Half Year Results - Part 2

RNS Number : 8707C

Home Retail Group Plc

21 October 2015

HOME RETAIL GROUP PLC

UNAUDITED CONDENSED HALF-YEARLY FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

For the 26 weeks ended 29 August 2015

52 weeks ended 28 February 2015			26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		Notes	£m	£m

5,710.4	Revenue	4	2,628.5	2,668.6

(3,937.4)	Cost of sales	5	(1,790.6)	(1,822.7)

1,773.0	Gross profit		837.9	845.9

(1,635.6)	Net operating expenses before exceptional items		(806.5)	(816.9)
(35.5)	Exceptional items	6	(4.4)	(11.8)

101.9	Operating profit		27.0	17.2

3.4	Finance income		0.9	1.7
(11.5)	Finance expense		(4.5)	(5.4)
(8.1)	Net financing expense	7	(3.6)	(3.7)

93.8	Profit before tax		23.4	13.5

(22.2)	Taxation	8	(6.1)	(4.0)

71.6	Profit for the period attributable to equity holders of the Company		17.3	9.5

pence	Earnings per share	9	pence	pence
9.4	Basic		2.3	1.2
8.9	Diluted		2.2	1.2

52 weeks ended 28 February 2015			26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m	Non-GAAP measures	Notes	£m	£m
	Reconciliation of profit before tax (PBT) to benchmark PBT
93.8	Profit before tax		23.4	13.5
	Adjusted for:
1.8	Amortisation of acquisition intangibles		0.9	0.9
1.9	Post-employment benefit scheme administration costs	14	0.9	0.7
(0.1)	Adjustments in respect of store impairment and property provisions		(0.7)	(0.7)
35.5	Exceptional items	6	4.4	11.8
1.0	Financing fair value remeasurements	7	0.1	(0.3)
3.0	Financing impact on post-employment benefit obligations	7	1.9	1.6
6.7	Discount unwind on non-benchmark items	7	3.2	3.4
(11.5)	Balance sheet review		-	-

132.1	Benchmark PBT		34.1	30.9


pence	Benchmark earnings per share		pence	pence
13.0	Basic	9	3.4	3.0
12.4	Diluted	9	3.3	2.9

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 26 weeks ended 29 August 2015

52 weeks ended 28 February 2015			26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		Notes	£m	£m

71.6	Profit for the period attributable to equity holders of the Company		17.3	9.5

	Items that may be reclassified subsequently to profit or loss:
	Net change in fair value of cash flow hedges
49.1	- Foreign currency forward exchange contracts		2.4	4.9
	Net change in fair value of cash flow hedges transferred to inventory
(3.3)	- Foreign currency forward exchange contracts		(20.1)	27.4
0.7	Fair value movements on available-for-sale financial assets		(0.5)	0.3
(1.5)	Currency translation differences		0.1	(0.5)
(9.1)	Tax credit/(charge) in respect of items that will be or have been recycled		3.5	(6.2)

35.9	Total items that may be reclassified subsequently to profit or loss		(14.6)	25.9

	Items that will not be reclassified subsequently to profit or loss:
(55.6)	Remeasurement of the net defined benefit liability	14	5.3	(37.4)
11.1	Tax (charge)/credit in respect of items not recycled		(1.1)	7.5

(44.5)	Total items that will not be reclassified subsequently to profit or loss		4.2	(29.9)

(8.6)	Other comprehensive income for the period, net of tax		(10.4)	(4.0)

63.0	Total comprehensive income for the period attributable to equity holders of the Company		6.9	5.5

CONSOLIDATED BALANCE SHEET

At 29 August 2015

28 February 2015			29 August 2015	30 August 2014
£m		Notes	£m	£m
	ASSETS
	Non-current assets
1,543.9	Goodwill		1,543.9	1,543.9
235.5	Other intangible assets		246.7	210.8
412.9	Property, plant and equipment		411.3	444.3
44.6	Deferred tax assets		38.0	43.5
1.4	Trade and other receivables		1.2	1.8
10.6	Other financial assets	13	10.1	10.2

