Half Year Results - Part 2

RNS Number : 1467R

Home Retail Group Plc

23 October 2013

 



HOME RETAIL GROUP PLC

UNAUDITED CONDENSED HALF-YEARLY FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

For the 26 weeks ended 31 August 2013

52 weeks to 2.3.13 (restated)				26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m			Notes	£m	£m
5,475.4		Revenue	4	2,596.2	2,531.1
(3,743.3)		Cost of sales	5	(1,765.8)	(1,714.7)
1,732.1		Gross profit		830.4	816.4
(1,628.1)		Net operating expenses before exceptional items		(800.5)	(799.5)
31.3		Exceptional items	6	(12.6)	35.0
135.3		Operating profit		17.3	51.9
3.1		Finance income		2.0	2.5
(11.5)		Finance expense		(5.1)	(5.1)
(8.4)		Net financing expense	7	(3.1)	(2.6)
(6.0)		Share of post-tax loss of associates		-	(2.6)
120.9		Profit before tax		14.2	46.7
(34.0)		Taxation	8	(1.7)	(13.6)
86.9		Profit for the period attributable to equity holders of the Company		12.5	33.1
pence		Earnings per share	9	pence	pence
10.9		Basic		1.6	4.1
10.7		Diluted		1.5	4.1
3.0		Dividend per share	10	1.0	1.0

52 weeks to 2.3.13 (restated)				Non-GAAP measures		26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m			Reconciliation of profit before tax (PBT) to benchmark PBT		Notes	£m	£m
120.9			Profit before tax			14.2	46.7
			Adjusted for:
1.8			Amortisation of acquisition intangibles			0.9	0.9
2.1			Retirement benefit scheme administration costs			1.0	1.0
(14.6)			Net onerous lease provision releases			(5.4)	-
(31.3)			Exceptional items		6	12.6	(35.0)
1.1			Financing fair value remeasurements		7	(1.2)	(1.3)
4.0			Financing impact on retirement benefit obligations		7	1.8	2.0
7.1			Discount unwind on non-benchmark items		7	3.5	3.6
91.1			Benchmark PBT			27.4	17.9
pence			Benchmark earnings per share		9	pence	pence
7.7			Basic			2.5	1.4
7.6			Diluted			2.4	1.4

HOME RETAIL GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 26 weeks ended 31 August 2013

52 weeks to 2.3.13 (restated)						26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m					Notes	£m	£m
86.9			Profit for the period attributable to equity holders of the Company			12.5	33.1
			Items that may be reclassified subsequently to profit or loss:
			Net change in fair value of cash flow hedges
33.4			- Foreign currency forward exchange contracts			(18.9)	(1.0)
			Net change in fair value of cash flow hedges transferred to inventory
(5.3)			- Foreign currency forward exchange contracts			(13.8)	(5.9)
0.6			Currency translation differences			(2.3)	(0.9)
(6.1)			Tax credit/(charge) in respect of items that will be or have been recycled			8.4	1.7
22.6						(26.6)	(6.1)
			Items that will not be reclassified subsequently to profit or loss:
(8.0)			Actuarial loss in respect of defined benefit pension schemes		14	(8.3)	(50.2)
2.0			Fair value movements on available-for-sale financial assets			0.3	(0.1)
-			Tax credit in respect of items not recycled			0.4	9.6
(6.0)						(7.6)	(40.7)
16.6			Other comprehensive income for the period, net of tax			(34.2)	(46.8)
103.5			Total comprehensive income for the period attributable to equity holders of the Company			(21.7)	(13.7)

HOME RETAIL GROUP PLC

CONSOLIDATED BALANCE SHEET

At 31 August 2013

2.3.13				31.8.13	1.9.12
£m			Notes	£m	£m
		ASSETS
		Non-current assets
1,543.9		Goodwill		1,543.9	1,543.9
129.2		Other intangible assets		152.3	135.7
474.9		Property, plant and equipment		460.7	474.8
-		Investments in associates		-	8.4
40.7		Deferred tax assets		40.6	53.8
2.7		Trade and other receivables		2.6	3.8
24.4		Other financial assets	12	23.6	23.4
2,215.8		Total non-current assets		2,223.7	2,243.8
		Current assets
941.8		Inventories		965.3	1,001.1
636.8		Trade and other receivables		640.6	589.0
8.3		Current tax assets		5.3	5.6
36.9		Other financial assets	12	7.9	2.5
396.0		Cash and cash equivalents		412.2	316.4
2,019.8		Total current assets		2,031.3	1,914.6
9.6		Non-current assets classified as held for sale		-	-
4,245.2		Total assets		4,255.0	4,158.4
		LIABILITIES
		Non-current liabilities
(52.6)		Trade and other payables		(50.8)	(54.3)
(179.5)		Provisions	13	(175.2)	(188.4)
(26.6)		Deferred tax liabilities		(17.0)	(20.1)
(85.1)		Post-employment benefits	14	(84.7)	(122.0)
(343.8)		Total non-current liabilities		(327.7)	(384.8)
		Current liabilities
(1,116.1)		Trade and other payables		(1,193.1)	(1,103.7)
(38.3)		Provisions	13	(38.4)	(43.6)
(2.8)		Other financial liabilities	12	(8.3)	(9.0)
(11.7)		Current tax liabilities		-	-
(1,168.9)		Total current liabilities		(1,239.8)	(1,156.3)
(1,512.7)		Total liabilities		(1,567.5)	(1,541.1)
2,732.5		Net assets		2,687.5	2,617.3
		EQUITY
81.3		Share capital		81.3	81.3
6.4		Capital redemption reserve		6.4	6.4
(348.4)		Merger reserve		(348.4)	(348.4)
31.9		Other reserves		(7.9)	3.8
2,961.3		Retained earnings		2,956.1	2,874.2
2,732.5		Total equity		2,687.5	2,617.3

