Full-Year Results - Part 2

RNS Number : 3189R

Home Retail Group Plc

29 April 2009

 

Consolidated income statement

For the 52 weeks ended 28 February 2009 

			52 weeks ended 28 February 2009				52 weeks ended 1 March 2008
			Before exceptional items	Exceptional items	After exceptional items		Before exceptional items	Exceptional items	After exceptional items
		Notes	£m	£m	£m		£m	£m	£m
Revenue			5,897.4	-	5,897.4		5,984.8	-	5,984.8
Cost of sales			(3,873.8)	-	(3,873.8)		(3,881.0)	-	(3,881.0)
Gross profit			2,023.6	-	2,023.6		2,103.8	-	2,103.8
Net operating expenses		3	(1,731.6)	(694.0)	(2,425.6)		(1,717.5)	0.8	(1,716.7)
Operating profit/(loss)			292.0	(694.0)	(402.0)		386.3	0.8	387.1
- Finance income			63.7	-	63.7		62.3	-	62.3
- Finance expense			(53.5)	-	(53.5)		(25.0)	-	(25.0)
Net financing income		4	10.2	-	10.2		37.3	-	37.3
Share of post-tax (loss)/profit of joint ventures and associates			(2.4)	-	(2.4)		1.6	-	1.6
Profit/(loss) before tax			299.8	(694.0)	(394.2)		425.2	0.8	426.0
Taxation		3	(101.2)	82.3	(18.9)		(137.1)	5.7	(131.4)
Profit/(loss) for the year attributable to equity shareholders			198.6	(611.7)	(413.1)		288.1	6.5	294.6
Earnings per share					pence				pence
- Basic		6			(47.7)				34.0
- Diluted		6			(47.7)				33.6
					pence				pence
Proposed final dividend per share					10.0				10.0
Interim dividend per share					4.7				4.7
Proposed total dividend per share					14.7				14.7

Non-GAAP measures		52 weeks ended  28 February 2009		52 weeks ended  1 March 2008
Reconciliation of profit before tax (‘PBT’) to benchmark PBT	Notes	£m		£m
(Loss)/profit before tax		(394.2)		426.0
Adjusted for:
Exceptional items	3	694.0		(0.8)
Demerger incentive schemes		8.4		11.7
Financing fair value remeasurements	4	28.9		9.0
Financing impact on retirement benefit balances	4	(11.2)		(13.0)
Discount unwind on exceptional onerous lease provisions		1.8		-
Benchmark PBT		327.7		432.9
Benchmark earnings per share		pence		pence
- Basic	6	25.9		33.9
- Diluted	6	25.6		33.6

  Consolidated statement of recognised income and expense

For the 52 weeks ended 28 February 2009 

	52 weeks ended  28 February 2009	52 weeks ended  1 March 2008
	£m	£m
Net income/(expense) recognised directly in equity
Net change in fair value of cash flow hedges
- Foreign currency forward exchange contracts	153.3	(17.7)
Net change in fair value of cash flow hedges transferred to inventory
- Foreign currency forward exchange contracts	(130.1)	19.8
Actuarial (losses)/gains in respect of defined benefit pension schemes	(135.4)	73.9
Fair value movements on available-for-sale financial assets	(2.3)	0.1
Currency translation differences	35.9	13.5
Tax credit/(charge) in respect of items taken directly to equity	32.5	(22.8)
Net (expense)/income recognised directly in equity for the year	(46.1)	66.8
(Loss)/profit for the year attributable to equity shareholders	(413.1)	294.6
Total recognised (expense)/income for the year attributable to equity shareholders	(459.2)	361.4