2,248.9	Total non-current assets		2,251.2	2,254.5

	Current assets
963.0	Inventories		988.8	930.1
790.0	Trade and other receivables	11	783.6	691.6
13.2	Current tax assets		13.8	4.3
30.0	Other financial assets	13	8.3	5.8
309.3	Cash and cash equivalents		193.1	333.1

2,105.5	Total current assets		1,987.6	1,964.9

18.3	Non-current assets classified as held for sale		18.3	-

4,372.7	Total assets		4,257.1	4,219.4

	LIABILITIES
	Non-current liabilities
(46.4)	Trade and other payables		(47.3)	(48.1)
(126.2)	Provisions	12	(123.4)	(161.7)
(24.3)	Deferred tax liabilities		(20.6)	(9.4)
(114.4)	Post-employment benefits	14	(100.5)	(104.9)

(311.3)	Total non-current liabilities		(291.8)	(324.1)

	Current liabilities
(1,283.1)	Trade and other payables		(1,224.5)	(1,204.1)
(95.7)	Provisions	12	(67.8)	(65.9)
(2.9)	Other financial liabilities	13	(7.7)	(6.4)
(6.8)	Current tax liabilities		(2.2)	-

(1,388.5)	Total current liabilities		(1,302.2)	(1,276.4)

(1,699.8)	Total liabilities		(1,594.0)	(1,600.5)

2,672.9	Net assets		2,663.1	2,618.9

	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)
(61.5)	Other reserves		(53.4)	(74.0)
2,995.1	Retained earnings		2,977.2	2,953.6

2,672.9	Total equity		2,663.1	2,618.9

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 26 weeks ended 29 August 2015

	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 1 March 2015	81.3	6.4	(348.4)	(61.5)	2,995.1	2,672.9

Profit for the period	-	-	-	-	17.3	17.3
Other comprehensive income	-	-	-	(14.2)	3.8	(10.4)
Total comprehensive income for the period ended 29 August 2015	-	-	-	(14.2)	21.1	6.9
Transactions with owners
Movement in share-based compensation reserve	-	-	-	-	6.1	6.1
Net movement in own shares	-	-	-	22.3	(21.5)	0.8
Tax credit related to share-based compensation reserve	-	-	-	-	(1.3)	(1.3)
Equity dividends paid during the period	-	-	-	-	(21.2)	(21.2)
Other distributions	-	-	-	-	(1.1)	(1.1)
Total transactions with owners	-	-	-	22.3	(39.0)	(16.7)
Balance at 29 August 2015	81.3	6.4	(348.4)	(53.4)	2,977.2	2,663.1

	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 2 March 2014	81.3	6.4	(348.4)	(52.3)	2,986.5	2,673.5

Profit for the period	-	-	-	-	9.5	9.5
Other comprehensive income	-	-	-	25.6	(29.6)	(4.0)
Total comprehensive income for the period ended 30 August 2014	-	-	-	25.6	(20.1)	5.5
Transactions with owners:
Movement in share-based compensation reserve	-	-	-	-	5.6	5.6
Net movement in own shares	-	-	-	(47.3)	(2.4)	(49.7)
Tax credit related to share-based compensation reserve	-	-	-	-	2.1	2.1
Equity dividends paid during the period	-	-	-	-	(17.8)	(17.8)
Other distributions	-	-	-	-	(0.3)	(0.3)
Total transactions with owners	-	-	-	(47.3)	(12.8)	(60.1)
Balance at 30 August 2014	81.3	6.4	(348.4)	(74.0)	2,953.6	2,618.9

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 26 weeks ended 29 August 2015

52 weeks ended 28 February 2015			26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		Notes	£m	£m

	Cash flows from operating activities
211.8	Cash generated from operations	15	(0.1)	151.9
(12.1)	Tax paid		(7.3)	(6.0)
(9.0)	Disposal of leasehold property		(5.8)	(5.0)