HOME RETAIL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 26 weeks ended 31 August 2013

			Attributable to equity holders of the Company
				Capital
			Share	redemption	Merger	Other	Retained
			capital	reserve	reserve	reserves	earnings	Total
			£m	£m	£m	£m	£m	£m
Balance at 3 March 2013			81.3	6.4	(348.4)	31.9	2,961.3	2,732.5
Profit for the period			-	-	-	-	12.5	12.5
Other comprehensive income			-	-	-	(27.1)	(7.1)	(34.2)
Total comprehensive income for the period ended 31 August 2013			-	-	-	(27.1)	5.4	(21.7)
Transactions with owners:
Movement in share-based     compensation reserve			-	-	-	-	7.0	7.0
Net movement in own shares			-	-	-	(12.7)	(1.4)	(14.1)
Equity dividends paid during the   period			-	-	-	-	(16.0)	(16.0)
Other distributions			-	-	-	-	(0.2)	(0.2)
Total transactions with owners			-	-	-	(12.7)	(10.6)	(23.3)
Balance at 31 August 2013			81.3	6.4	(348.4)	(7.9)	2,956.1	2,687.5

			Attributable to equity holders of the Company (restated)
				Capital
			Share	redemption	Merger	Other	Retained
			capital	reserve	reserve	reserves	earnings	Total
			£m	£m	£m	£m	£m	£m
Balance at 4 March 2012			81.3	6.4	(348.4)	8.6	2,877.5	2,625.4
Profit for the period			-	-	-	-	33.1	33.1
Other comprehensive income			-	-	-	(6.1)	(40.7)	(46.8)
Total comprehensive income for the period ended 1 September 2012			-	-	-	(6.1)	(7.6)	(13.7)
Transactions with owners:
Movement in share-based    compensation reserve			-	-	-	-	5.9	5.9
Net movement in own shares			-	-	-	1.3	(1.3)	-
Equity dividends paid during the   period			-	-	-	-	-	-
Other distributions			-	-	-	-	(0.3)	(0.3)
Total transactions with owners			-	-	-	1.3	4.3	5.6
Balance at 1 September 2012			81.3	6.4	(348.4)	3.8	2,874.2	2,617.3

HOME RETAIL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 26 weeks ended 31 August 2013

52 weeks to 2.3.13				26 weeks to 31.8.13	26 weeks to 1.9.12
£m			Notes	£m	£m
		Cash flows from operating activities
322.1		Cash generated from operations	15	120.9	172.8
(26.1)		Tax paid		(11.1)	(16.9)
296.0		Net cash inflow from operating activities		109.8	155.9
		Cash flows from investing activities
(55.3)		Purchase of property, plant and equipment	11	(33.5)	(12.0)
(25.3)		Purchase of other intangible assets	11	(42.3)	(14.6)
1.9		Proceeds from the disposal of property, plant and equipment	11	1.0	1.0
(6.8)		Loans granted to associates	17	-	(6.8)
-		Loans repaid by associates	17	1.2	-
(4.8)		Purchase of investments	17	-	(2.4)
-		Disposal of investments	17	9.7	-
1.7		Interest received		0.5	0.5
(88.6)		Net cash flows from investing activities		(63.4)	(34.3)
		Cash flows from financing activities
-		Purchase of shares for Employee Share Trust		(14.1)	-
(8.0)		Dividends paid	10	(16.0)	-
(8.0)		Net cash used in financing activities		(30.1)	-
199.4		Net increase in cash and cash equivalents		16.3	121.6
		Movement in cash and cash equivalents
194.3		Cash and cash equivalents at the beginning of the period		396.0	194.3
2.3		Effect of foreign exchange rate changes		(0.1)	0.5
199.4		Net increase in cash and cash equivalents		16.3	121.6
396.0		Cash and cash equivalents at the end of the period		412.2	316.4

HOME RETAIL GROUP PLC

ANALYSIS OF NET CASH/(DEBT)