  Consolidated balance sheet
At 28 February 2009

		28 February 2009	1 March 2008
	Notes	£m	£m
ASSETS
Non-current assets
Goodwill		1,541.0	1,922.7
Other intangible assets		103.6	83.7
Property, plant and equipment		559.3	731.8
Investment in joint ventures and associates		8.4	7.7
Deferred tax assets		87.4	46.6
Trade and other receivables		3.4	4.8
Retirement benefit assets		-	83.7
Other financial assets		9.2	14.2
Total non-current assets		2,312.3	2,895.2
Current assets
Inventories		930.3	1,004.8
Trade and other receivables		593.7	597.8
Current tax assets		15.1	16.9
Other financial assets		53.7	4.3
Current asset investments		75.0	-
Cash and cash equivalents		209.4	174.0
Total current assets		1,877.2	1,797.8
Total assets		4,189.5	4,693.0
LIABILITIES
Non-current liabilities
Trade and other payables		(64.0)	(41.3)
Provisions		(198.6)	(72.6)
Deferred tax liabilities		(26.3)	(67.4)
Retirement benefit obligations		(46.4)	-
Total non-current liabilities		(335.3)	(181.3)
Current liabilities
Trade and other payables		(999.2)	(1,089.5)
Provisions		(51.6)	(26.1)
Other financial liabilities		(1.5)	(2.8)
Current tax liabilities		(43.5)	(48.1)
Total current liabilities		(1,095.8)	(1,166.5)
Total liabilities		(1,431.1)	(1,347.8)
Net assets		2,758.4	3,345.2
EQUITY
Share capital	7	87.7	87.7
Merger reserve	7	(348.4)	(348.4)
Other reserves	7	35.4	3.9
Retained earnings	7	2,983.7	3,602.0
Total equity		2,758.4	3,345.2

  Consolidated cash flow statement

For the 52 weeks ended 28 February 2009

		52 weeks ended  28 February 2009	52 weeks ended  1 March 2008
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	8	468.4	564.2
Interest received		16.6	18.7
Interest paid		-	(3.6)
Tax paid		(74.7)	(95.1)
Net cash inflow from operating activities		410.3	484.2
Cash flows from investing activities
Purchase of property, plant and equipment		(110.9)	(176.3)
Proceeds from the disposal of property, plant and equipment		2.6	3.4
Purchase of intangible assets		(44.7)	(35.0)
Loan to joint venture		(2.0)	-
Purchase of investments		(75.2)	(8.7)
Disposal of investment		-	3.9
Acquisition of businesses		-	(41.4)
Net cash used in investing activities		(230.2)	(254.1)
Cash flows from financing activities
Purchase of own shares		(21.6)	-
Proceeds from sale of own shares		0.1	2.3
Repayment of finance leases		-	(0.1)
Repayment of loans		-	(225.0)
Dividends paid		(127.2)	(118.9)
Net cash used in financing activities		(148.7)	(341.7)
Net increase/(decrease) in cash and cash equivalents		31.4	(111.6)
Movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year		174.0	283.8
Effect of foreign exchange rate changes		4.0	1.8
Net increase/(decrease) in cash and cash equivalents		31.4	(111.6)
Cash and cash equivalents at the end of the year		209.4	174.0

  Analysis of net cash/(debt)
At 28 February 2009

		28 February 2009	1 March 2008
Non-GAAP measures		£m	£m
Financing net cash:
Cash at bank and in hand		209.4	174.0
Current asset investments		75.0	-
Total financing net cash		284.4	174.0
Operating net (debt):
Property leases		(3,304.3)	(3,057.1)
Total operating net (debt)		(3,304.3)	(3,057.1)
Total net (debt)		(3,019.9)	(2,883.1)
Adjusted for:
Operating leases that are off balance sheet		3,304.3	3,057.1
Current asset investments		(75.0)	-
Total net cash reflected in balance sheet		209.4	174.0

The Group uses the term total 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 £3,304.3m (2008: £3,057.1m) based upon discounting the current rentals at the estimated current long-term cost of borrowing of 4.1% (2008: 5.3%).

The current asset investment comprises a term cash deposit invested for a period of nine months which matured after the balance sheet date on 15 April 2009.

