Final Results
Home Retail Group Plc
30 April 2008
30 April 2008
Home Retail Group plc
Full-Year Results
Home Retail Group, the UK's leading home and general merchandise retailer, today
announces its results for the 52 weeks to 1 March 2008. The results for the
prior year are a non-comparable financial period due to the change in year-end
and because they also include certain financial impacts of GUS plc's ownership
of Home Retail Group up to the point of demerger(1). To assist with analysis and
comparison, certain pro forma information for the prior period has therefore
been provided to eliminate the distortions of these two impacts on the
performance of the Group.
Operating highlights
* Leading position in multi-channel retailing further strengthened
* Substantial benefit from group-wide sourcing scale and supply chain
initiatives
* Further improvements to product ranges and choice as well as the customer
shopping experience at both Argos and Homebase
* Store networks expanded and further long-term growth opportunity remains
* Strong operating cost control achieved
Financial highlights
* Sales(2) up 2.3% in total to £5,985m (2007 pro forma: £5,851m), with
like-for-like sales up 0.7% at Argos and down 4.1% at Homebase
* Gross margin ahead by approximately 50 basis points at Argos and
approximately 250 basis points at Homebase
* Operating expenses up 4%, of which underlying inflation is approximately
3%
* Benchmark operating profit(3) up 11% to £398m (2007 pro forma: £359m), with
growth of 16% to a record level at Argos and a decline of 16% at Homebase;
reported operating profit of £387m
* Benchmark profit before tax(4) up 15% to £433m (2007 pro forma: £377m);
reported profit before tax of £426m
* Basic benchmark earnings per share(5) up 16% to 33.9p (2007 pro forma:
29.3p); reported basic earnings per share of 34.0p
* Net cash increase of £114m; closing net cash of £174m
* Benchmark pre-tax return on invested capital(6) up 70 basis points to 12.7%
* Final dividend of 10.0p recommended; full-year dividend up 13% to 14.7p
(2007: 13.0p)
Oliver Stocken, Chairman of Home Retail Group, commented:
'We are pleased to report another year of double-digit earnings growth. This is
an excellent performance and is testament to the underlying strength of the
Group and the hard work of all our colleagues across the businesses.'
Terry Duddy, Chief Executive of Home Retail Group, added:
'Record profits have been achieved at Argos, and Homebase has traded relatively
well in more difficult market conditions. As we head into a weakening consumer
environment, we believe that the Group is well positioned both operationally and
financially, and has a clear strategy to deliver long-term growth.'
(1) The change in both the year-end and the Group's capital structure on
demerger resulted in prior year statutory reported results that are
non-comparable. The statutory reported results for the financial year being
reported represent the 52 weeks to 1 March 2008. The statutory reported
results for the prior financial year represented the results for Homebase
for an approximate 12 calendar months of March to February inclusive, and
the results for the rest of the Group for an approximate 11 calendar months
of April to February inclusive. The results for the prior financial year
also reflected certain financial impacts that were a result of the fact
that Home Retail Group was wholly owned by its former parent company,
GUS plc, until the demerger became effective on 10 October 2006. The prior
period results are not therefore representative of a financial period
length comparable to this year, nor do they reflect the capital structure
that Home Retail Group operated under from the date the demerger occurred.
(2) Sales are calculated on a 52-week basis. This represents the statutory
reported 52 weeks to 1 March 2008 and the comparable pro forma 52 weeks to
3 March 2007.
(3) Benchmark operating profit is defined as operating profit before
amortisation of acquisition intangibles, store impairment charges,
exceptional items and costs related to demerger incentive schemes. It is
calculated on a pro forma 52-week basis for the comparable period.
(4) Benchmark profit before tax (benchmark PBT) is defined as profit before
amortisation of acquisition intangibles, store impairment charges,
exceptional items, costs related to demerger incentive schemes, financing
fair value remeasurements, financing impact on retirement benefit balances
and taxation. Net interest income within pro forma benchmark PBT is
calculated to illustrate the Group's financial performance as if the
demerger capital structure had existed at 31 March 2006 and had been
achieved based on underlying cash flows prior to 31 March 2006. Benchmark
PBT also includes Home Retail Group's share of post-tax results of joint
ventures and associates. It is calculated on a pro forma 52-week basis for
the comparable period.
(5) Basic benchmark earnings per share (benchmark EPS) is defined as
benchmark PBT less taxation attributable to benchmark PBT, divided by the
weigh ted average number of shares in issue (excluding Home Retail Group
shares held in its Employee Share Ownership Trust (ESOT)). It is calculated
on a pro forma 52-week basis for the comparable period and uses the
weighted average number of shares in issue from the date of demerger to the
period end.
(6) Benchmark pre-tax return on invested capital (benchmark pre-tax ROIC) is
defined as benchmark operating profit plus share of post-tax results of
joint ventures and associates, divided by year-end net assets excluding
retirement benefit balances, tax balances and net cash/debt. It is
calculated on a pro forma 52-week basis for the comparable period.
Enquiries
Analysts and investors (Home Retail Group)
Richard Ashton Finance Director 01908 600 291
Stuart Ford Head of Investor Relations
Media (Finsbury)
Rollo Head 020 7251 3801
There will be a presentation today at 9.30am to analysts and investors at King
Edward Hall, Merrill Lynch Financial Centre, 2 King Edward Street, London
EC1A 1HQ. The presentation can be viewed live on the Home Retail Group website
www.homeretailgroup.com. The supporting slides and an indexed replay will also
be available on the website later in the day.
An Interim Management Statement, covering the first quarter's 13 weeks of
2 March 2008 to 31 May 2008, will be published on 12 June 2008.
Certain statements made in this announcement 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 events or results to differ
materially from any expected future events or results referred to in these
forward looking statements.
FINANCIAL SUMMARY
Statutory Pro forma Statutory
52 weeks to 52 weeks to period to
1 March 3 March 3 March
£m 2008 2007 2007
(short
period)
Argos 4,320.9 4,164.0 3,912.8
Homebase 1,568.5 1,594.2 1,606.3
Financial Services 95.4 93.2 87.6
_________________________________
Sales 5,984.8 5,851.4 5,606.7
Cost of sales (3,881.0) (3,852.2) (3,680.5)
_________________________________
Gross profit 2,103.8 1,999.2 1,926.2
Net operating expenses before exceptional items
and costs related to demerger incentive schemes (1,705.8) (1,639.8) (1,592.5)
_________________________________
Argos 376.2 325.0 300.9
Homebase 45.1 53.4 51.2
Financial Services 5.5 5.0 4.5
Central Activities (28.8) (24.0) (22.9)
_________________________________
Benchmark operating profit 398.0 359.4 333.7
Net interest income (see below) 33.3 16.6 n/a
Share of post-tax results of joint ventures and
associates 1.6 0.7 0.7
_________________________________
Benchmark PBT 432.9 376.7 n/a
Net interest costs attributable to GUS capital
structure - (39.2) (21.0)
(see below)
Exceptional items included in operating profit 0.8 (22.7) (22.7)
Costs related to demerger incentive schemes (11.7) (5.8) (5.8)
Financing fair value remeasurements (9.0) (0.1) (0.1)
Financing impact on retirement benefit balances 13.0 12.3 12.1
_________________________________
Profit before tax 426.0 321.2 296.9
Taxation (131.4) (117.5) (109.5)
of which: taxation attributable to benchmark
PBT (138.5) (122.1) n/a
_________________________________
Profit for the period 294.6 203.7 187.4
_________________________________
Basic benchmark EPS 33.9p 29.3p n/a
Basic EPS 34.0p n/a 21.6p
Number of shares for basic EPS 867.7m 869.6m 869.6m
Net interest reconciliation:
Third party net interest income/(expense) 13.7 (1.2) n/a
Financing costs charged to Financial Services 19.6 17.8 n/a
_________________________________
Net interest income 33.3 16.6 n/a
Interest costs attributable to GUS capital
structure - (46.1) (44.3)
Exceptional finance income - 6.9 6.9
Financing costs charged to Financial Services - - 16.4
_________________________________
Net interest costs attributable to GUS capital
structure - (39.2) (21.0)
Financing fair value remeasurements (9.0) (0.1) (0.1)
Financing impact on retirement benefit balances 13.0 12.3 12.1
_________________________________
Income statement net financing income/(costs) 37.3 (10.4) (9.0)
_________________________________
The above tables and those throughout this announcement have been prepared in
accordance with Note 1 to the Financial Information on page 30. The basis of
preparation for pro forma restatements is set out as Appendix 1 on page 22, with
reconciliations between pro forma and statutory reported periods provided as
Appendix 2 on page 23.
Sales up 2.3% to £5,985m, reflecting total growth of 3.8% at Argos and a decline
of 1.6% at Homebase. Like-for-like sales were up 0.7% at Argos and down 4.1% at
Homebase, while the net new space contribution added 3.1% at Argos and 2.5% at
Homebase.
Benchmark operating profit up 11% to £398m, with the £39m improvement comprising
a £51m or 16% increase to a record level at Argos and an £8m or 16% decline at
Homebase; Financial Services increased £1m and costs of Central Activities were
£5m higher.
Benchmark PBT up 15% to £433m, with the £56m increase additionally reflecting
the £17m improvement in net interest income as a result of further strong cash
generation and a higher effective rate of interest earned.
An effective tax rate based on benchmark PBT of 32.1%, with the reduction from
32.5% last year principally reflecting the growth in profits while the absolute
level of disallowable expenditure remained broadly stable.
Basic benchmark EPS up 16% to 33.9p, reflecting the growth in profits and a
small reduction in the effective tax rate, on a broadly flat number of shares
outstanding.
Net cash increase of £114m to £174m at 1 March 2008, attributable to the strong
profit performance and after funding working capital requirements, capital
expenditure and acquisition investment activity.
Benchmark pre-tax ROIC improvement of 70 basis points to 12.7%, reflecting the
combination of an increase in profits and a well-managed balance sheet position.