At 31 August 2013

2.3.13				31.8.13	1.9.12
£m		Non-GAAP measures		£m	£m
		Financing net cash:
396.0		Cash and cash equivalents		412.2	316.4
396.0		Total financing net cash		412.2	316.4
		Operating net debt:
(2,361.7)		Off balance sheet operating leases		(2,173.1)	(2,438.1)
(2,361.7)		Total operating net debt		(2,173.1)	(2,438.1)
(1,965.7)		Total net debt		(1,760.9)	(2,121.7)

The Group uses the term 'total net debt' to highlight the Group's aggregate net indebtedness to banks and other financial institutions together with debt-like liabilities, notably operating leases.  The capitalised value of these leases is £2,173.1m (2 March 2013: £2,361.7m), based upon discounting the current rentals at the estimated current long-term cost of borrowing of 5.0% (2 March 2013: 4.2%).

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

1. Basis of preparation

The unaudited condensed half-yearly financial information comprises the results for the 26 weeks ended 31 August 2013, the 26 weeks ended 1 September 2012, and the audited consolidated results for the 52 weeks ended 2 March 2013.  The audited consolidated financial information for the 52 weeks ended 2 March 2013 has been extracted from Home Retail Group plc's Annual Report and Financial Statements, which was approved by the Board of Directors on 1 May 2013 and delivered to the Registrar of Companies.  The report of the Group's auditors, PricewaterhouseCoopers LLP, on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.  The condensed half-yearly financial information is not audited or reviewed and does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006.

After making enquiries, the directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the condensed half-yearly financial information.

IFRS and accounting policies

This condensed half-yearly financial information for the 26 weeks ended 31 August 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.  The condensed half-yearly financial information should be read in conjunction with Home Retail Group plc's Annual Report and Financial Statements for the 52 weeks ended 2 March 2013, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union.

The accounting policies adopted by Home Retail Group are set out in Home Retail Group plc's Annual Report and Financial Statements, dated 1 May 2013, which is available on Home Retail Group's website www.homeretailgroup.com.  With the exception of those changes in accounting standards which are effective for the first time for the current period, as detailed below, these policies have been consistently applied for all periods presented.

Changes in accounting standards

In June 2011, the IASB issued amendments to IAS 19 'Employee Benefits' (IAS 19 (revised)).  The revised standard is effective for the Group for the first time during the 26 weeks ended 31 August 2013.  The impact on the Group's post-employment benefits is to replace the interest expense on retirement benefit obligations and the expected return on plan assets with a single net interest amount that is calculated by applying the discount rate to the net retirement benefit surplus or deficit; currently a net deficit for the Group.  In addition, the administration costs of the Home Retail Group Pension Scheme, previously charged against the expected return on plan assets, are now charged within operating costs.  Prior year comparatives have been restated, and the impact of these restatements is set out in note 18.  As the Group has always recognised actuarial gains and losses immediately, there has been no change to the Group's net assets as a result of the adoption of IAS 19 (revised), so no restatement of the balance sheet is required.  The adjustments to the income statement resulting from adoption of IAS 19 (revised) relate only to items previously excluded from the Group's reported benchmark profit before tax, so the adoption of IAS 19 (revised) has had no impact on reported benchmark profit before tax. The Group has also adopted IFRS 13 'Fair Value Measurement', issued by the IASB in May 2011, and the amendment to IAS 1 'Presentation of Financial Statements', issued in June 2011.  IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements.  The application of IFRS 13 has not impacted the fair value measurements carried out by the Group.  IFRS 13 also requires specific disclosures on fair values, some of which are specifically required for financial instruments by IAS 34, thereby affecting the condensed half-yearly financial information for the period.  The Group provides these disclosures in note 12.  In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. In accordance with the amendment to IAS 1 the consolidated statement of comprehensive income is now required to group together those items that may subsequently be recycled to profit and loss, and those that will not.  This change is presentational only, and has had no impact on previously reported amounts.

At the balance sheet date there are a number of new standards and amendments to existing standards in issue but not yet effective, including IFRS 9 'Financial Instruments', which is being issued in phases by the IASB.  Until IFRS 9 is finalised, its full requirements remain uncertain, so it is not currently possible to assess the impact of its adoption on the Group's financial statements.  There are no other new standards, amendments to existing standards or interpretations that are not yet effective that would be expected to have a material impact on the Group.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

2. Non-GAAP financial information

Home Retail Group has identified certain measures that it believes will assist the understanding of the performance of the business. The measures are not defined under IFRS and they may not be directly comparable with other companies' adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance but Home Retail Group has included them as it considers them to be important comparables and key measures used within the business for assessing performance.  The following are the key non-GAAP measures identified by Home Retail Group:

Exceptional items

Items which are both material and non-recurring are presented as exceptional items within their relevant income statement line.  The separate reporting of exceptional items helps provide a better indication of underlying performance of the Group.  Examples of items which may be recorded as exceptional items are restructuring costs and the profits and/or losses on the disposal of businesses.