  Notes 

For the 52 weeks ended 28 February 2009 

1. BASIS OF PREPARATION

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 2008.  These policies have been consistently applied to all the periods presented.

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 and onerous lease charges, exceptional items, costs related to demerger incentive schemes, financing fair value remeasurements, financing impact on retirement benefit balances, the discount unwind on non-benchmark items 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.

Total net debt

The Group uses the term total 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.

  Notes 

For the 52 weeks ended 28 February 2009 

	52 weeks ended  28 February 2009	52 weeks ended  1 March 2008
3. EXCEPTIONAL ITEMS	£m	£m
Goodwill impairment (a)	(381.7)	-
Store impairment charges (b)	(152.2)	(10.3)
Onerous lease provisions (c)	(117.3)	-
Costs relating to the post-acquisition integration of the Focus DIY stores (d)	(7.6)	(9.1)
Reorganisation and restructuring charges (e)	(35.2)	-
Accrual release relating to incentive schemes (f)	-	20.2
Exceptional items in operating (loss)/profit	(694.0)	0.8
Tax on exceptional items in (loss)/profit before tax	58.8	(1.0)
Exceptional corporation tax credit (g)	27.4	12.6
Exceptional deferred tax charge (h)	(3.9)	(5.9)
Exceptional tax	82.3	5.7
Exceptional (loss)/profit for the year	(611.7)	6.5
(a)  Management has interpreted the economic environment and resulting retail downturn as an external indicator of impairment. As a result, and as required by IAS 36, the assets of the business have been subject to an impairment review.  Goodwill is allocated to cash-generating units at the level of each business segment.  The recoverable amount of each of the business segments is determined as being the higher of its fair value less costs to sell and its value-in-use.  As a result, an impairment charge of £381.7m has been booked against the carrying value of the Homebase goodwill.
(b)  As a result of the impairment review highlighted in (a) above, certain assets have been written down to their recoverable amount, being the higher of fair value less costs to sell and value-in-use.  For the 52 weeks to 28 February 2009, this resulted in a net impairment charge in respect of the Homebase store portfolio of £152.2m.
(c)  The onerous lease provisions cover potential liabilities for onerous lease contracts for stores that have either closed, or where projected future trading income is insufficient to cover the lower of exit cost or value-in-use.  For the 52 weeks to 28 February 2009, this resulted in an onerous lease charge in respect of the Homebase store portfolio of £117.3m.
(d)  Represents costs relating to the post-acquisition integration of certain of the Focus DIY stores acquired in the 52 weeks to 1 March 2008.
(e)  Represents costs relating to the reorganisation and restructuring programme during the 52 weeks to 28 February 2009.  Actions taken include a streamlining of head office functions across all parts of the Group, restructuring of store-based staff and a consolidation of home delivery warehouses.
(f)  Represents the release of an accrual in respect of previous GUS-related long-term incentive schemes which were settled in June 2007.
(g)  Represents the recognition of a corporation tax credit arising from the revision and agreement of prior year tax computations and the completion of a periodic review of the tax risks associated with the Group's overseas trading operations.
(h)  The deferred tax charge of £3.9m represents the reversal of a deferred tax asset created on IFRS transition. The prior year charge of £5.9m 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.

  Notes 

For the 52 weeks ended 28 February 2009

	52 weeks ended  28 February 2009	52 weeks ended  1 March 2008
4. NET FINANCING INCOME/(COSTS)	£m	£m
Finance income:
Bank deposits and other interest	18.6	18.8
Expected return on retirement benefit assets	45.1	43.5
Total finance income	63.7	62.3
Finance expense:
Interest cost of perpetual securities	-	(3.3)
Unwinding of discounts (a)	(4.3)	(1.8)
Financing fair value remeasurements:
- net losses on financial instruments	-	(0.9)
- net exchange losses	(28.9)	(8.1)
Interest expense on retirement benefit liabilities	(33.9)	(30.5)
Total finance expense	(67.1)	(44.6)
Less: finance expense charged to Financial Services cost of sales	13.6	19.6
Total net finance expense	(53.5)	(25.0)
Net financing income	10.2	37.3

(a)  Included within unwinding of discounts is a £1.8m charge (2008: £nil) relating to the discount unwind on exceptional onerous lease provisions.