190.7	Net cash (outflow)/inflow from operating activities		(13.2)	140.9

	Cash flows from investing activities
(81.2)	Purchase of property, plant and equipment		(39.4)	(32.7)
(93.3)	Purchase of other intangible assets		(42.2)	(40.1)
30.0	Proceeds from the disposal of property, plant and equipment - freehold		-	-
	property
6.7	Proceeds from the disposal of property, plant and equipment - other		2.4	1.1

(137.8)	Net cash used in investing activities		(79.2)	(71.7)

	Cash flows from financing activities
(50.0)	Purchase of shares for Employee Share Trust		-	(50.0)
1.5	Proceeds from disposal of shares held by Employee Share Trust		0.8	0.3
(25.3)	Dividends paid	10	(21.2)	(17.8)
0.7	Interest and other financing fees (paid)/received		(2.7)	0.3

(73.1)	Net cash used in financing activities		(23.1)	(67.2)

(20.2)	Net (decrease)/increase in cash and cash equivalents		(115.5)	2.0

	Movement in cash and cash equivalents
331.0	Cash and cash equivalents at the beginning of the period		309.3	331.0
(1.5)	Effect of foreign exchange rate changes		(0.7)	0.1
(20.2)	Net (decrease)/increase in cash and cash equivalents		(115.5)	2.0

309.3	Cash and cash equivalents at the end of the period		193.1	333.1

ANALYSIS OF NET CASH/(DEBT)

At 29 August 2015

28 February 2015		29 August 2015	30 August 2014
£m	Non-GAAP measures	£m	£m

	Financing net cash
309.3	Cash and cash equivalents	193.1	333.1

309.3	Total financing net cash	193.1	333.1


	Operating net debt
(1,914.4)	Off balance sheet operating leases	(1,780.1)	(1,993.9)

(1,914.4)	Total operating net debt	(1,780.1)	(1,993.9)

(1,605.1)	Total net debt	(1,587.0)	(1,660.8)

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 gross lease commitments are £2,181.0m (28 February 2015: £2,342.2m), the discounted value of these leases is £1,780.1m (28 February 2015: £1,914.4m), based upon discounting the existing lease commitments at the Group's estimated current long-term cost of borrowing of 4.3% (28 February 2015: 4.1%).

NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL INFORMATION

For the 26 weeks ended 29 August 2015

1. Basis of preparation

The unaudited condensed half-yearly financial information comprises the results for the 26 weeks ended 29 August 2015, the 26 weeks ended 30 August 2014, and the audited consolidated results for the 52 weeks ended 28 February 2015. The audited consolidated financial information for the 52 weeks ended 28 February 2015 has been extracted from Home Retail Group plc's Annual Report and Financial Statements, which was approved by the Board of Directors on 29 April 2015 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.

The directors considered it appropriate to adopt the going concern basis of accounting in preparing the half-yearly financial information.

IFRS and accounting policies

This condensed half-yearly financial information for the 26 weeks ended 29 August 2015 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct 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 28 February 2015, 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 29 April 2015, which is available on Home Retail Group's website www.homeretailgroup.com. These policies have been consistently applied for all periods presented.

Changes in accounting standards

There are no new standards, amendments to existing standards or interpretations which are effective for the first time during the period ended 29 August 2015 that have a material impact on the Group.

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 15 'Revenue from contracts with customers' and IFRS 9 'Financial Instruments' which are both effective for periods beginning on or after 1 January 2018. The Group has not early-adopted any of these new standards or amendments to existing standards. The Group will assess their full impact in due course. 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.

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 non-recurring and material in either size or nature 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, post-employment benefit scheme administration costs, store impairment and onerous lease charges or releases and costs or income associated with store closures and exceptional items.