Total dividend for the year up 13% to 14.7p, with a final dividend of 10.0p
recommended by the Board.
OUTLOOK
The Group has demonstrated a strong performance in the financial year just
completed. However, the outlook for consumer spending looks weaker for the new
financial year. A more difficult consumer environment is likely to result in a
negative like-for-like sales performance in both businesses in the short term.
We face this challenging backdrop from a position of operational and financial
strength. There are also areas of resilience which benefit the Group such as its
broad product offerings and its low overall transaction values. Appropriate
trading strategies are in place, along with continued emphasis on cost
management and scale leverage. The Group therefore expects to demonstrate
further good relative performances in its markets, and emerge even better
positioned from any slowdown resulting from the prevailing macro-economic
conditions.
Details of the trading performance for the first thirteen weeks of the new
financial year will be announced on 12 June 2008. Against the backdrop of the
weakening consumer environment, Argos has begun the year trading in line with
our expectations overall, notwithstanding a continued adverse product mix
impact. However, Homebase has started the year weaker than anticipated, as poor
weather conditions this March and April contrast with very good weather
conditions in the comparable months last year. At this very early stage, it is
too soon to evaluate the impact of these weather conditions on the outcome for
the financial year as a whole as further key trading periods remain.
GROUP GROWTH STRATEGY
Home Retail Group is the UK's leading home and general merchandise retailer,
with a 10% share in combined product markets worth £60bn a year. Argos and
Homebase are strong retail brands and household names, each offering their
customers a differentiated shopping experience from their competitors and
capitalising on leading multi-channel capabilities. Supporting the retail
businesses is a well invested and increasingly shared infrastructure. The Group
has a clear agenda to deliver long-term growth.
Growth through leveraging purchasing scale
Purchasing scale continues to be leveraged with particular benefit from the
Group-wide overseas buying operations. Buying directly from overseas has grown
to 31% of Group sales, of which 18%, or over £1bn, is directly sourced from
manufacturers, with the balance being purchased via overseas agents. Over 7,500
product lines are sourced directly via our overseas buying offices, and these
are spread across the majority of the Group's product categories. While cost
pressures may build, such as from raw material prices or from foreign exchange
rates, this will impact the market generally and Home Retail Group will utilise
its substantial scale, skills and direct control over its supply chain to
continue to extend advantage over its competitors and provide further benefit to
its customers.
A continuing programme is driving wider cost synergies across the combined
Group. Areas of focus include corporate procurement, media buying, IT services
and property management. There has also been increased focus on the distribution
infrastructure across the Group. Examples of benefits include combined fleet
purchasing, shared backhaul (vehicles returning from store deliveries with
collections from nearby suppliers) and relocating certain Argos Direct outbases
to other Group facilities.
Growth through increasing market share in targeted large product markets
The Group has become the number two in the growth market of consumer
electronics, with Argos clearly demonstrating the strength of its customer offer
with excellent sales in areas such as video games systems, LCD TVs and 'satnav'.
'Big ticket' categories such as furniture and white goods are likely to exhibit
more difficult conditions due to the weakening in the housing market and general
consumer confidence; however, the Group will capitalise on the combined buying
scale, a market-leading home delivery infrastructure, new product presentations
and its in-house financial services operation to continue to drive market share
growth. Homebase also expects to continue its market share progress in kitchens,
and Argos in the sports and leisure market.
At the same time as targeting share growth in 'big ticket' categories, emphasis
will still be placed on maintaining strong positions in 'smaller ticket'
categories. Such categories remain key to the overall performance of the Group,
given that in both businesses average basket values are approximately £20 to
£30.
Growth through extending and exploiting multi-channel leadership
The leadership of Argos in fully integrated multi-channel convenience continues
to build, demonstrated by 37% of its sales now being transacted across more than
one channel. In particular, Argos Check & Reserve is unique in its
functionality, scale and efficiency. With its online presence being well
established, well invested and generating £900m of sales in the last year, Argos
sees the internet as a further key growth opportunity and one that is
significantly enhanced by its physical store presence for additional customer
convenience.
Homebase has embarked on further multi-channel opportunities and continues to
benefit from the scale and expertise of Argos. Homebase utilises the in-house
cost advantage of Argos Direct, the UK's largest home deliverer of bulky
products. Its recently relaunched website will also provide customers with
expanded choice and improved information and functionality, while the 'Furniture
and Home' catalogue, which brings together many of the key elements of the
Homebase customer proposition, was rolled out to all stores in January 2008.
Growth through expanding the store networks
Both Argos and Homebase regularly review their 'extent of chain' across the UK
and Irish markets and will continue their new store opening programmes of around
30 Argos stores and 10 Homebase stores a year. Confidence in the Argos opening
programme comes, in particular, because of its increased product choice that
captures a wider share of customer spend in a catchment and its success in both
high street and out-of-town locations. Confidence in the Homebase opening
programme comes from its now broader home enhancement offer and its successful
smaller store format which allows it to enter smaller catchments and frequently
be the leading customer offer in categories including core DIY, garden and
showroom. Growth is also expected to be achieved from continuing to develop
formats and store presentations to meet the changing needs of customers.
BUSINESS REVIEWS
The following business reviews incorporate pro forma information for the prior
year; this represents the 52 weeks to 3 March 2007 and is therefore a comparable
financial period. The basis of preparation for pro forma restatements is set out
as Appendix 1 on page 22, with reconciliations between pro forma and statutory
reported results provided as Appendix 2 on page 23. These pro forma restatements
are unchanged from those previously provided on 2 May 2007.
Argos
__________________________________________________________________________________
52 weeks to 1 March 2008 3 March 2007
Sales (£m) 4,320.9 4,164.0
Benchmark operating profit (£m) 376.2 325.0
Benchmark operating margin 8.7% 7.8%
__________________________________________________________________________________
Like-for-like change in sales 0.7% 2.4%
Net new space contribution to sales change 3.1% 5.5%
Total sales change 3.8% 7.9%
Gross margin movement Up c.50bps c.0bps
Benchmark operating profit change 16% 9%
Number of stores at year-end 707 680
Of which Argos Extra stocked-in 278 238
__________________________________________________________________________________
As the UK's leading general merchandise retailer, Argos provides a unique offer
of choice, value and convenience that continues to grow in popularity with
consumers.
Operational review
The UK's leading general merchandise retailer
Argos has further strengthened its position of market leadership with sales
growth of nearly 4% to £4.3bn in the year. Sales benefited in particular from an
excellent performance in one of the market's fastest growing product categories,
video games systems, and Argos extended market share in other fast-growing
technology areas of LCD TVs and 'satnav'. Share was also gained in other more
subdued or declining markets, notably pre-pay mobile phones, digital cameras,
white goods and toys. Markets were difficult in older technology areas such as
audio and VCR/DVD, while the jewellery market also remained difficult for Argos
albeit on an improving trend to recent years.
Choice further expanded
The current Spring/Summer catalogue has been expanded to a record 18,500 lines.
This is around 1,800 more lines than the equivalent edition last year, following
a similar 1,500 line step-change in the preceding Autumn/Winter 2007 catalogue.
Today's customer offer includes 10,400 catalogue lines available for immediate
collection in virtually all 707 stores, an additional 3,700 lines available in
the Argos Extra stores and 4,400 lines of large products that are for home
delivery only.
Growth in customer choice has been driven by range extensions in over 50
categories and around 20 new product areas. Significant areas of range expansion
include children's bedroom furniture, eco-friendly products, fitness and outdoor
pursuits clothing and accessories, and many areas of technology. The latest
catalogue has also seen further expansion of the Argos Guide pages, particularly
within technology and furniture. Choice from leading premium third-party brands
is further supported by 'brand shops' within the catalogue for manufacturers
including Apple, Dyson and Sony.
Value further extended
Argos has continued to demonstrate its ability to lower prices for its
customers. In the Autumn/Winter catalogue, prices on reincluded lines were down
by approximately 5%, one of the highest ever levels of reduction and partly
driven by the favourable dollar exchange rate environment. In the current
catalogue, the average price reduction across some 8,000 reincluded lines is
approximately 4%. The ongoing move to more direct buying of overseas product has
been a key driver of lower prices; around 32% of sales are on this basis, of
which more than half is now directly sourced from the manufacturer.
As the market leader in many categories and often with as wide a choice as a
specialist, Argos presents ranges that offer entry price point products through
to premium products and brands. To strengthen further its position in markets
such as small domestic appliances, consumer electronics and housewares, Argos
has introduced its own Argos Value range of products, with prices starting as
low as £2.
Convenience further enhanced
Superior customer convenience continues to be driven by Argos' fully-integrated
multi-channel leadership position. A combined 37% of all Argos' sales are now
ordered or fulfilled across more than one channel. Within this, total internet
orders grew nearly one-third to around £900m and now represent 21% of all sales.
Sales of over £500m were from internet orders for pick-up in store, an increase
of 50% in the year. The popularity of this market-leading Check & Reserve
service - either online, by phone or by text - is such that, on average, over
40,000 reservations are collected daily. Check & Reserve accounted for 15% of
Argos' sales overall, and reached as high as 25% during the Christmas weeks.
Argos also continues to enhance its website functionality. As part of a
three-year e-commerce programme to consolidate on its market-leading position,
www.argos.co.uk was relaunched in September 2007 with a complete upgrade to both
design and operation. The major changes included greatly enhanced site
navigation, search functionality and better product and service information. The
upgrade also saw increased transaction security and the implementation of
promotional voucher capability ahead of Christmas.
The success of Argos' multi-channel model has also led to developments in the
marketing mix. Email campaigns have become more sophisticated, and now include
customer segmentation, dynamic product content to further meet specific customer
needs, as well as special offers targeting active but low frequency customers.
Argos has built an email database of over five million customers, one of the
largest in the UK.
Kiosk technology brings together store format and multi-channel developments.
