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Full-Year Results

30 April 2008

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 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 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

  • Sales2 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 a head 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 profit3 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 tax4 up 15% to £433m (2007 pro forma: £377m); reported profit before tax of £426m
  • Basic benchmark earnings per share5 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 capital6 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 weighted 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.

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.

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