Benchmark measures

The Group uses the following terms as measures which are not formally recognised under IFRS: ·  Benchmark operating profit is defined as operating profit before amortisation of acquisition intangibles, retirement    benefit scheme administration costs, store impairment and onerous lease charges or releases and exceptional items. ·  Benchmark profit before tax (benchmark PBT) is defined as profit before amortisation of acquisition intangibles,    retirement benefit scheme administration costs, store impairment and onerous lease charges or releases, exceptional    items, financing fair value remeasurements, financing impact on retirement benefit obligations, the discount unwind on    non-benchmark items and taxation. ·  Basic benchmark earnings per share (benchmark EPS) is defined as benchmark PBT less taxation attributable to    benchmark PBT, divided by the weighted average number of shares in issue (excluding shares held in Home Retail    Group's share trusts net of vested but unexercised share awards). These measures are considered useful in that they provide investors with an alternative means to evaluate the underlying performance of the Group's operations.

Total net debt

The Group uses the term 'total net debt' which is considered useful in that it highlights the Group's aggregate net indebtedness to banks and other financial institutions together with debt-like liabilities, notably operating leases.

3. Foreign currency
	Average				Closing
	26 weeks to	52 weeks to	26 weeks to
	31.8.13	2.3.13	1.9.12		31.8.13	2.3.13	1.9.12
The principal exchange rates used were as follows:
Sterling to US dollar	1.53	1.58	1.58		1.55	1.50	1.59
Sterling to euro	1.17	1.23	1.24		1.17	1.15	1.26

Assets and liabilities of overseas undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date and the income statement is translated into sterling at average rates of exchange.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

4. Segmental information

The Board of Directors and Operating Board review the Group's internal reporting in order to assess performance and allocate resources.  Management has determined the operating segments based on these reports, which reflect the distinct retail brands and different risks associated with the different businesses.  The Group is organised into three main business segments: Argos, Homebase and Financial Services together with Central Activities.  The Board of Directors and Operating Board assess the performance of the operating segments based on a combination of revenue and benchmark operating profit.  Benchmark operating profit is defined within note 2.

52 weeks to 2.3.13 (restated)						26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m						£m	£m
			Revenue
3,931.3			Argos			1,716.8	1,686.4
1,430.7			Homebase			822.3	787.3
113.4			Financial Services			57.1	57.4
-			Central Activities			-	-
5,475.4			Total revenue			2,596.2	2,531.1
			Benchmark operating profit/(loss)
100.3			Argos			7.7	3.3
11.0			Homebase			27.2	24.5
6.0			Financial Services			3.1	2.9
(24.0)			Central Activities			(11.6)	(11.9)
93.3			Total benchmark operating profit			26.4	18.8
3.8			Benchmark interest			1.0	1.7
(6.0)			Share of post-tax loss of associates			-	(2.6)
91.1			Benchmark profit before tax			27.4	17.9
(1.8)			Amortisation of acquisition intangibles			(0.9)	(0.9)
(2.1)			Retirement benefit scheme administration costs			(1.0)	(1.0)
14.6			Net onerous lease provision releases			5.4	-
31.3			Exceptional items			(12.6)	35.0
(1.1)			Financing fair value remeasurements			1.2	1.3
(4.0)			Financing impact on retirement benefit obligations			(1.8)	(2.0)
(7.1)			Discount unwind on non-benchmark items			(3.5)	(3.6)
120.9			Profit before tax			14.2	46.7
(34.0)			Taxation			(1.7)	(13.6)
86.9			Profit for the period attributable to equity holders of the Company			12.5	33.1

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

4. Segmental information (continued)

52 weeks to 2.3.13						26 weeks to 31.8.13	26 weeks to 1.9.12
£m						£m	£m
			Segment assets
2,299.9			Argos			2,320.4	2,331.9
896.3			Homebase			886.8	886.2
500.9			Financial Services			494.3	461.7
103.1			Central Activities			95.4	102.8
3,800.2			Total segment assets			3,796.9	3,782.6
49.0			Tax assets			45.9	59.4
396.0			Cash and cash equivalents			412.2	316.4
4,245.2			Total assets per balance sheet			4,255.0	4,158.4

Segment assets include goodwill and other intangible assets, property, plant and equipment, investments in associates, inventories, trade and other receivables and other financial assets.  Tax assets and cash and cash equivalents are not allocated to segments.