·	Benchmark profit before tax (benchmark PBT) is defined as profit before amortisation of acquisition intangibles, post-employment benefit scheme administration costs, store impairment and onerous lease charges or releases and costs or income associated with store closures, exceptional items, financing fair value remeasurements, financing impact on post-employment 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 trust 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
The principal exchange rates used were as follows:
	Average			Closing
	26 weeks ended	52 weeks ended	26 weeks ended
	29 August 2015	28 February 2015	30 August 2014	29 August 2015	28 February 2015	30 August 2014

US dollar	1.53	1.63	1.68	1.54	1.54	1.66
Euro	1.39	1.26	1.23	1.37	1.38	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.

4. Segmental information

The Board of Directors and Group Executive 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 Group Executive Board assess the performance of the operating segments based on a combination of revenue and benchmark operating profit.

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		£m	£m
	Revenue
4,096.0	Argos	1,743.1	1,769.1
1,479.3	Homebase	816.4	834.5
135.1	Financial Services	69.0	65.0
5,710.4	Total revenue	2,628.5	2,668.6

	Benchmark operating profit
129.2	Argos	6.4	12.0
19.8	Homebase	34.3	27.8
7.0	Financial Services	3.5	3.1
(26.5)	Central Activities	(11.7)	(13.0)
129.5	Total benchmark operating profit	32.5	29.9
2.6	Benchmark net financing income	1.6	1.0
132.1	Benchmark profit before tax	34.1	30.9
(1.8)	Amortisation of acquisition intangibles	(0.9)	(0.9)
(1.9)	Post-employment benefit scheme administration costs	(0.9)	(0.7)
0.1	Adjustments in respect of store impairment and property provisions	0.7	0.7
(35.5)	Exceptional items	(4.4)	(11.8)
(1.0)	Financing fair value remeasurements	(0.1)	0.3
(3.0)	Financing impact on post-employment benefit obligations	(1.9)	(1.6)
(6.7)	Discount unwind on non-benchmark items	(3.2)	(3.4)
11.5	Balance sheet review	-	-
93.8	Profit before tax	23.4	13.5
(22.2)	Taxation	(6.1)	(4.0)
71.6	Profit for the period attributable to equity holders of the Company	17.3	9.5

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		£m	£m
	Segment assets
2,395.9	Argos	2,471.9	2,310.2
915.4	Homebase	880.4	897.7
622.8	Financial Services	589.4	552.5
71.5	Central Activities	70.5	78.1
4,005.6	Total segment assets	4012.2	3,838.5
57.8	Tax assets	51.8	47.8
309.3	Cash and cash equivalents	193.1	333.1
4,372.7	Total assets per balance sheet	4,257.1	4,219.4

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

Total cost of sales for the 26 weeks ended 29 August 2015 was £1,790.6m (2014: £1,822.7m). This consists of cost of goods of

£1,655.3m (2014: £1,687.9m) and distribution costs of £135.3m (2014: £134.8m).

6. Exceptional items

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		£m	£m

(31.4)	Argos transformation and other restructuring charges	(4.4)	(11.8)
(4.1)	Customer redress - Payment Protection Insurance	-	-
(35.5)	Exceptional items in operating profit	(4.4)	(11.8)
7.1	Tax on exceptional items in profit before tax	0.9	2.5
(28.4)	Exceptional loss after tax for the period	(3.5)	(9.3)

Exceptional restructuring charges totalling £4.4m were incurred in Argos during the 26 weeks ended 29 August 2015 in respect of the ongoing project to transform Argos into a digital retail leader. In the 26 weeks ended 30 August 2014 exceptional restructuring charges totalling £11.8m were incurred. These charges related to £6.7m in Argos in respect of the ongoing project to transform Argos into a digital retail leader and Group restructuring costs of £5.1m principally relating to the transitioning of Information Systems infrastructure and services that supports the Group's operations.