Over the year, the number of stores with kiosks doubled; there are now 1,800 in
place across all UK stores. The physical positioning of kiosks, in-store staff
on-hand at peak times to assist customer awareness, together with the growth in
Check & Reserve, have led kiosk participation of in-store sales to rise from an
average of 12% to 17%.
Store portfolio expansion and development
The total number of stores increased by a net 27 to reach 707 at the end of the
year. Of the 31 gross openings, 13 were stores in new catchments while 18 were
openings in an existing catchment. Four stores closed in the year; in each case
these were Call & Collect stores where there are now stocked-in stores open in
the catchment; only six Call & Collect stores remain. Three store relocations
were also completed in the year.
The proportion of Argos Extra stores also continues to increase. There are now
278 fully stocked-in Extra stores representing 39% of the portfolio; virtually
all new stores were opened as Extras and an additional 10 conversions were
completed in the year. There are also a further 71 stores that now carry an
edited selection of the Argos Extra range; these 'partial Extra' stores provide
customers with a choice of even more products to take home immediately and
generate sales from better-utilised space. The sales penetration of Extra ranges
is low single-digit in ordered-in stores, while fully stocked-in stores achieve
a low double-digit level on average, demonstrating the benefit of Argos'
immediate fulfilment model.
There are additional store format trials in place. In densely urbanised areas,
the lack of suitable locations for standard-sized Argos stores has led to
under-representation in these areas. Over the last year, Argos has trialled a
smaller format store and is now refining the model to reduce the customer area
further and edit the stocked-in range while still meeting customer requirements
for wide choice and immediate fulfilment. Other format trials include displaying
furniture room sets in some larger stores in order to drive the quality
perception and an improved awareness of the breadth of the furniture offer, and
a series of store presentation and service trials to test opportunities to
increase the jewellery and watch participation in relevant store locations by
achieving a customer re-appraisal of the overall offer.
Analysis of the 'extent of chain' supports multiple years of new store growth.
Argos has opened nearly 250 stores or an average of approximately 30 stores a
year since 2000. In assessing future potential, analysis takes into account the
substantially expanded range, the fact that Argos trades successfully from both
traditional high street and out-of-town retail park formats and the potential
opportunities in specific areas such as London and the Republic of Ireland.
Taking all this into account, Argos currently sees an extent of chain that
supports continuing to open around 30 stores a year.
Cost efficiency
A key feature of the successful profit outcome for the year has been exceptional
cost management throughout the business. Initiatives have included carrying
increased numbers of product lines in store for immediate collection, booking
delivery slots at the point of order, new processes for handling deliveries of
multiple products, achieving production efficiencies in flyer publications and
improving the transport methods for deliveries to stores. Each of these
contributed towards cost productivity, while dealing effectively with the late
Christmas sales pattern also provided an additional productivity benefit.
There have also been distribution network efficiency improvements. The opening
of the new purpose-built direct importing facility at Kettering allowed the
Argos Direct imported lines previously managed at the Corby facility to be
transferred for greater scale benefit. In turn, this facilitated further
consolidation of product ranges into Corby, allowing a rented facility at
Wolverhampton to be closed.
In the new financial year, continued optimisation will see the least efficient
regional distribution centre (RDC) at Castleford relocate the majority of its
operations to the five remaining RDCs. The centralised jewellery warehousing
operation that also runs from Castleford will be transferred to a new, smaller,
dedicated facility.
Financial review
Sales in the 52 weeks to 1 March 2008 increased by 3.8% in total; like-for-like
sales grew by 0.7%. There was exceptional growth in video games systems
throughout the year, while further strong growth in flat panel TV sales had
moderated by the end of the year. Good growth was achieved in 'satnav', mobile
phones, digital cameras and accessories. Older technology areas of audio, VCR/
DVD and landline phones were weaker. Furniture and homewares categories showed
signs of more difficult market conditions towards the end of the year.
The contribution to sales from net new space was 3.1%. Next year's store opening
programme is expected to produce a contribution of between 3% and 4%.
Gross margin was ahead by approximately 50 basis points for the year. In the
first half some foreign exchange benefits were retained within the business; in
the second half these benefits, together with ongoing supply chain gains, were
fully passed on to the customer with a greater level of investment in lower
prices over the peak trading period.
Operating costs grew in total by approximately 2%, of which underlying inflation
was approximately 3%. Non-inflationary costs therefore declined by approximately
1%, representing an exceptional five percentage points of productivity when
compared to the level of total sales growth. This was achieved by continued cost
control programmes and leverage from the ongoing new space programme. While
further cost control and efficiency measures are planned, a significantly lower
level of productivity gains is anticipated in the new financial year.
Benchmark operating profit for the 52 weeks to 1 March 2008 grew 16% to a record
£376.2m as a combined result of sales growth, gross margin expansion led by
short-term external factors, and exceptional cost management.
Homebase
__________________________________________________________________________________
52 weeks to 1 March 2008 3 March 2007
Sales (£m) 1,568.5 1,594.2
Benchmark operating profit (£m) 45.1 53.4
Benchmark operating margin 2.9% 3.4%
__________________________________________________________________________________
Like-for-like change in sales (4.1%) (1.4%)
Net new space contribution to sales change 2.5% 3.6%
Total sales change (1.6%) 2.2%
Gross margin movement Up c.250bps Up c.300bps
Benchmark operating profit change (16%) 4%
Number of stores at year-end 331 310
Of which contain a mezzanine floor 181 165
Store selling space at year-end ('000 sq ft) 15,398 14,560
Of which - garden centre area 3,505 3,304
- mezzanine floor area 1,909 1,776
__________________________________________________________________________________
Homebase is positioning itself as the UK's leading home enhancement retailer.
Operational review
Trading strategy
The DIY 'sheds' market has seen flat sales over the year, with a further decline
in sales excluding net new space. Homebase's like-for-like performance has this
year lagged the wider market, driven by its greater exposure to the seasonals
market which suffered on adverse weather conditions during the first half of the
year. Over the latter stages of the year, Homebase's markets in general began to
show evidence of the onset of the consumer slowdown. In these volatile and
increasingly challenging trading conditions, Homebase has performed well
operationally; most importantly, its trading strategy through the year has been
to continue gross margin progress.
Sourcing and supply chain gains have driven the gross margin progress. By
leveraging the scale and expertise of the Group, Homebase has made further
excellent progress with more product being directly bought from overseas. Some
28% of sales are now on this basis and over half of this is being sourced
directly from the manufacturer. A continuation of this strategy is expected to
deliver further gross margin benefits with the aim of increasing the gross
margin by approximately 100 basis points in each of the next two years, although
this is clearly dependent on the trading and foreign exchange environments.
Customer offer development
Homebase has produced a resilient performance in the 'big ticket' category with
excellent growth in a broadly flat kitchen market, as well as share being held
in a weakening furniture market. The national roll-out of the installation
service has been the key driver of the performance in kitchens. The service has
driven both incremental product sales and supported sales of higher value
ranges. Customer satisfaction and recommendation levels continue to be very high
. Some 600 kitchen displays in around 100 stores will be refreshed in the new
financial year.
Ongoing range reviews also continue to drive category performances. Key range
developments that supported a good performance in homewares included textiles,
cookshop and home accessory areas, while wider ranges of tiling, flooring and
lighting have also recently been developed. Around 40% of the garden power range
is new for 2008, and the Homebase 'Powerbase' tools range has been relaunched
with new-look products and packaging. The rolling programme of range reviews
will continue through the new financial year.
Supporting the broader home enhancement offer, a single 'Furniture and Home'
catalogue has been made available in all stores, replacing the smaller
'Furniture Extra' brochure that was in around two-thirds of the portfolio. Its
increased 232 pages present over 1,500 furniture lines and a further 800
home-related accessories. The coordinated ranges and 'create the look' features
in the catalogue are also presented through in-store displays in two-thirds of
the store portfolio.
Homebase has begun a partnership with Cornwall's 'Eden Project' in a year-long
study into sustainable living. This will analyse in detail consumers' energy,
recycling, waste and water usage, in order to direct practical lifestyle
changes. Homebase's Spend & Save database was used to canvas families and ask
for volunteers for the project. Data from the study will be used to develop
future ranges as part of Homebase's ongoing 'Ecohome' environmental campaign to
help customers make informed purchasing decisions.
Store portfolio expansion and development
Excluding stores acquired from Focus DIY, 14 new stores were opened, five were
closed and a further four were relocated. Of the newly opened stores, the
majority were in the successful smaller format consisting of less than 25,000
square feet internal ground floor area (compared to a portfolio average of
36,000), and typically feature an 8,000 to 10,000 square foot mezzanine floor
and a similar sized garden centre. These smaller stores are significantly
differentiated, remain authoritative across the broader home enhancement market,
and are designed to provide an unrivalled customer offer in smaller catchments.
'Extent of chain' analysis supports multiple years of new store growth, with a
programme in place of continuing to open around 10 new stores a year.
The acquired Focus DIY stores will add further new space leverage. By the
year-end, Homebase had already relaunched 12 of the acquired stores; the
remaining nine of the net 21 stores to be integrated have either opened since
the year-end or will do so in the coming weeks.
Further store portfolio investment opportunities exist. In approximately 70
stores that have received minimal or no investment for a number of years, trials
to test a low-cost refurbishment continue to produce the required sales uplifts.
As previously indicated, plans will be further developed once the Focus DIY
conversion programme and the 2008 peak trading season are completed.
Multi-channel development
A relaunch of www.homebase.co.uk was completed in March 2008. Significant
improvements include enhanced navigation and search, better promotional
capabilities, improved 'how to' and buyer guides, and the launch of an online 3D
kitchen planner to further support the success of kitchen sales and
installations. There are now over 10,000 Homebase products to research from
home, with around a third of these available for home delivery. The site also
continues to embed relevant products from the Argos product pool. The new site
supports the Homebase store card and Spend & Save loyalty card offerings.
Additional transactional ranges and further developments are planned in the new
financial year.
