Full Year Results - Part 2

RNS Number : 8430F

Home Retail Group Plc

30 April 2014

 

Consolidated income statement                                                  

For the 52 weeks ended 1 March 2014

		52 weeks ended 1 March 2014				52 weeks ended 2 March 2013 (restated)
		Before exceptional items	Exceptional items (note 3)	After exceptional items		Before exceptional items	Exceptional items (note 3)	After exceptional items
	Notes	£m	£m	£m		£m	£m	£m
Revenue		5,663.0	-	5,663.0		5,475.4	-	5,475.4
Cost of sales		(3,899.2)	-	(3,899.2)		(3,743.3)	-	(3,743.3)
Gross profit		1,763.8	-	1,763.8		1,732.1	-	1,732.1
Net operating expenses		(1,652.4)	(41.4)	(1,693.8)		(1,628.1)	31.3	(1,596.8)
Operating profit/(loss)		111.4	(41.4)	70.0		104.0	31.3	135.3
- Finance income		10.5	-	10.5		3.1	-	3.1
- Finance expense		(9.3)	-	(9.3)		(11.5)	-	(11.5)
Net financing income/(expense)	4	1.2	-	1.2		(8.4)	-	(8.4)
Share of post-tax loss of associates		-	-	-		(6.0)	-	(6.0)
Profit/(loss) before tax		112.6	(41.4)	71.2		89.6	31.3	120.9
Taxation		(26.6)	9.4	(17.2)		(26.5)	(7.5)	(34.0)
Profit/(loss) for the year attributable to equity holders of the Company		86.0	(32.0)	54.0		63.1	23.8	86.9
Earnings per share				pence				pence
- Basic	6			6.8				10.9
- Diluted	6			6.6				10.7
				pence				pence
Proposed final dividend per share				2.3				2.0
Interim dividend per share				1.0				1.0
Proposed total dividend per share				3.3				3.0

Non-GAAP measures			52 weeks ended 1 March 2014			52 weeks ended 2 March 2013
Reconciliation of profit before tax (PBT) to benchmark PBT	Notes		£m			£m
Profit before tax			71.2			120.9
Adjusted for:
Amortisation of acquisition intangibles			1.8			1.8
Post-employment benefit scheme administration costs			1.9			2.1
Adjustments in respect of store impairment and property provisions			(2.1)			(14.6)
Exceptional items	3		41.4			(31.3)
Financing fair value remeasurements	4		(9.0)			1.1
Financing impact on post-employment benefit obligations	4		3.3			4.0
Discount unwind on non-benchmark items	4		6.9			7.1
Benchmark PBT			115.4			91.1
Benchmark earnings per share			pence			pence
- Basic	6		10.4			7.7
- Diluted	6		10.1			7.6

Consolidated statement of comprehensive income

For the 52 weeks ended 1 March 2014

		52 weeks ended 1 March 2014	52 weeks ended 2 March  2013
			(restated)
		£m	£m
Profit for the year attributable to equity holders of the Company		54.0	86.9
Items that may be reclassified subsequently to profit or loss:
Net change in fair value of cash flow hedges
- Foreign currency forward exchange contracts		(72.2)	33.4
Net change in fair value of cash flow hedges transferred to inventory
- Foreign currency forward exchange contracts		13.7	(5.3)
Fair value movements on available-for-sale financial assets		1.1	2.0
Fair value movements on available-for-sale financial assets transferred to the income statement		(3.4)	-
Currency translation differences		(3.6)	0.6
Tax credit/(charge) in respect of items that will be or have been recycled		13.1	(6.1)
		(51.3)	24.6
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of the net defined benefit liability		(23.8)	(8.0)
Tax credit in respect of items not recycled		3.3	-
		(20.5)	(8.0)
Other comprehensive income for the year, net of tax		(71.8)	16.6
Total comprehensive income for the year attributable to equity holders of the Company		(17.8)	103.5

