses (loss) / profit before tax (8.5) (0.6) (28.6) (13.8) 2.9 Depreciation and amortisation 139.4 128.6 134.7 136.2 136.8 Working capital movements 40.4 39.7 (285.4) 8.1 (15.1) Taxation (26.2) (31.9) (35.7) (53.1) (100.8) Net capital expenditure (221.2) (164.6) (129.9) (123.6) (108.0) Other 29.7 (34.0) (65.7) (48.9) 15.8 Free Cash Flow before restructuring items(3) 38.9 28.1 (340.0) 133.3 235.8 Net restructuring and other one-off items (28.9) (45.7) (64.2) (37.6) (63.6) Free Cash Flow(4) 10.0 (17.6) (404.2) 95.7 172.2

Closing net (debt) / funds (206.8) (220.6) (477.5) 50.1 224.9 Less restricted funds(5) (120.3) (78.9) (67.6) (66.5) (111.2) Unrestricted net (debt) / funds(5) (327.1) (299.5) (545.1) (16.4) 113.7

Dixons Retail plc 120 Annual Report and Accounts 2010/11 Shareholder Information

Consolidated balance sheet 2011 2010 2009 2008 2007 £million £million £million £million £million Non-current assets Goodwill 970.8 1,116.5 1,069.1 984.3 1,057.1 Intangible assets 113.1 130.7 148.4 143.9 127.7 Tangible assets 583.7 541.0 489.6 531.3 580.6 Other non-current assets 216.4 253.8 248.6 154.7 144.2 1,884.0 2,042.0 1,955.7 1,814.2 1,909.6 Current assets Inventories 960.9 972.6 971.9 1,093.1 1,030.6 Other current assets 387.3 397.0 516.5 501.7 409.9 Short term investments 10.5 8.5 9.0 82.0 185.9 Cash and cash equivalents 334.7 295.7 192.6 365.8 440.5 1,693.4 1,673.8 1,690.0 2,042.6 2,066.9 Assets held for sale – – 13.2 – – Total assets 3,577.4 3,715.8 3,658.9 3,856.8 3,976.5

Current liabilities Bank overdrafts (5.6) (4.9) (4.8) (2.1) (5.7) Other borrowings (130.0) (98.5) (250.1) (0.2) (2.9) Obligations under finance leases (3.1) (2.4) (2.8) (1.5) (1.0) Other current liabilities (1,692.7) (1,652.9) (1,722.5) (2,070.1) (1,827.1) Provisions (44.4) (22.3) (72.1) (46.2) (32.7) (1,875.8) (1,781.0) (2,052.3) (2,120.1) (1,869.4) Net current (liabilities) / assets (182.4) (107.2) (362.3) (77.5) 197.5 Non-current liabilities Borrowings (315.3) (321.4) (322.5) (294.6) (290.4) Obligations under finance leases (98.0) (97.6) (98.9) (99.3) (101.5) Retirement benefit obligations (247.3) (266.8) (153.0) (54.0) (38.4) Other non-current liabilities (348.6) (344.4) (392.5) (384.2) (354.1) Provisions (15.9) (29.5) (40.4) (51.1) (18.4) (1,025.1) (1,059.7) (1,007.3) (883.2) (802.8) Liabilities associated with assets classified as held for sale – – (14.4) – – Total liabilities (2,900.9) (2,840.7) (3,074.0) (3,003.3) (2,672.2)

Net assets 676.5 875.1 584.9 853.5 1,304.3

Equity shareholders’ funds 653.5 846.5 558.9 826.7 1,281.7 Equity non-controlling interests 23.0 28.6 26.0 26.8 22.6 120 Shareholder Information Total equity 676.5 875.1 584.9 853.5 1,304.3 -- Notes: 123 (1) Underlying figures exclude the effects of trading results of business to be closed / closed businesses, amortisation of acquired intangibles, net restructuring and business impairment charges and other one off non-recurring items, profits on sale of investments and net fair value remeasurements of financial instruments, and where applicable, discontinued operations. (2) EBIT equates to underlying operating profit. (3) Free Cash Flow before restructuring items includes dividend payments to non-controlling interests (minority shareholders). (4) Free Cash Flow relates to continuing operations and comprises net cash flow generated from operations before special pension contributions, net finance income / costs, less income tax and net capital expenditure. (5) Unrestricted net (debt) / funds comprise cash and cash equivalents, short term investments and borrowings and exclude restricted funds which predominantly comprise funds held under trust to fund customer support agreement liabilities.