Operational improvements
There is a continued emphasis on operational improvements throughout the
Homebase business, and as part of Home Retail Group, there has been a series of
step-changes in improving the retail basics. The ongoing '300 to 1' programme is
driving consistency of store operations, leading to reduced costs while
benefiting customer service. This and other programmes have continued to improve
fundamental operational measures around customer experience, employee engagement
and on-shelf availability.
Homebase has also made distribution network improvements. It completed the
relocation of its national distribution centre for small items and high-value
products to a new 350,000 square foot site at Wellingborough. The four-month
migration programme required the relocation of around 10,000 product lines from
approximately 300 suppliers.
Financial review
Sales in the 52 weeks to 1 March 2008 declined by 1.6% in total; like-for-like
sales declined by 4.1%. Weakness in the first half of the year was driven by
adverse weather conditions over the May to August period, with non-seasonal
categories generally stable. A more difficult overall environment through the
second half saw like-for-likes worsen, with the impact broadly similar across
the business. One exception was kitchens, which has been a consistently strong
category throughout the year; there were also good performances within areas of
homewares and decorating.
The contribution to sales from net new space was 2.5%. Next year's store opening
programme is expected to produce a contribution of between 3% and 4%, with an
approximate 5% contribution to come from the acquired Focus DIY stores.
Gross margin was ahead by approximately 250 basis points for the year. Ongoing
supply chain initiatives together with foreign exchange benefits were the
principal drivers of this improvement over the year, with an additional benefit
in the first half from the improvements in stock management procedures.
Operating costs grew in total by approximately 5%, of which underlying inflation
was approximately 3%. Non-inflationary cost growth was therefore approximately
2%, principally reflecting the additional investment in new space that was
back-end weighted in the year. One-off increases in distribution costs as a
result of the warehouse relocation, together with onerous lease costs on its
underperforming stores, were broadly offset by one-off benefits principally from
store-related property transactions in the year. There will be continued cost
control and containment programmes throughout the business in the new financial
year.
Benchmark operating profit for the 52 weeks to 1 March 2008 declined 16% to
£45.1m as a result of the decline in underlying sales, which was partially
offset by further gross margin progress.
Financial Services
_________________________________________________________________________________
52 weeks to 1 March 2008 3 March 2007
Sales (£m) 95.4 93.2
Benchmark operating profit before financing costs 25.1 22.8
Financing costs (19.6) (17.8)
______________________
Benchmark operating profit (£m) 5.5 5.0
_________________________________________________________________________________
1 March 2008 3 March 2007
Store card gross receivables 482 448
Personal loans gross receivables 9 24
______________________
Total gross receivables 491 472
Provision (59) (55)
______________________
Total net receivables 432 417
Provision % of gross receivables 12.0% 11.7%
_________________________________________________________________________________
Financial Services works in conjunction with Argos and Homebase to provide their
customers with the most appropriate credit offers to drive product sales, and to
maximise profit from the transaction for Home Retail Group.
Operational review
The store card operations continue to drive retail sales. £566m of Group retail
sales were funded by the store cards, with the penetration rate increasing to
8.5%.
Promotional credit is a key enabler of driving gains in 'big ticket' categories.
Approximately 75% of all credit sales were on promotional credit terms; the
cards offer a range of three, six, nine and 12 month 'buy now, pay later' plans.
The offer is also fully multi-channel, with the availability of credit being a
feature on both www.argos.co.uk and www.homebase.co.uk.
There has been successful expansion of ancillary businesses. The joint venture
with Barclays Bank PLC has seen good take-up of the Argos credit card launched
in May 2007. Direct insurance arrangements have also seen good progress, with
significant growth in pet insurance in particular.
Financial review
Financial Services' financial objective is to achieve a return in line with
financial services industry norms on the revolving (i.e. interest-bearing)
element of receivables; the provision of promotional credit products is
recharged at cost to the Argos and Homebase businesses. The benchmark operating
result of £5.5m for the year therefore reflects this arrangement, with the cost
advantage versus third-party promotional credit provision being recognised in
Argos and Homebase benchmark operating profits.
Total gross receivables grew by £19m, with a £34m increase in store card
operations partially funded by the £15m reduction in the planned run-off of the
on-balance sheet personal loans operation.
There was a small increase in provision levels over last year, driven by the
run-off of personal loans; delinquency rates for the store card operations were
marginally lower than the prior year. The increase in financing costs reflects
the growth in receivables as well as a higher internal rate being charged to
reflect the movement in funding costs. A corresponding benefit is recognised in
Group net interest income.
New development opportunities
Home Retail Group is developing the Argos retail format in India in a strategic
partnership arrangement with leading Indian department store retailer Shoppers'
Stop and hypermarket format HyperCITY. Argos is providing its brand, catalogue
and multi-channel expertise and IT support. The development is approximately
half-way through an initial trial phase and, if successful, would see any future
development continue under a franchise arrangement.
The business, trading under the 'HyperCITY-Argos' brand name, is based largely
on the existing Argos multi-channel proposition. To date, six stores have opened
in the Mumbai region to support the October 2007 launch of the first edition of
the catalogue which contained 4,700 lines. A number of store formats are being
tested, including catalogue stores similar to those of Argos in the UK, a
display store showcasing a greater amount of the product range, and small stores
where stock can be ordered for later customer collection. The stores are
currently supported by a non-transactional website, www.hypercityargos.com, a
call centre operation and a home delivery operation. The second edition of the
catalogue has recently launched, and the next stages of the trial include
further stores being added and the website becoming fully transactional.
A second opportunity being developed is the HomeStore&More out-of-town homewares
format. The Group paid £6.8m to acquire a 33% stake in the Irish operator of
this format, with the investment being used to expand the business throughout
Ireland; three stores were opened in the year taking the chain to five, with
further openings expected in the next 12 months. In terms of mainland UK, Home
Retail Group is developing its own wholly-owned version of the format. The first
store opened in October 2007 in Aylesbury, Buckinghamshire, and a second store
opened in March 2008 in Cambridge. Further UK stores are expected to be added
over the next 12 months and there are ongoing reviews of potential adaptations
to the product mix and format.
The success of both these ventures will continue to be monitored over their
initial trial phases.
Central Activities
________________________________________________________________________________
52 weeks to 1 March 2008 3 March 2007
Central Activities (£m) (28.8) (24.0)
________________________________________________________________________________
Central Activities represents the cost of central corporate functions and the
investment costs of new development opportunities. Corporate functions costs
were held broadly flat; the overall cost growth of £4.8m in the year reflected
the first year of the India and HomeStore&More trials. As previously announced,
during the second year of the trials a similar cost of approximately £5m is
expected.
GROUP FINANCIAL REVIEW
Sales and operating profit
Sales for the Group grew 2.3% to £5,984.8m (2007 pro forma: £5,851.4m) and
benchmark operating profit grew 11% to £398.0m (2007 pro forma: £359.4m). Group
benchmark operating margin was 6.7% (2007 pro forma: 6.1%). The drivers of this
performance have been analysed as part of the preceding business reviews.
Net interest income
Net interest income was £33.3m (2007 pro forma: £16.6m). Third party net
interest income of £13.7m (2007 pro forma: expense of £1.2m) was earned on the
Group's improved average net cash position. A particularly favourable
environment for deposit rates was also a driver. A further credit of £19.6m
(2007 pro forma: £17.8m) reflects the financing costs charged within Financial
Services' benchmark operating profit.
In the prior year, interest costs attributable to the GUS capital structure
prior to the demerger were £46.1m and have been excluded from 2007 pro forma
benchmark PBT.
Share of post-tax results of joint ventures and associates
These amounted to an income of £1.6m (2007: £0.7m). Within this, there was a
£2.8m gain on disposal of the Group's 33% holding in AAGUS, a consumer finance
company in The Netherlands. The residual loss reflects the Group's share of the
initial start-up costs incurred by the financial services joint venture with
Barclays Bank PLC.
Exceptional items
An exceptional pre-tax income of £0.8m was recorded for the year. This
represents the release of a £20.2m accrual in respect of previous GUS-related
long-term incentive schemes that were settled in June 2007, offset by Homebase
store impairment charges of £10.3m (2007: £4.1m) and costs relating to the
post-acquisition integration of certain Focus DIY stores of £9.1m.
In the prior year, exceptional pre-tax items also included demerger-related
costs of £11.3m and a charge in relation to the waiver of a loan note due from
Experian of £7.3m. Within the prior year's net financing costs, £6.9m of
exceptional income related to the gain made on transfer of an interest swap
associated with a financing facility novated from GUS plc on demerger.
Costs related to demerger incentive schemes
These amounted to £11.7m (2007: £5.8m). As previously announced, these costs are
expected to amount to a maximum of £40m, to be charged to the income statement
over the three-year period commencing from the date of the demerger in October
2006, and are excluded from benchmark PBT.
Financing fair value remeasurements
Changes in the fair value of certain financial instruments are recognised in the
income statement within net financing costs. These amounted to charges of £9.0m
(2007: £0.1m). The increase is principally the result of currency translation
differences on overseas subsidiary balances, with an equal and opposite
adjustment being recognised as a movement in reserves.
Financing impact on retirement benefit balances
The credit through net financing costs in respect of the excess of expected
return on retirement benefit assets over the interest expense on retirement
benefit liabilities amounted to £13.0m (2007 pro forma: £12.3m). The current
service cost, which Home Retail Group believes to be a fairer reflection of the
cost of providing retirement benefits, is already reflected in benchmark
operating profit.
Profit before tax
Benchmark profit before tax grew 15% to £432.9m (2007 pro forma: £376.7m).
Reported profit before tax was £426.0m (2007: £296.9m).
Taxation
Taxation attributable to benchmark PBT was £138.5m (2007 pro forma: £122.1m),
representing an effective tax rate (excluding joint ventures and associates) of
32.1% (2007 pro forma: 32.5%). The improvement in the effective rate largely
reflects a growth in profits while the absolute level of disallowable
expenditure for tax purposes has remained broadly level.
