Home Retail Group news

Change of year-end

14 March 2007

As previously announced, Home Retail Group has changed its year-end from a calendar year ended 31 March to a 52 week year ending on the Saturday closest to the end of February. This will achieve coterminous year-ends across the Group and avoid distortion in the financial results relating to the timing of Easter.

The Group will this year report on a statutory basis the financial period ended 3 March 2007. This will include 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). As previously announced, based on the actual trading performance for March 2006, it is estimated that the impact of not reporting the period 4 March 2007 to 31 March 2007 on the results for the year just ended will be a reduction of approximately £23m in terms of Group benchmark operating profit.

To assist with analysis and comparison, pro forma results for the 52 weeks to 3 March 2007 will be provided as part of the Preliminary Results to be announced on 2 May 2007. Attached at Appendix 1, we have set out the basis of preparation for the pro forma restatements. At Appendix 2 and 3, we have provided restated results for the 26 weeks to 2 September 2006 and the 52 weeks to 4 March 2006 respectively. A summary of the restated pro forma results is as follows:

H1 2006/07 pro forma results £m	6 months to 30 Sept 2006	Pro forma restatement	26 weeks to 2 Sept 2006
Sales	2,819.9	(163.5)	2,656.4
Benchmark operating profit	106.9	(5.2)	101.7
Net interest income	5.7	(0.2)	5.5
Benchmark PBT	112.6	(5.4)	107.2
Basic benchmark EPS	8.7p	(0.4p)	8.3p

FY 2005/06 pro forma results £m	12 months to 31 March 2006	Pro forma restatement	52 weeks to 4 March 2006
Sales	5,548.0	(37.7)	5,510.3
Benchmark operating profit	337.7	(5.9)	331.8
Net interest income	n/a	9.5	9.5
Benchmark PBT	n/a	3.6	337.1
Basic benchmark EPS	n/a	n/a	25.6p

The timing of trading statements will also change as a result of the new year-end. At Appendix 4, we have provided trading statement comparables on the new basis.

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.

Appendix 1. Basis of preparation for pro forma restatements

Reporting periods
Home Retail Group previously reported on a calendar year-end to 31 March, with the Interim 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. At the Interim 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.

FY 2006/07
As a result of the change in year-end, Home Retail Group will this year report on a statutory basis the financial period ended 3 March 2007. This will include 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).

FY 2006/07 on a pro forma basis will be the 52 week period commencing 5 March 2006 and ending on 3 March 2007; results on this basis will be reported as part of the Preliminary Results to be announced on 2 May 2007. The restatement adjustments on the Group apart from Homebase are illustrated as follows:

Statutory reporting period					c.11 months 1 Apr 2006 to 3 Mar 2007
Earlier days to be included		27 days 5-31 Mar 2006
Pro forma reporting period				52 weeks 5 Mar 2006 to 3 Mar 2007

For Homebase, the restatement adjustments for FY 2006/07 are illustrated as follows:

Statutory reporting period				c.12 months 1 Mar 2006 to 3 Mar 2007
Earlier days to be excluded	4 days 1-4 Mar 2006
Pro forma reporting period				52 weeks 5 Mar 2006 to 3 Mar 2007

H1 2006/07
For comparative purposes, H1 2006/07 on a pro forma basis will be the 26 week period commencing 5 March 2006 and ending on 2 September 2006; the financial results adjusted to this basis are shown at Appendix 2. The restatement adjustments on the Group apart from Homebase are illustrated as follows:

Statutory reporting period					6 months 1 Apr 2006 to 30 Sept 2006
Earlier days to be excluded		27 days 5-31 Mar 2006
Later days to be excluded							28 days 3-30 Sept 2006
Pro forma reporting period				26 weeks 5 Mar 2006 to 2 Sept 2006

For Homebase, the restatement adjustments for H1 2006/07 are illustrated as follows:

Statutory reporting period					7 months 1 Mar 2006 to 30 Sept 2006
Earlier days to be excluded	4 days 1-4 Mar 2006
Later days to be excluded							28 days 3-30 Sept 2006
Pro forma reporting period				26 weeks 5 Mar 2006 to 2 Sept 2006

FY 2005/06
For comparative purposes, FY 2005/06 on a pro forma basis will be the 52 week period commencing 6 March 2005 and ending on 4 March 2006; the financial results adjusted to this basis are shown at Appendix 3. The restatement adjustments on the Group apart from Homebase are illustrated as follows:

Statutory reporting period					12 months 1 Apr 2005 to 31 Mar 2006
Earlier days to be included		26 days 6-31 Mar 2005
Later days to be excluded							27 days 5-31 Mar 2006
Pro forma reporting period				52 weeks 6 Mar 2005 to 4 Mar 2006

For Homebase, the restatement adjustments for FY 2005/06 are illustrated as follows:

Statutory reporting period			12 months 1 Mar 2005 to 28 Feb 2006
Earlier days to be excluded	5 days 1-5 Mar 2005
Later days to be included						4 days 1-4 Mar 2006
Pro forma reporting period				52 weeks 6 Mar 2005 to 4 Mar 2006

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 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, financing fair value remeasurements and the financing impact on retirement benefit balances.

Appendix 2. Restatement of H1 2006/07

		6 months to 30 Sept 2006	Pro forma restatement	26 weeks to 2 Sept 2006
Argos		1,794.1	(40.5)	1,753.6
Homebase		979.1	(122.3)	856.8
Financial Services		46.7	(0.7)	46.0
Sales		2,819.9	(163.5)	2,656.4
Cost of sales		(1,851.2)	94.8	(1,756.4)
Gross profit		968.7	(68.7)	900.0
Operating expenses before exceptional items		(861.8)	63.5	(798.3)
Argos		72.4	(6.0)	66.4
Homebase		40.8	1.1	41.9
Financial Services		4.1	(0.4)	3.7
Central Activities		(10.4)	0.1	(10.3)
Pro forma benchmark operating profit		106.9	(5.2)	101.7
Pro forma net interest income (note 1)		5.7	(0.2)	5.5
Share of post-tax results of associates		-	-	-
Pro forma benchmark PBT		112.6	(5.4)	107.2
Net interest costs attributable to GUS capital structure (note 1)		(35.7)	-	(35.7)
Benchmark PBT		76.9	(5.4)	71.5
Exceptional items		(16.4)	-	(16.4)
Financing fair value remeasurements		(0.9)	-	(0.9)
Financing impact on retirement benefit balances		6.6	-	6.6
Profit before tax		66.2	(5.4)	60.8
Taxation		(24.9)	1.8	(23.1)
of which:	taxation attributable to pro forma benchmark PBT	(36.6)	1.8	(34.8)
Profit for the period		41.3	(3.6)	37.7
Pro forma basic benchmark EPS		8.7p	(0.4p)	8.3p
Basic benchmark EPS		5.9p	(0.4p)	5.5p
Basic EPS		4.8p	(0.5p)	4.3p
Number of ordinary shares for basic EPS		869.0m	-	869.0m

Note 1: net interest

Pro forma net interest expense	(2.6)	(0.5)	(3.1)
Financing costs charged to Financial Services	8.3	0.3	8.6
Pro forma net interest income	5.7	(0.2)	5.5
Interest costs attributable to GUS capital structure	(35.7)	-	(35.7)
Total net interest expense charged in benchmark PBT	(30.0)	(0.2)	(30.2)
Financing fair value remeasurements	(0.9)	-	(0.9)
Financing impact on retirement benefit balances	6.6	-	6.6
Income statement net financing costs	(24.3)	(0.2)	(24.5)