5. Cost of sales
52 weeks to 2.3.13					26 weeks to 31.8.13	26 weeks to 1.9.12
£m					£m	£m
(3,473.8)		Cost of goods			(1,634.1)	(1,579.5)
(269.5)		Distribution costs			(131.7)	(135.2)
(3,743.3)		Total cost of sales			(1,765.8)	(1,714.7)

6. Exceptional items
52 weeks to 2.3.13					26 weeks to 31.8.13	26 weeks to 1.9.12
£m					£m	£m
-		Argos transformation and other restructuring charges			(12.6)	-
31.3		Net gain on employee benefits			-	35.0
31.3		Exceptional items in operating profit			(12.6)	35.0
(7.5)		Tax on exceptional items			2.9	(8.5)
23.8		Exceptional (loss)/profit after tax for the period			(9.7)	26.5
Exceptional charges totalling £12.6m were incurred during the 26 weeks ended 31 August 2013, in respect of the ongoing project to transform Argos into a digital retail leader, combined with a number of other restructuring actions. The Home Retail Group defined benefit pension scheme closed to future accrual with effect from 31 January 2013.  In the 52 weeks ended 2 March 2013, this resulted in a net gain of £31.3m, which includes a non-cash curtailment gain of £37.4m, offset by costs of £6.1m related to the closure of the scheme.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

7. Net financing expense
52 weeks to 2.3.13 (restated)			26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m			£m	£m
		Finance income:
1.9		Bank deposits and other interest	0.1	0.7
1.2		Financing fair value remeasurements - net exchange gains	1.9	1.8
3.1		Total finance income	2.0	2.5
		Finance expense:
(8.3)		Unwinding of discounts	(4.1)	(4.2)
(2.3)		Financing fair value remeasurements - net exchange losses	(0.7)	(0.5)
(4.0)		Net interest expense on retirement benefit obligations	(1.8)	(2.0)
(14.6)		Total finance expense	(6.6)	(6.7)
3.1		Less: finance expense charged to Financial Services cost of sales	1.5	1.6
(11.5)		Total net finance expense	(5.1)	(5.1)
(8.4)		Net financing expense	(3.1)	(2.6)

Included within unwinding of discounts is a £3.5m charge (2012: £3.6m) relating to the discount unwind on exceptional onerous lease provisions.

8. Taxation
52 weeks to 2.3.13 (restated)					26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m					£m	£m
(32.2)		UK tax			(1.1)	(13.2)
(1.8)		Overseas tax			(0.6)	(0.4)
(34.0)		Total tax expense			(1.7)	(13.6)

The statutory tax charge for the period of £1.7m (2012: £13.6m) is based on an estimated annual benchmark effective rate of tax of 28.5% (2012: 31.7%), which is adjusted for the tax impact of non-benchmark items arising during the half year, to derive the effective tax rate for the half year of 12.0% (2012: 28.6%).  The benchmark effective rate of tax is defined as the tax on benchmark PBT divided by benchmark PBT (excluding associates).  The current year benchmark effective rate of tax includes the favourable impact of a 1% reduction to the UK corporation tax rate from 24% to 23%. Closing deferred tax has been calculated at the substantively enacted UK corporation tax rate of 21% effective from 1 April 2014 (2012: 23%).  The effect of the substantively enacted 2% reduction in the UK corporation tax rate from 23% to 21% is a deferred tax charge of £2.0m.  Of this charge, £0.4m has been charged to the income statement and £1.6m has been charged directly to the consolidated statement of comprehensive income. The further proposed reduction in the main rate of UK corporation tax by 1% to 20% has been enacted and is effective from 1 April 2015.  The impact of future rate reductions on the net deferred tax asset is not material for each future year at the balance sheet date.  The Group will assess the impact of the reduction in the rate in line with its accounting policy in respect of deferred tax at each balance sheet date.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

9. Basic and diluted earnings per share (EPS)
The calculation of basic and diluted EPS is based on the following data:
52 weeks to 2.3.13 (restated)					26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m		Earnings			£m	£m
86.9		Profit after tax for the financial period			12.5	33.1
		Adjusted for:
1.8		Amortisation of acquisition intangibles			0.9	0.9
2.1		Retirement benefit scheme administration costs			1.0	1.0
(14.6)		Net onerous lease provision releases			(5.4)	-
(31.3)		Exceptional items			12.6	(35.0)
1.1		Financing fair value remeasurements			(1.2)	(1.3)
4.0		Financing impact on retirement benefit obligations			1.8	2.0
7.1		Discount unwind on non-benchmark items			3.5	3.6
7.1		Attributable taxation (credit)/charge			(4.3)	7.0
(2.7)		Non-benchmark tax credit in respect of prior years			(2.2)	-
(0.1)		Tax rate change			0.4	0.1
61.4		Benchmark profit after tax for the financial period			19.6	11.4
millions		Weighted average number of shares			millions	millions
800.6		Number of ordinary shares for the purpose of basic EPS			800.0	800.4
12.4		Dilutive effect of share incentive awards			23.6	4.0
813.0		Number of ordinary shares for the purpose of diluted EPS			823.6	804.4
pence		EPS			pence	pence
10.9		Basic EPS			1.6	4.1
10.7		Diluted EPS			1.5	4.1
7.7		Basic benchmark EPS			2.5	1.4
7.6		Diluted benchmark EPS			2.4	1.4

Basic earnings per share is calculated by dividing the profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares held in Home Retail Group's share trusts net of vested but unexercised share awards. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares.