Taxation attributable to exceptional items amounted to a charge of £1.0m (2007:
£5.3m). In the year being reported there was also an exceptional corporation tax
credit of £12.6m arising from the settlement of a number of historic tax
computations, together with an exceptional deferred tax charge of £5.9m relating
to the re-estimation of qualifying assets. Total exceptional tax in the year
therefore amounted to a credit of £5.7m.
The reported effective tax rate was 30.8% (2007: 36.9%), representing a total
tax expense for the period of £131.4m (2007: £109.5m).
Number of shares and earnings per share
The number of shares for the purpose of calculating basic earnings per share
(EPS) is 867.7m (2007: 869.6m), representing the weighted average number of
issued ordinary shares of 877.4m (2007: 877.4m), less the weighted average
ordinary shares held in Home Retail Group's Employee Share Ownership Trust
(ESOT) of 9.7m (2007: 7.8m).
The calculation of diluted EPS reflects the potential dilutive effect of
employee share incentive schemes in place post demerger. This increases the
number of shares for diluted EPS purposes by 9.6m (2007: 7.6m) to 877.3m (2007:
877.2m).
Basic benchmark EPS is 33.9p (2007 pro forma: 29.3p), with diluted benchmark EPS
of 33.6p (2007 pro forma: 29.0p). Reported basic EPS is 34.0p (2007: 21.6p),
with reported diluted EPS of 33.6p (2007: 21.4p).
Dividends
Home Retail Group's dividend policy remains to target dividend cover over the
medium term of around two times, based on full-year basic benchmark EPS.
A final dividend of 10.0p (2007: 9.0p) is being recommended by the Board, making
14.7p for the year (2007: 13.0p). Based on basic benchmark EPS of 33.9p (2007
pro forma: 29.3p), this represents cover of 2.31 times (2007 pro forma:
2.25 times). Based on reported basic EPS of 34.0p (2007: 21.6p), it represents
cover of 2.31 times (2007: 1.66 times).
The final dividend, subject to approval by shareholders at the AGM, will be paid
on 23 July 2008 to shareholders on the register at the close of business on 23
May 2008.
Cash flow and closing net cash position
_________________________________________________________________________________
Period to 1 March 2008 3 March 2007
(52 weeks) (Short period)
Benchmark operating profit 398.0 359.4
Change of year-end pro forma adjustments - (25.7)
Exceptional items within operating profit 0.8 (22.7)
Demerger incentive scheme costs (11.7) (5.8)
________________________
Statutory operating profit after exceptional items 387.1 305.2
Depreciation and amortisation 151.6 146.4
________________________
Statutory EBITDA 538.7 451.6
Movement in working capital (48.1) 127.2
Finance expense charged to FS cost of sales 19.6 16.4
Adjustments for other non-cash operating items 54.0 25.7
________________________
Cash flows from operating activities 564.2 620.9
Net interest 15.1 (37.8)
Taxation (95.1) (101.6)
Net capital expenditure (207.9) (158.6)
Acquisitions and disposals (46.2) (3.8)
Loan to joint venture - (8.1)
________________________
Cash inflow before financing activities 230.1 311.0
Dividends paid (118.9) (34.6)
Share of GUS plc final dividend - (62.0)
Repayment of amounts to GUS plc - (50.3)
Repayment of borrowings (225.1) (1.2)
Other financing activities 2.3 (6.1)
________________________
Net (decrease)/increase in cash and cash equivalents (111.6) 156.8
_________________________________________________________________________________
Opening cash and cash equivalents 283.8 130.0
Net cash (outflow)/inflow (111.6) 156.8
Effect of foreign exchange rate changes 1.8 (3.0)
________________________
Closing cash and cash equivalents 174.0 283.8
Closing borrowings - (223.6)
________________________
Closing net cash 174.0 60.2
_________________________________________________________________________________
Cash flows from operating activities were £564.2m (2007: £620.9m). As the prior
year was a short period of approximately 11 months due to the change in
year-end, there was a benefit in the prior year from the exclusion of March,
which is typically a significant cash outflow month in terms of working capital.
Excluding this, underlying growth in operating cash flow was therefore driven
principally by the growth in profits.
A net interest inflow of £15.1m (2007: outflow of £37.8m) reflects improved cash
generation and higher rates of interest earned, together with the removal of the
impact from the previous GUS capital structure up to the point of demerger.
Net capital expenditure was £207.9m (2007: £158.6m), with the increase
principally driven by a full 52-week period together with an additional £19m in
relation to the expected £30m programme to refit the acquired Focus DIY stores.
Overall, a broadly similar level of Group capital expenditure is expected in the
next financial year.
Cash outflows in relation to acquisitions and disposals reflects £39.6m to
purchase 27 store properties from Focus DIY, £6.8m to acquire a 33% holding in
the Irish homewares business 'Home Store + More', proceeds of £3.9m from the
disposal of the Group's 33% holding in AAGUS, and associated costs related to
these transactions.
Cash flows in relation to financing activities in the year principally reflect
dividend payments to shareholders, together with the use of cash balances to
repay in full a £225m borrowing arrangement inherited from GUS plc on demerger.
The Group's net cash position at 1 March 2008 was therefore £174.0m, an increase
of £113.8m on the opening net cash position at 3 March 2007 of £60.2m.
Balance sheet and return on capital
_______________________________________________________________________________
As at 1 March 2008 3 March 2007
Goodwill 1,922.7 1,878.9
Other intangible assets 83.7 73.4
Property, plant and equipment 731.8 691.6
Inventories 1,004.8 906.4
Instalment receivables 432.0 416.8
Other trading assets 196.8 188.3
________________________
4,371.8 4,155.4
Trade and other payables (1,130.8) (1,059.1)
Other trading liabilities (101.5) (84.5)
________________________
(1,232.3) (1,143.6)
________________________
Invested capital 3,139.5 3,011.8
Retirement benefit assets 83.7 9.3
Net tax liabilities (52.0) (2.6)
Net cash 174.0 60.2
________________________
Reported net assets 3,345.2 3,078.7
_______________________________________________________________________________
Invested capital amounted to £3,139.5m, an increase of £127.7m on the year-end
balance sheet at 1 March 2007. Higher goodwill reflects the Focus DIY stores
acquisition, while growth in property, plant and equipment is driven by the
increase in stores. Inventory levels were higher principally due to the growth
in operations, increased overseas sourcing and the earlier timing of Easter;
this higher inventory was largely offset by the increase in payables.
Reported net assets amounted to £3,345.2m, an increase of £266.5m. The further
two key drivers of this movement were the £113.8m increase in net cash and the
£74.4m improvement in the retirement benefit assets valuation. Total reported
net assets are equivalent to 386p per share, excluding shares held in the ESOT
(2007: 354p).
Benchmark pre-tax return on invested capital is a key performance measure for
the Group. Benchmark operating profit plus share of post-tax results of joint
ventures and associates was £399.6m, up £39.5m or 11%, while year-end invested
capital grew by 4%. This led to pre-tax ROIC increasing to 12.7%, representing a
70 basis point improvement on the previous balance sheet date.
Capital structure
The Group finances its operations through a combination of retained profits,
property leases and bank borrowings where necessary. The Group's net cash has
varied throughout the year due to trading seasonality.
The Group has significant liabilities through its obligations to pay rents under
operating leases. The capitalised value of these liabilities is £2,758m based
upon a simple eight-times multiple of last year's operating lease charge, or
£3,057m based upon discounted cash flows of the expected future operating lease
charges. In common with the credit rating agencies, the Group treats its lease
liabilities as debt when evaluating financial risk.
As an independent company, Home Retail Group has demonstrated two years of
strong profit growth and cash generation. However, since the outlook for
consumer spending looks weaker, the Board is mindful of maintaining flexibility
through a prudent balance sheet approach. This will offer further resilience
during any shorter-term macro-driven slowdown, while not constraining continued
investment in value-enhancing longer-term growth opportunities. The Board will
continue to review its capital structure to ensure that it remains appropriate.
Retirement benefit assets
The Group provides a number of post-employment benefit arrangements covering
both funded defined benefit and defined contribution schemes. Pension
arrangements are operated principally through the Home Retail Group Pension
Scheme, a defined benefit scheme, together with the Home Retail Group Stake
Holder Pension Scheme, a defined contribution scheme. The IAS 19 surplus as at 1
March 2008 for the UK defined benefit scheme was £83.7m (2007: £9.3m).
Liquidity and funding
The Group maintains liquidity by arranging funding ahead of requirements and
maintaining sufficient un-drawn committed facilities to meet short-term needs.
At 1 March 2008, the Group had un-drawn committed borrowing facilities available
of £700m, which expire in 2012. These facilities are in place to enable the
Group to finance its working capital requirements and for general corporate
purposes.
Treasury policy and risk management
The Group's treasury function seeks to reduce exposures to foreign exchange,
interest rate and other financial risks, and to ensure sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably. Its policies and procedures are subject to review and approval by
the Board.
Counterparty credit risk management
The Group's exposure to credit risk is managed by dealing only with banks and
financial institutions with strong credit ratings and within limits set for each
organisation. Dealing activity is closely controlled and counterparty positions
are monitored daily.
Interest rate risk management
The Group's principal objective is to manage the trade-off between the effective
rate of interest and the impact of interest rate volatility. Exposure would be
managed by the use of fixed and floating rate facilities and by the use of
interest rate swaps to adjust the balance of fixed and floating rates.
Currency risk management
The Group's key objective is to reduce the effect of exchange rate volatility on
profits. Transactional currency exposures that could significantly impact the
income statement are hedged using forward purchases of foreign currencies.
Share price and total shareholder return
The Group's share price ranged from a low of 259.0p to a high of 497.5p during
the financial year. On 29 February 2008, the closing mid market price was
259.0p, giving a market capitalisation of £2.3bn at the year-end.
Total shareholder return (the change in the value of a share including
reinvested dividends) has been a decline of 36.4% over the year. This compares
to a decline of 36.0% in the total shareholder return for the FTSE 350 General
Retail sector. The wider FTSE 100 saw a more limited decline of 0.4% over the
same period.