Appendix 3. Restatement of FY 2005/06

		12 months to 31 March 2006	Pro forma restatement	52 weeks to 4 March 2006
Argos		3,892.6	(33.8)	3,858.8
Homebase		1,561.8	(2.8)	1,559.0
Financial Services		93.6	(1.1)	92.5
Sales		5,548.0	(37.7)	5,510.3
Cost of sales		(3,686.5)	31.9	(3,654.6)
Gross profit		1,861.5	(5.8)	1,855.7
Operating expenses before exceptional items		(1,523.8)	(0.1)	(1,523.9)
Argos		296.0	1.0	297.0
Homebase		51.8	(0.4)	51.4
Financial Services		6.1	-	6.1
Central Activities		(16.2)	(6.5)	(22.7)
Pro forma benchmark operating profit		337.7	(5.9)	331.8
Pro forma net interest income (note 1)		n/a	9.5	9.5
Share of post-tax results of associates		(4.2)	-	(4.2)
Pro forma benchmark PBT		n/a	3.6	337.1
Net interest costs attributable to GUS capital structure (note 1)		(31.3)	(9.6)	(40.9)
Benchmark PBT		302.2	(6.0)	296.2
Exceptional items		(24.7)	-	(24.7)
Financing fair value remeasurements		(2.4)	-	(2.4)
Financing impact on retirement benefit balances		2.6	-	2.6
Profit before tax		277.7	(6.0)	271.7
Taxation		(96.9)	2.0	(94.9)
of which:	taxation attributable to pro forma benchmark PBT	n/a	n/a	(114.5)
Profit for the period		180.8	(4.0)	176.8
Pro forma basic benchmark EPS		n/a	n/a	25.6p
Basic benchmark EPS		22.8p	(0.5p)	22.3p
Basic EPS		20.8p	(0.5p)	20.3p
Number of ordinary shares for basic EPS		869.0m	-	869.0m

Note 1: net interest

Pro forma net interest expense	n/a	(8.3)	(8.3)
Financing costs charged to Financial Services	n/a	17.8	17.8
Pro forma net interest income	n/a	9.5	9.5
Interest costs attributable to GUS capital structure	(49.2)	8.3	(40.9)
Financing costs charged to Financial Services	17.9	(17.9)	-
Net interest costs attributable to GUS capital structure	(31.3)	(9.6)	(40.9)
Total net interest expense charged in benchmark PBT	(31.3)	(0.1)	(31.4)
Financing fair value remeasurements	(2.4)	-	(2.4)
Financing impact on retirement benefit balances	2.6	-	2.6
Income statement net financing costs	(31.1)	(0.1)	(31.2)

Appendix 4. Restatement of trading statement comparables

	Q1 13 weeks to 3 June 2006
Argos
Sales	£855m
Like-for-like change in sales	6.1%
Net new space contribution to sales change	8.0%
Total sales change	14.1%
Guidance on gross margin movement	Down c.100bps
Homebase
Sales	£441m
Like-for-like change in sales	(4.7%)
Net new space contribution to sales change	3.6%
Total sales change	(1.1%)
Guidance on gross margin movement	Up c.200bps
	Q2 13 weeks to 2 Sept 2006		H1 26 weeks to 2 Sept 2006
Argos
Sales	£899m		£1,754m
Like-for-like change in sales	4.5%		5.1%
Net new space contribution to sales change	6.3%		6.9%
Total sales change	10.8%		12.0%
Guidance on gross margin movement	Down c.100bps		Down c.100bps
Homebase
Sales	£416m		£857m
Like-for-like change in sales	(1.5%)		(3.2%)
Net new space contribution to sales change	4.6%		4.1%
Total sales change	3.1%		0.9%
Guidance on gross margin movement	Up c.150bps		Up c.200bps
	Q3 18 weeks to 6 Jan 2007		YTD 44 weeks to 6 Jan 2007
Argos
Sales	£1,873m		£3,627m
Like-for-like change in sales	(0.1%)		2.5%
Net new space contribution to sales change	4.5%		5.6%
Total sales change	4.4%		8.1%
Guidance on gross margin movement	Up c.50bps		Down c.25bps
Homebase
Sales	£519m		£1,376m
Like-for-like change in sales	(2.8%)		(3.0%)
Net new space contribution to sales change	3.0%		3.6%
Total sales change	0.2%		0.6%
Guidance on gross margin movement	Up c.350bps		Up c.250bps
	Q4 8 weeks to 3 Mar 2007		H2 26 weeks to 3 Mar 2007		FY 52 weeks to 3 Mar 2007
Argos
Sales	£537m		£2,410m		£4,164m
Like-for-like change in sales	3.0%		0.8%		2.4%
Net new space contribution to sales change	3.8%		4.4%		5.5%
Total sales change	6.8%		5.2%		7.9%
Guidance on gross margin movement	Up c.50bps		Up c.50bps		c.0 bps
Homebase
Sales	£218m		£737m		£1,594m
Like-for-like change in sales	9.9%		0.6%		(1.4%)
Net new space contribution to sales change	3.4%		3.1%		3.6%
Total sales change	13.3%		3.7%		2.2%
Guidance on gross margin movement	Up c.500bps		Up c.400bps		Up c.300bps

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