Consolidated balance sheet

At 1 March 2014

		1 March 2014	2 March 2013
	Notes	£m	£m
ASSETS
Non-current assets
Goodwill		1,543.9	1,543.9
Other intangible assets		193.6	129.2
Property, plant and equipment		456.7	474.9
Investment in associates		-	-
Deferred tax assets		41.3	40.7
Trade and other receivables		1.8	2.7
Other financial assets		9.9	24.4
Total non-current assets		2,247.2	2,215.8
Current assets
Inventories		902.4	941.8
Trade and other receivables		712.1	636.8
Current tax assets		10.4	8.3
Other financial assets		1.0	36.9
Cash and cash equivalents		331.0	396.0
Total current assets		1,956.9	2,019.8
Non-current assets classified as held for sale		-	9.6
Total assets		4,204.1	4,245.2
LIABILITIES
Non-current liabilities
Trade and other payables		(47.4)	(52.6)
Provisions	7	(190.0)	(179.5)
Deferred tax liabilities		(12.9)	(26.6)
Post-employment benefits		(76.6)	(85.1)
Total non-current liabilities		(326.9)	(343.8)
Current liabilities
Trade and other payables		(1,115.3)	(1,116.1)
Provisions	7	(46.1)	(38.3)
Other financial liabilities		(36.5)	(2.8)
Current tax liabilities		(5.8)	(11.7)
Total current liabilities		(1,203.7)	(1,168.9)
Total liabilities		(1,530.6)	(1,512.7)
Net assets		2,673.5	2,732.5
EQUITY
Share capital		81.3	81.3
Capital redemption reserve		6.4	6.4
Merger reserve		(348.4)	(348.4)
Other reserves		(52.3)	31.9
Retained earnings		2,986.5	2,961.3
Total equity		2,673.5	2,732.5

Consolidated statement of changes in equity

For the 52 weeks ended 1 March 2014

			Attributable to equity holders of the Company
			Capital
		Share	redemption	Merger	Other	Retained
		capital	reserve	reserve	Reserves	earnings	Total
		£m	£m	£m	£m	£m	£m
Balance at 3 March 2013		81.3	6.4	(348.4)	31.9	2,961.3	2,732.5
Profit for the year		-	-	-	-	54.0	54.0
Other comprehensive income		-	-	-	(49.0)	(22.8)	(71.8)
Total comprehensive income for the year ended 1 March 2014		-	-	-	(49.0)	31.2	(17.8)
Transactions with owners:
Movement in share-based compensation reserve		-	-	-	-	14.5	14.5
Net movement in own shares		-	-	-	(35.2)	(1.9)	(37.1)
Tax credit related to share-based compensation reserve		-	-	-	-	5.5	5.5
Equity dividends paid during the year		-	-	-	-	(23.9)	(23.9)
Other distributions		-	-	-	-	(0.2)	(0.2)
Total transactions with owners		-	-	-	(35.2)	(6.0)	(41.2)
Balance at 1 March 2014		81.3	6.4	(348.4)	(52.3)	2,986.5	2,673.5
			Attributable to equity holders of the Company (restated)
			Capital
		Share	redemption	Merger	Other	Retained
		capital	reserve	reserve	Reserves	earnings	Total
		£m	£m	£m	£m	£m	£m
Balance at 4 March 2012		81.3	6.4	(348.4)	8.6	2,877.5	2,625.4
Profit for the year		-	-	-	-	86.9	86.9
Other comprehensive income		-	-	-	21.9	(5.3)	16.6
Total comprehensive income for the year ended 2 March 2013		-	-	-	21.9	81.6	103.5
Transactions with owners:
Movement in share-based compensation reserve		-	-	-	-	11.9	11.9
Net movement in own shares		-	-	-	1.4	(1.4)	-
Equity dividends paid during the year		-	-	-	-	(8.0)	(8.0)
Other distributions		-	-	-	-	(0.3)	(0.3)
Total transactions with owners		-	-	-	1.4	2.2	3.6
Balance at 2 March 2013		81.3	6.4	(348.4)	31.9	2,961.3	2,732.5

Further details on equity movements are shown in note 8.