			52 weeks ended  28 February 2009	52 weeks ended  1 March 2008
5. DIVIDENDS			£m	£m
Amounts recognised as distributions to equity holders
Final dividend of 10.0p per share (2008: 9.0p) for the prior year			86.8	78.1
Interim dividend of 4.7p per share (2008: 4.7p) for the current year			40.4	40.8
Ordinary dividends on equity shares			127.2	118.9
A final dividend in respect of the year ended 28 February 2009 of 10.0p per share, amounting to a total final dividend of £85.6m, 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 year of 14.7p per share, amounting to £126.0m.  The recommended dividend has not been included as a liability at 28 February 2009 in accordance with IAS 10 'Events after the Balance Sheet Date'.  It will be paid on 22 July 2009 to shareholders who are on the register of members at close of business on 22 May 2009.  The Home Retail Group Employee Share Trust ('EST') has waived its entitlement to dividends in the amount of £1.8m (2008: £1.3m).

  Notes 

For the 52 weeks ended 28 February 2009 

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 year, excluding ordinary shares held in Home Retail Group's share trusts, net of vested but unexercised options and share awards.  Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares.
		52 weeks ended 28 February 2009				52 weeks ended  1 March 2008
Earnings		£m				£m
(Loss)/profit after tax for the financial year		(413.1)				294.6
Adjusted for:
Exceptional items		694.0				(0.8)
Demerger incentive schemes		8.4				11.7
Financing fair value remeasurements		28.9				9.0
Financing impact on retirement benefit balances		(11.2)				(13.0)
Discount unwind on exceptional onerous lease provisions		1.8				-
Attributable taxation		(61.1)				(0.4)
Net exceptional tax credit in respect of prior years		(23.5)				(6.7)
Benchmark profit after tax for the financial year		224.2				294.4
Weighted average number of shares		millions				millions
Number of ordinary shares for the purpose of basic EPS		866.6				867.7
Dilutive effect of share incentive awards		10.4				9.6
Number of ordinary shares for the purpose of diluted EPS		877.0				877.3
EPS		pence				pence
Basic EPS		(47.7)				34.0
Diluted EPS (a)		(47.7)				33.6
Basic benchmark EPS		25.9				33.9
Diluted benchmark EPS		25.6				33.6

(a) In accordance with IAS 33, as the Group made a loss after tax for the 52 weeks ended 28 February 2009, the effect of share incentive awards is anti-dilutive and as such diluted EPS equals basic EPS.

  Notes 

For the 52 weeks ended 28 February 2009

7. RECONCILIATION OF MOVEMENTS IN EQUITY
						Share	Merger	Other	Retained
						capital	reserve	reserves	earnings	Total
						£m	£m	£m	£m	£m
At 2 March 2008						87.7	(348.4)	3.9	3,602.0	3,345.2
Loss for the financial year						-	-	-	(413.1)	(413.1)
Net income/(expense) recognised in equity for the financial year						-	-	52.6	(98.7)	(46.1)
Movement in share-based compensation reserve						-	-	-	21.3	21.3
Net movement in own shares						-	-	(21.1)	(0.4)	(21.5)
Equity dividends paid during the year						-	-	-	(127.2)	(127.2)
Other distributions						-	-	-	(0.2)	(0.2)
Total equity at 28 February 2009						87.7	(348.4)	35.4	2,983.7	2,758.4
						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 year						-	-	-	294.6	294.6
Net income recognised in equity for the financial year						-	-	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 year						-	-	-	(118.9)	(118.9)
Total equity at 1 March 2008						87.7	(348.4)	3.9	3,602.0	3,345.2
Other distributions represents dividend equivalent amounts paid to participants in the Group’s share award schemes on exercise of awards under these schemes.
Merger reserve
The merger reserve arose on the demerger of the Group from GUS plc during 2006.
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 Trust (‘EST’)   The EST 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 28 February 2009, the EST held 20,082,708 shares with a market value of £42.7m.  The shares in the EST are held within equity of the Group at a cost of £21.5m.  During the year 11,398,812 shares were acquired for a cost of £21.6m, with the remaining shares in the EST having been acquired as part of the demerger from GUS plc in 2006 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 28 February 2009, the Trust held 1,345,240 shares with a market value of £2.9m.  These shares are held within equity of the Group at a cost of £5.6m. No additional shares were purchased during the year.