10. Dividend

An interim dividend of 1.0 pence (2012: 1.0 pence) per Home Retail Group plc ordinary share, amounting to a total interim dividend of £7.9m (2012: £8.0m), has been announced (but not provided) and will be paid on 22 January 2014 to shareholders on the register at the close of business on 15 November 2013. In July 2013, a final dividend of 2.0 pence (2012: nil) per Home Retail Group plc ordinary share, amounting to a total final dividend of £16.0m (2012: £nil), was paid to shareholders.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

11. Capital expenditure

In the period, there were additions to property, plant and equipment of £33.5m (2012: £12.0m) and disposals of property, plant and equipment generated proceeds of £1.0m (2012: £1.0m).  In the period, there were additions to intangible assets of £42.3m (2012: £14.6m).  Capital commitments contracted but not provided for by the Group amounted to £20.1m (2012: £10.4m).

12. Financial instruments
IFRS 13 requires disclosure of fair value measurements by level of the following measurement hierarchy: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
		Level 1	Level 2	Level 3	Total
		£m	£m	£m	£m
Assets
Available-for-sale financial assets		21.1	-	2.5	23.6
Forward foreign exchange contracts		-	7.9	-	7.9
Total assets		21.1	7.9	2.5	31.5
Liabilities
Forward foreign exchange contracts		-	(8.3)	-	(8.3)
Total liabilities		-	(8.3)	-	(8.3)

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques.  The valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates.  If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The fair value of the level 2 forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.  The available-for-sale financial asset within the level 3 hierarchy is measured at cost less impairment.  The impairment has been calculated to write down the asset to its recoverable value based on the actual financial position of the Group's associate.  The fair value measurement is hence not sensitive to changes in inputs. The movements in level 3 financial assets during the period are:
					£m
Balance at 3 March 2013					3.7
Disposals					(1.2)
Balance at 31 August 2013					2.5
There have been no transfers of assets or liabilities between levels of the fair value hierarchy.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

13. Provisions
			Onerous leases	Insurance	Restructuring	Other	Total
			£m	£m	£m	£m	£m
At 3 March 2013			(144.7)	(41.5)	(11.8)	(19.8)	(217.8)
Exchange differences			0.8	-	-	-	0.8
Charged to the income statement			(7.4)	(4.8)	-	(2.5)	(14.7)
Released to the income statement			12.8	-	-	-	12.8
Utilised during the period			1.2	4.2	1.9	2.2	9.5
Discount unwind			(4.1)	-	-	(0.1)	(4.2)
At 31 August 2013			(141.4)	(42.1)	(9.9)	(20.2)	(213.6)
2.3.13						31.8.13	1.9.12
£m	Analysed as:					£m	£m
(38.3)	Current					(38.4)	(43.6)
(179.5)	Non-current					(175.2)	(188.4)
(217.8)						(213.6)	(232.0)

The onerous lease provision covers potential liabilities for onerous lease contracts for stores that have either closed, or where projected future trading income is insufficient to cover the lower of exit cost or value-in-use. Where the value-in-use calculation is lower, the provision is based on the present value of expected future cash flows relating to rents, rates and other property costs to the end of the lease terms net of expected trading or sublet income. Provision is made for the estimated costs of insurance claims incurred by the Group but not settled at the balance sheet date, including the costs of claims that have arisen but have not yet been reported to the Group. The estimated cost of claims includes expenses to be incurred in settling claims. The restructuring provision relates to a number of actions undertaken by the Group during the current and prior years.  Actions currently being undertaken by the Group include the ongoing project to transform Argos into a digital retail leader.  Actions announced during prior years, to improve the operational efficiency of the Group and drive further cost productivity, included the closure of the Group's UK homewares trial format, HomeStore&More, and one of the Group's distribution warehouses. Other provisions include legal claims, potential customer redress in respect of financial services products and other sundry provisions.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

14. Post-employment benefits
As at the balance sheet date, the Group's defined benefit pension scheme obligations were £930.2m (2 March 2013: £918.6m) and the market value of the scheme assets was £845.5m (2 March 2013: £833.5m), resulting in a net deficit of £84.7m (2 March 2013: £85.1m).
52 weeks to 2.3.13 (restated)			26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m			£m	£m
(115.3)		Opening net deficit	(85.1)	(115.3)
(14.5)		Current service cost	(0.2)	(8.2)
(2.1)		Retirement benefit scheme administration costs	(1.0)	(1.0)
37.4		Curtailment gain	-	39.3
(4.0)		Financing impact on retirement benefit obligations	(1.8)	(2.0)
(8.0)		Actuarial loss	(8.3)	(50.2)
21.4		Contributions paid by the Group	11.7	15.4
(85.1)		Closing net deficit	(84.7)	(122.0)
The material assumptions used to assess the Group's defined benefit pension scheme obligations have been updated by independent qualified actuaries as at the period end.  The most significant of these are the discount rate and the rate of inflation which are 4.7% (2 March 2013: 4.7%) and 3.4% (2 March 2013: 3.4%) respectively. Contributions paid by the Group total £11.7m (2012: £15.4m), including £11.0m (2012: £8.0m) as part of the deficit recovery plan agreed with the scheme trustees following the completion of the 31 March 2012 actuarial valuation.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 September 2013