Consolidated statement of cash flows

For the 52 weeks ended 1 March 2014

		52 weeks ended  1 March 2014	52 weeks ended  2 March 2013
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	9	161.0	322.1
Tax paid		(17.6)	(26.1)
Net cash inflow from operating activities		143.4	296.0
Cash flows from investing activities
Purchase of property, plant and equipment		(72.5)	(55.3)
Purchase of other intangible assets		(102.8)	(25.3)
Proceeds from the disposal of property, plant and equipment		2.2	1.9
Loans granted to associates		-	(6.8)
Loans repaid by associates		3.5	-
Purchase of investments		-	(4.8)
Disposal of investments		21.7	-
Interest received		0.6	1.7
Net cash used in investing activities		(147.3)	(88.6)
Cash flows from financing activities
Purchase of shares for Employee Share Trust		(37.4)	-
Proceeds from disposal of shares held by Employee Share Trust		0.3	-
Dividends paid		(23.9)	(8.0)
Net cash used in financing activities		(61.0)	(8.0)
Net (decrease)/increase in cash and cash equivalents		(64.9)	199.4
Movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year		396.0	194.3
Effect of foreign exchange rate changes		(0.1)	2.3
Net (decrease)/increase in cash and cash equivalents		(64.9)	199.4
Cash and cash equivalents at the end of the year		331.0	396.0

Analysis of net cash/(debt)

At 1 March 2014

		1 March  2014	2 March  2013
Non-GAAP measures		£m	£m
Financing net cash:
Cash and cash equivalents		331.0	396.0
Total financing net cash		331.0	396.0
Operating net debt:
Off balance sheet operating leases		(2,046.2)	(2,361.7)
Total operating net debt		(2,046.2)	(2,361.7)
Total net debt		(1,715.2)	(1,965.7)

The Group uses the term 'total net debt' to highlight the Group's aggregate net indebtedness to banks and other financial institutions together with debt-like liabilities, notably operating leases.  The capitalised value of these leases is £2,046.2m (2013: £2,361.7m), based upon discounting the existing lease commitments at the Group's estimated long-term cost of borrowing of 5.0% (2013: 4.2%).

Notes

For the 52 weeks ended 1 March 2014

1. BASIS OF PREPARATION

The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, is derived from the full Group consolidated financial statements for the 52 weeks to 1 March 2014 and does not constitute full accounts within the meaning of Section 435 (1) and (2) of the Companies Act 2006.  The Group's Annual Report and Financial Statements 2014, on which the auditors have given an unqualified audit report and which does not contain a statement under Section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in June 2014.   The financial year represents the 52 weeks to 1 March 2014 (prior financial year 52 weeks to 2 March 2013).

The Group consolidated financial statements are presented in sterling, rounded to the nearest hundred thousand.  They are prepared on a going concern basis and under the historic cost basis modified for the revaluation of certain financial instruments, share-based payments and post-employment benefits.  The principal accounting policies adopted by Home Retail Group are set out in Home Retail Group plc's Annual Report and Financial Statements dated 2 March 2013.  With the exception of those changes in accounting standards which are effective for the first time for the current period, as detailed below, these policies have been consistently applied to all the periods presented. 

Changes in accounting standards

In June 2011, the IASB issued amendments to IAS 19 'Employee Benefits' (IAS 19 (revised)).  The revised standard is effective for the first time during the 52 weeks to 1 March 2014 and is required to be applied retrospectively.  The impact on the Group's post-employment benefits is to replace the interest expense on post-employment benefit obligations and the expected return on plan assets with a single net interest amount that is calculated by applying the discount rate to the net post-employment benefit surplus or deficit; currently a net deficit for the Group.  In addition, the administration costs of the Home Retail Group Pension Scheme, previously charged against the expected return on plan assets, are now charged within operating costs.  Prior year comparatives have been restated, and the impact of these restatements is set out in note 11.  As the Group has always recognised actuarial gains and losses immediately, there has been no change to the Group's net assets as a result of the adoption of IAS 19 (revised), so no restatement of the balance sheet is required.  The adjustments to the income statement resulting from adoption of IAS 19 (revised) relate only to items previously excluded from the Group's reported benchmark profit before tax, so the adoption of IAS 19 (revised) has had no impact on reported benchmark profit before tax.