Accounting standards and use of non-GAAP measures
The Group has prepared its consolidated financial statements under International
Financial Reporting Standards for the 52 weeks ended 1 March 2008. The basis of
preparation is outlined in Note 1 to the Financial Information on page 30.
The Group has identified certain measures that it believes provide additional
useful information on the underlying performance of the Group. These measures
are applied consistently but as they are not defined under GAAP they may not be
directly comparable with other companies' adjusted measures. The non-GAAP
measures are outlined in Note 2 to the Financial Information on page 30.
Appendix 1. Basis of preparation for prior year pro forma restatement
Reporting periods
Home Retail Group previously reported as part of GUS plc on a calendar year-end
to 31 March, with half-year results reported as the six months to 30 September.
Within this, to avoid distortion in the financial results relating to the timing
of Easter, Homebase was consolidated on a non-coterminous 12 months to 28
February basis. For half-year results, Homebase was therefore consolidated on a
seven months to 30 September basis, with the second half of its financial year
comprising only a five-month period.
As a result of the change in year-end during the previous financial year, Home
Retail Group reported on a statutory basis the financial period ended 3 March
2007. This included the results for Homebase from 1 March 2006 (approximately 12
months) and the results for the rest of the Group from 1 April 2006
(approximately 11 months). The latest financial year, as reported today, is a
52-week period commencing 4 March 2007 and ending on 1 March 2008.
For comparative purposes, the financial year 2006/07 restated on a pro forma
basis is the 52-week period commencing 5 March 2006 and ending on 3 March 2007.
A reconciliation between this pro forma and statutory reported period is shown
as Appendix 2.
Central Activities
Central Activities represents the cost of central corporate functions. As part
of GUS, Home Retail Group was not recharged for these types of costs. However,
for the purposes of preparing demerger financial information, an approximation
was made of the amount of GUS corporate head office costs to apportion to Home
Retail Group. These apportioned costs were not representative of either the
historical costs Home Retail Group would have incurred or the costs it will
incur going forward.
As part of the pro forma restatements, Home Retail Group has therefore
approximated the additional costs of central corporate functions it would have
incurred over and above that apportioned to it by GUS. This has been done on the
basis that it had operated as a standalone plc through the periods being
restated.
Capital structure and net interest
As part of the demerger, Home Retail Group was allocated pro forma net debt as
at 31 March 2006 of £200m. For the purposes of preparing pro forma results, net
interest income has been calculated to illustrate the impact on the Group's
financial performance as if this capital structure had existed at 31 March 2006
and had been achieved based on the underlying cash flows prior to 31 March 2006.
The additional net interest costs attributable to the actual GUS capital
structure that was in place over the periods are shown separately.
Other income statement items
Other non-trading income statement items have not been restated as they are not
impacted by the change of year-end. These are principally exceptional items,
costs related to demerger incentive schemes and financing fair value
remeasurements.
Appendix 2. Reconciliation between pro forma and statutory reported period
£m Short period Pro forma 52 weeks to
to 3 March restatement 3 March 2007
2007
Argos 3,912.8 251.2 4,164.0
Homebase 1,606.3 (12.1) 1,594.2
Financial Services 87.6 5.6 93.2
___________________________________
Sales 5,606.7 244.7 5,851.4
Cost of sales (3,680.5) (171.7) (3,852.2)
___________________________________
Gross profit 1,926.2 73.0 1,999.2
Net operating expenses before exceptional
items and costs related to demerger
incentive schemes (1,592.5) (47.3) (1,639.8)
___________________________________
Argos 300.9 24.1 325.0
Homebase 51.2 2.2 53.4
Financial Services 4.5 0.5 5.0
Central Activities (22.9) (1.1) (24.0)
___________________________________
Benchmark operating profit 333.7 25.7 359.4
Pro forma net interest income (see below) n/a 16.6 16.6
Share of post-tax results of joint ventures
and associates 0.7 - 0.7
___________________________________
Benchmark PBT n/a 42.3 376.7
Net interest costs attributable to GUS
capital structure (see below) (21.0) (18.2) (39.2)
Exceptional items included in operating
profit (22.7) - (22.7)
Costs related to demerger incentive schemes (5.8) - (5.8)
Financing fair value remeasurements (0.1) - (0.1)
Financing impact on retirement benefit
balances 12.1 0.2 12.3
___________________________________
Profit before tax 296.9 24.3 321.2
Taxation (109.5) (8.0) (117.5)
of which: taxation attributable to
pro forma benchmark PBT n/a n/a (122.1)
___________________________________
Profit for the period 187.4 16.3 203.7
Pro forma basic benchmark EPS n/a n/a 29.3p
Basic EPS 21.6p 1.8p 23.4p
Number of shares for basic EPS 869.6m - 869.6m
Net interest reconciliation:
Pro forma net interest expense n/a (1.2) (1.2)
Financing costs charged to Financial n/a 17.8 17.8
Services
___________________________________
Pro forma net interest income n/a 16.6 16.6
Interest costs attributable to GUS capital
structure (44.3) (1.8) (46.1)
Exceptional finance income 6.9 - 6.9
Financing costs charged to Financial
Services 16.4 (16.4) -
___________________________________
Net interest costs attributable to GUS (21.0) (18.2) (39.2)
capital structure
Financing fair value remeasurements (0.1) - (0.1)
Financing impact on retirement benefit
balances 12.1 0.2 12.3
___________________________________
Income statement net financing costs (9.0) (1.4) (10.4)
___________________________________
Appendix 3. Future trading statement comparables
Q1
13 weeks to
2 June 2007
Argos
Sales £893m
Like-for-like change in sales 0.9%
Net new space contribution to sales
change 3.6%
___________
Total sales change 4.5%
___________
Guidance on gross margin movement Up c.150bps
Homebase
Sales £463m
Like-for-like change in sales 2.7%
Net new space contribution to sales
change 2.5%
___________
Total sales change 5.2%
___________
Guidance on gross margin movement Up c.300bps
Q2 H1
13 weeks to 26 weeks to
1 Sept 2007 1 Sept 2007
Argos
Sales £942m £1,835m
Like-for-like change in sales 1.8% 1.4%
Net new space contribution to sales
change 3.0% 3.3%
___________ __________
Total sales change 4.8% 4.7%
___________ __________
Guidance on gross margin movement Up c.100bps Up c.125bps
Homebase
Sales £391m £854m
Like-for-like change in sales (8.0%) (2.5%)
Net new space contribution to sales
change 1.8% 2.2%
___________ __________
Total sales change (6.2%) (0.3%)
___________ __________
Guidance on gross margin movement Up c.300bps Up c.300bps
Q3 YTD
18 weeks to 44 weeks to
5 Jan 2008 5 Jan 2008
Argos
Sales £1,919m £3,755m
Like-for-like change in sales (0.2%) 0.6%
Net new space contribution to sales 2.7% 2.9%
change
___________ __________
Total sales change 2.5% 3.5%
___________ __________
Guidance on gross margin movement c.0bps Up c.50bps
Homebase
Sales £498m £1,352m
Like-for-like change in sales (6.3%) (3.9%)
Net new space contribution to sales
change 2.2% 2.2%
___________ __________
Total sales change (4.1%) (1.7%)
___________ __________
Guidance on gross margin movement Up c.200bps Up c.250bps
Q4 H2 FY
8 weeks to 26 weeks to 52 weeks to
1 Mar 2008 1 Mar 2008 1 Mar 2008
Argos
Sales £566m £2,486m £4,321m
Like-for-like change in sales 1.9% 0.3% 0.7%
Net new space contribution to sales
change 3.5% 2.8% 3.1%
__________ __________ __________
Total sales change 5.4% 3.1% 3.8%
__________ __________ __________
Guidance on gross margin movement Down c.50bps Down c.25bps Up c.50bps
Homebase
Sales £217m £715m £1,569m
Like-for-like change in sales (5.3%) (6.0%) (4.1%)
Net new space contribution to sales 4.6% 3.0% 2.5%
change
__________ __________ __________
Total sales change (0.7%) (3.0%) (1.6%)
__________ __________ __________
Guidance on gross margin movement Up c.150bps Up c.200bps Up c.250bps
Consolidated Income Statement
For the 52 weeks ended 1 March 2008
52 weeks ended 1 March 2008 Short period ended 3 March 2007
_____________________________________________________________________________________________________
Before After Before After
exceptional Exceptional exceptional exceptional Exceptional exceptional
items items items items items items
Notes £m £m £m £m £m £m
_____________________________________________________________________________________________________
Revenue 5,984.8 - 5,984.8 5,606.7 - 5,606.7
Cost of sales (3,881.0) - (3,881.0) (3,680.5) - (3,680.5)
_____________________________________________________________________________________________________
Gross profit 2,103.8 - 2,103.8 1,926.2 - 1,926.2
Net operating
expenses 3 (1,717.5) 0.8 (1,716.7) (1,598.3) (22.7) (1,621.0)
_____________________________________________________________________________________________________
Operating profit 386.3 0.8 387.1 327.9 (22.7) 305.2
_________________________________________________________________________
- Finance income 62.3 - 62.3 55.5 6.9 62.4
- Finance expense (25.0) - (25.0) (71.4) - (71.4)
_________________________________________________________________________
Net financing
income/(costs) 3, 4 37.3 - 37.3 (15.9) 6.9 (9.0)
Share of post-tax
profit of joint
ventures and
associates 1.6 - 1.6 0.7 - 0.7
_____________________________________________________________________________________________________
Profit before tax 425.2 0.8 426.0 312.7 (15.8) 296.9
Taxation 3 (137.1) 5.7 (131.4) (104.2) (5.3) (109.5)
_____________________________________________________________________________________________________
Profit for the
period
attributable to
equity
shareholders 288.1 6.5 294.6 208.5 (21.1) 187.4
=====================================================================================================
Earnings per share pence pence
- Basic 6 34.0 21.6
- Diluted 6 33.6 21.4
=====================================================================================================
pence pence
Proposed dividend 10.0 9.0
per share
=====================================================================================================
52 weeks Short period
Non-GAAP measures ended ended
Reconciliation of profit before tax 1 March 2008 3 March 2007
('PBT') to benchmark PBT Notes £m £m
______________________________________________________________________________________________
Profit before tax 426.0 296.9
Effect of exceptional items 3 (0.8) 15.8
Effect of financing fair value
remeasurements 4 9.0 0.1
Financing impact on retirement
benefit balances 4 (13.0) (12.1)
Effect of demerger incentive schemes 11.7 5.8
______________________________________________________________________________________________
Benchmark PBT 432.9 306.5
==============================================================================================
Benchmark earnings per share pence pence
- Basic 6 33.9 23.7
- Diluted 6 33.6 23.5