15. Notes to the consolidated statement of cash flows
52 weeks to 2.3.13 (restated)				26 weeks to 31.8.13	26 weeks to 1.9.12 (restated)
£m				£m	£m
		Cash generated from operations:
120.9		Profit before tax		14.2	46.7
		Adjustments for:
6.0		Share of post-tax loss of associates		-	2.6
8.4		Net financing expense		3.1	2.6
135.3		Operating profit		17.3	51.9
0.2		(Profit)/loss on sale of property, plant and equipment		(0.1)	0.2
124.7		Depreciation and amortisation		65.7	64.0
3.1		Finance expense charged to Financial Services cost of sales		1.5	1.6
(8.6)		Increase in inventories		(23.5)	(67.9)
(40.9)		(Increase)/decrease in receivables		(2.2)	6.0
163.4		Increase in payables		73.5	160.2
113.9		Movement in working capital		47.8	98.3
(24.5)		Decrease in provisions		(7.6)	(3.3)
(42.2)		Movement in retirement benefit obligations		(10.5)	(45.5)
11.6		Share-based payment expense (net of dividend equivalent payments)		6.8	5.6
322.1		Cash generated from operations		120.9	172.8

16. Seasonality

The retail sales for Argos and Homebase are subject to seasonal fluctuations.  Demand for Argos products is highest during the months of November and December, whilst demand for Homebase products is highest through the spring, at Easter and during the summer months and, for big ticket items, during the January sales.

17. Related parties

The Group's related parties are its associates and key management personnel. During the period, the Group completed the sale of its 33% stake in Ogalas Limited, an Irish company trading as 'home store + more' in the Republic of Ireland, and reported as an associate.  The Group received £9.7m (2012: £nil) for its shareholding and a loan repayment of £1.2m (2012: £nil).  In addition, the Group granted loans totalling £nil (2012: £6.8m) to its associates and invested £nil (2012: £2.4m) in the share capital of its associates.  At 31 August 2013, the amounts owed by its associates to the Group totalled £2.5m (2012: £7.2m). During the period, there were no material transactions or balances between the Group and its key management personnel or members of their close families.

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

18. Restatement of prior period information
The Group has adopted IAS 19 (revised) during the period.  The impact on the Group's post-employment benefits is to replace the interest expense on retirement benefit obligations and the expected return on plan assets with a single net interest amount that is calculated by applying the discount rate to the net retirement benefit surplus or deficit.  In addition, the administration costs of the Home Retail Group Pension Scheme, previously charged against the expected return on plan assets, are now charged within operating costs.  Prior year comparatives have been restated as follows:
Impact on income statement
	52 weeks to 2.3.13				26 weeks to 1.9.12
	As previously reported	Prior period adjustment	As Restated		As previously reported	Prior period adjustment	As Restated
	£m	£m	£m		£m	£m	£m
Operating profit	137.4	(2.1)	135.3		52.9	(1.0)	51.9
Finance income	47.2	(44.1)	3.1		24.2	(21.7)	2.5
Finance expense	(48.5)	37.0	(11.5)		(23.4)	18.3	(5.1)
Net financing income/(expense)	(1.3)	(7.1)	(8.4)		0.8	(3.4)	(2.6)
Share of post-tax loss of associates	(6.0)	-	(6.0)		(2.6)	-	(2.6)
Profit before tax	130.1	(9.2)	120.9		51.1	(4.4)	46.7
Taxation	(36.1)	2.1	(34.0)		(14.6)	1.0	(13.6)
Profit for the period	94.0	(7.1)	86.9		36.5	(3.4)	33.1
Impact on earnings per share	pence	pence	pence		pence	pence	pence
Basic	11.7	(0.8)	10.9		4.6	(0.5)	4.1
Diluted	11.6	(0.9)	10.7		4.5	(0.4)	4.1

Impact on non-GAAP measures
Reconciliation of profit before tax (PBT) to benchmark PBT
	52 weeks to 2.3.13				26 weeks to 1.9.12
	As previously reported	Prior period adjustment	As Restated		As previously reported	Prior period adjustment	As Restated
	£m	£m	£m		£m	£m	£m
Profit before tax	130.1	(9.2)	120.9		51.1	(4.4)	46.7
Adjusted for
Amortisation of acquisition intangibles	1.8	-	1.8		0.9	-	0.9
Retirement benefit scheme administration costs	-	2.1	2.1		-	1.0	1.0
Net onerous lease provision releases	(14.6)	-	(14.6)		-	-	-
Exceptional items	(31.3)	-	(31.3)		(35.0)	-	(35.0)
Financing fair value remeasurements	1.1	-	1.1		(1.3)	-	(1.3)
Financing impact on retirement benefit obligations	(3.1)	7.1	4.0		(1.4)	3.4	2.0
Discount unwind on non-benchmark items	7.1	-	7.1		3.6	-	3.6
Benchmark PBT	91.1	-	91.1		17.9	-	17.9
Impact on benchmark earnings per share	pence	pence	pence		pence	pence	pence
Basic	7.7	-	7.7		1.4	-	1.4
Diluted	7.6	-	7.6		1.4	-	1.4