The Group has also adopted IFRS 13 'Fair Value Measurement', issued by the IASB in May 2011, and the amendment to IAS 1 'Presentation of Financial Statements', issued in June 2011. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements.  The application of IFRS 13 has not impacted the fair value measurements carried out by the Group.  IFRS 13 requires specific disclosures on fair values which are provided within the Group's Annual Report and Financial Statements 2014.

In accordance with the amendment to IAS 1, the consolidated statement of comprehensive income is now required to group together those items that may subsequently be reclassified to profit and loss, and those that will not.  This change is presentational only, and has had no impact on previously reported amounts.

There are no other new standards, amendments to existing standards or interpretations which are effective for the first time during the year ended 1 March 2014 that have a material impact on the Group.

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

2. NON-GAAP FINANCIAL INFORMATION

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

Exceptional items

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

Benchmark measures

The Group uses the following terms as measures which are not formally recognised under IFRS:

·	Benchmark operating profit is defined as operating profit before amortisation of acquisition intangibles, post-employment benefit scheme administration costs, store impairment and onerous lease charges or releases and costs or income associated with store closures and exceptional items.
·	Benchmark profit before tax (benchmark PBT) is defined as profit before amortisation of acquisition intangibles, post-employment benefit scheme administration costs, store impairment and onerous lease charges or releases and costs or income associated with store closures, exceptional items, financing fair value remeasurements, financing impact on post-employment benefit obligations, the discount unwind on non-benchmark items and taxation.
·	Basic benchmark earnings per share (benchmark EPS) is defined as benchmark PBT less taxation attributable to benchmark PBT, divided by the weighted average number of shares in issue (excluding shares held in Home Retail Group's share trusts net of vested but unexercised share awards).

These measures are considered useful in that they provide investors with an alternative means to evaluate the underlying performance of the Group's operations.

Total net debt

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

3. EXCEPTIONAL ITEMS	52 weeks ended 1 March 2014	52 weeks ended 2 March 2013
	£m	£m
Argos transformation and other restructuring charges	(27.8)	-
Customer redress - Payment Protection Insurance	(25.0)	-
Warranty Insurance	11.4	-
Net gain on employee benefits	-	31.3
Exceptional items in operating profit	(41.4)	31.3
Tax on exceptional items in profit before tax	9.4	(7.5)
Exceptional (loss)/profit after tax for the year	(32.0)	23.8
Exceptional charges totalling £27.8m were incurred during the 52 weeks ended 1 March 2014, in respect of the ongoing project to transform Argos into a digital retail leader, combined with a number of other restructuring actions. Financial Services offers Payment Protection Insurance to its customers. In response to an industry wide review by the Financial Conduct Authority, a full investigation has been undertaken with the support of an independent expert, which will result in a customer redress exercise being carried out. As a result, there has been an increase to the existing provision of £25.0m. Until June 2010, Allianz Insurance provided Home Retail Group an underwriting service for warranty products sold in both Argos and Homebase. Allianz Insurance has recently notified Home Retail Group that under a profit share arrangement relating to the run off of these historical policies, the Group is due commission income of £11.4m. The Home Retail Group defined benefit pension scheme closed to future accrual with effect from 31 January 2013.  This led to a net gain of £31.3m for the 52 weeks ended 2 March 2013, which included a non-cash curtailment gain of £37.4m, offset by costs of £6.1m related to closure of the scheme.

Notes For the 52 weeks ended 1 March 2014 4. NET FINANCING INCOME/(EXPENSE)	52 weeks ended 1 March 2014	52 weeks ended 2 March 2013
		(restated)
	£m	£m
Finance income:
Bank deposits	0.3	1.9
Financing fair value remeasurements - net exchange gains	6.8	1.2
Financing fair value remeasurements - available for sale financial assets	3.4	-
Total finance income	10.5	3.1
Finance expense:
Unwinding of discounts	(8.1)	(8.3)
Financing fair value remeasurements - net exchange losses	(1.2)	(2.3)
Interest expense on post-employment benefit liabilities	(3.3)	(4.0)
Total finance expense	(12.6)	(14.6)
Less: finance expense charged to Financial Services cost of sales	3.3	3.1
Total net finance expense	(9.3)	(11.5)
Net financing income/(expense)	1.2	(8.4)

Included within unwinding of discounts is a £6.9m charge (2013: £7.1m) relating to the discount unwind on non-benchmark property provisions.

