Strategy

The Renewal and Transformation plan continues to make significant improvements to our business. We have set out three strategic priorities that will build on that work and improve our business for customers. This will, we believe, deliver improving returns for shareholders through a focus on improving Free Cash Flow generation and EBIT margins of the Group:

1. Drive a successful and sustainable business model in a multi-channel world
2. Be a leader in each of the markets in which the Group operates
3. Align the Group to leverage consistently pan-European scale and knowhow^®

1. Drive a successful and sustainable business model in a multi-channel world
The way in which a customer shops is fundamentally changing. Our customers tell us that they want advice, to experience products and to ensure they are making the right choices, particularly as these are often major purchases that they will own for several years. The internet empowers customers with lots of information including product knowledge and price transparency.  Single channel internet operators have structurally lower costs to sell products and have historically been able to offer highly competitive prices versus store based operators. We have closed the price and cost gap dramatically in recent years and we will now increase our focus on four distinct activities that we believe are the key strengths of our multi-channel service based model and will support our competitive advantage going forward:

i. Work closely with suppliers to harness benefits available to our business model: Suppliers want to ensure that customers not only choose their brands, but also experience the benefits of the latest products they have developed to meet customers' needs. As a multi-channel operator we work with our suppliers to ensure we can explain the benefits of these products and demonstrate them to customers in our stores and our suppliers support us in this work in a number of ways.

ii. Focus on complete solutions for customers: Customers buy products in order to achieve something, such as watching movies, or to entertain the children. This does not just mean buying the hardware, but increasingly includes delivery, explanation and peace of mind through product support and after sales services, as well as accessories and recycling. The conversations our colleagues have in store with customers gives us an opportunity to explain the benefits of these solutions. Our Knowhow^® brand in the UK offers customers one cohesive services brand. We are confident that there are increasing opportunities emerging in the added value services market as customers become more reliant on content, Cloud, services and technical support that enable them to get the most out of the products they buy.

iii. Drive our service proposition: We need to ensure that customers recognise Dixons Retail for great service. We need to be able to stand shoulder to shoulder with our customers and they need to know they can come to our stores and get knowledgeable advice to help them buy the right product. They need to be confident that we will solve their problem for them quickly and efficiently. If we get this right we believe that customers will be prepared to pay us for this service.

iv. Reduce costs: The scale of our operations across stores, ranges, logistics, distribution, repairs and services means that we can continually improve processes to reduce costs. Over the last five financial years the Group has removed a total of £285 million of costs and we are targeting a further £90 million of costs to be removed over the next two financial years.

2. Be a leader in each of the markets in which the Group operates
We have strong market positions in the UK & Ireland, Northern Europe and in Greece. In each of these markets we have seen consolidation amongst competitors and we see opportunities to improve these positions further as we implement the initiatives discussed above. Across the Southern European division and in PIXmania we need to set these businesses on paths that will make them strategically strong and profitable, and drive solutions that will put them on firmer footings.

While the economic environment in Greece is very tough, Kotsovolos is a strong brand and has a leading market share.   We believe that this business will be able to continue to leverage its position to grow its share and manage costs aggressively.  Our Italian business has continued to make progress against  economic headwinds and in the short term we will continue to take aggressive action on costs as well as improve the stock and cash position.

PIXmania has one of the largest non-food pure play platforms in Europe and represents a valuable source of insight and information on this segment of the market. It has expanded its ranges, offering both directly and through PIXplace and it has exploited its E-merchant platform by offering hosting services  to third parties, most notably Carrefour. However, its recent performance has been disappointing. In the light of the changing business model facing internet operators we are reviewing much of PIXmania's activities to focus on those that deliver a competitive advantage going forward, such as product diversification, multi-channel offering as an e-commerce provider for third parties. Together with cost reductions we are confident that we can reduce the losses experienced in the year just finished.

3. Align the Group to leverage consistently pan-European scale and knowhow^®
The Group has many best practices in each of its business divisions. Some work has taken place to align these and share them across the Group, such as the new store formats, supplier relationships and to a limited degree own brands. However, there remain many opportunities to share knowledge, expertise and best practice across the Group. Some of these will take time, but we must exploit further the benefits of being a pan-European operator.

Delivering on these priorities will build on the improvements already delivered by the Renewal and Transformation plan and enable the Group to improve its EBIT margin going forward as well as strengthen our focus on cash generation.

Our UK & Ireland and Northern Europe divisions together delivered a 2.7% EBIT return after associated central costs in the 2011/12 financial year. We believe that a 3-4% EBIT return for these businesses, is certainly achievable. In the other businesses, returns have been disappointing and we need to focus on reducing the losses to support an improvement in the Group's EBIT return.

Cash is an important part of this and the Group has been cash generative in each of the last two financial years which has enabled us to more than halve our net debt position to £104 million. As a Group we need to make the right choices as to how each of our divisions utilise or preserve cash, whether it be determining ranges and stock held in store, managing returns and related processes, improving working capital and stock turn.