Consolidated Statement of Recognised Income and Expense
For the 52 weeks ended 1 March 2008
52 weeks Short
ended period
1 March ended
2008 3 March
2007
£m £m
________________________________________________________________________________________
Net income/(expense) recognised directly in equity
Net change in fair value of cash flow hedges
- Foreign currency forward exchange contracts (17.7) (27.3)
Net change in fair value of cash flow hedges transferred to
inventory
- Foreign currency forward exchange contracts 19.8 24.6
Actuarial gains/(losses) in respect of defined benefit pension
schemes 73.9 (18.3)
Fair value movements on available-for-sale financial assets 0.1 -
Currency translation differences 13.5 0.9
Tax (charge)/credit in respect of items taken directly to equity (22.8) 10.0
________________________________________________________________________________________
Net income/(expense) recognised directly in equity for the period 66.8 (10.1)
Profit for the period attributable to equity shareholders 294.6 187.4
________________________________________________________________________________________
Total recognised income for the period attributable to equity
shareholders 361.4 177.3
========================================================================================
Consolidated Balance Sheet
At 1 March 2008
1 March 2008 3 March 2007
Notes £m £m
______________________________________________________________________________________________
ASSETS
Non-current assets
Goodwill 1,922.7 1,878.9
Other intangible assets 83.7 73.4
Property, plant and equipment 731.8 691.6
Investment in joint ventures and associates 7.7 9.2
Deferred tax assets 46.6 74.4
Trade and other receivables 4.8 18.0
Retirement benefit assets 83.7 9.3
Other financial assets 14.2 8.5
______________________________________________________________________________________________
Total non-current assets 2,895.2 2,763.3
______________________________________________________________________________________________
Current assets
Inventories 1,004.8 906.4
Trade and other receivables 597.8 569.4
Current tax assets 16.9 3.0
Other financial assets 4.3 -
Cash and cash equivalents 174.0 283.8
______________________________________________________________________________________________
Total current assets 1,797.8 1,762.6
______________________________________________________________________________________________
Total assets 4,693.0 4,525.9
______________________________________________________________________________________________
LIABILITIES
Non-current liabilities
Trade and other payables (41.3) (34.0)
Provisions (72.6) (57.1)
Deferred tax liabilities (67.4) (44.8)
______________________________________________________________________________________________
Total non-current liabilities (181.3) (135.9)
______________________________________________________________________________________________
Current liabilities
Trade and other payables (1,089.5) (1,025.1)
Loans and borrowings - (223.6)
Provisions (26.1) (25.2)
Other financial liabilities (2.8) (2.2)
Current tax liabilities (48.1) (35.2)
______________________________________________________________________________________________
Total current liabilities (1,166.5) (1,311.3)
______________________________________________________________________________________________
Total liabilities (1,347.8) (1,447.2)
______________________________________________________________________________________________
Net assets 3,345.2 3,078.7
==============================================================================================
EQUITY
Share capital 7 87.7 87.7
Merger reserve 7 (348.4) (348.4)
Other reserves 7 3.9 (11.4)
Retained earnings 7 3,602.0 3,350.8
______________________________________________________________________________________________
Total equity 3,345.2 3,078.7
==============================================================================================
Consolidated Cash Flow Statement
For the 52 weeks ended 1 March 2008
52 weeks Short
ended period
1 March ended
2008 3 March
2007
Notes £m £m
______________________________________________________________________________________________
Cash flows from operating activities
Cash generated from operations 8 564.2 620.9
Interest received 18.7 13.6
Interest paid (3.6) (51.4)
Tax paid (95.1) (101.6)
______________________________________________________________________________________________
Net cash inflow from operating activities 484.2 481.5
______________________________________________________________________________________________
Cash flows from investing activities
Purchase of property, plant and equipment (176.3) (134.1)
Proceeds from the disposal of property, plant and equipment 3.4 3.8
Purchase of intangible assets (35.0) (28.3)
Loan to joint venture - (8.1)
Disposal of subsidiary - net of cash disposed - (3.8)
Purchase of investments (8.7) -
Disposal of investment 3.9 -
Acquisition of businesses (41.4) -
______________________________________________________________________________________________
Net cash used in investing activities (254.1) (170.5)
______________________________________________________________________________________________
Cash flows from financing activities
Purchase of own shares - (6.1)
Proceeds from the exercise of share options 2.3 -
Repayment of amounts to GUS plc - (50.3)
Repayment of finance leases (0.1) (1.2)
Repayment of loans (225.0) -
Home Retail Group share of GUS plc final dividend - (62.0)
Dividends paid (118.9) (34.6)
______________________________________________________________________________________________
Net cash used in financing activities (341.7) (154.2)
______________________________________________________________________________________________
Net (decrease)/increase in cash and cash equivalents (111.6) 156.8
==============================================================================================
Movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the period 283.8 130.0
Effect of foreign exchange rate changes 1.8 (3.0)
Net (decrease)/increase in cash and cash equivalents (111.6) 156.8
______________________________________________________________________________________________
Cash and cash equivalents at the end of the period 174.0 283.8
==============================================================================================
Analysis of Net Cash/(Debt)
At 1 March 2008
1 March 2008 3 March 2007
Non-GAAP measures £m £m
____________________________________________________________________________________
Financing net cash:
Cash at bank and in hand 174.0 283.8
Loans and borrowings - (223.6)
____________________________________________________________________________________
Total financing net cash 174.0 60.2
____________________________________________________________________________________
Operating net (debt):
Property leases (3,057.1) (2,920.1)
____________________________________________________________________________________
Total operating net (debt) (3,057.1) (2,920.1)
____________________________________________________________________________________
Total net (debt) (2,883.1) (2,859.9)
====================================================================================
Deduct:
Operating leases that are off balance sheet 3,057.1 2,920.1
____________________________________________________________________________________
Total net cash reflected in balance sheet 174.0 60.2
====================================================================================
The Group uses the term net cash/(debt) which highlights the Group's aggregate
net indebtedness to banks and other financial institutions together with
debt-like liabilities, notably property leases. The capitalised value of these
property leases is £3,057.1m (2007: £2,920.1m) based upon discounting the
current rentals at the estimated current long term cost of borrowing of 5.3%
(2007: 5.4%).
Notes
For the 52 weeks ended 1 March 2008
1. BASIS OF PREPARATION
Previously, Home Retail Group (then ARG) prepared its financial information for the financial
year for the 12 months to 31 March except for the results of Homebase which were included for
the 12 months to 28 or 29 February each year, with adjustments to reflect the balance sheet
movements in cash to the end of March. This was done to facilitate comparability of the income
statement by avoiding the distortions that would arise relating to changes in the timing of
Easter. In order to align the year-end across the Group, the Board of Directors decided to
amend the Group's financial year to a 52-week period ending on the Saturday closest to the end
of February. Therefore, following the change of accounting reference date in the prior period,
the audited accounts have been prepared for the 52 weeks ended 1 March 2008 with comparatives
for the short period ended 3 March 2007. Unless otherwise stated, references to 2007 within
the notes to the financial statements are for the short period 1 April 2006 to 3 March 2007.
The Group consolidated financial statements are presented in sterling, rounded to the nearest
hundred thousand. They are prepared on the historic cost basis modified for the revaluation of
certain financial instruments. The principal accounting policies applied in the preparation of
these consolidated financial statements are consistent with those described in the Annual
Report and Financial Statements 2007. These policies have been consistently applied to all the
periods presented.
Group reorganisation
Home Retail Group demerged from its parent company, GUS plc, with effect from 10 October 2006.
Shares in Home Retail Group were admitted to the Official List of the Financial Services
Authority and to trading on the London Stock Exchange's main market for listed securities on
11 October 2006. All Home Retail Group companies which were owned by GUS plc prior to demerger
were transferred under the new ultimate parent company, Home Retail Group plc, prior to 11
October 2006. The introduction of this new ultimate holding company constituted a group
reconstruction and was accounted for using merger accounting principles. Therefore, although
the Group reorganisation did not become effective until 10 October 2006, the comparative
figures are presented as if the current Group structure had always been in place.
2. NON-GAAP FINANCIAL INFORMATION
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 impairment charges, restructuring costs and the
profits/losses on the disposal of businesses.
Benchmark profit before tax ('PBT')
The Group uses the term Benchmark PBT as a measure which is not formally recognised under
IFRS. Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store
impairment charges, exceptional items, financing fair value remeasurements, financing impact
on retirement benefit balances, one-off demerger incentive costs and taxation. This measure is
considered useful in that it provides investors with an alternative means to evaluate the
underlying performance of the Group's operations.
Net debt
The Group uses the term net debt which is considered useful in that it provides the Group's
aggregate net indebtedness to banks and other financial institutions together with debt-like
liabilities, notably property leases.