5. DIVIDENDS			52 weeks ended 1 March 2014	52 weeks ended 2 March 2013
			£m	£m
Amounts recognised as distributions to equity holders
Final dividend of 2.0p per share (2013: nil) for the prior year			(16.0)	-
Interim dividend of 1.0p per share (2013: 1.0p) for the current year			(7.9)	(8.0)
Ordinary dividends on equity shares			(23.9)	(8.0)
A final dividend in respect of the year ended 1 March 2014 of 2.3p per share (2013: 2.0p), amounting to a total final dividend of £17.9m, has been proposed 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 3.3p per share, amounting to £25.8m. The final dividend of 2.3p per share will be paid on 23 July 2014 to shareholders who are on the register of members at close of business on 23 May 2014. The Home Retail Group Employee Share Trust (EST) has waived its entitlement to dividends to the amount of £0.5m (2013: £0.1m).

Notes

For the 52 weeks ended 1 March 2014

6. BASIC AND DILUTED EARNINGS PER SHARE (EPS)
Basic EPS is calculated by dividing the profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares held in Home Retail Group's share trusts, net of vested but unexercised share awards. Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares.
			52 weeks ended 1 March 2014		52 weeks ended  2 March  2013 (restated)
Earnings			£m		£m
Profit after tax for the financial year			54.0		86.9
Adjusted for:
Amortisation of acquisition intangibles			1.8		1.8
Post-employment benefit scheme administration costs			1.9		2.1
Adjustments in respect of store impairment and property provisions			(2.1)		(14.6)
Exceptional items			41.4		(31.3)
Financing fair value remeasurements			(9.0)		1.1
Financing impact on post-employment benefit obligations			3.3		4.0
Discount unwind on non-benchmark items			6.9		7.1
Attributable taxation (credit)/charge			(6.9)		7.1
Non-benchmark tax credit in respect of prior years			(8.2)		(2.7)
Tax rate change			(0.2)		(0.1)
Benchmark profit after tax for the financial year			82.9		61.4
Weighted average number of shares			millions		millions
Number of ordinary shares for the purpose of basic EPS			795.0		800.6
Dilutive effect of share incentive awards			26.4		12.4
Number of ordinary shares for the purpose of diluted EPS			821.4		813.0
EPS			pence		pence
Basic EPS			6.8		10.9
Diluted EPS			6.6		10.7
Basic benchmark EPS			10.4		7.7
Diluted benchmark EPS			10.1		7.6

Notes

For the 52 weeks ended 1 March 2014

7. PROVISIONS

	Property	Insurance	Restructuring	Customer redress	Other	Total
	£m	£m	£m	£m	£m	£m
At 3 March 2013	(150.9)	(41.5)	(11.8)	(12.3)	(1.3)	(217.8)
Exchange differences	2.4	-	-	-	-	2.4
Charged to the income statement	(36.3)	(5.1)	(0.7)	(25.0)	(2.5)	(69.6)
Released to the income statement	35.4	2.0	0.3	-	-	37.7
Utilised during the year	5.9	6.5	2.7	3.6	0.8	19.5
Discount unwind	(8.3)	-	-	-	-	(8.3)
At 1 March 2014	(151.8)	(38.1)	(9.5)	(33.7)	(3.0)	(236.1)
					2014	2013
Analysed as:					£m	£m
Current					(46.1)	(38.3)
Non-current					(190.0)	(179.5)
					(236.1)	(217.8)

Property provisions principally comprise obligations on onerous leases together with other costs or income associated with store closures. In respect of onerous leases, provision is made for onerous lease contracts on stores that have either closed, or where projected future trading income is insufficient to cover the lower of exit cost or value-in-use. Where the value-in-use calculation is lower, the provision is based on the present value of expected future cash flows relating to rents, rates and other property costs to the end of the lease terms net of expected trading or sublet income. The majority of this provision is expected to be utilised over the period to 2020.