Dixons Retail plc Annual Report and Accounts 121 2010/11

Shareholder Information Shareholder Information

Registered office ShareGift Maylands Avenue, Hemel Hempstead, Hertfordshire HP2 7TG. The Orr Mackintosh Foundation operates a charity share Registered No. 3847921. www.dixonsretail.com donation scheme for shareholders with small parcels of shares whose value makes it uneconomic to sell them. Details Registrars and transfer office of the scheme are available on the ShareGift internet site, IRG plc, The Registry, 34 Beckenham Road, Beckenham, www.sharegift.org Kent BR3 4TU. Tel: 0871 664 0300 (calls cost 10p per minute plus network extras; lines are open 8.30am – 5.30pm Monday to Financial calendar Friday). If calling from abroad the number is +44 20 8639 3399. Annual General Meeting 7 September 2011 The website address is www.capitaregistrars.com 2011/12 Interim results announcement 24 November 2011 Joint brokers 2011/12 Interim statement publication January 2012 Citigroup Global Markets, JP Morgan Cazenove. Shareholder enquiries Shareholders can access shareholding details over the internet Alternative Format via our Registrar’s secure portal at www.capitashareportal.com As well as checking name, address and shareholding details in the Shareholder Help section, you can download change of If you would like this Annual address, dividend mandate and stock transfer forms. This is a secure site and you will need to register first. Please follow Report and Accounts or any the simple instructions on the website. So that the system other shareholder documentation can validate your enquiries an Investor Code is required. This is a numerical account number and can be found on your in an alternative format, share certificate. please send a request to Share dealing service Online and telephone share dealing services are available [email protected] through our Registrars, providing easy access and simple or telephone 00 44 (0)844 800 2030 to use services. There is no need to pre-register and the 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 your Investor Code (see above) as well as stating your surname, full post code and date of birth. Details of the online dealing service are available on www.capitadeal.com and the telephone dealing service is on 0871 664 0454 (calls cost 10p per minute plus network extras). Lines are open Monday to Friday 8am to 4.30pm.

JP Morgan Cazenove operates a postal share dealing service for private investors who wish to buy or sell the Company’s shares. Details are available from JP Morgan Cazenove. Tel: 020 7155 5328. Unsolicited mail The Company is obliged to make its share register available to third parties on payment of a prescribed fee. This may result in shareholders receiving unsolicited mail. If you wish to limit the receipt of unsolicited mail you should write to: The Mailing Preference Service, FREEPOST 22, London W1E 7ER or register on their website at www.mpsonline.org.uk

Dixons Retail plc 122 Annual Report and Accounts 2010/11 Shareholder Information Index

Page Page Page A F R Accounting policies 62-68 Finance costs / income 76 Related party transactions 107 Accounting estimates & Finance leases 88 Remuneration Report 46-54 judgements 67-68 Financial instruments 93-98 Reward Shares 51, 101-102 Acquired intangibles 83 Five Year Record 120-121 Reward Sacrifice 101-102 Acquisitions 105 Free Cash Flow 30-31, 60 Risk factors 20-22 Amortisation 72, 83 Funding 30-31, 87 Associates 84-85 S Audit Committee Report 44 G Segmental analysis 68-72 Auditors’ Remuneration 73 Going concern 39 Selling space 02-03 Auditors’ Report 56 Goodwill 81, 83 Share based payments 100-103 Share capital 99 B H Shareholder information 120-122 Balance Sheet (Consolidated) 59 Health and Safety 34-35 Short term investments 86 Board of directors 36 Statement of comprehensive income I and expense 58 Borrowings and borrowing facilities 87 Impairment 74-75, 81-82 Store numbers 02-03 Brands 02-03, 83 Income statement (Consolidated) 57 Subsidiary undertakings 119 Business Model 16-17 Intangible assets 83 C Inventories 85 T Capital commitments 106 Tax 77-79 K TSR (Total Shareholder Return) 19, 50 Capital expenditure 72, 83-84 Key Performance Indicators 19 Cash and cash equivalents 60, 86, 104 Trade & other payables 88 Cash flow statement (Consolidated) 60 L Trade & other receivables 85-86 Charitable donations 39 LTIP / Long term incentive plan 47-48 Treasury policy 93-94 Community 35 Contingent liabilities 106 N U Underlying definition 62 Corporate Governance Report 40-43 Nominations Committee Report 45 Customer Plan 05-07 Non-underlying items 62, 74-75 D O Deferred tax 78-79 Operating lease charges 73 Depreciation 72, 84 Operating lease commitments 107 Directors’ remuneration 50 Outlook 07, 18 Directors’ interests 49-51, 53 Discontinued operations 105-106 P Pensions 31, 89-92 E PSP / Performance share plan 47-48 Earnings / loss per share 80 Placing and Rights Issue 99 Employee numbers 02-03, 77 Post balance sheet events 107

Employees 34 Property losses 31, 69-70 120 Shareholder Information Property, plant & equipment 84

Environment 33-34 -- Executive Committee 37 Provisions 89 123

Dixons Retail plc Annual Report and Accounts 123 2010/11

Shareholder Information Notes

Dixons Retail plc 124 Annual Report and Accounts 2010/11 Dixons Retail plc is a specialist electrical retailer and services company which sells consumer electronics, personal computers, domestic appliances, photographic equipment, communication products and related services.

We are one of Europe’s leading specialist electrical retailing groups. We trade through over 1,200 stores and online, spanning 28 countries and we employ 38,000 people.

www.dixonsretail.com

Designed and produced by MerchantCantos www.merchantcantos.com Photography by Dennis Davis: Dennis Davis Photography and Dixons Retail plc Digital Studio. Printed at St Ives Westerham Press Ltd, ISO9001, ISO14001, FSC certified and CarbonNeutral The papers used in this report are Revive 50:50 Silk and Revive 50:50 Offset. They are produced from 50% recycled fibre from both pre- and post-consumer waste sources, together with 50% Elemental Chlorine Free fibre from well-managed forests independently certified according to the rules of the Forest Stewardship Council. The inks used are all vegetable oil based.

Dixons Retail plc Annual Report and Accounts 2010/11

Dixons Retail plc plc Retail Dixons Accounts and Report Annual 2010/11 Bringing to life technology

Annual Report and Accounts 2010/11 Dixons Retail plc

www.dixonsretail.com Tel 0844 800 2030 800 0844 Tel HP2 7TG HP2 Hertfordshire Hemel Hempstead Hemel Maylands Avenue Maylands Dixons Retail plc plc Retail Dixons