52 weeks ended Short period
1 March 2008 ended
3 March 2007
3. EXCEPTIONAL ITEMS £m £m
_______________________________________________________________________________________________
Accrual release relating to incentive schemes (a) 20.2 -
Costs relating to the post-acquisition integration of the Focus (9.1) -
DIY stores (b)
Store impairment charges (c) (10.3) (4.1)
Costs relating to the demerger of Home Retail Group and Experian (d) - (11.3)
Waiver of loan due from Experian (e) - (7.3)
_______________________________________________________________________________________________
Exceptional items in operating profit 0.8 (22.7)
Exceptional finance income (f) - 6.9
_______________________________________________________________________________________________
Exceptional items in profit before tax 0.8 (15.8)
_______________________________________________________________________________________________
Tax on exceptional items in profit before tax (1.0) (5.3)
Exceptional corporation tax credit (g) 12.6 -
Exceptional deferred tax charge (h) (5.9) -
_______________________________________________________________________________________________
Exceptional tax 5.7 (5.3)
_______________________________________________________________________________________________
Exceptional profit/(loss) for the period 6.5 (21.1)
===============================================================================================
(a) Represents the release of an accrual in respect of previous GUS-related long
term incentive schemes which were settled in June 2007.
(b) Represents costs relating to the post-acquisition integration of certain of
the Focus DIY stores acquired in the period.
(c) IFRS requires individual stores to be designated as cash generating units
for the purposes of testing for impairment. This resulted in a net
impairment charge in respect of the Homebase store portfolio of £10.3m
(2007: £4.1m).
(d) Demerger-related expenditure including costs in relation to early vesting of
share incentive schemes, banking set up fees and other professional fees.
(e) Represents a loan due from Experian which was waived as part of the demerger
process.
(f) Fair value gain made on transfer of interest rate swap novated from GUS plc
on demerger.
(g) Represents the recognition of a corporation tax credit arising from a
reassessment of previous estimates provided for in the Group's tax
computations, following the agreement of prior year tax computations.
(h) Represents an additional deferred tax charge arising from the re-estimation
of qualifying assets in respect of accelerated tax depreciation, following
the agreement of prior year tax computations.
52 weeks ended Short period
1 March 2008 ended
3 March 2007
4. NET FINANCING INCOME/(COSTS) £m £m
______________________________________________________________________________________________
Finance income:
Bank deposits and other interest 18.8 13.8
Expected return on retirement benefit assets 43.5 37.8
Interest receivable from GUS group companies - 3.9
______________________________________________________________________________________________
Total finance income 62.3 55.5
______________________________________________________________________________________________
Finance expense:
Interest cost of perpetual securities (3.3) (11.1)
Unwinding of discounts (1.8) (1.9)
Financing fair value remeasurements:
- net losses on financial instruments (0.9) (0.1)
- net exchange losses (8.1) -
Interest expense on retirement benefit liabilities (30.5) (25.7)
Interest expense on OFT fine - (1.5)
Interest payable to GUS group companies - (47.5)
______________________________________________________________________________________________
Total finance expense (44.6) (87.8)
Less: finance expense charged to Financial Services cost of
sales 19.6 16.4
______________________________________________________________________________________________
Total net finance expense (25.0) (71.4)
______________________________________________________________________________________________
Net financing income/(costs) before exceptional items 37.3 (15.9)
Exceptional finance income - 6.9
______________________________________________________________________________________________
Net financing income/(costs) 37.3 (9.0)
______________________________________________________________________________________________
52 weeks ended Short period
1 March 2008 ended
3 March 2007
5. DIVIDENDS £m £m
________________________________________________________________________________________________
Amounts recognised as distributions to equity holders
Final dividend of 9.0p per share for the short period 78.1 -
ended 3 March 2007
Interim dividend of 4.7p per share (2007: 4.0p) 40.8 34.6
________________________________________________________________________________________________
Ordinary dividends on equity shares 118.9 34.6
================================================================================================
A final dividend in respect of the period ended 1 March 2008 of 10.0p per share, amounting to a
total final dividend of £86.8m has been recommended by the Board of Directors, and is subject to
approval by the shareholders at the Annual General Meeting. This would make a total dividend for
the period of 14.7p per share, amounting to £127.6m. The recommended dividend has not been
included as a liability at 1 March 2008 in accordance with IAS 10 'Events after the balance
sheet date'. It will be paid on 23 July 2008 to shareholders who are on the register of members
at close of business on 23 May 2008. The Home Retail Group Employee Share Ownership Trust
('ESOT') has waived its entitlement to dividends in the amount of £1.3m (2007: £0.7m).
6. BASIC AND DILUTED EARNINGS PER SHARE ('EPS')
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 ESOT. 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. Basic and diluted EPS for 2007 have been
calculated on the basis of the number of shares in issue at the date of demerger for the
pre-demerger period together with the weighted average number of shares post demerger, excluding
ordinary shares held in Home Retail Group's ESOT.
52 weeks ended Short period
1 March 2008 ended
3 March 2007
Earnings £m £m
________________________________________________________________________________________________
Profit after tax for the financial period 294.6 187.4
Effect of exceptional items (0.8) 15.8
Effect of financing fair value remeasurements 9.0 0.1
Financing impact on retirement benefit balances (13.0) (12.1)
Demerger incentive schemes 11.7 5.8
Attributable taxation (7.1) 9.2
________________________________________________________________________________________________
Benchmark profit after tax for the financial period 294.4 206.2
================================================================================================
Weighted average number of shares millions millions
Number of ordinary shares for the purpose of basic EPS 867.7 869.6
Dilutive effect of share incentive awards 9.6 7.6
________________________________________________________________________________________________
Number of ordinary shares for the purpose of diluted
EPS 877.3 877.2
================================================================================================
EPS pence pence
Basic EPS 34.0 21.6
Diluted EPS 33.6 21.4
Basic benchmark EPS 33.9 23.7
Diluted benchmark EPS 33.6 23.5
7. RECONCILIATION OF MOVEMENTS IN EQUITY
Share Merger Other Retained
capital reserve reserves earnings Total
£m £m £m £m £m
________________________________________________________________________________________________
At 4 March 2007 87.7 (348.4) (11.4) 3,350.8 3,078.7
Profit for the financial period - - - 294.6 294.6
Net income recognised in equity for the financial
period - - 15.2 51.6 66.8
Movement in share-based compensation reserve - - - 21.6 21.6
Net movement in own shares - - 0.1 2.3 2.4
Equity dividends paid during the period - - - (118.9) (118.9)
________________________________________________________________________________________________
Total equity at 1 March 2008 87.7 (348.4) 3.9 3,602.0 3,345.2
________________________________________________________________________________________________
Share Merger Other Retained
capital reserve reserves earnings Total
£m £m £m £m £m
________________________________________________________________________________________________
At 1 April 2006 2,895.6 (348.4) (4.3) 407.0 2,949.9
Profit for the financial period - - - 187.4 187.4
Share reduction (2,807.9) - - 2,807.9 -
Net cost recognised in equity for the financial
period - - (1.0) (9.1) (10.1)
Movement in share-based compensation reserve - - - 16.3 16.3
Net movement in own shares - - (6.1) - (6.1)
Equity dividends paid during the period - - - (34.6) (34.6)
Other movements - - - (24.1) (24.1)
________________________________________________________________________________________________
Total equity at 3 March 2007 87.7 (348.4) (11.4) 3,350.8 3,078.7
________________________________________________________________________________________________
Merger reserve
The merger reserve arose on the demerger of the Group from GUS plc during 2006 as outlined in
Note 1 'Group reorganisation'.
Other reserves
Other reserves principally consist of shares held in trust, the hedging reserve and the
translation reserve.
Net movement in own shares represents the purchase, and subsequent utilisation or sale, of
shares for the purpose of satisfying obligations arising from Home Retail Group plc share-based
compensation schemes. Shares in Home Retail Group plc are held in the following Trusts which
have been established since demerger:
Home Retail Group Employee Share Ownership Trust ('ESOT')
The ESOT provides for the issue of shares to Group employees under share option and share grant
schemes (with the exception of the Share Incentive Plan). At 1 March 2008 the ESOT held
9,206,387 shares with a market value of £23.8m. The shares in the Trust are held in the balance
sheet of the Group at nil value. The shares were acquired as part of the demerger from GUS plc
at no cost. Dividends on these shares are waived.
Home Retail Group Share Incentive Scheme Trust
The Home Retail Group Share Incentive Scheme Trust provides for the issue of shares to Group
employees under the Share Incentive Plan. At 1 March 2008, the Trust held 1,425,505 shares with
a market value of £3.7m. These shares are held in the balance sheet of the Group at a cost of
£6.0m. No additional shares were purchased in the period.
8. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
52 weeks ended Short period
1 March 2008 ended
3 March 2007
Cash generated from operations £m £m
_______________________________________________________________________________________________
Profit before tax 426.0 296.9
Adjustments for:
Share of post-tax profits of joint ventures and associates (1.6) (0.7)
Net financing (income)/costs (37.3) 9.0
_______________________________________________________________________________________________
Operating profit 387.1 305.2
Loss on sale of property, plant and equipment 0.4 0.9
Loss on sale of subsidiary - 1.1
Depreciation and amortisation 151.6 146.4
Impairment losses 10.3 4.1
Finance expense charged to Financial Services cost of sales 19.6 16.4
Increase in inventories (98.4) (23.4)
Increase in receivables (21.2) (42.7)
Increase in payables 71.5 193.3
_______________________________________________________________________________________________
Movement in working capital (48.1) 127.2
Increase/(decrease) in provisions 9.2 (6.3)
Movement in retirement benefits 12.5 10.0
Share-based payment expense 21.6 15.9
_______________________________________________________________________________________________
Cash generated from operations 564.2 620.9
===============================================================================================
Reconciliation of net increase in cash and cash equivalents to movement in
net debt
Net cash/(debt) at beginning of the period 60.2 (178.0)
Effect of foreign exchange rate changes 1.8 (3.0)
Net (decrease)/increase in cash and cash equivalents (111.6) 156.8
Decrease in debt 223.6 84.4
_______________________________________________________________________________________________
Net cash at the end of the period 174.0 60.2
===============================================================================================
Major non-cash transactions
Home Retail Group did not enter into any new finance lease arrangements during the period
(2007: £nil).
This information is provided by RNS
The company news service from the London Stock Exchange