Provision is made for the estimated costs of insurance claims incurred by the Group but not settled at the balance sheet date, including the costs of claims that have arisen but have not yet been reported to the Group. The estimated cost of claims includes expenses to be incurred in settling claims. The majority of this provision is expected to be utilised over the period to 2018.

The restructuring provision relates to a number of actions undertaken by the Group during the current and prior years.  Actions currently being undertaken by the Group include the ongoing project to transform Argos into a digital retail leader.  Actions announced during prior years, to improve the operational efficiency of the Group and drive further cost productivity included the closure of one of the Group's distribution warehouses. The majority of this provision is expected to be utilised within one year.

Financial Services offers Payment Protection Insurance (PPI) to its customers. In response to an industry wide review by the Financial Conduct Authority, a full investigation has been undertaken with the support of an independent expert, which will result in a customer redress exercise being carried out. As a result, there has been an increase to the existing provision of £25.0m. The customer redress provision comprises the estimated cost of making redress payments to customers in respect of past sales of PPI policies, including the related administrative expenses. The eventual cost is dependent upon response rates, uphold rates, redress costs, claim handling costs and those costs associated with claims that are subsequently referred to the Financial Ombudsman Service. The provision represents management's best estimate of future costs and will remain under review. Had management used different assumptions, a larger or smaller provision charge would have resulted. The most significant assumption is the expected response rate to the customer contact exercise which has been estimated at 35%. If the response rate is one percentage point higher/(lower) than estimated then the provision at 1 March 2014 would have increased/(decreased) by approximately £1m. This provision is expected to be utilised within three years.

Opening balances have been reclassified to reflect the new categorisation of the provisions.

Notes

For the 52 weeks ended 1 March 2014

8. NOTES TO THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Capital redemption reserve
The capital redemption reserve arose as a result of the share buy-back programme that was undertaken during the year ended 26 February 2011.

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.

The net debit arising on the movement in own shares of £35.2m (2013: credit of £1.4m) represents the purchase, and subsequent utilisation, of shares held for the purpose of satisfying obligations arising from the Group's share-based compensation schemes. Shares in Home Retail Group plc are held in the following trusts:

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 1 March 2014, the EST held 34,025,109 (2013: 12,762,196) shares with a market value of £66.8m (2013: £16.1m). The shares in the EST are held within equity of the Group at a cost of £55.8m (2013: £20.4m). During the 52 weeks ended 1 March 2014, 22.5m additional shares were purchased for a cost of £37.4m (2013: nil). 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 2014, the Trust held 602,332 (2013: 651,283) shares with a market value of £1.2m (2013: £0.8m). These shares are held within equity of the Group at a cost of £2.5m (2013: £2.7m). No additional shares were purchased during the year (2013: nil).

9. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
		52 weeks ended 1 March 2014	52 weeks ended 2 March 2013 (restated)
Cash generated from operations		£m	£m
Profit before tax		71.2	120.9
Adjustments for:
Share of post-tax loss of associates		-	6.0
Net financing (income)/expense		(1.2)	8.4
Operating profit		70.0	135.3
(Profit)/loss on sale of property, plant and equipment and other intangible assets		(0.2)	0.2
Depreciation and amortisation		129.5	124.7
Reversal of impairment losses		(3.0)	-
Finance expense charged to Financial Services cost of sales		3.3	3.1
Decrease/(increase) in inventories		39.4	(8.6)
(Increase)/decrease in receivables		(74.6)	(40.9)
Increase in payables		5.5	163.4
Movement in working capital		(29.7)	113.9
Increase/(decrease) in provisions		12.4	(24.5)
Movement in post-employment benefit obligations		(35.6)	(42.2)
Share-based payment expense (net of dividend equivalent payments)		14.3	11.6
Cash generated from operations		161.0	322.1

Notes

For the 52 weeks ended 2 March 2013

10. RELATED PARTIES

The Group's related parties are its associates and key management personnel.

During the year, the Group granted loans totalling £nil (2013: £6.8m) to its associates, received £3.5m (2013: £nil) by way of loan repayment from its associates and invested £nil (2013: £2.4m) in the share capital of its associates.  At 1 March 2014, the amounts owed by its associates to the Group totalled £0.1m (2013: £3.7m), net of accumulated impairment losses totalling £3.9m (2013: £3.9m) following the decision to close HH Retail Limited, the Group's associate in China.