7. Net financing expense

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		£m	£m
	Finance income:

0.7	Bank Deposits	0.2	0.3
2.7	Financing fair value remeasurements - net exchange gains	0.7	1.4

3.4	Total finance income	0.9	1.7

	Finance expense:

(7.5)	Discount unwind	(3.5)	(3.8)
(3.7)	Financing fair value remeasurements - net exchange losses	(0.8)	(1.1)
(3.0)	Net interest expense on post-employment benefit obligations	(1.9)	(1.6)
(1.2)	Other finance expense	(0.3)	(0.6)

(15.4)	Total finance expense	(6.5)	(7.1)
3.9	Less: finance expense charged to Financial Services cost of sales	2.0	1.7

(11.5)	Total net finance expense	(4.5)	(5.4)
(8.1)	Net financing expense	(3.6)	(3.7)

Included within discount unwind is a £3.2m charge (2014: £3.4m) relating to the discount unwind on non-benchmark property provisions.

8. Taxation

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		£m	£m

(21.2)	UK tax	(5.9)	(3.6)
(1.0)	Overseas tax	(0.2)	(0.4)
(22.2)	Total tax expense	(6.1)	(4.0)

The statutory tax charge for the period of £6.1m (2014: £4.0m) is based on an estimated annual benchmark effective rate of tax of 24.0% (2014: 25.5%), 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 26.0% (2014: 29.6%). The benchmark tax charge for the period is £8.2m (2014: £7.9m).

The benchmark effective rate of tax is defined as the tax on benchmark PBT divided by benchmark PBT. The current year benchmark effective rate of tax includes the favourable impact of a 1% reduction to the UK corporation tax rate from 21% to 20%.

9. Basic and diluted earnings per share (EPS) Basic EPS 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 the Home Retail Group share trust net of vested but unexercised share awards. Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares.

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m	Earnings	£m	£m

71.6	Profit after tax for the financial period	17.3	9.5
	Adjusted for:
1.8	Amortisation of acquisition intangibles	0.9	0.9
1.9	Post-employment benefit scheme administration costs	0.9	0.7
(0.1)	Adjustments in respect of store impairment and property provisions	(0.7)	(0.7)
35.5	Exceptional items	4.4	11.8
1.0	Financing fair value remeasurements	0.1	(0.3)
3.0	Financing impact on post-employment benefit obligations	1.9	1.6
6.7	Discount unwind on non-benchmark items	3.2	3.4
(11.5)	Balance sheet review	-	-
(7.8)	Attributable taxation credit	(2.1)	(3.9)
(3.0)	Non-benchmark tax credit in respect of prior years	-	-

99.1	Benchmark profit after tax for the financial period	25.9	23.0

millions	Weighted average number of shares	millions	millions

764.3	Number of ordinary shares for the purpose of basic EPS	763.7	773.1
36.0	Dilutive effect of share incentive awards	28.7	28.3

800.3	Number of ordinary shares for the purpose of diluted EPS	792.4	801.4

pence	EPS	pence	pence

9.4	Basic EPS	2.3	1.2
8.9	Diluted EPS	2.2	1.2

13.0	Basic benchmark EPS	3.4	3.0
12.4	Diluted benchmark EPS	3.3	2.9
10. Dividend

An interim dividend of 1.0 pence (2014: 1.0 pence) per Home Retail Group plc ordinary share, amounting to a total interim dividend of £7.9m (2014: £7.5m), has been announced (but not provided) and will be paid on 21 January 2016 to shareholders on the register at the close of business on 13 November 2015. In July 2015, a final dividend of 2.8 pence (2014: 2.3 pence) per Home Retail Group plc ordinary share, amounting to a total final dividend of £21.2m (2014: £17.8m), was paid to shareholders.

11. Commercial income

Within trade and other receivables there is £29.4m (28 February 2015: £22.9m) of commercial income balances. The balance consists of marketing and advertising funding earned during the period and agreed volume-based rebates which are expected to be collected during FY16.

The above commercial income balances are based on current contractual arrangements with suppliers. The Group's commercial arrangements with its suppliers can either be structured with a relatively high up-front unit cost, partially offset by a commercial arrangement, or a more straightforward arrangement with a lower up-front unit cost. The net cost position can end up being either the same, or very similar, in both situations. The key financial metric in assessing the Group's performance in this area is therefore the overall amount of gross margin, which incorporates all components of the overall unit cost price.