HOME RETAIL GROUP PLC

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 31 August 2013

18. Restatement of prior period information (continued)
Impact on consolidated statement of comprehensive income
	52 weeks to 2.3.13				26 weeks to 1.9.12
	As previously reported	Prior period adjustment	As Restated		As previously reported	Prior period adjustment	As Restated
	£m	£m	£m		£m	£m	£m
Profit for the period attributable to equity holders of the Company	94.0	(7.1)	86.9		36.5	(3.4)	33.1
Other comprehensive income:
Net change in fair value of cash flow hedges
- Foreign currency forward exchange contracts	33.4	-	33.4		(1.0)	-	(1.0)
Net change in fair value of cash flow hedges transferred to inventory
- Foreign currency forward exchange contracts	(5.3)	-	(5.3)		(5.9)	-	(5.9)
Actuarial loss in respect of defined benefit pension schemes	(17.2)	9.2	(8.0)		(54.6)	4.4	(50.2)
Fair value movements on available-for-sale financial assets	2.0	-	2.0		(0.1)	-	(0.1)
Currency translation differences	0.6	-	0.6		(0.9)	-	(0.9)
Tax credit/(charge) in respect of items taken directly to equity	(4.0)	(2.1)	(6.1)		12.3	(1.0)	11.3
Other comprehensive income for the period, net of tax	9.5	7.1	16.6		(50.2)	3.4	(46.8)
Total comprehensive income for the period attributable to equity holders of the Company	103.5	-	103.5		(13.7)	-	(13.7)

HOME RETAIL GROUP PLC

Statement of directors' responsibilities

The directors confirm that this condensed half-yearly financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: ·      an indication of important events that have occurred during the first six months and their impact on the condensed half-yearly financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and ·      material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report. The directors of Home Retail Group plc are listed in the Home Retail Group plc Annual Report and Financial Statements 2013.  There have been no changes of director since the Annual Report.  A list of current directors is maintained on the Home Retail Group website, www.homeretailgroup.com. By order of the Board Terry Duddy                              Richard Ashton Chief Executive                          Finance Director 23 October 2013                        23 October 2013

HOME RETAIL GROUP PLC

SHAREHOLDER INFORMATION

Registrar For all enquiries and shareholder administration (other than for American Depositary Receipts), please contact Capita Registrars: Postal address: Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. email: [e-mail] Telephone: [phone]* (from abroad [phone]). Text phone: [phone]* (from abroad [phone]). Fax number: 0871 664 0438 (from abroad [phone]). *Calls cost 10p per minute plus network extras

American Depositary Receipt (ADR) Home Retail Group's ADR programme is administered by Citibank and ADR enquiries may be directed to: Postal address: Citibank Shareholder Services, P.O. Box 43077, Providence, Rhode Island 02940-3077, USA. email: [e-mail] Telephone (toll free): 1-877-Citi-ADR (248-4237) Telephone (international): 1-781-575-4555 Website: www.citi.com/dr

Electronic communications Shareholders can register to receive reports and notifications by email, browse shareholder information and submit voting instructions at www.homeretailgroup-shares.com. This service is provided by Capita Registrars.

Home Retail Group plc website Investor relations information, such as webcasts of results presentations to analysts and investors and accompanying slides, is available at www.homeretailgroup.com.

Dividend reinvestment plan The Home Retail Group Dividend Reinvestment Plan (DRIP) enables shareholders to use their cash dividends to purchase Home Retail Group shares.  Shareholders who wish to participate in the DRIP for the first time, in respect of the interim dividend to be paid on 22 January 2014, should return a completed and signed DRIP mandate form to be received by the Registrar, by no later than 28 December 2013.  For further details, please contact Capita Registrars.

Share price information The latest Home Retail Group share price is available on the Home Retail Group website, at www.homeretailgroup.com.

Share dealing facility Investors can buy or sell Group shares through Capita Share Dealing Services. Go to www.capitadeal.com or call 0871 664 0454 (calls cost 10p per minute plus network extras) between 8.30 am and 4.30 pm weekdays.

Financial calendar Interim ex-dividend date 13 November 2013 Interim Management Statement 16 January 2014 Interim dividend paid 22 January 2014 Full-year trading statement 13 March 2014 Full-year results for the 52 weeks to 1 March 2014 30 April 2014 Final ex-dividend date 21 May 2014 Interim Management Statement 12 June 2014 Final dividend paid 23 July 2014

Registered office Home Retail Group plc, Avebury, 489 - 499 Avebury Boulevard, Milton Keynes MK9 2NW

 

END

 

 

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