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Half-Year Results 2007

24 October 2007

Home Retail Group, the UK's leading home and general merchandise retailer, today announces its results for the 26 weeks to 1 September 2007. The results of the prior year's first half reflect a non-comparable financial period due to the change in year-end and also include certain financial impacts of GUS plc's ownership of Home Retail Group up to the point of demerger1. 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 Home Retail Group.

Operating highlights

  • Successful execution of trading strategies
  • Supply chain initiatives continuing to provide benefits across the group
  • Product, customer and operational initiatives in progress to continue driving sustainable growth
  • Launch of largest ever Argos catalogue
  • Homebase's new store opening programme accelerated by the acquisition of 27 Focus DIY stores
  • The trialling of Argos in India and the new HomeStore&More format in the UK are proceeding to plan

Financial highlights

  • Sales2 up 3.0% in total to £2,736.5m (2006 pro forma: £2,656.4m), with like-for-like sales up 1.4% at Argos and down 2.5% at Homebase
  • Gross margin ahead by approximately 125 basis points at Argos and approximately 300 basis points at Homebase
  • Continued emphasis on operating cost control across the group with approximately 3% underlying inflation and around 1% other cost growth
  • Benchmark operating profit3 up 34% to £136.1m (2006 pro forma: £101.7m), with growth of 50% at Argos and 12% at Homebase; reported operating profit of £150.4m
  • Benchmark profit before tax4 up 40% to £149.8m (2006 pro forma: £107.2m); reported profit before tax of £169.3m
  • Basic benchmark earnings per share5 up 41% to 11.7p (2006 pro forma: 8.3p); reported basic earnings per share of 13.2p
  • Cash generation of £162.7m, benefiting principally from further improvement in working capital management; closing net cash position of £222.9m versus year-end £60.2m
  • Interim dividend increased by 18% to 4.7p (2006: 4.0p)

Terry Duddy, Chief Executive of Home Retail Group, commented:

"The Group has performed very strongly in the first half, both from an operational and financial point of view. There was a particularly good result at Argos with profit growth of 50%, while Homebase grew profits by 12% despite some difficult market conditions. Although we remain cautious given the uncertain consumer outlook, as we move into the key seasonal period both businesses continue to enhance their customer offers, while also benefiting from the leverage of our shared group operations."

  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 first half of the current financial year represent the 26 weeks to 1 September 2007. The statutory reported results for the first half of the prior financial year represented the results for Homebase for the seven calendar months of March to September inclusive, and the results for the rest of the Group for the six calendar months of April to September inclusive. The results for the first half of 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 26-week basis. This represents the statutory reported 26 weeks to 1 September 2007 and the comparable pro forma 26 weeks to 2 September 2006.

  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 26-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 26‑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 weighted average number of shares in issue from the date of demerger (excluding Home Retail Group shares held in its Employee Share Ownership Trust (ESOT)). It is calculated on a pro forma 26‑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

An Interim Management Statement, covering the 18 weeks of 2 September 2007 to 5 January 2008, will be announced by Home Retail Group on 17 January 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.

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