12. Provisions
		Property	Insurance	Restructuring	PPI Customer redress	Other	Total
		£m	£m	£m	£m	£m	£m

At 1 March 2015		(130.7)	(35.5)	(20.8)	(29.0)	(5.9)	(221.9)
Charged to the income statement		(2.7)	(3.8)	(4.4)	-	(3.0)	(13.9)
Released to the income statement		3.4	-	-	-	-	3.4
Utilised during the year - cash		6.8	2.1	14.3	17.7	3.0	43.9
Utilised during the year - non-cash		0.5	-	1.2	-	-	1.7
Transfer from accruals		(0.9)	-	-	-	-	(0.9)
Discount unwind		(3.5)	-	-	-	-	(3.5)

At 29 August 2015		(127.1)	(37.2)	(9.7)	(11.3)	(5.9)	(191.2)


28 February 2015						29 August 2015	30 August 2014
£m	Analysed as:					£m	£m

(95.7)	Current					(67.8)	(65.9)
(126.2)	Non-current					(123.4)	(161.7)

(221.9)						(191.2)	(227.6)

Property provisions principally comprise obligations on onerous leases together with other costs or income associated with store closures. In respect of onerous leases, provision is made for onerous lease contracts on stores that have either closed, or where projected future trading income is insufficient to cover the lower of exit cost or cost of continuing to trade the store. Where the cost of continuing to trade the store 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. The majority of this provision is expected to be utilised over the period to 2020.

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 majority of this provision is expected to be utilised over the period to 2018.

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; the Homebase Productivity Plan which includes head office restructuring costs and costs associated with the planned closure of a Distribution centre in December 2015; and Group restructuring costs principally relating to the transitioning of Information Systems infrastructure and services that support the Group’s operations to Fujitsu.

Financial Services offers Payment Protection Insurance (PPI) to its customers. In response to an industry wide review by the Financial Conduct Authority, a full investigation was undertaken in FY14 with the support of an independent expert. As a result, an exceptional charge was recognised. In FY15 an additional charge of £4.1m was recognised which principally reflected an anticipated increase in operating costs associated with future customer redress payments. In the 26 weeks ended 29 August 2015, £17.7m customer redress payments and associated operating costs have been made, resulting in partial utilisation of this provision. The provision comprises the estimated cost of making redress payments to customers in respect of past sales of PPI policies, including the related administrative expenses. The eventual cost is dependent upon response rates, uphold rates, redress costs, claim handling costs and those costs associated with claims that are subsequently referred to the Financial Ombudsman Service. The provision represents management’s best estimate of future costs and will remain under review. Had management used different assumptions, a larger or smaller provision charge would have resulted. The most significant assumption is the expected response rate to the customer contact exercise which has been estimated at 35%. If the response rate is one percentage point higher/(lower) than estimated then the provision at 29 August 2015 would have increased/(decreased) by approximately £1m. This provision is expected to be utilised within one year.

13. Other financial assets and liabilities

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).
29 August 2015	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m
Assets
Other financial assets	10.0	-	0.1	10.1
Other financial assets - forward foreign exchange contracts	-	8.3	-	8.3
Total assets	10.0	8.3	0.1	18.4

Liabilities
Other financial liabilities - forward foreign exchange contracts	-	(7.7)	-	(7.7)
Total liabilities	-	(7.7)	-	(7.7)

30 August 2014	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m
Assets
Other financial assets	10.1	-	0.1	10.2
Other financial assets - forward foreign exchange contracts	-	5.8	-	5.8
Total assets	10.1	5.8	0.1	16.0

Liabilities
Other financial liabilities - forward foreign exchange contracts	-	(6.4)	-	(6.4)
Total liabilities	-	(6.4)	-	(6.4)

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 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.

There have been no movements in level 3 financial assets or transfers of assets or liabilities between levels of the fair value hierarchy during the period.

The fair value of trade and other receivables, cash and cash equivalents and trade and other payables approximate their carrying amounts.