  Notes 

For the 52 weeks ended 28 February 2009

8. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
		52 weeks ended  28 February 2009			52 weeks ended  1 March 2008
Cash generated from operations		£m			£m
(Loss)/profit before tax		(394.2)			426.0
Adjustments for:
Share of post-tax losses/(profits) of joint ventures and associates		2.4			(1.6)
Net financing income		(10.2)			(37.3)
Operating (loss)/profit		(402.0)			387.1
(Profit)/loss on sale of property, plant and equipment		(0.2)			0.4
Depreciation and amortisation		159.4			151.6
Impairment losses		533.9			10.3
Finance expense charged to Financial Services cost of sales		13.6			19.6
Decrease/(increase) in inventories		74.5			(98.4)
Decrease/(increase) in receivables		12.6			(21.2)
(Decrease)/increase in payables		(97.3)			71.5
Movement in working capital		(10.2)			(48.1)
Increase in provisions		146.9			9.2
Movement in retirement benefits		5.9			12.5
Share-based payment expense (net of dividend equivalent payments)		21.1			21.6
Cash generated from operations		468.4			564.2
Reconciliation of net increase in cash and cash equivalents to movement in net debt
Net cash at beginning of the year			174.0		60.2
Effect of foreign exchange rate changes			4.0		1.8
Net increase/(decrease) in cash and cash equivalents			31.4		(111.6)
Decrease in debt			-		223.6
Net cash at the end of the year			209.4		174.0
Non-GAAP measures
Financing net cash:
Cash at bank and in hand	209.4				174.0
Current asset investments	75.0				-
Total financing net cash	284.4				174.0
Major non-cash transactions
Home Retail Group did not enter into any new finance lease arrangements during the year (2008: £nil).

9. RELATED PARTIES

The Group's related parties are its joint ventures and associates, key management personnel and the Home Retail Group defined benefit pension plans.

The Group lent £2.0m (2008: £nil) to a joint venture, Home Retail Group Personal Finance Limited. The total loan of £10.1m (2008: £8.1m) was outstanding as at 28 February 2009.

During the year, there were no material transactions or balances between the Group and its key management personnel or members of their close families.

During the year, the Group has paid contributions totalling £13.9m (2008: £14.3m) to the Home Retail Group defined benefit pension plans.

Statement of directors' responsibilities

The directors are responsible for preparing the annual report and the Group financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year.  Under that law the directors have prepared the Group financial statements in accordance with applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union. The Group financial statements are required by law to give a true and fair view of the state of affairs and of the profit or loss of the Group for that year.

The preliminary results for the 52 weeks ended 28 February 2009 have been extracted from the annual report and the Group financial statements.

In preparing the Group financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state that the Group financial statements comply with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and

• prepare the Group financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.  

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies Act 1985 and Article 4 of the IAS Regulation.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

By order of the Board

Terry Duddy        Richard Ashton

Chief Executive    Finance Director

29 April 2009       29 April 2009

 

END

 

 

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