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

11. RESTATEMENT OF PRIOR PERIOD INFORMATION

The Group has adopted IAS 19 (revised) during the period.  The impact on the Group's post-employment benefits is to replace the interest expense on post-employment benefit obligations and the expected return on plan assets with a single net interest amount that is calculated by applying the discount rate to the net post-employment benefit surplus or deficit.  In addition, the administration costs of the Home Retail Group Pension Scheme, previously charged against the expected return on plan assets, are now charged within operating costs.  Prior year comparatives have been restated as follows:

Impact on income statement
	52 weeks to 2 March 2013
	As previously reported	Prior period adjustment	As restated
	£m	£m	£m
Operating profit	137.4	(2.1)	135.3
Finance income	47.2	(44.1)	3.1
Finance expense	(48.5)	37.0	(11.5)
Net financing expense	(1.3)	(7.1)	(8.4)
Share of post-tax loss of associates	(6.0)	-	(6.0)
Profit before tax	130.1	(9.2)	120.9
Taxation	(36.1)	2.1	(34.0)
Profit for the period	94.0	(7.1)	86.9
Impact on earnings per share	pence	pence	pence
Basic	11.7	(0.8)	10.9
Diluted	11.6	(0.9)	10.7

Impact on non-GAAP measures
Reconciliation of profit before tax (PBT) to benchmark PBT
	52 weeks to 2 March 2013
	As previously reported	Prior period adjustment	As restated
	£m	£m	£m
Profit before tax	130.1	(9.2)	120.9
Adjusted for:
Amortisation of acquisition intangibles	1.8	-	1.8
Post-employment benefit scheme administration costs	-	2.1	2.1
Adjustments in respect of store impairment and property provisions	(14.6)	-	(14.6)
Exceptional items	(31.3)	-	(31.3)
Financing fair value remeasurements	1.1	-	1.1
Financing impact on post-employment benefit obligations	(3.1)	7.1	4.0
Discount unwind on non-benchmark items	7.1	-	7.1
Benchmark PBT	91.1	-	91.1
Impact on benchmark earnings per share	pence	pence	pence
Basic	7.7	-	7.7
Diluted	7.6	-	7.6

Notes

For the 52 weeks ended 2 March 2013

Impact on consolidated statement of comprehensive income	52 weeks to 2 March 2013
	As previously reported	Prior period adjustment	As restated
	£m	£m	£m
Profit for the period attributable to equity holders of the Company	94.0	(7.1)	86.9
Other comprehensive income:
Net change in fair value of cash flow hedges
- Foreign currency forward exchange contracts	33.4	-	33.4
Net change in fair value of cash flow hedges transferred to inventory
- Foreign currency forward exchange contracts	(5.3)	-	(5.3)
Remeasurement of the net defined benefit liability	(17.2)	9.2	(8.0)
Fair value movements on available-for-sale financial assets	2.0	-	2.0
Currency translation differences	0.6	-	0.6
Tax charge in respect of items taken directly to equity	(4.0)	(2.1)	(6.1)
Other comprehensive income for the period, net of tax	9.5	7.1	16.6
Total comprehensive income for the period attributable to equity holders of the Company	103.5	-	103.5

12. POST BALANCE SHEET EVENTS

On 11 April 2014, the Group entered into an agreement to partner with Fujitsu to provide the Information Systems infrastructure and services that support the Group's operations. Costs of approximately £12m, associated with transitioning these services to Fujitsu, are expected to be incurred in the year ending 28 February 2015. This charge will be taken as an exceptional item, outside of benchmark profit.

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 1 March 2014 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. 

The directors are responsible for keeping adequate 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 2006 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.

A list of current directors of Home Retail Group plc is maintained on the Home Retail Group website, www.homeretailgroup.com.

By order of the Board

John Walden                                                   Richard Ashton

Chief Executive                                               Finance Director

30 April 2014                                                  30 April 2014

 

END

 

 

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