14. Post-employment benefits

As at the balance sheet date, the Group's defined benefit pension scheme obligations were £1,084.8m (28 February 2015: £1,103.7m) and the market value of the scheme assets was £984.3m (28 February 2015: £989.3m), resulting in a net deficit of £100.5m (28 February 2015: £114.4m).
52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m		£m	£m

(76.6)	Opening net deficit	(114.4)	(76.6)
(1.9)	Post-employment benefit scheme administration costs	(0.9)	(0.7)
(3.0)	Net finance expense on post-employment benefit obligations	(1.9)	(1.6)
(55.6)	Remeasurement of the net defined benefit liability	5.3	(37.4)
22.0	Contributions paid by the Group - deficit recovery	11.0	11.0
0.7	- other	0.4	0.4
(114.4)	Closing net deficit	(100.5)	(104.9)
The material assumptions used to assess the Group's defined benefit pension scheme obligations have been updated based on advice from the Group's independent qualified actuaries as at the period end. The most significant of these are the discount rate and the rate of inflation which are 3.8% (28 February 2015: 3.5%) and 3.2% (28 February 2015: 3.0%) respectively. Contributions paid by the Group total £11.4m (2014: £11.4m), including £11.0m (2014: £11.0m) as part of the deficit recovery plan agreed with the scheme trustees following the completion of the 31 March 2012 actuarial valuation.

15. Notes to the consolidated statement of cash flows

52 weeks ended 28 February 2015		26 weeks ended 29 August 2015	26 weeks ended 30 August 2014
£m	Cash generated from operations	£m	£m

93.8	Profit before tax	23.4	13.5
8.1	Net financing expense	3.6	3.7
101.9	Operating profit	27.0	17.2

(1.5)	(Profit)/loss on sale of property, plant and equipment and other intangible assets	0.1	(0.1)
136.0	Depreciation and amortisation	69.6	66.8
15.8	Impairment charge	-	-
3.9	Finance expense charged to Financial Services cost of sales	2.0	1.7

(60.6)	(Increase) in inventories	(25.8)	(27.7)
(23.0)	(Increase)/decrease in receivables	(20.9)	12.2
120.2	(Decrease)/increase in payables	(48.1)	86.8
36.6	Movement in trade working capital	(94.8)	71.3
(55.4)	Decrease/(increase) in Financial Services loan book	29.9	7.9
(18.8)	Movement in total working capital	(64.9)	79.2

(13.0)	(Decrease) in provisions	(28.4)	(7.5)
(20.8)	Movement in post-employment benefit obligations	(10.5)	(10.7)
8.3	Share-based payment expense (net of dividend equivalent payments)	5.0	5.3
211.8	Cash generated from operations	(0.1)	151.9

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.

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 2015. 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

John Walden Richard Ashton

Chief Executive Finance Director

21 October 2015 21 October 2015

SHAREHOLDER INFORMATION

Registrar

For all enquiries and shareholder administration (other than for American Depositary Receipts), please contact Capita Asset Services:

Postal address: Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

email: homeretailgroup@capitaregistrars.com

Telephone: 0871 664 0437* (from abroad +44 20 8639 3377).

Text phone: 0871 664 0532* (from abroad +44 20 8639 2062).

Fax number: 0871 664 0438 (from abroad +44 1484 600 914).

*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: Citibank@shareholders-online.com

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 Asset Services.

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 21 January 2016, should return a completed and signed DRIP mandate form to be received by the Registrar, by no later than 27 December 2015. For further details, please contact Capita Asset Services.

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	12 November 2015
Interim dividend record date	13 November 2015
Trading Statement	14 January 2016
Interim dividend paid	21 January 2016
End of Year Trading Statement	10 March 2016
Full-year results for the 52 weeks to 27 February 2016	27 April 2016
Final ex-dividend date	19 May 2016
Final dividend record date	20 May 2016
First Quarter Trading Statement	9 June 2016
Final dividend paid	21 July 2016