Chief Executive’s interview
Terry Duddy reviews the Group’s performance
Home Retail Group
How would you describe the Group’s performance last year?
I am pleased to say that Home Retail Group has had a relatively good outcome to a year that was probably the worst economic circumstances we have experienced for many years.
The product markets in which we operate were amongst those most severely hit by the constraints on household spending and consumer confidence. However, while our markets declined by around 3%, Home Retail Group’s sales increased by 2%. The results for both Argos and Homebase therefore exceeded initial expectations as we traded through the year, and importantly, we held or increased market share in virtually all of our product categories.
Both businesses continued to adapt their customer offer over the last 12 months and by targeting cash gross margin we remained highly price competitive. Our focus on cost control and cash conversion was also successful. And it was particularly pleasing that we were still able to maintain or improve all measures of product availability, customer service and operational standards during the last year.
What challenges did you face during the year?
Other than weak consumer demand, one of the greatest challenges was the product cost pressures driven by the weakened value of sterling. However, we successfully dealt with this inflationary pressure while continuing to deliver great value for our customers. The Group’s scale, skills and infrastructure in product sourcing was an important factor in this success.
In terms of operating costs, as a result of a wide range of programmes and initiatives we were able to reduce these across the business by £64m pounds in absolute terms. As there was volume growth and underlying cost inflation, that actually equates to cost productivity of approximately £135m pounds or 7%. As a result, Group operating profits were down by just £11m pounds or 4%, which is a relatively good outcome.
I’m also pleased to report that there was another excellent achievement in generating an additional £130m pounds of net cash during the year, and a year-end cash balance of £414m pounds.
The result of all of this is that the Group is in a strong financial position which has led to a maintained dividend and the announcement of a return of capital to shareholders by way of a share buy-back of up to £150m pounds.
How would you summarise the Group’s approach to last year?
Looking back, I think the approach we took to tackle the tough conditions we faced proved to be highly appropriate. They’ve left the businesses better placed for the future.
Regardless of the short-term challenges, the Group remains competitively advantaged and well positioned to continue making good progress in our markets over the long term.
What are your expectations for Home Retail in the near future
Challenges are likely to remain in the near term due to the prevailing economic conditions. However, we continue to expect a return to attractive growth rates in spending in our product markets in due course. A driver of this will be the long-term trend of consumers investing in their home and the pace of technology and other product development.
Given our strong financial position and confidence in the business, we have increased our overall capital expenditure. Argos and Homebase are further strengthening their customer propositions by investing in expanding customer choice, developing ranges and enhancing product presentation in store, in catalogues and online. Argos will maintain its leadership as a truly multi-channel, value-orientated retailer across a wide range of product categories, while Homebase will continue to be differentiated with a more style-led offer across a broader range of home enhancement categories.
We are investing ahead of the recovery in the wider economy and, more specifically, recovery in consumer demand. We remain confident in our ability to deliver growth in shareholder value over the long term by maintaining our clear competitive advantage as the UK’s leading home and general merchandise retailer. But of course, we can’t succeed without the commitment, effort and passion of colleagues across all areas of the Group as our success over the last year and into the future is very much a team effort.